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When most of us hear the word “counterfeit,” we think of a group of criminals in a poorly-lit warehouse surrounding a printing press, with fake U.S. dollars drying on a line behind them. Estimates in the last five years place the amount of counterfeit U.S. dollars circulating in the $250 million to $500 million range.
But the market for counterfeit goods is estimated to be greater than $650 billion per year ' a thousand times more than all estimated U.S. counterfeit dollars in circulation! For perspective, Walmart's 2014 worldwide revenue was “only” $485 billion.
Counterfeit goods are fake replicas of a real product. Typically, they are goods inferior in quality to the genuine article and illicitly feature a well-recognized trademarked brand. These goods typically originate in developing countries with strong but low-cost manufacturing capability. The goods can then be sold, especially in developed nations, at a premium.
Considering the size of the problem, it is inevitable that you will encounter it. If you work for a brand, own a brand, or purchase brand-name products, you will sooner or later come into contact with counterfeit goods. Understand the basics so you can protect yourself.
How Does Counterfeiting Do Harm?
Counterfeiting robs legitimate companies by stealing their revenues and profits. For a well-recognized brand, most of the equity accounted for in the market capital is due to the brand name itself. A luxury-goods company such as Tiffany, for example, has been investing in and building its brand for over 160 years. Brands relying on licensing for revenues, such as major sports leagues and teams, also lose substantial profits to unauthorized branding. Firms in EU countries alone lose an estimated $28.5 billion in profits each year along with an estimated 360,000 jobs in that economic area due to counterfeiting.
Counterfeiting weakens luxury brand equity by creating “inflation” for that brand; a person spending $2,500 on a designer purse does not want to see everyone else on the street sporting $200 knock-offs. Counterfeits dilute the market, which is especially harmful to fashion brands whose appeal rests on an aura of exclusivity.
Counterfeiting also costs governments tax revenue on both sales and profits; counterfeits are almost never properly registered with taxation authorities. It can even sometimes pose health risks, even death ' for example when knock-off toys feature small or loose parts, or are made from toxic materials. See, “Death In China Prompts Apple To Offer iPhone Charger Disposal and Discount,” Computerworld.
Counterfeits on the Docks
Not surprisingly, the holiday season represents the peak of the counterfeiting trade, both in the U.S. and abroad. A three-day U.S. Customs and Border Protection probe last December at JFK International Airport's mail facility netted $450,000 in counterfeit items, including items bearing trademarks from Louis Vuitton, Gucci, Michael Kors, Chanel, and Coach. UK border staff stopped 170,000 items in late November of 2014 in just one operation targeting Dover Docks.
Other key times of the year for the flow of counterfeit goods are major sporting events, when large amounts of licensed trademarked materials are purchased. Federal authorities reportedly seized over 325,000 counterfeit items after last year's Super Bowl, valued at $19.5 million. See, “Feds Seize $19.5M in Counterfeit Super Bowl Merchandise,” Las Vegas Review-Journal (Jan. 29, 2015). The Wall Street Journal reports that in each of the last three years, U.S. federal agents have seized counterfeit goods with a retail value of over $1 billion, most of which arrive through the ports of Los Angeles and Long Beach from China and Southeast Asia. See, “U.S. Officials Chase Counterfeit Goods Online,” WSJ.com (Nov. 28, 2014).
How Counterfeiters Use the Internet
While some trade on the “black market” or though in-person settings has always existed, the Internet has become the major facilitator of the trade in counterfeit goods. This is because it allows counterfeiters to directly reach consumers instead of having to work through complicit retail middlemen. The counterfeiters often work from countries where brands have limited ability to enforce their trademarks.
The Internet offers anonymity to the buyer and seller, and the scale of individual transactions makes enforcement difficult. In the past, a local retailer or kiosk that sold counterfeit goods could be a focal point for investigators; however it is difficult, if not impossible, for investigators to track individual packages in the mail.
While efforts to catch products in transit continue, the emerging battleground is the Web. While efforts to intercept the actual goods in transit result in seizures of goods (like those described above), the items seized are estimated to be only a small percentage of the goods actually sold and shipped each year and do little to cut off the source.
Unfortunately, counterfeit sites multiply like hydras ' each time one is shut down, two more often appear. Counterfeiters usually work by volume; they will set up large numbers of websites, so even if one is shut down, their entire operation still thrives.
Not only does this provide the counterfeiter with numerous platforms from which to sell, it also creates a smokescreen for investigators. A single counterfeit seller may run hundreds or even thousands of apparently unrelated websites selling the same product. No single website becomes a highly visible target in this way ' instead, the investigator finds him- or herself fighting a swarm of gnats.
