VIETNAMESE IPR ENFORCEMENT: HOW NIKE GOT ITS SWOOSH BACK

UNCLAS HO CHI MINH CITY 000934 SIPDIS SENSITIVE STATE PASS TO USTR FOR EBRYAN UNCLASSIFIED PAGE 02 HO CHI 00934 161034Z E.O. 12958: N/A TAGS: VM ETRD KIPR KTEX IPROP SUBJECT: VIETNAMESE IPR ENFORCEMENT: HOW NIKE GOT ITS SWOOSH BACK (1) (U) SUMMARY: NIKE WENT ON THE OFFENSIVE RECENTLY IN SOUTHERN VIETNAM, WORKING WITH LOCAL POLICE ON A RAID THAT NETTED 23 TRUCKLOADS OF COUNTERFEIT NIKE AND ADIDAS SHOES AND MATERIALS. NIKE'S AGGRESSIVE STRATEGY, AND NEWFOUND FRIENDSHIP WITH THE VIETNAMESE POLICE, IS BREATHING LIFE INTO LARGE-SCALE TRADEMARK ENFORCEMENT. END SUMMARY. (2) (SBU) IN LATE JULY, LOCAL AND SPECIAL "ECONOMIC POLICE" IN HO CHI MINH CITY SEIZED 23 TRUCKLOADS OF MATERIAL USED TO MAKE COUNTERFEIT NIKE AND ADIDAS SHOES. IN GATHERING THE EVIDENCE FOR THE RAID, THE POLICE WORKED CLOSELY WITH NIKE'S NEW IN-HOUSE INVESTIGATOR, WHO SPENT ONE YEAR GATHERING EVIDENCE FROM INFORMANTS AND OLD-FASHIONED DETECTIVE WORK. IRONICALLY, NIKE INITIATED THE INVESTIGATION AFTER RECEIVING A TIP-OFF FROM A COMPETING COUNTERFEIT PRODUCER. (3) (SBU) THE MATERIALS SEIZED IN THE RAID WERE EITHER COUNTERFEIT PARTS, MOSTLY MANUFACTURED IN VIETNAM, OR DEFECTIVE NIKE AND ADIDAS SHOE PARTS SLATED FOR RECYCLING. COUNTERFEITERS BOUGHT THE DEFECTIVE PARTS FROM RECYCLERS, SCAVENGERS OR FROM NIKE WORKERS WHO SMUGGLE SHOE PARTS OUT OF THE FACTORY IN THEIR CLOTHES OR LITERALLY FLING THEM OVER THE BACK FENCES. THE NIKE COUNTRY MANAGER ESTIMATES THAT THE OPERATION HAD MADE 5000 PAIRS OF SHOES SINCE JANUARY 2001, WHICH WERE SOLD ALL OVER VIETNAM FOR A PROFIT OF VND 800 MILLION (APPROXIMATELY USD 52,000). THE RAW MATERIALS ALONE WERE WORTH OVER VND 300,000,000 (USD 20,000) AND COULD BE MANUFACTURED INTO 15,000 SHOES. SOLD AT AN AVERAGE USD 7.25 PER UNCLASSIFIED PAGE 03 HO CHI 00934 161034Z PAIR, THE COUNTERFEITERS COULD HAVE MADE AN ADDITIONAL USD 112,300. THE AVERAGE PER CAPITA INCOME IN VIETNAM IS ABOUT USD ¶450. (4) (SBU) NIKE PRAISED THE COOPERATION IT RECEIVED FROM THE LOCAL POLICE, EVEN THOUGH NIKE PAID FOR THE POLICE OVERTIME AND MATERIALS (E.G., FUEL) TO MOUNT THE RAID, TRUCKS TO HAUL AWAY THE MATERIAL, AND THE STORAGE COSTS AT A WAREHOUSE PENDING ACTUAL DESTRUCTION OF THE MATERIALS. THE POLICE RESPONDED QUICKLY (ONE WEEK) TO NIKE'S REQUEST FOR AN INVESTIGATION, AND WORKED EXPEDITIOUSLY (SIX MONTHS) TO COMPLETE THE INVESTIGATION. IRONICALLY, NIKE SUSPECTS THAT THE RAID WAS SUCCESSFUL BECAUSE AN INFORMANT INSIDE THE POLICE DEPARTMENT HAD TIPPED OFF THE COUNTERFEITER SO FREQUENTLY, THAT THE COUNTERFEITER ASSUMED THE RAID TIP OFF WAS A FALSE ALARM AND FAILED TO VACATE THE PREMISES. (5) (SBU) ALTHOUGH POLICE HELD APPROXIMATELY TWO DOZEN COUNTERFEITERS FOR SEVERAL HOURS, NO ARRESTS WERE MADE SINCE THE CASE IS NOT YET CONSIDERED CRIMINAL. NO FINES HAVE BEEN ASSESSED EITHER, ALTHOUGH THE ECONOMIC POLICE SHOULD DETERMINE THE FINE SHORTLY. AUTHORITIES ARE STILL CONSIDERING WHETHER TO FILE CRIMINAL CHARGES AGAINST THE COUNTERFEITERS. (NOTE: ONE OF THE COUNTERFEITERS IS THE NEPHEW OF THE COMMUNIST PARTY CHAIRMAN OF A POWERFUL NEIGHBORING PROVINCE. END NOTE.) CRIMINAL CHARGES ARE POSSIBLE WHEN THE COUNTERFEIT MATERIAL IS WORTH OVER VND 30 MILLION (USD 2000). NIKE CONSIDERS THE SEIZURE OF THE MATERIALS AND POSSIBLE PAYMENT OF BACK TAXES TO BE A VICTORY IN ITSELF. (6) (SBU) COMMENT: NIKE'S NEW PROACTIVE STANCE -- HIRING AN INVESTIGATOR AND WORKING CLOSELY WITH THE POLICE -- MAY SIGNAL A NEW PHASE OF TRADEMARK ENFORCEMENT IN VIETNAM. NIKE'S STATUS AS UNCLASSIFIED PAGE 04 HO CHI 00934 161034Z AN INDIRECT EMPLOYER OF ALMOST 60,000 WORKERS IN VIETNAM MAY HAVE MOTIVATED THE ENTHUSIASTIC GVN RESPONSE TO NIKE'S CONCERNS. CRITICAL NOW IS THE PENALTY PHASE, AND WHETHER THE COUNTERFEITERS RECEIVE A SLAP ON THE HAND OR A REAL CRIMINAL SENTENCE. WHATEVER THE OUTCOME, NIKE'S PUBLIC PRAISE OF THE POLICE AND ITS PROMISE TO INITIATE MORE RAIDS MAY MAKE FOR MORE INTERESTING ACTION IN THE MONTHS TO COME. END SUMMARY. YAMAUCHI UNCLASSIFIED