NEW YORK— Counterfeiters are challenging the housewares sector, retailers and vendors both, but opposition is rallying and, critically, teaming up to combat the sale of fake goods to consumers.
The effort is critical. The International AntiCounterfeiting Coalition, using an estimate developed by the International Chamber of Commerce/BASCAP, put the value of the counterfeit and pirated goods global trade at $1.77 trillion in 2015.
However, the struggle isn’t without internal conflict and has entailed finger pointing between vendors and retailers, even lawsuits. Still, the threat associated with counterfeiting has become sufficiently apparent that comprehensive efforts to counter the counterfeiters are gathering steam.
The challenge, however, is enormous and constantly evolving. In part, that’s because digital retail has created a vast new opportunity for counterfeiters. Unscrupulous manufacturers that practice counterfeiting full or part time exacerbate the problem. Many do or have worked on legitimate goods and, so, are knowledgeable enough to produce fake goods that are very near the quality of the real thing, but typically produced with less investment.
The ability to copy, at least superficially, produce and distribute products that at least superficially appear like branded items is particularly insidious because what is outside can conceal substandard, even dangerous content. The problem is especially great and sometimes harrowingly dangerous in the pharmacy sector. However, counterfeit housewares products also can be dangerous, to users, as when cheap electrical elements turn hair care products into fire or injury risks.
To make matters worse, counterfeiters have gotten better at connecting with consumers through digital retailing, creating sites, sometimes near copies or even clones of established e-stores, to sell their goods. Counterfeiters have become adept at using online marketing tactics, both legitimate and otherwise, to lure in consumers. In particular, they have used online marketplace operations to establish storefronts and move fake goods to consumers.
Amazon’s Investments
Counterfeiters have caused contention for Amazon.com, which, for example, faces a lawsuit filed by Allstar Marketing Group alleging trademark infringement and other improprieties (see story, page 24). The company has a policy and process for dealing with counterfeit branded products but some vendors insist that it has been inadequate especially as it applies to third-party sellers that operate through its marketplace operation. Removing fake branded merchandise requires too much time and effort, many vendors complain, although some concede the e-tailer is becoming more active.
The company has gone to court over counterfeiting, and not necessarily as the defendant. Amazon filed suit in the State of Washington Superior Court with marketplace participant Fitness Anywhere, against named and unnamed individuals who, the suit alleges, were involved in counterfeiting Fitness Anywhere’s TRX exercise equipment.
In its anti-counterfeiting policy statement, Amazon declares, “We are constantly innovating on behalf of our customers and working with manufacturers, content owners, vendors, and sellers to improve the ways we detect and prevent counterfeit products from reaching our marketplace. We work hard on this issue every day because we know that our customers trust that they are buying authentic products when they shop on Amazon.com. This is why we stand behind the products sold on our site with our A-to-Z guarantee. We also encourage anyone who has a product authenticity concern to notify us, and we will investigate it thoroughly and take any appropriate actions.”
Amazon spokesman Erik Fairleigh reiterated and expanded on the e-tailer’s policy when he told HOMEWORLD BUSINESS®, “Amazon has zero tolerance for counterfeits. Amazon’s customers trust that when they make a purchase through Amazon’s website— either directly from Amazon or from one of its millions of third-party sellers— they will receive authentic products manufactured by the true manufacturer of those products.”
Fairleigh added that, to preserve the trust it has worked to achieve, “Amazon is investing heavily in protecting the integrity of the Amazon marketplace for consumers, sellers, and manufacturers. Amazon is also working closely with rights owners to strengthen protections for their brands on Amazon. We remove suspected counterfeit items as soon as we become aware of them, and we suspend or block bad actors suspected of engaging in illegal behavior or infringing others’ intellectual property rights. We have taken independent legal action against bad actors and will continue to do so. And we work with law enforcement who present us with a valid legal process.”
Still, counterfeiters persist in their targeting of Amazon’s marketplace. Fairleigh asserted that Amazon has every intention of going after counterfeiters who target its operations, injuring its reputation and escalating its return and administrative costs. The retailer sees technology as a crucial means of targeting fake branded products.
