James Bond helps catch Chinese DVD pirates

In late 2001, movie-studio attorney Laura Tunberg was browsing on eBay when something caught her eye: the entire collection of James Bond movies in a box set. Her employer, Metro-Goldwyn-Mayer Inc., wasn't selling box sets at the time, but Randolph Hobson Guthrie III was -- from his penthouse in Shanghai. Ms. Tunberg asked an assistant to order the collection anonymously. It soon arrived from Mr. Guthrie with an MGM logo, official-looking holograms, and text in Chinese and English - reports WSJ.

"All our stolen artwork was on the front," recalled a surprised Ms. Tunberg. When the assistant e-mailed Mr. Guthrie asking how many James Bond collections he could provide, the reply came quickly. "I can sell you as many as you want," Mr. Guthrie wrote.

That transaction triggered a three-year investigation that pulled in the Motion Picture Association of America, a special unit of U.S. Customs and Chinese police. It marked the first time U.S. and Chinese agents worked together to dismantle a counterfeit network, one that showed manufacturing muscle and global reach. In the early hours of July 2, 2004, the joint operation culminated in a televised raid of Mr. Guthrie's apartment-turned-warehouse, in which Shanghai police seized 210,000 pirated DVD movies, mostly high-quality copies made by Chinese DVD replicators. Many of the originals were copied illegally in movie theaters with camcorders.

Mr. Guthrie and three employees were tried in late January this year, and a verdict is expected within weeks. Mr. Guthrie's case marks the latest twist in the U.S. government's campaign to tame the world's biggest counterfeiter, China. Though Chinese DVD pirates rarely spend time in jail, Mr. Guthrie, the scion of a wealthy Manhattan family, if convicted, faces up to 15 years for hawking his knockoff Hollywood movies overseas, mostly to Americans. Some suspect the 38-year-old heir is in store for tough treatment so Beijing can score political points with Washington.

Chinese officials would "love to be able to say their country is not responsible -- it is a United States citizen," says a person who was involved in investigating Mr. Guthrie's case. "They only protect copyright when it's in their own interest."

The Shanghai police and prosecutors declined requests to speak about Mr. Guthrie's case, or make defendants available for interviews. Chinese authorities also denied The Wall Street Journal's request to attend Mr. Guthrie's trial, citing the lack of courtroom seats at the Shanghai No. 2 Intermediate People's Court.

"There were plenty of seats," said Zeng Weihong, the lawyer who is defending one of Mr. Guthrie's Chinese employees, Wu Dong.

Looming over China's booming exports to the U.S. is a booming trade in fakes. China far outstrips any other exporter of counterfeit products, accounting for 58% of all fake goods seized in the first half of 2004, according to the latest available statistics from U.S. Customs and Border Protection. Washington is now conducting a special review of China's protection of intellectual property, and some U.S. officials warn that piracy is straining ties. "Getting a handle on the problem has to be a political priority," says Charles W. Freeman III, deputy assistant secretary in the office of China affairs at the U.S. Trade Representative.

Foreign companies have joined the fray, banding together in industry groups to support investigations and raids. In early February, six U.S. golf-equipment makers -- including Callaway Golf Co., Ping and Nike Golf -- successfully urged Chinese inspectors to raid four factories and 18 retailers in Southern China selling fake clubs, bags and clothing.

"One of the challenges has been how to get police in China interested," says Loo Shih Yann, an attorney for Baker & McKenzie, a law firm representing the U.S. golf industry. "They don't feel IPR [intellectual property rights] crime is a real crime, not in the same class as burglary or rape."

Chinese antipiracy personnel still lack training, funds and other resources, acknowledges Zhang Qin, the deputy director of the State Intellectual Property Office of China, in Beijing. "But foreign companies can't just rely on the government to solve their problems," he says. "They need to go out themselves to investigate and collect evidence. We should work together and improve step by step."

In responding to an estimated $3.5 billion in global losses a year, Hollywood has set up one of the most sophisticated antipiracy task forces of any industry. The Motion Picture Association of America now has special laboratories to analyze DVDs, teams of investigators combing the Internet for clues and undercover operatives to assist police in surveillance and raids.

