1. Introduction
As E-commerce numbers grow, counterfeiters are heading online. Producers of knockoff merchandise are busy all year long, but the holiday season of 2015 may have set records for the sheer volume of bogus goods that entered the marketplace, with E-commerce earning the dubious distinction of leading the way.
“The growth of counterfeit merchandise available can be directly attributed to the growth of online sales,” says Andrew Brodsky, commercial director of NetNames, a firm specializing in online brand protection and anticounterfeiting services.
“It’s harder for the counterfeiters to get their products into the supply chain headed for bricks-and-mortar stores, but the Internet makes it possible for counterfeiters to flourish, as they’re hiding behind the anonymity of a Web site or online marketplace.”
2. “Sophisticated” Web Sites
As retailers ramped up for the holiday selling season, so did the counterfeiters targeting shoppers who were searching for tremendous deals, suggests Charlie Abrahams, senior vicepresident at MarkMonitor, another firm engaged in enterprise brand protection.
“I think [consumers] are more on the lookout for bargains and there is no question that searching for ‘cheap brand X’ or ‘sale brand X’ plays right into the counterfeiters’ hands, who regularly purchase domain names and paid search ads with that sort of nomenclature,” Abrahams says. “Talking to the luxury brands in particular, they are unlikely to take properties such as ‘cheap brand x.”’
MarkMonitor, in conjunction with research firm Opinium, produces an annual survey of consumer online shopping habits. Its most recent survey found that nearly one-quarter (24 percent) of consumers have bought a product online that turned out to be fake.
According to the 2015 MarkMonitor Online Barometer: Global Consumer Shopping Habits Survey, “Younger consumers are more likely to have bought counterfeit goods or said they would be willing to do so in the future.” Therefore, the “prevalence of buying counterfeit items online looks set to increase for the foreseeable future due to those younger consumers.” Nearly 40 percent of the survey respondents aged 18 to 34 had previously purchased counterfeit items and 42 percent said that they would purchase counterfeit items again.
The survey further found that as consumers’ online shopping increases during the holiday season—stepping up by about 15 percent, on average—counterfeiters display “a high level of sophistication in developing Web sites,” so “it can be very difficult to recognize a genuine site over one selling a counterfeit one.” The result is that in the E-commerce channel, “which has again broken records” for holiday season selling, “we would expect the level of counterfeit sales online to have matched that,” Abrahams says. Between Black Friday and Christmas Eve, 2015, retail sales (excluding automobiles and gasoline) rose 7.9 percent, while E-commerce sales increased 20 percent compared to the prior year, according to MasterCard Advisors’ research data.
In addition to the various types of luxury-branded apparel and accessories—typically among the most counterfeited goods that are sold in the Web and through the mobile marketplace— NetNames found that IO Hawk hoverboards and Stars Wars merchandise, including an app-enabled BB-8 and the Jedi Master Lightsaber, were among the most popular fakes during the 2015 holiday season. This was discouraging to retailers selling authentic merchandise. See Table 1.
“Our general rule of thumb is that the most popular items are the ones that are the most likely to be counterfeited,” says Brodsky. “Some [genuine] products are faked enough to even have YouTube videos about them explaining how to tell if [the consumers] have gotten a fake or the real thing.”
The situation can sometimes be dire for sellers of authentic merchandise. For example, when NetNames looked into the hoverboards, says Brodsky, “we found that less than one percent of all of the online marketplace listings which made reference to the 10 Hawk hoverboard brand name actually represented genuine products.”
3. “A Growth Industry”
There is no end to what can be counterfeited, says Marcella Ballard, a former prosecutor and intellectual property partner at the Venable law firm in New York. “Mouthwash, batteries, clothing, pharmaceuticals, brake pads,” she says, “every consumer product imaginable is a target of counterfeiters.”
To illustrate her point, she refers to a case involving a cigarette-paper manufacturer that makes its products in one facility in France and involves a number of unusual materials, including flax fiber and natural gum arabic. Last summer, her firm successfully executed seizure orders on both the retailers and wholesalers found to be selling counterfeit Zig-Zag paper products.
Aside from such incidents, Ballard agrees with Brodsky and Abrahams that E- and M-commerce [mobile] is where the counterfeiters’ attention is really focused today. “It’s a growth industry,” she says. “Chinese counterfeiters have huge global auction sites such as Alibaba where they can get their products to consumers.” According to Brodsky, “An astounding amount of counterfeit and gray-market goods comes from China, which is responsible for approximately 70 percent of worldwide seizures of these goods, with little evidence that this tidal wave is being stemmed.” He says that counterfeit goods are likely to be available on E-commerce marketplaces, “either independent sites specifically set up to market fakes or on platforms such as Taobao or AliExpress.”
