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PREVENTING TRADE IN ONLINE FAKES

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PREVENTING TRADE IN ONLINE FAKES

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Online Buyer Beware

U.S. consumers spent over $600 billion dollars with U.S. merchants online in 2019. For consumers, online shopping is enticing for its convenience. With credit card in hand, shoppers can easily compare prices, make a purchase, and have the products shipped directly to their homes. The ability to sell online has transformed the ways in which manufacturers, shippers and retailers conduct business.

The evolution from brick and mortar to online stores has also made it more convenient for illegitimate businesses and criminals to pass off counterfeit products, which has attracted the attention of the U.S. government. Since November 2019, a flurry of government activity has focused on protecting consumers in the e-commerce environment.

Trade in fake goods 3.3 percent of world trade

Political Hue and Cry

The Senate Finance Committee examined online counterfeit goods last November when it issued a bipartisan report highlighting two key fact findings: U.S. businesses have difficulties preventing the sale of counterfeit goods online, and e-commerce platforms have no affirmative obligation to police counterfeit goods listings or to proactively remove suspected counterfeit items.

In January, the Department of Homeland Security (DHS) issued a report titled Combating Trafficking in Counterfeit and Pirated Goods, in which DHS found that e-commerce has contributed to a shift in the sale of counterfeit goods in the United States. As consumers increasingly purchase goods online, counterfeiters are increasingly producing a wider variety of goods that may be sold on websites alongside authentic products. The report adds that American consumers shopping on e-commerce platforms and online third-party marketplaces now face a significant risk of purchasing counterfeit or pirated goods.

A week after the release of the DHS report, the White House issued an Executive Order “Ensuring Safe and Lawful E-Commerce for U.S. Consumers, Businesses, Government Supply Chains, and Intellectual Property Rights Holders”. The Order implicates express carriers and the international postal system as contributing to the problem of imports of contraband and counterfeit goods.

American brands 24 percent of fake products seized

House Bill 6058, the SHOP SAFE Act of 2020, was introduced in early March in the House of Representatives. The bill proposes to impose contributory trademark infringement liability on e-commerce platforms unless they take steps specified in the legislation. The legislation received immediate support from several prominent industry associations.

The American Apparel & Footwear Association’s CEO stated that “more needs to be done to prevent counterfeit products from unknowingly entering the homes of American families.” In support of the bill, the CEO of the Personal Care Products Council stated that “counterfeit personal care products damage businesses, disregard regulatory protection and more importantly threaten consumers’ health and safety,” adding the Council encourages “Congress to establish a system that makes online marketplaces and others responsible for ensuring that products on their platforms comply with U.S. laws and regulations”.

Two days later, House Energy and Commerce Committee Chairman Frank Pallone (D-NJ) stated that the convenience of e-commerce “has come at a devastating price: a proliferation of dangerous counterfeit goods that endanger consumers and property, and an army of counterfeit merchants from overseas that undermine American small businesses with unscrupulous tactics.”

Counterfeit medicines

Hiding on Plain Sites

In general, the owners of intellectual property (copyrights, trademarks, patents) have had a lot to say about the online platforms and marketplaces that host e-commerce. As summarized in the Senate Finance Committee’s report, e-commerce platforms place the burden of policing and enforcing intellectual property (IP) on the IP owners, suggesting they do not have a duty to police counterfeit listings or proactively remove suspected counterfeit goods from platforms.

The proposed SHOP SAFE Act of 2020 would place a greater burden on platforms. By taking steps outlined in the legislation, platforms would be able to avoid liability for IP violations.

During the week the SHOP SAFE Act was introduced and a hearing held to address the issue of e-commerce threats to consumers and the economy, a technology company, PreClear, announced it is using “technology that pushes out the border and prevents infringing goods and potentially harmful goods from being exported to the U.S.” PreClear’s founder is quoted as saying that the technology is in use 24/7 and rejects thousands of non-compliant items daily.

There is no doubt that the sheer volume of infringing and other non-compliant merchandise available to consumers on the internet begs for a solution. The question is whether protection and enforcement begin after the items are in the stream of commerce in the United States or before the items ship to the United States. One of the missing variables in the trade policy equation remains how to prevent infringing items from leaving the country of origin in the first instance.

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Tim Trainer was an attorney-advisor at the U.S. Customs Service and U.S. Patent & Trademark Office. He is a past president of the International AntiCounterfeiting Coalition. Tim is now the principal at Global Intellectual Property Strategy Center, P.C., and Galaxy Systems, Inc.

This article originally appeared on TradeVistas.org. Republished with permission.

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Report Shows Counterfeit Trade Increase in 2019

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A report released by OECD and the EU’s Intellectual Property Office confirmed that counterfeit and pirated goods in trade reached 3.3 percent this year. With the majority of the counterfeit goods being picked up in China and Hong Kong, the spotlight is focused on concerns surrounding consumer health and safety with fake goods such as medical supplies, car parts, toys, food and cosmetics brands and electrical goods.

Excluding domestic produced and consumed fake goods, the customs data seizure reports state the overall value of global fake goods at $509 billion, with the European Union representing 6.8 percent of counterfeit trade from non EU countries. Items such as footwear, clothing, leather goods, electrical equipment, watches, medical equipment, perfumes, toys, jewelry and pharmaceuticals were the top goods that made the list.

“Counterfeit trade takes away revenues from firms and governments and feeds other criminal activities. It can also jeopardize consumers’ health and safety,” said OECD Public Governance Director Marcos Bonturi, launching the report with the Director of the EU Observatory on IPR infringements at the EUIPO, Paul Maier, and the EU Ambassador to the OECD Rupert Schlegelmilch. “Counterfeiters thrive where there is poor governance. It is vital that we do more to protect intellectual property and address corruption.”

