New Anti-Counterfeit Legislation Directly Impacts Marketplaces

Anti-counterfeit legislation changes marketplace landscape

10 years ago, the world was drowning in spam email and nobody thought it could ever be managed. But here we are in 2020 and nobody really has to worry about spam. The combination of new technologies for stopping spam, new processes implemented by email systems providers, and stiffer penalties for those that infringed, was the magic combination to kill what seemed like the unkillable.

Today, many people feel the same way about the massive problem of counterfeit sales, but on January 24th, 2020, something big happened in the world of brand protection. It significantly impacts ecommerce trade and particularly the big marketplaces. On what many would call a momentous day, the White House put into law new policies defined by the Department of Homeland Security. The policy document includes ten ‘immediate actions’ that will be enforced by various US Government agencies, including Customs. Additionally, the document includes ten recommended ‘best-practices’ for ecommerce sites and marketplaces to adopt. This was the last piece of the jigsaw that rights holders needed to help kill the counterfeit trade. We have the technology, we know how to build effective procedures to track and kill it and now rights holders have the legal teeth to make sure it happens.

This means a major shift in responsibility for the sale of counterfeit goods. Up to now sites like Amazon have fought legal cases against them on the basis that its fulfilment, payment processing and product listing services don’t mean that Amazon is offering a product for sale. In other words, their defence has been, ‘just because you can buy it from our site, doesn’t mean we are selling it to you’. I am paraphrasing of course, but that argument has been a successful one as they have won these cases consistently! What was seen as a landmark case that began in 2013 and concluded mid-2017 in the appeal courts ruled in favour of Amazon. In this case, filed by Seattle-based novelty pillowcase maker Milo & Gabby, the plaintiffs argued that Amazon was liable because it made an “offer to sell” the counterfeit goods, even if it wasn’t the one who created the product listings. However on two occasions, in the 2015 original case and the later 2017 appeal court case, the ruling went in favour of Amazon.

However, this new legislation means their defence in cases like this will no longer stand. It significantly means that brands and manufacturers can more easily hold marketplaces accountable in courts of law.

So let’s examine this issue in more detail and look at why the problem exists, why it’s so hard to deal with and what marketplaces can do about it.

Why Haven’t Marketplaces Acted Before Now?

The simple answer is because they haven’t had to. But the more complete answer is that it costs them twice-over to deal with it. Firstly, they have to scale up internal resources and perhaps even pay external providers of specialist services/software to help them find and delist the counterfeits, but worse than that they then lose the revenue that would have been made from the sale of these products on their platform. That is obviously a bitter pill to swallow, so without any inducement to do so, why would they? Especially when it seems that they genuinely feel it is not their issue to deal with.

Brands and Brand Protection organisations have tried to push this agenda with them. In late 2019 the U.S. Trade Representative’s Office (USTR) received requests to put a number of Amazon country sites on the official ‘Notorious’ list of counterfeit promoting sites. But given the surge in sales in recent years on these platforms and the growing demand by consumers, nothing but legislation could force major action in this area.

Why Is It Such A Challenging Issue?

At this point, we must be fair to these marketplaces in pointing out that this is not a simple issue to fix. Counterfeiters are extremely ingenious. They can produce products that look almost identical to the genuine product. They will use brand logos on generic products to make them more desirable. They will list products without using the brand name or other key search terms to try to avoid their listings being identified as fake. And most amazingly, they’ll even produce fake holograms (and other authentication devices) to make it extremely difficult to identify their product as the fake.

But the real problem is the sheer volume of these fake listings and goods being shipped. Every 3 years the OECD issues a report that tracks the volume of fake goods that were intercepted and impounded. The last report was in 2016 and it showed that the international trade in counterfeit and pirated products equated to approximately $509 billion (excluding domestically produced counterfeits and pirated digital products). This represented up to 3.3% of world trade and was an almost 10.5% increase on 2013 figures. As we await the 2019 figures to be issued this year, the expectation is a similar, if not larger, rise.

