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'Star Wars' - The Force Takes on the Counterfeiters

22/12/2015 10:51 GMT | Updated 21/12/2016 10:12 GMT

Star Wars: The Force Awakens is set to be the biggest cinematic event of the year, however, it's no secret that the real money-spinner for the franchise is in its merchandise. While, in general, gifts related to the films are in high demand every Christmas, they fly off the shelves like hot cakes in years when a new film comes out and this year is no exception. Gradually building over the past few months, there has recently been a massive influx of new Star Wars toys for fans to treat themselves to this festive season. You'll be hard-pressed to have remained unaware of the highly popular BB8 droid, controllable using a smart phone or tablet, for example, or there's always the Darth Vader shower head; but perhaps that's one for the super-fans!

Merchandising has been a key part of the franchise's business model since the 1970s. When offered a pay-rise from $150,000 to $500,000, Lucas turned it down on the condition that he would own the full merchandising rights, and the rights to any sequels. When the film was eventually released and became a smash hit, Lucas set out to recoup his losses by creating vast volumes of branded merchandise - and over the course of six films between 1977 and 2005 became a multi-billionaire, thanks to his business smarts.

The Star Wars franchise is now owned by Disney, who paid Lucas a massive $4.05bn for it in 2012. However, the change of ownership hasn't changed the importance of branded merchandise.

Brands will typically secure royalty rates of around 6-7% for official merchandise, but some Force Awakens merchandise has royalty rates up to a whopping 20%. This means that if, as predicted, merchandise for the new film brings in up to $5bn, Disney will pocket a cool $1bn.

So, with such a huge potential for profit there for the taking, Disney's biggest concern will be combatting what will inevitably be large volumes of counterfeit goods. For any toy manufacturer, the holiday season is a key time for sales, but it is also the time when the risk of fake items being sold to consumers is highest. This not only affects Disney's bottom line but can also detriment customer brand loyalty as counterfeit products are often of a much lower quality; and electronic goods can even be dangerous.

Disney, however, is known for its well-funded intellectual property (IP) department, which diligently protects its creations. They'll already be hard at work as reports of counterfeit toys are beginning to circulate. Poole-based business, Wholesale Clearance UK Ltd, was left stunned last week when a shipment of Star Wars toys turned out to be counterfeit with the poorly-mimicked action figures depicting characters from The Phantom Menace, which came out in 1999. As a result, the seller was left in the unfortunate position of being unable to legally sell the products and therefore out of pocket.

Selling the fake goods in the UK would almost certainly have resulted in Disney taking swift legal action against Wholesale Clearance UK Ltd. To exemplify just how serious Disney is about its IP, consider the fact that it has registered six separate trademarks protecting its character Jar Jar Binks in China alone. The character featured heavily in the prequel trilogy that ran between 1999 and 2005, but is not tipped to feature at all in the new film, yet Disney is determined that it continues to adequately protect its IP in the character.

And, last week, a fan in the USA found a Star Wars toy on the shelves at Wal-Mart, which, unbeknownst to him, shouldn't have been on sale at this point as the packaging revealed a minor plot spoiler. The fan bought it and shared a photo on Facebook, after which it quickly began to go viral. Disney issued many users who'd re-posted the photo with take down requests, and even had the original poster's account suspended. Such a heavy handed approach serves to show how much Disney values its vast investment in the Star Wars franchise.

While its approach may seem aggressive to outsiders, it does make perfect financial sense when you consider the impact such leaks could have on Disney's revenue streams from the film. With a $4bn investment to protect and $1bn in merchandise profit in the pipeline, Disney's lawyers are poised to go to town on anyone who threatens its highly valuable intellectual property.