Turning Water into Wine – Chinese Piracy Develops a Taste for Fine Wine

When we think of Chinese piracy we think of knock off DVD’s, phones, movies, watches and other digital technologies.  Recently, sales of French wine in China have skyrocketed, sending the price of Bordeaux soaring.  Why? Bordeaux futures have surpassed gold prices and are outpacing the market by nearly 9 times. http://www.ft.com/cms/s/3/599ef204-7271-11e0-96bf-00144feabdc0,s01=1.html#axzz1L4XRHaoP.   It is no wonder that Chinese pirates are now selling fake bottles of Château Lafite Rothschild, Mouton Cadet and Canadian Ice Wines to name a few.  It is estimated that 5% of the secondary wine market is dealing in counterfeit wine.  http://www.forbes.com/global/2006/0619/086.html.


China’s New Interest in Old Wine

While the Chinese may not yet be the most sophisticated wine drinkers, sometimes downing $1,000 bottles of Bordeaux by doing shots or by adding ice cubes to it, the Chinese consumer is becoming more wine-educated. http://www.ft.com/cms/s/0/057979bc-c1c6-11df-9d90-00144feab49a.html#axzz1L4XRHaoP.   Wine courses sponsored by the government are becoming available in China.  http://www.ft.com/cms/s/0/057979bc-c1c6-11df-9d90-00144feab49a.html#ixzz1L8j49uVx.  This year, over $15 million dollars worth of first-growth Bordeaux and Burgundies will be auctioned off to Chinese purchasers.  http://www.ft.com/cms/s/0/057979bc-c1c6-11df-9d90-00144feab49a.html#ixzz1L8j49uVx.


Introduced in China in 1980, French wine has found a devoted Chinese following.  French wine sales have doubled in China in each of the last 5 years.  http://www.ft.com/cms/s/0/057979bc-c1c6-11df-9d90-00144feab49a.html#axzz1L4XRHaoP.  China has now surpassed the United Kingdom and Germany for volume sales of French wine.  The Chinese following has contributed to a 422 % price increase for investment grade Bordeaux since 1997, outpacing gold at 418 % during the same time period.  http://www.ft.com/cms/s/3/599ef204-7271-11e0-96bf-00144feabdc0,s01=1.html#axzz1L4XRHaoP.  2009 saw China as the number 1 volume recipient of French wine by volume with 137,000 hectolitres delivered (a 97% increase from the year before).  http://www.vins-bordeaux.fr/Data/media/DPCIVBBordeaux2010UK_4Economy.pdf.   The Chinese also enjoy Ice Wines, named from a process of allowing the grapes to freeze on the vine, making it especially sweet.  http://www.ft.com/cms/s/0/a5d6eb54-dd57-11df-beb7-00144feabdc0.html#axzz1L4XRHaoP.


Chinese Pirates Have Never Found a Product They Don’t Like to Copy

While the legitimate wine market has been taking off in China, there is also a growing black market for fake wines.  Wine fraud has always been a problem, but with wine prices soaring for investment grade wines, the temptation to pirate by those who want to ride that pony, is just too tempting for some.  http://www.ft.com/cms/s/0/ad9ab980-442b-11df-b327-00144feab49a.html#axzz1L4XRHaoP.  Allan Schmidt, president of Vineland Estates in Ontario, Canada, an exporter of Ice Wine notes that “Five years ago I had a budding business selling $250,000 worth of wine a year in the People’s Republic.  Thanks to counterfeiters’ imitating everything from the look of the bottles to stealing Vineland’s brand name, I sell only 5% of that today.”  http://www.forbes.com/global/2006/0619/086.html.  In addition to Ice Wines, “authorities in China have uncovered bottles of fake everything, from a $4,000 bottle of Château Lafite Rothschild to 12,000 bottles of $10 Mouton Cadet.”  http://www.forbes.com/global/2006/0619/086.html.



Protective Measures

Retail sellers and consumers do not always recognize a fake bottle from an original.  Protective measures begin with education.  The Bordeaux Council offers complimentary training for teaching professionals who agree to conduct a certain number of classes each year in their own country. http://www.vins-bordeaux.fr/Data/media/DPCIVBBordeaux2010UK_6WineTourism.pdf.   By educating the both the consumer and the seller, they will better recognize a fake when they see one.  This also protects individual wine brands by preventing confusion between other wine regions.

Long live Provenance.  The concept of provenance is well-recognized in the art world – provenance is essentially the tracking of ownership through time so as to document legal title and for wine where authenticity needs validation.  For the past several years, provenance has been demanded in buying and selling wine, especially for investors. http://www.decanter.com/people-and-places/wine-articles/486415/spotting-a-fake-wine.  Piracy fears make investors more than leery of just where exactly a bottle of wine has been.  Provenance is a great way to help calm those fears.

