The right investigative approach

The right investigative approach

In Southeast Asia’s complex enforcement environment, several different models for trademark and counterfeiting investigations have evolved. For brand owners, choosing one is the first step in a challenging process

In today’s globalised world, few brand owners remain oblivious to the potential – and the pitfalls – presented by Southeast Asia. The Association of South East Asian Nations (ASEAN) region is home to some 625 million people; and if ongoing efforts towards economic integration are realised, the bloc will have a combined GDP that trails only the world’s six largest economies. But the region also presents some of the most vexing counterfeiting challenges facing international companies – whether or not they have a large Asia presence. And as manufacturing is increasingly relocated due to mounting labour costs in China, the importance of addressing this problem will only grow.

As counterfeiters have become more sophisticated over the years, so too have enforcement strategies. In many cases the starting point is a professional investigator. Andrew Diamond, foreign legal consultant at Januar Jahja & Partners in Jakarta, observes that the appetite for conducting trademark and counterfeit investigations has grown in recent months. “It’s only quite recently that companies have been willing to spend the money on counterfeit investigations, which indicates a broader trend for Indonesia,” he says. “They’re willing to commit the budgets because Indonesia is becoming a much more important market to them with slowing growth in both China and the West.”

“Sometimes investigations can take over a month, and then it might take a client several weeks to make an internal decision to take action. At that point, the report needs to be refreshed”

Alan Adcock, Tilleke & Gibbins

Likewise, as makers and distributors of fakes have proliferated, so too have the services provided to root them out. Brand owners now have an array of options to conduct trademark or anti-counterfeiting investigations, including law firms, dedicated investigation agencies and regional risk management consultancies. Complicating this choice is the sheer diversity of the region, encompassing numerous unique legal and law enforcement systems. Illegal behaviour also differs from country to country. “In frontier jurisdictions you’re seeing more infringement on things like food and agricultural products, agrochemicals and lubricants,” reports Alan Adcock, a partner and deputy director of the IP department at Tilleke & Gibbins in Bangkok; whereas “in more developed economies like Thailand and Vietnam, you are looking at, for example, luxury goods and auto parts”.

Adcock suggests that companies have become more cautious and savvy when it comes to dealing with external private investigators over the course of his career. “It was in the late 1990s that brand owners began to question how external investigations were conducted.” At the time, he says, there were high-profile examples of investigations gone wrong in which brand owners, law firms and the external investigators instructed by law firms were found civilly liable for the results. “That had a major chilling effect on IP investigations, including here in Asia-Pacific,” he recalls. “Since then, IP owners have been specific and careful about who investigates infringement.”

The law firm model

On discovering a problem, many companies first turn to outside counsel in a given jurisdiction, where such a relationship exists. After all, these are already trusted business advisers with a wealth of local knowledge. Most of these firms will be able to contract a dependable local private investigator to probe infringement and counterfeiting activity that may be occurring in the market. This arrangement is quite common and has some obvious advantages, especially for companies without a presence in a particular country, or even the region. Busy in-house counsel with responsibilities in a multitude of countries can rely on their lawyer’s first-hand expertise and delegate the day-to-day management of the investigation. It also means that a representative on the ground will be monitoring its progress, hopefully ensuring efficient and high-quality results. Moreover, some brand owners are wary of working directly with investigators with whom they have no previous relationship, especially in jurisdictions where compliance with anti-corruption legislation is a business risk.

“From our own experience, it was difficult to control the quality of firms that we would use for our clients’ cases”

Darani Vachanavuttivong, Tilleke & Gibbins

A handful of enforcement-focused local and regional law firms in Southeast Asia have sought to mitigate the risks for clients even further by building their own investigation teams. Until 2010, Tilleke & Gibbins contracted a firm in Thailand to conduct trademark and counterfeiting investigations on behalf of clients; but it has since established its own team of six full-time investigators. Co-managing partner and managing director of the IP department Darani Vachanavuttivong explains that the decision was largely driven by US and UK clients which had had bad experiences with private investigators in the past. The problems they flagged ranged from outright dishonesty to simple ineffectiveness, and illustrate some of the many issues that brand owners need to watch out for. The old trick of rehashing previous reports with a few changed details would occasionally come to light when someone forgot to change the date on the report. A poorly timed or coordinated raid would mean that the proof of infringement had already disappeared when the police came knocking. Improper collection would result in key pieces of evidence being thrown out of court.