Consider these recent examples:
Counterfeiter Techniques
Counterfeiters have developed a sophisticated array of techniques to generate online sales, many of which are legal and take advantage policies of major search engines.
The savviest counterfeiters are experts at Search Engine Optimization (SEO) and the art of achieving high placement in search engine listings. It is well-known among marketers that most people only click on the first three or four entries returned when they search Google or other search engines. Achieving a top listing involves both correctly choosing the search terms that will lead people to your site and designing your site accordingly.
While SEO techniques are relatively “free” to implement, counterfeiters will also use Pay Per Click (PPC) ads, such as Google's Adwords. These are paid placements for a site that appear above the results of a search and display based on the search keywords entered by a user. Advertisers choose to which keywords their ads will respond. Anyone, including counterfeiters, is legally allowed to purchase trademarked keywords for their ads, thus allowing them to show prominent ads for a luxury good when a user searches on the (trademarked) brand name. While Google will investigate the use of trademarked terms in the text of an ad, Google explicitly states that it “will not investigate or restrict the use of trademark terms in keywords, even if a trademark complaint is received.” See, “Adwords Trademark Policy.” Nor will Google investigate the use of trademark terms in embedded in URLs.
With this knowledge, counterfeiters have become increasingly sophisticated at hijacking search engine and social media marketing to steal traffic and send it to their myriad sites. It is estimated that 14% of branded paid search traffic is hijacked by counterfeiters.
Counterfeiters also use “silent redirects” to move the customer to a different website from the first one they visit. The “original page” will be heavily optimized for SEO ' it will incorporate features that allow it to rank high in list of search results for any given Internet search engine, and consumers will frequently find and click on those links. The counterfeiter may have many such pages with URLs differing only slightly, each to bring in visitors searching on very slight variations on search terms; all of these pages then immediately redirect visitors to a different set of pages designed to encourage purchases.
Silent redirects make it very difficult to track counterfeiters. The page visible to search engines may offer little in terms of useful material for investigators, and some counterfeiters have been found to be using over 10,000 websites at a given time.
This technique does two things. First, it increases the chances that customers will find the counterfeiter online by sheer force of number. Even if the counterfeiter does not possess many of the SEO advantages of a legitimate site, he is able to compensate by volume.
Second, this approach makes it very difficult to find and prosecute a counterfeiter. The initial “landing pages” do not even sell counterfeits and for that reason are very difficult to shut down. The complex system of redirects can make it difficult to determine how many of these landing pages are associated with a single operation.
Back-end operations may be as bewilderingly complex as the network of websites: Internet domains may be registered in one country, sites hosted from a second, and payments processed from a third. All of which adds to the tremendous difficulties in finding the true identity of a counterfeiter.
Anti-counterfeiting Techniques
Border and customs officials work to seize counterfeit goods, either individually or in bulk, as they enter a country, but this method only captures a small percentage of counterfeit goods sold and shipped.
As a result, brands themselves have taken greater responsibility to protect their own trademarks. Incoming goods are nearly impossible to identify and intercept, and brands may have little legal recourse to stop the manufacture of counterfeit goods in other countries. Brands' anti-counterfeiting efforts therefore focus on methods of preventing the sale of goods over the Internet. While a brand may not always be able to enforce direct legal action against a foreign seller of counterfeit goods, the brand can influence parties facilitating the sale of goods through partnerships and legal procedures.
One way they fight organized counterfeits is by enlisting the help of experts who have the expertise and tools to assist corporate counsel and law firms in building their case against counterfeiters. Such investigators must be experts with the Web and be sensitive to legal issues concerned.
Rob Holmes is the founder and CEO of IPCybercrime, an Internet security firm that works with brands to stop counterfeiting. According to Holmes, it is important to show that a given counterfeiter represents an organized business model with the intent to perpetuate itself ' counterfeiting is, in this sense, a “white collar” crime. To make the case, Holmes and his investigators must show that myriad websites are connected, and also who is running that network.
Holmes' firm was one of the first to use analytics information in the source code to establish a connection between numerous seemingly unrelated counterfeiting websites. Holmes noticed that numerous Web pages' source code contained the exact same Google analytics code, indicating that all of the pages were being administered by the same person. This finding proved to be key evidence in Chanel v. Dror Krispin, 1:2008cv23439 (F.S.D.C. 2008).
Besides such innovative techniques, Holmes uses state-of-the-art tools for his Internet investigations. Holmes notes that simple screenshots of webpages are no longer sufficient: these take too long to produce, fail to automatically record data about the webpage, and do not preserve a digital chain-of-custody appropriate for legal evidence.
