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Counteract Counterfeits

Rick Van Arnam, Esq.
Back to the October issue.

The fact that counterfeiting is a global problem comes as no surprise to anyone involved in worldwide production or distribution. As an “industry,” counterfeiting has graduated from the regional distribution of designer goods to a global behemoth knocking off just about any type of consumer product for sale anywhere in the world—including cosmetics and personal care goods.

To illustrate, in April 2006, Australian customs intercepted 30,000 bottles of fake perfume with a street value of US$2 million. In April 2007, police in Moscow seized 1.2 million bottles of bogus perfume and eau de toilette worth $5.7 million. A May 2007 report stated that Doho, Qatar was flooded with counterfeit perfume. And closer to home, a joint enforcement initiative by U.S. Customs and Border Protection and U.S. Immigration and Customs Enforcement resulted in the June 2007 seizure of over 950 shipments of a variety of counterfeit goods, worth approximately $700 million dollars, if the goods were authentic.

The Scope of the Problem
Just how big is this problem worldwide? In a June 2007 report issued by the Organization for Economic Cooperation and Development entitled “The Economic Impact of Counterfeiting and Piracy,” illicit cross border trade in “hard goods” is estimated to reach $200 billion. This number is believed to grow to several hundred billion dollars when domestically produced and consumed hard goods and non-tangible goods, such as film and music, are included.

Many factors exist in the ongoing value growth of counterfeit goods. For personal care and cosmetics companies, a key issue is the ongoing consumer desire to have luxury name goods regardless of their authenticity. Organized crime and terror groups have also become active players in this lucrative field, and the traditional methods of interdiction, such as seizing counterfeit products, may be ineffective in the age of the Internet, where products and ideas may be moved or reproduced digitally.

Further, enforcement efforts are hampered by ineffective national policies in many countries, poor coordination among law enforcement, and fines and penalties so small that they fail to provide a deterrent and are viewed by counterfeiters as simply a cost of doing business.

Steps to Safeguarding Intellectual Property and Brands
Given the scenario above, what steps can a company take to help safeguard its valuable intellectual property and protect valuable brands? Experts recommend eight straightforward and effective measures.

1.  Register all your trademarks and patents in all the countries in which you do business, plan to do business or could conceivably do business—either selling or sourcing.

This should be a standard counterfeit prevention practice. The trademark laws of each nation are territorial, so merely filing in the U.S. or the EU will not safeguard you in other countries. You can help prevent trademark pirates from beating you to the trademark office in a country you now decide to do business in through foresight as to which markets you could potentially enter and registering your marks in those countries.

2.  Register your trademarks and trade names with U.S. Customs and Border Protection (CBP).

This is an easy and inexpensive step that can lead to government interdiction at the border, but it is one that many companies fail to take. If counterfeit merchandise is seized, CBP will advise you of the names and addresses of the exporter and importer, allowing for the potential of taking additional steps directly against the offending party. In addition, take the further step of educating customs agencies on how to distinguish your legitimate product from knockoffs.

3.  Know your vendors and manufacturers.

They are making your product, and you need to be sure that they are not making additional units of your merchandise on the side.

4.  Identify Web sites, especially auction sites, selling counterfeit merchandise.

Become familiar with the auction house policies that allow legitimate rights holders to identify themselves and to have the auction house remove offending auctions. For example, this is called Verified Rights Owner Program on eBay; on, it is called the Rights Owner Compliance Systems.

5.  Educate your employees on these issues.

Make sure employees understand the importance of protecting your company’s valuable rights. Your employees need to know that counterfeiting damages the company’s reputation, as well as the ramifications thereof.

6.  On your Web site, allow your customers to report potential counterfeit products they have purchased and to report instances where they have come across bogus products for sale, be it on the Web, the street or in a store.

7.  Work with trade associations and competitors to combine resources.

Law enforcement might get more involved if several companies present a united front.

8.  Be aggressive with the law.

While litigation can be expensive and time-consuming when compared to the prevention steps mentioned above, many remedies exist, in both civil and criminal law, at the federal and state court levels. Under the right circumstances, these remedies can be effective. At a minimum, always send cease and desist letters.

Governments are working together on the international level to convince countries that are lax on intellectual property rights enforcement that stamping out counterfeiting is in the best interest of all nations. In addition to supporting criminal and terrorist activities in those countries, counterfeiting endangers consumer health and safety, diminishes tax revenues and discourages foreign investment.

Back to the October issue.

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