David Benner thought he had a hot tip for China's counterfeiting cops: the name, mobile-phone number and sales records of a man he suspected of express-mailing to Britain and other Western countries fake Viagra tablets in boxes labeled as bath towels.

But Mr. Benner, a former U.S. Secret Service agent who now serves as Pfizer Inc.'s chief fighter of fakes in China, didn't hear back from authorities in the northern city of Tianjin. So Mr. Benner went on the trail himself, eventually contacting the man and placing orders for as many as 20,000 pills of phony Viagra.

Mr. Benner handed over a detailed report on the case and called a top Beijing cop with whom he has worked for years. Almost a year after Mr. Benner's initial approach, Chinese police conducted several major raids in August and September, arresting 12 people and seizing nearly half a million pills.

The episode illustrates the challenges Pfizer and other multinationals face as they try to police a country that critics say isn't doing enough to police itself. Pfizer is fighting a rising tide of fake drugs that increasingly has China as its source. Counterfeit products are eating into its sales in China's growing consumer market, and lately they are finding their way into major markets such as the U.S.

Pfizer's success in stemming the problem depends on its ability to conduct a delicate dance with Beijing, prodding authorities into action without alienating them. Pfizer's basic patent for Viagra has been struck down by a Chinese court, although it is still in force pending Pfizer's appeal. While police are sometimes helpful, Pfizer feels it is often bucking up against Beijing's "tacit acceptance of counterfeiting," says John Theriault, Pfizer's vice president of global corporate security.

Chinese authorities reject such criticism. "Fake drugs is a business that is equivalent to murder," says Gao Feng, deputy commander of China's white-collar crime bureau, citing cases where Chinese citizens have died from taking counterfeit medicine.

A Chinese police official who was involved in the Tianjin Viagra case says authorities there took it very seriously from the start. "I went to Tianjin," says Wang Zhiguang, a senior official at the Economic Crimes Investigation Bureau at the Ministry of Public Security. "We were on the case at the very beginning."

Once dismissed as a problem relegated to developing nations, copycat drugs in recent years have become a top industry concern. The World Health Organization estimates that between 6 percent and 10 percent of medicine on the world market, with a value of $35 billion a year, is counterfeit.

Increasingly, fake drugs are making their way into the U.S., threatening sales and consumer confidence in the world's largest drug market. In 2003, knockoff versions of Pfizer's cholesterol-lowering drug Lipitor manufactured in Costa Rica were found in U.S. stores. The Food and Drug Administration investigated 58 cases of drug counterfeiting in 2004, up from four cases in 1998, according to an agency report. The cases involve "hundreds of thousands of fake dosage units," the report said.

A decade ago, fakes were mostly poor-quality pills cooked up by amateurs in basement labs. These days, cutting-edge counterfeiters can make nearly perfect pills with the same active ingredients as the originals. They manage their supply-chain and distribution networks like professionals.

Nowhere have counterfeiters grown more sophisticated than in China, where the manufacture of fake goods from computers to cars has taken off. Pirated copies of U.S. movies, such as "Harry Potter and the Goblet of Fire" released late last year, are available on the streets of Chinese cities just days after they are released in theaters. General Motors Corp. accused Chinese auto maker Chery Automobile Co., of using stolen design information to produce a car that is a virtual replica of GM's Spark minicar -- a claim the U.S. government publicly backs. The dispute was settled in November out of court and details weren't released.

Last year more than a dozen infants died after their mothers unknowingly fed them fake milk powder that had little or no nutritional value. Chinese television stations broadcast images of sick and dead babies that were fed the counterfeit formula. The incident prompted a pledge from Chinese Vice Premier Wu Yi to stiffen penalties for counterfeiting and an offensive against counterfeit products, dubbed "Operation Eagle." The yearlong effort culminated in the November arrests of 419 suspects and the confiscation of more than 100 million yuan, or about $10 million, in goods, ranging from car parts to cosmetics and drugs.

Pfizer's antipiracy efforts, begun less than a decade ago, have evolved rapidly to focus on China. In 1996, Pfizer hired Mr. Theriault, a former senior official with the U.S. Federal Bureau of Investigation, to develop its global security division. Starting with a team of 10 people in New York and London, Mr. Theriault set about staffing offices in Asia, adding people in Hong Kong, Beijing, Shanghai, Seoul and Bangkok. Today, there are more than 40, as well dozens more part-time consultants around the globe.

