Anti-social media: new horizons in brand-based fraud

By Clark W Lackert and Jonathan Goodwill, Reed Smith LLP

Trademark infringement is cycling through social media at alarming rates, with infringers using these platforms to legitimise sophisticated schemes. Whether the objective relates to cybersecurity, counterfeiting, passing off, unfair competition or something else, many schemes have one component in common: the use of trademarks to secure consumer confidence. This chapter examines new categories of infringement faced by global brand owners and proposes practical enforcement methods for maintaining brand integrity and consumer confidence at reasonable costs in this new battleground.

Trademark use and abuse in social media

The commercial use of trademarks on the Internet has been growing consistently and now incorporates multinational social media platforms such as Facebook, Twitter, Instagram and LinkedIn, and region-specific platforms such as the BATS (Baidu, Alibaba, Tencent and Sina) in China, Xing and StudiVZ in Germany, Mixi and Gree in Japan, and Carousell and Gumtree elsewhere. Users often rely on such platforms for information and shopping needs.

The popularity of social media has contributed to increasing sales of infringing goods using various methods of false association or sponsorship. With global sales of counterfeits reaching $1 trillion, social media platforms have provided means for directly engaging consumers through brand-based fan pages, Twitter feeds, fake survey coupons, mirror sites and fake mobile applications. This use of user-generated content has been a powerful commercial force in the early 21st century.

While the issues have been acknowledged by platform owners and traditional media, enforcement responsibility has remained with brand owners. Each year reveals more sophisticated methods for deceiving consumers, with infringers blurring the lines between source indication, affiliation, sponsorship and free speech. The problem has become so widespread that over 4,000 sources of counterfeit goods were recently disclosed in a sweep by agencies cooperating across Europe, Canada and the United States.

The fallout from the recent US election has emphasised users’ reliance on social media platforms for information. Criticisms focused on the abundance of fake news stories which were shared by thousands of users; in many cases these stories used trusted trademarks, eye-catching titles, misleading web links, offshore hosting and other means to legitimise their content. Such methods used to spread fake news should not be unfamiliar to brand owners which have been targeted by more sophisticated schemes to trade off brand names to generate illicit profits. Content that might be ignored elsewhere can be legitimised by social media platforms – particularly when messages are complemented by advertisements, friend shares and use of trademarks to attract attention.

Practical solutions

Although these assaults are coming from new directions, the overall approach to social media infringement should follow well-established principles of enforcement by:

  • setting up a global watch and investigation system using software and screening devices;
  • maintaining a robust trademark registration portfolio to fight infringements at their source worldwide;
  • considering sending notice letters to infringers;
  • using takedowns offered by social media sites themselves;
  • using copyright remedies to correct related abuse of materials by infringers and examining other possible legal violations (eg, right of privacy and computer abuse); and
  • entering into litigation as determined by a strategic analysis.

These principles must be balanced against freedom of speech or fair use defences, as well as potential negative publicity.

Watch service and investigation

Policing can be accomplished through a targeted, prioritised and cost-effective basis. Failure to police one trademark may contribute to loss of rights, although most countries will not judge the level of policing (but rather only that policing is ongoing). Watch notices should be systematically prioritised as to severity, cost and likelihood of success. Moreover, use of established global investigators may be essential in confirming the nature of the infringer’s identity, despite initiatives such as the new proposed crackdown on so-called ‘counterfeit hunters’ in China.

Social media has shown that traditional policing methods may not be effective for today’s content. New infringements can appear in minutes and infringing uses of trademarks will assist scammers in securing confidence. It is critical to analyse the content behind an infringing post, as evidence of actual confusion may support an objection. Moreover, posts may be the first step of an elaborate scam in many cases, as infringers aim to drive traffic elsewhere to secure illicit payments or steal personal information.

