Challenges Bred by the Modern Model of Counterfeit Sales

Gone are the days when the threat posed by counterfeit goods was confined to the reach of the street corner vendor. Infringing merchants today rely on an increasingly sophisticated patchwork of otherwise legitimate third-party intermediaries to promote and enable their unlawful activity. This modern online sales and distribution model presents three core challenges for rights owners to understand and navigate.

Challenge No. 1: Increased visibility enables pirate sites to compete directly with rights owners and legitimate distributors like never before.

Third-party services have made it easier than ever for infringing merchants to promote their illegitimate goods across some of the most trafficked websites and marketplaces on the web. These services enable bad actors to purchase and place advertisements for infringing products side-by-side with legitimate products and promote their listings to the top of search engine or online marketplace search results.

The lower cost structure associated with the sale of counterfeit products can make it difficult for rights owners to compete, as bad actors can commit larger bids to compete in online advertising while simultaneously offering lower product prices. In an environment where ad placement is granted to the highest bidder, infringing merchants can capture a disproportionate share of voice, increasing the threat of sales erosion and indirectly increasing rights owners’ advertising spend.

Challenge No. 2: Platforms and tools built around merchant anonymity enable bad actors to hide in plain sight, or worse, create the veneer of legitimacy.

Some marketplaces and platforms are built around merchant anonymity and even compound the challenge by offering supplemental services to promote or incentivize customers to buy from anonymous sellers. For independent pirate sites, the deployment of a complementary suite of third-party services can provide a polished customer experience with little-to-no development required on the part of the pirate site. Taken together, these services make it very difficult for a customer to understand from whom they are buying and may lead customers to believe they are purchasing legitimate goods. Along with the threat of sales erosion, this increases several other risks such as brand dilution and consumer product safety concerns.

Challenge No. 3: Barriers to re-entry are commonly low and subject to limited controls, enabling infringing merchants to reappear after enforcement or hedge enforcement by operating multiple outlets simultaneously.

The analogy of IP protection as a game of whack-a-mole may historically be associated with digital anti-piracy efforts, but as counterfeit hard goods are increasingly sold online, the parallels become apparent. With the proliferation of competing online intermediaries in the value chain, it has never been easier for bad actors to maintain a revolving door of service providers that will enable them to temporarily evade detection and enforcement.

More challenging is the intermediary which enables bad actors to hedge against enforcement by operating numerous outlets simultaneously or which does not perform due diligence during account creation, thereby allowing the same bad actor to create a new account following initial detection and enforcement. This challenge perpetuates Challenge Nos. 1 and 2 as it subverts effective and meaningful IP protection.

The news is not all bad, however. Many intermediaries are household names in online search, e-commerce, payment processing, and web hosting. Most are committed to the removal of infringing and illegal activity from their platforms and have stated policies for intellectual property infringement. Some have committed significant resources to the development and management of streamlined enforcement channels for rights owners. Learning how to leverage and integrate the tools made available to rights owners should be at the core of an effective brand and content protection program in today’s online ecosystem.

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The Value of Systematic Test Purchasing at Scale

Brands and content owners know too well the process of conducting test purchases to verify and enforce against suspected counterfeit goods. In the modern digital economy, this usually means buying an item based on some combination of risk factors from an anonymous merchant on an online marketplace, verifying the good’s inauthenticity, and pursuing subsequent enforcement. While such ad-hoc test purchasing is a valuable resource in the toolkit to combat counterfeiting, it serves narrow IP protection objectives and enforcement outcomes. We advocate instead for systematic test purchasing at scale.

As we define the two differentiating pillars of this approach, a systematic test purchasing program pursues a larger unified IP protection strategy through a methodical and controlled process of evidence collection. A program that exists at scale includes sufficient purchasing volume to meet the rightsholder’s broader IP protection objectives relative to the scope of the rightsholder’s exposure to counterfeits in the market.

A systematic test purchasing program that exists at scale offers several benefits beyond conventional ad-hoc test purchases. We outline in brief three such advantages here.

Collecting Broad Marketplace Intelligence

Systematic test purchasing at scale provides tremendous insight into the market for a given product or rightsholder’s portfolio of products. Over time, data collected through observations of the market supported by purchases may allow the rightsholder to identify marketplace trends and build models for detecting unusual or unsustainable offers that could suggest the presence of illegitimate goods.

Additionally, such purchasing allows rightsholder to identify potential unforeseen issues within the supply chain, whether parallel importing from international markets or excess availability of sample/trial versions of a product. These instances are rarely reported in listings or offers for the product.

Understanding Counterfeit Reproductions of Your Product

If a product has been counterfeited, there is no guarantee that the exposure will be limited to the identified pirated copy alone. There are networks of counterfeit sellers across the globe, all of which have differing access to materials and resources to pirate a given product. As a result, you may see multiple version or iterations of a counterfeit product which may feature very different traits and qualities. Early identification of these iterations is key as it will inform enforcement efforts and assist with the education of trusted distributors and consumers.

Depending on the product, it may be essential to have a comprehensive understanding of the different iterations of counterfeits. Some counterfeit products, specifically food and/or products that are applied topically, can contain dangerous toxins that are unsafe for human consumption. Being prepared to educate consumers to authenticate products can help to mitigate the risk posed by these counterfeits.

Identifying the Sources of Piracy

The collection of physical evidence at scale not only allows for a greater understanding of the unauthorized sale of counterfeit products, but also allows for connections to be made among networks of distributors of those products. Following inspection of these counterfeit goods, brand owners may notice similarities among both the specific types of products these sellers offer and the specific types of counterfeits the distribute. This may indicate that these sellers have access to a similar source, which is likely to be a more prolific distributor of counterfeit goods.

Once these connections are identified, it becomes possible to potentially review sales/source records “upstream” to identify distributors closer to the source of production. This can be extremely valuable for identifying and ultimately removing distributors responsible for massive infringement.

BCGuardian has significant experience developing and managing systematic test purchasing programs at scale on behalf of rightsholders. Contact BCGuardian to learn how we may be able to protect your brand through such a program!

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