IP Theft

By Slobodan Petosevic, SD PETOSEVIC Brussels Office and SD PETOSEVIC Balkan Regional Office-Belgrade,Serbia; Article Published in Managing Intellectual Property, May 2005 With officially as much as 7% of total world trade attributed to counterfeit goods, the scale of the problem is global. Counterfeiters and pirates are becoming “multi-national” – exactly as legitimate and successful companies are. They outsource their production to China, the Middle East or Eastern Europe and, in the process, use well-developed and thoroughly thought-out networks. As a result, an increasing number of enforcement efforts are also becoming international in scope.

However, building an international enforcement operation presents multiple challenges for every in-house IP specialist and outside counsel, as well as the investigators, distributors and others that fall within the category of “the good guys.” The primary challenge results from the fact that the counterfeiting and look-alike industry is very profitable. Therefore, serious IP thieves are formidable opponents with large amounts of money available to retain good lawyers and fight legitimate industry using legitimate weapons – laws and courts. Unfortunately, corrupt administrative bodies, courts, lawyers and officials (e.g., customs, police, trade inspectors) still exist in many countries and add to the challenge.

Having said that, there are still a number of ways to develop a comprehensive international enforcement strategy to help fight counterfeiters and pirates globally. This article outlines recommendations for developing such strategy in order to enforce IP rights in a number of countries simultaneously or over a period of time.

Investigate jurisdictional differences and take the “people factor” into the equation

In an international enforcement operation, an IP professional should get at least a basic understanding of relevant local legislation, to the extent it relates to his/her case. One should rely on the local lawyers/IP specialists and if possible, always get a second opinion. This never hurts, except that it may hurt your budget, and often proves quite useful.

Frequently, the substantive and procedural law of the jurisdictions involved may appear to be the same. However, even if the relevant law looks exactly the same, and countries have a similar historical background, size and geographical position, it is highly unlikely that events will unfold in the same way in any two countries. This is due to the “people factor” which must come into the equation.

No two judges, customs officers or police officials are alike. Therefore, it is imperative to investigate the local “climate”. The best way is to check with your local branch or distributor, if you have one, or other local experts, if you do not.

Never reveal more than you have to about the situation, particularly to a local distributor. We have had numerous cases in which we had to take action against former distributors – it is almost becoming a rule rather than an exception.

Nonetheless, it is generally safe to share the information with your own lawyers and outside IP counsel, if they already have a good record either with you or with another company you know well and whose recommendation you can trust. We have even had cases where the local IP lawyer was the main “brain” behind the criminal counterfeit operation. Essentially, as the complexity of the enforcement effort increases, more thorough background checks of all parties involved are required.

Check who you want/can/would like to involve

This is an issue that requires more attention than it is usually given. Ideally, the smaller the number of people involved, the more efficient the operation will be. However, it may be difficult to limit the numbers, especially when undertaking a large-scale, multi-national action. The place to start would be the in-house IP department. Proceed to choose carefully among local distributors and local branch office staff, as they can be indispensable to the success of the whole undertaking.

Again, particularly in “shaky” countries, which are typically, but not necessarily, the third-world countries, do not reveal what is going on. It is important that only a handful of individuals know exactly what is happening, simply because the precious information you will gather must not leak anywhere! From the very beginning make sure that everyone involved understands the confidential nature of information that will be exchanged.

Here are the individuals that will typically be involved. As stated above, the number of people within these groups should be minimized to the extent possible:
- In-house IP department - Coordinating IP lawyers, often outside of the jurisdictions concerned - Local IP lawyers, IP agents of record before the IP Office, local litigators and criminal law specialists, if needed - Customs, particularly if there are seizures as a starting point - Local PTOs, examiners and other officials such as directors, etc. - Local branch offices, in which case local “in-house” lawyers as well - Local distributors

• Local factories or service providers, depending on the nature of business
• Trade inspectorates
• International and local investigators
• Local courts, along with investigative judges and public prosecutor’s offices
• Relevant ministry of each country involved (depending on the scale of enforcement)
• Local and international press and TV networks (only if unavoidable)

