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7 Common Legal Mistakes in FMCG and How to Avoid Them

7 Common Legal Mistakes in FMCG and How to Avoid Them

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FMCG brands must consider a plethora of issues when bringing products to market. While each global jurisdiction has its own unique concerns, they all come together to form a comprehensive strategy, with timing being key.

Failure to Protect Intellectual Property

The success of FMCG brands and their products largely depends on their reputation. This is especially important in the face of an issue such as cross contamination or an error on a product’s label that could lead to a major PR crisis.

While these issues are commonplace, there are many other threats that FMCG companies must consider. For instance, failing to protect intellectual property can result in unauthorized use or imitation of brand assets. This can ultimately result in financial losses.

Avoiding intellectual property infringement is possible by taking steps such as locking physical file cabinets that store trade-secret information, requiring employees who have access to confidential information to sign non-compete and nondisclosure agreements, and monitoring logins to ensure that employees are not sharing confidential information outside of the company. Intellectual property owners can also take a proactive approach by sending Cease and Desist Letters to infringers when they become aware of infringement.

However, the problem is further complicated by the fact that counterfeiting and infringement occur on a global scale. Even if one small shop or point of sale is raided or sued, this does not stop the flow of illegal products as these products are often imported from around the world.

Not Taking the Time to Understand the Market

FMCG brands often enjoy a global reach, which means that counterfeiting and infringement are almost always a risk. When these problems arise, the natural reaction is to act immediately. However, it is more productive to take the time to understand the situation. This will allow the brand to determine the scope, distribution, market and any actors involved so that a detailed enforcement plan can be implemented.

FMCG companies, including FMCG consulting companies as well, must also be mindful of their supply chains. The quality of the raw materials they use is critical, especially since many products are perishable. It is important to maintain a clear line of communication between the procurement department and the manufacturer. This will help to ensure that the correct quality of goods are delivered on time and in a timely manner.

Another common challenge is enforcing IP rights in different jurisdictions. This can be difficult for FMCG brands as the counterfeiting industry appears to be well-integrated, with open lines of communication between various producers and sellers of counterfeit or infringing goods. As such, it can be very difficult for FMCG to get notarised evidence from a producer in order to take legal action. This is why it is important for FMCG to have a global strategy and to be aware of the various issues that they may face in different jurisdictions.

Not Having a Global Strategy

FMCG companies must have an effective marketing strategy to ensure that consumers notice their products and buy them. This can include advertising, sponsorships, social media, influencer marketing, and more. In addition, they must have a robust distribution system to deliver products to retailers and e-commerce platforms.

FMGC firms are often required to comply with local laws and regulations, including rules governing product safety, labeling requirements, and ethical marketing practices. A failure to adhere to these rules can lead to fines, hefty legal fees, and damaged brand reputation. A dedicated team of compliance professionals is essential to ensuring that FMCG companies meet their obligations and maintain consumer trust.

Global strategy models are popular among FMCG companies that want to expand internationally. These strategies prioritize standardization across different markets, ensuring that the company’s branding and products look and feel similar no matter where they are sold. For example, Apple uses the same branding and design for all of its computers, tablets, phones, and other devices. This is not to say that companies cannot make minor adjustments in specific markets. For instance, food company Heinz offers a variant of its ketchup that does not contain garlic and onion because these ingredients are not popular in India.

Premature Market Entry

FMCG companies rely on consumer insights to develop new products that align with market trends. This iterative process allows for innovation, ensuring that the brands stay relevant and attractive to consumers. But, with the rise of counterfeit products, these companies are facing a significant challenge.

Counterfeiters can duplicate the unique product specifications, packaging, bar codes, and other features of an FMCG brand. When these products materialize on marketplaces, it causes confusion and worry for customers. It also takes more time to authenticate the product, which can result in a loss of sales and damage the company’s reputation.

Additionally, FMCG manufacturers must adhere to strict regulatory guidelines to ensure product safety and labeling compliance. Failure to comply with these regulations could lead to fines, legal liability, and a damaged brand image. To avoid these issues, FMCG companies can implement technology to help them stay compliant. For example, using a geo-fencing solution can ensure that sales representatives are in the right location at the right time to make important deals. It can also reduce the risk of costly supply chain disruptions. For example, during the Covid-19 pandemic, FMCG companies used this type of technology to ensure that their products were still available in the market despite nationwide lockdowns.

Not Taking the Time to Communicate with the IP Team

Whether you’re an FMCG manufacturer, a retailer or simply sell over the counter medicines or stationery, your business is subject to many legal regulations. The responsibilities of the industry are not to be taken lightly and it’s a well-known fact that “it takes 20 years to build a reputation and five minutes to ruin it.”

In an industry where the consumer is often at the centre of the product, brand recognition, and loyalty, it’s important for companies to protect their products against counterfeiting and infringement. Counterfeiting is a huge issue in the FMCG sector, with statistics indicating that over 15% of all fake products sold are FMCG brands. These counterfeit products can cause issues and damage the reputation of established brands and can pose a health or safety risk to consumers.

Additionally, the nature of the counterfeiting or infringement issue can present significant difficulties when it comes to enforcement. It is common for counterfeiting to be carried out in the grey market across many jurisdictions, meaning that it can be difficult to locate the source of the goods and gather sufficient notarised evidence to pursue a claim. This is exacerbated when it comes to enforcing IP rights in markets where first-to-file systems apply.

Rolling Out a Product Before a Patent Has Been Filed or Granted

While it is always a great feeling to see a new brand or product take off, there is a dark side to success – counterfeiting. While the occurrence of counterfeit activity differs between jurisdictions, no brand is immune to the threat. Even large, multinational companies, such as Coca-Cola, Budweiser and Louis Vuitton, deal with counterfeit products on a regular basis.

While FMCG companies can take a number of precautions to reduce the likelihood of counterfeiting, this can never be completely eliminated. Therefore, it is important that FMCG companies conduct thorough due diligence when entering a new jurisdiction. This includes ensuring that the company has filed and obtained the appropriate patent protection, if necessary.

It is also a good idea for FMCG companies to monitor market conditions and take action as soon as possible if they notice that a competitor has copied a product or trademarked a name. This can help to protect the company’s reputation and avoid a potentially expensive, stressful and time-consuming legal matter. It is also important for FMCG companies to have clear contracts in place with suppliers, distributors and retailers. This will ensure that each party understands their obligations and the consequences of breaching those obligations.

Not Taking the Time to Ensure Compliance

Having a strong understanding of the laws and regulations that govern your market is a crucial part of FMCG. Not only will this help you avoid pitfalls that could lead to costly legal disputes, but it can also ensure your brand is in compliance with local and international regulations.

For example, it is important to check whether a trademark has already been registered in your chosen jurisdiction. In some countries, where there is a first-to-file system, it can be possible for another individual to register the same mark before you even think about filing an application. If this happens, you will likely face significant obstacles to market entry and may not be able to protect your rights.

One of the biggest challenges in the FMCG industry is ensuring that products meet high-quality standards and comply with regulatory requirements. The failure to do so can have severe consequences, such as food-borne illnesses and damage to brand reputation.

To prevent this, it is important to use a comprehensive supply chain management solution that provides transparency and traceability across the entire value chain. Trust Your Supplier, for instance, enables FMCG companies to identify and collaborate with suppliers that adhere to environmental and social standards. This helps them to reduce waste and support their corporate sustainability goals while maintaining speed, quality, and compliance.