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INTA Bulletin


September 1, 2015 Vol. 70 No. 15 Back to Bulletin Main Page

Combating Coupon Fraud with Trademarks


Coupons are a big business in the United States. “Couponing” has become a verb, referring to “the distribution or redemption of coupons,” and “extreme couponing” has become an avocation and even the basis for a U.S. reality TV show. Brand owners, such as manufacturers of food and household items, regularly offer coupons to entice consumers to purchase goods and services.

The Coupon Information Corporation (CIC) was established in 1985 “to encourage integrity in connection with the redemption of manufacturers’ coupons and participation in other promotional programs.” As the not-for-profit organization reports, “over a billion dollars are saved with coupons every year by savvy consumers. These savings benefit retailers, manufacturers and an entire industry employing thousands of people across the globe.”

Counterfeit Coupons
Counterfeit coupons are also a big business. As the CIC further reports, fraud schemes involving more than $750 million have been exposed, and thousands of individuals and entities have been identified. Dozens of leading companies owning many famous brands protect their brands as members of the CIC, including Bob Evans Foods, Coca-Cola USA, Kellogg Company, MillerCoors, LLC and Unilever.

The Internet has greatly facilitated the counterfeit coupon business. Over the last two decades, countless websites have sprung up that are dedicated to providing coupons to consumers. Print coupons are still widely circulated through Sunday newspapers, magazines and direct mail, but consumers often look to the Internet to find coupons. While most coupons legitimately issued in the United States are not transferrable—a transfer to another user voids the coupon—the unauthorized online sale of such coupons is commonplace.

Coupon scammers will display brand names, logos and other intellectual property on the coupons. The counterfeiters use bar code scanning programs to create the counterfeit coupons and then distribute them on websites and social media and through emails. Consumers then try to redeem these coupons at grocery stores or other retailers, sometimes successfully, sometimes not.

For example, coupon scammers often take advantage of charitable groups. Imagine buying a book of coupons from a local student raising money for his or her school. The coupon book contains restaurant offers for well-known chains to “buy one entree, get one free!” You take your coupon book to one of the participating restaurants and present the coupon to your server, only to find out that the restaurant never authorized the coupon. The offer is fraudulent. The restaurant manager comes over, and while he or she honors the coupon, this is an embarrassing ordeal for all concerned. The restaurant loses money. You let the student group know about the incident, and they are shocked.

Below is a fake coupon that was recently circulating through emails: 

The fraudulent coupon is not the only issue. Electronic coupons often contain malware. As reported on the U.S. Federal Trade Commission’s blog, a recent email scam involving the Pizza Hut brand invited consumers to just click on the “Get Free Pizza Coupon” button—but there was no free pizza and clicking on the coupon installed malware on the user’s computer.

These fake coupons are a type of trademark infringement and counterfeiting. The CIC reports that counterfeit coupons have cost manufacturers millions of dollars. As reported by Bud Miller, CPP, CIC’s Executive Director, “While due to countless enforcement efforts, counterfeit coupons are not as prevalent in mainstream distribution channels as they once were a few years ago, the counterfeit problem persists. For example, coupon fraudsters have run ‘secret’ groups on Facebook where members need to be invited to join. When a consumer successfully uses a fake coupon, someone ends up paying for it, and the criminals behind the coupon benefit.”

In addition to the obvious lost revenues in paying for fake coupons which have been redeemed, the experience in dealing with fake coupons harms the goodwill of the brands. What steps can the brand owner take to protect its valuable reputation in the couponing market?

Takedown Notices
Every website offering fake coupons is connected to an Internet Service Provider (ISP). The ISP usually has terms of use that prohibit misuse of trademarks and fraudulent activity. There may be an online form for reporting the abuse, or an address to which the brand owner can send a takedown notice. The trademark owner can send a takedown notice to the ISP, setting forth the illegal activity and requiring immediate action to deactivate the link to the page displaying the fraudulent coupon.

Sometimes the infringing coupons feature photographs infringing upon copyrights, and the Digital Millennium Copyright Act may provide another basis for supporting a takedown notice. This Act sets forth a process for a copyright owner to notify an ISP of copyright infringing material on a website hosted by that ISP. The ISP must act expeditiously to remove the infringing material or face potential liability for hosting it (17 U.S.C. § 512).

Even if the ISP has no such terms of use, given the violations of intellectual property, the brand owner has a strong basis for sending a takedown notice.

UDRP Proceedings/Uniform Rapid Suspension System
Online sellers of fake coupons often target brand names in the domain names associated with their fake coupon websites. This constitutes cybersquatting. The trademark owner can file a complaint using the Uniform Domain-Name Dispute-Resolution Policy (UDRP) to seek recovery of the domain(s). This can be a quick and cost-effective means of addressing specific websites.

If the infringing domain name contains a new generic top-level domain (gTLD), then the Uniform Rapid Suspension System (URS) is an alternative action to filing a UDRP action. The trademark owner files a complaint under the URS to seek suspension of the domain name. The process is even faster and less expensive than pursuing a cybersquatter under the UDRP.

Using either of these systems, however, can be akin to playing “Whac-a-Mole,” if the scammer simply creates new domain names.

Federal Litigation
When the fake coupon problem is rampant, litigation might be warranted. To combat a proliferation of fraudulent coupons sold on eBay.com, Link Snacks, Inc., owner of the JACK LINK’S brand for meat snacks, filed a federal lawsuit against “John Does” in 2013. See Link Snacks, Inc. v. John Does 1-100, Case No. 0:13-cv-00604-JNE-JSM, filed on July 12, 2013 in the District of Minnesota.

