Protecting your brand: fending off pirates.

• Author: Heffes, Ellen M.

A few years ago, Zippo Manufacturing Co. discovered that some of the familiar-shaped Zippo pocket lighters it received for repair at its Bradford, Pa., headquarters were not authentic Zippo lighters. Since its founding 75 years ago, the company has maintained its lifetime guarantee policy, but it returns counterfeits to owners, refusing to repair them, says CFO Richard A. Roupe. As the amount increased, the company took steps to become proactive in protecting its brand.

It's difficult to estimate precisely how much the company has lost to counterfeiting, due to many factors. Zippo's lighter revenues peaked in 1996--at about $160 million--coinciding with the beginning of a "real uptick in China production," notes Roupe, who is an FEI member. From that point, lighter sales have dropped to approximately $110 million. Privately held Zippo's 2007 revenues were approximately $200 million.

Zippo's in-house Corporate Counsel, Jeff Duke, explains that not all the blame can be attributed to counterfeiting, since other developments--such as competing products coming online from China and changing mores about smoking--have contributed to the revenue decline. However, his best estimate is that Zippo loses between $10 million to $40 million in revenue each year due to counterfeiting.

On its website, Dusseldorf, Germany-based Henkel KGaA likens brand pirates to those who once roamed the seas of the world--capturing ships, enslaving their crews and stealing their cargos. "Today's buccaneers may have relinquished their bandannas and sabers, but they are no less dangerous," notes a May 17, 2006 document on Henkel's website titled Guardians of the Brand.

The European Commission conservatively estimates that counterfeit brand-name products have a market value of around 300 billion euros, amounting to between 5 percent and 9 percent of annual world trade. The U.S. Chamber of Commerce estimates that about a quarter of a trillion dollars is lost to the U.S. economy each year as a result of global piracy and counterfeiting.

Piracy Prevails

Piracy and counterfeiting impacts brands in virtually every industry--including healthcare medical devices, pharmaceuticals, industrial products, airplanes, automobiles, software, toys, food, beverages and deodorants--and impacts quality control and the cost of goods, and it sometimes costs lives. Besides the "pure raw economic costs to a business involving loss of revenue, sales and reputation, counterfeiting can pose serious potential health issues," says Ira J. Levy, a partner with the law firm of Goodwin Procter in New York City.

Counterfeited Colgate-Palmolive Co. toothpaste tainted with chemicals or Pfizer Inc.'s blockbuster drug Viagra, fires caused by faulty wiring, video game chargers electrocuting children and the theft of the intellectual property (IP) of the U.S. entertainment industry all pose enormous challenges.

Indeed, as Levy indicates, anyone...