Developing an effective international anti-counterfeiting strategy - Uhthoff

Developing an effective international anti-counterfeiting strategy

By Saul Santoyo

Uhthoff, Gomez Vega & Uhthoff, S.C.

Medicines and pharmaceuticals, agrochemicals, auto parts, toys, personal care and electrical products are among a wide range of products been counterfeited that have more in common than being readily available at low prices without the need to overcome legal obstacles and purchase restrictions such as authorizations, prescriptions or permits. These fake products pose an incredible threat to the health and safety of the population and, in some instances, could be more deadly than terrorism and drug cartels.

Although inexpensive, all counterfeit products lack the quality, reliability and desired effects of the original products, and are manufactured and distributed on an industrial scale  by  international  criminal organizations with global reach and arrive at final consumers through a long trail of serious crimes.

Counterfeiting deceives consumers, provokes massive economic losses for Intellectual Property (IP) owners and all related legitimate businesses, impacts tax revenues and the creating of employment, while deterring innovation worldwide.

Therefore, this problem has increasingly been recognized as one of the most serious global issues, as the value of international trade in physical counterfeited and pirated products represent a billionaire industry of at least USD$500 billion per year and the global counterfeit market accounts for at least 8% of the global trade, according to conservative estimations.

Nevertheless, this illegal phenomenon is still underrated.

As a matter of fact, in some countries most consumers accept and buy counterfeited items. For example, as one of the most recent studies sponsored by the American Chamber of Commerce/Mexico showed an estimated 88% of the Mexican population has acquired -at least once-, a pirated and/or counterfeited product.

On the other hand, in recent years IP owners have decided to reduce its annual budgets due to the global economic crisis, and such reductions have been aimed at their anti- counterfeiting efforts as opposed to slimming down their IP portfolios.

These facts, summed to the increasing illegal activities of criminal organizations on a global scale that result in huge economic profits that in several occasions are diverted to finance other serious criminal activities such as drug trafficking, high-profile assassinations and outright social violence, weapons contraband, sexual slavery, kidnapping and, in some documented instances, terrorism.

For the above mentioned reasons, it would be fair to conclude that we are all facing a growing menace, with social acceptance and sometimes passive and permissive attitudes from IP owners, a bad marriage that could prove too severe to control in the long run.

These facts only add to the limited budgets that hinder the anti-counterfeiting activities of most companies and thus, today more than ever, it is of the utmost importance to plan, develop  and  execute international anti-counterfeiting programs intended to effectively tackle the problem at different levels, while the success of such programs should be planned with efficiency and cost-effectiveness as guidelines.

The following, are just a few recommendations that in my experience should be followed while planning an international anti-counterfeiting strategy:

1.- Find a well respected and professional Law firm with sufficient capabilities and resources to effectively assist you with these issues.

A reduction in your expenses should not come from hiring inexperienced-limited small firms just because they will work for less.

In this particular kind of professional services quality matters (as with every other services and goods) and less is definitely not more, you get what you paid for, either with limited capacities, deficient quality and as a consequence restricted or no success.

In short, there is no such a thing as a “quality bargain”, especially when dealing with delicate issues that require ethical behavior, transparency, extensive professional experience and adequate resources, as in most cases the IP owner will be involved in different strategies that imply the filing of diverse legal actions in foreign countries, monitoring the outcome of such actions and coordinating the efforts of investigators and legal professionals.

Furthermore, it is important to emphasize that actions performed by legal representatives (including foreign attorneys) could result in legal liability to companies, regardless of whether the liability was caused by inexperience, malpractice or unethical behavior.

In addition to the above, transnational companies that are forced to comply with strict conduct codes and anti-corruption policies and regulations, may find amusing to learn that the seductive reductions on fees and expenses -envisioned as “real bargains”- offered by some firms, are financed or supported by acts of corruption. There are a few unfortunate example involving legal representatives and alleged infringers together with the complicity of some Authorities, that have resulted in granting pardons and withdrawal of legal actions in exchange of high sums of cash, all this behind the back of the company that entrusted its attorneys with legal powers to act on its behalf, and worst of all, the above-mentioned examples also may expose those same companies to the liabilities that may derive from such unethical and illegal conducts.

2.-  Know you industry.

