US embassy cable - 05ROME2776

UNCLAS  ROME 002776 
 
SIPDIS 
 
 
SENSITIVE 
 
STATE FOR EB/TPP/IPE (JOELLEN URBAN) 
STATE PASS USTR FOR JAMES SANFORD 
DOC PASS USPTO 
DOG FOR DAAG LAURA PARSKY 
DHS PASS ICE 
GENEVA FOR USTR 
 
E.O. 12958: N/A 
TAGS: KIPR, ECON, ETRD, CM, IT 
SUBJECT: AS CHINESE FAKES INVADE ITALY, COMPANIES FEEL 
FRUSTRATED, POWERLESS 
 
REF: A. ROME 629 
 
     B. ROME 1900 
     C. ROME 1150 
 
Sensitive But Unclassified, please protect accordingly, not 
for Internet publication. 
 
This report was coordinated with Congens Milan and Florence. 
 
1. (U) Summary:  While famous Italian designers have long 
been a favored target of imitators world-wide, Italian 
business and government leaders are quickly realizing that no 
Italian product, no matter how mundane, is safe from Chinese 
counterfeiters.  Unlike the big fashion houses, most Italian 
manufacturers of clothing, furniture, plumbing fixtures, and 
specialized machinery have few resources to effectively 
defend their intellectual property in the face of this 
onslaught.  Businesses are citing China's lack of respect for 
IPR in their drive to convince Italy and the EU to raise 
barriers against Chinese imports.  In reality, Italy shares 
some blame for the situation.  Italian police do little to 
stop a vibrant street trade in fakes.  Italian consumers, 
meanwhile, are at best apathetic about IPR protection as many 
eagerly reap bargains from buying knock-offs.  A sclerotic 
court system makes lawsuits against importers of Chinese 
counterfeits too expensive for most Italian SMEs.  Many firms 
are thus resigned to the situation and hope to minimize the 
damage by staying small and innovative.  End summary. 
 
Italy Waking Up to Chinese Fakes 
-------------------------------- 
 
2. (U) Italian companies, renowned for their innovative 
design and high quality products, are feeling the bite of 
Chinese knock-offs.  While the theft of Italian intellectual 
property takes place in many countries, Italian officials and 
journalists are increasingly focusing on China as the main 
culprit.  In press interviews prior to his December 2004 trip 
to Beijing, Italian President Carlo Azeglio Ciampi urged 
China to do more to protect intellectual property.  During 
the visit, China and Italy signed an MOU on IPR protection 
that covers information exchange on IP laws, assistance with 
trademark registration, and joint seminars on IPR protection. 
 The MOU, however, has not resulted in much, if any, 
reduction in rampant counterfeiting of Italian brands in 
China, both for sale in third markets and for export back to 
Italy. 
 
3. (U) No estimates are available for Italian industry losses 
due to Chinese counterfeiting of Italian trademarks, 
copyrights, and patents.  China's rise as a commercial power 
has generated much public debate about how Italy, which 
maintains large shoe and textile industries, should respond. 
Within this public discourse, however, there is often little 
distinction made between the threat posed by Chinese 
counterfeits versus that of legal Chinese imports. 
Confindustria, Italy's primary business association, for 
example, estimates that Chinese legal and illegal imports 
combined have cost Italy 40,000 jobs, but does not give a 
figure solely for IP-related losses. 
 
4. (U) The Italian media is devoting more attention to the 
scope, diversity, and sheer gall of Chinese counterfeiters. 
The press widely reported a July 2005 raid during which 
police in Pisa uncovered euro 3 million  ($3.6 million) worth 
of Chinese dentures and other dental equipment that had been 
illegally labeled (in Italy) with Italian trademarks.  Also 
in July, newspapers in Rome followed the investigation of an 
underground bank catering to the city's Chinese immigrants 
that was allegedly laundering money, including proceeds from 
the sale of counterfeit clothing.  (A similar underground 
bank was also uncovered in Milan.)  In February 2005, a 
journalist for La Repubblica, a nation-wide daily newspaper, 
 
 
wrote an article about the trafficking of fake handbags from 
Guangdong, China to Italy via Dubai.  The author now intends 
to expand the article into a book-length project and recently 
contacted the Embassy for assistance. 
 
