Internet highwaymen are increasingly jamming up the information highway, phishing, pharming, and cyberscamming their way into homes, while costing businesses , from golf manufacturers to drug companies , a lot of money.
“It’s a huge problem,” said Stephen S. Korniczky, a partner in the San Diego office of the international law firm Paul, Hastings, Janofsky & Walker, and a specialist in intellectual property, those discoveries and inventions carefully guarded by their creators. “It’s one of the idiosyncrasies of trademark law that the owners have to protect their mark if they want to keep their mark. It’s costing them multimillions of dollars, and they have to enforce their rights not only in the United States, but all over the world.”
The mounting challenges facing businesses trying to protect their brand names and other intellectual property rights are being spotlighted through May 18 at the International Trademark Association’s 127th annual conference at the San Diego Convention Center. There are expected to be some 6,500 people from 160 countries representing Coca-Cola to Carlsbad-based Callaway Golf, from Major League Baseball to Walt Disney Co.
Several industry professionals shared their thoughts on the hot trademark issues emerging this year.
Cyberspace is putting an increasingly dark spin on property rights, Korniczky said.
“The Internet has provided huge access to customers all over the world, while giving the criminal some level of anonymity,” he said. “It’s easy for counterfeiters and trademark infringers to change their locations very quickly. And it’s difficult to catch these folks.”
Fifteen years ago, he said, they would have trademark enforcement campaigns and take investigators out, locate the counterfeiters and get the U.S. marshals to pick them up on some corner or flea market.
“You could identify them physically and try to trace their connections backward to find the original source,” said Korniczky. “That was a difficult process. Now, it’s even more difficult with the Internet. You can’t physically identify anyone. Fifteen years ago, you could literally grab them by the collar and slap them with a summons and confiscate their goods. You could sue them individually. Now, your investigations have to become more sophisticated, because the means that counterfeiters are using through the Internet have become more sophisticated.”
One of the organizers of the conference is Perry Viscounty, a partner of Latham & Watkins’ Orange County office and co-chairman of the firm’s global intellectual property and technology practice group. He travels to San Diego weekly to see local clients, including the San Diego Padres and TaylorMade.
A big concern, he said, are counterfeiters and trademark thieves who are selling fake goods, such as knockoffs of Callaway or TaylorMade golf clubs.
“Millions are doing it, and it’s tough to police and stop,” he said. “So, traditionally, you go after the source, the eBays of the world, rather than chase 10,000 infringers.”
Trying to nab a cyber-crook isn’t easy these days.
“The scam can originate anywhere,” said Faisal Shah, founder and chairman of the San Francisco-based MarkMonitor, a provider of online fraud and trademark management systems for Fortune 500 companies, and an exhibitor at this week’s conference. “They compromise servers in different countries, and get compromised in the process, hopping over to other countries.”
“Internet fraud has evolved,” Shah said.
In the old days, cyber-criminals would confuse consumers by using brand names in their Web sites, when there was no association at all. Now, “cybersquatting” actually diverts traffic away from the big name companies and right into another site , whether it’s wanted or not, he said.
“They say, ‘I want to get traffic on my Web site, but how do I do that when there are such huge names out there? I will trick consumers into thinking they are part of my company, and maybe they’ll shop on my site.’
“As more and more companies have an online presence, and almost every company in this country and globally has an online presence, the level of fraud and the size and sophistication of IP issues has grown,” said Shah.
So has the language.
Phishing, for instance, is fishing for confidential information, he explained, making consumers believe they are getting a legitimate e-mail from, say, a financial institution.
“They go to the link that goes to what appears to be a legitimate Web site of that financial institution, and the consumer thinks it must be real,” Shah said. “That consumer then puts confidential information into that Web site, that information goes to some third party, who now captures the confidential information to use it to take money out of the account of the consumer. It’s a scam and it’s quite sophisticated.
“We are starting to see these e-mails and Web sites being hosted in countries such as Russia,” he added. “It’s believed that organized crime is behind some of these scams. It’s like modern-day highway robbery. It’s so easy to do this. They’re selling phishing, tools in a box. It’s tremendously pervasive. A lot of companies have fallen victim to these scams.”
Pharming, which targets the drug industry, is another problem.
“We’ve seen pharmaceutical companies being hit with counterfeiting scams, trying to sell counterfeited drugs through online pharmacies,” Shah said. “They try to clone Web sites of legitimate companies.”
Another storm brewing is called “ambush marketing.”
“Say that Adidas decides to sponsor the Super Bowl, and then Nike flies a plane over the stadium and gives free Nike shoes to the football players, or hands out free Nike hats to the fans,” Viscounty said. “Is it fair, when Adidas paid $50 million to sponsor the Super Bowl? The issue is, can one company stop another from doing that, using trademark and contract laws? Worldwide, how do you protect your marks? Companies like Adidas, Coca-Cola, huge international companies. How do you protect them? The laws are so different in other countries.”
And then you have another issue called “dilution,” a sort of cousin to infringement, said Viscounty.
