November 2012 Archives

This year's Cyber Monday may be merely part of a cyber shopping season -- for the first time over half of American consumers shopped online during the holiday weekend -- but one thing hasn't changed: the counterfeiting conundrum we might call "cyber shrinkage." 

According to an eye-opening new report from online brand protection firm MarkMonitor, one in five online bargain hunters lands on sites selling fakes instead of legitimate discounted merchandise.  These aren't the shoppers deliberately looking for counterfeits or "replicas," mind you -- these are shoppers using search terms like "discount," "clearance," and "outlet."  It turns out that honest bargain hunters are demographically almost identical to their counterfeit-seeking cousins in terms of education and household income, but there are 20 times as many of them.  That adds up to a lot of otherwise savvy sale shoppers diverted to sites selling counterfeits.  Even worse news for brand owners: sites selling fakes are sticky.  Shoppers stayed longer and were more likely to place counterfeits in their shopping carts, potentially believing that they'd simply found discount deals.

Mole.jpgThe silver lining in the MarkMonitor report, prepared in collaboration with Nielsen and including both U.S. and European data, is a wealth of information about consumer behavior.  The research project started with an insight of simple brilliance, namely that the methods used in search-and-destroy missions aimed at shutting down counterfeit websites could also be employed to elicit information and develop constructive brand strategies.  Trademark lawyers regularly describe their work in terms of the arcade game Whac-a-Mole -- counterfeit sites pop up, intellectual property owners smack them down, the fakes pop up again elsewhere.  The end result?  A lot of whacked moles -- or counterfeiters, as the case may be.  But to extend the analogy, why not take that data and make a moleskin coat?

Among the report's general recommendations is the suggestion that brands -- including luxury labels that don't engage in online sales -- buy terms like "discount" in order to direct search traffic and educate consumers.  The report also suggests purchasing domain names with bargain-related terms before counterfeiters do.  A conversation with the MarkMonitor team indicates that the strategic potential of this data, and the more specific details available to individual companies, is even more extensive.  Knowledge that consumers in particular locations are searching for deals on specific brands or product categories (footwear turns out to be a universal favorite) can inform plans for a diffusion line, a partnership with a flash sale site, or the establishment of an outlet.  After all, with the increasing popularity and sophistication of online bargain shopping, it doesn't pay to let counterfeit sites steal away one in five potential customers.

(Note:  No actual moles were harmed in the preparation of the MarkMonitor Shopping Report.  But mammals engaged in underground counterfeiting activities may be another story.)

When Chris Burch's first C. Wonder store opened its lacquered lime-green doors, just around the corner from the distinctive lacquered orange doors of the original Tory Burch store, the visual association was striking.  The obvious question, of course, was, "Wonder what Tory herself Cs?" 

Tory_Burch_C_Wonder_Doors.jpgCurious consumers didn't have to wait long to find out.  In the words of yesterday's legal salvo, a "knockoff store." And the pictorial parade doesn't stop at the door -- but we're getting ahead of ourselves.

For those who haven't been following the nascent retail legal battle of the former Mr. & Mrs. Burch, each of whom still owns a substantial stake in the Tory Burch company, the opening shot was actually fired by Mr. B last month.  The parties had apparently been involved in discussions regarding the series of similarities between the Tory Burch trade dress and the design of the new, cheaper chain and its merchandise.  This resulted in some changes to subsequent C. Wonder outlets, evidently including the elimination of those green doors, but the two sides had yet not reached a written agreement -- a situation about which potential investors became aware and expressed reservations, to Chris Burch's dismay.

Instead of continuing to negotiate, Chris filed a complaint in Delaware state court, focusing not on Tory's concerns regarding copying but on blame for the delayed sale and on a series of allegations regarding the actions of the Tory Burch board.  (It's hardly a dry and dispassionate corporate recital, however.  From the use of the term "vicious" in the first line to repeated references to the former couple's respective prior experience, the document puts the "complaint" back in "legal complaint."  In 2012, who goes to court and argues in essence that the woman whose name is on the label was really just the little woman?  According to the company website, that should be the little CEO, please.)

Yesterday, Tory filed an answer to the complaint, denying its allegations, as well as an extensively illustrated series of counterclaims.  Personally, I keep picturing the potentially pilfered pouf among other decorative elements and products -- in between reading descriptions of everything from breach of fiduciary duty and contract to unfair competition.

Tory_Burch_C_Wonder_poufs.jpg
Tory Burch (L) and C. Wonder ottomans

In all, detailing and dissecting the claims and counterclaims would require a far longer discussion, but a core element of the case relates to what not only consumers but also potential investors in the Tory Burch company see when they see C. Wonder, and how this might affect their assessment of  the original company's value.  In today's world, isn't the existence of an alleged copycat chain run by someone with extensive insider knowledge of the original something that an investor would want to know?

As if this case weren't colorful enough, WWD today offers extensive quotes from Chancellor Leo Strine, who has apparently already called this case "a drunken WASP fest."  He's also reportedly opined -- and all this merely at a scheduling hearing -- that "there's really nothing all that new about bright clothing and all that kind of stuff," a point of view derived from his experience with "all the preppy clothier cases" he's been assigned in the past and his claim to cultural immersion in preppy styles.  (No doubt the court will become better acquainted with the signature Tory Burch style versus preppy classics as the case progresses. Very few New England homes have orange doors, for a start.)

Meanwhile, the designers of C. Wonder may not have sated their alleged hunger for borrowed trade dress.  A walk by the windows of one of the newer outlets might lead the mind of a a true WASP to wonder...bread.

C_Wonder_bread.jpg


UPDATE, November 8, 2012: Yesterday the Delaware Supreme Court chided the garrulous judge for his digression in another case. Sounds like he'll keep courtroom observers -- if not the parties -- in stitches.