No Longer Just Handbags and Sunglasses 
-------------------------------------- 
 
5. (SBU) While counterfeiting has long been a problem for 
famous Italian designers--Gucci, Armani, Prada, etc.--a wide 
range of not-so-famous Italian companies are also falling 
victim to Chinese imitators.  A typical anecdote: earlier 
this year Michele Perini, president of Assolombarda (the 
Milan Manufacturer's Federation), found that Chinese 
counterfeiters had hijacked the website of the family office 
furniture business.  Photos of the factory remained, but the 
images of Perini and his brother had been replaced with those 
of two Chinese men. 
 
6. (SBU) In addition to furniture, Italian-made plumbing and 
household fixtures are also becoming favorite targets for 
Chinese counterfeiters.  Fabio Aromatici, director of 
international markets and IPR at Assolombarda, told Milan 
Econ Specialist that Italian companies are increasingly 
dealing with complaints, and the occasional lawsuit, from 
customers who unknowingly purchased inferior Chinese copies. 
In the case of water faucets, Aromatici commented, 
counterfeiting has become a public health issue as 
investigators have discovered knockoff faucets that contain 
illegally high levels of lead.  In a March 2004 article, the 
Corriere della Sera, Italy's largest newspaper, reported 
critically on the number of counterfeit Chinese water faucets 
on display at a Milan trade exposition, often just meters 
from those of the legitimate Italian manufacturer.  Some 
Italian companies, Aromatici said, are now attending European 
trade shows with their lawyers in tow and calling police when 
Italian firms encounter blatant counterfeits.  Though Italian 
police have conducted some trade show raids, Aromatici 
remarked that German police tend to be more aggressive. 
 
Not Just Fakes, But "Super Fakes" 
--------------------------------- 
 
7. (SBU) Carlo Imo, general counsel for Gucci, told Econoff 
that his firm is very concerned about the growth in "super 
fakes"--copies which, unlike those sold by street vendors, 
are good enough to pass as real Gucci products.  Gucci has 
uncovered these high-end fakes in major Italian department 
stores.  Traditionally, he observed, only Italian underground 
factories had the skill and know-how to produce near-perfect 
copies.  Now, "super fakes" are coming out of China, a 
phenomenon that, Imo said, is the result of increased 
tech-transfer and cooperation between Italian and Chinese 
organized crime gangs. 
 
Permissive Legal Atmosphere 
--------------------------- 
 
8. (SBU) Italy is a particularly welcoming market for 
counterfeit and pirated products from China and elsewhere. 
Italy's national government has steadily increased penalties 
for IPR-related theft, but local-level enforcement is uneven 
to non-existent.  (Note: Italy's parliament recently made the 
purchase of counterfeit goods subject to a fine of up to euro 
10,000 ($12,000) (Ref B).  While police in Florence and Rome 
have issued fines to a handful of tourists, neither we nor 
our industry contacts believe this measure will be enforced 
in the long term.  End note.) 
 
9. (U) Italy's court system has also established legal 
precedents highly unfavorable to rights holders.  Perhaps 
most notorious from an industry standpoint is the court's 
citation of "economic necessity" as a basis for acquittal in 
 
 
IPR cases.  In a ruling in early 2005 that upheld a 2001 
precedent, a Rome judge found an illegal immigrant not guilty 
of selling counterfeit audio cassettes because, in the 
judge's opinion, the man had no alternative legal means to 
earn a living.  Such decisions, according to Embassy 
contacts, not only encourage illegal immigrants to enter the 
street trade, but also reinforce the common public attitude 
in Italy that buying and selling counterfeit products is not 
necessarily illegal. 
 
10. (U) Italy's Supreme Court of Cassation, meanwhile, has 
weakened country-of-origin labeling requirements for imported 
goods.  In February this year, the court ruled that Italian 
companies could affix their own labels to 
foreign-manufactured garments without a clear statement of 
origin--i.e., a label could simply say "Company X, Italy." 
In justifying the decision, the court said that it is enough 
for the consumer to know the name of the Italian company 
responsible for the production and quality control of the 
product, regardless of where the item is actually made. 
 
11. (U) The Court of Cassation ruling has angered many in the 
business community.  Glauco Camerini, an IP attorney for 
Confindustria, told Econoff the decision creates a more 
conducive atmosphere for the re-labeling of imported 
counterfeit products.  Confindustria wants Italy to pass 
stronger legislation that will require clear "made in" 
labeling for all imports, including products produced abroad 
by Italian firms.  Marcello Gozzi, director of the business 
association in Prato (an industrial suburb of Florence that 
is also home to a large concentration of immigrant Chinese 
businesses) complained that the re-labeling of Chinese 
clothing as "made in Italy" is already an all-to-common 
occurrence. 
 
