Developing a business strategy to deter counterfeiters

As with any business challenge, the best defense to counterfeiters is a good offense

It is hard to underestimate the impact of counterfeiting – both in reputation and in dollars – in today's global marketplace. Analysts estimate that a full 25 percent of global Internet commerce today involves counterfeit products. No longer relegated only to flea markets and copy-cat websites, counterfeits permeate virtually every retail source, including legitimate full-price retailers. Counterfeit parts are also known to find their way into name-brand merchandise, putting more than consumer confidence at risk. The magnitude of the counterfeiting problem is staggering, is experienced across virtually every industry, and poses not just a risk to corporate profits but a very real risk to consumer health and safety.

Although no brand is 100 percent immune from the impact of counterfeiting, the extent of loss your brand suffers at the hand of counterfeiters will depend on a number of factors, including how you interact with the global marketplace and the checks put into place that make it possible to track and evaluate the impact and source of counterfeiting. The companies that are most successful at anti-counterfeiting initiatives make sure their anti-counterfeiting efforts are enterprise-level undertakings, coordinated across business units. From a cultural standpoint, companies that view counterfeiters as a competitive and not just legal concern have the best chance at minimizing the impact on the bottom line.

Moreover, as with any business challenge, the best defense to counterfeiters is a good offense. Brands that proactively engage in strategies that deter counterfeiting and minimize the impact of counterfeiting, versus simply reacting to problems as they arise, will be more successful than those whose approach more closely resembles a game of whack-a-mole.

The first step in controlling the threat posed by counterfeiting is to very carefully select the geographic markets in which you sell your products. Although emerging markets present opportunities in terms of market growth, those possible gains need to be measured against the risk of putting your products into countries that lack adequate intellectual property controls, and/or are rooted in cultures that do not value innovation. For example, a recent study co-published by the European Chamber of Commerce, KPMG, Mayer Brown JSM, and market research firm TNS, surveyed 800 respondents in Hong Kong and Macau as to their purchasing practices. 73 percent of the respondents in these jurisdictions knowingly had purchased (and admitted to purchasing) counterfeit products, illustrating the high degree of high social acceptance of trading in and using counterfeit products in some jurisdictions.

Second, if you do enter geographic markets known for lax intellectual property protection and tolerance for counterfeiters, be sure to obtain timely and adequate protection for your trademarks. Even in countries where it can be difficult to enforce such rights, having the official documentation is often required to simply bring an action. Moreover, many emerging markets are first-to-file trademark jurisdictions, where failing to be the first to file for your trademark may preclude you from entering the market at all, if a bad-actor happens to register your mark first.

Third, consider carefully before outsourcing manufacturing or obtaining components from overseas. Although sourcing from abroad can appear to be a short-term cost saver in terms of cheaper labor, the long-term costs to reputation and sales may be higher than manufacturing domestically if it provides an avenue for counterfeiters to access your product and insert pirated versions into the supply chain. If you must outsource manufacturing, implement marking and serialization strategies that help you track the authenticity and flow of your products. New technologies are available that makes these indicators impossible to detect with the naked eye and thus difficult to replicate.

A fourth step to making your products less attractive to counterfeiters is to engage and educate your consumers to seek out authentic products. Brands that make counterfeit detection/authentication part of the brand experience can decrease the consumer appetite for fake products. For example, Kate Spade was once a brand known almost as much for its prevalence at "purse parties," sales events hosted at suburban residences that feature counterfeit merchandise, as for its vividly-colored handbags. The brand now has made efforts to engage its customers in product authentication, including a section on its website that explains how to determine whether a product is real, and listing venues in which one cannot purchase a real Kate Spade product -- including purse parties and mall kiosks.

Finally, brands need to look at purchasers of counterfeits as a market segment that can be captured. Consumers today want to buy genuine products, cheaply, now. It is estimated that at least a third of those who purchase counterfeit products are legitimate customers who simply were duped – particularly in the online context. The challenge for legal and marketing departments is to figure out how to work together to cut down on rogue sites that are diverting customers - through a combination of search engine optimization strategies and targeted enforcement.

Through a thoughtful, targeted approach involving the marketing, strategic, and legal arms of the business, brands can help reduce the impact of counterfeiting on both the reputation of the brand, and on the bottom line.

Contributing Author

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Monica Riva Talley

Monica Talley is a director in the trademark practice at intellectual property specialty law firm Sterne, Kessler, Goldstein & Fox P.L.L.C....

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