Not all markets and activities are similar, and obviously threats and risks of the pharmaceutical industry are different than those that affect luxury brands or manufacturers of electrical or automobile parts; by knowing beforehand the specific challenges and dynamics of your particular economic sector you should gain invaluable awareness to plan the best possible strategy to suit your company’s real needs and expectations.

This is specially important but many times neglected, as many believe that the subtle differences regarding transport, distribution and marketing mechanisms often have a direct impact on what should be the best strategy to follow for a specific sector of the industry: i.e. what may be effective for a large consumer products company may not be applicable to the luxury brands market, and that same approach could not yield the best results to a pharmaceutical company.

3.- Gather intelligence to identify strategic sources, distribution schemes and sales points of pirated and counterfeited products.

While it is impossible to implement actions in all territories, it is widely known that several countries in Southeast Asia -mainly China- are the primary source of most counterfeited products, so it makes sense to start from there and obtain sensible intelligence and data concerning the routes of the cargo being manufactured and shipped from such region to several strategic territories throughout the world.

We could attest an example of the above  when, starting  on  October  2009,  Mexican Customs    Officials    detected at    Mexican    ports    (mainly    Lazaro    Cardenas    and Manzanillo) over 72 containers transporting thousands of different counterfeit products (from footwear, luxury clothing and accessories to electronics and toys) that were bound to several Central and South American markets (Panama, Chile, El Salvador, Guatemala, Honduras and Argentina) and with the collaboration of several IP owners that filed the appropriate legal actions, Mexican authorities were able to seize the offending products and prevent them to arrive at the final consumers in such markets; the importance of these actions was evident as they resulted in the “Yolanda Benitez Trophy”  that was awarded by the World Customs Organization (WCO) to the Mexican Customs for their work on enforcing IP rights.

A wise investment should not only aim to produce the legal actions (claims, raids, etc.) on the final end of the supply chain (the places where counterfeits are sold), but rather to gather the necessary information (and evidence) to discover the source of such products, which in turn should serve to direct further legal actions at the places of origin (manufacture), distribution and wholesale of illegal goods.

Also, another key aspect that should be present when aiming to obtain information is that the mechanisms and logistic schemes used by counterfeiters to produce and distribute its products, are constantly evolving and increasingly growing in sophistication, and thus the means used to obtain valuable data regarding the location of warehouses, means of transportation and distribution should be equally capable to produce the desired results. Shipping routes should also be a high priority in the intelligence gathering.

4.- File the corresponding legal actions

The information previously referred, should point the direction where the legal actions should be aimed, with the intention of effectively interrupting the process from production and/or import, storage, transportation and distribution of fake and pirated goods all the way to the selling points to the final consumer.

In this particular aspect, it is important to emphasize that the cut-down in your IP budget should not come from deciding whether to file an action or not, depending on aspects such as sales in the relevant territory or the amount of products that have been detected.

Although you have to asses each situation in particular, it is imperative to always look at the international scenario.

For example, even if a certain country is not contemplated in your priority agenda because of low sales or lack of commercial activities, please consider that some territories are only used as transit countries for counterfeit products, so the counterfeits may end up in places that could have a high priority in your anti-counterfeiting international program.

On the other hand, it is well documented that pulverizing shipments (i.e. sending small quantities of counterfeits on several courier shipments) has become the latest top-rated strategy used  by counterfeiters, as not only minimizes the risk  of  being  detected by customs officials, but also lessens the probability of facing a criminal action, as they are betting that the IP owners would not be willing to spend money on a small case, thus their worst case scenario would be to handle a calculated loss. Indifference or tolerance towards this type of counterfeit activities will encourage others to perform them, as there is no apparent risk but only increased profits.

To put it in another words: people that invest in security measures (alarms, safe boxes, guards, etc.) to protect their valuable assets when crime rates increase are less prone to suffer the loss of valuable goods, when compared to other people that did not want to “squander” on such measures because of hard financial times and, worse of all, if they are the victims of a robbery, most people almost never recover their property.

In this case, what may be the most appropriate path to follow would be reach a Flat-fee agreement with the law-firm assisting you, so as to lower operational costs and expenses, without reducing the number of counterfeit seizures. You have to make a plan, but you need to stick to it in order for it to work.

