Update on Chinese Apple Store Counterfeiters

            Well, apparently, Apple was able to convince the government to shut down several of the counterfeit stores in China.  As I mentioned in my earlier post, the counterfeiters were very thorough--they even copied the employees' uniforms and name badges.  That is detail-oriented at its finest!  In the city of Kunming (southwest), there were around 24 fake stores.  Incredible.  What is even more incredible is that a company like Apple waited until 2008 to put together an anti-counterfeiting team and plan.  Apple did not even register its trademarks in China until this new anti-counterfeiting team was put together. 

            China, which manufactures many (if not most) of Apple's products, produces enough fake Apple products to supply the entire world.  China is also one of the biggest markets for Apple's products.  Given this rampant counterfeiting, it is incredible that Apple would wait so long to protect their rights and try to stem the tide of fake products and stores in China.  Remember, this is the same Apple company that has relentlessly pursued Samsung over its tablet patents all over the world. 

            It simply does not make sense for a company like Apple or one which has products made in China (a known piracy and counterfeiting hub) to take precautions to protect its brand or intellectual property.  A glutton of poorly made knock-offs could irreparably harm a company's reputation.  Even a small business should look to protect its intellectual property at home.  You don't have to be a huge, multinational corporation before you start thinking about protecting your property. As part of any business plan, you should think about any potential intellectual property rights which your business may own or develop and devise a plan to protect that property.  You should regularly revisit and revise the plan as your business grows or changes. 

China is Now Counterfeiting the Trade Dress of Stores

                A recent Wall Street Journal Article discussed how China appears to have started to imitate a store's decor.  As stated in a prior blog, the counterfeiters of goods are getting very good, can it be any wonder that the counterfeiters of an entire store are not also very good at imitating the very last details of the "original?" 

                In the seminal case of Two Pesos, Inc. v. Taco Cabana, Inc., 505 U.S. 763 (1992), the United States Supreme Court held that a restaurant's decor could be protectable trade dress.  I am sure many of you have frequented a TGI Friday's, El Torito's, or Chili's restaurant in many different locations.  You will undoubtedly find that they all have the same decor.  That is their trade dress.  Well, even retail stores like IKEA, Home Depot, or Apple have the same design (i.e. trade dress). 

                What is trade dress? In the Ninth Circuit, trade dress is:  a product's non-functional detail and design, or its packaging, that identifies the product's source and distinguishes it from the products of others.  It is the product's total image and overall appearance.  For example, the shape of the Coca-Cola bottle would be trade dress.  If a consumer were to see the shape of the bottle without a label, the consumer would undoubtedly identify it as a Coca-Cola product.  Trade dress is essentially a trademark.  I have previously provided a primer on trademarks.  The same rules apply to trade dress. 

                In the case of stores or restaurants, it is the design and decor of the restaurant that would be its trade dress.  Again, the test would be if a consumer walked into the restaurant or store without any other identifying trademarks, brands, or logos, the consumer would believe the store/restaurant to be that of the owner. 

                Getting back to the Chinese counterfeiters, according to the WSJ article, the counterfeiters may sell authentic products.  They identify themselves as the genuine store without the company's permission, including using similar logos and selling similar products.  For example, Subway copycats will sell sandwiches in the same formats that the real Subway does.  The fake Subway even accepts coupons for the real Subway.  Another example is a string of Disney Stores that sprung up in China despite Disney not opening any stores in that country. 

                Interestingly, these fake stores can increase brand awareness in China or they could dilute the brand.  Ironically, the counterfeiters can be both a boon or a bust to the trademark owners based in part on whether the counterfeiters sell authentic or counterfeit products.  So, what is a trademark owner to do? Well, what any trademark owner would do.  Conduct a cost-benefit analysis.  Keep in mind that China's intellectual property protection is not as stringent as the protection in the United States.   It may be a good idea to do your homework and determine whether the goods being sold by these fake stores are authentic and whether they are being purchased from you or your affiliates.  If you are still receiving the benefit of a sale and there appears to be no dilution of your trade dress, it may that you will want to work out a deal with the counterfeiters--make it a business "win-win."  Or, you may decide to prosecute to the fullest extent of the Chinese law.  Ultimately, it is a business decision, but you should consult with a trademark attorney to ascertain the risks and rewards of any proposed plan of attack. 

Counterfeiters are Good, You Can Be Better

            Counterfeiters of goods are becoming more savvy.  It is no longer the case that you can tell a genuine product from a fake by the quality of the material.   Nor is it any longer necessarily true that if the price seems too low, it must be a fake.  Many counterfeiters have raised their counterfeiting game. They use higher quality materials, make better copies of the original, and charge a price that reflects the use of these more expensive techniques.  In fact, the stories abound of a person believing they purchased a genuine handbag (or other good) only to find out when presenting it to the manufacturer for repair or replacement that they were duped.    Many sophisticated shoppers fall victim to believing that these fakes are the real thing. 

            Thanks to online shopping, it is easier to set up legitimate looking websites and use another’s marks to fool even the smartest customers.  They also use keyword ads (e.g. Google’s AdWords) to rank higher than the “real” websites and lure shoppers seeking bargains to their websites.  One of the more common ways to dupe customers is through the second-hand market a la EBay.  While EBay has an aggressive policy to combat those who sell fake merchandise, it is a difficult task (and ask) of EBay. 

