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Supply Chain Security& Brand Protection

AAFA Knock It Off ConferenceLong Beach, CANovember 7, 2007

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•Low cost of entry for counterfeit manufacturers.•Excess capacity from contract manufacturers.•Quality of fakes improving; Higher margins.•Factory leaks; “3rd shifts”; tech theft.•Lack of enforcement against importers.•Fakes infiltrate legitimate global supply chain.•Grade A counterfeits the norm in key markets.•Increasing Chinese domestic demand.•The internet – doomsday for IP rights?

The Trend

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Supply Chain Management

•Well managed centralized sourcing structure is the key to preventing greys and fighting fakes.•Poor vendor management means products will be sold to the grey market and other bad things.•control some aspect of the process such as materials supply and labels.•Have the right clauses in the MA.•Always have a list of approved global suppliers.•Not just about IP.

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The Grey Market

•It is an underground global trade channel whereby the origins of the products are unclear.•Allows fakes easy access to markets.•Large retail chains dealing in fakes.•Lack of due diligence by retail buying agents.•Counterfeiters take advantage of the confusion caused by the lack of product uniformity.•Our strategy has been to limit the grey market by stopping 3rd shift and sales outside territory.

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The Chaos Theory

•Counterfeiters take advantage of confusion and absolutely thrive on chaos. Examples.•Lack of product uniformity and the ensuing chaos as territorial products cross borders allows counterfeits to be passed off as genuine.•The ability to ID a product with confidence and also articulate it to Customs is crucial to cross border brand protection.•We want a common point of reference for all products globally.

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Security Labels and other Technology

•Controls production by controlling a key component such as a label;•For a specific order quantity give just enough labels to fill that order to avoid over production;•Any over production would not have that key label thus can be identified;•Label information based to retrace origin to discourage distributors selling grey.•An indispensable tool for anti-counterfeiting.•Criminalizes 3rd shift products.

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China Customs Program

•Register your marks with Customs General.•Do regular roadshows to give training to Customs officers in the frontline.•Always have a list of approved factories.•Customs will stop authorized shipments unless a master list is registered with Customs General.•Make sure to respond in a timely manner.•Follow up with civil action.•Bonds, storage fees and other issues.

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China Market Enforcement

•Target wholesalers and distributors because they are placing orders thus creating demand;•Monetary loss much higher than factory;•Less likely to have government protection;•More transparent process;•Decrease in Demand has led to decrease in Supply: a decline in factory sightings as well as a general decline in fakes.

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Factory Raids

•Make sure you get the seizure report after the raid and the decision letter within 3 months.•If you don’t get the above or if the documents are not chopped then assume the worse.•How far can you trust your agents? How much of the work can you do in-house?•Criminal Actions. The AIC must transfer the case if the threshold has been met.

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Thank you!