Dealing in innovative products with mass-market appeal has its drawbacks. For one thing, the more demand a product garners throughout the world, the more likely it is for that product to be copied and sold by unscrupulous makers. And the problem has ballooned with the advent of online retail marketplaces such as Amazon, Alibaba, and Rakuten.
According to a report released last year from the Organization for Economic Cooperation and Development (OECD) and the European Union’s Intellectual Property Office, pirated and counterfeit goods accounted for $461 billion in trade in 2013, or 2.5 percent of all world trade that year. With digital sales growing by double digits annually since, that figure is undoubtedly higher today.
“Any company with a well-known brand or popular product should assume its brand or product is already being counterfeited,” says Roger Colaizzi, partner with Venable LLP and chairman of its Advertising Litigation Group. “Likewise, companies with a global footprint that have distribution channels in different countries, with different regulatory schemes and pricing, should assume that various entities are working to take their profit margin by diverting products.”
For DRTV marketers, the drag on the bottom line is often even more problematic, since they are usually behind both product and pitch. Counterfeiters benefit from high-profile ad campaigns, while the true marketers’ brands can suffer from the inferior quality of a fake—and the minimal level of service supporting it.
“Counterfeiting poses a two-fold risk to marketers,” Colaizzi says. “Counterfeiters get a free ride by taking advantage of the research, development, and marketing of others, and hunting down the infringers can be crippling financially. [And] by distributing inferior imitations, counterfeiters damage the good will and reputation of upstanding companies.”
Made in China
Most counterfeit goods originate in China—63.2 percent if one counts only the mainland, according to OECD, and 84.5 percent when Hong Kong is included. So any strategy that seeks to cut the problem off at the source begins there. Marketers can work with various departments of the Chinese government to seek criminal and administrative recourse, depending on the scope of the infringement and product in question.
“You can protect IP through a design patent or a utility patent, but it isn’t realistic to register it in 80 or 100 countries throughout the world.” —Scott Reid, CEO, Oak Lawn Marketing/Shop Japan and chairman of ERA’s Anti-Counterfeiting Coalition
At the outset, marketers can record trademarks, copyrights, and patents with Chinese customs, and use targeted cease-and-desist letters to stall infringement. If these fail to thwart counterfeiting, companies can expand enforcement activity to include more in-depth investigations that trace counterfeits back to their sources for enforcement action. Bad actors face stiff penalties, including fines up to 30 percent of the goods’ value, and criminal liability.
“We can register rights within China—trademark applications, design patents,” says Jason M. Drangel, partner with Epstein Drangel LLP in New York, N.Y. “Then you register those with customs, and you have the ability to file suits and work with local governments in China. But it’s very hit-or-miss.”
A superior strategy is to protect assets in their destination markets, he says. “Our approach to protecting direct marketing clients is to make sure the assets are protected in the countries they are interested in,” Drangel says. “We file trademarks and patents in the United States, and in every single country we anticipate doing business in or anticipate being knocked off in, then record these rights with U.S. Customs.”
By doing so, the firm can prepare handbooks and trainings that help customs and other branches of law enforcement recognize counterfeits at their ports of entry and in the field. “It’s gotten great results,” Drangel says.
Another tactic is to go after sellers in China with U.S.-based litigation. “We recently sued a massive number of Alibaba storefront owners for IdeaVillage and Ontel,” Drangel says. “We did one massive lawsuit for each of them in the Southern District of New York against 50 or 100 sellers, getting temporary restraining orders and injunctions.”
While the marketplace sites are cooperative and have systems in place to assist in suspicious-seller takedowns, they have also helped those trying to move counterfeit goods become smaller and more nimble. “It’s sort of a Whack-a-Mole,” Drangel says. “We’re not seeing big container shipments of counterfeits as much as we used to, so it’s harder to track.”
The Rule of Law
Protecting intellectual property when selling overseas is difficult. In the developing world, there are few formal laws that provide adequate protection—and enforcement is limited, at best. For instance, counterfeiting is a $4.6 billion business in Argentina, and it supplies the rest of Latin America with products that infringe on U.S. patents.
“In some markets, you’ll get there and your product is already there,” says Scott Reid, chief operating officer of Oak Lawn Marketing/Shop Japan and chairman of ERA’s Anti-Counterfeiting Coalition. “As soon as your product becomes accessible in the United States, there are companies in China that are copying it and offering it around the world.”
If a company is looking to expand internationally, the developed world offers the best protections, he says. For example, France has stiff penalties for the sellers, buyers, and possessors of fake goods. And eight nations—Australia, Canada, Japan, South Korea, Morocco, New Zealand, Singapore, and the U.S.—have now signed the Anti-Counterfeiting Trade Agreement (ACTA) to help protect IP rights.
A targeted approach to international marketing pays off. “You can protect IP through a design patent or a utility patent, but it isn’t realistic to register it in 80 or 100 countries throughout the world,” Reid says. “It’s just not the worth the money. The safest markets are those that have the rule of law—typically the larger markets like Japan, the U.K., France, and Canada.”
Even in mature markets, though, IP registered in the United States may not be protected in another country if you don’t file the paperwork there. “You may not be able to control the marketing of counterfeit goods in countries where the product is manufactured or distributed, if you don’t simultaneously own the product rights in those countries,” Colaizzi says.
Protecting Your Product
Brand protection and anti-counterfeiting measures should be a routine part of business for DR marketers wherever their products are sold. Colaizzi recommends a strategy that employs both in-house and outside resources to track each industry and product line.
Variations in packaging, product design, and trade dress can help distinguish real products from the fakes. “It’s getting harder to tell real from fake because manufacturers in China are gearing up quickly and getting their products out the door quickly,” Drangel says. “We’re big proponents of having specific ‘tells’ on the products that only you, your investigators, and customs can identify.”
Staff should monitor the internet for evidence of infringement, starting with the major marketplace sites. “You’ll see your products being sold on Amazon,” Reid says. “You’ll see your products offered on Alibaba. I’m not the first to say this, but if something isn’t selling, you either have a marketing problem or a counterfeiting problem. If it’s a counterfeiting problem, you might not see another order for the product, but then it’s selling on somebody else’s website for another three years.”
Companies can also track trade shows, swap meets, and major retailers, and audit the manufacturing facilities that churn out the goods. Companies can purchase their own products from “legitimate” sites to determine whether orders are being fulfilled with the real McCoy, and check returned items to see if the products are authentic—and trace the source(s) if they aren’t.
If fakes can be traced back to their sources, temporary restraining orders and injunctions will facilitate the seizure and destruction of counterfeit product, the takedown of infringing websites, discovery of counterfeiting and financial data, and ultimately, the recovery of monetary settlements or judgments. “You want everybody who tries to do this to know that you’re not going to look the other way,” Reid says. “You have to instill fear.”
Motivated to maintain their own sales numbers, foreign distributors can help protect IP on the ground overseas. But companies should pick international partners wisely to avoid counterfeiting and diversion of real product.
A Constant Chore
Unfortunately, most marketers have little option but to protect their IP on a constant, ongoing basis. “You have to put in the effort to combat the problem,” Drangel says. “I know that every one of our clients has people in-house pulling counterfeit products from third-party marketplaces. It takes a lot of work, unfortunately. It is a day-to-day struggle.”
“If you’re making money, it’s worth it,” Reid says. “I compare it to something like sweeping the front porch: You have to do it every Saturday morning or even every day to keep your porch clean. But if you go away for a few weeks, there will be a lot of leaves building up. It takes consistent monitoring and policing, cease-and-desist orders, and working with the web platforms. It’s just the way of doing business.”