            So, as a consumer, how can you be sure you are getting the real thing?  The best way is to buy directly from the brand.  Ask for a list of authorized or approved sellers.  Another option is to buy from reputable sellers like the big department stores.  If you buy second hand, then ask to see the store’s sales policy, or carefully review the website’s sales policy to ensure that it guarantees a product’s authenticity.  If the item is more than 25% off the regular price, then be suspicious.  Luxury brands rarely deeply cut the prices of their products.  Scrutinize the website.  While counterfeiters have become more sophisticated in replicating a brand’s website or its product images, they will still likely contain misspellings or grammatical errors. 

Personal Jurisdiction and Forum Selection Clauses

            Does your acceptance of a license agreement which contains a clause selecting a certain forum to litigate any disputes arising from the license mean that you have submitted to the jurisdiction chosen to be the forum? At least one California Appellate opinion answers that question in the negative.  In Global Packaging, Inc. v. Sup. Ct. (Epicor Software Corp.), the court said that a forum selection clause is not mean that a party consents to personal jurisdiction in that forum.  In Global Packaging, Global Packaging , a Pennsylvania corporation, licensed some software from Epicor Software, a Delaware corporation with a principal place of business in Orange County.  Epicor’s ELU (End License User Agreement) provided that the venue of any litigation involving the license agreement shall be in Orange County, California or in the jurisdiction in which the software is located.  As luck would have it, a dispute arose between the parties over payment and Epicor initiated litigation in Orange County.  Global Packaging challenged the court’s personal jurisdiction over it.  The trial court determined that the forum-selection clause was the same as a consent to jurisdiction.  The appellate court disagreed.

            The appellate took great pains, of which I will not bore you here, to distinguish between jurisdiction and venue (or forum).  As stated by the court, in general terms there are four ways in which a court may obtain jurisdiction over a person (or entity):  1)  the person’s residence or presence in the forum state; 2) the person’s activities are conducted in the forum state such that exercising jurisdiction comports with “traditional notions of fair play and substantial justice;” 3) the person participates in a lawsuit in the forum; or 4) the person consents to jurisdiction in the forum. 

            The question before the Global Packaging court was whether an agreement to bring an action in a particular forum is the same as consenting to jurisdiction in that forum.  The answer is no because the two concepts separate.  Essentially, the court stated that to select a forum, a party must somehow be subject to personal jurisdiction of the forum (see the four ways to obtain jurisdiction above).  In Global Packaging, the court could not assert personal jurisdiction over Global Packaging by any of the listed means. 

            What does this mean for you who may be relying on forum selection clauses to assert jurisdiction over a wayward licensee? It means that you should update your license agreements to include an explicit consent to personal jurisdiction in the forum which you wish to select.  In an abundance of caution, I would recommend having the party initial by the consent to jurisdiction in the forum.  If you are the party being hailed into a far away court, determine if there is any way for the court to assert personal jurisdiction over you, including reviewing the contracts you signed and determine if there is a provision wherein you consent to personal jurisdiction in the far away court. 

The Softer Side of Policing Piracy

            We have all read and heard about how the recording industry has aggressively prosecuted internet pirates--suing teenagers and their parents who downloaded copies of songs without paying for them.  We have also all heard about how the sales of albums has decreased with the advent of internet and the ability to share files--stores like iTunes may also have changed the market away from buying albums by allowing people to buy just the song that they want. 

            Well, there is now a new (Web) Sheriff in town.  Web Sheriff, a London-based, security firm takes a much different approach to would-be pirates.  Web Sheriff uses Twitter and online fan forums to ask internet users to not to post pirated copies of music.  In particular, with the run up to the release of Lady Gaga's "Born This Way," album, the security firm posted this message:  "We would kindly ask you not to post pirated copies of 'Born this Way' on your site.  The label, management and artist would greatly appreciate your cooperation. . . . Thank you for respecting the artist's and label's wishes."  With such a request, how could anyone not comply with the request?

            John Giacobbi, an intellectual property attorney, founded Web Sheriff.  He has advocates the soft sell in representing his clients who include Lady Gaga, Bob Dylan, Adele, and others.  He prefers to persuade rather than hitting music lovers with the cease and desist or litigation stick.  He believes, and I think he is correct, that most fans are simply over-exuberant and that the real threat to a copyright owner's rights are the commercial pirates.  According to Lawrence Lessig in his book, "Free Culture," there are four types of sharing: 

1.     Those who use sharing networks as substitutes for purchasing music;

2.     Those who use sharing networks to sample before purchasing music;

3.     Those who use sharing networks to access content that is no longer sold, but still protected by Copyright or too cumbersome to buy off the internet;

4.     Those who use sharing networks to obtain content not protected by Copyright or that the Copyright owner plainly endorses. 

            The recording industry would aggressively try to stave off this file-sharing and prosecute all involved.  It still does, but Web Sheriff's approach seems to be a much better one because the real threat to the recording industry sales are the commercial pirates.  As such, Web Sheriff has a zero tolerance policy with those and shuts down the piracy sites. 

            This may be the tactic that could help the recording industry to begin turning the tables in the "piracy war," by not alienating the end user and focusing on the real internet pirates.  Indeed, it appears that download sales have risen and appear to be trending upwards.