News

Stemming the Tide of Counterfeits

May 1, 2015
Categories: Compliance, Counterfeit, Global Supply Chains, Intellectual Property, Intellectual Property Protection, Supply Chain

Next week more than 9,500 brand protection professionals from around the world will converge in San Diego for the 137th annual meeting of the International Trademark Association (INTA). As would be expected, the issue of counterfeiting will be a key topic of discussion.

At CREATe.org, we work with companies to address the issue of counterfeiting as part of a broader strategy to prevent intellectual property (IP) theft. One particular area of focus is helping companies work with supply chain partners to improve overall IP protection. Suppliers and other third parties are critical to addressing this issue – in some instances, they may be the source of counterfeits; in other cases, a supply chain partner may be using counterfeit parts from other suppliers. Helping supply chain companies integrate IP protection into operations across their enterprise can address both issues.

Consider this scenario:

The Challenge: A global manufacturer discovered a large authorized distributor at one of its locations without management’s involvement was selling 20% counterfeit goods under the manufacturer’s brand name. The fakes caused reputational and financial damage (lost sales plus replacement of faulty counterfeit goods).

This is a very tricky situation – the manufacturer did not want to hurt its relationship with its largest distributor or alarm the employees or the investor community. However, the company knew it had to do something to put a stop to the counterfeits.

The Solution: The manufacturer required that all key distributors implement management systems and tighten control to protect IP. The result? The manufacturer eliminated the problem of counterfeits from its major distributor while maintaining the business relationship.

CREATe.org offers a practical, cost-effective and scalable way to help companies work with third party partners: CREATe Leading Practices for IP Protection. This three-step service takes a ‘measure and improve’ approach to help companies put IP protection management systems in place, much like in the scenario. These include elements such as policies, processes and procedures for managing IP; a cross-functional compliance team; supply chain management; physical and digital security; employee training; monitoring; and corrective actions. CREATe Leading Practices provides a collaborative way to gain insights into existing practices of supply chain partners; and provide a path for improving IP protection.

The CREATe Leading Practices service helps to address all types of IP theft. For counterfeits specifically, it helps guide development of ‘management systems’ around activities such as:

  • Implementing contract provisions that facilitate and improve oversight and require suppliers to have adequate controls in place as a condition of doing business. If necessary, this could include provisions relating to independent verification of controls, review of changes in sourcing or manufacturing processes, training provided to supplier employees, evaluations of subcontractors, and processes for conducting investigations once counterfeits are detected.
  • Calibrating supplier assessments according to the risk level: Risk criteria might include new manufacturing processes, changes in key management, the fact that the supplier produces critical or high-volume components, extensive use of subcontractors, deterioration in the supplier’s financial health, or downward quality trends in materials supplied.
  • Ensuring that supplier requirements flow down to subcontractors: Many supply-chain failures have been traced back to suppliers’ subcontractors or other entities even further upstream in the supply chain.
  • Developing procedures for reporting on and ensuring destruction of counterfeit parts: Suppliers should have policies in place and specific practices to confirm that scrapped, excess, or suspected counterfeit materials are not put back into circulation. Practices could include requiring suspect counterfeits to be quarantined upon detection; tracking the amount of scrapped material destroyed; contractually prohibiting subcontractors from reselling defective parts to third parties; or witnessing the destruction of seized or returned counterfeit parts.

It’s a win-win-win for companies to work with supply chain partners to improve IP protection and take steps to prevent counterfeits. Multinational companies can minimize the risks associated with faulty or fake products; supply chain partners can improve business operations for competitive advantage; and customers can enjoy better, safer products.

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 Related CREATe Resource:

Whitepaper: Health and Safety Risks of Counterfeits in the Supply Chain

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Media Contact: Email Anne Walker

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