Each week, we seek expert advice to help a small or medium-sized business overcome a key issue.
Heidi Kuus couldn't believe what she was seeing on Alibaba.com – the massively popular e-commerce site based in China. A mysterious, poker-faced, mustachioed man in a tuque and cream-coloured blazer held up what looked like a bottle of the insect killer Knock Down, one of her company's products.
The spray looked identical, right down to the instantly recognizable green bottle, product code and registration number.
As she scrolled through the product line of the Chinese vendor, Konnor Chemical, she noticed several of her brand's insect killers and repellents ironically juxtaposed next to Konnor's claims of being the trusted producer.
Kuus Inc., the Toronto-based manufacturer and distributor of Knock Down, sells its products only through Wal-Mart, Canadian Tire, Federated Co-operatives and hardware stores in Canada.
"It's a little frightening for us because we're not dealing with a toaster or shampoo, we're dealing with a registered product that goes through efficacy, toxicity and environmental studies," says Ms. Kuus, who is the company's co-founder and vice-president. "It's just as serious as if it was a prescription drug."
The company isn't the first to be violated in the seedy world of counterfeiting.
In Canada, the retail value of copycat product seizures in 2012 reached $38.1-million, up from $7.7-million in 2005, according to the Canadian Anti-Counterfeiting Network, a coalition that fights counterfeiting, fraud and copyright piracy.
But unlike deep-pocketed high fashion brands and electronics manufacturers, the 12-employee company lacks the resources to take on the bad guys.
"It's so invasive that we don't even know how to deal with it," she says. "We're talking about China – they don't follow the same rules and guidelines."
Ms. Kuus and her husband, Ron Kuus, launched the line of insect repellents and killers in 2006 as a way to make money during the off-season for their KUU Sport brand – a line of waxes and accessories for skis and snowboards, founded in 1986.
Today the repellent side of the business accounts for two-thirds of Kuus Inc.'s revenue.
A Kuus employee stumbled on Konnor's Alibaba page last year and notified Ms. Kuus. They e-mailed the company and received a typo-riddled response saying Konnor had "registered Knock down as our compay [sic] brands in China, so the China laws wiil [sic] protect our company's authority."
"They basically said, 'We can do whatever we want,' and it's none of our business," says Ms. Kuus.
The most troubling part, she says, is that all chemical products need to be registered in Canada. Since Konnor is selling the product in bulk form, Ms. Kuus is worried that someone will buy it on Alibaba thinking it's Knock Down and bring the mystery chemicals back into Canada, where all active and inert chemical products must be registered.
Although Konnor told Ms. Kuus they don't ship the product to Canada, someone could buy it in China or elsewhere and ship it to Canada. If Canadian auditors catch the doppelganger product on a shelf here and inspect it, it could lead to a recall of Kuus' product line.
"They've taken not just our brand name, they've also taken our label, our look, our setup – everything that distinguishes us from our competitors, and they've just duplicated it," says Ms. Kuus. "Our hands are tied."
The Challenge: How can Kuus stop the copycats from pilfering its brand?
THE EXPERTS WEIGH IN
Lorne Lipkus, founding partner and intellectual property lawyer, Kestenberg Siegal Lipkus LLP, Toronto
There's an entity called the Canadian Anti-Fraud Centre – a partnership between the RCMP, Ontario Provincial Police, Nipissing University and the Competition Bureau – which has expanded to include payment processors like Visa, MasterCard, Interac and PayPal.
Kuus needs to buy some of the product from the bad guys using a credit card like Visa. Take that information and send it to the Anti-Fraud Centre, which will then send it to Visa to investigate. Anybody who buys a product that is counterfeit on their Visa can contact Visa and have their money returned.
Because the product is counterfeit, the chargeback is against the seller, and in the appropriate cases – which this one appears to be – Visa has terminated people and businesses' payment processes. Because of the partnership with the centre, all the other partners – MasterCard, Interac and PayPal will not deal with that vendor any longer. It's really effective, inexpensive if it works and they don't need a lawyer to help them with it.
Alfred Macchione, partner and technology, communications and intellectual property lawyer, McCarthy Tétrault LLP, Toronto
It might be worth investigating whether these are grey goods – genuine products released with the authority of the product owner at some point and now being sold by someone else. If so, it's very difficult from a patent point of view to prevent the resale of those products.
I'd start with figuring out what this is. Let's say it was a genuine product and some was diverted to this reseller outside of their distribution chain. If so, there should be a breach of a distribution arrangement. Many times when we explore grey goods situations, even though you can't prevent that product from being resold in Canada you can attack the source of the problem.
TJ Scimone, founder and CEO of the cutting tool company Slice Products, San Jose, Calif.
I've been manufacturing my cutting products in China for 25 years so I've run into this a couple times. China is China and it's going to do what it's going to do. You'd never know this copycatting is happening if it weren't for things like Alibaba.
The first thing I did was set up my own account to sell on Alibaba. I put my whole line on there so people could find the real thing instead of knockoffs. Then I contacted Alibaba, showed them my brand name, my patents, trademarks and copyrights and they removed the offending company pretty quick. They will not remove it from Alibaba China's portal unless you have patents and trademarks in China, but no one outside of the country can see that portal.
If Kuus wants to remove it from China, find a good lawyer there, get the China patents and trademarks and submit that to Alibaba. People sometimes vilify eBay or Amazon or Alibaba, but they're just the conduits. Alibaba has a nice process, they know this happens and they're trying to make it easier for North American businesses to remove these copycats.
THREE THINGS THE COMPANY COULD DO NOW
Test the imposter product
Buy some of the doppelganger products and test to confirm whether it's genuine or not.
Set up an Alibaba account
Then use the opportunity to ask the vendor to take down the copycat's site.
Contact the Canadian Anti-Fraud Centre
Have the CAFC and their payment processing partners halt the sale of the knockoffs.
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Interviews have been edited and condensed.