How to protect your IP

The growing market for counterfeit goods means companies are seeing their brand reputation damaged and revenues stolen. Counterfeits worth circa €1 billion ($1.37 billion) were seized at EU borders last year, and PwC estimates the global impact of the trade at around $650 billion per year.

In the UK, where purchases of these items mainly take place online or at street markets, the production and distribution is linked to a much wider network of organised crime, according to the PwC report Counterfeit Goods in the UK: Who Is Buying What, and Why. There are also implications for public health since counterfeit ingestible products such as medicine and alcohol are widely available, alongside fake clothing, electrical appliances and vehicle parts.

“Modern counterfeiters are adept at managing their supply chains and distribution channels to exploit spikes in demand, such as the run up to Christmas,” Mark James, innovations director at PwC said in a news release.

The rising trade in imitation products is partly driven by an unprecedented volume of purchases made online. On November 11th, or Singles Day, China’s biggest online shopping company, Alibaba, processed sales of more than 35 billion yuan ($5.75 billion) in 24 hours, setting a national record for e-commerce. Meanwhile, on Cyber Monday, the first Monday after the Thanksgiving holiday in the US (in 2013 it fell on December 2nd), online sales in the US increased by 20.6% over 2012, making it the biggest online shopping day in history. On the same date, Visa Europe estimated that more than 7.7 million online transactions were processed in the UK alone, up 16% over 2012.

Bargain hunters are particularly vulnerable to counterfeiters. A 2012 Mark Monitor survey of online shopping habits in the US and Europe found that one in five consumers seeking discounts on genuine branded items ended up mistakenly shopping on sites selling counterfeit goods. The survey found that those looking for a good deal outnumbered consumers consciously seeking fakes at the rate of 20 to 1.

However, the PwC report on counterfeit goods found that UK shoppers are indeed willing to purchase fakes, even though they acknowledge that the counterfeit item will be of inferior quality. The survey found:

• 42% bought counterfeit films and/or music.
• 41% clothing and accessories.
• 18% alcohol.
• 16% medicines.

The overwhelming reason cited by respondents for buying counterfeit goods was price, though 31% said they were unaware that the product was counterfeit.

Law enforcement agencies have come together to form international networks to stem the flow of fake goods. Investigators use data analysis and cyber investigative tools to keep up with the latest fraudulent sites, highlight common links and trends and investigate the organisations behind them. For example, on Cyber Monday 2013, eleven such agencies co-ordinated the seizure of 706 websites based in Asia, Europe and the US, according to the International Trademark Association. At least 2,550 websites have been seized since the launch of Project Cyber Monday in June 2010.

While these cross-border efforts seek to address the problem on a macro level, each business is responsible for its own intellectual property (IP).

Security measures to protect your brand

A company’s IP assets may take the form of the design, shape, technology or brand of the product or process. There are various ways to protect these concepts, including patents, trademarks, registered designs and copyrights.

Candice Li, the International Trademark Association’s external relations manager for anti-counterfeiting, recommends all producers:

• Register trademarks and other IP and secure supply chains. Conduct an in-depth audit of suppliers. Questions you should be asking of manufacturers include: Who else do they supply? What are their business practices? What security measures do they have in place? This is particularly important as goods are sometimes stolen directly from the factory, Li says. Work with distribution channels such as shipping companies and couriers to ensure that proper security measures are in place. Reviews should be conducted regularly.
• Use anti-counterfeiting technology to protect your products. Examples include the holographic labels found on baseball caps and designer clothing.
• Educate consumers about your IP and educate your employees about your IP and its value to the company. Educate staff about your brands and trademarks. General awareness of the company’s assets can promote a sense of ownership amongst employees. If they are aware of the tell-tale signs, such as customers returning poor quality or faulty products, staff can alert the brand protection department, and help them build a picture of where the counterfeit operations are taking place. Communication between customer-facing staff and the brand protection team is crucial to identifying existing and emerging issues.
• Set up a department or process to inspect your markets for any infringing products that may be developed and sold. Monitor any counterfeit products you seize to find out how the counterfeiters are replicating your products.
• Establish working relationships with enforcement agencies. An important part of this is educating the agencies about your products and how to tell the difference between a fake and the genuine article. Alert the relevant authority as soon as you detect an IP infringement. The agency will then work out an enforcement activity and seek prosecution where appropriate.

Tools

The UK Intellectual Property Office has launched a suite of tools to help businesses identify IP assets and put the right protection in place. The IP Health Check can be found here.

A toolkit is also available for CGMA designation holders. The toolkit can help value your intangible assets, which include non-physical assets such as trademarks, patents and copyrights.

—Samantha White (swhite@aicpa.org) is a CGMA Magazine senior editor.