The Internet has opened up a wealth of opportunities for counterfeiters. A comprehensive brand protection programme is necessary to combat the online sale of fakes before they can cause greater harm to your brand.
Over the past decade, brand owners have increasingly embraced the Internet to strengthen global brand recognition and increase sales. As a result, online retail sales have grown at an annual rate of 20% or more. Unfortunately for brand owners, the Internet provides equal opportunities for infringers and counterfeiters, which can exhibit their knock-off goods alongside authentic goods, often at a much lower price. The Internet has not only provided counterfeiters with greater access to customers, but has also made it much easier and cheaper for them to source counterfeit goods and bring them to Western consumers. While it may seem a daunting task for brand owners to curtail counterfeiting in cyberspace, brand protection on the Internet simply cannot be ignored. Even in these tough economic times, it is important not to defer your brand protection programme for another day. It is simpler and cheaper to prevent the problems that infringers and counterfeiters pose before they get out of hand than to wait until they put your brand at jeopardy. This article provides an overview of common online brand protection problems and strategies to combat those problems.
The problem of online counterfeiting
Using the power of the Internet is a necessary part of today's overall brand strategy. There is no longer any doubt that the Internet is an effective way to grow and strengthen your brand and give customers and potential customers throughout the world access to your products and designs. Unfortunately, this same power that assists legitimate brand owners equally helps infringers and counterfeiters to copy others' products, brands and designs. Until recently, counterfeiting enterprises resembled the traditional organised-crime business model, requiring specialised international relationships and substantial resources to arrange for the manufacture, importation, storage, distribution and sale of counterfeit goods. The emergence of and increasing reliance on the Internet have largely eroded this model. Today, counterfeiting has become increasingly decentralised. As access to global trade becomes easier and cheaper, anyone can set up a counterfeiting business. A new class of counterfeiters has emerged: non-professional, independent individuals with few, if any, of the prerequisites once necessary to be a counterfeiter, such as capital, connections, in-depth knowledge of manufacture and trade. It was recently estimated that 1.3 million sellers around the world use eBay to sell goods either as their full-time job or as a source of some of their income. Any one of these million-plus sellers could sell counterfeit goods, sometimes just as easily as selling genuine products. Tiffany, which sued eBay in the United States in 2004, claimed that in a random sample of eBay sales for "Tiffany silver jewellery", 73% of these goods proved to be counterfeit. This will come as no surprise to any brand holder that monitors the Internet for counterfeit goods. Indeed, eBay is the only tip of the iceberg, as other auction sites such as iOffer.com, dhgate.com and taobao.com cater more to sales of counterfeit goods. A record $119 billion in knock-off goods was sold over the Internet in 2007, up from $84 billion in 2006, according to MarkMonitor, one of a few proprietary software makers that patrol the web looking for counterfeiting violations. Regardless of the actual number, which is difficult to determine, the accessibility and reach of the Internet have radically changed both legal and illegal commerce.
On the demand side, the Internet provides a powerful platform for counterfeiters to reach a large number of potential consumers worldwide in a highly cost-effective manner. On the supply side, the Internet provides easy access for counterfeiters to engage a large pool of potential manufacturers and suppliers of counterfeit products worldwide in a largely risk-free environment. The Internet is attractive to counterfeiters for a number of reasons.
Anonymity
The Internet sharply limits the risk of detection. It is standard practice for buyers and sellers on auction sites and business-to-business selling sites to provide 'user names' rather than their real names. In addition, counterfeiters often use a false names and addresses when they set up user accounts with a particular auction site. This anonymity obviously makes it hard for brand owners to sufficiently identify counterfeiters. Also, there are now privacy services which legally conceal the true identity of website owners. Added to this are the ubiquity of cellphones and the increasingly common practice for counterfeiters that list contact telephone numbers on their websites to use roll-over services - so that, for example, a consumer who believes he or she is calling a domestic number is actually reaching a number in a foreign country.
Flexibility
It is possible for a counterfeiter located anywhere in the world to establish an online merchant site quickly. Such sites can also be taken down easily or, if necessary, moved to Internet service providers (ISPs) in jurisdictions where anti-counterfeiting legislation and/or enforcement are weak.
