Long-term, jobs could be in jeopardy at D’Addario if a wave of counterfeiting is not stopped, company CEO Jim D’Addario told the Music & Sound Retailer. Layoffs are not imminent, though. “We had a record year [in 2009],” he said. “We’re growing our business. We’re profitable. We’re not in dire straits. But what we have is a situation where the Chinese are copying our products and counterfeiting them. That is preventing us from having more growth and creating more  jobs, which is what this country needs right now. We have hired more than 100 new people since April 2009. We’re gaining market share with every one of our brands. We’re running our business better than ever.
“However,” he continued, “we have not grown our business in China. Seven out of 10 sets of strings sold in every Chinese music store are fakes. They are marked D’Addario Strings and say ‘marked, printed and made in USA.’ They are taking jobs away from Americans. We’re not the only company. Many companies are being robbed of their growth. We’re very concerned that, if this isn’t checked, counterfeiters will develop an international distribution network to damage our markets that we worked for 40 years to build. If it isn’t checked, then the 800 jobs we have in New York could be in jeopardy. We need to stop it now, not only so we don’t lose jobs, but also so we can create more jobs.”
U.S. Sen. Chuck Schumer visited D’Addario’s offices in Farmingdale, N.Y., to say he was tackling this problem head on. The story was picked up by several major New York City-area media outlets. Schumer said he has asked the U.S. Justice Department and Department of Homeland Security to get involved. “This is an in-your-face example of how the Chinese simply flaunt international law and destroy American jobs,” Schumer said during his speech. “Counterfeit products put Americans…out of work.”
Some progress has already been made. The Department of Homeland Security did indeed get involved. It shut down 82 Web sites in late November and early December that were violating intellectual property laws. “There is a movement in Washington now to pay attention to this issue,” D’Addario said.
Sen. Schumer sent a letter to U.S. Attorney General Eric Holder, asking him to shut down other sites that persistently sell counterfeit goods. One major violator is Alibaba.com, D’Addario said. “We’ve been trying to communicate with Alibaba.com for more than a year now and they just ignored us,” he said. “It had more than 400 listings of counterfeit D’Addario products on its site.”
After all of the press coverage, however, Alibaba changed its tune. “Dec. 6, at 10 p.m., our in-house counsel got an e-mail from Alibaba,” D’Addario said. “On Dec. 7, in the morning, we got calls from them saying the listings would be removed. On Dec. 8, all of the listings were removed from its Web sites. So there is some power in someone like Sen. Schumer getting behind an issue.”
These successes in part led D’Addario to say he was optimistic. “I’m hoping something major takes place so we can level the playing field for U.S. manufacturers. We think it can happen. I’m really working hard with our politicians and want to work with NAMM to make a difference.”
On the other side of the coin, China does have intellectual property laws, but, according to D’Addario, the country does not properly enforce them. “Penalties are very weak,” he said. “Plus, they drag their feet on processing violations.”
Due to a law firm clerical error, D’Addario does not have its name registered in China yet, D’Addario said. “We thought our application for a trademark was processed in China. Somehow, it never was. A Korean counterfeiter who owns a factory in China that makes counterfeit strings registered our name in China six month before we realized we weren’t registered. We finally won a court battle just a few months ago after three years. We won the case, but we still don’t have the registration. We were told we might get it in April. Or maybe by the end of 2011. It’s really important to have that registration because, without it, the penalties for violations are nowhere near as severe.”
One Chinese factory was raided and 100,000 counterfeit D’Addario string packages were found. However, the Chinese government only fined the perpetrator $3,500. “That is only a slap on the wrist,” D’Addario said. “In America, that person would be accused of grand larceny and thrown in jail.”
D’Addario said he was very appreciative of the work Sen. Schumer has done for the company. He also wanted to thank U.S. Rep. Steve Israel, whom D’Addario said has worked for more than two years to make headway with the counterfeiting dilemma. “He’s really paved the way for us by helping us to find the right contacts and more,” D’Addario said.
D’Addario added that his company has been in contact with Sen. Schumer for quite some time. In November, the New York politician expressed a “keen interest” in visiting the D’Addario offices.
Despite some definite success regarding counterfeiting at his company, D’Addario said it is a huge industry-wide problem. “If you go on Alibaba.com and type in Fender, Music Man, PRS, Peavey or Gibson, you’ll see fake guitars,” he said. “I bought a Music Man from there, as a test, for $200. It’s a piece of garbage counterfeit. And it got into this country with no problems and no tariff. So just because Alibaba took our products off its Web site, it doesn’t satisfy me. The Web site should be taken down.”
D’Addario advocated an industry-wide effort in an attempt to eradicate the problem. He said he was hoping a coalition of manufacturers would meet this month at NAMM to discuss the problem. “If we all work together, we can get these guys shut down,” said D’Addario. “Or, at the least, we can have a major influence on these sites.”
Wang Baodong, a spokesman for the embassy of the People’s Republic of China, told Newsday that the Chinese government considers intellectual property rights to be of “great importance,” but said it is “a relatively new issue to China, which opened to the outside world 30 years ago.”
“The Chinese government recently launched a special campaign to track down such illegal activities,” he told the Long Island newspaper. However, “I’m not aware of the specific case raised by Senator Schumer.”
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