NEW YORK — Speakers at last week’s “Knock It Off! Brands and the Counterfeiting Quandary” seminar urged companies to focus more attention on the vulnerabilities in their own supply chains in their fight against counterfeits.
The day-long conference, sponsored by the American Apparel & Footwear Association, the Sporting Goods Manufacturers Association and the Fashion Institute of Technology, took place Nov. 14 and focused on practical suggestions for brands struggling to fight counterfeits.
The counterfeit market is huge and growing. Conservative estimates of worldwide global sales of counterfeit products — including everything from apparel, music and DVDs, to cigarettes and pharmaceuticals — range between $500 billion and $600 billion. Other estimates have put the number potentially as high as $1 trillion.
Annual sales of counterfeit products in New York City alone are estimated to be $23 billion, according to the International Anticounterfeiting Coalition. In the first half of 2006, U.S. Customs seized an estimated $45.7 million of counterfeit goods domestically. Government resources and manpower have been increasingly directed toward antiterrorism efforts in the wake of the 9/11 attacks, putting the onus on brands to be proactive in their anticounterfeiting efforts.
Speakers at last week’s conference encouraged attendees to focus on “cleaning house,” shoring up not only the pipeline that supplies their manufacturing facilities with trim and materials, but also their distribution network.
There are laws and civil remedies that allow companies to chase fake goods and counterfeiters, said Shane Berry, senior director of brand protection at Abercrombie & Fitch, but there are problems in-house that need to be addressed before illegitimate goods make it into the market.
“Where we have had the greater challenge is in managing our supply chain and manufacturing base,” said Berry, the conference’s keynote speaker.
Specifically, parallel imports, also known as gray goods, have been a challenge, he said.
Most enforcement efforts focus on the consumer and retail level of the counterfeit problem, said Rick Horwitch, vice president of sourcing at Bureau Veritas, and a former Warnaco employee. Few companies have focused on the role a leaky distribution channel plays. In particular, companies sometimes underestimate the value of the trim they use, he said. Without the brand or logo on an item, it is not worth much.
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“The trim is the currency,” Horwitch said.
Ensuring the legitimacy of raw materials and component parts, guarding those items through distribution, and managing production waste and unusable inventory are steps that can help a company get a handle on a counterfeiting problem.
While most brands would like to think the pipeline for their products is a straight shot from an authentic manufacturer through to the customer, the reality is much more complicated, said Barbara Kaplan, senior counsel at VF Corp. She said it is important to do whatever is possible to tighten the valves on manufacturing channels before the “pipeline floodgates open.” If a company is using contractors to manufacture goods overseas, there are steps that need to be taken in establishing relationships.
Apparel companies should be as familiar as possible with the sources they use in manufacturing, Kaplan added. Among the key pieces of information firms need to know include what their compliance policies say about intellectual property, who owns the contractors they use and where all the factories a contractor operates are located.
Properly worded agreements are one of the keys to controlling the supply chain, said Ed Haddad, vice president of intellectual properties and licensed products at New Balance.
Whether it’s tightening the supply chain or other efforts, the best defense against counterfeiting is a well-informed, committed brand, speakers stressed.
“The single-most-important thing to do is investigate, know what’s happening to you,” said Harley Lewin, chairman of the trademark group at Greenberg Traurig.
For example, since so much of the counterfeiting problem originates in China, he pointed out that for many companies it is important to know the specific problems faced in that country and to tailor corporate policies and legal documents accordingly. Rights owners need to spell out intellectual property rights, use purchase orders to limit the amount of products a factory is legally allowed to produce, know the factories they are using and control labels. It is also important that companies fight a problem once it is identified in a way that is suited to the Chinese legal system and cultural structure, he said.