Practitioners from China, Russia, the United States and Ukraine discuss practical anti-counterfeiting strategies which can be implemented by rights holders
Counterfeiting is one of the biggest threats facing brand owners, threatening profits, corporate reputation and, potentially, customer safety and loyalty. However, creating a resilient anti-counterfeiting strategy can be challenging given the global nature of the crime, as well as local nuances which come into play in different jurisdictions.
With this in mind, World Trademark Review has assembled a panel of industry experts from around the world – Ai-Leen Lim from AWA Asia in China; Dmitry Sando from Gorodissky & Partners in Russia; Harley I Lewin from McCarter & English in the United States; and Nina Moshynska from Gorodissky & Partners in Ukraine – to discuss how brand owners can construct a sophisticated action plan and outline strategies for fighting illicit trade in their jurisdictions.
What are the fundamental building blocks of a successful anti-counterfeiting strategy?
Ai-Leen Lim (ALL): You first need to ask what your primary goals are. On the supply side, it could be deterrence, including securing a positive judgment or a decision for overall PR purposes or tracing factory leaks to cut off the sources of the counterfeits. On the other hand, strategies can be about shifting demand away from counterfeits to authentic products and educating consumers on the benefits of buying original goods. You should also consider whether anti-counterfeiting activities are intended to be self-funding (eg, by converting counterfeiters to licensees). Once you have made these decisions, you can customise your strategy accordingly.
On the supply side, the following need to be in place for an effective anti-counterfeiting programme in China. First, you need to secure IP rights, registering all relevant marks in the relevant classes as early as possible, together with all applicable patents (including designs). These rights also need to be registered with Customs and communicated to local authorities, including the local administrations for industry and commerce (AICs) and the State Technical Supervision Bureau (TSB). A good monitoring system for tracking sources of potential infringement and IP squatting, as well as a clear protocol on what is to be done and via which legal route, is also crucial.
Dmitry Sando (DS): We believe that the fundamental building blocks are as follows. First, register and maintain the relevant IP rights and ensure that these are entered in the customs register. Reliable tools for tracking fakes and online infringements are also important, as is a trusted local counsel who can engage in a flexible IP enforcement strategy with respect to particular infringements. It is worth cultivating close ties with enforcement agencies so as to ensure that you are alerted promptly of any potential infringements and also to have a better understanding of their approach. Active PR campaigns for your registered IP rights, as well as local enforcement actions, can also be helpful. If you are awarded compensation for infringement of your rights, this can go some way to recouping the cost of such activities.
Harley I Lewin (HL): As my colleagues have noted, you cannot build a house of protection without acquiring the building blocks of IP registration and liaison with law enforcement. You must, however, implement a self-help programme. For us it is straightforward (albeit the skill set is difficult) – we follow the three As:
- Accumulate intelligence from all sources available;
- Analyse the intelligence to determine what the appropriate next steps or response should be, taking into account remedies available and the programme’s goals; and
- Act on the intelligence, with responses ranging from letters to confrontation to civil and criminal efforts to legislation and administrative efforts.
Nina Moshynska (NM): To me, the fundamental building blocks of a successful anti-counterfeiting strategy are as follows. First, create and develop an IP portfolio; then inform the enforcement authorities of whom they should contact should they become aware of any IP-based infringements and crimes. You also need to inform the public about the poor quality of counterfeit goods, how to distinguish them from original goods and any successful cases. It is then important to monitor the market regularly for possible infringements and to engage in pre-trial measures (ie, send warning letters, negotiate with infringers and obtain written obligations from infringers). It is also vital to protect your rights at the customs border and to initiate administrative or criminal prosecution against infringers. Consider actions based on unfair competition laws and via court proceedings.
Are there particular counterfeiting challenges which are unique to your jurisdiction or trends that brand owners need to be aware of?
NM: In Ukraine, foreign economic trade has increased and the market for imported goods – especially those bearing famous brands – has expanded in recent years. However, brand owners do not always play their part in monitoring the market, checking the goods which carry their brands and taking enforcement measures against infringers. Fortunately, the Ukrainian legal and enforcement system provides a wide variety of measures which can be used to enforce trademark rights. Brand owners should ensure that their brands enjoy legal protection in Ukraine as registered trademarks, company names or well-known trademarks. Further, they should regularly monitor and enforce their trademark rights in case unauthorised products appear on the market.
