US embassy cable - 03HOCHIMINHCITY258

UNCLAS SECTION 01 OF 02 HO CHI MINH CITY 000258 
 
SIPDIS 
 
STATE PASS TO USTR FOR EBRYAN 
USDOC FOR 3132/OIO/EAP/KELLEHER 
USDOC FOR 1431/MAC/AP/HPPHO 
 
E. O. 12958: N/A 
TAGS: ECON, ETRD, KIPR, KTEX, VM, IPROP 
SUBJECT: VIETNAM IPR ENFORCEMENT SUCCESS STORY:  NIKE 
COUNTERFEITER LOSES BIG 
 
REF:  02 HCMC 934 
 
Summary 
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1.  In an IPR enforcement success story, the Ho Chi Minh City 
Economic Police have wrapped up a case against a major 
counterfeiter of Nike footwear.  Although fines relating to IPR 
violations were nominal, local authorities assessed substantial 
fines for tax evasion and confiscated supplies and production 
equipment.  These fines and forfeitures amount to more than 
US$160,000.  Nike had high praise for the Economic Police, but 
faulted the People's Procurator in Ho Chi Minh City for dragging 
its feet. 
 
Nike Counterfeiter Raided in Summer 2002 
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2.  In July 2002 the Ho Chi Minh City Economic Police raided a 
workshop producing high quality counterfeit Nike shoes and other 
famous brands. The raid, as reported in reftel, resulted in the 
seizure of 23 truckloads of fake components, supplies, and 
production equipment.  The case had been initiated at the request 
of Nike, which had been compiling information on this enterprise 
for about a year.  This producer had been targeted by Nike because 
the operation appeared to be large and was producing high quality 
fakes.  Interestingly, the case came to the attention of Nike 
through a tip from another (rival) counterfeiter. 
 
Follow up reveals national network with large turnover 
--------------------------------------------- --------- 
3.  Following up on the raid, the police found a national 
distribution network with retail outlets in Hanoi, Haiphong, and 
Danang.  The police traced bank transfers of funds indicating that 
the business generated revenues equivalent to at least US$100,000 
for the 18 months leading up to the raids.  Even with all of this 
evidence, however, authorities decided that they could not 
prosecute this case as a criminal case.  The raid netted 23 
truckloads of production equipment and supplies, but only 47 pairs 
of counterfeit Nike shoes.  Because the value of actual 
counterfeit products was so low, the police, along with the 
People's Procurator's Office, determined that the case had to be 
handled as an administrative matter.  In an administrative case, 
local authorities only have the power to assess limited fines and 
confiscate equipment, product and supplies.  In a criminal case, 
the case would be heard in court and fines could be higher and 
jail terms could be handed down. 
 
Let the Punishment Fit the Crime 
-------------------------------- 
4.  This did not stop local authorities from taking full advantage 
of their authority to assess administrative penalties in this 
case.  These fines and forfeitures were spelled out in a decision 
from the local District People's Committee dated February 25, 
2003.  The actual fine based on IPR was very low- only VND 500,000 
(about US$325).  The real penalties were assessed in other areas. 
The local Taxation Department imposed a penalty of VND 132,319,000 
(about US$8600) for back taxes and tax evasion. 
 
5.  The District People's Committee also authorized the permanent 
confiscation of the production equipment seized in the raid.  This 
included: 
-    US$26,000 worth of production equipment 
-    US$$19,500 worth of synthetic leather (2078 kilograms) 
-    US$1200 worth of cement (ten tanks) 
 According to Nike, this equipment and the supplies will be sold 
and revenue turned over to the state budget. 
 
6.  The police were also granted authority to destroy components 
seized in the raid.  These included: 
-    $117,000 worth of fake Nike shoe components (completed uppers 
and unit soles) which could be used to make 15,000 pairs of fake 
Nike shoes. 
-    Additional components that could be used to manufacture 
counterfeits of other name-brand sport shoes. 
 
7.  These penalties are impressively large.  They are even more 
impressive when considering that the individual who owned this 
operation is a relative of a powerful People's Committee chairman 
in a neighboring district.  This appears not to have influenced 
the progress of the case.  Nike reports, however, that the 
counterfeiter may be trying to set up another operation to produce 
counterfeit goods in another district in the city.  Nike plans to 
monitor developments closely and work with local police to follow 
up. 
 
Comment 
------- 
8.  While one such event does not indicate a sea change in the 
difficult IPR environment here, this case - in which a politically 
connected individual was made to pay dearly for flagrant 
production of counterfeit goods - is good news indeed.  Nike 
praised the work of the Economic Police, although Nike's expert on 
counterfeiting stated that he felt the People's Procurator were 
slow to respond to the case.  Nike has no illusions about the IPR 
climate in Vietnam, but hopes to build on this case for further 
cooperation with local authorities.  Post will follow up with 
local authorities to compliment the Economic Police on their 
handling of this case. 
 
YAMAUCHI