Use internal resources to investigate while keeping the information confidential

Before and during the enforcement operation, investigation will be necessary. However, because of the complex, multi-national nature of the undertaking, it may not be cost-effective. For this reason, obtaining as much data as possible through “internal” resources can lower the cost of the operation. Such resources include:
- Distribution network - Coordinating and local IP lawyers - Reliable staff in branch offices in all countries concerned

During the investigative phase, it is crucial that your intentions and the information collected remain confidential. The smaller the number of individuals informed of the details of the investigation, the better the chances of success. In addition, the individuals who are in fact informed of the details, such as lawyers, distributors and local staff, should be advised to treat the information as highly confidential.

Once “internal” resources reach their limits, expert investigators, both local and international, may be necessary. Again, for reasons of confidentiality, centralization of such investigation is recommended. A number of investigative agencies that specialize in trade related issues, including IP theft, are available although their services can be costly. We suggest that you consider them as a last resort and secure the approval of company management before engaging them.

Chain of command: Authority and responsibility have to be clear

During the investigation and any enforcement action, a substantial amount of data will need to be verified, collected, streamlined and prepared for proper use. To proceed efficiently, the individuals involved should know two things:

Exactly what they are supposed to achieve, and Exactly what they should be doing in order to achieve it.

Consult at length with the investigators. They should know what your company policy is and how far you are prepared to go. There should be a clear cost-efficiency policy and it should be clarified to everyone. The most serious potential problem in an international enforcement operation is the overlapping of tasks and responsibilities within your team. Being clear and firm in assigning responsibilities will help minimize it. Every member of the team should know what the “chain of command” is and how the “flow of information” will be organized.

Problems are imminent when responsibilities are not clearly outlined and assignments carefully delegated. The situation is more complicated by the fact that there are multiple jurisdictions involved and each will require its own “sub-chain of command”.

In addition, all team members should be encouraged to ask questions. An international enforcement team has to function like clockwork, otherwise it will fail. This is simply because international counterfeiting/infringement operations are usually very well organized and could almost serve as an example of efficiency. All participants are highly motivated, either positively (because the profits are comparatively high) or negatively (sanctions for poor performance are often drastic!).

As in most international undertakings, a successful enforcement project will depend on a synchronized, well-coordinated effort by all team members. All rules of teamwork will apply. Naturally, someone will lead the operation, which is typically the IP rights owner. As every good team leader, he/she has to motivate the team members to perform. In addition, someone has to assign tasks, and others have to execute them in an appropriate fashion and in accordance with the local environment. Finally, all team members have to realize the benefit of success and share the consequences of failure.

Written rules of engagement

“Rules of engagement” must exist. It is a good idea to outline them in writing, unless there is a confidentiality issue, and to follow them to the maximum extent possible. Put everything in writing even though it may not be feasible to communicate these written rules to all participants. It will help keep track of things a couple of years down the road as it is not unusual that an enforcement operation takes years to complete, particularly in inefficient, developing and often corrupt legal systems. Needless to say, in developed countries, where legal systems are more efficient, there is a better understanding of the steps necessary to safeguard IP rights. It is the developing world, where legal systems are more likely to be inefficient and even corrupt, that constitutes a serious challenge. In such circumstances, written “rules of engagement” are often very helpful.

Dangers of allowing rules to “dilute”

International enforcement consumes time, money and energy. Practice shows that team leaders are human as well, i.e. they can make mistakes.. At the same time, a lack of cooperation or poor team motivation does not help. Hence, it is important to prevent inadvertent dilution of the rules of engagement that were established at the beginning of an enforcement action. Forgetting to “copy” everyone, informing the wrong person within the company or releasing an inaccurate press statement–are all telltale signs of an enforcement effort that is likely to fail. To avoid failure, it is up to the team leaders to set the record straight and make others respect the rules of procedure. Leadership has to be firm and fair in order to keep the whole team functioning efficiently.

