Editor: Gerry, tell us about your company .
Roerty: I have been with Swedish Match North America for 11 years. Swedish Match North America is part of a subsidiary of a larger corporation, Swedish Match A.B. based in Stockholm, Sweden. It is a global company that does business in more than one hundred countries. Swedish Match North America is in the tobacco business, including the manufacture and distribution of chewing tobacco, snuff and cigars. Its products include Red Manchewing tobacco, Timber Wolfsnuff and Garcia Y Vegacigars. We bought the Garcia Y Vegamass market cigar business from General Cigar Co., Inc. in 1999. About three years ago, Swedish Match North America acquired General Cigar in its entirety. The acquisition of General Cigar brought us its premium cigar brands such as COHIBA , Macanudoand Punch . The companies are headquartered in Richmond, Virginia and employ several thousand employees in North and Central America.
Editor: Owen, what is your background?
McKeon: I am a Member of Robertson, Freilich, Bruno & Cohen, a litigation firm based in Newark, New Jersey. My practice is concentrated on complex commercial litigation and my experience includes counseling, litigating and resolving disputes involving a variety of complex issues, including breach of contract, trademark infringement and dilution, copyright infringement, licensing, domain name rights, antitrust, insurance coverage, employment, internal investigations and white collar criminal defense. In the past three years, I have begun devoting a great deal of my time to representing clients dealing with the challenges of enforcing their intellectual property rights, specifically in the areas of trademark enforcement, brand protection and anti-counterfeiting.
Editor: Tell us more about your brand protection and trademark enforcement practice.
McKeon: The practice area has undergone significant growth as the infringement and counterfeiting of intellectual property has taken on epidemic proportions. Some products are well known targets of counterfeiters such as luxury brand apparel and watches, but the issue is far reaching. Manufacturers of products used by consumers every day - brake pads, printer cartridges, and wine - are also subject to counterfeiting. Although there are criminal laws relating to counterfeiting, law enforcement agencies have limited resources to assist mark holders. The burden falls on the intellectual property owners to enforce their rights - counterfeiters know this and that is why they are taking advantage of the situation.
We counsel clients to assist with the many challenges of protecting their intellectual property. In our role as counsel, we are intimately involved in developing creative strategies to deter counterfeiting and infringement. We then coordinate the investigation of suspected counterfeiters and infringers and work with clients to determine the appropriate response to ensure the unlawful activity stops. Sometimes negotiation is effective. Other times, litigation is necessary. Our goal is to quickly and efficiently ensure that the counterfeiters and infringers are put out of business and the client's interests are protected.
Editor: Gerry, how did this problem come to your attention?
Roerty: This is a problem that has been present in a lot of luxury goods industries and premium handmade cigars are no exception. A substantial percentage of premium cigar consumers make their buying decisions based on the reputation of the cigar brand. They tend to stick with a brand they like and recommend it to their friends. The brand must be protected from counterfeiters and infringers to ensure that consumers purchase the product they intended to purchase. If it is not, the cigar brand's reputation can quickly erode.
When General Cigar joined the Swedish Match family, its sales team had already determined that its cigar brands had become targets of infringers and counterfeiters. Our sales team and legal department worked together to assess the problem. In many cases, we determined that the retailers of infringing or counterfeit cigars were unknowingly selling counterfeits and agreed to stop doing so. Word of our efforts became known and most suppliers of counterfeits went underground. However, we understood that the problem still existed and we made it a priority to develop a comprehensive approach to stop the counterfeiting and infringement.
Editor: What brand has been most affected by infringement and counterfeiting?
Roerty: A number of our brands have been the target of counterfeiters over the years, but our Dominican-made COHIBAcigar brand became a particular target of the counterfeiters because COHIBAis one of our company's flagship brands and has an excellent reputation for quality.
Our sales teams began encountering counterfeit Dominican-made "COHIBA" cigars when making visits to cigar retailers. Through inquiries, we determined that the counterfeits were being sold and distributed by various retailers, distributors and manufacturers. Whether intentional or unintentional, the sellers and distributors were unlawfully profiting by trading off the good name of our COHIBAcigar brand. Worst of all, cigar consumers buying these "COHIBA" cigars were often unaware that the products were counterfeit. These consumers would unknowingly purchase a counterfeit, find it to be of poor quality, and become disappointed with the COHIBAbrand. Although the overall extent of this problem can't be quantified precisely in dollars, there is little doubt that counterfeiting has the potential to ruin a brand's reputation.
Editor: How did you determine the scope of the attacks on the COHIBA brand? And what led you to consult with Owen and his colleagues at Robertson, Freilich, Bruno & Cohen about combating the problem?
