Jan 12 | 2015

Cracking Down on Counterfeits – How Trademark Owners Can Protect Themselves from Sellers of Counterfeit Products

Trademark owners worldwide invest substantial resources to build up the goodwill of their brands, and the success of trademark owners often hinges on consumers associating their brands with high quality products. As the digital marketplace continues to develop, even the smallest, most remote trademark owner is able to tap into a global consumer base. Enter the seller of counterfeit products. Appropriately termed by many as the “crime of the 21st century,” product counterfeiting can unravel the goodwill and quality associated with a trademark owner’s product in just the blink of an eye.

Counterfeit products are inferior-quality goods that bear the trademark of higher-quality brands without the trademark owner’s permission. They exist in nearly every industry – from fake versions of pharmaceuticals like Xanax® and Viagra®, to children’s clothing, to consumer electronics and software. Historically, the sale of counterfeit products was confined to “brick and mortar” establishments like New York City’s infamous Canal Street or Seoul’s Namdaemun Market. With the advent of the digital marketplace, sellers of counterfeit products now offer their counterfeit products online and are cashing in on millions of unsuspecting consumers. The reason these counterfeiters are able to fool online shoppers is because websites offering counterfeit products appear almost identical to websites featuring authorized products. To make matters worse, sellers of counterfeit products advertise with pictures of genuine products, but then ship the counterfeit product to the unsuspecting consumer.

When we talk about counterfeit products, it is important to distinguish them from gray market goods (which are sometimes referred to as parallel imports). Gray market goods are genuine products that are purchased outside of the manufacturer’s intended chain of distribution, often in foreign countries and are imported into the U.S. without permission, usually at much lower prices. By way of example, XYZ Company creates lower-priced, lower-quality cell phones for sale in developing countries. Unauthorized distributors purchase the cell phones abroad at the lower price and import them for sale in the U.S. at a price lower than what the U.S. market would expect.

Aside from serious damage to the health and safety of consumers, particularly from the sale of counterfeit pharmaceuticals, the sale of counterfeit products can significantly reduce consumer confidence in a brand, which results in weakening the trademark. This will happen over time if consumers associate the lower-quality – counterfeit – product with the trademark owner’s brand. Also, the sale of counterfeit goods inevitably leads to unhappy distributors, reduced revenue, and lost jobs. In fact, it is estimated that the sale of counterfeit products costs U.S. businesses $200 billion to $250 billion per year in lost revenue.

There are ways to mitigate the effects of the sale of counterfeit products or at least decrease the likelihood of counterfeit products being sold. Fortunately, U.S. laws protect trademark owners against sellers of counterfeit goods, although the laws cannot reach owners of foreign-based websites selling counterfeit goods in the U.S. Nevertheless, there are certain in expensive ways for trademark owners to guard against counterfeiting (other than suing in federal court). The following represents several important steps that you can take.

First, if your trademark is federally registered in the U.S., record it with the U.S. Customs and Border Protection (“CBP”). Once a mark is recorded with CBP, CBP will be on alert for infringements of that mark at each of the 317 ports across the U.S. This means that CBP will retain any suspected counterfeit products bearing your mark, and it will seize the products should you confirm that they are counterfeit.

Second, you should diligently monitor the internet for counterfeit products, and train your employees to search for counterfeit products online. Businesses can minimize the impact of counterfeit versions of their products by notifying third party seller websites of the sale of these products. The notification process is surprisingly simple, and, if done systematically, it can reduce sales of counterfeit products bearing a trademark owner’s brand.

Third, warn your customers. Provide a comprehensive list of authorized sellers on your website so that consumers can review before making a purchase from a third-party website.

Finally, publicize your successful take-downs or seizures of counterfeit products bearing your trademark in press releases, since that can act as a deterrent to potential sellers of counterfeit products. You may also consider including a list of successful enforcement actions, including litigation that resulted in high damage awards, on your brand’s website.

The process of cracking down on counterfeit products can be trying, and at times, ineffective. Nonetheless, because there is a possibility of deterring future counterfeiting, trademark owners should regularly implement the above strategies. As for a solution, stakeholders, including search sites, payment service providers, and trademark owners, would need to collaborate to address the sale of counterfeit products online. By implementing voluntary measures that target the sale of counterfeit products, stakeholders would be taking a step in the right direction in combating the sale of counterfeits online.

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