“From our own experience, it was difficult to control the quality of firms that we would use for our clients’ cases,” Vachanavuttivong recalls. “Sometimes their reports were not good enough.” Adding its own in-house team gave clients confidence that the firm’s reports were true and honest, and that its practices satisfied compliance rules and requirements. It also allowed the firm to capitalise on its presence in other jurisdictions to conduct cross-border actions in Laos, Cambodia and Myanmar.

Just a year after setting up IP boutique SKC Law in Indonesia, co-founders Purnomo Suryomurcito, Nidya Kalangie and Andrew Conduit made the decision to establish an in-house investigations team, which now has seven full-time employees (led by Suryomurcito). “Our lawyers are able to brief clients and communicate with them every step of the way,” says Conduit. “That may sound possible with an outsourced investigation, and we did start out initially doing outsourced investigations, but it is just not the same as having your own team.” The firm also benefits from better communications and file management: “If something is missed the first time, it is much easier to send your own guys back to mop up.”

As it turns out, it might be cheaper, too – and that is a major selling point for many brand owners. “Sometimes investigations can take over a month, and then it might take a client several weeks to make an internal decision to take action,” Adcock explains. “At that point, the report needs to be refreshed, which an external investigator will charge for. That can double the costs to the client.”

“We are able to do investigations cheaper,” says Conduit, “because it’s part of a larger enforcement package. From the client’s perspective, the cost factor is a big reason why they are happier with the in-house team.”

Another is the fact that investigators for a law firm will have specialist knowledge in IP law. A handful of private firms in each Southeast Asian jurisdiction have a strong focus on intellectual property; but for most private investigators in the region, other concerns – due diligence, background checks, employment screening – are their bread and butter. This is an especially important consideration where more than just trademark rights are at stake. “If you’re in Southeast Asia, it’s very difficult to find an investigation firm which has the ability to investigate trade secrets and patents,” notes Adcock.

From a business perspective, adding investigators to its offering can help a firm to attract clients seeking a ‘one-stop shop’ in their jurisdiction. “Investigations are not our most profitable area, but they are strategically significant,” says Conduit. “With a full suite of IP services, including investigations, we are able to encourage clients to use us for all their Indonesia IP matters. From the client’s perspective, this offers cost and administrative efficiencies.” So will this trend continue across the region? Diamond suggests that if demand keeps growing at the current rate, this would not surprise him. Most likely, however, the service will remain a niche offering for practices with a large number of European and US clients on the enforcement side. But given the value that it adds for those compliance-sensitive clients, don’t expect law firms to exit the business either.

“Having non-lawyers managing projects can lead to more innovative strategies and recommendations, and a more results and client-focused approach to cases”

Peter Holmshaw, Orion Investigations

The PI firm model

Other brand owners prefer to cut out the middleman and instruct an investigation firm directly, especially where they have longstanding alliances with a particular agency. Some may do so for the efficiencies which a direct relationship can yield; others appreciate the different mindsets and fee structures of non-legal service providers. “Lawyers can tend to be rather cautious by nature and training,” explains Peter Holmshaw, founder and managing director of Orion Investigations in Thailand. “Having non-lawyers managing projects can lead to more innovative strategies and recommendations and a more results and client-focused approach to cases.”

Orion Investigations was founded in Thailand 12 years ago with intellectual property as its core focus and an initial team of five people. Today, the company has over 100 employees and has expanded its offering to include the full range of commercial investigations – although intellectual property still accounts for 60% to 65% of the firm’s work. “We are quite specialised in IP and that does help, but people look more at the years of experience” than they do the proportions, says Holmshaw.

With such a deep bench of experts on hand, the scale and complexity of the investigations which Orion can carry out are a major draw for rights holders – the firm is particularly strong in the software, pharmaceutical and food and beverage industries. “Because we are so specialised in what we do, clients will get more of an idea on the details of what sort of infringement or counterfeiting is happening, how the logistics work, who are the people involved and what are the margins being made,” Holmshaw says. While a smaller study may result in some seizures, he claims, it is unlikely to produce the same volume of detailed information and market intelligence. The company’s track record is also a factor. “We’ve been in operation for 12 years and we are very used to working with a lot of US corporations, so we are confident that they are just as safe working with us from a compliance standpoint as they are with a law firm.”

