Intellectual Property Attorney

Counterfeit Products Are a BILLION DOLLAR Problem

By Charles W. Grimes

It may be true that imitation is the sincerest form of flattery, but there is nothing flattering about the rapidly expanding world of counterfeit and “knock-off” products. Counterfeiting is a form of intellectual property theft. It hurts consumers, it ruins businesses and it directly impacts global economic success and security.

There is a common misconception that counterfeiters only “knock-off” high-end, luxury brands — such as Coach or Chanel. That simply is not true. Counterfeiters will steal the intellectual property from any successful brand from
any industry. Software, pharmaceuticals, leather goods, apparel, tobacco and firearms are just a few areas where counterfeiters are particularly active.

Today, it is estimated that counterfeit products comprise 5 to 7% of world trade according to the International Anti-Counterfeiting Coalition (IACC). In a 2007 report, the Organization for Economic Cooperation and Development (OECD) estimated that counterfeit products and piracy accounted for $200 billion in international trade. The IACC estimates that $600 billion is a more realistic figure because the OECD did not include Internet-related activities or where counterfeit or pirated products were manufactured and sold in a single country.

Counterfeiting should be a primary focus for every property owner. Counterfeiting can substantially reduce revenue, negatively impact market place position, affect market share, and also diminish the value (and enforceability) of intellectual property rights. It can also pose serious dangers. In 2003, the Food and Drug Administration reported that an estimated 200,000 bottles of counterfeit LIPITOR had been made available in the marketplace. In recent years, Johnson & Johnson has conducted investigations into counterfeit medical products which has lead to criminal cases related to copying of products in China. Counterfeit parts for cars, planes and firearms can also pose a substantial danger and liability.

What is counterfeiting?

Counterfeiting is the intentional use of another’s intellectual property, e.g., trademarks, product designs and copyrights. Typically, counterfeiters develop knock-off products in order to take advantage of a highly valued genuine product. This occurs in several steps: (1) copying the counterfeited product; (2) using a false trademark that is either identical or substantially indistinguishable from a registered trademark or using a design that is similar or identical to a design on a genuine product; or acts of piracy, e.g., copying movies, television shows, music, etc.; and (3) distributing without authorization.

Counterfeiters come in many forms and sizes — individuals in the American mid-west or major cities, street vendors and common place criminals. Counterfeiting has also been linked to organized crime and terrorism, as widely covered in the media in recent years. Congress included forms of intellectual property theft as predicate acts under the federal RICO statute and other criminal statutes. Evidence has been released that terrorists linked to the 1993 World Trade Center bombing funded their criminal activities through counterfeit textile sales from a store in New York City.

The best defense is a good offense

To be successful in this battle, property owners must try to stay ahead of counterfeiters. Unfortunately, it can be a full time job, and in most instances will require aggressive action. Because of the profit potential that counterfeiting offers, counterfeiters have become very good at their trade and unless property owners take swift, aggressive action, the problem will only escalate.

Property owners should be proactive in designing and maintaining up-to-date anti-counterfeiting efforts and strategies. A property owner who believes that he can simply kick back and let his licensees fend for themselves against unlicensed and non-royalty paying competition will soon have few (if any) royalty paying licensees.

Attorneys and staff at Grimes LLC work with each of our clients to develop a cost-conscious, effective anti-counterfeiting program tailored to the needs of the individual client. There are, however, several key considerations every property owner should keep in mind:

  • Effective anti-counterfeiting requires monitoring the internet and social media, in addition to investigating on the streets.
  • Quick action and follow through are the keys to success. Effective steps must be taken to recoup damages for the property owner and to stop the counterfeiter from repeating the offenses.
  • Government agencies (e.g., U.S. Customs & Border Protection, Department of Justice, state and local law enforcement, and prosecutors) must be educated. Invite their help and participation in the anti-counterfeiting process.

Charles W. Grimes is Managing Partner and Founding Member of Grimes LLC. Chuck developed and implemented a unique, innovative anti-counterfeiting strategy that effectively and successfully protects the valuable trademarks of the world’s largest premium cigar manufacturer. He has worked with undercover operatives, private investigators and federal, state and local law enforcement officials to conduct raids, seize tens of millions of dollars of counterfeit merchandise, and arrest and convict key perpetrators. Please contact Chuck for additional information or to get answers to questions concerning anti-counterfeiting measures and strategies.


Download our entire April 2012 Newsletter here.

Grimes LLC