Biggest Threat To Intellectual Property: Counterfeiting With Special Focus On Fashion Industry

IP rights are proprietary rights granted to protect original products of creation. They are intended to encourage and reward creativity and fair competition in the marketplace. IP rights can be relied upon to prevent others from using one’s trademark, patented invention, copyright work, or design without consent. IP is territorial in nature and exists for set periods of time.[1]

The marvel of Counterfeiting of products can be characterized as where the packaging of a trademark has been imitated without the approval of the real trademark rights holder, and the imitation of packaging is of such a nature which can’t distinguish the essential feature of the merchandise itself from the genuine one. Fake products likewise incorporate packaging materials, stickers, handouts and directions despite the fact that these are introduced independently from the merchandise themselves.[2]  Counterfeiting also referred to as the act of copying brands. Even if this is a phenomenon that we can find in every sector, some of the most counterfeited industries are fashion and cosmetics. Not only in the packaging, but sometimes the trademark is copied on the clothes too. Example would be Gucci and Forever 21 case.

Some examples of intellectual property right violations are the fabrication or selling of illegally manufactured counterfeit versions of products protected by a trademark (sunglasses, clothing, sports goods, etc.), pharmaceutical products, designer furniture, seeds, software, DVD players, music players and films and other protected works. In principle, any product sold today is a potential victim of counterfeiting. Counterfeits are not limited to luxury products. Even toothpaste and shampoo as well as washing powders and dishwashing products are counterfeited on a commercial scale.[3] The shadowy business of counterfeits has taken over the globe to become a $1.2-plus trillion industry. Despite extensive and often, expensive enforcement efforts by many brands,  the international trade in counterfeit goods, ranging from food and dietary supplements to handbags and luxury cars, is positively booming. The market for counterfeit goods is vast and also diverse when considering the types of products that are being replicated and sold. [4] The Trademark Act,1999 nowhere specifically  mentions the term “counterfeit”, however the Act provides for civil remedies in the form of injunction, damages, delivery-up, anton pillar and john doe orders under Relief in suit for infringement under Section 135 of Trademark Act. The Actalso provides for criminal remedies. It provides provision in the event of falsifying or falsely applying for a trademark under Section 102 and 103 of the Act.

If we see the trend, mostly big fashion houses like Gucci, Prada, Adidas etc are targeted by counterfeiters. The reason for this can be the fact that  the fashion industry is dictated by ever changing trends; something that’s may be in trend today can be old fashioned tomorrow. As a result, fashion brands have to constantly reinvent themselves. If we combine this with the image-based, shopping-savvy society that we live on, obsessed with trends but also with saving, where customers hunt for the perfect balance between trend and price we get the ideal breeding ground for counterfeiting. Yes it is true that Counterfeiting has increased because of the consumers who buy such products as they want to stay in trend by buying from big fashion houses and also want that it does not make a hole into their pockets. That is why the majority of the industry is of the opinion that counterfeiting is theft and those who buy counterfeit product are responsible for fueling criminal activity. For Ashlee Froese, partner at Gilbert’s LLP, “Counterfeiting is stealing the greatest asset a designer has and that is creativity. That is their main asset, their main product.”[1]

The world of fashion is one that is as competitive as any industry can get. Once a design is stolen, the fashion house could lose an entire season because then people would be buying the counterfeited products for reasons like it would be cheap or just because the consumers can get confused. The fashion industry is one that protects imagination & creativity because fashion relies heavily on the creativity of its designers.  If a precious idea born out of creativity is stolen, then the original fashion house could lose millions of dollars. Some countries do better than others to protect the intellectual property rights, and some countries make no effort to curb any stealing and copying, which deeply impacts the designers. Counterfeits come from a violation of intellectual property rights like trademark or copyright,  with people all over the world buying counterfeit products or “fakes’’.  To some, the counterfeiting of luxury fashion does not seem like a big deal. It is the harmless copying of products that just allows people who cannot own a name brand the opportunity to have that status symbol. In general, intellectual property rights for the fashion industry are one of the most important parts of how the industry functions, especially for the luxury fashion industry. Intellectual property rights as defined by the US government “encompass four separate and distinct types of intangible property – namely, patents, trademarks, copyrights, and trade secrets, which collectively are referred to as ‘intellectual property’” (United States Embassy, 2005). With the fashion industry, the main parts that are violated would be trademarks and copyrights. With the production of counterfeits, it is the theft of trademarks because counterfeits are copying the logo and attempting to pass off something that is not from the original brand or fashion house.[1]

So, we see that fashion industry is mostly affected by Counterfeiting of their products. This leads to loss of revenue for them as consumers get the counterfeited products at cheap price and sometimes they also get confused that what is the original product.

