FAKES

Back in 1999, at a trade show for the hotel industry in Shanghai, China, Jeff Malish, president/CEO of Malish Corp., Willoughby, Ohio, was walking the show floor when he happened upon a Chinese distributor selling what appeared to be a Malish product. Only it wasn’t.

“When I looked closer, I found that there were exact copies of our products there, even to the extent of having our name, “Made in the U.S.A.,” and our U.S. patent number,” Malish says. “It was an exact copy and they were selling it as Malish product.”

Jan/san products are not viewed as being heavily copied; most people think of brand names like Gucci or Prada and products like DVDs or toys when infringement of intellectual property (IP) rights is discussed.

However, in the past 10- to-15 years, copied products have made their way into the marketplace, some of them virtually indistinguishable from the original products. Some include patent numbers, brand names and even flaws in the original product’s design.

Violation of IP rights is a huge problem, says Wayne Paugh, an attorney who serves as senior advisor to the U.S. coordinator for intellectual property enforcement at the U.S. Department of Commerce.

He explains that the U.S. Chamber of Commerce estimates that counterfeiting and piracy account for a $250 billion problem annually. However, only a fraction of those goods are caught. “The U.S. Customs and Border protection, in fiscal year 2005, seized a little over $93 million worth of goods,” says Paugh.

What is IP?
Intellectual property encompasses patents, trademarks and copyrights, says Paugh. While patents protect processes and products, trademarks cover words, phrases, symbols or designs that are unique to a company. Copyrights protect intellectual and artistic works.

Each category of protection is associated with a few basic product types. Pirated goods are those that have violated a copyright; they include software, DVDs and CDs. Counterfeit goods — those that violate trademarks — include apparel, handbags, cigarettes, batteries and footwear. Some examples of patent infringement are the copied drug formulas of the pharmaceutical industry.

Patents and trademarks are only protected within the United States and it is up to the company itself to register its products in other countries. “If you have a product that is registered and patented here, it is not enforceable in Europe,” says Bill Balek, ISSA director of legislative affairs. “If you plan on selling that product in Europe, it’s important for you to properly protect it, register it, and so on.”

Balek says companies must know that the onus is on them to protect their product through obtaining a trademark, copyright or patent. “Then, they are not only responsible for protecting their rights in that fashion, they also have to police it so that when they do see or suspect a violator, that they, the owner of the IP rights aggressively pursue actions against the offending party,” says Balek.

Trademarks, on the other hand, are pursued by the federal government, says Paugh. “That’s when you get U.S. Customs involved and they seize goods at the border that are violating a particular trademark,” he explains. “Those goods are seized, the person is arrested and the [U.S.] Department of Justice would follow through on a case if enough evidence is there.”

Pressing The Issue
In the time since Malish Corp. identified the Chinese company it believes is infringing upon its patent, Malish has communicated with several governmental agencies and the U.S. Consulate in southern China. The product in question is one of Malish’s patented clutch plates, which is used for mounting the company’s brushes onto machines.

At the 2005 ISSA/INTERCLEAN® USA trade show in Las Vegas, Malish ran across the Chinese company; he says it was originally a Malish distributor, but began producing the illegal product copies.

Malish brought the matter to the attention of ISSA executives, but ISSA’s hands were tied because they’d be taking one company’s word over another.

Since then, at least one of Malish’s U.S. distributors has unknowingly purchased counterfeit Malish goods.

“If you’re not really paying close attention to these items, you’d never know that they are patented products,” Malish says. “The distributor wasn’t aware that it was a patented product. They were extremely cooperative and apologetic and sent the product to me, so I have it in my possession.”

That distributor has worked with Malish to eliminate the copied clutch plate from its product line. However, the Chinese company that produced the copy, has since modified the product’s mold and removed all Malish markings but continues to market Malish’s design. “They’re aware that they are violating trademark law and patent law, and they’re still doing it,” says Malish.

Other Industry Accounts
Malish is not the only company in the industry to have its IP rights violated.

Brad Dwan, director of international sales for Trojan Battery Co., Santa Fe Springs, Calif., says some Chinese companies have copied the company’s lead acid batteries that are used in floor machines. He says the company’s brand and color are known worldwide — and are trademarked — but are still copied.

Trojan has discovered the counterfeits at trade shows and through information provided by distributors. “People are copying our color and some have also done a very good job at copying our name and our logo,” says Dwan.

Impact Products, Toledo, Ohio, has also been a victim of product copies. “We’ve seen a couple of soap dispensers that are proprietary units to us that have been knocked off, even to the point where the copies had our logo on the back plate,” says John Irwin, vice president of product development for Impact. The company’s dust pans have also been copied.

To produce product copies, companies employ reverse engineering: they obtain a product, break it down into smaller components and build it back up again.

One of Continental Commercial Products’ (CCP) carts was reverse engineered — to a fault. Tony Maiuro, product manager for the St. Louis-based manufacturer, says they never changed the mold for one of their carts, which included an obsolete feature for a lid.

“They knocked [that product] off and no one outside of the company even knows what that feature is for because that lid has been discontinued for 20 years,” says Maiuro. “They knocked it off to that level of detail.”

Though CCP’s products were copied, the items — wastebaskets, a cart and a mop-bucket-ringer combination — were not patented, and did not feature the company’s name, only the products’ likeness. However, Maiuro says the copies prompted the company to obtain patents for more of its products.