Holmes prefers to use Page Vault, a software-as-a-service solution that allows him to quickly and accurately captures websites, along with their source code. Page Vault preserves the electronic digital chain of custody and authenticates captures even if after websites are taken down by the counterfeiter. And because Page Vault runs in the cloud through proxy servers, users' browsers are protected from the malware frequently found on counterfeit sites, all the while keeping the user anonymous.
Help from Google
Increasingly, legitimate firms whose services are required by counterfeiters are being pressed to join the fight. For example, in 2004 Tiffany sued eBay for counterfeit sales on its site, but courts agreed that eBay could not police every illicit post. See, Tiffany (NJ) Inc. v. eBay, 600 F.3d 93, 99 (2d Cir. 2010). Currently, several high-profile lawsuits are underway against Alibaba, the Chinese online marketplace; anti-counterfeiters are watching these carefully for clues about how much courts will require such marketplaces to contribute to the fight against counterfeits.
Google now provides the Google Transparency Report, where it discloses the number of requests received from copyright owners and government to receive information from Google's services. It also details requests to remove websites from search engine rankings. Google cannot “shut-down” a website, but it can remove those sites from search results. While Google is not the only search engine available, as any Internet marketer knows, being banned from Google search results is a retailing “kiss-of-death.” Google alone handles approximately two-thirds of all search traffic; Microsoft, the next runner-up, handles barely a fifth. See, “comScore October 2015 U.S. Desktop Search Engine Rankings.”'
Just in the past month, Google has received requests for over 54 million URLs to be removed from its search engine reporting. See, “Copyright Removal Requests ' Google Transparency Report.” Those requests have come from nearly 6,000 copyright owners and 2,500 reporting organizations, and have doubled in the last year alone. While the largest users of this service are music and film providers fighting online pirating of their copyrighted material, providers of luxury goods, fashion clothing, and other famous brands are using the service as well.
Google removes sites that infringe copyright, but will not remove trademark infringements. However, holders of trademarks still have some recourse.
Counterfeiters want their sites to appear legitimate, so they use copies of the brand's product photos, logos, and even advertising campaigns to dupe the user into believing the site is a legitimate retailer. Such promotional material is covered by copyright laws (such as the Digital Millennium Copyright Act (DMCA), 17 U.S.C. '512 (1998)) and is subject to removal from search engine results by Google.
Chanel, for example, has requested removal of 4,135 URLs, while the above-mentioned Deckers Outdoor Corporation (UGG boots) has requested over 20,000 URLs to be removed. Bridal gown designers are among the largest requestors: Justin Alexander Bridal and Mon Cheri have together requested removal of more than 350,000 URLs.
Conclusion
Counterfeiters will continue to take advantage of established brands and consumers as long as there are brands to counterfeit. It is important to be aware of the latest trends and technologies in this space, both to protect brands and to avoid contributing to the problem. Learn more about protecting brands with the International Trademark Association (INTA) and the International AntiCounterfeiting Coalition (IACC).
Patrick Schweihs is the Vice President of Customer Solutions at Page Vault and has extensive experience fighting online counterfeiting. He holds a mechanical engineering degree from the University of Notre Dame and a JD from the Chicago-Kent College of Law. Schweihs practiced Intellectual Property law in Chicago for several years before establishing his own legal consulting practice to help luxury brands find and prosecute counterfeits of their products online. He can be reached at [email protected] or on Twitter at @pagevault. For more information, visit'http://www.page-vault.com.
When most of us hear the word “counterfeit,” we think of a group of criminals in a poorly-lit warehouse surrounding a printing press, with fake U.S. dollars drying on a line behind them. Estimates in the last five years place the amount of counterfeit U.S. dollars circulating in the $250 million to $500 million range.
But the market for counterfeit goods is estimated to be greater than $650 billion per year ' a thousand times more than all estimated U.S. counterfeit dollars in circulation! For perspective, Walmart's 2014 worldwide revenue was “only” $485 billion.
Counterfeit goods are fake replicas of a real product. Typically, they are goods inferior in quality to the genuine article and illicitly feature a well-recognized trademarked brand. These goods typically originate in developing countries with strong but low-cost manufacturing capability. The goods can then be sold, especially in developed nations, at a premium.
Considering the size of the problem, it is inevitable that you will encounter it. If you work for a brand, own a brand, or purchase brand-name products, you will sooner or later come into contact with counterfeit goods. Understand the basics so you can protect yourself.
How Does Counterfeiting Do Harm?