China manufactures goods in so much volume “that it is not surprising that a lot of counterfeit merchandise originates there,” Abraham says. “When it is sold via Web sites or online marketplaces, it will generally be shipped direct to the consumer in individual packages, which is what makes it so hard for governments to track and intercept. “The trend toward online shopping and direct shipping has severely impacted traditional anticounterfeiting physical enforcement programs, which have relied on intercepting large shipments of fake merchandise at points of entry into a country,” he comments.
4. The Notorious Markets List
One anticounterfeiting program is the Notorious Markets List (www.stopfakes.gov/article?id=Notorious-Market-Lists), which contains the names of businesses where the U.S. government has determined that much counterfeit merchandise selling and copyright infringement occurs. Alibaba Group (which is the operator of a number of global Web sites including Aliexpress .com, Taobao.com, and Tmall.com, which are among China’s largest E-commerce sites) narrowly escaped being relisted on the Notorious Markets List released in December 2015 by the Office of the U.S. Trade Representative (USTR).
The U.S. government sent a strong warning to Alibaba; what it said was, clean up your sites, show us the results, and do it soon,” Juanita Duggan, president and chief executive of the American Apparel and Footwear Association, said when the 2016 list was released. “The USTR told Alibaba to make serious reforms and get rid of the rampant counterfeit problem on its sites; and the American Apparel & Footwear Association (AAFA) agrees.” The USTR criticized Alibaba’s enforcement system, saying it is “too slow, difficult to use, and lacks transparency.” The AAFA advocated Alibaba’s inclusion on the Notorious Markets list, noting that its apparel and shoe manufacturing members “face enormous difficulty working with Taobao in solving the problem of counterfeits,” said Duggan. “Meanwhile, illegal merchandise continues to proliferate.”
Taobao was removed from the Notorious Markets list in December 2012, with the USTR saying then that Taobao “worked with rights holders to significantly decrease the list of infringing products for sale at its Web site, and committed to continue to streamline its complaint procedures to further reduce listings of counterfeit products.” Alibaba spent a reported $460,000 on lobbying to have Taobao removed from list.
In response to the most recent criticism from the USTR, Alibaba hired a former U.S. Justice Department prosecutor and experienced anticounterfeiting executive who had previously worked with Pfizer and Apple on fake and pirated goods. At the time of Matthew Bassiur’s hiring, the Alibaba executive chairman and co-founder Jack Ma said in a statement, “We will continue to be relentless in our long-term commitment to protect both consumers and intellectual property rights owners.” Although Alibaba Group is based in China, it is publicly traded with shares listed on the New York Stock Exchange.
Alibaba’s anticounterfeiting efforts notwithstanding, in early 2016, a court in Beijing allowed Louis Vuitton to proceed with a lawsuit against three individuals alleged to have offered counterfeit merchandise for sale on Taobao. That the ruling was in China may herald a new era in prosecuting counterfeiting cases.
5. The U.S. Government’s STOPfakes.gov Program
According to the U.S. government’s STOPfakes Web site (www .stopfakes.gov), “STOPfakes.gov was launched to serve as a one-stop shop for U.S. government tools and resources on intellectual property rights (IPR). The federal agencies behind STOPfakes.gov have developed a number of resources to educate and assist businesses, particularly small and mediumsized enterprises (SMEs), as well as consumers, government officials, and the general public.”
As shown in Figures 1 and 2, resources are available in five main categories:
- Business Guide to IPR: STOPfakes is dedicated to helping companies protect their innovations and safely market products at home and overseas. Here are guidance and resources to help understand how to register your firm and protect it from counterfeiting and piracy.
- Consumer Guide to Counterfeits & Pirated Goods:Sales of counterfeit and pirated goods have never been easier as the global economy expands online. Shop smarter and do not become a victim. Consult the resources to learn how to spot and report fakes.
- Assistance: Need Help with an IPR Issue?:Several U.S. agencies are charged with protecting intellectual property rights. Here are key Web sites, phone numbers, and E-mail addresses of offices ready to help answer questions.
- Events and Training:Online events and training are noted here that cover a range of topics, from commercializing innovations to strategies for protecting intellectual property rights when exporting to foreign markets.
- U.S. & Global IPR Initiatives:– The U.S. and partner governments, private-sector groups, and international organizations have developed tools and resources to help businesses protect intellectual property globally.
Source: Barry Berman, Joel R Evans, Patrali Chatterjee (2017), Retail Management: A Strategic Approach, Pearson; 13th edition.
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