Developing a multiplatform approach to counterfeiting

Counterfeiters are criminals with business acumen. They are cunning, agile and vigilant. To wage a war against counterfeiting, brand owners need to develop a multiplatform approach to cover all bases. In the words of Sun Tzu in The Art of War: “If you know your enemies and yourself well, you will never lose a battle.”

A holistic review of the current counterfeiting trends is paramount in developing an effective strategy.

• The surging costs of labour and land as well as the heightened operational risk have compelled counterfeiters to retreat from China’s developed coastal areas to the developing areas of the nation’s inner provinces, or to relocate to Southeast Asia, where local governments are hungry for investment and are willing to turn a blind eye to counterfeiting.
• Counterfeiters are embracing the zero-inventory approach. The exact quantity of goods that are ordered will be manufactured and shipped out almost immediately upon the completion of production. The strategy allows the counterfeiters to hold little or no on-hand inventory stock and makes it difficult to catch a counterfeiter with a large inventory of finished counterfeit products. Timing has become one of the most essential factors for a successful raid action.
• Most counterfeiters have moved from offline to online marketplaces to sell their products. The Internet has become the major channel for counterfeiters to market and sell their products. Counterfeiters are leveraging social media and traditional online shopping platforms to reach end consumers to evade the monitoring of brand owners.
• Many counterfeit products are offered for sale on cross-border online platforms and shipped out in small quantities through courier services. It is practically impossible for Customs to examine, on a daily basis, millions of parcels to distinguish counterfeits from legitimate packages. Even if a test purchase can be made, counterfeiters always use falsified addresses on shipping documents to avoid the goods being traced back to them.

These factors are believed to have contributed to the decrease felt by most brand owners in terms of the number of customs seizures and criminal prosecutions in the traditional hotspots in the past few years. Nevertheless, many brand owners still follow the traditional approaches in fighting counterfeits:

• they hire private investigators to look for underground factories, warehouses and retail outlets;
• they work with online monitoring service providers to police internet platforms and take down listings of counterfeits; and
• they conduct product training sessions with Customs and pin their hopes on stopping large shipments of counterfeits.

The effect of this whack-a-mole game has been wearing thin.

In the words of Ji Chang in The Book of Changes: “We need to evolve when one way reaches the end; change will lead to an alternate way out, and this in turn will become sustainable.”

Change is the only constant in life. To cope with the quickly evolving counterfeiting landscape, brand owners need to develop a multiplatform approach. The approach will allow brand owners to allocate resources, tailor strategies and realign focuses to accommodate their multilevel anti-counterfeiting needs.

For start-ups with a small brand protection budget, a viable option is to join industrial lobby groups to make their voice heard and create an affordable internal online monitoring programme.

For medium-sized businesses with budget constraints, it is advisable to proactively collaborate with industry stakeholders for concerted action against the common enemy.

For big multinationals with ample resources at their disposal, they are well positioned to take the lead in advocating legislative changes and best practice and in executing aggressive enforcement programmes by working closely with law enforcement authorities and private investigators.

Below are some key takeaways in developing a multiplatform approach to counterfeiting.

Building a dedicated database

Brand owners need a dedicated database to pool all the available information surrounding the manufacturing and sale of counterfeits in the industry. With the accumulation of enough entries, the database will help delineate a roadmap regarding the operation of the counterfeiting network, such as where the raw materials or parts are procured, where counterfeits are produced or assembled, through which ports the counterfeit products are exported or imported and on which online and offline marketplace the products are offered for sale.

Naturally, all the details of previously raided or known counterfeiters are input in the database. Entries should also include any pertinent information gathered from historical investigations and raid actions, sightings of informants, online monitoring programmes, reports from local sales teams and customers, complaints filed by distributors and end users, and information shared by other major players within the industry.

If carefully discerned and well managed, informants could be valuable assets to brand owners. Building and managing an efficient informant network allows brand owners to have inside knowledge on how counterfeiters operate and can therefore be conducive to capturing targets. This requires a considerable budget and management skills and is more feasible for sizable multinationals and industry groups.

A database with abundant entries could hold the key to unveiling the puzzle surrounding a complicated counterfeiting syndicate: in practice, it is not unusual to find out that vendors on Alibaba could also show up on Amazon; different shops on Taobao, Lazada, WeChat, Facebook or TikTok are operated by the same gang of counterfeiters; or a newly emerged manufacturer in Vietnam is tied to or controlled by the same counterfeiter whose factory was raided a few years ago in China. The database, once built, will give brand owners a head start in mapping out and eradicating the counterfeiting network.

Creating an online monitoring programme

It is a well-established fact that most counterfeiters have moved online nowadays. Brand owners hoping to make informed decisions in the battle against counterfeiters must map out the terrain. Priority will be given to mainstream online platforms, with the scope of monitoring gradually extending to the second tier – newly emerged or regional online platforms.

In practice, many brands opt to outsource the programme to online monitoring service providers, some of which rely heavily on artificial intelligence to identify suspicious listings and file complaints to take down counterfeit listings. The approach has proved to be both time and cost efficient in detecting straightforward counterfeits.