Market size
Lowering the traditional barriers to entry has given rise to a huge number of smaller sellers that largely act independently of one another. The possibility of marketing a small number of counterfeited products across multiple platforms further increases the size of the counterfeit market. The number of auction sites and business-to-business sites and volume of different sellers and listings on each site are daunting, making it a greater investment for brand owners to identify and move against counterfeiters. For those industries such as apparel and footwear which have faced counterfeiting problems since well before the advent of cyberspace, the Internet makes the former issues with "flea markets" seem quaint.
Global reach
The Internet provides sellers with a means to reach consumers on a global basis at low cost, around the clock. The Internet provides a highly effective vehicle for counterfeiters to expand sales into secondary markets, such as auction sites, while simultaneously offering one or more traditional web stores which offer products from a single seller at set prices that show up as a sponsored link in search sites and unsolicited commercial or "spam" email.
Deception
Counterfeiters can take advantage of the fact that a glossy website is all that is needed to host a "believable" business. Utilising readily available software and images on the Internet, counterfeiters can easily create sophisticated and professional-looking websites that are highly effective in deceiving buyers. Counterfeiters often use stock photos of genuine products, taken from brand holders' websites, to market their goods on the Internet and then send counterfeits to the consumer. Misleading or contrived ratings of consumer experiences, use of validation services such as VeriSign and the fact that counterfeiters can easily arrange payment by credit card or PayPal can further complicate matters by creating a false sense of security among purchasers. Finally, selling a mix of genuine and fake goods can further facilitate deception.
Access to manufacturers
Counterfeiters no longer need to "speak the language", be able to provide instructions on making the goods or put up funds to get counterfeit goods made. Any number of wholesalers and middlemen offer to do this and even take credit cards or PayPal. It is now simple for a non-Chinese speaker with no on-the-ground connections in China to buy fake goods at wholesale from China, import them by mail or courier and resell them as genuine goods on auction sites. Manufacturers of counterfeit goods are ubiquitous on business-to-business sites such as taobao.com and there are now several China-based websites such as www.dhgate.com, which are written in English and sell and ship branded products at wholesale to anyone with a credit card.
Speed
The speed at which a company's new products or designs become knocked off is astounding, now that detailed pictures and other information about new products are readily available online. For example, it has become commonplace for fashion houses, which traditionally show their new seasonal designs several months before the start of a particular selling season, to find knockoffs on sale before the real item is available in stores. Recent news reports show that counterfeit versions of an '"Phone Nano" are on sale even before this model has been introduced by Apple.
Eliminating traditional risk points
The availability to buy counterfeit goods in smaller quantities and ship them through the mail greatly diminishes the risk of interception by Customs. This also eliminates the need for large inventories. In fact, internet vendors need never come into contact with counterfeit products; instead, they may use "drop shipping", where they solicit the order, accept payment and then fill the order through an overseas supplier, which mails the product directly to the customer.
Strategies for dealing with online counterfeits
Given the difficulties the Internet has introduced to the fight against counterfeiting, it is tempting for a brand holder to bury its head in the sand and ignore the problem, hoping that it will not have a great impact on the brand holder's bottom line. But this can have more serious consequences down the road. While counterfeiters have learned how to use the Internet to reduce the risk of identification, the transparency of many virtual markets provides opportunities for brand owners to identify and ultimately take action against counterfeits. Here are some tips on how to develop an effective strategy for fighting the sale of online fakes.
Monitor the Internet
A good starting point in any anti-counterfeiting programme is to monitor the Internet for fakes of your brands. It is important to understand the relative scope and depth of the issue, as well as the hot spots particular to your brand. Different industries and even different brands in the same industry will experience different issues, such as the types of site where bogus goods are sold or how those goods are transported. Understanding your company's problems will assist in better budgeting and planning a proactive and/or offensive strategy.
Adopt a multi-faceted approach
Not every counterfeit sale online merits a lawsuit and it is a good idea for brand owners to employ a variety of different possible tactics, depending on the problem.
