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Tuesday, 5 November 2013

Is counterfeiting a real problem -- or a fake one? Two more responses

"Is counterfeiting a real problem -- or a fake one?" asked Ashley Roughton (Special IP Counsel with Pillsbury), here, back on 18 October: his piece was provoked by some of the usual arguments raised on the subject of damage done by counterfeiting which were raised at this year's IP in the Fashion Industry conference (here). Solicitor Roy Crozier (Clarke Wilmott LLP) responded first (see "Is counterfeiting a real problem or a fake one? A response", 28 October, here)

The IPKat has since received this further riposte from another Katfriend, Tania Phipps-Rufus (blogger, tweeter here and here; previously an IP visiting lecturer at the University of Hertfordshire and currently a PhD doctoral researcher on Intellectual Property and the Creative and Cultural industries in the UK). Tania, who coincidentally attended the IP and the Fashion Industry writes as follows:

"The day before this year's IP and the Fashion Industry Conference -- which was an excellent event might I add -- I attended the Westminster Media Forum event “Next steps for the British fashion industry - intellectual property, manufacturing and talent event”. This event examined emerging public policy issues facing the British fashion industry & intellectual property, which, while it provided no hard and fast figures and statistics on the issue of counterfeiting across the fashion industry did provide some good insights from the perspective of fashion industry professionals on the issue of counterfeiting and the challenges it has posed for their business.

In particular, Julie Deane, Founder and Owner of The Cambridge Satchel Company; spoke on rights protection, design and fashion and set out the challenges facing members of the British fashion sector in maintaining and securing their rights both in the UK and internationally. What struck me from her discussion was the landscape for counterfeiting and its challenges both on and off-line.

During her discussion Julie highlighted that in the past two months The Cambridge Satchel Company had to ask Google to take down 32 websites posing as The Cambridge Satchel Company (which she provided us with a list of domain names to evidence) that were using slight variations of The Cambridge Satchel Company web domain name, that were selling fake counterfeit Cambridge Satchel bags which they were purporting to pass off as originals. What was interesting was that the online fake sales also had an impact off-line and Julie referenced that they found they were having occurrences when customers would come into the physical store, to complain about the ‘quality’ of the bags they had purchased online, from websites which they believed to be the genuine Cambridge Satchel Company website for goods they believed to be genuine Cambridge Satchel Company goods, only to find that when they brought those items into the store they were actually fakes.

Ashley mentioned that “it is wrong to confuse issues of health and safety with issues of counterfeiting and it is also wrong to say that a counterfeit product is necessarily unsafe or unhealthy.” But look at the GHD case in 2010, when Wei Wang, a Birmingham man, was charged with possessing 1,500 counterfeit GHD items. He pleaded guilty to seven offences under the Trade Marks Act 1994 and received a nine-month prison sentence from the Birmingham Crown Court for a plot to flood the city with fake GHD hair straighteners. At the storage unit, officers seized 1,000 counterfeit straighteners, all bearing the false trade description GHD. Councillor Neil Eustace, Chairman of Public Protection Committee at Birmingham City Council, said: 
“This would have been a lucrative business, had Wei Wang not been caught….This type of activity undermines legitimate businesses and jobs, as well as misleading the public. These fake straighteners would also not have passed rigorous BSI safety standards, so pose a potential risk to the consumer.”
I think in certain cases it is clearly right to link issues of health and safety with issues of counterfeiting, especially if we classify the above as a fashion product. I think the issues with figures for loss are difficult to quantify because of the scale of the problem across both on and offline landscape, but I don’t doubt that it is a real one. Putting fears of ‘billing targets ... or positions to justify’ aside, what is clear is that the issue of counterfeits does seem to be a genuine problem -- especially counterfeiting in the internet space in light of how commerce has changed over the past (15 years), and that a large amount of our transactions & purchases are now done online. Because of this it’s clear that the growth of counterfeiting does seem to have flourished online. Look at the issues with counterfeiting on eBay or the different marketplaces in connection with counterfeit goods.

