Voluntary collaboration and corporate responsibility online
This is an Insight article, written by a selected partner as part of WTR's co-published content. Read more on Insight
While the online distribution of counterfeit and pirated goods continues to expand at a rapid pace, the legal tools available to rights holders to combat this illicit trade remain limited. This is particularly true in terms of the statutory tools available, as legislation continues to lag far behind the evolving counterfeiting situation.
While the online distribution of counterfeit and pirated goods continues to expand at a rapid pace, the legal tools available to rights holders to combat this illicit trade remain limited. This is particularly true in terms of the statutory tools available, as legislation continues to lag far behind the evolving counterfeiting situation. Legislative efforts to modernise statutory frameworks that were developed for a brick-and-mortar world – including the ill-fated Stop Online Piracy Act, which failed in the US Congress in 2012 – and to address universally acknowledged online problems have been met with great resistance. That opposition has been driven largely by concerns that the cure could be worse than the disease – in other words, the attempt to rein in illicit trafficking online could likewise negatively affect legitimate online commerce.
But while legislative efforts in this area have stagnated in recent years, the private sector has stepped forward to provide its own solutions to the problems experienced by rights holders in the online marketplace. These initiatives have been underscored by a recognition of the fact that the trafficking of counterfeit and pirated goods online poses a threat not only to those rights holders directly affected by the sales, but also to the vitality of legitimate commerce in general, since it undermines consumer trust in the broader online marketplace.
Evolving distribution models
In recent years both rights holders and enforcement authorities have cited two growing concerns in the trafficking of counterfeit goods, which appear to be related. The first of these is the above-discussed shift to online sales of counterfeit goods. Concurrent with this movement away from the traditional brick-and-mortar distribution model is the more streamlined, direct-to-consumer shipment of the goods themselves. In the past, the logistics and distribution chains of manufacturers of counterfeit goods tended to rely primarily on large-scale shipments via ocean cargo; once the goods had reached their destination markets, the shipments were sub-divided for wholesale and retail distribution. Accordingly, enforcement efforts focused on identifying and interdicting illicit traffic at major seaports, as well as the importers, wholesalers and retailers which were essential in delivering the products to consumers. Seizures of container-sized shipments of counterfeit goods could greatly affect counterfeiters’ profit margins, as any such seizure could be expected to involve large volumes and high values. Where the shipments evaded detection by border enforcement authorities, criminal or civil actions against the domestic portion of the distribution chain could provide valuable intelligence on targets further up the distribution chain.
However, with the explosion of illicit online commerce, enforcement personnel have identified a pronounced shift away from this traditional model. Counterfeiters abroad no longer require the services of the domestic distribution chain to connect them with their end customers in retail markets; nor do they need the logistical support that distributors provided in the past. The ease with which counterfeiters can set up a consumer-facing online presence and their ability to ship wares via small mail or express delivery consignments have begun to obviate the more complicated networks that were previously the norm. The resultant deluge of small packages has customs agencies under increasing strain to handle the staggering volumes involved and has greatly diminished the effectiveness of the traditional detection/detention/seizure approach. In 2014, for example, seizures via postal and express delivery services in the European Union accounted for more than 81% of overall cases – over 6% of the total articles and over 16% by value of the counterfeit goods seized. Just five years ago, those numbers were approximately 51%, 4.3%, and 5.6%. In the United States, meanwhile, US Customs and Border Protection noted that although total seizures were down in 2014, one category of shipments saw an increase in seizures – express consignments.
In years past, targeting container-sized shipments of counterfeits was often characterised as “trying to find a needle in a haystack”. However, the new distribution model results in many much smaller needles in an exponentially larger haystack. Even where customs officials can accurately target and detain these small consignments, the ultimate cost to the counterfeiters themselves is minuscule. Having already been paid by the consumer to whom the shipment was bound, the counterfeiter may lose only the cost of replacing the items or – more likely – a dissatisfied customer, who has paid for a product that he or she will never receive. Although ocean cargo remains a key distribution channel for counterfeit goods (and will remain so for years to come, along with air and ground cargo), rights holders and enforcement authorities must alleviate the increasing strain placed on customs officials by the flood of express delivery and mail shipments. The targeting and examination of parcels for interdiction at the border must be supplemented by other enforcement tools if counterfeit goods are to be prevented from reaching consumers.
Identifying choke points
As rights holders and others have begun to analyse these emerging concerns in recent years, a significant focus has been placed on the so-called ‘choke points’ in the online economy. How do consumers find counterfeit goods online and how do counterfeiters offer their illicit wares to consumers? How are the goods purchased and sold? What sort of infrastructure is necessary to get the goods from the seller to the buyer? Each step in the distribution chain presents an opportunity for rights holders and enforcement personnel to disrupt counterfeiters’ illegal businesses.