“As part of our investment in brand protection, we are building powerful tools tailored to the needs of the rights owner,” Fairleigh said. “In order to detect bad actors and potentially counterfeit products, we employ dedicated teams of software engineers, research scientists, program managers and investigators to operate and continually refine our anti-counterfeiting program. When a business registers to sell products through Amazon’s marketplace, Amazon’s automated systems scan information for signals that the business might be a bad actor, and Amazon blocks those bad actors during registration before they can offer any products for sale. On an ongoing basis, Amazon’s systems also automatically and continuously scan numerous variables related to sellers, products and offers to detect activity that indicates products offered might be counterfeit.”
Fairleigh said that, going forward, Amazon would ratchet up its efforts to drive counterfeiters off its site by expanding and refining the technological tools it can employ against them.
“Amazon is also investing in innovative machine learning to improve our automated systems in order to anticipate and stay ahead of bad actors,” he said. “We take this fight very seriously, and we look forward to partnering with even more stakeholders to eliminate counterfeits from our marketplace.”
Amazon’s anti-counterfeiting lawsuit, filed in November of last year, goes into detail about what the company is doing to deter the sale of fakes on its site.
According to the complaint, “Amazon invests tens of millions of dollars annually developing sophisticated technology to detect bad actors and potentially counterfeit products, and it employs dedicated teams of software engineers, research scientists, program managers, and investigators to operate and continually refine its anti-counterfeiting program. Among other things, when sellers register to sell products through Amazon’s Marketplace, Amazon’s automated systems scan information about the sellers for signals that the sellers might be bad actors, and Amazon blocks those sellers during registration before they can offer any products for sale. On an ongoing basis, Amazon’s systems also automatically and continuously scan thousands of variables related to sellers, products and offers to detect activity that indicates products offered by a seller might be counterfeit. Amazon uses innovative machine learning to improve its automated systems in order to anticipate and stay ahead of bad actors. Numerous Amazon investigators around the world respond quickly to review any listing identified as a potential counterfeit product. These investigators also review notices of claimed infringement from rights owners, who know their products best. When Amazon finds counterfeit products from whatever source, it removes those products immediately. Amazon regularly suspends or blocks sellers suspected of engaging in illegal behavior or infringing others’ intellectual property rights.”
However, in the complaint, the company also acknowledged the difficulty vendors face in dealing with counterfeiters. The document stated, in part that, “counterfeit resellers, like the defendants, will often create new online marketplace accounts— on Amazon or other sites— under new aliases once they receive notice of a lawsuit. Further, counterfeit resellers, such as the defendants, typically operate multiple credit card merchant accounts and PayPal accounts behind layers of payment gateways so that they can continue operation in spite of TRX’s enforcement efforts. It is also common for counterfeit resellers to maintain off-shore bank accounts outside the jurisdiction of the court into which they routinely move the proceeds of their illegal sales.”
In such an environment, Amazon suggested, combining resources may be the only effective way for retailers and vendors to put a real dent into counterfeiting practices.
eBay’s Efforts
Although Amazon’s marketplace has become a high-profile example of how modern retailing is evolving, both for good and bad, eBay was the pioneer in creating a platform for third-party sellers. As such, the company had a trust issue from its beginning and had to convince consumers that they could purchase products safely from strangers they would never meet. In response, eBay was an early promoter of shopper merchandise reviews and product integrity policing including anti-counterfeiting efforts as it sought to boost shopper confidence.
Even today, Andrea Rota, eBay’s senior director
of brand protection, characterized counterfeit branded products as a significant challenge for eBay but one it continues confronting with an expanding array of initiatives.
“We want our platform to be the place where people look for genuine branded goods,” he told HomeWorld Business. “The suspicion that you might find a counterfeit is something that hurts eBay and something we will do whatever we can to take out.”
Rota said that eBay has been working to eliminate counterfeit goods for a long time now and has been very consistent and clear about fake merchandise.
“You have to be on message both inside and
outside the company,” he said. “Inside, we’re very clear on all levels.”
From an institutional perspective, eBay’s efforts are grounded in business logic. Not only does counterfeiting hurt eBay’s reputation, it dings the bottom line as well given the e-tailer’s money back guarantee. Litigation launched by brands against eBay also has been costly, so the company has embraced policies to create a more effective and cooperative approach to counterfeiting, Rota said.
