Planet Money - The Stolen Company (Classic)

Episode Date: December 10, 2020

When an American company named ABRO learns their goods are being counterfeited in China, they start their own trade war. | Subscribe to our weekly newsletter here.Learn more about sponsor message choices: podcastchoices.com/adchoicesNPR Privacy Policy

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The economy can be perplexing. Planet Money can help. This is Planet Money from NPR. Hey, quick note. Today we're running an episode that I worked on back in 2019. It's a story about fraud and the hijinks that one American company had to go through to stop a counterfeiter. Hope you like it. that one American company had to go through to stop a counterfeiter.

Hope you like it. In 2002, Tim Damaris noticed that sales at his company were slipping, and he couldn't figure out why. Tim was working for a small company in Indiana called Abro. They make things that handy people keep in their garage. You know, like epoxy glue, spark plugs, engine degreaser. And Tim's job was to travel the world going anywhere he could sell Abro products. I was allowed to go as long as I could, as long as we brought back business. And we felt like buccaneers going to these emerging markets.

Congo and then Russia, Ghana, Cameroon. Maybe you've never heard of Abro. I certainly hadn't. And that's because none of the stuff it makes actually gets sold in the U.S. But it's really popular in a lot of other places. Places where Made in America carries extra cachet. Today, when you refer to a roll of masking tape in Pakistan, they simply ask, can you get me a roll of Abro? We're kind of a big deal in Pakistan.

Anyways, Tim couldn't figure this out. Why were his sales slipping? And then he heard from a customer who had seen some counterfeit Abro products in China. Tim gets on a plane to investigate. His first stop is this trade show that everyone in his business goes to. The Canton Trade Fair is one of the largest trade fairs in the world. His first day there, Tim's walking around this massive exhibition hall, hunting for clues. And then suddenly he freezes. I peered around the corner, hiding really behind a booth, and I looked around and I was literally shocked to see what was in front of me. In front of Tim

is a booth that looks to be an Abro booth. But the thing is, Abro never paid for a booth at this fair. It's the same logo, same colors, same products, same everything. Only no one inside the booth actually worked at Abro. They were passing out Abro business cards, Abro catalogs with all our products in it to my Abro customers that were visiting. So there was total confusion. Oh, my God. They were telling people they were the Abro subsidiary in China.

Tim knows Abro doesn't have a subsidiary in China. So he goes straight to the show officials to complain. He provides documents showing Abro has the real trademark registration for Abro in China. The officials confirm this with authorities in Beijing. And then, boom, they agree. They will raid the fake Abro booth with Tim. We had police personnel. There were military personnel.

There were military guys in this entourage to raid the booth? Absolutely, absolutely. Because the military is part of these trade shows in China because they own some of the companies. So I'm marching. I mean, leading my army of men. I feel like a general going to battle. I mean, it was kind of scary, but it's kind of exciting. Tim gets to the booth and gets right up in the face of the man who seems to be in charge of the operation. I said, the party's over. Mr. Abro is here. But then the Chinese guy turns to him and says very calmly, no, you're the fake. And he reaches into a briefcase and pulls out a set of documents that he says shows he is the one who owns the Abro trademark in China. Everyone just sort of looks around at each other stunned.

And the show officials start backing off. They don't know who to believe here. But Tim? Tim knows something they don't know. He points to a four-foot-tall poster inside the booth. It's a blown-up photograph of a woman who appears on every package of Abro epoxy glue. I said to the owner, who is that woman you have in the photo? He said, that's just a Western model. At that moment, I lost it. I just lost it. I said, that's just a Western model. At that moment, I lost it. I just lost it. I said, that is not a Western model. That is my wife.

And at that time, I just ripped out my wallet. I pulled out a picture of my wife I've been carrying for the last three years and threw it on the table in front of the owner of the company. I said, first you steal our corporate identity, and now you're stealing my wife. Elsa, I've been playing this moment over and over in my head. It's like that moment in Good Will Hunting where Matt Damon goes up to the guy and he's like, yeah, well, I got a number. How do you like them apples? It worked. The next day, the fake Abro booth is empty With a sad piece of tarp flung right over it.

So, was that the end of the story? Oh, I wish it was, but that was only the beginning of the story. Hello and welcome to Planet Money. I'm Nick Fountain. And I'm Elsa Chang. There's a story that's taken hold about China. And it goes something like this. China is garbage at protecting intellectual property. But Abro's story is different.

