Counterfeits cost brand owners billions of dollars every year. How can brand owners combat this problem? What are the best strategies they can employ and will they work?
I am delighted that Lisa Martens has given us some expert and helpful advice. Lisa is a Principal in the Southern California office of Fish & Richardson P.C. Her practice emphasizes trademark prosecution and litigation for the food service, health care, biotechnology, computer, Internet, and retail clothing industries. Her complete bio and contact information are here. My conversation with her follows.
Q. What is a counterfeit product?
A. It’s an imitation, usually one that is made with the intent of fraudulently passing it off as genuine. Typically, counterfeiters target high quality products to take advantage of the perceived superior value by the consumer of purchasing a luxury product at lower than market price.
But counterfeit goods aren’t just designer handbags and shoes. All types of products, including drugs and manufacturing parts, are counterfeited and sold illegally in the U.S.
Q. Where are counterfeit goods being made?
A. Counterfeit products are made in many countries, including the U.S. Taiwan used to be the perceived leader but we are now seeing more goods come from China. For example, one commentator estimated that nearly 90 percent of all golf counterfeits are made in China, with most from Guangdong, Fujian and Zhejiang Provinces.
Q. Why should we care?
A. John Morton, Assistant Secretary for U.S. Immigration and Customs Enforcement, summed it up nicely for the Wall Street Journal when he said “Intellectual property theft steals a whole lot. It steals jobs, creativity, it funds organized crime, and it’s a serious risk to public safety.”
The effects of counterfeiting are far reaching. Counterfeit products take away legitimate revenue from brand owners and disrupt relationships with exclusive distributors, all of which causes economic harm. Because counterfeit products are almost always inferior to the real thing, consumer dissatisfaction with a company over poor quality of counterfeit goods will dilute a trademark. This costs businesses jobs and market share.
Counterfeits can harm the public – they can be dangerous because they do not comply with government regulations and can impact public health and safety. Thank about counterfeit pharmaceuticals and airplane parts and how they can threaten lives. Even luxury items that are not properly produced can cause harm– suppose a counterfeit golf club breaks mid swing. The golfer or an innocent bystander could be seriously injured.
Q. How widespread is the problem?
A. Businesses across a spectrum of industries are victims of counterfeiting, and the problem is only getting worse. According to the New York Times, the top counterfeited products are footwear with electronics next in line.
Last year, $40 million in counterfeit goods were seized by the government in a single nationwide sweep. The top counterfeited brands found in the sweep were Rolex, Coach, Nike and various DVDs and pharmaceutical products.
Q. Besides conducting massive sweeps, what is the government doing?
A. The problem has become so rampant that the federal government is expanding its efforts to combat counterfeiters. In June of 2010, the United States unveiled a wide-ranging strategic plan for the protection of intellectual property and pledged to confront governments that fail to crack down on piracy.
Q. What should businesses do?
A. Constant vigilance is needed to ensure your rights as a trademark owner are protected.
First and foremost, trademark owners must register their trademarks. Without a federal trademark registration, some of the most severe civil and criminal penalties are not available. Once registered, we encourage our clients to work closely with U.S. Customs and Border Protection whose responsibility it is to stop counterfeit goods from coming into the U.S. Mark owners can record their federal trademark registrations with Customs very easily and inexpensively. All you have to do is complete an Intellectual Property Rights e-Recordation (IPRR) application online at https://apps.cbp.gov/e-recordations/. The form requires information such as locations where legitimate goods bearing a mark are manufactured and a certified status copy of the trademark registration.
The recordation cost is only $190 for each trademark and each class of goods. In addition, mark owners can visit the U.S. agents at the ports where counterfeit items are likely to cross. By meeting with the Customs agents in person and showing them examples of legitimate products, the agents and more readily identify counterfeit goods and are more likely to catch them as they enter the U.S.
One of my clients meets with Customs agents regularly, brings genuine products for the agents to examine and educates them on key differences between the genuine products and the knock-offs. The client even leaves product samples with the agents. These face to face meetings help build goodwill with the agents. The meetings also help the agents really learn what the genuine article looks and feels like because the knock-offs in this case are usually much lighter. As a result, the agents can now more readily spot the fakes.
