Counting the cost of counterfeit

The saying goes that imitation is the sincerest form of flattery, but when it comes to the fashion industry that couldn't be further from the truth.

In 2015, the NSW Department of Fair Trading seized over 30,000 counterfeit goods ranging from clothing, handbags, shoes, sunglasses, cosmetics and tech accessories.

Major search warrants of bustling tourist hotspots like Paddy's Markets in Sydney have been executed in alliance with the NSW Police Force, with large quantities of counterfeit apparel seized.

And according to Australian Customs and Border Security Protection Service the estimated retail value of counterfeit goods entering Australia was a staggering $43 million in 2013.

As e-commerce becomes an easier and more viable options for legitimate – and illegitimate – merchants to trade, keeping tabs on counterfeit goods could become that much more difficult and it seems retailers have had enough.

Billabong recently partnered with online brand protection and domain name management specialists NetName to combat online fraudsters.

Since May 2015, NetNames has reportedly removed an estimated 2,163,694 counterfeit Billabong Group brand items from online channels, busting copies of its Billabong, Element, Von Zipper and RVCA.

Billabong IP manager Lesley Skipp believes that the sheer scale of counterfeit manufacturing poses a massive risk to the company's 4000 employees.

“We have no control or supervision over the counterfeit product, how it is made, who makes it and under what conditions. What we do know is that this not a few harmless t-shirts being knocked off, it's often large, organised criminal organisations that target brands. We employ over 4000 people – counterfeit sales can undermine company revenue and put jobs at risk.”

Skipp says that the majority of copycat goods are manufactured in Asia, pinpointing China as the main culprit.

The World Trade Organisation (WTO) estimates that 2% of all world trade comes from counterfeit products and confirms that the bulk of manufacturing comes from China, generating US$25 billion per year.

The UN Office on Drugs and Crime reports around 70% of counterfeit items seized from 2008-2010 came directly from China.

Although this encompasses a range of industries, Skipp says that the retail and apparel industry is one of the hardest hit by the crime.

“Counterfeiting is not new – if a brand is popular it will be counterfeited. All well-known brands are counterfeited and no matter what steps you put in place, you will never totally eliminate it. Today, it is more noticeable, and probably more prevalent due to the many online marketplaces and social media sites which make it easy for counterfeiters to reach out to unsuspecting customers and offer these illegal goods at cheap prices.”

Skipp also says that when it comes to dealing with the challenges that come with quashing the counterfeit manufacturing industry, it's not just revenue loss that has arisen as an issue. In fact, she seems to believe that there's a human cost.

“Production facilities that use child labour and provide poor, unsafe working conditions are not monitored or audited or required to adhere to global standards and research indicates that some counterfeit activity is linked to and has funded organised crime.”

And it seems major retailers aren't the only ones under threat.

Madderns Patent & Trade Mark attorneys hosted an event earlier in July with Australian Fashion Labels, which operates independent apparel brands such as Finders Keepers, The Fifth and Cameo.

It tackled the topic of combating the production of counterfeit goods, with one clear message for designers and retailers: protect your intellectual property at all costs.

Madderns senior associate Lucy Deane offers some sound advice for fashion brands ranging from legal protection to surprising tactics to dodge copycats.

“There are a number of steps that Australian fashion designers can take to prevent, or at least reduce the likelihood of counterfeit goods entering the Australian market and to enable relevant action to be taken in the event this occurs.”

“Generally, in relation to fashion, the most relevant 'protectable' intellectual property will be: the 'brand' or 'label' under which the clothing/accessories are sold (protection for which may be obtained by seeking protection under the Australian trade mark regime); and the design of the fabrics used and the configuration or design of the garment/accessory (protection for which may be obtained by seeking protection under the Australian design regime).”

Deane says that once the appropriate trade mark requirements are in place, it's a matter of keeping watch and striking quickly when illegitimate activity occurs.

“Once a trade mark is registered, lodge a Notice of Objection with Australian Customs which will allow Australian Customs 'seize' any unauthorised entering the market which bear a trade mark which has been listed in a Notice of Objection.”
Among other strategies such as investing in a private investigator to monitoring domestic and global counterfeit activities,

Deane also suggests that brands and retailers distribute seasonal look books with greater caution.
“If 'look books' are distributed to existing and potential retailers, attempt to limit the circulation to essential contacts only and obtain prior undertakings that this material will not be forwarded without consent.”

Protecting intellectual property appears to be a daunting and multi-faceted issue for fashion retailers to conquer, but once secured, could make executing the punishment for counterfeiters a whole lot easier.

Speaking about the companies partnership with NetNames, Skipp believes that it's already made massive strides in combating counterfeit manufacturing, particularly in the online arena.

“It is of paramount importance that we have a strategy to protect our customers from the disappointing quality and potential dangers of online counterfeits and also to protect our authorised retailers. We are pleased with the results so far.”

Of course, revenue loss for companies who fall victim to counterfeiting is inevitable, but when the shoe is on the other foot, there are also major consequences for businesses that purchase fake goods as inventory.

In 2012, Sydney retail store Gazoz Jeans was busted for purchasing 15 knock-off G-Star items and selling them in store for $35-$150 a pop. G-Star requested a remittance of $50,000 – a big sum for a small business. The Magistrate reduced this to $40,000 but for small retailers, it's a giant blow.

The aforementioned raid at Paddy's Markets cost one merchant a staggering $17,180 for selling rip off sportswear apparel.

According to the Department of Fair Trading, businesses who sell counterfeit goods or mislead consumers into buying illegitimate goods could face penalties of $22,000 as an individual up to $1.1 million as a company.

Target Australia locked horns with US beauty company MAC Cosmetics in 2012 after being accused of selling fake MAC items reportedly with a 40% discount compared to licensed Australian MAC merchants Myer and David Jones.

The dispute resulted in Target Australia coughing up $1 million to the company alongside an agreement to run corrective advertising on its store catalogue for a total of 30 days as well as its online store and Facebook page.

The companies who sold the counterfeit cosmetics to the retailer were hit with just $10,000.

The cost of securing counterfeit inventory might be alluring, particularly to small merchants, but as the government tightens its reins and retailers grow all the more agitated, it seems that in the end, there is nothing flattering about imitation.