No Escape from the Net of Justice

Issue 31 By Doris Li, China IP,[Trademark]

At 3 p.m. on June 5, the Cangnan and Cixi police made a sweep of several counterfeit dens in Qianku Town of Cangnan County (Wenzhou) and arrested Liao and his gang members.

In this crackdown, the police seized over 11 million counterfeits goods, including packaging boxes for ink box and Se drum, anti-counterfeiting marks, and labels and instruction books which were infringements on HP, Canon, Samsung, Lexmark, Lenovo and other well-known brands. They also confiscated printing forms, ruling films, marking presses and die-cutting boards, and detained 10 suspects.     

This journalist learned that in February 2008, Liao had been sentenced by the Zhejiang Cixi People’s Court to two and a half years in prison with a suspension of three years for selling counterfeits. The investigators said that Liao was wantonly engaged in counterfeiting production and selling during the probation period, and was finally arrested again.       

A “Mr. Big” in the counterfeiting field

Liao, head of the counterfeit manufacturing and selling gang, has already been labeled as a “Mr. Big” in this field. When interviewed, Mr. Guo Zidun, manager of HP’s IP Division, said, “Liao is rather famous in the counterfeiting industry. HP has not stopped monitoring his activities since his last conviction.”

Before he was arrested in July 2007, he was busy with illegal business activities. He teamed up with Yao and Wang and opened an underground packaging work to sell counterfeit Se drum packages, labels, gift boxes and instruction books. He was in charge of business negotiations and purchasing materials for counterfeit HP, Canon, Epson and Samsung instruction books, labels, packaging bags and gift boxes from Guangdong. His accomplices were responsible for shipping and receiving the goods, having them assembled and packed. On September 28, 2007, his underground facility was shut down by the Cixi Branch of Ningbo Administration for Industry and Commerce and the Cixi Public Security Bureau, and a total of more than 400,000 counterfeit goods were ferreted out.   

On November 2, 2007, Liao turned himself in to the Cixi Public Security Bureau and gave a true account of his criminal activity. In February 2008, he was sentenced to two and a half years in prison. The sentence was suspended for three years and he was given probation for the crime of selling illegally manufactured signs of trademarks, and was fined 250,000 Yuan.

The resumption of counterfeiting with higher alertness

According to investigators from China United Intellectual Property Protection Center (CUIPPC), Liao remained under surveillance during his probation period. He kept his nose clean for the first two months, but soon after, his wife Huang was frequently observed visiting printing facilities, and Liao himself began taking action.

Through HP’s IP agent and the CUIPPC, the journalist discovered that in last August, the agent heard about Liao’s illegal activities. The investigation of Liao’s gang started last October. After more than half a year, they obtained detailed information regarding Liao’s underground printing works and warehouses.

The investigators said that Liao had counterfeit manufacturing and selling dens both in Cangnan of Wenzhou City and Cixi of Ningbo City. He and his people printed and processed fake packages of ink boxes in Cangnan, and stored them in the warehouses in Cixi. Investigators first obtained the information of the main printing works and the storing warehouse in Wenzhou. Then, with the help of local citizens, they tracked down the storage facility on the South Street in Guanhaiwei Town of Cixi. Through further investigations, they spotted Liao’s two other warehouses in Cixi.

“Liao was always on high alert and was very tricky. We had to watch him with extreme attention”, said the man in charge of this investigation. After discovering the location of the storage unit in Guanhaiwei Town, the investigators received news that on May 11, there would be a consignment shipped from Guangzhou by a company named Hengda. The shipment contained goods of approximately 4,000-5,000 Se drum packages. The recipient’s address was on the 5th street in the Plastics Market in Guanhaiwei Town, and the recipient was Liao.

“After we got the news in the morning, we went to the market immediately to check the address. However, we found no consignment station there. Then we dialed the number of the logistics company, but found the number was out of service.” The invalid address did not surprise the investigators at all. “It shows that Liao was very vigilant. He even prepared the false consignment information.” 

After confirming that the consignment information was false, investigators contacted the logistics company in Guangzhou and got a cell number. Through this number, they learned that the Hengda Company’s consignment address was No.5, West Second Ring Road, Hushanxi, Cixi; however, this address was not accurate either. An investigator recalled: “We contacted the Hengda Company with the help of a friend in Guangzhou, and learned that the goods would arrive in Ningbo on the 15th, and would be distributed there. Guanhaiwei Town is located between Ningbo and Cixi, but they had the consignment address only in Cixi, not in Guanhaiwei Town. If the goods were to be unloaded in Guanhaiwei, they would give the cell number of the driver who was transporting goods from Ningbo to Cixi to the client. Then the client contacted the driver to provide the specific address for delivery of the goods.” After getting the address of the Ningbo Hengda Company, the investigators found the consignment station of the company in a Yinzhou community in Ningbo City. It was a small station, without signs.      

After two days of observation, the investigators found a big truck parked at the station unloading. When most of the goods were unloaded, the target appeared. “46 cartons in total were exactly what we were told to expect, and the information on the external cartons was exactly what we got. These goods were not transferred to other trucks, but piled up at the station gate. At noon, a 2T blue truck with Zhejiang’s plate number came and loaded the target goods and some others. Then it was driven to nearby Hotel. After it stopped, the driver was found making a phone call. Soon after, Liao and his driver came by car. Liao’s car led the blue truck to a residential building in East Ring Road of Guanhaiwei Town. It was a two and a half-floored western-style house with no house number and no inhabitants and its ground area was about 130 square meters. When they were transferring the goods into the location, we counted approximately 600 odd cartons on the first floor. You can see how tricky Liao was by his use of a residential house as the warehouse.”

