Bojana Sentaler Nikolic was visiting the Peru-based manufacturer she had hired to make her upscale alpaca coats when she saw something she wasn't supposed to see: a coat straight out of her product line, bearing another brand's label.
Ms. Sentaler Nikolic, creative director and owner of Sentaler Studio Ltd. – which sells its outerwear directly from its website and Toronto studio, as well through luxury retailer Holt Renfrew – reacted swiftly. She pulled her business from the manufacturer and, after intense due diligence, found another company to make her products.
"It was a really disturbing experience to see my coat, my design, with someone else's label on it," says Ms. Sentaler Nikolic. "If I hadn't come in when I did, I might never have discovered what was happening."
In the world of commerce, imitation isn't always flattery; it can be a counterfeit. From Louis Vuitton knockoffs to substandard baseboard heaters masquerading as a high-quality brand, the global marketplace is well-stocked with products that aren't quite what they appear to be.
The International Chamber of Commerce predicts the value of global trade in counterfeit and pirated goods will reach $1.77-trillion (U.S.) by 2015. The International Trademark Association, a global organization based in New York, blames the Internet for raising counterfeiting to "heightened levels" by providing sellers with a platform where they can easily reach and dupe consumers around the world.
For consumers, counterfeits represent a rip-off at best and a safety hazard in worst-case scenarios. In 2012, about 30 per cent of counterfeit products seized by the RCMP – a haul with an estimated total worth of more than $38-million – were deemed to be potentially harmful and included fake medications, untested beauty products and perfumes, toys that may have contained lead and other contaminants, and electrical components and electronics.
"Even circuit breakers – those devices that protect your home from the power system – are frequently knocked off," says Wayne Edwards, past chair of the Canadian Anti-Counterfeiting Network and vice-president, sustainability and electrical safety, at Electro-Federation Canada, an association representing electrical, electronics and telecommunications companies. "They may look exactly like the circuit breakers produced by the respected brands, but the internal guts are usually never right and they're highly defective."
For businesses, counterfeits are a threat to their brand and bottom line. Every knockoff bought equals one legitimate product unsold and can seriously erode a brand's reputation. Brian Isaac, a Toronto lawyer at Smart and Biggar/Fetherstonhaugh who specializes in intellectual property, trademarks and patents, says counterfeiting – also known as piracy – is big business that should concern any business.
"There are estimates that up to 7 per cent of international trade today is counterfeit, which can be defined as anything that knocks off a trademarked or copyrighted product or work," says Mr. Isaac, who is also a patent and trademark agent. "It's a concern for any company, whether or not they're manufacturing or selling abroad."
Anything and everything is being knocked off, says Mr. Isaac, including car parts and diesel engines. He recalls sitting on a plane and putting together an alphabetically ordered list of all the products he's seen counterfeited. He hit all the letters in the alphabet except for Q.
"Then someone told me later they'd seen quilts being counterfeited," says Mr. Isaac.
A big challenge with counterfeiting is its international nature and scope, with the latter appearing to grow in parallel with global commerce. Indeed the Office of the United States Trade Representative lists markets in close to 40 countries where counterfeiting and piracy occur at alarming levels. The Top 10 or "priority watch" list includes China, India, Russia and Thailand, while the second-tier "watch" list includes Brazil, Turkey, Finland and, yes, Canada.
Counterfeiting's global arena can be daunting for companies, especially small- to mid-sized businesses, looking to protect their products. Still, says Mr. Isaac, in most countries there are civil and criminal provisions against counterfeiting – Canada has a new legislation, Bill C8, currently in the Senate – and there are measures businesses can take to reduce their vulnerability to piracy and secure their legal position in case they fall victim to counterfeiting.
"You really have to take a fairly sophisticated approach and look at where you're likely to have problems," says Mr. Isaac. "If you're manufacturing or selling overseas, get trusted representatives on the ground in markets where you think you might be knocked off."
Ideally, these on-the-ground allies – who could be business partners, local lawyers or private investigators – will monitor the market for counterfeits and keep an eye on supply chain partners such as manufacturers, distributors or transport companies.
For businesses with deep pockets, Mr. Isaac also points to companies that specialize in counterfeit prevention services. An example of this is NetNames, whose anti-counterfeiting services include finding unauthorized brand use online, preventing traffic diversion to unauthorized websites, and takedown of counterfeit products sold online.
Other companies offer technology-based – and often costly – anti-counterfeit solutions, such as 3D holograms, digital encoding on product labels or packaging, and invisible barcodes.
Detailed contracts that address potentially risky areas are a must, says Mr. Isaac. For instance, a contract with a manufacturer should specify exactly how the factory will use any material or document being supplied by the business customer.
"Especially in the clothing industry where manufacturers overproduce and there are 'seconds' left over, you have to deal with that or that stuff might end up in the counterfeit market," says Mr. Isaac.
Whenever possible, patents, trademarks and copyrights should be registered in all the markets where a company does business. Even when a trademark or copyright is inherent because of a distinctive design, some countries require registration or you're out of luck if your product gets knocked off, Mr. Isaac says.
Ms. Sentaler Nikolic says any business venturing outside Canada should take the time to learn the intellectual property and anti-counterfeiting laws in their target foreign markets. She also suggests getting all contracts reviewed by lawyers in those markets to ensure the documents comply with local laws.
"Many times, businesses sign contracts thinking they're protected, when in fact they're not," Ms. Sentaler Nikolic says.
Although she spoke with police and her lawyer after she got wise to her former manufacturer's counterfeiting scheme, Ms. Sentaler Nikolic decided not to pursue legal action. She says she's pragmatic enough to accept that in the world of fashion, successful products will always be copied.
She also knows that anyone looking to knock off her coats will always be a step or two behind her.
"I'm just going to make new designs anyway and they can't copy my mind," she says. "I think the best way to protect yourself is to always innovate. By the time the counterfeiters get around to copying, you already have a new line or collection."