It is well known that manufacturers of counterfeit goods are able to undercut the prices of legitimate goods because they do not incur the same overhead costs that rights owners bear. Counterfeiters do not invest in R&D, they do not incur the same product marketing costs, and they do not pay royalties or licensing fees, just to name a few. It follows that the chief costs borne by counterfeiters are those associated with manufacturing and distribution. It is through this lens that it may be useful to assess your brand’s exposure to counterfeiting.
We propose a simple matrix for rights owners to consider in determining how susceptible their goods may be to counterfeiting. The X-axis represents distribution costs and the Y-axis represents manufacturing costs.
The lower left quadrant, where distribution and manufacturing costs are the lowest, is where rights owners are the most likely to contend with counterfeiting issues. Conversely, the upper right quadrant, where distribution and manufacturing costs are the highest, is where rights owners may be more insulated from the threat of counterfeiters. The upper left and lower right quadrants represent areas of moderate risk, where rights owners should remain vigilant to identify indicia of the presence of counterfeit goods in the market.
Importantly, rights owners have within their power the ability to influence many of these factors and should pursue an IP protection strategy that moves their products to the upper right quadrant.
In assessing where a product falls within this matrix, externalities that may weigh on a counterfeiter beyond the purely economic definition of cost must be considered. Importantly, rights owners have within their power the ability to influence many of these factors and should pursue an IP protection strategy that moves their products to the upper right quadrant.
For example, in assessing distribution costs a rights owner should consider the counterfeiter’s channels of distribution. Is the counterfeiter selling direct to consumers, possibly by way of an online marketplace, or is the counterfeiter relying on other distributors within the market, possibly through a wholesale relationship? If the rights owner is able to disrupt these channels, whether by leveraging its own relationships in the market or by coordinating with government entities to intercept counterfeits at the port of entry (to name but two strategies), it has increased the cost of distribution to the counterfeiter.
Beyond the direct cost of manufacturing, i.e. the materials and labor required to produce a single counterfeit unit, a complete consideration of the manufacturing costs incurred by a counterfeiter should include the difficulty a counterfeiter will have reproducing a rights owner’s goods. If the rights owner deploys anti-counterfeiting technology to deter reproduction (again, just to name a single strategy), it has increased the counterfeiter’s manufacturing costs.
BCGuardian’s experts work with brands and content owners to develop customized IP protection programs that push their products and content to the upper right quadrant. Get in touch with us to find out how we can help your brand!