Rota said eBay is committed to an active approach in removing fake branded products from its marketplace, and its efforts include pursuing technological means to thwart counterfeiters. Rota said that eBay is employing ever more sophisticated means to detect potentially counterfeit products. When it and Pay Pal were one company, eBay could use the auspices of its transaction partner to disrupt counterfeiters. Although its ability to work with PayPal on such issues is limited now that the two companies have separated, eBay benefited from the connection and was able to use it to build an understanding of how counterfeiters operate and how to disrupt those operations, Rota said.
At the same time, eBay has been optimizing network processes across its systems. To help automate the process of tracking and thwarting counterfeiters, eBay has launched machine learning initiatives, essentially using the system itself as a means of contending with producers and distributors of fake branded products. Imaging recognition has improved, Rota said, and is at a point when it could become an important factor in eliminating counterfeit items.
“Those are two technologies we are testing and working with, and we expect a lot from them,” he said.
Still, technology alone is not enough, Rota said. Commitment is critical to employing tech tools effectively.
“We are pretty good at technology but it’s more the consistency, the continuity with the technology. At the end of day, it’s very dynamic environment. You may think you have found the Holy Grail of detection, then counterfeiters find ways around it. It all depends on how agile you are. We are pretty good,” he said.
Still, Rota said even with the tools at its disposal, eBay recognizes that it’s a lot easier maneuvering around one opponent than it is a whole team. By bringing different resources and expertise together, eBay has been working to gain advantages over those who would sell fake branded products through its marketplace.
“Our experience is that partnership is the best approach,” he noted. “All the different parties that participate are defending their rights. When we partner with rights owners, we can achieve a lot more. We know more about the products, the brands, and we learn how to detect potentially risky and often counterfeit items.”
In 1998, eBay established the Verified Rights Owner program, also know as VeRO, to establish an effective means for rights holders, including brand owners, to report what they regard as infringing listings on its sites in a four-step process that includes notification, review, action and communication, all with a goal of taking down fake items quickly and providing tools branded owners can use to keep up the pressure on counterfeiters.
Since VeRO’s start, eBay has been building a global rights holders network. To join the program, a rights holder only has to submit a notice of claimed infringement. Once it processes the claim, eBay makes additional reporting solutions available so that a rights holder can bring infringement information to it conveniently and free of charge. The VeRO program reduces the time spent on reporting counterfeit goods, helps users search for illegitimate product offerings and increases the effectiveness of interaction with eBay.
Today, Rota said, more than 40,000 rights owners use VeRO as a way to police the eBay marketplace and identify sellers offering fake merchandise.
As a general trend, Rota pointed out, anti-counterfeiting efforts are gravitating toward transparency. Transparency and cooperation, which is the heart of the VeRO program, can take the technical advances developed to deter counterfeiting and make them more effective. So, eBay has undertaken a number of initiatives beyond VeRO to expand communications and minimize the disruption fake goods trigger in the marketplace. At the same time, the e-tailer recognizes that it needs to balance the seller’s ability to do business with the brand owner’s need to protect its rights. Communication is critical in such circumstances.
“Rights owners can tell us an item is suspicious and likely to be counterfeit,” Rota said. “We’ll look at it because the rights owner is more educated on the product than we are. This can become a painful experience for sellers. Sometimes even a brand can get something wrong. We communicate clearly to the seller why we take certain actions, and what is the path to getting an action reversed if the seller has evidence that what it is selling is genuine. On top of that, we participate in buyer facing meetings. So, eBay is getting together with some fashion designers, building awareness of the problem of counterfeiting. We also partner with a French brand association. We have a section of the Museum of Counterfeiting in Paris where we educate buyers about counterfeits and the damage they do
to the economy.”
In 2015, eBay launched the partnership with the French Union of Manufacturers, which revolves around a permanent exhibition at the museums and meetings with companies to discuss counterfeiting and efforts to root out intellectual property rights violators.
At first, brands and brand associations resisted cooperation with eBay, but the e-tailer began to work with the European Commission, which helped bring the parties together so they could talk, review the challenges they face and begin to take action.
Communication and cooperation are critical because counterfeiters constantly change their approach to the market.
“One challenge we face is how counterfeiting, as a criminal business, appears to be very profitable and possibly on the rise,” Rota said, “so there is external pressure we have to grow out abilities faster. A second challenge is that the world of rights owners is dynamic. New brands come up all the time, new products that are successful in the marketplace. When faced with all that, a proactive approach is very useful. Really large brands have had to deal with the issue for a long time now. It’s a thorny issue. Players might be attracted to alternative routes, maybe litigation. But we know over the long-term partnerships win.”
