Counterfeiting is a worsening problem in the dietary supplements industry. What can be done about it?
Counterfeiting impacts industries of all kinds. In the dietary supplements industry, where a brand’s reputation is tightly bound to a product’s efficacy and the customer's health and safety, the stakes to fight counterfeiters have never been higher. On July 15, the Council for Responsible Nutrition (CRN; Washington, DC) and Informa hosted a webcast examining the topic, titled “Counterfeit Dietary Supplements: Reducing Your Risk and Fighting Back,” in which speakers painted a dire picture of the problem and suggested best practices for brand protection.
The Growth of Counterfeiting
Counterfeiting is pervasive, globally. In fact, counterfeit and pirated goods represented up to 2.5% of global trade entirely in 2019, said webcast speaker Zorita Pop, senior legal IP counsel and digital & anti-counterfeiting lead at Nestlé S.A. The COVID-19 pandemic may have exacerbated the problem, with Pop noting that “it is estimated that during the pandemic, the illicit market actually increased.” In the case of dietary supplements, for instance, counterfeiters have been able to leverage gaps between skyrocketing demand for these products and severe supply chain disruptions related to the pandemic. “Counterfeiters take advantage because obviously the market still wants the products,” she said. It’s also a mistake to assume that counterfeiting only happens to luxury goods, she added. “This is no longer the case. If there is a demand in the market for a certain product, counterfeiters will take advantage.”
Nestlé, whose history in the food industry spans more than 150 years, is now focusing on how to fight counterfeiting in the VMS (vitamin mineral supplement) market because Nestlé Health Science has in recent years acquired supplement brands like Garden of Life, Pure Encapsulations, and Vital Proteins.
What tools are they using? Pop outlined a few critical steps. First, she said, establishing IP protection globally and ensuring that its “brand names are registered as broadly as possible" is paramount, especially because it’s difficult to generate enforcement against counterfeiting in a country if a product does not have IP registration in that country. “We start first with the markets where we sell the products, then the markets where we manufacture the products, and thirdly the markets that are known as markets where counterfeit products may be manufactured,” she explained. Registering in a multitude of countries doesn’t come cheap and includes application fees, management fees, and registration fees. She also pointed to the soon-to-be-implemented Eurasian Economic Union agreement regarding trademarks that will allow companies to file one trademark application to net protection in multiple countries.
Another important step is to take advantage of anticounterfeiting technologies. While these are “not a silver bullet,” she said, and need to be used in conjunction with other tools, printing and packaging technologies are available at lower costs these days and are more readily accessible. Still, she noted, “there are situations where counterfeit products are so well executed that it’s quite hard to determine within the use of these authentication technologies which products are genuine or not. Of course, there could always be a forensic investigation, but that takes time and is always expensive.”
The company also examines market behaviors. Sudden, unexplained sales drops could indicate a counterfeiting problem, she said. Tracking negative customer reviews is also a good way to identify if counterfeiting could be occurring. Internally, the company screens very carefully who has access to confidential information, including label and printing files that could be used for counterfeiting if placed in the wrong hands. It also trains its employees on how to identify and deal with counterfeit goods. Online monitoring service providers are also useful in helping to track the market and, she said, “have very reasonable fees.” Building good relationships with customs authorities and online sellers is also important.
Brand protection against counterfeiting is paramount, she said. Although the problem of counterfeiting is global and a threat to all companies, it’s the company that ends up being counterfeited that suffers. She said, “there is always the danger that consumers may associate counterfeit products with that particular company, not to the industry, and they may believe that counterfeit products are only a problem that’s connected to a specific company or specific companies, not to everyone acting in the industry.”
She concluded: “Strength lies in numbers. The more brand owners react to counterfeiters and push back, the more likely it is that they may actually reduce their activity…It’s not easy. It’s sometimes an effort that feels like it’s not going to achieve success because one counterfeiter down, another one appears. But it’s worth trying at least to contain the problem.”
Work in Progress
The mechanisms for catching counterfeiters is imperfect, underlined the webcast speakers.
