Importance of Intellectual Property Rights: Increasing Market Share Through Stopping Knockoffs and Infringements

September 24, 2022 Darin M. Klemchuk

How to Increase Market Share Through Stopping Knockoffs and Infringements with Intellectual Property Rights

This is the first in a 7-part series providing comprehensive analysis of designing, implementing, and optimizing an intellectual property (IP) enforcement program that stops loss of market share and profits due to knockoffs, piracy, and other forms of infringement.

The Importance of Intellectual Property Rights

The importance of intellectual property (IP) rights cannot be overstated when it comes to stopping knockoffs. Infringers look for easy money. One way to defeat them is to not be a soft or attractive target. This Six-Step Program provides specific guidance on this strategy.

Trademarks for Brands

The importance of IP can best be illustrated by a few examples. With respect to luxury brands, customers are willing to pay high prices to buy the exclusivity associated with the brand. Put another way, the high price (and high margin) charged for an luxury item will be available to only a subset of consumers. If everyone could afford the luxury item, exclusivity is lost. This creates a strong profit motive for infringers to knockoff the luxury good at a fraction of the retail price. Trademark rights are a potent weapon to stop this kind of knockoff and provide brand protection.

Copyrights for Software

Software publisher face the risk that third parties will install more copies of the software than is licensed or worse, create pirated copies of the software and distribute them for profit. Obtaining a copyright registration before publishing the software would provide the software publisher the right to recovery attorney’s fees and statutory damages against the infringer.

Patents for Products

A consumer products company may design a highly innovative product with high customer demand and profit margins. However, without a patent to protect the product, better financed competitors and/or Chinese companies will knockoff the product and likely sell a competitive alternative at a lower price and not be burdened with the research and development costs of the original product design. Patent protection is an effective measure to stop this.

The following discussion provides solutions to these problems through strategic deployment of intellectual property rights and enforcement techniques.

Summary of the 6-Step IP-Enforcement Program

Step 1: Identifying and Quantifying Losses Caused by Knockoffs and Infringement

Step 2: Marshaling Intellectual Property Assets to Combat Knockoffs and Infringement

Step 3: Designing the IP-Enforcement Program to Increase Market Share by Stopping Knockoffs and Infringement

Step 4: Implementing the IP-Enforcement Program

Step 5: Optimizing the IP-Enforcement Program with Metrics

Step 6: Growing Future Market Share through Proactive IP Strategy

Each chapter will discuss each of these steps in depth while providing helpful tips and tools. The chapters will also discuss common mistakes in IP-enforcement programs.

Step 1: Identifying and Quantifying Losses Caused by Knockoffs and Infringement

Beginning with the end in mind is essential to designing an effective IP-enforcement program. This aim should start with an analysis and quantification, if possible in dollars, of the losses incurred by knockoffs and infringements. Losses can include lost sales, leads diversion, initial interest confusion, angry customers, misdirected complaints or reviews, confused customers, damage to goodwill and reputation, misdirected product returns, higher pay-per-click bidding costs, reduced margins, and even theft of customer credit card numbers.

While not a requirement, quantifying the losses allows for the calculation of the enforcement program return on investment (ROI). For example, if a typical infringer causes $5,000 in quantifiable damages plus an unquantifiable amount of intangible harm, a program that stops each infringer with an average program cost of $3,500 per target is an economic “winner.” If the program costs $7,500 per infringer, then a determination must be made about the amount of the intangible harm suffered and other considerations like stopping future infringers. At some point, a program should reach diminishing returns where the value of the avoided harm relatively matches the cost of the program. At that point, the program has reached steady state where further investments may not yield a greater dollarized return. This includes an assumption that the program must be self-funding. For some businesses and legal departments, that is not always a program goal.

The types of knockoffs and infringements are diverse and can include domain name registration theft or infringement, trademark or copyright infringement in website content and meta tags, social media, pay-per-click ads and landing pages, unauthorized resellers, gray market goods, online platforms, counterfeit websites and physical products, and software piracy. For patents, a competitor may attempt to copy the patented features of a product to establish market share and undercut the price of the patent owner.

