Key tips for sports brands on tackling counterfeiting and grey goods

Published 19 October 2017 By: Tom Collins

Counterfeiting fake and authentic words

The sports industry has been grappling with the challenges posed by counterfeit and unauthorised goods for many years, and the increasing global popularity of competitions such as the English Premier League (“EPL”) makes this market an obvious and lucrative target. During the 2016/2017 season more than 170,000 counterfeit items, worth approximately £2.4 million, were seized on behalf of the EPL.

This article explores some high-profile cases concerning counterfeits in the sports sector, the economic impact on brand owners, and some of the recent legal and commercial developments that have been introduced to try to tackle the problem. Specifically it looks at:

  • The extent of the problem of counterfeits in the sports industry;

  • The effectiveness of online enforcement measures;

  • The role of customs; 

  • The “grey goods” market – i.e. products manufactured legally, but sold without approval - the case of R v C & Others;

  • Commercial strategies for rights holders

  • Key tips for sports brands on tackling counterfeiting

 

COUNTERFEITS IN THE SPORTS INDUSTRY

The sale and distribution of counterfeit goods can have wide reaching implications for brand owners and other stakeholders, including loss of revenue from official merchandise, reputational damage caused by inferior and dangerous products, and the dilution of a brand’s ability to guarantee origin. A report released by OHIM in 2015 estimated that the presence of counterfeit sports equipment in the EU marketplace was costing the legitimate sports manufacturing sector a staggering €500 million per year, which in turn meant significant job losses and lost government revenue of around €150 million.2

The scale of the problem has been exacerbated by the growth in unauthorised sales via online marketplaces, with counterfeiters no longer confined to selling on street corners near sports stadiums. These online ecosystems provide a perfect breeding ground for counterfeiters, enabling products to be listed quickly, cheaply and with minimal checks. In June 2017, a husband and wife were sentenced for selling counterfeit sports merchandise through two eBay accounts over a period of three-and-a-half years. The online business sold fake shirts from numerous EPL clubs including Manchester United, Stoke City, West Ham United and Aston Villa, with an estimated turnover of £300,000.3

Social media platforms provide another forum for the promotion and sale of counterfeits. This problem was highlighted in a recent UK IPO study, concluding that counterfeiters see social media as a “haven” and actively use groups, along with likes and retweets, to disseminate their offerings.4 Whilst this study did not focus specifically on the sports sector, the prevalence of fan forums on platforms such as Facebook makes this an attractive medium for targeting consumers.

Note: For more on the extent of scale of the problem, please see: One of the world’s most lucrative industries – the trade in counterfeit sport goods5 ; and How sports rights holders protect against IP infringements in India6

However, it has not all been one way traffic, and recent legal developments may help rights holders in the battle against infringement.

 

ONLINE ENFORCEMENT

To try to tackle online IP infringement, many e-commerce platforms and social media channels now have formal notice-and-takedown mechanisms in place, enabling rights holders to report infringing activities to the website operators. The E-Commence Directive also imposes certain obligations on Internet Service Providers (“ISPs”) to action takedown requests once notified of infringing activities.7

However, the efficiency of the takedown process is reliant on brand owners policing sites, proving ownership of the IP rights in question, and providing sufficient evidence that specific sellers’ actions amount to an infringement of those rights. Amazon’s latest service offering, Brand Registry 2.0, allows rights holders to register their trade marks for the purposes of advance verification, in an effort to streamline this enforcement process. Nevertheless, this is by no means a panacea, as there are stringent requirements to satisfy and the transience of sellers often makes the notice-and-takedown process difficult to implement.  

Where the primary objective is to shut down a website, rights holders can also apply for site-blocking injunctions against ISPs under Section 97A Copyright Designs and Patents Act 1988.8 The Court of Appeal has recently confirmed that this right extends to trade marks,9 therefore widening the tools available to brand owners in the sports sector to block access to sites promoting counterfeits.

Using domain name recovery procedures through organisations such as Nominet or WIPO is another tactic that can be used to interfere with those taking advantage of registered trade marks to market unauthorised goods. Many sports bodies have taken advantage of this procedure, including the London Marathon, UEFA Champions League and the New York Knicks.10 However, this will not prevent the domain owner from operating under a new domain, therefore this is likely to be used as a supplemental tactic to maintain control of key domain names and prevent cybersquatting rather than as an effective means of actually removing the goods from the marketplace.

