10 Key Takeaways from Homeland Security's New "Combatting Counterfeits" Report

On Friday, the Trump administration released its highly-anticipated report on the massive global trade in counterfeit goods. A 54-page document drafted by the U.S. Department of Homeland Security (“DHS”)’s Office of Strategy, Policy, and Plans, and signed by Acting DHS Secretary Chad Wolf, the report, entitled, “Combating Trafficking in Counterfeit and Pirated Goods,” follows from Donald Trump’s April 2019 memo calling for “action in the U.S. Government’s fight against a massive form of illicit trade that is inflicting significant harm on American consumers and businesses.” 

The newly-released report is aimed at helping “develop a deeper understanding of how e-commerce platforms, online third-party marketplaces, and other third-party intermediaries facilitate the importation and sale of massive amounts of counterfeit and pirated goods,” while also identifying “appropriate administrative, statutory, regulatory, and other actions, including enhanced enforcement measures, modernization of legal and liability frameworks, and best practices for private sector stakeholders.”

Ten key takeaways from the report are as follows … 

1. E-commerce has contributed to a shift in the sale of counterfeit goods in the U.S. 
 Consumers are increasingly purchasing goods online and counterfeiters are producing a wider variety of goods that may be sold on websites alongside authentic products. While e-commerce has supported the launch of thousands of legitimate businesses, e-commerce platforms, third-party marketplaces, and their supporting intermediaries have also served as powerful stimulants for the trafficking of counterfeit and pirated goods. 

The scale of counterfeit activity online is evidenced as well by the significant efforts e-commerce platforms themselves have had to undertake. A major e-commerce platform reports that its proactive efforts prevented over 1 million suspected bad actors from publishing a single product for sale through its platform and blocked over 3 billion suspected counterfeit listings from being published to their marketplace. 

It is not just a rise in the volume of counterfeits we are witnessing. The Government Accountability Office notes that counterfeiters are increasingly producing a “wider variety of goods that may be sold on websites alongside authentic products.”

2. Consumer attitudes towards counterfeits are changing. The sale of counterfeits away from so-called “underground” or secondary markets (e.g. street corners, flea markets) to e-commerce platforms is reshaping consumer attitudes and perceptions. Where in the past, consumers could identify products by relying on “red flag” indicators – such as a suspicious location, poor quality packaging, or discount pricing – consumers are now regularly exposed to counterfeit products in settings and under conditions where the articles appear genuine or otherwise more enticing than they would be if presented in other settings.

While the risks of receiving a counterfeit may have been obvious to a consumer purchasing items on street corners, with the rise of online platforms, it is not so obvious anymore. For example, it is unlikely that anyone would set out to purchase a counterfeit bicycle helmet given the potential safety risks; however, such items are readily available to unsuspecting consumers on e-commerce websites. 

3. The rise in consumer use of third-party marketplaces significantly increases the risks and uncertainty for U.S. producers when creating new products. It is no longer enough for a small business to develop a product with significant local consumer demand and then use that revenue to grow the business regionally, nationally, and internationally with the brand protection efforts expanding in step. Instead, with the international scope of e-commerce platforms, once a small business exposes itself to the benefits of placing products online – which creates a geographic scope far greater than its more limited brand protection efforts can handle – it begins to face increased foreign infringement threat. 

Moreover, as costs to enter the online market have come down, such market entry is happening earlier and earlier in the product cycle, further enhancing risk. If a new product is a success, counterfeiters will attempt, often immediately, to outcompete the original seller with lower-cost counterfeit and pirated versions while avoiding the initial investment into research and design. 

In other words, on these platforms, the counterfeit and pirated goods compete unfairly and fraudulently against the genuine items. While counterfeit and pirated goods have been sold for years on street corners, alleys, and from the trunks of cars, these illicit goods are now marketed to consumers in their homes through increasingly mainstream e-commerce platforms and third party online marketplaces. 

4. Counterfeiters have taken full advantage of the aura of authenticity and trust that online platforms provide.
E-commerce models have enabled counterfeiters to easily establish attractive “store-fronts” to compete with legitimate businesses. In a common scenario, third-party marketplace websites contain photos of the real product, fake reviews of the counterfeit product, and other such 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. Such deception not only provides counterfeiters with an enormous competitive advantage over their brick-and-mortar counterparts; legitimate sellers on the internet are harmed as well.