Step 2: Marshaling Intellectual Property Assets to Combat Knockoffs and Infringement

The goal of Step 2 is to develop intellectual property (IP) assets to thwart knockoffs and infringement as well as competitors. The major types of intellectual property are:

Trademarks — Trademarks are source identifiers such as McDonalds® (products) and Netflix® (services) that connect a product or service to the public through the goodwill associated with the trademark.

Patents — A patent is an intellectual property right that is granted by the USPTO (United States Patent and Trademark Office) to an inventor and protects the inventor’s invention by the right to control who uses, makes, offers for sale, and sells the invention covered by the patent.

Copyrights —Copyrights protect the creative expression of an idea and commonly protect creative works such as photographs, books, website copy, software, novels, and screenplays.

Domain Name Registrations — Domain name registrations provide the registrant with use of the URL (www.mcdonalds.com). Domain name registration can be stolen and squatted upon by unscrupulous third parties.

This is not an exhaustive list of the different types of IP. See our post on 11 Different Forms of Intellectual Property for a more detailed discussion.

In Step 2, the various trademarks, patents, copyrights, and domain name registrations are registered with the appropriate administrative entity such as the U.S. Patent and Trademark Office, U.S. Copyright Office, and a domain registrar. Care should be taken to ensure that each piece of intellectual property is owned by the entity that is going to enforce the rights. The chain of title should be examined, assignments recorded, and the rights documented before launching the program.

Now that the IP assets have been gathered, a determination is made of where the infringement is currently occurring, such as online marketplaces, brick and mortar stores, or on the internet, and where infringement is likely to move in the future. Based on this analysis, we are ready to proceed to Step 3’s design of the enforcement program. This analysis may lead to registering additional IP. As we discussed above, intellectual property rights are not only important but essential to stopping the knockoff problem.

Step 3: Designing the IP-Enforcement Program to Increase Market Share by Stopping Knockoffs and Infringement

In Step 1, we quantified the harm and losses incurred by the knockoffs and infringement. Armed with this data, we established preliminary “wins” for the program to achieve to be considered a success. “Wins” may include stopping infringement, correcting false reviews, generating revenue to fund further enforcement efforts, and/or obtaining federal court injunctions to ward off future infringers.

With a clear view of the program objectives, we next determine the program deliverables and stages. For example, a simple brick and mortar campaign against trademark counterfeiters of physical luxury goods could include (i) an initial demand letter, (ii) request for an audit of the sales of the counterfeit product, (iii) supplier information, and (iv) a subsequent settlement agreement with a payment based on the audited sales information. At any point in the process if the counterfeiter becomes non-compliant, litigation or other alternatives can be added as an additional stage. The specific stages and their order are highly dependent on the type of infringement occurring as well as the place it occurs (e.g., online marketplace versus physical retail) targeted by the bad actors.

Another consideration for program design is cost. At the outset, a decision should be made whether the program is required to be self-funding — the revenue generated from the enforcement efforts offsets the program costs —or whether the program is viewed as an investment such that enforcement revenue can be less than the program costs.

Step 4: Implementing the IP-Enforcement Program

Now that program is designed, we start with a few initial cases to gain information about infringer behavior and to test the various stages designed as well as the form documents. Based on the results of the initial runs, the stages and forms are finalized and the program begins in earnest. The staffing of the program based on roles with specific responsibilities should be assigned as the program progresses. The cost of the program should also be monitored to determine if economic goals will be met. Where outside counsel is included in the program, their compensation should be aligned with the program goals to provide healthy incentives and shared wins.

Software can be used to reduce the administrative burden of maintaining a multi-target campaign. Efficiency can also be achieved through well designed meeting pulses that quickly summarize the status of the program, the stage of each enforcement effort, and historical performance. Often these meetings can be short and are most effective when set for a standard schedule with time to address substantive issues that may arise.

The data generated through the IP-enforcement program implementation can also be used with monitoring services to identify infringers on an on-going basis.