In fact, in some cases Orion is the local law firm. The company started to hire lawyers and offer legal services a couple of years into its existence. Today its law office, which is officially registered with the Law Society of Thailand, is one of the main divisions of the business, employing 20 professionals alongside the company’s 40 full-time investigators, 10 members of the raid team who coordinate with the police and a 10-strong high-tech IT team which provides digital forensics to analyse seized evidence.

“Orion Investigations does litigation and is starting to get into prosecution,” says one local private practitioner. “We work with them from time to time and a lot of firms rely on them. I see them increasingly as a competitor and I’m not the only one.”

Holmshaw says that sentiment does not surprise him, pointing out that his company has been active in the legal space for a decade. “We get the majority of our work directly from clients or industry associations. We do get some referrals from law firms here, but not as many as we used to – perhaps because our services overlap nowadays.” The legal team represents clients in both civil and criminal litigation, and Holmshaw says that they are rarely asked to work with outside counsel in such cases. “It’s much more convenient for clients to have a one-stop shop,” he observes.

Price structure is another crucial consideration for clients. “I wouldn’t say we compete by being cheaper,” suggests Holmshaw, “but we compete on how we structure that as a fixed fee. We’ll give a fixed price to do a raid and then the prosecution. It fits with the client’s budgeting processes better than an hourly rate.” Orion does not break down exactly how much of its revenue comes from its legal arm, but according to Holmshaw, it is probably at least 20% to 25% of the business. “It is completely integrated into what we do and for quite a number of our clients, the relationship wouldn’t work if we said we were not on the legal side any more.” Timing was key to the success of this approach: “The IP enforcement was quite new 10 years ago, so there was an opportunity to do that business model there. Early results were important to show that we could make civil litigation work from a cost recovery aspect.”

Orion has carved a comfortable niche; but whether other investigators can replicate its move into the legal space is another question. The viability of such a dual approach is highly dependent on national laws. Singapore, for example, does not allow investigation firms to engage in legal work. In the Philippines, a big regional risk management consultancy offered IP legal services for some time, but reportedly closed its doors several years ago. As far as Indonesia is concerned, Diamond says that this model would be challenging because intellectual property accounts for a relatively small portion of investigators’ revenues and the IP world is very specialised, with almost all boutique law firms working in the space. Still, a shift may be happening, albeit on a smaller scale. One brand owner told World Trademark Review that he pursues opportunities to consolidate enforcement work, and not just with law firms: “A number of our service providers have grown because of our work with them. In cities where we don’t have a legal presence, we have gone to investigators and suggested, ‘We’re happy with your work on the investigations side of things; is there any chance you could bring in a decent lawyer?’ And it works.”

The brand owner perspective

The support is out there for any brand owner that wants to investigate counterfeiting in Southeast Asia and take some sort of action in response. But how willing are they to avail of it? World Trademark Review spoke with several Western brand owners which preferred to remain anonymous due to ongoing investigations in the region and relationships with local service providers and law enforcement. They emphasised the need for investigations, and enforcement actions in general, to generate actual value or return on investment for their businesses, not just statistics such as seizure volumes. Some, however, wondered whether their efforts in some of these jurisdictions are worth the time and money spent.

“Some of our clients prefer to focus on retail targets,” says Conduit. “Typically, our investigations are done with a view to conducting criminal raids. Our investigators are typically asked to purchase a sample and obtain proof of purchase to submit to authorities. They’ll also do ground mapping for raids, identify storage, entrances and exits, and estimate stock.” But the necessary budget may not be available to pursue the matter further up the chain. “Typically, our investigations are done with a view to conducting criminal raids and retail targets are low-hanging fruit. The alternative is to do some surveillance and further investigation with the aim of finding targets higher up the distribution chain. Clients are usually willing to invest in a week or two’s worth of fieldwork, but often more is needed to get to the top.” Conduit suggests that cost is the biggest consideration: “I just think the budgets that in-house counsel are working with don’t allow for it – especially when their KPIs include a number of seized goods or a number of raids. When you start talking about spending on investigations, it’s not seen as a good investment towards achieving these KPIs”.

