These may be tough economic times, but one group is likely to post banner returns in 2020—counterfeiters.
Even before the pandemic struck, the global market for counterfeit goods was swelling, especially in areas such as household cleaning products, food and drink, surgical supplies, and pharmaceuticals. Since Covid-19 hit, the Federal Trade Commission reports U.S. consumers have been defrauded out of tens of millions of dollars by counterfeiters preying on demand for cleaning products such as hand sanitizer, bleach, and disinfectant wipes.
Manufacturers and their supply chains can play a critical by investing in a strong program of prevention, detection, and mitigation. Doing so may not eradicate counterfeiting from a manufacturer’s supply chain, but the effort can yield effective results, preserve income, protect a brand from reputational damage, and, most importantly, help ensure that fewer consumers are harmed by potentially dangerous fake products.
Counterfeit products not only impact profits, they also pose a major threat to public health and safety. For example, U.S. authorities have reported finding carcinogens, human waste, and rodent droppings in counterfeit cosmetics, and faulty lithium-ion batteries and counterfeit chargers have resulted in damaged electronics.
Completely stopping counterfeits is likely impossible. Counterfeiters have proven adept at leveraging the complexity of the global trade network to enter the supply chain at multiple points.
To create barriers to entry, manufacturers should:
- Conduct due diligence and perform regular reviews and inspections of the supply chain. This includes examining not only the company’s own manufacturing processes for inflection points, but also those of its production and sales partners. Partners can include parts makers, subcontractors, suppliers, and authorized distributors, among others.
- Leverage modern technology. Depending on the goods in question and their budgets, manufacturers may be able to invest in tagging technology to securely identify genuine products. The technology is becoming more sophisticated, with ever-smaller and more powerful wireless identification tags that allow for authentication of goods at each point of the manufacturing and sales cycle.
- Ensure proper registration of trademarks. Manufacturers should ensure their trademarks are properly registered and maintained. Registration can help a manufacturer pursue claims involving goods with a counterfeited mark. Aggressive enforcement can act as a deterrent to fraudsters, serving notice that the company is willing to seek financial sanctions and take legal action.
- Establish relationships with relevant law enforcement agencies. To encourage law enforcement and regulators in a particular jurisdiction to pursue counterfeiters, companies should establish strong ties with relevant agencies and promote an open dialogue about the presence of counterfeiting in the supply chain. This may include providing training programs to law enforcement and customs officials to help them identify fake goods and help them understand the latest counterfeiting trends.
Additionally, training is critical for employees, including sales representatives. When customers are buying what appear to be the company’s products from sources other than authorized sellers, sales representatives should inquire about the suppliers of those goods as part of their protocol.
When fake products hit the global marketplace, manufacturers can attempt to weed them out and help consumers identify and report counterfeit items. They should:
- Monitor the virtual marketplace. Third-party sellers dominate most of the large e-commerce sites, which can be a boon for manufacturers looking to uncover fraudulent activity. Companies can continuously monitor websites selling their products and examine pricing and sellers to detect suspicious activity.
- Establish a test purchasing program. Test purchases can help detect counterfeit goods, and allow manufacturers to determine ways fraudsters are manipulating products and marketing them to consumers.
- Instruct and empower consumers. Companies should engage in education to help consumers identify and avoid fakes, sharing information about the potential harm they face from counterfeit products along with the means to identify them.
In addition, consumers should be able to easily report counterfeit products to the manufacturer. Prominently feature simple-to-use online forms, telephone hotlines, and readily available email addresses to help customers alert manufacturers to counterfeiting activity.
Once a counterfeiting issue has been discovered, a company must act to thwart the organization responsible. Companies may:
- Conduct investigations. Investigate to identify where and how counterfeit products entered the supply chain and to shut down the responsible parties. An investigation should include all the players in the manufacturing and sales process, including third-party suppliers and distributors.
- Work with competitors. Peers in the industry are likely waging similar battles and may be willing to team with a fellow manufacturer to upend a counterfeiting operation. The National Association of Manufacturers, in a report earlier this year, recommended sharing information on counterfeiting activity with fellow manufacturers to improve vendor vetting and help pursue enforcement action against bad actors.
- Take legal action. Companies can start the legal process by sending a strong cease-and-desist letter to a counterfeiter and can ratchet up pressure by engaging with law enforcement and regulators. Litigation, where appropriate, may be necessary to enforce the company’s brand and prosecute claims.
- Go public. Sharing information with the relevant authorities is but one step. Major counterfeiting instances may be communicated to the press to raise public awareness and minimize damage to the brand by clearly communicating what steps are being taken to resolve the issue.
- Seek assistance. Third-party experts in fighting fraud will have resources they can quickly and readily deploy, including investigative technology, a network of on-the-ground connections, sophisticated investigative tactics, and other counterfeit-fighting techniques to help companies expose and obstruct counterfeiters.
This column does not necessarily reflect the opinion of The Bureau of National Affairs, Inc. or its owners.
Brian Cairl is a senior managing director and director of investigations, Americas, at K2 Intelligence FIN. He works with clients to mitigate fraud and corruption risks, respond to compliance breaches and integrity incidents, and provides dispute advisory support.
Hannah Coleman is a managing director in K2 Intelligence FIN’s Investigations and Disputes practice. She specializes in areas including intellectual property investigations, media transparency assessments, investigative due diligence, corporate contests, and litigation support.