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In recent times, counterfeit items have become a large problem for many designer luxury brands. With the rapid growth of e-commerce, counterfeiters have moved their products from the streets to the Internet. This creates a problem for designer luxury brands because it is not easy for counterfeit items to be sold before their eyes. The sale of counterfeit items can affect everything from sales, to reputation, to good will. Many designer luxury brands are players in the fashion industry. The fashion industry, however, is a fickle one. One day you are in, the next you are out. The biggest asset a designer luxury brand can have is its status. Once the brand starts to lose its status in the industry, it is difficult to recover.

Protection of intellectual properties against unfair competition has become a constant battle for designer brands. The latest battle comes between French luxury company, Kering, and Chinese e-commerce giant, Alibaba. Kering luxury brands include, Gucci, Yves Saint Laurent, and more. In May 2015, Kering filed a lawsuit against Alibaba for encouraging and profiting from sales of counterfeit items on its website. This lawsuit, however, is the second legal action between the two parties. The first lawsuit was filed in July 2014 with similar causes of action. The lawsuit was retracted when Alibaba promised to work towards stricter intellectual property protections. However, Kering became frustrated with the lack of progress and filed the second lawsuit in 2015.

In its complaint, Kering alleges that Alibaba encourages counterfeiting on its platforms by allowing keywords such as “replica” and “guchi” to lead to counterfeit items. The complaint alleges Alibaba fosters the sales and purchase of counterfeit goods by providing a platform for such transactions. Alibaba, however, argues the lawsuit is frivolous and claims that it works with luxury brands to help protect their intellectual property.

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In general, trademarks are marks that are associated with a particular brand. Examples of trademarks include the golden arches for McDonald’s and the mermaid for Starbucks. Trademarks are important to businesses because they distinguish the business from its competitors. Businesses use these marks in marketing to gain consumer attention. Once a consumer is familiar with a brand, has developed a positive opinion on it, then he or she is more likely to buy products from the brand.

However, when a particular business becomes successful, competitors will often try to emulate the business’s model and possibly engage in deceptive practices. A common practice is trademark infringement. Trademark infringement is when a business takes another business’s trademark and creates a similar mark. What the infringing business is banking on is consumer confusion. It is hoping that consumers will be under the impression that the infringing business is associated, or possibly, even be the business that actually holds the mark. The infringing business is then taking away sales from the authorized trademark holder.

Dangers of Online Trademark Infringement

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The Internet has become an important aspect in our lives. With the Internet, people can pay bills, make appointments, and buy or sell products.  For example, websites like Amazon, Craigslist, and eBay allow the public to buy and sell products.  So, due to the ease of e-commerce transactions, counterfeiters have found a new medium to sell products.  E-commerce transactions do not require a physical meeting of the seller and buyer, so it becomes easier for counterfeiters to falsely claim they are selling authentic products.

Not only do online counterfeiters affect the public, but they affect businesses as well. Counterfeit items can affect a business’s bottom line. Counterfeit items can cause loss of sales, bad reputation, and loss of goodwill.

A way a business can address online counterfeiting problems is by hiring investigators to locate and identify the online counterfeiters. These investigators are skilled at online fraudulent transactions and can become valuable assets. The investigators create a list of sellers that are known to sell counterfeit items or have the typical characteristics of online counterfeit sellers. These characteristics include selling designer items for an extremely low price on low quality websites. The list is then sent to the business and the business determines whether or not it wants to conduct a sting operation to confirm the counterfeit nature of the seller. If the business decides to conduct the sting operation, then the investigator will set up a purchase, make an inspection, and determine if the goods are actually counterfeit.

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The United States Census Bureau releases statistics for e-commerce activities on a regular basis.  These statistics compare the percentages from previous years in order to show the growth of the e-commerce industry.  So far, the reports have indicated that the rates are rising, and this trend will most likely continue with the widespread use of the Internet.

Dangers of Online Counterfeiting

Although, e-commerce can be viewed as a great addition to the Internet, but it can create problems for commercial entities.  For example, businesses that engage in the online sale of products, are subject to counterfeiting and unauthorized sales by unlicensed sellers.  Auction sites, such as eBay, have come under fire for the sale of counterfeit goods and product diversion. These websites provide a medium that allows users to sell products to other users. Most of eBay’s sellers are consumers, and not businesses, so there is a danger of buying a designer item that is a counterfeit, i.e., fake.   There is also a danger that the seller is selling a product it obtained from the gray market. In general, eBay and similar websites, do not monitor every single item, so it creates a breeding ground for the sale of counterfeit items and unlicensed sales.

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If you have ever been involved in a federal civil lawsuit, you may be familiar with the Federal Rules of Civil Procedure (FRCP).  The FRCP are a set of rules that regulate federal civil lawsuits. The rules address issues from court and party obligations to enforcement of remedies. The FRCP was first adopted by order of the Supreme Court in 1937 and placed into effect in 1938.

On December 1, 2015, these rules were amended. Many of the changes affect electronic discovery (e-discovery). Prior to the internet age, discovery and discoverable evidence were primarily based upon paper transactions.  With the rapid rise of the web, many started to turn to electronic storage of information.  As the data and information-storage landscapes began to change, the rules had to change.

The amendments brought changes to Rules 1, 4, 16, 26, 30, 31, 33, 34, 37, and 55.  The amendments also brought on the abrogation of Rule 85 and the Appendix of Forms. The changes that affect e-discovery are as follows:

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The internet has become the home to many advances in the world. With one click of a button, a person can communicate with another person located on the other side of the world. With another click of a button, a person can buy a shirt and have it delivered right to his/her doorstep in a matter of days. Not only has the internet made things more convenient, it has become a tool in starting a business. Besides finding a tutorial to create a website, inventors can now fund their projects to bring their ideas to reality through crowdfunding. The inventor simply places his idea on a crowdfunding website, e.g., Kickstarter or Indiegogo, and sends the link to a large group. Depending on the invention’s popularity, the entrepreneur can raise a high amount of money with little effort.

