The dangers of intellectual property infringement for small businesses

Rachel Jones explains why small business owners need to be vigilant to protect their brand online and shares practical steps to tackling infringing and counterfeit products.

Protecting IP is serious business for small companies

Protecting IP is serious business for small companies

Rapid technological advancements are making it easier than ever for counterfeiters to produce authentic-looking goods to sell online. Where the cost differentials are minimal, it’s common for unsuspecting customers to assume the product advertised is just a great bargain, rather than a fake.

Every sector is affected by intellectual property (IP) abuse, and small businesses can be particularly vulnerable as registration and enforcement costs can escalate quickly, especially when operating in an international marketplace.

Loss of revenue is a major challenge for businesses targeted by counterfeiters and can have devastating implications for companies with little flexible income. Counterfeits destroy brand reputations and harmful fakes present a real danger to consumers, particularly in sectors such as pharmaceuticals and baby products where they often fail to meet legal quality standards.

Online counterfeit retail sales have grown at an annual rate of 20 per cent since the rise of e-commerce, meaning that the volume of fake goods sold online will soon surpass those sold by physical vendors. In China, over 40 per cent of goods purchased from the internet are said to be fake, or bad quality, despite efforts by the government to deal with the problem.

Unlike large companies with expert brand protection teams, small business owners often lack the resources and know-how to protect their intellectual property. If they enter the world of crowdfunding, where a product can go from unknown to world famous overnight, they are especially at risk.

Matthew and Mark McLaughlan experienced this problem when crowdfunding their hugely popular ‘high quality desk toy’, The Fidget Cube, on Kickstarter. Backed by 154,926 people before Christmas 2016, the Cube became one of the top ten most funded Kickstarter projects ever.

Unfortunately, as the first set of backers waited to receive their Cubes, thousands of counterfeits flooded the market before the authentic product was shipped, even appearing on well-known sites such as Alibaba and eBay.

According to an investigation carried out by the World Trademark Review, The Fidget Cube case is only the tip of the iceberg and Kickstarter has become a ‘treasure trove of product designs’ for counterfeiters.

A trend of counterfeiting

The Fidget Cube is by no means the only example. Copies of STIKBOX, a smartphone case that unfolds into a selfie stick, appeared on AliExpress only a week after the project hit Kickstarter; the first counterfeits of the Pressy, a product for Android devices, also shipped in the same month as the genuine version.

The entrepreneurs behind these inventions became victims of China’s copycats. Most high-tech manufacturing takes place in China and the skill and know-how of the country’s factories is unparalleled. They can easily spot a design idea on Kickstarter, figure out how it is made and start churning out counterfeits.

I myself have had to defend my brand from counterfeiters. As the founding director of Totseat Ltd, I developed an innovative, washable fabric baby seat. Having worked tirelessly to ensure Totseat became the most tested, developed and versatile fabric chair harness on the market I was horrified to discover, some years ago, that counterfeiters had targeted the product.

At the time, Totseat was a fledgling business so we had no option but to protect the brand ourselves – which we did, very successfully. And it wasn’t long before anyone even thinking about a counterfeit – or even a copy – was stopped in their tracks and pursued aggressively until they gave up. And this includes high street names too! , We had to be firm and persistent – which isn’t always easy, particularly when dealing with previously respected retailers. It was difficult, and time consuming – but so worth the effort, in the end.

I launched SnapDragon Monitoring in 2015, using everything I had learned while protecting the Totseat, so that other small businesses would not have to go through the same experience. Now we help a myriad of global SMEs protect themselves on line – using hard won experience coupled with some clever technology!

How to fight back

There are processes that a businesses can put in place to protect themselves online – at very little cost. A crucial first step for brand owners is to file trademarks that are valid in the countries where one hopes to sell. This should be done before the product first appears online. Needless to say this isn’t always possible, but always, always, consider China. In general, trademarks are relatively cheap and easy to register, and extremely valuable ammunition when defending a brand, on, or off-line.

Make sure you include Secret Ingredients in your product so you – and anyone with whom the secrets are shared (for example Customs Authorities) – can tell it from a fake. This could be a holographic security image, or a partially invisible thread that creates a brand specific design, visible only under special lighting.

Educate yourself about IP infringement issues, and keep an eye on the latest developments and scams. Counterfeiters are constantly on the lookout for new ways to create and sell fake products, so make sure you are up to date with the most recent information, and know what to look out for. Refresh your packaging regularly.

If the worst happens and counterfeiters do target your product, don’t panic – but nip it in the bud as quickly as possible. Be sensible and proactive. Buy a sample fake product so you can prove the differences and see the similarities for yourself. Lawyers are not usually necessary as the first step in removing IP infringing goods from the online marketplaces. Each website has an official reporting procedure – register your complaint, prove the IP is yours and the link should be removed.

Involve the legal experts when you need to, to protect brands in new territories, and to take counterfeiters to task when you catch them.

IP in China

Enforcing IP in China is notoriously difficult – but if you are manufacturing there too do consider using an ‘NNN (non-disclosure, non-use, non-circumvention) agreement’. An NNN can be enforced in China and is infinitely more effective than a UK, or US, standard NDA. Advance signing of an “NNN agreement” before disclosing anything about your product, should improve any entrepreneurs’ chances of protecting their product. But remember, unless you’re very unlucky, it’s not usually your factory which rips you off.

It’s worth mentioning that along with protecting your own IP rights, you must be careful not to accidentally infringe existing IP. Even if you believe your idea is completely original, you must be aware that registered IP rights can have a wider scope than the product or idea they were created to protect.

It is wise to fully research similar products as the one you are hoping to develop, even if there are notable differences, to ensure you don’t mistakenly commit IP infringement yourself!

Rachel Jones is founder and CEO of SnapDragon Monitoring.

Further reading on intellectual property

Nominations are now open for the British Small Business Awards 2017, the leading event celebrating the brightest stars in the SME sector. Click here to enter, and make sure you get involved today using the hashtag #BSBAwards. Good luck!

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