The web has extended counterfeiters’ reach around the world—and made them harder than ever to find
By Linda Punch
The FBI launched Operation Site Down last month to fight Internet piracy of movies, games and software with the arrest of four people and the seizure of hundreds of computers and servers
that it claims were distributing counterfeit goods.
But, while a necessary step in the fight against online sales of counterfeit merchandise, the
action will hardly put a dent in the flood of bogus merchandise that the Internet makes possible. “The demand is still there, so it’s just going to be fulfilled by someone else,” says Joseph Loomis, vice president of sales and marketing, Net Enforcers Inc., a company that specializes in tracking down counterfeit fraud on the Internet. “They wouldn’t be counterfeiting things unless they knew everybody wanted them.”
While counterfeiting may be
as old as commerce, the Internet has raised sales of counterfeit goods to new heights—or taken the practice to new depths. No longer are counterfeiters limited to selling goods at flea markets, on the street or in other venues outside the retail mainstream. Now they have a global reach, peddling their wares through online auction sites, web sites and spam. And their potential customers now number in the millions, rather than in the hundreds.
No one really knows what
percentage of counterfeit fraud comes from online sales, but
observers say it is accounting for an increasingly larger share of losses. “It exists everyday on eBay with almost every major brand you can be aware of,” Loomis says.
And it’s widespread even outside of eBay. “There’s a tremendous
number of Internet retailers who are peddling counterfeit goods—some that don’t realize the goods are counterfeit and others that do know,” says Glen Gieschen of the Gieschen Consultancy, which tracks counterfeiting and intellectual piracy activity.
In fact, the online environment is well-suited for the sale of fake goods. The anonymity afforded by the web allows counterfeiters to operate with little chance of being detected. “They set the sites up in a matter of minutes, and then take them down and move them within 24 or 48 hours,” Gieschen says. “It’s extremely difficult to track those individuals—it’s the Wild West in terms of enforcement.”
Counterfeiting accounts for about $500 billion annually in the global economy, representing about 7% of global trade, according to the International Chamber of Commerce. Compared to the size of the problem, efforts to stem it are pitiful. During the first quarter of this year, authorities worldwide seized about $1.1 billion
in counterfeit and pirated goods,
Gieschen says. In May, counterfeit and piracy seizures and losses worldwide totaled $103 million, up 193% from April but still not even a drop in the ocean of counterfeit goods.
Tremendous growth
Gieschen says that over the past three to six months, more anti-counterfeiting activity has moved to the Internet.
“There’s been just tremendous growth in the amount of counterfeit and pirated goods that are now available through auction sites,” he says.
With the avalanche of fake items being sold online, a mini-industry has sprung up of companies that specialize in tracking down counterfeiters. These companies monitor the use of brand owners’ trade names, logos, and images on web sites and in chat rooms.
Net Enforcers, for example, uses sophisticated software to locate sites using photos, product descriptions, and trademarks of brand owners. The software can check for name variations and will search both visible and invisible text for evidence of counterfeiting.
Once a site is identified as fraudulent, Net Enforcers will buy a product from the site then attempt to locate the source of the counterfeit product. It then works with the companies to shut down the counterfeiting operations.
In addition, law firms have opened practices that perform similar services, then advise clients on a legal strategy for closing them down. Many of the companies also work directly with law enforcement agencies, including local police departments, the FBI and U.S.
Customs Service.
Other companies, such as
Gieschen, gather intelligence that brand name owners can use to identify counterfeiters. Gieschen issues daily, weekly and monthly reports on the number of counterfeiters arrested or convicted globally, the value of counterfeit goods seized, the types and brands of products counterfeited and other information. It also offers an intellectual property protection service and a document security service.
But brand name companies and retailers often are frustrated in their efforts to shut down counterfeiters.
That’s because, unless the case involves large sums of money and a large operation, counterfeiting falls low on the list of priorities of most law enforcement agencies, Loomis says. “If you have someone big on eBay selling fraudulent items, it might be in your best interest to report it to a law enforcement agency because it’s obviously going to happen more than once,” he says. “But for a small, fly-by-night place, the FBI isn’t going to go after one guy.”
The scope of the problem is so big, that most victims can’t fight it all. “Obviously, nobody has unlimited resources so they have to choose their battles wisely,” Gieschen says.
Fertile ground
Auction sites appear to be the most fertile ground for counterfeiting.
That’s because the sheer quantity
of items on those sites makes it
extremely hard for the brand name owner or others to monitor for counterfeit products. Auction
giant eBay.com, for example, hosts 50 million listings at any given time. “Auction sites are a huge challenge for brand owners and for consumers trying to verify the authenticity of the goods,” Gieschen says.
EBay acknowledges that counterfeit items turn up on its site, but insists that they account for only a small percentage of listings. “Given the total volume of trade that happens on the site, it is an incredibly small problem,” a spokesman says.
Tiffany & Co. thinks otherwise. The upscale jewelry designer and retailer in June 2004 filed suit against the auction site, charging it with “direct and contributory” trademark counterfeiting and infringement. The lawsuit is in the discovery stage and isn’t expected to come to trial any time soon.
