Senior brand representatives of some the world’s largest industry names gathered at a recent WTR boardroom event to share strategies and success stories for combating counterfeits and knock-off goods. Sterne, Kessler, Goldstein & Fox’s Monica Riva Talley outlines key takeaways from the discussion.
At a recent WTR boardroom event in New York, hosted by Sterne, Kessler, Goldstein & Fox, senior representatives from some of the world’s largest brands met to share and brainstorm effective ways to enforce their IP rights against an ever-evolving storm of threats from counterfeiters. Here we present the discussion highlights and takeaways.
Among the industries represented were beverages, clothing, media, medicine and vaccinations, sports and telecommunications. Described by one attendant as “more like a therapy session than a panel discussion”, the group shared different strategies and success stories for combating counterfeits and knock-offs – the bane of every successful brand. The group also explored some novel approaches to enforcement, concluding that an innovative and multi-pronged method is needed to address modern counterfeiting.
A common theme was that while traditional enforcement models – online monitoring and takedowns, as well as conventional anti-counterfeiting litigation – are useful tools, most brands are seeking new ways to tackle counterfeiting. As one attendee put it: “I am tired of having to constantly mow the weeds, I want to kill them!”
The group identified the need for:
- better tools for identifying and addressing the source of counterfeits;
- movement towards liability for marketplaces that allow counterfeits to flourish; and
- additional strategies to help combat the growing issue of knock-offs.
The group also explored several avenues to meet these goals, namely:
- expanding the arsenal of rights to use against counterfeits and knock-offs;
- obtaining and leveraging better data from online brand enforcement platforms; and
- sharing thoughts on return on investment (ROI) and best practice tips.
Adding additional IP rights to the enforcement arsenal
One focus of the discussion was how brands can enhance their IP portfolio to achieve 360-degree protection. Kicking off the event, I explored how today’s best anti-counterfeiting defence involves an arsenal of IP rights that goes beyond traditional trademark and logo protection. Savvy brands take care to develop product designs, packaging and design elements that can be used against knock-offs and infringements that do not necessarily rise to the level of counterfeiting. Such innovations may be protectable via design patents, trade dress and copyright registration, many of which can be used online and which provide additional grounds for seeking statutory damages.
Tracy Durkin, head of Sterne Kessler’s mechanical and design patent practice, provided examples from her years of experience enforcing design rights in the United States and elsewhere, noting that design patents can be an effective way to protect not only a product design, but also elements of products – especially those that are consistent across models or that have marketplace staying power. The participants noted the benefits of involving IP counsel early in the design phase, given the need to file for design protection before the product is made public. Expedited prosecution of design applications can result in a patent being granted in a few months. Design patent damages can be significant as infringers can be found liable for disgorgement of their ill-gotten profits.
Participants in the fashion space were also keen to consider possible enforcement avenues created by recent US case law regarding copyright protection in costumes (Silvertop Assocs v Kangaroo Mfg, 18-2266, 2019 US App LEXIS 22989 (3d Cir 1 Aug 2019)). In Silvertop, the US Court of Appeals for the Third Circuit considered the issue of whether the non-utilitarian, sculptural features of a banana costume were copyrightable; the court evaluated first whether the 2D and 3D banana-design features could be identified separately and second whether they could exist independently on their own or in some other medium separate from their utilitarian features.
To be eligible for copyright protection, useful articles such as clothing must incorporate something beyond the mere function of the item. In Silvertop, the court found that the banana costume’s artistic features, including its colours, lines, shape and length, were sculptural features that proved to be both separable and capable of independent existence. Cases such as Silvertop provide hope for fashion designers looking to protect the creative elements of their clothing and accessories.
In terms of obtaining copyright protection, the participants also touted the relative cost effectiveness and convenience of protecting a group of designs (eg, those that appear in a new season’s catalogue) in one copyright application. Copyright registrations were also lauded as a useful tool for online enforcement in China, viewed as a “tried and true” tool for cleaning up online marketplaces. I have certainly observed successes in protecting portions of a product design via Chinese copyright and then using the resulting registration to clean up online marketplaces of knock-off products sold without the client’s trademarks and logos.
Data analytics – next-level anti-counterfeiting litigation
There was consensus among the group that it was time to shake-up the traditional anti-counterfeiting litigation model, which in the United States typically involves either direct lawsuits against individual domestic counterfeiters or sellers, or John Doe lawsuits against groups of unknown foreign defendants.
The former – while an effective deterrent against a specific defendant – can be costly and time consuming, and only rarely results in financial recovery that can cover the cost of litigation. John Doe litigation, on the other hand, typically results in modest financial recovery, which can cover the cost of the litigation. However, because it is unlikely to uncover the actual identity of the defendants and because those defendants are not usually US residents, it rarely presents a deterrent sufficient to prevent recidivism.
Sterne Kessler litigation director Nick Nowak explained that the traditional John Doe litigation model has become a business in and of itself, with players on both sides of the table agreeing to resolutions that make business sense to the lawyers and not to the brands. Moreover, defendants have mostly come to accept these lawsuits and the money lost through the seizure of their accounts or settlement payments as nothing more than the cost of doing business. As a result, while John Doe actions may be a tool in the arsenal of anti-counterfeiting measures available to brand owners, they need to be viewed in context and used in conjunction with additional brand protection strategies, including novel approaches that are geared towards keeping counterfeiters off-balance.
Nowak also discussed strategies for breaking this mould, including pressing for more substantive settlements, supplier data and broader, more robust injunctions, as well as other innovative anti-counterfeiting strategies.
