Strategic budgeting for anti-counterfeiting programs

Spending some time laying a foundation for an effective anti-counterfeiting strategy will make a big difference in the long run

Picture this: You are sitting in your office, minding your own business, when all of the sudden you get an e-mail that says, “Our distributor called to tell us his sales dropped this quarter. He says it’s because there is a competing business in town selling fake versions of our stuff at cheaper prices. I looked online and apparently there are companies advertising that they can make up to 20,000 pieces a day. These guys are clearly making fakes. Please take care of this, we can’t have counterfeits cutting into our sales.”

Where do you start? What do you do? Nobody wants a counterfeiting problem. Counterfeit products result in lost sales and a diversion of company resources. Modern counterfeiting goes beyond our traditional understanding of fake goods. Counterfeiters are now selling “fake likes” and “fake followers” and any other intangible asset one can imagine. It affects most companies in almost every industry, and no one is immune.

But what if you could turn back time and position your company so that you never have to face this moment, or if you do, as soon as you read the e-mail you can easily take action? Part one of this series will discuss four essential areas which should be considered when examining budgeting for IP from an anti-counterfeiting perspective. Rather than rushing to react by launching expensive investigations or over-broad web monitoring programs, a thoughtful, proactive spend on the four areas below could form the backbone of a strong anti-counterfeiting program before your problems reach critical levels.

Trademark portfolio

It is true that building a trademark portfolio in a company’s early stage can easily result in runaway costs and fees. However, if managed thoughtfully, careful execution of a trademark filing program can give a company the tools it will need to later fight off counterfeiters. Many countries absolutely require a brand owner to hold registered trademark rights in that country before it will allow the brand owner to avail itself of the intellectual property laws there. All too often a company will find out its products are being counterfeited and then realize too late that the company does not own trademark registrations in the jurisdiction where the counterfeiter is operating. As soon as possible, and especially if there are plans to manufacture products outside of the U.S., a company should identify the most relevant jurisdictions for trademark enforcement and lay down a foundation for IP protection there.

Commercial agreements

Having a set of commercial agreements drafted specifically for the unique needs of the company that pay close attention to intellectual property related terms can make a big difference in enforcement efforts against counterfeiters. Although pricing and other terms may change from deal to deal, clearly defining what the members of your supply chain can or cannot do with your IP can stem a number of activities which ultimately result in counterfeit products hitting the market. This is especially true for manufacturing agreements where terms discussing what can be done with proprietary molds and tooling are essential. Allocating some of your budget to preparing a strong set of form agreements will enhance the uniformity of a company’s deals and protect its investment in its brand and IP.

Customs recordations

Recording a company’s registered trademarks with customs offices in various countries is a cost effective way to create a first line of defense against counterfeit goods being imported into strategically important jurisdictions. In the U.S., brand owners are able to add their trademark registrations to a database maintained by the Office of Immigration and Customs Enforcement. Brand owners may also prepare guides providing important information as to how to identify authentic products. Upon importation inspection, agents will sometimes hold suspicious shipments and contact the brand holder as necessary. Recordation is inexpensive and the creation of a customs reference manual is a one-time cost with periodic update fees. While not a step often thought of during brand development, an early on relationship with customs can help stop a problem before it starts.

Web monitoring

The last thing a company wants is to log onto a popular web marketplace, type in its brand name and see 3,000 listings come up for what appear to be mostly fake products. Unfortunately, this is how most companies find out that they have a counterfeiting problem. In the vastness of the Internet, a brand holder can feel powerless to stop the hundreds of sellers listing thousands of products and will often just do nothing in response. However, most online marketplaces are very receptive to brand owners’ requests for removal and a constant focus on this issue can, in time, lessen the problem. In some cases the solution may be to hire a large online monitoring company. In many cases, however, effective and focused monitoring can be done at lower rates in house or by outside counsel. Committing resources to web monitoring is essential for an effective anti-counterfeiting program and the earlier, the better.

Counterfeit products undermine the hard earned reputation of a brand. While it may be tempting to ignore the concept and hope your company never has a counterfeiting problem, the odds are not in your favor. Spending some time laying a foundation for an effective anti-counterfeiting strategy will make a big difference in the long run. In the next installments of this series, we will discuss a number of these worthwhile budgeting areas in depth and how to tie them all together to successfully combat counterfeiting.

Contributing Author

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Kelly Phair McCarthy

Kelly McCarthy, an intellectual property attorney at Sideman & Bancroft in San Francisco, focuses her practice on trademark, brand protection and anti-counterfeiting issues. She...

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