Now, let’s see what are the countries which are primarily responsible for rise in counterfeiting.

The above chart shows how China is the number one place where fakes originate.  China, in general, is thought to be a place where IPR is not enforced as strictly as other places.  It is known for the amount of fakes that will exit the borders whether it is through trade or visitors.[2]

It is high time that China take strict measures to reduce the menace of manufacturing fake goods in their territory and also other countries where these fake goods enter need to have strict custom rules, so that these fake goods don’t come to the territory of the affected countries.

Now, let’s see Countries affected by trade in fake goods through the following table.


United States is seen as the most affected countries where most IP rights are infringed because of fake goods. New York is also one of the major fashion capital of the world. Italy is known for being one of the key fashion capitals of the world and as seen from the graph above, is second in countries that are hit by the trade of counterfeit goods.  While it makes sense that they would be hit hard by counterfeiters since they are a major place of fashion houses.  Italy has many iconic brands that have iconic logos that have been trademarked to show that they are distinctly that brand. One brand that is known for some of its iconic logos, patterns, and designs is Gucci. They have a variety of their interlocking Gs that came from the founder Guccio Gucci as well as their green and red stripes that adorn many of their bags, shoes, glasses, etc. We see mostly developed Countries are affected by counterfeiting, this shows that may be these countries are not taking the trade of fake goods issue seriously.

Now let’s see some examples of  Counterfieting.

The above picture shows that a local company called Sangini made a similar packaging of Ponds moisturising cold cream which is manufactured by Hindustan Unilever ltd, which could create confusion in the mind of any person by the first look of Sangini packaging of their cold cream. This cleary shows there was bad intention to decieve the public and it is clear case of Trademark infringement as under Section 2(1)(zb) of Trademark Act, 1999 which provides defination of trademark, it includes packaging, which means copying packaging of a company woud be infringement.

This picture is also an example of Counterfieting of Nike products.

Then in the case of Castrol India limited & Ors v. Iqbal Singh Chawla & Ors[

The Delhi High Court, in its judgement dated 03.01.2018, permanently restrained the defendants Iqbal Singh Chawla & Ors from using the mark ACTIV/ACTIVE. The main controversy, in this case, revolved around the defendants adopting a trade dress that was identical to that of the plaintiffs. Infringement of registered mark was also alleged by the plaintiffs. On comparing the containers of both the products, the court came to the conclusion that the colour scheme, design, style and the container in itself were deceptively similar to that of the plaintiff. As per the court, the trademark of the defendants and their trade dress were adopted to infringe the mark of the plaintiff and to take undue advantage of the popularity and trust enjoyed by them. The court, in its judgement, noted that the defendants were not able to satisfactorily explain the reason for adopting the exact same trade dress and opined that the only plausible explanation was that the defendants intended to pass off their goods as that of plaintiffs.[1] So, this case also shows that how copying once trade dress leads to infringement and can deceive public.

Now, let’s see factors responsible for buying conuterfeited fashion products through the following graph.

We see the main reasons for buying Counterfeit fashion products is that they are cheap and also appealing & attractive.It’s a vast market and consumers always have an appetite for a bargain,” said Cope. “Until they can easily identify whether those goods are genuine or not, it will be very difficult for them to make that choice.” Cope also says some people are going to buy fakes no matter what. “It’s something that will be very difficult to wipe out in its entirety, but we can make a dent,” he said.

A report from the analytics firm Ghost Data has found that Instagram is a hotbed for the buying and selling of knockoff fashion, from fake Chanel bags to dupe Gucci slides to counterfeit Adidas tracksuits. According to the firm’s study, published in April, nearly 20 percent of all posts about fashion products on Instagram feature counterfeit products. The study identified more than 50,000 accounts promoting and selling counterfeits, a 171 percent increase from its 2016 analysis, when the firm found about 20,000 accounts. These counterfeit fashion accounts, which are mostly focused on knocking off luxury fashion, are extremely active; they’ve cumulatively added more than 65 million posts to Instagram, and their activity averages about 1.6 million Instagram Stories a month.

