Thu, Jun 19, 2014

Investigating Counterfeit Products With Success
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In the consumer packaged goods industry including luxury and retail branded products companies are always searching for ways to differentiate themselves in the marketplace. As such, they spend millions to billions of dollars on research and development and their supply chains, which directly affect not only the quality and design of their products, but also the efficiency of bringing them to market. Because competition has squeezed margins, brand owners are frequently looking to their supply chains to reduce costs while providing consumers with the same quality goods at lower prices.

Storefronts have been physically replicated

Similarly, the operations of brand counterfeiters have become more complex and competitive. As the single biggest facilitator of global commerce, the Internet has provided counterfeiters with the ability to bring their products to market quickly, cheaply and anonymously. Surprisingly, well known brands are often not even aware that their products are being counterfeited. The brand owners are further shocked to realize that counterfeiting has become so pervasive that some brands’ storefronts have been physically replicated in overseas markets, such as China. Online, counterfeiters can quickly register and build a website using stolen images, logos and brand insignia. The sites appear legitimate because they might include the logos of preferred payment and shipping providers such as Visa, PayPal and FedEx. Many also include the logo of the Better Business Bureau and indicate they are secured by prominent security firms such as McAfee when nothing could be further from the truth.

The quality and presentation of counterfeit products have improved materially in the last decade. In the course of many controlled investigations at various points in the supply chain, Kroll has purchased counterfeit products that have retail hang tags identical to those of legitimate products, complete with brand holograms and point of sale bar codes. Even savvy shoppers would struggle to detect the differences.

Complex overseas supply chains

Counterfeiters are employing numerous strategies to increase perceived quality and believability, such as using legitimate jewelry boxes for fake items or refilling legitimate but empty toner cartridges with counterfeit ink. Some are infiltrating the supply chains of legitimate brand owners and selling on major e-commerce sites alongside legitimate products in approved sales channels. There are countless ways that product is diverted or copied and Kroll has helped companies navigate the complex overseas supply chain to uncover weaknesses that expose them to fraud.
Companies have choices in the strategies they can use to combat counterfeiting. One is inexpensive and involves

  1. identifying all of the domains registered by counterfeiters;
  2. conducting controlled purchases; and
  3. filing actions to have the sites seized and shut down for copyright infringement.

Following seizure, placing educational notices on these domains, which alert consumers that the sites have been seized, along with mounting a public relations campaign announcing the seizures, will help educate consumers. However, such a campaign cannot be carried out sporadically.

Consistent monitoring, controlled purchases and legal actions against the perpetrators are required, and investigators with experience across the supply chain can provide critical information to inform how management chooses to proceed.

While this approach tackles the issue from the consumer side, it will not shut down the factories that produce the goods. On-the-ground investigations and local market purchases that progressively work up and through the supply chain can identify the chains of distributors and the production facilities. Establishing this evidence is important, but it’s just one step of many needed to disrupt the counterfeiters’ operations.

From the standpoint of using legal action to enforce trademark laws, many companies find that in major counterfeiting markets, there is often a large gap between local trademark laws and enforcement. For example, under China’s trademark law (article 53), counterfeit production equipment is to be removed or destroyed. However, this rarely happens, if ever, and many of China’s anti-counterfeiting actions appear to be politically driven without a corresponding commercial remediation.

Vigilance and persistence

In order to shut down a counterfeiting operation, or truly disrupt its activities, companies wishing to protect their brands will often need to engage local counsel in the manufacturing country, work with local authorities, and consider undertaking local political relations campaigns to raise awareness of the consequences of counterfeiting. Proper registration of the brand owner’s trademarks and the presence of a legitimate sales channel in the country can help significantly in attracting the attention of authorities. Experienced investigators with in-depth knowledge of the geographic region, experience in country on cross-border issues and the type of product being counterfeited can also provide companies with valuable insight into where vulnerabilities exist and how to mitigate those risks.

Ultimately, vigilance and persistence are critical to the success of any anti-counterfeiting campaign.

Forensic Investigations and Intelligence

The Kroll Investigations, Diligence and Compliance team are experts in forensic investigations and intelligence, delivering actionable data and insights that help clients worldwide make critical decisions and mitigate risk.