Whack-A-Mole Inc. - the lawyers clobbering the counterfeiters

Preventing Chinese factories from churning out counterfeit goods, and merchants from selling them is a tale of take-downs and sanctions.
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"We handle anti-counterfeiting work across many different industry sectors, and while the fakes are often dreadful quality some can be almost as good as the real thing," says Jeremy Newman, a Merlin- and Independent-Fabrication-riding roadie, and managing partner of Rouse Legal of London. "But when it comes to safety critical products, such as bicycle frames, it becomes difficult to see why any consumer would want to take the risk. If you're riding in a chain-gang, you want to know everybody around you has got the same stopping power as yourself and have the same quality of frame that you're riding."

Newman has extensive IP enforcement experience and, via the International Trademark Association, is a prominent member of various EU-level anti-counterfeiting committees. And as a cyclist, he's seen plenty of fake frames and parts.

"The internet has facilitated a broader trade, B to B, and B to C - there's now much greater access to vendors in China," he says.

"It started with everybody becoming comfortable with buying on eBay, Wiggle, and Chain Reaction, so now when people come across an [e-commerce site] their guard might be down. The fakers use common tricks such as the seller's apparent location appearing to be somewhere trustworthy, say in Europe, but in fact the products are being drop-shipped, from China via Hong Kong, and then dispatched from Europe."

The counterfeiters have prospered partly because of cultural differences between China and the West. "In China [counterfeiting] hasn't always been seen as a criminal act; it was seen as a mark of respect. This goes back many thousands of years - students would painstakingly copy great works," says Newman.

"But this is now changing. It used to be the case that Chinese mainland factories were given orders by Taiwanese and Hong Kong traders and because China was such a closed society they didn't realise what they were doing was an infringement or a criminal act. Today things are different. We opened an office in China in 1991, and we've seen many changes. There have been tens of thousands of raids, and as the world has opened up there has grown a greater awareness of intellectual property in China. The State is moving China from a manufacturing country to a middle-class demand and innovation economy."

But it's not there yet - the war against makers and merchants of counterfeit goods is an ongoing one.

"Anti-counterfeiting can often feel like Whack-a-mole," says Newman.

"There are three ways of taking action: you can work with the administrative authorities, very much like our Trading Standards, very light punishment and great scope for corruption; next you have criminal [sanctions], where there are significant deterrent penalties, for the right sort of cases, such as pharmaceutical fakery, and where the punishment can be many years in prison; and then there's civil litigation. China is a more litigious society than the US - Chinese companies sue each other more than anywhere else in the world.

"[China] is a place where, if you get good advice, you can do more than just whack-a-mole, but you've got to approach it strategically. The approach you take depends on the products being faked - clothing, such as jerseys or cycling gloves that'll be whack-a-mole because the costs for entry into that type of industry are so low. At the other end of the scale, if you're looking at a composite frame manufacturer you have a finite number of villains, and the cost of entry in terms of capital and know-how are higher, and that's where you can have a significant impact if you gather intelligence and take robust action."

Michele Provera of Italian IP investigators Convey agrees about the strategic approach, but not the moles bit:

"The whack-a-mole concept gives the idea that fighting fakes is frustrating, a losing game. We have proven the contrary: if you whack the moles with the right approach, the moles will not emerge on the surface; they will choose other fields."

Convey acts for Colnago, Cervélo, Campagnolo, Castelli and 30 or so other brands (not all of which begin with a "c"). It has removed nearly 300,000 counterfeit listings for its cycle-industry clients, blocking the sale of $12m worth of counterfeit goods. The link-up with the cycle industry came via the World Federation of Sporting Goods Industry.

"We have long lists of notorious counterfeiters which we share with the police and customs forces," says Provera.

"We use the whole portfolio of the Intellectual Property rights of our clients: trademarks, copyrights, design rights and patent rights. This is of major importance for the companies which are producing frames and components: many Chinese counterfeiters advertise copycats in raw carbon and no logo. These products are not counterfeiting the trademarks, but are infringing protected designs and technologies, such as the G3 rim disposition of the Campagnolo wheels, the asymmetry of the Pinarello frames, and the hollow design of the SMP saddles."

But it's not just about IP, it's also about safety, adds Provera.

"You have to consider the safety issues connected to the use of a counterfeit product, which do not undergo the necessary stress and durability tests of the originals."

Many consumers don't seem too fussed about the lack of testing by the counterfeit factories and often purchase fakes as a form of protest against supposed high mark-ups.

"The great majority [of buyers] have no clue about Intellectual Property: they think that the [fake and real products] are identical or that they are produced and directly sold by the same factories where the originals are made," says Provera.

"They justify their purchase because they think that the prices of the originals are too high. But maybe not all purchasers of the counterfeits know that they are buying a fake? The Internet is full of bargain hunters: since biking is becoming more and more popular, these offerings attract hundreds of thousands of buyers, many of whom are "newbies", without great experience on brands and on prices."

And Provera admits that "before getting deep in this business, I had no clue about the price of a cycling jersey, nor I could have imagined the price of high-end carbon frames.

"The price range of a counterfeit frame is around $600-800. You can buy a counterfeit bike (frames, wheels, stem, seatpost and groupset, all fakes) for $2,000, which is a seemingly credible price in the eye of the non-expert user.

"Fake bikes also get sold in regional marketplaces, such as Craiglist, Marktplaats, Ricardo, Leboncoin, with a local mark-up, thus making the offer more credible in the eye of the innocent consumer, who is convinced the bike must be real."

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Provera says it's critical for brands to counter the counterfeits because shoddy goods harm the supposed brand supplying such goods, and courts take a dim view of companies which don't stamp on the fakers.

"When somebody crashes thanks to a fake stem breaking he goes online on the major bike forums and starts a shitstorm campaign against that brand. Then he sues the company, which has to spend time, resources and money to demonstrate that the item was fake.

"Should this happen in a country with tough liability laws, the plaintiff attorneys will say: ok, you have proven that the item is fake, but you knew that there were tens of thousands of offerings online, and you did not put in place pro-active measures to stop the phenomenon. Judges will then consider the inactivity of the company as gross negligence, and the company gets hit with triple punitive damages."

By appointing an aggressive mole-whacker companies can reduce the number of fakes being made and also prove they are proactive in protecting their IP. Convey issues "take-down" requests to the online malls, such as Alibaba, where fakes are sold alongside open-mold frames.

"The selling capabilities [of the online merchants] are reduced," says Provera.

"Since the very great majority of them get their accounts banished, they are forced to create new accounts from scratch. Since these accounts are new, they have no eBay-style positive feedback, thus no credibility in the eye of the customers. While the old accounts had thousands of transactions, granting them the necessary goodwill to sell successfully, the new accounts have none, reducing their selling chances tenfold.

"We can catch new fake offerings as soon as they pop up online," says Provera.

"At times, they get detected and removed before they sell a single product.

"On the Alibaba group platforms, we have achieved the status of "Good faith complainant" which grants you with privileged communication channels with Alibaba, dedicated personnel and a faster response for take-downs. Most of the times, the counterfeits are removed within one day from the take-down request."

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FAKING ITInside the shady world of counterfeit bikes, clothing and parts is a series of 20 articles. For offline reading convenience the 25,000 words can be found on a PDF, a Kindle file, an eBook and a Word document.

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Trek UK I Milton Keynes I Competitive Salary I Date Published Wednesday 20th March 2018