Yeah, the reason I even know about them is because last year, when the Trump administration was collecting horror stories about American companies screwed over by China, Abro raised its hand and said, And we were like, what? We want to hear that story. So that's our show today. So Tim gets back to the U.S. and he's telling anyone who will listen

about how he took down these Chinese counterfeiters with a picture of his wife. Yeah, about that. A few months later, Tim is in Saudi Arabia walking through a market when he sees something that looks like Abro's epoxy glue. But he notices there's something different about the packaging, right where that picture of his wife usually appears. The woman had an Asian face. They kept the same outfit my wife was wearing, but just cut her head off and put the Asian face in there. Wait, so it was your wife's body on the bottom with an Asian head at the top?

Wife's body, Asian face. Very clever. It's just so petty. Fake Abro took Tim's how do you like them apples moment and said, how do you like them apples right back? And that right there is the moment that Tim vows to himself. I'm going to take these guys down. My wife's picture is the face that launched a thousand lawsuits. But before Abro can bring any lawsuit against fake Abro, they need to figure out who these imposters are. They trace the counterfeit goods to Hunan province to a company called

Hunan Magic. And they learn that the person at the top of Hunan Magic is a man named Yuan Hongwei. And Tim realizes he's actually met this guy before. He's the one Tim confronted inside the booth in China. Now, you're going to be hearing a lot about Yuan Hongwei and Hunan Magic in this story. And we wanted you to hear their side. But after a long back and forth, they decided they didn't want to talk to us. So according to Tim, the next thing that happens is Abro files a lawsuit in Chinese court against Hunan Magic. But it's slow going. And the whole time, the Abro brand all around the world is taking a beating. And then they came up with several other products that we didn't even have, like a rat poison and called it Abro rat poison. They were doing all kinds of wild stuff.

And he says the products Hunan Magic is selling under the Abro brand, they're horrible. Abro glue, for example, normally has a shelf life of one year minimum. Hunan Magic's counterfeit glue would get hard in the tube within days. So Abro decides it needs another plan. Or else Hunan Magic could end up killing their business. It was time to bring in the professionals. You see Pulp Fiction? Yeah. Okay, so when they got two dead bodies in the back of the car, you call in the wolf. We were kind of like that for trademarks. Bill Mansfield is a former private investigator who

helps people with special trademark problems when a lawsuit just isn't enough. He used to go undercover as a counterfeiter, usually a Russian for whatever reason, to collect intel on badly behaving companies. Bill will be the first to tell you, though, he does not look the part of a typical badass. I'm perfectly round. I'm a perfect circle. If you saw me...

You mean you're rotund? I am a sphere with legs and arms and a little head on top. Like Mr. Happy, you know, the book character? Yes. Okay. Yes. With his work though, he is not so Mr. Happy. He tells Abro the surest way to get these guys to stop is you got to make it hurt. You got to make counterfeiting so costly, so painful that the counterfeiters will have no choice but to back off. And so far, that's just not happening in China. So Bill says it's time to bring these guys onto home turf. He digs around and finds an obscure law in Louisiana, which is incredibly harsh when it comes to counterfeiters. Like down there, you can get sentenced to hard labor for counterfeiting. OK, so you were looking at that and you were thinking,

I could get Yuan Hongwei on a chain gang. That is my goal. Yes, because the system that he was in, it wasn't deterring him in any way. But to nail Yuan Hongwei on this counterfeiting law, Bill needs to get him on Louisiana soil so the police can arrest him. Bill hatches a plan to set up a fake company in Livingston Parish that starts doing business with Hunan Magic. And his fake company orders shipping containers full of counterfeit glue from Hunan Magic, which will become the evidence they need for an arrest. The relationship's going great. And at one point, an undercover guy at the fake Louisiana company tells Hunan Magic, hey, you should come over to Livingston Parish sometime for a visit to teach us how to grow our business as your distributor.

And they accept the invite. Bill has just two weeks to set up a sting operation. The plan is to give Yuan Hongwei a tour of the fake company, which Bill needs to build from scratch. It had to look lived in. It had to look real. It had to be so that if you dug into it, you would find things not only that didn't make you suspicious, but that confirmed that this was a real living, breathing office space and that people had walked out of Friday at 5 p.m. and they'd walk back in Monday at 8 a.m. And there were things going on. We had fake storylines built into it. Like what?

