In 1939, in a small garage located at No.367 of Addison Avenue of Palo Alto, California, two young professionals, Dr. William Hewlett and Dr. David Packard, with enthusiasm and vision, created the Hewlett-Packard Development Company, L.P. (HP, as we all know) beginning their incredible journey to nearby Silicon Valley and creating an equation: doctors + garage = HP.

Sixty years later, HP has grown from a USD 4,000 a year fledgling operation into the world’s largest technology corporation, with sales of USD 104.2 billion, annua1ly. The IT giant can boast 150,000 employees, 1 billion customers, and branches in more than 170 countries. Though the global economic crisis has caused a drop in their Fortune 500 ranking from 33 in 2006 to 41 in 2008, HP has never lowered its investment in IP protection. We interviewed Mr. Guo Zidun who is in charge of IP for Hewlett Packard in the Asia-Pacific regions to better understand their winning IP protection strategy.

To protect consumers is to protect the brand 

Relative to HP’s IP protection strategy, Mr. Guo had this to say, “Brand protection is the focus of IP protection for all companies. For HP, crackdown on one fake product is good for the sales of other products and the maintenance of corporate image. Let’s take consumables as an example. If a customer buys a fake ink cartrige or Se drum of HP brand and is not happy with the product, he will possibly prefer any other brand to HP when he buys a notebook. Therefore, for a product diversified company like HP, intellectual property protection, especially brand protection is of crucial importance. What we shall protect is not simply a product, but also consumers’ interests, because they are the potential customers of HP’s diversified product line.”

HP has several lines of product. According to Guo, HP is not monotonous in adopting protection strategies. “The counterfeiting condition of different products is different. HP will make a specific protection strategy for a specific product. There is no universal rule for all products. When an HP product encounters counterfeiting, HP will study the situation, and select the most suitable strategy for it.”

Focus on results, not figures

Many enterprises set a specific number of cases given to investigators, and require them to crackdown on the quantity of fakes in the market, as a standard for evaluating their performance. However, for HP, the figure is not the only yardstick. If a company allocates one million Yuan for striking fakes, and requires an investigation company to find a certain number of phony products, the investigators may spend 500,000 Yuan to buy counterfeits. This is obviously not what we want to see. For HP, the basic requirement for investigation companies is a substantial reduction in the market of fake goods.

Along with a reduction, HP exerts great energy in shutting down the source. Mr. Guo stressed, “We don’t set any deadlines for the investigation company; neither do we demand quick feedback. We require them to submit a report when their work is 10%-15% in progress. We think the most important thing is to find a best way to manage the case and to guide the investigation. Enterprises know best their own expectation of the crackdown effort, which is, in my opinion, the increase of sales volume. HP has an independent market investigation company. It goes to different areas in China every three months to buy HP products and brings them back. Then we verify the authenticity of products and accordingly estimate the market share of fake products. In addition, we can also use the increase of sales to evaluate the performance of a crackdown campaign. A crackdown campaign is just like a significant splash in the market wave, causing certain influence in a certain area for a certain period of time. If we seize this opportunity to promote sales, it will be quite effective.”

Stability, accuracy and force: three requirements for anti-counterfeiting

Asked about specific anti-counterfeiting measures, Mr. Guo responded, “Many enterprises in Shenzhen, Guangzhou or Zhuhai manufacture consumables that have no brands but are compatible with HP products. This is acceptable in by the industry. But we shall pay attention to the packaging of these imitations. Packaging is very important for consumables; naked consumables cannot be sold. Therefore, counterfeiters tend to cheat consumers by using a fake packaging. HP strictly controls the supply of external packing. For printing houses that produce fake packing, we find ways to multiply their risks, since either confiscation or fine is too superficial for them. If possible, we will have their costly printing machines confiscated. At the end of 2007, we gave a heavy blow to a fake-making printing house in Zhaoqing City of Guangdong Province. We communicated with the public security bureau, making requests to them and explaining the necessities. After we made clear the situation, they adjusted the action time exactly when the machine was running and the boss was at site (otherwise, it would be hard to find him). So before the action, we did a lot of preparation work. We confirmed who the boss was and when he would be at the site. Then in the action, the public security bureau detained seven people, confiscated five printing machines, five transporting vehicles and a large amount of cash. All target persons were caught at site. Two biggest bosses were sentenced to four years and three years and six months in prison respectively and were imposed a fine of totally more than one million Yuan. This action is quite stirring. Its heavy punishment tells counterfeiters how resolute HP is in cracking down on fake products, and how risky fake making is.”

HP’s IP protection strategy for 2009

Concerning HP’s protection strategy for this year, Mr. Guo commented that: “HP has committed considerable resources to IP protection, especially in countries with high economic potentials and rampant fake products, such as China and India.  This year will not see any change of HP’s IP protection strategy, which means, HP will insist on reducing the market share of fakes by conducting investigations, cracking down on counterfeits and educating counterfeiters. If there are 10 million fake products in the market, we may crackdown on 30% of them. But if we eliminate 5 million fake products and there are still 20 million fake products, the percentage is only 25%. Therefore, just as I mentioned before, we evaluate our achievement by percentage, not by the specific figure.”

 “The only difference for this year is that we will shift more attention to HP’s sales channels, and strengthen our management of them. Actually, some fake products are sold via our own channels. We must ensure that our cooperation partners, such as agencies and trustworthy shops, are selling genuine goods. If we fail to do this, we could never achieve our goal or set a benchmark for other distributors. For a big company like HP, fake products are seldom sold by retailers. About 85% are sold by channels, by government procurement for example. Therefore we must put more emphasis on channel management and standardize their distribution.”

 “If we find any channel distributor selling counterfeits, we will make further investigations, collect evidence, and send the evidence to our sales department and law department. Then those adventurous distributors will be punished. And if our agencies sell fakes, we may withdraw their qualification as agencies and black list them. For trustworthy shops, we offer rebates as encouragement. Once a fake product is detected there, we will deduct the rebate for them, which is also a heavy punishment.”

 “Chinese characteristics” in IP protection

Mr. Guo believes that the efforts and achievements made by China in IP protection deserve our applause. However, he also pointed out, “There is a difference between China and foreign countries in IP protection. In China, many different law enforcement departments are entangled in anti-counterfeiting work, but in foreign countries, Customs is the only responsible organ. Another difference is that in China, there is a threshold for meting out criminal punishment for IPR violations. If a case does not meet the threshold, it will only receive a fine as an administrative punishment. And here, many departments, including urban management departments in some areas, have a hand in the administration of the punishment. We think protection in the use of criminal punishment way is most effective. But in the current situation, many counterfeiters use this ‘threshold’ to escape criminal punishment. For example, if we suppose 50,000 Yuan is the threshold for criminal charge, they will control the value of fake products within 48,000 Yuan, and then what they receive will simply be administrative punishment.”

 “Before conducting anti-counterfeiting work, investigation companies perform a huge amount of preliminary work, which is illegal according to law. Chinese law says that only evidence collected by law-enforcing departments is valid. Therefore we must cooperate with law-enforcing departments and give them some necessary training. This is what we have been doing. We hope they could know better about HP products and have a higher distinguishing ability.” Guo added.

Mr. Guo also expressed his concerns, “Due to the special cultural background in China, people do business in a somewhat different way. By way of example, a once legitimate distributor encounters a buyer of 300 ink cartridges and asks for a kickback. The customer would likely be sold counterfeits, because a kickback reduces the vendor’s profit. Some Chinese companies are quite ‘innocent’ in IP protection. This is a big reason for the flood of fake products in the market.”

(Translate by Hu Xiaoying)