Chinese Factories Produce Knockoffs at Record Speed

October 25, 2016

MicheleM.FIsraeli entrepreneur Yekutiel Sherman had a great idea for a product: a selfie stick that folded seamlessly into the back of a smartphone’s case. He spent a year carefully designing his idea, producing prototypes and securing small investments from family and friends. By December 2015 Sherman launched a Kickstarter campaign in order to finish funding the item, now called Stikbox. But while the project immediately attracted investors, his popular crowdfunding campaign also caught the attention of Chinese bootleg manufacturers. Within a week, knockoff versions of Stikbox were all over Alibaba, China’s biggest online retailer.

Although the news shocked Kickstarter supporters, Sherman was only surprised at how quickly the bootleg products appeared online. That’s because in today’s world of globalized manufacturing, no item is safe from fakers. For years this principle largely applied to big name products made by telecom companies like Apple and Nokia. However, in recent years more independent inventors have seen bootleggers rip off their ideas almost the instant they hit the Internet. Analysts blame this enormous knockoff market on the sprawling industrial complexes of Shenzhen, China. In this city full of factories, foreign companies hire manufacturers who in turn hire small subcontractors to make products. Located deep within these complicated supply chains, a subcontractor might steal a design or produce additional items in order to sell later without their client’s knowledge.

Enforcement against these infringers is almost impossible due to the sheer scale and secrecy of China’s bootleg industry. Along with developing “non-use” agreements with foreign manufacturers, legal experts also recommend that entrepreneurs apply for design and utility patents that are valid globally. Still, even these precautions do little to stop the flow of knockoffs. “There are probably hundreds of small factories who might see a product on the internet and think ‘Hey I can do this,’” said intellectual property lawyer Song Zhu. “How are you going to shut down all of them? How can you even find out where they are? And the money you spend suing them is more than you can get out of the lawsuit.” Sherman, for instance, says that he spends 20 percent of his time tracking down factories making bootleg Stikboxes.

Nevertheless, there may be some marketing benefits that come along with combating knockoff products. “If you have more customers buying the fake product then it creates more awareness for the real product, and it becomes an aspirational thing,” said venture capitalist Benjamin Joffe. “At some point they might be able to afford the real thing.” And even though Sherman estimates he’s lost hundreds of thousands of dollars due to bootleggers, this silver lining provides some comfort to him. “There are other selfie stick cases but we are the only ones that have been copied. So it shows that our product is worth being copied,” he said. “The quote that comes to mind is, ‘Imitation is the sincerest form of flattery.’”

Questions:

  1. Why is it so difficult for inventors to prevent Chinese manufacturers from making knockoff products?
  2. How can knockoff versions of up-and-coming products help create brand awareness?

Source: Josh Horwitz, “Your Brilliant Kickstarter Idea Could Be on Sale in China Before You’ve Even Finished Funding It,” Quartz, October 17, 2016. Photo by Michele M. F.

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