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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