Building

The last Decade in IP (4): The Centre of Gravity Strategy

Every business model has a single point of weakness. There have been many examples of powerful global brands that have either failed to adapt to the changing business environment or made a catastrophic mistake that has been terminal, not only for their reputation but for their whole existence.

2017-12-04

by Stuart Fuller

Back in 2000, strategic thinker Gary Hamel extolled the virtues of Enron as the most respected company and business model of our generation in his book Leading the Revolution, which was the single most important text for MBA students at the time. Enron had taken the old commodity trading platform model and moved it online. This was the new economy. Everyone clamoured to replicate the model, buying data bandwidth like it was going out of fashion.

When the walls came tumbling down around Enron, many suspiciously viewed it as the fault of the Internet, forgetting the actions of people such as CEO Jeff Skilling and Chairman Kenneth Lay. People went to prison, Hamel’s strategic vision was in tatters, and the reputation of Arthur Andersen, one of the world’s biggest accountancy firms, was permanently damaged. The Enron scandal rapidly unravelled. One minute, it was basking in the glory of revenues above $100 billion and picking up its sixth consecutive award as Fortune Magazine’s Most Innovative Company, the next it was filing for the largest ever corporate bankruptcy. Enron’s ‘source of energy’ was its misguided belief that it had the “smartest people in the room” and that the firm’s clever manipulation of accounting regulations would never be uncovered.

Within every organization there normally is a driving force, a source of energy and motivation. It may be a charismatic Chief Executive, a killer product or simply because they are the market leaders. As we know, infringers often use the same tactics as band holders and so it is important that we have to understand where their strength comes from and ultimately attack them at their most vulnerable point. As in a house of cards, a strategic strike can bring the whole structure tumbling down. Hitting the central point of weakness can have a huge psychological effect, hurting them economically beyond repair.

It all sounds too good to be true. If it was that easy to mortally wound IP infringers, the number of incidents of abuse wouldn’t be rising consistently each and every year. Many of the most prolific infringers go to great lengths to hide their identities and location, setting up almost identical operations so that if one source is detected and shut down, another will simply take over almost immediately.

Whilst the actual figures can never be quantified, a significant amount of IP infringements and cybercrimes can be traced back to organised crime. According to Havocscope, over half of the $14.62 billion value of the Australian Black Market, for instance, relates to drug trafficking, prostitution and tobacco smuggling – all activities associated with organised crime.

The Centre of Gravity Strategy is focused on taking the right course of action for the maximum effect. That action may vary depending on the particular infringer and infringement. For instance, if an organization wants to take enforcement action against a clear trademark infringement offline, then it needs to look at civil actions through the courts. This process is slow, complex and often very complicated but ultimately, effective.

If the issue is related to infringing content on websites, then action could be directed at both the web hosting provider and the domain name registrar. These companies will have clear rules about intellectual property infringement within their terms and conditions, and most will comply with requests made on behalf of brand holders. These are seen as primary actions – quick wins, which can be delivered at low cost and low complexity. Proof of infringement isn’t difficult to find and in many instances a number of intellectual property infringements, targeting different brands, may be hosted on the same web server, gaining significant bang for an organization’s buck.

A more complex and costly problem is that of cybersquatting. Existing domain name law doesn’t provide immediate respite from infringement. In fact, the existing process often drives the infringed to pay to regain legitimate control of its own domain names, as it is cheaper and quicker than pursuing the legal route. The standard process, Uniform Dispute Resolution Policy (UDRP), often costs upwards of $2,500 and rulings are rarely handed down within three months of a filing being made. During that time, irrespective of the damage being done, the content hosted by the domain name may still be visible for the world to see.

Whilst these policies and approaches offer some proactive options for an organization, they are hardly likely to hit that area of vulnerability for the intellectual property infringer which will really be a compelling event for a brand holder. To do that they need to strike right at the heart of their business - finances. In recent years, banks and financial institutions have had to tighten their governance with regard to providing finance to organizations that operate outside the law. Consequently, one option brand holders have is to target the payment gateways and merchant acquirers who supply services to the infringers. Cutting off their funds will have a dramatic effect on infringers’ ability to function.

The main merchant service providers now include provisions within their terms and conditions that address the subject of intellectual property infringement. MasterCard, one of the two global giants providing merchant services, has an Anti-Piracy Policy that covers “copyright-infringing products and counterfeit trademark products”. Its policy states that “MasterCard has the right to limit, suspend, terminate or condition the Membership, Membership privileges, or both, of any Acquirer that MasterCard deems does not comply with applicable law or with this Anti-Piracy Policy.” In other words, any organization that is deemed to accept payments for goods or services that are in infringement of a third party’s intellectual property can have its merchant account, and thus their income, terminated. That is really hitting an infringer where it hurts.

As Napoleon once said “an army marches on its stomach”, so by starving them you will seriously impact their ability to go into battle. This is the core of the Centre of Gravity Strategy.

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