1 May 2013Trademarks

False profits: how True Religion fights the fakers

Since 2005, three years after its birth in California, True Religion has had a counterfeiting problem. As the company has expanded and made hundreds of millions of dollars every year, the number of fake goods has, rather unsurprisingly, increased.

Today, the battle against fake jeans is led by general counsel Deborah Greaves, who oversees a two-strong legal team seeking to find anything from a rogue Rocco slim to a bogus Billy bootcut pair of jeans.

“We see different levels of sophistication,” she explains. “Some counterfeits are very poorly constructed while others are very well put together.”

Since she joined in 2007, Greaves has witnessed the profile of counterfeiting change. In the past, counterfeiters commonly shipped goods in large containers through customs and then distributed them on to the market. These days, following enhanced detection efforts by the authorities, fakes are more likely to be found on rogue websites or Internet marketplaces such as eBay.

For True Religion, and indeed for countless other brand owners, China is the hub for such counterfeiting activity. Greaves believes low manufacturing costs, a characteristic of China’s developing economy, in tandem with questionable levels of enforcement, provide a breeding ground for counterfeiting.

There are other countries, including Vietnam and Turkey, where denim textile manufacturing and counterfeiting is prevalent, Greaves says, but “they are like specs of sand on the beach of China”.

Anti-counterfeiting specialist Joseph Gioconda, founder of Gioconda Law Group PLLC in New York, who is not affiliated with True Religion, says China has been the source of “the vast majority of counterfeiting activity—at least in the US—for several decades”.

“The manufacturing facilities tend to support a robust shadow economy that seeks to imitate the legitimate economy. These factories can pump out hundreds of thousands of items a week,” he says.

Once counterfeit goods become available online, Greaves’ response is to “hire a geek, who can see things behind websites that the average Joe can’t. The more Internet-savvy they are, the more effective they can be”.

Gioconda adds that monitoring the Internet requires constant vigilance, and advanced software programmes are useful for scouring search engine results, as well as domain names incorporating brand names. Brand owners can make test purchases from the websites, he says, in order to use them as evidence in civil litigation.

Greaves has filed four civil lawsuits in the past year and a half, in the US and Europe, wiping away 1,200 rogue websites. There is a snapshot of these domains on True Religion’s website, from truereligionjeansstore.net to cheapusajeans.com, with a note that says: “If the price seems too good to be true, it probably is.”

“In the US,” says Greaves, “we have a civil action that you can bring in federal court against the sites and you can ask to have them seized and transferred. Once you establish that those sites are selling counterfeits, the court will issue a permanent injunction and transfer the URLs to us.

“But it’s easy to set up another website, and that’s why every few months we bring another suit and name the next few hundred websites. There is nothing more efficient at the moment,” she adds.

Brand owners can use injunctions to seize websites but also as a stepping stone for targeting the counterfeiters’ revenue stream, according to Gioconda. He says after securing an injunction, he typically “serves an order on any banks in the US that have the defendant’s funds. We have found hundreds of thousands of dollars of the counterfeiters’ money. It’s an efficient process”.

Greaves disagrees. She says winning an injunction is one thing, but collecting the funds is another, much tougher task. Counterfeiters are smart and wily, she says, and it can be almost impossible to retrieve the money from them.


She says one answer to this problem can be found at the International Anti-Counterfeiting Coalition (IACC), a non-profit organisation devoted to combating counterfeiting and piracy. The IACC launched a Payment Processor Portal (PPP) in 2011, which allows participating brand owners to report websites processing payments using certain credit cards, in an attempt to strangle a counterfeiter’s livelihood.

Instead of tracking IP addresses or using web analytical tools to trace the counterfeiters’ money supply, the PPP provides a streamlined approach to finding their funds. Online sellers use merchant bank accounts, requiring banks to sponsor them in order to process a transaction. The PPP process seeks to shut down merchant accounts used by rogue sites to accept payments.

“This is a great approach,” says Greaves. “The card processor can investigate and if it determines that a site is selling counterfeits, it will terminate the merchant account. That’s a very effective tool because it’s difficult for the merchants to get new accounts. If you’re an acquiring bank and you have a bunch of your merchant accounts terminated, you’re going to get seriously fined by the card processors—to the tune of hundreds of thousands of dollars. That’s the incentive banks have to vet their accounts to ensure that they’re legitimate.”

She adds: “This approach helps to sharpen our strategies, as you can learn techniques that other brands are using. Often, we share costs on investigations and raids, because usually a counterfeiter isn’t just targeting one brand—it’s targeting multiple brands. By pooling our resources, we can lower our enforcement costs.”

While this is an important strategy to use, says Gioconda, and one that puts pressure on credit companies (and subsequently banks) to help find counterfeiters, he notes that it is not even two years old, meaning it is too early to gauge how effective it will be in the long run.

He adds: “It’s a game of numbers: you have to continually submit information about these websites as they pop up, staying aggressive and diligent to ensure that the banks do something about it. Counterfeiters can simply set up multiple merchant accounts, too. Nobody is under the illusion that, on its own, it is going to stop counterfeiting.”

Indeed, this is one of many potential strategies True Religion is using. Greaves says that, where possible, she pursues criminal enforcement avenues first, because jail time and criminal convictions have the biggest deterrent effect on counterfeiters. In one raid, in 2010, Californian cops seized 20,000 pairs of fake True Religion jeans sent from China and arrested one person.

Raids and arrests are tangible results from Greaves’ concerted effort to train both law enforcement and customs officers, showing them True Religion’s products and making them aware that its jeans are often counterfeited.

“This is really key,” she says, explaining that it is one of her primary anti-counterfeiting strategies for goods sold online as well as in more traditional ways, such as in containers.

In China, Greaves tries to use administrative raids, which are carried out by government agencies including local police forces, to seize large quantities of goods. In these cases, only fines are available, but brand owners can push for the government to take criminal action against the “big, big players” selling huge quantities of counterfeits, she says.

Gioconda is sceptical of administrative raids, noting that they are used by the Chinese government merely as a way of easing foreign pressure—making a showcase raid to claim that it is coming down hard on counterfeiting.

“In theory, raids are available, but after the raids the factories can re-open somewhere else. The economy is developing, so they have large labour pools and the counterfeiters can re-tool easily. The Chinese government doesn’t take the problem as seriously as in other countries,” he says.

Greaves adds: “You sometimes wonder whether the Chinese government is a little reticent to enforce against the problem as much as they could, because what kind of backlash is that going to have from an economic standpoint? When you have a country with so many people, those people need to be fed and make a living.”

Gioconda says tackling counterfeiting requires a holistic and intelligent approach, especially in countries such as China where beating “harboured” counterfeiters is a real problem.

“Everybody realises this is a war, not a battle,” he says.

True Religion is certainly fighting its war full on and, like many brand owners, is refusing to lie down in the face of rising counterfeiting. Greaves and her team adopt a balanced approach, mixing civil litigation with criminal enforcement and trying new methods such as the PPP, where appropriate.

This appears to be a sensible approach, given that counterfeiters are always diversifying and becoming smarter, and that much of a brand’s success can depend on uncontrollable factors such as government policy. The problem of fakes may be more prevalent than ever before, but True Religion is undoubtedly committed to rising to the challenge.

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