Trading on reputation

Cyberspace can be a risky place not just for individuals but for companies as well. Like consumers, corporations must take precautions to avoid having their identities and other assets stolen on the web. With their trademarks showcased for all to see and their copyrighted material so easy to download and disseminate, companies can make easy prey for cyber-criminals.

‘For some reason, the world is of the opinion that if you can find it on the internet, it’s yours to do whatever you want with it,’ says Alan Greenspan, partner at Jackson Walker LLP. ‘People would never imagine a situation where a customer would come in and steal things off somebody’s desk, but that’s what happens on the internet all the time.’

Trademark infringement, traffic diversion, unlicensed or unauthorized sales of products and services, product counterfeiting, identity theft and fraud are among the woes the internet brings, according to Malia Horine, director of sales at NameProtect, which provides digital brand management services.

THE DIRTY DOZEN OF INTERNET WOES
1. Domain name abuse
2. Traffic diversion
3. Commercial trademark infringement
4. Trademark dilution
5. Offensive content
6. Brand disparagement/feedback
7. Claimed affiliations
8. Affiliate/partner compliance
9. Unlicensed/unauthorized sales
10. Product counterfeiting
11. Digital piracy
12. Identity theft and fraud
Reprinted from ‘The Dirty Dozen—a survey of the top forms of
online brand abuse’ with permission from NameProtect, a
provider of digital brand management services

Unfortunately, many companies don’t have a handle on their intellectual property. ‘I see very often that management of the business does not understand what its intellectual property assets are, and therefore hasn’t taken the necessary steps to protect those assets,’ explains Greenspan. ‘They haven’t registered their trademarks. They haven’t registered their copyrights.’

Consequently, he recommends that companies conduct an audit to identify their intellectual property assets and then implement a program to protect them. ‘Most companies nowadays have security so that people can’t wander through their physical plant and see what’s going on,’ asserts Greenspan. ‘The same types of precautions must be taken to protect intellectual property assets.’ He points out that Sarbanes-Oxley’s internal control rules apply to intellectual property assets as well as ‘hard assets.’ Thus, corporate boards and management are obligated to take steps to prevent and detect intellectual property impairment.

Further brand injury may result shouldunhappy customers, stakeholders or disgruntled employees set up a social networkingtype site (for example, CompanyXisbad.com) where they abuse and disparage company names, trademarks and reputations.

Curiously, with all the intellectual property cruising the internet’s highways, few companies actually take stock of their trademark and copyright assets and assess potential internet exposure – let alone implement policies to safeguard their intellectual property.

Trademark and copyright risk has always existed in the ‘physical world,’ but on the internet ‘the scope and scale’ of potential risk is enormous, according to Frances Zollers, professor of law and public policy at Syracuse University’s Whitman School of Management. ‘What happens on the internet is that infringements of intellectual property, whether it’s trademarks or copyrights, can be sent all over the place with a punch of a button,’ states Zollers.

Attorney Mark Grossman, founding shareholder of DeWitt Grossman, agrees. ‘It’s far too easy to copy and paste material from the net and infringe a copyright,’ he notes.

Who is most at risk?

Some companies are more vulnerable to copyright infringement than others. ‘If you’re in a content-based business such as print media, sound recordings, video and the like, the internet is challenging your business model dramatically,’ says Ieuan Mahony, partner at Holland & Knight LLP.

However, the internet is also continuously evolving. As some internet risks diminish, others supplant them. In earlier days, so-called cyber-squatters raced to register domain names using the names or trademarks of companies that had not yet done so. Then, they attempted to ransom the sites to the appropriate owners.

Today, cyber-squatting may not be as much of a concern as ‘typosquatting,’ a practice based on the misspelling of company names and marks. Taking advantage of typing mistakes people make when keying in web site addresses, typo-squatters set up web sites that at first glance look very similar to existing company or trademark sites. However, a closer look may reveal a misspelling in a company’s name, the transposition of several letters in a trademark, an address that ends in .net instead of .com and so on. Unsuspecting individuals arriving at what they thought was the company’s bona fide site may find competing or counterfeit products for sale or be redirected to unsolicited online content.

Some internet scams use false pretenses to obtain privileged or personal information from the customers of banks or other service providers whose businesses rely on consumers trusting the privacy of their web site and related communications. ‘Phishing is the act of posing through e-mail as a reputable company, a company that people would know, and asking the recipient to provide information that can then be used to access the [recipient’s] accounts,’ explains Zollers.