Link Snacks had sent takedown notices to eBay regarding the unauthorized coupon offers, and eBay had removed listings. The problem persisted, however. Thousands of dollars of fake coupons were being redeemed at retail locations.

The complaint alleged that while Link Snacks had offered its own coupons from time to time, the unofficial coupons featured the JACK LINK’S trademarks but (1) contained no expiration date or holographic strip; (2) were not printed with the JACK LINK’S color packaging; and (3) were also often printed on shiny or glossy white paper. Below is an example from the complaint of an unauthorized coupon for a free package of JACK LINK’S Beef Jerky, featuring the JACK LINK’S trademarks: 

Through the discovery process in the litigation, Link Snacks was able to glean further identifying information on the underlying sources of the fake coupons, and attempted to work through the channels of distribution to find the ultimate sources. Various eBay sellers had identified individuals in Illinois as the sources, but the addresses were foreclosed and appeared to be uninhabited residences, and Link Snacks eventually dismissed the action without prejudice. This demonstrates how it often can be difficult to find the ultimate sources of counterfeit coupons.

Notify Payment Service Processors
Brand owners can also notify payment service providers about the sale of counterfeit coupons.

A merchant will usually work with a third party to process credit card payments. The processor sends the data to the card brand, such as Visa, which sends it to the issuing bank to verify that the card is legitimate and has the funds.

The payment service providers can terminate the involved merchants’ accounts. See Gucci America, Inc. v. Frontline Processing Corp., 721 F. Supp. 2d 228 (S.D.N.Y. 2010), holding on a motion to dismiss that the plaintiff had stated a claim for contributory trademark infringement against payment processors for their role in facilitating the consummation of transactions in counterfeit goods.

While this particular case settled as to defendant Frontline, the remaining parties entered into a Final Order and Judgment on Consent, requiring those defendants to cease providing merchant broker or credit card processing services to entities that openly sell counterfeit, “replica” or infringing products. Over the last several years, it has been fairly common practice for brand owners to notify and work with the payment service providers to cut off payment processing to serious offenders.

Criminal Enforcement
The U.S. Federal Bureau of Investigation (FBI) has been active recently in pursuing coupon counterfeiters. One of the more notorious coupon counterfeiters, Lucas Townsend Henderson, a/k/a “The Coupon Guy,” was a 22-year old college student when the FBI arrested him in 2011 for wire fraud and trafficking in counterfeit goods. Henderson created fraudulent coupons designed to look like legitimate online coupons consumers could print from the site www.SmartSource.com. The coupons were for low-cost goods such as energy drinks, beer and cigarettes, as well as more expensive items like the Xbox and PlayStation. The coupons featured the registered trademarks “Powered by SmartSource” logo and SmartSource’s distinctive border. Henderson also wrote and distributed an online tutorial on coupon making.

Henderson was convicted on the two felonies. He was found responsible for $200,000 in redeemed, fake TIDE detergent coupons alone, and was sentenced in 2013. Among other penalties, he was ordered to pay $900,000 in restitution.

Brand owners can also provide information on coupon counterfeiters to the Federal Trade Commission (FTC), and the FTC will investigate where there is a pattern of law violations that requires action. The FTC also runs the Consumer Sentinel, a database of consumer complaints it shares with law enforcement members.

If the coupons travel through the mail, brand owners can also report fake coupons to the U.S. Postal Inspection Service. The inspectors are federal law enforcement officers and will investigate crimes involving use of the U.S. mail and the postal system, depending on the number, substance and pattern of complaints. Postal inspectors will arrest suspects for alleged counterfeiting crimes. “When criminals counterfeit goods, they harm the economy and legitimate businesses that pay their fair share in taxes and employ American citizens. It’s the same as identity theft, but targets business brands rather than individuals. Postal Inspectors do not tolerate this crime and will aggressively investigate and bring to justice anyone who defrauds American consumers,” said Inspector in Charge Philip R. Bartlett in a 2014 case involving the alleged sales of Louis Vuitton and Chanel handbags.

Educate Consumers/Self-Help
Many brand owners have created pages on their websites identifying known scams. If a deal seems too good to be true, consumers can check these “fraud alert” pages for valuable information.

For example, in the Link Snacks matter, Link Snacks reported it had notified retail stores of the fake coupons and had instructed them that the coupons were not legitimate. Some of those stores posted notices at their checkouts that the coupons would not be accepted. Facebook also published a public service announcement stating: “This is a PSA. Do not purchase any FREE Jack Link’s coupons on eBay. They are fraud coupons. Please share this post!”

Brand owners can also work with the CIC. To join the CIC, brand owners can click here. The CIC posts public service announcements on the latest fraudulent coupons, and brand owners often offer rewards in the range of $2,500 for the successful prosecution of individuals involved in coupon fraud.

Finally, technological fixes can help address the issue, such as by using holograms on legitimate coupons. The CIC offers a hologram to its member companies.

Conclusion
Brand owners must be vigilant in protecting their rights in the couponing market. When fake coupons are widely available, the brand owners either end up paying for the redemption of fake coupons or risk losing goodwill with retailers and consumers if they do not honor the coupons. Educating consumers and following up with different levels of trademark enforcement are both vital to addressing the problem.

Although every effort has been made to verify the accuracy of items in the INTA Bulletin, readers are urged to check independently on matters of specific concern or interest.

© 2015 International Trademark Association