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The Japan Threat: Japanese Giant Crush Chinese Export Entrepreneur

« H E News and Politics :: Sino-British :: Sino-Japanese :: News and Perspectives :: email
posted Saturday, 4 November 2006

While the Japanese government long ago swore to uphold a policy of pacifism, and has made no aggressive moves against China for some 60 years, it would appear that the same cannot also be said for Japanese businesses, who appear to be gunning for their Chinese rivals with the same aggressive spirit that saw Japanese troops on Chinese streets during the last century.

According to a notices on its website, the Japanese electronics giant Sony has made a final push against Hong Kong based electronics exporter 力生 (Li-Sheng/Lik-Sang) (A child company of Kwai Chung based Pacific Game Technology), demanding $188,000 in costs from an outstanding legal battle; a move which has effectively forced it out of business.

The Dispute

力生 (Li-Sheng/Lik-Sang)'s forced closure comes at the end legal dispute between the small Chinese exporter and the Japanese entertainment giant that began when Sony executives discovered that 力生 (Li-Sheng/Lik-Sang) was acting as a European distributor for products produced by Sony-Asia; with 力生 (Li-Sheng/Lik-Sang) supplying Sony games consoles, software and assessor's to customers in the EU without Sony's knowledge. Allowing Western consumers to bypass artificial restrictions that Sony had placed on its products outside of Japan.

  "Hong Kong, October 24th of 2006 - Lik-Sang.com, the popular gaming retailer from Hong Kong, has today announced that it is forced to close down due to multiple legal actions brought against it by Sony Computer Entertainment Europe Limited and Sony Computer Entertainment Inc."

Lik-Sang 		 

Second Strike

This is not the first time that a Japanese mega cooperation has targeted the Chinese retailer.

In 2002, 力生 (Li-Sheng/Lik-Sang) was similarly targeted by Japanese entertainment giant Nintendo who, in conjunction with Sony, took legal action against after 力生 (Li-Sheng/Lik-Sang) began providing consumers with the means to circumvent failsafe devices installed in their games consoles which prevented consumers from playing cheaper games purchased in countries where prices were lower, or games which where published at an earlier date in a different country. Both of which practices violate the spirit of the WTO; of which Japan is a member.

Protectionism?

According to officials at Sony, the case against 力生 (Li-Sheng/Lik-Sang) was initiated in order to protect the health and safety of European consumers; which might be endangered due to electrical differences between Japanese and European electrical systems, and to prevent consumers from purchasing console which were not optimized for their language and media in their country.
  "ultimately, we're trying to protect consumers from being sold hardware that does not conform to strict EU or UK consumer safety standards, due to voltage supply differences et cetera"

Spokesperson, Sony, (Speaking to Gamesindustry.biz) 		 

However, China watchers have voiced that Sony's desiccation to pursue legal action may have a lot more more to do with trade protectionism than consumer safety, particularly as 力生 (Li-Sheng/Lik-Sang) supplied all of its EU based consumers with official Sony electricity adapters that were certified as meeting European safety standards, and because consumers could easily purchase optimized media from 力生 (Li-Sheng/Lik-Sang).
 
"Lik Sang strongly disagrees with Sony's opinion that their customers need this kind of protection and pointed out that PSP consoles shipped from Lik-Sang contained genuine Sony 100V-240V AC Adapters that carry CE and other safety marks and are compatible world wide. All PSP consoles were in conformity with all EU and UK consumer safety regulations."

Lik-Sang 		 

Supply, Demand and Unscrupulous Trade Practices

Although a comparatively small service when compared to the rest of the games retail sector, websites like 力生 (Li-Sheng/Lik-Sang) serve a strong niche market with a loyal customer base in the West, which has been generated by protectionist policies put in place by companies such as Sony.

Under current trading practices, Sony-Japan purposefully restricts the supply of most of its headline products to markets outside of Japan, and employs a multi tier trading system in which 'preferred customers' come higher up the tier structure, and other customers fall beneath them.

Commonly, this system leads to products being released in second tier countries, such as the US weeks or months after their release in Japan, and then being released to third and fourth tier countries, such as those in he EU, after a further delay.

This artificial delay, and the practice of releasing products in third tier countries at a higher price than in second and primary tier countries, has created a lucrative market for companies such as 力生 (Li-Sheng/Lik-Sang). Who supply Japanese (Primary Tier) or American (Secondary Tier) products to customers in third tier countries at near standard market prices.

This practice of circumventing tiering, and other restrictive market practices, by purchasing in one market and supplying to another is known as 'Parallel importing' and provides a strong market segment and a source of foreign currency for China's latest generation of entrepreneurs; whose geographic location allows them to act as middlemen - supplying Japanese technology to Western consumers in second and third tier countries.

Although parallel importing is a protected form of trade, multi-nationals commonly use copyright legislation in destination countries in order to start legal action. Arguing that products imported/exported by third parties should be treated as counterfeits, even if they were legally produced and purchased, because there bare corporate logos in markets where said corporation wishes them to be restricted.