According to Tiffany, a study of certain Tiffany items for sale on eBay revealed 73% of the jewelry was counterfeit and that only 5% was genuine. In its lawsuit, the retailer says the auction site is “infested with many thousands” of poor quality counterfeit Tiffany items.
Notification needed
Further, Tiffany contends that eBay, by providing a forum for the sale, has made it easier for counterfeiters to sell fake goods and that it actually promotes such sales. Tiffany cites promotions on eBay’s greetings page that list a variety of brand-name goods. “Moreover, eBay has arranged with Yahoo and Google so that an Internet user who types in ‘Tiffany’ is greeted with a ‘sponsored link’ for eBay,” Tiffany says in the suit.
Tiffany says eBay should know that the large quantities of Tiffany products it lists are almost certainly counterfeit because there are limited channels of trade for genuine Tiffany
merchandise.
EBay also has a financial interest in promoting the sale of counterfeit
items, Tiffany alleges. “Tens of thousands of counterfeit items are sold through the eBay web site each year, and eBay charges hundreds of thousands of dollars in fees in
connection with the sale of this counterfeit merchandise on an
annual basis,” Tiffany says in the suit.
The eBay spokesman won’t discuss the Tiffany suit other than to say: “We’re very disappointed that they filed that suit given that we’ve cooperated with their brand-
protection efforts.”
For its part, eBay says it has no way of knowing whether an item listed on its site is counterfeit unless contacted by the brand owner. “We are not a retailer, we’re not the ones doing the selling, and we never at any point during the transaction process have the item in our possession,” the spokesman says.
EBay wants to do whatever it can to help copyright, trademark and intellectual property owners protect their rights, the spokesman says. The auction site conducts daily searches for listings using words such as “replica” or “looks like” that could indicate possible infringement of a trademark or copyright. “It’s against eBay policy to say ‘I’m selling this handbag. I’m not sure if it’s a Gucci or not. It could be but it might not be,’” the spokesman says.
And eBay says it is not feasible for it to become expert in all of the products, trademarks, copyrights, patents, publicity rights, licenses and pricing structures of all rights owners.
“Until the copyright owner lets us know that something looks like an infringement of their copyright, we’re not going to take it down,” the spokesman says.
No subtlety
Under eBay’s Verified Rights Owner program, brand name owners can have fraudulent listings pulled from eBay by filing a notice of copyright infringement. EBay won’t disclose the number of notices filed, but the program has about 710,000 participants.
However, filing a notice can be time-consuming, especially if the brand name owner has uncovered a large number of listings of counterfeit products.
If an item is identified as counterfeit, it’s removed from the site, and often, the seller is suspended. In some cases, eBay takes the information to law enforcement officials. “We can and do work with law enforcement on a regular basis,” the spokesman says.
But auction sites are only one means counterfeiters use to sell items online. Many set up web sites of their own. One high-profile case involved a site named fakegifts.com, operated by Mark E. Dipadova and Theresa G. Ford.
Both Dipadova and Ford in 2001 pleaded guilty to selling counterfeit Rolex, Cartier and Tag Heuer watches; Mont Blanc pens and Oakley Sunglasses through fakegifts.com and other sites. Dipadova was sentenced to 24 months in federal prison and ordered to pay $138,265 in restitution to owners of the trademarks.
Dipadova and Ford made no effort to hide the fact they sold counterfeit goods, says Dean Eichelberger, assistant U.S. Attorney for the District of South Carolina, who prosecuted the case. “It was fairly obvious in the name of the web site,” he says.
So brazen was Dipadova that he told a radio interviewer that even though he knew he was violating a company’s trademark, he was making too much money to stop. The fakegifts.com site today proclaims that “The largest replica site on the planet is coming back!!! with even more products than before.” Eichelberger says the message has “been up for some time.”
The Senate’s attention
No one expects to find an easy
answer to counterfeit fraud, on or off the Internet. But lawmakers and law enforcement are focusing more attention on the problem as evidence mounts that the proceeds of counterfeit fraud are funding organized crime and terrorist groups.
Indeed, the U.S. Senate Homeland Security and Governmental Affairs Committee in May held a hearing on the link between the sale of counterfeit goods and organized crime and terrorist groups. The committee chair, Sen. Susan Collins, R-ME, said she expects the hearings to lead to increased efforts by the government and law enforcement “to close off this rich avenue of terrorist financing.”
The International Chamber of Commerce also has launched a campaign to combat counterfeiting worldwide. And countries whose manufacturers and brand name owners are being victimized by counterfeiting are putting pressure on the governments of countries, such as China, where most of the fake goods are manufactured.
But chasing down the counterfeiters is not enough, Loomis says. “Too many consumers just want the brand name, regardless of if it’s real or not,” Loomis says.
A recent Gallup poll found that 13% of 1,304 adults surveyed said they had purchased or downloaded an imitation or counterfeit product in the past year. Of that group, 52.6% said they knew the product was counterfeit prior to the purchase.
That same poll indicates that consumers might think twice about buying fake products if they knew where the proceeds go.
More than 95% of those who bought counterfeit goods said
they would not do so if they knew the money was going to a terrorist
or organized crime group. “We need to attack not only the problem, but also the desire to buy,” Loomis says. l
linda@verticalwebmedia.com
