The Psychology Behind Trademark Infringement and Counterfeiting

J. L. Zaichkowsky

• Publisher: Psychology Press
• Year: 2020
• Print ISBN: 9780805847932
• eBook ISBN: 9781317824442
• Topic: Business
• Subtopic: Consumer Behaviour
• Index: Business

As those involved in commerce are aware, preventing competitors and others from imitating successful brands is a difficult and costly task.

This book serves to inform the reader concerning complexities of the issues of brand imitation, integrating the disciplines of psychology, business, and law to the area of trademark infringement and counterfeiting. Principles and theories from psychology and how they are relevant to consumers' perceptions in the marketplace are used to explain why competitors steal the intellectual property of another company or entity.

The possibility of brand imitation or counterfeiting should be contemplated in designing new products or brand packaging, just as it is in the printing of currency. It is the intent of The Psychology Behind Trademark Infringement and Counterfeiting to provide those involved in commerce with some understanding, some ideas, and perhaps some strategy for building differentiated brands that are easy to protect.

Brand managers, expert witnesses to trademark cases, intellectual property lawyers, and academics of consumer behavior and marketing will find this book useful to understanding consumer motives and processes of trademark infringement and counterfeiting. It could be used as a textbook in courses on marketing.

CHAPTER
1

Sorting Out the Issues

Each year at the world’s largest consumer goods trade fair show, called the Frankfurt Ambiente fair, black gnomes with gold-tinted noses are awarded to companies judged as making “the most flagrant and unimaginative” design imitations. The reason for the gnome prize is the history of sales lost to German producers of ceramic garden gnomes because of copycat Polish knockoffs. This loss is estimated at hundreds of millions of dollars over the past 10 years. The black gnome with the gold nose symbolizes profit through plagiarism and was created by Action Plagiarus, a group that campaigns to raise awareness of copyright protection. As of 2003, Hong Kong- and Chinese-based companies have received the award 27 times (Reppert-Bismark & Fowler, 2003).

This act of intentionally taking the name, shape, symbol, color, or look associated with a successful brand and integrating it with another brand on the marketplace shifts sales away from the original brand to the new brand. This shift occurs because consumers can be led by similar cues into believing the two brands might be interchangeable. The psychology behind the perception of similarity and substitutability is important to understanding the processes and motivation of stealing brand equity or brand identity in the marketplace. In addition to the possible monetary loss to original manufacturers, there is a potential reduction in the perception of the original brand’s quality or image due to the cheaper price or inferior quality of the infringing brand.

The equity of successful brands is routinely stolen because it is a cheap effective way to make short-term economic gains. This is the cost of creating a successful branded good in the marketplace that is highly visible, highly desirable, and/or highly expensive. These are the attributes that motivate manufacturers, sellers, and buyers to engage in and support the practice of brand identity theft. This theft may be in the form of a counterfeit or 100% direct copy, or it may be in the more subtle form of a brand imitator or knockoff, in which all elements are not copied, only the most salient (i.e., most market-driven) features.

These practices fall under trademark or trade dress infringement issues in the legal domain. A trademark usually is a name and/or logo, whereas the trade dress refers to the visual appearance.¹ Dollar figures for infringement activities of brand identity are routinely estimated. Interpol and the International Chamber of Commerce have estimated that on a worldwide scale, companies lose 5% to 7% of their trade because of brand and trademark abuse. These online and face-to-face trade loss figures are estimated to have been $512 billion in 2004 (Fakes, 2005).

WHY THIS BOOK

Most work on trademark infringement is from the legal perspective. Not much is written from the viewpoint espoused by the management of brands, which involves consumer behavior. The objective of this book is to provide an understanding of the issue of trademark and trade dress infringement from the standpoint of consumers and their relationship with brands in the marketplace. Determining exactly what makes a brand similar and desirable to copy is not always obvious and varies greatly among brands and products. Because litigation is costly, managers should be aware of the various cues consumers use to identify brands and how these cues transfer to the meaning consumers derive from brands.

Furthermore, the issues of marketing and consumer behavior are “soft” sciences. Often, courts allow totally unqualified individuals to offer opinions on marketing and advertising issues (McConnell & Dubas, 2004). This is likely because marketing and advertising are rather “sexy” areas of common ground and everyone can have an opinion. However, amateurs who have no formal degrees, let alone advanced degrees in consumer behavior and marketing, who have never published in a peer-reviewed journal and have no citation record often give their opinions without the basic understanding of marketing and consumer behavior in court rooms. Lawyers and judges need to know that consumer behavior theories exist, and that they are honed by those with advanced degrees in the areas.

This book focuses on the similarity of trademarks and trade dress with the intent of providing background information on consumer choice behavior, the psychological forces behind the issue of imitation, a review of selected court cases in which different cues are the basis for brand identification, an investigation of the World Wide Web as a catalyst to the business of knockoffs, and finally, a special look at China because most manufacturing has moved to Asia (even Levi’s are no longer manufactured in the United States), which represents the greatest growth market for branded goods.

¹ See the glossary for detailed definitions of “trademarks” and “trade dress.”

It is the similarity of trademarks that is germane to the cueing of consumer expectations. The understanding of what creates perceived similarity, how to label it, how to avoid it, and how to test for its existence is important to the decision to take a possible infringer to court and perhaps prevent any future infringing competitors.

TYPES OF COPIES

Generally, there are two types of purchasing behavior by the consumer: knowledgeable and confused. In the case of knowledgeable behavior, the consumer is not only willing, but also eager to buy a good that copies or resembles an original brand. In such cases, the brand copy usually is sold at about 10% to 20% of the original brand cost. Consumers may think that only they will know the difference in price paid. Others who see them with the brand copy are expected to think they paid the price of the original. If the word “knockoffs” is typed into an Internet search engine, one will see hundreds of companies that make their living by selling knockoff golf clubs, purses, watches, shoes, sunglasses, and whatever else may be a publicly consumed branded good, luxury or not. It seems that the Internet has given some legitimacy to this business.

