Trademark Enforcement

Counterfeit Goods, counterfeit merchandise

In the early part of November 2002, we received a call from an informant indicating she had information on counterfeit Tiffany & Co. merchandise sold at “home parties” in a suburb of a major city in Ohio. The caller claimed that one woman organized the parties and made a large amount of money in this counterfeit goods business. She also said that the local police had been notified and, if Tiffany was interested, were willing to support an investigation.

Our senior legal and security executives reviewed the caller’s information and the decision was made to go forward with the investigation. Within days we set up a meeting in Ohio with the detective in charge, the informant, and an undercover female police officer. At the meeting it was decided to attend an upcoming party where counterfeit Tiffany & Co. merchandise would be sold.

With “buy” money and a company-provided camera concealed in her purse, the undercover officer, along with the informant, went to the party and purchased various Tiffany & Co. merchandise, which was later examined and determined to be counterfeit. During the buy, we also learned that another party was scheduled later that week in the party organizer’s home.

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Again posing as a guest, the undercover officer attended the party where she purchased an additional piece of alleged Tiffany jewelry that was also found to be counterfeit. While at the party, the officer was able to video various rooms in the home, which displayed different types of purported luxury-brand merchandise, including handbags in the living room, accessories in the dining room, jewelry in the family room, and clothing in the basement.

Later that evening, a search warrant was obtained and served to the party organizer and her husband at their home. The search resulted in a seizure of over 200 Tiffany & Co. knockoffs, as well as over 2,000 knockoffs from other designers. The woman’s computer, cash sales receipts, and business records were also confiscated by the police. Ultimately, the woman cooperated with the authorities and provided us with her sources for all the counterfeit goods. She eventually pled guilty to a felony charge for trademark infringement. The information she provided on her sources was used in conjunction with another trademark infringement investigation conducted by our legal department. In the end, the supplier of the counterfeit Tiffany & Co. merchandise was arrested through an FBI sting operation that focused on Canal Street in New York City.

A New Focus for Tiffany Security

Since that time, we have received numerous emails, letters, and phone calls from customers reporting counterfeit items. We have found multiple websites with offers of knockoff Tiffany & Co. merchandise. We have also come to realize that eBay is one of the most prolific distributors of counterfeit goods, and we treat it as a priority. What we did not realize at the time was that this was the start of a new focus for investigations at Tiffany & Co. and for the security services department specifically.

All security or loss prevention departments continually look for opportunities to become value-added components for their organizations. Beyond providing for the safety and well-being of our employees and customers and protecting our physical inventories, safeguarding our brand by combating the counterfeiting of our products and packaging has been a critical value-added component in our mission at Tiffany & Co.

How Prevalent Are Counterfeit Goods?

According to statistics from the International Anti-Counterfeiting Coalition (IACC), the total value of intellectual property (IP) rights-related seizures was about $1.22 billion in 2014. Leading IP abuse investigators predicted that the estimated value of cross-border trade in counterfeit and pirated physical goods would reach nearly $1.77 trillion in 2015.

Trademark Enforcement 1More disturbingly, a link between the sale of counterfeit products and terrorism has been made by the IACC. Through their research, it is believed that terrorist organizations are using the sale of counterfeit goods to launder money and to further their activities.

The IACC also linked organized crime and New York City specifically in their research. According to their white paper on the subject, “The manufacturing and sale of counterfeit products is an extremely profitable and low-risk enterprise. Organized crime has been identified as being a leading player in the manufacturing and sale of counterfeit products. Chinese-organized crime syndicates, commonly known as Triads, are increasingly turning to product counterfeiting as a source of tax-free income. [2004] estimates total over 160,000 members who operate internationally. A six-block stretch of New York’s Canal Street is considered the hub of Triad-run counterfeiting operations with ties that run throughout the mid-Atlantic region.”

Why It Is More Prevalent Now

There are several reasons why the distribution of counterfeit goods, and Tiffany & Co. product specifically, was at an all-time high in 2004 (and remains a serious problem).