I know recently Alibaba Group, China’s biggest e-commerce firm, has announced a partnership with high fashion label Louis Vuitton that aims to stop the sale of counterfeit luxury goods in China. Alibaba, as a whole, handles more web transactions annually than both Amazon and eBay and has been documented as often being flooded with knock-off designer goods in a country that often turns a blind eye. But now, 
“Under the agreement with Louis Vuitton, Taobao Marketplace will proactively take down product listings of suspected counterfeit goods and implement preventive measures to stop sellers from listing fake items,”
I think in particular for young fashion designers and SMEs the need rather than the desire to ‘bolster its profits,’ is a very important one. I think more can be done to investigate the extent of the problem of counterfeiting across the fashion industry. And if it hasn't been done already, the search for more reliable and concrete statistics and values of loss should be looked into online".
A further comment has been received by a correspondent known to this Kat,  who has had many years' experience as a senior brand manager with a well-known brand and who has requested anonymity for professional purposes but who has this to say:
"''It is not surprising that Mr Roughton has had 25 years of pleas for concrete and reliable statistics and values of loss in respect of counterfeits go unanswered. No brand owner is going to publicise the extent to which its brands are the subject of counterfeit. And let's be clear -- it is only the well know and famous brands which are the subject of counterfeiting because they have the greatest consumer appeal (fake industrial products are another matter entirely). For a brand owner to provide Mr Roughton with the statistics he needs to be convinced that there is a significant problem would be commercial suicide. First, brand reputation and brand value would suffer, consumers would lose trust in the brand. Secondly, for public companies there is an even greater downside when brand value is carried on the balance sheet. Then there is the loss of profits (which I'm pleased to see Mr Roughton is not opposed to in itself) which will impact shareholders. There are very good reasons, at multiple levels, why brand owners are not touting statistics. There is no upside for them. And, I don't believe that the enforcement authorities need to have concrete statistics to do their jobs when the evidence is before them.

Statistics aside, good trade mark practice requires a trade mark owner to protect its trade mark. Brand owners are quietly going about protecting their brands against counterfeiters and few of these cases are going to make it to court to provide Mr Roughton with the statistics he needs to be satisfied that there is a significant problem. Further, the health and safety concerns are real. No brand owner wants its brands to be distrusted because of a lack of certainty about whether the product is genuine or not; another good reason why brand owners are quietly going about trade mark protection.

So it is little wonder that industry estimates are subjective, the Trading Standards seizures are no guide and that there were few brand owners represented in the Parliamentary hearings. This is a case where not all publicity is good publicity.

There is an irony in why Mr Roughton objects to highlighting the dangers of counterfeiting too much, resulting in brand strengthening as opposed to improving quality and the efficiency of production and distribution. The irony is that outsourcing production and distribution to improve efficiencies are likely to have contributed to even higher levels of counterfeit because of the difficulties in supervising third parties engaged in the production chain. How does highlighting counterfeits adversely affect improvements in quality? Surely the opposite is true, as brand owners improve quality in an effort to make it more difficult and expensive for their products to be counterfeited (witness the dangers attributed to plain packaging implemented in Australia).

In the end brand owners are required to protect their trade marks if they are to maintain their rights. Among all of the threats to trade marks, counterfeits are the most insidious. They undermine reputation, quality, integrity and brand value ie. goodwill and profit.

The obsession with reliable and concrete statistics (Mr Roughton is not alone in this) is not going to help the fight against counterfeits. There is enough data out there to establish the problem and for authorities to act upon. A call to action is going to be more help to trade mark owners than a call for statistics'.'
Calls for statistics are fascinating.  Economists love them because they are a quantification of single and individually unique instances.  The European Commission loves them because it loves economists.  The European Observatory on Infringements of Intellectual Property Rights loves them because they are among the core reasons for its existence.

This Kat has previously stated that one side-effect of the quest for quantification and the urge to know how infringements affect trade in the marketplace and the behaviour of consumers and investors is the brushing aside of the moral dimension -- the unquantifiable principle that it is wrong to steal the fruits of a business's legitimate expectations as well as the assumption of the consumer that what he or she asks for is that which is received.  If it's wrong to make and sell fakes, should not the same law should be there to provide relief whether the extent of the sale of fakes is £50 billion, £5 billion or just a couple of hundred million?

3 comments:

Anonymous said...

To your last question, I would answer a simple "yes".

However...

There is a glamour' factor 'at work. ' What grabs attention and what soundbytes can be used (and used for), that are now in play.

Welcome to the land of the political.

Nathan Wajsman said...

We economists like to quantify not just for the sake of quantification but in order to guide policy. While it is true that selling fakes is morally wrong regardless of how much of it takes place, surely public policy must be based on something more than this simple assertion. After all, resources are limited, including resources to fight various types of crime, of which IP infringement is only one of many. When policymakers have to decide how many resources to devote to a particular problem, surely it is of relevance to have an idea of how widespread the problem is compared to other issues that might be addressed with the same resources. Economics is precisely about that: helping society make the best out of limited resources. And yes, I am afrait that this requires reliable and objective numbers.

Ashley Roughton said...

Can I add a comment to this (as an individual and not anything to do with Pillsbury - the attribution was mistaken)?

I adumbrated my comments at a follow up meeting hosted by FLAG at which I made these comments:- (1) I entirely accept the "madness to disclose statistics" argument - we should stop saying that the problem is statistics (I found the blog comments enlightening), (2) that even small scale counterfeiting can be seriously problematic and can cause massive tarnishment and damage (I have always accepted this), (3) I am not downplaying quality issues, health and safety or product safety - they are serious matters; all I was saying (or was attempting to say) was that in my experience those issues disappear in counterfeiting cases by the time one gets to trial - tarnishment and dilution can and does happen even if the goods are of equal or (dare I say it) better quality (though a case where the latter has happened has eluded my practice ... so far). Ashley

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