Fighting online luxury counterfeits

Luxury brands are finding it tough to combat the rapid rise of fake goods traded on the internet

Earlier this year, several luxury brands owned by Kering, including Gucci and Yves Saint Laurent, sued Alibaba for allowing counterfeit goods to be sold on its platforms.



The case shone a light on a growing problem; the rise of counterfeit luxury goods brokered on the Internet. Although counterfeiting is nothing new, the industry is increasing “exponentially”, according to Bharat Dube, the founder of Strategic IP Information (SIPI), a company which protects digital brands online.



“The problem is threatening to spiral out of control, both offline and increasingly online,” said Dube, who previously lead the IP Litigation Team at Swiss luxury goods conglomerate Richemont, working with brands like Cartier and Montblanc.



Although no-one knows for sure how much the black market for fake goods is worth, it is estimated at around 5-7 per cent of overall global trade, which the UN Office on Drugs and Crime values at approximately $250 billion. Brand protection and counterfeiting specialists like SIPI, MarkMonitor, Opsec, and NetNames, are in high demand as services to identify issues and initiate lawsuits and raids.



Difficult to police



The counterfeiting landscape has changed dramatically in the last decade, from hawkers and touts on street corners to indistinguishably genuine-looking products sold online.



These products often come with real packaging and guarantee cards and the millions of fake sites are almost impossible to police. The business has become a scale enterprise where a single retailer can gross millions of dollars, whereas before, it was difficult for counterfeiters to accumulate scale without being caught.



Of all the industries, luxury brands are fighting the hardest to combat streams of fake products and potential reputational damage as they have the most to lose. An authentic Gucci bag costs around $1,000, but is available on the black market for less than $20.



The recent case of over $600 million being awarded to the Richemont Group in the US, shows the potential for heavy penalties against counterfeiters. But victories like this are rare.



Part of the problem is that fighting fakes can be very expensive and time-consuming. There is a general reluctance in some parts of the world to spend on protecting IP rights, so SIPI recently started the Asian Coalition Against Counterfeiting and Piracy, which enables several brands to get together to go after a common target.



They are also launching an IP health index to help brands understand the problems they are facing in the digital world. It could be a worthwhile investment.



The CEO of Chinese smartphone maker Xaomi recently said that if it weren’t for counterfeits, the company revenues would be two or three times higher.



Legal actions



As well as luxury goods, industries with counterfeiting problems include consumer brands, software, pharmaceuticals, publishing and intellectual property.



US brand Diesel has recently been battling issues of infringements of its trademarks and designs in China. In a single week, Diesel has around three legal actions in the world’s biggest nation, said a spokesperson.



In 2014, Diesel started a legal action before a US Federal Court against 83 sites that were illegally selling counterfeited products via sites with ‘Diesel’ in their domain names. So far, Diesel has closed 3,346 sites, sent 4,000 cease and desist letters, and delisted 19,000 sites from Google.



China is where an estimated 70 per cent of counterfeiting takes place, according to the UN Office on Drugs and Crime. “When China became the workshop of the world in the nineties, production centres moved in,” explained Dube. “The vast size of the country means it is relatively easy to hide as a counterfeiter,” he said. Although the State Administration for Industry and Commerce carries out raids against infringers, the fines are usually very small and a fair price to pay for carrying out a highly profitable business, he explained.



Today counterfeiting is an industry where perpetrators are au fait with offshore banking, document fraud and complicated technological systems. “With scale, has come sophistication,” said Dube.



Protecting identity



This is concerning as e-commerce becomes increasingly key to brands’ bottom line. Worldwide e-commerce sales will hit $2.3 trillion by 2017 according to eMarketer. Growth will come primarily from the rapidly expanding online and mobile user bases in emerging markets and the push into new international markets by major brands. As retailers become more dependent on online, they need to be able to follow the money trail. Given the new context of alternate payment mechanisms, including crypto-currencies, and a whole new generation of domain names, this becomes increasingly difficult, said Haydn Simpson, head of brand protection at NetNames.



“While the ‘Wild West’ nature of the internet means that protecting the online brand remains a considerable challenge, maintaining a robust domain name strategy and making sure that a degree of control is retained over any content placed online, will help marketers stay one step ahead of the cyber-cowboys,” he said.



Almost eight in ten internet users would shun a company if they found themselves on a bogus website pertaining to be that brand, according to a recent NetNames report.



The writer is Editor in Chief, Weath-X

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