General counsel need to keep a close eye out for unscrupulous anti-counterfeit agencies looking to take their companies for a ride. By Harsh Aggarwal and Roma Arora

The trade in counterfeit and pirated goods worldwide has been rising steadily in the past few years. Statistics from reliable sources peg the value of such illegitimate trade into hundreds of billions of dollars, and at 2-3% in volume compared to legitimate trade. In parallel, the anti-counterfeit services (ACS) industry is also growing and making loads of hay in the shining sun.

A typical ACS agency/team is an amalgam of: (1) on-the-ground informers who are generally freelancers; (2) retired police or intelligence agency personnel who mobilize the enforcement machinery; (3) the front-end face of the organization, who possess good business development and marketing skills; and (4) backend office support, who are good at report writing, data analytics and presentations. In most cases, the “owner” of the ACS agency will belong to category (2) or (3).

With people from such varied backgrounds coming together to provide services to brand owners, it is quite often the case that the brand owners get taken for a ride at the hands of some of these ACS agencies.

As in-house counsel, the authors have protected valuable brands of varying vintages and presences in diverse geographies, and this decade-long journey of dealing with ACS agencies has left us with a mixed bag of experiences that can be described as some sweet, some sour and some bitter.

In this article, for an ease of understanding, we have categorized issues that are common across jurisdictions in the Indian and African sub-continent, as well some country-specific issues.

Misuse of power of attorney

ACS agencies generally make contact with brand protection teams or business heads or senior management/owners (depending on the structure of the organization, as to the person calling the shots) stating that they have come across “huge” quantities of fakes and they can take quick action. As issuance of an authority letter by brand owners to ACS agencies is necessary/indispensable, they ask for such authority letters from the brand owner for conducting enforcement on their behalf.

After obtaining the authority from the brand owner, whether the ACS agency is able to perform the promised action or not, authority letters obtained on such pretexts are generally used by these agencies to support their credentials, experience, and list of clients to be shown to new and prospective clients.

It is most likely that when brand owners do a diligence of the ACS agency, and ask them about their past experience and other clients, most ACS agencies will refer to popular brands as their existing/past clients. This is irrespective of whether these agencies have carried out any enforcement for those brands. Brand owners need to remember while dealing with ACS agencies that self-praise is no recommendation.

Theft of seized material

In cases where successful enforcements are conducted, and there is no representative of the brand owner to keep a watch on the ground during the proceedings, substantial theft of seized material is quite common. For instance, material worth ₹1 million (US$13,700) actually may have been found at the spot, but official seizure memos and documents will record the seizure to be worth ₹200,000 or so. The rest of the material is made to disappear, and the bounty is shared between the offender, authorities and the ACS agency.

Settlement with infringers

In some instances, the ACS agencies approach the infringers directly and settle with them without informing the brand holders. Even infringers, on being raided or getting wind of being under surveillance, will contact the ACS agencies to downplay the action, or scuttle the proposed action altogether.

Branching out within ACS agencies

It is commonplace that after working for some time with a particular ACS agency, its staff or personnel either join another ACS agency or start their own venture. They will then start approaching clients of their former employer, and are likely to narrate the malpractices being carried out there, and state that was the reason for their departure. Most such ventures behave like old heads on new shoulders, and are generally unable to deliver, especially during the initial assignments, and their first priority is to get power of attorney letters/authorizations from the brand owners to create a showcase of their so-called client list.

Excuses for delays

The ACS agencies keep coming up with numerous reasons for delays in the execution of enforcements, which appear to be beyond their own control, whereas they are unable to mobilize the resources to conduct the enforcements, or are working on projects for other clients. Brand owners will often be given a “confirmed date” for enforcement, but nothing actually happens. The reasons include festivals, national holidays, upcoming elections at local trade associations as well as robberies and murders taking local police station resources or simply a non-availability of police personnel.

Traps and fake enforcements

Sometimes just to bill their clients, ACS agencies themselves create counterfeits. They place orders for fakes and bait innocent manufacturers/traders to supply counterfeit products. Once the gullible traders are trapped, they then conduct enforcement on such traders and bill the client.

