Apple’s Battle Against Chinese Knockoffs Detailed in Wikileaks Cable

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Apple’s success has brought with it a problem known by many Western corporations, Chinese piracy. Wikileaks has published the contents of a cable from the U.S. State Department detailing the current state of that piracy as well as Apple’s efforts to fight the problem. Those efforts apaprently started only recently, in 2008, and include the hiring of the very successful team that helped Pfizer reduce Viagara knockoff drugs.

Apple in China

The cable was published by Wikileaks but is currently inaccessible. Fortune magazine re-published it in its entirety, however, including the summary:

As amazing as it seems, computer maker Apple Inc. had no global security team - including inside China - until March 2008, when they hired away the team from Pfizer that formed and led a multi-year crackdown on counterfeit Viagra production in Asia. Now with Apple, Don Shruhan, based in Hong Kong, has taken the first basic step of registering the company’s trademarks in China and Hong Kong and is targeting retailers, manufacturers, distributors, and online vendors to take a bite out of China’s counterfeit iPod and iPhone production. Early evidence suggests nearly 100 percent of Apple products in unauthorized mainland markets are knock- offs, while factories in Guangdong province are exporting enough counterfeits to single-handedly supply the world with fake Apple products. End Summary.

The first thing we’ll discuss at length is the last line of the summary, that, “factories in Guangdong province are exporting enough counterfeits to single-handedly supply the world with fake Apple products.”

It would be easy to take from this line that enough counterfeit Apple products are being produced to effectively match everything that Apple legitimately sells. Digging through the full cable, however, finds that the author of the report meant that this one province could meet what demand there is for counterfeit Apple goods, and that’s largely limited to emerging markets like China and India where Apple’s presence is nascent or absent.

This is due in part to the fact that counterfeiters don’t make quality products. For instance, the cable offered up an example of what appeared to be a legitimate 80GB iPod (due to the case) that had but 1GB of actual storage. Seems there’s not really a big demand for 80GB fake iPods that hold only 1GB of music.

Also detailed in the full cable is the belief held by Apple and its new (since 2008) security team that the company’s legitimate manufacturing partners are not involved in these counterfeiting operations, even though they are located in the same province.

From the report: “[Don] Shruhan says that internal controls at subcontracted facilities, combined with independent audits, are good enough that he does not believe authorized plants are producing unlicensed products in a so-called ‘third shift’ scenario. He explained that Apple’s system for tracking each product’s unique serial number appears very effective, and more sophisticated than Pfizer’s.”

Other tidbits include the assessment that Apple’s inexperience in working in China has resulted in some efforts to work with local Chinese officials and agencies going more slowly than they might otherwise. On the other hand, Mr. Shruhan has extensive experience working in China on behalf of Pfizer, and his relelationship with at least one of those agencies, Public Security Bureau, has been excellent in the past.

All of this information is now several years old. The cable is dated September of 2008. Those interested in Apple’s efforts to fight the knockoff shops in Shenzen and other issues relating to piracy will find it a very interesting read.

We should also note that this was a State Department private communication (marked “Sensitive”), and that it was never intended for public consumption. Wikileaks routinely publishes such documents—some call the organization dangerous, while others hail those efforts as heroic.

Most of the attention Wikileaks has heretofore attracted has been about the publication of politcally-oriented documents, including intelligence reports, military reports and other information, and other issues that are traditionally considered as being “political” in nature.

This particular cable, however, is about the U.S.’s interests in protecting one of its larger corporations’s in a country with whom the U.S. has a very complex relationship. China is the world’s largest market (the company’s largest cell phone carrier has more customers than the U.S. has citizens), will soon enough have the world’s largest middle class, and is the world’s largest producer of pirated and counterfeit products. At the same time, China owns a large chunk of the U.S.’s debt, and it just gets messier from there.

There are untiold numbers of State Department memos and cables that deal with all manner of American companies and business interests written and sent every day—the same is true for the diplomatic arms of most of the countries in the world. Because this is a cable about Apple, however, it is getting far more attention than a similar cable about any other company would, at least here in the U.S.

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