“While there is no uniform approach to battle the anonymized innerworkings of counterfeit networks, the best practice is to first and foremost protect your brand’s IP rights.”
The counterfeit market has turned into a more lucrative industry than drug trafficking. With the rise of e-commerce, counterfeit and pirated goods now represent 3.3% of global trade, or a whopping $522 billion a year. The counterfeit business is not only becoming more sophisticated and modernized in light of new consumer trends, but is typically no longer as responsive to generic takedown measures due to the increase in various retail channels available. As a result, counterfeiting issues are among the most critical topics in the intellectual property (IP) community to date, as brands cannot afford to turn a blind eye to counterfeit goods that cut into market share, damage goodwill, and diminish brand loyalty.
Counterfeiters are difficult to track down because they often operate under unknown entities or aliases and simply move to another entity name when challenged. In fact, most third-party marketplace platforms do not require sellers to identify their underlying business entity, (see Fear of God, LLC v. The Partnerships and Unincorporated Associations, 1:21-CV-01660, N.D. Ill. (2021) (Plaintiff emphasized that e-commerce marketplaces create obstacles in counterfeiting cases, due to that lack of business entity disclosure, among other practices)). There is a distinction between passive facilitators like Amazon, eBay, and Alibaba as compared to marketplaces like Redbubble (which participates in the manufacture of goods) or The RealReal (which approves products prior to listing, markets products, and takes possession of products). Redbubble’s and The RealReal’s involvement firmly positioned them as defendants in counterfeit lawsuits, a recent trend of claims against online platforms (see Ohio State Univ. v. Redbubble, Inc., 989 F.3d 435, 440 (6th Cir. 2021) (the court held Redbubble guilty of contributory infringement because the marketplace acted as an intermediary when it contacted artists and arranged for independent third parties to manufacture and ship products to customers); Chanel, Inc. v. RealReal, Inc., 449 F. Supp. 3d 422, 430 (S.D.N.Y. 2020) (the court found for plaintiff because The RealReal approves every product listed on its platform, exercises control over the pricing and marketing of the product, and has physical possession over the inventory sold)). However, under the current legal landscape, most passive e-commerce platforms are generally not liable for counterfeits sold by third-party vendors. This lack of liability lures counterfeiters in. Not all hope is lost, however, as some e-commerce marketplaces have joined forces with brands to combat the counterfeit industry. For example, seemingly unorthodox pairings like Facebook and Gucci have recently taken on the fight against fakes by filing joint lawsuits against alleged counterfeiters through multiple websites, apps, and third-party marketplaces—but is it enough?
Although e-commerce giants like Amazon and StockX have dedicated counterfeit crime units and authentication teams, all brands can take multiple proactive measures to ensure that their products do not fall victim to counterfeiting. While there is no uniform approach to battle the anonymized innerworkings of counterfeit networks, the best practice is to first and foremost protect your brand’s IP rights. Since trademarks are territorial, rights must be secured on a country-by-country basis. Register any trademarks in accordance with IP laws in every jurisdiction in which your brand conducts business (both in current and anticipated locations), including sites of product manufacturing, production, and distribution. For many online marketplaces (and select courts of law), registered IP is a prerequisite for enforcement programs or takedown measures, as anti-counterfeiting laws presume that the brand owner’s trademark is registered.
Companies should issue IP guidelines to employees at all levels. The guidelines should specifically address the disclosure of any confidential information and steps employees can take to be actively involved in anti-counterfeit measures. Brands should also consider recording its registered trademarks and copyrights with the U.S. Customs and Border Patrol (“CBP”). CBP has independent authority to examine, detain, seize, forfeit, and destroy merchandise that violates a recorded trademark or copyright. Recordation-holders can also conduct a live webinar and submit product authentication guides tailored to their specific products. Recordation is quite straightforward and can be done online with a small fee and the submission of paperwork.
The next step is to analyze the potential counterfeiting risk of your brand’s products. Items that are commonly susceptible to counterfeiting include high-volume and low-cost products, products in high demand, luxury goods, products that lack security features, and products sold on the internet, among others. After understanding which category of risk your brand’s product falls into, consider incorporating anti-counterfeiting security features like holographic labels, tamper-evident technologies to secure packaging, distinctive designs, UV inks, and specialized QR codes. Even the distinct scent of products like sneakers, for example, is a factor that authenticators consider. Security features and distinctive elements do more than just identify a fake from a real. They make it is less cost-effective for counterfeiters to create more complicated products, and less attractive for customers to purchase visibly fake products. While some security measures are more advanced than others (with the most innovative modern initiative being the adoption of blockchain systems designed to prevent counterfeiting), there are countless ways to integrate security features to discourage bad actors from profiting from easily reproducible products.
Finally, act on violations of counterfeit goods laws. Brands should actively monitor any unauthorized use of their IP and pursue any violations to the extent possible. The majority of IP cases begin by initiating takedown requests or sending cease and desist letters. Obtaining a temporary restraining order (TRO) is also a route that companies choose to take. While trademark owners undoubtedly want counterfeiters enjoined from future counterfeiting, TROs typically do not exceed 10 days, after which a hearing should be held to show cause for a preliminary injunction. Therefore, before filing a TRO, brands and their counsel should be prepared for a hearing within that timeframe to take advantage of the full effect of this remedy. The TRO can sometimes be supplemented with an asset freeze order or a “gag order” that prohibits communication to third parties about the TRO to prevent the alleged counterfeiter from informing suppliers or others involved in the counterfeiting activities (see Patagonia, Inc. v. Chelsea International Inc., et al., 2:16-cv-08030, C.D. Cal. (2017) (Plaintiff obtained a temporary restraining order and asset freeze order against entities selling counterfeit apparel products); LG Electronics MobileComm U.S.A. v. Xiaowen, et al., 3:16-cv-01162, S.D. Cal. (2017) (the court awarded more than $168 million in damages against nearly 20 companies accused of selling counterfeit LG headsets. The ruling included a provision ordering financial payment providers to hand over funds previously frozen under the court’s preliminary injunction order)). Alternatively, counterfeits can be reported to the CBP through an e-Allegation report, to the National IP Rights Coordination Center, or to local law enforcement officials.
Illicit trading practices undeniably pose a serious threat to innovation, consumer safety, and economic growth. Waiting for a potential strengthening of legal frameworks that govern IP protections can take decades of case law and legislation, especially given the global nature of the crime, as some countries’ policies actually encourage IP theft. Where there is a new app or website, there is a new counterfeiter trying to make quick cash. Properly enforcing IP is crucial––it not only generates obstacles for counterfeiters, but also prevents the future loss of IP by establishing a record of enforcement that may be looked upon favorably by courts in future disputes.
By Yvette Tenenbaum
Yvette is a third-year law student at the University of Illinois College of Law in Urbana-Champaign, where she is focusing on intellectual property and privacy law. She was part of Jayaram Law’s inaugural 2021 Summer Associate program, and will be returning to Jayaram Law after she graduates in 2022.