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The hopeless struggle of small companies against Chinese counterfeiters

The rules for invention are very simple: "You should find a relevant problem - and then a solution that can also be technically implemented," says Alexander Senger, head of Protonea in Sankt Gallen, a kind of inventor's office.

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The hopeless struggle of small companies against Chinese counterfeiters

The rules for invention are very simple: "You should find a relevant problem - and then a solution that can also be technically implemented," says Alexander Senger, head of Protonea in Sankt Gallen, a kind of inventor's office. The third step: The solution must also be financially feasible, i.e. affordable. "And in the end, the customer has to like it," says Senger. He ticked all of that off.

The result: The Espazzola, a small device made of plastic and silicone, with which portafilter espresso machines can be cleaned quickly and easily. Senger applied for a patent for his invention and then started selling it in 2017. A quarter of a year later he found an identical copy of his apparatus on Ali Baba, the Asian Amazon. She came from China. For just under ten euros, about a third of the original price.

"I also have a very specific suspicion as to who it was," the inventor recalls. At a coffee fair, where he was presenting his new product, a Chinese visitor showed particular interest, talked about possible cooperation and took brochures and samples with him.

The cleaning device is actually a simple device. But you have to get there first. Senger worked on it for a long time until it worked. The finished product is easy to replicate. That's the problem.

The problem of enforcing patent protection in China is even greater. In his lawsuit against the perpetrator, Senger learned that the product counterfeiter had even registered its own design patent for the copied Espazzola in China. Nevertheless, the Swiss inventor prevailed in the first instance. The revision is still ongoing.

But that didn't stop counterfeiting. "It is possible, but very difficult, to take action against counterfeiters," says Lukas Ramrath, patent attorney at the Berlin law firm Bressel und Partner, who represents Senger in Germany. “If you manage to find a supplier and ensure that the fakes are no longer offered on Amazon or Ali Baba, a few days later the same offer will come from another supplier. They keep popping up.” It is almost impossible to understand the company structures and sales channels.

"Secrecy in China is a problem," says Jochen Dörring, in-house patent attorney at Brita SE. The company not only has trouble with foreign counterfeits of its drinking water filter products in Germany and Europe - especially the shops in China are affected by counterfeits.

“The Chinese are very health conscious when it comes to their diet. Our products have a very good reputation there. That attracts counterfeiters,” says Dörring. A product that looked like a copy of a Brita filter, but with a Siemens logo, was particularly bold. "We couldn't stop that so easily because it wasn't real plagiarism."

It is understandable that affected companies suffer great damage from counterfeits. The Office of the European Union for Intellectual Property and the OECD have for the first time examined how badly small and medium-sized companies can suffer from this. According to the study, companies whose intellectual property has been infringed are 34 percent less likely to still exist after five years than companies that have not been plagued by counterfeiters.

“These companies – which we hope will create the jobs and prosperity of the future – are the ones whose chances of survival are threatened by such unfair and illegal competition from counterfeiters and other intellectual property rights infringers,” said EUIPO President Christian Archambeau.

Another finding of the study is that it is often small companies in particular that do not have sufficient funds to defend themselves against plagiarism and counterfeiting. They have neither the necessary financial resources nor the expertise to take effective action against product or brand piracy.

In addition, it is often difficult to identify the polluters, especially when it comes to foreign companies. More precisely: Chinese counterfeiters. Evaluations by the EUIPO and OECD show that China is by far the largest source of counterfeiting, accounting for 85 percent of seizures related to online sales. 51 percent of global seizures of offline sales also came from China.

Everything that is successful on the market is counterfeited. The most commonly affected products are electrical machinery and electronics (30 percent of seizures), clothing (18 percent), perfumery and cosmetics, and toys and games (10 percent each). Additionally, many of these counterfeit goods are substandard and often pose a risk to consumer health and safety.

15 percent of small and medium-sized businesses that own a registered intellectual property right have suffered an infringement of those rights. But for companies that have introduced innovations, as many as 19.4 percent are fake. The conclusion of the study: "Infringements of intellectual property rights are therefore a particular problem for small companies that innovate and create jobs and growth."

Businesses need to protect intellectual property rights, says Archambeau. "But it's also crucial to ensure proper enforcement and support our legitimate European economic operators in tackling this problem."

It's different at the moment. "As an entrepreneur, you have little power to take action against such counterfeits in and from China," says Senger. You have to spend a lot of time and money to acquire protective rights for your products in every EU country, "but if you are plagiarized, you have to do the police work." There are many online shops and you have to take individual action against each one. An easily accessible complaints office, which then takes care of these cases, would be a big improvement, says the inventor.

At least patent attorney Dörring confirms that the situation in China has improved. The local authorities have become more cooperative and would also support the interests of a German company, especially when it comes to health issues. However, the chance of enforcing appropriate damages in court is still slim. Senger did the math: Any possible compensation that he fights for in court would almost entirely go to the Chinese lawyer. "All the effort. I don't know if I would do it again."

His cleaning device is currently still the most important source of income for his young company. And the counterfeits not only cause a loss of sales - the reputation of his company is also at stake. “We have our product manufactured entirely in Germany. It's more expensive than in China. But when the customers see the cheaper products on the Internet, we are seen as rip-offs. The average consumer has the wrong assessment.”

Another problem with counterfeits: They endanger sales in your own country, says another patent attorney. "Suppose you find copies of your patent-protected product in an electronics store and sue the store for injunctive relief and damages."

The reaction could then be: the market offers to remove the counterfeits from the range – and threatens that the plaintiff's products will also be removed from the range if the lawsuit is not withdrawn.

"The competition has become tougher," says the expert. And it is a big challenge to quantify the damage caused by the plagiarism.

"Everything on shares" is the daily stock exchange shot from the WELT business editorial team. Every morning from 7 a.m. with our financial journalists. For stock market experts and beginners. Subscribe to the podcast on Spotify, Apple Podcast, Amazon Music and Deezer. Or directly via RSS feed.

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