DS: Parallel imports are prohibited in Russia, so there is every opportunity to combat them. While the Federal Anti-monopoly Service (FAS Russia) is being lobbied to legalise parallel imports – particularly with regard to automotive parts, medicines and perfumery and cosmetics – Russia is a member of the Eurasian Economic Union (EAEU) and this issue must therefore be decided within the framework of the whole union. While the relevant commission has convened several times, no decision has yet been issued.
In June 2016 it was made obligatory to send a cease and desist letter to an infringer before filing a civil lawsuit. When planning an enforcement strategy, rights holders should first ensure that the asserted trademark is being properly used before taking any action against an infringer. They should thus be prepared to collect and submit evidence of use in Russian commerce (eg, advertising materials, agreements and invoices), especially in the event of a potential non-use cancellation action, which may be instituted by an infringer as a counteraction.
ALL: China, of course, is the source of most of the world’s counterfeits. In many cases, factories employing a sizeable proportion of a village’s inhabitants produce counterfeits or in some cases non-branded products which are then labelled with brand names by wholesalers. This makes it extremely challenging to identify the source. There is also the problem of local protectionism, particularly in lower-tier cities in China. Another phenomenon relates to bad-faith registrations by trademark squatters trying to register internationally recognised brands which have not yet been registered in China; frequently, brand owners find out about such registrations too late and have insufficient legal grounds on which to challenge them, which leads to them paying a high price to the squatters for the transfer of the rights. Another common scenario is where infringers register a similar mark and manufacture goods under this brand. The cost of registration is relatively low and such counterfeiting is rampant. Along with the development of the internet economy, counterfeiters are also shifting their activities online, making it even more difficult to track and trace them.
HL: There are two major trends in the United States: one a bit older and the second fairly new. The older one is the shift from brick-and-mortar wall operations (eg, retail stores and warehouses) to the Internet as the main sales platform. The second trend, which is considerably newer, is the shift from selling counterfeits via marketplace sites such as eBay or Taobao (which continues apace) to social sites such as Facebook, Instagram, WeChat and so on.
What are the key enforcement agencies that mark owners can work with in your jurisdiction and how should these efforts be focused?
HL: There are several key agencies. First is Customs and Border Protection – register your trademarks with them, spend time teaching them about your goods and fakes in the main ports and they will do a great job of stopping goods. Second, local police are often better and more responsive than larger federal agencies, especially for smaller cases. Often state governments have active consumer protection agencies with law enforcement capabilities. The two key federal agencies, in addition to Customs, are the Federal Bureau of Investigation and the US Post Office. While both maintain active anti-counterfeiting teams, they both want to focus on the bigger cases. Needless to say, the courts at both federal and state levels are actively involved.
DS: An anti-counterfeiting strategy should certainly be built in close cooperation with law enforcement agencies. In Russia, for example, the main bodies responsible for anti-counterfeiting are the police, Customs, FAS Russia and the courts. The cooperation of rights holders is crucial in this regard – a large number of infringers go unpunished because rights holders do not initiate cases due to the small number of infringing items. Customs has a limited time (10 days for intellectual property entered in the customs register and seven days for ex officio actions) to decide whether to initiate an administrative case. In both cases the term of suspension may be extended by another 10 days, allowing the rights holder an additional opportunity to act. However, there have been cases in which the rights holder did not answer at all or answered only after several reminders. Depending on the nature of the infringement, it can be helpful to deal with one particular body or to deal with several at the same time.
NM: In Ukraine, the key enforcement agencies include the police, Customs, the Fiscal Service, the anti-monopoly authorities and the consumer protection authorities. Cooperation with the police and Customs is essential for any brand owner. The customs register allows counterfeits to be tracked at the border and the following legal action to be taken before illegal goods enter the market:
- destruction of counterfeits;
- removal of unlawfully applied marks from goods or packaging;
- commencement of administrative proceedings and confiscation of counterfeits; and
- initiation of civil action against the owner of the counterfeits.
Meanwhile, the police force is the key agency for combating counterfeits in the market, conducting investigations to discover illegal goods and taking legal action against infringers. Close cooperation between rights holders and the police is thus essential. It is the rights holder which confirms the counterfeit origin of the goods and whether its IP rights have been infringed. The police can then initiate administrative or criminal proceedings to confiscate and destroy the counterfeits and impose penalties on infringers.