“Infringement is when someone uses an identical or similar mark and causes confusion,” he explained. “You see Nike and you see a shirt that says Mike, with the same logo. If you’re confused about the source, the other company is liable for infringement. With dilution, no confusion is required, but the mark has to be famous. But, for instance, if you are selling Microsoft toothpaste, nobody in their right mind would think Microsoft sells toothpaste, but the mark is protected for all uses.”
Meanwhile, search engines, such as Google, are mired in controversies over their use of keywords, he said.
“If you want to find Office Depot, for instance, on Google, and up pops an ad for another store, is that fair?” asked Viscounty. “On Amazon, if you want a book on Tiger Woods, and up pops one on Phil Mickelson, is it wrong to sell books on other golfers?
“The Internet has completely changed and raised tons of new issues for all trademark owners,” he said. “No matter what side you’re on, it’s a cutting-edge issue.”
Korniczky added, “It’s creating a whole new genre of investigators and a whole new industry for trademark enforcement.”
What’s the answer?
“I’m not sure there is an easy answer,” he said. “Certainly, you have to make more stringent penalties. The problem is that people often know that products they are purchasing are not original brand-name products. There are a lot of people out there who intentionally purchase brand-name products knowing they are counterfeit, but they don’t want to pay huge prices the brand names are able to command. It’s somewhat of a cultural issue. People want to be associated with these brand names, because of the status of owning them. Some golfers want to be associated with Callaway golf clubs, but don’t want to pay the prices for authentic golf clubs when you can pick up a counterfeit one overseas for $200.
“I think there are two classes of consumer: Those who are truly confused by counterfeit products and purchased them not knowing they’re fakes,” Korniczky added. “But there is another class of consumers who know they are fakes and decide to purchase them anyway because the cost is attractive. These people keep the industry going. Those are the people who create the demand and as long as consumers are willing to purchase counterfeit products, counterfeiters will be motivated to supply fake products. It ends up a vicious circle, costing brand-name owners millions and millions of dollars to enforce their rights.
“It’s very difficult for them to go after individual consumers and very difficult for them to identify where the counterfeiting sources are located. So, what they’re really doing is analogous to keep putting your finger in the dike.”
Lisa Martens, a principal in the San Diego office of Fish & Richardson and chairwoman of its local trademark practice, cautions those who hold trademarks to keep their eyes open.
“Just because you spend money to register, you can’t stop there and sit back for the next 15 or 20 years and do nothing about it,” she said. “You must constantly monitor the marketplace. If you don’t enforce it, watching for those who are creeping closer and closer to you, and sending out cease-and-desist letters, bringing actions when there is straight-ahead, dead-on infringement, no one is going to do it for you.
“It’s the ‘look out for number one’ syndrome. People will come close and rip you off it you let them. You want to be as vigilant as you would be about your personal identity so that no one is copying what you have created.”
“The best advice I can give to trademark and brand-name owners is to develop strategic enforcement policies so they develop a reputation as a company that will enforce their trademark rights in hopes that it will send a message to counterfeiters to stay away from their marks in lieu of easier pickings from those trademark owners who don’t,” he said. “It’s like having a LoJack. A car thief is less likely to steal a car it has LoJack service than if it has no vehicle security system at all.”
But with the Internet’s wide reach, nothing is simple.
“We do live in a global economy,” said Jane Shay Wald, a partner in the Century City office of Irell & Manella LLP, chairwoman of the firm’s trademark practice group, and a previous speaker at the annual conference. “A person can say, ‘I am famous in my home country, and I have a big Internet presence. I can prove that people from your country are accessing my site, so you shouldn’t use my trademarks.’ While the other claims ‘territoriality’ rights.”
Normally, said Wald, the principle of territoriality prevails: Just because you have a trademark in one country, it doesn’t necessarily give you the same rights in another country.
But even that rule can be fuzzy. She recalled that San Diego made trademark history in December with a border dispute over the name Gigante. The case, which ended up in the federal Ninth Circuit Court of Appeals, involved a large Mexican grocery chain that had long used the name Gigante, but not in the United States, and wanted to expand its business north of the border. But a small American chain, which was the first to use the trademark here, had no intention of changing its name. There were suits and countersuits, and both parties ending up getting a piece of the pie. The Mexican company couldn’t stop the American chain from using the Gigante name, but the American company couldn’t keep the foreign firm from opening up shop here either.
In this case, she said, the principle of territoriality wasn’t so cut and dried: Mexican immigrants were familiar with the foreign Gigante operation and possibly could be confused. Consequently, the court might have granted the Mexican company the whole pie , if it had moved faster.
“The American company had been there in San Diego doing business for quite some time, before the Mexican company decided to sue them,” said Wald. “The court said that the Mexican company waited too long from trying to stop the American company from doing business in San Diego. If they had moved faster, it is likely that the court would have shut down the American company from using the mark in the U.S., even though they were the first to use it here. Now it looks like both companies have the opportunity to coexist.”
The court sent the case, which is still pending, back to the Central District of California for a further hearing on just how famous the Mexican Gigante brand is in the United States.
“It was the first time the Court of Appeals has recognized an exception to the territoriality principle,” she said. “It was quite a change.”