The trap, months in the planning, had been laid. The quarry, a beautiful Chinese businesswoman named Lily Wan, had taken the bait. The sting, code-named Operation Tiger Lily, a joint venture of Callaway Golf investigators and the Orange County ( Fla.) sheriff's office, was about to take place.
The site chosen for the meeting was symbolic of how brazen the sellers of counterfeit golf clubs had become. It was the lobby of the Rosen Centre Hotel in Orlando, host city of the biggest, most prestigious golf show in the world. Large and small clubmakers, component dealers, importers, distributors, wholesalers and retailers, not to mention journalists and club pros, congregate at the PGA Merchandise Show every January to admire, sample and network, trying to get a handle on the Next Big Thing. This year they also commiserated. The boom times are over in the golf business. The low fruit has been picked from the boughs.
Except in Lily Wan's end of the business. Counterfeiting has been on the rise for about a decade, ever since U.S. golf companies began subcontracting club production to China. Of the major manufacturers, only Ping still makes most of its clubs in the U.S. The other big brands—Callaway, TaylorMade, Titleist, Cleveland, Nike, Adams, Cobra—make most of their clubheads in China, in an area just north of Hong Kong called the Pearl River Delta, where the combination of cheap skilled labor and technical expertise has created manufacturing's Perfect Storm.
"It's a no-brainer to be there," says Chip Brewer, CEO of Adams Golf. "The Chinese produce golf clubs of consistently high quality at unbeatable costs. They are very good capitalists, creative and hardworking. But that same entrepreneurial spirit also creates other issues."
Issues like theft of intellectual property. "Where you have legitimate manufacturing in China, you will always have problems with counterfeiting," says David Fernyhough, a former Hong Kong police officer who is a director of the private investigation firm Hill & Associates. "It's worse now than it's ever been."
Counterfeiting is so ingrained in the Chinese business culture that the perpetrators seldom feel they're doing anything wrong. They make and sell products—CDs, clothing, toys, electronics, golf clubs—more cheaply than the brand-name guys, offering consumers a comparable product at a lower cost. What's wrong with that? Plenty, according to the U.S. companies that spend millions in research and development to design the products being copied. For starters, Article I of the U.S. Constitution gives inventors exclusive rights to their "discoveries."
Lily Wan was a new name in a game with endlessly rotating players. A private investigator in the United Kingdom suspected Wan's firm, Hong Kong Cedar International Investment, Ltd., of shipping counterfeit Callaways to Europe and informed the club manufacturer. So when the sleuth learned that Wan would attend the PGA Show, Callaway's security director, Stu Herrington, began plotting with the investigator's company, Intellekt, to shut her down.
Intellekt set up a dummy corporation, Servitrade, Inc., which purported to represent 400 sporting-goods stores in the U.S. and Canada. Then Herrington enlisted the help of detective Ray Wood of the Orange County sheriff's office, who posed as a Servitrade executive. They contacted Wan to say they were interested in placing an order. They'd be in Orlando for the show and wanted to see some of her products. She promised to meet them on Saturday night.
She arrived looking like a Bond vixen: 5'2", 105 pounds, stylish and attractive in her dark tailored suit. She exchanged business cards with Herrington and Wood, and after brief pleasantries she laid counterfeits of a Callaway ERC II driver, a Great Big Bertha II and a Steelhead X-16 iron on a coffee table, in plain view of anyone strolling past. The men examined the copies carefully. "In China everyone knows they are not real," Wan said.
"The Great Big Bertha was a very, very impressive copy," says Herrington, who has been tracking down the Lily Wans of the world for Callaway for the past five years. "She gave us a price of $33 a head, delivered, or $32 with a volume discount." A generic graphite shaft might cost an additional $6; a grip, 50 cents. Total outlay: $38.50 for a first-rate copy of a club that retails for $499. Wan even volunteered to blacken the soles of the clubs with water-soluble paint to hide the Callaway trademark. Servitrade could simply rinse off the paint once the clubs cleared customs. She also asked about the best routes to smuggle the clubs into the country.