Counterfeiting, piracy and IP infringement have assumed epidemic proportions, largely due to technological advances and globalisation. The Internet’s international reach and ever-growing trend towards commercialisation have given rise to an unlimited number of generic top-level domains (gTLDs) that can be used for cybersquatting and online infringement. Further, the rise of the Dark Web, along with server networks and browsers that offer anonymity to sophisticated users, means that cybercriminals and IP thieves seeking to market or purvey illicit goods and services have a new and hidden route to reach their customers, while avoiding detection by rights holders and law enforcement.
As high-speed internet access continues to increase, internet service providers (ISPs) continue to offer users the ability to consume more and more digital and audiovisual content. This has led to the creation of online platforms and services that serve as breeding grounds for online infringements. Rights holders must better focus their IP enforcement efforts on dealing with the online intermediaries that host this sort of behaviour when the direct source of infringement cannot be found.
Further, recent advancements in three-dimensional (3D) printing technology continue to improve the quality of printed objects, while also lowering costs, making the production of counterfeit goods more accessible. Another significant development is the growth of the grey market, which leads to substantial loss of revenue, brand dilution and disruption of distributor relationships for brand owners.
Finding solutions to these wide-reaching brand and content protection problems will become more difficult as technology and the global economy continue to evolve. However, rights holders that familiarise themselves with the issues and recommendations discussed in this chapter will be in a better position to address the negative impacts of increasingly sophisticated counterfeiting, digital piracy and IP infringement schemes.
The Dark Web
Consumer data, counterfeit goods and trade secrets are often sold on markets on the Dark Web, yet many corporate executives and managers responsible for corporate security or brand protection remain unaware of what the Dark Web is. The Dark Web is a collection of websites that are publicly visible, but hide the internet protocol addresses of servers running these sites. The overwhelming majority of Dark Web sites use the anonymity software Tor (an acronym for the original software name The Onion Router). Tor enables users to route web traffic through several other computers in the Tor network, so that a party on the other end of the connection cannot trace the traffic back to that user. Simply put, anyone can visit a Dark Web site, but very few can determine where these sites are hosted and by whom.
Because of this, anonymous online marketplaces – such as Alphabay, Hansa, Outlaw, Acropolis and The RealDeal – have become safe havens for cybercriminals selling counterfeit, pirated and other illicit goods. This anonymity is often furthered by the use of Bitcoin as currency on the Dark Web. Bitcoin is an untraceable form of digital currency that is not linked to any personally identifiable information (eg, names and addresses), and transactions can occur anywhere within a short period of time.
This level of anonymity makes it difficult for rights holders to enforce their rights against online infringers and track the source of cybercriminal activity, so it is important for rights holders to be aware of how their brands and content are being represented on the Dark Web. Further, while many companies monitor their brands and content online on the open web, they fail to monitor the Dark Web. Cybercriminals are moving quickly to take advantage of this corporate blind spot.
Companies can combat these online threats by:
- expanding online monitoring effects to include intelligence gathering and enforcement activities that cover markets on the Dark Web;
- using digital watermarking and other track and trace technology to understand how content or unauthorised products are distributed;
- disrupting or disincentiving the illegal market for content and information; and
- using knowledgeable cyber-investigators and legal counsel with experience of the Dark Web.
Another significant development in the world of online brand protection is the expansion of gTLDs, which has generated increased cybersquatting and online infringement threats to brands. TLDs are the strings that appear after the dot in domain names – the traditional examples being ‘.com’, ‘.org’ and ‘.net’. The Internet Corporation for Assigned Names and Numbers (ICANN) oversees internet-related functions. In 2011 ICANN introduced a new policy to allow applicants to register new gTLDs, such as ‘.[brand]’ or ‘[.industry]’. More than 600 businesses have already applied for new gTLDs in the last few years.
The limitless potential for gTLDs makes it easier for cybersquatters and online infringers to confuse and deceive consumers into buying counterfeited goods. Fortunately, ICANN allows legitimate rights holders an opportunity to register their domain names pre-emptively during a mandatory ‘sunrise’ registration phase. During this phase, rights holders should register domain names associated with their brands before registration is open to the public. Additionally, rights holders should register their marks with the Trademark Clearinghouse, a database of verified registered trademarks that notifies potential gTLD applicants that a domain name matches a verified trademark on record. These pre-emptive steps will go a long way towards protecting brands online.
ISP liability has become an important concern for media and entertainment companies that seek to prevent and reduce the piracy of their online content. An ISP is a business or organisation that provides internet-related services to its subscribers. There are many well-recognised and well-regarded ISPs that we use every day to connect to the Internet in some way. Although ISPs are generally considered to be conduits of information, they can also facilitate widespread infringing activity.
In a notable 2015 case in the United States, ISP Cox Communications was held contributorily liable to BMG Rights Management LLC for the copyright infringement of its subscribers, which engaged in illegal peer-to-peer sharing of music files using Cox’s internet services. Cox was ordered to pay $25 million to the music publisher.
Generally, ISP infringement liability arises in one of three ways:
- Direct infringement liability occurs when an ISP knowingly hosts copyrighted material and directly benefits financially from it. This course of action is rarely pursued because direct infringement almost never occurs.
- Vicarious infringement liability occurs when an ISP has the right and ability to control subscribers’ activities to prevent infringing activity and directly benefits financially from the infringement. Vicarious liability is difficult to find unless a copyright holder can point to an ISP’s terms of service agreement to establish its control over subscribers.
