Online counterfeiting has been a widespread global issue for years. However, the Pandemic-induced dramatic shift in consumer behavior from bricks-and-mortar to e-commerce has exacerbated the problem for brand owners and customers. Simply put, online counterfeiting increased throughout the pandemic.  Fortunately, over the last few years, the Federal Court in Western Pennsylvania has provided relief for businesses that suffer significant harm from the sale of fake goods online.

In 2020, with physical stores closed, social distancing requirements enforced, and the rising fear of infection, the necessity for online shopping shifted from convenience to the norm.  Online sales in the U.S. accounted for more than 21% of all retail sales, representing more than a 5% year-over-year growth, the most significant jump in recent history, which created great opportunity for online counterfeiting increases.

The switch to digital channels for products and services exposed brand owners to increased risk of infringement and a significant negative impact to their bottom lines. Even before COVID-19, it was estimated that by 2020, counterfeiting would be a $4.2 trillion industry, with the global damage from counterfeit goods exceeding $323 billion. 

For years, brand owners have struggled to put a stop to online counterfeiters. Large global e-commerce platforms like Amazon, e-Bay, Ali-Baba and others provide internal processes to attempt to limit the proliferation of counterfeit goods, but legitimate manufacturers and inventors, despite having secured intellectual property rights, find little relief. Counterfeiting operations disappear overnight and reappear under alternative names, selling the same fake goods.

In some cases, counterfeiters hedge against the risk of being caught and their websites taken down from an e-commerce platform by preemptively establishing multiple virtual store-fronts.  Platforms generally do not require a seller on a third-party marketplace to identify the underlying business entity, nor to link one seller profile to other profiles owned by that same business, or by related businesses and owners. In addition, the party that appears as the seller on the invoice and the business or profile that appears on the platform to be the seller, may not always be the same. This lack of transparency allows one business to have many different profiles that can appear unrelated. It also allows a business to create and dissolve profiles with greater ease, which can obfuscate the main mechanism that consumers use to judge seller credibility, namely reviews by other buyers.  Counterfeiters can quickly and easily move to a new virtual store if their original third-party marketplace is taken down.

The economic harm to companies due to the sale of counterfeit goods online takes several forms. Of course, there are lost profits – both in the form of decreased direct sales as well as in the form of decreased joint sales with complementary products. Damages to a brand owner also include the inability to raise capital, the cost of policing, loss of market share, and jeopardy to competitive position, including the inability to grow other trade channels.  After all, what traditional retailer wants to sell a product when cheaper counterfeits are available online?

Other harm is not quite as obvious and not always easy to quantify. With the proliferation of online sales has come the proliferation of online reviews, and the reputational damage caused by the sale of fake goods is significant. Counterfeit goods of lesser quality cause issues ranging from customer dissatisfaction to diminished consumer trust to actual physical harm to consumers, their family members and even their pets. The cost of corrective advertising is significant.

Further, online resellers such as Amazon have demanded lower pricing from intellectual property holders based on the availability of similar, lower-priced (generally counterfeit) items, impacting pricing strategies and overall profitability and limiting growth.  Intellectual property holders who are first to market are often impacted most severely.

Since online sellers of counterfeit products are generally located outside of the United States, rights holders often think there is nothing they can do to police these sellers on online e-commerce platforms.  Since 2018, our firm has brought over twenty cases against global sellers on e-commerce marketplaces in the Western District of Pennsylvania, assisting rights owners across the United States regain control over the products sold on e-commerce marketplaces. 

“Taking legal action in the courts provided the only adequate remedy we found to protect our invention, stop the revenue erosion caused by the counterfeiters and see our profits rise again,” said Sheila Torgan, co-inventor of the Negg® egg peeler, one of the plaintiffs in the anti-counterfeiting litigation matters. “Our case should be further encouragement to other manufacturers to enforce their brand’s intellectual property and feel confident that counterfeiters can be legally taken down.”

The Federal court in Pittsburgh has recognized the harm caused rights owners and has issued injunctions requiring the online sellers to stop the sale of the fake goods, resulting in an almost immediate increase in revenue for plaintiffs. The courts have also awarded statutory damages under the Lanham Act in the amount of $2,000,000 per Defendant plus pre-judgment interest, finding that compensatory and punitive damages were merited given the willful infringement committed by the sellers of counterfeit goods. 

In a common scenario, for example, an online seller’s listing contains photos of the real product, fake reviews of the counterfeit product, and other disinformation designed to mislead or fool the consumer into believing the legitimacy of the product.  The proliferation of such disinformation is the hallmark of the successful online counterfeiter.  This deception provides counterfeiters with an enormous competitive advantage over their brick-and-mortar counterparts.

As people across the world resume their post-pandemic lives, it is likely that online sales will continue to grow, and it not likely that the sale of fake goods online will decline anytime soon furthering online counterfeiting increases. Rather than playing the frustrating game of “whack-a-mole” provided by online resellers’ internal procedures for reporting counterfeit products, manufacturers and inventors from around the country have a proven remedy through litigation in Federal Court.

Stanley D. Ference III, is an Intellectual Property Attorney and Founding Attorney at Ference & Associates. In addition to traditional patent, trademark and copyright law, Stanley and his team are national leaders in online brand protection and anti-counterfeiting.

 

Pittsburgh Office
409 Broad Street
Sewickley, PA 15143
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About Us
Ference & Associates is a Pittsburgh, PA based law firm with a global client base. Our attorneys focus on patent, trademark, and copyright law.

 
 

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