August 2013 Issue of Wines & Vines

Brands at Risk

How wineries exporting to China protect their intellectual property

by Jim Boyce
    Refilling Carlo Rossi bottles

    French, Chinese and Australian brands get the most press when it comes to fakes, but U.S. brands as diverse as Opus One, Screaming Eagle, Carlo Rossi and Marilyn Merlot also face intellectual property problems, says Jorge Sanchez, director of the U.S. consulate’s Agricultural Trade Office in Guangzhou, China.

    “Carlo Rossi, for example, is the preferred wedding wine of Fujian citizens, with the empty jugs sometimes gathered, refilled with cheap wine—such as bulk wine from Chile or France—and sold as the real thing,” he says. “In the case of Marilyn Merlot, the winery and distributors try to keep tabs on where the bottles go.”

    Such examples suggest a counterfeit problem that already bridges wines from entry-level to cream of the crop.
Three wineries outside Beijing are closed after a raid reveals 5,000 boxes of fake wine, including China’s own heavyweight brand Great Wall. Another raid, this time on an empty house in southern China, uncovers a stash of 10,000 copycat bottles of brands from esteemed French producer Domaines Barons de Rothschild. Meanwhile, Shanghai authorities diligently pour more than 3,000 bottles of fake wine down a drain in front of media.

These are just three of many high-profile reports in an intellectual property (IP) story that includes logos being reworked via Photoshop and well-known brand names given not-so-subtle twists—Australia’s Penfolds becomes Benfolds, and its Hill of Grace turns Hill of Glory.

Notably absent from this coverage: U.S. wines, particularly the California cult wines so desired at home and by a niche of collectors worldwide. In fact, when it comes to U.S. fakes, the biggest story in recent memory hasn’t been in China but at home in the case of Rudy Kurniawan, accused of copying labels such as Screaming Eagle, although even he tended toward Bordeaux and Burgundy.

“I have never seen fake U.S. wines in China, which basically means they are not that well known yet and are not drunk by the masses,” says Patricio de la Fuente-Saez, head of Links Concept, a wine importer and distributor. “Fakes start appearing when a wine is well known.”

The U.S. does have a relatively low profile as a source of imported bottled wine in China, ranking sixth last year behind France, Australia, Spain, Chile and Italy. While U.S. imports have steadily grown in recent years, the pace has lagged that of major competitors, and market share slumped to a mere 5% by volume.

“The current status of California wines in the China market—relatively peripheral and under-performing in my opinion—is part of the reason there is still not much of a market for faked California plonk,” says Dan Christensen, director of California vintner and exporter Thirvin. “Once we start to see a bit more categorical significance, hold on to your hat, as I imagine there will be a slew of fakes and copycats to deal with.”

Given China’s seemingly unstoppable economy, and the growing disposable income of its citizens, some might see that slew as just around the corner.

“It’s on our agenda,” says Tim Wen, president of the American Wine Importers Association, based in Guangzhou, China. “We are thinking about how to protect our members.”

Misleading labels
Counterfeit labels and refilled bottles are not the only threats. Abuses of IP include the use of design, with several sources citing the “leaf” motif of Kendall-Jackson being lifted, and new brands created with names suspiciously familiar to famous ones. It may only be a matter of time before we see Opus Won and Screaming Beagle. Time will tell if there is a U.S. equivalent of the French perfect storm of fakery: a bottle that includes the “five arrows” logo of Chateau Lafite-Rothschild and the name Romanée-Conti on a white wine label.

There is also the recent recognition by China’s government—via the Administration for Quality Supervision Inspection and Quarantine—of Napa Valley as a geographical indication. This should offer more protection to Napa but might bring unexpected results.

“People throw the name Napa around like it’s Bordeaux,” says Christensen. “We find ourselves in an uphill battle trying to explain why our legitimate premium Napa gear costs 200% more” than wines from Lodi, Paso Robles or Temecula, which some merchants call “Napa,” too. “This is happening more and more. As awareness of California and its most prestigious AVA increases, so too will misrepresentation of the names,” he says.

“All brands are at risk. Counterfeiters do not discriminate,” says attorney Dan Harris of Seattle, Wash.-based law firm Harris & Moure. “They will copy whatever it is they think is profitable. I cannot reveal brand names without breaching the attorney-client privilege, but I can tell you that I am personally aware of American wines that have been copied.”

Legal approaches
So, how to protect a brand? Step one is a no-brainer.

“The one preemptive measure we have taken, and advise all of our partner wineries to do, is register the trademark for the Chinese names and logos of the wines in China,” says Christensen. He says wineries that neglect this step can find their names registered by others and end up being “held hostage” or forced to come up with another name.

