Clothing. Watches. Computer chips. Golf clubs. Even Harry Potter! Name any famous (or not so famous) brand – and chances are it's being cloned in a Chinese warehouse.

The recent news from Buffalo, New York – about the four-count indictment charging twenty-three men and women involved in a massive scheme to import millions of dollars worth of fake Nike sneakers from the People's Republic of China – should come as no surprise. Both business executives and government officials agree that counterfeiting in China has reached crisis proportions.

"Billions of dollars worth of counterfeit brand-name goods are discovered annually around the world, most of them originating in China," says Ed Haddad, vice president of Intellectual Property and Licensing at New Balance, which just won a significant trademark infringement lawsuit against a Chinese footwear maker producing "New Barlun" athletic shoes.

"Growth in counterfeit medicines and devices is probably the biggest health threat besides infectious disease," according to Peter Pitts, a former FDA (Food & Drug Administration) official investigating knockoff drugs, in response to a global manhunt by Johnson & Johnson that tracked to China counterfeit versions of an at-home diabetes test used by 10 million Americans.

"Piracy and counterfeiting levels in China remain unacceptably high," US Trade Representative Susan C. Schwab said. Inadequate protection of intellectual property rights in China costs US firms and workers billions of dollars each year, and in the case of many products, it also poses a serious risk of harm to consumers in China, the United States and around the world."

The fruit of globalization? For years, many global firms have turned to China for cheap labor. In America, the result has been increased competitiveness – but also an avalanche of counterfeits pouring into the US market. And in China? With 15 to 20 percent of their goods counterfeit (translating into billions of dollars in China's whopping economy), the Chinese are laughing all the way to the bank.

So why is fakery flourishing there? One, it's a cozy arrangement. It's a family business with mom, pop, kids and the whole extended family producing fakes like it was a cottage industry. The cops turn the other way, conducting raids but doing nothing when the counterfeiters recover and get back to business. And the piracy racket keeps people employed, fed and happy – reason enough for the Chinese government to avoid enforcing the law.

Two, nobody cares, including the foreign companies whose products and brands are in peril. Not only have they done almost nothing to protect their intellectual property rights in China. But according to a PRC Ministry of Public Safety official, some have even provided the counterfeiting machines and purchased the resulting fakes.

Three, counterfeiters have refined their operations to a science, employing their own "best practices" in the corporate, production and sales arenas. The real players hide behind front men when registering their "companies" and mask the products' true provenance behind model numbers and code words. Like the most efficient American production managers, they keep minimum inventories, making seizures of large volumes almost impossible. And to avoid prosecution, the counterfeiters have designed their distribution process to make it difficult to tie them directly to seized products.

What can brand owners do? Take advantage of technology to make products less vulnerable to counterfeiting, even if this involves integrating more complex, more expensive (but hard to copy) parts into the product design. Avoid trademark infringement by registering trademarks – and Chinese versions of the trademark – as early as possible. Invest in brand protection intelligence, utilizing investigators strategically not just to raid and seize – but to seize the information needed to identify and stop the criminals behind the counterfeiting operation.

What can government do? Start with an effective, quick-response trademark registration system that can speedily resolve trademark rights disputes. Maximize deterrence by imposing criminal penalties on everyone involved in the counterfeiting process – from the top honcho to the lowest factory worker. And because counterfeiting is difficult to prove, redesign civil procedures to shift the burden of proof from the plaintiff to the defense.

In the US, the Office of the United States Trade Representative is already in action. Ambassador Schwab has made two requests for WTO (World Trade Organization) dispute settlement consultations with the People's Republic of China: one over deficiencies in China's legal system for protecting and enforcing copyrights and trademarks on a wide range of products, and the other over China's barriers to trade in books, music, videos and movies.

Counterfeiting is not only a threat to business, it is also a threat to consumers - worldwide. Buy counterfeit Nikes and you just lose your money. Buy counterfeit drugs – and you could lose more than that. As Ambassador Schwab says, "Ultimately, it's in the best interest of all nations, including China, to protect intellectual property rights."