Anticounterfeiting Measures Seen as Boost to Battle Bogus Goods

In WWD, I was excited to learn this week that the U.S. government has enacted a bill that will fund a cabinet level position in the White House focusing on anticounterfeiting initiatives.

The proliferation of so many bogus apparel, footwear, handbag and accessories hit record highs this year, especially on the West Coat as products come in from China.

This new bill provides increased resources for the Department of Justice to fight against fake goods and intellectual property infringements.

I’m glad to see that the government is helping businesses fight this issue, especially during these tough economic times.
To read more about it, click here.

Your Questions Answered

Dear Esteemed Readers,

Thank you for your comments and your questions. Here are the answers to some of the questions I have received lately:

1. Why doesn’t L'Oréal buy out its products from the Diverters?
If L’Oreal were to purchase all of the diverted products from unauthorized retailers, we would actually be fuelling the demand for products in that location, funding more demand and more purchases, and consequently, drive further diversion.

2. What happens when I report a Diverter?
When you report a diverter through an email to nodivert@aol.com or by calling the Diversion Hotline (1-800 503.3997), our strategy is to log the location and send an investigator to purchase samples and then use our coding technology to track the product. We can then determine if the product is counterfeit, and if not, who was responsible for diverting it to that location. Through our national buy-back program we have been able to cut down over $30 million dollars in product sales by cutting off diverters.

3. Why doesn’t L'Oréal take legal action?
We have. Please read my Quality King Story post from August 19th. We have filed and appeal and will keep you posted on our status.


Have more questions? Please submit them as comments and I will do my best to address them.

Thanks!
David

L’Oreal Against eBay

I was disappointed to learn that Belgian courts dismissed L’Oreal’s claims brought against eBay over the sale of counterfeit Lancome fragrances and cosmetics on the site. The Lancome brand is part of our L’Oreal family under our Consumer Luxury division.

Because of the demand, performance and popularity of many of brands including our salon professional products, our company is challenged across all brands to educate our customers about the risks of purchasing products outside of authorized retail channels such as eBay. Across our global organization, L’Oreal is fighting to ensure that when you purchase one of our brands you are receiving an authentic and safe product. Remember, cosmetics, hair products and fragrances touch your body and our company’s high level of quality control for all of our products ensures that you are using products that include ingredients displayed on the packaging. L’Oreal is appealing this decision. I’ll keep you posted as developments occur and how this impacts our Professional Products division!

The Quality King Story

I have received several comments asking if we have ever taken legal action against diverters, as well as some addressing the lawsuit between L'Oreal and Quality King (one of the country's leading grey market wholesalers of salon products), regarding the unauthorized sale of our products.

To give you some background information - in 2004 the Professional Products Division of L'Oreal USA, Inc., served a motion for contempt against Quality King Distributors, Inc. (Quality King), and related companies for repeated violations of an injunction stemming from the gray market wholesaler's buying and selling L'Oréal's Matrix professional salon brand.

According to the court papers, Quality King, based in Ronkonkoma, NY, acting independently and with several related companies, violated a longstanding court order prohibiting it from acquiring and redistributing the Matrix brand. L'Oréal USA's Professional Products Division produces this brand, among others, exclusively for use and sale by professional hairdressers at authorized salons.

It is true that in November 2007, after three years in litigation, a judge lifted a 1990 injunction that prohibited Quality King from selling Matrix. We were very surprised by the ruling because all we were asking was that the court enforce its own order. We believe the 1990 ban should be reinstated and have already filed for an appeal.

What the Grey Market Means

After we launched our aggressive anti-diversion campaign, I continue to receive a lot of comments and questions from frustrated salon owners who still see our products on unauthorized shelves. This is not going to be a battle that we win overnight and my goal is to educate the consumer about the risks of purchasing products from outside of a professional salon in what we call "the grey market." Diversion is not always illegal, but affects the general economy while potentially compromising the authenticity of the product. Other industries from champagne to pharmaceuticals are battling similar issues as we are with our diverted salon products. Grey market goods can range from "designer" luxury bags sold on eBay to premium denim copies sold on city streets to designer fragrances sold at your local drugstore. According to Wikipedia, the grey market is defined as the following:

Grey-market goods are not generally illegal. Instead, they are sold outside normal distribution channels by companies which may have no relationship with the producer of the goods. Frequently this form of parallel import occurs when the price of an item is significantly higher in one country than another. This situation commonly occurs with cigarettes and with electronic equipment such as cameras. Entrepreneurs buy the product where it is available cheaply, often at retail but sometimes at wholesale, and import it legally to the target market. They then sell it at a price high enough to provide a profit but under the normal market price.

To clarify how our salon products get into the wrong hands, take the following example. A salon with a professional only contract will order professional products and after six months, they are approached by a grey market agent who in many cases may represent a distributor who sells to mass retailers. These distributors may carry a variety of goods such as DVDs, cigarettes, fragrances and other items they can mark up to make a profit. These agents purchase excess inventory from a small salon at a cost that allows everyone to make a profit. This scenario is a breach of contract and as the business becomes profitable to the diverter and the salon owner, things can sometimes become shady. In an attempt to try to cover their tracks, so they cannot be traced through our product codes, they may change the packaging and/or formula and as we have proven, the mark up becomes greater for the consumer. Products can be diluted, counterfeited or full of bacteria. Because mass retailers make a profit on these goods, the temptation is high to resell. By taking control of our distribution process, one of our objectives is to be able to monitor and track these sales to salons and to ensure that salons are only ordering for their legitimate businesses.