Adopting zero-tolerance campaigns towards counterfeiters, cemented in a cost-effective and consistent anti-counterfeiting program, should have flat-fee agreements, as one of its main ingredients.

Your Law firm has to compromise with you in this aspect, and this is precisely where a Law firm with reasonable resources should put those funds to work on your behalf, this should be one pro  you  would be expecting to receive from them. Your  partner  in combating this type of crime should consider this fact, under reasonable and real circumstances, as its own priority if they want to handle your account and assist you with these delicate matters.

5.- Promote and enhance cooperation with the public sector

As previously mentioned, your efforts should be directed to locate the source, supply chain and channels of distribution of counterfeits, so as to aggressively attack them whether they are imported or locally produced.  However, you will have to disclose information and cooperate with the Public sector, in order to timely detect and deal with counterfeit products.

Like in so many relationships in life, sometimes you have to improve your communication skills in order to obtain better results. If you want to plan and execute a successful international anti-counterfeiting programs, you should take advantage of all available legal means and assistance that you could get from the Authorities, either by protecting your IP rights, recording them before customs (where applicable), disclosing and sharing information, providing IP trainings for customs officials, etc.

As previously mentioned, the supply chain and channels of counterfeit products are constantly changing, therefore it only makes sense to do whatever it takes from your side to enhance the communication with the relevant authorities, notably with Customs, so that they may help you to deal with this problem.  In fact it is important not only to combat domestic production and distribution of counterfeits, but also to steadily combat the introduction (either legally imported or contraband) of foreign-made counterfeits, as once such products enter the country they atomize and are scattered throughout the relevant territory, a situation that significantly increases the difficulty to deal with the issue.

The cooperation and trust between private parties and the public sector should be reciprocal, as upon receiving the corresponding alerts from the Authorities, IP owners should be responsive and try to deal with the problem regardless of the quantities involved in the shipment, as your company does not want to send the wrong message to the Authorities, i.e. indifference or tolerance towards counterfeit activities are not justified by budgetary reasons, and it would only deteriorate the trust, cooperation and dependability between your company and the public sector.

6.- Deterrence factor and public awareness campaigns

By keeping in mind that the effects of IP infringement and counterfeiting activities have global effects, one should also bear in mind that the commitment to enforcing and protecting its rights has to be duly publicized, on a global scale as well.

Regarding the above, it is very important to acknowledge that the people involved in counterfeiting usually see their activities as a business and thus they will only be willing to devote their resources as long as they perceive that their investment is going to be, to a certain degree, profitable and with the least amount of risk possible; in this line of thought, if an IP owner has showed a relentless commitment to enforcing and protecting its IP rights, most counterfeiters will be reluctant to start “carrying” the merchandise of that particular brand when compared to others that are not known for enforcing its IP rights.

Consequently, the legal actions should be well-publicized as strong statements that should reinforce the general perception about the relentless enforcement of IP rights (backed up by the actions themselves) of the IP owners.

Summarizing, a tailor-made international anti-counterfeiting program would be the most efficient tool to combat this serious and rising problem, which should be directed to reducing the presence of counterfeits as a first step, and aim to restore the market for original products as the long term objective, i.e., high levels of counterfeiting and piracy could significantly be reduced by implementing efficient programs that include aggressive enforcement of IP rights.

Fortunately, to counter the risks that piracy and counterfeiting represent, particularly in the middle of a gruesome financial crisis, there are several means available that should be taken into consideration when planning a cost-effective strategy to enforce and protect IP- rights; such planning must be focused in at least the above mentioned recommendations, as in order to effectively deal with this matter, IP owners must first realistically determine the risks and actual threats that piracy and counterfeiting present to their businesses, since each product and/or service has unique characteristics that should be addressed specifically, and thus this assessment should be done on a case by case basis. Once the potential or actual damages caused by counterfeiting  activities are identified, it is mandatory to assess, from a cost/benefit point of view, the results that are to be achieved, by designing a comprehensive anti-counterfeiting strategy that may last for several months or years, or even be an all-out permanent effort based on the close collaboration of the competent government authorities.

The consistent enforcement of IP rights and protection efforts will eventually show positive results, however, it is important to highlight that even when reaching these goals, IP owners should continue monitoring counterfeits and enforcing their IP rights by adopting a zero-tolerance campaign towards counterfeiters.

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