Today, Rota said, the overwhelming majority of eBay sellers are “very aware” of the issues and threats associated with counterfeiters.
“They are helping us to keep the marketplace as clean as possible. The last thing they want is unfair competition from products that are not genuine. One thing we are doing now is teaming up with sellers on an authentication program. We’ll start with a few verticals and develop it,” he said.
The eBay Authenticate program will offer the services of dedicated personnel to suppliers for a fee. When a customer puts in an order for a product— and eBay will start with high-end fashion items including handbags that can go for hundreds of dollars, or even more— it is shipped first to an authenticator before it is sent on to the customers as a means to reassure consumers who are considering big-ticket transactions.
Rota noted that law enforcement and governments, often in collaboration with business associations, have become more aware of the problems associated with counterfeiting of branded goods and cooperation with them is improving, too.
That being said, Rota indicated, “The best experiences we have had has been when rights owners associations have allowed us in a room to talk to many right owners and tell them how we work. It’s a breaking the ice. In more than one situation, it has turned around rights owners and brands, who will say, ‘Why not? Let’s give it a try and talk to these guys and see what comes out of it.’ Inevitably partnerships become stronger. The most useful thing that can happen, at the end of day, is one to one partnerships with a brand. Then the brand owner tells you what the counterfeits are in a specific space and identifies what counterfeits are associated with the brand.”
In the last measure, Rota said, the more cooperation and partnership that can be created, the better retailers and the suppliers who provide the product they sell can push back against fake branded items.
However, Rota cautioned, “eBay is a marketplace. We really value openness and pride ourselves in giving access to tens of millions of sellers. How to live up to that mission and, at the same time ensure an environment safe from counterfeiters is always difficult.”
Countering Counterfeiters
Of course, trade organizations in the United States haven’t been idle as the counterfeiting problem has grown. For instance, the International Housewares Association has begun addressing the problem of fake branded goods in its educational and networking initiatives, said Philip Brandl, the organization’s president and CEO, including the CORE executive peer group and the Chess Conference, bringing people together to initiate collaboration.
“The problem is substantial and not likely to go totally away soon,” Brandl said.
Branded product counterfeiting is a substantial issue and complex. It is a well-established, difficult to extinguish phenomenon. One reason why counterfeiters have been so difficult to stymie is many consumers are prepared to accept fakes and, indeed, plug the likelihood of getting a fake item into their own personal price/value equations when considering purchases. Consumers who once purchased fake Rolex watches on city street corners for a few bucks knew they were fake. But for a few dollars, they could have a look priced beyond their means, which was more valuable to them than the knowledge that the timepiece probably wasn’t going to function for very long.
Today, although many consumers are aware of the risks they take, Stuart Fuller, director of commercial operations at CSC subsidiary NetNames, a global online brand protection firm, cited research that suggests about a third of consumers who purchase counterfeit items never figure out that they bought a fake. Although some counterfeiters will price their products so cheaply that most consumers will recognize they are likely purchasing a fake, others set the bar higher. So, consumers who would not necessarily purchase a fake deliberately may wind up with one because the offer was less than but close enough to the actual branded product price that the deal seemed on the level.
Circumstances are such that at least some consumers who are determined to purchase branded goods, and get the level of quality associated with them, may grow wary of shopping online, undermining retail and supplier e-commerce related investments.
Charlie Abrahams, svp/MarkMonitor, a brand of Clarivate Analytics that works with companies to deal with counterfeiting and related issues, said the issue of fake branded products has changed “dramatically” over the past 10 years. Anyone concerned with fake branded products, he added, needs to remain abreast
of how counterfeiters attack the market and adapt to measures taken against them. Unfortunately, for a long time, many of the major targets of counterfeiters, including fashion brands, wanted to avoid consideration of the problem, because they didn’t want to be associated with cheap obviously fake goods their customers would never purchase. However, fashion brand producers have changed their tune.
“What changed is that five or six years ago, what it became clear was that their customers were going to buy their goods online,” Abrahams said. “They’ve all got online stores now. Typically those stores represent 10% to 20% of their revenues. Substantial numbers of people began buying high-value goods online. So they’re buying product without touching the items.”
