Chronicle Editor
Aleck Ncube
WHILE there is debate about the definition of a counterfeit product, it generally refers to any good or packaging that bears a trademark that is virtually the same as one registered to an authorised trademark owner.
Experts contend that brand owners who don’t believe they have a counterfeiting problem either haven’t looked or don’t have a product worth “knocking off”.
It is important to underscore the fact that virtually every brand owner is a victim of product counterfeiting or, at least, they are at risk to it.
Brand and product protection is a function that means different things to different companies, and its implementation varies considerably from one brand owner to the next.
Protecting brands is important
Reputation of a brand drives how the products will perform in the marketplace. A strong brand is what many consumers use to make the final purchasing decision.
It represents a “contract of expectations” between the company and the consumer.
When the reputation of a brand is damaged, the consumer is less likely to trust that the “contract of expectations” will be satisfactorily met.
Damage to a brand is usually more expensive to recover from than proactively taking steps to protect it. In many instances, authenticating the brand has become the topic of standards created through professional certification organisations including SAZ and ISO and even legislation.
Such regulations are a means of tracing movement of product through the supply chain and to assist in protecting the integrity of product from company of origin to the retailer.
Long-term financial success depends on protecting the brand. Consider specifically the risk of product counterfeits, which are a trademark violation and a fundamental threat to the brand.
Through the production and sale of counterfeit product, the counterfeiter can be thought of as an “unseen competitor that undermines corporate profit.
Through inferior and unreliable products (though some counterfeits are higher quality than others), counterfeits dilute the value of the brand, which reduces customer satisfaction with the branded product.
These same products increase veer from using quality, safe materials and manufacturing products to specified standards.
This, of course, is reason enough to combat product counterfeiters.
Yet it also reduces customer satisfaction while simultaneously increasing the risk of litigation as a result of customers and others filing suit against the brand owner.
Product sales are reduced as a result of declining customer satisfaction with the brand, but this is not the only factor that begins to drive down sales due to counterfeits in the marketplace.
The mere presence of counterfeits can serve to stifle creativity and innovation as there is less incentive to invest in research and development and to create new products when criminals are poised to immediately steal and profit from the hard-earned intellectual property of the company.
Similarly, by flooding the market with counterfeits, the unseen competitor reduces the penetration of the authentic, branded product in the marketplace.
Particularly when the counterfeits sold are deceptive and consumers are duped into buying a counterfeit instead of an authentic product (as opposed to non-deceptive when they understand they are purchasing counterfeit products), this reduces the probability that any given product purchased will actually be that of the brand owner.
Of course, there is not a legal distinction between deceptive and non-deceptive counterfeits — both are illegal and damage the trademark owner and result in other detrimental economic and social consequences.
By simple math, these detrimental consequences combine to reduce profits.
The presence of counterfeits in the marketplace reduces sales and increases litigation, which inhibits profits.
At the same time, it is necessary for brand owners to combat product counterfeiting through prevention, detection, investigation and enforcement.
These costs, like the others, affect the bottom line.
However, it is important to acknowledge that, like other risks, investment in preventing product counterfeiting can ultimately save the company far more than its cost while also protect the safety and well-being of its customers.
Business conditions create product counterfeit opportunity
Many factors serve to increase the opportunity for counterfeit products to be produced. Chief among them are globalisation and technology, which make the world a smaller place.
Through advancements in communication, transportation, manufacturing, distribution, etc, demand created in one region can easily be detected and fulfilled by another on the other side of the world.
The internet alone has created vast opportunities to market and sell deceptive and non-deceptive counterfeits of all forms (not to mention bolster grey markets and diversion), and with relative anonymity.
Consider also the opportunities for counterfeiters made available by advances in 3-D printing.
The risk-reward structure of product counterfeiting serves to incentivise the crime.
According to experts, at least three conditions make counterfeiting attractive.
First, although this may vary from one product or industry to the next, entrance into market can be easy.
For example, equipment such as a pill press required to manufacture counterfeit pharmaceuticals can be purchased directly from online auction websites, 3-D printers can facilitate the production of components if not entire products and packages, and digital print technology, which includes small desktop models, has made high quality printing of packaging components much faster and easier for counterfeiters.
Counterfeiters only need to find affordable products on the open market from stock lifts, excess and obsolete inventories or scrap to present a product in the market that by all appearances is the genuine, new product.
Second, the profits earned from counterfeiting products can be enormous, rivaling that of the illicit narcotics trade.
Given counterfeiters can produce products with inferior or even missing parts, using illicit or otherwise inexpensive labour, without costs for research and development, and without concern or costs for safety and durability or regulatory standards yet still charge a competitive or near competitive price, while drawing on recognition of the brand, the potential profit margin they stand to gain can be quite large.
Finally, compared to other crimes, the risk of penalties for counterfeiting a product can be low.
Many counterfeiters go undetected, or, at least, they do not rise to the level at which a brand owner or law enforcement agency would pursue them.
If detected and pursued, investigations are time consuming and expensive, and not all are eventually caught and then charged criminally or sued civilly.
Given the complexity of cases, particularly as they involve multiple, often international, jurisdictions and that the judicial system in many instances does not prioritise product counterfeiting cases, pursued counterfeiters may not be convicted or obtain a ruling against them or, if they do, the penalty may not be as great as the damage caused.
This isn’t to say that there aren’t many examples of counterfeiters receiving long prison terms and large fines and damages, but, on average, the risk of apprehension and then ultimately receiving a stiff penalty are low, resulting in low deterrence.
Wishing All SMEs a prosperous 2019.
derick.khumalo