Newsletter

Beats by dr. dre multi-faceted anti-counterfeiting strategy.

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A different perspective on Gray Market goods… Kering drops Alibaba lawsuit. Page 2

Blog: Holograms in 2014: A mixed response on the future of holography.

Issue 14-09A

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Beats' Battle with Counterfeiters Reveals a Mercurial Black Market July 22: Beats Electronics has obtained a restraining order against several copyright and trademark infringing websites alleged to sell counterfeit headphones. The lawsuit, filed July 9, ordered an injunction in Illinois against these online outlets and is the fifth such complaint filed by Beats this year. As well as highlighting the recently Apple-acquired brand's ongoing struggle with phony products, the suit is a fascinating look into the sophisticated distribution network of counterfeiters spread throughout Asia.

Beats says the defendants are an interrelated group of Chinese counterfeiters working together to manufacture and sell phony products, but it is virtually impossible for the company to learn the defendants' identities or exact interworking.

According to people familiar with the matter, counterfeit products bearing Beats' trademark logo will often be mass manufactured, almost exclusively in Asian countries, then sent to distributors and retailers, functioning similarly to a legitimate business but in the black market. In the instance of this lawsuit and the several before, Beats is addressing websites using the company name such as www.ilovebeatsbydrdre.com, as well as nabbing the same website design and copyrighted images from the official Beats by Dre website. However intertwined these stages of manufacturing, distribution and sales might be, is unclear.

In each industry, counterfeit goods are measured on an A-C grade scale, where A's are the most legitimate and are often sold for nearly the same amount as the authentic product, and C's will bear the brand logo but barely resemble any of its actual products. In the case of Beats, those C-level headphones might cost just $10-$15. "The overwhelming success of the Beats brand has resulted in its significant counterfeiting," the suit states. As such, just as with Louis Vuitton bags, Gucci belts and Diesel jeans, customers want the luxury brand without the luxury price — a hunt that will lead some to counterfeit goods. And, though manufacturing counterfeit headphones may not be quite as easy as copycat clothes, the high demand and profit margin makes it worthwhile. In this most recent lawsuit, Beats demands all profits from these sales, plus damages or $2 million for each use of the Beats trademarks and $100,000 for each infringing domain. As the company is able to attach assets in U.S.-based financial institutions to satisfy the court's judgment, in the four suits filed previously Beats has been successful in getting judgements and freezing Paypal accounts to receive at least a portion of these funds. Beats would not disclose the total amount received, but said it has been "substantial" and that money seized goes back into the company's enforcement budget to continue its attack on infringers. Continued on page 4…

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August 11: Well-known brands have long had a love-hate relationship with gray-market goods.

These products can erode companies’ pricing power and hurt the image that they’ve spent years cultivating.

Still, gray-market goods generate revenue for brands wherever they’re sold. They can also help build awareness and drive demand in countries where brands don’t have a significant presence. That’s why many brands, despite making a fuss about the unauthorized sales, have little appetite to crack down.

“It’s one of the worst-kept secrets that brands look the other way on gray-market goods,” said Scott Galloway, CEO of L2 Inc., a New York-based research firm.

The problem is that “the store manager in New York will not want to have their sales revenue drop by 5%, so somehow they are incentivized to keep this going,” said Alex Misseri, e-commerce manager at Razorfish, a digital consulting firm. “At the end of day, top management of the brand says that any way it sells, it’s money in my pocket.”

Yet in places like China, where online shopping is fueling demand for gray-market goods, well-known brands are realizing they have to clamp down on their distribution network or risk hurting their own sales in this key market, said Yujun Qiu, an analyst at Planet Retail.

On popular online shopping platforms such as Tmall and Taobao, owned by Internet giant Alibaba Group Holding Ltd., gray-market goods are common and often sold at steep discounts to the retail price. Concerns raised by brands have led Alibaba to start removing some gray-market listings from its sites.

Brands are also realizing that there can be a fine line between gray-market and counterfeit goods, a problem that brands have thrown money and investigators at for years.

