Identifier
Created
Classification
Origin
05ROME2776
2005-08-22 14:34:00
UNCLASSIFIED//FOR OFFICIAL USE ONLY
Embassy Rome
Cable title:  

AS CHINESE FAKES INVADE ITALY, COMPANIES FEEL

Tags:  KIPR ECON ETRD CM IT 
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UNCLAS ROME 002776 

SIPDIS


SENSITIVE

STATE FOR EB/TPP/IPE (JOELLEN URBAN)
STATE PASS USTR FOR JAMES SANFORD
DOC PASS USPTO
DOG FOR DAAG LAURA PARSKY
DHS PASS ICE
GENEVA FOR USTR

E.O. 12958: N/A
TAGS: KIPR ECON ETRD CM IT
SUBJECT: AS CHINESE FAKES INVADE ITALY, COMPANIES FEEL
FRUSTRATED, POWERLESS

REF: A. ROME 629


B. ROME 1900

C. ROME 1150

Sensitive But Unclassified, please protect accordingly, not
for Internet publication.

This report was coordinated with Congens Milan and Florence.

UNCLAS ROME 002776

SIPDIS


SENSITIVE

STATE FOR EB/TPP/IPE (JOELLEN URBAN)
STATE PASS USTR FOR JAMES SANFORD
DOC PASS USPTO
DOG FOR DAAG LAURA PARSKY
DHS PASS ICE
GENEVA FOR USTR

E.O. 12958: N/A
TAGS: KIPR ECON ETRD CM IT
SUBJECT: AS CHINESE FAKES INVADE ITALY, COMPANIES FEEL
FRUSTRATED, POWERLESS

REF: A. ROME 629


B. ROME 1900

C. ROME 1150

Sensitive But Unclassified, please protect accordingly, not
for Internet publication.

This report was coordinated with Congens Milan and Florence.


1. (U) Summary: While famous Italian designers have long
been a favored target of imitators world-wide, Italian
business and government leaders are quickly realizing that no
Italian product, no matter how mundane, is safe from Chinese
counterfeiters. Unlike the big fashion houses, most Italian
manufacturers of clothing, furniture, plumbing fixtures, and
specialized machinery have few resources to effectively
defend their intellectual property in the face of this
onslaught. Businesses are citing China's lack of respect for
IPR in their drive to convince Italy and the EU to raise
barriers against Chinese imports. In reality, Italy shares
some blame for the situation. Italian police do little to
stop a vibrant street trade in fakes. Italian consumers,
meanwhile, are at best apathetic about IPR protection as many
eagerly reap bargains from buying knock-offs. A sclerotic
court system makes lawsuits against importers of Chinese
counterfeits too expensive for most Italian SMEs. Many firms
are thus resigned to the situation and hope to minimize the
damage by staying small and innovative. End summary.

Italy Waking Up to Chinese Fakes
--------------


2. (U) Italian companies, renowned for their innovative
design and high quality products, are feeling the bite of
Chinese knock-offs. While the theft of Italian intellectual
property takes place in many countries, Italian officials and
journalists are increasingly focusing on China as the main
culprit. In press interviews prior to his December 2004 trip
to Beijing, Italian President Carlo Azeglio Ciampi urged
China to do more to protect intellectual property. During
the visit, China and Italy signed an MOU on IPR protection
that covers information exchange on IP laws, assistance with
trademark registration, and joint seminars on IPR protection.
The MOU, however, has not resulted in much, if any,
reduction in rampant counterfeiting of Italian brands in

China, both for sale in third markets and for export back to
Italy.


3. (U) No estimates are available for Italian industry losses
due to Chinese counterfeiting of Italian trademarks,
copyrights, and patents. China's rise as a commercial power
has generated much public debate about how Italy, which
maintains large shoe and textile industries, should respond.
Within this public discourse, however, there is often little
distinction made between the threat posed by Chinese
counterfeits versus that of legal Chinese imports.
Confindustria, Italy's primary business association, for
example, estimates that Chinese legal and illegal imports
combined have cost Italy 40,000 jobs, but does not give a
figure solely for IP-related losses.