One factor may relate to the business models through which foreign companies are investing in the region. A brand with a franchise in a Southeast Asian country may have less incentive than a brand that operates there directly to adopt a no-stone-unturned investigative approach. One brand owner told me that when they receive a complaint about a shop that a franchisee in a given market believes is damaging its business, they can probably get it shut down through a combination of investigators and lawyers. But they have no illusions about the fact that the infringers will likely be back to their old tricks at some point in the near future. The investigation, then, may be just as much about keeping business partners happy as it is about stamping out fakes. By contrast, brands tend to take more assertive measures in jurisdictions where they operate directly, rather than through a franchise.

“Often, clients are responding to complaints from their Indonesian sales teams,” says Conduit. “We’re also seeing more and more clients expecting us to find targets proactively. This suggests that they don’t have their own independent investigation programmes set up.” This provides another opportunity for some cost efficiencies, he continues: “With an in-house team, we can have our guys looking for proactive targets while out on jobs. This is difficult to manage with external investigators”.

Initiative is also required in Thailand, where ongoing political uncertainty has complicated the environment by demanding the attentions of law enforcement. “The police can initiate an action by themselves without the IP owner working on the street with them,” notes Adcock. “More than one in four of our cases start this way, with the police investigating and then asking for assistance from the brand owner.” But with the police preoccupied with the fallout from the political situation, says Adcock, the firm has been focusing more on internet piracy. Despite this shift, brand owner interest remains strong: “The number of investigations we conducted is maybe less than in some other years, but we actually handled more than 80 cases last year in our Thailand office alone.”

Whatever the model, providers face the daunting task of convincing brand owners that in-depth enforcement action in Southeast Asia is worth the time and money, even if it does not make infringement disappear. “We’ve tried getting investigations agencies to connect with authorities and do a raid action; we’ve tried the law firm approach, where the lawyers work with investigators; and we’ve worked with a firm that had both lawyers and investigators,” reports one in-house counsel. “While we haven’t given up on these markets completely, the results do make us question whether it is worth our while to enforce in these jurisdictions when we could instead focus our resources on other things such as lobbying efforts.”

“Clients almost always have high expectations in terms of results,” Conduit acknowledges; “but the fact of the matter is that what can deliver is what is found in the field. You might surveil for a period of time and come up with nothing, which is disappointing to a client who’s looking for a result. Managing expectations is important.”

Ultimately, personal relationships and experiences are paramount when it comes to choosing an investigation model. “Our decisions depend almost entirely on the particular provider,” says one brand owner. “For most of the companies in our industry, the trust issue is paramount. Working directly with the investigator is more cost effective, but you have to make certain that things are done in the right manner. There are certain jurisdictions, however, where we prefer to work with a law firm due to the trust issue.”

“We are very particular on who we use,” says another, “but the most important factor is not the set-up. We range from using big international law firms to tiny one-man bands, and the reason is that we have come to learn that success in this type of work has much more to do with individuals than firms.” 

Due diligence

Choosing the right investigations service provider is one of the most important decisions to be made in an enforcement campaign. An investigator should be a trusted business partner. While there are professional, proficient IP-focused investigators throughout Southeast Asia, caution should still be exercised, especially in jurisdictions with significant levels of official corruption. Keep in mind the following tips collated from conversations with experienced Asia-based enforcement counsel:

  • When you are starting up in the region, you need someone on the ground in Asia who is an IP expert – a passionate employee who understands your market and your position in it. Appointing a big external law firm as your representative is just not the same as having a dedicated presence there.
  • Watch what other brands are doing. There is potential for conflicts of interest in investigations, but the IP circle in the region is generally quite small and shares an interest in combating counterfeiting. Go through chambers of commerce or other professional associations and your own personal network to find out whether other big brands have used a particular agency in the past.
  • But don’t take other brands’ word for it. The fact that other companies or law firms use a specific investigator is no guarantee of quality. So investigate the investigators: conduct a thorough independent audit and run a background check.
  • Surprise your investigator once in a while. You should constantly be aware of what they are doing. If you have instructed them to do a raid, turn up in that city on the day of the raid and say you would like to join it. Some firms will never fail you; others will have endless excuses for why you cannot come along or the raid is not happening.
  • Cheap rates are a red flag. If it’s too good to be true, it probably is.
  • Identify the right lawyer. You don’t always want to use the big city attorney in the middle of nowhere; having a network of smaller firms can be very beneficial.

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