ALL: In China, Customs is a key ally and will assist in monitoring for imports and exports of suspected counterfeits. Other potential partners are the local administrations for industry and commerce (AICs) – these accept complaints from anyone, including brand owners, that believes they have encountered trademark infringement and conduct raids where appropriate. The State Technical Supervision Bureau (TSB) and its local counterparts are also responsible for the administrative enforcement of anti-counterfeiting regulations and other product quality issues, including labelling compliance. The TSB enforces the Product Quality Law and its actions complement the activities of the AICs, as it has the power to issue an order to cease the manufacture or sale of products or confiscate the products, impose a fine equal to the value of products which have been manufactured or sold, cancel the offending entity’s business licence and transfer the case to the Public Security Bureau for possible prosecution under criminal law. In terms of online infringement, most online platforms (eg, Alibaba and Taobao) provide mechanisms whereby rights holders can submit complaints against infringers and ask for content to be taken down.
How do brand owners go about registering intellectual property with Customs in your jurisdiction?
ALL: Brand owners can register intellectual property with Customs themselves or entrust an IP agency to do it for them. The following are the general steps for registering your IP rights with Customs. First, create an account through the online system of the General Administration of Customs, with supporting documentation, including a signed power of attorney from the rights holder if an IP agency is assisting. Second, register the relevant rights – trademark rights are usually the easiest to enforce through this avenue. Third, add authorised users or licensees (this can also be done afterwards). Once customs recordals are completed, the authorities can assist in spotting suspicious goods and notifying brand owners.
NM: Ukrainian law provides for the possibility of filing an application with Customs to add a trademark to the register. A trademark can be entered in the register for six months or one year (with the possibility of further renewal). No fees or guarantee payments are required. Once a trademark has been entered in the register, its owner can control imports and exports of related goods bearing the mark and take legal action against the import or export of counterfeits. Customs registration has thus become an effective and widely applied enforcement measure.
DS: There are certain regulations under which brand owners can register their rights with Customs in Russia. The main requirement is to have a registered trademark and file an application with Customs, accompanied by a description of the distinctive features of both genuine and fake goods. Customs can enter a trademark in the register only where the applicant submits evidence of previous or existing infringements (evidence from other jurisdictions is also accepted), along with an insurance contract or bank guarantee, in order to protect importers from the unjustified seizure of their goods. Once these conditions are fulfilled, the trademark will be registered for a one-year term, which can be extended indefinitely.
The rights holder can also pursue infringers by filing a petition to initiate administrative, criminal or civil action against imports of counterfeits or filing a civil claim against parallel importations. As mentioned earlier, Russia is a member of the EAEU. There are no customs borders within this, which means that goods entering any member state may be freely transported to any other member state. Thus, it is recommended that trademarks be registered in all member states; otherwise, an infringing product may freely enter a country where the relevant trademark is not registered and then be moved to a country where the trademark at issue is registered.
HL: In the United States, registration with Customs and Border Protection can be carried out online at https://iprr.cbp.gov/.
Beyond the registration of rights, how else can brand owners best develop an effective relationship with Customs?
DS: In Russia, registration with Customs is a powerful tool to prevent infringement. When counterfeit goods are identified, the whole consignment is stopped and prevented from entering the Russian market. Customs can also contact an authorised local representative of the rights holder and notify it about the shipment. Even where the rights in question are not entered in the register, Customs can still stop suspicious goods ex officio. Cooperation on the part of the rights holder is crucial when dealing with Russian Customs, which is very active when it comes to seizing counterfeit goods – our firm receives between 30 and 40 inquiries from Customs every week. However, if the consignment is small, the rights holder does not always initiate an administrative action and the goods are released. If this happens repeatedly, Customs may exclude the trademark from the register. The recommendation here is that rights holders be more active.
HL: Once you access the Customs and Border Protection website, you can also download secure basic template documents on which you can fill in details of how to tell original authentic goods from fakes. While some rights holders fear that such data could be hacked, the trade-off is worth it. In addition, you should take the time to conduct in-person teaching sessions where you meet with the agents and inspectors at relevant ports (ie, ports where your counterfeits are likely to enter the United States). Tracking these ports is a key element to protecting yourself.