4. (U) The Italian media is devoting more attention to the
scope, diversity, and sheer gall of Chinese counterfeiters.
The press widely reported a July 2005 raid during which
police in Pisa uncovered euro 3 million ($3.6 million) worth
of Chinese dentures and other dental equipment that had been
illegally labeled (in Italy) with Italian trademarks. Also
in July, newspapers in Rome followed the investigation of an
underground bank catering to the city's Chinese immigrants
that was allegedly laundering money, including proceeds from
the sale of counterfeit clothing. (A similar underground
bank was also uncovered in Milan.) In February 2005, a
journalist for La Repubblica, a nation-wide daily newspaper,


wrote an article about the trafficking of fake handbags from
Guangdong, China to Italy via Dubai. The author now intends
to expand the article into a book-length project and recently
contacted the Embassy for assistance.

No Longer Just Handbags and Sunglasses
--------------


5. (SBU) While counterfeiting has long been a problem for
famous Italian designers--Gucci, Armani, Prada, etc.--a wide
range of not-so-famous Italian companies are also falling
victim to Chinese imitators. A typical anecdote: earlier
this year Michele Perini, president of Assolombarda (the
Milan Manufacturer's Federation),found that Chinese
counterfeiters had hijacked the website of the family office
furniture business. Photos of the factory remained, but the
images of Perini and his brother had been replaced with those
of two Chinese men.


6. (SBU) In addition to furniture, Italian-made plumbing and
household fixtures are also becoming favorite targets for
Chinese counterfeiters. Fabio Aromatici, director of
international markets and IPR at Assolombarda, told Milan
Econ Specialist that Italian companies are increasingly
dealing with complaints, and the occasional lawsuit, from
customers who unknowingly purchased inferior Chinese copies.
In the case of water faucets, Aromatici commented,
counterfeiting has become a public health issue as
investigators have discovered knockoff faucets that contain
illegally high levels of lead. In a March 2004 article, the
Corriere della Sera, Italy's largest newspaper, reported
critically on the number of counterfeit Chinese water faucets
on display at a Milan trade exposition, often just meters
from those of the legitimate Italian manufacturer. Some
Italian companies, Aromatici said, are now attending European
trade shows with their lawyers in tow and calling police when
Italian firms encounter blatant counterfeits. Though Italian
police have conducted some trade show raids, Aromatici
remarked that German police tend to be more aggressive.

Not Just Fakes, But "Super Fakes"
--------------


7. (SBU) Carlo Imo, general counsel for Gucci, told Econoff
that his firm is very concerned about the growth in "super
fakes"--copies which, unlike those sold by street vendors,
are good enough to pass as real Gucci products. Gucci has
uncovered these high-end fakes in major Italian department
stores. Traditionally, he observed, only Italian underground
factories had the skill and know-how to produce near-perfect
copies. Now, "super fakes" are coming out of China, a
phenomenon that, Imo said, is the result of increased
tech-transfer and cooperation between Italian and Chinese
organized crime gangs.

Permissive Legal Atmosphere
--------------


8. (SBU) Italy is a particularly welcoming market for
counterfeit and pirated products from China and elsewhere.
Italy's national government has steadily increased penalties
for IPR-related theft, but local-level enforcement is uneven
to non-existent. (Note: Italy's parliament recently made the
purchase of counterfeit goods subject to a fine of up to euro
10,000 ($12,000) (Ref B). While police in Florence and Rome
have issued fines to a handful of tourists, neither we nor
our industry contacts believe this measure will be enforced
in the long term. End note.)


9. (U) Italy's court system has also established legal
precedents highly unfavorable to rights holders. Perhaps
most notorious from an industry standpoint is the court's
citation of "economic necessity" as a basis for acquittal in


IPR cases. In a ruling in early 2005 that upheld a 2001
precedent, a Rome judge found an illegal immigrant not guilty
of selling counterfeit audio cassettes because, in the
judge's opinion, the man had no alternative legal means to
earn a living. Such decisions, according to Embassy
contacts, not only encourage illegal immigrants to enter the
street trade, but also reinforce the common public attitude
in Italy that buying and selling counterfeit products is not
necessarily illegal.


10. (U) Italy's Supreme Court of Cassation, meanwhile, has
weakened country-of-origin labeling requirements for imported
goods. In February this year, the court ruled that Italian
companies could affix their own labels to
foreign-manufactured garments without a clear statement of
origin--i.e., a label could simply say "Company X, Italy."
In justifying the decision, the court said that it is enough
for the consumer to know the name of the Italian company
responsible for the production and quality control of the
product, regardless of where the item is actually made.


