The Washington Post, July 19, 2016
(LEFT) The 2017 Range Rover Evoque Convertible is debuted during the
Los Angeles Auto Show in Nov. 2015, in Los Angeles (AP Photo/John Locher).
(RIGHT) Jiangling Motor Co.’s Landwind X7 SUV is displayed at the
16th Shanghai International Automobile Industry Exhibition in April 2015
The cars are basically indistinguishable unless you hone in on the exact stitching of the seats or the fine arrangement of the headlights. Even then, changes are so minuscule, it’s nearly impossible to realize one of these vehicles costs $41,000, and the other just $21,700.
British luxury carmaker Jaguar Land Rover and Chinese carmaker Jiangling will go to court this summer in China to settle their dispute over what exactly is fair game in the auto industry. Can Chinese companies continue to get away with “shanzhai” — a Chinese term for prideful counterfeiting — of car designs?
Range Rover’s Evoque and Jiangling’s Landwind X7 are practically the same car to the untrained eye.
It’s a judicial battle that pits Western car companies against the burgeoning Chinese and East Asian market, and one that has captured the attention of economists, auto industry insiders and intellectual property experts.
The Chinese consumer market has grown exponentially since late 1980s economic reform. Some of the largest growth has come from auto companies, both state-owned and foreign joint-ventures. In 2008, when the market was still in its relative infancy, Chinese buyers purchased 9.4 million cars. By 2015, they bought 24.6 million.
And as the industry rapidly expands, Western carmakers, from the United States’ “big three” to German luxury brands to other imports, have rushed to gobble up market share, in the process flooding China and its comparably fledgling car companies with new vehicle models.
The best way Chinese manufacturers could compete was “shanzhai,” reverse engineering foreign products as a way to enter the market without overwhelming research expenditures.
“In the automotive industry, you can copy the look of the the vehicle, but the skills required for the highly complex integrated systems, if you’re a Chinese company, you don’t have engineers with long career histories with that capability,” said Bill Russo, managing director of Shanghai-based Gao Feng Advisory Company.
“So you shorten the life cycle by purchasing or licensing or reverse engineering. And this is not a Chinese-invented cycle.”
Imitation, as the idiom goes, is the sincerest form of flattery. But it’s also a great way to make money, something merchants have realized for hundreds of years.
The United States in the 1800s, for example, lacked authors who could stack up against British literary giants, so American publishers reprinted British works without paying heed to copyright laws, said Mark Bartholomew, a professor of law at the University at Buffalo.
Benjamin Franklin, the Benjamin Franklin, even published pirated works. William Wordsworth and Charles Dickens came to America to complain about it. The United States only stiffened its intellectual property laws once its industries, both mechanical and intellectual, matured by the end of the century.
“It boils down to economics,” Bartholomew said. “The Chinese economy doesn’t have this same tradition of the manufacturers like Ford or Hyundai or any of the folks who are making these cars. So if you don’t have these copyright laws, why pay if you can get away with it?”
China does have intellectual property laws, though, and it’s a signatory to international intellectual property agreements. But China’s laws are applied inconsistently, and even the international rules aren’t always enforced in China and elsewhere around the world.
Some countries recognize certain kind of intellectual property, but not others. For example, special door handles on a car: Are those a decorative creative works, or do they have some functionality? Creative works get copyrights. Objects with usefulness get patents. And states, not companies, are the arbiters of what objects get what protection.
It leaves multinational companies rushing to strategically secure their rights all over the world. In large established markets like the United States and Europe, car companies apply for protection right away. But in a developing market such as China — its auto market was until recently considered “developing” — those applications only became priorities over the last decade.
Smaller Chinese companies without strong market presence used past administrative delays as windows of opportunity. If intellectual property protection hadn’t been filed domestically, it was convenient to reverse engineer the product. And if the protection was filed sloppily, companies reverse engineered cars largely without the risk of prosecution.
Even when U.S. auto makers file their paperwork in the right way, China car companies enjoy remarkable home field advantage in their courts. More mature courts in Beijing or Shanghai might have judges more willing to hear out foreign companies, but rural courts or those in factory-heavy districts often show interest to local industry, including counterfeiters.
And so the copycats started coming. Honda fought a Chinese carmaker for 12 years for copying the CR-V. The Chery QQ riffed off the Chevrolet Spark in 2005. Shuanghuan’s CEO SUV model copied BMW’s X5 in 2007. Shuanghuan’s Noble copied Mercedes Benz’s Smartcar in 2009. The Lifan 320 copied the Mini Cooper Countryman in 2012.
Hummers and Porsches and Rolls Royces have been copied. Even Ferraris have been copied, and were shipped to Spain where they were seized by police.
“Anything known to mankind can be faked, even a Ferrari,” said said Frederick Mostert, past president of the International Trademark Association and a research fellow at University of Oxford and Peking University. To prove a point, he bought one and traveled with it and shows pictures of it at speaking engagements.
Ferraris, though, aren’t the counterfeits major car companies worry about. Any buyer looking for a luxury car is in the market to spend luxury car kind of money. That’s especially true in China, where consumers are extremely brand conscious, experts say. Nobody who wants a Land Rover is going to be fooled by a Landwind.
“People who buy [the Landwind] can’t afford the Land Rover,” said Russo, the Geo Feng consultant. “And of course if you’re the company that’s out there, you’re going to be pissed off about it, but nobody is getting confused.
“Get in that Landwind and drive it. I’ve driven many, many cars in China. It’s not the same car.”
As much as the counterfeits are inconveniences, it may be the lawsuits to stop the practice that may hurt Western automakers more, auto industry experts say. The Chinese public doesn’t like to see its industries get bullied. Plus, if one copycat company gets shut down, others pop back up. Western companies end up playing legal whack-a-mole with money they could use to make newer, better cars, said Kenneth D. Crews, a Los Angeles-based attorney and adjunct professor of law at Columbia University.
That kind of strategy actually trains customers to look for newer models and not settle on older ones that are more easily counterfeited. More mature Chinese car companies have grown up and away from copying other models. Once they made enough money to invest in research and original design, they did.
“These companies have grown to become more than just copycats,” Russo said. “They’re advanced and they’re innovative.”