Pfizer says its efforts in China are starting to pay off, though its executives acknowledge they lack any reliable statistics on the size of the problem. Last year, about 1.7 million tablets of fake Viagra, one million tablets of Lipitor, and half a million tablets of Norvasc were seized in China. But of 82 seizures involving fake Pfizer products over the past two years, 51 were initiated by Pfizer employees, according to company officials.

Pfizer counts the Tianjin case spearheaded by Mr. Benner as among them.

In that case, Mr. Benner was tracking a man using the name Wang Daijun, whose packages had been intercepted by European customs officials in 2004. Mr. Benner and a Chinese colleague had called the number on the seized packages and spoke to a man they believed was Mr. Wang. But midway through the conversation the man seemed to grow suspicious and hung up. The phone number was never answered again and the trail seemed to grow cold. Mr. Benner also drove to Tianjin to check out the return addresses on the seized packages. They all turned out to be phony, he says.

So in September 2004, Mr. Benner handed the case over to the police, hoping their powers to track phone records would unearth clues he couldn't get.

Officials at the Ministry of Public Security in Tianjin confirm that Mr. Benner brought them information about the case. But they say they were the ones who found the clues about the man "selling counterfeit medicines overseas through the postal system in the name of Wang Daijun." In a statement, the ministry office adds that it took Mr. Benner's information and pursued it.

Mr. Benner says he heard nothing from them for several months.

Mr. Benner says he turned to a network of dozens of informants and private investigators that Pfizer has assembled in China. Scanning the Internet for fake-drug ads, they found a supplier of Viagra in Tianjin. The supplier's name was Wang Daijun, the same name as on the intercepted packages. The investigators purchased some of the pills from Mr. Wang. A Pfizer lab in Dalian confirmed that they were counterfeit, Mr. Benner says.

Mr. Benner's team proposed a larger purchase, for 20,000 tablets, and offered to pick them up in person at a hotel in Tianjin. The vendor agreed. That afternoon, Pfizer had one investigator posing as the buyer, while Mr. Benner watched from a coffee shop and others scouted out the lobby, Mr. Benner says.

After a brief chat, the vendor told the undercover buyer that he was going to leave the hotel and pick up the shipment and they would meet in the buyer's hotel room. He returned with a large suitcase filled with the pills, according to Mr. Benner. The investigator paid in cash, and the two parted ways, he says.

At that point, Mr. Benner called Mr. Gao of the white-collar crime bureau. The two met in the late 1990s when Mr. Benner was working as a customs attache to the American embassy in Beijing. Their relationship was sealed when Mr. Benner helped extradite a Chinese fugitive who had fled to Detroit, both men say. Since then, their families have attended birthday parties of mutual friends, and their sons have played basketball and tennis together. Mr. Benner sometimes wears a tie clasp with the insignia of China's Ministry of Public Security that Mr. Gao gave him, and Mr. Gao refers to Mr. Benner as an "old friend."

Mr. Benner says that after his call, he heard nothing on the case for nearly six months. "At this point, it's their country, their authority, their jurisdiction. It really becomes their baby," says Mr. Benner. One day in late August, Pfizer got a call from Mr. Gao's Ministry of Public Security, indicating that a bust could come soon.

Shortly thereafter, the Chinese announced they had seized 440,000 fake pills with an estimated value of $4.3 million and arrested 12 suspects, including Li Wenhui, who police said also used the name Wang Daijun.

Mr. Li, it turns out, had been previously arrested in New York in February 2002 as part of a joint investigation between Pfizer and the Manhattan district attorney's office. Mr. Li served a year and half in the U.S. and then was deported back to China.

Meanwhile, Pfizer is fighting in Chinese courts for basic recognition of one its most important patents. Last June, Beijing's State Intellectual Property Office overturned Pfizer's patent for Viagra, which it had held since 2001. The agency sided with a coalition of a dozen Chinese companies that argued Pfizer had failed to meet certain technical requirements.

Pfizer launched an appeal in September, and a ruling could come any day in what has become a closely watched bellwether.

The legal limbo has already affected Pfizer's battle against fakes. After one group of counterfeiters argued that making fake Viagra was no longer illegal, according to a person familiar with that case, China's intellectual-property ministry announced that the company's patent will remain in effect until the appeal process is finished.