Selling Out Successful 'Made in Korea' Brands... 11 Trillion Won Lost to Chinese Brokers [Invasion of Counterfeits] ⑤

K-Brand Counterfeit Market Reaches 11 Trillion Won... 14,000 Jobs Lost
Chinese Brokers Exploit Intellectual Property Loopholes
9,520 Suspected Cases of Unauthorized Overseas Trademark Preemption
Number of Affected Companies Surges Sixfold i

Editor's NoteThe global counterfeit market is valued at 2,000 trillion won. Fake products are becoming more sophisticated, and their distribution is bolder than ever. It is not only high-end luxury brands that suffer losses. While consumers remain silent about counterfeit goods, K-brands that have entered the global market are being copied in the same way. Local brokers are preemptively registering trademarks, blocking market entry, and companies are being discouraged by enormous legal costs. In the borderless online marketplace, there are clear limits to enforcement and monitoring. Asia Economy has investigated the realities of the counterfeit market, which has grown explosively since the COVID-19 pandemic, and explored countermeasures to prevent copycat products of 'K-brands' that are making waves in the global market.

#KT&G encountered an unexpected obstacle earlier this year while entering the Indian market. There was already a company named 'KT&G India' operating in the country. This entity was impersonating KT&G and distributing counterfeit cigarettes locally. KT&G conducted raids at sites such as Delhi, where counterfeit cigarettes were suspected, and found as many as 20,000 packs of fake cigarettes at the scene.

India is the third largest tobacco-consuming country in the world. The total demand for regular cigarettes in India is about 130 billion sticks, with the scale of illegal counterfeit cigarettes estimated at 25% to 30% (32.5 billion to 39 billion sticks). This is equivalent to about 70% of the total demand for regular cigarettes in South Korea. High taxes and weak enforcement have fueled the counterfeit cigarette market.

As the global counterfeit market expands, K-brands have become targets. Previously, counterfeiters mainly focused on imitating expensive luxury goods, but with the worldwide spread of 'K-culture', the number of counterfeit products mimicking domestic brands has surged.

Intellectual Property Infringement of Korean Companies Reaches 11 Trillion Won

According to data released last year by the Organisation for Economic Co-operation and Development (OECD), the value of counterfeit goods infringing on the intellectual property rights of Korean companies reached 11.1 trillion won (9.7 billion dollars, based on the exchange rate at the time) as of 2021. This accounted for 1.5% of the total export value of genuine Korean brand products.

The most frequently seized counterfeit products infringing on domestic companies' intellectual property rights (based on customs seizure cases) were electrical, electronic, and telecommunications equipment (51%), amounting to nearly 6.978 trillion won (6.1 billion dollars) in transaction value. Counterfeit products such as earphones, chargers, cables, batteries, mobile phones, and accessories imitating those of Samsung Electronics and LG Electronics are known to be widely distributed.

In fact, customs authorities in Hong Kong and the United States frequently detect counterfeit Samsung Electronics products. In 2023, the Philadelphia Border Protection Agency seized 648 counterfeit Samsung Electronics touchpads.

Other categories affected by intellectual property infringement include clothing (20%), perfumes and cosmetics (15%), miscellaneous goods (6%), and toys (5%). In the case of cosmetics and fashion brands, the scale of counterfeits is rapidly increasing due to the recent global 'K-beauty' boom.

Counterfeit Losses Reach 7 Trillion Won... Equivalent to Kakao's Annual Revenue

Counterfeit goods are inflicting severe damage on domestic companies. The loss in domestic and overseas sales for Korean companies has reached 7 trillion won (6.1 billion dollars). This is equivalent to 0.6% of total manufacturing sales, and matches the annual revenue of Kakao, a platform company ranked 16th in domestic market capitalization (annual revenue of 7.9 trillion won).

The number of jobs lost is estimated at about 13,800, which is about 1% (0.7%) of manufacturing wage workers (as of 2021) affected by counterfeits. For comparison, this is equivalent to the entire workforce of KB Kookmin Bank (13,800 employees) disappearing. The national loss is also significant. According to the OECD, tax revenue loss is estimated to be nearly 1.715 trillion won.

Consumer harm from purchasing counterfeit goods has also been confirmed. Since counterfeit goods are manufactured at low cost to increase profit margins, there is a high likelihood of using materials harmful to human health. For this reason, the US Food and Drug Administration (FDA) has warned that mercury has been found in counterfeit cosmetics. In Korea, tests on counterfeit products revealed lead and cadmium levels at least twice and up to 930 times higher than safety standards. The EU Safety Gate also pointed out that many counterfeit metal accessory products distributed contain 80% to 90% cadmium, which is hazardous to human health.

Chinese Brokers Hijack K-Brand Trademarks... Once Preempted, They're Lost

An even greater problem is that counterfeit manufacturers are preemptively registering domestic brands' trademarks without authorization. According to the Korean Intellectual Property Office, the number of suspected cases of unauthorized preemption of Korean companies' trademarks (monitoring of suspected unauthorized preemption) increased steadily from 4,654 in 2022 to 5,015 in 2023, and to 9,520 last year.

The number of affected companies is also rising. According to the Korea Intellectual Property Protection Agency, the number of companies suspected to be victims of unauthorized trademark preemption in major countries (including China, Vietnam, Thailand, and four others) increased from 1,001 in 2019 to 6,100 last year, a sixfold increase in five years.

In particular, Chinese trademark brokers create 'counterfeit' brands in their own country, preemptively register trademarks, and then demand high settlement fees or royalties from Korean companies seeking to enter the market.

According to the Korea Intellectual Property Protection Agency, Chinese brokers preemptively registered 2,358 trademarks without authorization between 2019 and 2023. Internationally, trademark protection is determined by the laws of each country, and most countries adopt a 'first-to-file' principle (priority is given to whoever files the trademark application first). This means that domestic brands find it difficult to assert priority over their trademarks.

The main areas affected are cosmetics, food, and clothing, which are driving the K-culture trend. From 2014 to last year, the cumulative number of suspected unauthorized preemptions of Korean trademarks was highest in cosmetics (4,985 cases), followed by franchises (4,761), clothing (4,471), electronics and electrical goods (4,706), and food (2,671).

The most well-known case is the domestic franchise shaved ice brand 'Sulbing'. In 2015, as Sulbing entered the Chinese market, it belatedly discovered that a brand called 'Sulbing Yuanso' had registered trademarks and was operating counterfeit Sulbing stores, copying the trademark, menu, and interior design. Sulbing partnered with the Korean Intellectual Property Office and filed a lawsuit, finally obtaining a trademark invalidation ruling from the China Trademark Review and Adjudication Board (Intellectual Property Office) in 2022. However, after years of litigation and incalculable losses, Sulbing ultimately abandoned its entry into China.

An industry official stated, "Chinese brokers have been engaging in these practices for a long time, but domestic brands are helpless. Since 81.8% of the companies targeted by brokers are small and medium-sized enterprises, many lack the funds for prolonged legal battles and are therefore even more vulnerable to overseas trademark preemption damage."

<Continued in Part 6 of 'Attack of the Counterfeits'>