Since the dotcom boom, advances in technology have provided a conduit for fraud. The digital space is perfect for criminals – it’s dark and ungoverned, plus it grants easy access to a colossal number of eager, vulnerable consumers.
And while technology evolves and updates quickly, providing loopholes for scammers, the law is a slow and lumbering animal. It is especially weak in the face of international frauds cooked up in one country and spooled out in another.
Nowhere are the authorities less effective than in policing online marketplaces, which connect buyers with sellers in a quick, convenient setting. Sellers are, on the whole, small businesses and private individuals enjoying exposure to large audiences.
But among them lurk people who peddle counterfeit products. These are criminals who pretend to sell popular brands at discount prices, but are really offering low-quality fakes.
There is no way to authenticate a product from an ad on eBay, Amazon Marketplace, ASOS or Alibaba, so it’s easy to become a victim of a scam if you don’t know what to look for. Counterfeiters do everything they can to look legit so it’s hard to address the problem proactively.
How it works
Derek O’Carroll, chief executive of Brightpearl, says online sales of fake consumer goods increased 15 per cent last year, not far off the growth rate of legitimate e-commerce transactions. He says marketplaces are a factor behind this figure.
“Online marketplaces like Amazon and eBay have become vulnerable incubators for fraudsters looking to harness their global reach to sell their phoney products,” he says.
“These individuals look to exploit every possible piece of digital marketing technology to disguise themselves as well-known brands and lure unsuspecting users into paying for products that will never arrive.
“Counterfeiters use social media, scam e-mails and mobile apps to elevate their replicas’ profile via paid search and popular hashtags to gain consumer trust. Then they flood sites with low-cost products and coax consumers to their site, where they will pay money directly into the scammers’ accounts.”
Fakes are damaging to brands, particularly in the luxury sector. Companies are not so concerned with direct loss of sales; people snapping up copies don’t generally have the spending power of those who are in the market for the real McCoys.
But exclusivity is a strong currency for ultra-indulgent items. When copycats flood the market with watches, bags and sunglasses, it removes some of this sheen, the mystique that attracts big spenders.
“Brands invest millions in promoting their brand as a guarantee of a high standard of design, safety and quality,” says Oliver Smith, intellectual property specialist at Keystone Law.
Proactive measures protecting brands and consumers are required
“If customers receive a fake product of poor quality and do not realise it is a copy this will undermine the brand’s reputation. If they realise it is a fake it will create uncertainty in the market and people will be reluctant to buy the product for fear they get a fake. Cheap copies also make the brand more prevalent and less exclusive, and potentially reduce its attractiveness.”
This thorn in the side of the luxury market is getting thornier by the day. Amazon’s decision two years ago to give Chinese manufacturers direct access to its marketplace exposed it to the world’s biggest producer of fakes.
Meanwhile, the old review-based system of policing marketplaces, in which buyers rate sellers based on the quality of product and service, only goes so far. Traders with plenty of negative feedback can still ply their wares.
And when one is eventually shut down, they reappear quickly with a new name and amended offering.
Mr Smith says the main legal responses to fraud – 2013 EU Customer Regulation, 1994 Trade Markets Act and 1988 Copyright, Designs and Patents Act, as well as search and seizure orders under civil law – can’t combat the problem fast enough.
“The problem with these laws is the time and money it takes to deal with each infringer and the ‘whack a mole’ effect where as soon as you stop one seller they start up again under a different name or other sellers take their place,” he says.
Clearly, proactive measures protecting brands and consumers are required. These can only come from a collaborative effort of brands, marketplaces, regulators and consumers. The latter group can play a part by reporting forgeries and not turning a blind eye because of the rock-bottom prices.
Marketplaces have come in for criticism for failing to deal with counterfeiters. It’s true that progress has been slow, partly because it takes a large investment to catch them all and because there’s not enough incentive to do so; many provide an income stream to the sites that host them through the fees they pay.
But the biggest players have recently stepped up efforts to combat the crime. Notably Amazon and Alibaba have responded to criticism with action.
“Amazon is broadening its anti-counterfeiting programme by letting brands register their logo and IP with the marketplace in a bid to make counterfeit products more easily recognisable, which could be a significant step in the anti-counterfeiting movement,” says Helen Saunders, head of intelligence and operations at INCOPRO, a business helping brands protect their IP.
Mr Smith adds: “Amazon has a new scheme called Brand Gating, where certain brands cannot be sold on their platform unless you produce receipts from the brand owner and a letter confirming authority to sell.
“eBay runs Authenticate which may be useful for high-value items where you can pay a third-party expert to verify authenticity of a product like a £10,000 watch before buying it online.”
But more can be done, according to Ms Saunders: “These platforms have big data at their disposal; if they employed the technology to better understand the problem and shared that intelligence with their counterparts, we would finally start to see a real crackdown on the sale of counterfeit products by tackling the manufacturers at the source.”
On the whole, marketplaces need to work harder to counter the damage done by fakes. Brands have the power to penalise those who fail to act by withdrawing genuine products from listings, while governments also have the power to fine companies that indirectly facilitate fraud.
In the end, a solution will arrive when all parties work together to create one. Work has been slow to date, but it’s moving in the right direction.
HOW ALIBABA GROUP TACKLES COUNTERFEITS
Alibaba Group is one of a number of marketplaces accused of dragging their feet over sales of counterfeits. But monitoring more than 100,000 brands and ten million small business accounts is not without its challenges.
Recently, founder Jack Ma called for tougher sanctions against fraudsters. Some in the industry applauded this as a sign of the company’s commitment, while others considered it a way of shifting responsibility away from the marketplaces and on to law enforcement.
Whoever is right, Alibaba has taken steps to counter the problem. The business says: “Alibaba proactively monitors and automatically takes down counterfeit product listings on our platforms using industry-leading technology. In the 12 months ending August 2016, we removed more than 380 million IP-infringing product listings and closed approximately 180,000 storefronts run by counterfeiting criminals.
“We also work with law enforcement in offline investigations, providing them with evidence which they use to arrest and jail counterfeiting criminals. In 2016, we provided 1,184 leads to the police, assisted in the arrests of 880 suspects and the shutdown of 1,419 counterfeiting locations.”
Earlier this year, it launched the Alibaba Group Big Data Anti-Counterfeiting Alliance alongside 20 brands, including Louis Vuitton and Samsung, to promote industry collaboration and the use of big data and technology to stop counterfeiters.
Last year it restructured its online IP enforcement tools to create a single Intellectual Property Protection platform, which streamlines the process for rights holders to submit notice-and-takedown requests across all Alibaba’s marketplaces.