Forget increased competition, flat sales and the threat of 3D printing. There is a far bigger enemy which has been commonplace for years and will surely be around for many more to come: the counterfeit toy.
Not only do those affected lose millions in potential revenue, fakes can be difficult to identify, and when they are spotted, expensive lawsuits can last months before counterfeiters are brought to justice.
Around 6.7 million counterfeit toys were seized in Europe in 2010, according to the European Commission’s 2010 Annual Report on EU customs enforcement of intellectual property rights. Said toys had a combined retail value of £19 million (€24.1 million) – what they’d be worth if they were genuine.
Wow Stuff estimates almost two million copies of its hit Air Swimmers toys have been sold worldwide. Counterfeit Angry Birds and Disney toys reportedly worth $500,000 were recently seized in the US. And Hexbug Nano had over 100 different knock-offs manufactured in China within its first year (not to mention the copycat products on BBC’s The Apprentice). Just three examples from potentially hundreds.
“It is a major problem that is having serious repercussions on the toy industry,” Innovation First International’s president and CEO Tony Norman tells ToyNews.
“Established companies are knocked off by foreign manufacturers that have no product development costs, maintain low standards, and survive on very low margins.
“The manufacturers of counterfeit toys also do not have the development or marketing expenses associated with building a brand, they just steal it. This is very tempting for retailers to increase their margin or offer a lower price than their competitor on name brand products.
Fake Hexbug's siezed by the UK border agency. (Inset left) the real Hexbug Nano.
“The larger companies will also steal ideas for the US market and outspend a start-up in marketing and in court, delaying any protective results for several years.
“Since most toys will have only a few big years of popularity, this tactic works well and severely hurts the inventing company. Before there can be any legal results, the big guys will drop out.
“This is an epidemic. Knock-off toys are having the largest impact on the industry.”
Wow Stuff CEO Richard North adds: “It’s a very big problem. This year we have seen more counterfeit products including our robotic R/C rattlesnake and more Air Swimmers. It has cost us about £150,000 in legal fees and we are expecting this figure to rise. Every copy sold takes money away and hinders the reinvestment strategy in the short-term.”
The main source of origin of counterfeit toys in 2010 was China (98.76 per cent), followed by Hong Kong (0.48 per cent) and the United Arab Emirates (0.27 per cent).
Considering over one billion toys are sold in Europe annually, with around €15.5bn generated from retail sales, €24m worth of knock-off toys might initially seem insignificant. But this doesn’t tell the full story.
“These seizures represent only a fraction of the problem,” says Toy Industries of Europe (TIE) director general Catherine Van Reeth. “Counterfeit products for daily use that pose a potential danger to citizens’ health, including toys, accounted for 14.5 per cent of all detentions – that’s around 15 million items.”
Norman adds: “The alarming issue with counterfeit toys is the serious dangers they can pose to the health and safety of consumers, and children in particular. Unlike genuine toys from established companies with records for quality and safety, you have no idea where illegal toys come from or what dangerous defects or toxic substances may be hidden in them.
“The people that make and traffic in illegal counterfeit toys do not care who gets hurt, poisoned or defrauded.”
Sadly, some consumers have even been known to die from unsafe, illegally copied versions of electronic toys. Seven year-old Connor O’Keeffe was killed in 2007 after using a fake Game Boy charger obtained while on holiday in Thailand with his family.
A statement from the British Toy and Hobby Association (BTHA) reads: “Ensuring that only safe toys enter the market is the overriding objective of the Toy Safety Directive. BTHA members are obligated, by their terms of membership of the Association, that they abide by ethical and safety requirements.”
TAKING THE RIGHT ACTION
Companies may feel like they are fighting a never-ending battle against counterfeiters. However, there are a number of actions they can take to kick out the copycats – starting by protecting their intellectual properties.
“It is very important for right holders to register their rights,” adds Van Reeth.
“They can then ask customs authorities to watch out for products that infringe on their rights. It is highly recommended to lodge such applications for actions and to engage with customs officers, as it is widely known they will have a higher degree of motivation protecting those brands which are cooperative.”
In fact, TIE has recently created a brochure titled Intellectual Property Rights Relevant for the Toy Industry. It covers trademarks, copyrights, design rights and patents, and explains how to both obtain and protect rights.
Toy companies can also work with Trading Standards in the UK.
Wow Stuff thinks even more can be done on a wider scale. Says North: “A system that provides immediate action to prevent sales is what we really need. It’s a crying shame that you can walk into shopping malls and shop for counterfeits online so easily, even when you can prove the IP ownership or rights. Usually the goods are not taken off sale until past the prime selling period.
“We now have a sizeable legal team and work with Trading Standards and other organisations to seize goods in the fastest manner possible.”
BTHA says increased enforcement would help to reduce the distribution, and as most toys are imported, better border controls by customs can limit their distribution. A statement reads. “More funding to help them in this valuable work would increase their capacity. However, government cuts make this increasingly difficult.”
Others believe further action is necessary.
“Hold everyone in the supply chain accountable,” says Innovation First’s Norman. “Too many companies go after the manufacturer of counterfeit and knock-off toys. The reality is, most of these companies use fake names, addresses, under foreign entities and if you can find them, will shut down that day and start under a new name the next.
“We have made a conscious decision to hold retailers responsible, despite the repercussions. It’s the only way to change the industry. If it does not change, we will move our business to an industry that respects IP.”
Counterfeit toys are a serious ongoing problem, but the industry has shown resilience, mettle and cooperation in attempting to solve it. By banding together, being proactive and liaising with governments, there’s no reason why the fakes should be allowed to prosper – at all.
Hundreds of millions of the iconic Rubik’s Cubes have been sold since the ‘80s, but counterfeit versions plague the brand. Seven Towns owns the Rubik’s brand. It distributes its own ‘How to spot a fake’ sheet to help retailers and customs officials identify fakes.
It spends around £500,000 per year on fighting the fakes. It even has a ‘spy network’ of Rubik’s fans who keep Seven Towns informed of any counterfeit cubes they notice.
Seven Towns’ senior VP of global licensing and legal for Rubik’s, David Hedley Jones, tells ToyNews: “We stop anything from 500,000 to one million every year.
“What amazes me is how some of the reputable big toy companies think they can get away with it.
“We go to court. We work with retailers. We work with law firms.
“The battle against the Chinese manufacturers is never-ending. I may stop 15 firms tomorrow, but a few days later, another 15 will appear.”
Jones has been working as part of a team with the European and Chinese Customs officials to explore ways of stopping illegal exports.
What is Trading Standards doing to help?
It is Tranding Standards job to support fair and competitive markets, protect standards and block scammers.
It is working with various firms to clamp down on counterfeit products, including toy companies, the HMRC, and many more.
It also operates Rapex in the UK – a pan-European alert system that lets member states to prevent hazardous products from entering the market.
“Every counterfeit toy undermines the integrity of the industry, so it’s in all our best interests to unearth counterfeit and unsafe products,” Trading Standards Institute CEO Ron Gainsford tells ToyNews. “We look at complaints and receive intelligence.
“[The counterfeit market] is difficult and there is a big problem with China, which Europe recognises.
“One of our biggest problems is the absence of data. We used to keep an accident and surveillance scheme database, which the Government decided not to fund anymore, so that’s not great. We’ve got a long-standing call to government to reinstate this system.”