Toy World October 2018

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Viewpoint International counterfeiting: four action items that can help

Anthony M. Verna III Anthony is the managing partner at Verna Law, a law firm specializing in intellectual property protection, trademark, copyright, domain names and advertising law as well as global IP portfolio protection and management.


n my US-based intellectual property practice, I’ve run across many different types of infringement, with the most insidious being counterfeiting. The US Department of Homeland Security seized counterfeit goods valued at over $1.2b at U.S. borders in 2017. The European Union Intellectual Property Office calculated worldwide Intellectual Property crimes to be worth $461b worldwide. When looking at the growing problem of international counterfeiting, there are always solutions to problems that arise. Some of these solutions are based in business and some of these solutions are based in law. It makes sense to have multiple anti-counterfeiting weapons in your arsenal. The toy industry could find it difficult to enforce outside of the counterfeited trademark, as intellectual property may fall under copyright law - which could be difficult to collect damages on if the infringement is not willful - or design patents, which limits the amounts of damages to profits that a plaintiff can attribute to a part of an article of manufacture, not to the entire product itself. A colleague in the Far East suggests that counterfeiting often begins because there is a strained relationship between the factory and the brand, so make sure that the brand has boots on the ground at the factory. That said, this is a high-cost solution and not everyone is able to afford a full-time liaison making sure the factory is making the goods in the amounts allotted by the contracts, at the quality required by the contracts. It is a solution that needs to be considered – the best relationship that a brand can have with its factory can only keep that factory away from temptation to create unauthorized products. It’s important to think beyond today in terms of one’s factory relationship. Today’s great business

relationship may sour in the future. After all, the honorable laoban running a factory, sourcing agency or distributorship today may retire, turn over the company to his can’t-do-it-right heir/s, sell it on to complete strangers or else simply face new realities in terms of the profit margins that changes his attitude towards doing business with the brand. These developments can mean that decisions made long ago can have a huge impact on what happens to the future of the products from this factory. However, if you suspect your factory is leaking product designs to another factory or is making unauthorized products, I suggest sending some fake product designs. This sounds like an odd procedure – spend some time coming up with a design for a product, making the specifications just right, maybe a need for a retool – just to determine if there’s a counterfeiter at the factory. However, if there is a leak in your product design or a leak at the factory or if the factory is making unauthorized products, then this is a great way to find it. With no intent to make the dummy product, the brand will know if the dummy product is sold on websites like eBay or Alibaba, since the brand is not making the product and has no plans to do so. It seems simple, but factories do receive plans for fake products and then make them without approval for the real product. With the production of a fake product, the factory is then on the hook and the brand can probably find a new factory to do its production, or the factory can fire the people who are responsible for the leak. From a legal standpoint, it’s wise to file suit against every counterfeit seller of a product. Sometimes that may feel like playing a whack-amole game, but it is effective. First off, the costs associated with the anti-counterfeiting lawsuits can be

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recouped if the lawsuit settles early (I have seen sellers of counterfeit products write checks to plaintiffs and give information about what factories the sellers are buying from). But there is another reason to file lawsuits: the sellers often tell the factories making the unauthorized products that the intellectual property owners are enforcing. Another legal thought is that a brand needs counsel in the jurisdiction in which it is manufacturing. If the product is being manufactured in China, the intellectual property needs to be registered in China. And it should not be the sourcing agent or distributor doing the filing. Sure, it’s great to have somebody you trust helping out on the ground to save a few dollars, but having a local distributor handling something so legally central to your company and its public reputation is an unwise way to save money. Many international trademark systems, even though there are treaties to harmonize, are different. China has classes and sub-classes unlike every other country; being filed improperly in China means there will be an inability to enforce. India now allows the ability to register a trademark as well-known, which is unlike the United States and Europe, where that information is required to be shown and proven in court. Another reason to have counsel in China is to enforce in China. Having a longer-view perspective helps and having counsel in China from the start means there is an expert in intellectual property from the very beginning – from application to licensing to litigation. These tips vary and not all are applicable to all companies. However, starting with a review of how the brand is doing business to legal enforcement, finding and stamping out counterfeiting takes many different forms.