How to Thwart Counterfeiting in the Supply Chain
In Counterfeits in the Supply Chain: A Big Problem and it's Getting Worse, we discussed how world markets and global supply distribution chains have created opportunities for companies to grow and prosper. These opportunities and the expanded markets for such companies have encouraged the growth of counterfeit goods and the theft of companies’ intellectual property. False labeling of products, fake or inferior materials and components used to make products, and the misappropriated use of another’s trademark are just a few examples of how counterfeit goods and the theft of intellectual property are hurting consumers and companies.
In Part 2 of this article, we will discuss international efforts and a multifaceted anti-counterfeiting program to help address these counterfeit problems.
International Efforts to Combat Counterfeiting
The challenges created by the sale and use of counterfeit products encouraged the signing in 2011 of the Anti-Counterfeiting Trade Agreement (ACTA). ACTA is unique in that it provides international standards for enforcing IP rights and a means for fostering cooperation regarding border control. ACTA targets trademark counterfeit goods, counterfeit generic medicines and pirated copyrighted goods. It creates a governing body outside current existing forums, such as the World Trade Organization, to allow intellectual property right holders to have access to civil or administrative procedures to order a party to desist from infringement.
Besides trade and anti-counterfeiting agreements, there are various organizations that help in the fight against counterfeiting. These organizations include the International Anti-Counterfeiting Coalition (IACC), the Latin America Anti-Counterfeiting Unit (LAAC), the World Customs Organization, Interpol, the US Immigration and Customs Enforcement, and the World Health Organization. The IACC, composed of a cross section of business and industry, is an example of an organization that offers anti-counterfeiting training programs to help increase the protection of intellectual property. Providing training to law enforcement, including border patrol agents, the IACC has held training programs in several countries, including Chile, Ecuador, Mexico and Brazil. In contrast, LAAC helps to provide the necessary evidence and tools for the local police to prosecute counterfeiters.
Does Your Business Have A Counterfeit Problem?
You may be wondering if your company has a counterfeit problem. Questions to consider include: Do you have a well-known or emerging brand? Does your product have a high profit margin? Is there an unexplained increase in returns or customer complaints? Does your brand have a market share where you are not even doing business? Have you lost market share in a particular region for a well-known product?
If you answer yes to one or more of these questions, then you most likely are encountering a counterfeit problem. The question now is, what should your company do to help deter the threat of counterfeits?
The Multifaceted Anti-Counterfeit Program
Recognizing that your company may have a counterfeit problem is the first step. The second step is developing a strategic plan that includes a multifaceted anti-counterfeit program to help combat against counterfeit goods. The program should have four major components: education, partnership, practical measures and enforcement.
Education
Education is critical to the program, because it raises awareness of the dangers of using counterfeit products and helps others to better understand the distinctive qualities of the company’s products. For example, by providing information on the company’s website about how to identify and avoid counterfeit goods, the company helps to educate consumers. The company can also offer product authentication training to border control, police and distributors to help them identify and find counterfeit products.
Educating consumers about the company’s products, reminding users of the intellectual property rights and the potential consequences of using a fake product, including infringement actions, all help to discourage the use of counterfeit goods. Education can be provided by providing answers to commonly asked questions, tips on how to identify fake products and a contact source to answer questions raised by consumers. By using efforts such as these, companies can take a stronger role to deter the purchase of counterfeit goods.
Partnership
Cooperating and partnering with police, enforcement and taxing agencies allow companies to increase the fight against counterfeit goods. Companies can offer training on how to identify a fake product and provide samples of their legitimate products to assist the enforcement agencies as they do their work. Offering the use of the company’s labs or facilities also encourages the training and education of enforcement agencies, industry organizations and clients. This not only fosters a better working relationship, but provides the opportunity to show your products and their unique features.
Additionally, by working with industry organizations the company can help ensure the authenticity of the supplied raw materials and component parts. Companies can be in a better position to deter counterfeits by using well-known suppliers, having consistent confidentiality and supply agreements in place, conducting spot audits, and working together and joining forces with competitors.
In addition, companies can also join forces to fight forgers in court, thereby reducing some of their legal expenses. Working with local organizations to promote programs encouraging the destruction of counterfeit goods and setting up recycling programs to ensure packaging is recycled and not reused by counterfeiters also help deter counterfeiters.
Practical Measures
A company can take practical measures to increase its product-level anti-counterfeiting procedures. Technology can be used to fight counterfeits; this can include smart cards, holographic images, color-shifting inks, RFID tags, UV inks, digital decoding, electronic tax verification systems, unique identification codes on packages that match the code on the packaged goods, and tracking and tracing systems. For example, smart cards can be used to replace paper tickets and cardboard passes, which are susceptible to counterfeiting. Holographic imaging, color-shifting inks and UV inks are used to deter counterfeit currency. RFID tags with unique physical attributes can be embedded in products for secure identification and marketing.
With medications intended for human use, the Food and Drug Administration requires each medication to have its own National Drug Code, a unique code that is on the package and that also matches the code on the packaged medication. Additionally, companies can use a track-and-trace system that provides the ability to track and serialize individual saleable packages, such as a bottle of 30 pills and not just a caseload of packages. The track-and-trace system can allow manufacturers to know where a saleable package of a product has been sold or delivered.
Other practical measures include consulting with the company’s agents, distributors, suppliers and others who are knowledgeable about local conditions for the goods and services in question, to help identify potential risks and how to counter them; working closely with the manufacturer, since the manufacturer is in the best position to identify a fake product; establishing audit controls to help ensure your supplier is not part of the problem; setting up a product purchase program for purchasing samples on a random basis to help identify problems; monitoring Internet sites for potential sales of counterfeit goods; following up on quality control issues to identify counterfeit goods; and keeping a product library that has marketing materials and products for potential use in future infringement actions. These are only some examples of practical measures that can be used to increase anti-counterfeiting protection.
Enforcement
The fourth component of the program is enforcement. Registering your intellectual property, such as your trademarks, and recording the trademarks with the appropriate customs agencies help others identify counterfeit goods. In addition, support law enforcement and regulatory agencies with training, to find and stop counterfeit goods. Put counterfeiters on notice when fake products are discovered. When appropriate, take court action against infringers and counterfeiters to protect the company’s brand and products.
Following these component parts of a multifaceted anti-counterfeit program can help to protect the company against counterfeiters.
J. Michael Martinez de Andino, is a partner at Hunton & Williams LLP, a law firm that provides legal services to corporations, financial institutions, governments and individuals. Based in Richmond, he advises companies and organizations on how to protect their intellectual property rights. When clients believe that their patent or other IP rights have been infringed or allegations of infringement arise, he works with clients to analyze the situation, assess the extent of potential infringement or damages, and to develop and implement an effective response. In addition to litigation, and when appropriate, he investigates and recommends alternative solutions to assist in resolving disputes, including settlements and negotiation of licenses.
