Ferreting out Counterfeit Goods - The Georgia Center of Innovation ...

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Ferreting out Counterfeit Goods - The Georgia Center of Innovation ...

Ferreting out Counterfeit Goods

By: Geoff Williams

AMEX INSIDE EDGE

September 21, 2011

Stihl

Since shortly after becoming general counsel at Stihl, Inc., 11 years ago, Scott Telley has spent much of

his time stopping counterfeiters from knocking off the company's products.

Because the Virginia Beach, Virginia, subsidiary of German-based Stihl International, makes chainsaws,

stopping copycats isn‟t just about money, it‟s also a matter of public safety. “An ineffective chainsaw can

cause accidents,” Telley says.

Chainsaws, golf clubs, cough syrup, even pencils – few if any products are counterfeit-proof. If there is a

market for it, anything can be duplicated. Some imitations function properly but trade off or steal another

company's brand name. Other fakes barely operate, causing confused consumers to think the brand is

worthless.

For both those reasons, experts say it is imperative that chief financial officers and other company

executives familiarize themselves with the nuts and bolts of how counterfeiting works, and how it can be

stopped. Speaking of nuts and bolts – they‟re counterfeited too.

“It's the price of success,” says Wayne Mack, a Philadelphia lawyer who represents the Golf

Manufacturers Anti-Counterfeiting Working Group. “The more popular your product, the more likely it is to

be counterfeited.”

The Cost Beyond the Cost

Counterfeiting is on the rise. In 2010, U.S. Customs and Border Protection, the government agency

charged with keeping illegal trade out of the country, seized 35 percent more counterfeit goods than the

previous year.

In any given year, shoppers spend $600 billion on phony products, according to the International

AntiCounterfeiting Coalition, a Washington D.C., nonprofit representing makers of everything from autos


to apparel. Counterfeit goods result in lost sales for businesses and tax revenue for cities in which they're

located. Consumers who purchase counterfeited auto brake pads, condoms, diabetes test strips or other

items face a host of problems. For the companies selling the real thing, competing with an evil twin can

hurt their profits and brand.

“It„s the price of success. The more popular your product, the more likely it is to be counterfeited.” Wayne

Mack, a Philadelphia lawyer representing the Golf Manufacturers Anti-Counterfeiting Working Group

Some industry experts even link counterfeit goods with organized crime or terrorist groups. “It's been

reported that a mention of counterfeiting goods was found in a Taliban handbook,” says Terry Hunter,

manager of anti-counterfeiting and intellectual property enforcement investigations for Toronto-based

CSA International, which certifies that products meet North American and international safety standards.

Counterfeiting hurts employment as well. A recent study by the U.S. International Trade Commission

found that the United States could add close to a million jobs if China stopped violating/infringing on U.S.

companies‟ intellectual property.

Though more counterfeiters are based in China than anywhere else, fake goods “come from just about

everywhere,” says Page Siplon, executive director of the Georgia Center of Innovation for Logistics,

which provides funding and other assistance to companies that ship products to and from Georgia ports.

How to Fight Back

While the problem may seem overwhelming, industry experts recommend companies take the following

steps to fight back:

1. Forge alliances. Teaming up with law enforcement and government agencies is an obvious first step,

but going beyond that is crucial. In 2004, it became apparent that U.S. golf club makers‟ products were

being counterfeited. Five of the largest -- Acushnet Company, Callaway Golf, Roger Cleveland Golf

Company Inc., Ping, Inc., and Taylor Made Golf Company -- formed the Golf Manufacturers Anti-

Counterfeiting Working Group to go after the problem collectively instead of on their own.

“Eighty percent of the counterfeit golf products come out of China,” says Mack, who helped the group

convince the Chinese government to conduct raids and prosecute counterfeiters. “It's such a large issue

to tackle, and by the manufacturers coming together in this fashion, it's easier to get Chinese officials'

attention.”

2. Educate customs officials, retailers and customers. According to Siplon, companies now routinely

hold workshops to show U.S. customs officials how to spot counterfeited versions of their products.

Hunter, the anti-counterfeiting enforcement manager, suggests training retailers‟ purchasing agents as

well so they know how to confirm if products are certified. Experts also recommend that companies

educate consumers that what they buy may not be what they think they're buying.

3. Use the legal system. In 2001, after Stihl‟s authorized dealers started talking about customers

bringing in look-alike products for repair, the company used every legal tool at their disposal to keep the

counterfeits off the market. The company believed a Chinese copycat was infringing on three of their

patents, but it was easier and faster to sue the Chicago importer bringing them into the country instead.

Sthil won that lawsuit, but the company‟s counterfeiting problems didn‟t end there. The Chinese copycat

redesigned its products and colors to be identical to Stihl‟s equipment. Because Stihl had trademarked its

colors, the company was able to successfully block the fakes from being sold in the United States. After

the Chinese counterfeiter changed its colors again, Stihl convinced the Environmental Protection Agency,

which oversees chainsaw emission regulations, to investigate. After that, Telley says Stihl had no further

problems with that company.


That wasn‟t the end of it either. In 2008, a second Chinese counterfeiter began advertising Stihl lookalikes

in an industry magazine and notified potential customers that they would be exhibiting at a trade

show in Louisville, Kentucky. Stihl representatives sent copies of their patents and prior judgments they‟d

received to the industry association sponsoring the trade show. They also alerted the Chinese company

that if they showed up, they would be greeted by federal marshals. According to Telley, during the expo,

Their booth sat empty.”

4. Form an internal anti-counterfeiting task force. Tailor the size of a taskforce to the size of your

problem, says Brian Lewis, an attorney with Barnes & Thornburg, a law firm that handles intellectual

property issues. Such a task force should verify that suppliers aren't purchasing counterfeited parts, Lewis

says. It also should monitor marketplaces such as eBay and MadeinChina.com where counterfeited

goods sometimes turn up.

Hope for the Future

Although Chinese counterfeiters create huge problems for U.S. businesses, Lewis thinks it‟s interesting

that they‟re repeating some of the same practices that helped the United States get into the

manufacturing business centuries ago. “America copied English manufacturing and violated English

patents, and if you talk to the Chinese, they'll point that out,” he says. “They'll say, „To us, you were no

better.‟ I guess the response is, „We are now.‟”

Lewis envisions a day when China is no longer a counterfeiting poster child. "When they have people

within their own country counterfeiting their own brands, that's when things will change,” he says.

Even if the number of Chinese counterfeiters falls, Telley doesn't see the issue dropping off U.S.

companies‟ priority list. He says: “There are always going to be people looking for a way to make an easy

buck by riding the coattails of someone else.”

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