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E-Commerce Is Making Counterfeits a Bigger Problem Than Ever

Federal agencies seem to be taking the proliferation of counterfeit goods, including in the apparel, footwear and luxury goods sectors, seriously.

The American Apparel & Footwear Association (AAFA) praised Thursday’s release of the 2020 Out-of-Cycle Review of Notorious Markets by the Office of the United States Trade Representative (USTR).

The Notorious Markets list identifies physical and online marketplaces that purportedly engage in and facilitate substantial copyright piracy and trademark counterfeiting. While the report has historically focused on marketplaces outside of the U.S., the 2020 report cites growing concerns around counterfeit products entering the U.S. through domestic third-party online marketplaces.

The report noted that products sold at brick-and-mortar stores throughout the United States are often shipped into the country in bulk cargo containers and then distributed domestically through traditional train and truck networks. Methods for detecting counterfeits in these bulk containers at the port of entry are well established and effective.

In contrast, products sold on e-commerce platforms, including counterfeit products, are increasingly shipped directly to the consumer using small packages. The International Chamber of Commerce found that counterfeiters use international air packages because the high volume of these parcels makes enforcement more difficult, USTR said.

“Identifying and publicly flagging the online platforms and the physical locations that counterfeit products are allowed to flourish is vital to our ongoing efforts to defend American intellectual property, American jobs, and American consumers,” said Steve Lamar, president and CEO of the American Apparel & Footwear Association (AAFA). “Representing more than 1,000 brands sold globally, our members are extremely concerned about the prevalence of counterfeits and fraudulent advertising. Americans are relying on online channels to find quality and affordable fashion more than ever in response to the effects of the COVID-19 pandemic.”

Lamar said Americans are also relying on and trusting social media platforms that direct them to purchasing decisions and that brands and consumers deserve to trust that the online clothing, shoes and accessories purchases they are making are legitimate. Beyond the damage to American businesses, counterfeits put American consumers at risk by exposing them to products that may not follow product safety regulations and standards.

The report noted that the government is taking several operational steps to address the use of small packages for delivery of counterfeit and pirated goods such as the “Section 321 Data Pilot” where Customs & Border Protection (CBP) accepts information directly from online markets to match with the information received from traditional carriers. CBP is also running an “Entry Type 86 Test,” where it will expedite clearance of entries that provide additional information. Both programs provide CBP with significantly more visibility into the sale, movement, and nature of goods sold through e-commerce.

Despite the challenges of conducting raids against counterfeit and piracy organizations during the COVID-19 pandemic, USTR said many notable successful enforcement efforts occurred this past year. In the fashion realm, authorities in Shanghai, China, cooperated with right holders to conduct two significant raids against manufacturers and distributors of counterfeit goods. The first raid resulted in the arrest of 26 individuals and the seizure of manufacturing equipment, raw material and counterfeit luxury handbags that reportedly cost approximately $15 to $30 to produce and were sold outside China for approximately $60 to $100. The second raid resulted in the arrest of 15 people across 10 separate locations and the seizure of 120,000 counterfeit golf products.

In the U.K., authorities raided three locations in Cheetham Hill, which was nominated as a notorious market this year, and they arrested 11 individuals while seizing counterfeit handbags, clothing, watches and perfume with a street value of $10 million.

In physical markets, curtailed this year due to pandemic travel restrictions, stakeholders continued to identify China as the primary source of counterfeit products. Together with Hong Kong, through which merchandise from mainland China often transships, China accounted for 92 percent of the value and 83 percent of the volume of counterfeit and pirated goods seized by CBP.

“USTR encourages China to adopt and expand the scope of robust enforcement actions to more effectively combat the scale of the reported problem in China,” the report said.

Special focus should be put on key markets that include Anfu Market in Putian, which is reported as a hub for the wholesale distribution of counterfeit footwear produced by hundreds of factories and workshops; Asia-Pacific Xinyang Clothing & Gifts Plaza in Shanghai, described by online tourist directories as “one of the last great fake markets in Shanghai” for openly offering counterfeit apparel and fashion accessories; Kindo and Zhanxi Garment Wholesale Markets and Southern Watch Trade Center near Zhanxi Road in Guangzhou, which offer mainly counterfeit apparel, shoes and watches; Ritan Office Building, Beijing, which USTR said “houses over 50 stores that reportedly offer high quality counterfeit apparel, footwear and accessories,” and Wu’ai Market in Shenyang, known as the largest market in Northeastern China and a hub for the distribution of counterfeit shoes, handbags, luggage and apparel throughout the region.

Lamar stressed that while the annual review of Notorious Markets by USTR is a critical and effective tool in the U.S. government’s toolkit to address the sale of counterfeits, it cannot fix the problem alone.

“We need legislation to address the scale and scope of the counterfeits and fraudulent ads,” he said. “The 116th Congress was exploring legislation that would have instituted common-sense requirements to provide consumers with transparency about who they are purchasing from. It is time to take the steps necessary to protect American consumers and American businesses from the many harms of counterfeit sales, and we look forward to working with the 117th Congress and the incoming Biden Administration to see these new requirements enacted at the earliest possible opportunity.”

Federal agencies seem to be taking the proliferation of counterfeit goods, including in apparel, footwear and luxury goods, seriously.

Counterfeit Louis Vuitton wallets sized this week.

Also this week, the National Intellectual Property Rights Coordination Center (IPR Center) announced a formal partnership with the International AntiCounterfeiting Coalition (IACC) to protect legitimate manufacturers, retailers and consumers across every sector of the global economy by preventing illegal counterfeit goods from entering the United States.

The IPR Center’s partnership with IACC provides a framework to enhance investigative efforts into intellectual property crime through joint events, law enforcement training, community outreach and information sharing.

“This agreement will not only serve to expand networks to combat intellectual property crime, but develop joint initiatives to educate stakeholders,” said Derek N. Benner, executive associate director for Homeland Security Investigations (HSI), a division of U.S. Immigration and Customs Enforcement, which oversees the IPR Center. “HSI and the IACC share a common belief that counterfeiting poses a severe risk to public health and safety and is a danger to our economy. This convergence of goals, combined with the IACC’s large and diverse membership, allows us to enhance our protection and education of consumers about the dangers of counterfeit goods.”

Bob Barchiesi, IACC president, added, “Fakes kill jobs, innovation and people.” Barchiesi stressed that only by working together “can we protect consumers and businesses, especially entrepreneurs, from the dangers of counterfeiting and piracy.”

The organizations noted that counterfeits are often made with substandard and dangerous components, posing a serious health and safety risk for consumers. In 2019, U.S Customs and Border Protection made more than 27,000 seizures with a manufacturer’s suggested retail price valued at more than $1.5 billion.

The IPR Center was established to combat global intellectual property theft and has a significant role policing the sale and distribution of counterfeit goods on websites, social media and the dark web. The IACC is a Washington, D.C.-based not-for-profit organization representing the interests of companies concerned with trademark counterfeiting and intellectual property theft.

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