“If the product is genuine, that’s one thing,” said Dan Plane, director at Simone IP Services, a consultancy on IP issues. “But very often, the parallel importers mix in fakes. There’s nothing to stop them from doing this.”

Source: blogs.wsj.com/corporate-intelligence/ (Kathy Chu)

Why Gray-Market Goods Aren’t All Bad for Big Brands (Blog)

August 12: Chinese internet giant, Alibaba, is said to be working with luxury conglomerate Kering (formerly Gucci) to crack down on the sale of counterfeit items, after the French company withdrew its lawsuit against Alibaba.

The lawsuit claims accused the Chinese e-commerce firm of knowingly engaging in violating the company’s trademarks, but was dropped after discussions between the two parties, said a spokeswoman from Alibaba to Bloomberg.

“Kering and Alibaba have agreed to work together in good faith through the normal business process on ways to enhance intellectual property protection,” said the companies in separate statements. Although Kering has dropped its lawsuit against Alibaba, the company will continue to take legal action against the merchants mentioned in the lawsuit filing.

Alibaba, who is currently preparing for what may be the biggest initial public offering the US, has been coming down hard on number of counterfeiters operating on its online platforms by banning listings which may violate intellectual property rights.

The online giant has been working hard to encourage more luxury labels to sign up to its marketplace sites and has pledged to remove discounted products not authorized by luxury labels, if they open store fronts on Tmall. Before British luxury label Burberry opened its official store on Tmall this April, Alibaba is said to have removed over 50 unauthorized merchants which sold products from the label.

Alibaba previously signed an agreement with the UK government last December which stipulated that unauthorized sellers of UK labels would be removed from its websites if brand owners would launch an official store on Tmall. Alibaba crack down on counterfeiters is thought to help make the Chinese Internet giant more appealing for Western labels and help attract investors ahead of its listing on the New York Stock Exchange. Source: www.fashionunited.co.uk

Alibaba Joins Forces with Kering Against Counterfeits After Lawsuit is Dropped

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August 11: With new innovations emerging in anti-counterfeiting and authentication, especially surrounding security methods being developed to combat the counterfeit threat of 3D printing, a natural question to ask is where this leaves the humble hologram. Speaking to commentators about the future of holography, the response was mixed - with one industry spokesperson acknowledging that the industry holds its fate in its own hands.

“In the short term, holograms will remain somewhat effective, but with diminishing efficacy as more advanced technology becomes more affordable,” speculates Daniel Brean, senior associate at The Webb Law Firm. He predicts that the newer technologies, such as quantum dots, are “going to be more effective because they are harder to imitate or duplicate” and, as costs to use these new methods reduce over time, Brean states: “I would be surprised if holograms are still in widespread use decades from now. For higher-volume businesses with the potential for counterfeits, holograms are likely to be discarded in favour of more sophisticated authentication mechanisms when the costs come down.”

You’d think this blunt assessment would be of concern to the International Hologram Manufacturers Association, which represents nearly 100 hologram companies across the globe. However, while he is positive about the future of holography in the anti-counterfeiting fight, the association’s general secretary, Ian Lancaster, acknowledges that the industry needs to ensure that potential users are aware of the advantages of holography.

Talking to World Trademark Review, Lancaster explains that he was a member of the committee that put together the ISO standard for performance requirements of authentication solutions. The committee looked at overt, covert and track-and-trace methods, and concluded that overt authentication methods, such as holograms, remain an essential element for the authentication of material goods.

Regarding the ability of counterfeiters to reproduce holograms, Lancaster acknowledges

Holograms in 2014: A mixed response on the future of holography it is possible, but adds a caveat: “To the collective knowledge of the IHMA, there has not yet been a copy of a well designed, well thought out security hologram that is 100% accurate.”

