Combating Counterfeiting and Unauthorized Product Sales

Mention counterfeiting and what many ordinary citizens immediately think about is counterfeit currency.  Indeed, counterfeiting of money is one of the oldest crimes in history. Counterfeiting currency in the United States was a serious problem during the 19th century when banks issued their own U.S. currency, with approximately 1,600 state banks designing and printing their own notes. The adoption of a national currency in 1863 was believed to be the solution for the problem, but counterfeiting was so widespread that on July 5, 1865, the United States Secret Service was established to suppress counterfeiting.  Although substantially curtailed, counterfeiting of money still remains a threat to the U.S. economy.

Mention counterfeiting and what a person who specializes in intellectual property thinks about is the growing amount of counterfeit goods that flood the market costing hundreds of billions of dollars of damage to the economy.

Criminals on all levels — from opportunistic, small-time thieves to major drug cartels — are finding that the penalties for intellectual property crimes pale in comparison to the penalties they would receive for trafficking drugs and engaging in other illicit activities.  At the same time, the profit margin for counterfeit software, as well as for other counterfeit goods, is extremely high.  So the combination of great riches, relatively low penalties and a low likelihood of being caught and you can see why criminal enterprises, including terrorist networks, are becoming major players in the counterfeit software black-market.

In fact, one of the most vicious drug cartels in the world makes an estimated $2.4 million per day selling counterfeit software.  On this point the White House has explained.

Because of the high profit margin and shorter prison sentence for intellectual property crimes compared to other offenses, piracy and counterfeiting are a strong lure to organized criminal enterprises, which can use infringement as a revenue source to fund their other unlawful activities.  One of the most brutal drug cartels in the world – Mexico-based La Familia — manufacturers and sells counterfeit software, generating more than $2.4 million in profits each day.

See Concrete Steps Congress Can Take to Protect America’s Intellectual Property, March 15, 2011.

Furthermore, according to a report of the National Security Council titled Strategy to Combat Transnational Organized Crime,

[Transnational Organized Crime] networks are engaged in the theft of critical U.S. intellectual property, including through intrusions into corporate and proprietary computer networks. Theft of intellectual property ranges from movies, music, and video games to imitations of popular and trusted brand names, to proprietary designs of high-tech devices and manufacturing processes. This intellectual property theft causes significant business losses, erodes U.S. competitiveness in the world marketplace, and in many cases threatens public health and safety. Between FY 2003 and FY 2010, the yearly domestic value of customs seizures at U.S. port and mail facilities related to intellectual property right (IPR) violations leaped from $94 million to $188 million. Products originating in China accounted for 66% of these IPR seizures in FY 2010.

If this level of counterfeit goods are seized each year what is the true magnitude of the problem?

Those with protectable intellectual property must take matters into their own hands and vigorously search for unauthorized activities and do whatever possible to put an end to counterfeiting and other intellectual property theft.  It is absolutely essential for intellectual property owners to police their goods and services.  As Attorney Michelle Miller of Brinks Hofer Gilson & Lione wrote in 7 tips to policing trademarks, “[t]he key to a cost-efficient and effective trademark enforcement program is early detection.”  Miller offers excellent advice in the article, such as monitoring the Internet, subscribing to “watch” services, monitoring media use, monitoring social networks and more.

As Miller explains, however, “policing a company’s brand can be a daunting task, particularly in our digital age…”  This is no doubt why there are an ever increasing number of trademark watch services, and more and more services aimed at uncovering counterfeiting.  In many cases it is just impossible for an organization to completely monitor their goods and services to make sure that there are no infringements and to stamp out counterfeits.  Of course, stamping out counterfeits quickly is absolutely essential to maintaining any trademark portfolio.  Counterfeits are almost universally substandard in one way or another, and since these counterfeit products will carry your company name and logo (albeit unauthorized) the damage to your reputation and company can be difficult to repair.  It takes years or decades to develop goodwill and only a very small fraction of that time to ruin all your efforts.

One of the latest monitoring and anti-counterfeiting services that you may want to know about comes from CitizenHawk, a global provider of online brand protection and enforcement services.  CitizenHawk has introduced a suite of online brand protection tools that enables companies to detect unauthorized product sales, including counterfeit goods, on the Internet.  HawkDiscovery™ is a cloud-based technology platform that enables users to search the entire Web and detect use of trademarked terms and phrases, helping uncover instances of brand abuse ranging from counterfeiting to cybersquatting. It also permits monitoring of content on specific websites and produces alerts notifying users of new activity.

