Articles
Tulip® - Cut Your Losses
| Release Date: |
01 September 2003 |
| Author: |
Jeremy Hertzog |
| Original Publication: |
ToyNews |
As with any industry featuring a high number of intellectual properties and copyrighted brands, counterfeiting is a perennial problem for the toy market. Help is at hand, however, and as Mishcon de Reya lawyer, Jeremy Hertzog, explains, you can even turn your losses from pirated product into profits.
Nearly one in ten toys sold worldwide are counterfeit - that's a £1.5bn annual loss for the industry.
That means not only is someone else taking your good ideas, blatantly copying them and pocketing the cash, but they are also putting the reputation of some great brands on the line. A cheap copy of a toy will at very best be badly made, at worst it could be lethal in young hands.
The fact is that the drug dealers of 10 years ago are now looking at brand piracy in all sectors, including toys, as a new means to make their money. They see it as low risk but high volume. But that's about to change because the risks of getting caught are getting greater thanks to a new legal approach being pioneered by us.
The key to the approach - called Tulip® - is to treat counterfeiting as a fraud. There is no difference between the fraudster who steals your brand and makes money out of it and the conman who embezzles money from a bank. Both are theft, both cause substantial loss and both deserve the same treatment.
At the heart of Tulip® is the ambition to turn counterfeiting into a money making exercise for those who are being ripped off. The clue's in the name - Tulip® stands for Turning Losses into Profits. Tulip® is about recovering from the counterfeiters not only more than enough money to pay for all of your legal and investigative costs but to go that extra step and earn an impressive return on your investment. Put simply it is about making money out of counterfeiting - the difference is that it's the legitimate companies who make the money, not the criminals.
The conventional approach to fighting counterfeiting has been to measure success by how much counterfeit product has been seized. The Tulip® approach is to measure success on the basis of how much money brands can actually make by cracking down on those who try to rip them off.
Tulip® is made up of four stages - investigation, selection, action and completion.
Investigation is all about information gathering and analysis. The aim here is to build up a profile on each potential target so as an absolute minimum, you know the nature of the counterfeiters' business, the size of the counterfeit operation and their assets.
The selection of your best targets comes next. First you must identify viable targets which is not always easy when faced with aliases, trading names and dummy corporations. Second, the targets must have sufficient assets to cover your legal and investigative costs plus whatever return on investment you are aiming for. Third, there should be potential to boost the cash return even more. Sometimes the recovery potential in pursuing the crooks' suppliers and customers can convert a marginal Tulip® exercise into a very profitable Tulip®.
Action follows. Once the targets have been identified and selected you move into the action phase of Tulip®. Without doubt the most effective of all of the products within the Tulip® family is Freeze, Seize and Squeeze.
Systematically through the use of court orders the whereabouts of ill-gotten gains are identified and the assets of those trying to rip you off are frozen. Lawyers then seize evidence - from databases to paper files and telephones.
Another critical part of the seizing stage is getting information from third parties such as banks and professional advisers who have unwittingly become involved in assisting the crooks either in receiving or moving money. Normally this information is confidential and unavailable to outsiders, however, using "disclosure orders" we can force these organisations to hand over documents relating to the crooks' personal and business operations.
The "squeezing" process starts the moment entrance has been gained to the culprit's home and business. A detailed analysis of every piece of information and documentation that has been collected is made to expose lies, errors, breaches and nondisclosures that the pirates have made. Lawyers identify each and every lie and omission and present them to the court, inviting the judge to impose powerful sanctions such as imprisonment for contempt of court.
One very effective way to increase the pressure is to strictly police the provisions of the freezing order that allows the crooks a maximum amount of money for their living and legal expenses and forces them to disclose where every penny comes from before spending it.
At this time lawyers are pressing ahead full steam with the legal process that needs to be initiated to get the culprits in front of judge and get summary judgement and/or an interim payment.
The completion stage of the Tulip® cycle is the cherry on top. Nobody, least of all your finance director, will criticise you for stopping at the point where you have squeezed out sufficient money to give you an impressive return on your investment. But why not go after more? The Tulip® "end-game" could see further pursuit of those who help the chief villain make his or her money i.e. suppliers or an attempt to convince the brand pirates to change their ways and sell your genuine products.
Our clients who have started using the Tulip® approach have seen big returns on investments. Some of this is then earmarked for the next assault on someone else who thinks he or she can make money on the back of successful toy brands.