ALL: Apart from customs records, if the brand owner becomes aware of a specific target, it can ask for Customs’ assistance in seizing these goods. In such cases, the rights holder will need to provide specific information on the shipment – such as the name of the consignor and the serial number of the customs declaration. There is also the opportunity to attend and contribute at training seminars with Customs (to educate officials on how to distinguish counterfeits from original products). Brand owners should prioritise building a collaborative relationship with Customs to help officials spot and track counterfeits in order to prevent illicit goods crossing the border and to ensure that the process of customs-related enforcement is tapped to the maximum. In this regard, it is not uncommon for in-house IP or legal departments to assign a few select brand protection-focused IP professionals to track evolving trends in China and to follow updates on customs practices closely, while maintaining lines of communication with customs officials.
NM: Ukrainian customs legislation empowers officials to take legal action against counterfeits even if the related trademark has not been entered in the customs register. Where officials discover a shipment that is suspected of containing counterfeit goods, they may suspend this at the border and inform the brand owner, which can then examine the suspended shipment and take legal action if its trademark rights have been infringed. Thus, close communication between rights holders and customs officials is essential. Rights holders are advised to provide Customs with any available information on suspicious shipments or persons suspected of importing or exporting counterfeits. The register remains a key instrument for enforcing trademark rights with help from Customs.
What are the ‘must-have’ clauses to be included in manufacturing, distribution and other supply chain contracts to prevent counterfeiting and grey goods issues?
HL: I think the question blurs the line by including both counterfeit and grey goods, as these are vastly different – grey goods being authentic, counterfeits quite the opposite. Nonetheless, certain clauses are key. First, all agreements should recognise IP rights – the manufacturer, distributor or any other relevant party should recognise the IP rights of the brand owner and agree not to copy or challenge these or to help others to do so. This includes new as well as existing intellectual property developed during the term of the agreement. Second, all parties should agree that they are to sell goods through designated channels only (eg, the manufacturer only to the brand owner or to designated buyers; the distributor only to retail and only within its territory; the retailer only to consumers for their personal use, with limits in place if necessary). All parties should agree that marketing and advertising must be approved by the brand and accord with brand-dictated standards. Agreements should also contain clauses limiting the amounts of goods produced to that set out in the purchase order. Any goods produced in excess of this should be deemed counterfeit. Techniques should be treated as trade secrets, while drawings of goods should be considered copyrighted by the brand. There should be no reproduction without permission. While there are many more relevant clauses, the point is that many brands do not even have a manufacturing agreement in place, which we consider a grave mistake.
DS: While no clause can safeguard against counterfeiting, when concluding a contract rights holders should investigate potential partners and conclude contracts with reliable ones only. There are cases where partners in trade sell counterfeit goods alongside originals. Occasional checks can rectify such situations if the partner does not stick to its goodwill obligations. While initiating civil cases on parallel imports would help to solve this problem, unfortunately, brand owners seldom take such action. At the same time, a typical clause should include at least a recognition of the IP rights by the counterparty with respect to the owner, an obligation to combat infringement where an exclusive licence is granted, provisions on keeping the IP object valid in the territory and limits on both sales with respect to a particular territory and further sub-licensing.
Other important aspects include restrictions with respect to e-commerce, periodic checks with respect to the quality of the goods and relevant penalties for breach of these provisions.
NM: I would recommend that certain clauses be included in manufacturing, distribution and other supply chain contracts to prevent counterfeiting and grey goods issues. The first is liability for the sale of goods of improper quality and for the manufacture of more goods than are prescribed by the contract. The second is a prohibition on the use of the producer’s protected goods without the rights holder’s authorisation. There should also be a choice of applicable law and arbitration clause. The contract should further include reporting requirements, limitations regarding the territory of sale of the goods and specification of product lines covered by the contract. Consider also including non-compete obligations within the term of validity of the contract or thereafter, as well as post-termination obligations. While the Protection of Economic Competition Law prescribes that control of distributor activities may be regarded as anti-competitive and lead to liability, it does permit certain limitations in contracts, such as the term and territory of use of the IP object, the type of permitted activities and minimum production volumes – unless these limits fall outside the rights holder’s legal rights.
ALL: When concluding a manufacturing (original equipment manufacturing) outsourcing contract, a number of aspects should be covered to prevent counterfeiting and grey goods issues. Specify how the trademark may be used or applied within as narrowly described a scope as possible (eg, only for the purposes of producing the goods specified in the contract) and how the moulds need to be dealt with after completion of the manufacturing project (or upon termination, as the case may be). Contracts should also specifically state that the manufacturer cannot use the trademark in any form whatsoever – including in its trade name or domain name – without the rights holder’s permission. It is also important to specify the quantity of products to be manufactured (ie, this should match the volume of units ordered under the contract), the term during which the counterparty is licensed to manufacture the goods and – when the contract is terminated – how to deal with inventory and any leftover raw materials. Consider also reserving all rights in the trademark and derivative rights and setting out consequences for breach of the contract, as well as confidentiality.
