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FAKED CRUSADERS

With the rise of abusive anti-counterfeit practices among China’s fake-goods hunters, some of the country’s well-known consumer crusaders wonder if there is still a future for them

By Li Mingzi Updated Jul.1

Customs officers in Hangzhou, capital of Zhejiang Province, watch as more than 60,000 intercepted counterfeit items are crushed, June 17, 2020

At just 19, Chen Zhiqiang, a resident of Xuwen County, Guangdong Province, has gained a certain notoriety as China’s youngest fake-goods hunter. These are people who make a living from buying counterfeit or problematic products to squeeze vendors and manufacturers by either filing complaints to authorities or suing them in court, even if they claim they are acting in the public interest. 　

Since turning 18, the minimum age of contractual capacity, Chen has filed more than 800 lawsuits against vendors and manufacturers, particularly targeting the food industry. Although only a few cases were upheld, Chen earned over 100,000 yuan (US$14,750) through his endeavors, not bad for someone who just graduated high school. 　

But Chen’s fortunes may have come to an end. In December 2021, a court in Xuwen ruled against him, saying that his frequent lawsuits in the past year amount to abusive litigation, and that he was now under investigation for allegedly blackmailing local merchants. 　

Chen’s last case involved the purchase of a snack from an online vendor for 30 yuan (US$4.4). He sued the vendor for failing to provide a quality certificate. 　

Most of his 800 cases involved small amounts of money, and many of those he attempts to sue settle out of court for a small amount. 　

The case quickly caused a stir among professional counterfeits hunters, with many concerned the legal environment for this controversial profession has turned hostile.

No Quality Control

Fake-goods hunters first appeared in the mid-1990s, a time when counterfeit products were everywhere in China, but there were almost no intellectual property protection laws. To address the issue, the government issued the country’s first consumer rights protection law, which took effect on January 1, 1994. 　

The law stipulates that if a business is found to have committed fraud while providing a product or service, the customer is legally entitled to compensation up to twice what they paid. The rationale is to provide incentives for customers to take legal action against vendors and manufacturers of counterfeit and problematic products to balance the relationship between consumers and business owners. 　

He Shan, a civil law expert who helped draft the law, was a major supporter of punitive measures back then, arguing that authorities needed to provide incentives to mobilize the public to take part in the fight against counterfeit goods. 　

He did not just argue for such measures, he took action. In 1996, He bought two paintings he knew to be fake from an art dealer in Beijing, who claimed they were works of Xu Beihong, a famous Chinese modern artist. He sued the art dealer and was awarded 5,800 yuan (US$855), twice the amount he paid). The case was China’s first lawsuit to award punitive compensation based on the new consumer law, and it is considered a landmark case. 　

But He was not the first to take advantage of the consumer rights protection law. That honor goes to Wang Hai, a resident of Qingdao, East China’s Shandong Province. Wang is recognized as China’s first professional fake hunter. In March 1995, Wang Hai bought 12 pairs of counterfeit Sony headphones from a shopping mall for about 1,000 yuan (US$147). After filing a complaint to commerce authorities in Beijing, he was compensated twice what he paid. 　

Wang realized he could make a living out of it. Within five months, Wang earned 8,000 yuan (US$1,189), which at that time was equivalent to almost twice the average annual disposable income of China’s urban residents. In December 1995, the China Consumers Association designated Wang as China’s first “anti-counterfeit warrior” and awarded him 5,000 yuan (US$737). 　

Wang’s success attracted a long line of copycat fake hunters, and it quickly became a full-time profession. Wang Jianlei, a former consumer rights journalist who joined the anti-counterfeit business in 2002, recalled that the 1990s was a period when Chinese consumers “woke up” to their rights. “Back then, fake-goods hunters were like heroes,” Zhao told NewsChina, “I can still name a dozen of them.” 　

But the boom of for-profit fake hunting led to controversy, as some legal experts argued they were not ordinary consumers, but profit-seeking business owners who should not fall under the consumer rights protection law. 　

