(FORTUNE Magazine) – 'I can make furniture just like Bo Concept's," brags Zheng Yong, a salesman at Xujiahui Furniture World in Shanghai, a cluttered department store near a busy shopping district. Based in one of the earliest furniture malls in Shanghai, Furniture World is the kind of place where middle-class families might go to upgrade their couch or buy their first computer desk. The middle-aged Zheng points to a queen-sized bed that looks just like one found at upmarket furniture chain Bo Concept, the franchiser in China for Denka Holdings, the second-largest furniture group in Denmark. Above Zheng's head hangs a company logo using the same font and style as Bo Concept's Chinese-language logo.

The fast-talking salesman escalates his pitch: "We can change the length and the width to your specification. We can stain it whatever color you want. You don't want to bargain. This is the lowest price!" Zheng asks only $96 for the sleek wooden bed. The imported original at Bo Concept's Shanghai outlets sells for more than $600.

Zheng's pitch illustrates a major problem for Bo Concept, and one that many other companies can appreciate: Chinese factories that specialize in making cheap knockoffs of popular brands have proliferated since the early 1990s, taking a bite out of sales and profits of brand-name goods. From consumer products and fashion to automotive parts and electrical appliances, multinational corporations have suffered for years seeing their goods for sale next to Chinese look-alikes. There are laws and regulations against such activities, but the rewards are great and enforcement minimal.

The tale of Bo Concept, however, demonstrates that copying is not something that foreign firms must accept as a necessary evil. The company, which has been in China since 1995, is successfully using the country's intellectual-property protection system to thwart copycats. Edward Epstein, a Shanghai-based lawyer with the U.S. firm Altheimer & Gray, notes that Bo Concept is "one of the few examples of a copyright and trademark holder going the full monty with the legal process" in China.

Redress has not come easily, and one lawsuit has been dangling for more than a year. Still, the tale provides insight into what investors need to go through to protect their intellectual property--an important issue as China gets ready to join the World Trade Organization.

This particular Norse saga began in 1993 when a lanky 33-year-old Dane named Simon Lichtenberg arrived in Shanghai with $30,000, the ability to speak Mandarin, and a desire to build a business. "I felt there was an opportunity," he comments from his stylish office. In 1995, Lichtenberg found his niche selling Danish-made furniture in Shanghai, mostly through department stores and furniture malls, under the Bo Concept brand. (Lichtenberg owns the franchise.)

Sales took off. The company's contemporary designs appealed to young urban professionals just starting to buy or rent homes. Revenues reached $3.6 million in 1996 and jumped to $6 million in 1997. By the end of 1997, Lichtenberg had opened 14 Bo Concept outlets in Shanghai, Beijing, and Guangzhou and was starting to open in second-tier cities like Dalian. Best of all, Bo Concept was making money, with profits at roughly 10% of sales.

Lichtenberg was hardly alone in seeking to profit from China's home-improvement binge. By late 1997 some 3,000 furniture companies had set up shop in Shanghai, selling everything from traditional Chinese styles to gilded reproductions of 18th-century European furniture. At least 12 Chinese companies in the Shanghai area began manufacturing furniture that bore an uncanny likeness to Bo Concept's designs.

Some of the copycats even used the Bo Concept logo in their showrooms or told customers that they were buying Bo Concept designs. Others displayed company catalogs and models. And still others printed pictures from Bo Concept marketing literature under their own names. "When Denka's president visits China once a year," says Lichtenberg, "he almost has a heart attack when he sees the copies." With the knockoffs, new competition, and a plunge in consumer spending in the wake of the Asian financial crisis, Bo Concept's sales in 1998 were 10% less than in 1997.

Copying is pervasive in China because it is so easy to get away with it. Laws protecting intellectual property are unclear and sporadically enforced. Even when they are applied, sanctions are minimal, typically consisting of confiscation, a warning, a public apology, and perhaps a fine (negotiated, of course). Moreover, copying enjoys a long tradition in China and does not carry a stigma. Copying a masterpiece was historically considered an art form in its own right, while Chinese students have been taught for centuries to copy their teachers as accurately as possible before attempting to create. Nevertheless, by the second half of the 1990s, the issue of intellectual-property protection was getting increased attention as foreign firms grew bolder in their complaints about flagrant rip-offs and as Chinese firms themselves began to encounter counterfeiting problems.

Against this backdrop, in 1997, Lichtenberg took up the fight against Bo Concept rip-offs. The question was how to do it. In a developed market economy, he would ask a judge to order a preliminary injunction requiring the alleged copycat to stop copying, which the court would then enforce unless the accused provided evidence that no copying was taking place. However, China lacks detailed policies for preliminary injunctions. As a result, Chinese judges do not regularly grant them.

In order to stop the companies from using Bo Concept's catalogs and brand name, Lichtenberg hired the private investigation firm Pinkerton to contact the State Administration for Industry and Commerce (SAIC), the agency that it understood had jurisdiction over such practices. Pinkerton had already been researching suspected copying of Bo Concept furniture. Nothing came of these initial efforts.

Lichtenberg let the matter drop for a while, but with sales continuing to drop, by late 1998 he returned to action, once again trying to enlist the government's help. The first obstacle was finding out whom to talk to. SAIC has hundreds of departments, but only one person in one department had the authority to make decisions regarding Bo Concept's case. "The system is not made for foreign investors to find these guys. If you call the SAIC reception desk, no one will know where to send you," says Lichtenberg.

