Executive Summary
The Internet has provided new opportunities and mechanisms for trading goods and services via e-commerce. This report analyses the role of e-commerce in the illicit trade in fake goods. In particular, it examines the significant challenges that governments, online platforms, brand owners and consumers are facing with the growing misuse of e-commerce platforms for illicit trade in counterfeit goods.
E-commerce is growing force in economies worldwide. Between 2016 to 2019, business-to-consumer (B2C) online sales rose by 82% to USD 4.2 trillion, with a COVID-19-associated boost of 25.7% in 2020. By 2025, e-commerce retail sales are currently forecast to rise to USD 7.2 trillion, which would represent about 24.5% of total retail sales, as compared to 17.8% in 2020.
The number of sites engaging in e-commerce is constantly changing, as new players enter the market and others exit. Existing estimates suggest there are currently 12 to 24 million e-commerce sites. Most of them are small. Fewer than one million sellers sell more than USD 1,000 per year. The larger e-commerce companies are multi-billion enterprises, headquartered principally in China and the United States. The 13 largest companies sold goods and services valued at USD 2.9 trillion in 2019, which accounted for close to 60% of total B2C sales in that year.
E-commerce has given certain distribution channels a big boost, providing a means for businesses to bypass retail outlets and ship small quantities of items directly to individual consumers in a cost-effective way. The distribution channels that have been most favourably affected are the post and local and international express delivery services such as FedEx, UPS and DHL. However, counterfeiters have also successfully exploited these channels. There is little risk of detection, since the quantities of merchandise shipped in individual parcels and letter packets tend to be small and the shipments are intermingled with billions of legitimately traded items. In 2019, some 63.9% of seizures of counterfeit items involved mailed items. Most of the seizures involved a small number of items, with mailed items accounting for only 10% of the total global seized value.
In recent years, governments addressed e-commerce fraud in in a variety of ways, by encouraging co-operation with and among stakeholders, and through specific initiatives designed to improve the functioning of e-commerce.
In Australia, the government is working on a mechanism for consumers to verify authorised sellers of branded products on the seller’s website. Consumers would click on a symbol that links to the government’s trademark registry, which would in turn authenticate the seller as a supplier of legitimate products.
In Belgium, the government, in co-operation with law enforcement in other jurisdictions, has focused on policing the Internet, taking down sites trading in counterfeits, in co-operation with law enforcement in other jurisdictions. Considerable attention has been paid to strengthening the registration process for websites; suspicious websites are subject to scrutiny and verification before being authorised.
In the European Union (EU), the United Kingdom (UK) and the United States (US), working groups were formed to address e-commerce intellectual property (IP) issues. In the EU, a voluntary, non-binding memorandum of understanding (MoU) with rights holders from many industries and platforms was created to tackle problems. The EU Commission, which administers the MoU, plays a supportive role to keep the work on track. In the UK, brand owners have been working with law enforcement to identify websites selling counterfeits. Once claims are vetted, law enforcement provides the information on offending websites to the country’s web registrar, which organises the suspension of the websites concerned. In the US, the government formed an Electronic Commerce Working Group (ECWG) under the US Department of Homeland Security (DHS) in 2017 to foster and encourage the flow of actionable data and information between online sales platforms and, ultimately, with shippers, freight forwarders, brokers, and other third-party. In January 2020, the US created the Anti-Counterfeiting Consortium to Identify Online Nefarious Actors (ACTION) to monitor adoption and report on the effectiveness of private sector best practices established in the report on Combatting Trafficking in Counterfeit and Pirated Goods.
Internationally, the European Union Intellectual Property Office (EUIPO) has been working on a webpage providing basic information on the IP protection mechanisms in place on different platforms. As part of the development of its IP Enforcement Portal, it is also developing a system to enable platform operators to identify brand owner contact points in the different areas of IP infringement. There is also interest in developing a secure system that will allow IP owners to report information on infringement, which could then be accessed by participating platform operators.
The major online platforms have developed mechanisms designed to enhance the trust of all parties using their platforms and protect customers, brands, and their stores from counterfeiters. The mechanisms have focused on several action areas, including:
Sellers. Sellers are subject to checks prior to being allowed to trade on online platforms. They are also subject to terms of service agreements that prohibit the sale of counterfeit products and provide the operators with a legal basis to act if counterfeiting is detected.
Consumers. Consumers are provided with tools to easily determine the identity and details of the parties that they are purchasing from, or affirm the authenticity of their purchases through easy-to-use serialization services that protects each individual product unit.
Brand rights holders. Rights holders are provided with tools to screen product listings for counterfeits and ensure that these listings are taken down rapidly.
Co-operation among the private-sector and with law enforcement. Platforms and law enforcement are working together to support legal actions against counterfeiters and share intelligence on developments and trends, in a proactive manner. Some are also proactively sharing information on individuals removed from their platform for allegedly selling counterfeit goods as well as intelligence on developments and trends. Platforms are moving forward with the creation of a private-sector data sharing platform to identify common targets and actionable intelligence about counterfeiters and their criminal networks.
Co-operation among private-sector. Platforms are moving forward with the creation of a private-sector data sharing platform to identify common targets and actionable intelligence about counterfeiters and their criminal networks.
Development of internal know-how. Platforms are developing internal expertise to combat counterfeiting as well as advanced tools that can be used to move proactively against counterfeits. This includes use of heuristics, algorithms and machine learning.
Transparency. Platforms are expanding their reporting on the results of anti-counterfeiting measures through, for example, annual reports on their activities.
While stakeholders have taken many actions to combat counterfeiting, significant challenges remain, as criminal networks have been able to react quickly and dynamically to avoid detection and circumvent law enforcement. As a result, governments and industry responses need to be re-examined regularly. In doing so, important issues need to be addressed, including:
the difficulties in dealing with a vast landscape that includes millions of sellers;
enforcement gaps and limited institutional capacities exploited by counterfeiters and criminal networks;
adequately screening cross-border movements of counterfeits, many of which are shipped in small parcels and letter packets; most economies have applied the WTO-TRIPS Article 60 de minimis exemption to importations by mail in limited quantities, as opposed to being available only to goods accompanying incoming passengers;
the flexibility that platform operators need to respond to emerging threats and the role that industry self-regulation could play in responding to emerging challenges;
the adequacy and effectiveness of national laws, penalties and sanctions to both deter future and hold current counterfeiters accountable through changes to the risk-reward structure for counterfeiting;
the need for stronger information-sharing and collaboration among public and private stakeholders, both within and across jurisdictions, and involving express delivery carriers, social media, payment processors, and search engines;
the responsibilities that platform operators should bear in combating counterfeiting activities;
the need for enhanced scrutiny and vetting of third-party sellers; and
Further analysis is needed to support work in the above areas, along with in-depth country studies to enrich the knowledge base and to help identify best practices.