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Last week’s sobering announcement that the 2005 U.S. trade deficit was the biggest ever at $726 billion might seem only tangentially related to the ongoing struggle of U.S. manufacturers with counterfeit goods.
Yet consider the value of stockpiled fakes in just a few blocks of New York’s Chinatown. As a result of a lawsuit filed in China by an alliance that included Louis Vuitton and Gucci, $48 million in ready-for-distribution knock-offs were confiscated this month in lower Manhattan.
A drop in the bucket? Perhaps – but enough such drops are a bona fide Chinese Water Torture.
Next Alert, a publication of Levick Strategic Communications, asked leaders in the IP wars to summarize salient trends on this front for 2006. From in-house ranks: Barbara Kolsun, currently general counsel of Seven For All Mankind. From outside counsel: Bassam N. Ibrahim, the Trademark & Copyright Practice Group leader at Buchanan Ingersoll P.C., and Dr. Xiang Wang, Of Counsel in Jones Day’s Beijing office.
Here’s what they said.
Next Alert asked leaders in the IP wars to summarize salient trends affecting counterfeiting and anti-counterfeiting in 2006.
Barbara Kolsun is currently general counsel of Seven For All Mankind. While Senior Vice President and General Counsel at Kate Spade, she spearheaded anti-counterfeiting awareness in the U.S. media.
Bassam N. Ibrahim is the Trademark & Copyright Practice Group leader and a shareholder at Buchanan Ingersoll P.C. He is based in the firm’s Alexandria, Va. Office.
Xiang Wang, JD, PhD is Of Counsel in Jones Day’s Beijing office.
Q: What major trends for 2006 do you see in U.S. business efforts to combat global counterfeiting?
Ibrahim: The major trends will be continued lobbying of domestic and foreign governments to enact stronger laws to combat counterfeiting. Additionally, we will see continued aggressive enforcement efforts against counterfeiters in the courts.
Wang: I foresee (1) more consolidated efforts by industries; (2) more creative ways to combat counterfeiters, including actions against their potential “accomplices;” and (3) more pressure brought to bear on both central and local governments.
Kolsun: The Chamber of Commerce has brought China into the dialogue on counterfeiting on a higher level and hopefully that will continue.
More directly, the major trend in 2006 will be third-party liability. Presumably, these enforcement actions will have sharper teeth as a result, since we will be able to interdict and punish violators on our own soil. It will still be vitally important to continue to encourage the Chinese government to be aggressive on its end, but at least we are now pursuing our own effective initiatives.
The suit filed and won in China on December 19 by handbag makers Gucci, Prada, Chanel, Burberry, and Louis Vuitton was surprising and heartening. It fueled New York City’s efforts to sue landlords in Chinatown who were turning a blind eye to the counterfeit traffic on their property. New York had begun in earnest to go after these third parties in 2003 and now the landlords are settling substantial fines.
Q: How would you assess the effectiveness of the anti-counterfeiting measures that you’ve seen since you became involved in this area?
Wang: Actually, anti-counterfeiting measures can be effective only for a limited period of time before counterfeiters find out ways to gradually circumvent them. During the past decade, as anti-counterfeiting measures have changed and moved up in both scale and techniques, they have been relatively effective in some industries but not in others. Generally speaking, the higher the technologies are involved, the more effective the preventive measures may likely become.
Ibrahim: Various measures have certainly assisted in stemming, to some degree, the tide of counterfeits in certain countries. At the same time, the third-party strategy is working on many fronts. For example, after The Recording Industry Association of America sued flea market owners whose tenants were selling pirated CDs, one owner in Marysville, California settled for $1 million.
Kolsun: Law enforcement involvement in the fight against counterfeiting has increased each year with Customs, Secret Service, FBI, and local state law enforcement paying more attention to the issue. In addition, there have been significant civil judgments in cases against retailers and distributors.
To be sure, the offensive extends well beyond China. Tiffany’s suit against eBay is a watershed. It was filed two years ago and could get to trial this year. Here the defendant is a billion-dollar company. We’re not talking about a storefront on Canal Street. We’re talking about the vast reaches of the Internet. If Tiffany prevails, E-Bay could no longer afford to just serve as a middle-man but it would have to patrol the e-commerce carried out under its aegis. And, as eBay goes, so goes e-commerce.
Ibrahim: And that, of course, will have a profound effect on e-commerce itself, apart from the specific counterfeiting impetus.
Q: What, if anything, reassures you about the efforts of the Chinese government to help implement an anti-counterfeiting agenda? What should we now do to further encourage positive movement on their end?
Ibrahim: The Chinese government is on the right track to assist in corralling counterfeit goods. As China continues to move to become an "innovator" country, its efforts against counterfeit goods will increase.
It is in their long-term interest to cooperate. Yet there are myriad internal pressures that make progress an on-again, off-again proposition.
Kolsun: I think the Chinese government has a long way to go and, until its own citizens feel the pain of counterfeiters, I do not expect a major change.
Wang: The Chinese government has made a significant effort to fight counterfeits, especially for products involving food and pharmaceuticals because these have direct impact on life and health. However, for ordinary consumer goods, such as DVDs, handbags, watches, the effort to crack down does not seem to have been adequate. More cooperation and information-exchange between industry and government may likely move things forward better.
But in the end, anti-counterfeiting is a long-term effort and the conditions of the battle will change as living standards change.
Q: Business leaders have put a very high premium on media commentary as part of the anti-counterfeiting action plan. Barbara Kolsun, for one, has been very much a focal point of that campaign. How would you assess its impact? Has its impact been measurable to any degree?
Ibrahim: Media campaigns have certainly assisted in sending the message to infringers that we are proactive in defending our clients’ rights, particularly against counterfeiters. Media has indeed had a positive impact on enforcement efforts.
Wang: Media involvement is very important, especially when the government itself is the media audience. The reporting of successful anti-counterfeiting efforts oftentimes raises more government awareness and assistance.
Kolsun: I am a great believer in using the press and media to fight this battle. Consumer education is key and, unless victims of counterfeiting are willing to speak out, there will not be really widespread consumer education.
I find that, when consumers understand that buying counterfeits hurts the economy, and that it contributes to child labor, terrorism, organized crime, tax fraud, and other crimes, they are less likely to participate.
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