Developing an effective international anti-counterfeiting strategy
By Saul Santoyo
Uhthoff, Gomez Vega & Uhthoff, S.C.
Medicines and pharmaceuticals, agrochemicals, auto parts, toys, personal care and
electrical products are among a wide range of products been counterfeited that have more
in common than being readily available at low prices without the need to overcome legal
obstacles and purchase restrictions such as authorizations, prescriptions or permits.
These fake products pose an incredible threat to the health and safety of the population
and, in some instances, could be more deadly than terrorism and drug cartels.
Although inexpensive, all counterfeit products lack the quality, reliability and desired
effects of the original products, and are manufactured and distributed on an industrial
scale by international criminal organizations with global reach and arrive at final
consumers through a long trail of serious crimes.
Counterfeiting deceives consumers, provokes massive economic losses for Intellectual
Property (IP) owners and all related legitimate businesses, impacts tax revenues and the
creating of employment, while deterring innovation worldwide.
Therefore, this problem has increasingly been recognized as one of the most serious
global issues, as the value of international trade in physical counterfeited and pirated
products represent a billionaire industry of at least USD$500 billion per year and the global
counterfeit market accounts for at least 8% of the global trade, according to conservative
estimations.
Nevertheless, this illegal phenomenon is still underrated.
As a matter of fact, in some countries most consumers accept and buy counterfeited
items. For example, as one of the most recent studies sponsored by the American
Chamber of Commerce/Mexico showed an estimated 88% of the Mexican population has
acquired -at least once-, a pirated and/or counterfeited product.
On the other hand, in recent years IP owners have decided to reduce its annual budgets
due to the global economic crisis, and such reductions have been aimed at their anticounterfeiting efforts as opposed to slimming down their IP portfolios.
These facts, summed to the increasing illegal activities of criminal organizations on a
global scale that result in huge economic profits that in several occasions are diverted to
finance other serious criminal activities such as drug trafficking, high-profile assassinations
and outright social violence, weapons contraband, sexual slavery, kidnapping and, in
some documented instances, terrorism.
For the above mentioned reasons, it would be fair to conclude that we are all facing a
growing menace, with social acceptance and sometimes passive and permissive attitudes
from IP owners, a bad marriage that could prove too severe to control in the long run.
These facts only add to the limited budgets that hinder the anti-counterfeiting activities of
most companies and thus, today more than ever, it is of the utmost importance to plan,
develop and execute international anti-counterfeiting programs intended to effectively
tackle the problem at different levels, while the success of such programs should be
planned with efficiency and cost-effectiveness as guidelines.
The following, are just a few recommendations that in my experience should be followed
while planning an international anti-counterfeiting strategy:
1.- Find a well respected and professional Law firm with sufficient capabilities and
resources to effectively assist you with these issues.
A reduction in your expenses should not come from hiring inexperienced-limited small
firms just because they will work for less.
In this particular kind of professional services quality matters (as with every other services
and goods) and less is definitely not more, you get what you paid for, either with limited
capacities, deficient quality and as a consequence restricted or no success.
In short, there is no such a thing as a “quality bargain”, especially when dealing with
delicate issues that require ethical behavior, transparency, extensive professional
experience and adequate resources, as in most cases the IP owner will be involved in
different strategies that imply the filing of diverse legal actions in foreign countries,
monitoring the outcome of such actions and coordinating the efforts of investigators and
legal professionals.
Furthermore, it is important to emphasize that actions performed by legal representatives
(including foreign attorneys) could result in legal liability to companies, regardless of
whether the liability was caused by inexperience, malpractice or unethical behavior.
In addition to the above, transnational companies that are forced to comply with strict
conduct codes and anti-corruption policies and regulations, may find amusing to learn that
the seductive reductions on fees and expenses -envisioned as “real bargains”- offered by
some firms, are financed or supported by acts of corruption. There are a few unfortunate
example involving legal representatives and alleged infringers together with the complicity
of some Authorities, that have resulted in granting pardons and withdrawal of legal actions
in exchange of high sums of cash, all this behind the back of the company that entrusted
its attorneys with legal powers to act on its behalf, and worst of all, the above-mentioned
examples also may expose those same companies to the liabilities that may derive from
such unethical and illegal conducts.
2.- Know you industry.