‘These people who send us e-mails have gotten very sophisticated, and they often look like the real thing,’ adds Mark McKenna, assistant professor of law at Saint Louis University. Besides harming consumers, phishing creates ‘substantial goodwill risk’ for companies that want their customers to feel comfortable giving them information.

McKenna urges companies across industries to take phishing scams very seriously and to counter them with campaigns that educate their consumers about the ways legitimate information requests will come from the company.
Company web sites are a good place to warn customers about internet scams and how they can protect themselves. ‘Invite your customers to contact a certain e-mail address or an 800 number if they question the authenticity of anything they might have allegedly received from you,’ suggests Grossman.

Undoubtedly, educating customers is appropriate, but what should companies be doing to protect themselves from internet abuse? Ultimately, a company’s success in squelching offenders may make the internet safer for everyone.

Using the internet as your friend

Companies can actually martial the capabilities of the internet to monitor internet abuses. ‘Google your name,’ Zollers advises. ‘Imagine a couple of weird spellings and type it into a search engine and see what comes up.’

Suppose your Google search uncovers two offenders – a social networking site as well as somebody pretending to be you. How concerned should you be? ‘The ability to exactly duplicate a trademark – coupled with the ability to get wide exposure for using the mark improperly – in a social networking kind of setup at a very low price poses threats,’ says Mahony. The question then becomes, ‘Do you as the trademark owner and the one who has built up all this goodwill go out and try to shut down each one of these potentially defamatory, but more likely disparaging, kinds of sites?’ That, Mahony admits, can be a very difficult decision.

‘If you’ve got someone using your mark in a way to pose as you, or to counterfeit your goods or services, that’s a much more concerning problem,’ Mahony adds. ‘You as the company have an obligation to police your mark. If you don’t take steps to remedy that confusion – either prevent them from using the mark or require that they make some changes in the mark so that folks won’t confuse the two brands – then you risk losing your mark.’

Mahony believes companies should establish a policy to deal with internet abuse. For a social networking site, one approach might be to take action once the site attains a certain number of hits per day. However, identity theft or counterfeiting requires a different approach. ‘If someone is counterfeiting your goods or pretending to be you, then the board needs to take action,’ Mahony says.

Whether companies conduct their own monitoring of internet abuse or outsource the function, cost is always a concern, according to Horine. ‘Even large corporations don’t have massive resources to implement policing and ongoing enforcement efforts to protect everything that happens to their brand online,’ she says.

Consequently, Horine encourages prospective clients to identify their company’s hot button and focus on getting that area under control before moving on to another area. ‘Understanding your brand and maximizing your enforcement resources are key in terms of being able to protect your brand,’ she adds.

For example, monitoring traffic diversion would be essential for a company that does business online. ‘If you have a business that has a competitive site and you really rely on the internet as a driver of revenues, and if other people are diverting traffic from your web site, that is a very critical issue to your brand,’ explains Horine.

Instances of traffic diversion or trademark infringement may prompt companies to seek litigation to recover damages, which can be quite high. ‘It can be difficult sometimes for a plaintiff to demonstrate whatthey’ve lost,’ admits John Plumpe, principal at consulting firm CRA International. ‘But it can be easy for them to show what the defendant has actually earned.
‘Any sort of misuse on the internet can affect a trademark or copyright owner in ways that influence the value of their intellectual property, and that can harm them if they, for instance, want to license their trademarks or their copyrights to a legitimate third party,’ adds Plumpe. ‘If a legitimate third party sees that there’s action on the internet associated with pornography or something else, they may be less likely to want to engage in a licensing transaction. Or they may be willing to pay less.’ Another reason why companies should keep cyberspace infringements in check is because they must assess internet implications for transactions in which intellectual property is a component. ‘You need to consider not only the valuation of your products and services that you can put your hands on, but also any leverage or value that you have created or risk to those trademarks and copyrights that are out there on the internet,’ Plumpe notes.

However, figuring out what’s happening to trademarks and copyrights on the amorphous and ever-changing internet is daunting. ‘With the internet, you’re not talking about just the web,’ underscores Horine. ‘You’re dealing with things like blogs, auction sites and chat rooms. There are different aspects of the internet that can affect your brand, so you need to keep that broad picture in mind as well.’