Is Your Brand in Danger?
Join us at Entrepreneur magazine's Growth Conference, Dec. 15 in Long Beach, Calif. for a day of fresh ideas, business mentoring and networking. Register here for exclusive pricing, available only for a limited time.
For almost a century, Mitchell & Ness, the Philadelphia-based apparel company that now makes vintage athletic jerseys licensed from national sports leagues, cruised under counterfeiters' radar.
But when rapper Big Boi wore a Mitchell & Ness Houston Astros jersey in a music video in 1999, he sparked a trend that turned the $2 million sports shop into a $40 million fashion hothouse almost overnight. To keep up with demand, Mitchell & Ness president Peter Capolino outsourced production to Korea. Within months, fake Mitchell & Ness gear made in Asia had flooded the U.S. market.
Once mainly a blight on premium brands such as Nike and Rolex, counterfeiting is now taking its toll on entrepreneurs. Like Capolino, many entrepreneurs discover their vulnerability too late, after counterfeiters have already established a booming black market. Capolino, 61, estimates that imitators now sell more of his product than he does: Last year alone, 135,000 fake Mitchell & Ness auctions on eBay were shut down.
"Fifteen years ago, counterfeiting wouldn't have been an issue for businesses that didn't have a global brand," says David Hirschmann, a U.S. Chamber of Commerce senior vice president responsible for intellectual property. "But today, counterfeiters are scouring the market for anything that sells."
The Chamber of Commerce estimates U.S. businesses lose $200 billion to $250 billion in revenue to counterfeiters each year, and pegs the global value of counterfeit goods at an annual $600 billion.
The problem is set to grow as technology continues to evolve. Counterfeiters can program machines to spit out convincing imitations of anything from toothpaste to brake pads. The explosive growth in e-commerce also makes it easier for counterfeiters to distribute goods and quickly erase their cyberspace tracks: Capolino estimates that more than one-third of all Mitchell & Ness imitations are sold over the internet, where infringers set up auctions that last a few hours and then disappear.
"The internet makes it a different problem because the ability to alter graphics or add creative lighting makes things look better than they really are," says Patrick McKenna, 27, CEO and co-founder of DMi Partners, an e-commerce venture that runs Mitchell & Ness' website and online sales. Any time Mitchell & Ness loses money to counterfeiters, DMi gets hit, too.
Globalization makes matters worse. When entrepreneurs outsource production overseas, they must hand over valuable intellectual property, such as blueprints and color codes. These resources are easily stolen or sold by corrupt local partners.
Increased outsourcing also makes it difficult to pursue infringers. "[Entrepreneurs] have become much more active players in the global market, but without offices [overseas], they don't have people who can protect their rights everywhere," says Hirschmann.
With more than 60 percent of all fakes originating in China, according to the Bureau of Customs and Border Protection, and the rest in countries as varied as India, Italy and Russia, domestic entrepreneurs often stumble into international disputes they have little hope of winning.
But there is some recourse: Dozens of anti-counterfeiting vendors have mushroomed over the past five years to help entrepreneurs protect their brands. Capolino, for example, turned to Boston-based GenuOne two years ago, when he realized a sole employee checking eBay could no longer keep track of all the fake online auctions. A 7-year-old technology startup, GenuOne scours the internet for unauthorized retailers or obviously fake merchandise. Entrepreneurs once showed little interest in his product, says GenuOne CEO Jeffrey Unger, but now account for about 25 percent of revenue.
GenuOne also makes software applications for supply-chain tracking and security marking technologies added to goods so their authenticity can be checked later. Other companies such as DuPont and 3M make holograms or color-changing labels that can be added to packaging to help customers identify the real thing.
Entrepreneurs are also turning to lawyers and private detectives to help track down counterfeiting rings. A few years ago, undercover investigators at PICA Corp. helped a leading maker of auto scratch remover trace the source of knockoffs that ended up in mainstream stores. For less than $100 an hour, PICA's agents comb store shelves, interview salespeople and gather evidence to help clients build solid lawsuits against counterfeiters.
Finding anti-counterfeiting vendors these days isn't too difficult since it's a nascent market with few competitors. You can get recommendations from security consultants such as Reconnaissance International, the U.S. Chamber of Commerce or your lawyer. Whether finding the right vendor will help you beat the problem is another question.
Capolino's outlook, for example, remains bleak. Although GenuOne helped Mitchell & Ness recapture about $20,000 in monthly sales, Capolino says counterfeiters pop up as quickly as he can shut them down. "The counterfeiters are so many, and it's such a diverse and worldwide market, that I have no prayer of being successful," he says. "But I have to keep going after the bad guys; otherwise, they could just take over my business."