Other countries impacted the most in 2016 include the United States, France, Italy, Switzerland, and Germany.

To read the full report, please visit: OECD.org

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Anti-Counterfeit Efforts Finally Go Global

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Washington, DC – It’s no longer just the US and the European Union that are concerned with the festering issue of counterfeit products, say Michael Czinkota and Ilkka Ronkainen of Georgetown University.

“Globally, companies reportedly lose a total of $657 billion every year because of product counterfeiting and other infringement on intellectual property,” they say. “Today’s key problems are with high-visibility and strong brand name consumer goods.”

Intellectual property enforcement “ensures that new ideas can blossom into economic opportunity,” they’ve written in a recently published paper addressing the topic of counterfeit goods.

“Intellectual Property Rights (IPRs) have become a core issue in the global economic debate. No longer confined to cheap knockoffs of luxury goods, IP theft is placing industry and the public at risk of highly adverse economic, safety, and health consequences,” they added.

Earlier, the only concern was whether a company’s product was being counterfeited; now, the raw materials and components purchased for production may be counterfeited.  In general, countries with lower per capita incomes, higher levels of corruption in government, and lower levels of involvement in international trade tend to have more intellectual property violations.

Ronkainen teaches marketing and international business at Georgetown University, while Czinkota researches international business and policy issues at the school.

According to the writers, China, long seen as the focal production point of global counterfeiting operations, has taken significant steps to counter what has plagued the country’s e-commerce market particularly hard.

Alibaba “spends more than $16 million yearly fighting counterfeit goods,” they say. Another example is “Hong Kong’s commitment to the protection” of intellectual property.

“With the goal of enhancing consumer confidence in Hong Kong, and to strengthen the city’s reputation as a ‘Shopping Paradise’ for genuine products, the Intellectual Property Department has launched the ‘No Fakes Pledge’ scheme,” Czinkota and Ronkainen said.

The issuing bodies of the scheme are the Hong Kong & Kowloon Electrical Appliances Merchants’ Association Limited and the Hong Kong Coalition for Intellectual Property Rights of the Federation of Hong Kong Industries.

“The international marketer must act to enforce intellectual property rights.  No industry or country is immune from infringement, nor can they address the threat alone. There is also need for better education regarding the risks IPR violations pose and how to defend against them,” they said.

For example, the pharmaceutical industry lobbied to make sure that provisions for patent protection in the NAFTA agreement were meticulously spelled out.

Pharmaceutical Research and Manufacturers (PhRMA) addressed the issue of international IP protection by responding to the Special 301 Report issued by the US Trade Representative in May 2012.

The PhRMA statement cited the need for IP protections in spurring innovation, research and development, as well as the need for fair international market conditions to ensure that patients have access to medications.

One research firm estimated the global market for counterfeit pharmaceuticals to generate revenues between $75 billion and $200 billion a year.

The Pharmaceutical Security Institute (PSI), a trade association created to address illegal pharmaceutical incidents, collects data on the number of counterfeiting, illegal diversion, and theft incidents. These incidents increased seventy-eight percent from 2005 to 2009.

Pfizer reports that between 2004 and 2010 it seized more than 62 million doses of counterfeit medicines worldwide.  More than 200 million counterfeit Eli Lilly medicines have been seized in 800 raids around the world.

“A number of other governments are drafting similar policies, which have served as a catalyst for enhancing protection in both the public and private sectors in those nations,” said Czinkota and Ronkainen.

Efforts to protect intellectual property, and modernize the patent and trademark system are crucial, they added.

“The power of creativity and innovation applied to the solving of practical problems is not the exclusive province of any country or people. A victory over fakes and counterfeits will protect the quality and reliability of products and services, and lets customers be more informed and secure in their usage decisions.”

10/21/2014

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Tips On Stemming the Flood Of Counterfeit Goods

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Los Angeles, CA – Despite significant government efforts, China remains the world’s primary source of counterfeit goods, constituting 84 percent of shipment seizures in the US in 2012.

Experts, in fact, predict that the online trade of counterfeit goods in China will surpass the physical trade of such goods in the next two to three years.

The problem seems too vast and overwhelming to surmount, however, says Bob Youill, senior managing director in the Global Risk and Investigations practice of New York-based FTI Consulting, “doing so will never be easy, but it can be done” if companies take the appropriate steps.

In an article published this week in the FTI Journal, Youill, an acknowledged authority on product piracy, makes several suggestions on what US-based exporters, importers, retailers and manufacturers can do to stop the production, distribution and sale of counterfeit goods.

First, he says, declare your intellectual property. An effective anti-counterfeiting strategy for China, he says, “begins with begins with registering the relevant intellectual property rights in China, as Beijing doesn’t automatically recognize IP rights registered overseas.”

That done, writes Youill, “quantify the risk to your brand with in-house counsel working directly with key stakeholders to review the company’s markets inside and outside China and organize those markets into those that must be protected and those that are less important to focus on.”

Next, it needs to be understood that the primary responsibility for managing counterfeiting will rest mostly with in-house counsel and will involve representatives from different corporate functions, including a PR lead, external consultants, and internal stakeholders. To achieve that goal, “build your anti-counterfeit team.”

When considering tackling organized counterfeiting operations, a “best course of action” should be strategized that carefully analyzes various tactics that could include ‘street sweeps,’ Customs watches, administrative action, and civil or criminal proceedings.

Lastly, says Youill, “There are a number of risks to manage when dealing with Chinese authorities, such as controlling sensitive corporate information, fulfilling government requests for documents, overseeing internal reporting and complying with reporting rules. So, learn how to work with them.”

08/15/2014