What is the current position in your jurisdiction with regard to online infringement and the availability of counterfeits (including on social media)?
NM: Protection against infringement of IP rights, including online, is covered by Ukrainian law and applied in practice according to established case law. Key measures to combat the sale of counterfeit goods online include monitoring infringements and sending cease and desist letters (it is not uncommon for this to be sufficient to stop a violation), initiating administrative or criminal prosecution before the police (the strongest restraint measure) and applying to the anti-monopoly authorities to initiate unfair competition proceedings. The inclusion of IP rights in the customs register is an important tool, and rights holders can file actions in courts or address the administrators of social media platforms to report abuse. There are difficulties enforcing IP rights online where the infringing domain registrar or website hosting provider is located outside of Ukraine (in such cases, attorneys in the respective countries may be involved), or where the identity or location of the infringer cannot be established based on the available details (in which case additional investigation or involvement by the enforcement agencies may be required).
HL: The view in the United States is that there is no difference between sales of counterfeits which take place online as opposed to brick-and-mortar stores. The availability of counterfeit goods on the Internet has skyrocketed. Brand owners working with the courts have begun aggressive efforts to limit online sales, but this is a difficult issue because of protection afforded to website operators in foreign jurisdictions. The constant change of channels over which fakes can be sold and the difficulty of tracing funds or taking steps to criminalise the conduct in other jurisdictions make efforts in the United States very difficult. Despite brands taking advantage of takedown programmes offered by marketplace sites, the growth and availability of products via social networking sites pose a serious problem for brands. While it is relatively straightforward to close US borders to large shipments, sellers now ship small lots via DHL and others, which are much harder to detect and stop. Recent figures from US Customs indicate that almost 50% of all shipments enter the United States in this way. Working your way back to source is thus critical.
ALL: Online infringement is also rampant in China, but most platforms provide mechanisms for rights holders to file complaints against such infringements. Rights holders should set up monitoring systems for websites and social media sites to identify potential infringements, file complaints, follow these up and request that sale offers of counterfeit goods be taken down. The main online platforms (Alibaba and Taobao), search engines (Baidu) and internet companies (Sina) are very cooperative in supporting brand owners in their online counterfeiting actions. When counterfeits are found on these platforms, the most efficient solution is to send a cease and desist letter and to request the platform operator to delete the infringing information.
DS: Online trade is difficult to deal with because of its trans-border character. However, Russian lawyers are often successful in prosecuting infringers on the Internet – particularly when these are located in Russia. The first step is to have the relevant site notarised and to establish contact with the person or company trading in the counterfeit goods. After that, a test purchase can be made. If the purchase is made on a cash-on-delivery basis, the courier can be followed back to his or her office, after which a raid can be conducted with the assistance of the police. Ultimately, online infringement remains difficult to deal with and there is no single blueprint for tackling every situation. In each case, an individual approach should be considered. Under recent amendments to Russian law, an information intermediary is liable for breaching IP rights in the information-telecommunication network on general grounds if it is informed of an infringement by the rights holder, but fails to act. In this regard, Russian domain name registrars and administrators of social networks are quite cooperative in combating online infringement promptly without the need for further enforcement. Popular e-commerce platforms are also quite open to helping brand owners to take prompt action against infringements.
Do you foresee new challenges arising from particular new technologies (eg, three-dimensional printing) and how should counsel prepare for these?
ALL: New technologies have certainly created new challenges. For instance, the rise of three-dimensional (3D) printing makes copying much easier, while 3D printers make it potentially easier for counterfeiters to move manufacturing locations. Another possible challenge is that counterfeiters can now send instructions to customers who own 3D printers, allowing them to manufacture the infringing products themselves in their own homes. The cost of pursuing such individuals will, in most cases, exceed the benefit of any successful damages claim. In-house counsel are thus advised to prepare well and be proactive. Keep updated on the latest technological trends – especially those with a connection to the use or exploitation of intellectual property – and ensure that the company’s IP rights have been fully secured and are enforceable. In addition, it may well be worth advising business departments on risks that may arise in the course of commercial activities, such as when licensing out or exposing third parties to intellectual property which can easily be replicated, and include necessary indemnities and representations and warranties to address potential infringements. Most importantly of all, it is crucial to know one’s business partners. The value of pre-contract due diligence on a counterparty cannot be underestimated, especially when a transaction involves intellectual property.
