The Illicit Trade of Consumer Goods on E-Commerce Platforms

The digital economy has played a significant role in the world’s economic growth. The shift from traditional markets to online marketplaces has allowed sellers to interact with a larger global audience.

The rise of the e-commerce industry, however, has its own share of problems which, if left unnoticed, may have devastating effects on the world’s economy. Organisation for Economic Co-operation and Development and European Union Intellectual Property Office (OECD & EUIPO) estimates showed that an 80% global growth in counterfeiting between 2008 and 2013.

Unlike a traditional marketplace where buyers inspect products placed on a shelf, e-commerce websites work on the concept of ‘listing.’ Instead of having a physical space for their goods, sellers will create a unique ID through which they list items intended to be sold. Before making a purchase, buyers read the specifications of a product and buy them on the spot. The online platform acts like a host which enables the interaction between the buyer and the seller and doesn’t play any major role in the sale.

Even though online marketplaces made it easier for businesses to serve customers on an international scale, the lack of regulations and surveillance has also provided a safe passage to people with malintent.

In the absence of formal policing, the online world has become the ideal playground for brand counterfeiters. Under the veil of anonymity, counterfeiters conveniently dodge the law-enforcement agencies and other relevant authorities. The latest findings also suggest that by 2022, the total value of counterfeited and pirated goods will reach close to $2.8 trillion. Yes, that’s a “T”!

Such shocking details make it all the more important for business owners and governments to launch a crackdown on counterfeit products and ensure that only genuine products are being sold across all kinds of marketplaces. While many people think that well-known online marketplaces are reliable, the probability of buying a fake product from a genuine website has never been higher.

Back in 2016, the tech giant Apple sued an Amazon supplier for selling counterfeit Apple products. The undetected distribution of such products poses serious threats to legitimate businesses across the world and, in some cases, the consumers’ health.

Enablers of Online Illicit Trade

Global Scale: The internet has facilitated counterfeiters to carry out their operations on an international scale. A counterfeiter can be somewhere in a hotel room in Pekin, using pirated software hacked by a Russian cybercrime gang, and selling counterfeit software to someone in Hungary. S/he can dupe consumers who are miles away from his point of business into buying his counterfeit software at exorbitant prices. Similarly, the sale of tangible goods is carried out in the same manner. A counterfeiter luxury bag maker in Hong Kong can directly sell his/her product to a consumer at any part of the world without having to rely on distribution or shipping channels, or even marketing.

Speed: Everything on the internet is fast-paced. Transactions are completed in just a click. By the time you identify and locate a counterfeiter who is selling a low-quality version of your products, chances are that the miscreant has already made thousands of dollars in profits. The time you spent in meeting law-enforcement agencies and working out a plan to combat the trade, the counterfeiter may already have made a fortune.

Reliance: The internet is resilient and allows almost everyone to create a website. There are no regulations to set up an online marketing place. As a result, it becomes increasingly difficult to take down the sites guilty of selling counterfeit products.

Lack of Global Rules: The rise of free-market has inadvertently given a safe space for counterfeiters to carry out their illicit trade with impunity. And when it comes to e-commerce, there are zero to little regulations that supervise the workings of small vendors running an e-commerce site. At present, 20th-century trade rules are being followed to inspect the sales of goods. The carrier of goods by sea or rail is mostly performed under the law that deals with large, containerized shipments that are made by large companies on a business-to-business basis. These rules cannot be applied to cross-border e-commerce which follows the pattern of small but high-frequency shipments to consumers.

Lack of Resources: Customs administrations around the world make use of limited resources to perform their work. A 100% inspection rate is impossible for the authorities to maintain. With the rise of online trade, new traders are emerging at a fast pace. These limitations make it difficult for the authorities to combat illicit trade.

These reasons contribute towards the rise of illicit trade which is disadvantageous for the businesses of genuine brands and trademark owners.

How Can Brands Fight Back To Online Illicit Trade?

To combat online illicit trade, brands have to work proactively. The following are some of the ways through which a brand can fight this menace.

1. Cross-Functional Teams: To ensure brand protection online, brand owners should consider setting up a cross-function team which can oversee the issue efficiently. All departments of a company (brand protection, risk management, supply chain, IT, legal, public affairs, etc.) work together to identify and take action against the sale of fake products masquerading as the company’s.

2. Establish Presence: Social media platforms allow a brand to verify its accounts. It is essential for a brand to work on having a strong presence on all social media channels. This will disallow counterfeiters from possibly stealing a brand’s identity and running their own businesses under the credible name of a brand.

3. Trademark Registration: Brands should ensure that their trademarks are registered on international territories as well. In China, a brand which files for the registration first gets hold of the trademark, regardless of whether the person making the request is the legitimate brand owner. To respect such policies, brands should come up with a proactive approach and take immediate steps to get their trademarks registered.

4. Proactive Monitoring: All brands must implement robust monitoring to detect abuse across all channels. Brands should actively keep an eye on domain names of cybersquatters who are guilty of unauthorized use of brand terms — a tactic called phishing used to dupe unsuspecting consumers. This monitoring may well help reveal other abuses such as false association with offensive content including pornography.

5. Actions against brand abusers: It is important to take strict and timely action against anyone involved in abusing a genuine brand’s name or product. Steps like sending enforcements to internet service providers (ISPs), search engines, social media platforms, marketplaces, and other third parties to remove the unauthorized content should be taken timely.

6. Make the most of technology: The use of technology can help scan the internet across multiple digital channels. It also allows global monitoring in multiple languages. It can help measure the overall effectiveness of the enforcement program and compliance trends. Through tech, companies can also gauge whether their brand protection programs were a success and can take alternative steps if needed.

7. Educate customers and listen to them: All steps taken to combat illicit trade will fail to reduce this trade if end consumers are not properly educated. Consumers should know the risks that are attached to buying from unauthorized sources. They should be involved and asked to report suspicious goods and sellers to the authorities.

Actions In The Right Direction

The e-commerce giants have also shown a willingness to set up anti-counterfeiting measures to clean up the situation.

Alibaba, for example, will use the blockchain technology to set up a tracking system to vet food products. The company also became the first Chinese e-commerce site to sue the vendors selling fake products.

Amazon has recently launched the Project Zero initiative to bring down the number of the listing of counterfeit products on its site to zero. The company has earlier reported that it has caught around 3 billion suspicious listings but fears that some may have left undetected. Through the use of artificial intelligence, the company intends to create a system that can easily detect fake products to ensure their timely removal. The company has also shared the responsibility of fighting against pirated goods with verified sellers. At present, 500 brands have given the authority to remove suspicious listings. While this is a lot of responsibility on sellers, the company believes that through shared responsibility both parties can effectively track down illicit products.

The fight, however, will be ineffective without consumers’ input. Officials from the International Anti-Counterfeiting Coalition (IACC) advise customers to exercise caution. One of the IACC officials, Bob Barchiesi, suggest that customers should be aware of the three P’s: “price, point of sale, and packaging”. He also advises consumers to always read verified buyers reviews especially when they are buying from a reputable marketplace.

The Way Forward

E-commerce has been developing at a rapid pace. But this platform and its lack of supervision are adversely affecting the existing models of trade. The time has come for stakeholders at both national and international levels to enter into partnerships and work together to draft common rules to combat the scourge of online illicit trade. All stakeholders need to be aware that the adverse effects of the rise of illicit trade are not limited to brand owners. They are very much an issue for payment services providers, law-enforcement agencies, online marketplaces, search engines and social media platforms. Only through robust cooperation among all stakeholders, online illicit trade can be diminished.