Managing counterfeits

Below are three examples of companies that got into trouble by not securing themselves properly because they did not pay enough attention to IPR issues.

1. Unprotected trademark
   Company X’s trademark was protected on its main markets USA, Europe and Japan. In China the trademark was not protected since X did not have any distribution on the Chinese market.
   
   Unfortunately, at a later stage, the lack of protection in China blocked X from outsourcing production to China, because a local Chinese company without connection to X had registered X’s trademark in China. This registration was not discovered by X until the products that X had outsourced for production in China were ready to be shipped back to X’s main markets for the high season. The local Chinese company imposed injunction against the export from China of X’s own branded products, which resulted in X losing the important high season sales.
   
   On top of this loss, X also had to pay several million Danish Kroner to buy back its trademark from the local company in China.
   
   This unfortunate situation could have been avoided if X had made a strategic trademark registration in China (which costs DKK 15,000) at the same time as X registered its trademark on its main markets.
   
   
2. Abuse of production equipment
   Company Y had outsourced the production of its labour intensive products to an Asian low-cost country. Y had not secured its immaterial rights to products and moulds in its contract with the Asian sub-supplier. The sub-supplier therefore continued to produce on Y’s original moulds after having finished with the day’s work for Y. The products from this "surplus production" were then sold "out the back-door" by the sub-supplier at a fraction of the market price of the original product.
   
   It was not possible to distinguish between the copy products and the original products on the markets, since they were produced on the same moulds and all packed in the original packaging. However, the copying activity had a severe effect on the development of Y’s sales which decreased both on the main markets as well as on the new focus markets.
   
   
3. Loss of reputation due to a defect copy
   Company Z knew that a copy production of parts to its market leading products was taking place. Z only reacted to a limited extent towards the counterfeiters, because the management of Z believed that the consumers were able to recognise and prioritise the original products over the copied products.
   
   However, one unfortunate day a poor quality copy battery marked with Z’s trademark exploded and disfigured an American teenager’s face. As a consequence, Z lost 18% of its turnover that year – despite the fact that Z informed the markets and the media that the defect battery was a copy product.