Italian SMEs Lack Funds To Protect Their IP 
------------------------------------------- 
 
12. (U) The Italian economy is overwhelmingly composed of 
small- and medium-sized firms, many of which are struggling 
to survive in Italy's weak economy.  Gustavo Ghidini, a 
professor of IP law at Rome's LUISS University, told Econoff 
that Italian SME's have few resources to protect their 
intellectual property, either in Italy or China.  In Italy, 
the court system is notoriously slow, with civil cases often 
taking years, even decades to conclude.  The result, 
according to Ghidini, is that lawsuits against counterfeiters 
are prohibitively expensive in Italy for all but the largest 
firms.  An additional factor is the nature of the Italian 
patent system.  Italian patents are awarded without 
examination, meaning ultimately judges must decide the 
validity of a patent when the patent holder files suit 
against an alleged infringer.  This increases the uncertainty 
for rights holders pursuing cases against counterfeiters. 
 
13. (U) While an increasing number of Italian SMEs are doing 
business in China, Italian firms are neither experienced nor 
aggressive in using the Chinese court system to stop 
counterfeits at the source.  This, said Aromatici of 
Assolombarda, is due not only to deficiencies in the Chinese 
legal system, but also a lack of money to file for patent and 
trademark protection outside of Italy.  Many, if not most, 
Italian companies, according to Aromatici, do not bother to 
go through the expense and hassle of obtaining patents and 
trademark registration in China and thus do not have the 
basis to pursue cases in Chinese court. 
 
But Being Small Has Advantages 
------------------------------ 
 
14. (SBU) Rather than aggressively defend their intellectual 
property in the face of Chinese counterfeiting, many Italian 
SMEs have resigned themselves to a certain level of IP theft 
 
 
and are learning to cope.  In this sense, being small and 
nimble can be helpful.  Stefano Orrea, a director at Patrizia 
Pepe, a small Florence-based clothing maker, told Econoff 
that his company has seen several of its clothing designs 
copied by Chinese imitators.  However, because the label is 
less well known, Orrea said, Patrizia Pepe has seen little 
outright counterfeiting--i.e., copying of both the design and 
trademark.  Patrizia Pepe accepts Chinese imitations as a 
given and simply focuses on constantly updating its clothing 
lines to stay ahead of the pretenders.  Orrea admitted that, 
given that knockoffs have yet to really cut into the 
company's bottom line, he actually takes some satisfaction in 
seeing Patrizia Pepe copies.  The fakes, he explained, are 
evidence that the company is producing popular designs. 
 
15. (SBU) Another Florence-based small business, Passaponti, 
is likewise less concerned with counterfeiters.  Passaponti 
makes specialized industrial cleaners, typically used on 
automobile assembly lines to clean precision engine parts. 
Company founder Alberto Passaponti was one of several Italian 
businessmen who accompanied President Ciampi on his December 
2004 trip to China.  Passaponti told Econoff that he has had 
problems with counterfeiters in India, where one company is 
illegally using one of his trademarks and has copied 
wholesale from his brochure.  Passaponti, however, said he is 
not particularly concerned about Chinese counterfeiters and 
has not bothered to seek patents or to register his 
trademarks in China.  The machines he makes are highly 
specialized, he said; and the large auto manufacturers that 
comprise the bulk of his customer base are unlikely to be 
fooled by an imitator. 
 
Comment: Those in Glass Houses... 
--------------------------------- 
 
16. (SBU) Chinese counterfeiting is increasingly on the radar 
of the Italian business community and government leaders. 
The main concern of Italian firms, particularly in the 
footwear and garment industries, however, is to seek 
protection against all Chinese imports rather than specific 
curbs on fakes.  For its part, the Italian government will 
continue to seek "soft" engagement (i.e., MOUs, technical 
exchanges and the like) with China on IPR issues, but the GOI 
is unlikely to aggressively press China to make improvements. 
 Italy has taken this strategy partly because Italy itself 
does not have its own intellectual-property house in order. 
Furthermore, Italy, in comparison to the other major European 
economies, is not a large investor in China (Ref C) and does 
not perceive itself as having significant bilateral economic 
or political leverage over Beijing.  While our expectations 
for Italian actions vis-a-vis China are modest, Mission Italy 
will continue to emphasize to all Italian interlocutors that 
stopping rampant Chinese counterfeiting/piracy is an 
important mutual interest.  End comment. 
 
SPOGLI 
 
 
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 2005ROME02776 - Classification: UNCLASSIFIED