Counterfeit product sales are at an epidemic level and it seems unstoppable. The international trade in non-domestic counterfeit and pirated products equates to $509 billion annually and growing . This represents up to 3.3% of world trade. Alarmingly it is a growing trend, showing a 10.5 per cent increase on the previous 2013 figures. Also, according to US Customs & Border Protection data, over 75 percent of goods seized between 2004 and 2009 were manufactured in China.
I think it’s fair to say that this growth in counterfeit sales is driven by two things, consumer demand and efficient channels to market. From a consumer perspective, buying a fake product seems like a win for the buyer and a ‘no foul’ transaction. The reality is far more sinister. First of all because counterfeit products can be dangerous and even deadly. For instance, FICCI CASCADE, an industry body in India estimates that "Nearly 20 per cent of accidents on Indian roads are caused by counterfeit auto-products. Further in the FMCG sector, 30 percent of goods sold are fake and 80 per cent of consumers believe that they are using genuine products." Additionally, proceeds from counterfeiting are used to fund illegal and terrorist activities. Most disturbingly, it is reported that forced child labour is used in the manufacture of fake luxury and other goods. With witnesses seeing first-hand children chained, mutilated and underfed while working long hours. Counterfeit sales also have a knock-on impact on reduced jobs and stifling innovation, which is bad for society as a whole.
So of course consumers need to be educated as to why they should not buy fake goods. But the marketplaces where they can be purchased must also take action to stop these products being available on their platforms. In my opinion, this is the biggest challenge to overcome.
Up until now sites, such as Amazon, have fought legal cases against them on the basis that its fulfilment, payment processing and product listing services don’t mean that they are offering a product for sale. In other words, their defence has been, ‘just because you can buy it from our site, doesn’t mean we are selling it to you’. I am paraphrasing of course, but that argument has been a successful one. In one case, Seattle-based novelty pillowcase maker Milo & Gabby argued Amazon was indeed liable for counterfeit versions of their pillows because it made an “offer to sell” counterfeit goods which were stored in Amazon warehouses as part of the Fulfillment by Amazon program. But on two occasions, in the 2015 original case and the later 2017 appeal court case, Amazon’s defence proved the more compelling argument and the ruling went in their favour.
So it is, that January the 24th, 2020 becomes a hugely significant day in the world of e-commerce trade and particularly big marketplaces. On this day the White House issued new anti-counterfeiting policies. This means the old defence used by marketplaces in cases like this will no longer stand. In my experience, the outcome to this will be brands and manufacturers finding it easier to hold marketplaces accountable in courts of law.
Given the possible dangers to individuals and society as a whole that this illicit trade poses, and the legal issues it brings, you would be justified in asking why the various marketplaces haven’t dealt with this issue yet and cleaned up their platforms? In my opinion, it’s because they haven’t had to. It also costs them twice-over to deal with it. Firstly, they have to scale up internal resources and perhaps even pay external providers of specialist services to help them find and delist the counterfeits, but worse than that they then lose the revenue that would have been made from the sale of these products on their platform. That is obviously a bitter pill to swallow, so without any inducement to do so, why would they? Especially when it seems that they genuinely feel it is not their issue to deal with.
I believe that, at this point, we must be fair to these marketplaces as, let’s face it, this is not a simple issue that can be fixed overnight. Counterfeiters are extremely ingenious. They can produce products that look almost identical to the real thing. They will list products without using the brand name or other key search terms to try to avoid their listings being identified as fake. And most amazingly, they’ll even produce fake holograms (and other authentication devices) to make it extremely difficult to identify their product as the fake.
But in my eyes, the real problem is the sheer volume of these fake listings and goods being shipped. The counterfeiters get away with these activities because the number of listings added every day, and the number of packages containing fake goods being shipped, is simply too large for humans to effectively deal with. Like a game of ‘WhackAMole’, you remove one bad listing, or stop one package, and two more appear in its place!.
So what’s the answer? From my experience, I believe the solution is Artificial Intelligence. AI can enable online marketplaces to seek out listings that have suspicious characteristics, such as high-risk brands/products and product pricing being too low for categories, among others. Additionally, a very specific type of AI, called Visual-AI, can help analyze images in listings to identify suspicious characteristics, such as products carrying, or missing, specific marks/markings/logos, and much more. In addition to this, AI can help quickly validate products in the field by authenticating holograms and other visual elements in seconds by using a simple app.
Critically, AI systems are extremely accurate, never get tired and never sleep. They can also process many millions of listings and images per month. This means fake listings can be identified within hours, or even minutes of them going live and be taken down.
This legislation is going to force marketplaces to implement anti-counterfeit procedures. But in real terms, this could be good for their revenues. Less counterfeit products mean more sales of genuine, higher-value products. This, in turn, means more revenue through their platform and thanks to the increased confidence in these platforms, brands will invest more in marketing spend with them.
In closing, I would say that my strong view is that counterfeiting is a commercial and human scourge on the world. It has seemed an insurmountable problem, But the joint forces of this recently introduced legislation, AI technologies and educating consumers will finally allow us to kill off this illicit trade, which continues to be rampant across the APAC region.
Above mentioned blog is penned down by Luca Boschin, CEO & Co-Founder, LogoGrab