Digital dangers

A digital recession could be on the horizon as online counterfeiting activity intensifies according to research by Marks & Clerk. CXO investigates.

Businesses are concerned that counterfeiting will increase as a result of the recession, and want to see much stronger controls put in place to protect them from internet abuses, according to new research by global intellectual property firm Marks & Clerk. In a survey of over 200 UK businesses 97 percent says they believed that counterfeiting will increase in the recession, while 80 percent claimed businesses will be at “much greater risk” than in previous downturns due to the phenomenal growth of the internet. They compare the situation to the last major UK recession in the 1990s during which the internet was still very much in its infancy. Of the businesses that took part in the survey 75 percent of respondents argue that stronger action is now required to protect companies from counterfeiters. A clear majority of 61 percent argue that the solution lies in the creation of a more powerful cybercrime authority, with stiffer penalties being imposed directly on infringers. 55 percent go so far as to suggest that stronger penalties should also be levied against the online marketplaces themselves, such as eBay, in enabling counterfeiting to prosper. Over three quarters (76 percent) feel that the law has failed to keep up with the challenges posed by the rise of the internet, in protecting business’ intellectual property.

A digital recession?
Pam Withers, Partner at Marks & Clerk, says: “This is the first recession in the digital era and businesses are anxious about the consequences. The success of the internet has meant that we are seeing increasingly vociferous criticism of those who play a part in counterfeiting – even those who do so unwittingly. Even before the slowdown, strong brands such as Tiffany’s & Co and L’Oreal were critical of the role the internet plays in enabling the sale of counterfeit goods, which is intensifying as the recession takes hold.” She goes on to say that one of the biggest issues for companies is the fact that there are no global regulations or legal framework governing the authorities’ responses to intellectual property crimes committed online: “One of the major headaches has been the lack of certainty for businesses due to the fragmented treatment of these issues from one country to another. The internet is an international channel requiring a more co-ordinated response, which may account for the frustration expressed in our survey about intellectual property systems. Our survey proposes a more powerful cybercrime authority, which could well allay the fears of brand owners and satisfy popular online marketplaces, establishing a clearer framework to punish the real offenders. This would likely involve a crime force ready to take action once brand owners have identified counterfeit goods being offered online – although this would require brand owners to become much more active in identifying fakes in the first place.”

Searching for answers
The Marks & Clerk survey found that businesses’ concerns extend more broadly to the role that search engines play in enabling access to counterfeit goods. 59 percent believe that a protocol needs to be created to engage search engines in the fight against counterfeiters. This is notable in view of the long-running dispute between Google and Louis Vuitton’s owner, LVMH. LVMH objects to the service provider selling keywords to the highest bidder, including rivals or potentially counterfeiters.

“Search engines have not been immune from censure as a result of their increasing dominance and the effectiveness of their advertising strategies,” says Pam Withers. “The market needs a clear line to be drawn by the courts to establish where the ground lies, and if the onus should be solely on the consumer, or if the internet has now got too big for this to remain the case. But both sides will need to play ball. Businesses need to take firmer action to protect their brands, while service providers need to recognise their responsibilities and engage with the problem so they are not a vehicle for infringement”.
 
Beating the competition
Amongst other findings is the fact that businesses are also concerned about the threat of legitimate competition on the web, particularly when it relates to misinformation from competitors. 58 percent object to the practice of competitors paying for sponsored keywords in their name, and argue that this too should constitute trademark infringement. Yet tellingly, the survey suggests that businesses are reluctant to take on the mantle of protecting their brands in the online marketplace themselves. Only 25 per cent think that the burden should fall on businesses to police their brand more effectively, although 39 percent recognise that they could nonetheless allocate more of their own resources to the problem. Kirsten Gilbert, Associate at Marks & Clerk Solicitors, says: “While the internet poses many challenges to brand owners as a powerful distribution channel which can be abused, the tactical moves of competitors should be separated from the more damaging threat of counterfeiting. Businesses must also come to recognise that they will need to do more to protect themselves.”

Gilbert adds however that the introduction of any regulation to counteract these threats should be balanced with the need to ensure businesses’ profitability and commercial freedom is not compromised: “Tying the hands of online marketplaces or service providers is dangerous, not least as so many small and medium businesses rely on the internet for distribution. Online channels also give companies the freedom to react more quickly to market needs and pricing sensitivity, which will prove yet more essential in this market. Retail data shows that online sales are holding up well in a recession that has hit our bricks-and-mortar high street hard. Any moves towards tighter regulation need to be balanced so changes remain cost-effective for all, and are matched by equal commitment from brand owners directly.”

Survey highlights:

• 80 percent of business people believe they are at much greater risk of counterfeiting than in previous recessions, due to the rise of the internet
• 75 percent believe stronger protection is needed to protect companies from counterfeiters in online marketplaces
• 61 percent call for a tough cybercrime authority to punish offenders
• 59 percent wish to see a protocol created to tackle search engines’ role in helping counterfeiting prosper