“Major companies realize their brands are among their most precious corporate assets, and they spend enormous amounts of time and money promoting them to consumers, investors and others,” said David Duckwitz, CitizenHawk’s president and chief executive. “Unfortunately, the more well known and popular a brand is, the more attractive it becomes to typosquatters and others seeking to exploit it on the Internet. Marketing, legal, compliance and IT professionals now have a way to fight back with cost effective tools that not only can uncover such abuse but effectively respond to it.”

CitizenHawk is also introducing an array of complementary online brand protection tools, each designed to detect a specific form of online brand infringement. While each of these tools has a specific function and capability, they are all seamlessly integrated into the HawkDiscovery platform.

HawkTypos™ – can generate literally thousands of domain-name permutations, confirm whether such domains are registered, and identify common ownership, notwithstanding efforts to obfuscate such ownership via asset shielding or inexpensive privacy services.

HawkImages™ – is a powerful tool for determining how a company’s logo and other proprietary images are being used – or misused – on the Internet. HawkImages’ advanced pixelation technology can help confirm whether business partners are fully compliant with agreed-upon standards. It also can detect unauthorized use, such as false claims of affiliation.

HawkKeywords™ – enables users to ascertain whether affiliate publishers are complying with the specific terms of marketing agreements. It also provides valuable competitive intelligence by showing where competitors rank in search paid placement, and provides insights on their keyword bidding strategies – including whether they are actually bidding inappropriately on trademark terms.

HawkSocial™ – Lets users monitor what people are saying about their brand(s) on the world’s most popular social networks, while measuring the sentiment of such communications. It can provide a fast, easy-to-read “footprint” of a brand’s social media presence, whether by geography or by specific social network.

HawkUDRP™ – Gives users a powerful tool for pursuing and winning UDRPs (Uniform Domain-Name Dispute-Resolution Policy). CitizenHawk, one of the world’s most successful filers of UDRPs, has taken advantage of its expertise to create an automated system that allows users to collect evidence, generate necessary documentation and complete the domain recover process quickly and cost effectively.

The company has also launched HawkAuctions™, which allows users to continuously monitor their brands’ presence on the world’s most popular online auction, exchange and classified advertising sites, enabling them to detect sales of counterfeit products and determine if legitimate products are being marketed without the manufacturer’s permission. HawkAuctions, which can detect sales patterns and identify the offending sellers (including those operating under various aliases), delivers information on a real-time basis, enabling users to respond quickly. HawkAuctions’ automated processes fully support eBay’s VeRO (Verified Rights Owner) and NOCI (Notice of Claimed Infringement) programs.

“Counterfeiting costs the U.S. economy an estimated $215 billion a year and is a particularly serious problem for prestigious, high profile brands,” said David Duckwitz, CitizenHawk’s president and chief executive officer. “Major brands also must contend with products being sold in the so-called gray market, i.e., unauthorized product sales outside of approved distribution channels. The Internet has been a powerful vehicle for counterfeiters and gray marketers, who often use legitimate sites like eBay or Craigslist to move their goods.”

While Duckwitz is correct about the problem counterfeiting presents to well known, high-profile brands, they are not the only ones that are the victim of opportunistic criminals who operate on every level of the counterfeiting underground.  I have taught the PLI patent bar review course now for 12 years and just this Spring we uncovered a counterfeiter at work on eBay.  Yes, the PLI patent bar review course is the top patent bar review course, but it is hardly a household name on the level of Nike, for example.  Nevertheless, we have experienced counterfeiting products being sold on eBay and elsewhere.

The eBay ad I refer to above alleged to offer the latest version of the PLI patent bar review course for $499.95. The posting said that the purchaser would acquire 36 audio CDs, 8 video DVDs and Patware 9.0.  Simply stated, there is absolutely no way the purchaser would acquire the latest course.  John White and I updated the course at the beginning of 2011 to take into account the then newly tested material, which included KSR rationales and guidelines, Bilski guidelines and the 112 guidelines.  At this time in the beginning of 2011 audio CDs and DVDs ceased to be provided, and Patware was no longer available in disk form. This course presented as “the latest PLI course” was at least 15 months old and didn’t include any of the newly tested material or updated lectures or questions.  For more on this see Buyer Beware: Counterfeit Patent Bar Review Courses on eBay.

The morale of the story is that there is always going to be an opportunistic criminal who will be willing to try and make a few bucks or more at the expense of creators.  Simply stated, intellectual property owners need to be vigilant.  If you have a product that others will purchase you have a product that counterfeiters will be willing to copy for profit.  Develop a strategy to protect yourself or you will see your hard work go to benefit unscrupulous actors who may take more than lost sales.  They may destroy your brand!