The flood of brand-name traffic over ‘Cyber Monday’ and the holiday season has provided infringers with an ideal environment for blending into the crowd. Recent postings promising deals on coveted Hatchimal toys in the United Kingdom involved fraudsters posing as legitimate retailers and targeting users expressing interest in the toy. In addition to such illicit posts and fake promotions, infringers have used mobile applications to lure users. These apps can be well designed, use brand names and logos prominently, and are certain to include means for transmitting personal and payment information. Consistent monitoring of application portals is thus a necessary component.

Global trademark portfolio

Although this principle may be overlooked, it is essential to establish a global infrastructure to fight fraud at its source. Many countries require that brand owners own trademarks in the source country in order to combat local infringers. It may not be necessary to own a trademark for every type of product sold in every country, but certainly registration of the principal trademark for core goods in key markets and key infringement countries is advisable to fight problems at their source.

It is also wise to reinforce portfolios with platform-specific trademarks, such as ‘#trademark’ for use in Twitter or Instagram campaigns and customised slogans for use in other platforms requiring character limits. Applications for hashtag trademarks have been on the rise in the United States, Europe and elsewhere, with over 1,000 filed in the United States and hundreds filed to date in the United Kingdom, Brazil and other countries.

Designation as a famous trademark is also helpful to brand owners in fighting these online infringements. A recent case involving Zippo provides a good example of protection extended to a famous mark (Zippo v Sun Menglin, Zhejiang High People’s Court, September 5 2012). US company Zippo found that Sun Menglin was selling hand warmers online bearing the ZIPPO trademark. On purchasing the goods, Zippo sued the manufacturer and distributor for trademark infringement and unfair competition. Zippo lost the initial case because the court concluded that the goods were not similar. An appeal was filed with the Zhejiang High Court, which found that ZIPPO is a well-known mark and that the actions of the Tangfeng factory constituted trademark infringement. Compensation of up to Rmb500,000 was awarded.

Objection letters

Companies have different policies on when to object to infringers. If infringers are counterfeiters or scammers, administrative or law enforcement actions may be favoured over formal objections. In other cases, letters may be necessary to provide effective notice before proceeding with enforcement actions to prove that an amicable solution was attempted before litigation. It may be necessary to confirm the connections to commercial content and user comments can be helpful to establish marketplace confusion. The content of such letters should be tailored to the particular infringements, with ‘soft’ language favoured for more incidental violations and aggressive language favoured for calculated schemes. Because social media provides a platform for immediate audiences, infringers can quickly share letters with followers in an effort to portray the brand owner as a bully.

Takedown notices

A unique weapon for the brand owner is the online takedown form provided by providers. The basis of a trademark (or copyright) complaint is a violation of IP law or the specific policies of the social media platform itself (eg, defamation, privacy or prejudice). In many instances, this is a quick way to address the problem. However, this strategy may result in a game of ‘whack-a-mole’, while infringers roll out new pages or move elsewhere. Immediate takedowns should be reserved for egregious infringements, while taking a holistic approach for others to attack the octopus at its heart, not just its tentacles.

Related infringements

Many abuses do not exist in a vacuum. One account may serve as a pretext for driving users to an external site used to conduct illicit transactions. For example, an infringer with a fake XYZ footwear social media page may also have a related website, www.xyzshoes.com, which sells counterfeit XYZ footwear and may also use misleading addresses (eg, ‘.com.co’) or shortened URLs suggesting a connection. In other instances, brand names and logos are used as a pretext to steal personal information. One case involved a fake promotion legitimised by a fashion trademark which encouraged aspiring models to send photographs and personal information to be considered for a New York photoshoot. Such activities, while not always commercial in nature, may be actionable under claims such as false representation, tarnishment or unjust enrichment (eg, Nine West Dev Corp v Does 1-10, 07-cv7533 (SDNY 2007) US).