5. Certain products and brands are more prone to being targets of counterfeiting than others. 

Apparel and other types of accessories, along with footwear, top the list of intellectual property seizures by U.S. government bodies at 18 percent and 14 percent of seizures, respectively. Commonly counterfeited items in these categories include brand name shoes such as Nike and Adidas, as well as NFL jerseys. 

Watches and jewelry follow at 13 percent of total seizures. During one particular operation on August 21, 2019, for example, U.S. Customs and Border Patrol (“CBP”) officers seized counterfeit Rolex watches valued at over $1.4 million. Handbags and wallets represented nearly 11 percent of all seizures, including counterfeits of luxury brands such as Louis Vuitton, Michael Kors, and Gucci. Consumer electronics represented 10 percent of seizures, including products such as iPhones, hover boards, earbuds, microchips, and others. 

6. Selling counterfeit and pirated goods through e-commerce is a highly profitable activity. For counterfeiters, production costs are low, millions of potential customers are available online, transactions are convenient, and listing goods on well-known platforms is inexpensive and provides an air of legitimacy. They minimize the need for incurring significant – and costly – research and development expenditures by stealing intellectual property, technologies, and trade secrets. Moreover, the popularity of social media also helps reduce the costs of advertising counterfeit products. 

In the case of apparel, such as running shoes, employees from a legitimate branded company may leave the company and set up their own facility. These employees have the expertise to manufacture identical-looking shoes; but they will typically do so with cheaper, inferior components. The result: the shoes may fail during activity, injure the user with an inferior insole, or, at a minimum, wear out faster than the real product. Moreover, technological advances in modeling, printing, and scanning technologies such as 3D printing, have also significantly reduced the barriers for reverse engineering and the costs of manufacturing counterfeit products. 

Counterfeiters also benefit from the speed at which they can steal intellectual property through e- commerce, which can be very rapid. If a new product is a success, counterfeiters may attempt to immediately outcompete the original seller with lower-cost counterfeit versions – while avoiding research and development costs. The result: counterfeiters may have a significant competitive advantage in a very short period of time over those who sell trusted brands. 

7. The risks associated with selling counterfeit and pirated goods through e-commerce are generally low.
Not only do counterfeit sellers benefit from greater anonymity on digital platforms and websites, when sellers of illicit goods are in another country, they are exposed to relatively little risk of criminal prosecution or civil liability under current law enforcement and regulatory practices. In many cases, American enterprises have little recourse aside from initiating legal action against a particular vendor. Such legal action can be extremely difficult. Many e-commerce sellers of infringing products are located outside the jurisdiction of the United States, often in China; existing laws and regulations largely shield foreign counterfeiters from any accountability. 

All the while, in many 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. The ability to rapidly proliferate third-party online marketplaces greatly complicates enforcement efforts, especially for intellectual property rights holders. Rapid proliferation also allows counterfeiters to hop from one profile to the next even if the original site is taken down or blocked.

The same is true for social media, where counterfeiters promote their products by creating multiple accounts so that if one account is identified and removed, they can simply use another.

8. In 2019, CBP initiated Operation Mega Flex.
 In response to the alarmingly high rates of contraband uncovered by DHS and a request from the White House Office of Trade and Manufacturing Policy, the CBP operation uses enhanced inspection and monitoring efforts to identify high-risk violators that are shipping and receiving illicit contraband through international mail facilities and express consignment hubs. 

Among the discrepancies uncovered by Operation Mega Flex were 1,061 shipments of counterfeit products. These counterfeits range from fake name brand items, like Louis Vuitton bags to sports equipment made with faulty parts. Other contraband included drug paraphernalia, deadly opioids, and counterfeit drivers’ licenses. In all, counterfeits constituted more than one of every three discrepancies uncovered by inspectors.