- Contributory infringement liability occurs when an ISP has knowledge of its subscribers’ infringing activity and materially assists in the infringement. Most lawsuits against ISPs rely on this theory.
ISPs can seek protection from copyright infringement liability under the Digital Millennium Copyright Act’s ‘safe harbour’ provision. To avail of this provision, ISPs must:
- lack actual knowledge of the copyright infringement;
- not derive any financial benefit from the infringement;
- comply with any notice or takedown provisions for removing copyright material; and
- appoint an agent to handle copyright infringement complaints.
Although ISPs have an avenue to seek protection from liability in the United States, this is not always the case internationally. The global reach of ISPs means that liability varies from country to country. While an ISP may be protected in the United States for certain conduct, this same behaviour may also be prosecuted elsewhere in the world. Content owners should carefully consider the process of obtaining jurisdiction over ISPs located in other jurisdictions that may have different laws.
3D printers have gained popularity among consumers and businesses in recent years and their impact on IP rights is considerable. Also known as ‘additive manufacturing’, 3D printing is the process of making a 3D object from a digital model by depositing successive layers of materials on top of one another to form that object. The end result allows people to manufacture their own goods and the possibilities are limitless – including household items, clothes, prosthetics, human tissue and even food. Recent advancements now allow individuals to upload, share and download digital design files, making the design files necessary for 3D printing more widespread. These advancements also mean that counterfeiters can more easily create exact copies of products or distribute unauthorised design files that enable others to print exact copies of products. The Gartner Group, a global information technology research company, predicts that 3D printing will result in over $100 billion in IP losses globally per year by 2018.
While the global marketplace for 3D-printed goods is still in the early development stages, it is not too early for rights holders to consider proactive steps to understand how the rise of 3D printing will affect their businesses. Manufacturers and product designers should focus on the following preventative measures:
- implementing a production cycle that stays ahead of competitors and counterfeiters alike, making it difficult for those trying to imitate the latest version of their product;
- adapting business models that harness the benefits of 3D printing technology to maximise gain from early investment in the market;
- filing design patents, as opposed to utility patents, because design patents pertain to a product’s actual appearance rather than its function; and
- building multi-layered IP protection that routinely locks down, provides notice of and enforces IP rights for each unique, distinctive and complementary element of branding, content, design and innovation associated with key products and services as early as possible.
In today’s rapidly changing global economy, the grey market has become a growing problem for rights holders, with brands losing an estimated $63 billion per year in revenue to grey-market diversion in the United States alone. Companies worldwide may be losing hundreds of billions in revenue. Grey-market goods, also known as parallel imports, are different from counterfeits. Grey-market goods are genuine trademarked goods purchased outside of a country or specified territory by a party other than the designated importer. This party then imports the goods into a targeted market for sale in competition with exclusive or authorised importers and distributors for that market.
Grey marketeers around the world benefit from lower manufacturing costs, surplus inventory and ever-changing economic conditions by importing goods into various markets without the permission of rights holders. They capitalise on this importation by undercutting the prices of authorised distributors while achieving higher profit margins due to the lower cost of manufacturing and acquisition in the originating countries.
Grey-market goods can have a significant impact on a business and its brands. For example, grey-market goods cause:
- loss in profits and margins;
- disruption in relation to authorised or exclusive importers and distributors and internal sales forces;
- brand dilution; and
- health and regulatory concerns (eg, drug shortage profiteering and products that do not meet regulatory standards).
Every business should implement effective grey-market enforcement programmes. Best practices include:
- keeping your own house in order;
- preventing the import of grey-market goods;
- engaging in grey-market intelligence through the concerted assistance of attorneys and investigators;
- protecting your intellectual property and enforcing your rights; and
- educating your company and other businesses, media and the public on your efforts to combat grey-market goods.
Recommended preventive measures
Counterfeiting, piracy and IP infringement are complex and dynamic problems. Counterfeiting networks often match the sophistication of the industries and companies that they target. Accordingly, no ‘cookie-cutter’ solution exists to address the challenge that many companies currently face. Each company is unique and requires an IP enforcement strategy that is custom-tailored to protect its unique brands and content. Companies seeking to protect their intellectual property should, at a minimum, consider the following best practices:
- Conduct an internal IP protection audit to assess the security of your key brands, content, products and services in terms of legal protection, security measures, supply chain and distribution through authorised and unauthorised channels.
- Obtain key copyright, trademark, trade dress and design registration in countries where your products are sold, manufactured or assembled.
- Routinely monitor unauthorised use of your brands and content. Establish surveillance of your distribution channels.
- Select and use anti-counterfeiting technology that is:
- appropriate for your product and business model (eg, radio-frequency identification tags, holograms, watermarks, covert markings or inks); and
- not burdensome to use for product authentication.
- Educate employees and the sales force about the critical role that IP protection plays in the company’s success, and provide training that will help them to recognise and respond to counterfeiting issues.
- Hire experienced investigators to build enforceable cases against networks that counterfeit or pirate your goods or content.
- Police the Internet, including online and Dark Web marketplaces, for the sale of counterfeit or pirated goods. Make full and regular use of the procedures offered by e-commerce sites and online marketplaces to de-list and/or take down infringing listings or websites. Further, use knowledgeable cyber-investigators and counsel to monitor and handle the challenges of the Dark Web.
Justin E Pierce, Marcella Ballard and Thai X Nguyen
This article first appeared in World Trademark Review. For further information please visit www.worldtrademarkreview.com.