US: ANTI-COUNTERFEITING
How to score your anti-counterfeiting
efforts
Measuring the effectiveness of actions taken is a vital part of a successful anti-counterfeiting campaign.
Mark Mutterperl explains how to do it, and provides examples of enforcement scorecards
C
ounterfeiting is widespread, and the negative impact of counterfeiting is felt in
many ways. Consumers who unknowingly purchase counterfeit goods may
form negative views of a company’s product. Some counterfeit products may
injure or even kill consumers. Over time, the perception of a product or a brand may
be undermined by the misperceptions formed from lesser-quality counterfeit goods.
The competition created by counterfeit goods may have an impact on the price of
genuine goods, and the availability of counterfeit goods will divert consumers. This
will have an impact on revenue and, in many instances, the counterfeit market will
represent lost opportunities for a company.
What is more, a brand owner risks the threat of litigation. Litigation has been
brought against brand owners seeking to hold them liable for damages caused by
counterfeits. While the product liability therein advanced may turn the law on its
head, a brand owner is more susceptible to claims if it fails to take appropriate
action against counterfeiters.
At least one law professor has argued for civil remedies against manufacturers of
genuine products that have been counterfeited. In an article in 8 Currents:
International Trade Law Journal 43, Professor Arthur Best charged that, similar to
states’ requirements that all products be sold in reasonably safe condition, “[a] product marketed without reasonable anticounterfeiting measures could be characterized
as defective in the sense that its labeling fails to reduce risks associated with the
product”. He claimed that, if it is foreseeable that a consumer will be injured as a
consequence of his or her confusion between the authentic product and the counterfeit, “then basic principles of products liability law require that the defendant
reduce the risk of that injurious confusion if there are practical ways to do so”.
The United States District Court for the Southern District of Florida disagreed. In
Schoenbaum v Procter & Gamble C. (in which the author was co-counsel for the
defence), the plaintiffs charged that the manufacturer of legitimate products should
be liable for any harm caused by counterfeit hair care products. The plaintiffs
alleged that the manufacturer knew of counterfeit products that could have caused
harm to purchasers and that the manufacturer knowingly defrauded consumers by
actively promoting authentic products without warning purchasers of the potential
harm of buying counterfeits.
The court rejected the claim, the judge stating from the bench: “I don’t think since
the beginning of the common law has there been a duty for someone to give notice
to others that somebody is robbing from them.”
Counterfeiting also takes its toll on the public. Counterfeiting has been associated with terrorists, organized crime, child labor, and big lost revenues for governments and businesses.
A strong anti-counterfeiting programme should be an integral part of a company’s operations. In implementing such a programme, management should consider
the nature of the products that may be counterfeited, and the production and distribution chain, to target counterfeiters as effectively as possible. While the full impact
of deterring counterfeiting may be difficult to measure, it is possible to develop a
scorecard of the conditions prior to the implementation of an anti-counterfeiting
programme. The steps taken, and subsequent market conditions, will lead to an
assessment of the impact of such a programme.
The challenge of measuring the impact of counterfeiting
The full impact of counterfeiting eludes quantification. Measuring the full effects of
an anti-counterfeiting campaign would need to take into account direct and indirect
factors, including revenue, pricing (of both the genuine and counterfeit goods), pro2 J U LY/A U G U S T 2 0 1 2 W W W. M A N A G I N G I P. C O M
One-minute read
Counterfeiting can have a
serious impact on businesses, consumers and
governments. Therefore a
strong anti-counterfeiting
programme should be an
integral part of a company’s operations. It is
impossible to fully measure the impact of
deterring counterfeiting, but companies can
develop a scorecard on which the effectiveness of an anti-counterfeiting programme can
be assessed. Steps can be taken to compile
data on enforcement and, in due course, you
may also want to evaluate consumer attitudes.
With good planning, these metrics can be
made integral to the anti-counterfeiting programme.
US: ANTI-COUNTERFEITING
duction capacity, consumer satisfaction, product and brand
image and lost opportunities. This would also need to account
for constantly changing markets and economic conditions.
The benefits of precise quantification could readily be exceeded by the time and cost involved.
As a simple example, some consumers will knowingly purchase a counterfeit product and will regard the price as a good
deal. Had the counterfeit not been available, a number of these
consumers would not have purchased the genuine product at
its market value. Eliminating the availability of the counterfeit
product may not have a direct impact on revenues from such
consumers, but the absence of the counterfeit product can
have a direct effect on pricing, as well as on product and brand
reputation. It is similarly difficult to measure the full impact of
an anti-counterfeiting campaign. For example, a successful
anti-counterfeiting campaign may not only eliminate the
known counterfeiters, but also deter the entry of additional
counterfeiters.
In addition, the impact of counterfeiting, and the benefits of
an anti-counterfeiting campaign, are difficult to isolate. Again,
as examples, suppression of counterfeiting may enable a company to sustain its pricing structure, but other variables, such
as the presence of legitimate competitors or even general economic conditions, will also be factors in pricing decisions. A
successful anti-counterfeiting campaign may drive up the
costs, and thus the price charged by the counterfeit industry, or
it may drive out all but those counterfeiters who offer the lowest quality product at the lowest price. The avoidance of damage from counterfeiting to a company’s brand and reputation,
which may be among its greatest assets, may also be the hardest measure to take.
Ways to measure an anti-counterfeiting programme
A company committed to brand integrity will want to protect
its consumers, its brand value and otherwise minimise the
damage that may be done by counterfeiters. Management will
also want to take some measure of the effectiveness of its anticounterfeiting programme.
