One of the most difficult challenges for brand management is the threat of brand piracy. Research suggests that the problem of forgery of famous brand names is increasing and many of the fake products have been found to originate in developing countries and in Asia. It is important to recognize the differences between the ways in which forgery takes place.
Generally the following are the types of Brand piracy:
- Outright piracy in which a product is in the same form and used the same trademark as the original but is false.
- Reverse engineering in which the original product is stripped down, copied then undersold to the original manufacturer, particularly in the electronics industry.
- Counterfeiting in which the product quality has been altered but the same trademark appears on the label.
- Passing off involves modifying the product but retaining a trademark, which is similar in appearance, phonetic or meaning.
- Wholesale infringement is the questionable registration of the names of famous brand overseas rather than the introduction of fake products. This might be considered to be brand piracy but is entirely within the law.
There is a vast trade in pirated brands and copied products. It has been estimated that 90% of the software used in India is counterfeit and the problem is likely to be as severe in China. However, some cultures do not accept that individuals should gain from ideas which should benefit everyone and so there can be substantial differences of the perception of the importance of counterfeiting. Others believe that the development of many underdeveloped economies would have been set back considerably if they had paid market rates for software and this raises the ethical question for certain individuals by charging very high prices, whilst effectively excluding customers in under developed countries who cannot afford to pay.
The issue of brand piracy clearly is costing MNEs vast revenue and the US has led the way in insisting that governments crack down on the companies undertaking the counterfeiting. However, such firms have sophisticated networking operations with much of their revenue coming from sales to consumers in developed countries. Trying to reduce or eliminate their activities is costly and time consuming and unlikely to be a priority for governments in less developed countries. Moreover, pursuing legal action in foreign markets can be expensive, particularly for small companies, and can result in adverse publicity for larger companies.