Imitation is not always flattery: Anti-counterfeiting strategies for manufacturers

Counterfeit goods are a significant – and growing – form of economic crime.

The OECD reported in 2016, the value of counterfeit goods seized by customs authorities was $509 billion USD – representing 3.3 per cent of global trade. And that figure was only for seized goods. In 2016, the International Chamber of Commerce forecasted the value of fake goods could reach $991 billion USD by 2022, resulting in 4.2 to 5.2 million net job losses.

Counterfeiters have taken advantage of the current pandemic to traffic in COVID-related goods, such as counterfeit N95 and other masks, COVID test kits, medical devices, hand sanitizers, cleaning products, pharmaceuticals to treat COVID symptoms, and, of course, vaccines. Sadly, such crime is far from victimless, and poses a significant public health threat.

Manufacturers should take heed of the growing economic and public health threats associated with counterfeiting. Below are some steps that manufacturers can take to protect their businesses.

1. Harness supply chain due diligence.

It is not just manufacturing outputs that are vulnerable to counterfeiting. Inputs in the manufacturing process can also be counterfeit. Counterfeit inputs can produce defective products, which impact your business’ reputation with its customers, and create health and safety risks for both employees and customers.

Both defective products and injured employees create legal exposure. Additionally, counterfeiting is often linked to organized crime such as human trafficking, illicit drugs and terrorism. Depending on what diligence has been conducted, a manufacturer could face legal and reputational exposure if it has criminal enterprises in its supply chain.

2. Register trademarks.

Register in relevant countries, and then with custom authorities and online marketplaces. Not only will trademark registrations grant the owner the right to bring proceedings against counterfeiters, such registrations are often required in order to register the associated trademarks with customs authorities before customs will stop shipments of suspected counterfeit goods. Further, many online platforms will only act to delist counterfeits associated with registered trademarks.

For manufacturers planning on changing foreign manufacturers or reshoring, note it is often impractical, if not impossible, to collect molds from foreign manufacturers. If trademarks appear on the molded goods, customs and online platform registrations can help to undermine benefit of the retaining the molds, by thwarting import and sales of counterfeit molded items.

Sometimes customs authorities charge a fee for storing counterfeit goods, and may destroy seized goods if court proceedings are not launched against the counterfeiter in a limited time. Such is the case in Canada, where suspected counterfeit goods will be initially stored for 10 days, with another maximum extension of 10 days.

Given that the storage and legal fees can quickly add up, especially when the counterfeiters ship fake goods in small shipments, or mixed in with authentic goods, manufacturers need a strategic plan to cost effectively target the shipments that are most likely to stem the tide of counterfeit goods while controlling anti-counterfeiting costs.

3. Make your product difficult to counterfeit.

While there are several overt anti-counterfeiting packaging solutions, sometimes covert changes to existing packaging and labelling can be effective. “Track-and-trace” systems that are used in supply chain management can also be effective in anti-counterfeiting efforts.

4. Train customs authorities.

Customs authorities should know how to distinguish between authentic and counterfeit merchandise. Develop concise educational materials, such as a poster or short slide deck, to help customs officers identify fakes. With the increasing volume of fake goods, the officers will appreciate your help in making their jobs easier, and the relationships built with customs enforcement can be helpful in stopping counterfeit goods.

Note, however, that while customs enforcement can be a valuable ally in stopping counterfeit goods at the border, they do not rule whether or not goods are counterfeit. That determination is for the courts. However, customs may also launch criminal proceedings if the fake goods pose a public health or safety concern, or are obviously linked to organized criminal activity such as human trafficking.

5. Publish tips to help your customers.

Set up a webpage to help customers avoid fake products. If resources permit, set up a tip line for customers to report fraud. Sometimes, tip lines yield valuable information that can help identify the source of counterfeit goods.

6. Make test purchases of counterfeit goods.

This helps to obtain evidence of fake product, along with payment and merchant information. The payment and merchant information can then be submitted to the payment processor to prevent payment collections and disrupt the counterfeiter’s cash flow.

The test purchase evidence can also be valuable evidence if legal proceedings are launched against the counterfeiters. Internet service providers and domain name registrars may also remove fraudulent websites from the Internet.

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Lorraine M. Fleck (M.Sc.F., LL.B.) is an Ontario lawyer and Canadian trademark agent. She practices as in-house legal counsel at an international consumer packaged goods company, and as principal of Fleck Innovation Law, a Toronto firm that has been recognized by Canadian Lawyer magazine as one of the top 10 intellectual property boutiques in Canada. Lorraine is a recommended expert in World Trademark Review’s WTR 1000 (2016 to 2021 editions), has been repeatedly recommended as one of the world’s leading intellectual property strategists in Intellectual Asset Magazine’s IAM 300 ranking (2017 to 2019), and also in the 2017 through 2021 editions of Best Lawyers® in Canada. Lorraine has served in leadership roles in a number of legal trade associations, and is a frequent invited speaker and writer on her areas of practice.

This Word of Law column appears in the June 2021 edition of Manufacturing AUTOMATION.