9. Fakes are slipping through the cracks. Foreign entities that traffic in counterfeits understand how to leverage newer distribution methods better suited to e-commerce than the traditional trade paradigm (i.e., imports arriving via large cargo containers with domestic distribution networks). Today, mail parcel shipments, including through express consignments, account for more than 500 million packages each year. Seizures in the small package environment made up 93 percent of all seizures in 2018, a 6 percent increase over 2017. From 2012 to 2016, the number of seizures from express consignment carriers increased by 105 percent, and the MSRP of those seizures had a 337 percent increase. In contrast, seizures from cargo decreased by 36 percent from FY17 to FY18. 

10. Government action alone is not enough.
In order to bring about the needed paradigm shift and ultimately stem the tide of counterfeit and pirated goods, all relevant private-sector stakeholders have critical roles to play and must adopt identified best practices, while redoubling efforts to police their own businesses and supply chains. 

Foremost among these best practices is the idea that e-commerce platforms, online third-party marketplaces, and other third-party intermediaries such as customs brokers and express consignment carriers must take a more active role in monitoring, detecting, and preventing trafficking in counterfeit and pirated goods. oa here

Trump Administration Expected to Crack Down on Marketplace Sites in New Counterfeit-Centric Memo

Almost 10 months after Donald Trump signed a memo aimed at combatting the import of counterfeit goods into the U.S., with an emphasis on “third-party online marketplaces,” including “Alibaba, Amazon, and eBay,” and less than two weeks after reports that the $1 trillion behemoth that is Amazon will do more to prevent the sale of fakes on its sites, the Trump administration released its official plan to cut down on the ever-increasing counterfeit trade. 

A booming industry, the total trade in counterfeit and pirated goods tops $1.5 trillion across the globe, according to the International AntiCounterfeiting Coalition. Counterfeit and pirated goods, as well as trade secret theft, cost the U.S. economy, alone, as much as $600 billion a year, or 3 percent of the U.S. gross domestic product, Steve Shapiro, the unit chief for the FBI's intellectual property rights unit told CNBC.

Given the jurisdictional issues when it comes to counterfeit sellers (most are located outside of the U.S.) and other practical roadblocks at play, the fight against fakes is a complex one. “Foreign sellers face little risk of prosecution,” an administration official told Reuters. As such, strong U.S. government action "is necessary to fundamentally realign incentive structures." 

Speaking to CNBC on the heels of the signing of Phase One of Trump’s trade deal with China this month, which follows from claims of rampant infringement of American intellectual property by Chinese entities, Peter Navarro, the Director of the National Trade Council at the White House, revealed that as of now, “if you’re an intellectual property rights holder, whether you’re Michael Kors or Louis Vuitton or Pfizer selling prescription drugs, the onus is really on your company to police the internet, where a lot of this counterfeiting occurs.” 

“That’s not right,” according to Navarro, who says that “the Amazons and the Alibabas, Shopify” – which “have been facilitators of the Chinese counterfeiting” – need to act on their “responsibility to police the problem.” He further noted that sites like “Amazon and eBay” are “making a bunch of money … selling this counterfeit stuff,” without “accepting [their] full responsibility,” which is almost certainly a reference to marketplace sites’ recurring attempt to disclaim liability by asserting that they are not the “sellers” in such equations but merely middlemen. This is what Amazon argued in a recent case over the sale of a defective dog leash that a consumer purchased from its site. 

That case – which could have sweeping impacts for Amazon and its vas third-party marketplace – is still underway, with a Third Circuit Court of Appeals hearing en banc expected this year.  

As for the Trump administration’s latest counterfeit-specific plan, on Friday, the Department of Homeland Security’s Office of Strategy, Policy & Plans released a report entitled, “Combatting Trafficking in Counterfeit and Pirated Goods,” stating that at the forefront of the “best practices for private sector stakeholders” is “the idea that e-commerce platforms, online third-party marketplaces, and other third-party intermediaries such as customs brokers and express consignment carriers must take a more active role in monitoring, detecting, and preventing trafficking in counterfeit and pirated goods.” 

An increased focus on the crack down on counterfeits will be a welcome development for fashion and luxury brands, in particular, which is a particularly hard-hit segment of the market when it comes to the scale of the manufacturing and sale of counterfeits. After all, luxury goods are amongst the most commonly affected, with fake luxury products – from logo-bearing sunglasses to fake leather goods and shoes – accounting for “between 60 to 70 percent” of the total sales of counterfeit goods, per Harvard Business Review, “ahead of pharmaceuticals and entertainment products and representing perhaps [the equivalent of] one quarter of the estimated $1.2 trillion total trade in authentic luxury goods.”

