Newsletter

The Model to Pursue Counterfeiters in China is Changing

• Gucci files suit against counterfeit sites, protects brand image

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• New radiation technique identifies knockoff designer goods

• “Fingerprinting” footwear Page 3

Other Stuff • Chinese crackdowns

continue – but no mention of apparel/footwear

• ACSG ‘Bits & Pieces’ • And more!

Issue 13-08A

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Having just returned from one of my regular trips to China, I feel the need to get on my soapbox for a moment and insist that anyone responsible for brand protection efforts must find a week and the small budget required in order to make a trip there if you have never done so – the ‘up close and personal’ frame of reference will help you do your job better. To be clear, the scale is truly shocking and cannot be ignored in favor of simple domestic anti-counterfeiting activities. Furthermore, the Gucci article included on page 2 succinctly summarizes several facts to which ACSG could not agree more - specifically: • The more companies do, the less likely they

are to be targeted by counterfeiters; • If brands do nothing then the counterfeiters

come to know that they have impunity and they will do more of it;

• Although regulations and lawsuits are not likely to deter counterfeiters, companies should be adamant about protection;

• If brands put effort behind lawsuits, counterfeiters will move to another brand.

Brands like Gucci and Adidas have moved on from the outdated approach of relying on a local IP attorney who then engages a Chinese law firm - who in turn, often further sub-contract the work to third-party investigators! A clear lack of progress indicates that this model is flawed due to the increased possibility of corruption and no daily program oversight – not to mention the additional costs of paying at multiple layers.

This said, given that brand protection has been the domain of the legal community for the better part of two decades, alternatives have been essentially non-existent – especially for SMEs. However, it is now possible to leverage the winning best practices of the super-brands… Talk to us about how we can help you!

Photo of Luohu Commercial City – a five story enclosed shopping mall selling a wide range of counterfeit items - including clothing, shoes, watches, handbags, eyewear, audio-visual products – and more.

Technology Advances

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August 15: Italian fashion house Gucci has filed a lawsuit against a number of counterfeit Web sites and online merchants to help protect the brand’s image, although the legal battles are not likely to stop counterfeiters.

t The label recently went after web domains and individual merchants on online trading community iOffer in a suit in the Florida Southern District Court. Although this case is not likely to stop counterfeiters, it could prevent them from targeting Gucci in the future. “It is very hard to put counterfeiters out of business,” said Steven Gursky, partner and head of intellectual property practice at Olshan Frome Wolosky LLP, New York. “Lawsuits rarely convince counterfeiters that this is a bad business,” he said. “The more companies do, the less likely they are to be targeted by counterfeiters. “Brands can have an impact. If brands do nothing then the counterfeiters come to know that they have impunity and they will do more of it” - Mr. Gursky is not affiliated with Gucci, but agreed to comment as an industry expert. Gucci did not respond by press deadline. Defending trademarks Gucci filed suit against 100 defendants in the Florida case. Defendants included Web sites such as http://www.guccisshop.com, http://www.googlesunglasses.com and http://www.hotbrands4u.net, and individual merchants on iOffer, according to The Fashion Law. This is not Gucci’s first time in court this year defending its products and logo. In May, Gucci vigorously attempted to protect its

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brand trademarks while taking Guess Inc. to court. However, Gucci lost three of its Italian and European trademarks, while it only received $4.7 million from the $221 million it asked for in the United States-based case. Although Gucci’s most recent legal battle is not likely to pay off monetarily either, it will give the brand more protection over counterfeiters. “In dollar terms, the lawsuit will probably not pay for itself, but it is important to send the message that brands have an eye on iOffer,” said Susan Scafidi founder of the Fashion Law Institute at Fordham Law, New York. “Counterfeiting is a chameleon crime, continually changing with the marketplace and monitoring online sales is an essential part of good brand strategy,” she said. Fighting the battle Earlier this year, other luxury brands faced similar legal issues. For instance, Luxury conglomerate Richemont’s legal battle with counterfeit watchmakers was not the end of legal confrontations between counterfeiters and luxury brands. Richemont brands such as Cartier, Alfred Dunhill and Roger Dubuis won $100 million Jan. 4 in their case against the Nanyang Technology Company for running Web sites that sold counterfeit watches. Although counterfeiting will continue, brands that actively combat it are likely to make a dent in the industry. In addition, some areas are furthering legal action to protect against counterfeiters. In New York, there is a proposed bill to curtail the sale of counterfeit luxury items in the city and protect brand integrity that hones in on consumers rather than vendors. Although these regulations and lawsuits are not likely to deter counterfeiters, brands should be adamant about protecting their brand. “If brands put effort behind lawsuits like this, counterfeiters will move onto another brand, but they won’t disappear,” Mr. Gursky said. Source: www.luxurydaily.com

Gucci Files Suit Against Counterfeit Sites, Protects Brand Image

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further expansion of the platform in the area of authenticating moulded products.

The Fingerprint system relies on scanning a specific area of a product and comparing the digital image produced with images of the original product taken at the time of manufacture. Importantly, it does not require the addition of any marker or taggant. The approach "applies to a wide variety of footwear items, including shoes, boots and sandals that have a rubber or plastic sole," says the company.

