Chinese copycats challenge U.S. small businesses
March 19, 2012 1 Comment
HONG KONG – SylvanSport founder Thomas Dempsey learned last summer that a product similar to one he’d patented was being made in China when a customer sent him a link to a Chinese company’s website.
On the website, Dempsey found a recreational camper trailer that looked eerily like the one he designed and patented and sells through his 8-year-old Brevard, N.C., company.
“We were shocked,” says Dempsey. “We thought at first that what we saw was our product, but as we looked at some of the video and photography, we realized that this is tooled up from scratch.”
It was the beginning of what would be a nightmare for any small-business owner. Since then, distributors inSouth Korea and Japan have opted to market the Chinese company’s product instead of Dempsey’s. A Japanese distributor mistakenly thought it was buying products from SylvanSport’s Chinese factory, says Dempsey. Confused consumers have also e-mailed SylvanSport, asking about its affiliation with the Chinese product, owned by Wuyi Tiandi Motion Apparatus, a maker of dirt bikes and camping gear in Jinhua City in eastern China.
These problems have left the promising U.S. upstart, whose camper trailers retail for about $8,000, in a precarious position. While SylvanSport expects a “break-even” year, with sales around $3 million — more than double 2011’s — business could suffer in coming years if distributors keep fleeing to the Chinese competitor, Dempsey says.
In 2011, SylvanSport got about 15% of its sales from outside the U.S. and about half of that from South Korea, Japan and Australia. Dempsey expects 30% of 2012 sales will be international.
“Our politicians, when they describe the companies that are necessary for the economic recovery, (they are talking about) companies like ours,” he says. But because of SylvanSport’s lost sales, “There’s a very real chance that the Chinese company could be the survivor here and we could go out of business.”
Legions of imitators
The “shanzai,” or copycat, culture is thriving in China. A Google search for “shanzai China” produces references to Dolce & Banana, KFG fried chicken and the HiPhone, imitations of Dolce & Gabbana, KFC and the iPhone. You might even find a reference to the Goojje search site, whose logo once closely resembled Google’s.
China isn’t the first developing nation to struggle with a copycat business culture. Most nations — even the U.S. — faced the same issues during the last century, says Cai Jun, a professor in the industrial design department at Tsinghua University in Beijing. Developing nations imitate the more advanced technologies of other countries in order to learn, says Cai.
Yet in Asia, “The Western idea of intellectual property seems not yet fully established,” says Peter Zec, the founder of the Red Dot Institute for Advanced Design Studies in Essen, Germany, and a former president of the International Council of Societies of Industrial Design.
The severe copycat problem in China and other Asian nations exposes foreign companies, big and small, to copyright, patent and trademark infringement issues, legal experts say.
China is the “factory to the world, so you’re going to have good stuff produced and bad stuff produced,” says Joseph Simone, a partner in the intellectual property practice group at the Baker & McKenzie law firm in Hong Kong.
In the past, it was “fairly common” for Chinese factories that produced legitimate products to be used at night to make counterfeit goods using the same raw materials, says Leon Perera, chief executive of Spire Research and Consulting, a Singapore firm that specializes in emerging markets. Today, what’s more common is for Chinese companies to reverse engineer a product, or take it apart to figure out how it’s made, then order parts to produce a similar product, according to Perera.
That’s what Dempsey believes happened in his case.
He says that in late 2009, a man in the Los Angeles area ordered a SylvanSport GO, an 800-pound aluminum camping and travel trailer. The customer wanted the product shipped to China but insisted on arranging his own shipping. That raised a red flag, but “as a small business struggling to get going, every sale counted,” Dempsey says.
SylvanSport describes the GO on its website as “more versatile than a Swiss army knife.” It folds to a trailer that can be used to carry boats and bikes on top then converts to a camper with a self-inflating mattress and a tent that sets up in minutes.
Rival: We didn’t copy
Wuyi Tiandi Motion’s website shows a camper with what appear to be the same features. But Thomas Tang, a sales manager for Wuyi Tiandi, says the company’s design is its own.
“The Wright brothers invented their plane, and now everyone produces their (own) model of the plane,” says Tang. SylvanSport was first “to make this kind of trailer, and we followed them to make a similar product. I don’t think we copied them.”
Wuyi Tiandi received a patent on its camper in China in November, according to Tang. SylvanSport received various U.S. patents for its product between 2008 and 2010, Dempsey says.
While Wuyi Tiandi might not be able to sell its products in the U.S. because of SylvanSport’s patents, Tang says, “We can still sell our trailer everywhere else.”
SylvanSport’s case has become a “cautionary tale” about small businesses’ need to protect their intellectual property, said John Spelich, a spokesman for Alibaba, a business-to-business site in China that links buyers and suppliers worldwide. This year, Alibaba took Wuyi Tiandi’s camper trailer off its English-language website after SylvanSport showed proof of its patent filings in the U.S.
Only 15% of small companies that do business overseas realize that U.S. patents and trademarks protect them only within the U.S., according to the U.S. Patent and Trademark Office. Companies should file patents and trademarks in countries where their products will be made and sold, as well as where they’re based, Simone says.
While Dempsey realizes the limits of U.S. patents, he says that Wuyi Tiandi should not be able to get a patent in China based on his product.