Then when a Beijing court sentenced Zang Jiaping from Shandong Province who focused on fake medicine to three years in jail for blackmail in December 2003, it marked a major turning point in the authorities’ support for the fake hunters. Many believed that their honeymoon period was over.

Wang Hai, known as China’s first “anti-counterfeit warrior” gives a speech on consumer rights protection at Peking University, Beijing, March 17, 2005

Hard to Digest

Things quickly changed in 2008 with the infamous contaminated baby milk powder scandal. The case, which led to the poisoning of some 300,000 children and the deaths of six due to products being adulterated with melamine, involved the Sanlu Group, one of China’s biggest dairy producers as well as many smaller producers. As the authorities moved to address food safety issues, it became a watershed moment for China’s consumer protection law. Sanlu went bankrupt after the scandal. Tian Wenhua, Sanlu’s chairwoman was convicted for “producing and selling fake products” and received a life sentence in 2009. Reports suggest she may be released later this year for good behavior. 　

In 2009, the country passed the food safety law, which entitled buyers of substandard food products to compensation of up to 10 times what they paid. “It means 1,000 percent profit [for fake-goods hunters], and it’s all legal,” Zhao told NewsChina. As a result, the number of professional fake-goods hunters rose “exponentially” in the following years, and most of them focused on the food industry, Zhao said. 　

Referring to the seven or eight years after 2009 as the “golden age,” Zhao said he mostly targeted big brands, such as Coca-Cola. “As long as there were problems such as mislabeling, the court would support you. A single case could lead to 1 million yuan (US$147,490) in compensation,” said Zhao. 　

On December 9, 2013, the Supreme People’s Court issued an interpretation of the food safety law, stipulating that food and medicine manufacturers and sellers cannot defend themselves in lawsuits based on pre-meditation of buyers, giving support to fake hunters. 　

“This legal interpretation officially recognized professional fake hunters as consumers who simply chose to actively and frequently protect their rights,” said Du Peng, a lawyer from the Shanghai-based Zhongkai Law Firm. 　

In 2014, China amended its consumer rights protection law, increasing the amount of compensation from twice to four times the amount paid by a consumer, which pushed the fake-goods hunting industry to a new height. 　

According to Liu Junhai, a law professor from the Beijing-based Renmin University of China, the punitive clause in the consumer rights protection law nurtured a group of smart consumers who served as a deterrent against food security violations and helped create a healthy and clean business environment.

Abusive Litigation

As more and more people joined in, many of them opportunists, the business of fake-busting saturated. Many targeted small businesses and resorted to abusive practices or even criminal activities, like becoming fakers themselves by actively fabricating evidence. 　

According to Zhao Jianglei, some fake-goods hunters are fakes themselves. Zhao said some go to shops and look for food products that are about to expire and hide them at the back of the shelves. After the product expires, they return to buy them, then file complaints and lawsuits. “Inevitably, the high profit margins of the anti-counterfeit industry attracted many ill-intentioned individuals,” Zhao said. 　

For many small business owners, the emergence of fake-goods hunters has become a major risk. Xiang Jianhua, a tea vendor in Chongqing told NewsChina about his ordeal. 　

In late 2019, three customers frequented his tea shop, but never when he was there. They showed no interest in his tea products and insisted on buying a limited-edition tea displayed in his shop. The salesperson told them the tea was packaged in 2015 and not for sale. 　

To deter the customers, Xiang instructed the salesperson to say it had no real market value, and if they insisted on buying it, they would have to pay 100,000 yuan (US$15,748). To his surprise, the customers agreed and everything seemed fine. However, the salesperson noticed the customer’s hand was shaking when he entered his bank card pin number. 　

After about six months, Xiang received a court summons, notifying him the buyers had sued him for selling expired tea, as the label on the packaging read it had a shelf life of 36 months.

Xiang had no experience with lawsuits and was ill-prepared. The court ruled against him and awarded the plaintiffs 1 million yuan (US$1,500) 10 times the amount they paid. But Xiang said the tea was fermented and had a long shelf life. In Chinese tea culture, fermented teas are like fine wines or whiskies–the more aged, the better. It is common for valuable teas to be decades old. 　

