If you read the introduction to my blog, I referenced "The Knockout", a Chinese TV series which I "borrowed" (ahem) for the English and Chinese title of my blog.
The Knockout's story starts in 2000, a time in China I look back on with nostalgia. In the anti-counterfeiting world, everything was analogue. Products were tangible (even movies came on a disc), cash was hard and business was done by voice – often over a short range "Little Smart" phones. At that time, you found infringing products either by patrolling trade fairs and markets, from "informants", who are essentially professional whistleblowers (see my last posting) who found goods in warehouses or factories, and through seizures made by customs at the border. It was always exciting to receive a Customs notification, followed by tantalizing pictures of a container opened, carton opened, and our target products inside.
Within less than a decade, and the snowballing of e-commerce, the online monitoring industry snowballed with it. It seemed that all leads started online, investigators on the ground were no longer needed as eyes and ears, those big metal containers split into thousands of little cardboard boxes sent by post, and with it, the frequency of big freight seizures diminished. Today, it would be unthinkable to have a brand protection programme without monitoring of online marketplaces or websites. In fact, a few years ago, it seemed as though some brand owners thought that engaging a global technology vendor for a monthly fee was pretty much all they had to do – enforcement in the offline world is passé if millions of dollars-worth of counterfeit sales can be scrubbed out before they find a customer. Claiming to have intercepted a huge value of counterfeit sales was the online monitoring vendors' key selling point.
Online monitoring is both a blessing and a curse – you can see almost the whole universe of counterfeits, but at the same time it is a deluge that makes it harder to focus. So you need a strategy, and there's even a book for that – Josh Hopping's "Online Brand Protection" (on Amazon here) is a how-to manual for designing an online brand protection programme and includes some realistic case examples. I thoroughly recommend it, even for those experienced in the field. Josh wisely stays away from discussing specific technologies but gives a good overview of what to look for in a vendor (while not touting his own employer). What he also illustrates is that your online programme accompanies and enhances, but does not replace, offline enforcement. It hardly needs pointing out: taking down infringing links does not make any counterfeiters or their products disappear. Willing buyers and sellers will always find each other. The takedowns may even obscure the problem, by prematurely removing online sales channels that could identify a big target, and making the online enforcement detached from the rest of the brand protection programme. As more brand owners ask the "so what?" question about the value of takedowns, the online monitoring vendors now talk more about "getting to the source", offering investigators who arrange evidence collection, and touting successful collaboration with law enforcement. This is all very commendable. Many of the e-commerce platforms have also upped their game with proactive screening and enforcement collaboration with brand owners, although it seems never enough to satisfy the critics. Even so, there are plenty of e-commerce platforms which provide the bare minimum enforcement processes, and are the current favourites for counterfeiters.
In this context, China presents particular challenges. Not only does it remain the main supply base for so many products traded internationally, there is also a vibrant domestic e-commerce space, with a number of hybrid social/commerce platforms vying for different niches, from fashion to power tools. Many of these platforms have only manual complaint procedures, which defy automated processes. Chinese platforms also have varying criteria for disclosing information, such as the seller's real ID or online sales records,. This means that online enforcement in China should be done by local teams who are familiar with the platforms, and who know how to coordinate offline enforcement, since leads on these platforms are more likely to be traceable back to a source than in other countries.
Even with that local knowledge, there is still the challenge of filtering out the mass of small-scale, part-time sellers (what I call "the kid in their bedroom") and identifying those who operate on a commercial scale. Tech-savvy profiling can achieve a certain amount, but in the end, traditional fieldcraft, like an undercover approach, tracing returned parcels, address checks and conducting surveillance become essential. While the e-commerce platforms may help favoured brands on some high-profile cases, these are exceptions. For most situations, the brand owner has to do the legwork to bring a case to law enforcement first, who will then request the platform to disclose evidence.
It is of course very satisfying when a case can be tracked from online seller all the way to a raid on a factory or distributor, with suspects arrested, computers and goods seized. Even better if it turns out that the target was at the centre of a spider's web connected factories and online sellers. . At that point, you can feel you are at the top - not standing underneath - the waterfall. But the effort required is substantial, and sellers too numerous. Is there a lower-cost way to tackle all those hundreds of cases that fall somewhere between the major network and the "kid in the bedroom"? In the US, brand owners are increasingly turning to filing "Schedule A" litigation, where courts freeze the accounts of hundreds of online sellers at once, leading to judgments or settlements which fund the litigation and can return money to the brand owner. Questions are being raised about the legal foundations of such actions, and in any case, for sellers based in China, a US default judgment has no effect.
Is there any equivalent to the Schedule A in China? Yes and no: with levels of civil compensation well below those in the US (more on that in later posts), it is not realistic to expect to make a profit from lawsuits against online sellers. The Chinese courts are well aware that there is a whole industry of "fake sales" services providers, who can help sellers to artificially boost their sales and ratings, making them rank higher and appear more attractive to customers. Thus online sales data is never taken at face value, but discounted heavily when calculating compensation. Moreover, unless you sue the platform as co-defendant (which cuts off the possibility of cooperation in future), lawsuits must be heard in the defendant's jurisdiction, and not simply where the product was delivered. So filing a case against hundreds of defendants in a single suit, as in the US "Schedule A" cases, is not feasible. However, given the speed, simplicity and low cost of civil proceedings in China, a bulk litigation programme that relies on digital evidence, and forces settlements with a large number of sellers is viable,. Such bulk "digital" lawsuits provide a low-cost way to inflict deterrent on a large numbers of commercial sellers.
Even as brand owners become more sophisticated at managing online infringement and offline action, the pattern of infringement is evolving. For example, more brand owners are reporting sellers using the tactic of hidden links. This is where the infringing products are showcased on a catalogue, some which may only be accessed only by invitation, but the product is actually purchased via an e-commerce site using a non-infringing decoy listing which evades screening. Indirect selling methods like these could make scanning for keywords and images on the major e-commerce marketplaces increasingly ineffective.
All of this means that online brand protection programmes becoming more fragmented, with different platforms and jurisdictions, requiring solutions which may not be served by a single global vendor. I am seeing brand owners using a number of online monitoring vendors for different markets, and relying more on analysts and investigators who can coordinate online and offline cases at the local level.. While the online brand protection vendors are constantly improving their technical capabilities to detect new forms of infringement, future challenges will be very different from "find and takedown" processes of yesterday. The level of expertise required to tie together evidence in cases such as hidden links suggests that human creativity and coordination will remain an important component.
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