The process requires capturing a digital image of the matte-finished sole during or post-production, which is then used as a reference to perform authentication. A regular iPhone equipped with AlpVision’s product authentication application can be used to verify the shoe, it adds.

According to the National Chamber Foundation, the estimated annual industry loss due to footwear counterfeiting in the US is $12bn, notes AlpVision.

Meanwhile, AlpVision has revealed a new partnership with mobile IT specialist MobileIron to help customers adopt its iPhone-based authentication platform which - as it is designed to be covert - is not available on Apple's App Store. "Brand owners can control who gets access to the application, customize it, and remote uninstall and update it," notes AlpVision. Source: www.securingindustry.com

AlpVision Tech Makes Foray Into Footwear

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August 8: British customs may soon have a new tool in the battle against knockoff designer goods.

Scientists at the U.K.'s National Physical Laboratory (NPL) have uncovered a way to determine the specific textile makeup of fabrics. The process uses a type of radiation called terahertz to differentiate between fabrics that both look and feel similar, Popular Science reports. Terahertz is a band of electromagnetic radiation that falls between infrared and microwave radiation. It is able to pass through both plastic and fabric. To identify the fabric, a sample is placed within the terahertz beam, allowing the properties of the waves to be detected and examined. Different fabrics cause the beams to scatter and be absorbed at different rates, according to Phys.org. This data makes up the fabric's specific transmission profile, a signature that can be used to identify a counterfeit good from an authentic one. The technique successfully distinguished between plain wool and more expensive merino wool as well as natural and synthetic silk. Cotton, linen and other mixed fibers also showed distinct properties when passed within the terahertz beam. At this time, British customs officers are allowed to seize counterfeit goods, but they must be identified as fakes first. The NPL hopes the technology will offer a more precise way for customs officials to confirm counterfeit goods. Knockoffs reportedly account for $4.6 billion in losses for European designer brands and retailers. But a database of all the outputs of each fabric

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must be created before the technology can be put into use. The U.S. faces a similar issue with counterfeit goods, costing U.S. business $320 billion a year, Reuters reports. The NPL is currently expanding its research to fabrics used in other industries like sports and medicine. Source: http://www.ibtimes.com

New Radiation Technique Identifies Knockoff Designer Goods

August 6: AlpVision has started the first pilot projects of its Fingerprint technology in the footwear sector, in a

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August 10: Chinese police have cracked over 19,000 criminal cases involving production and sale of fake or shoddily made products so far this year, the Ministry of Public Security announced on Friday. According to the ministry, police forces across the nation have throughout this year maintained a tough stance against forgery as well as violations of intellectual property rights. To date, police have confiscated counterfeit or shoddily-made products including more than 5,000 tonnes of food and drinks, two billion tablets or bottles of drugs and injections, over 3,100 tonnes of seeds, fertilizers and pesticides, as well as over 53 million pieces of personal care products, machinery and electrical products.

The ministry said most counterfeit goods-producing dens are located in suburban or remote areas. These products, usually made of substandard raw materials or contraband, are smartly packaged and sold through undercutting. Source: www.globaltimes.cn

Editor’s Note: No mention of apparel, footwear, or luxury goods. When it comes to companies operating in these sectors, a ‘fend for yourself’ brand protection strategy is essential…

Chinese MPS Crack 19,000 Shoddy Goods Cases

Other Interesting Recent Headlines (please cut and paste link) 1. How To Spot Fake Fashion [Infographic]

www.business2community.com/infographics/how-to-spot-fake-fashion-infographic-0581697

2. When is product expansion too big a risk? www.luxurydaily.com/when-is-product-expansion-too-big-a-risk/?utm_source=OLC&utm_medium=twitter&utm_campaign=Aivee

ACSG Bits & Pieces

Australia – Canada – Hong Kong – New Zealand – USA

www.ac-strategygroup.com

USA/Canada: 727.235.6466 or NZ/Australia: +64.21.520.466

Also follow us on twitter at: ACSG_Evans

In the May 2013 ACSG Newsletter, we highlighted poor quarterly financial results for Abercrombie & Fitch and Aéropostale, questioning what impact counterfeiting might be having on these otherwise seemingly strong brands. Add Ralph Lauren Corp to the list – on August 7, the company reported disappointing quarterly sales at its own stores – although net revenue rose 3.8 percent to USD $1.65 billion in the first quarter, net income fell to USD $181 million from USD $193 million a year earlier. No mention is made of cheap fakes contributing to the poor results, however, like the aforementioned companies, the ease of finding fake Polo clothing almost anywhere we go in China is alarming. Combine this fact with the adjacent China crackdown article in which apparel, footwear, and luxury goods are conspicuous by their absence and you have the seeds for a ‘protect yourself’ business case to fund anti-counterfeiting efforts in China.

Meet with ACSG at the 11th Anti Counterfeiting and Brand Protection Summit September 30 - October 02, 2013 - New York City

On a separate but related note, we highly recommend the book Poorly Made in China by Paul Midler for anyone considering (or already) sourcing from China.