Roerty: Based on the reports we received from our sales force and customers, we decided we really needed to retain outside counsel with expertise to assist us in dealing with the problem. Because we only have three in-house attorneys, we did not have the internal resources to develop a strategy, oversee the investigation and litigate. I contacted Robertson, Freilich, Bruno & Cohen because Swedish Match had worked with them for many years on many different matters and I knew they were a good fit. They are a firm well suited to assist in situations requiring coordination of an investigation and litigation. The firm has developed a relationship with a team of excellent private investigators, comprised of former law enforcement officers. The decision to retain Owen and his colleagues to deal with this threat to our brands was not just based on dollars - it was General Cigar's reputation that was at stake.
Editor: Owen, in your experience are many other companies encountering similar problems to those experienced by General Cigar?
McKeon: Yes. General Cigar's problems relating to counterfeiting and infringement are not unique. Like counterfeiters of other goods, cigar counterfeiters focused their illegal activities on well known "ultra premium" brands with a high retail price. Like all business people, counterfeiters and infringers want to maximize profit. The counterfeiters trade on the reputation of the brand that the legitimate mark holder has developed by producing a quality product that it markets at great cost. Counterfeit products have the potential to severely damage the brand by disappointing loyal customers. These issues apply regardless of the product being counterfeited.
When we first sat down with Gerry and General Cigar to discuss this issues our goal was simple - assess the extent of the problem and develop a cost effective strategy for solving the problem. We immersed ourselves in the issue by communicating with the sales force and retail customers to gain a better understanding of cigar counterfeiting. Regardless of the mark or product you are dealing with, counsel has a responsibility to spend some time educating themselves about the relevant industry. That is the only way to develop a trademark enforcement strategy that will prove effective.
Editor: What did your investigation of COHIBA counterfeiting uncover?
McKeon: Most of the cigar retailers we found selling counterfeit "COHIBA" were less savvy and didn't realize they were selling counterfeits. Our challenge was to balance the need to maintain business relationships with innocent retailers with the need to protect the COHIBAbrand. In other instances, however, our investigation identified distributors and retailers knowingly involved in illegal infringement and counterfeiting for profit. We focused our efforts on developing evidence against these intentional infringers and counterfeiters. With some, we have been able to reach a settlement short of litigation. In other cases, litigation is necessary. We work with Gerry in order to determine the appropriate course of action based on what is best for the company.
Roerty: It is worth noting that our investigation uncovered that many of the counterfeit cigars were marketed and sold over the Internet. To be clear, there are numerous web-based cigar retailers with sterling reputations who would recognize counterfeits and never think of offering counterfeits for sale. The problem is that it is difficult for cigar consumers to determine the legitimacy of an online cigar retailer. Many e-tailers do not put any imagery of the cigars they sell on their websites. Instead, they simply display the name "COHIBA" and an incredibly low price. The consumers order the cigars thinking they have located a bargain. When the cigars arrive, they receive an inferior product that ultimately erodes our brand's reputation. We make an effort to alert consumers to beware of counterfeits through press releases, public relations and cigar-related publications. Unfortunately, there is no way to ensure that no one falls prey.
Editor: Are trademark owners becoming more aggressive in their enforcement of their trademarks?
Roerty: You have to develop a strategy and set a budget. The thing that is most unfortunate is that you cannot assume that you will ever recover dollar one from the counterfeiters for infringement. Even if you get a damages award, it can be difficult to collect. You have to go into it with the objective of creating a deterrent that will limit the damage to your brands.
You do have some tools. For example, Congress enacted a statute providing significant statutory damages. Congress did so understanding that actual damages are often difficult to prove as infringers and counterfeiters aren't in the habit of keeping accurate records that evidence their unlawful activities. The threat of statutory damages provides monetary relief if there is litigation and the threat may be used as leverage against counterfeiters in settlement negotiations. Another possibility is to seek criminal prosecution. It must be remembered however that law enforcement agencies and prosecutors have limited resources. They can't prosecute all counterfeiters.
McKeon: There is no doubt that mark holders are more aggressively protecting and enforcing their intellectual property. One of the reasons is that the Internet has opened up a whole new avenue of relatively anonymous sales where counterfeiters and infringers can stay off the radar and supply counterfeit goods to consumers. Companies view this and other threats to their marks as problems that can no longer be ignored. Most companies are becoming proactive and doing what they can to convince the decision makers in their organizations that counterfeiting and infringement need to be treated as a priority to protect the company's valuable intellectual property. In all circumstances, it is critical to discuss the issue with counsel who can assist in the development of a cost effective strategy to combat infringement and counterfeiting.
Published February 1, 2008.