With that in mind and given the need for luxury brands, in particular, to maintain the image of exclusivity associated with their valuable trademarks, brands routinely spend tens of millions of dollars each year to police unauthorizes uses of their trademarks. HBR reported in May that LVMH Moët Hennessy Louis Vuitton, the parent company to 75 luxury goods brands, including fashion houses like Louis Vuitton, Dior, Givenchy, and Celine, “employs at least 60 lawyers and spends $17 million annually on anti-counterfeiting legal action.” 

All the while, luxury titans have been busy lobbying governments “to extend enforcement bodies’ powers to seize and destroy fake goods, and to block access to websites that sell counterfeit goods,” per HBR. If the impending memo is any indication, the Trump administration is willing to up the ante. oa here

Optical illusion Louis Vuitton trainers spark fierce debate over whether they are white or black - but what colour do YOU see?

It is the question that divided the internet: is the dress white and gold, or blue and black? But now there's a new optical illusion baffling social media users across the nation.    

Gino, believed to be from the UK, shared a photo of a pair of Louis Vuitton trainers to Twitter and penned: 'Twitter are these white or black because all I see is white?' 

The controversial image, which has since gone viral and sparked a fierce online debate, has split social media users in two, with many arguing over what colour they see. 

'I don't know how anyone is seeing anything other than black,' wrote one, while a second penned: 'White is the only right answer.'

Gino, believed to be from the UK, shared a photo of a pair of Louis Vuitton trainers (pictured) to Twitter

Alongside the controversial image, he questioned: 'Twitter are these white or black because all I see is white?'

A third added: 'I could only see black and couldn't figure out how they were possibly white, but now I see white and I can't see black anymore wtf.'

And some took to the comments section to suggest the possible reasons people may be seeing different colours. 

'White shoes, with glow in the dark pattern. Picture taken with the lights off,' commented one, while a second penned: 'They’re white in a dark room.'

A third agreed: 'They're just white trainers in the dark. I don't get why people are confused,' while a further commented: They're white. Just no light.' 

Meanwhile, others suggested the way in which social media users see the colour of the trainers depends on the brightness of their phones.

'I reckon they're white but the brightness is turned down and the Louis Vuitton pattern is tricking your eyes. But at first glance I saw black,' admitted one, while a second agreed: 'Just change the brightness and you can tell they’re white.'

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Many admitted they couldn't see anything other than black trainers featuring a white pattern (pictured) 

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Internet sensation: This picture of the dress previously sparked debate, with viewers disagreeing over the colour

A third commented: 'Depends how high my brightness is turned up on my phone. I usually have it quite dark so I see black, if I turn my brightness up to full then I can just about make it as a dirty white.' 

Despite several theories floating around, those who could see the shoes as black remained adamant of their opinion. 

'Black with white patterns,' wrote one, while a second penned: 'Fully black for me with White LV logo.'     

The debate is reminiscent of the two-toned frock debate, which saw users taking to social media to argue over what colours they could see - white and gold or blue and black.

The picture of the dress was first posted on Tumblr by Caitlin McNeill, a 21-year-old aspiring singer from Scotland, after noticing her friends saw different colours in the photograph.

The image became an online sensation, with posts arguing over the dress's original colours. Even celebrities weighed in on the fashion debate, with Kim Kardashian asking her 29.4million Twitter followers to help settle a disagreement between herself and husband Kanye West. 

Others argued the trainers are clearly white, but the picture has just been taken with the light off (pictured)  oa here

Le Prix: Shop & Chat with Real Authentication

 

This article is ridiculously timely as just the other day I was accused of carrying a fake Chanel bag. For real…a designer resale expert and fashion writer for LePrix who owns a fake? Bissh, please.

