Piracy, counterfeit goods and their impact on brand positioning

Brazil is among the world’s leading markets for piracy and counterfeit products. According to the report by the American cybersecurity company Akamai, Brazilians are the fifth largest consumer group in the world for these products, trailing only behind the United States, Russia, India, and China. According to Brazil’s National Forum Against Piracy (FNCP), the growth of the market for pirated and counterfeit products cost the Brazilian economy up to BRL 300 billion in 2021.

Despite often being trivialized and somewhat socially accepted, piracy is extremely harmful to the financial system, directly affecting companies, their relations with consumers, and consequently, their brand positioning.

Legal definition

In legal terms, piracy can take the form of copyright violations (Article 184 of the Brazilian Criminal Code), in the practice of crimes provided for in the Software Law and in the Industrial Property Law, or even crimes against consumer relations (Article 7 of Law No. 8,137/1990). When it comes to trademarks, piracy refers to the sale of products that intentionally imitate or reproduce third-party trademarks and logos without due authorization from the trademark owner and without paying the respective royalties.

To understand the seriousness of this practice for trademarks, it is first important to understand their role for companies, the market, and consumers.

Trademarks and consumer relations

In short, a trademark is a sign identifying a product or service whose purpose is to captivate and retain its target audience. Therefore, when recognizing a particular trademark, the consumer automatically makes several (positive or negative) associations regarding that product or service. This is because trademarks essentially function as seals that guarantee the origin and quality of the product or service offered.

In everyday life, it is often difficult for consumers to distinguish the functional attributes of the products or services they purchase, so they use symbolic characteristics as a differentiating factor. After a positive experience with a product or service, consumers will remember its trademark and are likely to consume it again in search of the same standard of quality they previously experienced. On the other hand, if the experience is negative, the disappointment will lead to a negative memory that will discourage consumption of the product or service in the future.

The recognition and prestige of a trademark are the results of operational, logistical, financial, and advertising efforts by the trademark owners, who seek to differentiate their products or services from competitors and stand out in the market. As such, trademarks are representative of free competition, as consumers are offered a range of products and services and can differentiate and choose from them based on past experiences or the values associated with the brands, without the risk of confusion or undue association.

Therefore, the potential harm in selling counterfeit products under the guise of another trademark is clear to see. After all, the undue use of another brand’s industrial property devalues its trademarks in the market, while the consumers themselves experience greater difficulty in differentiating between original and counterfeit products, increasing the possibility of confusion.

Brand positioning and consumer impacts

Brand positioning strategies involve defining the price of the products under a given trademark, as well as the quality of the material, the sales channels, and where they are sold, among other issues. The trademark owner can no longer control these attributes when manufacturers and traders of pirated and counterfeit goods start to operate in the market.

In such a situation, the associations consumers have previously built up in regard to the product are lost, as there is a radical change in suppliers, quality standards, logistics and communication strategies. Regardless of advertising (whether planned or spontaneous), the consumers’ positive experience is the standout factor in making them want to consume products under the trademark again. Naturally, a positive experience can no longer be guaranteed when the rightful owner is no longer the only one offering the product in the market.

By modifying the strategies defined by legitimate trademark owners, the sale of counterfeit products causes a sudden change in the target audience the owner initially aimed for. It tarnishes the ideological relationship previously constructed with the original consumers, who no longer identify themselves with the brand or feel represented by its new consumer profile.

Post-sale confusion

Notably, a consumer’s experience with a brand goes beyond the moment of purchase. There has been ample debate among experts on the effects of post-sale confusion, establishing that any potential confusion between original and counterfeit products can cause serious damage to the trademark’s reputation. The confusion leads to the trademark’s association with lower quality products, usually made with cheaper materials, which are not submitted to health and safety testing, for example.

In addition to causing severe monetary losses, it is a fact that piracy and counterfeit products are extremely harmful to companies’ brand positioning and directly damage the market and its consumers. They create the conditions for unfair competition, confused consumers and an immediate stain on the companies’ reputation and honor.

Combating these criminal phenomena serves to strengthen the economy, guaranteeing greater security for consumers (especially concerning counterfeit versions of products that should be certified by Brazilian agencies). It would also create a healthier market environment, where the revenue from purchasing the original products would be returned to the market itself, fostering its development.

For further information about trademark strategies, follow the special series entitled Legal Challenges in Brand Positioning.

*In cooperation with Nathalia Fraifeld.