Brand ownership means options for action. The next no-brainer is taking action.

“We need importers and distributors to help police the market for us,” says Jorge Sanchez, director of the U.S. consulate’s Agricultural Trade Office in Guangzhou, China, noting the complexity and diversity of China. “When you see smuggling from Hong Kong or someone refilling your bottles, some law firms can conduct surveys (to check the market),” he says, though he notes it can be costly. “Then you can find a way to squeeze these pilferers out of the market.”

Perhaps more daunting than the cost is the perception that courts and authorities in China are ineffective. Nick Bartman, an independent legal investigator from England who has toured China in search of fake wines, says many brand owners give up before they have even tried.

A shrug and resignation is the common reaction to fake wines in China, says Bartman. “Such a misguided reaction comes from those who have no proper knowledge of enforcement in China. In fact, stopping fakes in China is often the easy bit. Getting brand owners to realize this and work together against fakes is the far greater challenge,” says Bartman.

Attorney Harris agrees, saying, “China’s courts are generally not that bad at enforcing trademark rights,” though he cautions there is a significant gap between winning a case and stopping long-term counterfeiting.

“The problem typically stems from taking a court order and using it against a counterfeiter that simply cannot be found,” he says. “And even if you can succeed against one counterfeiter, others pop up and it can become like Whac-A-Mole.”

When such outcomes are likely, Bartman recommends the speed of criminal over civil prosecution.

“Each year many legal actions against copy wines are filed in the civil courts, which results in years of litigation and astronomical legal fees,” he says. “Whereas a criminal complaint could have been filed with the public authority on a Monday morning, and within a day or so officials can raid offenders and immediately stop trade.”

The overriding message: To some degree, distributors and wineries are only as helpless as they choose to be when fighting fakes in China.

Technological approaches
Preemptive strategies are also useful to thwart fakes and help prevent the situation from reaching legal arenas. What is often forgotten in the fight against fake wine in China is that local brands are also targets, including giants such as Great Wall, which is estimated to sell more than 100 million bottles per year.

Take Bruno Paumard of Chateau Hansen: He says the company sells 90% of its production, which he says reached 2 million bottles last year, in its home province of Inner Mongolia in northern China. This remote market might seem an unlikely target for fake Chinese wines until you consider a handful of Hansen labels sell for $75 or more per bottle, with the newest astronomically priced at $700. That makes refilling bottles with a few dollars of local wine lucrative.

“Our contacts often bring us fake bottles of Hansen they have found in shops in Inner Mongolia, to be analyzed in our lab so we can complain to the authorities,” says Paumard. To slow down the counterfeits, Hansen now uses bottles with the winery’s logo embossed in glass, thus making it more expensive and difficult to copy.

The brand 1421, which sources wine from Xinjiang in the northwest, bottles it in Shandong in the east and ships it countrywide, has sought legitimacy with Chinese consumers by using “traceable” labels.

1421’s Randy Svendsen says the company worked with German hypermarket chain METRO, which has 70-plus stores in China, on a label consumers can scan with smartphones to see where the grapes originated. Called Star Farm, the program was developed with the government to boost consumer confidence. While 1421 did not join to deal with the threat of counterfeiters, Svendsen says it offers protection.

“We work with very specific channels, and we work directly through our own logistics network, so it would be very difficult to fake 1421 wines undetected,” he says. “The traceability codes on the labels add another layer of protection because they bring Star Farm and METRO into the risk assessment for the counterfeiters. Not only would they be faking 1421 Wines; they would be faking Star Farm and METRO.”

Imported wines are taking similar measures. During a visit to Beijing last year, Opus One CEO David Pearson said the company was not panicking about fakes but was taking measures to protect its brand.

“Starting in 2008, our back label has included an NFC chip, the next evolution of the RFID chip. You can scan the chip with a smartphone, and it brings up a website to tell the consumer about the wine and verify its authenticity,” says Pearson. “When the bottle is scanned, our computer server creates a history of where the bottle has been. This does three things: It fights counterfeiting, it provides a provenance record, and it is a marketing tool.”

Opus One is planning new anti-counterfeit technology for its soon-to-be-released 2010 vintage.

Key players in Australia and France are also taking measure. For example, Chateau Lafite-Rothschild uses tamper-proof technology on its premier cru wine and second-label Carruades de Lafite. Penfolds undertook one of the splashier efforts in China five years ago by sending chief winemaker Peter Gago to introduce an “officially imported” sticker with distribution partner ASC Fine Wines to let consumers know bottles were “sent, shipped, cellared and delivered properly.”