Xiang appealed. This time, he was backed by a Chinese tea association, which testified that the expiration date on the tea product was the recommended best taste period, and passing the date did not make it substandard. This tipped the balance in Xiang’s favor. 　

Despite his win, Xiang has become very cautious about expensive orders. He handles any transactions over 1,000 yuan (US$147) himself, and no longer offers sample packets to customers. “These abusive lawsuits seriously undermine trust between businesses and customers and will cause long-term damage to the business environment,” Xiang said. 　

Xiang said he was not the only victim. Preparing for his countersuit, Xiang joined a local group of tea vendors who had fallen victim to similar schemes. Xiang estimated there were more than 200 vendors in the group and each was dealing with at least one lawsuit.

Law enforcement officials share the latest anti-counterfeit regulations at a tea plantation, Rongshui Miao Autonomous County, Guangxi Zhuang Autonomous Region, March 11

Up or Down?

As the issue becomes more contentious, food businesses are pushing back against some laws. At the 2017 annual session of the National People’s Congress (NPC), China’s top law-making body, NPC delegate Yang Guoxiu and head of Hunan Guoxiu, a fruit product manufacturer, submitted a proposal for the Supreme People’s Court to stop supporting buyers of problematic products when there is substantial evidence they are aware of the problems before making the purchase. 　

In response, the Supreme People’s Court said it would scale down its support to “profited-oriented” anti-counterfeit professionals in lawsuits in industries other than the food and medicine industry. 　

According to Zhao, the success rate for plaintiffs in fake-goods cases immediately dropped. “In the past, the win rate for us was about 60- 70 percent,” Zhao said, “But now, it has dropped to about 10 percent.” Zhao said in most recent cases, fake hunters were no longer considered consumers, but rather were seen as profit seekers. 　

But it appears courts in different areas adopt different approaches. Yan Bin (pseudonym), a veteran fake goods hunter, also felt the squeeze. Yan said he usually targeted fake-goods sold online and would receive the goods in Shenzhen, Guangdong Province, where he sued the vendors. But in recent years, courts in Shenzhen became increasingly reluctant to accept Yan’s cases. Last year, Yan moved to Guangxi Zhuang Autonomous Region neighboring Guangdong, where the courts remain receptive to anti-counterfeit cases, he said. 　

Another fake-goods hunter Peng Bo (pseudonym) told NewsChina that courts in Beijing noticeably changed their stance on anti-counterfeit cases starting in mid-2019. He moved to Shanghai, where he filed over 30 lawsuits, most of which were backed by Shanghai courts.

According to Wang Hai, who now owns four companies, it is time for the anti-counterfeit fighters to fight against the scammers among them. In 2019, Wang’s team exposed an account called “big pig group” on social media, which had continuously posted advertisements to recruit “apprentices,” teaching them how to put flies into food or threaten and blackmail business owners. In 2021, Wang claimed on his Weibo account that police had arrested the people operating the scheme. 　

As for the latest case of fake-hunting teen Chen Zhiqiang, Wang said recently on social media that Chen sometimes did not know what he was doing. “In some cases, Chen even accused food producers that use only domestically produced ingredients of failing to have import licenses for certain ingredients,” Wang said. 　

Wang Hai, however, remains optimistic about the future of the anti-counterfeit business. “The recent crackdown on abusive litigation can promote the healthy development of the industry,” he said. 　

In the past couple of years, Wang has shifted his anti-counterfeit business to China’s livestream vendors. In November 2020, Wang made headlines by exposing that bird’s nest products sold by Xinba, one of China’s top livestreamers who had achieved total sales of 8.8 billion yuan (US$1.3b) during the annual November 11 online shopping festival, were nothing but “sugar water.” A month later, market regulators fined Xinba 900,000 yuan (US$132,743) and suspended his account for 60 days. 　

Then in December 2020, Wang sued Luo Yonghao, another top livestreamer, for false advertising, after he sold a domestically made personal hygiene product as an imported one. Wang sought 250 million yuan (US$36.9m) in a class action lawsuit. “For the genuine anti-counterfeit fighters, now is the best time for business,” Wang said.

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