Let Them Eat Fake Cake: The Rational Weakness of China’s Anti-Counterfeiting Policy

Forthcoming in Beebe, Sun & Sunder (eds.), The Luxury Economy and Intellectual Property: Critical Reflections

NYU Law and Economics Research Paper No. 14-10

UCLA School of Law, Law-Econ Research Paper No. 15-02

29 Pages Posted: 22 Mar 2014 Last revised: 24 Feb 2015

Kal Raustiala

University of California, Los Angeles (UCLA) - School of Law

Christopher Jon Sprigman

New York University School of Law

Date Written: November 24, 2014

Abstract

By many measures China is the world’s largest luxury goods market. China is also widely viewed as the world’s chief counterfeiter and pirate. How can authentic luxury products, with their often-stratospheric prices, have such astonishing success in China when knockoff versions are so widely available? We argue that the answer to this puzzle is two-fold. First, much of the harm assumed to flow from counterfeits in the luxury goods sector is difficult to demonstrate empirically, and there are good theoretical reasons to doubt its magnitude. Indeed, the conventional wisdom about the perils of piracy is more a matter of inference than evidence. There is even some evidence, including evidence from China itself, that counterfeits can strengthen brands as well as undercut them. Second, from a domestic Chinese perspective counterfeits have many virtues. Given China’s enormous income inequality and rapidly urbanizing population, a tolerance for counterfeits can serve important social and political goals. In short, China’s relaxed approach to IP enforcement is a rational strategy — the harms are diffuse and likely much overstated and the benefits are tangible.

Keywords: China, trademark, copyright, counterfeits, luxury goods, fashion, piracy, counterfeiting

Suggested Citation

Raustiala, Kal and Sprigman, Christopher Jon, Let Them Eat Fake Cake: The Rational Weakness of China’s Anti-Counterfeiting Policy (November 24, 2014). Forthcoming in Beebe, Sun & Sunder (eds.), The Luxury Economy and Intellectual Property: Critical Reflections; NYU Law and Economics Research Paper No. 14-10; UCLA School of Law, Law-Econ Research Paper No. 15-02. Available at SSRN: https://ssrn.com/abstract=2412037

Kal Raustiala

University of California, Los Angeles (UCLA) - School of Law ( email )

385 Charles E. Young Dr. East
Room 1242
Los Angeles, CA 90095-1476
United States
310-794-4856 (Phone)

Christopher Jon Sprigman (Contact Author)

New York University School of Law ( email )

40 Washington Square South
New York, NY 10012-1099
United States

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