Q. How can a mark owner stop the Internet sales of counterfeit products?
A. The Internet has been a boon for those selling counterfeit goods. Websites and postings can easily be tailored to give the appearance of selling legitimate products and often the purchasers truly believe they have purchased the genuine article. The major auction sites all have procedures in place for stopping the sale of counterfeit products and will work closely with mark owners to have counterfeit items removed. The burden is on mark owners, however, to diligently monitor these sites and notify the websites of the counterfeit products for sale. There is no duty on the part of the auction sites to take action unless and until they receive notice from the mark owner. For example, eBay has created the Verified Rights Owner (VeRO) Program, which allows intellectual property owners to report listings that infringe their rights so that eBay can remove the auction. To date, the program has assisted more than 5,000 owners. For more information about this free program, visit http://pages.ebay.com/help/policies/programs-vero-ov.html.
Cease and desist letters will often cause an independent sales website to remove counterfeit items or take down the website altogether. Unfortunately, the counterfeit items which have been removed from one website often quickly appear on a new website, making the enforcement process sometimes feel like a game of “Whac-A-Mole.”
Q. What can companies do internally to help combat counterfeiting?
A. Some companies train their staff to look for counterfeit goods in the marketplace while others hire private investigators to not only find products but also to trace the goods back to where they are illegally manufactured.
Consider using publicity to help fight counterfeiters. Many companies will issue press releases when they have successfully halted illegal goods from being manufactured or from entering the market. Publicizing enforcement actions, such as successful raids or large damages awards in litigation, can be a very effective deterrent against future counterfeiters. Trademark owners might wish to post on their web site a list of all the enforcement actions they have taken and the positive results they have achieved. Use the power of the Internet to tout your success.
Some companies within the same industry even form strategic alliances to work together to stop counterfeiting, despite the fact that they are competitors. For example, in the golf industry, some of the fiercest business competitors have teamed up to investigate, recover and destroy counterfeit golf products throughout the world. The economies of scale of working with other companies can make the cost of fighting counterfeiting more tolerable.
Q. What legal actions are available?
A. The International Trade Commission has the power to issue an “exclusion order” that covers the importation of counterfeit goods from overseas, or a “cease and desist order” against counterfeit goods made in the U.S. if unfair methods of competition are being used, including trademark infringement or false advertising. An ITC action is a quick and fairly simple alternative to federal litigation, though it can be expensive.
Filing a federal lawsuit to halt and seize counterfeit goods can net treble as well as statutory damages ranging from $500 to $100,000 per counterfeit mark per the type of goods or services being counterfeited. If the act is willful, up to $1,000,000 can be awarded. Attorney’s fees can also be collected. However, if federal litigation is pursued, the mark owner must cast a wide net and include as many parties as possible in hopes of being fully compensated, as most counterfeiters default and many use fictitious names, making them harder to find. Insurance coverage may offer some opportunities for compensation as well as landlords, credit card processors, and other related entities that may have been involved in the counterfeiting operation.
Q. Credit card processors?
A. Yes, in July 2010 a decision from the Southern District of New York found credit card processing companies liable to Gucci for contributory trademark infringement for processing credit card payments for websites that sold counterfeit merchandise. While the facts of that case were unique because credit card processing companies were found to have specific knowledge of the website owner’s infringing conduct based on investigations they had conducted into charge-back disputes and customer complaints about the quality of the merchandise, this decision certainly demonstrates the broad reach of a contributory infringement claim against third parties.
Q. At the end of the day, will all of this really do any good?
A. Yes…mostly. Mark owners must realize the process of stopping counterfeiters can be a long one. The tactics you use to seek out counterfeit goods can prove ineffective over time, so updating your efforts is important – especially with regard to new technologies.
Fortunately, it does not take long for a trademark owner to earn a reputation in the industry for cracking down on counterfeiters. Vigorous enforcement tends to diminish the desire of others to infringe. Taking just a few of the above-listed steps and then publicizing the favorable results can be very helpful in deterring future counterfeiters.
Lisa has graciously agreed to answer your follow up questions. Please contact her at martens@fr.com. Thanks Lisa, I really appreciate your clear, practical advice in response to a difficult problem.