To navigate the labyrinth, the company relied on that time-tested Chinese custom--guanxi, or connections. For instance, a friend of Lichtenberg's knew the deputy head of Shanghai's Zhabei district and told him about Bo Concept's problems. The deputy district head called the district SAIC director, who convened a meeting of 25 experts to discuss the case.

Another hurdle was convincing SAIC that using Bo Concept's brand name and its catalog constituted unfair competition. Such practices are not specifically mentioned in the relevant statutes, and Chinese bureaucrats generally prefer not to deal with matters that lack a clear precedent, for fear of rankling a superior. And some bureaucrats just didn't get it. "Their attitude was, If your furniture sells well, why wouldn't others copy it?" recalls Lichtenberg.

It took about four months for Bo Concept to persuade SAIC to take action, but once the agency was onboard, it moved quickly. In early 1999, for example, as part of a series of raids on Bo Concept's behalf, two dozen SAIC officials entered four furniture malls in one day to confiscate Bo Concept catalogs. SAIC authorized a second series of raids in September, at Lichtenberg's request.

These efforts did reduce the misuse of Bo Concept's catalog and brand name, and some of the companies that came face to face with SAIC were intimidated enough to stop making Bo Concept designs. But other copycats kept going. SAIC, after all, had not arrested or fined any of the culprits. It had not even confiscated copied furniture found on the premises it had raided. SAIC's mandate was only to keep Bo Concept's brand from being violated and to stop certain acts of unfair competition. Design infringement was not its job.

For that, Bo Concept needed Shanghai's patent bureau. The company approached the Shanghai Patent & Trademark Law Office, which had helped the company register some designs in 1997. Lichtenberg was under the impression that the office was the government bureau responsible for patent issues. In fact, it turned out to be no more than a government-owned law firm, housed in a swanky new office block and populated with former officials from Shanghai's real patent agency, the Shanghai Patent & Trademark Bureau. "For a year, my Shanghainese employees thought these guys were the bureau!" Lichtenberg exclaims. The company figured out that the law firm was an intermediary only when Lichtenberg paid a visit to its offices to discuss Bo Concept's travails.

In August 1999, Bo Concept finally tracked down the real bureau, located on the third floor of a decrepit former residence in Shanghai's old French Concession. The toilets stank; the walls hadn't seen a paintbrush in years. A handful of men sat around desks drinking tea and reading newspapers. Still, a white wooden sign did identify the office as the Shanghai Patent Bureau. And despite the unpromising omens, officials there were happy to interrupt their tea breaks and get to work.

Over the next four months, the bureau convened individual meetings between Bo Concept and five of the alleged copycats. Scared at being called to official account, the smaller manufacturers claimed that they did not know copying was illegal. The officers of a larger company initially blustered that of course they weren't copying. The patent officers convinced them otherwise. One company actually asked Bo Concept after the proceedings if they could combine forces in a joint venture. The Chinese companies paid no compensation, but they did sign a document promising to sin no more.

Meanwhile, in June 1999, Bo Concept sued the Shanghai Ornate Furniture Production Co., which it believed had eroded its sales most. The suit asked for $180,000 in reparations. The case has been stuck in Shanghai Intermediate Court since then. Few precedents exist to decide patent design infringements, and the judge is seeking the advice of experts in Beijing.

The case is not clear-cut. Tao Xinliang, Ornate's lawyer and the director of the Shanghai Law Association's Intellectual Property Rights Committee, contends that Bo Concept's patents were not violated because they were not valid under international treaties: The company did not apply for patents in China within six months of applying for its original patents in Denmark or selling the furniture outside China--a mistake that foreign investors often make. "For foreign companies that see China as an important market, they should register patents in China within the legal period in order to protect their designs," Tao warns. Joseph Simone, the Hong Kong-based chairman of the Legal Committee of the China Anti-Counterfeiting Coalition, takes that warning a step further. Even a company not planning on selling to China should make sure to obtain a patent for its products there, he advises, to protect against Chinese-made knockoffs being exported. Prompt patent registration also protects against the possibility of a Chinese subcontractor or sublicensee taking out a patent on a company's product or process.

Whatever the outcome of Bo Concept's court case, the company has made progress. Ornate stopped imitating Bo Concept's designs after the lawsuit was launched, and though new copycats crop up, they are not as much of a threat. The retail market has become differentiated enough that Bo Concept no longer sells its furniture in the same outlets that the copiers use. It has opened its own "total living" concept stores. Moreover, some independent high-end outlets are refusing to sell knockoffs; they realize that it is illegal and bad for their image. Thanks to his efforts, Lichtenberg also has the know-how and the relationships within the Chinese bureaucracy needed to curb copying when it flares in Shanghai and Beijing (smaller cities may still pose a challenge). Finally, Bo Concept has survived an industry shakeout that caused a number of foreign rivals to scale back operations or pull out. Sales have rebounded to 1997 highs, and profits are growing.

What's the moral of the story? One is that it is in fact possible to get redress in China for intellectual-property violations, and that foreigners' claims will be taken seriously. Another, though, is that victims will pay a price in time and effort. Although China is a member of international treaties on intellectual property, Lichtenberg is sure he never would have received protection if he (and eventually the Danish embassy) had not kept pushing for it, using every possible legal avenue--SAIC raids, Patent Bureau arbitration, and finally a lawsuit. Bo Concept is one of the few foreign companies to test China's intellectual-property system to such a degree.

Lichtenberg can hardly afford to be complacent. Some of his more accomplished Chinese rivals have started designing their own furniture. And, he says, "they're getting good."