Is Selling Counterfeit Goods Illegal?

The sale of counterfeit goods has become a significant global concern, with annual sales ranging from $1.7 to $4.5 trillion. Within the EU, fake products now constitute 5% of all imports and, in certain regions, could make up as much as 40% of all goods sold. This problem is not new, but it is undeniably escalating.

A counterfeit product is a fake item that is produced and sold with the intent to imitate the appearance and branding of a genuine product, from luxury fashion and electronics, to pharmaceuticals and everyday items. Counterfeiting has evolved into a pervasive issue and a thriving criminal enterprise spanning every industry, with its revenue even surpassing those generated by the illegal drug trade and human trafficking. Online marketplaces, facing the challenge of combating counterfeit goods, often grapple with essential questions: Is selling counterfeit goods illegal? What measures can be taken to address this issue on their platforms?

The Rise in Counterfeit Goods Selling

Today, with economic pressures increasing the cost of living, and the rise of influencer culture driven by social media, the threat of counterfeit products has become more imminent than ever before. In addition, the surge in online shopping, globalization, and technological advancements such as AI, have increasingly exposed consumers to inauthentic and potentially harmful counterfeit products. Shockingly, an estimated 27 out of every 100 products sold online are now fake, and nearly half of these are purchased without the customer knowing they’re not genuine.

Young consumers are especially at risk to online counterfeit purchases, due to limited spending power, soaring luxury brand prices, and a rising “thrift culture”. In a 2022 survey by the EU Intellectual Property Office, 37% of respondents aged 15 to 24 admitted to buying at least one counterfeit product in the previous year.

Is Selling Counterfeit Goods Illegal?

The short answer is yes, selling counterfeit goods is illegal in most countries around the world. Counterfeit products infringe upon intellectual property rights, including trademarks, copyrights, and patents.  While the online platform itself may not be directly responsible for the sale of these counterfeit items, they are often under legal and ethical obligations to take reasonable steps to prevent the sale of such goods on their site.

The Digital Services Act (DSA), regulating all online platforms operating within the European Union (EU), is enforceable from February 17th, 2024. Its main goal is to prevent illegal and harmful activities online and the spread of disinformation, ensuring user safety and creating fair and open online environments.

To tackle the issue of counterfeit goods, the DSA is introducing the following rules:

• Platforms must have mandatory procedures in place to remove illegal goods
• Online marketplaces must verify traders ("know your business customer") for safety and transparency
• Online platforms must organize their online interfaces to allow traders to comply with their information obligations towards consumers
• Marketplaces will be required to conduct random checks for illegal items in official databases
• Very large online platforms (VLOPs) will undergo audited risk assessments and annual audits to combat illegal goods

In addition, public authorities will gain tools for the direct removal of unsafe products, and a new system of trusted flaggers will be available for faster and easier flagging and removal of counterfeit goods.

Marketplaces operating in the EU will need to swiftly implement measures to comply with these regulations before the impending deadline, to avoid potential legal penalties.

What is the penalty for selling counterfeit goods?

Legal consequences for selling counterfeit goods can vary depending on the jurisdiction, but they often include civil and criminal penalties. Sellers may face fines, injunctions, and even imprisonment in severe cases. Furthermore, online marketplaces can be held liable for facilitating the sale of counterfeit goods if they do not take proactive measures to address the issue.

From February 17th, 2024, the European Commission has the power to impose significant financial penalties of up to 6% of a company's global annual revenue for violations of DSA obligations and failure to comply with interim measures.

How to Spot Counterfeit Products

Spotting counterfeit products on your platform manually is impossible to scale. Counterfeiters have become increasingly adept at replicating the appearance and branding of genuine products with remarkable precision. They are constantly evolving their techniques, and subtle differences, such as logo placement or packaging details, may elude the naked eye. To effectively combat counterfeit products on your platform, it is vital to employ a combination of advanced technological solutions and continual monitoring processes that go beyond visual inspection, ensuring that counterfeit goods are detected and addressed accurately and swiftly.

How to Combat Counterfeit Goods on Your Platform

Online marketplaces can take the following proactive steps to detect and prevent the sale of counterfeit goods on their platforms:

• Invest in Technology: Utilize advanced technologies like Pasabi's to understand the scale of the counterfeit challenge on your platform. These technologies can help identify infringing products and enable you to take appropriate actions against offending sellers.
  
• Monitor Listings: Implement regular monitoring of product listings for suspicious or counterfeit items. Automated tools can assist in flagging potentially infringing listings for further review.
• Establish Reporting Mechanisms: Encourage users to report suspicious listings and counterfeit products. Create an easy-to-use reporting system that allows customers to provide feedback.
• Enforce Strict Policies: Develop and enforce strict policies against the sale of counterfeit goods. Clearly communicate these policies to sellers and take swift action against violators.
• Cooperate with Rights Holders: Collaborate with intellectual property rights holders to identify counterfeit products and coordinate takedowns.
• Educate Sellers: Provide resources and educational materials to help sellers understand the consequences of selling counterfeit goods and how to avoid unintentional infringement.

Case Study: Amazon

Amazon, the world's largest online retailer, invested over $1 billion in 2022 to combat counterfeit listings on its platform. Recognizing the extensive nature of the counterfeit problem, Amazon deployed a multi-faceted approach involving 15,000 employees dedicated to fighting fraud. The company's strategies included the removal of 6 million counterfeit items and the implementation of advanced artificial intelligence and machine learning tools for seller verification. Additionally, Amazon focused on educating consumers about safe shopping practices in partnership with the U.S. Chamber of Commerce and U.S. Customs and Border Protection, reaching over 70 million American consumers. Despite these efforts, the challenge remains significant, as indicated by the substantial number of attempts to create fraudulent seller accounts.

Pasabi: Your Solution for the Detection of Counterfeit Products

Pasabi offers cutting-edge technology to help online marketplaces combat the proliferation of counterfeit goods on their platforms. With Pasabi's solution, you can:

• Understand the scale: Gain insights into the extent of counterfeit challenges on your platform.
• Detect counterfeit listings: Identify counterfeit listings to take necessary action against offending sellers.
• Uncover patterns: Analyze data to identify connected offenders and organized counterfeiting networks.
• Take effective action: Replace the ineffective ‘whack-a-mole approach’ with targeted action against the worst offenders.
• Enhance user experience: Rid your platform of harmful fakes to provide a safer and more trustworthy experience for your customers.

Selling counterfeit goods is illegal in most jurisdictions, and online marketplaces must now take responsibility for preventing it from polluting their platforms. Marketplaces that prioritize this not only safeguard their business from legal implications and reputational damage, but also contribute to a safer and more trustworthy e-commerce ecosystem. Get in touch with a member of our team today to find out how we can help.