Utilising these various enforcement tools in conjunction with third party monitoring services to identify infringers is likely to be the best strategy for sports brands to reduce the circulation of unauthorised merchandise on the internet.

 

STOP! GOODS IN TRANSIT: THE ROLE OF CUSTOMS

The Customs recordation process is a useful tool for rights holders to prevent the entry of counterfeit goods into the UK. This involves filing an application with Customs, detailing the relevant IP rights to be protected, as well as detailed information on the goods to be monitored. When a consignment is identified that is suspected to infringe rights covered by an application, Customs will detain the goods, notify the relevant parties, and provide information about the suspicious goods to the rights holder in order to determine whether infringement action is required. In the case of suspected counterfeits, Customs may also provide samples to the rights holder. Using this procedure can lead to the swift destruction of infringing goods by Customs, or such goods being detained pending the outcome of legal proceedings.

Whilst Customs recordal is a valuable process, one of the obstacles faced by brand owners at EU level has been seizing goods passing through EU customs in transit. This issue has stemmed from previous rulings of the Court of Justice of the European Union (“CJEU”) that customs authorities can only legitimately detain suspected counterfeits if they have evidence to suspect that the manufacturer, importer or distributor intends to release them onto the EU market.11

Following recent reforms to the European Trade Mark (“EUTM”) legislation, EUTM owners can now prevent the entry of counterfeits into the EU, even where such goods have not been released for free circulation.12 This is a welcome development for rights holders, and may prove to be a particularly valuable tool for sports clubs and brands with a global presence, enabling them to control the traffic of counterfeit goods flowing through the EU. However, it is subject to the proviso that an alleged infringer will be able to avoid detention of the goods if they can show that the trade mark owner is not entitled to stop the marketing of such goods in the final destination country. For sporting heavyweights with global IP protection, this is unlikely to be a major obstacle. However, it does expose brand owners to the risk that counterfeiters will exploit gaps in their trade mark portfolios, and select final destinations where it will be difficult to establish intellectual property rights, or where enforcement action against counterfeits is more difficult.

For rights holders, reviewing trade mark portfolios and securing registrations in high risk jurisdictions will help to ensure that they can benefit from the maximum protection offered by the new EU legislation.

 

NO MORE SHADES OF GREY: R v C & OTHERS - THE “GREY GOODS” MARKET

Whilst true counterfeits will continue to dominate the headlines, the “grey market” is another area that has created some difficulties for rights holders. Grey goods are products that have been manufactured with the authorisation of the rights holder, but then sold without further approval. Grey market sales can also arise where goods are put on international markets outside the European Economic Area (“EEA”) by brand owners, but then resold into the EEA by third party sellers without authorisation.

It has long been established that a person selling fake, branded goods may face criminal liability for trade mark infringement under section 92 of the Trade Marks Act 1994 (“TMA”). However, in August 2017, the UK Supreme Court went one step further and confirmed that these provisions can also apply to the sale of certain “grey market goods” (R v C & others).13 The case concerned the bulk importation and sale of clothing and shoes bearing the trade marks of well-known brands including Adidas and Under Armour. Whilst some of these goods were counterfeits, a significant portion of them were genuine products in the sense that they had been manufactured (and the trade mark had been applied) with the consent of the trade mark owner. However, the onward sale of such products had not been authorised for various reasons, including situations where factories have produced stock in excess of the amount ordered to sell for their own benefit, or where stock has been produced which does not comply with the brand owner’s quality controls. The court confirmed that sales of such grey market goods fell squarely within the protection of section 92 TMA, and that infringers may now face criminal liability.

Of course, the doctrine of exhaustion of rights will continue to impose limitations on the ability of trade mark owners to control the circulation of their branded sports merchandise around the EU. This doctrine underpins principles of free movement of goods, and prevents trade mark owners from claiming infringement in circumstances where goods have already been put on the market in the EEA with the trade mark owner’s consent (subject to certain exceptions).14 The FA experienced such difficulties during the build up to the 2006 World Cup, when Asda put the new England football shirt on sale days before its official launch. Umbro had refused to supply the supermarket chain with the shirt, so it sourced 5,000 away shirts from surplus stock in Europe.15

However, this decision will be welcomed by rights holders as an expansion of the legal tools available to prevent unauthorised use of their marks and to control distribution channels, particularly in situations where there are unauthorised imports from non-EU countries. The remedies and sanctions for criminal offences may act as a greater deterrent to those dealing in grey market goods, and sellers will need to tread more carefully in verifying the origin of goods in which they are dealing.