Another common mechanism for ACS agencies to keep the billing going is to carry out enforcements, without prior proper analysis or investigation, about the genuineness of the products. This generally happens in the case of products that require lab analysis to identify if they are genuine or fake. The agencies simply conduct enforcement and declare the (otherwise genuine) material as fake. Such conduct not only affects the reputation of the brand owner among bona fide traders, but also leaves everyone, including customers, in a confused state of mind. Brand owners end up losing genuine sellers and distributors due to this.

Other shortcomings of ACS agencies

In most cases, the ACS agencies do not engage people qualified to practise law, and they are accordingly unaware of mandatory legal formalities and nuances. They can have a casual attitude towards documentation and leave unintentional or sometimes intentional gaps. All these gaps ultimately affect the conviction rate of the infringers in the prosecution stage. These gaps can be in the delegation of authority from the brand owner to the ACS agencies, or in the procedure of searches and seizures, and other aspects of investigation that fail to pass through the procedural peculiarities of criminal jurisprudence, requiring impeccable evidence.

Due to the lack of awareness of ACS agencies regarding the provisions of the Evidence Act and Criminal Procedure Code, the conviction rates of offenders are very poor in such cases. Moreover, in actions where ACS agencies provide their own employees as the complainant on behalf of brand owners, very few prosecutions succeed, as once the complainants leave the employment of ACS agencies they are hard to trace, and it is almost impossible to get them to depose during prosecution evidence.

ACS agencies in other countries

Since China is the hub of the manufacture and export of counterfeit products globally, brand owners have to devise and implement additional strategies when dealing with anti-counterfeit services (ACS) agencies in China.

The popularity of Chinese online B2B platforms (which give easy access to Chinese manufacturers for customers globally), and the geographical spread of manufacturing facilities across numerous cities and provinces, requires brand owners to identify separate ACS agencies for each province, having an on-ground presence in relevant provinces.

It is also important to have separate ACS agencies in accordance with their area of operation. Some ACS agencies that specialize in investigating and conducting actions, with the help of administrative authorities, at the manufacturing units/warehouses may claim that they will also be able to handle customs and ports, but will ask for additional travel expenses, or add a layer of local associates having an on-ground presence.

Another factor that is important for consideration before choosing an ACS agency in China is that most agencies at the initial proposal stage will advise on a preliminary market sweep, at the cost of the brand owner, but with no commitments on deliverables.

They will seek advance payments for out-of-pocket expenses for creating “friendly relations” with export agencies and local authorities. This exercise mostly ends with no results. One should always connect such sweeps with the deliverables, and payments should be connected with successful enforcement actions and return on investment (ROI).

This is because, at times, the seizure quantities will be too small compared to costs, which will not amount to a decent ROI, and sometimes the enforcement action ends without unearthing the entire chain of people involved in the manufacturing and printing of packaging material, but the brand owners still end up paying a hefty investigation and enforcement action fee.

Another popular method is to tell clients that target factories do not manufacture infringing goods of one particular brand every day, and to get a clear picture an informer will have to be planted within the factory, as a worker for a month, for which they charge an additional amount.

One should also be cautious of instances of bogus and fake enforcements in China, where several photographs taken during one action will be shared over two or three occasions, and portrayed as separate billable enforcements.

This is a most notorious territory, where ACS agencies can go to the extent of forging the letters and documents of government authorities in an endeavour to satisfy the client that they have successfully conducted enforcements and arrests, whereas they may not even have attempted one.

On being confronted with facts of providing fake documents and non-conduct of enforcement or bogus enforcements, they will go the extent of making threatening calls to the brand managers at odd hours, and raising a hue and cry on social media platforms claiming that they have not been paid for the work done by them, and that they are being victimized.

In cases where enforcements are actually conducted by ACS agencies, the costs are layered in a typical manner, and additional amounts are sought to take care of the risk of violence, arrange extra police force resources, and neutralize corruption in the system. It is quite commonplace for ACS agencies to simply carry out a market survey and bill the brand owner, but not conduct any enforcements finally.

This a typical jurisdiction where, due to a lack of legislative framework to carry out anti-counterfeit enforcements and actions, ACS agencies can get police to conduct enforcements without official documents, purely on the basis of personal relationships with the authorities – no formal complaints, no seizure memos and no prosecutions. The offenders, being on the wrong side of the law, do not even agitate against the police actions. However, to prevent the theft of seized goods to the market again, in case of huge volumes and big importers/sellers, it is always better to initiate civil proceedings for taking and executing an Anton Piller order through the commissioner appointed by the court, along with the police.

