Brand protection strategy needed to address counterfeits

Out-Law News | 23 Jul 2020 | 8:40 am | 5 min. read

Businesses need a robust brand protection strategy to address the heightened risk of counterfeiting that has arisen during the coronavirus crisis, experts at international law firm Pinsent Masons have said.

Tom Nener and Emily Swithenbank, who specialise in brand protection at Pinsent Masons, the law firm behind Out-Law, were commenting after recent reports by major cross-border law enforcement agencies Interpol and Europol highlighted the scale of criminal counterfeiting. Pinsent Masons has developed a brand protection platform, Alteria, which allows businesses to monitor a brand online and enables takedown requests to be made to global online marketplaces and social media platforms at the click of a button.

"Brand misuse and counterfeiting is a serious issue for brand owners," said Nener. "It has an immediate impact on the bottom line through loss of sales when custom is improperly diverted to counterfeit products or other fraudulent schemes. It can also have a long-lasting impact on revenue generation, resulting from the brand damage that inevitably occurs when customers purchase what they believe to be genuine goods but which turn out to be very poor quality, or in some cases actually harmful."

Although counterfeiting and fraudulent schemes are prevalent offline as well as online, this criminal activity on the internet has risen sharply during the Covid-19 pandemic. A recent report from Europol said: "The emergence of new fraud schemes and a further increase in the number of victims targeted can be expected. Even when the current crisis ends, criminals are likely to adapt fraud schemes in order to exploit the post-pandemic situation."

Europol's report also noted that "the sale of counterfeit and/or sub-standard goods on and offline is booming in the pandemic economy". It said there was "particularly high demand for certain types of healthcare and sanitary products (masks, gloves, cleaning products, pharmaceutical products), which has created a substantial market for product counterfeiters, fraudsters and profiteers".

Nener said: "We have all been very busy in the digital space during lockdown. Experienced and opportunist criminals know this and have been quick to respond."

Counterfeits have been found for sale on popular online marketplaces, and there has also been a rise in illegal products being sold on social media and on websites. A recent operation coordinated by Interpol took down 2,500 links on these platforms.

Swithenbank said: "Brand owners need to take action against third parties that use online platforms, in order to remove counterfeit goods from circulation and to protect consumers against fraudsters. Failing to do that can add to the damage caused to brand reputation." 

Brand owners can take action against third parties who misuse their portfolio of intellectual property rights, including registered designs and registered trade marks. A registered design protects the appearance of goods, including shape and surface decoration. It will be infringed by anyone who makes or sells a product the design of which "does not produce on the informed user a different overall impression". A registered trade mark will be infringed if an identical or confusingly similar mark is used on an identical or similar product, or used to advertise a fraudulent scheme.

The difficulty brand owners can have in asserting trade mark rights in respect of online sales has been highlighted in EU case law.

In 2011, in a case involving L'Oreal and eBay, the Court of Justice of the EU (CJEU) considered whether eBay was liable for trade mark infringement where third party sellers were offering counterfeit goods, or other goods in respect of which the trade mark owners' rights were not exhausted, on eBay's platform. The CJEU held that eBay was not liable for trade mark infringement where it was merely providing a digital space for the sale of goods without further active involvement in the sales, or knowledge of the illegitimate nature of the goods. 

In the more recent case involving Coty and Amazon, the CJEU was asked whether Amazon was itself liable for trade mark infringement to Coty, the holder of the 'Davidoff' trade mark, as a result of unauthorised sales of Davidoff perfume made on its platform by a third party seller.  Although the seller offered the perfume for sale and actually made the sales, Amazon stored the goods in its warehouse, and packaged and dispatched them to purchasers as part of its 'fulfilment by Amazon' service – an operation that is run distinct from its warehousing business. The CJEU held that Amazon was not liable for trade mark infringement to Coty by virtue of stocking the perfume in its warehouse without any intention to offer the perfume for sale, or otherwise put the perfume on the market itself. 

The facts of the Coty v Amazon case demonstrate the impact that online marketplaces can have on the circulation of counterfeit goods, or other unauthorised products, Nener said. In the case, Amazon stored 30 bottles of Davidoff perfume in its warehouse on behalf of one of its sellers. It dispatched these to Coty following a test purchase, but subsequently notified Coty that 11 of the bottles belonged, in fact, to another seller. Coty's inspection revealed that its trade mark rights had not been exhausted in respect of all 30 bottles, and it was then apparent to Coty that two sellers, not just one, were selling unauthorised Davidoff perfume on Amazon's platform.

Nener said the risk for brand owners is that genuine and illegitimate goods can be mixed in storage, and customers can receive illegitimate goods even if they have purchased them from an authorised seller. Tracking unauthorised products can be difficult in these circumstances. 

"These cases highlight that it will be difficult to hold online marketplaces liable for infringements so it is important for brand owners to take the lead in monitoring brand use online," he said. "Using software to monitor the internet, including online marketplaces and social media platforms, will pick up all instances of brand use and enable brand owners to undertake further investigation to establish whether these uses are authorised or not. We recommend that brand owners invest in the latest monitoring technology as part of their brand protection strategy."

Swithenbank said: "Good monitoring technology is crucial, but only half of the solution. Once instances of brand misuse have been identified, brand owners then need to decide what enforcement action to take. Take down requests to online marketplaces and social media platforms are a good option, but deleted sellers will inevitably pop up again on the same platform in another guise necessitating further take down requests. This 'whack-a-mole' approach to brand protection can be time consuming and resource heavy. The Alteria platform will enable brand owners to take enforcement decisions quickly on the basis of real time data driven intelligence, and undertake enforcement action easily and cost-effectively."

"Swift enforcement action not only solves the immediate problem of brand misuse. In our experience being seen to take action can also lead to a reduction of infringements in the longer term, as sellers will be more reluctant to target businesses with a reputation for defending its brand," she said.

More information on Alteria.