Explosion of Online Counterfeiting Requires Diligence, Awareness of Evolving Schemes

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By Tamlin H. Bason

Given the astronomical surge in online counterfeiting, brand owners need to be increasingly diligent in monitoring the internet for counterfeits, and in vetting potential business partners, attorneys said Oct. 6 at a BNA sponsored webinar focusing on online counterfeiting.

Kelly Phair McCarthy of Sideman & Bancroft, San Francisco, said that counterfeiting is a $600 billion per year problem that has increased 10,000 percent in the last two decades. The increase can be attributed to the rise in the popularity of the internet, which has given counterfeiters a way to market their knockoff products to a much larger audience than they were previously able to reach, according to McCarthy.

Both McCarthy and Jerod Partin, director of business and legal affairs at Saban Brands LLC, stressed the importance of taking proactive steps to staunch, if not stop, the flow of knockoff intellectual property to the internet.

"The counterfeiting will continue, but you must be able to tamp it down so you can continue to operate your business and consumers can find authentic products online," McCarthy said.

Partin agreed that it was unlikely that a brand owner could achieve complete success in removing counterfeit products from the internet. But, he said that it was not necessary to achieve 100 percent success.

"If you can establish your company as a company that cares about counterfeiting, and can make it harder for counterfeiters to make money so that they move on to another brand, then you have won the battle," Partin said.

Know Your Enemies, Know Your 'Friends'.

Partin said that it is important to be familiar with some of the primary websites that traffic in counterfeit goods.

He identified websites that specialize both in wholesale business-to-business sales, and sites that focus primarily on business-to-consumer transactions.

Partin said that many brand owners will find counterfeit goods being sold wholesale at both www.dhgate.com and www.alibaba.com. Partin said that www.ebay.com is still one of the most popular sites for businesses to sell counterfeit products directly to consumers.

Getting counterfeit products removed from these websites requires both constant vigilance so that you are aware of when your brand is being infringed, and a familiarity with each website's takedown polices, Partin said.

In this way brand owners may be able to identify repeat offenders—against whom they may consider taking legal actions. However, Partin said that he has seen a new pattern arise that is troubling to many brand owners.

Recently, many of the largest counterfeiters of any particular brand were at one time business partners or licensees of the company claiming infringement, Partin said. He said that it is becoming increasingly common for a counterfeiter to obtain a licensing agreement and, as soon as the agreement is executed, to cut off all contact with the brand owner.

With the agreement in hand, the "licensee" can then go to retailers and manufacturers and claim that it has permission to sell the brand owner's products. Moreover, the agreement may allow the counterfeiter to register domain names abroad that contain the brand owner's mark. It is much more difficult to stop these counterfeiters because of the "air of legitimacy" that the agreement lends to them, Partin said.

Furthermore, Partin said that U.S. Customs—which can be a terrific ally to brand owners—will sometimes view this as a case of a partnership gone wrong, rather than as a pure counterfeiting issue. As a result, Customs may be less sympathetic to brand owners in these scenarios, Partin said.

"Vetting your business partners is extremely important because once you have executed that agreement, they can wave it around and in places like China it becomes much more difficult to end their operations," Partin said.

Owners Must Weigh Measured Response vs. Escalation.

McCarthy said that last year alone U.S. business lost between $200 and $250 billion due to counterfeiting. Given the huge amount of money—and consumer confidence—that is at stake, it may be tempting to aggressively pursue every instance of online infringement that a brand owner comes across. But that would be inappropriate, Partin said.

He said that brand owners must be able to distinguish between harmful counterfeiting, and simple consumer use that is actually beneficial to a company.

For example, Partin noted that there are numerous videos on youtube.com that reference and use portions of the Power Rangers program that his company produces. But Partin said that by and large these uses do not harm the brand.

"In certain forms, we love our content being spread around. Just not in whole episode or whole season form," Partin said.

At the same time, Partin said that it was important to "know when to take it up a notch" in order to go after repeat violators who were harming the brand.

McCarthy said brand owners should prioritize their concerns and act accordingly in order to allocate their resources in ways that most efficiently impact harmful online counterfeiting.

"The goal is to take a measured approach to the vast counterfeiting problem," McCarthy said.

By Tamlin H. Bason

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