Counterfeiters And Unauthorized Sellers Beware

A new wave of E-commerce enforcement professionals is shutting down illicit sales in online marketplaces.

The proliferation of the online marketplace model is undeniable. While industry stalwarts like Amazon.com are climbing onto lists of the top 250 retailers in the world, relative newcomers such as iOffer.com and Bonanza.com are offering homes to thousands of resellers who operate exclusively on the web. While most of these retailers are legitimate, many are not.

Online marketplaces are favored venues for counterfeiters and unauthorized sellers alike.  These illicit sellers flock to popular brands like moths to a flame – and they are costing major U.S. brands millions of dollars in lost sales and damaged reputations.

Fortunately, a new wave of E-commerce enforcement professionals is emerging to defeat these cyber pirates.  Unlike their predecessors, they are employing a combined arsenal of technology, investigation and legal tactics, and are putting a major dent in fraudulent online sales as a result.

Online marketplaces are counterfeit heaven

Before the internet, counterfeiters were often easy to spot.  If you walked down the right streets in places like New York or San Francisco, you could buy a brand new “Rolex” for $30.  For the most part, you knew what you were getting. After all, the watch came out of a guy’s trench coat and it weighed less than the morning sports page. 

These days, counterfeiters can hide the shoddy nature of their products behind the clouded veil of the internet.  They know that up to 83% of sales on Amazon, for example, are made by third party merchants. Yet most consumers still believe they are buying directly from Amazon itself.  This lends a level of credibility to counterfeiters that they’ve never had before.

Unauthorized sellers tarnish brand images

Unauthorized sellers are less well known than counterfeiters but no less harmful to brands.  These are folks who obtain products surreptitiously and then sell them in online marketplaces. On the more innocent end of the spectrum are brick & mortar store employees who buy products using employee discounts and store sales and then sell them for a profit online. On the other end of the spectrum are more organized entities who may have stolen the merchandise or obtained it through back door deals with authorized distributors.

The problem with unauthorized sellers is just that – they’re unauthorized.  Manufacturers work hard to create networks of authorized retailers for a reason.  For some, they want to ensure that products are handled a certain way (e.g., temperature controlled) to maintain product efficacy.  Others expect authorized retailers to offer product warranties or customer service at a certain level. Regardless of the reason for requiring an authorized sales force, the desired result is the same: positive brand image.

Unauthorized sellers really don’t care about the manufacturer’s brand image.  They’re out to do one thing: make a profit. Thus, they don’t worry about things like proper shipping or storage of products. They don’t offer customer service or honor warranties. And, for the most part, they never suffer the consequences of their carelessness. Consumers associate shoddy sales and service with the manufacturer anyway.

The failure of early E-commerce enforcement efforts

Major U.S. brands will tell you that these scams are not new.  They’ve been getting ripped off via the internet since the beginning.  They’ll also tell you that for many years, enforcement techniques were not keeping up with the tactics of fraudulent sellers.

For example, one good way to identify rogue sellers online is to find sellers offering products below the manufacturer’s minimum advertised pricing, or “MAP.” Both counterfeiters and unauthorized sellers famously deploy this tactic to win sales away from legitimate retailers. 

Recognizing this trend, SaaS providers were quick to offer a “solution.” They created software platforms that would monitor sales of given SKUs across the internet.  The theory was that once a sub-MAP offering was found, you could shut the seller down straight away.

Things are never as easy as they seem, and E-commerce enforcement is no exception.  What manufacturers quickly learned is that, while it is one thing to identify an illicit seller, it is another thing all together to shut him down.

Sellers responded by creating an E-commerce shell game where they would hide behind fictitiously named online seller profiles.  Once discovered and confronted, they might disappear for a day or two.  After that, the same offenders would brazenly crop up with a new seller profile selling the same misappropriated products in the same online marketplace.  To add insult to injury, SaaS providers didn’t have the know-how or the tools to identify the real people behind these false storefronts.  As a result, Cease & Desist demands or even threats of lawsuits were largely ignored.

There’s a new sheriff in town

Fortunately for manufacturers, E-commerce enforcement has finally caught up with the tactics of the fraudsters.  Today’s enforcers combine technology, investigation and legal channels to shut illicit sellers down for good.

Software solutions, for example, have evolved tremendously.  Today’s software products can analyze what products are being sold at what price points and they can track illicit sellers across multiple platforms. This information can then be used to send electronic Cease & Desist demands directly through communication portals offered by each online marketplace.

If those demands are ignored, the investigative piece kicks in.  The most effective E-commerce enforcement teams have spent years working with law enforcement, watching market trends and, perhaps most importantly, creating databases of rogue sellers and their modus operandi.  These tools are very effective at identifying the actual individuals behind the online storefronts. 

Once those people are identified, their personal addresses and phone numbers can be ascertained. Certified letters containing Cease & Desist demands that are sent to a seller’s home address tend to be highly effective at putting a permanent stop to fraudulent sales.

If, however, that tactic does not put an end to things, effective E-commerce enforcers will not give up. Most have relationships with reputable law firms across the country who are happy to step in and do some heavy lifting.  Like it or not, letters from attorneys have a way of motivating people to act. Additionally, attorneys will work with E-enforcement teams and manufacturers to develop legal theories – such as trademark infringement – that have proven successful in shutting down illicit sellers.

This three-pronged approach is valuable for many reasons. First, it is a graduated enforcement method. If illicit sellers call “uncle” early, further expenditures can be avoided. Secondly, every time an offender is identified, he is less likely to get away with making illicit sales in the future. This is because his name, address, modus operandi and other identifying information is now entered in the E-enforcement team’s database.  If his methods crop up again, he will be easier to stop.

As with any illicit enterprise, unscrupulous sellers will try to stay one step ahead of enforcement.  In the online marketplace realm, however, it looks like they’ll have a run for their money.