With the second type of copying, consumers do not realize they are buying a good that is not an “original” or they are “confused.” This lack of knowledge may be attributable to inexperienced and uninformed customers, or customers who are just duped. It may be arrogant to assume that consumers know a good is not the original because of its low price. They may assume it is stolen merchandise. They may think that the seller has obtained the goods through parallel import arrangements, because it is not unusual for goods to sell at a lower price in a foreign country than they do in a domestic market. Consumers also may not have the knowledge about what a reasonable selling price might be for the good. Therefore, although the original manufacturer and some consumers know that the good is pirated, this may not be sufficient evidence to show that the majority of consumers know the good to be a “counterfeit.”

Another global factor is that as the world’s marketplace becomes borderless, well-known brands have leapt from country to country. Unfortunately, the distribution and price of these brands have not met the needs of the various worldwide markets. This situation has left a large segment open to acquiring imitation and fake brands, which are not easily recognized because of language translations. For example, the recent explosion of China as a consumer nation makes it a fertile ground for fakes and imitations. Recently, fake Harry Potter books appeared in various Chinese cities. In fact, books 5, 6, and 7 of Harry’s adventures were only in Chinese because the imitators took it upon themselves to create the future adventures, making them available, along with those published by the original author, J. K. Rowling, under her name.

The problem of knockoffs and fakes is so pervasive in China that the fakes are being copied, with the copiers believing they are copying the original. Thus, the pirates themselves are being pirated. The reason this problem is so widespread in China is not because consumers want knockoff products, but more because of the country’s history of intellectual property, values, transfer of brands across cultures, and laws, as well as the lack of information on original brands.

Counterfeits

Counterfeiting refers to a “direct” copy. An imitation need not be a direct copy. Imitators only need to have borrowed or copied some aspects or attributes of the original. Manufacturers tend not to differentiate between imitators and counterfeiters. Both can create similar problems for original brands because both infringe on the original brand’s image and profits. The law takes the position that counterfeiting may harm society at large, especially when the counterfeit is not a direct copy in quality, but only packaged or manufactured to look like the original. When the counterfeit is sold at nearly the price of the original, the consumer cannot judge the quality (as with credence goods) and therefore is misguided by the brand name, trademark, or trade dress. As a result, the consumer may think the counterfeit good is the original.

If the quality of the ingredients or manufacturing process is inferior, then that inferiority may directly harm individual consumers or even whole nations. For example, Kenya is reported to have lost a substantial portion of its coffee crop after farmers unknowingly used ineffective counterfeit fertilizers. Some airplane crashes have been attributed to counterfeit parts, which rarely meet federal safety standards. Counterfeit auto parts are said to last only 5% to 25% as long as genuine parts (Bloch, Bush, & Campbell, 1993).

The explosion of counterfeit drugs sold around the world poses an extreme health risk. Pfizer found that its cholesterol-reducing drug Lipitor was counterfeited and sold in the United States. Novartis says that counterfeiters used yellow highway paint to get the color match for its fake painkillers (Business Week, 2005). These examples of counterfeiting, which may have an impact on the safety of society, are treated much differently by the legal system and by consumers than cases that involve goods we call publicly consumed luxury goods. However both fake luxury and consumer goods are now at the heart of organized crime, allegedly channeling hundreds of millions of dollars to subversive activities around the globe.

Counterfeits as Pirated Goods

When a counterfeited brand is sold at a fraction of the usual selling price, it is said to be a signal to the consumer that the good is counterfeit. This usually is referred to as piracy because the manufacturer’s intention is not to deceive the consumer about the true origin of the good. The consumer may consciously seek out and purchase these fake products through purchase location, low pricing or obvious differences in design details, quality, or other features observed by the consumer. Examples are pirated CD’s, video games, and computer software sold at low prices, often with poor packaging. Usually, the courts side with the manufacturer and see no difference between pirated and counterfeit goods. They do not take into account the many eager and satisfied consumers of fake CD’s, software, or luxury goods. Some counterfeiters use the following argument to justify their actions:

I tell my customers it’s a copy. People can’t afford the real stuff. Take Chanel. Their quality is great, but the bags aren’t worth the price people pay. They have $2,800 bags I’ll sell you for $150. We’re doing a service by allowing people to have a dream. (Stipp, 1996, p. 140)

The World Wide Web exacerbates the legitimacy of this practice as a business, both by businesses and by consumers. Some businesses advertise their wares as replicas and state boldly that they do not sell authentic products. Because they do not manufacture them, they are but a middleman in the process. However, it is clear from the following customer comment (taken from a now defunct Web site) that they are selling to a public that uses the good as an authentic product.

I was always afraid that if I bought a replica bag people would know it was fake. After receiving your bag I wore it into the Louis Vuitton store and everyone wanted to know how I got the bag. I am no longer ...

Table of contents

• Cover
• Half Title
• Title Page
• Copyright Page
• Dedication Page
• Table of Contents
• Preface
• About The Author
• 1 Sorting Out the Issues
• 2 Understanding the Consumer
• 3 Psychological Principles Underlying Consumer Perceptions of Imitation Brands
• 4 Cases of Imitation in the Marketplace
• 5 Strategies to be Distinctive
• 6 Testing for Brand Imitation
• 7 The Special Case of Cyberspace
• 8 Trademark Infringement in China
• 9 Where to From Here?
• Glossary
• Appendix 1
• Appendix 2
• Author Index
• Subject Index