Breaking the habit

With heightened awareness of the importance of anti-counterfeiting efforts at government level, INTA’s new president, Richard Heath, believes it’s now time to tackle consumer demand

Richard Heath has taken over the presidency of the International Trademark Association (INTA) with a clear vision for change. Vice president, legal, and global anti-counterfeiting counsel in his day job at Unilever plc, he sees the new role at the helm of the world's leading trademark organisation as an opportunity to make a real difference to the industry, and to change consumer attitudes towards counterfeit goods.

In his opening speech at the INTA Annual Meeting in Seattle in May, he outlined three major challenges facing brands, and thus his three main priorities for his one-year term as president. First, the internet, which he says has created as many problems as it has solutions. Then, what he terms 'the chasm' between the intellectual property (IP) laws that exist to protect brands from counterfeiting and the realities of the international enforcement network. Finally, the need to encourage and expand private-public partnerships in order to give added momentum to policy development.

This last element forms an important part of INTA's 2010-13 strategic plan, which Heath says has given the organisation a new sense of purpose in the support and assistance it delivers to brand owners. 'Our experience shows that alignment between regional, national and global bodies is imperative if we are to achieve lasting changes. But legal frameworks are jurisdictional by nature, so global policymakers can push progress only so far. If we align them, we can gain traction and INTA is in a strong position to help drive that.'

Working together

Heath gives as an example of this the Anti-Counterfeiting Trade Agreement (ACTA), which is currently being developed behind closed doors by 35 countries including the US, Australia, Japan and the European Community. While the secrecy of the negotiations has resulted in considerable negative publicity for ACTA, Heath says that simply reflects a fundamental lack of understanding about how international treaties are negotiated. He emphasises that INTA's involvement (it has put together a response group of 25 to 30 organisations to give a voice to the business case) is in itself unusual. 'We took a strategic decision to be as proactive as we could in putting forward the needs of businesses,' he says. 'How much of that will end up in the agreement text is anybody's guess but at least we're ensuring that the message from the industry is consistent.'

Heath believes this to be the best way for businesses to engender real change. 'In my experience that's the one thing governments respond to,' he emphasises. 'After all, if we as businesses are all pushing our own individual agendas then it's natural that policymakers, faced with so many different needs and opinions, will ask: "What am I supposed to do?" INTA provides the forum for businesses to come together to develop a clear and consistent message.'

He stresses that change needs to come – and soon. 'It's time to address shortfalls in existing agreements,' he says, referring in particular to the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS). 'There's nothing fundamentally wrong with the TRIPS agreement. But it's now 15 years old and the world has moved on considerably since it was originally negotiated. The internet is one example of this; it just didn't exist in its present form in those days. We can't expect policymakers to predict that far into the future.'

However, concluding negotiations on ACTA isn't going to be easy. Unlike TRIPS, which is governed by the World Trade Organization, a UN body, ACTA is a plurilateral trade agreement between signatory countries and isn't under the jurisdiction of any overriding body. 'Yes, there are questions over who will oversee ACTA,' says Heath. 'Someone or something needs to ensure it's implemented and monitored properly.'

Nonetheless, Heath believes that ACTA is pushing policymakers in the right direction. 'At present there are so many different treaties and bilateral agreements between countries that IP policy has become a patchwork of systems,' he says. 'It's developed that way out of necessity, but this agreement could mark an important first move towards a more unified means of looking at IP.'

Heath adds that this unified approach needs to be applied in other areas too, singling out the management and governance of the internet for particular focus. 'The internet is a huge issue for brand owners,' Heath says, referring in particular to plans by the Internet Corporation for Assigned Names and Numbers (ICANN) to launch an undefined number of generic Top-Level Domains (gTLDs), as well as the trade in counterfeit goods on e-commerce trading platforms.

Online accountability

Heath discounts the argument that the lack of a legal jurisdiction in which to bring claims of online infringement hampers efforts to enforce IP Rights on the internet. 'Somebody is responsible for these websites, so why is there so much confusion about jurisdiction?' he argues. 'These businesses are based somewhere; they're not on the moon. And yet national courts are struggling to get over that conceptual argument, which is why we're seeing different decisions in similar cases.'

Heath is also frustrated by the refusal of online trading platforms to take responsibility for the goods they allow their members to sell. 'If you shop on the high street, you expect a certain quality; you can return a product if it's not up to standard,' he says. 'The retailer takes responsibility for the quality of goods as its relationship with the consumer is paramount. But online trading platforms say that there is no such relationship, and so no accountability if the goods in question are faulty or fake.'

From Unilever's perspective, the biggest threat in this area is from online wholesalers, which sell for bulk distribution rather than directly to consumers. 'The internet has made it much easier for buyers and sellers to get in touch with each other,' he says. 'It used to take a considerable amount of time to source goods; you'd have to find a manufacturer and travel to its premises to check it out. That's no longer necessary. Websites have become manufacturers' shop fronts. But that doesn't mean you're getting what you think you're buying.'

In particular, Heath says the line between grey- and black-market goods has become increasingly blurred. 'Grey products may in themselves be legal, in that they meet labelling or safety requirements,' he says. 'But the goods use the same channels as black-market goods, which often hide behind them.'

Of major concern to Unilever is the transit of black-market goods between the world's free-trade zones, of which, Heath says, there are a staggering 629 in 77 countries. While these were developed as a means of attracting (tax-free) foreign investment to strategic shipping zones, the reduced level of customs control can mean that once a product or its parts enter a zone, it is difficult to keep track of what happens to it.

'Legitimate manufacturers ship their goods directly from A to B,' Heath says. 'Any company that hides the origin of its goods should be stopped at customs but unfortunately control in free trade zones is very weak. It has opened a loophole for counterfeiters that urgently needs to be shut down.'

A comprehensive study of the trade in counterfeit goods, conducted by the Organisation for Economic Cooperation and Development (OECD) in 2007, puts the value of the trade in fakes at 2% of global trade or $200bn based on verifiable customs seizures at borders. But Heath says that the figure is more like 5% when you include domestic and digital piracy which are difficult to measure and outside the remit of customs officials.

'It's clear that we need to investigate further to get a better handle on numbers. But when it comes to the impact on Unilever's business, we have no reason to assume we are better or worse off than any other company,' he says. 'If counterfeiters copy your product exactly, then sales of that fake equate directly to a lost sale and a tangible financial impact. But often they build a plausible line extension under a company's brand name. That doesn't equate exactly to a lost sale but it damages brand confidence and that is much harder to estimate,' he adds. 'It's a bit like measuring a jellyfish with an elastic ruler.'

Industry bodies such as INTA have been vocal in their demands to national and international policymakers to crack down on the trade in counterfeit goods. Their demands have been given added weight by increased recognition of the economic value of IP – US secretary of commerce Gary Locke recently estimated this to be $5 trillion in the US alone, relative to 18 million jobs. 'It's a huge number so we've got their attention,' says Heath. 'But now we need to turn to the demand side, and that's a harder nut to crack.'

INTA estimates that roughly 80% of consumers who buy fake goods do so unknowingly, meaning 20% buy them in full knowledge that they are counterfeits, often in the misplaced belief that they are getting a better or cheaper deal. 'The message to the two groups is completely different,' says Heath. 'The 80% need to be educated as to how to recognise fake goods; whereas the 20% need to be reminded that it is "buyer beware". You can never be sure what you're getting if you don't buy from an authorised source.'

This article first appeared in IP Review, issue 27