Tuesday, February 9, 2010

Multi Pronged Effective Strategy For Anti Counterfeit Actions

A 'counterfeit' is generally an article which is intentionally made to look like an original article so that customers are deceived into buying the counterfeit for the original. As a rule, counterfeits are significantly less expensive than the original.

"Counterfeiting" is a disease that infects and erodes the brand value of a trade mark. The brand value is the perception of a brand in the minds of consumers. As a brand starts being counterfeited slowly but surely, the perception of the branded product starts to erode and when customers see a branded product in the market or in the possession of other customers they wonder whether it is genuine or counterfeit.

Two definite symptoms that a brand has been infected by counterfeiting is [a] the complaints the brand owners starts receiving about defective or substandard products and [b] reduction in sales in areas where counterfeiting is taking place.

In most jurisdictions all over the world the law has prescribed very effective remedies to fight the counterfeiting disease: The Trade Marks Act in various jurisdictions, for instance, dispenses a deterrent punishment for counterfeiters which may include a jail sentence and stringent fines apart from the confiscation and destruction of the counterfeiting articles. In Thailand for instance counterfeiting is punishable even by death. Punishments under the Copyright Act are also stringent with a prescribed punishment of a jail sentence and with an escalation series of fines. In addition to remedies under the criminal law the law of most countries also provide the brand owner remedies under the civil law by which suits for damages can be filed and damages obtained swiftly and efficiently. In some countries, for example in China, administrative remedies are available by which although jail terms are not prescribed, fast seizures of counterfeit products are available. Several of the laws relating to trans-border sales of goods also have built in remedies for inspecting and confiscating suspected counterfeit goods. In most jurisdictions the procedure for taking recourse to effective remedies has also been streamlined with adequate safeguards against misuse of the provisions, such as the requirement of taking approvals from the trade mark registry before initiating criminal proceedings. In spite of these remedies, however, today the counterfeiting disease is as rampant as ever and has infamously achieved epidemic status.

In this dissertation an attempt is made to analyze where we went wrong, to provide an effective strategy for controlling this disease and finally to provide methods to eradicate the disease by implementing these strategies.

To understand the ramifications of the counterfeiting disease, we must first understand its aetiology: the causative factors and the conditions favorable for the growth and proliferation of the counterfeiting virus.

The single most important causative factor for counterfeiting is 'greed'. Counterfeiting will flourish in an environment where the cost of the original product that is sought to be counterfeited is relatively high, the original product is in short supply and has a significant demand and the look and feel of the product is easily reproducible. Pharmaceutical counterfeiting falls typically in this class. Another environment in which counterfeiting thrives is where the original product has snob appeal. Luxury goods, such as designer accessories are species of this genus. Customers who cherish the original high value items for their snob appeal are willing to purchase the much lower priced counterfeits knowingly for flaunting purposes.

A demographic environment necessary for counterfeiting is an area where there is a relatively large population, with a thriving often unregulated market and a customer profile that is upwardly mobile. This makes countries like China, India, Indonesia, Pakistan, Bangla Desh and Thailand areas eminently suitable for the counterfeiting virus to thrive and proliferate. A recent trend is the proliferation of what are called free trade zones where there is minimum regulation of goods coming in and going out. These free trade zones such as in Dubai, Hong Kong and near the Panama Canal have become transit points for the transfer of counterfeit goods particularly counterfeit drugs, from countries where they are cheaply manufactured to countries where these goods have a profitable market value. Pharmaceutical goods are particularly well suited for transfers via the free trade zones.

Counterfeiting activity broadly falls into two categories: Locally made or domestic counterfeits and counterfeit products imported from abroad or foreign counterfeits. We advocate different strategies for tackling domestic and foreign counterfeits. Another slightly different category of counterfeits is refilling, which has been now refined to an art form. In refilling original packages are recycled to the consumer after being refilled with locally made product. Printer cartridges, Alcohol and perfume bottles are particularly susceptible to this type of counterfeiting.

In most jurisdictions, counterfeiting is being attacked, in our opinion, in a random, haphazard and unsatisfactory manner. This has actually exacerbated the disease and increasingly the counterfeit virus has become resistant to cure. Anti counterfeit actions are handled either by law firms or agencies headed by retired police or government officials. These actions take the form of minimalistic investigation by 'informants' followed by 'raids' on 'unearthed retailer of counterfeit goods'. The raids are conducted with the help of police officials either directly or under the orders of a local judicial officer such as a magistrate. Following these raids, the normal strategy is to settle the matter with the person or enterprise raided. Counterfeit goods seized in the course of these raids are confiscated and destroyed and the person who is raided generally ends up paying 'compensation': a portion of which goes towards financing the raid in the first place and a fraction goes to the brand owner. If a case is registered, this is necessarily required to be compounded or quashed in legal systems where criminal cases relating to IPR cannot be compounded. The brand owner is proudly presented periodically with a report on the number of raids successfully conducted, the amount of counterfeit goods seized, and the compensatory amounts collected along with undertakings from individuals not to repeat the activity. There is almost no initiative to pursue complaints to conviction. For a conviction what is needed is a trial. Criminal trials need to be meticulously conducted by lawyers proficient in the criminal process. These trials are time consuming and relatively more expensive than the process of obtaining the initial orders and conducting 'raids'. However, this failure to oversee the proceedings to its conclusion, is in my opinion the root cause of the escalation of the problem. I will once again explain this with respect to the analogy of an infected state of being. Truncating the anti-counterfeit proceedings by settlement is like stopping treatment prematurely on the second day of a five day course of antibiotics, when the patient feels dramatically better and healthy. This results in the danger of a relapse and also the possibility that the microbe becomes resistant to the treatment.