The next morning news came from Ningbo that Liao’s goods had arrived at the Ningbo Hengda Logistics Company and would be possibly shipped to Cixi soon. “Considering Liao’s high alertness, our people rode motorcycles in Guanhaiwei Town to search for Liao’s vehicles and accomplices, but with no result. Later, according to investigators, the Ningbo side told us that his vehicles had arrived at the Cixi exit of the Shanghai-Ningbo Highway.”    

At the highway exit, investigators spotted the 2T blue truck and followed it to a street on the back side of Guancheng Hotel in Guanhaiwei Town. About ten minutes later, Liao and his driver arrived with a slightly overweight man in his thirties. The two parties spoke briefly and then Liao’s car led the way to Guanhaiwei No.2 Primary School. A pick up with a Zhejiang license plate arrived, which followed the truck. Three vehicles went into a newly-built villa area around the East Ring Road and stopped in front of a four-room villa. They began to unload the truck. The pick-up remained parked outside of the villas to keep watch. Two men were cautiously observing the area. In about 20 minutes they finished unloading. “We could sense their nervousness. They were so careful about everything. We approached the villa, and through door cracks we saw about 500-1200 cartons inside,” recalled the investigators.     

Through further investigation into goods being transported by these people, the investigators found the second counterfeit-storing warehouse in Cixi. It was in a villa in Xinfa Road, Guanhaiwei Town. 

The suspicious man with his unexpected reward

Instead of taking immediate action after finding the two warehouses, the investigators continued their work. Unexpectedly, Liao betrayed himself on with his own extreme vigilance betrayed himself.     

“Liao was very cunning and vigilant. Maybe because he noticed us, or out of a higher sense of alertness, he began to transfer goods.”

After checking with the relevant transportation authorities, the investigators found several violation records of Liao’s car and a small truck at the same location. Meanwhile, they noticed that for several days, Liao’s driver and his wife had not returned to their den in Wenzhou. “With further investigation, we believed that Liao was moving the ink boxes from Cangnan to the warehouses in Cixi or Guanhaiwei. After further investigation, we also found another warehouse on Chezhan Road in Cixi. More than 1,000 cartons of Se drum and Ink Box packages were concealed there.” When talking about this big finding, the investigators still looked very excited. 

Simultaneously, the investigators discovered other counterfeit manufacturing plants and warehouses in Cangnan of Wenzhou owned by Liao, including the anti-counterfeiting mark printing spot in Jinshan Road Qianku Town, the warehouse in Xianxihou Village of Qianku Town, and the impressing plant in Longgang Town, among others. 

After observing these locations for a period of time, the investigators found that these facilities did some legitimate production during the daytime, and ran their machines for illegal production for one to two hours at night. Being cautious, they only printed 30,000 counterfeit pieces per day, mainly packaging boxes and anti-counterfeiting marks. What’s more, they used different packaging models to ensure the stock.      

“Usually, fake producers like Liao don’t have their own factories; otherwise it will be too risky and costly. Their usual practice is to receive orders and look for factories to perform the production. Such factories are normally engaged in legitimate business. They do the illegal processing when special opportunities arise.” 

By investigating the people surrounding Liao and those consistently visiting his underground plants, investigators acquired the necessary information to identify the members of his gang. This was a family gang. Liao’s wife took over his role during his detention and was in charge of until he was released. Liao’s relatives were managing the warehouses, impressing plants and printing works.

The risk for higher profits

With such conclusive evidence, the local public security authority arrested Liao and his accomplices. He was in possession of more than 4,900 counterfeit HP anti-counterfeiting marks and over 10 million Lexmark and Lenovo packages, anti-counterfeiting marks and labels. His warehouses concealed 1,135,100 fake HP ink packaging boxes, 17,538 Se drum packaging boxes, 412,605 anti-counterfeiting marks of Ink Box, 20,748 anti-counterfeiting marks of Se drum, 8,134,900 ink box labels, 64,998 Se drum labels, 406,400 packaging bags of ink box, 1,800 Se drum bubble bags, 90,000 ink box instruction manuals, 2,126 Se drum instruction manuals, as well as 150 printing forms, ruling films and ink boxes. 
Guo Zidun said: “Liao’s Ink Box packages account for more than 50% of the total sales in the domestic market. Some fake products even flew to foreign markets. The value of HP packages smashed this time is estimated to be more than USD 3 million -- a figure that even HP cannot ignore. Every package could be a fake product.” 

Guo continued: “This claims to be one of the most successful crackdowns in recent years. So many people and such a large amount of counterfeit products were involved. Ten suspects were arrested. A criminal network was destroyed. More importantly, a lot of counterfeit making machines were confiscated. Besides, Liao made counterfeit products even during the probation period, which may lead him to a heavier sentence.”

Since he was making and selling counterfeits during his probation, Liao, an old and infamous man in this industry, must be fully aware of the consequences. The investigators said, “Liao did not look too panicked when he was caught. Maybe he already knew that he would end up like this.”

The staff from CUIPPC said that Liao’s risky behavior was a result of the huge profits in the counterfeiting industry. One fake product does not generate too much money. But the accumulated value is considerable. Liao sold 30,000 to 40,000 fake products every day, and earned 800,000 to 1 million Yuan every year.

The destruction of Liao’s underground works inspires great confidence within the businesses industry. They said that during the short out-of-stock period of fake products, they could promote their authentic products more effectively in the market. They also said that more such clampdowns would strike terror into the hearts of counterfeiters, and would help clean up the Chinese market.  

(Translated by Hu Xiaoying)

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