Combating rogue traders is a very real challenge

Faking it costs the government, industry and consumers dear and, as Joanna Goodman reports, counterfeiting is a crime of the past, present and future


The UK market in counterfeit goods is estimated at £1.3 billion.

When Rolex, Louis Vuitton, or Beats headphones launch a new design, copies become available almost immediately. Bootleg copies and downloads of new music and films appear soon after they are released.

Counterfeit components have been discovered within mobile phones and laptops, medical and automotive equipment. The growth of the online marketplace has led to an explosion in counterfeit pharmaceuticals.

Furthermore, 79 per cent of respondents to the latest annual survey by enforcement agency Trading Standards have dealings with intellectual property (IP) criminals linked to organised crime.

Although IP is a private right, the counterfeiting and piracy of trademarked and copyrighted products is a crime, with the most serious offences attracting hefty fines and even prison sentences. Criminals’ assets can be confiscated under the Proceeds of Crime Act.

Carl Rohsler, a partner at law firm Squire Sanders Dempsey LLP, advises household designer Cath Kidston, and clothing manufacturers DAKS and Austin Reed. “Counterfeiting is a crime which steals from business and consumers: business, because it seeks to trade off the hard work, skill and quality which has gone into the manufacture of goods, and feeds off reputation and creativity; and consumers because it creates confusion as to origin and provides second-rate (sometimes dangerous) products into the marketplace,” he says.

Counterfeiting costs the UK government almost £450 million annually in lost taxes, higher welfare payments and around 15,000 lost jobs

How does counterfeiting impact on businesses? There are conflicting arguments. It has been said that designer brands do not object to the $30 watches sold in Hong Kong because the people who buy these are unlikely to buy a designer watch and every copy that is sold reaffirms the brand’s aspirational status.

However, as Mr Rohsler observes, people who pay £10 for a Cath Kidston counterfeit bag could have bought the genuine article, so rogue traders are directly damaging sales. The same applies to DVDs, music and movie downloads. Counterfeit components and medicines that appear genuine, but do not meet regulatory or safety standards, are damaging industry and consumers.

What action should businesses take? Mr Rohsler says this depends on the scale of the problem. A key question is: “When does imitation become infringement?” Businesses need to understand their brands and protect them appropriately.

Digital IP theft is recognised as a serious global issue. According to the IP Crime Report 2011-12, “cease and desist” notices against infringing websites are generally effective, with only a minority leading to legal action. In 2011, the British Recorded Music Industry (BPI) removed more than four million illegally hosted music files. The Publishers Association issued 200,000 take-down notices, with a success rate of 90 per cent.

At Hamlins LLP, IP partner Laurence Gilmore helps merchandisers take action against sellers of counterfeit records, DVDs and bootleg products. “We have an entire team dealing with counterfeit goods sold on eBay,” he says. “We send a notice to eBay and get the product taken off the site. We then get delivery of all the goods offered for sale. Sometimes we go to court and get an injunction. When counterfeit goods are sold at markets and other outlets, we help our clients pursue rogue traders through Trading Standards.”

But it is not just retailers and their customers who are counting the cost.

The Business Action to Stop Counterfeiting and Piracy (BASCAP) estimates that counterfeiting costs the UK government €500 million (£438 million) annually in lost taxes and higher welfare payments, and in the short term (less than a year) the UK loses around 15,000 jobs due to the impact of counterfeits.

As part of its implementation of the 2011 Hargreaves review of IP and growth, the government launched the IP Crime Report that deals with IPR enforcement. In October 2012, a new small claims track was introduced to the Patents County Court (PCC), with the aim of making it cheaper and easier, particularly for small and medium-sized enterprises (SMEs) to protect their IPR.

Notwithstanding the plethora of initiatives in the UK and EU, experts agree that, like other forms of IP breach, counterfeiting has been exacerbated by globalisation. It therefore needs to be fought on an international scale.

“Ultimately, to fight counterfeiting you need effective laws in the countries of manufacture, which means consistent international pressure on China and other Asian countries,” says Mr Rohsler. Counterfeiting will remain a challenge, he says.

It is like the common cold. If it is treated, it soon goes away; left untreated, it can quickly develop into a serious problem. Like the common cold, the market in counterfeit goods is a perennial issue that cannot be eliminated entirely, but must always be contained.

COUNTERING COUNTERFEITING

TAKING A STRATEGIC APPROACH

Combating rogue traders requires a combination of vigilance, action and co-operation with the authorities.

But Carl Rohsler, intellectual property (IP) partner with lawyers Squire Sanders Dempsey, cautions: “Businesses need to be pragmatic about applying legal resources – you will never stop every fake. The best strategy will vary depending on the product, budget and geographical footprint. Often it’s about managing an effective portfolio of patents, trademarks or registered designs.”

Laurence Gilmore, IP partner at Hamlins LLP, adds: “If counterfeit items are being sold on eBay, we send a notice to eBay and get them taken off the site immediately. We get an injunction, whereby the trader gets a court order telling them to stop trading and hand over all counterfeit goods.”

Trading Standards are authorised to investigate and prosecute offenders under the Trade Marks Act, and the Copyright Designs and Patents Act. Trading Standards officers respond to reports of counterfeit goods being sold in markets, fairs, venues and other outlets. Provided that they have sufficient evidence, they may obtain warrants to seize the counterfeit goods and, where appropriate, follow this up with a criminal prosecution.