Peter Ollier, Seattle
Whether battling counterfeiters online or in street markets, a proactive and targeted strategy is necessary. Peter Ollier looks at what tactics trademark
owners are adopting.
While the representatives of the developed world argue behind closed doors about
the small print of ACTA—the Anti-Counterfeiting Trade Agreement that will provide a new weapon in the fight against fakes—trademark owners still have to deal with the daily headache of counterfeit goods being sold in greater numbers and in more places than ever before.
Reliable data on the worldwide sale of fakes is hard to come by, but all surveys
agree that the problem is increasing, and that, especially in the middle of a financial crisis, counterfeiting is a cost that companies could do without. The
International Anti-Counterfeiting Coalition estimates that the trade in fakes
costs U.S. businesses between $200 billion and $250 billion annually. Getting
the message through to consumers that buying fakes is wrong is a long-term goal,
but in the short term companies need to find a way to move counterfeiting from
being a low-risk activity to being a high-risk undertaking.
To do this trademark owners need to adopt a tactical approach. In developing
countries such as China or Thailand, going after every stall-holder selling fakes will demolish your enforcement budget and achieve little. “You have to focus on the narrow points,” says Bruce Longbottom of Eli Lilly, one of the speakers at today’s session CT51 Anticounterfeiting—Redefining the Battlefield.
One of these narrow points has been to target the landlords of the markets
selling fakes, rather than going after every stall holder. Over the past few years, a number of companies, notably the luxury goods sector, have tried this approach and applied it online, where online auction sites have been treated as landlords engaging in contributory infringement.
The most important point is to choose your battles carefully. “We are looking at
the issue of when you collaborate and when you confront,” says Jeremy Newman, a partner of Rouse and the moderator of today’s session.
Losing the battle but winning the war
Although the most high-profile case of landlord liability concerns the infamous Silk Street Market in Beijing and its disingenuous landlord (see box), brand owners have had more success elsewhere. In Australia, Louis Vuitton launched a campaign against landlords of markets selling fakes in 2003. Of 27 markets that initially received legal warnings, 22 chose to cooperate. The Carrara market on the Gold Coast in Queensland was one of the few that chose not to and in 2005 Louis Vuitton launched a case against Toea and John Rosenlund, the owner and landlord respectively of the market.
Louis Vuitton argued that the respondents were liable for trademark infringement
because they had not taken effective steps to stop the stall holders from selling fake products, despite being put on notice. The Trade Marks Act 1995 has no provision creating civil liability for aiding trade mark infringement, so the brand owner argued the case under tort law.
The Federal Court rejected the claim in November 2006, stating: “It would have
been virtually impossible for the respondents to control stallholders so as to prevent infringement, save in the case of the most blatant misconduct.” Louis
Vuitton did not appeal. Stephen Stern, a partner of Corrs Chambers Westgarth who advised the luxury goods maker on the case, admits that the result “wasn’t all
we wanted” but believes that the case and the preceding warning letters had an
effect, noting that one of the reasons that the judge dismissed the case is that
he decided that the landlord was exercising a degree of vigilance: “The case
stood for the principle that you can’t just sit there and do nothing about counterfeits.”
After the case, a coalition comprising Tommy Hilfiger, Gucci, Lacoste, Quicksilver, Nike, Foster’s, Caterpillar, LV, Christian Dior and Vans embarked on a market landlord liability program that has had further success. According to Stern, the coalition has written to around 47 different markets, of which about 33 have signed written undertakings saying that they will comply with the program and there has been a marked drop in the number of counterfeit versions of those brands for sale.
The same strategy has also worked in Korea. In August last year the Seoul Central District Court sided with Burberry in an action against SamsungTesco for trademark infringement and unfair competition. SamsungTesco owns one of South Korea’s largest department stores, called Homeplus. From two of these a lessee called World Home Shopping was selling counterfeit Burberry goods. In one of the stores the court found SamsungTesco was liable because it had authorized Homeplus to allow World Home Shopping to sell the goods.
Taking the fight online
While the landlord liability approach has proven effective in the bricks-and-mortar world, the situation online is more complicated, with a lot still resting on high-profile litigation on both sides of the Atlantic.
In one corner stand the luxury brand owners, angry at the way in which online
auctions have made it so much easier for counterfeits to be distributed online, often to consumers who think they are buying the real thing at knockdown prices.
In the other corner are online auction sites, who say that they are doing all they can to prevent the sale of fakes among active users and claim that the percentage of goods traded that are counterfeit is miniscule.
