If your company makes trademarked products, chances are high that someone is considering counterfeiting those goods, if they’re not already doing so.
Counterfeited items include everything from batteries and light bulbs to shoes and baby food, and the list doesn’t stop there, says Sam Watkins, a senior attorney at Theodora Oringher Miller & Richman PC.
“If you make or distribute popular trademarked goods in this country and you’re paying U.S. taxes, employing U.S. citizens at U.S. wages, complying with U.S. laws and safety regulations and still making money even with all these costs, counterfeiters in another country are going to rip you off by making and selling fake versions of your goods cheaper than you can,” says Watkins.
Smart Business spoke with Watkins about how to determine if your company has a counterfeiting problem and the steps you can take to combat it.
How can counterfeit products hurt a brand?
People don’t appreciate the harm they do buying counterfeits. They look at the price of a pair of brand-name shoes that they really want but can’t afford, and then they buy the counterfeit version instead for a quarter of the cost. But counterfeit goods erode brand value. That pair of counterfeit shoes is not manufactured to the same high quality as the genuine article. Then when people see the quality of the product, they think, ‘I thought that brand was good, but it looks so shabby.’ So even if a company didn’t lose a sale because the person couldn’t afford the real McCoy, it is still victimized because the shoddy quality of the goods is going to erode the company’s good will.
There also are safety and moral issues. For example, a counterfeit drug may or may not contain the correct active ingredients and may, in fact, contain harmful chemicals. You stand a great chance of being harmed by ingesting dangerous chemicals or by failing to get the proper dosage of medicine. Also, many counterfeit goods are made by children under horrible conditions. People really should think twice about these victims before they buy.
How can companies determine whether they have a counterfeiting problem?
Some companies train employees to be their eyes and ears, and if they suspect something in the marketplace, internal security will investigate. Also, pay close attention to consumer complaints. Companies may be able to detect a pattern in the type of complaints they are receiving or in the region of the country the complaints are coming from. If the complaints are all of one type or from one area, that’s a good indicator that counterfeits are in that region, and consumers have been disappointed with the quality.
Another indicator is a serious and unanticipated drop-off in sales in a region. That often means a company is no longer in competition with its normal competitors but is instead in competition with counterfeits.
Finally, companies often become aware of counterfeiting when law enforcement contacts them to determine if goods they have detained are counterfeit or genuine.
How can companies cost-effectively combat counterfeiting?
At the federal level, the Trademark Act of 1946, also known as the Lanham Act, is a useful litigation tool for combating counterfeiters. It provides for statutory damages of up to $2 million per counterfeited trademark as well as subpoena power for collecting valuable information about the counterfeiters.
Companies can also record their trademarks with the U.S. Bureau of Customs and Border Protection and share with Customs what they know about the counterfeiting of their goods and where they are coming from.
Recording a trademark with Customs authorizes the seizure of counterfeit goods at the border. Seizures often lead to the identification of other counterfeit shipments that got through and the people who imported them. Once companies identify suspects, they can hold them accountable through civil litigation and, potentially, criminal prosecution.
Counterfeiters are businesspeople, and they invest hundreds of thousands of dollars or more in their businesses. If a brand owner makes its trademarks even just a little too hot to handle, counterfeiters will make the rational business decision to invest in someone else’s trademark. All companies need to do is ramp up the pressure just enough to push counterfeiters into someone else’s space.
Also, publicizing the problem can be an effective strategy. Some companies don’t want to do that, believing publicity will steer customers away from their brands and erode their value. But others believe if they alert the public to the existence of counterfeits and warn potential victims about what to look for, people will choose to avoid counterfeits and seek out the genuine item.
What advice would you give companies that say they don’t have the resources to worry about counterfeits?
It’s tempting for a growing company to use its limited resources on needs other than brand protection. But two considerations counsel otherwise. First, that company will likely fail to grow as it effectively surrenders market share to the counterfeiters. Second, counterfeit products typically are inferior to genuine goods. Fake goods often injure consumers, prompting costly investigations of genuine goods by the Consumer Product Safety Commission. In some cases, product liability lawsuits may be filed against the genuine brand owner.
Even if a company can prove at trial that the product was counterfeit, the plaintiff could badly damage the company’s reputation by claiming that the company knew that counterfeits were out in the market, knew of the dangers to the consuming public, but took no action to warn or protect the public from fake and dangerous products. Companies can and should avoid these risks by having and implementing a brand protection strategy.
Sam Watkins is a senior attorney at Theodora Oringher Miller & Richman PC. Reach him at firstname.lastname@example.org or (310) 557-2009.