Counterfeiting robs legitimate companies by stealing their revenues and profits. For a well-recognized brand, most of the equity accounted for in the market capital is due to the brand name itself. A luxury-goods company such as Tiffany, for example, has been investing in and building its brand for over 160 years. Brands relying on licensing for revenues, such as major sports leagues and teams, also lose substantial profits to unauthorized branding. Firms in EU countries alone lose an estimated $28.5 billion in profits each year along with an estimated 360,000 jobs in that economic area due to counterfeiting.
Counterfeiting weakens luxury brand equity by creating “inflation” for that brand; a person spending $2,500 on a designer purse does not want to see everyone else on the street sporting $200 knock-offs. Counterfeits dilute the market, which is especially harmful to fashion brands whose appeal rests on an aura of exclusivity.
Counterfeiting also costs governments tax revenue on both sales and profits; counterfeits are almost never properly registered with taxation authorities. It can even sometimes pose health risks, even death ' for example when knock-off toys feature small or loose parts, or are made from toxic materials. See, “Death In China Prompts
Counterfeits on the Docks
Not surprisingly, the holiday season represents the peak of the counterfeiting trade, both in the U.S. and abroad. A three-day U.S. Customs and Border Protection probe last December at JFK International Airport's mail facility netted $450,000 in counterfeit items, including items bearing trademarks from Louis Vuitton, Gucci, Michael Kors, Chanel, and Coach. UK border staff stopped 170,000 items in late November of 2014 in just one operation targeting Dover Docks.
Other key times of the year for the flow of counterfeit goods are major sporting events, when large amounts of licensed trademarked materials are purchased. Federal authorities reportedly seized over 325,000 counterfeit items after last year's Super Bowl, valued at $19.5 million. See, “Feds Seize $19.5M in Counterfeit Super Bowl Merchandise,” Las Vegas Review-Journal (Jan. 29, 2015). The Wall Street Journal reports that in each of the last three years, U.S. federal agents have seized counterfeit goods with a retail value of over $1 billion, most of which arrive through the ports of Los Angeles and Long Beach from China and Southeast Asia. See, “U.S. Officials Chase Counterfeit Goods Online,” WSJ.com (Nov. 28, 2014).
How Counterfeiters Use the Internet
While some trade on the “black market” or though in-person settings has always existed, the Internet has become the major facilitator of the trade in counterfeit goods. This is because it allows counterfeiters to directly reach consumers instead of having to work through complicit retail middlemen. The counterfeiters often work from countries where brands have limited ability to enforce their trademarks.
The Internet offers anonymity to the buyer and seller, and the scale of individual transactions makes enforcement difficult. In the past, a local retailer or kiosk that sold counterfeit goods could be a focal point for investigators; however it is difficult, if not impossible, for investigators to track individual packages in the mail.
While efforts to catch products in transit continue, the emerging battleground is the Web. While efforts to intercept the actual goods in transit result in seizures of goods (like those described above), the items seized are estimated to be only a small percentage of the goods actually sold and shipped each year and do little to cut off the source.
Unfortunately, counterfeit sites multiply like hydras ' each time one is shut down, two more often appear. Counterfeiters usually work by volume; they will set up large numbers of websites, so even if one is shut down, their entire operation still thrives.
Not only does this provide the counterfeiter with numerous platforms from which to sell, it also creates a smokescreen for investigators. A single counterfeit seller may run hundreds or even thousands of apparently unrelated websites selling the same product. No single website becomes a highly visible target in this way ' instead, the investigator finds him- or herself fighting a swarm of gnats.
Consider these recent examples:
Counterfeiter Techniques
Counterfeiters have developed a sophisticated array of techniques to generate online sales, many of which are legal and take advantage policies of major search engines.
The savviest counterfeiters are experts at Search Engine Optimization (SEO) and the art of achieving high placement in search engine listings. It is well-known among marketers that most people only click on the first three or four entries returned when they search
While SEO techniques are relatively “free” to implement, counterfeiters will also use Pay Per Click (PPC) ads, such as
With this knowledge, counterfeiters have become increasingly sophisticated at hijacking search engine and social media marketing to steal traffic and send it to their myriad sites. It is estimated that 14% of branded paid search traffic is hijacked by counterfeiters.
Counterfeiters also use “silent redirects” to move the customer to a different website from the first one they visit. The “original page” will be heavily optimized for SEO ' it will incorporate features that allow it to rank high in list of search results for any given Internet search engine, and consumers will frequently find and click on those links. The counterfeiter may have many such pages with URLs differing only slightly, each to bring in visitors searching on very slight variations on search terms; all of these pages then immediately redirect visitors to a different set of pages designed to encourage purchases.
