Do Cutting Edge Anti-Counterfeiting Technologies Really Work?

Edible bar codes.

Plant-based DNA strands embedded in military hardware.

Iridescent nanotechnology inspired by butterfly wings.

These are not science fiction topics.  They describe recent developments in anti-counterfeiting technologies that are capturing mainstream news headlines for their creativity in tackling a trillion dollar a year problem facing many industries, ranging from pharmaceuticals to children's toys to military hardware.

The primary purpose of these developing technologies is to assist brand owners with better detection of counterfeit products as they infiltrate the supply chain.

For example, recent studies have discovered a "flood" of fake military hardware components making their way into the U.S. armed forces' vehicles and planes.  The safety threat posed by substandard military grade parts is unimaginable.

Using the new technology, if military hardware components are counterfeit, they will not possess the correct embedded plant DNA, which can be detected with a special inspection tool.

Similarly, the pharmaceutical industry can use edible bar codes to allow for easier tracking and authentication of pills and verification of drug packaging.  Spending by pharmaceutical companies in the anti-counterfeiting tech marketplace is predicted to exceed $1B per year in coming years.

But, while they are clearly effective at detecting counterfeits, are these cutting edge technologies addressing the deeper issues behind the continuing scourge of fake products?

Unfortunately, the data demonstrates that, despite the increasing use of advanced technologies to detect the presence of counterfeits infiltrating the supply chain, the steady supply of counterfeit products continues to skyrocket.

Why?

Because no improvements in DNA-based detection technology can change this simple mathematical equation:  When profits routinely exceed investment, there will be a steady supply of fake products.  Fakes require no research, development or marketing to succeed.  Rather, by passing off a fake product to consumers, a $10 investment can yield $100 in profit, with little or no likelihood of prosecution or penalty.  

This return on investment (ROI) exceeds that of trafficking in the narcotics trade, with less chance of being murdered by the competition or sentences that include decades in a federal penitentiary.

While advanced detection methods are part of the brand protection puzzle, international laws and norms clearly need to become increasingly effective, to deter and punish counterfeiting once it is discovered.

Tory Burch Gets Tough On Fakes

Today, Tory Burch got tough on fakes. The designer's company filed four new lawsuits against companies allegedly dealing in counterfeit Tory Burch products.  

WWD reports that four cases all deal with manufacturers and wholesalers of jewelry featuring hardware identical to the brand’s trademarked “TT” logo. 

Their legal team described the four cases as separate but “interconnected”, and chief legal officer Robert Isen emphasized that the designer has “long been vigilant in defending [its] intellectual property, and will continue to take counterfeiting and copyright infringement seriously.”

In all four cases, Burch is seeking “unspecified damages and injunctive relief.”  In other cases previously filed by Tory Burch, the defendants were cybersquatters, primarily based in China, and (as in most cases like it) only a portion of the damages were recovered by seizing PayPal accounts and other assets.

This time, the defendants include a California boutique, two New York-based companies, and a Chinese company with a New York showroom and frequent tradeshow presence, the latter of whom showed the spurious goods to a private investigator.

Pfizer to Sell Viagra Direct to Consumers Online, Blames Counterfeiting

Pfizer, Inc. is reportedly preparing to sell Viagra-brand sildenafil citrate tablets online directly to consumers, without the need for a pharmacist.

A prescription from a licensed medical doctor is still required. CVS Caremark Corp. will fill the orders made on the company's website, Pfizer said.

Pfizer attributes the unusual move to the prevalence of online counterfeiting, according to a recent story in the L.A. Times.

Online pharmacies have proliferated in recent years, selling fake versions of Viagra and other brand-name drugs at low prices and with no prescription needed.

Viagra has become one of the most popular drug products to counterfeit given its high price and the embarrassment some men experience ordering the drug from a local pharmacy.  

When announcing its move to include online sales, Pfizer cited a recent study that found as few as 3% of websites selling prescription drugs were legitimate pharmacies selling genuine goods.

Viagra is one of Pfizer's top drugs, posting $2 billion in worldwide revenue last year.

Is it Trademark Infringement to Make Your Own Fakes?

The Huffington Post is reporting that there is a run on a particular pantone of red paint in the United Kingdom.

Why red paint?

Faced with the high price of genuine Christian Louboutin designer pumps, some cash-strapped British wannabe fashionistas are painting the soles of their high heel shoes a specific shade of red, in a deliberate imitation of the designer's federally registered trademark.

In response to the Huffington Post article, I was asked the obvious question by many people:  "Is that practice legal in the United States?"

I had to pause to make sure that I was absolutely convinced that the following statement was really true:

"Yes.  This practice is absolutely legal in the United States."

Intentionally applying a counterfeit, imitation trademark to a product for one's own personal use, assuming that there is ZERO chance that the item will ever be sold or offered for sale to anyone -- is perfectly legal under current U.S. trademark laws.  It is perfectly legal to own, wear and proudly display a counterfeit product on one's own person.

The Lanham Act, codified at 15 U.S.C. § 1051 et seq., is the primary federal statute of trademark law in the United States.  The Lanham Act prohibits a number of activities, including trademark infringement, trademark dilution, false advertising and false designation of origin.

If someone were to offer a product for sale that infringes upon, dilutes or causes confusion with a protectable trademark or design, that person would be civilly (and possibly even criminally) liable under the Lanham Act for monetary damages and an injunction (a court order) against their continued conduct.  The goods can also be confiscated and destroyed.

In a case where I represented French designer Hermes of Paris, a 3-judge panel on the influential U.S. Court of Appeals for the Second Circuit in Manhattan unanimously wrote:

"Such a practice [of selling knockoffs] does harm the public, however, by creating post-sale confusion, not just among high-end consumers, but among the general public, which may believe that the knockoff is actually the genuine article.  In fact, high-end consumers may be less confused than the general public in the post-sale context because many of them will be aware of the existence of copies.  In either case, a loss occurs when a sophisticated buyer purchases a knockoff and passes it off to the public as the genuine article, thereby confusing the viewing public and achieving the status of owning the genuine article at a knockoff price."  Hermes Int'l et al. v. Lederer de Paris Fifth Avenue, Inc., et al., 219 F.3d 104, 106 (2d Cir. 2000).

But in each of its relevant prohibitions against knockoffs, the Lanham Act deliberately utilizes a key word -- commerce.

Absent some form of actual, intended or apparent "use in commerce," the imitation shoes that a person makes solely for their own personal use and display cannot be accused in a federal court as being an infringement, dilution or false advertising.

Indeed, that result is true even if the copycat shoes are admittedly designed to cause the third-party, "post-sale" consumer confusion that the Court of Appeals said is harmful.

Cheap knockoff shoes can also "dilute" the fame and power of a well-known brand (especially if the imitation shoes are lousy quality, which would "tarnish" the fame of the red-sole Louboutin trademark).

But the manufacture and use of personal copycat red soled shoes, assuming no use in commerce other than the mere act of a private person wearing them, is simply not illegal under current U.S. federal law.

That perverse outcome means that even if an ill-intentioned person were to manufacture many pairs of such shoes, for no commercial purpose other than to deceive their friends and onlookers into believing that they are fashionable enough to own a hundred pair, there is nothing the trademark owner can legally do to stop that person.

Perhaps the more interesting and unresolved question is...could a designer accuse a famous celebrity who chooses to wear knockoffs on the red carpet, of essentially "endorsing" the fake goods in an unlawful commercial manner?