IP Infringement Online: the dark side of digital

German attorney and Legal Counsel of the World Federation of the Sporting Goods Industry (WFSGI), Dr. Jochen M. Schaefer reflects on what companies need to do to defend their brands online.

Recent estimates by major search engines, such as Google and Yahoo, suggest that in just eight years, the Internet has expanded by a factor of 1,000 - the number of web pages rising from some 29 million in 1998 to an estimated 25 billion pages by 2006. In February 2011, the number of indexed websites totaled some 13.86 billion pages.

The Internet has created enormous opportunities for companies to communicate their brand messages. Its global reach, openness, versatility and largely unregulated character have, however, also created fertile ground for trademark abuse, and all that it entails.

Online brand misuse in its broadest sense1 covers the “classic” actions such as the sale of fake products on or through the Internet as well as a range of practices including search engine optimization (SEO)2, unsolicited email, phishing3 and cybersquatting4. These activities make up what many consider the dark side of the digital universe.

With estimated sales of US$133 billion in 2009⁵, the fastest growing area of counterfeit trade is online. Companies cannot simply rely on conventional legal remedies to combat brand abuse on the Internet. A multi-faceted and proactive trademark protection strategy that complements existing legal protection is an imperative.

A holistic trademark protection strategy - built around multiple and complementary “detection, prevention and response mechanisms”6 - offers an effective means of adapting to the challenges of the online environment. According to MarkMonitor®, a global leader in brand protection, “the desired, holistic brand protection approach means assessing every channel, every tactic abusers may leverage, including those in offline settings.” It also requires, “working across organizational boundaries to achieve the synergy needed to effectively safeguard a brand.7

A holistic and proactive trademark protection strategy can enable companies to overcome some of the limitations of a conventional legal approach. Trademark law, like other areas of intellectual property (IP) law, is governed by principles of territoriality. In the online environment, however, where it is relatively easy to maintain an anonymous identity, using “offshore” Internet service providers (ISPs) or servers, for example, infringers can dodge legal action initiated by courts or administrative bodies in the countries in which they have a virtual presence and in which they generate profits.

The difficulties associated with successfully pursuing online IP infringers using a conventional legal approach are further compounded by a lack of uniformity in the legal landscape. While there is a degree of harmonization of the laws and regulations governing IP rights and their enforcement, these are not unified. Varying laws and practices in different jurisdictions make it difficult to navigate the legal landscape, fuelling legal uncertainty about outcomes. Against this backdrop, some commentators have cast the law as a lame duck limping behind dynamic new commercial and technological developments in the real world.

All is not lost, however. A growing range of technologies and specialized brand monitoring services are available to support online brand protection. Companies that have leveraged these technologies as part of a holistic trademark strategy that is not exclusively legally based have seen positive results in terms of reducing trademark abuses and safeguarding brand equity.

Broadly speaking, a company’s “brand,” its single most distinctive identifying element, is frequently its most valuable financial asset, particularly in launching an initial public offering (IPO)8 or in mergers and acquisitions (M&As). In today’s knowledge-driven economy, a company’s intangible IP assets typically account for some 80 percent of business value.

A strategic brand protection program is indispensable in protecting this highly valuable asset base. Such an approach can provide information to support successful legal prosecution of infringement and also offers additional business advantages. For example, automated trademark monitoring systems and services help prevent the registration of confusingly similar or even identical marks by third parties. They may also include surveillance mechanisms to monitor trademark use by legitimate third parties across the value chain from product development right up to the point of sale and/or distribution. These services can also monitor and track all activities - advertising, marketing, negative or defamatory statements in video clips, blogs and other online communication platforms - that may have a bearing on brand value and integrity.

For a company to single-handedly keep track of the uses of its trademarks in the high-speed digital universe is not feasible. Automated trademark monitoring systems and services are extremely valuable tools for gathering business intelligence and for signaling to infringers that a trademark is actively defended. For best results, such services will link up with high volume online marketplaces such as eBay® and B2B platforms like Alibaba®.

In November 2009, the Organisation for Economic Co-operation and Development (OECD) stated that “the share of counterfeit and pirated goods in world trade is estimated to have increased from 1.85% in 2000 to 1.95% in 2007,” representing a value of some US$ 250 billion worldwide9.

