United States: Cutting Off The Counterfeiter's Lifeline

Last Updated: April 24 2015
Article by Joshua J. Kaufman

When it comes to counterfeiters, I try to be the leach that sucks their blood dry. Cease-and-desist letters are fine, DMCA takedown letters are helpful, but if you really want to cause them pain and stop them from infringing, you need to cut off their lifeline: cash flow.

Most counterfeiters operate online and hide their identities through a variety of privacy services, anonymous sites, false information in WHOIS, changed locations, and different aliases. But what they cannot do is provide false or out-of-date information to their banks, credit card companies, or PayPal. Failure to provide up-to-date and accurate bank and contact information to the payment providers will prevent them from getting paid and curtail their customers' use of credit cards and PayPal on their websites, thereby cutting off their income stream. In short, if they want to be paid, they have to be honest with their payment provider companies.

The major credit card companies—Visa, MasterCard, American Express, Discover Card, and PayPal—all have procedures in place by which they will cut off counterfeiters, or at least attempt to get their local branches to cut them off.

In June of 2011, the major payment processors mentioned above entered into an agreement where they established best practices designed to withdraw payment-processing services from websites selling counterfeited or pirated goods.

Recently, Senator Patrick Leahy (D-Vermont), chair of the Senate Committee on the Judiciary, wrote a letter to Visa and MasterCard asking them to double down on their efforts to curtail counterfeiting when it comes to cyberlockers, who have been hosting infringers.

During previous congressional hearings, a MasterCard executive testified that "we prohibit and deplore the use of our systems for all of the illegal activity, including copyright infringement."

Using the payment processor's anti-counterfeiting systems can ultimately be the most effective way of preventing infringements of one's products. Sometimes, a cease-and-desist letter sent to the right place will evoke an appropriate response. That is usually the situation when dealing with entities that are counterfeiting on an inadvertent basis. Most hard-core counterfeiters ignore cease-and-desist letters, or provide lame excuses, or make up some unbelievable denial and continue their activities either blatantly or surreptitiously (by using another website or name). DMCA takedown letters to Internet Service Providers are effective in the United States; however, they are not universally recognized and are voluntary in most countries.

When you identify an online infringement and go to the WHOIS database to try to ascertain the owner of a website in order to contact them, more likely than not you will be stymied because the website operations are using privacy companies that shield the actual owners' identities on WHOIS.

After getting the runaround and when all else fails, look to the payment processors for help. When you review their procedures, they make it clear they want to be the avenue of last resort, not the first approach in the battle against counterfeiters. In their anti-counterfeiting programs, they generally ask for proof that you have done everything you possibly can to get the infringement to stop, such as previously sending out cease-and-desist letters or DMCA letters, and other efforts. They are the final roadblock against counterfeiters, not the first or initial barriers.

Their policies and practices differ, but are similar. Visa describes its policy as follows:

Illegal Transactions Prohibited

Visa voluntarily provides assistance to IP Owners to address e-commerce transactions involving IP infringing products. Upon receiving complete information and credible evidence directly from the IP Owner establishing that a merchant ("Merchant") is engaged in transactions involving the sale of infringing goods on the Internet using Visa-branded payment cards, Visa will attempt to identify and notify the Merchant's Acquiring Bank ("Acquirer"). The Acquirer will be asked to investigate the allegations of infringement and take any appropriate action, which may include, but is not limited to, directing the Merchant to cease selling infringing goods identified by the IP Owner or terminating the merchant account.

After providing all the required information, proof of ownership and the infringing activities, Visa will identify the merchant's bank, forward the IP owner's submission to them, and instruct them to initiate an investigation into its merchant. If the merchant does not agree to cease selling the goods at issue, or if the merchant does not provide evidence that supports a genuine issue regarding the lawfulness of the merchant's sale of the goods at issue, the bank will be expected to terminate processing Visa payments for the merchant. If the merchant provides evidence that supports a genuine issue regarding the lawfulness of the merchant's sale of the goods at issue, such written evidence will be provided to the IP owner. If Visa determines that there is a genuine dispute between the IP owner and the merchant regarding the lawfulness of the merchant's sale of the goods at issue, Visa will direct the IP owner to directly address its concerns with the merchant and its bank.

PayPal is a particularly good venue to use for blocking counterfeiters, because PayPal may be the sole processor for all of the various credit cards. Rather than having to send different notices to individual credit card companies, just contact PayPal. By contacting PayPal and working with them, if they shut down the counterfeiter's access to PayPal, that will effectively shut down the counterfeiter's access for all credit card companies at once, making it much easier and more effective for someone attempting to turn off the cash flow spigot of an infringer than by separately contacting each credit card company.

Counterfeiters simply cannot exist without having access to payment processing companies, and knowing how to use their anti-counterfeiter procedures is an excellent tool in the never-ending whack-a-mole battle against infringement.

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.

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