One of the world’s most lucrative industries – the trade in counterfeit sport goods


Published 22 September 2015 | Authored by: Sean Corbett

Brands are critical for creating business value, and the sports business is no exception. Strong brands command customer loyalty and premium prices, constituting valuable assets that drive company revenue and growth. They are central to many sports business transactions, especially sponsorship deals and product merchandising. And at the heart of branding lie trade marks.1 One interesting point to highlight from the World Intellectual Property Organisation (WIPO) note on the interaction between Sport and Branding is the notion that trade marks “represent, if successful, a promise kept”. If unsuccessful therefore it serves to follow that a customer experiences a promise broken which is rarely perceived as a positive attribute.

When applied to trade marks that broken promise is most likely to manifest itself in the form of defective or counterfeit goods. If goods bearing a trade mark are not genuine, ie. they do not adhere to the brand values associated with that promise they arguably not only undermine the capability of the trade mark to function as a trade mark but can also damage the reputation of the brand owner in question. If trade marks act as a guarantee of origin and embody a set of brand values that for example might denote characteristics such as high quality or technological superiority, conversely, counterfeit goods represent the opposite end of the spectrum. They are the broken promise of a trade mark and associated brand values.

This feature examines the threats facing Intellectual Property Rights (IPRs) Holders within the Sports industry from counterfeit goods and piracy. A related article (available here), explores the extent of the problem in China, and the measures that Rights Holders can take to counteract the economic and social impact of counterfeiting.

 

What is Counterfeiting?

The counterfeit industry, if there is such a thing, might just be the world’s most lucrative industry.2 Counterfeiting is the practice of manufacturing, importing/exporting, distributing, selling or otherwise dealing in goods, often of inferior quality, under a trade mark that is identical to or substantially indistinguishable from a registered trade mark, without the approval or oversight of the registered trade mark owner.3 Counterfeits are most commonly called “fake goods” or “knock-offs.” Naturally, since well-known brands are often the most desirable, they are the most copied and imitated when it comes to “knock-offs”.

Why should brand owners care?

Imitation may be the biggest form of flattery but fake goods can be dangerous and consequently are damaging to a brands reputation and finances. Forgetting for a moment that counterfeits might mean reduced genuine sales, poorly made goods of inferior quality can obviously damage a brands reputation and undermine investment in the brand. Buy cheap buy twice springs to mind. In some industries the consequence can be far worse. Counterfeit drugs are thought to be responsible for 100,000 deaths annually in Africa according to the World Health Organization.4 Likewise in the automotive industry fake parts can directly lead to crashes and deaths. In 2014, for example, Aston Martin recalled 17,590 cars after discovering that a Chinese Sub-supplier was using counterfeit plastic material in connection with accelerator pedal arms.5

Meanwhile, in the drinks industry, fake alcohol products can be fatal and are increasingly available in the shops6 to the extent that Trading standards officials have seen fit to issue guidelines on how to spot fake vodka made from anti-freeze and windscreen wash after such products were found on sale in British shops.7

 

Where do counterfiets originate from?

The manufacturing of Counterfeit goods is most prevalent in developing countries with strong but low-cost manufacturing capability, including a number of nations in Asia, Eastern Europe and Latin America,8 although counterfeit goods are sold globally. China is often seen as the biggest culprit and that is borne out by the statistics that suggest all roads lead to China at least as far as the origin of counterfeit goods is concerned.9 To put this into perspective in 2013 Customs authorities in the EU detained almost 36 million items suspected of violating intellectual property rights (IPR), according to the Commission's annual report on customs actions to enforce IPR. The value of the intercepted goods still represented more than €760 million and China was pinpointed as “being the main source of fake products with 66% of all products detained coming from China and 13% coming from Hong Kong”.10 A report originating with the UN Office on Drugs and Crime suggested that from 2008 to 2010 almost 70% of all counterfeits seized globally came from China.11

It has been said that China quenches much of the world’s thirst for counterfeit goods. The country’s black market in counterfeit goods might be difficult to quantify, but its border seizures give a brief glimpse into the possible scale of the problem. Between 2008 and 2010, China customs seized more than a billion counterfeit goods with a value of RMB 1.02 billion ($162 million), according to China’s General Administration of Customs (GAC).12 But is the problem out of control? It has been commented that the extent and profitability of Chinese fakes constrain the effectiveness of Chinese Anti-Counterfeiting legislation. That may be true to some extent but it is worth noting that Counterfeiting is not just a Chinese problem and simply ignoring the issue won’t make the problem go away. Counterfeiting appears to be non-discriminatory. The overarching premise governing what is counterfeited seems to be if you can make it then they can fake it.