There are two primary ways in which consumers discover counterfeit goods online: searches and advertising. Whether the consumers are actively seeking out counterfeit products or – as is often the case – simply seeking a good deal on authentic goods, finding a site offering counterfeit products online is often as simple as going to one’s preferred search engine and typing in the words “cheap [insert brand name]”. Counterfeiters often employ sophisticated search engine optimisation strategies to ensure that their sites appear at or near the top of organic search results and frequently invest in paid advertising that appears alongside organic results. Search providers, meanwhile, have typically been reluctant to engage in the wholesale removal or de-indexing of websites. And although direct links to infringing items or specific pages on a site may be removed, neutral search providers enjoy broad immunity from liability based on their inclusion in search results of sites dealing in illicit products. These reasons, coupled with the staggering number of sites online that offer counterfeit goods for sale, have made it extremely difficult for rights holders to make a dent in the number of outlets available to consumers. Likewise, the use of advertising to drive consumer traffic to these types of sites – whether spam emails frequently employed to market counterfeit pharmaceuticals or software, sponsored links on social media platforms or the paid search model – appears to have increased in recent years.
Online sellers of counterfeits, just like legitimate online businesses, also rely on a variety of infrastructure providers – including domain registrars, internet service providers, web hosting services and marketplace platforms – to maintain their presence online. Add to that mix the payment service providers, including credit card companies, and delivery services (whether express consignment or traditional mail providers), and a wide array of options are available to rights holders and enforcement agencies to bring pressure to bear on counterfeiters.
Collaborative initiatives in the private sector
The trafficking of counterfeit goods online poses a significant threat not only to rights holders, but also to the online market as a whole. Sales of counterfeits – particularly when they are made possible by well-known, trusted service providers – can lead to decreased consumer confidence in the broader online market, depriving legitimate businesses of the efficiencies of participating and investing in the online ecosystem. Recognition of this fact, along with the simple fact that most service providers would prefer not to have their operations exploited by criminals to facilitate illegal activities, underlies the development of a number of collaborative efforts that have sprung up in the past few years.
The first of these was the International AntiCounterfeiting Coalition’s (IACC) RogueBlock programme, begun in collaboration with the payment sector in January 2012. This cooperative initiative between the IACC and a number of the world’s largest payment processing and money transfer companies was developed to provide a direct line of communication between rights holders and participating credit card, payment processing and money transfer networks for the identification and reporting of websites engaged in the trafficking of counterfeit or pirated goods. Those service providers already prohibit merchants from using their systems to facilitate illegal transactions; with the assistance of rights holders, they can better identify entities violating their policies, so that appropriate remedial action can be taken. Because merchants are bound by their service providers’ policies regardless of jurisdiction, the programme has global reach, allowing action even against operators of websites that would normally be insulated from domestic civil or criminal actions.
The payment system is a natural choke point in the online retail environment. Merchants selling counterfeit goods must be able to receive payments for their illicit wares in order to stay in business; by directly attacking that capability, rights holders can cut off the revenue stream that makes such illegal businesses possible (and profitable). Traditional methods of online enforcement – such as Uniform Domain Name Dispute Resolution Policy proceedings – often focus on the website itself, resulting in a ‘whack-a-mole’ process as counterfeiters simply shift to new domains to continue their operations. However, re-establishing new capabilities to receive payments is a more expensive and time-consuming process that is also subject to greater oversight. An additional benefit is that operators of sites trafficking in counterfeit goods generally use a single merchant account to process payments for a number – sometimes thousands – of websites. Enforcement against a single site’s payment facilities will in turn affect the entire network of illicit sites.
Outside the payment sector, other collaborative programmes have also begun to take shape, bringing together a diverse group of industry sectors and partners. In the online advertising space, the Trustworthy Accountability Group is leveraging the expertise of the Interactive Advertising Bureau, the American Association of Advertising Agencies and the Association of National Advertisers to bring together a wide range of service providers, rights holders and other interested parties, building on best practices developed to address ad-supported piracy and the use of advertising to drive illicit traffic. These efforts include working with legitimate companies to ensure that their ads do not end up on infringing sites (which can offer the sites an air of legitimacy and provide additional revenue), and working with advertising service providers to safeguard against unwittingly driving traffic to known bad sites. When they click on an ad, consumers should not have to worry that they will be taken to a site selling illegal – and potentially dangerous – goods.
A wide range of cross-industry initiatives have also been undertaken in an effort to increase consumer awareness about the direct and indirect harms associated with the counterfeit trade. Notable among these are the National Association of Boards of Pharmacies’ Verified Internet Pharmacy Practice Sites programme, along with similar tools offered by the Centre for Safe Internet Pharmacies, providing consumers with a simple way of determining whether a website offering medicine for sale online is a legitimate, licensed pharmacy. The IP Delivers campaign created by the US Chamber of Commerce’s Global Intellectual Property Centre highlights the positive effects of intellectual property and the connection between IP rights, jobs and innovation. The IACC’s own DesignsFauxReal.com website campaign and a first-of-its-kind exhibit at the National Museum of Crime and Punishment highlight the variety of threats posed to consumers by counterfeit goods, both online and offline. This direct engagement with consumers is an essential tool in the fight against counterfeiting and legitimate industry must speak with a unified voice when delivering these important messages.
While great progress has been made in recent years, much can still be done to ensure that the online marketplace thrives as a safe and trusted outlet for consumers and businesses alike. Opportunities remain for better coordination and collaboration in a number of sectors, and rights holders must continue to engage with the key players situated at the choke points of the counterfeit distribution chain if we are to achieve our goals. It is incumbent on all responsible parties in the process to play a role in protecting consumers and the legitimate marketplace.
International AntiCounterfeiting Coalition
1730 M Street NW
Washington DC 20036
Tel +1 202 223 6667