“Although mail and postal services were the main mode of distribution for counterfeits regardless of origin of sale, 91% of all counterfeits sold online were seized through the mail, whereas a significant portion of counterfeits not linked to online sales were transported via express courier or air shipments.”
On October 25, the European Union Intellectual Property Office (EUIPO) issued a study exploring the growing misuse of e-commerce channels for trade in counterfeits. The report provides a quantitative review of both the expansion of Internet commerce as well as a growing number of counterfeit seizures by border officials in recent years. The EUIPO’s report also profiles common aspects of counterfeit supply chains, as well as regulatory frameworks established to reduce the spread of counterfeits online.
Growth of E-Commerce Through COVID-19 Pandemic Aids Counterfeit Sellers
Unsurprisingly, counterfeiters have turned towards e-commerce channels as more and more consumers spend their money in Internet retail environments. From 2018 to 2020, the EUIPO’s report notes that business-to-consumer (B2C) online retail sales increased by 41% across the world’s major economies, while total retail sales only increased by less than 1%. The COVID-19 pandemic understandably pushed many retail sales to online platforms, and the EUIPO notes that e-commerce sales has helped push the global value of cross-border B2C shipments to upwards of USD 440 billion.
While the rise of e-commerce sales has helped consumers across the world maintain their quality of life despite COVID-19 shutdowns, counterfeiters have exploited several aspects of platforms enabling B2C sales over the Internet to profit from the growing consumer use of e-commerce channels. Most e-commerce platforms allow counterfeiters to easily establish a web presence, and there are secondary markets online in which products are openly marketed as fakes, as opposed to more reputable primary markets where consumers are deceived into sales of counterfeits. In primary markets where consumers are deceived, the use of targeted advertising as well as the exploitation of social media platforms as counterfeit distribution channels are common tactics used by producers of fake goods.
While new payment technologies are enabling secure payment methods for online counterfeiters, those same bad actors are leveraging very old-fashioned solutions for distributing their fake goods. Mobile payments, cryptocurrencies and other financial technologies are creating a new digital cash economy designed to facilitate swift transactions without verifying the authenticity of any goods in the purchase. This includes the growing use of bullet-proof credit card processors to counteract collaborative efforts by brand owners and payment system providers to prevent payments to counterfeit sellers. At the same time, counterfeiters overwhelmingly rely on national postal system services to distribute their fake goods. Data from the EUIPO and the Organisation for Economic Co-operation and Development (OECD) indicate that 77% of counterfeit seizures in 2019 involved items shipped by post or courier services.
Most Seizures Related to Online Sales, But Offline Sales Accounted for Greater Value Share
Among all counterfeits seized by EU member countries between 2017 and 2019, 56% of those seizures were related to counterfeits sold online while only 44% of seizures involved goods that had no link to an online sale. Although they made up a fewer amount of total seizures, counterfeit goods not linked to online sales represented 86% of the total value of all counterfeit seizures during the two-year study period. This finding is consistent with the EUIPO’s contentions on the extensive use of small parcel shipments for counterfeit goods sold online. Although mail and postal services were the main mode of distribution for counterfeits regardless of origin of sale, 91% of all counterfeits sold online were seized through the mail, whereas a significant portion of counterfeits not linked to online sales were transported via express courier or air shipments.
In discussing provenance countries from which seized counterfeit goods originated, the EUIPO’s report highlights China’s continuing role as a major source of IP infringing goods in the global marketplace. While China was the top country of origin for counterfeit seizures unrelated to online sales, accounting for 45.9% of those detentions during the study period, that country was the origin of 75.88% of counterfeit seizures linked to online sales. Hong Kong ranked second among provenance countries for seized counterfeits sold online yet only contributed to 5.69% of online counterfeit seizures reported by EU member countries.
Among the types of fake goods seized by EU border officials, both footwear and clothing, knitted or crocheted, were the two most prevalent kinds of counterfeit goods seized regardless of mode of sale, either online or offline. However, when looking at the share of detentions related to online sales within each kind of product, perfumery and cosmetics (75.3%), pharmaceutical products (71.9%) and optical, photographic and medical instruments (71.3%) ranked highest, indicating that online e-commerce channels are particularly beneficial to counterfeiters in those sectors. While the value of most counterfeits sold online were relatively small compared to the volume of total counterfeits sold online, vehicle parts (35.2%), pharmaceutical products (28.6%) and watches (23.3%) each saw a significant share of the value of their counterfeit seizures come from online sales.
A Survey of Anticounterfeiting Governance Frameworks
The EUIPO’s study also surveys a collection of governance frameworks, both government-led initiatives and efforts made by private entities, to address the proliferation of counterfeit goods through online sales. Within the EU, the main government-led initiative is the Memorandum of Understanding on the Sale of Counterfeit Goods on the Internet, a voluntary framework between online platforms and IP rights owners for combatting online counterfeiting through notice and takedown procedures and concerted efforts against repeat infringers. While the memorandum is not a legally binding agreement, the European Commission facilitates communications and good faith dealings among signatory parties. The EU is also considering a pair of legislative solutions that would regulate e-commerce platforms to reduce counterfeits: the Digital Markets Act, which is designed to promote competition in online markets; and the Digital Services Act, which would establish rules for e-commerce participants for preventing the sale of counterfeit goods and pirated content.
While the EUIPO’s report identifies some efforts on online e-commerce platform governance in Australia and the United Kingdom, it provides great detail on anticounterfeiting programs undertaken by the U.S. Department of Homeland Security. This includes the 2017 establishment of an E-Commerce Working Group within the department’s National Intellectual Property Rights Coordination Center, and the January 2020 release of an anticounterfeiting plan that facilitates both the sharing of information on entities involved in trafficking counterfeit goods as well as the development of automated techniques that monitor online platforms for counterfeits. Among efforts undertaken by private entities, IP protection programs like Amazon’s brand registry service or eBay’s Verified Rights Owner Program simplify the process by which counterfeit product listings can be taken down, while know-your-customer approaches by which e-commerce platforms verify third-party sellers have also been used to reduce counterfeit sales on those platforms.
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