Countless innovations are being developed in the hologram industry to make the method more effective and even more difficult to reproduce nefariously, Lancaster says – the organisation’s patent bulletin has information on 100 patents related to holograms and related technologies, on average, every month: “Yes, many of the developments are incremental, but some are genuinely a new technology. There are at least a handful of hologram companies around the world, for example, working on surface plasmon resonance (SPR) devices.” Other innovations include the ability to incorporate QR and other types of codes within holograms.

Lancaster also counters: “There’s a zeitgeist amongst brand owners and trade associations that seems to believe that track-and-trace can deliver the sort of anti-counterfeiting success that everybody wants, and that is a mistaken view. Tracking and tracing something through the supply chain is an extremely valuable thing to do for a brand owner, but it does not deal with products outside the official supply chain, and that tends to be overlooked by the authorities and brand owners. And, in terms of anti-counterfeiting, we have to be thinking of the heart of Africa, south east Asia and parts of Latin America where network coverage is, frankly, sporadic, so what might be appropriate in a developed country may not be in an emerging economy or not-yet developing country. So I recognise the value of track and trace systems, but I think it’s mistaken to regard them as authentication systems.

As to whether holograms will still be widespread decades from now, Lancaster says: “That really depends on how successful the IHMA, and the hologram industry as a whole, is in getting across the message that overt physical authentication features remain important in a partially digital age.” Source: www.worldtrademarkreview.com (Tim Lince)

Note: Content edited to condense article.

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Other Interesting Recent Headlines (please cut and paste link) How to Identify Business Assets (which may be protected by IP rights) www.ipo.gov.uk/blogs/equip/how-to-identify-business-assets/

Coffee Shortage Spurs Counterfeit Grinds www.cnbc.com/id/101917268#

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As well, Beats has been successful in getting about 3,000 domain names transferred to the company's ownership since September 2013 through four lawsuits. But Beats' anti-counterfeiting efforts do not stop at the U.S. border. Across the Pacific, there is a system of informants and private investigators collaborating with on-ground investigations. The company's global brand protection department will regularly collaborate with foreign law enforcement to conduct raids against companies creating counterfeit goods, making arrests and seizing goods. Editor’s Note: ACSG strongly advocates this ‘address the source’ approach. "In most countries it's illegal to sell counterfeits," said Negin Saberi, Beats' Director of Global Brand Protection. "So in addition to the civil legal system like our cases in Illinois, we are able to use the criminal system and work with law enforcement locally (overseas) to do raids of manufacturing sites to seize the counterfeit products and get them destroyed. And when we engage in that process, because counterfeiting is illegal, we are able to have arrests as well." In 2012, following the split with Monster, sources say Beats made a concerted effort to move efforts in-house for better control and more effective results. Simultaneously, the company's growth has been rapid and the success in expanding its business and brand recognition has been unparalleled by any other consumer headphones company over this time.

A mere four years ago, $59 million worth of premium headphones (those priced $99 and up) were sold in North America. In 2012, sales ballooned to $850 million, and nearly two out of three pairs of headphones carried Beats' authorized iconic logo." The company's cultural weight and influence is well-known, but seeing its celebrity reach in the new court documents is striking. From both solicited and unsolicited endorsements, musicians including will.i.am, Lady Gaga, Nicki Minaj, Justin Bieber, P.Diddy, and Eminem, are all mentioned in the suit for having been associated with the brand. "Counterfeiters are just making something that steals the consumer's money – the product doesn't sound right, won't be durable and may not be safe," said Saberi. In a white paper study that's cited in Beats' lawsuit, it's estimated that all websites like the defendants receive tens of millions of visits per year and to generate over $135 billion in annual online sales. Such counterfeit goods are also estimated to contribute to tens of thousands of lost jobs for legitimate businesses and broader economic damages such as lost tax revenue every year. "It is so important to police our brand because we don't want our consumers to be tricked," said Saberi. "We don't want them to pay top dollar — or any dollars — to then get a fake, inferior product." Source: www.billboard.com/biz/ (Colin Stutz)

Beats' Battle (continued from page 1)