The facts: The bag is authentic—I purchased it at Saks Fifth Avenue. I just had it professionally cleaned so I can resell it. I was at the Maryland State Fair watching the horse races, not exactly a place I’d bring my fanciest bag to hang with the farm animals and farmers. So, I guess I need to get it authenticated before I sell it.
Of all the people who would be caught carrying a FAKE, it wouldn’t be me! Well, this morning I learned about Real Authentication and I immediately signed up because it’s obvious to me this bag—and maybe a few others—will need an extra level of protection and authentication before I’m accused of selling a fake.
What’s Real Authentication? It’s a designer authentication company that lets you authenticate and verify your item from anywhere, anytime…which means there’s an app! And since LePrix is one of the world’s top designer resale companies, it just makes sense for us to feature them in this month’s Shop & Chat.

Tell me about the founding of Real Authentication.
Real Authentication was founded by Anastacia Bouzeneris and Jenna Padilla. We met while working together as authenticators at another designer resale company and both realized there was a need in the industry for a quick, easy and reliable way to authenticate luxury goods, so we took a leap and launched Real Authentication!


How and why did you launch Real Authentication?
We’ve been authenticating in the secondary market for nearly a decade and we’ve held positions as Senior Authenticators for one of the industry’s top resellers. Because we’ve been in the industry for a long time, we’ve noticed the speed at which the designer resale industry has grown and become one of the primary ways of buying luxury goods. While we were working for various resellers in the industry, we’d witness clients struggle with reasons why their item was either deemed authentic or counterfeit. The clients were unable to find a quick, reliable and easy way to authenticate goods and find credible information surrounding authenticity in general. Even internally at our company, it was difficult to find a reliable source for authentication.
Real Authentication was born due to witnessing large companies and individual shoppers alike struggle through the same pain points of verifying authenticity.
Why are you so passionate about fighting counterfeits? 
Not only have we seen our clients get taken advantage of by scammers, but we’ve been burned too! There are few things more disturbing than being scammed and having zero recourse. We absolutely love and appreciate the craftsmanship and heritage behind the brands we service, but we are primarily motivated by finding justice for our clients and offering a reliable, non-biased source of regulation to the secondary market as a whole.
How do you authenticate?
We analyze everything—from the client information all the way down to the denier of a stitch. Not only do we have two highly-trained authentication experts who review every single order, but we also use technology that we created—Smart Database Scan—to crosscheck data within our system and identify any red flags. With the higher quality of the fakes today, you can never be too careful! We always recommend getting multiple opinions to verify authenticity though.
What are the most popular authentication requests that come your way? 
Chanel, Gucci and Louis Vuitton will always be our most authenticated brands as they tend to be the most popular and in turn the most counterfeited. We see so much variety overall though, it is always exciting sifting through our admin panel.

What was your first luxury vintage purchase?  
Jenna: I’ll always remember what first spiked my interest in the secondary market…I came across a vintage Chanel Crystal Sautoir necklace for $100 and could tell immediately it was authentic and incredibly underpriced! I wore it for months and then tossed it on eBay to make a quick and massive profit. I was sold!
Anastacia: My journey into the secondhand market started in 1999 when I opened my eBay account. One of my first purchases was a vintage Louis Vuitton bag. It was well used, but new to me! To this day, I still have the bag as it’s a reminder of my journey right from the start.
To find out more about Real Authentication, click here.

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Coach to Buy Kate Spade in $2.4 Billion Deal

A statement released by Coach said the combined company will create a "leading luxury lifestyle company" supported by "significant expertise in handbag design, merchandising, supply chain, and retail operations."

The luxury retailer Coach announced on Monday that it agreed to buy Kate Spade for $18.50 a share, for a total transaction value of $2.4 billion.
The per-share acquisition price is 27.5% higher than Kate Spade's share price as of December 27, the last day of trading before deal rumors started affecting the stock price.
Still, it's 23% below a nine-month high of $24.10 reached February 27.
Shares for the handbag and accessories maker surged by 8.1% in premarket trading Monday, while Coach's stock was little changed.
"Kate Spade has a truly unique and differentiated brand positioning with a broad lifestyle assortment and strong awareness among consumers, especially millennials," Coach CEO Victor Luis said in the release.
Kate Spade has been under external pressure to do a deal since November, when the New York-based hedge fund Caerus Investors sent the company's board a letter pushing for a sale.
"We have become increasingly frustrated by management's inability to achieve profit margins comparable to industry peers," Caerus' founder, Ward Davis, and managing partner, Brian Agnew, wrote at the time.

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