Demand. Many people are willing to purchase counterfeit merchandise because of the lower cost and because they perceive that fake goods convey a degree of status similar to that of the authentic items.

Internet Distribution. In addition, the proliferation of counterfeit goods can be attributed to the commercial capabilities of the Internet. For example, most people are familiar with eBay. They believe that if an item is for sale on it, then it must be legitimate. What they do not realize is that eBay is an auction venue, not an auction house, and as such does not authenticate anything for sale on its site. It is comparable to an online flea market. At the same time, there is little comparative oversight on websites, and, therefore, the authenticity of product sold commercially over the Internet can be easily misrepresented.

Name Recognition. Tiffany & Co. is one of the most well-known and popular jewelry companies. Jewelry is an easy target for imitation, although counterfeit Tiffany product is clearly distinguishable from high-quality, authentic TIFFANY &CO.® merchandise.

Shifting Focus. Since the terrorist attacks of September 11, 2001, the United States Customs Service changed its focus from standards of international trade and drug interdiction to concentrating on anti-terrorist activities. This creates an environment where counterfeit goods can more easily enter the country.

The Tiffany Approach to Combating Counterfeiting

At one time, knockoffs could only be found at flea markets and on street corners. Now anyone with a computer can become an entrepreneur and carry out online retail fraud schemes. The Internet has opened up a completely new marketplace for the sale of counterfeit goods. Between personal websites, message boards, and auction sites, the proliferation of these items is immense.

Determining Targets. Most investigations into counterfeit merchandise either begin or end with the manufacturing or purchasing of a product. We 3realized that we could not win the battle by going after the supply or demand. Purchasing counterfeit items for a person’s own use is not illegal in the United States and in most countries. Therefore, we have no recourse in pursuing the consumer. On the supply side, we are discovering that most counterfeit Tiffany & Co. products are manufactured offshore. Between local graft and the complexity of foreign laws, it is challenging to shut down a manufacturer. One of our legitimate vendors told us that if we shut down a manufacturing facility, it would be back in business the next day across the street.

To take on this challenge, we assembled a team in 2004 that was led by our vice president of worldwide security services and the vice president of legal. This team decided the best way to attack the problem was to go after the marketplace, which we classified into the following groups:

• Auction venues, such as eBay
• Internet e-commerce websites
• External sales, such as house parties and flea markets
• Small, privately owned retail operations
• Street vendors

Our Top Priority. The first goal was to get a handle on the auction venues, with eBay our number one priority. After refining our search to get the best results, we ended up with a little over 3,000 hits on “Tiffany Sterling.”

We established our search criteria for determining whether a particular seller was offering counterfeit or authentic merchandise.

After agreeing on our criteria and reviewing the jewelry offered on eBay, we estimated that approximately 90 percent of the items for auction were counterfeit. Based on this, we decided to participate in the eBay verified rights owner (VeRO) program. This program allows intellectual property owners to submit auctions for cancellation, because the auction violates the owner’s trademarks or copyrights.

We started by canceling selected sellers who qualified under our criteria, not the auction in general. By pursuing the sellers through cease-and-desist letters, we were able to be more accurate and follow up much easier than looking at all the auctions at once.

Using this method, the team reduced the number of knockoff auctions to below 400 at any one time. Even this number is gradually shrinking due to constant monitoring and enforcement. We have gained a reputation on eBay for being one of the most aggressive companies to enforce its intellectual property rights. A surprising side benefit to enforcing our trademark on eBay is the number of legitimate jewelry sellers on eBay who advise us on counterfeit goods they have uncovered through their own searches.

Other Online Fraud Targets. Numerous websites and message boards offer “imitation” product. Once we identify websites that violate our trademark, we use IP search tools to discover the website owner’s identity. We then send an email to the Internet provider explaining the law that the website is breaking. Most Internet providers will shut down the website due to clauses in their contracts that do not allow illegal activity on the website.

If the website owner resides in a jurisdiction that is favorable to enforcing anti-counterfeiting laws, we pursue action through the local authorities. If not, then our legal department will seek redress through civil procedures.

