Negative Reviews Spur Klipsch to Mount All-Out Anti-Counterfeit Program

Slammed by customer reviews and shocked by a threat from Amazon a year ago to drop its headphone line because of poor ratings, Klipsch Group is on an all-out campaign against counterfeiters who are selling “virtually identical” headphones online, Klipsch said. The call from Amazon turned “a light on” to how big the problem was, Mike Klipsch, president of global operations, told Consumer Electronics Daily. “We discovered the ones that were getting bad ratings weren’t real product,” he said, and the company announced Wednesday it’s adopting a product authentication program that it hopes will curb counterfeit sales.

The solution, one of a handful of actions that Klipsch has put in place to address the growing problem, is a hologram label from OpSec Security with built-in security features that allows investigators, retailers and consumers to verify authenticity of Klipsch-branded products, he said. The hologram has “many layers of security, each one harder to decipher,” Klipsch said. When consumers call in to verify if a product is authentic, a customer service rep can walk them through an ID process using the hologram. Additional levels of security will allow the authorities to “get deeper into it,” Klipsch said. Another Klipsch team is online daily, monitoring auctions and websites selling counterfeit goods and sending letters and “taking down their auctions” from trade boards, he said.

Certain factories in China are creating tools to make products that look like Klipsch headphones and those from other brands, Klipsch said. “But it’s actually inferior product that uses very cheap materials, and the acoustics aren’t there,” he said. “It’s really bad product.” But they're being sold all over the world, he said, and are easily obtainable on Amazon and eBay. CE products represent 22 percent of the counterfeit goods seized by U.S. Immigration and Customs Enforcement, Klipsch said, citing seizure statistics from U.S. Customs, and headphones are particularly easy to copy because of size and design.

Klipsch has a team of lawyers and private investigators who, on an ongoing basis, seek out and pursue counterfeiters, including resellers, and a team that trains law enforcement and customs officers on how to spot a counterfeit product. The knock-offs are never “exact” copies, Klipsch said, and “tells” include packaging details or the way headphones are put into the package. “They'll normally use the same serial number over and over again,” too, he said. Any of five or six clues can tip off an investigator, he said.

The company’s efforts so far “have made a difference,” Klipsch said. The amount of counterfeited product has “dropped significantly,” since the company put those efforts in place, but that’s after “at least six digits in units” was netted, he said. “Even when we catch someone we don’t know how much they've sold before,” he said. While Klipsch couldn’t put a dollar amount on the revenue lost by what he called a “substantial counterfeit problem for all the major headphone brands,” even more important than the lost revenue was the blow to the company’s reputation. “The worst part is they're selling product that sounds really bad, and it’s got our name on it,” Klipsch said. “Consumers are walking around thinking they've got a Klipsch product and we don’t know what we're doing because it sounds horrible,” he said. “We haven’t spent 66 years to create a premium brand just to have counterfeiters destroy it,” he said.

Defending its honor has come at a steep price for Klipsch. Last year alone, the company spent some $500,000 on anti-counterfeit measures, Klipsch said. For 2012, “I don’t expect it to go down,” he said, but he noted the company has won “some recoveries” as it has become more aggressive. He doesn’t believe the recoveries will ever fund the protection efforts, however. “We're starting to partially fund this defense through the counterfeiters themselves,” he said, citing legal fees and efforts of private investigators, “but I don’t expect the expense to go down."

The first products bearing the hologram will launch in a month. The company will put videos and photos on its website to tell consumers how to check if a headphone is legit, Klipsch said. The company’s top five selling headphones have been counterfeited to date, he said, citing websites such as Alibaba from China as sources. In many cases it’s a “small player that bought 100 or 200,” Klipsch said, and “they're selling them one at a time online. I have not seen them in retail stores,” he said.