Government

Lawmakers look to accelerate fight against IP piracy: Proposal calls for more cooperation, national network

March 12, 2007

U.S. Sen. Evan Bayh need look no further than his home state of Indiana when recounting the scores of companies victimized by intellectual property thieves.

The product designs, brand names and copyrighted material stolen by foreign firms to make counterfeit knockoffs likely are costing Hoosier companies millions of dollars annually. Nationally, the Federal Bureau of Investigation estimates the figure to be $250 billion a year.

The pervasiveness of the theft-counterfeiting has increased 10,000 percent during the past two decades-has prompted Bayh and fellow Sen. George Voinovich, R-Ohio, to introduce legislation to fight against international piracy.

"I keep hearing more and more from companies large and small about how they're getting ripped off, and I'm outraged by that," Bayh said in an interview with IBJ. "Our government should do more about it, and it has not been the type of priority it needs to be."

One company that has encountered some of the most brazen acts of trademark piracy is Abro Industries Inc. in South Bend, a small distributor of glues, tapes and epoxies. Its products, which are sold in 160 countries, include "stop leak" for car radiators, plastic filler for dents, and special tape for cracked windshields.

Abro has just 22 employees, but boasts annual revenue of $100 million. Yet the figure could be higher if not for the millions of dollars the company loses each year to illegal infringement, said Tim Demarais, Abro's vice president of sales and marketing.

China a top violator

Its bizarre saga begins in 2002, when a Bosnian distributor of Abro products notified the company that he wanted to buy from Abro's Chinese subsidiary. The problem? Abro has no Chinese subsidiary.

Turns out the distributor stumbled across a booth loaded with Abro products at a Chinese trade show. The booth's occupant, Hunan Magic Power Industrial Co., has been a thorn in the side of Abro ever since. Attempts to thwart the piracy so far have been futile.

"They continue to plague us today," Demarais said. "The double-negative is that we spent hundreds of thousands of dollars to get our products trademarked around the world, and now we're spending that to defend them."

The Chinese company advertises and ships around the world more than 40 "Abro" products, from super glue to sealant, in replicas of Abro's packaging.

Amazingly, the packaging of one of the products even featured a photograph of Demarais' wife, used as a model for an Abro epoxy. Abro tried to shut Hunan Magic down. But six months later, at the biannual trade show in China, the firm was back in business. This time, however, it replaced the likeness of Demarais' wife with that of an Asian woman.

Part of the problem is that the Chinese legal system makes it difficult to prosecute counterfeiters. Also, local authorities are reluctant to hassle Chinese companies exporting an estimated $20 billion a year in counterfeit products, according to The Wall Street Journal, which told of Abro's battle in a 2004 story.

Because the Chinese won't prosecute counterfeiters, it's up to Abro to convince other nations to seize the products as they enter their countries. In the United States, pirated products can be seized at the borders and importation can be halted by the U.S. International Trade Commission.

China is among 14 countries cited by the International AntiCounterfeiting Coalition in Washington, D.C., for inadequate protection and enforcement of intellectual property rights. Canada and Mexico are named as well.

"We call this the war on economic ter- rorism," Demarais said. "They're stealing jobs, money and profits. It's been going on for a number of years, and we hope Washington is going to do something about it."

Global effort urged

Indeed, counterfeit merchandise is responsible for the loss of more than 750,000 American jobs, according to the U.S. Customs and Border Protection. It's further estimated that 7 percent of all goods traded globally are fake.

Counterfeiting crimes already are punishable by up to 20 years in prison and fines up to $15 million. President Bush signed legislation last year that adds mandatory forfeiture, destruction and restitution provisions to the existing law.

Bayh proposes establishing what would be known as the Intellectual Property Enforcement Network, an international agency that could coordinate efforts outside to crack down on counterfeiting.

Federal agencies in essence would share information to aid one another in identifying and arresting counterfeiters. The agency would be modeled after a similar international effort that fights money laundering and other black-market crimes.

What effect Bayh's bill might have on the illegal activity is unclear, said Jim Coles, co-chairman of Indianapolis-based Bose McKinney & Evans LLP's intellectual property group.

"It really does nothing to strengthen the laws themselves," he said. "It's more of a method to get the countries outside of the U.S. to be more cognizant of the laws to cut down on the piracy that's going on in their own countries."

But counterfeiting and trademark infringement occur plenty within U.S. borders, too.

One recent examples in Indianapolis came when a Marion Superior Court judge late last month issued a preliminary injunction ordering a local company to return computer files allegedly taken from a Fishers competitor.

The competitor, Product Action International LLC, claimed in a lawsuit filed in May that Fast Tek Group LLC used Product Action's business blueprint to build a similar company. Both firms sort out parts defects for manufacturers.

The judge said Product Action, one of the area's fastest-growing companies, offered "overwhelming" evidence to buttress its claims. He said Fast Tek hired two Product Action employees who brought proprietary information about Product Action to their new jobs.

The employees and Fast Tek violated the Indiana Uniform Trade Secrets Act and engaged in a pattern of racketeering activity, the injunction said. The judge has appointed an expert to expunge all the information found on Fast Tek's computers, said Alan Brown, a partner at Indianapolis-based Locke Reynolds LLP who is representing Product Action. The company is seeking damages as well.

Meanwhile, Bayh is optimistic his bill will receive bipartisan support.

"The bottom line is that this is a big deal and the government needs to treat it as such," he said. "We're going to have to get hard-nosed about it."
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