Viral dupes – what can luxury brands do?

Summary

Fuelled by the new tariff regime, the Chinese "dupe" appears to be on the rise, and luxury brand owners will need to consider their contractual and intellectual property rights, as well as attempting to quash false claims and misinformation.

Background

In recent weeks there has been an explosion of Chinese businesses offering luxury goods direct to consumers through social media platforms. Viral posts have been viewed in the millions and the impact of these burgeoning trade channels, incited by US tariffs, is being felt throughout the West.

Brand owners, their funders and their retail partners are looking with concern at these recent developments. In parallel with their own issues concerning newly introduced tariffs, stemming a potential tide of cheap "dupe" or grey imports is a priority concern.

Are the claims true?

There is considerable uncertainty and misinformation surrounding the new activity. The strong message from Chinese exporters is that consumers can buy, at a discount price, goods that are the same, or as good as, luxury branded items at a fraction of the price. This is especially so in the USA where 145% tariffs have been imposed and the de minimis $800 exemption soon expires.

Some claims that Chinese companies are original equipment manufacturers for big brands ("OEMs", which are factories that work behind the scenes to produce someone else's goods) are doubtful. A number of brand owners have retaliated with very clear statements that they do not manufacture in China. On the Luis Vuitton website, for example, is a list of where its goods are manufactured, with China notable by its absence.

Are brand-owners' rights being infringed?

Or, to put it another way, what are consumers really receiving? In some cases, the goods will simply be counterfeit, and will clearly infringe the brand owners intellectual property rights in the products produced. But if the goods are the real deal, made in and exported from China, what then?

Even if the goods are genuine, brand owners will not have given consent to the importation of the goods into new markets. This means trade mark rights could be enforceable to prevent cross-border movement.

A number of Chinese factories are suggesting that they are OEMs making genuine branded luxury goods, and can supply "surplus" identical items cheaply. This is not permissible, though, as the brand owners will have enforceable contracts preventing any of their Chinese factories supplying consumers directly.

In an attempt to render an air of legitimacy and avoid allegations of counterfeiting, some Chinese factories state they will provide identical products, but which are "unbranded". However, even this will contravene manufacturing agreements, and possibly break other intellectual property rights such as registered designs, or amount to passing off. Even if advertised as unbranded, connected product reviews sometimes rave about the branded labelled product received from the factory. Maybe these are fake reviews posted by the factory to encourage purchasers, but, either way, they indicate trade mark misuse.

Enforcing rights

The shipping to individual western consumers of a large number of individual small consignments (as opposed to container loads of identical counterfeits in a commercial supply chain) presents particular problems for brand owners to police and evidence. However, where intellectual property infringement or breach of contract can be evidenced, then brand owners have enforcement options available to them.

China has a robust court system where well-drafted contracts and IP rights can be enforced by Western companies. Statistics released by the Beijing IP court indicate success rates for foreign claimants of 68%. 

China Customs operates a counterfeit enforcement regime on exports, which focuses on detaining and investigating import/export goods suspected of infringing protected intellectual property rights. If infringement is confirmed, the goods are often destroyed, and the infringer may face financial penalties and even criminal prosecution.

Conclusion

The events of the past week are a timely reminder for brand owners to check their contracts with Chinese manufacturers and the extent of their intellectual property registrations. Watertight manufacturing agreements with factories are essential, as are appropriate trade mark, design and copyright registrations in China. Copies of these registrations should be deposited with customs authorities to take advantage of the counterfeit enforcement regime.

For more information, please contact James Love.