NM: We are concerned about the application of Ukrainian law to IP creation, exploitation and protection, when new technologies are involved. Several issues remain unresolved by the law in its current state, including authorship of works created using new technologies. Ukrainian courts often provide interpretations of active legislation, which can then be applied to atypical cases. In addition, they tend to implement EU legislation and practice, as well as that of other countries. Counsel are advised to monitor the relevant legal interpretations, amendments and case law of the European Union and other developed countries, such as the United States and the United Kingdom. Being aware of the approaches applied by the legislatures and courts of other countries will help you to develop an enforcement strategy for clients and protect their interests.
HL: Certainly, challenges arise in all manner of ways. Changing technology is one, while clever use of new sales channels is another. As to new technologies themselves, we do not see 3D printing as meaningful because of the limits to volume built in to the technology. This may change where high-end goods are produced in small quantities, but it is unlikely to do so with consumer goods. Recall that our first ‘A’ is to accumulate intelligence. Counsel should have an information-gathering network in place, consisting of outside expert global counsel, distributors, salespersons, consumers, retailers and manufacturers. It is good strategic planning to implement a programme which gathers this information quickly. Counsel should take steps to make public these efforts and enlist users of the brand in these efforts. Highly focused and technologically savvy investigators are a must.
DS: For our part, we do not see any significant new challenge arising from 3D printing, since 3D printed copies which infringe IP rights can be combated effectively by a standard IP enforcement toolkit, including copyright and trademark infringement actions, as well as raid actions conducted by the police.
What arguments can in-house counsel make to secure additional budget or to demonstrate the need for additional resources to fight anti-counterfeiting?
DS: One argument is that the sale of counterfeit products ruins the market for original traders. Aside from satisfying demand for the goods from alternative and unreliable sources, counterfeit goods are of inferior quality, which can be damaging to the brand owner. Ultimately, the image of a trademark suffers most because of the poor quality of the counterfeit goods. Having an additional budget to address counterfeiting is thus crucial because IP enforcement needs to be carried out properly (but not excessively). The main argument in this case might be that where IP rights are enforced poorly, there is a risk of losing or damaging the brand identity, consumers and profits.
ALL: Counterfeiting ultimately has three major negative effects. First, it encroaches on the brand owner’s market share. Second, it dilutes goodwill associated with its trademark. Finally, it tarnishes a brand’s reputation and standing in the marketplace – particularly if the counterfeits are of low quality or, even worse, harm users. Given that China is also the manufacturing capital of the world, it is all the more vital to fight counterfeits here, as this is where most counterfeits are manufactured. Therefore, fighting counterfeits should be viewed as an important action to support a business’s long-term survival and should be treated as a board and, at least, senior management level issue. The negative impact of leaving it unaddressed cannot be underestimated.
HL: This is a never-ending battle, since these costs rarely drop to the bottom line and are thus seen only as a cost item, not a profit item. Arguments also vary by industry. In pharma and medicine, the easy argument is: who needs the adverse PR of someone getting hurt? Sometimes you can implement plans to recover funds. Sometimes you can show a loss of sales, but this is rare, especially when the curve of authorised sales is going up. However, there are anecdotes available as to what happens if you do not grow the programme to keep up with today’s technology, where sales plummet because of a loss of reputation, quality of goods suffers or consumer pushback, especially on social sites, is strong. The need for speed is one imperative towards an increased budget, as simply monitoring social sites and online marketplaces requires additional person hours and focus. Empirical services are available to count the spread of fakes available online, which can be used to help drive resources.
NM: Counsel should bear in mind the following key arguments when communicating with brand owners. First, the sooner they take measures against counterfeits, the more effective such measures will be. For example, taking complex measures against a wholesale importer or manufacturer of counterfeits prevents further illicit goods from entering the market. Thus, investing resources at an earlier enforcement stage is more time and cost effective than tracing the counterfeits later on and acting once the infringements have multiplied in the market. Second, point to the harmful consequences of counterfeits proliferating in the market, which can be harmful to consumers due to the bad quality and unknown origin of the materials used to make them. Finally, the poor quality of counterfeits sold on the market may affect the brand’s reputation, since the consumers will associate the brand with the inferior goods which they purchase. Thus, a generous budget for fighting counterfeits can be seen as saving a brand’s reputation.