Not all markets and activities are similar, and obviously threats and risks of the
pharmaceutical industry are different than those that affect luxury brands or manufacturers
of electrical or automobile parts; by knowing beforehand the specific challenges and
dynamics of your particular economic sector you should gain invaluable awareness to plan
the best possible strategy to suit your company’s real needs and expectations.
This is specially important but many times neglected, as many believe that the subtle
differences regarding transport, distribution and marketing mechanisms often have a direct
impact on what should be the best strategy to follow for a specific sector of the industry:
i.e. what may be effective for a large consumer products company may not be applicable
to the luxury brands market, and that same approach could not yield the best results to a
pharmaceutical company.
3.- Gather intelligence to identify strategic sources, distribution schemes and sales
points of pirated and counterfeited products.
While it is impossible to implement actions in all territories, it is widely known that several
countries in Southeast Asia -mainly China- are the primary source of most counterfeited
products, so it makes sense to start from there and obtain sensible intelligence and data
concerning the routes of the cargo being manufactured and shipped from such region to
several strategic territories throughout the world.
We could attest an example of the above when, starting on October 2009, Mexican
Customs Officials detected at Mexican ports (mainly Lazaro Cardenas and
Manzanillo) over 72 containers transporting thousands of different counterfeit products
(from footwear, luxury clothing and accessories to electronics and toys) that were bound to
several Central and South American markets (Panama, Chile, El Salvador, Guatemala,
Honduras and Argentina) and with the collaboration of several IP owners that filed the
appropriate legal actions, Mexican authorities were able to seize the offending products
and prevent them to arrive at the final consumers in such markets; the importance of these
actions was evident as they resulted in the "Yolanda Benitez Trophy" that was awarded
by the World Customs Organization (WCO) to the Mexican Customs for their work on
enforcing IP rights.
A wise investment should not only aim to produce the legal actions (claims, raids, etc.) on
the final end of the supply chain (the places where counterfeits are sold), but rather to
gather the necessary information (and evidence) to discover the source of such products,
which in turn should serve to direct further legal actions at the places of origin
(manufacture), distribution and wholesale of illegal goods.
Also, another key aspect that should be present when aiming to obtain information is that
the mechanisms and logistic schemes used by counterfeiters to produce and distribute its
products, are constantly evolving and increasingly growing in sophistication, and thus the
means used to obtain valuable data regarding the location of warehouses, means of
transportation and distribution should be equally capable to produce the desired results.
Shipping routes should also be a high priority in the intelligence gathering.
4.- File the corresponding legal actions
The information previously referred, should point the direction where the legal actions
should be aimed, with the intention of effectively interrupting the process from production
and/or import, storage, transportation and distribution of fake and pirated goods all the way
to the selling points to the final consumer.
In this particular aspect, it is important to emphasize that the cut-down in your IP budget
should not come from deciding whether to file an action or not, depending on aspects such
as sales in the relevant territory or the amount of products that have been detected.
Although you have to asses each situation in particular, it is imperative to always look at
the international scenario.
For example, even if a certain country is not contemplated in your priority agenda because
of low sales or lack of commercial activities, please consider that some territories are only
used as transit countries for counterfeit products, so the counterfeits may end up in places
that could have a high priority in your anti-counterfeiting international program.
On the other hand, it is well documented that pulverizing shipments (i.e. sending small
quantities of counterfeits on several courier shipments) has become the latest top-rated
strategy used by counterfeiters, as not only minimizes the risk of being detected by
customs officials, but also lessens the probability of facing a criminal action, as they are
betting that the IP owners would not be willing to spend money on a small case, thus their
worst case scenario would be to handle a calculated loss. Indifference or tolerance
towards this type of counterfeit activities will encourage others to perform them, as there is
no apparent risk but only increased profits.
To put it in another words: people that invest in security measures (alarms, safe boxes,
guards, etc.) to protect their valuable assets when crime rates increase are less prone to
suffer the loss of valuable goods, when compared to other people that did not want to
“squander” on such measures because of hard financial times and, worse of all, if they are
the victims of a robbery, most people almost never recover their property.
In this case, what may be the most appropriate path to follow would be reach a Flat-fee
agreement with the law-firm assisting you, so as to lower operational costs and expenses,
without reducing the number of counterfeit seizures. You have to make a plan, but you
need to stick to it in order for it to work.
Adopting zero-tolerance campaigns towards counterfeiters, cemented in a cost-effective
and consistent anti-counterfeiting program, should have flat-fee agreements, as one of its
main ingredients.