At times, however, problems arise and rules must be amended or changed altogether. In such circumstances, it is important to timely inform everyone involved of the changes and to clearly outline new roles, as necessary.

To the extent that most international efforts run into serious obstacles, it is helpful to outline procedures to follow in emergency situations. Therefore, be prepared, think in advance and always have plans “B” and “C” handy. In other words, and this cannot be overemphasized, do not wait for issues to come up before deciding on how to react to them.

The Flow of Information - Speed is crucial

For a successful international enforcement effort, a fast and efficient exchange of information is of utmost importance. What needs to be done in one country/jurisdiction/region very often depends on what happens in another. Ideally, secondary teams of local experts and lawyers will know about important developments as soon as they happen. In reality, the exchange of information rarely functions perfectly, particularly if an enforcement effort is stretched over a period of several years.

Nonetheless, it is vital to share crucial information immediately. Even a few hours of delay can make a great deal of difference. If this window of opportunity to relay developments is missed, the information will often be too old to be used efficiently and with the same effect. It is important that everyone involved understands this. The goal is to have a team that functions as a unit, or at least as close to this as possible.

Effective communication among team members

International enforcement efforts require that team members, who are often from different countries, communicate on regular basis. Generally, it is vital that they communicate effectively in writing, as well as verbally. Picking one language to communicate in will help avoid miscommunication and substantial problems that normally result from such mix-ups.

Being able to communicate clearly is particularly important for all lawyers involved, as they often represent the central link among the team members. While the skill of a modern IP practitioner to communicate effectively is taken for granted, experience shows that no such trait should be assumed, especially in the developing countries where clear communication, and more importantly, information sharing, has been discouraged for decades.

However, the ability to communicate clearly is a precondition for a successful international enforcement effort. To that end, regular meetings and conference calls should be organized and key team members should be required to participate. These meetings, combined with your company policy, determine how the enforcement strategy will evolve.

It is also a good idea to oblige each country team to create charts containing relevant IP case names, numbers and regular updates. Such charts will be irreplaceable tools, providing a clear overview of the enforcement project that may consist of many lawsuits and contentious administrative procedures in several countries and may take years to complete. These charts should be circulated selectively, and regularly, among the team members, depending on the degree of confidentiality.

Being politically correct

Being politically correct is of ultimate importance in an international enforcement effort. A course of action that is correct in one country may be unacceptable in another. In addition, it takes skill to present the case of enforcement as “good for the country” or “important for entry in the European Union”. For example, imagine a case in which counterfeits are produced in one of the central Asian republics of the former USSR, then channeled through Ukraine and Russia to the Western Balkans on one hand and Poland, Czech Republic and Hungary on another. Politically, the approach will have to be fine-tuned in each of the countries, and good knowledge of political environments would be essential.

This does not mean that you should only work with lawyers and consultants that are “politically well-connected”. On the contrary, lawyers should work with the law and use their skills, experience and creativity. Winning a case due to someone’s good connections is only a temporary solution to a continuing problem. Indeed, you may well be on the receiving end of such an “enforcement effort” as political powers change their balance. This is particularly common in smaller, less politically stable countries, often labeled as “new democracies”. Recent events in Ukraine are a good example of an important change in the whole political structure of a newly found democratic country.

International enforcement “dream team”

Following what has already been said, a successful team for international enforcement would consist of:

• Strong and capable team leaders
• People who are flexible team players and willing to follow the policy of the rights owner
• Local experts for each country that are reliable, have a good track record, and have the necessary local know-how
• People who will investigate and collect crucial information about the case
• Government officials in every country who are willing to help enforce the law

Ideally, when the need to deploy an international enforcement team arises, you will already know whom to pick as team members, or at least team leaders for each country. Therefore, it pays off to seek professionals who will, however short the notice, be able to join your international enforcement team. Gather information, be prepared and ask your colleagues from other companies about their experiences. It is an ongoing effort. Failure to build your international network will weaken your position against counterfeiters whose network building today reaches global proportions and is highly organized. It is only by creating an international enforcement network that is just as organized are we to succeed in combating global counterfeiting.