With special legislation and a well-populated department (called the ACA – Anti Counterfeit Agency) for monitoring anti-counterfeit activities, Kenya provides a very congenial working environment for diligent and genuine ACS agencies. However, the theft of seized goods at the time of periodic destruction drives, and under the nose of ACS agencies, is rampant.

Another very common issue in Kenya is that ACS agencies have a tendency of not providing complete documentation, despite regular follow-ups, and seek extra payment for obtaining official documents, on the pretext of risk involved and neutralizing corrupt activities of authorities in connivance with infringers. The agencies here have a lucrative billing mechanism.

They travel to various ports where international consignments arrive, where agencies represent multiple brands and charge each of them individually for their travels. In Kenya, the brand owners should closely monitor prosecution cases against infringers, as these cases are unilaterally withdrawn at the behest of offenders and ACS agencies during alternate dispute resolution proceedings. When it comes to approvals on costs/actions, these agencies have a tendency of taking blanket/hidden approvals.

Solutions and safeguards

Although there are no foolproof ways and means of keeping a check on the workings of ACS agencies, brand managers need to keep learning from their experiences. Some of the vital aspects, if taken care of, will generally be a sufficient safeguard of one’s interests.

  • Brand managers must not rely only on a single ACS agency, in any jurisdiction. It is always better to have multiple service providers, but at the same time one should keep their areas of working distinct and ensure that there are no overlaps. Agencies, otherwise, have a tendency to make sure their competitors are unable to perform.
  • ACS agencies will not have any interest in a matter, after they carry out successful enforcement actions, unless brand owners pay them an extra amount to keep a watch on the prosecution, which in any case is not worthy of the cost. As it is in a brand owner’s own interest that prosecutions initiated on enforcements by ACS agencies end in convictions, it is necessary that all the documentation and communications with ACS agencies, including complaints, sample purchases, receipts, etc., must be maintained meticulously by the brand managers, instead of leaving them with ACS agencies.
  • It is always prudent for brand owners to send their own representatives along with ACS agencies’ personnel during all enforcements. If this is not possible, then ACS agencies must be instructed to share real-time updates. Besides, the on-ground sequence of events must be cross-checked from connections in markets and acquaintances of sales teams. Taking real-time updates leaves little or no scope for ACS agencies to distort facts while narrating or formally reporting to the brand managers.
  • Brand managers must ensure that no advance payments are made to ACS agencies.
  • It is very helpful to have regular meetings with ACS agencies’ representatives and, if they do not have any reservations, with the on-ground investigators and informers of the ACS agencies. At times, these on-ground people give very relevant insights and information, which otherwise generally gets lost in formal communications. It is important for brand managers to regularly travel and meet representatives of ACS agencies in foreign countries. The trust factor that brand managers have to repose in foreign ACS agencies is higher, as their representatives cannot accompany ACS agencies during each and every enforcement, unlike local enforcements.
  • One must use technological tools and software applications specifically developed and easily available for live GPS tracking of investigators and the enforcement teams of ACS agencies. Such tools are helpful to collect and collate real-time evidence and upload photographs and videos from the scene of crime for the benefit of brand owners.

On a parting note, the authors must convey that we are neither of the view, nor expressing, that all ACS agencies have dubious credentials and that they are unreliable. Certainly, there are agencies out in the market with ethical, transparent and result-oriented ways of working.

Brand managers need to be careful and cautious while working with them at all times, and must not let them drift onto the wrong pathways, causing the protectors themselves to become predators. Conducting a successful enforcement in the first instance, on the agreed date, should never be the criteria for judging the capabilities of ACS agencies. At the end of the day, one must not forget that ACS agencies deal with overburdened police and enforcement authorities, for whom IP enforcement is not the highest priority.

Even well planned enforcements get delayed or cancelled at the last minute due to innumerable and unpredictable factors like VIP movements, serious or even petty crimes in the jurisdiction of the concerned police station, etc. Perhaps, patience and perseverance also play a key role, as haste makes waste.

Harsh Aggarwal is general manager of legal, and Roma Arora is the joint general manager of legal at Havells.