Copyrights, account ownership and other options

Many brand owners overlook available copyright remedies (eg, the US Digital Millennium Copyright Act and variants elsewhere). Many fraud websites use copyrighted photographs, text or videos that can be challenged by a parallel track of enforcement with stronger copyright remedies. In many countries, the Berne Copyright Convention 1886 provides copyright protection without formalities. In addition, breaches may involve privacy violations of individual members of the social media community, possible computer and database hacking abuse and related violations which the infringer may be committing (eg, the US Computer Fraud and Abuse Act 1986 (18 USC § 1030)).

It is critical that brand owners control ownership of social media accounts created by employees through work-for-hire or similar arrangements. Failure to do so may lead to unintended consequences: ownership could remain with that employee even after he or she leaves the company, causing loss of control over the account and associated friends or fans. Other appropriate safeguards include an express assignment of ownership in employee agreements and policies requiring disclosure of account information (it should not be assumed that these accounts automatically belong to the employer). Account hijacking can be countered by claims of trade secret infringement, misappropriation, conversion and interference with prospective economic advantages. A recent US case legitimised potential claims and speculated that Twitter followers can be assigned monetary values (Phonedog v Kravitz, C 11-03474 (ND Cal 2011)).

Litigation

As in most cases of trademark infringement, litigation may be advisable for serious abuse affecting health and safety, the brand’s goodwill or commercial activity. From the global viewpoint, there is still disagreement among courts as to whether social media platforms should be secondarily liable for user-generated content on their sites. In Japan, the IP High Court’s 2012 decision in Rakuten/Chupa Chups established a threshold test regarding liability, analysing commissions received, control over the content and knowledge of infringements. If the test is satisfied, administrators can be held liable. In Thailand, IP owners seeking to enforce their trademark rights over online sellers can use the Trademark Act (BE 2534), the Penal Code, the Civil/Commercial Code or the Consumer Protection Act. Owners were previously required to partake in a lengthy investigation and raid process; however, due to ineffectiveness, trademark owners may also use Sections 14 and 20 of the Computer Crimes Act 2007 (BE 2550), which include punishment for entering false data into computer systems and may be used to block distribution of infringing products.

There is little disagreement that the direct infringer creating the user-generated content should be liable as long as the infringer cannot claim a legitimate fair use or freedom of speech defence for using the brand owner’s trademark on its page.

Conclusion

As the commercial use of social media continues to grow exponentially, so too will brand abuse. As such, social media can truly become ‘anti-social media’ as a means to spread false news and information, as well as infringing and damaging brand messages. Only a coordinated, prioritised and cost-effective social media policing programme can turn the tide, providing global protection for valuable trademark assets and protecting the consuming public against fraud while maintaining a global public forum for the expression of ideas which cross borders.

Reed Smith LLP

599 Lexington Avenue

22nd Floor

New York NY 10022

United States

Tel +1 212 521 5400

Fax +1 212 521 5450

Web www.reedsmith.com

Clark W Lackert

Partner

clackert@reedsmith.com

Clark Lackert is a partner in the firm’s IP group and is consistently ranked by various media as one of the world’s best trademark lawyers. His primary focus is on trademarks, copyright, domain names, licensing and anti-counterfeiting, with particular experience in international matters, including litigation in the Supreme Courts of Iceland, Denmark and South Korea; enforcement actions in China; and litigation in Australia, South Africa and Germany. He has been a Uniform Domain Name Dispute Resolution Policy arbitrator for over 15 years and has worked on numerous conflict and litigation cases, acquisitions and divestitures involving due diligence for IP assets, licensing and franchising and IP portfolio management projects. He has spoken on these topics at professional conferences on six continents.

Jonathan Goodwill

Law clerk

jgoodwill@reedsmith.com

Jonathan Goodwill brings substantial international experience to Reed Smith’s well-established practices in the areas of trademarks, copyrights, advertising and new media. His experience includes complex and cross-border matters involving enforcement, litigation and corporate transactions. In addition to supporting client brand protection efforts, he also regularly assists with US and international prosecution, trademark selection and clearance, alternative dispute resolution, brand valuation and licensing issues.

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