Countering the counterfeiters.

PLASMA equipment maker Plasma Etch recently discovered that counterfeit plasma machines bearing its name were being marketed and sold in China, Taiwan, Malaysia and elsewhere in the Pacific Rim. It's an old story for the Carson City, NV-based company. Several years ago, the firm learned that an Asian company was marketing counterfeit Plasma Etch machines that boasted an added feature--a tendency to catch fire. Angry customers called Plasma Etch for support and found out they'd been had, and Plasma Etch endured a PR nightmare.

Counterfeiting and IP piracy are major problems in Asia, particularly in China. In pirated software alone, the numbers in China are staggering. The Business Software Alliance estimates that over 90% of the personal computers in China run on pirated operating systems.

It's not solely a China problem, either. The World Customs Organization estimates that counterfeiting amounts to 7% of the world's merchandise trade, with lost sales worth up to $512 billion in 2005. But the knock-off makers in China have become multi-national companies in their own right, with profits that rival their "prey" companies.

For years, Chinese authorities considered counterfeiting a victimless crime, and one that's good for the economy to boot--fakes are estimated to account for up to 8% of that country's gross domestic product. Chinese companies made a fortune without having to invest in R&D, advertising or marketing strategies. And these companies found willing buyers: Many of China's residents have discretionary income, and they're as brand name-savvy as Westerners.

Little action was taken until fairly recently. Since joining the World Trade Organization in 2001, however, China has taken steps to counter the counterfeiters. Special courts have been set up to deal with the fakers, and police agencies often have their own anti-counterfeit teams.

According to a March article on Xinhuanet, courts in China jailed nearly 3,000 people for violating IP rights in 2005 alone. A spokesman for the Supreme People's Court said the courts handled 3,567 criminal cases and 16,583 civil cases related to IP rights violations last year.

As China's police have discovered, anti-counterfeiting raids make great news. In January 2003, three raids on businesses in Guangdong Province yielded over 300,000 pirated pieces of Nintendo Game Boy Advance packaging, manufacturing components and counterfeit versions of games. In July 2004, Chinese authorities raided five counterfeit golf club and equipment manufacturers in Jiangmen, Putian and Xiamen. Goods seized were worth more than $1 million.

For PCB makers, China has been something like the Wild West. Foreign manufacturers who set up shops there can cut labor costs and take advantage of the undervalued currency, but they might find copies of their boards on the gray market.

But the PCB industry is getting some help. Vendors at electronics trade shows in China had complained that counterfeiters often set up booths alongside legitimate companies. But at the China Printed Circuit Association trade show last year, authorities were seen removing counterfeiters from the show floor. It's a good start.

Counterfeiting has flourished in China because that country's culture values personal relationships over legal documents. We Westerners can't understand how a handshake can trump a patent or copyright agreement. That mindset should change as China becomes evermore Westernized.

Until then, authorities in China will continue using the threat of prison to make counterfeiting less attractive. But as of this writing, Asians can still buy a knock-off Plasma Etch machine through a counterfeiter's Web site.