Your Law firm has to compromise with you in this aspect, and this is precisely where a
Law firm with reasonable resources should put those funds to work on your behalf, this
should be one pro you would be expecting to receive from them. Your partner in
combating this type of crime should consider this fact, under reasonable and real
circumstances, as its own priority if they want to handle your account and assist you with
these delicate matters.
5.- Promote and enhance cooperation with the public sector
As previously mentioned, your efforts should be directed to locate the source, supply chain
and channels of distribution of counterfeits, so as to aggressively attack them whether they
are imported or locally produced. However, you will have to disclose information and
cooperate with the Public sector, in order to timely detect and deal with counterfeit
products.
Like in so many relationships in life, sometimes you have to improve your communication
skills in order to obtain better results. If you want to plan and execute a successful
international anti-counterfeiting programs, you should take advantage of all available legal
means and assistance that you could get from the Authorities, either by protecting your IP
rights, recording them before customs (where applicable), disclosing and sharing
information, providing IP trainings for customs officials, etc.
As previously mentioned, the supply chain and channels of counterfeit products are
constantly changing, therefore it only makes sense to do whatever it takes from your side
to enhance the communication with the relevant authorities, notably with Customs, so that
they may help you to deal with this problem. In fact it is important not only to combat
domestic production and distribution of counterfeits, but also to steadily combat the
introduction (either legally imported or contraband) of foreign-made counterfeits, as once
such products enter the country they atomize and are scattered throughout the relevant
territory, a situation that significantly increases the difficulty to deal with the issue.
The cooperation and trust between private parties and the public sector should be
reciprocal, as upon receiving the corresponding alerts from the Authorities, IP owners
should be responsive and try to deal with the problem regardless of the quantities involved
in the shipment, as your company does not want to send the wrong message to the
Authorities, i.e. indifference or tolerance towards counterfeit activities are not justified by
budgetary reasons, and it would only deteriorate the trust, cooperation and dependability
between your company and the public sector.
6.- Deterrence factor and public awareness campaigns
By keeping in mind that the effects of IP infringement and counterfeiting activities have
global effects, one should also bear in mind that the commitment to enforcing and
protecting its rights has to be duly publicized, on a global scale as well.
Regarding the above, it is very important to acknowledge that the people involved in
counterfeiting usually see their activities as a business and thus they will only be willing to
devote their resources as long as they perceive that their investment is going to be, to a
certain degree, profitable and with the least amount of risk possible; in this line of thought,
if an IP owner has showed a relentless commitment to enforcing and protecting its IP
rights, most counterfeiters will be reluctant to start “carrying” the merchandise of that
particular brand when compared to others that are not known for enforcing its IP rights.
Consequently, the legal actions should be well-publicized as strong statements that should
reinforce the general perception about the relentless enforcement of IP rights (backed up
by the actions themselves) of the IP owners.
Summarizing, a tailor-made international anti-counterfeiting program would be the most
efficient tool to combat this serious and rising problem, which should be directed to
reducing the presence of counterfeits as a first step, and aim to restore the market for
original products as the long term objective, i.e., high levels of counterfeiting and piracy
could significantly be reduced by implementing efficient programs that include aggressive
enforcement of IP rights.
Fortunately, to counter the risks that piracy and counterfeiting represent, particularly in the
middle of a gruesome financial crisis, there are several means available that should be
taken into consideration when planning a cost-effective strategy to enforce and protect IPrights; such planning must be focused in at least the above mentioned recommendations,
as in order to effectively deal with this matter, IP owners must first realistically determine
the risks and actual threats that piracy and counterfeiting present to their businesses,
since each product and/or service has unique characteristics that should be addressed
specifically, and thus this assessment should be done on a case by case basis. Once the
potential or actual damages caused by counterfeiting activities are identified, it is
mandatory to assess, from a cost/benefit point of view, the results that are to be achieved,
by designing a comprehensive anti-counterfeiting strategy that may last for several months
or years, or even be an all-out permanent effort based on the close collaboration of the
competent government authorities.
The consistent enforcement of IP rights and protection efforts will eventually show positive
results, however, it is important to highlight that even when reaching these goals, IP
owners should continue monitoring counterfeits and enforcing their IP rights by adopting a
zero-tolerance campaign towards counterfeiters.