Webcast speaker Jason Rosenberg, a partner at Alston & Bird, described how his firm helped its client, supplement company Nutramax Laboratories Inc., pursue third-party sellers on Amazon.com who were selling counterfeit Nutramax supplements.
Third-party sellers, he said, represent a significant share of the counterfeiting problem. “I have found that consumers do not appreciate the fact that many times when they make these purchases on Amazon, they are actually…trading directly with a third-party seller,” he noted. “Adding to that confusion for consumers is the fact that there’s also this Fulfilled by Amazon program. So third-party sellers can store their goods with Amazon, and Amazon will store and ship these goods out, even though your transaction is not directly with Amazon.” Often, consumers are lured to purchase from third-party sellers based on price alone.
Unfortunately for consumers and legitimate brands, it’s extremely easy to become an Amazon third-party seller, with Amazon doing minimal vetting of companies. And even if Amazon institutes a “takedown” of an infringing site, Rosenberg described the effort as a “Whac-A-Mole” game because counterfeiters “can almost always quickly switch to a new storefront and continue selling.” Still, he said, instituting a takedown is critical and that most major platforms are “pretty responsive” when presented with a case of infringement.
In the case of Nutramax, the company was intent on catching the counterfeiters because the counterfeit goods had received safety complaints from consumers. However, the process of trying to identify the counterfeiters (who used fake addresses and names), serving subpoenas to Amazon to obtain information, and tracking the infringers through banking and credit card companies was a two-year “journey” that was, as Rosenberg described, “messy,” “expensive,” and “slow.” (In the end, the company did end up finding what they think were the bad actors, and the counterfeiting on Amazon stopped. “We can only suspect that we had found the right people, we had knocked on the right doors, we had made people nervous enough that they had probably moved on to lower-hanging fruit,” he said.)
Catching counterfeiters isn’t easy, but it is important especially for brands in the supplements and wellness space, he added. “The question is always, ‘Is it worth it?’ And, if you sell sunglasses and someone’s selling counterfeit sunglasses, maybe not, but I would say for many in this group that if the issue is one of health and safety, then be mindful of what more you can do beyond the takedown, even though it can be significantly more expensive.” Protecting your brand against the “irreparable harm” that can result from trademark infringement that can “erode the consumer goodwill” is worth the cost.
Other speakers had additional tips. One, from webcast speaker Raj Sapru, COO of e-commerce service provider Netrush, was to be selective about who your distributors are. You’ve “really got to rationalize your distribution,” he said. “You really don’t need multiple sellers selling the same product on Amazon. That does not increase the demand at all. It only causes fragmentation.”
Also, he said, ensure you have strong monitoring and data reporting practices, adding that “there’s plenty of service providers out there.”
Of the mechanisms instituted by online merchants, Sapru said, such as Amazon, “it’s just not as effective as it needs to be,” meaning that brands will need to continue to be vigilant and take action and precautions on their own. Regarding the Amazon Project Zero and Amazon Transparency programs, he said, “they’re largely ineffective, and they are not very brand-centric,” meaning that a lot of Amazon's focus rests on its valuable third-party seller platform.
On the brighter side, lawmakers and advocates are pushing for legislation to afford brands more protection in this selling environment. Webcast speaker Nicholas Ahrens, vice president of innovation at the Retail Industry Leaders Association, spoke on behalf of the Buy Safe America Coalition which largely supports a recently introduced piece of bipartisan legislation called the INFORM Consumers Act. The bill, introduced in March 2020, would require online retail marketplaces to better vet the identity of third-party sellers, including acquiring such information from sellers such as contact information and tax ID and bank account information. The bill would also require online marketplaces to disclose if purchases were fulfilled by a seller other than the seller listed on the product listing page.
Said Ahrens, “There are some basic things that we can do that we should do in terms of legislation to try to change how this is working and to make sure that the only answer isn’t everything that you [the brand] can do; it is something they [online marketplaces] should be doing, because it shouldn’t all fall on a brand to protect themselves. There should be protections in the marketplace because there’s clearly been a market failure here.”