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Virus Leaves Brands to Protect Themselves as Opportunists Pounce

April 24, 2020, 10:31 AM

Thomas Moga fights counterfeiting for a living as an intellectual property attorney, but he also understands first-hand how emergencies like the Covid-19 pandemic can make even the savviest consumers vulnerable.

Moga contracted tropical typhus in 1990 while living in southeastern China and teaching at Xiamen University. When another visiting instructor—a nurse—brought unmarked medication to his apartment, he was so miserable with a 104-degree fever that he ignored his cautionary instincts about counterfeits.

“Desperate times make you do things you wouldn’t usually do,” said Moga, who has run counterfeit pharmaceutical investigations in Asia. “I didn’t employ my usual discretion. I didn’t look as closely as I should have. I was fortunate the drugs were legitimate.”

The ability to catch consumers at their least cautious has created a huge window of opportunity for savvy counterfeiters during the current pandemic as shutdowns halt swaths of the economy and limit enforcement avenues. It’s put owners and their attorneys largely on their own to protect their brands as usurpers adopt new tactics, some of which could outlast the emergency.

Companies may have to narrow much of their focus to areas they can control, like online policing and educating consumers and customs officials, attorneys say.

“The biggest mistake in IP is when people don’t change and don’t learn,” said Moga, who works at Dykema Gossett PLLC. “This is going to be an important lesson, and a game-changer for everything we’re doing. We’re going to have to rethink a lot of it.”

Desperation Heightens Risk

Stay-at-home orders have pushed a higher share of shopping online amid shortages of health and safety products, making the virtual world an obvious focus for infringers. Potential victims aren’t merely more numerous, but in some cases more vulnerable, intellectual property attorney Eileen R. Ridley of Foley & Lardner LLP said.

“With such proliferation of online shopping, you have a bunch of inexperienced people using mechanisms they’re not adept at using,” Ridley said.

Knock-offs of ventilators, test kits, masks, hand sanitizers, and other supplies to help treat and guard against the virus that are selling for “extraordinary prices” are “definitely widespread,” Ridley said.

Even legitimate items can be marked up to a brand’s detriment; 3M Co. has filed three trademark lawsuits alleging that distributors have made unauthorized sales of N95 masks for up to six times the regular price, even though 3M hasn’t increased its price.

Enforcement Methods Quarantined

In addition to providing opportunity for fakes, the pandemic has constrained the means to combat them.

Even when operating at full capacity, courts can be relatively slow to provide infringement relief. Lawsuits can still be filed and temporary restraining orders sought, but they’re “hard to get even in the best of circumstances,” intellectual property attorney Andrea Anderson of Holland & Hart LLP said.

A March 18 order by an Illinois judge dressing down an art agency for twice seeking a quick injunction hearing to halt knockoffs of unicorn-decorated phone cases got wide attention among trademark attorneys. He declared that “the world is facing a real emergency. The plaintiff is not.”

The tone of the order glossed over that stopping fakes often is an emergency for brand owners, trademark attorney Marci Ballard of Venable LLP said. “It’s easy for a judge to make fun of a product,” Ballard said. “If you have a business and that’s your product, you’re suffering—whatever the product is.”

Other enforcement avenues have also been curtailed.

Danny Awdeh, Intellectual property attorney with Finnegan Henderson Farabow Garrett & Dunner LLP, said stay-at-home orders have limited his ability to check suspected warehouses storing fake goods. Some outside investigators that IP law firms use have been furloughed by their agencies, he added.

Meanwhile, counterfeiters are rerouting merchandise with various factories and shipping routes closed down, Moga said. Brand owners should “look places you’d not looked before,” he said.

Factories in China, the leading counterfeit source, have begun to reopen. But the Chinese embassy in the U.S., which can provide powers of attorney certification to Chinese lawyers that enable local police to shut down counterfeiters, remains closed to most activities, Ballard said

A legitimate Chinese supplier told Moga it had removed labels from boxes to get them around export restrictions on certain masks. “If it’s that easy to sidestep the regulation,” counterfeiters would likely also be able to, Moga said.

Educating and Web Watching

Policing online shopping yourself may be most efficient in the current environment, Ballard said. Attorneys advised that brand owners test-buy products they find online to find unauthorized sellers, ask platforms like Amazon.com and EBay to remove counterfeit listings, and press hosts to remove domains and websites mimicking their brand.

Attorneys say there’s also value in protecting the brand by educating consumers and customs officials on how to tell genuine products from fakes. That can include information about the products themselves as well as where they are—and are not—sold.

3M’s lawsuits over distribution of its legitimate branded products, while an unorthodox use of trademark law, send strong messages to consumers that the company won’t condone profiteering in a pandemic, attorneys said. The company has also provided a link on its website to help customers authenticate if a product is real, trademark attorney Purvi Patel Albers of Haynes and Boone LLP added.

“I think 3M is doing a great job,” Albers said. “It all comes down to brand trust, and there can be a lot of damage in times of crisis.”

More aggressive use of radio-frequency identification, or RFID, tags as hard-to-replicate certification of imported goods can help customs officials quickly spot fakes, Moga said. The pandemic should prompt companies to adopt them permanently, especially with the cost of tags far lower than it once was, he said.

“This is not one-and-done, the online operations for counterfeiters are learning a tremendous lesson right now, and we’re fooling yourself to think this will go back to usual,” Moga said. “This is a whole new playing field, and we’d better get used to it.”

To contact the reporter on this story: Kyle Jahner in Washington at kjahner@bloomberglaw.com

To contact the editors responsible for this story: Keith Perine at kperine@bloomberglaw.com; Bernie Kohn at bkohn@bloomberglaw.com

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