SHANGHAI — The tide may be turning against forgers of fakes operating in China.

This story first appeared in the November 20, 2012 issue of WWD. Subscribe Today.

In an unprecedented collaboration, authorities from the U.S. and China together shut down a major counterfeiting operation in the southern Guangdong province.

A total of 73 people were arrested as part of the sting, code named “Blue Plan,” which resulted in the shutdown of 37 sites involved in the manufacture of low-quality copies of handbags from designer brands such as Louis Vuitton, Coach and Hermès.

According to a statement released by China’s Ministry of Public Security, 20,000 counterfeit bags were seized, along with machinery and enough raw materials to construct an additional 50,000 bags. In total, the entire counterfeiting operation was estimated to be worth $802 million at current exchange rates.

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Local authorities identified the kingpin of the operation as Jun Qian, who was arrested along with his wife, Xiao Qin, as well as his brother, brother-in-law and other relatives and friends.

Chinese media were told at a press conference on Sunday that Jun Qian admitted to the counterfeit of 960,000 bags intended for sale in the U.S. and Middle East. Jun Qian claimed he began counterfeiting when his leather-goods business hit hard times in the wake of the global financial crisis in 2009.

“This criminal production of fake and shoddy products results in huge profits,” Guangzhou-based investigator, Chen Hongbo, told reporters.

Bob Barchiesi, president of the International Anticounterfeiting Coalition, said the crackdown by the Chinese government was unprecedented related to the luxury goods market and the number of arrests made.

“We’ve always believed that China could do far more [in counterfeit enforcement] and obviously this is a great step in the right direction,” Barchiesi said. “I believe there is a lot of pressure from the U.S. government now on China to step up to the plate to protect the IPR of U.S. companies.”

Although there are no exact numbers of the total losses to trademark owners from all counterfeited products globally, the most recent figure available in an Organization for Economic Cooperation & Development report covering 2008 to 2009 estimated the loss at $650 billion. That estimate only focused on cross-border sales of counterfeits and did not include online sales of counterfeits or in-country sales of bogus goods.

Barchiesi estimated that between 75 to 80 percent of counterfeit goods seized by U.S. Customs and Border Protection are manufactured and imported from China.

“It is the counterfeit workshop of the world,” he said.

“It is still rampant and much more challenging now because the counterfeiters have changed the way they have done business on the Internet and with virtual warehouses, shipping many more and smaller shipments to the U.S., which makes it more difficult for Customs officials to intercept the shipments.”

U.S. federal authorities made 7,392 seizures of counterfeit apparel in the year ended Sept. 30, 2011, the most recent government data available, accounting for 25 percent of the total and up from 4,338 a year earlier.

China maintained its status as the number-one source of counterfeit products and pirated goods confiscated, accounting for 62 percent, or $109.9 million, of the total domestic value. The number of seizures from China rose to 13,592 from 12,200 a year earlier.

After emphasizing the importance of joint operations with foreign authorities in cracking major China-based counterfeit rings, Chen Hongbo also said foreign countries where counterfeit goods from China often end up need to take some responsibility for these cases of intellectual property theft.

“If there was no market demand for these counterfeit products, people would not risk producing them and facing the harsh criminal punishments that result,” he said.

Chinese counterfeits are a hot-button topic on Capitol Hill and have been a top priority for the Obama administration. Government trade agencies monitor and report on the rampant spread of counterfeits from China as well as its efforts to increase enforcement of counterfeiting and pirated products.

The Chinese government launched a “Special IPR Enforcement Campaign” in 2010, which was made permanent by Chinese Premier Wen Jiabao in November 2011 and “resulted in some improvements in targeted sectors,” according to the U.S. Trade Representative’s office.

In its “Special 301” report in April, USTR said China had made some improvements during the campaign in 2011 in the enforcement of counterfeit hard goods, including apparel, cosmetics, audio-visual products and pharmaceuticals.

“In summary, U.S. rights holders in the trademark and copyright sectors have reported that enforcement agencies in China were markedly more active in conducting raids, seizures and arrests during the Special Campaign,” USTR said in its report. “It also appears that during the Special Campaign the Chinese government focused its efforts with respect to infringement that occurs online in a manner that was meant to ensure that online entities were more responsive to requests from rights holders to remove infringing materials. At least one industry submission commented positively that the Chinese Government’s efforts during the Special Campaign ‘generated goodwill’ among rights holders and sparked some hope that a recognition of the need for IPR protection and enforcement in China may finally be starting to take root.”

However, USTR said “significant concerns persist in light of continuing high levels of trademark counterfeiting and copyright piracy, including over the Internet, the persistence of notorious physical and online markets selling IPR-infringing goods, the manufacture and availability of counterfeit pharmaceuticals…and the export of counterfeit goods of all sorts.”

Louis Vuitton and Hermès were contacted for comment but had not responded as of press time. Coach was pleased with the effort.

“Coach is extremely pleased with today’s announcement,” said Nancy Axilrod, vice president and deputy general counsel of Coach Inc., to WWD. “It was through the hard work and dedication of the Chinese government that thousands of counterfeit goods were seized. The illegal activity of counterfeiting is a serious problem, which Coach works hard to deter. Actions taken by governments such as China and the United States provide invaluable help in our common goal of putting an end to counterfeiting.”