Hollywood investigators knew they were onto something with Mr. Guthrie. When MGM's Ms. Tunberg received the James Bond box set and Mr. Guthrie's word that he had access to an unlimited number of copies, she passed on his details to the MPAA.

Mr. Guthrie responded to one inquiry in June 2002 by e-mailing a long list of available DVDs that included "The Lord of the Rings" ("Not released yet, perfect copy") and "Black Hawk Down" ("Rangers kick butt in Somalia").

From its offices in Asia, the MPAA started investigating Mr. Guthrie's Movie Club. It made purchases and checked out the addresses on the express delivery slips. They led them to Mr. Guthrie in Shanghai.

Mr. Guthrie had set up shop in a 29th-floor penthouse in a cluster of pink apartment buildings. At first, the discs were of uneven quality, sometimes blurry, sometimes crisp. But quality quickly improved. Pirate DVDs in China typically come from bootlegged camcorder copies made in theaters, which can be of surprisingly high quality, though they are marred occasionally by laughter and by heads popping up in the audience. Hollywood investigators also suspected links to legitimate movie replicators working for the studios in Guangzhou province, in southeast China. Many of them make legal copies of movies, and then moonlight for pirates at night.

Whether discs are legitimate DVDs or fakes, microscopic markings can distinguish their origins."The process is very similar to the process you'd use to determine a bullet, what gun that bullet was fired from," says John Malcolm, the head of antipiracy operations at the MPAA.

Mr. Guthrie never needed to sell pirated discs for a living. He grew up on Manhattan's Upper East Side, attending private schools including the Buckley School and the McBurney School, and ultimately earning an undergraduate degree from Tufts University outside Boston and two master's degrees from Columbia, in business and in engineering. His father is a plastic surgeon and his mother is active on several charity boards. Mr. Guthrie received a monthly allotment from the Bessemer Trust, a fund founded by Carnegie Steel magnate Henry Phipps, a family ancestor of Mr. Guthrie's, according to a person who reviewed his financial records.

After meeting some Chinese people at Columbia, he decided to move to Shanghai, says his mother, Beatrice Guthrie. It "seemed the most exciting, growing city in which to live and work," she wrote in an e-mail to this newspaper.

He arrived in 1995, but job-hunting at both Chinese and American companies yielded little, according to Mrs. Guthrie. Selling DVDs turned out to be far more lucrative. Mr. Guthrie maintained profit margins well over 100% for each DVD sold, investigators say. He built a computer network that tracked his orders and found two Chinese wholesalers to meet ballooning demand. From late 2002 to mid-2004, Mr. Guthrie sold 186,247 DVDs, earning $244,386 in that period after expenses, according to a report submitted to the court from the Chinese accounting firm Shanghai Fuxingmingfang. But China had been coming under pressure to curb counterfeiting and sales overseas. Chinese officials called for harsh crackdowns and offered rewards for information. In 2004, China seized 35 million counterfeit DVDs, nearly twice the number confiscated the previous year.

Mr. Guthrie wasn't hiding his tracks well. Setting up his own Web site, he advertised cheap Hollywood movies on the Internet. On several occasions, an MPAA operative posing as a buyer met Mr. Guthrie to confirm that he was a source of illegal copies, says a Hollywood investigator.

By September 2003, the MPAA had passed its information on to the U.S. government. After the police raided Mr. Guthrie's duplex apartment, amazed neighbors came by to gawk at the wall-to-wall Hollywood movies.

China's prosecutors threw the book at Mr. Guthrie, charging him with violating article 225 of the Chinese criminal code, "operating an illegal business," which carries a maximum sentence of 15 years in prison.

Mr. Guthrie now awaits a verdict from a 20-foot-by-10-foot cell at a Shanghai detention center that he is sharing with several other prisoners. The cell is designed to hold eight to 13 people, according to a U.S. Consulate official in Shanghai. Each cell has a toilet, a sink and a window to the outside. The windows are kept open day and night, says the U.S. official, so it "can be chilly."

Thanks to `Kyvan` for the alert.

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