What actually happens is that the counterfeiter realizes this strategy adopted by the brand owner and the collateral damage of the 'raid' and the 'compensation' is then built in into the counterfeiter's budget as an actuarial exercise. For every one front that is raided there are ten that are left untouched. As far as undertakings, given by the persons caught in the act, are concerned, they start afresh under a new name and a new identity. Again often the counterfeiter 'indemnifies' the raided retailer. The counterfeiter produces more counterfeit goods to compensate for the loss suffered because of the raid. Often the persons raided are the retailers and it is not uncommon that the counterfeiter 'compensates' the raided retailer with whom the counterfeit articles are placed for sale on a consignment basis in any case. The brand owner and the genuine customers are the eventual sufferers.

An objective observation of the current environment provides the following revelations:

* Counterfeiting has reaches alarmingly epidemic proportions. In a field like pharmaceuticals there can be disastrous if not fatal consequences.
* Counterfeit products are available both in urban semi urban and rural areas.
* Anti counterfeiting activity is not organized and adequate publicity is not given to these activities because of the fear that even genuine products will be considered as contaminated.
* There appears to be a nexus between the counterfeiters the local politicians and the local thugs;
* Anti counterfeiting actions in the form of raids only skim the outer periphery of the activity leaving the inner core to thrive. Most of the activity is sporadic and provide symptomatic or palliative relief
* The anti counterfeit activity is not cost effective because of lack of planning and management.

With this background, I suggest the following multi pronged strategy for tackling the counterfeiting menace:

At the outset, products that are prone to being counterfeited need to be immunized. There are two ways of doing this:
[i] By packaging the products or using tags or other markings on them which are not possible to duplicate and giving wide publicity and information to customers and the trade about these identification signs. Digital technology has made reproduction of the original label a matter of 'child's play'. Newer technologies are available which are not susceptible to even digital reproduction.For instance packaging films have been developed for pharmaceutical products with embedded images (TM) which are product specific and manufacturer specific. Use of these packaging films selectively will eliminate counterfeiting and ensure that only genuine products are available to patients. Another suggested method is to build into the system an incentive for return of original packaging material. For instance, to avoid refilling, return of used alcohol and perfume bottles could be rewarded.

[ii] By ensuring that genuine products are available only through designated authorized stores and again providing information to customers that the genuine products are available only through these stores and that they should look out for this authorization of genuineness at the point of purchase. At the same time periodic checks must be undertaken to ensure that the authorized stores themselves do not indulge in stocking counterfeit products.

Anti counterfeiting activity must be coordinated by a team of experienced multi tasking coordinators representing the brand owner. These coordinators must be involved with continuously educating consumers and traders on the evils of counterfeiting. In my experience, I have found that the brand owners actually becoming members of the trade associations and consumer movements helps. Publicity in the form of caution and warning notices also must be selectively undertaken in trade journals and newsletters and newspapers. Counterfeiting should not be glorified in any way. For instance use of the expression "imitation is flattering" should be avoided. It some how seems to condone counterfeiting.

I cannot stress more the importance of professional investigation. Serious investigation involves setting up dummy retail operations and infiltrating the counterfeit chain with ones own operatives. When a lead is uncovered, typically of a trader selling counterfeit goods, it must be followed to its source which may be within the country or overseas unearthing on the way the conduit through which these counterfeit goods are trafficked. Investigation includes locating the printers, packaging material and raw material suppliers, custom agents, in fact, all persons directly or indirectly associated with the activity. 'Raids' that are hastily conducted are actually counterproductive because they make the rest of the illicit chain wiser and assist control points along the chain to take counter measures to cover up their tracks.

If counterfeiting is rampant, three types of actions should be undertaken simultaneously. Some of the traders should be visited by the coordinator team informing them about the dangers of the activity they are indulging in. Again in my experience the trading community universally are quite frightened people. Given a choice, they would prefer to trade legally. It is often a matter of circumstance that compels them to trade in counterfeit goods. They are lulled in the belief that they are too small a fry for the brand owner to bother about them. The visit of the IP coordinator makes the difference. Very often this results in a settlement and an undertaking not to repeat the activity. If the coordinators have taken membership with the trade association, an office bearer of the association can be requested to accompany the visiting team to the premises of the offending trader and this type of peer pressure is also useful.

Another part of the team should be involved in the taking of legal actions civil, administrative [wherever available] and criminal simultaneously wherever the laws permit these types of actions and action under the border control laws such as the customs law.

Targets for each of the type of actions should be carefully selected after investigation. In the civil and criminal cases, the initial actions of search and seizure, should be continued with the actual trials against the offenders with a dangling of a carrot that if they reveal the names of the actual persons up the chain with proper evidence, trial will be concluded. Once legal action has commenced it should be taken to its logical conclusion and the accused and/or defendants as the case may be, must be kept under continuous surveillance for any continuing activity. The coordinating team should at the same time liase with the media to ensure that every anti counterfeit activity is reported. Anti counterfeiting activity promptly reported is quite newsworthy.

The counterfeiting disease continuously needs prophylactic treatment. The anti counterfeiting coordinators should continuously sweep the retailers in the market looking out for potential counterfeit stocking retailers. This acts as a deterrent for those retailers who may be having thoughts of indulging in the act.

During the present economic meltdown phase, a level of desperation has crept in, in a section of the trading community. During these times the temptation to indulge in counterfeiting is even greater and therefore, brand owners must step up their vigilance to prevent their brands from being swamped and ambushed by the counterfeits. Hopefully, the multi pronged strategy suggested in this article will assist brand owners in their actions.

This article was written by Dr. Mohan Dewan who is a Trade Mark Attorney and Patent Agent From India at http://www.rkdewan.com. R. K. Dewan & Co. specializes in trademark violation litigation in India.

Article Source: http://EzineArticles.com/?expert=Mohan_Dewan

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