Report says online sellers need to do more to block counterfeits

Whether sold online or in a store, illegitimate merchandise is a serious issue
David P. Schulz
NRF Contributor

A new report on counterfeit merchandise blames online sellers for failing to do enough to verify that items sold on their websites are legitimate, and Congress has responded with legislation that would hit sellers with penalties if they don’t do more.

Bricks-and-mortar retailers have “a well-developed regime” for licensing, monitoring and otherwise ensuring the protection of intellectual property rights, according to the “Combating Trafficking in Counterfeit and Pirated Goods” report released by the Department of Homeland Security in January.

Such an anti-counterfeit system, however, “is largely non-existent” for ecommerce sellers, the report says.

Lawmakers in Washington were quick to respond, with a bipartisan group in the House introducing the SHOP SAFE Act, short for Stopping Harmful Offers on Platforms by Screening Against Fakes in Ecommerce, in March.

The measure, which has yet to see action, would require ecommerce platforms to monitor goods sold via their marketplaces or be held liable for trademark infringement. Bogus items that could potentially harm consumers’ health or safety would be particularly scrutinized.

“Counterfeiters have followed consumers and it is clear more must be done to combat the rising trend in online sales of counterfeit products.”

Jerrold Nadler, D-N.Y.

“American consumers increasingly turn to the internet to shop,” the bill’s lead sponsor, House Judiciary Committee Chairman Jerrold Nadler, D-N.Y., said. “Counterfeiters have followed consumers and it is clear more must be done to combat the rising trend in online sales of counterfeit products.”

Security and safety threats

As the largest ecommerce retailer in the world, Amazon has drawn the most attention on the issue of counterfeit merchandise sold online. Amazon’s response has included Project Zero, which provides automated protection powered by machine learning to “proactively remove suspected counterfeits.” The $400 million project also allows brands selling on the Amazon Marketplace to unilaterally remove fake listings.

Without citing the Amazon initiative by name, the DHS report said anti-counterfeit efforts by major online sellers have removed millions of counterfeit product listings. But DHS nonetheless said, “private-sector actions have not been sufficient to prevent the importation and sale of a wide variety and large volume of counterfeit and pirated goods to the American public.”

Bogus goods are about more than just intellectual property theft, DHS maintains.

“Counterfeits threaten national security and public safety directly when introduced into government and critical infrastructure supply chains, and indirectly are used to generate revenue for transnational criminal organizations,” the report said.

“Counterfeits also pose risks to human health and safety, erode U.S. economic competitiveness, and diminish the reputation and trustworthiness of U.S. products and producers. Across all sectors of the economy, counterfeit goods unfairly compete with legitimate products and reduce the incentives to innovate both in the United States and abroad.”

Reputations at risk

The National Retail Federation agrees that counterfeit merchandise is a serious issue — whether it’s sold online or in a store.

“The harm caused by one marketplace inadvertently carrying counterfeit or pirated goods … is difficult to contain.”

National Retail Federation

“Brand reputation becomes an immediate casualty when consumers unknowingly spend their hard-earned dollars on goods sold at bricks-and-mortar retail stores or on online third-party marketplaces only to later discover that these goods are shoddy or inferior counterfeits,” NRF said in comments filed with the Commerce Department last year. “The harm caused by one marketplace inadvertently carrying counterfeit or pirated goods … is difficult to contain.”

NRF says part of the blame for the prevalence of counterfeit goods is lack of sufficient enforcement by government agencies such as Customs and Border Protection when imported counterfeits enter the United States. Agencies also provide retailers with only limited information about counterfeits they seize, and the information is often delayed, according to NRF. Software is available that helps brands identify counterfeits being sold online, but without timely government data several weeks can pass before bogus illegitimate goods can be removed from the market — a crucial issue at times of year such as the holiday season.

In its comments, NRF called for development of a “collaborative, voluntary information sharing system” that would include intellectual property owners, retailers, third-party intermediaries and government agencies.

Challenging standards

Ecommerce platforms maintain they should not be blamed or punished for the actions of third-party sellers, saying millions of products and sellers would need to be vetted.

“Establishing trademark and contributory liability are the key differences here. This would require significant retooling of methods to detect counterfeits,” says Dan Frechtling, president of G2 Web Services.

It can be difficult to determine whether a product is counterfeit unless it is physically examined by its legitimate provider.

Frechtling says it can be difficult to determine whether a product is counterfeit unless it is physically examined by its legitimate provider and that trying to identify counterfeits by looking at online characteristics such as price and photos is fraught with false positives.

“What are marketplaces to do?” he asks. They would have to hire “an army” of reviewers, similar to the way Facebook has hired more moderators to police content, or limit doing business with new sellers, sellers from China or sellers with low prices. But doing so would lead to higher prices and lower selection, and only the largest marketplaces would have the resources to create an “elite level of precision.”

But others say online retailers should be held to the same standards as bricks-and-mortar.

“Why should retailers have to carry the cost of ensuring the stock they sell is not counterfeit while marketplace sites don’t?” says Andrew Blatherwick, chairman emeritus of retail planning firm Relex Solutions. “We seem to want to create a whole new world and set of rules for the online community and this just encourages unscrupulous traders to profit and thus proliferate. It is time the online traders have the same responsibility as traditional retailers.”

“If there is a not a stand made here, then the chances of stamping out counterfeit goods will be greatly reduced,” Blatherwick says. “Everyone needs to take responsibility for their supply chain and the integrity of their brand.”

Vetting sellers

The devil is in the details, says Liz Adamson, founder of Egility, a digital marketing agency that specializes in advising clients that sell on Amazon.

“Marketplaces should be held responsible for ensuring their site does not sell counterfeit goods,” she says. “The unfortunate part of this is that there are literally millions of sellers … and it’s no easy task to figure out who is selling legitimate items. Vetting the sellers when they set up the account would help. However, what do we do with the millions of sellers already on the platform?”

“I’ve watched [websites] try to crack down on counterfeits and I’ve watched innocent resellers have their listings taken down because of a false positive,” she says. “Bad actors are actually filing inaccurate ‘counterfeit’ claims … just to take down their competition.”

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