KNOCK IT OFF!

Stop Counterfeiting in its Tracks


If you’ve ever purchased a knock-off like a watch or purse you know they can be quite convincing. Some are so accurate, you’re convinced you have an original. So, how did counterfeiting become so, well, good? And did you know there is a legal difference between knock-offs and counterfeits?



Typically, the term “counterfeiting” invokes an image of a ready-to-sell, fake product.  Seldom does a discussion on counterfeiting include the observable signs of “pre-counterfeiting” activity and how to prevent the fabrication of a fake item before it occurs. Logically, cloning a product requires knowledge of several basic components including, the product make-up, what it looks like, how it is created including the manufacturing process, the materials used in making the product, the distribution channels, the retail markets and price points. At each level, there are opportunities for counterfeiters to creep in and obtain valuable information to assist them in creating a counterfeit product: A product intended to devalue your business assets.

Certain types of business activities or incidents might appear to be random or coincidental events. However, upon closer evaluation, they may be one part of an elaborate counterfeiting scheme. Here are some known examples how counterfeiters infiltrated a business to create knock-off products:

Employees:

One would think that employees would have the best interests of the companies they work for at heart. Assumably, if the business is successful, the better their job security, and working for a successful brand can add cachet to a resume. However, it is not unknown for an employee to sell trade secrets to counterfeiters. One example being two Hermès employees working with a dozen non-employees to provide information used in counterfeiting handbags.[1]

Machinery and Materials:

Certain goods can only be produced by specific machinery or tools. Unexplained theft of machinery or tools could be signs of counterfeits trying to obtain those tools to make their fake products as authentic-looking as possible. Also, waste materials, including fabrics, metal accessories, anything discarded during the manufacture of a product is useful to a counterfeiter. This can be the source by which they come to understand the nature of the materials used including texture, color, and design elements.[2]         

Manufacturing and Distribution Chains:

Controlling the number of products manufactured, including overruns, and their journey through the distribution chain is a key component to battling counterfeiting. Actual instances of counterfeiters abusing the manufacturing and distribution process include the following:

  • Someone arranging the manufacture of more products than ordered so that person can sell off the extra product for their own financial benefit; 
  • Taking authentic products out of the distribution chain and replacing them with counterfeits;[3]
  • Diverting authentic products into the hands of counterfeiters who remove product tracking codes not only so the product is now off the grid and cannot be tracked, but to conceal the higher prices charged by upmarket retailers so the counterfeiter can sell also them at a bargain; [4]
  • Mixing counterfeit products into batches of authentic products;[5]
  • Diluting materials used for authentic products and using the excess materials to create additional products;[6] 
  • Finding products for sale in an unrecognized retail market.

Point of Sale:

Products priced at a fraction of their expected cost should be a red flag that perhaps the product is a knock-off. Counterfeiters use low prices to entice consumers to buy their fake product versus the authentic one.[7] Despite the lure of the lower price, buying a fake could be dangerous. There have been recorded instances of death from defective tires having the improper composition of materials. Counterfeit tires may not perform as expected in extreme weather conditions or at speed; instead disintegrating and causing risks for vehicle occupants.   Another danger is that counterfeit tires may not have the required date codes or other identification markings that enable recalls in the event a defective product is identified.[8]

Counterfeiting pharmaceuticals can be a very profitable business because the product only has to look good from the outside. Counterfeiters do not care about the contents and many counterfeit medications may not have enough or any of the active ingredient people rely on to maintain their health. While pharmaceutical companies follow strict legal and medical guidelines for medicine production to ensure patients get a safe product, counterfeiters save time and money by not implementing these guidelines creating medications that may be contaminated from production in an unsterile environment. [9]

Damage Control:

Each business will have its own unique process and those in charge must be intimately knowledgeable of each step of the manufacturing, distribution and retail process and be vigilant for abnormalities throughout the manufacturing and distribution chain. Implementing counterfeiting protections including track and trace methods, such as SKUs, RFIDs, and overt, semi-overt, and covert measures help monitor products and create an evidence trail of counterfeiting should a legal dispute ensue. Such tracking methods will help in accurate product counts during onboard and off-loading procedures, make sure a product is on a recognized shipping route, and ends up at the proper retail venue and is being sold for an appropriate price.  The semi-covert and covert methods are most valuable when as few people as possible know what they are, and where they are placed on a product, thus preventing regular employees from disseminating tracking information to counterfeiters.

A business must maintain control over raw products and waste materials, conducting materials audits if necessary not only to identify overuse of materials, but also to be aware of any dilution of compounds used in the manufacturing process. Monitoring third party websites for abnormally low-priced products, and inferior looking products can easily identify knock-offs. The law has processes for locking domain names or disabling rogue websites selling counterfeit products. Publishing a list of the company’s authorized distributors and sellers helps consumers identify where they can buy authentic products and to warn off counterfeiters not on the list.

Finally, monitoring consumer complaints of inferior products, and price discrepancies may uncover a pattern of counterfeiting requiring public reassurance that it is not your products that are failing but unscrupulous knock-offs, and that you are doing everything to correct the problem and to protect your assets.

Asset protection:

A company’s patents, trademarks, copyrights, and trade secrets are the mainstay of any business undertaking. This intellectual property, including a company’s brand, like any property is a business asset that adds value to a company and must be protected. A brand is a source identifier informing the public what to expect with a particular product from a particular company.   If that expectation is not met, i.e., the goods are inferior, or associated with a bad consumer experience, or even cause death, the brand and the company’s reputation are damaged and devalued.

While there are many legal options for stopping the production of knock-off products, claims for counterfeiting can only be brought if the claimant owns a federal trademark registration.  Therefore, a company’s business plan to combat counterfeiting should include a discussion with a lawyer about the possibility of federal trademark protection.


[1] You Know Who’s Knocking-Off Hermès Bags? Hermès Employees – Fashion Telegraph June 18, 2012

[2] Procter & Gamble Co. v. Quality King Distributors, Inc., 123 F.Supp.2d 108 (E.D.N.Y. 2000).

[3] YvesSaint Laurent Parfums, S.A. et al. v. Costco Wholesale Corp. et al. 2012 WL 15517409 (S.D.N.Y May 2, 2012)

[4] Sebastian Int’l, Inc. v. Russolillo, 186 F.Supp.2d 1055 (C.D. Cal. 2000)

[5] Pfizer – Counterfeit Pharmaceuticals Brochure

[6] Pfizer – Counterfeit Pharmaceuticals Brochure

[7] People v. Levy, 15 N.Y.3d 510, 99 U.S.P.Q.2d 1126 (2010).

[8] ‘Counterfeit’ tires pose consumer risk.  Consumer Reports, November 17, 2011. https://www.consumerreports.org/cro/news/2014/11/counterfeit-car-tires-pose-consumer-risk/index.htm

[9] Bayer:  Science for a Better Life. https://www.bayer.com/en/counterfeit-drugs.aspx


Laraine Burrell is an intellectual property attorney practicing with JDSA Law

[Content provided in this article should be used for informational purposes only and is not intended to be a substitute for professional advice. Always seek the advice of a relevant professional with any questions about any legal decision you are seeking to make.]