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Kent Graphtec dealt primarily in knockoff clubs, products with names such as King Snake and Big Bursarsimulations of the popular clubs King Cobra and Big Bertha. "The customs people thought my father was [the primary distributor of] King Snake, which in its heyday had something like 10% of the market," Jethro says, "but a lot of people were importing that product."
A lot of people eventually got in trouble for it too. "There are different levels of counterfeiting," says Debra Peterson, a U.S. customs official who was involved in Project Teed Off. There is the direct counterfeit, which is a dead-on copy that carries the legitimate product's trademark, and that's illegal. Also illegal is a club that is very close to a direct copy and is termed either "confusingly similar" (if it infringes on company trademarks) or "substantially similar" (if it infringes on design patents). What is legal is the generic look-alike that does not infringe on a company's trademarks or patents. Some features of a driverits head size, for instancecannot be protected, but others can. But with confusingly or substantially similar knockoffs, the line between legality and patent or trademark infringement is often fuzzy and is subject to legal challenge and interpretation. A counterfeiter tries to alter a company's protected features just enough to avoid prosecution. Whether the result is illegal can be established only in court, on a case-by-case basis; in other words, the aggrieved company has to sue.
Callaway threatened to sue Kent Graphtec over its Big Bursar driver, alleging patent, trademark and trade dress (trademark-design) infringement. In 1997 R.J. Liou reached a settlement with Callaway. Four years later, in March 2001, the U.S. District Court in Los Angeles ruled that R.J. Liou, Kent Graphtec and Trophy Sportsa separate company started by Jethro and his mother, Yeh-Chyn, in late 2000had breached the settlement by continuing to sell Big Bursars. The court ordered the defendants to pay $20,000 in damages to Callaway and to turn over their inventory of more than 11,500 infringing components for Callaway to destroy. According to Jethro, the family's legal fees for the discovery phase alone came to more than $1 million.
By then, Jethro's parents had divorced, and Jethro had fallen out with his father. Kent Graphtec officially went out of business, though R.J. is now back in business on his own, according to Jethro.
The market for knockoff clubs, meanwhile, remains huge and lucrative, and Trophy Sports is a major player in it. Trophy's Integra line offers look-alikes of several major clubs. In February, TaylorMade sent Trophy a cease-and-desist letter alleging design-patent infringement, and Trophy agreed to stop importing and selling the Integra Bomber 880 driver, a knockoff of TaylorMade's Burner 420. Jethro Liou says he spends $10,000 a month on lawyers' fees. Lawsuits are just part of the cost of doing business.
Liou also represents a dozen clubmakers, importing for a long list of Internet-based dealers and discount retailers, including Kmart. All told, Liou says, he sells a million golf clubs a yearroughly equivalent to TaylorMade, which sold 89,282 clubs in March. And recently Liou bought a Mexican foundry, Cast Alloys, which he is disassembling and relocating to China.
A graduate of the University of California, Berkeley, Liou is fluent in Mandarin and Taiwanese. A recent three-day swing with him through the Pearl River Delta provided a rare look inside China's burgeoning golf industry.
Liou flew into Hong Kong and from the airport he took a bus to Dongguan, 1 1/2 hours to the north. Dongguan is one of China's industrial meccas, a city of 1.4 million people where private enterprise flourishes. Workers flock there from poor farms in central China, providing cheap labor for manufacturers that have relocated to Dongguan from Hong Kong, Taiwan, Japan and the U.S. The bus passed miles and miles of factories, many operating 24 hours a day to satisfy the appetites of Western consumers.
One of the factories was the Unimold Manufacturing Co., Ltd., which sent a car to meet Liou's bus. Unimold is a tooling factory, the first stop in golf-club construction after the club is designed. According to Rob Duncanson, an attorney for several brands, including Titleist, Cobra and TaylorMade, the tooling factory is also where the manufacture of counterfeits begins. "The R.-and-D. department of a company in California comes up with a new design for a club and must transfer that proprietary information to the vendor," Duncanson says. "The company doesn't own the vendor. It has a contractual relationship with him. The company says it will pay X dollars to turn this design into a master, from which a tool will be made. The tool is used to mass-produce the club head. The problem is, there's no control over the proprietary design when it gets to China. There's a six- to eight-week period during which they develop the master and send samples back and forth for approval, and things can happen."
Unimold, which has been in Dongguan for five years, employs 60 workers. They work 12-hour days, seven days a week, and are paid about $100 a month, plus room and board, according to the manager, Hu Gui Dong. During Liou's 45-minute visit, Unimold's workers were hand-tooling masters for a set of Tommy Armour irons and a Mizuno driver. On an open shelf on the wall were copper molds for some of Unimold's other customers, including Dunlop, Spalding, TaylorMade and Adams. Unimold charges $1,200 for a copper master of a driver. This is the intellectual property of the company that designed the club, but in this tooling factory there are no security guards, no surveillance cameras and no metal detectors to prevent a worker from lifting a copper master. On the street, Liou estimates, a finished copper master of a brand-name club might fetch $10,000an unimaginable fortune to these workers.
That afternoon Liou made a call on one of his biggest vendors, Unitech Golf Co., Ltd., a casting company on the outskirts of Dongguan. It's a medium-sized operation by China's standards, employing 200 people and cranking out 100,000-130,000 club heads a month for 10-20 little-known companies, such as Akia, Echelon, Pax and Velocity. This may be Knockoff Central, but the care that goes into the construction of each club head is mind boggling. There are 200 steps involved between the tooling and the shipping of a head. The wax has to be mixed, injected, cooled and trimmed; the casts have to be scraped, welded and polished; the heads have to be taped, painted, stacked and inspected. Fifty to 60 workers touch every club head as it is madea club head that at the end of the day might be sold to Liou for $4 or $5. There are no paid vacations or sick days, no workers' compensation or maternity leave. And if orders fall off, the owner can let a worker go with one day's notice. Modern communist China is a 19th century industrial capitalist's dream.
Five years ago, said Jimy Wang, the owner of Unitech, the land around his factory was farmland. This area is called Tangxia, and it is home to 20 factories that make both legitimate and illegal clubs. Since February 2002 the population of Tangxia has doubled, to 400,000. Security measures are much more elaborate at Unitech than they are at the Unimold tooling factory. The front gate is locked and manned by armed guards. There are five security officers among the company's 200 employees, not to mention surveillance cameras overlooking the factory floor. Still, Wang admitted, no security system is foolproof. Wax molds have a way of vanishing out the back door. "Every factory experiences theft," he said.
Wang, dressed stylishly in a black designer T shirt, black pants and a belt with a gold buckle, is relatively new to the golf business. His capital came from his other line of work: a karaoke bar that he owns in Dongguan. Another line of capital for some illegal club manufacturers may come from Chinese triads, or crime syndicates, which have long been suspected of using some foundries to launder money from prostitution, drugs and gambling operations. "They are involved, guaranteed," says Fernyhough, the private investigator who spent 14 years working for the Hong Kong police pursuing the Chinese Mafia. "Golf clubs are a high-markup item, and anything that has a high margin in it, they will be into."