For certain types of infringement like counterfeit websites and online marketplace infringements, trapping the proceeds of the infringement is an essential step in not only stopping the infringement and recovering funds but also in identifying the bad actors. This typically involves subpoenas and possibly ex parte TROs in federal court.

Step 5: Optimizing the Anti-Infringement Program with Metrics

Because program wins and metrics were determined in the design stage, we can use the data generated in the campaign to monitor successes and uncover bottle necks. Often, one of the program stages is most responsible for driving program success. For example, in the luxury goods counterfeiting example discussed above, obtaining the sales audit information could be the keystone stage. Put another way, the quicker this stage is achieved, the greater the chance of satisfactory resolution. By isolating the critical stage(s), a program’s effectiveness can be enhanced. Because stopping counterfeiters is a dynamic problem, the critical stage could evolve over time. Careful data monitoring will provide guidance on this.

As time passes, infringers may change strategies, which may require registering additional IP to plug gaps. This should be considered as part of a “continuous quality improvement” commitment. Additional steps can include registering IP with Customs and Border Protection and registering brands with Amazon Brand Registry and other online marketplace enforcement tools. For businesses that sell through distributors, comprehensive agreements should be drafted to prevent unauthorized resellers from selling “gray market” goods.

Step 6: Growing Future Market Share through Proactive IP Strategy

At this point, the IP-Enforcement Program is achieving the desired results through program design, implementation, and monitoring. Metrics are used to continuously improve the program. But these steps are not enough. As with most things in life, change is a constant. As new technologies develop, new opportunities for knockoffs arise—and the law almost always lags technology. This requires focus on potential future threats and developing strategies and tactics in advance while the legal system catches up.

One strategy that helps with future infringers is implementing a deterrence program. For some companies, the infringements are committed by a diffuse group of bad actors that have no relationship with each other. For other companies, there is a specific bad actor or group of bad actors. A victory against this group largely stops the infringement. Deterrence is needed for future infringers. A diffuse infringement situation presents a different problem often referred to as a “whack-a-mole” situation where one infringer is defeated and two more pop up. For this scenario, achieving agreed injunctions that can be shared with future infringers can be very effective. Additional steps include promoting infringement victories in social media and public relations.

Like infringers, competitors do not sit still either. Intellectual property law is largely a law of exclusion. Put another way, IP rights provide the owner with the ability to keep competitors from occupying certain strata of market share. As part of Step 6, time is spent mapping out products/services, particularly unique features that provide strong competitive advantages. Determine answers to important questions like: what features in the future would a competitor need in order to steal market share or take customers? What features do you need to control with exclusivity to take business from your competitors? This future analysis may be translated into tangible rights through registering new forms of intellectual property.

See IP-Enforcement Programs: Identifying and Quantifying Losses Caused by Knockoffs and Infringement for our initial discussion of the first step in the 6-step series. You can access additional information on our Brand Protection Strategies and Resources page.

Access the E-Book “Increasing Market Share Through Stopping Knockoffs and Infringement”

We have condensed the six steps into a graphical E-Book that provides a summary of developing effective IP Enforcement Programs along with tips, techniques, frequently asked questions, and mistakes to avoid. You can access a complimentary copy of the E-Book by clicking here.

You may also be interested in the following posts on the importance of intellectual property in enforcement programs:

For more information about IP-enforcement and anti-counterfeiting programs, see our Anti-Counterfeiting and Luxury Brand pages.

About the Author

Through prosecuting over 1,000 intellectual property (IP) enforcement actions, Darin M. Klemchuk advises clients on proactive IP and an anti-counterfeiting programs to stop diverted sales, market place erosion, and other harms faced by businesses. You can learn more about Darin’s practice and view his curriculum vitae at his bio page. If you want to send Darin a message, then visit our contact page.

This post has been provided for informational purposes only and is not intended and should not be construed to constitute legal advice. Please consult your attorneys in connection with any fact-specific situation under federal law and the applicable state or local laws that may impose additional obligations on you and your company. © 2022 Klemchuk LLP