Global E-commerce Companies Feeling the Heat from Brands on Counterfeit Products

2019-02-21 19:22:25

The world’s biggest e-commerce company has finally admitted that it is being plagued by counterfeit items selling on its platforms. Yes, Amazon.com, Inc, the world’s most valued online shopping giant has used the words “counterfeit” and “pirated” items in its most recently filed Annual Report (Form 10-K) submitted to the United States Securities and Exchange Commission (US SEC). This admission is the first by Amazon that its various platforms are selling counterfeit products especially by third party sellers and it is a huge risk that may negatively affect its reputation and profitability if the issue is not addressed and resolved at the earliest.

Online giants admit to having an Achilles’ Heel

The report says that Amazon is “unable to prevent sellers in our stores or through other stores from selling unlawful, counterfeit, pirated, or stolen goods, selling goods in an unlawful or unethical manner, violating the proprietary rights of others, or otherwise violating our policies.” The filing further goes on to say that the cost of reimbursement to customers who fall prey to illicit activities of third party sellers will increase and “negatively affect our operating results…. And could harm our business or damage our reputation and we could face civil or criminal liability for unlawful activities by our sellers.”

This problem is also prevalent with all the world’s major online shops. The reason being the large number of third party sellers that operate without any oversight. Recently the Alibaba group that hosts most of the major e-commerce sites in China admitted that the counterfeit problem on their platforms is serious.

Major Indian e-commerce players like Snapdeal and Flipkart, along with the Indian platform of Amazon (amazon.in), have also been plagued by the counterfeit menace. A recent survey of close to 7000 respondents showed that around 40% of them had received a counterfeit product from one of these sites.

Brands are getting frustrated

Brands are not happy with the efforts of these platforms to curb fake product sellers. In a serious development the American Apparel and Footwear Association (AAFA), which represents more than 1000 brands, retailers and manufacturers, asked the United States Trade Representative (USTR) to add some of Amazon’s marketplaces in the list of “notorious markets” since they “engage in or facilitate substantial copyright piracy or trademark counterfeiting.” Another major brand, Birkenstock has already stopped selling its popular sandals on Amazon.

Gucci and Yves Saint Laurent had to bring a lawsuit (which they later dropped) against Alibaba in an effort to sue the company for doing precious little to curb brand infringement on its various platforms.

The global online counterfeiting menace is huge

All of these point to a serious problem that e-commerce platforms are facing. The problem is real and huge. It has been estimated that the global brand counterfeit market was 1.2 trillion USD out of which online counterfeits accounted for close to 400 billion USD. Fighting counterfeit product sellers is becoming even more difficult with each passing day, because it is becoming a well-structured industry with a lot of stakeholders. Most of the fake items are made by the same people and with the same raw materials as the original, thanks to the brands outsourcing their product manufacturing to countries like China.

How do brands protect their IP?

While there are many companies that offer a variety of brand protection services to fight counterfeit product sellers, most of them utilize high-end technology like tracking chips, barcodes, etc., that ultimately increase the price of the product.

simplyBrand, on the other hand uses a proprietary model based on AI, blockchain and crowdsourced detection methodologies to spot fakes at the market level. What this also does is create the biggest hurdle at the last stage of the product lifecycle. This is where the seller is at his comfortable best because he has done all the hard work in manufacturing, processing, transporting the fake goods, under the radar of the authorities and is ready to sell them at the marketplace.

simplyBrand strikes at exactly this stage, by detecting urls selling fake products, “blacklisting” them on a public blockchain and taking them down at the behest of the brand whose reputation it is seeking to protect. Using cutting edge AI that evolves as it detects fake, it also uses its community of customers whose keen observation skills helps the AI to grow and the participants get rewarded for their services. This is a win-win situation for all.

Parting thoughts

Rick Helfenbein, the president and CEO of the AAFA said in a statement that “Amazon has been a leader of, and has made valuable contributions to, the future of retail. We believe Amazon can, and should, be a leader in the fight against counterfeits.” This statement can be seen as a representative of the overwhelming expectations that brands across the world have from e-commerce giants to put an end to online counterfeiting and clean the e-commerce space and bring consumer confidence back.