CHAPTER TWO THE STRUCTURE OF A COUNTERFEIT INDUSTRY Fake Stuff © 2011 Taylor and Francis

Key Ideas  Production Cost of Fake Cell Phone  Life Cycle of Fake Cell Phone  iPad and pseudo iPad  The Great Patent Battle - MediaTek as an example © 2011 Taylor and Francis

China as the World’s Factory Electronic Stores mushroomed in Shenzhen © 2011 Taylor and Francis

Cost Analysis of Fake Cell Phones © 2011 Taylor and Francis Cost incurred byBrand Name Cell Phone Fake Cell Phone Cell Phone Design HardwareResearch and Development Expenses Patent Loyalties “Turn-Key” Solutions, or low-quality components SoftwareResearch and Development Expenses Patent Loyalties

Cost Analysis of Fake Cell Phones(cont’d) Cost incurred by Brand Name Cell PhoneFake Cell Phone Cell Phone Production Costs include:  Professional OEM Factory Production  Quality Control (QC)  Official Examination Fees  Made in family- run workshops  Not heavy QC  No Official Examination Fees © 2011 Taylor and Francis

Cost Analysis of Fake Cell Phones(cont’d) Cost incurred by Brand Name Cell PhoneFake Cell Phone Distribution  Through Middle- and Large-size Distributors  Provides Customer Services (Repair, Replacement and Return)  Provided by Region-Based, Small Distributors  Customer Services Not Available © 2011 Taylor and Francis

Cost Analysis of Fake Cell Phones(cont’d) Cost incurred by Brand Name Cell PhoneFake Cell Phone Brand Management  Global Marketing, Advertising and Brand Management  No Advertising  No Brand Management  Counterfeiting Logo or Intentional Resemblance © 2011 Taylor and Francis

Cost Analysis of Fake Cell Phones(cont’d) Cost incurred by Brand Name Cell PhoneFake Cell Phone Sales  Paying Operation Taxes  By Retail Electronics Stores  Avoiding Operation Taxes  Also by Retail Electronics Stores © 2011 Taylor and Francis

The Life Cycle of Cell Phone Brand Name Cell PhoneFake Cell Phone Product Planning  3-6 months  0.5 – 1 month © 2011 Taylor and Francis

The Life Cycle of Cell Phone (cont’d) Brand Name Cell Phone Fake Cell Phone Cell Phone Design Hardware  3-6 months  0 (Covered by Turn-Key Solutions) Software  3-6 months © 2011 Taylor and Francis

The Life Cycle of Cell Phone (cont’d) Brand Name Cell PhoneFake Cell Phone Production  Professional OEM Factory Production: 1-2 months  Quality Control: 0.5 month  Official Examination: 1- 2 months  Family Workshop: months  Non-official examination: 0~ 0.5 month  Official Examination Not Applicable © 2011 Taylor and Francis

The Life Cycle of Cell Phone (cont’d) Brand Name Cell PhoneFake Cell Phone Distribution  Middle- or Large- Size Distributors: 1-2months  Region-Based, Small Distributors: 0.5 month © 2011 Taylor and Francis

The Life Cycle of Cell Phone (cont’d) Brand Name Cell PhoneFake Cell Phone Total Time Spent  6-15 months  2-4 months © 2011 Taylor and Francis

Turn-Key Solutions  One-Stop Shopping which includes all the following: Platform Drivers Application Software ComponentsIC design Testing © 2011 Taylor and Francis

iPad and Pseudo iPad ModeliPadPseudo iPad Release DateApril 2010March 2010 Price$499In average $293 Screen Size9.7 inchVaries from 5-10 inch FeaturesWireless, handwriting input, eBook reader Wireless, handwriting input, eBook reader, GPS, micro projector © 2011 Taylor and Francis

The Great Patent Battle  Since 2010 smart phone makers have become more litigious.  “Should any one firm gain an important lead, it might dominate the industry for decades – just as Microsoft has dominated the market for personal computer software. (Economist, October 23 rd 2010, pp.67)  A new type of player: firms with open-source platforms, such as HTC (Taiwan) are sued by Apple and battles are estimated to last for years. Or MediaTek (See next page)

MediaTek’s Lawsuit Summary 2006 v. Zoran Infringement of patent for optical storage products Result: MediaTek paid Zoran $85 million of loyalty fees 2007 v. Sanyo Electric Patent infringementThe case was dismissed. The two companies licensed patents to each other. © 2011 Taylor and Francis

MediaTek’s Lawsuit Summary (cont’d) 2010 v. QCOM CDMA and WCDMA Patent Cooperation Result: The two parties reached a consensus for broader patent cooperation v. British Telecom A subsidiary of MediaTek infringed patent of BT in the United States. Result: The two parties signed a reconciliation contract. © 2011 Taylor and Francis