Employee Filling White Cream in Large Tub Surprised... Tens of Billions Worth of K-Beauty Counterfeits Produced in Chinese Warehouses [Attack of the Counterfeits] ⑩

K-Beauty's Popularity Spurs Surge in Counterfeits
Chinese-Made Fakes Spread to Southeast Asia and the United States
Structural Limitations in China's Enforcement System
"Even Whack-a-Mole Tactics Are Needed to Stop Counterfeits"
Limite

At 7 p.m. on the 28th of last month, as darkness settled in, four Chinese public security officers and two employees from the intellectual property (IP) enforcement agency 'IP SPACE' turned off their vehicle engines and observed the situation in front of a warehouse on the outskirts of Foshan City, Guangdong Province, China. When the signal to enter was given, the warehouse door opened, and about ten workers, who had been gathered in small groups, stopped what they were doing in surprise. When the public security officers presented a warrant and announced, "We are conducting a criminal crackdown related to counterfeit goods manufacturing," the atmosphere instantly turned tense. An employee who had been filling containers with white cream from a large tub stopped working.

Hundreds of boxes labeled in Chinese were stacked in one corner of the factory. The enforcement agency employees quickly opened the boxes to compare them with genuine products and determine whether they were counterfeit, while the public security officers demanded documents to prove the authenticity of the products. A man believed to be the head of the workshop fell silent for a moment, then, seemingly resigned, admitted to counterfeiting five Korean cosmetics brands.

Boxes of counterfeit goods secured at a warehouse on the outskirts of Foshan City, Guangdong Province, China, at 7 p.m. on the 28th of last month. The counterfeit goods are confiscated on-site by the public security authorities and disposed of internally. However, the disposal process is not disclosed externally for security reasons. It is not possible to verify whether the disposal was actually carried out. Provided by IP SPACE.

The counterfeit cosmetics confirmed on-site that day amounted to 56,000 items, with a total value of approximately 1 billion won. All of the counterfeit goods were confiscated by the public security authorities. Due to the sheer volume, it took a full two days to empty the warehouse.

Chinese Public Security Only Moves When Everything Is Prepared for Them

According to industry sources on the 31st, K-beauty products are currently the most frequently detected counterfeit goods in China, which is a major global production hub for counterfeits. Before and after the COVID-19 pandemic, the detection of K-beauty counterfeits in China was rare due to anti-Korean sentiment, but recently, warehouses containing counterfeit goods worth several billion won are being discovered frequently. As K-beauty has gained popularity in the global market, the production of counterfeits has surged.

The counterfeits produced here, identical in appearance to genuine products, are shipped to major export markets for K-beauty, including Southeast Asia, the United States, and the Middle East. This is why K-beauty products are openly sold on Southeast Asian e-commerce channels such as Lazada and Shopee, where Korean brands do not officially export. Counterfeit goods are also distributed at low prices on Amazon and eBay in the United States. A representative from a major cosmetics company said, "Even if we insert QR codes to distinguish genuine products, they are immediately copied, and sometimes it is impossible to spot any flaws," adding, "We are aware that counterfeit products are being sold in major markets and are strengthening on-site crackdowns in China."

On the afternoon of the 28th last month at 7 PM, counterfeit product boxes secured at a warehouse on the outskirts of Fusang City, Guangdong Province, China. Workers who came with the public security officials are opening each box to check the number of counterfeit items. From comparing with genuine products to confirming the scale of counterfeiting, all tasks are done manually. Provided by IP SPACE.

The real issue is local enforcement in China. K-beauty counterfeit producers operate in small workshops of about 66 to 99 square meters, manufacturing products in a cottage industry format. Large-scale manufacturing facilities only perform relatively simple processes, such as filling containers in warehouses, and it takes considerable time to pinpoint the locations of these counterfeit operations.

Cooperation from Chinese public security authorities is also lukewarm. For small-scale crimes, administrative enforcement is conducted together with local officials, but as the value of counterfeit goods increases, criminal enforcement requiring the approval and participation of public security becomes necessary. Rather than conducting investigations based on intelligence or reports, public security authorities typically act only on information submitted by brand owners to apprehend the relevant operators.

As a result, Korean brand owners must directly oversee the entire process from investigation to apprehension. They must inform public security of everything, from the fact that a producer is making counterfeit goods to the exact location and time of the raid. An industry insider said, "Although the situation has improved compared to the past, Chinese public security will not take action without solid evidence and location information," adding, "When we go to the site, we often find counterfeit goods of other brands as well, but in China, only the counterfeit goods that have been reported are confiscated and prosecuted."

The penalties are also lenient. While China imposes heavy sentences for counterfeiting food and pharmaceuticals, which are directly related to human health, counterfeiting cosmetics and clothing is usually met with only a slap on the wrist. Most of the operators recently caught by Chinese public security are first-time offenders, so even when caught on-site, they are typically fined. It is common for them to resume counterfeiting after release. The maximum sentence for producing counterfeit goods is seven years.

The situation is similar in other countries where counterfeit goods are widely distributed. India and Southeast Asian countries do not have sophisticated customs systems to detect counterfeits. Kim Gideok, CEO of IP SPACE, said, "Except for countries like Thailand, enforcement systems are even weaker than in China, so the fundamental solution must come from China, the source. Even if enforcement is like a game of whack-a-mole, we need to instill the perception that producing counterfeits of a brand is risky."

On the 28th of last month at 7 p.m., a raid took place at a counterfeit goods workshop in a warehouse on the outskirts of Foshan City, Guangdong Province, China. The larger the scale of counterfeit goods, the more police officers?usually 4 to 5?accompany the operation, while smaller cases involve only 1 to 2 officers. Most of the suspects are economic offenders, so there is little resistance, but some incidents involve individuals wielding knives or fleeing, leading to frequent unexpected situations. Provided by IP SPACE.

Korean Intellectual Property Office Supports 80 Lawsuits a Year..."Support Is Limited"

The Korea Intellectual Property Protection Agency is running the 'K-Brand Dispute Response Strategy Support Project' to help K-brands respond to IP disputes overseas. The agency provides services such as administrative enforcement and litigation strategies against operators who manufacture and distribute counterfeit goods, as well as countermeasures against trademark squatters.

However, only about 80 companies receive support from this project each year. Due to budget constraints, support is selective. The annual government support for responding to trademark squatting is about 40 million won. A representative from the Intellectual Property Protection Agency explained, "Since the budget is fixed, it is difficult to support every company," adding, "The scale of the dispute response strategy support project is gradually increasing each year."

Industry experts unanimously agree that the best defense is for K-beauty brands to take an active interest in protecting their own IP. They advise that customs registration and trademark registration are essential. By uploading a trademark registration certificate to customs, brands are given the opportunity to verify suspicious products when detected by customs, thus preventing local distribution.

In particular, for China, it is advised to register trademarks in advance, even if the brand does not plan to enter the market directly. Trademark rights can be preempted in China, and in such cases, it takes at least a year to recover the rights through litigation in China. If a Chinese operator appeals the first trial result, the lawsuit can extend to three to five years.

Kim emphasized, "K-brands are currently focused on growth investment, so they tend to neglect IP protection," adding, "Just because counterfeits produced in China do not enter China or Korea, brands should not delay IP protection on the grounds that they do not plan to do business in China in the future."