Facts
Issues
Harm to brand
What can be done?


While brand owners have always been able to take civil action for trademark or copyright infringement, the recent prosecution of two individuals in what is believed to be the first criminal prosecution brought in New Zealand for the counterfeiting of clothing has added a new weapon to the armoury of brand owners in the fight against counterfeiters.

Facts

The case concerned the sale of fake True Religion jeans by two individuals, Dean Gibbs and Dawn Lomas. Gibbs and Lomas were selling the jeans online via a daily deal website and in various 'pop-up' stores in the Auckland area.

This came to the attention of the brand owner, Guru Denim, Inc, which was understandably unhappy that customers were being misled into buying True Religion jeans that were not genuine. Their investigations led to a criminal prosecution brought against Gibbs and Lomas, who were charged with forgery and pleaded guilty to the offence.

Forgery carries a maximum of 10 years' imprisonment, but the pair were ordered to pay NZ$20,000 each and sentenced to three months' community detention and 300 hours of community service, and put on probation for a year.

Issues

Typically, brand owners will rely on established IP rights, such as trademarks, to take action against third parties that use their brand name unlawfully.

While this can be very effective, it may not have the same deterrent effect as the threat of criminal prosecution and the possibility of a prison sentence. This can be particularly valuable in the case of repeat offenders.

The fact that police were willing to step in and bring a criminal prosecution sends a warning signal to all those engaged in counterfeiting activity and sets an important precedent in the retail clothing industry. It also shows that the problem of counterfeiting is starting to get the recognition it deserves.

Harm to brand

Counterfeiting can be very harmful to businesses, which can potentially lose a significant amount of money in lost sales if customers are buying cheaper, illegal versions of a product elsewhere.

US-made True Religion jeans retail for NZ$350 to NZ$450 a pair. Gibbs and Lomas were selling Chinese-made True Religion fake jeans at NZ$150 a pair. It was estimated that as many as 4,000 pairs of fake jeans were sold. On the assumption that one-quarter of those customers would have bought the genuine True Religion jeans, Guru Denim could have lost as much as NZ$250,000 from this crime.

Counterfeit items are often of a much poorer quality than the genuine item. It is understood that the zips on the Chinese-made fake jeans were faulty. If consumers buy a counterfeit item thinking it is genuine, the company's reputation will suffer if the product is faulty or not of the same quality as the genuine product. Word of mouth is often vital to retailers, so if a customer believes that he or she has bought a particular brand and it turns out to be of poor quality, the reputational damage to a brand can be considerable.

Part of the problem is that it can be difficult for customers to distinguish between legitimate and fake products, particularly when products are sold online. Counterfeiters can be extremely clever in picking up small details that may make their products seem genuine when they are not.

It is not uncommon for retailers to receive complaints from members of the public about faulty goods, only for it to turn out that the goods in question are actually counterfeit. The problem is even more worrying when the counterfeit products have a poor safety rating. For example, counterfeit electrical items, pharmaceuticals or baby products can pose a real danger to the public.

What can be done?

If a company suspects that someone is offering counterfeit versions of its products, several steps can be taken to try to put a stop to it.

As a first step, it should be determined whether the products are indeed counterfeit. A test purchase should confirm this. If the products are fake, the company should consult with its legal advisers about what action to take. Often, a warning letter is enough to put a stop to the activity and avoid the need for costly legal action.

As the case at hand shows, the police may also be interested in bringing criminal charges, particularly if the counterfeiting appears to be happening on a large scale.

A proactive approach can prevent problems from arising in the first place. Brand owners can file copyright or trademark notices with the Customs Service, which will allow them to investigate and detain imports that they suspect are counterfeit. When the fake products have originated from abroad, this can often cut the problem off at the source and stop the goods from entering the market.

The Customs Service has commented that it has seen substantial growth in the import of fake goods over recent years and is often frustrated at its inability to stop goods from entering the country because a copyright or trademark notice was not filed by the brand owner.

Dealing in fake goods is an increasing worry for retailers. Companies should be vigilant in the marketplace for the entry of fake goods and take steps to protect their investments.

For further information on this topic please contact Corinne Blumsky at AJ Park by telephone (+64 4 473 8278), fax (+64 4 472 3358) or email (corinne.blumsky@ajpark.com).

This article was first published by the International Law Office, a premium online legal update service for major companies and law firms worldwide. Register for a free subscription.