Where no extra budget is available, what are the most effective ways of controlling costs to free up existing budget?
HL: Use highly focused outside vendors and flat fee their efforts; where possible, use contingency arrangements and software for case tracking. Not everything needs to be litigated. Pick and choose your battles wisely and make one dollar do the work of four. Use free websites and social media to make your argument for brand protection directly to the public. While the Internet is the key ground on which the plant of counterfeiting grows, smart use of counter programming on the same sites can often have a significant effect in decreasing fakes. When you do go after counterfeiters, do it in a way that matters. Not everything can be measured by numbers – the number of sites taken down is a deceptive figure, as these often come back. Huge judgments against defaulting site owners are another misleading figure, as they are almost impossible to collect (even if you get lucky and catch some in flow from place to place). To my mind, it is best to focus on impact in two ways: jail and money. Put people in jail and take the funds earned. It is not always possible, but after 40 years of doing this, I can say with experience that it is probably the only thing that really works.
ALL: Brand owners should consider setting up an anti-counterfeiting campaign to convert the market for counterfeit products to one for original goods. In addition, investigative work can be narrowed down to seek out relevant targets. Low-cost activities include having an internal department run internet takedown projects on an ongoing basis, rather than outsourcing these. Going back a step, savings can be made by reviewing the company’s total global budget for trademark portfolio management and seeing what wasted resources can be eliminated, such as renewal fees for marks which are no longer in use or which are already protected by other registrations, or by cutting out protection in low-priority jurisdictions which make up less than 3% of the company’s revenues worldwide. Certain non-urgent actions can also be moved to the next fiscal year. In short, brand owners should choose their battles carefully and align these with their high-priority anti-counterfeiting goals.
DS: Perhaps unexpectedly, our recommendation would be to pursue all infringers, because they are highly attuned to a brand owner’s approach to protecting its rights. Where an infringer sees that a brand owner is taking a zero-tolerance approach to counterfeiting, it will switch its attention to another brand which is not quite so zealous. So in the long run, paying attention to each instance of infringement can save you money. Administrative proceedings (eg, enforcement actions with Customs and police) are quite cost effective. In particular, stopping fakes and parallel imports at the border is much less expensive than trying to take them off the market – although it is not possible to recover costs in such proceedings. However, recovering litigation costs from the losing party is an option in trademark infringement (civil) cases. The applicant (plaintiff) must prove the fact that fees were incurred and the amount of these. The respondent may dispute both and demonstrate that the fees are excessive. A court usually tends to reduce the amount of fees claimed if it considers the amount to be unreasonable.
NM: For me, among the most effective ways to free up existing budget are the following. First, cooperate closely with the state enforcement authorities (ie, the police and Customs). Administrative and criminal actions initiated by the state enforcement authorities are not only effective, but also budget friendly. The related proceedings require minimum participation from the rights holder, while the greater part of the investigation – evidence gathering and participation in the court proceedings – is carried out by the state authorities. Additionally, requesting monetary damages from the infringer at various stages of the enforcement (this may include monetary settlement at pre-trial stage, mutual settlement during the court proceedings and claiming damages as a result of the court proceedings) is an important strategy. Finally, a smart choice of the partner agencies involved in enforcement actions (eg, translation agencies, forensic examination institutions and marketing research agencies) can help to keep the costs reasonable and free up the existing budget for applying additional enforcement measures.
Are there any other issues you would like to raise?
NM: We would like to emphasise the role of preventive measures in preventing sales of counterfeits. Notification of law enforcement agencies about the client’s intellectual property and regular communication help to expose and halt infringements on the market. Additionally, it is important to raise awareness among consumers of the low quality and potential danger of counterfeit goods and communicate well with managers of large shopping malls and online trading platforms. Additionally, applying technical tools (eg, holograms, smart cards, biometric markers and inks) may be useful in protecting and authenticating genuine products. Ultimately, preventative measures are helpful in reducing quantities of counterfeit goods on the market and save time and costs related to further legal actions.