 

COMMERCIAL STRATEGIES

Whilst brand owners will be encouraged by the evolving legal remedies, taking legal action against counterfeiters can be a costly exercise, and one which is not always effective. This is particularly the case with cross-border infringement, and where the infringer cannot be readily identified or located. Rights holders in the sports sector are therefore exploring alternative commercial strategies in order to pre-emptively reduce the risks of infringement.

In May 2017, Liverpool FC launched a cut-price replica kit aimed at the Chinese market in an attempt to discourage international fans from purchasing cheap, counterfeit alternatives.16 The shirt is made of cheaper materials, and has not been produced by New Balance, but is available at much more competitive prices than the official strip. It remains to be seen how effective this strategy will be in reducing the sales of counterfeits, but other clubs may soon follow suit in an attempt to change consumer attitudes and promote affordable merchandise to global fan bases. For more this issue, please: How to deal with counterfeits in China.17

For some brands, adapting to the digital market and working closely alongside e-commerce platforms may be the answer. In June 2017, Nike announced plans to partner with Amazon and begin selling its products directly on the platform, in a bid to take greater control over how its products are presented and keep counterfeits away from the site.18

As the representative body for the 20 EPL clubs, the FA Premier League (“FAPL”) also plays a pivotal role in the protection of its member’s intellectual property rights. In conjunction with Back Four Limited, the FAPL has established an Anti-Counterfeiting Programme, which involves working with law enforcement bodies such as Trading Standards, Customs and the Police Intellectual Property Crime Unit to detect, detain and destroy counterfeit goods. Since 2011/12, over £7.7m of counterfeit merchandise has been seized,19 highlighting the real commercial value of this programme.

 

EDUCATION

The sophistication of modern day counterfeiters can make it increasingly difficult for consumers to immediately recognise the difference between fake and genuine merchandise. This is particularly the case where consumers are purchasing products online from seemingly legitimate sites, without the opportunity to inspect the goods prior to sale. In June 2017, Celtic star Kieran Tierney made the headlines when he contacted a fan on Twitter to stop him buying a shirt allegedly worn by the Scottish full back in the 3-3 draw with Manchester City. In fact, Tierney still had the shirt in his possession and warned the supporter that it was likely to be a scam.20

From the brand owner’s perspective, educating fans on what to expect from official merchandise and tell-tale signs of fake goods and unauthorised vendors could carry some value. This might be achieved through social media engagement, or through educational materials available on club websites. Encouraging fans to report unauthorised sellers, perhaps using a dedicated e-mail address or forum, will also assist the club in identifying offenders.

Of course, some consumers may be prepared to knowingly purchase fake goods, and this will not directly tackle the presence of such products in the market. However, consumer education might go some way towards encouraging the use of official channels and helping unsuspecting fans from making an expensive mistake.

 

CONCLUSIONS: TIPS FOR SPORTS BRANDS ON TACKLING COUNTERFEITING

For sports brands, an effective anti-counterfeiting programme involves a combination of legal and commercial measures, which may include: tackling

  • Building international trade mark and design portfolios, ensuring that adequate protection is in place for club names, logos and sub-brands on a more global level as well as in core markets such as the UK. Strategic trade mark filings in higher risk countries where a brand’s IP protection is less robust will allow clubs to take full advantage of the EUTM reforms on goods in transit.

  • Online monitoring and enforcement, working alongside specialist monitoring companies to identify infringements, with an increased focus on policing social media pages being used by counterfeiters to target fans.

  • Preventative marketing strategies, such as issuing educational content to fans through digital media, or perhaps promoting cheaper alternative products to international markets. 

  • Working closely with authorities such as Customs and Trading Standards, and taking advantage of the recordal process to swiftly detain and seize infringing goods at source.

Counterfeiting remains a real and significant threat to the sports industry, and one which is unlikely to disappear anytime soon. However, there have been a number of positive measures introduced in recent years, both in terms of legal developments and commercial strategies, therefore rights holders certainly have more tools in their armoury in the fight against fakes.

 

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Author

Tom Collins

Tom Collins

Tom is an Associate in the IP team at Stevens & Bolton LLP and advises on a wide range of intellectual property matters, including brand protection disputes, copyright and designs, IP licensing and defamation and reputation management. Tom joined the firm as a trainee in September 2013 and completed the Post Graduate Diploma in Intellectual Property Law upon qualification. 

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