However, the approach is less effective in detecting inconspicuous counterfeits, where logos or trademarks are obscured on product pictures or are implicitly referred to in product descriptions or live streaming. Without manual screening, the chances are high that those camouflaged counterfeit listings will trick artificial intelligence and survive machine-based searches and takedown programmes. Without human intervention, artificial intelligence is less likely to connect the dots and make connections among seemingly unrelated information or targets.

Brand owners therefore need designated in-house staff or outside counsel to police the target platforms on a regular basis and conduct in-depth analysis on the preliminary reports from online monitoring service providers. This could fill the gap left by automatic online monitoring programmes and allocate valuable human resources to identify repeat offenders and high-profile sellers for further offline investigation and enforcement action.

Major online platforms have also launched anti-counterfeiting programmes and initiatives of their own accord to help brand owners eliminate counterfeiting activities. Brand owners are encouraged to take full advantage of those programmes and work closely with the IP protection team of the platforms in identifying key targets, collaborating with offline investigations (particularly evidence collection) and organising joint enforcement actions.

Making full use of the government enforcement system

Fighting counterfeits falls within the remit of the government. Only law enforcement authorities are entitled to shut down counterfeiting factories, seize counterfeits and equipment, make arrests and put counterfeiters behind the bars. Brand owners should always work with the government authorities to push for legislative improvements and more aggressive enforcement programmes.

Brand owners, particularly those in the same industry, are advised to make concerted efforts in lobbying legislature to remain a staunch supporter of aggressive laws against counterfeiting. Stakeholders could leverage available platforms, such as industry associations, IP organisations, national chambers of commerce and IP advisory groups, to organise forums and make formal submissions to appeal for tougher legislation.

Brand owners often hire private investigators to conduct reconnaissance and field investigations. The information gathered therefrom could be used as *prima facie* evidence to convince the authorities to launch a formal investigation once a valuable target is identified.

The authorities are equipped with the technical means, resources and clearance to penetrate the entire counterfeiting network; identify suspects and ringleaders; pinpoint the locations of manufacturing facilities, warehouses and distribution networks; and trace money flows and bank accounts.

In China, police have access to the call history, bank transaction records and internet footprints of criminal suspects. By closely collaborating with the police, brand owners could steer their private investigation team in the right direction to assist the official investigation.

The policy can also leverage the potent mega data analysis algorithm to follow the online footprints of the counterfeiters, which will allow the authorities to be well positioned to anticipate the next move of the suspects, without raising alarm.

Experience has repeatedly shown that working collaboratively with the government authorities is the most effective approach to cracking down increasingly sophisticated counterfeiting operations.

Enforcement strategy

The enforcement strategy of brand owners can vary dramatically. For online counterfeit listings, an aggressive policing and takedown programme could be introduced to ensure that counterfeit listings are taken down as soon as they pop up. Once a repeat or high-profile seller is identified, brand owners could pass the information to private investigators for field investigation.

For retailers, quick administrative raid action could deter those sellers from relapse, at least temporarily, and more aggressive action (civil or criminal, or the combination of both) could be taken in case they resume business.

For manufacturers, criminal raid action is preferrable, as brand owners could leverage the opportunity to collect any information pertinent to the downstream buyers and upstream suppliers of raw materials, key components and printed labels or packaging. Following the leads, brand owners could look at the possibility of uprooting a counterfeiting network in its entirety.

In China, civil litigation has been increasingly favoured by brand owners to secure orders for permanent injunctions and monetary damages upon the conclusion of administrative raids or criminal prosecutions. In principle, Chinese courts are prone to grant permanent injunctions in cases involving counterfeiting, and the nation’s judiciary is growing more confident and aggressive in awarding significant monetary damages not only to indemnify the financial losses of the brand owner but also to cover the enforcement costs and attorney fees incurred.

China has installed the punitive damages regime in all IP-related legislation, including the Trademark Law, which was amended in 2019. In judicial practice, punitive damages against counterfeiters will be awarded, provided that the evidence suffices to convince the judge that the counterfeiter has acted in bad faith and the circumstance is serious.

There used to be concerns that court decisions were difficult to enforce as offenders would put great effort into hiding and transferring assets so that no enforceable assets were left in their name. With the implementation of China’s social credit system, it has become much easier to enforce court decisions as the social credit of the recalcitrant offenders will be at stake if they fail to follow court orders and decisions. It may affect travel, employment, access to finance and the ability to enter into contracts. Counterfeiters who fail to pay damages or fines are subject to bans on applying for business licences, purchasing plane or high-speed train tickets or shopping for non-essential items.

Another viable approach is for brand owners to settle for little or no indemnity with small counterfeiters or infringers, on the premise that an undertaking is signed by the offender, who agrees to a penalty clause in the event of any future IP violation. This is a very effective tool in restraining small or random offenders from resuming their illicit business. In judicial practice, Chinese courts tend to honour the undertaking; therefore, the counterfeiter’s breach of the undertaking substantiates its bad faith and is conducive to securing considerable damages to brand owners in civil proceedings.

Conclusion

Brand owners must frequently reassess their anti-counterfeiting strategies to cope with the constantly changing counterfeiting landscape. It is imperative that brand owners develop a multiplatform approach to cover all bases, keep counterfeiting in check and fight counterfeits more effectively.