Two of the people in the office were having an affair. How did you portray that? Well, if you look through the trash, you'd find crumpled up little love notes between them. Really? Yeah. They went all out. The day of the visit rolls around. Representatives from Hunan Magic show up.

But not Yuan Hongwei. He's the one Abro needed. The one they wanted to arrest. Yeah, he's no dummy. He'd outsmarted them. Bill Sting operation was a bust. But then, several months later, Hunan Magic unexpectedly calls up Abro and makes a surprising offer. Hire us, they say. Let Hunan Magic become calls up Abro and makes a surprising offer. Hire us, they say.

Let Hunan Magic become one of your manufacturers. We are making a bunch of your stuff already anyway. Abro's listening to this and thinking, wait a minute, there is still an arrest warrant out for Yuan Hongwei in Louisiana. All we have to do is get him on U.S. soil and he's finished. So they say, we love this idea. Y'all should come to Indiana. Let's meet.

Yon Hong Wei is also not an idiot and said, no, I don't think so. But I will be in London in three weeks. Let's meet there. And that is when Bill Mansfield gets the call from Abro. Your mission, should you choose to accept it, is to get Yon Hong Wei arrested in London and then extradited to the U.S. Our chance had finally fallen open. But it was very soon, and it was in another country,

and it was my job to figure it out and make it happen or to some extent all this might have been a waste. Bill spends three sleepless weeks trying to organize the arrest of a Chinese citizen in London based on a warrant from Louisiana. And by the time he touched down in London at Heathrow Airport, his plane taxied left

instead of right, came to a stop, police came on, took him off in cuffs. Yuan Hongwei is behind bars for a while. And then right before his extradition hearing, he posts bail and is released. But he's told you have to remain in London. But instead, he disappears. After the break, Abro finally figures out how to shut this whole thing down. It does not include catching Yuen Hong-wei. That is just never going to happen.

It's not like the U.S. government wasn't doing anything to protect Abro. They had a guy in Beijing working the case. His name is Mark Cohen. When the State Department created a new position at the embassy to deal with counterfeiting in China, Mark was the one who got the job. He was the perfect person for the gig. Not only was he an IP lawyer, he has this deep understanding of Chinese culture. His Mandarin puts mine to shame. So could you recite, say, a Tang Dynasty poem for me right now in Mandarin? Well, you know, the most common is

Anyway, Mark got wind of the problem Abro was having with Hunan magic, and he learns that Abro isn't the only company Yuan Hongwei is knocking off. Mark's like, I want to talk to this guy, see if I can reason with him. But Yuan Hongwei is really hard. Mark's like, I want to talk to this guy, see if I can reason with him. But Yuan Hongwei is really hard to get in touch with. He's a type of counterfeiter that we used to call, in Chinese we call them shanzhai, mountain stronghold counterfeiters. These guys who operate in kind of more remote, harder to enforce places. So Mark travels down to Hunan province himself to see if he can meet face-to-face with Yuan Hongwei.

But before he confronts him, he decides, I better go talk to the local officials first. Sometimes they can be helpful in these matters. But when he gets to their office, he sees something that makes him really nervous. I saw a window display with a bunch of awards given to Hunan Magic. What were the awards for? Oh, famous brand, innovative company, high-tech company. And you could see these awards today if you go to the Hunan Magic website

under Chinese where it says awards. They're still bragging about these honors. They're still bragging. And the dates you will notice are 2002, 2003, 2004. When they're counterfeiting products. Absolutely. This is a typical game, you know. Pretend to be the most honorable company in the world to your own countrymen.

Knock off the foreigners. Right then and there, Mark decides it's just not worth it. Because all these awards mean local officials are probably going to protect Hunan Magic. Local officials are probably going to protect Hunan Magic. I decided it would be unsafe for me to try to meet with local government officials. Unsafe? As in physically unsafe? Yeah, yeah. Yuan Hongwei may have impressed local officials, but they weren't there to protect him in London.

