Red Points examines how small businesses are impacted by the global counterfeit market, and how smaller brands can be protected against counterfeits online.
Chinese manufacturers are using Western e-commerce sites more frequently to sell directly to consumers, and, allied with President Trump, Alibaba are taking steps to provide a platform for small US businesses to sell over the marketplace. While some praise the improving trade relationships in the hopes that, as Ma says, the strategy could create American jobs and increase US exports, many small business owners are apprehensive about selling over the counterfeit-riddled group of websites.
Indeed, Amazon Marketplace sellers reported that sales “plummeted” after Amazon encouraged Chinese manufacturers to sell through the site in 2015. Counterfeits immediately littered the e-commerce platform, and for the first time genuine products found themselves in direct competition with fake counterparts.
The difficulty in facing the problem now lies in the responsibility that e-commerce sites have in clearing their marketplaces of fakes; just like Google can list illegal sites, their legal responsibility to protect sellers lies in a grey area if the counterfeit item in question is sold through a third-party. Whilst the companies does have to show that it takes steps to counter the practice - like Amazon is starting to, by filing its first-ever lawsuits against counterfeit sellers and introducing a ‘brand gating’ process for sellers of global brands - small businesses that use online marketplaces are starting to rely on their own limited resources to combat counterfeiting.
The following case studies question whether e-commerce sites are supporting small businesses adequately.
Business owner self-polices amazon
The recent lawsuits that launched by Amazon are against counterfeiters of Forearm Forklifts, devices that enable users to lift heavy objects by using outstretched arms as forklifts. The move comes after, as outlined by CNBC, Amazon counterfeits put the business on the brink of collapse, cutting revenue by 30 percent.
To make matters worse, reviews of poor-quality counterfeits appear on the brand’s own Marketplace page, as they are sold under the Forearm Forklift name. Even positive reviews of counterfeit items may be damaging, as paid-for fake reviews are often laughably discreditable and may serve to cause confusion in the genuinity of the real product.
After promising deals with retailers have fallen through due to counterfeits, business owner Mark Lopreiato has taken to self-policing Amazon for fakes, and has submitted over 100 takedown notices to Amazon. Whilst the strategy is yielding results, the hydra effect of counterfeits mean that realistically his endeavours will merely provide a stopgap against the practice, and the manual process is extremely time-consuming.
Sme founder takes fakes to court
Family-run US company Makin Bacon, who first debuted their dish for cooking bacon in 1993, enjoyed successful sales until last year, when they began to sell the product through a third-party seller on Amazon. Speaking to Forbes, owner John Fleck now fears that he “may not have a business going forward”, as the company’s own reputation is being impacted in damaging reviews of melting counterfeits.
Fleck, who has so far paid out over $15,000 in legal fees, estimates that he spends an hour each day checking Amazon for fakes, an effort he calls “laughable”. And not all small-business owners have these resources and time available to them, particularly when the effort can never be fully permanent or reliable. A jewellery designer speaking to the New York Times complained that, as a one-person business, there are just “too many” counterfeiters to contend. The anonymity provided by e-commerce platforms means that it is incredibly difficult for non-specialists to uncover root operatives, and so efforts to contact individual sellers is essentially inconsequential.
Inventor ripped off before product launch
Stikbox, a selfie stick smartphone case, was set to be a huge success, garnering $38,000 in investments via crowdfunding website Kickstarter. That is until designer Yekutiel Sherman discovered knock-offs on Alibaba websites just one week after he started the crowdfunding campaign. A year of careful product refining was effortlessly leapfrogged by Chinese manufacturers, and Sherman’s Kickstarter campaign was irreparably impacted as investors got wind of the cheaper knock-offs, with some even requesting refunds.
So what can small businesses do?
Although there are brands that do anti-counterfeiting right by employing pre-emptive strategies, the gravity of the situation is that counterfeiting is more and more difficult to prevent. Whilst companies can self-maintain their brand protection, with sought patents, rigorous agreements and specialised software, counterfeiting in China has become so intertwined with work culture that it is unlikely that anything but a comprehensive digital solution will be effective in maintaining brand security.
Small businesses cannot ignore the profitability of e-commerce, but should exercise caution when selling online. Online brand protection must be a priority, and brand protection strategies carefully scrutinised in light of the changing market. A good brand protection service will combine technological know-how with thorough industry awareness and expertise, so that key operatives can be addressed methodically and with durability.