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Tools for Preventing Counterfeiting

THE UNITED STATES has recently proposed a new Anti-Counterfeiting Trade Agreement (ACTA). The treaty was announced with the support of a coalition that includes the European Union, Japan, South Korea, and Canada. Agreement negotiations are set to begin this year.

Minimum anticounterfeiting standards in force today arise from the World Trade Organization’s TRIPS (trade-related aspects of intellectual property rights) agreement. Nils Montan, president of the International AntiCounterfeiting Coalition, says ACTA could potentially raise those standards and facilitate information sharing among member nations; however, negotiations haven’t started.

Assuming that the treaty gets ratified, the key to its effectiveness will be for it to receive enough funding from the participating governments. Without money, “it will be just another piece of paper,” says Montan.

Meanwhile, American companies are using existing U.S. laws to fight counterfeiting in the courts. For example, in New York, they can sue third parties, such as landlords whose tenants sell counterfeit items on the premises. The ability to sue these individuals is explicitly spelled out in New York state law and has precedents in federal court as well, says Heather J. McDonald of Baker Hostetler.

While counterfeiters are hard to pin down and don’t tend to have money in traditional bank accounts, McDonald says that landlords have “at least one very obvious asset, and that’s the property

in question, and they’re typically legitimate business people or legitimate companies that have traditional bank accounts, that are paying taxes, that exist in the real world of business.”

Given that these landlords have deep pockets and can’t easily pick up and disappear, more companies are turning to these lawsuits in recent years, says McDonald. The lawsuits, which McDonald says often do not go to trial, yield more than compensation payments. Even more important is that they often cause landlords to evict anyone shown to be selling counterfeit goods and to hire an outside monitor to watch out for counterfeiters on the premises to avoid any future liability.

Another tack that companies are taking is to crack down on their own suppliers, who become the source of many counterfeiting activities. In a presentation at last fall’s International AntiCounterfeiting Coalition (IACC) conference, Shane Berry, who leads Abercrombie & Fitch, Inc.’s brand protection team, detailed some of the steps his company implemented to get to the root of the counterfeiting problem.

Berry said that one of the most important steps is getting to know the different aspects of the supply chain and forging relationships with manufacturing partners.

Abercrombie’s workers are trained in brand protection, and they are required to sign brand protection policies, said Berry. Abercrombie also conducts periodic audits and assessments of what is left behind in its factories at the end of manufacturing cycles and of the controls governing the disposal of that material.

One of the challenges companies face in fighting counterfeits is identifying the better knock-offs, says Barbara Kolsun, of luxury denim manufacturer Seven For All Mankind, LLC. Some have come up with specific labeling systems that will help them distinguish an impressive fake by certain stitches in the label or other such tactics.

Kolsun advises companies against letting store associates or customers identify the authenticity of goods. She cites a well-known case in which discount retailer Daffy’s Inc. attempted to verify whether the Gucci bags they were selling were authentic in part by showing one to a Gucci store employee who mistakenly said the bag was indeed authentic. Identification “always has to come through our office,” says Kolsun, and she stresses that it’s “important to have a good internal system.”

McDonald and Montan say that the industry should conduct a public awareness campaign to help reduce the public’s willingness to purchase counterfeit items by highlighting the risks and conditions of their production.

For example, McDonald says, counterfeit goods are sometimes made in factories that employ underage workers or that have poor working conditions. It’s also possible that some of the money funds terrorist activities.

And it’s been shown that products can be inferior to the point that they can become hazardous, as with fake medicines. In addition, she notes, it’s certainly true “that people who are selling counterfeit goods aren’t paying taxes like the rest of us are…. If people really thought about those things, they wouldn’t buy them.”