Keeping the faith

Article  \  2 Oct 2012

There is nothing more frustrating as a brand owner than seeing someone else unfairly taking advantage of your brand - especially if they are selling unauthorised 'knock-off' versions of your own products.

While brand owners have always been able to take civil action for trade mark or copyright infringement, the recent prosecution of two individuals in what is believed to be the first criminal prosecution brought in New Zealand for the counterfeiting of clothing, has added a new weapon to the armoury of brand owners in the fight against counterfeiters.

What happened?

The case concerned the sale of fake True Religion jeans by two individuals, Dean Gibbs and Dawn Lomas. Gibbs and Lomas were selling the jeans online via a daily deal website and in various 'pop-up' stores in the Auckland area.

This came to the attention of the brand owner, Guru Denim, Inc. who were understandably not happy that customers were being misled into buying True Religion jeans that were not genuine. Their investigations led to a criminal prosecution being brought against Gibbs and Lomas, who were charged with forgery and pleaded guilty to the offence.

Forgery carries a maximum of 10 years' imprisonment, but the pair were ordered to pay $20,000 each and sentenced to three months' community detention, 300 hours of community service and were put under probation for a year.

Why was the case important?

Typically, brand owners will rely on established intellectual property rights, such as their trade marks, to take action against third parties who are using their brand name unlawfully.

While this can be very effective, it may not have the same deterrent effect as the threat of a criminal prosecution and the possibility of a prison sentence. This can be particularly valuable in the case of repeat offenders.

The fact police were willing to step in and bring a criminal prosecution sends a warning signal to all those engaged in counterfeiting activity and sets an important precedent in the retail clothing industry. It also shows the problem of counterfeiting is starting to get the recognition it deserves.

Why is counterfeiting so harmful?

Counterfeiting can be very harmful to your business. You could potentially lose a significant amount of money in lost sales if customers are buying a cheaper, illegal version of your product elsewhere.

US made True Religion jeans retail for between $350 to $450 a pair. Gibbs and Lomas were selling Chinese made True Religion fake jeans at $150 a pair. It was estimated that as many as 4000 fake jeans were sold.  On the assumption that a quarter of those customers would have bought the genuine True Religion jean, Guru Denim could have lost as much as $250,000 from this crime.

Counterfeit items are often of a much poorer quality than the genuine item. It is understood that the zips on the Chinese made fake jeans were faulty. If consumers buy a counterfeit item thinking it is genuine, your reputation will suffer if the product is faulty or not of the same quality as your own product.

Word of mouth is often vital to retailers, so if a customer believes they have bought a particular brand and it turns out to be of poor quality, the reputational damage to a brand can be considerable.

Part of the problem is that it can be very difficult for customers to tell whether a product they are buying is legitimate or fake, particularly when products are sold online. Counterfeiters can be extremely clever in picking up small details that may make the products seem genuine when they are not.

It is not uncommon for retailers to receive complaints from members of the public about faulty goods, only for it to turn out the goods are actually counterfeit.

The problem is even more worrying when the counterfeit products have a poor safety rating. For example, counterfeit electrical items, pharmaceuticals or baby products can pose a real danger to the public.

What should you do?

If you suspect someone is offering counterfeit versions of your products, there are various things you can do to try and put a stop to it.

As a first step, you will probably want to know if the products are really counterfeit or not. A test purchase should tell you whether the products are genuine or fake. 

If you think the products are fake, speak to your legal advisor about what action you could take. Often, a warning letter is enough to put a stop to the activity and avoid the need for costly legal action.

As the Gibbs and Lomas case shows, the police may also be interested in bringing criminal charges, particularly if the counterfeiting appears to be happening on a large scale.

A proactive approach can also stop some of the problems happening in the first place.

Brand owners can file copyright or trade mark notices with the New Zealand Customs Service, which will allow them to investigate and detain imports which they suspect are counterfeit. When the fake products are coming in from overseas, this can often cut the problem off at the source and stop the goods getting to market in the first place.

The New Zealand Customs Service has commented that they have seen substantial grown in the importation of fake goods over recent years and are often frustrated at their inability to stop goods entering the country because of the lack of a copyright or trade mark notice having been filed by the brand owner.

Dealing in fake goods is an increasing worry for retailers. Be vigilant in the market place for the entry of fake goods and take steps to protect your investment.

An edited version of this article appeared in NZRetail magazine, issue 711.