In the fashion sector, the problem hit home when counterfeiters began using the web to sell products at prices that duped those who really thought they were purchasing the genuine article. Beside lost sales fashion brands often suffered shopper wrath when substandard counterfeits arrived in customer homes and reputations suffered.
Internet sales also undermined anti-counterfeiting efforts by law enforcement, Abrahams noted.
“Instead of containers in ports, now we have tens of million of little packets flying around the world,” he said. “It’s impossible to intercept them by physical presence.”
At the same time, e-commerce has made counterfeiting more mundane items lucrative. Abrahams noted that popular branded smart phone cases can carry a $30 price but cost a buck to make. For the cost of producing a mold, counterfeiters can generate huge quantities of counterfeit smart phone cases with popular brands attached. Combine the low manufacturing cost with inexpensive worldwide shipping, and counterfeiters can sell branded mass-market oriented products for a discount and still make a huge profit.
The problem has spilled over into the refill/replacement market. Many branded producers in the cleaning and grooming sectors count on consumable components to provide a substantial proportion of the revenues a product is designed to generate over its lifecycle, for instance replacement cleaning pads or razor blades. Today, fake versions of the ancillary products they intended to sell can put the expected income into the pockets of counterfeiters. The situation doesn’t just hurt vendors. Because they do their own direct shipping, a lot of counterfeiters hurt retailers who may initially put products in their stores to generate refill and replacement revenues.
In some cases, vulnerability to counterfeiting arises from success, especially in those product categories where legitimate manufacturers have invested to provide better performance and longer product life at affordable prices. Abrahams pointed out that the counterfeit market for coffee makers and cookware is huge as it’s easy to assemble inexpensive components that look online like popular premium products and can do a basic job. However, the performance and longevity of the products are likely to be inferior, often considerably so.
In the long run, a significant proportion of consumers disappointed with any of such products are going to blame the brand holder, even if they are aware that they purchased a fake. After all, many consumers hold the brand holder as responsible to police the products sold under a proprietary label. In that scenario, the brand holder loses not only a sale but, potentially, many sales to disappointed customers and, in the era of social media, others who are in their various networks.
“No sector is immune from this,” Abrahams said. “We’ve had clients who are in hair care who were particularly concerned about consumer safety, as counterfeit items can melt hair. You have to have very high-quality thermostats in them, and they’ve had problems with counterfeits that reflected badly on their brands. The other problem is the product returns. Consumers buy the counterfeit product, use if for a week, it breaks, they send it back, it gets back to the branded product manufacturer who says this isn’t mine in the first place. It’s very easy to make something that looks like a high-quality hair care or kitchen product using cheaper components, but when they break, it’s bad for the brand.”
Combine a considered manufacturing strategy with sophisticated, flexible operational approaches to the market and counterfeiters become formidable antagonists.
“They’re very clever,” he said. “We had a client in hair straighteners. A lot of counterfeiting goes on in that marketplace. We used to find counterfeit listings easily, putting the manufacturers name in searches.
Counterfeiters changed plans. They stopped having the actual brand name in the listing but put in the model number. They put the counterfeit products on auction sites. They would put up the model number instead of the name, and we would have to look for something
different. We see this kind of thing happen all the time.”
Website sophistication has gotten better, too, Abrahams said. Copied websites once were easy to detecte but not only are they harder to distinguish from the real thing today, they also are in the hands of people with technical knowledge such that, when one site gets knocked down, it’s up in a somewhat different form elsewhere in days or weeks.
“You can never cure the problem, but you can
reduce its impact,” Abrahams said.
The Online Dimension
A relatively new dimension of the fake product challenge is social media, where counterfeiters will use influencer and other marketing techniques to move their goods.
“If you’re looking for fuel for driving this forward, one of the biggest elements is social media, as 93% of people trust social media and peer reviews on line rather than an advert,” Fuller said. “Counterfeiters will use the same methods to get users as genuine brands do. They will buy Google search terms. They will use social media to quickly and cheaply drive sales online. Say I’m Brand X and I want to make people buy my Brand X book, I can start a Facebook page and go out there and buy 100 favorable comments. Even cheaper, I can buy 50 Twitter followers for $20. Even on things like Trip Advisor, you can buy positive reviews.”