A data scorecard
A determination of what to measure will depend on the type
of action that is taken. For example, an anti-counterfeiting
programme may seek to stop the production of counterfeit
goods at the plant, or the distribution of counterfeit goods at
a port of entry or key distribution point. In such instances, the
number of seized goods can be quantified. Additionally, an
extrapolation may be made of the threat of further activities
by the specific counterfeiting activities that were stopped by
these efforts.
Measurements can also be taken from an anti-counterfeiting programme in local market areas. As an example, the following steps can be taken, from which specific data can be
obtained:
Step 1: In an identified geographic market or markets, or
identified sales channel, undercover investigators are engaged
to shop for a product. This should yield information concerning the identity or number of counterfeit sellers, percent of
counterfeit goods, and the price of the counterfeit goods in the
identified market.
Step 2: A coordinated anti-counterfeiting enforcement programme is undertaken. This may take the form of civil litigation for injunctive relief and money damages. It may also
include assisting in the development of criminal and administrative enforcement actions and resultant penalties. It may
result in seizures of counterfeit goods. Through both civil and
criminal litigation, source information may be obtained that
will enable further enforcement activities.
Step 3: At a reasonable time after enforcement actions are
underway, undercover investigators are engaged again to shop
for the product. This should yield information about changes
in the identity or number of counterfeit sellers, percent of
counterfeit goods, and the price of the counterfeit goods.
If desired, a comparative assessment may also be made of
the quality of the counterfeit goods surveyed in steps 1 and 3,
in particular as that may relate to price.
Finally, the cost of the anti-counterfeiting programme can
be included in the measurement.
Each of the underscored factors can be put on a template,
quantified and tracked. Examples of model templates can be
seen opposite.
This model can be adapted for other forms of anti-counterfeiting programmes. For example, an anti-counterfeiting programme may be targeted at online sales. Online analysts or
other investigators may monitor the internet, and the instances
of online counterfeit product and the number of take-downs
may be included in the template. Similarly, the template may
be adapted to reflect whether the counterfeit activity that is
uncovered takes the form of store sales or street sales. A variable may also be included for the enforcement timeline.
Measuring consumer attitude
An anti-counterfeiting programme may also include educating
consumers as to the dangers of supporting the counterfeit marketplace and the benefits of purchasing genuine products.
Also, as previously discussed, counterfeiting can have an
impact on the reputation of a product, brand and business.
Surveys of consumer attitudes in conjunction with either an
educational campaign or an anti-counterfeiting programme
may provide an additional means for measuring the effectiveness of such efforts.
However, before measuring consumer attitude, you should
identify and understand corporate interests. To begin, you
should consider whether the quantity or quality of anti-counterfeiting actions is significant. In industries where there are
life-threatening counterfeits such as pharmaceuticals or aircraft parts, the measure of success may be different compared
to luxury goods.
For example, in the pharmaceutical industry, a big success
may be when investigative efforts identify and stop a breach of
the legitimate supply regardless of the length of time and cost
involved. Any number of successful investigations, civil judgments and criminal restitution may be less important than
stopping the breach and entry of counterfeits into the legitimate supply chain.
In contrast, luxury goods companies may choose to measure success by the number of successful investigations, the
quantity of civil seizures and criminal referrals, the number of
counterfeits seized, and the size of judgments awarded.
A targeted approach to identify and stop key counterfeiting
activities may be a measure of success for some companies or
industries and not for others. And creative solutions such as
court decisions holding landlords liable for counterfeiting
activities on their premises may be significant for some companies but not others.
An additional consideration when measuring the success of
an anti-counterfeiting programme revolves around publicity.
Some companies abhor press reports about counterfeits; others crave and solicit them. Once you determine a corporation’s
view on such publicity, you can evaluate publicity gained or
avoided as part of the overall success of a programme.
W W W. M A N A G I N G I P. C O M J U LY/A U G U S T 2 0 1 2 3
US: ANTI-COUNTERFEITING
Examples of enforcement checklists
Private
enforcement
Injunctions
Seizures
1. (Caption)
(date & terms)
(product and
quantity)
Damages
Penalties
Source informa- Cost to date
tion obtained
Net $ recovery
2.
3.
Government
enforcement
1. (jurisdiction
and description)
(fines,
sentences)
2.
3.
Pre-enforcement
Post-enforcement
1. Number of sellers
investigated
2. Number of sellers with
counterfeits
3. Percentage of counterfeits
(compared to total products)
4. Average price of
counterfeits
5. Cost of investigation
Finally, as mentioned above, the cost of an anti-counterfeiting programme may be part of a corporation’s scorecard in
assessing its success. Programmes may be designed in a way
that makes them cost-neutral or even a profit centre for a company. Your cost expectations and goals are, of course, an element in measuring success.
Build metrics into the programme
An effective anti-counterfeiting programme starts with an
understanding of the product, its place in the market, and the
points of vulnerability to counterfeiting. It will play a vital role
in safeguarding brand integrity. While the full impact of counterfeiting, and the concomitant benefit of a
strong anti-counterfeiting programme, may
not be fully measurable, it remains helpful
for management to have some measure of
the impact of these efforts. With a few steps,
these metrics can be built into the design of
the anti-counterfeiting programme.
On managingip.com
Nissan’s lessons from the Middle East,
June 2012
Should I set up a counterfeiting hotline?, July 2011
How to curb counterfeiting competitively, July 2010
Your guide to effective enforcement,
June 2010
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J U LY/A U G U S T 2 0 1 2 W W W. M A N A G I N G I P. C O M
Mark Mutterperl.
© 2012 Mark Mutterperl. The author is a partner
of Fulbright & Jaworski