The counterfeiters get away with these activities because the number of listings added every day, and the number of packages containing fake goods being shipped, is simply too large for humans to effectively deal with. Even when they do identify fake listings and take them down, the counterfeiters simply create new listings and they continue. Meanwhile, without significant training, professionals in the field, such as customs officials, are simply unable to efficiently identify and stop fake products from reaching their destinations.

How Can Marketplaces Eradicate Counterfeit Products?

The answer is Artificial Intelligence. AI systems exist to do two things:

1. Seek out listing that have suspicious characteristics, which can include products from high-risk brands or geographies, and suspiciously low pricing for the category, among many other ‘triggers’ that can be searched for.
2. Analyze the images in listings to identify suspicious characteristics, such as:
   • Products carrying specific marks/markings/logos that they shouldn’t
   • Products missing marks/markings/logos that they should have
   • Product images that match known bad images of fakes
   • Products carrying modified logos
3. Quickly validate products in the field by authenticating holograms and other visual elements using a simple app.

These AI systems are extremely accurate, never get tired and never sleep. They can also process many millions of listings and images per month. That means fake listings can be identified within hours, or even minutes of them going live and be taken down.

Once you can respond to the counterfeiters that quickly, the odds shift very significantly in favour of the marketplaces and genuine sellers. The amount of work counterfeiters need to do increases exponentially and ultimately they will be forced out.

This is not a vision of what might be possible in the future; this is happening right now. It’s just not yet being used universally. But solutions from companies like ours at LogoGrab are ready to make the difference to halt the tsunami of fake goods.

Why Should Marketplaces Engage?

This s going to force marketplaces to implement their own internal anti-counterfeit legislation. But in real-terms, this could be good for their revenues. Less counterfeit products means more sales of genuine, higher-value products. This, in turn, means more revenue through their platform. Not only that but thanks to the increased confidence in these platforms, brands will invest more in marketing spend with them.

Why Should Consumers Care?

It is also fair to say that the growth in counterfeit sales is driven by consumer demand for it. Buying a fake product is seen as a win for the buyer and a ‘no foul’ transaction. After all, it only means that a multi-billion dollar company makes a few million less in profit, right? Counterfeiters aren’t the bad guys, they just allow us to buy the same products, but cheaper, right?

The reality is that this couldn’t be more wrong, and there are 5 reasons why:

1. Counterfeit products are dangerous
There are many examples of fake products harming and even killing consumers. From fake toothpaste containing chemicals commonly used in solvents and anti-freeze, to fake car parts, and fake pharmaceuticals that are estimated to kill 250,000 children per year (and that’s just with drugs intended to treat malaria and pneumonia alone – more are killed by fake antibiotics!).

2. Proceeds from counterfeiting funds illegal and terrorist activities
Even where consumers are buying low-risk items, such as clothing, shoes and handbags, there is still a societal risk. It has been shown that criminal drug gangs and terrorist organisations use the counterfeit trade to make and launder money for their activities. The fallout from these illicit activities harms us all.

3. Impact on jobs
It has been estimated that globally 2.5 million jobs throughout the supply chain are lost because of counterfeiters. From manufacturing to warehousing and logistics to retail, companies that would otherwise expand operations are restricted by the sale of fake versions of their products.

4. Negatively impact innovation
A startup that launches a new and innovative product can find a fake version of that product on a marketplace, alongside their genuine product, in a matter of weeks. The combination of poor anti-counterfeiting actions, plus weak anti-counterfeit legislation, and high legal costs means that innovators are less likely to innovate and that’s bad for humanity.

5. Forced Child Labour
The counterfeit industry is reported to use forced child labour in the manufacture of fake luxury and other goods. First-hand reports detail children being chained, mutilated and underfed, while working them long hours.

In Summary

Counterfeiting is a commercial and human scourge on the world, which has seemed insurmountable. But the joint forces of stronger legislation, AI technologies and educating consumers will finally allow us to kill off this illicit trade.