Legal twist to war on counterfeiting

Court rulings lead to confusion over attempts by luxury brands to protect their reputation and revenue

Two recent court cases that put American auction site eBay in the spotlight have highlighted concerns and intensified confusion over the sale of counterfeit goods.

Recently, a French court ruled against eBay for auctioning fake Louis Vuitton products and ordered it to pay Euro40 million (HK$460 million) in damages. Ebay said it would appeal the ruling. However, days later jeweller Tiffany lost its legal battle against the world's largest online auctioneer in a United States court.

Tiffany sued eBay over the online sale of counterfeit jewellery. Whatever legal nuances explaining the separate rulings, the combined effect of the cases demonstrate how thorny the issue of counterfeiting has become, resulting in mixed perceptions about the seriousness of the crime across different industry segments.

'The problem is very different for a consumer brand and a luxury brand,' a spokesman for a major French luxury brand said. 'There is damage to a luxury brand's image even if it does not necessarily lead to direct loss of business.'

An annual survey by the Hong Kong government reveals a growing public awareness of intellectual property protection. But for industries in which counterfeiting has no life-threatening consequences, the crime is likely to be seen as victimless.

In the case of luxury brands, these counterfeit goods seem to have acquired 'Robin Hood' status among some shoppers; perceived as more affordable versions of accessories for the rich.

A shopper said: 'I thinks it's okay to buy fake goods because you get something that looks, maybe, 95 per cent the same as the real product for a 10th of the price. I never think it could hurt the luxury product business because only rich people can afford the real goods.'

Counterfeit luxury goods are seductive for those who would need to spend a month's salary on the real thing. But as brands become increasingly concerned about compromised quality, both consumers and companies need to take a holistic view to fighting counterfeiting.

According to figures released by Interpol last year, the impact of counterfeiting on industries translates into more than loss of revenue and jobs. Companies in some industries are losing up to 40 per cent of their revenue, with businesses losing US$200 billion to US$250 billion annually. In the US alone, more than 750,000 jobs are lost annually as a result of counterfeit merchandise.

Piracy is also costing the entertainment industry more than US$1 billion annually, and each year an estimated US$8 billion worth of counterfeit drugs are sold.

Alan Waring, chief executive of Asia Risk (HK), said: 'Those figures are coming from organisations such as Interpol based on consolidated data, though it is quite difficult to get reliable facts. There are more deep-seated issues, it's the sheer scale of it with revenue losses and damage to reputations.'

Dr Waring said damage to reputation could pale by comparison because links to crimes much worse than backstreet hawking were confirmed. The US government was so concerned about the role counterfeiting played in money laundering and international terrorism that its embassies had a special office monitoring the host country's commitment to anti-counterfeiting and programmes in place to deal with the problem.

It may take governments confirming these fears to prick the conscience of consumers. While these links help to promote the holistic view that there are always victims in any counterfeit-funded terrorism, they highlight the need for co-operation between governments, consumers and businesses that goes beyond police enforcement at street level which, while being a demonstrable punishment, may only be cutting off the tail and not the head.

According to Stephen Sayell, business manager and principal consultant at Asia Risk, countries with weak governance, lax laws and porous borders create environments conducive to crime. Law-breakers can infiltrate enterprises to find information they need to plunder intellectual property. 'Companies need to research things through the whole pipeline and be aware that this is happening across borders,' Mr Sayell said. 'All the negatives add up to a major problem because you can't get the co-operation you need.'

According to Mr Sayell and Dr Waring, for companies that operate in these markets to be vigilant, security measures need to include investigating subcontractors who may not be known at board level. And, for that to be effective, risk-management professionals specialising in intellectual property need to be deployed.

'Not that many companies have their own intellectual property professionals to deal with risk management,' Dr Waring said. 'They might just have routine security people who can't see the big picture. To deal with it means looking at the whole lifecycle of a company, from the kernel of the idea to the finished product. You have to look at each section because there are different vulnerabilities in each. This is something that can only be administered from the top down.'

A spokesman for a luxury goods company said his firm was 'very concerned about effective enforcement. Over time, you have to balance the costs and the effectiveness of what can realistically be done in the situation'.