Why Sport? When you consider that the global sports apparel market was estimated at being worth in the region of $135 billion in 2012 it is clear to see why sports brands are an obvious target for counterfeiters. A recent study by the Office for Harmonisation in the Internal Market (OHIM) released through the EU Observatory on Infringements of IPRs suggests that the sale of fake sports equipment (not including sportswear) costs legitimate manufacturers in the European Union €500mn a year.13 Many of the best known brands in the world happen to be sports brands. Sports apparel brands such as Nike, Adidas, Under Armour and Reebok all appear regularly in reports on the most valuable brands in the world. However successful brands in Sport are not restricted to manufacturers of clothing or equipment, sport itself is huge business. Sporting events, professional teams or clubs that attract fanatical support within their sporting arena and the individuals who participate in sport have become brands in their own right.. In 2012 for example the major professional sports leagues in the US reportedly lost more than $13 billion in revenue due to sales of counterfeit shirts and merchandise. Some $3 billion of this was attributed to losses suffered by the 32 NFL teams.14 With teams such as Manchester United and Barcelona selling more than a million shirts each per annum15 there is a huge demand for ‘team’ merchandise and particularly club specific or athlete specific merchandise allowing fans to wear their affiliation and support to broadcast their allegiances.

One could also point to the unique position sports brands find themselves in by virtue of the exposure their products experience via the success of high profile participants. Using a famous face can be a powerful marketing tool and is a simple way of making a product or service appear more attractive to potential consumers. Celebrities have come to realise that they can significantly enhance their earnings by lending their face, voice, signature, name and indeed notoriety to a product. This is perhaps a more finely-tuned practice in the world of sports marketing than in any other field of notoriety. Brands are well seasoned in utilising celebrity brand ambassadors to promote a positive image for their products or services so that in sport at least, the success of an athlete is reflected in the aspirational appeal of the brand they promote. Of course in some instances a sports brand and sports personality join forces to produce celebrity endorsed products that may even carry the name of the Athlete on a particular line of clothing or sporting weapon of choice, whether it be golf clubs, tennis rackets or a running shoe. Michael Jordan’s collaboration with Nike culminating in the famous line of shoes Air Jordans being a case in point. Indeed increasingly marketing initiatives often embrace more than one brand ambassador in the same initiative as can be seen from Under Armour’s latest ad campaign.16 Sport is big business and counterfeiters know this too.

The misuse of IPRs can undoubtedly damage a brand; it follows that the brand qualities associated with a trade mark can be damaged, or accentuated, in equal measure depending on how a trade mark is used. While it seems unlikely on the face of it that fake sporting equipment would do much harm, the truth is that this is not universally true. Fake golf clubs might only seem dangerous in the hands of an un-gamely hacker but undoubtedly inferior products can damage the reputation of a brand. Furthermore, just as in other industries where counterfeit alcohol, medicine or car parts can be dangerous in some cases knock-off sporting goods or replicas purporting to be the real thing can also result in serious injury.17

In a related article (available here) the author examines the extent of the problem in China, and the measures that Rights Holders can take to counteract the economic and social impact of counterfeiting.

 

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About the Author

Sean Corbett

Sean Corbett

Sean is an IP practitioner and trade mark attorney with a unique insight into, and focus on, brand protection issues. After 14 action-fueled years at Formula One Management Ltd where he was Brand Protection Manager Sean has set up on his own as a Brand Protection Consultant offering a unique one-stop resource for every conceivable brand protection challenge to help protect, develop and strengthen the IP rights that are crucial to commercial success.

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