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The counterfeit chain of responsibility: who’s to blame?

Posted by Red Points on Wednesday, Jun 7, 2017

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We examine the chain of responsibility in the market process of counterfeits, to understand where the responsibility lies in ending the practice.

Counterfeit goods are a difficult problem. Because counterfeits copy in-demand products, they will never not be desirable, but because they circumvent the majority of upfront costs they will always pose a competitive threat to genuine products. Not everyone can afford luxury goods, and those who can may choose not to when presented with a high-quality replica that may be entirely indistinguishable from a genuine product. Although the products still dominating the global counterfeit industry are luxury items such as branded footwear, low-value items such as pens and shoe polish are starting to be targeted too, and thus counterfeits are becoming a problem in even the most developing of economies. But who is to blame for the prevalence of counterfeits today? By examining the chain of responsibility, it becomes possible to identify which stage of counterfeiting consumerism should be addressed in order to tackle the global problem.

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What causes counterfeits to be manufactured?

Global consumerism is experiencing an all-time high, driven by ambitious social ideals promoted by the media. In China, where luxury consumerism is intertwined with one’s self-image, but wages are low compared to the rest of the world, of course it makes sense that counterfeit electronics and fashion have exploded. Shanzhai, Chinese replica culture, is such that every successful product is being knocked off to a high standard, from software and mobile phones to whole fake hotels and stores. And with typically lax IPR enforcement, counterfeiters in China have low incentive to adhere to IP restrictions.

Thus the Chinese government has helped to create the problem too. Securing IPR in China is more difficult than in the west, and even multinational corporations such as Apple have lost legal battles over trademarks they can take for granted in the rest of the world. China has traditionally favoured domestic over foreign enterprise, and has rewarded Chinese copycats by means of import substitution, or replacing popular imports with domestically-produced counterparts. Even Chinese innovators have faced difficulty in establishing businesses in China; the widespread availability of Shanzhai smartphones is largely attributed to the difficulties that smartphone manufacturers face in meeting strict governmental regulations.


How did counterfeits become a global problem?

But the fact of the matter is that counterfeits are not contained to China; with the rise of e-commerce and the rise of the global counterfeit market, counterfeit goods are found all over the world, with 84.5% of all counterfeit products originating from China or Hong Kong. And as unprotected products will inevitably see copycats in the Chinese market, innovators and IPR owners too should take steps to protect their intellectual property inside China. In fact, it makes sense for any emerging business, even one that might not plan on expanding into the country, to secure patents and register trademarks in China prior to establishing a presence anywhere, as the rise of e-commerce means that China is increasingly extending its reach to western consumers.

E-commerce sites have frequently come under fire for not doing enough to stop counterfeits. Whilst all the major players (Amazon, eBay and the Alibaba group) employ reporting-and-removal strategies, they have faced criticism in not providing any long-term solution, with the result that many IPR owners have had to spend hours manually searching and documenting infringements. Legal authorities have had varying opinions on the liability of e-commerce platforms in selling counterfeit goods, but increased pressure from sellers and buyers have caused major sites to refine their anti-counterfeiting strategies. eBay have launched an authentication service, Amazon have made plans to tackle their corrupt distribution channels by gating sales of registered branded products and even Aliexpress now have a dedicated IP enforcement team to remove infringing listings, even if counterfeits can still be found by use of ‘cover’ keywords. Nevertheless the steps that e-commerce sites are taking to combat counterfeiting are unassailable, and therefore the responsibility to protect IPR is arguably now in another pair of hands.


Why do counterfeits continue to see success?

Of course consumer demand is key to the success of the global counterfeit market, and unrealistic ideals perpetrated by the media surely a driving factor for market demand. Social consumerism, pushed through ad campaigns, celebrity endorsements and social media product placement has become at once necessary and unattainable, so it is hardly surprising that consumers bargain-hunt and invariably wind up purchasing - whether intentional or no - fake products.

 

Conclusion

Consequently, many effective brand protection strategies are now taking into account the buyer’s responsibility in buying genuine, moving to educate consumers on spotting counterfeits and why to avoid contributing to the counterfeit industry. However any brand protection strategy is surely an admission of the brand’s own responsibility to respond to the problem of counterfeits.

As the FT points out, both e-commerce sites and trademark owners "need to work together to build a 'firebreak' against counterfeits sold online", in light of the changing market and its new marketing platforms which have brought a reevaluation of accountability. Counterfeiting and its appeal isn’t going anywhere, and e-commerce sites are already doing their part to decrease accessibility; now it’s up to brands and IPR owners to protect their own equity and intellectual property online.

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