Fuller added that counterfeiters even purchase online advertising not necessarily to immediately sell their fake items, a practice that can be detected and interrupted readily, but to drive consumers to third-party websites, which creates an extra step in interdiction, one that can slow down action against the selling scheme.
“The only entity who can have that content taken down is the brand holder,” Fuller said. “I can complain to Facebook, but they’re going to say, ‘Sorry, we need a complaint from the intellectual property holder to take the ad down.’ But, even when that happens, in seconds, it will be up in an almost identical form in a different place. Counterfeiters are not stupid.”
Indeed, Fuller said that, while e-tailers are becoming more collaborative in going after counterfeiters, social media operators “need to be more open to working with brand holders and brand holders’ agents.”
What’s worse, with tens of thousands of websites to police, those organizations that would police counterfeit products suffer significantly strained resources. Courts rule against counterfeiters but often the defendants are unidentified, making judgments academic. Police and other authorities are “stretched to the limit,” Fuller said. “If you ask a law enforcement agency to follow through and try to enforce something on the other side of the world, it’s almost impossible.”
Abrahams reiterated the theme that cooperation is key to countering counterfeiters who no single market stakeholder has the resources to effectively engage. To the extent all those with a stake in combating counterfeiters, including brand owners, retailers, trade associations, Internet authorities and law enforcement, work to find methods of cooperating the chances of making a real dent in the flow of fake branded products through the supply chain increases.
As regards vendors, Abrahams said brand owners need to develop a sophisticated understanding of the problem. The efficacy of knocking down websites selling counterfeits is limited. More vendors have come to understand that educating consumers about the problem is a more effective method. A number have begun using their own websites to inform consumers about counterfeits and even help them identify fakes, Abrahams noted.
Estee Lauder, for example, tells web visitors that counterfeits of its products are out there in the marketplace and that it wants to help ensure that any such products don’t hurt them. To that end, the company identifies legitimate dealers of its products and connects consumers to them, elevating confidence in the brand.
Brand owners have implemented URL trackers that consumers can use to check if a website is a legitimate provider of its products. Some inform consumers about ways in which they make themselves vulnerable to counterfeit offers. For example, if consumers use the word “cheap” in a web search for a branded item, odds are large that the response will include sites hawking counterfeit products.
“Brand holders have to understand they’re part of the solution,” Fuller said. “Some brand holders do not want to admit they have a problem, they just want to remove the problem at the surface. They simply want to remove a website when they need to be looking at is tracing the line backwards and seeing what other things these counterfeiters are doing. They can join up with other brand holders or an entity like ourselves to find the source. You rarely find a single counterfeiter working one brand. Working together and sharing resources, brand holders can find the web server counterfeiters are using, and potentially run counterfeiters off the web server.”
By bringing the problem to the web server operator, brand holders can halt a counterfeiting operation. The fix may be temporary, Fuller said, but its solution that can last a few weeks rather than a few hours and may prompt the counterfeiters to find a softer target.
“You’ve got to make it hard for them,” he said. “You have to show them you’re ruthless or they’re not going to give up.”
Abrahams said vendors can start out doing their own research to determine how widespread their counterfeiting problem is. Identifying counterfeit product on a specific marketplace and trying to get fakes removed may solve part of the problem, but, the question becomes, how big is a particular company’s problem and what is the proper response?
Abrahams noted that it typically requires an investment of between $50,000 and $500,000 to mount an effective defense against counterfeiters,
depending on the scope of the problem and the number of labels a brand owner wants to protect.
In the case of the $5 Rolex, it might not benefit the brand owner to spend money going after counterfeiters serving customers who are not likely to purchase its legitimate product anyway.
Although retailers have had less of a challenge,
the problem of private label product counterfeiting has arisen.
“Own-brand ranges have seen some counterfeiting already,” Abrahams said. In such cases, the retailer investment in quality and marketing is providing value for counterfeiters to exploit. Not only that, but counterfeiters have created fake gift cards and vouchers that target major retailers, he noted, a problem that could become increasingly damaging for the businesses targeted.
That being said, marketplace operations seem to be the retail segment most infiltrated by counterfeiters and, so, the battleground where investments in education and cooperation could have the most telling effects
“Counterfeiting has been very prolific on marketplaces,” Abrahams said. “The good news is that the better run ones tend to have added better processes.”