Silent redirects make it very difficult to track counterfeiters. The page visible to search engines may offer little in terms of useful material for investigators, and some counterfeiters have been found to be using over 10,000 websites at a given time.
This technique does two things. First, it increases the chances that customers will find the counterfeiter online by sheer force of number. Even if the counterfeiter does not possess many of the SEO advantages of a legitimate site, he is able to compensate by volume.
Second, this approach makes it very difficult to find and prosecute a counterfeiter. The initial “landing pages” do not even sell counterfeits and for that reason are very difficult to shut down. The complex system of redirects can make it difficult to determine how many of these landing pages are associated with a single operation.
Back-end operations may be as bewilderingly complex as the network of websites: Internet domains may be registered in one country, sites hosted from a second, and payments processed from a third. All of which adds to the tremendous difficulties in finding the true identity of a counterfeiter.
Anti-counterfeiting Techniques
Border and customs officials work to seize counterfeit goods, either individually or in bulk, as they enter a country, but this method only captures a small percentage of counterfeit goods sold and shipped.
As a result, brands themselves have taken greater responsibility to protect their own trademarks. Incoming goods are nearly impossible to identify and intercept, and brands may have little legal recourse to stop the manufacture of counterfeit goods in other countries. Brands' anti-counterfeiting efforts therefore focus on methods of preventing the sale of goods over the Internet. While a brand may not always be able to enforce direct legal action against a foreign seller of counterfeit goods, the brand can influence parties facilitating the sale of goods through partnerships and legal procedures.
One way they fight organized counterfeits is by enlisting the help of experts who have the expertise and tools to assist corporate counsel and law firms in building their case against counterfeiters. Such investigators must be experts with the Web and be sensitive to legal issues concerned.
Rob Holmes is the founder and CEO of IPCybercrime, an Internet security firm that works with brands to stop counterfeiting. According to Holmes, it is important to show that a given counterfeiter represents an organized business model with the intent to perpetuate itself ' counterfeiting is, in this sense, a “white collar” crime. To make the case, Holmes and his investigators must show that myriad websites are connected, and also who is running that network.
Holmes' firm was one of the first to use analytics information in the source code to establish a connection between numerous seemingly unrelated counterfeiting websites. Holmes noticed that numerous Web pages' source code contained the exact same
Besides such innovative techniques, Holmes uses state-of-the-art tools for his Internet investigations. Holmes notes that simple screenshots of webpages are no longer sufficient: these take too long to produce, fail to automatically record data about the webpage, and do not preserve a digital chain-of-custody appropriate for legal evidence.
Holmes prefers to use Page Vault, a software-as-a-service solution that allows him to quickly and accurately captures websites, along with their source code. Page Vault preserves the electronic digital chain of custody and authenticates captures even if after websites are taken down by the counterfeiter. And because Page Vault runs in the cloud through proxy servers, users' browsers are protected from the malware frequently found on counterfeit sites, all the while keeping the user anonymous.
Help from
Increasingly, legitimate firms whose services are required by counterfeiters are being pressed to join the fight. For example, in 2004 Tiffany sued eBay for counterfeit sales on its site, but courts agreed that eBay could not police every illicit post. See, Tiffany (NJ) Inc. v. eBay, 600 F.3d 93, 99 (2d Cir. 2010). Currently, several high-profile lawsuits are underway against Alibaba, the Chinese online marketplace; anti-counterfeiters are watching these carefully for clues about how much courts will require such marketplaces to contribute to the fight against counterfeits.
Just in the past month,
Counterfeiters want their sites to appear legitimate, so they use copies of the brand's product photos, logos, and even advertising campaigns to dupe the user into believing the site is a legitimate retailer. Such promotional material is covered by copyright laws (such as the Digital Millennium Copyright Act (DMCA), 17 U.S.C. '512 (1998)) and is subject to removal from search engine results by
Chanel, for example, has requested removal of 4,135 URLs, while the above-mentioned Deckers Outdoor Corporation (UGG boots) has requested over 20,000 URLs to be removed. Bridal gown designers are among the largest requestors: Justin Alexander Bridal and Mon Cheri have together requested removal of more than 350,000 URLs.
Conclusion
Counterfeiters will continue to take advantage of established brands and consumers as long as there are brands to counterfeit. It is important to be aware of the latest trends and technologies in this space, both to protect brands and to avoid contributing to the problem. Learn more about protecting brands with the International Trademark Association (INTA) and the International AntiCounterfeiting Coalition (IACC).
Patrick Schweihs is the Vice President of Customer Solutions at Page Vault and has extensive experience fighting online counterfeiting. He holds a mechanical engineering degree from the
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