Under Hong-Kong law, a company is entitled to import/export/reexport or parallel import any product to/from any location in the world once it has gone on sale in any other location in the world, so long as that product is not restricted on security or safety grounds.

In 2005, Sony won a similar cases against home entertainment import/export groups Nuplayer Ltd and ElectricBirdLand, who Sony claimed were infringing its copyright and damaging its European marketing campaign by supplying Sony products to customers before Sony had officially sanctioned them for EU release. Controversially, in the case of Nuplayer Ltd, Mr Justice Lawrence Collins; the official trying the case, the company was also forced to turn over personal data on customer to Sony. However he stopped short of attempting to order customers to surrender their purchases.

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View Comments/Add a Comment (6)


1. AnoSony left...
Wednesday, 8 November 2006 12:11 pm

Nonsense.

This "innocent" company exported to Europe components that at the end of the day allowed users to play illegally copied games -- the great source of income to Sony.

It is regardless if the exporter found a loop that made it OK or not. The point is that they CHOSE to play on the "gray side" and they got hit accordingly. Not only they chose to play on the gray side, they chose to do it with a GIANT like sony. I would have written a far article about this than you, and would have had a simple conclusion regarding the hgk company that would conssist of two words.

Best regards.


2. ACB left...
Thursday, 9 November 2006 4:43 pm :: http://angrychineseblogger.blog-city.com

It was only Sony's policies that made these imports gray/grey. It was also Sony who used a trade loophole to bring the case.

In this instance, it wasn't trade laws that were infringed, it was copyright laws because Sony hadn't given permission for the PSP logo to be used on its products in Europe yet (you nitice that they didn't sue over the imported/exported games, just the consoles).

"at the end of the day allowed users to play illegally copied games"

The components also allowed gamers to play legally produced games from overseas which Sony placed barely legal copy protection on in order to segment the internaitonal market, which I'm pretty certain goes against the spirit if not the letter of the WTO.


3. I.P. Guy left...
Saturday, 11 November 2006 11:23 am

Your language is pretty biased. Sony spends millions to develop and manufacture new products, and it is in their financial interest to control when and at what price their products go to what market. Lik-Sang is just another cockroach import-export company, trying to squeeze profit by riding on the coat-tails of another company's efforts and investments. See? Now we've biased the language the other way.

At the end of the day, both companies are doing all that they can to maximize their profit. Neither company is in it for the consumer, or for the good of mankind. If parallel importing is seen by the courts to infringe copyrights, then take it to a higher court, or go into a line of business where you actually produce something. And Lik-Sang says they have to close because they got hit with $188,000 in damages that they cannot pay? What kind of company can't cover $188,000? Fly-by-night wannabes. That's what kind.


4. ACB left...
Saturday, 11 November 2006 7:01 pm :: http://angrychineseblogger.blog-city.com

my language is appropriate for my beliefs about companies such as Sony.

Maybe I didn't make things clear in the article, but Lik-Sang wasn't selling counterfeit products, they were real genuine Sony products brought and paid for. Sony received full industry rates for each and every product that Lik-Sang sold just the same as they would have if they were sold from Wal-Mart or any other retailer.

FYI, parallel importing is completely legal. This case was fought in a copyright court.

As for the $188,000. I believe that you're not being realistic here. Lik-Sang is not a multi-national. It is a small niche trader.

To put things in perspective, the average profit margin for a non-mega corp in the US is somewhere between 8-10 percent. That means that if Lik-Sang were a US company it would need to make nearly $2 Million in sales in order to pay off that bill.

I suggest that you walk into your local Ma and Pa business and tell them that they are fly-by-night traders, because I guarantee you that most of them won't make anywhere near enough to pay off a $188,000 legal bill. Most small businesses in the US would have to mortgage everything they owned in owned to pay that kind of bill and stay in business. US economy is based on companies this kind of company.


5. I.P. Guy left...
Monday, 13 November 2006 12:31 pm

"FYI, parallel importing is completely legal.'

Not everywhere, and not in all instances. If a product that is being parallel imported into the U.S. is materially different from the product that is being distributed there by the manufacturer, then the importer can be charged with violation of the Lanham Act. See Lever Bros. Co. v. U.S.

They don't call parallel importing the "Grey Market" for no reason.


6. ACB left...
Monday, 13 November 2006 4:52 pm :: http://angrychineseblogger.blog-city.com

There will always be exceptions to every rule. But in this case it's a Japanese company sueing a Chinese comapny over products sold in Britain, so we only need to worry about these three countries.

Under Hong Kong law, once a product has been released on sale in any region of the world, it can then be imported or exported to any other region of the world so long as it doens't fall foul of other restrictions (EG UN arms embargos).

Parellel importing is also legal in Britain too, which is why this case was brought under copyright legislation (Sony claimed that because they hand't given permission for the logo on a particular product to be used in Britian, it was a copyright violation for Lik-Sang to sell that product).

If Lik-Sang had waited until after that product was released in the UK, then Sony wouldn't have been able to sue at all.