Abro had set in motion a series of events that made counterfeiting just painful enough for Yuan Hongwei. He was threatened with hard labor in Louisiana, had to spend weeks in a foreign jail cell, and then had to secretly flee back to China. Not the usual cost of doing business for making knockoff clue. Even though Bill had lost Yuan Hongwei in London, Bill actually won. Because after London, Yuan Hongwei stopped counterfeiting Abro products. But Bill's problems with Abro counterfeiters didn't quite end there. Beating Hunan Magic, beating this major counterfeiter, it was similar to how when we

beat the Soviet Union. What do you mean? Well, after the Soviet Union fell, there was a part of us that said, hey, we won the Cold War. We don't have any more problems. What we just had were smaller and different problems. Here's what was happening. Even though Hunan magic was out of the picture, its temporary success at ripping off Abro had spawned copycat counterfeiters elsewhere in Angola, Ecuador, and of course, other places in China. Which meant Avro had a bigger and more complex problem. It couldn't just hire Bill to go around the world planning expensive sting operations and extraditions.

What do we do? We have to stop the counterfeiters. But now we've got a bunch of them and we have to do it in a way that still leaves the business profitable. Or what's the point? Right. Well, when it came to China, Bill, who, remember, loves an elaborate sting operation, he discovered over time that the solution wasn't all that complicated or expensive. Instead, it involved drinking a lot of tea. It's very good. What kind of tea?

Government tea? I'm not real clear. I'm not, I don't have, I have what's known as a gutter palate. Bill has found that in China, local authorities have a ton of power. So what he does now is set up lots of meetings. Meetings with the people who can launch investigations to conduct raids, seize counterfeit products, and arrest counterfeiters. I always prefer criminal action.

An arrest is always what I'm looking for. Some time in jail is never worth selling counterfeit glue. If you ask Bill, this is how to stop counterfeiters in China and elsewhere. Lots and lots of meetings. He's been at it 11 years now. He says he's traveled to 55 countries, gotten at least a dozen people convicted, and millions of dollars of counterfeit goods destroyed. How do you reward these local authorities after a raid goes down?

Do you take them out to dinner? I award them with the key currency all bureaucrats love, which is thank you. And often a small plaque, a small plaque they can put in their office. It's a foreign plaque. And it says, you know, that you helped us. And I like to give them, make sure they know who they help. You really think that excites them? A plaque that they can hang up in their office?

That's really why they're helping you? The people I'm working with, yes. That they want to be, people want to be appreciated for their work. Are you sure you never bribe people, Bill? No, never. We asked Bill about bribery several more times. And each time, he swore it never happens. But I have to admit, it all seemed too simple to me. This idea that the solution to protecting intellectual property in China is

just to schmooze with local officials. I mean, how typical is Abro? We keep hearing stories about how the Chinese don't respect intellectual property. Stories about trade secret theft, patent infringement, forced technology transfers. How can it be that the solution to all that is just to sit down with a lot of bureaucrats, drink a lot of tea, and give out a lot of plaques? I went back and I talked to Mark Cohen about this, and he was like, yeah, that works sometimes. But here's the way you got to think about it. China does protect some foreign IP. He pointed me to cases involving vacuum cleaners, water heaters, and, of course, glue. But he said what's important to look at is what China isn't protecting. to China, let's say semiconductors, let's say the IT sector, let's say pharma, that your chances of getting a fair shake are not nearly as great as something that is of less critical importance to

China's industrial needs. Like glue? Like glue, yeah. So you think maybe that's why, in the end, Avros found a way to make the system in China work for the company, because they're just selling glue. They're not selling semiconductor technology. China does not, as far as I know, have a five-year industrial plan on glue. So yes, China is able and willing to protect foreign glue in that set of circumstances. Semiconductors, a different story. If you like this and other Planet Money stories, you can always support our show by donating to your local public radio station at donate.npr.org slash planet money. That's donate.npr.org

slash planet money. This rerun was produced by Irina Huang with help from Gilly Moon. The original episode was, I think, produced by me. I don't really remember. Special thanks to Echo Wong for interpreting, and Leon Gu, Jack Chang, Scott Palmer, Bill Alford, and William Waitman for teaching me about China's IP system. Planet Money's supervising producer is Alex Goldmark, and our editor is Brian Erstadt. I'm Nick Fountain. And I'm Elsa Cheng. This is NPR. Thanks for listening. And a special thanks to our funder, the Alfred P. Sloan Foundation,

for helping to support this podcast.