Our firm, which does work not only with regulated substances, but also with international trade and China law, has seen an influx of clients complaining about counterfeit goods, and seeking our help in dealing with the problem. Ebay has long struggled to address the sale of counterfeit goods on its site, and now retailers like Amazon and Alibaba are facing the same challenges, perhaps to an even greater degree.
Amazon, for example, has a third-party marketplace that makes up more than 40 percent of its sales, and Chinese manufacturers are able to utilize this marketplace to reach consumers directly. We have a client whose Chinese manufacturer stole its product design and began selling knockoffs using our client’s brand name on Amazon. Amazon’s product catalogue is made up of around half a billion products, making counterfeit policing a monumental task for its legal and compliance teams. Counterfeit sellers that are shut down one week often simply open a new account with a new email address this next. It’s a vicious cycle.
As the cannabis industry grows, and as ancillary companies selling smokers’ accessories grow with it, counterfeit goods in this industry will only become more prevalent. We’ve already seen instances of counterfeit rolling papers, glassware, water pipes and vape pens, and these are surely not the only goods being counterfeited. As more states legalize recreational cannabis and as more companies build up their brand names and reputations, we have no doubt the issue of counterfeit cannabis products will also eventually become a pressing issue.
As a business owner, it is critical to take preventative steps to ward off counterfeiters, and to know what to do in the unfortunate event someone does counterfeit one of your goods. And as we tell all our clients: investing in these preventative steps now is always less expensive than fighting a legal battle in court down the road.
So what preventative steps should cannabis businesses take to address counterfeiting? Prevention hinges on first identifying your intellectual property (IP), determining what categories it falls into, and then protecting it accordingly in the relevant jurisdictions. The design of a novel device like a water pipe, for example, could be subject to patent protection. Though we’ve blogged extensively about the difficulty in obtaining federal cannabis trademarks, federal patent law does not contain the same “legal use in commerce” requirement, or a prohibition on “immoral or scandalous” matter. A patent is the grant of a property right to the inventor, issued by the United States Patent and Trademark Office (USPTO), and this property right gives the inventor “the right to exclude others from making, using, offering for sale, or selling the invention in the United States or importing the invention into the United States.” Patents are often the most powerful tool in fighting counterfeit goods.
Patent infringement is not the only way counterfeiters can rip off products. Oftentimes, when talking about counterfeits, we’re talking about trademark infringement rather than patent infringement. A counterfeiter could, for example, slap your logo on its vape pen, exploiting the goodwill and notoriety you’ve established through your brand. Of course, the best way to prevent trademark infringement is to register your trademark with the USPTO. Although it is not possible to obtain a federal trademark for use on goods that violate the Controlled Substances Act (CSA), it is often possible to obtain trademark protection for goods that do not violate the CSA, like many smokers’ accessories. A trademark gives the owner the exclusive right to use their mark on the specified goods in commerce, and it gives the owner a right to seek remedy in federal court in the event of infringement.
If you are having your products manufactured in China (or anywhere else overseas), as is the case these days with so many of our clients, you need to protect your IP there as well. Because if you don’t register your trademark or your design patent in China, someone else almost certainly will and then that someone else will be able to stop your products from leaving China because those products violate their intellectual property! For more on this, check out China: Do Just ONE Thing: Register Your Trademarks AND Your Design Patents, Part 1 and China: Do Just ONE Thing: Register Your Trademarks AND Your Design Patents, Part 2.
But logistically, how does enforcing your IP rights against counterfeiters play out? Typically, it doesn’t make sense to take the alleged infringer straight to court. Litigation is expensive, and there is often room to negotiate. When you know who the infringing party is, your attorney can contact them with a cease and desist letter directly. But when the party is, for example, a third party seller on a larger platform like Amazon, tracking down the infringer is much more difficult.
The protocol for dealing with an online retail platform in taking down counterfeit goods will vary depending on the company. With every large company we’ve worked with, however, the process is expedited greatly where the party alleging a counterfeit is able to offer up proof of their own IP rights. This is particularly true with trademarks, where infringement is often apparent, and the retail platform can quickly decide to suspend a counterfeiter’s account. Without verifiable IP rights, the retail platform is put in a difficult position of having to figure out who has the right to sell what. This involves complicated legal analysis, and takes substantial time and resources, as well as back-and-forth with both parties. In the meantime, you’re likely losing business.
So the lesson here is two-fold. First, make sure you’ve identified your intellectual property and that you’ve taken every step possible to register and protect it. Second, if you suspect a company is selling a counterfeit of your product, contact your attorney immediately and develop a strategy for blocking the counterfeit sales, whether through direct communication with the counterfeiter, or by working with the relevant online retail platform.