Take advantage of website programmes
While many brand owners perceive the US *Tiffany* judgment as a setback for brand owners, one of the reasons why the court refused to find liability was that Tiffany had failed to advantage of eBay's Verified Rights Owner ("VeRO") programme, which removes any auction identified as being fake by an authorised brand representative. eBay will also provide the seller's name, address and phone number (even though this information is often falsified by the seller) to the brand owner upon request. eBay also employs hundreds of employees who monitor the Internet for obvious sales of counterfeit products. Recently, the company provided a tip to German police that triggered the seizure of 20 tons of knockoff designer clothing. While eBay is far from perfect and other auction sites are often not as responsive, almost all of them - even the China-based auction sites - will take down fake auctions if requested to do so. Brand owners with a large number of counterfeit sales take down literally hundreds of auctions each day. These types of programme are relatively inexpensive and do have a return. A brand owner that undertakes a diligent monitoring programme (and there are many ways to do this) will see a reduction in sightings within a few months.
Designate a point person or team
It is important that there be a point person to whom instances of fakes can be sent, and who has contact with auction sites and sellers. This may be done by in-house legal department or outside counsel working in conjunction with investigators. This point person becomes an expert on how to identify counterfeits and on various patterns and trends in counterfeit sales.
Aggregate information
Along the same lines, it is important to collect and analyse information about counterfeiters. Smaller sellers are often eager to reveal who sold to them, especially if it limits their liability. Companies should develop a partnership approach between management, sales teams, investigators and outside attorneys to confront the online world of counterfeiting. Often distributors and sales teams are in the best position to learn about counterfeits, since authorised distributors and retailers of genuine goods will complain to them. Once this information is consolidated, it is easier to spot trends and know where the biggest problems are.
Identify larger sellers
Through your monitoring, identify repeat or larger sellers of counterfeit goods. Even among this class of sellers, it is important to distinguish those who will respond to a cease and desist letters from those who have no regard for or fear of the law. There are many markers that could help to distinguish among the various types of seller - there may be the hope of taking a large number of fake goods out the pipeline or recovering assets and damages - but the assistance of a well-seasoned attorney is key. Once these large sellers are identified, depending upon your budget, you may use more in-depth investigative techniques to identify owners of websites, source and the best jurisdiction to take action. You will also want to weigh your options among the panoply of available criminal and civil actions.
Contributory liability
ISPs and merchant account/payment providers, particularly those located in the United States and European Union, will often stop providing services to a website selling counterfeit goods, especially if they are concerned about their own contributory liability. In many cases, selling counterfeit goods violates the ISPs' and merchant account/ payment providers' posted terms of use, giving them the ability to terminate the relationship and provide identifying information to the brand owner.
Anti-piracy devices
Whenever possible, control your labels. Using anti-piracy devices such as bar codes and labels with holograms is a good idea, but not a cure-all.
Educate the public
Educate would-be sellers or distributors and consumers to buy from legitimate and known sources. For example, eBay provides an "About Me" page for brand owners to educate consumers on how to identify genuine articles and whom to contact if they have questions about a product's authenticity.
Several organisations and companies have also banded together to educate the public that counterfeiting is not a victimless crime. It robs brand owners of their valuable goodwill and national economies of jobs, customs duties and tax revenue, while consumers also suffer - not to mention the tragedies that occur because counterfeiters use child labour and are purportedly tied to organised crime and terrorism.
Lobby
Counterfeiters are fast adapting to new capabilities provided by the Internet. Unfortunately, their practices are not static, but adapt to fit the rapidly changing e-commerce realities. Brand holders should similarly look ahead and identify issues that are best addressed by legislation or treaty. Organisations such as the International Trademark Association (INTA) note that there is a need for nations to work together to exchange information and ideas that will eliminate the threats posed by counterfeiting.
Conclusion
The Internet dramatically increases the ease by which counterfeiters are able to reach across national borders to sell counterfeit goods to unsuspecting customers. As INTA has noted, "Cyberspace has, in large part, taken vendors of counterfeit goods off the streets and away from the flea markets and provides them with easy, relatively risk-free access to supply and an instantaneous worldwide demand." Brand holders cannot afford to ignore the way the Internet is shifting the paradigm of counterfeiting, but should develop strategies designed to address these new dangers the Internet imposes and to curtail the erosion of their brands throughout cyberspace.
This article first appeared in "Brands in the Boardroom 2009", published by Intellectual Asset Management (IAM) magazine, www.iam-magazine.com.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