That said, the non-material damage to a brand – the impact on its reputation and consumer confidence – often exceeds any loss in turnover. Concerns about direct revenue loss pale in significance compared to the damage caused when fake products cause fatal auto or air accidents or when counterfeit drugs bought from rogue online pharmacies cause harm. In these circumstances the very existence of a brand is threatened as the public, albeit erroneously, holds the legitimate brand owner responsible. The hard fact is that customers duped into purchasing counterfeit products displaying a particular brand tend to associate any negative experience with that brand.

Right owners who fall victim to online brand misuse often face specific problems associated with securing evidence. Infringing websites continuously morph and change, as do the identities of online IP infringers. If a company has any chance of tracking these infringers and bringing them to account, then it needs to use specialized expertise and IT tools. Specialized web monitoring services such as those offered by MarkMonitor®* for example, can be indispensable in identifying online market platforms where counterfeiting and piracy activities occur. Such services gather data, such as screenshots and Internet protocols of infringing sites, required by judicial authorities in prosecuting infringement.

Options and Priorities

Doing nothing is not an option for any company seeking to safeguard its brand equity in the online (and offline) world. A first priority is to put a stop to infringing activities - and rapidly. This requires immediate action to ensure that incriminating content is no longer accessible on the Internet. Cease and desist are the buzzwords here. Web screening companies that link up with ISPs and leading e-commerce platforms can help to detect and disable infringing sites. Time is of the essence as each minute that an infringing site operates exponentially increases the risks that the targeted brand will suffer irreversible damage. A proactive, multi-faceted trademark protection strategy allows a company to act swiftly and effectively against infringers on multiple fronts. It discourages would-be infringers and also sends a strong message to customers that the brand owner is actively seeking to safeguard their interests.

Photo: iStockphoto.com/porcorex

Claiming damages from infringers in the borderless digital environment can prove extremely difficult. From a purely pragmatic viewpoint, when a brand is under attack by an infringer whose identity is not easily traceable, damages are of secondary importance. That said, recovering damages (including the costs associated with the cease-and-desist measures) can be a number one priority when companies are defending themselves against unfair online activities of competitors.

While the courts and competent administrative authorities play a key role in stopping illegal use of brands online, the importance for right holders to secure the underlying facts and accompanying evidence cannot be overstated. If a company is to win its day in court, it is critical that emphasis be placed on gathering this information prior to and during litigation and particularly for interim relief proceedings.

IP infringers are equipped with the latest tools and technologies. Against such an unremitting and formidable foe, companies need to think out of the box to protect their interests. Prevention is much easier than repairing damage to a brand. While this is the reality, many companies vulnerable to infringement or that have suffered first hand remain reluctant to adequately invest (in financial and personnel terms) in brand protection.

In practice, in-house legal departments are loath to add to already heavy workloads. Management competences in this area are typically poorly defined and scattered across the business. Ideally, an effective brand protection strategy is holistic, multi-faceted, driven by top management, adequately funded and staffed and operates across the organization in close cooperation with external advisors.

Sophisticated technological tools and providers of specialized services exist and can be powerful allies in tackling these problems, helping to manage risks in a cost-efficient, professional and effective way.

While anyone who has fallen foul of online IP infringers may wish for an adequate and globally applicable set of laws to govern the universe that is the Internet, for the moment this is a pipe dream. Currently, there is no choice but to navigate the complex web of rules that exist in different jurisdictions and to complement conventional legal approaches with an effective IP protection strategy underpinned by the growing range of tools and services available to monitor and curtail IP abuse.

As Albert Einstein said, “We can't solve problems by using the same kind of thinking we used when we created them.” The business landscape has been transformed thanks to the Internet, and companies need to adapt their trademark protection strategies accordingly if they are to successfully outsmart IP infringers in the online marketplace.

____________________________
1  Encompassing all illegal online activities and damages incurred by an established brand or company
2  The art of tweaking websites to rank high in popular search engines for keywords related to a company's products and services
3  The process of fraudently attempting to acquire sensitive information such as usernames, passwords and credit card details by masquerading as a trustworthy e-commerce entity
4  The abusive registration of trademarks as domain names
5  "Protecting Your Brand Online: The New Marketing Imperative" – White Paper“, [Mark Monitor®, July 2009
6  Ibid.
7 Ibid.
8  IPO takes place when a company issues stocks and shares to the public for the first time. IPOs are typically undertaken by smaller, younger companies seeking capital to expand but can also be done by large privately-owned companies looking to become publicly traded.
9  www.oecd.org/dataoecd/57/27/44088872.pdf