Technology is also pioneering the way to help protect the consumer and seller to recognize a fake wine.  As part of a French/United States partnership, two companies (Portland-based BrandWatch Technologies and France-based, Prooftag) are working together to create a Bubble Seal and Bubble Tags to help identify the authentic bottles.  Other anti-piracy efforts include utilizing bar codes, specialty inks and labels, holograms, watermarks, and tamper-evident film.  There are other techniques that are not seen by the human eye, but can be checked by the experts.  These include taggants, specialty inks, and forensic markers that can only be read with proprietary readers or detectors.  http://www.prooftag.net/en/company/news/prooftag-latest-news/new-solution-for-wine-spirits-industry-to-fight-counterfeiting.


Brand Protection and Wine – My Thoughts   

Despite the remarkable loss in revenue to wine merchants and vineyards around the world, wine piracy negatively affects everything about the wine industry. An illegal DVD of the latest Johnny Depp film will cost the film industry in lost revenue, but the buyer of an illegal DVD still gets to watch the film usually at the same or nearly the same high quality as a legal copy.  Not so for wine.  Fake wine hurts the producer and the consumer.  The purchaser of a fake Chateaux Margaux will most likely be afraid the next time he spends $500 plus for his next bottle. Additionally, the quality of the counterfeit wine will be so poor that there is risk the reputation of the Vineyard will be tarnished.  The news of fake bottles of a certain wine will move through circles of wine collectors and oenophiles at rapid pace.  Reputation and trust may be injured for years as collectors will always wonder how many fakes are in circulation.  A wine pirate may be charged with trademark infringement, dilution and tarnishing of the mark, but good luck catching a wine pirate in communist China.  Other legal issues include unfair competition, copyright infringement and violation of international trade agreements.  International enforcement will have to be pursued and often the Chinese pirate is protected by his own government, which is well aware of the large piracy industry in China.

China recently signed onto the World Trade Organization’s (WTO) Trade-Related Aspects of Intellectual Property Rights (TRIPS) agreement. http://www.worldtradelaw.net/uragreements/tripsagreement.pdf.  TRIPS is an international agreement where participating countries agree to abide by rules governing intellectual property rights.  Enforcement can be difficult if the signatory country does not voluntarily abide by the agreement.  The United States, joined by many other WTO member countries, filed a dispute with the WTO arguing that China was not in compliance with TRIPS in 2007.   In 2009, A WTO panel determined that China needed to bring its Intellectual Property laws in conformity with TRIPS.  On April 8, 2010 China and the US notified the WTO that they agreed to new procedures, but how that protects intellectual property owners is yet to be determined.   http://www.wto.org/english/tratop_e/dispu_e/cases_e/ds362_e.htm.


Currently, enforcement usually requires the injured party to hire a Chinese attorney and choose whether to file an administrative action or file a claim in the Chinese court system.  The injured party can hire a private investigator and utilize the Administration for Industry & Commerce (AIC), a civic organization in China that has the power to seize and destroy counterfeits.  http://members.forbes.com/global/2007/0416/024.html.

The Zippo lighter company of Bradford, Pennsylvania has been trying to fight Chinese pirates for years.  Zippo lighters are world known, but Chinese copies are taking a huge toll on the company.  After discovering 97,000 pirated Zippo lighters, a three year court process ended with a trial and the manager of an illegal zippo factory getting mere probation.  http://members.forbes.com/global/2007/0416/024.html.  When the Zippo company tried utilizing the AIC, the infringing goods were destroyed, but so was the evidence they would need for a trial.  http://members.forbes.com/global/2007/0416/024.html.  Are these efforts futile when piracy is tolerated in China?  Enforcement is an extremely expensive, time-consuming process.  Can we ever expect enforcement in China to be effective?


The central take-away from this problem of wine piracy is that oenophiles must be very diligent when seeking out their favorite wine.  Uncertainty requires due diligence in checking labels, ensuring the markings on the bottles themselves are authentic and purchasing wine from a trusted source.  Hopefully wine producers will continue to implement the new technologies mentioned above and will use provenance to help protect against wine piracy.  Preventing piracy in China is a daunting task.  How do you change a culture of piracy when so many depend upon it for their livelihood, shrouded by a communist government that does not respect the rights of the individual or corporations who create and should benefit from original endeavors?

Disclaimer: The discussion here is commentary by the author and is not intended to be legal advice. 

Copyright 2011- DeGeorge Law LLC  www.degeorgelaw.com

Published byTimothy L. DeGeorge, Esq.

Tim DeGeorge, Esq. is an attorney focusing on privacy, media, trademark, copyright, technology, art and advertising law. A graduate of the S.I. Newhouse School of Public Communications at Syracuse University, Syracuse, New York and he received his Juris Doctor from the University of Denver, Sturm College of Law, Denver, Colorado. Mr. DeGeorge is licensed to practice law in the states of New York, Florida and Colorado, USA. Copyright DeGeorge Law LLC.