ALL: Bear in mind that the fight against counterfeits is a long game. The more successful a business is, the more attractive a target it is for copycats and counterfeits. However, efforts should not languish. Anti-counterfeiting efforts should seek to win back market share which has been lost to fakes, while keeping up a certain minimum level of enforcement activity also sends a strong message to infringers that the brand owner is determined in its fight against counterfeits. Continued and persistent anti-counterfeiting efforts soon alert infringers of the rights holder’s determination and tend to prompt them to shift their focus to other targets in the same industry. A long-term anti-counterfeiting strategy will help brand owners to build a cleaner (and less counterfeit-proliferated) market, and maintain if not improve their reputation and standing among loyal customers and would-be customers.
HL: I am of the view that the profitability of counterfeiting is so high that so long as people are willing to buy fakes, counterfeiting will continue and will grow. This means that the issue of consumer behaviour must also be addressed. This can be influenced in a top-down fashion by business and political leadership and in a bottom-up fashion by making buying and using fakes uncool. Industrial changes to lower prices on some goods also work. For the most part, the story that gets out is too narrow and too limited to make consumers rethink what they are doing. Larceny can be appealing in small doses – the quick sneak behind the shop to view fake bags and take one home, almost as a souvenir. This attitude must change. The world is largely off a terrible drug called nicotine. If you can wean people away from something like that, you ought to be able to do the same with fake goods.
DS: A final observation is that it is a great advantage when rights holders can demonstrate that the marks being used in the IP enforcement strategy are well known among Russian consumers. Thus, we recommend securing well-known status for trademarks where possible, via a special procedure at the Russian Patent and Trademark Office, for the purposes of proving infringement and the bad-faith intention of infringers (including domain name administrators). Well-known status provides extended legal protection to the trademark with respect to dissimilar goods and services if its use by another party will be associated by consumers with the rights holder and may damage its lawful interests.
Chief executive officer
Ai-Leen Lim is chief executive officer and principal counsel of AWA Asia (part of the Awapatent Group). She manages its headquarters in Hong Kong as well as AWA IP (Beijing) Co, Ltd, its wholly owned locally licensed IP and trademark agency, which files and enforces trademarks directly before the Chinese trademark authorities. Formerly head of brand management (China) of a major international law firm, Ms Lim counsels clients on strategic IP portfolio management (contentious and non-contentious), advertising and related regulatory issues in conjunction with market entry and product promotion. She also advises clients on commercial transactions involving IP assets.
Gorodissky & Partners
Dmitry Sando holds a law diploma from the Russian State Academy of Intellectual Property and studied at the Pericles Centre for International Legal Education and BKC International House. At Gorodissky & Partners, he focuses on providing legal support for intellectual property including trademarks, patents and copyright enforcement, unfair competition and IP-related transactions. Mr Sando has experience in counselling and representing the interests of major companies in the life sciences, media and entertainment, automotive, banking and finance sectors. Before joining the firm in in 2013, he worked as a lawyer in Uniconf confectionery holding, the Organising Committee for the XXII Olympic Winter Games, the legal representation department of the Russian Patent and Trademark Office and the Moscow office of a Canadian IP law firm. Mr Sando is a member of the Pharmaceutical Trademarks Group.
Gorodissky & Partners (Ukraine)
Managing partner in Ukraine
Nina Moshynska, Ukrainian patent and trademark attorney, is a founder and managing partner in Ukraine of Gorodissky & Partners. She has an extensive practice covering all aspects of IP rights protection, including patents, utility models, designs, trademarks and copyrights, and has a history of successfully protecting clients’ rights in court. Ms Moshynska is co-founder, first president and a member of the Ukrainian Patent Attorney Association, as well as a member of the International Association for the Protection of Intellectual Property, the International Trademark Association, the Licensing Executives Society International and MARQUES. She has been recognised for her expertise by Best Lawyers, Who’s Who Legal (trademarks), the WTR 1000, Corporate INTL, Global Law Experts and Leaders in Law. She has also been recognised by Managing Intellectual Property and the World IP Review as a leading expert in patent disputes and patent prosecution, as well as a leading Ukrainian IP protection professional.
McCarter & English LLP
Harley I Lewin has over 40 years’ experience protecting IP rights across the world. Head of McCarter & English LLP’s fashion, design and luxury goods team, he executes unique global strategies across all forms of products, locations and media – working directly with governments, law enforcement agencies, courts and customs authorities in more than 75 countries – and implements new and cost-effective methods to protect clients’ assets. Mr Lewin leads litigations and international arbitrations relating to IP rights and international licensing disputes.