An Instagram account openly selling counterfeit products. Source – Ghost Data

According to the 2018 Global Brand Counterfeiting Report, luxury fashion brands lose about $30.3 billion worth of sales to fakes online alone. The most counterfeited fashion brands on Instagram, according to Ghost Data, are Louis Vuitton, Chanel, Gucci, Nike, Fendi, and Balenciaga. The sale of knockoff products from these brands doesn’t just hurt their integrity and bottom line; counterfeits have also been linked to funding terrorism and other rings of criminal activity. [1]

We see that how online Platforms like Instagram is a way for counterfeiters to sell their counterfeited products and the funds which come from selling these products are then used for other illegal and criminal activities.

One way of protecting design elements for products is trademark law. A Trademark is a more limited right than a copyright or design patent. It is merely the right to use a particular word or symbol to identify the source of goods. Someone who adopts a similar word or similar design that confuses the consuming public infringes that right.

Certain signature designs, when associated with a single brand, gain trademark rights, also known as trade dress. Recently Fashion/luxury goods house Gucci is now embroiled in a litigation against Los Angeles based discount retailer Forever 21.

Gucci accused Forever 21 of copying its registered trademarks – the Green-Red-Green and Blue-Red-Blue stripe designs (which it calls its “webbing” designs) and incorporating them on cheap knockoff clothing items. Jumping the gun, Forever 21 filed an action for declaratory judgment of non-infringement and invalidity of the marks; Gucci counterclaimed. Gucci began alleging that Forever 21 was infringing its trademark by copying the brand’s signature “blue-red-blue” and “green-red-green” stripe webbing. Gucci has also asserted the theory of trademark “dilution” under both federal and state law. Dilution is a means by which a trademark owner can attack a use of its mark by someone else even where there is no confusion. [1] When Gucci sent Forever 21 a cease-and-desist letter after the fast-fashion retailer was “inspired” by their stripes, Forever 21 went to court first seeking protection against the threats of trademark litigation. On Monday, a United States District Judge ruled in favor of Gucci,[2] dismissing Forever 21’s complaint against the luxury brand. 

Below some pictures are provided that how Forever 21 used Gucci blue-red-blue and green-red-green stripe webbing in their products.

Forever 21 had argued that the stripes lacked secondary meaning (that people didn’t associate the stripes with Gucci’s brand) and were simply aesthetically functional and generic stripes. The court disagreed, much to Gucci’s pleasure.  “This is an important step in Gucci’s continuing commitment to the protection of its renowned and iconic intellectual property,” a spokesperson said in a statement.[1] From the Gucci and Forever 21 tussle we can conclude that Colour combinations can be protected if it has acquired distinctiveness that is people associate that pattern or that colour combination with that product or company as was there in Gucci case. Section 2, Article 15 of Trade related aspects of Intellectual Property Rights (TRIPS) provide that colour combinations is protectable under Trademark Law. [2] The Indian judiciary in the Colgate Palmolive Company v. Anchor Health & Beauty Care Pvt. Ltd., has also acknowledged colour as a part of trade dress and provided it protection for its red and white packaging.

CONCLUSION

Counterfeits are problematic since it can lead to countries not wanting to invest for fear of not having protection for their products. Counterfeits have a major impact on the brands due to the fact that luxury brands gain their prestige from their reputation, as well as the limited quantity that is available. Counterfeits pollute the supply with similar looking goods that have a lower quality and not made with the same care. The lack of IPR protection affects the businesses in more than just one way. It is not just about the direct loss of profits, it is also about a decreased brand image, and in the fashion world image is everything. We have already seen the economic impact fake goods can have on the profits of a brand, but we cannot forget that a trademark and brand’s reputation are what differentiates a fashion company from the rest. They are its greatest assets and should be protected at all costs.

To conclude we can say that stringent measures are needed to reduce the menace of counterfeiting and the public needs to be made aware of the ill impacts of this menace like the loss of revenue to fashion houses which leads to unemployment in these places, loss of contribution to GDP as some people use the money after selling counterfeited goods for illegal purposes like terrorism.

A big fashion brand cannot copy the colour combination or any other trademark of other fashion brand as this is infringement of trademark and no less than counterfeiting.

It is need of the hour to protect intellectual property of fashion houses so that they get the incentive to create amazing designs without the need to worry that their creativity and brand image would be used by counterfeiters.


Author: Purnashri Das , Intern at Khurana & Khurana, Advocates and IP Attorneys. In case of any queries please contact/write back to us at ankit@iiprd.com.