Bruno Niklaus, vice president of global marketing for Unger Enterprises Inc., Bridgeport, Conn., says his company’s squeegees have been copied. The items that were copied all had trademark protection and some had patents, though the copied products did not contain the Unger name, only its form and function.

No matter the level of counterfeiting — from simple knock-off to full-on use of patents, trademarks or copyrights — manufacturers are growing more concerned, and feel distributors should be, as well.

Made In The U.S.A.?
Manufacturers say there are several reasons why intellectual property infringement is detrimental to the jan/san industry. Foremost is that these products are inferior in quality.

These companies are passing product copies as the same quality as the original, but in most cases, they aren’t. “They don’t perform well; nonetheless, price is price and when it’s 40 to 50 percent below what you are offering, it does cause some tension with our customers,” says Irwin.

Due to the use of substandard materials, end users are also victimized. “People think its our product and they’re returning it to us, and wanting to get credit for it and the frustrating thing is we never sold a product to them and it’s a copy,” says Malish.

As manufacturers ponder how to protect themselves, distributors also need to be aware that product copies may lead to the dilution of the power of the distribution arm.

Dwan feels that the sale of copied goods could eventually lead to the evolution of a “fake” market segment that would pose a challenge to distributors selling honest product.

Trojan has developed a group of exclusive distributors that will help end users ensure they are purchasing a true Trojan product.

In addition to harming the distributor network, support of copied products could very well slow or stop product innovation, according to Niklaus. He says companies that make profits invest a portion of that back into product development.

“If you have [the production of fake product], the company that is supposed to make profit off of this new product, cannot make profit anymore and so it will eventually prohibit new innovation,” Niklaus explains.

Fighting Back
Manufacturers are becoming more and more aware that they must be aggressive in protecting their products. After Malish learned of the IP infringement, he contacted numerous governmental agencies. He still feels somewhat disillusioned by the lack of real legal options.

The company is filing a complaint with the U.S. International Trade Commission — which would set into motion an investigation on the infringement allegations.

“What we’re trying to do is to get a determination that, in fact, those products do violate our patent,” says Malish.

If the accused company is found to have violated IP rights, the company will be able to block all imports at U.S. Customs. However, there are several loopholes. The main one is that U.S. Customs might not be aware of a shipment coming in. “That’s the most difficult thing,” says Malish. “If customs isn’t informed, what are the chances that they are actually going to catch the shipments?”

The name of offending companies will be listed in U.S. Customs’ tracking system, so any shipments coming from that company will at least be held up in the system, which creates a longer lead time for other importers trying to obtain the product.

Tracking some overseas companies is challenging, especially in China, where many companies have multiple names and subsidiaries — making identifying the offender more problematic.

“Even though there are loopholes, we need to stand up to this and protect our intellectual property to the fullest extent that we can,” says Malish.

Chinese companies with multiple names are common, says Paugh. This makes legal action difficult, especially in international prosecutions. Though copied products can come from anywhere in the world, Paugh says it is clear that China is the largest source of copied goods.

“I do know that 70 percent of all counterfeit goods that the United States gets at its borders originate in China,” Paugh says. “It’s a huge problem.”

While Malish is proceeding with enforcing its patent, Niklaus says because of the cost — as well as the fact that customers are cognizant of the quality of the company’s product and aren’t buying product knock-offs — Unger will not pursue legal avenues at this time.

Being a part of Newell Rubbermaid Inc. is beneficial to Rubbermaid Commercial Products’ brands, says Joe DeZarn, director of marketing communications for the Winchester, Va.-based company.

“They give us access to fairly substantial legal resources in order to pursue infringements,” DeZarn explains.

RCP has followed up on several violations of its IP rights. DeZarn says that when goods are manufactured overseas, it is difficult to hold them accountable. “But you can make the importers and the people marketing and selling the product in this country accountable,” he adds.

Paugh agrees that enforcing patents can be cost prohibitive.

“The American Bar Association has estimated that each patent infringement case that makes it to trial averages about $2.5 million,” says Paugh.

What Distributors Can Do
Low price will always tempt distributors, but manufacturers hope distributors will work with them to ensure that they are doing business with legitimate companies.

In March, 2006, H.R. 32 — a bill that amended title 18 of the U.S. Code that provides penalties for trafficking in counterfeit marks — was enacted. That bill contains a definition of a trafficker and the associated penalties which include jail time and/or fines.

Paugh says distributors could potentially be considered traffickers.

“If a distributor is working underhandedly and taking counterfeit goods at a vastly discounted price and then giving them to the retailer and representing that those products are, in fact, real, the distributor could be liable,” says Paugh.

There are a few simple things distributors can do to dissuade product copies. Malish suggests distributors buy direct from the manufacturer. “If you’re not buying the product directly from a Malish facility, chances are, it’s a copy, it infringes on a patent and we will protect our intellectual property to the fullest extent that we can,” says Malish.

Niklaus encourages his distributor partners to consider the future. “You can get knockoffs all the time ... but you may lose long-term profit because the time you spend with quality issues — as well as the relationship you lose with your current manufacturers — may hurt you even more than you gain short-term,” says Niklaus.

Also, manufacturers believe that a strong manufacturer/distributor relationship is essential to alleviating the effects of product copies.

“I think that if distributors see a product that has a manufacturers name that is not familiar to our industry, and it is a similar product, it would be great if they would be kind enough to advise their manufacturers because our reputations are on the line,” says Irwin.