As the United States Embassy in China warns, “If a product sells, it is likely to be illegally duplicated.” Apple products, despite a wave of government-backed criticism in April, continue to sell well in China, posting their largest-ever quarter in Chinese sales at the end of April. It is not surprising, then, that counterfeit Apple products are widely available in China. More jarring is the presence of unlicensed replicas of entire Apple stores that appear to be selling genuine Apple products.
In the summer of 2011, an American blogger living in the southwestern Chinese city of Kunming ignited a media firestorm when she posted pictures of unlicensed Apple stores that were remarkably similar in design and shopper experience to their officially sanctioned cousins. They looked and felt so real that many of the store’s employees thought they were working for Steve Jobs. In the immediate aftermath, Chinese officials shut down two of the stores, finding that they were operating without business licenses. A subsequent government report found at least 22 more fake Apple stores in Kunming and ordered these copycat stores to stop using the Apple logo. While this was reported to be the beginning of a government crackdown, there is no record of those stores being shut down, and fake Apple stores continue to open across the region.
In Lincang, a small city near the China-Burma border, three fake Apple stores have opened since the crackdown. These stores, which are a seven-hour bus ride away from Kunming, look and feel like real Apple stores, but to a trained eye, something is off. In one store, clerks use a PC. In another, employees wear hooded sweatshirts with iron-on Apple logos. According to Apple’s website, none are authorized resellers—the closest is nearly 200 miles away in the city of Dali. Even one Lincang sales assistant admitted, “We don’t have a license.”
Intellectual property rights in China
These copycat Apple stores fall under the broad umbrella of intellectual property violations, which experts and stakeholders see as a critical problem in China. Foreign businesses operating in China often complain that intellectual property theft is a consistent source of revenue loss, more frustrating than big-ticket issues like censorship and currency manipulation. While intellectual property laws exist in China, a recent survey conducted by the American Chamber of Commerce in China found that 72% of respondents believed that the enforcement of copyright laws was ineffective or totally ineffective. As University of Arizona College of Law Associate Professor Derek Bambauer told Tea Leaf Nation, “The fight has changed from what is happening on the books to what is happening on the ground. You can operate completely off the books in China.”
Despite current frustrations, the situation is improving, largely because Chinese firms are now also suffering from intellectual property violations. In 2011, China surpassed both the United States and Japan to become the world’s largest patent filer. “Ten or 15 years ago, most people in China saw IPR protection as something only US or foreign companies carried about, but that is changing as more and more Chinese entities are creating intellectual property of their own,” US Ambassador Gary Locke said in 2012. Despite these improvements, the United States Embassy’s website labels China a “haven” for intellectual property violators, citing among other statistics the fact that 20% of products for sale in China are counterfeit, and concludes, “Enforcement measures taken to date have not been sufficient to deter massive IPR infringements effectively.”
What’s going on in Lincang?
While Lincang’s copycat stores diverge slightly from Apple’s design scheme, the products themselves appear to be genuine. Side-by-side comparison revealed no noticeable difference between Lincang’s inventory and U.S.-bought Apple products. Numerous locals insisted that the products were real, even the security guard outside the store. At $830 USD, the price of an iPhone 5 in a Lincang store is only 3% cheaper than Apple’s listed price in China.
How do these seemingly legitimate products make their way to unlicensed stores? Professor Danielle Conway of the University of Hawai’i at Manoa’s William S. Richardson School of Law suggests that the products are taken from legitimate Apple facilities within China. “Once these products are put together, it is not a huge leap to estimate that some of the assembled products are being sold or distributed outside the authorized network,” she says. Conway further supposes that it is possible that the products are bought overseas, where the price is much lower, and then smuggled back into China, but that it is more likely that the products never leave the country in which they are made. Interviews with various sales attendants in Lincang support this theory. Apple did not return requests for comment.
Of course, Apple is not alone. Down the street from a Lincang Apple store is a retail space calling itself an Adidas store, complete with the brand’s logo and sleek sports gear. But according to Adidas’ Chinese website, the nearest Adidas store is a 7-hour bus ride away, in Kunming. As growing demand for name brand consumer goods outpaces enforcement of copyright laws in China, especially in China’s less developed areas, these copycat stores are not going anywhere anytime soon.