References:

[1] Guan, W. (2014). Intellectual property theory and practice: A critical examination of China’s TRIPS compliance and beyond. Heidelberg: Springer

[2] Vaibhavi Pandey & Deblina Dey, India: Counterfeiting And Infringement Of Trademarks: The Thin Line Of Difference Between The Laws , 30 January 2015, , accessed on 19 June 2019

[3] Counterfeit goods and piracy: a reality, Economie, https://economie.fgov.be/en/themes/intellectual-property/protection-intellectual, accessed on 19 June 2019.

[4] The Counterfeit report: The big Business of Fakes, The Fashion Law, www.thefashionlaw.com/home/the-counterfeit-report-the-impact-on-the-fashion-industry, accessed on 19th June 2019

[5] Can you fake fashion?”: The Impact of Counterfeit on the Fashion Industry, February 3, 2016, dotnice, https://www.dotnice.com/can-you-fake-fashion-the-impact-of-counterfeit-on-the-fashion-industry/, accessed on 19th June 2019

[6] Olivia Hyde and  Kishore G. Kulkarni, Counterfeits and Intellectual Property Rights (IPR): the Fashion Industry, SCMS Journal of Indian Management, July – September 2017, file:///C:/Users/Lenovo/Documents/pirated%20goods.pdf, accessed on 19 June 2019

[7]  Ibid

[8] CS(OS) No. 4 of 2011, Decided On, 03 January 2018 at High Court of  Delhi

[9] Shivendra Mishra, Case Analysis: Castrol India Limited & Ors vs. Iqbal Singh Chawla & Ors, Mike legal, https://medium.com/mikelegal/case-analysis-castrol-india-limited-ors-vs-iqbal-singh-chawla-ors-eea0d8a11505, accessed on 20 June 2019.

[10] Fake Fashion fuels vast illegal profits, funding Terrorism and Trafficking, The Fashion Law, April 9, 2017, http://www.thefashionlaw.com/home/fake-fashion-fuels-vast-illegal-profits-funding-terrorism-and-trafficking, accessed on 19th June 2019

[11] Chavie Lieber, Instagram has a counterfeit fashion problem, Vox, May 2 2019, https://www.vox.com/the-goods/2019/5/2/18527181/instagram-counterfeit-industry-chanel-gucci-louis-vuitton, accessed on 19th June 2019

[12] Ibid

[13] Gucci Infringement case against Forever 21 raises issues about limits of  Trademark Rights, August 21 2017, https://www.springutlaw.com/blog/2017/12/14/gucci-infringement-case-against-forever-21-raises-issues-about-limits-of-trademark-rights

[14] Forever 21 Inc v. Gucci America, United States District Court, Central District of California, Case No. CV-17 4706 FMO,  Forever 21, Inc. v. Gucci America, Inc., et al., 2:17-cv-04706 (C.D.Cal). 

[15] Forever 21 throttled in Gucci case, Fashion Law Institute, https://fashionlawinstitute.com/cutting-edge-articles/forever-21-throttled-gucci-case, accessed on 19th June 2019

[16] https://www.springutlaw.com/blog/2017/12/14/gucci-infringement-case-against-forever-21-raises-issues-about-limits-of-trademark-rights, accessed on 19th June 2019

[17] Supra 15

[18] Gucci won a battle against Forever 21 in a war over stripes, 11th August 2017, Fast Company, //www.fastcompany.com/40493501/gucci-won-legal-battle-against-forever-21-in-war-over-its-stripes-trademark – case, accessed on 19th June 2019

[19] Section 2 Trademark, Article 15.1 : Protectable Subject Matter- Any sign, or any combination of signs, capable of distinguishing the goods or services of one undertaking from those of other undertakings, shall be capable of constituting a trademark. Such signs, in particular words including personal names, letters, numerals, figurative elements and combinations of colours as well as any combination of such signs, shall be eligible for registration as trademarks. Where signs are not inherently capable of distinguishing the relevant goods or services, Members may make registrability depend on distinctiveness acquired through use. Members may require, as a condition of registration, that signs be visually perceptible.

[20] RK Dewan & Co, Colour as a Trademark, Lexology, September 7 2013, https://www.lexology.com/library/detail.aspx?g=ad98d94d-fc71-41ec-9594-f76a7faa74bb, accessed on 20th june 2019





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