Crowdfunding is starting to become a viable source of funding for startups. According to Forbes, crowdfunding is predicted to overcome venture capitalists next year.  Although, crowdfunding has made it easier to create a business, it does not come without legal problems. One of the biggest issues is intellectual property. From patent trolls, to patent infringement, crowdfunding websites have found themselves under attack by businesses.

In late 2012, 3D Systems brought a patent infringement lawsuit against Formlabs.  3D Systems alleged both direct and indirect patent infringement for its three-dimensional printing technology. This lawsuit came after Formlabs collected over $2 million from its crowdfunding campaign to put its three-dimensional printer into production. Formlabs was planning on selling the printer for less than 3D Systems’ printer, leading to the filing of the complaint. No answer was ever filed in the original suit, but a series of time extensions indicated that the companies were looking for a settlement. In late 2013, a notice of voluntary dismissal was filed and a settlement looked imminent.

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ZeniMax Media, Inc. (“ZeniMax”) is a company that develops and publishes video games. These games include Fallout and Elder Scrolls. ZeniMax publishes the video games through its subsidiaries and has found widespread success in the gaming market. With that widespread success, ZeniMax was able to allocate funds for the development of virtual reality gaming.

In April 2012, a ZeniMax employee started communicating with Palmer Luckey. At the time, Luckey was a college student working on a virtual reality headset prototype named Rift. The ZeniMax employee took interest in Luckey’s creation and offered some help in its development. Luckey then sent the ZeniMax employee a copy of his prototype where the employee and other ZeniMax personnel added their own improvements. After their improvements, ZeniMax entered into a Non-Disclosure Agreement with Luckey to share the enhancements made on the prototype, including its use in a game ZeniMax developed.

After the prototype became a working model, ZeniMax performed demonstrations at the Electronic Entertainment Exposition. The demonstrations were only done by appointment. After adding his own modifications and merely days after the exposition, Luckey started to commercialize the headset under a newly-formed company called Oculus VR.

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On October 30, 2015, the Securities and Exchange Commission (“SEC”) adopted rules allowing the use of crowdfunding by companies to offer and sell securities. Crowdfunding is the raising of money in cyberspace through portals, i.e., specialized websites like Gofundme, Indiegogo, Kickstarter. By using these portals, individuals or businesses can engage in fundraising in order to promote ideas to a large group of potential investors.  Crowdfunding has become a handy tool in new projects since it is another method for a small business to raise capital.  The SEC is seeking to regulate these practices and to protect investors since startups and entrepreneurs can raise capital through this revolutionary method.

For example, Title III of the Jumpstart Our Business Startups (“JOBS”) Act created an exemption in the securities laws to allow crowdfunding to be used for offering and selling securities. The exemption called for the final rules, Regulation Crowdfunding, to administer such offerings and sales. The rules allow for crowdfunding securities transactions within certain limits. The limits include the amount that could be raised through crowdfunding, requirement of disclosure of certain information to investors, and creation of a regulatory framework for the funding portals, which facilitate the transactions.

In essence, some of the rules are:

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Trade secrets are important assets for a business and derive their value due to their secrecy.  Trade secrets constitute confidential business information that give a competitive edge to their owner.  They include industrial, manufacturing, or commercial secrets.  Any unauthorized usage of a trade secret is a violation.  With secrecy, a business can develop an advantage over its competition. By placing the value in its secrecy, the information is subject to outside forces attempting to steal the valuable information. By placing the information on a network server accessible through the Internet, a business organization’s vulnerability increases. Rather than simply risking disclosure by a disgruntled employee or being a victim of corporate espionage, businesses can now find themselves at risk of unauthorized access, i.e., hacking. The Internet allows information to be quickly and easily disseminated all around the world. Information can be accessed by anyone who has access to a computer and the Internet. With the borderless nature of the web, it would be difficult to subject users to the laws and regulations protecting trade secrets. As a result, the United Nations created the World Intellectual Property Organization (“WIPO”) in order to address issues regarding intellectual property, which includes, but is not limited to, trade secrets.

The purpose of WIPO is to create a worldwide intellectual property system that fosters creativity and innovation. Currently, there are 188 members, including, the United States and United Kingdom. WIPO’s services include dispute resolution to intellectual property-related cases such as arbitration and mediation. It provides an annual forum for governments, intergovernmental organizations, and industry groups to meet and discuss issues.

International standards for trade secret protection are similar to the formula adopted by over 100 members of the World Trade Organization. The standard is published as a part of the TRIPS Agreement.  For example, Article 39 states that members must protect undisclosed information (e.g., trade secrets) from unauthorized use that is contrary to honest commercial practices. Also, the information must be secret in nature and there must be reasonable steps to protect the secrecy. Also, Articles 42-49 call for civil proceedings to enforce the standards.

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Trade secrets are vital to a business’s growth and development.  From a practical standpoint, the advantage a business may have vanishes once the trade secret is publicly known. As a result, businesses have employed various methods to prevent the leaking of trade secrets. From confidentiality agreements to encryption, a smart business should attempt to prevent the risks. However, these efforts may not be enough, calling for the need of regulation. In general, the applicable regulations primarily clarify the definitions, parameters, and remedies for trade secret theft.

Uniform Trade Secrets Act

The Uniform Trade Secrets Act (UTSA) has been adopted in forty-seven states and the District of Columbia. It defines a trade secret as information that derives economic value from its secrecy and is subject to reasonable effort to maintain its secrecy.

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