Supply Chain Security & Brand Protection

1. Supply Chain Security& Brand Protection AAFA Knock It Off Conference Long Beach, CA November 7, 2007

2. The Trend • 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?

3. 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.

4. 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.

5. 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.

6. 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.

7. 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.

8. 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.

9. 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.

10. Thank you!