Cablegate: Vietnam Ipr Enforcement Success Story: Nike

This record is a partial extract of the original cable. The full text of the original cable is not available.




E. O. 12958: N/A

REF: 02 HCMC 934

1. In an IPR enforcement success story, the Ho Chi Minh City
Economic Police have wrapped up a case against a major
counterfeiter of Nike footwear. Although fines relating to IPR
violations were nominal, local authorities assessed substantial
fines for tax evasion and confiscated supplies and production
equipment. These fines and forfeitures amount to more than
US$160,000. Nike had high praise for the Economic Police, but
faulted the People's Procurator in Ho Chi Minh City for dragging
its feet.

Nike Counterfeiter Raided in Summer 2002
2. In July 2002 the Ho Chi Minh City Economic Police raided a
workshop producing high quality counterfeit Nike shoes and other
famous brands. The raid, as reported in reftel, resulted in the
seizure of 23 truckloads of fake components, supplies, and
production equipment. The case had been initiated at the request
of Nike, which had been compiling information on this enterprise
for about a year. This producer had been targeted by Nike because
the operation appeared to be large and was producing high quality
fakes. Interestingly, the case came to the attention of Nike
through a tip from another (rival) counterfeiter.

Follow up reveals national network with large turnover
--------------------------------------------- ---------
3. Following up on the raid, the police found a national
distribution network with retail outlets in Hanoi, Haiphong, and
Danang. The police traced bank transfers of funds indicating that
the business generated revenues equivalent to at least US$100,000
for the 18 months leading up to the raids. Even with all of this
evidence, however, authorities decided that they could not
prosecute this case as a criminal case. The raid netted 23
truckloads of production equipment and supplies, but only 47 pairs
of counterfeit Nike shoes. Because the value of actual
counterfeit products was so low, the police, along with the
People's Procurator's Office, determined that the case had to be
handled as an administrative matter. In an administrative case,
local authorities only have the power to assess limited fines and
confiscate equipment, product and supplies. In a criminal case,
the case would be heard in court and fines could be higher and
jail terms could be handed down.

Let the Punishment Fit the Crime
4. This did not stop local authorities from taking full advantage
of their authority to assess administrative penalties in this
case. These fines and forfeitures were spelled out in a decision
from the local District People's Committee dated February 25,
2003. The actual fine based on IPR was very low- only VND 500,000
(about US$325). The real penalties were assessed in other areas.
The local Taxation Department imposed a penalty of VND 132,319,000
(about US$8600) for back taxes and tax evasion.

5. The District People's Committee also authorized the permanent
confiscation of the production equipment seized in the raid. This
- US$26,000 worth of production equipment
- US$$19,500 worth of synthetic leather (2078 kilograms)
- US$1200 worth of cement (ten tanks)
According to Nike, this equipment and the supplies will be sold
and revenue turned over to the state budget.

6. The police were also granted authority to destroy components
seized in the raid. These included:
- $117,000 worth of fake Nike shoe components (completed uppers
and unit soles) which could be used to make 15,000 pairs of fake
Nike shoes.
- Additional components that could be used to manufacture
counterfeits of other name-brand sport shoes.

7. These penalties are impressively large. They are even more
impressive when considering that the individual who owned this
operation is a relative of a powerful People's Committee chairman
in a neighboring district. This appears not to have influenced
the progress of the case. Nike reports, however, that the
counterfeiter may be trying to set up another operation to produce
counterfeit goods in another district in the city. Nike plans to
monitor developments closely and work with local police to follow

8. While one such event does not indicate a sea change in the
difficult IPR environment here, this case - in which a politically
connected individual was made to pay dearly for flagrant
production of counterfeit goods - is good news indeed. Nike
praised the work of the Economic Police, although Nike's expert on
counterfeiting stated that he felt the People's Procurator were
slow to respond to the case. Nike has no illusions about the IPR
climate in Vietnam, but hopes to build on this case for further
cooperation with local authorities. Post will follow up with
local authorities to compliment the Economic Police on their
handling of this case.


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