For John Andrews, chief operating officer of QSC, Inc., the tip-off was a whole room full of boxed QSC amplifiers — each with the identical serial number and each with the word “power” misspelled on the label.

For Italy-based SGM Electronic Light, it was a trade show, at which the company's Chinese distributor discovered a display of products that looked exactly like SGM's, but which the distributor had never handled.

And Shure, Inc., reports it frequently receives mail-in warranty registration cards for products the company never manufactured or sold.

“They copy our packaging. They even copy the warranty return card to the letter. That's how blatant they are,” says Shure president and CEO Sandy LaMantia.

“They” are product knockoff artists. Sometimes they make a cheap lookalike product with a similar name to sell against a well-known brand in a price-sensitive market. Sometimes they simply copy the appearance of a famous brand to the smallest detail and masquerade the counterfeit product as the real thing.

Either way, they're taking a toll on nearly every manufacturer selling entertainment industry technology overseas, especially in Asia. The problem is pervasive. Business Week reports that “many foreign manufacturers in China conservatively estimate that 30% of their products in the mainland are fakes.” Hardest hit are high-profile consumer brand names like Levi's jeans and Gillette razors. According to BW, Yamaha believes five of every six Yamaha motorcycles in China are counterfeits.

Although the entertainment technology industry is much smaller, the stakes are just as high and companies report they're taking a variety of approaches to dealing with product knockoffs and fakes.

“It's a big problem for us,” says LaMantia. “It started in Asia, but the problem has really spread globally. We're seeing problems all over.” Still, LaMantia and others report, Asia remains the knockoff epicenter, particularly China. “If you're getting knocked off in Vietnam, that's one thing,” says Andrews, “but it's not that big a market. China is a big market.”

How much impact are the fakers having? “In Asia, we guessed three or four years ago that we were losing 20% of our business, but it's very hard to quantify,” LaMantia says.

Copying the Look

QSC's Andrews notes it's often a sheer accident that a company discovers one of its products has been knocked off. One recent case involved fakes of QSC's MX1500 amplifier. “We'd heard rumors that they were turning up in the distribution channels,” he says.

The actual discovery of a large supply in a retail store was startling, he relates. “They had misspelled the word ‘power,’” Andrews says. “They had cartons and cartons of them, and every box had the same model and serial number. We sent someone in to buy one and ship it back.”

Inside the fake amps, Andrews says, the company found a “frightening” mess of substandard and even unsafe wiring and components. Although QSC hired an independent investigator to track the fakes, the company never succeeded in locating the source.

“I think the dealer in question absolutely knew they were fake,” Andrews says. “The price was so much lower. And it's hard for me to believe the customer isn't going to notice. When it fails, he'll be upset, but will it be with QSC?”

“They copy our packaging. They even copy the warranty return card to the letter. That's how blatant they are.”
Sandy LaMantia, Shure Inc.

Indeed, manufacturers sometimes wonder if the ultimate customer realizes he or she is buying a fake, or even cares much. “Buyers like it that the product is much cheaper, and perhaps they think it can be a good product as well,” says Elisabetta Marinelli, marketing director for SGM. “Or maybe they just don't know. Otherwise I cannot understand how they can buy these things!”

Most buyers know they aren't getting a real Rolex from a street vendor for $20. Why do they expect a genuine Crown amplifier at a small fraction of the true retail price?

“It's usually only when you read the manual that you find the mistakes,” says Mick Whelan, vice president/marketing at Crown. “But sometimes they just flat-out copy the manual as well. You have to open the unit up to see the difference, and if you're buying it off the back of a truck, you won't be able to do that.”

Says Andrews, “Is the average casual consumer going to know what it's supposed to look like inside? I don't think so.”

Whelan believes, in fact, that buyers are often indifferent to the legitimacy of the product. They're buying for the appearance and for short-term use at best. Likewise, the sellers aren't after long-term relationships. “It's mostly hit and run,” Whelan says. “The product is incredibly complicated to build, and if the counterfeit isn't halfway decent, they're never going to get repeat sales.”

So copying the surface appearance becomes the counterfeiter's goal. “They usually do everything to duplicate the look and nothing to duplicate the sound,” Whelan says.

Shure's LaMantia agrees. “The counterfeiters or knockoff artists do a great job physically, but a lousy job on the electronics. The product looks great but performs horribly.” In addition to components and functions, though, Shure has patents on a number of its unique appearance features, which means it can pursue legal actions against anyone copying the look of the product. Other companies have adopted similar strategies.

LaMantia, however, minimizes price differences as a big incentive to counterfeiting. “We seem to be getting hit the most at the lower end of our line, in products expressly designed for the Asian market,” he notes. Price isn't the key in this niche, he believes — the counterfeiters are just out to steal business.

Staying on the Alert

Since Shure's distributors have exclusive rights within their territories, it's easy for them to sniff out the fakes. Basically, anything the distributor didn't sell had no right to be sold in that area at all.

“They're very vigilant,” LaMantia says. “We've provided guidelines on how to identify a fake, and who to contact when they do. We usually don't do anything until we get a sample.”

Then, Shure often will work with professional investigators. “We've had cases where we have put people into plants or had investigators pose as distributors. In Asia, there are a lot of people making a lot of money helping to protect companies from counterfeiting. We even sometimes get anonymous tips from insiders in the counterfeiting operations.”

These efforts can have gratifying public results, as they did last fall when Shure joined with Chinese officials in raiding a company called Benstar in Shenzhen, seizing about $120,000 worth of fake microphones destined for shipment to Russia and India. Similarly, Shure officials and the Chinese Quality and Technical Supervision Bureau staged a joint ceremony in March at which a large quantity of fakes was publicly destroyed.

“We'll take our last penny and put it in this direction,” says LaMantia. Recent Shure anti-counterfeiting measures include new packaging featuring a scratch-off layer with an authentication code and toll-free phone number to call to verify the product's legitimacy. The Shure logo has also been engraved on each product using relatively expensive equipment. But the company doesn't expect any of these steps to work well for very long, so it tries to keep new tactics coming steadily.

Unique design and construction features also figure in SGM's strategy, says Marinelli. SGM tries not to use easily available materials in its products, she explains. “We often design even the screws of our fixtures.”

Crown's Whelan notes that “we may be tightening our own rope. We look to China as a lower-cost labor market, and so we're sharing with them the technology to make the products.” This technology sharing can have the unwelcome effect of spreading know-how among shady operators as well as honest partners.

In the long run, trade partnership is likely to be the only effective anti-counterfeit tool, though even it may never succeed in eliminating the problem entirely. “The most effective way we've found to deal with it was to establish a manufacturing joint venture in China so we could sell more competitively,” says Andrews. “The ultimate solution may come as we get more engaged with the market.”

Trade negotiators also need to make the counterfeit problem a main agenda item, Andrews believes. “We're a pretty darned big market for China,” he adds. “We need to use that leverage to force them to respect intellectual property.”

The Chinese government has made numerous public statements about its commitment to patent protection and Chinese courts are available to non-Chinese companies to assert claims. But many companies still prefer to resolve these issues informally, relying on their distributors to educate retailers and buyers and detect fakes when they appear.

“There are new programs being launched in China,” comments Whelan. “They'll use their best efforts to see that your patents are protected. But if people like Levi's and Jordache can't stop it, there's not much hope for us.”