“The very first link to the Pleasant Goat and Big Big Wolf stuffed toys you gave me was fake. I remember the company clearly. They said they could provide non-counterfeit toys, but I didn’t hear from them again. I surfed the pages, and found that 20% of the products on the first and second pages were unlicensed. When will taobao.com pay some attention to us?”

Mr. Zhang Nu from the brand licensing department of Guangdong-based Creative Power Entertaining, producer of Pleasant Goat and Big Big Wolf, made the remarks with some resignation on September 22, 2009 after being asked by a China IP reporter to pick out some unauthorized goods from a search results of “Pleasant Goat” products available on taobao.com.

Permission from Creative Power is necessary for anyone to use “Pleasant Goat” animation images to make stuffed toys and other derivative products. However, the pity is, in reality, that many toys are “pirated” ones without authorization from the companies.

Authorization, a basic link in developing derivative products

As a China-Germany joint venture, Nanjing Great East Arts & Crafts Co., Ltd is one of China’s large producers of stuffed toys. In 2007 the company noticed the “Pleasant Goat”, which at that point was at the initial stage of market expansion.

“We expected much from this funny, healthy brand of children’s toys, and were willing to pay for the licensing of its images,” sales manager of Great East Yang Jialiang told a China IP reporter.

As a result, Great East became the first licensed enterprise to produce “Pleasant Goat” toys before the brand became popular. After that, it transported the toys across the country using its strong marketing channels. Creative Power once said gladly to Yang: “clients nationwide are saved the inconvenience of having to physically travel to our company; they only need to go to the nearest market to have a look of our products.”

Of course, Great East was not the first company developing “Pleasant Goat” derivative products, since the first company was the Children’s Fun Publishing House.

Potential market demands for “Pleasant Goat” products began as early as 2006, but no company dared to try to cooperate with Creative Power. Its license department reaped nothing in six months and failed to generate any profit in the publishing field after spending four months on the project.

This all changed one day when Yang Xueping, manager of the promotion department of Creative Power Entertaining, asked her daughter to go out with her one day. According to Yang Xueping, her daughter said, “I don’t want to go out with you now. I want to stay at home to watch TV.” Yang noticed that her daughter wanted to watch ‘Pleasant Goat’ on TV instead of going out. Soon after the Publishing House began to become interested in the animated TV series and did a survey of its audience rating in Beijing. It found that ‘Pleasant Goat” was the second most popular character on TV, second only to Doraemon. So the company’s cooperation started quite suddenly after this realization.

In the following three years, more than 10 million copies of the “Pleasant Goat” series books were sold, with a total value exceeding 100 million Yuan. By the end of 2008, the film version of “Pleasant Goat” brought the animation into “mainstream society” and made it a household name.

Zhang Nu, who came to the licensing department of Creative Power in autumn 2008, had strong feelings about the change. “Many new clients began to join in at the turn of 2009, that is, they showed interest around the showing of the film,” he said.

According to Zhang, the financial crisis also contributed to the change. Many toy processing companies began to shift their eyes back home to domestic consumption, where “Pleasant Goat” was a more worthwhile investment.

Although the number of companies who sought licenses increased, which made the licensing job easier, companies who wanted to grab a share without paying a penny in licensing also increased, and much more rapidly. Unfortunately now, according to Yang, “75% market shares are taken by ‘pirated’ products.”

“Piracy”: Pleasant Goat is not pleasant

There was a school not far away from Creative Power, and two children’s shops were located on the opposite side of the school. A line of “Pleasant Goat” toys hung on the window of one of them. When the reporter mentioned the shop in his first interview of Creative Power, Yang Xueping smiled: “those are all ‘pirated’ toys without our permission.”

All kinds of unauthorized products came out after the TV series became hot, said Yang. Cards, small toys and coins from workshops were found in stationery and roadside shops. Numerous pirated “Pleasant Goat” products had found their way to large toy wholesaling markets in Guangzhou. On the Valentine’s Day this year, all “Pleasant Goat” flowers sold on street were fake. One of the funniest is that of a medicine website in Wuhan which was marketing itself under the name “Pleasant Goat.”

As sales manager of a licensed company, Yang Jialiang hates piracy equally. At the Hangzhou Animation Festival held last May, Great East was the only authorized producer among a dozen stalls selling stuffed “Pleasant Goat” products. “I was so deeply impressed. We had stern conversations with the organizer, but got nowhere,” he said.

Pirated “Pleasant Goat” products presently takes up a large share in retailing and wholesaling channels in big cities. The China IP reporter found all kinds of unauthorized toys and garments in large wholesaling markets in Beijing; the case was the same in some retailing shops. In a small shop near the China IP office, moon cakes could be found recently with packing bags bearing images of Pleasant Sheep and Pretty Goat.

On top of these products of low technological content, there were also other pirated goods of “creation.” In a supermarket near the Maternal and Child Care Hospital of Tongzhou district, a kind of flashlight can commonly be found which flashes a “Pleasant Goat” image on the wall. It is priced at 3 Yuan. The sales person told the China IP reporter: “It has sold well. Many adults buy it for their children.”

