By Justin E. Pierce, Toy Industry Association
$27 million. That was the MSRP value of the counterfeit toys and electronic games seized by customs and border patrol last year alone. And that is only what was seized. Unfortunately, this is the reality of having a commercially successful toy or game. While you have invested sweat and equity into development, bringing it to market, and building your brand, you are now faced, as a result of your success, with counterfeiters that eat into your profits, infringe on your rights, and expose you to liability.
This is an all too common problem, particularly in light of the ease of the online marketplace. In fact, any company with a well-known brand or popular toy or game should assume that it is already being counterfeited. Likewise, any company with a global footprint that has distribution channels in different countries, with different regulatory schemes and pricing, should assume that various entities are working to take their profit margin by diverting products. Diversion of products into unauthorized sales channels and distribution of “gray market” goods (or parallel imports) causes significant losses for many companies.
The scope of the problem is vast. The true economic loss from piracy to businesses is impossible to quantify, but estimates put global counterfeit sales at $200 billion to $600 billion per year, which amounts to between 2.5 percent and 7 percent of all world trade. The internet and technological innovations have revolutionized the way consumers purchase products, but they have also facilitated piracy and counterfeiting on a global scale. The U.S. Government has acknowledged that the breadth of intellectual property infringement, piracy and counterfeiting represents a serious problem that imposes substantial costs on businesses and the economy, depress investment, and put consumers at risk. U.S. Customs and Border Protection found that last year there were nearly 25,000 intellectual property rights seizures with a domestic value of nearly $180 million and an MSRP value of $1.1 billion. Toys and electronic games were among the top ten of commodities seized, comprising 4 percent of the total of the seizures and nearly $27 million in MSRP value. China was the largest source country, comprising 62 percent of the seized goods. In 2011, the International Chamber of Commerce estimated that by 2015, counterfeiting and piracy will cost the global economy an annual $1.7 trillion and threaten some 2.5 million “legitimate” jobs each year.
The consequences are serious. For a business, loss of sales and brand value are the most obvious harms. When a consumer purchases a counterfeit, it not only causes a loss in sales of the legitimate product, but also leads the consumer to attribute the counterfeit to your company. In addition, counterfeit toys that use inappropriate or dangerous materials may be purchased by a consumer who believes they are purchasing your product, damaging your reputation and exposing you to liability.
There are steps that toy and game companies can take to minimize the problem and its consequences. While there is no one size fits all approach, organizations seeking to better protect their brands should consider the following best practices in the development of an anti-counterfeiting and brand protection strategy tailored to meet their specific needs in the marketplace.
- Register key trademarks and trade dress in countries where your products are sold (or will be sold), and in countries where your products are manufactured or assembled. The U.S. Department of Commerce succinctly advises that “the first step in protecting your business from intellectual property theft if to protect your IP – both in the United States and in other countries where you do business and source product.” (stopfakes.gov).
- Conduct an internal brand protection audit. This will assess how well your key brands and products are secured in terms of legal protection, security measures, supply chain and distribution through authorized versus unauthorized channels. The U.S. Department of Commerce advises: “Companies should inventory their IP. Examine your business to see what might be eligible for a patent, trademark, copyright or trade dress status.” (stopfakes.gov).
- Record key registered trademarks and trade dress with U.S. Customs & Border Protection (CBP). Once you have registered a copyright or a trademark with the USPTO, you may record your registration with U.S. Customs and Border Protection, which allows them to identify, seize and destroy, infringing materials.
- Provide the CBP with information on known or suspected distribution or import of counterfeits of your products or their components. Regularly provide the CBP with updated product identification manuals and arrange for training sessions to educate inspectors on how to discern counterfeits from your authentic goods. Ensuring that you have a good relationship with U.S. Customs and provide them with tips for spotting infringements and counterfeits is crucial in ensuring that they help you.
- Routinely monitor unauthorized use of your brands, and establish surveillance of your distribution channels. This can be done internally or through third party services.
- Select and use anti-counterfeiting technology. Be sure that it is (a) appropriate for your product and business model (e.g., radio-frequency identification tags, holograms, watermarks, covert markings or inks); and (b) not burdensome to use for product authentication.
- Educate employees and sales forces about how critical IP protection is to the company’s success. Provide training to employees and sales forces to help them better recognize and respond to counterfeiting issues.
- Seek out and hire experienced investigators to build enforceable cases against networks that counterfeit or divert your goods. China, Hong Kong, India, Taiwan and Korea have been identified by U.S. Customs as significant sources of counterfeit products, so be sure the investigators are capable of international surveillance and have experience in those countries.
- Police the Internet and online marketplaces for sale of counterfeit goods. Make full and regular use of the procedures offered by e-commerce sites and online marketplaces to de-list or take down infringing listings or websites.
- Work with experienced legal counsel. Be sure that they are experienced in the handling and management of intellectual property enforcement programs that reduce the impact of counterfeiting, product diversion, piracy or other infringing activities.
This post was originally written by Justin E. Pierce and published by www.toyassociation.org. For more news from The Toy Book, visit www.toybook.com, follow The Toy Book on Twitter, and like The Toy Book on Facebook. The Toy Book is a bimonthly trade magazine covering the toy industry, published by Adventure Publishing Group.