The key question to be decided is whether online auction sites are only obliged
to respond to notice and takedown requests from trademark owners, or should it
police the auctions itself. In the U.S. the test case is Tiffany v eBay. In the first instance the court concluded that eBay was not liable for contributory infringement because: “Quite simply, the law demands more specific knowledge as to which items are infringing and which seller is listing those items before requiring eBay to take action.” Tiffany has appealed the decision.
In Europe, trademark owners have a number of different cases to watch. The most
high profile so far has been the case between Louis Vuitton Moet Hennessy (LVMH)
and eBay in Paris. The Tribunal de Commerce in Paris ruled on June 30 2008 that
eBay was at “a serious fault” by failing to keep counterfeit goods off their site, especially the Louis Vuitton and Christian Dior bags.
The court ordered eBay to pay e19.28 million in damages to Louis Vuitton, e17.3
million to Christian Dior Couture (also owned by the LVMH) and e3.25 million to
four of LVMH’s perfume brands. eBay has appealed.
Elsewhere, the Brussels Commercial Court dismissed L’Oréal’s claim that eBay was responsible for counterfeits being sold on auctions on its site. The court said
that eBay does not have “a general monitoring obligation” of what it offers on
the website and that it was not required to police its site to prevent counterfeit goods from being sold. L’Oréal has appealed. The French cosmetics company has also brought cases in France, Germany, the UK and Spain—some new decisions are expected soon.
Dan Dougherty, senior director, IP for eBay, told the INTA Daily News that he does not expect a decision in either the LVMH case in Paris or the Tiffany case in New York before the end of this year.
Dougherty, who will also be presenting at today’s session, says that eBay’s
efforts to prevent counterfeiting on its site are “extensive, costly and effective.” These include guidelines on prohibited and restricted items, onsite campaigns, a security center, prevention through seller verification and the verified rights owner program (VeRO), which provides a notice and takedown system for rights owners. Dougherty also explained that eBay has worked with rights owners to introduce a system for reporting users that have previously been suspended for selling fakes. “Some great ideas and efforts are the result of rights owner suggestions,” he says.
But this has not been enough for some trademark owners, who point to the success that other online auction companies have had in reducing the sale of
counterfeits (see box). eBay argues that some brand owners object not to the
sale counterfeits, but to the fact that the Internet has taken away control of how their goods are distributed. “Some rights owners, including luxury brand companies, wish to control the distribution and sale of legitimate goods—to the
detriment of consumers,” says Dougherty.
The legal battles over online liability have a long way to run, but Longbottom
believes that, with the exception of France, courts in most countries have accepted that some form of notice and takedown system is likely to be enough to exempt online auction sites from liability. This could lead to “a cottage industry of vendors and service providers to send out notice and takedown notices,” he says.
Follow the money
Even cases where courts hold that online auction sites are not liable could have
an effect by showing the intent of brand owners to tackle the problem. But brand
owners need to be innovative about how they progress from here and consider
targeting other narrow points in the chain by which fakes moves from factories
to consumers. Longbottom suggests targeting search engines that provide links
direct to sites selling counterfeits and credit card companies that facilitate payments of fake goods. “If those eight to 10 companies could become more cooperative we could solve a lot of problems,” he says.
One method that has been underused so far is to use anti-money laundering
legislation derived from anti-terror and anti-drug laws. Over the last few years
these laws have proliferated in different countries. For example, all EU member
states have adopted provisions deriving from the Second Money Laundering
Directive, but according to Roland Mallinson, a partner of Taylor Wessing in London: “It seems few, if any, such actions have been brought aside from one in
the UK and yet the potential to do so would appear to exist at least in all member states of the European Union.”
The case Mallinson refers to is Wendy Fair Markets. The defendants—the owners of
a market that was selling counterfeits—were convicted on two counts of money
laundering and a confiscation order of £250,000 ($363,000) was made against the
company. These convictions were later overturned on appeal due to a technicality, though the court did not overturn the principle established in the first case that the Proceeds of Organized Crime Act can be used in these circumstances. Other possible targets that brand owners could go after using this method include suppliers of machinery to make counterfeits, delivery companies, payment transferors and Internet companies.
Although there is nothing like a big-money court case for attracting media attention and creating drama, a lot of progress can be made outside the courts.
Trademark owners have to work out when to confront and when to cooperate: “It’s about not closing down options at the outset,” says Newman. If they do choose to confront those facilitating the sale of fakes, brand owners need to use all possible legal remedies. In particular, when dealing with online auction sites, new approaches are needed because as Newman says: “The business model is not
going away”.
Resource:MIP