Dan Block, a director in Sterne Kessler’s electronics practice group and former software developer, discussed leveraging data gleaned from the payment platforms in John Doe litigation to enhance enforcement efforts. In addition to analogising this data to the type of data that he worked with when he was a practising developer, he noted that he frequently applied machine learning and various AI techniques to extract meaningful conclusions from it. At the time, these tools were not widely used or applied in commercial settings. However, with recent advancements in machine learning and Big Data, it is now more easy to extract patterns and trends from data.
These can then be used in myriad ways. One of the most obvious of these would be targeted action against additional manufacturers and distributors found to be linked to existing, known infringers. Further, the patterns and trends could be more widely applied, including supplying leads to law enforcement, extracting more meaningful settlement awards, locating additional assets and obtaining far-reaching injunctive relief spanning different platforms.
The group also discussed considering different venues for enforcement, including successful cases using Canadian passing-off actions to enforce against unregistered trade dress (eg, in label designs). Such actions were viewed as effective and cost efficient.
It can be difficult to put a dollar value on anti-counterfeiting efforts, but most of the participants concurred that they have had to quantify the risk and loss in order to engage the business and obtain a suitable enforcement budget. Thus, we discussed using the number of products destroyed or removed from the marketplace as one way of quantifying data or using search engine and online marketplace results to show how online efforts have reduced the number of counterfeits visible in consumer searches. The participants also agreed that it can be easier to budget for fixed fee watch and automatic monitoring and takedown services but noted that business units are usually enthusiastic about cost-neutral or positive litigation options.
Participants also identified the use of brand reports and data that illustrate how allowing counterfeiting to go unchecked negatively affects not only sales and profits, but also the goodwill associated with a brand’s reputation and marketplace cache. At its worst, brand owners end up taking the blame in the court of public opinion for the actions of counterfeiters.
Of even greater concern is that brands bear the brunt of protecting consumers from fraud and harm. Even when law enforcement does get involved, brand owners are typically the ones identifying illicit products in the stream of commerce.
In light of these challenges, the diverse group of brands considered how to balance the opportunity and risk posed by online marketplace platforms, particularly given the high cost of monitoring counterfeits in marketplaces containing millions of sellers. Online platforms such as Amazon are often an essential online retail partner and all but the strongest brands are loath to miss out on the reach and opportunities provided by selling via these. However, online platforms have made their fortune by all but turning a blind eye to the robust counterfeiting trade perpetuated on their sites.
Even platforms with workable tools for monitoring and taking down counterfeits require brands to monitor for illicit goods, rather than requiring sellers to authenticate their offerings. Participants in the discussion bemoaned how platforms have shifted the burden of finding and reporting each incident of counterfeit sales to the brand, while disavowing themselves of any liability for products sold on their platforms.
It is worth noting that online platforms are often a strong voice at the negotiating table, whether on INTA committees addressing counterfeiting or in stakeholder meetings with members of the US government. They convincingly tout their online takedown mechanisms and explain away the persistent counterfeiting, including in product orders fulfilled by the platforms, as a failure of brands to properly interact with them.
However, there are cases that might help move the needle on contributory liability in trademark counterfeiting cases, including Williams Sonoma Inc v Amazon, which is currently pending in the Northern District of California, and the recent decision in Luxottica Group v Airport Mini Mall, LLC (932 F3d 1303 (11th Cir August 2019)).
Best practice tips
Online monitoring and enforcement platforms that provide a good ROI were seen as yielding clear value. Those in the room gave high marks to platforms such as that offered by Yellow Brand Protection, which was touted as easy to use, with a team on the ground in China for investigation support. BrandShield, another enforcement platform, was noted for its active product ingredient search, which can be useful for identifying patent infringers, among other bad actors. Whichever platform is used, it is clear that they have become crucial partners.
Reputation for enforcement
In terms of best practices, the group agreed that it is important for the brand to establish a reputation for going after infringers, which can result in cost savings and reduce the number of bad actors willing to infringe the brand. One participant from a major telecoms company explained how they built up a record of enforcement case law – first filing against targets with good fact patterns that they believe they will win and then using the good language from these decisions, including that which discusses brand fame, to support future actions.
Enforcement in the context of licence relationships
Participants from a fashion brand discussed challenges in working with licensors and licensees in the brand enforcement space, including how to align the goals of the two parties and sharing marketplace data when it comes to supporting enforcement activities. The group agreed that working on the front end to establish roles and expectations can go a long way towards streamlining these efforts in the future.
Data protection challenges
The participants also bemoaned the impact of the EU General Data Protection Regulation on infringement, noting that it has ticked up in light of the new difficulties in obtaining the identity of domain name registrants and other online infringers. One participant explained that this has resulted in an inability to enforce their rights as strongly as they used to, due to the delay in bringing actions and increased costs. Participants explained that it is necessary to “level set” with management more than in the past, given these new constraints.
As a whole, the participants were optimistic that the increased marketplace and political awareness of the risk and prevalence of counterfeiting will result in meaningful changes in both seller and marketplace liability, and that advances in data analytics and machine learning will create new opportunities for addressing counterfeiting at the source. Clearly, though, strategies need to keep evolving, with knowledge-sharing being a key part of that process.
The enforcement boardroom took place in New York City’s financial district on 13 November 2019. In order to facilitate an open deep-dive discussion in a closed-door environment, we have not attributed particular viewpoints and opinions to participating individuals. We would like to thank all the respective brand representatives for participating in the discussion.