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Defining the Threat of Product Counterfeiting

Time : 2021-02-04 Hits : 48


In today’s digital, connected world, counterfeit products are just a mouse click or screen tap away. According to the U.S. Customs and Border Protections (CBP), e-commerce capabilities have allowed counterfeiters to benefit from instant access to customers.  Additionally, counterfeiters have learned to ship numerous small packages that may not be intercepted at all, or if they are, receive only minor penalties.

These counterfeits cut across a wide range of industries, including electronics, pharmaceuticals, apparel and luxury goods. While getting a great deal on that luxury handbag or latest tech device may seem like no big deal, product counterfeiting comes with a hard cost to companies and can also pose a safety risk to consumers who purchase these often unregulated, off-market products.

What is Counterfeiting?

The answer may well depend on who you ask. In the Crime Science report “Defining the Types of Counterfeiters, Counterfeiting, and Offender Organizations,” researchers explain that understanding “counterfeiting begins with agreement on a basic definition.” However, as the research highlights, definitions vary based on the statutes being applied and the governing bodies overseeing them.

The World Trade Organization (WTO) defines counterfeiting as: “Unauthorized representation of a registered trademark carried on goods identical or similar to goods for which the trademark is registered, with a view to deceiving the purchaser into believing that he/she is buying the original goods,” while the U.S. Food and Drug Administration expands their definition to include “parallel trade” items—products “intended for one market or sales channel that are shipped to another.”

While different governing bodies may have nuances in their definitions, U.S. laws closely align with the WTO definition, enforcing product counterfeiting measures based on trademark counterfeiting, with trademarking specifically protecting “words, phrases, names, symbols, designs, and logos used in federally regulated commerce to identify the source of products or services and distinguish them from other products and services,” as defined in the research article, “Product Counterfeiting Legislation in the United States” in the Journal of Criminal Law and Criminology.

What are the U.S. Counterfeiting Laws?

As technology and accessibility has allowed product counterfeiting to evolve, the laws have evolved with them in the continual efforts to combat product counterfeiters. For organizations, protecting their trademarked products from counterfeiting starts with understanding the anti-counterfeiting statutes and how these laws and legislation protect their rights as brand owners.

The Lanham Act: Passed in 1946, this is the primary federal statute protecting trademarks and was the first federal legislation truly giving trademark holders legal control and protections for their products by allowing for civil action against trademark infringement and counterfeiting. The act also established the registering of trademarks with U.S. Customs to counter foreign imports using U.S.-registered trademarks.

Trademark Counterfeiting Act of 1984: This act enhanced the powers and penalties of the Lanham Act by elevating trademark infringement and counterfeiting to a criminal offense, allowing for sizable fines and prison time for convicted counterfeiters.

Federal Trademark Dilution Act of 1995: This was the first legislation that went beyond protecting against blatant counterfeiting and registered trademark infringement to protecting “famous” trademarks (think the Nike swoosh or Apple logo) from usage that could “dilute” the uniqueness of the trademark and its ability to distinguish the brand’s products. In instances of trademark dilution, the owner of a famous mark “need only show that there is a likelihood of dilution, rather than proving the actual existence of dilution,” according to the International Trademark Association 

 Anti-Counterfeiting Consumer Protection Act of 1996: By the mid-1990s, government and law enforcement recognized the ongoing connection in the trafficking of counterfeit goods to organized crime. This act made counterfeiting “a predicate act under the Racketeer Influenced and Corrupt Organizations Act” (RICO), witih those found guilty of counterfeiting under RICO facing a maximum 20-year prison term.

Stop Counterfeiting in Manufactured Goods Act of 2006: In many instances of counterfeiting, the use of legitimate or near-legitimate packaging leads consumers to believe they’re purchasing a legitimate product. This act targets the flow of counterfeit labels, tags, and packaging even before they’re attached to counterfeit products, allowing for the seizure of any equipment used to create counterfeit packaging and the destruction of the counterfeit items.

Prioritizing Resources and Organization for Intellectual Property (Pro-IP) Act: This act passed in 2008 stiffens the civil and criminal penalties for intellectual property violations, but most notably it led to coordinated efforts across multiple branches of the federal government via a cooperative inter-agency committee and federal grant program for enhanced training and enforcement to protect intellectual property and pursue counterfeiters.

What is the Impact of Counterfeiting?

On the surface, counterfeit products can be much cheaper than their authentic counterparts. But those perceived consumer savings come at a price. Those purchasing counterfeit products, whether knowingly or unknowingly, may be risking their financial security and physical health due to injury by using faulty products. Consumers purchasing counterfeit products also risk identity or credit card theft by providing this sensitive information to a counterfeit merchant.

For organizations, the counterfeiting of their products takes a toll on brand value and reputation by reducing consumer confidence, siphoning away sales opportunities, and negatively impacting manufacturing. This may mean loss of income or loss of jobs for employees. When counterfeiting is rampant, it can deplete the protective powers of the registered trademark, ultimately impacting a company’s ability to protect any future products as well. This can stagnate innovation and creativity as fake versions steal market share and deflate worker motivation.

In manufacturing counterfeit products, illegal labor practices are often used—including poor working conditions and forced or child labor. In many cases, purchasing counterfeit products can support criminal activity, including funding terrorist organizations, the trafficking of guns or drugs, or money laundering, according to the CBP.

Counterfeit goods often circumvent customs duties and taxes, depriving communities of valuable tax revenues. While it can be difficult to pinpoint exact figures, a 2017 report from the International Trademark Association and International Chamber of Commerce projected the U.S. domestic tax revenue loss due to product counterfeiting at $24 – $44 billion.

How can Organizations Prevent Counterfeiting?

Practical steps organizations can take to help protect themselves from product counterfeiting include:

  • Taking a holistic business approach to combating counterfeit products
  • Conducting a risk assessment for counterfeit products
  • Registering brands, logos, and trademarks in each country where products are sold, manufactured, shipped or stored
  • Monitoring the supply chain and cultivating close relationships with suppliers
  • Adding brand authentication security measures to products
  • Tracking product sales in both brick-and-mortar and online stores to catch any irregularities
  • Building and leveraging partnerships with law enforcement and custom agencies
  • Establishing a brand protection team and training employees on anti-counterfeiting measures

Tackling the problem of product counterfeiting starts with the recognition of the problem. For many organizations, this means defining the patterns of product counterfeiting within their industry, understanding the risks it poses to their brand and investing in the manpower and knowledge needed to implement effective anti-counterfeiting strategies.