The ongoing war against counterfeiters
Considering this multi-billion-dollar global crime that results in significant lost revenue to genuine brand owners.
The temptation to purchase what appears to be the latest fashion footwear or the most recent technologically advanced sports shoe at a fraction of the normal retail price is a very strong one. However, many consumers may not realise that they might be receiving poor quality fake products, and that their actions could have a negative impact on the very footwear industry from which they are buying.
According to the Paris-based Organisation for Economic Cooperation and Development (OECD), imports of counterfeit and pirated goods are worth an estimated $500 billion per year – around 2.5 per cent of global imports – with US, Italian and French brands the hardest hit. Up to 5 per cent of goods imported into the European Union are estimated to be fakes and, the OECD says, in many cases the proceeds of counterfeit trade contribute to organised crime. It is perhaps no surprise to learn that the most popular item produced by counterfeiters is ‘branded’ footwear, although trademark rights are even infringed on such goods as strawberries and bananas.
Hardest hit by counterfeiters
The countries whose intellectual property rights are particularly infringed – total of global seizures of all products.
USA 20 per cent
Italy 15 per cent
France 12 per cent
Switzerland 12 per cent
Japan 8 per cent
Germany 8 per cent
UK 4 per cent
Luxembourg 3 per cent
Finland 2 per cent
Spain 2 per cent
Belgium 2 per cent
China 1 per cent
Source: Trade in Counterfeit and Pirated Goods: Mapping the Economic Impact, published in 2016 by the OECD and quoting figures for 2013.
Counterfeiting has been a growing problem for footwear companies for many years. Not only does such illegal activity cost the brand owner money, but the poor quality and design of fake footwear can also cause lasting damage to a brand’s reputation. If customers are unaware that the product they own is a fake, they may associate the inferior quality directly to the brand, affecting future purchasing from that company.
Since the rise of the internet and advances in technology, it has become easier for unscrupulous companies to deceive consumers by selling low-quality goods as being authentic merchandise. Counterfeiters have created literally thousands of highly professional websites selling fake footwear, and customers who purchase counterfeit items from such sites are unaware that they are actually breaking the law in some countries. These websites have become so common that one designer brand has placed a cautionary message on its official website, warning shoppers about the high number of fake shoes on sale.
It has also been found that during large sporting events, such as the Olympics and the World Cup, the sales of trainers (sneakers) increased. In turn, the level of counterfeiting grew – especially of the brands sponsoring the event. Authorities around the world have set up dedicated departments with the responsibility of fighting counterfeiters and bringing them to justice. This crime is often resulting in custodial sentences and significant costs being levied.
In 2013, the Crocs leisure footwear brand announced the results of court action it took against infringements of its intellectual copyright in China. Chinese courts sentenced 18 individuals to prison sentences totalling more than 46 years for producing and selling counterfeit goods that imitated Crocs products. Seventeen of these individuals were convicted of counterfeiting, two of these also being convicted of offering bribes.
In addition to their prison sentences, those involved faced fines of $450,000. Nearly 129,000 pairs of counterfeit Crocs shoes – valued at more than $9.5 million – were seized by investigators.
“The lengthy prison terms and heavy fines handed down in these cases show that Chinese authorities are very serious about assisting us in eradicating counterfeit Crocs products in China, and so are we,” said a Crocs spokesperson. “We will not tolerate counterfeiters compromising our brand, and will continue to work with the authorities to hunt down and prosecute anyone who uses Crocs’ name, design or other intellectual property without permission.”
In 2016, USA-based footwear producers called for increased intellectual property (IP) protection for the global footwear industry, after it was claimed that seizures of counterfeit footwear around the world had increased by over 350 per cent in volume since 2010.
The problem of counterfeit footwear is certainly not reserved to the US market, with stocks of fake goods – some small scale and others quite significant – being located around the world. As an example, officials representing the customs department of the Indirect Taxation Authority of Bosnia and Herzegovina seized counterfeit footwear and clothing with a reported street value of around £7,900 ($11,000). This haul was found to infringe the intellectual property rights of such well-known companies as adidas, Nike, Prada and Tommy Hilfiger. The fake products were discovered and seized by the authorities during inspections at a number of locations in the city of Sarajevo. According to the Bosnian authorities, new equipment donated by the US government through the Export Control and Related Border Security programme proved to be a valuable asset during this action.
A major operation by the Jamaican police in 2014 shut down an illegal factory in which fake Clarks shoes were manufactured. Nine men arrested during the investigation faced a number of charges, including breaches of the Trademark Copyright Act.
Bryan Cummings – Jamaica Observer
According to a police spokesman, hundreds of pairs of counterfeit shoes were seized, along with equipment used to make the footwear. The factory reportedly operated at the location for more than two years and was likely to have produced thousands of the fake shoes for the local market. The facility is said to have not only supplied fake branded shoes to stores in and around Kingston, but also sold directly to the public through a factory outlet.
The police operation led to a protest by some Kingston residents who criticised the authorities for clamping down on what they called the ‘little man’. One bystander remarked that counterfeiting is a multimillion-dollar market and claimed that the police are not prosecuting the bigger players who import fake goods to Jamaica.
The raid was carried out under operations ‘Swirl’ and ‘Push Back’, targeting intellectual property crimes that have been earning considerable sums for organised criminal networks.
“Our focus at the Anti-Trafficking in Persons and Intellectual Property Vice Squad and, by extension, the Jamaica Constabulary Force, is to ensure that persons realise that intellectual property crimes are not only seen as a soft crime,” said deputy superintendent Carl Berry.
However, sometimes police action is not enough to compensate for the damage that has already occurred to a brand’s reputation and how much the industry has lost. This had led to extra measures being taken by businesses to protect themselves.
Some companies hire security firms to guard their brand name from counterfeiters, and take every step to bring legal proceedings against the alleged criminals when they are identified. One footwear producer created a high-tech label which is printed on a special material with patterns that are extremely difficult to replicate. Each shoe also contains a unique, non-sequential alphanumeric serial number, which makes the genuine product identifiable. A number of brand owners include information on their websites about how to identify fake shoes.
The counterfeiting of footwear is continuing to grow and, as it does, so does the sophistication of the quality. In the past, criminals have been known to manoeuvre their way into authorised factories, have ‘extra stock’ made, and then sell these counterfeits for their own profit, but this is often now too tightly controlled to do. More likely, a genuine product is purchased, dismantled and re-engineered – a method which seems to be successful.
As footwear forgeries become even more difficult to identify, it is important that brand owners regularly re-evaluate the steps they have in place to protect themselves from counterfeiters. This is an ongoing war that has no obvious end in sight. However, like the Netherlands’ sea defences are vital to withstand an overwhelming threat, every proactive step taken by the genuine footwear brand owner is necessary in an attempt to hold back the flood of fakes threatening their sales.
This article was originally published on page 44 of the January 2018 issue of SATRA Bulletin.