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Film rolls are to Sharp fax machines what blades are to Gillette razors. Sharp Corp., the Japanese electronics giant, earns more than $50 million a year from its U.S. fax business by selling branded thermal film. But by early 2002, sales of film rolls by the company’s U.S. subsidiary, Sharp Electronics Corp., were plummeting mysteriously. Something bizarre was happening in the fragmented wholesale market of small dealers and distributors that handle Sharp products. The wholesale price of Sharp’s film rolls was down as much as $13 from the usual level of $25. “We just knew nobody could realistically sell it for that,” says Stewart Mitchell, a senior vice president and general manager of the company’s Information Systems Group. Sharp Electronics executives suspected counterfeiting. To get at the counterfeiters, Sharp brought in lawyers from the New York office of Pillsbury Winthrop, who hired investigators to follow the supply trail of the counterfeit film rolls upstream. The investigators started with office superstores, such as Staples and OfficeMax. Their search eventually led to litigation in Singapore, and by the end of last year, the counterfeiters had been stopped. By September 2002 the Pillsbury lawyers believed they had two Brooklyn electronics product dealers, Discover Group Inc. and S&K Trading International Inc., cornered. Acting on sealed discovery orders issued by the U.S. district court in Brooklyn, the lawyers hurried to the dealers’ warehouses. They found thousands of counterfeit versions of the Sharp film rolls stacked high on pallets. That evidence proved the trademark infringement claims that Sharp Electronics had filed against the two dealers, according to Fusae Nara, Pillsbury Winthrop’s lead lawyer in the case. Sharp Electronics stood to recover millions of dollars from the dealers to compensate the company’s lost sales, she says. But there was a hitch. Invoices also seized from the Brooklyn dealers pointed to two companies based in Singapore, Office Station and Ribbon Wholesale, as the suppliers of counterfeit film rolls to the Brooklyn dealers. The Pillsbury Winthrop lawyers decided to sue the Singapore companies, but they needed the Brooklyn dealers’ cooperation to nail the case. In exchange for their testimony, the dealers demanded that Sharp drop its claim in the United States against them for damages. In Singapore, however, Sharp lacked standing to sue for its lost sales in the United States. Cutting off the counterfeiters at the root was far more important then collecting damages. Nara and Susan Kohlmann, another Pillsbury Winthrop partner who worked on the case, advised Sharp to accede to the dealers’ demand and pursue an injunction against the counterfeiters in Singapore. “We couldn’t claim the zillions of dollars of damage that we had suffered in the U.S.,” Nara says. “We had to spend some time explaining to the client why not.” Sharp got the message. “The key was that we wanted to be very visible, and we wanted to get the reputation that we were going to take every necessary step to protect our product and our business,” Mitchell says. With the dealers’ cooperation and the help of investigators and a law firm in Singapore, Pillsbury Winthrop zeroed in on Steve Chia, who was Sharp’s distributor in Singapore at the time, as the principal behind both Office Station and Ribbon Wholesale. Further investigation led to an Indonesian printing operation, which had been recently shut down, as the source of the counterfeit product’s crimson-and-black packaging, which displayed Sharp’s trademark, and was virtually indistinguishable from the real thing. Only a trained eye could spot subtle differences in printing on the packages. Chia had been purchasing large sheets of film from various manufacturers and having them fashioned into a product that closely resembled Sharp’s, according to Nara. Even when confronted by phone records showing faxes from his office to the Brooklyn dealers, Chia denied that he had been counterfeiting Sharp’s film rolls. He claimed that someone was sneaking into his office in the morning and using his fax machine to communicate with the Brooklyn dealers, says Nara. When the trademark infringement trial commenced in Singapore in October 2004, Israel Blackman, the Discover Group’s principal, was on hand to testify. Before Blackman could utter a word, Chia settled. He promised not to counterfeit Sharp’s products in the future and paid an undisclosed sum — an amount “not hefty compared to what we lost financially,” says Stewart. Sharp has recently incorporated a new anti-counterfeiting safeguard into its film roll packaging, according to Stewart. Details are confidential.

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