When the subjects of counterfeiting and infringing trademarks and patents are discussed, it is a commonly held view that this happens predominantly in the consumer goods markets where large global organizations go to extreme lengths to protect their brands and corporate identities. The global market in counterfeit goods costs companies many billions in lost revenues, and it goes way beyond high profile consumer goods.
By Bryan Orchard, Independent Technical Journalist
Manufacturers of capital goods are also affected significantly by the illegal activities of enterprises that go to great lengths to copy their products and distribute and sell them as genuine items. They have no concerns about the potentially dangerous consequences of their illegal activities. The international industrial manufacturing industry is no stranger to counterfeiting and the challenges that many of the leading brands face in trying to fight what is termed ‘low-end disruption’.
Cynics may say that the global leaders in fluid transport technology would want to close down any competition in order to maintain their profit margins, and there may be an element of truth in this. However, the use of counterfeit products across all areas of fluid handling puts the end users at risk of damaging their production equipment, producing sub-standard products that do not comply with international regulations, contributing to environmental pollution and putting employees and the public at risk. Those end users that knowingly purchase products, including pumps, valves, hoses and their components, are equally complicit in this pernicious trade.
Many German industrial enterprises are complaining about soaring problems with counterfeit products. The VDMA (Verbund Deutscher Maschinen- und Anlagenbau) Mechanical Engineering Industry Association represents more than 3,200 mostly medium-sized companies in the capital goods industry, making it the largest industry association in Europe. In its 2016 Product Piracy Study, 70% of its participating companies indicated that they were victims of product or brand piracy. Its findings indicated that the damage to Germany’s mechanical engineering sector was estimated to be EUR €7.1 billion every year (1).
Whilst the rapid growth in the internet has brought huge benefits, it has also created opportunities for unscrupulous individuals and organizations to conduct illegal operations that can seriously harm legitimate businesses. Within the framework of the globalization and digitalization of business models, large-sized and high-priced investment goods are now also sold over the internet. This is leading to a sharp increase in brand and trademark infringements regarding offers made on online platforms.
Over the last few years, the German based pump and valve manufacturer KSB has been closely monitoring this situation. According to Franz Bosbach, KSB Technology Foresight, a significant number of counterfeiters are using the reputation of KSB to market their products. “Under protected brand names, they offer pumps and valves as well as spare parts for sale on international trading platforms,” comments Bosbach. “Additionally, the company’s name is also often misused to maliciously deceive the targeted buyers.”
Not content to sit back and let this situation continue, KSB is being proactive in tackling both the manufacturers and the online shops selling the counterfeit products. To put a stop to these activities that are harmful to its business, they have now established a task force to combat these illicit activities. In cooperation with Italian project partner Convey, the company is reporting these infringements to the platform operators and instructing them to take down the offending offers. If necessary, legal action is also brought against the brand and trademark infringers. It is proving to be highly successful for in its first year, starting in July 2016, they identified 420 marketers on eight different online platforms who had been illegally misusing its product names. Between April and August 2017 it uncovered 4,000 illegal offers and had them removed from the associated trading platforms.
“Our policy is to continue identifying counterfeits on trading platforms in order to defend our brand and trademark rights more vigorously,” continues Bosbach.
Clearly, counterfeiting is a serious global problem for all industrial goods manufacturers, but it is also a problem for would-be buyers. Many of the counterfeiters use sophisticated techniques to replicate the OEM’s website and this makes it very difficult to check product authenticity. Buying products that claim to be from the OEM (Original Equipment Manufacturer) and then fail because they are counterfeits, can do major harm to the user’s business, not to mention the OEM’s reputation. Counterfeiters will go to great lengths to replicate the true product employing reverse engineering techniques. This low end disruption is a problem that is of major concern to many global brands.
“We are aware of one manufacturer that has built up a considerable customer base selling a copy of one of our brands. The quality is not the same but some customers are willing to accept the risk because it is cheaper than the true product. By taking down these manufacturers before they get too big we protect our brands, quality and sales reputation,” says Bosbach.
A successful collaboration
Bosbach says, “The problem is that it can take a long time to take down counterfeiters. For a single company like us, it is difficult to get a platform to take down a counterfeiter’s site so it was for that reason we teamed up with Convey,” he reports. “They have established connections with all the major platforms and this gives them considerable influence.”
Italian-based Convey is an internet brand protection agency that develops new products to detect counterfeiters and multilingual experts in international property rights. Once a counterfeiter has been tracked down, this company takes the appropriate action to defend its clients’ brands.
“Throughout the world there are a great many platforms which make it easy to set up an online shop,” says Michele Provera, Vice-President IPR Protection Convey SRL. “In the pump, valve and fluid transport systems industries there are the manufacturers who make counterfeit products and traders who sell counterfeit products. Many of these traders sell any number of brands and not all customers are end users. Thus the counterfeit sales chain is complex. The internet provides counterfeiters with a worldwide market and anonymity. Then there are spare parts, where the number of units purchased can run into thousands.”
Michele Provera continues: “It is very difficult to shut down the manufacturers, but we can take steps to reduce and shut down their sales over the internet. We have technologies called ‘crawlers’ designed in-house that can analyze hundreds of thousands of web pages on the internet each day.”
Identifying rogue sellers has been difficult and taking them down takes a long time and involves considerable resources. With the expansion of the internet and increase in the number of counterfeiters setting up websites, the incidents of counterfeiting have a higher visibility so it is possible to take them down more effectively. However, as soon as a site is taken down which has been selling counterfeit products, the site often re-emerges selling competitors’ products.
“Many companies have registered trademarks and patent rights so we can see if the products being offered are registered,” says Provera. “If they are not, then we can instigate enforcement procedures to take the offending websites down. The seller receives a warning and if they fail to respond we alert their service provider to the violation of intellectual property rights via their network. This involves issuing Take Down notices to the website hosting providers informing them of infringements, for they are legally obliged to cease transmission in such instances. If they do not take action, then they become liable to prosecution. This approach is very effective. Most sellers remove their offers after the first warning.”
Many websites operate a penalty points system, so when a first notice of infringement is issued they will be served a penalty point. If they ignore this, a second penalty is issued and again if this is ignored then the site is shut down with immediate effect. Within the industrial fluid control industry, it is highly probable that the trader is selling any number of manufacturers’ brands, so by shutting down the website the trader can lose its entire portfolio of products. This approach is more effective than instigating legal procedures which are expensive, complicated and take a long time. In the meantime, the seller can move their trade elsewhere or continue under a new name. Convey makes sure an offer is taken off the internet within days and that the seller is removed from the marketplace.
The industrial flow control industry is probably one of the most exposed to counterfeiting, as it is huge and is worth many billions of dollars. For many companies, the major problem is what happens when a company buys what it believes to be a genuine product and it turns out to be a fake. The failure of a pump, valve, hose or connector can have very serious consequences, so should such a situation arise then the user will usually take issue with the manufacturer. Problems can also arise when a counterfeit component is fitted as a replacement in a genuine product brand and then causes damage to the genuine product. Investigating claims for compensation can be complex and costly and the onus is on the manufacturer to prove that the product is a counterfeit.
Where litigation is enforced, courts may well acknowledge that the product is a counterfeit. However, they will argue that it is not sufficient to prove that that it is a counterfeit, but to demonstrate that the manufacturer has taken action against the counterfeiter. If it can be shown that efforts were not undertaken, then the manufacturer can be charged with negligence. Industrial goods manufacturers of all kinds need to take all possible steps to eliminate counterfeiters internationally and protect their patents and trademarks.
- VDMA Product Working Group on Product and Know-How Protection: www.protect-ing.de
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