“You don’t want to drink wine that’s done 18 circumferences of the world,” he says. He adds that the bottles contain several anti-fake features, including special printing on labels and placing indicators on corks. These techniques, along with everything from QR codes to smashing empty bottles, help to fight fakes. (See related article on page 36.)

Educational approaches
That seemingly all-purpose word “education” is also relevant to fighting fakes. Wineries would do well to educate themselves about the China market (realizing, for example, the difference between imports and sales), their distribution partners (doing due diligence before making a deal) and how their brand is perceived (looking at everything from consumer surveys to social media coverage).

The most noteworthy faked brands in China tend to be those that are linked to a lifestyle. Lafite is the star in this regard, with everything from apartment complexes to dive bars named after it, the appeal going far beyond those interested in wine.

One benefit of the relative anonymity of California cult wines is they command high prices but are so far consumed by people who appreciate them and care about provenance.

Attracting such highly informed consumers—and educating those who are not, whether via tastings, videos, social media or other means—will help maintain integrity among core buyers. Just as wineries should legally register their brands, they should also socially do so.

A recent McKinsey report called “The New Era for Manufacturing in China” noted that the rapidly growing upper-middle class is demanding products that “require engineering and manufacturing capabilities many local producers do not yet adequately possess.” That demand goes beyond smartphones and automobiles.

“Rising consumer expectations will require even food and beverage players to raise their game on freshness and regulatory compliance, areas where China’s standards still lag behind Western ones,” states the report.

That is why getting the message about fakes to consumers is important.

“I think the country that is hit the hardest by fake wine is China itself. People are getting fooled into paying ridiculous prices for table wines from the rest of the world,” says Fuente-Saez. “My humble assumption is that most of the fake wines are actually bottled wines bought from Spain, Australia, Chile and Argentina and then relabeled in China.” The other part of the fake wine comes from China itself, where bulk wines are re-bottled and relabeled.

This is a powerful message for consumers who are highly skeptical about food and beverage safety, particularly since 2008, when tainted milk killed at least six babies and sickened thousands more. Growing consumer power seems destined to make opposition rather than resignation to the food safety situation the norm, and this will be of benefit to fighting fakes. This consumer and government attitude is evident from how many makers of baijiu, the potent white spirit drink with a far bigger market share than wine, have anti-tamper seals.

“China has set a priority on food safety,” says Sanchez. “I believe if someone is using the label of another winery or refilling bottles, (the authorities) could see that as a food safety violation and take immediate action.”

“I do not have any experience with pursuing someone on this basis, but I can assure you that the next time one of our food or beverage clients comes to us with a China counterfeiting concern that we will look into pursuing it as a food-safety issue, because that is exactly what it is,” Harris says.

This reflects an earlier point by Sanchez, the need for wineries and distributors to take the lead in terms of getting evidence of fakes, especially in third- and fourth-tier cities where things can be more lax, and in educating not only consumers but also the police.

“Since wine can be a health risk if incorrectly made, wineries and premises licensed to bottle liquor are regularly visited by public authorities. However, with so many countries, regions, localities and wineries around the world, it is currently impossible for them to know fake from original,” says Bartman.

“The public authorities have to be guided and helped to identify fakes through seminars and regular hands-on assistance. Business is perceived to be big enough to look after itself to the extent that if they have counterfeiting problems, then they should help and gather evidence and support the public authorities.”

Getting these business to work together might be the most effective way forward. Tim Wen of the American Wine Importers Association says a code of conduct is crucial for the association, which has 40-plus members and is preparing to open offices in the east, in Shanghai, and in the north, in Shenyang.

“Our bottom line is all wines have to be original labels from the U.S.,” he says. “Anyone who joins us has to follow a certain kind of behavior; then we can guarantee a certain level of product to consumers.”

By doing so, they create a base for working together to promote U.S. wines and working with the government to protect their brands. Wen says the association is already doing that. It has links to Customs and IP authorities that can help deal with fakes, he says, and is planning a Thanksgiving party this year to further cement those relations. We can safely assume association members will take the occasion to pair the turkey with American wine.

Jim Boyce is a researcher and writer living in Beijing, China. He is administrator of the wine blog,, and author of nightlife blog Boyce regularly interviews wine trade members and has reported on counterfeiting and authentication issues multiple times.

Print this page   PRINTER-FRIENDLY VERSION   »
E-mail this article   E-MAIL THIS ARTICLE   »
Currently no comments posted for this article.