Chairman William Killgallon of toymaker Ohio Art is expecting his companys stocking to be filled with lumps of counterfeit goods this holiday season.
Killgallon isnt happy about it. Ohio Art, which sells about $37 million worth of playthings such as Etch-a-Sketch tablets and the Betty Spaghetty family of dolls, has spent millions over the years battling counterfeiters. His expensive conclusion: he cant win.
Copy cats in China and elsewhere in Asia have "gotten so good, they can knock off a product in 30 days, right down to the packaging," says Killgallon, who has found Etch-a-Sketch rip-offs on toy retailer shelves throughout the U.S. next to his own product.
The counterfeiters keep getting more sophisticated. The same product lifecycle management technology that allows manufacturers to rush products to market and react to demand quickly helps of knock-off artists clone products quickly.
As if thats not frustrating enough, try building systems to combat counterfeiters. The choices:
- Hire brand protection outfits such as Boston-based GenuOne Inc. and Isotag Technologies of Addison, Texas, which cost hundreds of thousands per year;
- Throw professionals at the problem, using investigators and lawyers to hunt down counterfeit traffickers, paying them hundreds of thousands or even millions of dollars per year; or
- Accept fakes as the price of admission in a global economy, spend nothing upfront and hope it wont hurt sales.
The last may be as effective as the first two. Despite spending millions on technology and manpower and some anecdotal success, manufacturers cant quantify their efforts impact on the bottom line.
To truly thwart fakes, companies preemptively put people where counterfeiting might occur. Toss in the vagaries of international intellectual property law and corruption among local officials and pursuing offenders is a challenge at best, hopeless at worst
"We spent a lot of money on going after [counterfeiters]," says Killgallon. "And we cant do anything about it in China. Its a mess. Even if you can get the courts there to shut down, say XYZ Company, they just change their name to ABC Company and go back to doing the same thing next week."
Killgallon says Ohio Art controls the supply chain for its Etch-a-Sketch by using a limited number of U.S. component suppliers as the exclusive source of materials for its Chinese assembly plant. If the plant were to order more materials from the raw materials provider than required, Killgallon would hear about it.
Although Killgallon says Ohio Art has a long-standing relationship with its Chinese manufacturer "built on mutual trust," he admits he cant prevent other manufacturers in China from copying his product, despite patents and trademarks. "And (U.S.) Customs has been little help," he says. "Theyve never stopped a shipment [of counterfeit product] for us yet."
At least Ohio Art isnt alone. Counterfeiting is rampant in the toy and game industry, especially overseas. The Toy Industries of Europe(TIE) trade association estimates one of every 10 toys sold in Europe is a fake.