We also search message boards for sellers of imitation product. We will then use the same methods as with websites. If the person selling the counterfeit items lives in a location that will investigate counterfeit product, we will use the local authorities. If not, our legal department initiates civil proceedings. In one case resulting from this technique, Tiffany & Co. won a judgment of over $500,000 against the website www.finest4less.com for selling counterfeit Tiffany items.

Tools to Enforce Trademark Laws

Many companies use outside counsel whose specialty is trademark enforcement. In many instances, we resolved these investigations without outside counsel. By sending our own cease-and-desist letters to specific individuals, counterfeit merchandise was voluntarily given to us for destruction. Using intellectual property counsel is best when focusing on the obstinate seller of counterfeit product, in areas with inadequate law enforcement representation, or for the seller we have classified as a large-scale counterfeiter (usually a distributor or someone with a store).

Internet tracking software programs are also valuable tools. These programs allow offending items to be easily found and removed. Searches can be run overnight and reviewed the next morning. Both these services also provide software to search websites for any relevant mention of an intellectual owner’s name.

We also use investigative firms that specialize in trademark enforcement. These firms are mostly made up of former police officers and detectives with contacts in local jurisdictions, and can be extremely valuable in large city environments. Since most cities’ law enforcement resources are focused elsewhere, these firms offer an alternative to getting the police involved initially. The agency will conduct surveillance, make buys, coordinate with the local authorities, and, if necessary, initiate arrests. They will also present themselves in court for both criminal and civil proceedings as expert witnesses on counterfeiting.

Many trademark owners combine their efforts in these areas and employ investigative firms collectively. Because most counterfeiters of designer products violate more than one designer’s trademarks, it is more convenient and cost effective to combine efforts. We normally target large distributors or resellers with these agencies.

The Negative Effects of Counterfeiting

First and foremost, the major impact of counterfeiting is with the intellectual property owner—the designer who owns the trademark. In the long run, a brand is devalued if the counterfeiting of its product is too widespread and no action is taken to combat the problem.

Other businesses are also affected by this. Not only are retailers hurt by sales lost to illegitimate sources, but they are also subject to potential liability lawsuits and negative publicity even when they sell counterfeit goods unknowingly. Consider what happens when a person buys a counterfeit item on the Internet and then returns it to a retailer who has a liberal return policy. What are the implications if the item is then erroneously put on display and sold to a customer?

It is not only high-end retailers that are vulnerable to these situations. Drugstore chains, auto parts stores, and discount retailers are also affected. If the item is something that could be potentially health threatening, then the liability implications could be enormous.

According to IACC research, the following are some examples of injuries caused by counterfeit goods:

• During the 1980s, a million counterfeit birth control pills caused internal bleeding in women.
• In 1987, a bus crash resulted in the deaths of seven children. During the accident review, it was discovered that the brakes that were thought to be a name brand were actually counterfeit and made of sawdust.
• Counterfeit versions of baby formula were found in stores in 16 states in 1995.
• A New York county district attorney charged seven people and five companies with selling a counterfeit drug over the Internet in 2002.

In the end, counterfeiting affects us all. It affects the trademark owner by devaluing their trademark or brand. It places retailers in a situation where they must guarantee the quality of the products they sell or face potentially serious issues of negligence and culpability. And it affects the consumer who purchases luxury goods for their high quality or other products for health benefits.

It is incumbent upon trademark holders, retailers, and consumers to ensure the quality of the products we make, sell, and buy. At Tiffany & Co., our department has used the issue of counterfeiting as an opportunity to support our organization from a true value-added perspective. By aggressively protecting our brand through enforcement of our trademark rights, we combat the spread of counterfeit Tiffany& Co. merchandise, enhance the value of the product we make, and protect the integrity of our retail stores worldwide and tiffany.com as the only locations where consumers can purchase legitimate Tiffany & Co. products. In the end, we play a significant role in keeping Tiffany one of the best brands in the market.

This article was originally published in 2004 and was updated February 8, 2016. 

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