Avoiding and punishing counterfeiting
Licensing brands has become increasingly common and provides an excellent avenue to growing a business exponentially. Whatever the business, the brand is the key to its reputation and recognition. It becomes essential to understand that competing businesses in any industry frequently attempt to achieve quick success by using the assets and business strategies established by rivals.
The most prevalent of these risks is intellectual property infringement of branded products. The term infringement refers to counterfeiting and other forms of improper use of another’s intellectual property. Infringement of licensed properties is a multifaceted and persistent problem that brand owners face worldwide, and is damaging to the success of a brand.
Counterfeiting is probably as old as the markets themselves—legend has it that ancient Greek wine was once counterfeited by the Romans.
The World Intellectual Property Organization (WIPO), based in Geneva, estimates that counterfeit goods account for hundreds of billions of dollars worldwide. Virtually all major organised crime groups are involved in the international production and distribution of counterfeit goods. Organised crime has discovered that the manufacture and distribution of counterfeit goods are easy ways of generating huge profits with very little risk of getting caught.
Various other sources reveal that counterfeiting and piracy cost the US economy anywhere between $200 billion and $250 billion per year, are responsible for the loss of thousands of jobs, and pose a threat to health and safety.
There are a number of causes of counterfeiting: the exorbitant price tags attached to the purchase of genuine products; technological enhancements that contribute to the ease with which a particular product can be copied or pirated; consumer demand for more cost-effective alternatives; and consumers who are willing to buy counterfeit goods at lower prices than the original. This leads to intellectual capital being violated and thousands of hours of research and development being usurped.
The easiest and best way to protect a mark and enforce intellectual property rights is to register a trademark. Registration helps in several ways. Not only does it provide constructive notice to the public of the claim of ownership of the mark, along with exclusive rights to its use, but it acts as a deterrent to other parties that might use the mark and, at the same time, permits an infringement action against a wrongful user.
Registration also provides a basis on which to obtain further registration in foreign jurisdictions and is instrumental in preventing the importation of infringing foreign goods.
The market is flooded with counterfeit products, which heavily damage the reputation of wellknown brands. Initially, counterfeiting was limited to consumer products such as DVDs and CDs, watches, sunglasses, shoes, cosmetics, prescription drugs, electrical equipment and clothing bearing popular and well-known international trademarks.
Recently, however, counterfeiters have extended their activities to more sophisticated markets, including business software, entertainment software, automotive components, pharmaceuticals, etc. Therefore, it seems that every product in every industry is vulnerable and the extent of this vulnerability is directly proportional to the popularity and reputation of the brands.
"Counterfeiters have extended their activities to more sophisticated markets."
More successful brands are prone to greater infringement risks by small vendors, retailers, flea markets and the like all around the globe. Every counterfeit product sold causes a loss of profit for the licensee and lost royalties for the licensor of the brand. It also leads to dilution of the brand image, and the goods and reputation of the brand owner are put at stake.
Apart from this clear economic impact, the use of some counterfeit goods, such as medicines and toys, poses a substantial danger to human health and safety.
In most cases, the consumer finds the counterfeit product inferior in quality, without realising that the product is fake. It is difficult for a layman to distinguish between a smart counterfeit and an original product. It is also likely that the consumer might not buy the same branded product again owing to what they perceived was its inferior quality and their unfavourable past experience.
Infringement may in some cases also lead to loss of property rights, since most merchandising properties are protected under trademark laws, which provide that the brand shall indicate the source and origin of the product.
In practice, this requirement is largely used to identify a particular manufacturer’s or seller’s products. This inherent trademark right may be lost and the trademark may no longer serve as the origin of the product if these goods are sold by unauthorised individuals.
One of the most dangerous effects of circulating unauthorised products is the product liability. There is growing awareness among consumers and a trend in the market to hold property owners liable for any damage caused by counterfeit products manufactured by licensees.
A licensor may end up facing a product liability suit or related legal matter arising out of an injury or loss caused by counterfeit products, even though the property owner had no knowledge of the offence. Traditionally, the brand owner would depend upon complaints and issues raised by its licensees from time to time.
But today, when the licensee has to pay huge sums as royalties, follow stringent quality control measures and abide by the licensor’s guidelines, it is unlikely that the licensee would stand by in the face of tough competition from cheap, inferior products. It therefore becomes necessary for the property owner to be alert and put greater effort into monitoring unauthorised products to maintain the standards set for the brand by years of branding exercises and effort.
Brand owners now recognise this danger and are dealing with it aggressively and promptly. Counterfeiting is a global issue, and governments, industry, IP owners and consumers must work together to fight it. A good place to start is legislation, by building on existing global initiatives, including the World Trade Organization’s TRIPS (Trade Related Aspects of Intellectual Rights) Agreement, which obliges governments to enforce IP rights and impose penalties for infringement.
In order to successfully undertake intellectual property crime investigations, substantial assistance is also required from rights holders. They are in the best position to detect and report intellectual property theft.
Brand owners have developed newer and modern means of detecting and locating infringing products. These methods include investigating infringement sources, conducting undercover operations, registering IP at the customs service and developing technologies to catch traffickers trading in infringing merchandise.
Technologically backed means such as holograms, product authentication cards, plastic sealing films and light beam-marked labels, have proved immensely helpful in reducing the number of counterfeits in the market. With the growing awareness and technologically backed methods, the problem of counterfeit goods can be tackled and brought under control.
Many luxury companies spend millions of dollars fighting the problem. Louis Vuitton, for example, has more than 60 people working full-time on anticounterfeiting in collaboration with a network of outside investigators and a team of lawyers. A proprietor of a licensed brand should endeavour to fight against infringement and counterfeiting of its licensed products.
Protecting brands without enforcement is very difficult, since there will always be culprits that take advantage of others’ work. This calls for adequate measures against infringers and all available steps should be taken to combat them. In today’s world of organised crime, everything and anything can be counterfeited, giving consumers a huge responsibility to make sure they know what they are buying.
Rahul Chaudhry is a partner at Lall Lahiri & Salhotra. He can be contacted at: rahul@lls.in
