How to protect yourself from counterfeits and product liability litigation

How to protect yourself from counterfeits and product liability litigation

‘Product liability’ – every manufacturer is aware of how these two simple words can effectively cost them hundreds of thousands and even millions of euros in expenses, legal fees, damages and more.

If a manufacturer produces or distributes a product which is defective, the manufacturer is liable for the damages and injuries that product caused.

Any product a company manufactures must meet basic standards and the expectations of ordinary users and consumers. When a product has an unexpected defect or danger, the product doesn’t meet those standards or expectations. While the details of product liability law have been developed independently in many countries, they all have a common basic rule: liability for a product defect can rest with any party in the product’s chain of manufacture and sale.

But what happens if the product which caused the damage or injury was a counterfeited copy of the original? What tools can manufacturers and brands use to help them prove they are not liable?

Counterfeit product liability

The annual global black market around counterfeiting is now estimated at $2.2tn (€1.96tn). Counterfeit products, from goods and merchandise, tobacco products and lubricants to agri-chemicals and medicines, circulate across the globe. While inferior copies can be annoying, counterfeiting has several safety issues around product failure that tragically already have led to injuries and deaths.

According to a US Chamber of Commerce report, the magnitude of global physical counterfeiting is estimated to have increased considerably since the turn of the century. This is of course a serious issue in its detrimental effect on the economy. But the impact on companies from a loss-of-revenue perspective, liability and potential reputation damage are all cause for concern.

Product branding brings benefits to the consumer by providing some assurance as to a product’s quality and the manufacturer’s accountability. According to The In-House Lawyer’s legal briefing on counterfeit goods and product liability, “If a counterfeit product is incorrectly identified as being produced by a specific manufacturer (for instance, by the logo it bears) and it causes damage, there is a risk that the original manufacturer, rather the entity that produced the counterfeit product, finds itself having to defend itself against any product liability claims.” This leaves the manufacturer exposed to product liability litigation for damages that he did not create.

While a manufacturer can point out it didn’t create the counterfeit product, it can be a difficult and costly process to do so. Often this means having to show the (often very small) differences between the makeup or production of genuine and counterfeit products.  This is especially challenging where proprietary processes, applications or formulas are involved.

“Managing such claims is an unwelcome and costly distraction, even if the company eventually succeeds in avoiding liability,” adds In-House Lawyer.

As a result, more and more global brands find that taking proactive action is more cost-effective, and better protects the reputation of the brand.

Proactive action on counterfeited products

Combating counterfeiters of your product is a meritorious action in all cases. However, it is mostly based on activities such as:

  • The registration of IP rights;
  • Making counterfeiting harder by changing design and production specifications;
  • Reviewing distribution and supply chains for cross contamination with counterfeit goods;
  • The test purchasing of counterfeit goods from suspected retailers;
  • Establishing an enforcement strategy tailored to the product and the legal remedies available in the jurisdictions involved; and
  • Enacting enforcement by bringing proceedings against counterfeiters.

All of these are good strategies, but in today’s world, where counterfeiting is a known risk, it is not enough for protection against counterfeit product liability litigation.

Insulating from counterfeit product liability litigation is of prime importance to the manufacturer. Only by physically distancing themselves from the supply chain of the counterfeit defective product can the manufacturer be protected from product liability and/or tort litigation.

Other than the actions listed above, the manufacturer needs a simple method to prove that the suspected counterfeit product is not their own. This method should irrevocably prove that the product in question is either a genuine product, produced and distributed by the manufacturer, or indisputably a counterfeit copy.

Using ValiDotz™ taggants for counterfeit product liability protection

ValiDotz™ is a set of invisible carbon-based security markers which can be implemented easily into most products for either a covert (visual) or forensic (non-visual) specific. ValiDotz™ are extremely challenging to counterfeit or reverse engineer and provide product specific signature without causing any changes in the product’s properties.

ValiDotz™ markers can be embedded in trace quantities of PPM/PPB level to supply a specific spectral signature that will decisively prove if the suspected product is genuine or counterfeit.

The detection can be performed visually to give a quick yes/no indication of the presence of the marker. However, ValiDotz™ are more powerful when used in conjugation with its dedicated real-time on-site pocket detector – Inspec™.

Using Inspec™ allows the user to reliably differentiate between different product codes using a sophisticated machine algorithm which provides a much higher level of confidence and security.

ValiDotz™ and Inspec™ end-to-end security solutions have the following advantages:

  • Product specific codes;
  • Cost effective due to low effective concentrations required;
  • Does not affect the properties and appearance of the tagged products;
  • Chemically and thermally robust (compatible with extrusion and injection molding);
  • Extremely challenging to reverse engineer;
  • Has unique properties that can thwart any attempt to replicate;
  • Suitable for a wide range of products and matrixes;
  • Based on a novel technology, unknown to counterfeiters; and
  • Non-toxic.

Legal aspects of tagging products with ValiDotz taggants

By adding ValiDotz taggants to a product, a manufacturer can unequivocally establish a specific signature that only the manufacturer knows exists. By presenting that such a signature is embedded in his product line, a manufacturer can prove to any court or jury that a product that does not carry the ValiDotz tag is in fact a counterfeit product. Therefore, according to product liability laws around the world, the manufacturer is removed from the chain of distribution and is not liable for any damages or injuries caused by the counterfeit product.

Furthermore, by using ValiDotz taggants, the manufacturer is taking proactive action to deter counterfeiters and protect his brand. The manufacturer can have a counterfeit-proof, stable, long lasting, specific spectral security marker that will protect him from future product liability litigation, no matter how good the counterfeit replica is.

Future product liability litigation

At present, manufacturers can defend against counterfeit product liability litigation by proving that the product was counterfeit. However, in the future, manufacturers may have a duty to take steps to prevent and deter counterfeiting. This is due to counterfeiting becoming a known risk.

These ever-increasing risks, being well known, make it very possible that in the future a court will accept a claim that a manufacturer should be held liable for counterfeit versions of his products if the manufacturer took no measures to decrease the risk of counterfeiting.

With the prevalence of counterfeiting in today’s markets and the numerous steps available for a manufacturer to make its products less attractive to counterfeiters, a manufacturer who does not take adequate anti-counterfeiting measures could be at risk for tort liability, according to Bradley.


Uzi Breier

CEO & Executive Director

Dotz Nano Ltd

Tweet @Dotz_Nano

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