Yang Jialiang was more shocked by the awareness of consumers and sellers. “When on a business trip, I am often asked by consumers about both authentic and fake “Pleasant Goat” products. When I questioned a piracy seller why he did so, he responded with perfect assurance, “why should people be allowed to copyright such things; whoever produces them has rights.” Then I explained the idea of copyright. He then said loudly that it’s a question of money; OK, how much money must I pay to become authentic? I felt so helpless before such a seller,” said Yang.

There were also occasions when he was touched by consumer respect, especially in big cities. Once in Shanghai he saw a primary school child and his mother passing a street stand. The mother wanted to buy him a pirated ‘Pleasant Goat’ toy, but the child told his mother seriously, “this is piracy and I don’t want it.”

Result: no more “Pleasant Goat”
“Piracy not only exists, but has a huge impact on reality,” Zhang said.

“Every company who wants our permission or seeks our permission repeats the same question: “how rampant is piracy and how should we fight against it,” Zhang told a China IP reporter.

Their worries are substantial: about one third of the companies would give up cooperation due to lack of confidence, and the rest would try to get a lower license fee. The license department of Creative Power had to compromise. “Actually, every license we give is painful,” Zhang said. The license recipient felt the pain equally.

After the “Pleasant Goat” became popular, Great East encountered fierce attacks from unlicensed toys. Despite its advantage in market channels, it was weak at the most important point, price, and therefore lost the whole battle.

A stuffed toy from Great East was 68 Yuan, said Yang Jialiang, while a pirated one of the same size was only 20 Yuan. Three reasons were behind the price gap: firstly, the price of a licensed toy was decided by the right holder, and the retailing price was relatively high for a brand product; secondly, licensed products were priced higher due to their official market channels and input in publicity and brand building, while pirated goods were sold through small and secondary channels without any cost. At the same time, piracy makers simply used official producers’ input in brand building and publicity. Thirdly, material and personnel cost for licensed products area higher and a large amount of money is spent on quality examination.

However, Yang believed that the biggest victim of piracy is the right holder instead of the licensed companies. This is because the licensed companies have their steady business and are not threatened by the failure of a single product. “But for the animation company, it is a vicious circle. Licensed companies cannot profit through the brand, while the company trying to give license lose control in negotiations with producers. The cheapness of cooperation and the loss of opportunity have put animation companies on a tightrope,” Yang said.

Right defending: a long way to go
Yan Chuang (alias), person in charge of the law department of Creative Power, still remembers an action against a wholesaling market at Guangzhou’s Wanling Square. The company’s law and licensing departments reported pirated toys to industrial and commercial authorities after collecting evidence. The goods were taken off shelves but were put on again after half an hour.

“There was no result,” said Yan. “Sometimes it is quite embarrassing for the protection of derivative products of animation. When we apply to the industrial and commercial authority, it demands a registered mark; otherwise the case goes to copyright department, which requires more evidence.”

Apart from the theoretical difficulty, the fact that most pirated goods come from small workshops also makes things harder. According to Yang Xueping, for an ordinary company, “it is hard to fight piracy in Guangzhou, needless to say, we must increase the cost of manpower and material resources, which are needed on a larger scale.”

Creative Power has not engaged in litigation so far, which usually brings more benefit than cost for a company. It is also hard for licensed companies to defend their rights. On the one hand, licensed company needs permission from Creative Power in fighting piracy, and on the other, it also comes across the problem of manpower and material resources. “I think that in the field of intellectual property protection of animation images, both parties have a responsibility to defend their rights, except their jobs are different. Usually we fight piracy in product and sale channels, while the animation company publicize the official version through its media channels to protect its rights,” said Yang Jialiang.

All departments of the company have told reporters that government aid and law enforcement are needed in the battle against piracy. They all believe that “the law-breaking cost is low, the fight against piracy is hard and the result is unsatisfactory”.

Although there is a long way to go to fight piracy on the “front line,” companies are trying hard to get around it to earn themselves more profit.

Channel and licensing: a self-salvation solution?
The China IP reporter contacted the Walt Disney Company, (Shanghai) Limited, on the protection of animation derivative products. They didn’t accept an interview but replied in a letter saying it is “committed to putting more authentic products in wider channels.”

When it is hard to protect one’s rights through law enforcement, it seems best to guarantee one’s interest by keeping channels open and wide. This is also the choice of Great East. They poured much effort through legal and official channels to keep pirated toys at secondary markets. They gave low price in wholesaling to fight piracy backing return. In addition, they also promoted products on the Internet, protecting its online markets by telling consumers how to tell authentic toys from fake ones.

The licensing department of Creative Power also tried its best to protect itself.

There are presently three kinds of licensing: for product, for channel and for promotion; each of which are affected by piracy in different degrees. Product licensing is almost 100% affected, but it’s a fixed and stable income source for an animation company. Promotion licensing is rarely affected by piracy, but it is “by luck”, as the cooperative partners are all large enterprises who will decide whether and how to cooperate. Channel licensing is how products are franchised. There is almost no piracy in this field and profit is the greatest because the company can control the whole production and sale process. But there are more difficulties. According to Zhang Nu, a company must consider these difficulties. Such factors include: “whether the brand and product variety are big enough? More importantly, the company itself has to control fund, logistics and production. This is a burden that is too big for us.” Zhang Nu noted that, “that is the point at which ‘Blue Cat’ once failed on.”

Of course, although different licensing strategies cannot keep piracy away completely, a good choice of strategies can help better develop the company and build a fence for it.  

         (Translated by Li Heng)