I read with great interest Neal St. Anthony's March 19 Inside Track feature on Makin Bacon, the Minnesota cookware company that has been plagued by knockoffs sold on such e-commerce sites as Amazon and Alibaba.
In my work as an intellectual property attorney, I work with clients facing similar situations (or even worse) every day. The issue raises several key questions and in this article, I want to share ways for small to midsize companies to protect themselves from knockoff products and packaging without going into debt or losing their businesses to unscrupulous competitors.
1. Is the Makin Bacon experience with counterfeiting common?
It is all too common. Counterfeiting costs businesses billions of dollars each year, and the number is rising. If you have a good product and sell it online, someone will inevitably come out with a cheap knockoff. I've seen it time and again. The knockoffs show up and undercut the legitimate seller's price. Revenues start to fall, and the legitimate seller may eventually have to close.
2. How can small to midsize companies avoid these situations?
Fighting counterfeiters requires foresight and planning. On the front end, companies need to protect new products with intellectual property assets like copyrights, trademarks and design patents in the United States and abroad. Without those assets, there is little chance of stopping knockoff products once they start popping up. If a company's lucky, they might have a year or two of uninterrupted sales before the trickle of counterfeit products becomes a flood.
3. How much does it typically cost for intellectual property protection?
Copyrights and trademarks are relatively inexpensive to register. The application filing fees for registration are currently $35-$55 for U.S. copyrights and $275 for U.S. trademarks. Design patents cost $190-$760 to file with the Patent and Trademark Office, depending on the size of the applicant's company. I recommend enlisting the help of an intellectual property lawyer, which adds to the cost, but ensures it will be done right and that the strongest protection is obtained.
4. What's a small company's best strategy when dealing with giants like Amazon and Alibaba?
Make their job as easy as possible and be persistent. Both companies have online tools where sellers can report counterfeit products. If a legitimate seller has intellectual property assets, it can identify those assets in its online report and walk Amazon or Alibaba step-by-step through the infringement. It might not work the first time (or for that matter the second or third time), but the adage that "the squeaky wheel gets the grease" definitely applies here.
5. What can companies do when competitors copy their brand (advertising/packaging)?
Be aggressive. Start sending out infringement notices as soon as problems appear. It is easier to maintain a garden if you pull weeds as they pop up as opposed to waiting to start until there are weeds everywhere. The hope is to catch the counterfeiter before it has built up inventory and fallen in love with the illegal revenue stream. Counterfeiters are typically looking for low-hanging fruit. If the legitimate seller makes their lives difficult, they often move on to another product.
6. What role can offensive communication play in deterring counterfeiters?
I like to use an aggressive but escalating approach to separate innocent bystanders from bad actors. I begin by notifying the infringer of my client's intellectual property assets and demand that they immediately stop selling the knockoff product. This is effective for the vast majority of sellers, because most take down the product. After that first cut, I have a much smaller list of potential problem sellers. I then report those sellers to the host site (e.g. Amazon, eBay, or Alibaba) and demand that the product come down. This second cut will likely remove even more knockoffs. At that point, what are left are the truly bad actors, who are continuing to sell despite having notice of their infringement. We can then decide whether to sue. In the meantime, this culling process cleans up the market and limits the number of knockoffs on sale at any given time.
7. How can small or midsize Midwestern companies obtain intellectual property protections in China?
China is the elephant in the room here. The majority of knockoffs originate there, and Alibaba's domestic Chinese website (1688.com) is rife with counterfeit products. As the Makin Bacon article shows, Alibaba will not take down offending products on 1688.com based on U.S. trademarks or patents; the seller must have Chinese intellectual property assets.
Fortunately, U.S. companies can also obtain trademark and design patent protection in China. While a U.S. company may be cynical about the effectiveness of Chinese intellectual property registrations, having some assets is better than none. U.S. companies cannot expect to receive help from Alibaba in China without them. If a product is truly the lifeblood of the company, it may be penny-wise and pound-foolish to save money on intellectual property while simply hoping that counterfeiters will stay away.
Grant Fairbairn is chairman of Fredrikson & Byron's anti-counterfeiting practice group and specializes in patent, licensing and trade secret litigation. He can be reached at email@example.com.