11. (U) The Court of Cassation ruling has angered many in the
business community. Glauco Camerini, an IP attorney for
Confindustria, told Econoff the decision creates a more
conducive atmosphere for the re-labeling of imported
counterfeit products. Confindustria wants Italy to pass
stronger legislation that will require clear "made in"
labeling for all imports, including products produced abroad
by Italian firms. Marcello Gozzi, director of the business
association in Prato (an industrial suburb of Florence that
is also home to a large concentration of immigrant Chinese
businesses) complained that the re-labeling of Chinese
clothing as "made in Italy" is already an all-to-common
occurrence.

Italian SMEs Lack Funds To Protect Their IP
--------------


12. (U) The Italian economy is overwhelmingly composed of
small- and medium-sized firms, many of which are struggling
to survive in Italy's weak economy. Gustavo Ghidini, a
professor of IP law at Rome's LUISS University, told Econoff
that Italian SME's have few resources to protect their
intellectual property, either in Italy or China. In Italy,
the court system is notoriously slow, with civil cases often
taking years, even decades to conclude. The result,
according to Ghidini, is that lawsuits against counterfeiters
are prohibitively expensive in Italy for all but the largest
firms. An additional factor is the nature of the Italian
patent system. Italian patents are awarded without
examination, meaning ultimately judges must decide the
validity of a patent when the patent holder files suit
against an alleged infringer. This increases the uncertainty
for rights holders pursuing cases against counterfeiters.


13. (U) While an increasing number of Italian SMEs are doing
business in China, Italian firms are neither experienced nor
aggressive in using the Chinese court system to stop
counterfeits at the source. This, said Aromatici of
Assolombarda, is due not only to deficiencies in the Chinese
legal system, but also a lack of money to file for patent and
trademark protection outside of Italy. Many, if not most,
Italian companies, according to Aromatici, do not bother to
go through the expense and hassle of obtaining patents and
trademark registration in China and thus do not have the
basis to pursue cases in Chinese court.

But Being Small Has Advantages
--------------


14. (SBU) Rather than aggressively defend their intellectual
property in the face of Chinese counterfeiting, many Italian
SMEs have resigned themselves to a certain level of IP theft


and are learning to cope. In this sense, being small and
nimble can be helpful. Stefano Orrea, a director at Patrizia
Pepe, a small Florence-based clothing maker, told Econoff
that his company has seen several of its clothing designs
copied by Chinese imitators. However, because the label is
less well known, Orrea said, Patrizia Pepe has seen little
outright counterfeiting--i.e., copying of both the design and
trademark. Patrizia Pepe accepts Chinese imitations as a
given and simply focuses on constantly updating its clothing
lines to stay ahead of the pretenders. Orrea admitted that,
given that knockoffs have yet to really cut into the
company's bottom line, he actually takes some satisfaction in
seeing Patrizia Pepe copies. The fakes, he explained, are
evidence that the company is producing popular designs.


15. (SBU) Another Florence-based small business, Passaponti,
is likewise less concerned with counterfeiters. Passaponti
makes specialized industrial cleaners, typically used on
automobile assembly lines to clean precision engine parts.
Company founder Alberto Passaponti was one of several Italian
businessmen who accompanied President Ciampi on his December
2004 trip to China. Passaponti told Econoff that he has had
problems with counterfeiters in India, where one company is
illegally using one of his trademarks and has copied
wholesale from his brochure. Passaponti, however, said he is
not particularly concerned about Chinese counterfeiters and
has not bothered to seek patents or to register his
trademarks in China. The machines he makes are highly
specialized, he said; and the large auto manufacturers that
comprise the bulk of his customer base are unlikely to be
fooled by an imitator.

Comment: Those in Glass Houses...
--------------


16. (SBU) Chinese counterfeiting is increasingly on the radar
of the Italian business community and government leaders.
The main concern of Italian firms, particularly in the
footwear and garment industries, however, is to seek
protection against all Chinese imports rather than specific
curbs on fakes. For its part, the Italian government will
continue to seek "soft" engagement (i.e., MOUs, technical
exchanges and the like) with China on IPR issues, but the GOI
is unlikely to aggressively press China to make improvements.
Italy has taken this strategy partly because Italy itself
does not have its own intellectual-property house in order.
Furthermore, Italy, in comparison to the other major European
economies, is not a large investor in China (Ref C) and does
not perceive itself as having significant bilateral economic
or political leverage over Beijing. While our expectations
for Italian actions vis-a-vis China are modest, Mission Italy
will continue to emphasize to all Italian interlocutors that
stopping rampant Chinese counterfeiting/piracy is an
important mutual interest. End comment.

SPOGLI


NNNN
2005ROME02776 - Classification: UNCLASSIFIED