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China moves to crack down on counterfeit Disney products

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HONG KONG >> Foreign brands have put up with rampant counterfeiting in China for years, but at least one company appears to have found a fairy godmother.

On Thursday, a Chinese government agency singled out the Walt Disney Co. as the focus of a new nationwide "special action" aimed at stamping out imitation goods that infringe on Disney’s trademarks.

Producers and peddlers of fake Snow White dolls or "Frozen" backpacks were put on notice by the State Administration for Industry and Commerce, which pledged in a statement to carry out a special one-year "crackdown on infringement of Disney’s registered trademarks."

China has for years waged periodic campaigns against counterfeit goods, but those have tended to focus on broad industries or product categories. For example, one national action this summer, called Red Shield Net Sword, targeted the online sale of counterfeit goods.

But the latest campaign appears to be giving Disney top billing.

"I would describe it as unusual," said Edward Chatterton, a partner at the law firm DLA Piper in Hong Kong, who specializes in intellectual property work related to China. "I don’t think I’ve seen a specific brand being protected in this sort of comprehensive way before."

Representatives for Disney did not immediately respond to emails seeking comment.

The trademark agency said the move was meant to coincide with the opening next year of the Shanghai Disney Resort, the first such theme park in mainland China, which Disney is building alongside state-owned companies for $5.5 billion. In addition to heightened national action against fake Disney goods, the push also includes designating an area of 2.7 square miles around the Shanghai park as a "Disney trademark key protected area."

The objective was to "safeguard the legitimate rights and interests of consumers, promote a market environment of fair competition and uphold China’s international image in protecting intellectual property rights," the agency said. The push started last month, it added.

On a visit Thursday to Silk Market in Beijing, an indoor bazaar of shops that has been known for selling counterfeit or unlicensed branded goods, and also for being the subject of periodic raids by trademark enforcement officials, plenty of toys and clothes featuring characters from Disney tales were for sale. Some carried official-looking logos; others did not.

At a shop called Luodinuo, one salesman said the store started selling Disney dresses a month ago.

"The most popular ones are from ‘Frozen’ and ‘Snow White,’ " he said, referring to popular Disney movies. "We are authorized, we have a license," he added.

Other retailers did not claim to be authorized resellers but nonetheless vouched for the authenticity of their goods. Bargaining is common. A saleswoman at another store offered a toy doll of Andy, a character from the movie "Toy Story," for an asking price of 420 renminbi (about $66).

"Our products are from factories that export," she said. "They are better quality."

Foreign businesses say that China has made progress in recent years in cracking down on fakes, including the introduction last year of tougher penalties for trademark violations, but that huge room for improvement remains.

A survey this year by the U.S. Chamber of Commerce in China, published with Bain & Co., a consulting firm based in Boston, found that 85 percent of respondents said they believed China’s enforcement of intellectual property rights had improved in the last five years.

However, 80 percent said ineffective enforcement still remained a concern. Two-thirds said that the risks of intellectual property or data being leaked were greater in China than in other countries.

"On the intellectual property front, with trademarks and patents, what we’ve seen is historically people said China’s legislation is pretty good, but the real problem is enforcement," said Stephen Shih, a partner in the Beijing office of Bain and one of the survey’s authors.

"It’s an ongoing concern for companies, but the trajectory is positive," he added.

For Disney and for other brands with a presence in China, the significance of the trademark enforcement agency’s new campaign will be determined by how stringently it is enforced. It also remains to be seen whether its effects can outlast the one-year period for the action.

"It’s a no-lose situation for authorities really," said Jack Clode, who is based in Hong Kong and is a co-founder of the Blackpeak Group, a research and advisory firm that has worked on trademark enforcement issues in mainland China.

"Authorities will keep Disney happy and will get a few wins against counterfeiters — but the question is, What sort of long-term effect will this have?" he said. "People will be watching with great interest to see how this develops."

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