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The fight against luxury counterfeits – maintaining the upper hand

January 2015 by Gary McIlraith, Chief Executive at NetNames

Brand owners must ensure they take the correct actions to fight online fakes, explains Gary McIlraith, Chief Executive at NetNames

Luxury goods brand owner LVMH Moët Hennessy (LVMH) announced in July that after years of an intellectual property dispute with internet e-commerce giant eBay, agreement was finally reached. LVMH sued the consumer-to-consumer sales services site in 2006, accusing it of facilitating the sale of counterfeit goods that were causing damaging financial and reputational effects to their business and the sale of genuine LVMH perfumes.

A complex legal battle between the two companies saw the Tribunal De Grand in France order eBay to pay LVMH €38.5m in June 2008, which was later reduced to €5.7m following an appeal. The French court later ruled that despite having jurisdiction over UK and French sites, the same did not apply for the US equivalent. The case finally reached a conclusion in July 2014, when it was announced that a settlement had eventually been reached, with the disputing parties ending the litigation with a joint statement. Michael Jacobsen, eBay’s senior vice-president, and Pierre Godé, LVMH’s vice-president, said, “Thanks to our joint efforts, consumers will enjoy a safer digital environment globally.” Although no details were been given, both firms stated that they will be implementing measures and strategies to protect intellectual property rights, aiming to prevent the sale of counterfeit goods.

This particular case involving two of the biggest name brands in the luxury and retail sectors, has shed new light on an age-old battle against counterfeiters. The luxury goods sector is rife with fraudulent imitation, and in addition to cases involving specific brands and companies, can even cause considerable damage to the global economy. For example, Italy, one of the world’s great fashion centres, experiences the full force of the problem, where streets, marketplaces and even official retailers sell fake luxury items. The General Confederation of Italian Enterprises, Professions and Self-Employment, also known as the “Confcommercio”, suggests that the country suffers immense economic effect due to ‘black market’ retailers, which have sold approximately €6.5bn worth of counterfeit goods, costing Italian firms around €3.3bn between 2008-2012. Furthermore, research found that the demand for luxury goods has risen considerably over the past two years, with statistics released by financial authorities concluding that it has no signs of slowing down.

A price to pay

The recent legal dispute between eBay and LVMH and the proven scale of fraudulent activity experienced by Italy, highlight the size of issue, but in effect, only scratch the surface. An innumerable quantity of fake goods are sold daily, with much of the activity taking place using the internet – a vast global platform with no official regulator or governing authority. The fines imposed on eBay are minimal compared to the costs to victim brands, which are losing profit and intellectual property through ‘fakes’ and illegitimate websites on a daily basis.

Technological advances and a 21st Century move towards ecommerce have seen retailers transfer large proportions of their business to the cyber-sphere. It has given high street brands flexibility and an international reach, yet simultaneously poses serious security threats. Cyber-criminals can launch phishing-attacks, domain-name hijacking, and fake websites, which enable the sale of counterfeit goods – the most critical problem faced by retailers and luxury brands.

In the gross domestic product league table, counterfeit goods now account for between 5 – 7% of world trade and are worth an estimated $600 billion per year according to the ICC, which is more than the GDP of Sweden. According to Home Office figures, the counterfeit goods market in the UK is valued at £1.3 billion. This cost is being forfeited by brand owners, whose customers are often unknowingly purchasing mere imitations of the real thing. Consequently, the economy’s savings are affected, meaning that production, support, marketing and legal costs are all higher – with customers forced to pay higher prices for authentic goods. In tough economic climates, shoppers seek the best deals, thus many fall prey to the highly sophisticated fake websites – and so the cycle continues.

Two sides of the coin

Unfortunately, in a highly consumerist culture tainted by the recent recession, some customers are prepared to forego the high quality realistic products for the fake, and considerably cheaper, alternative. Many are knowingly buying counterfeit goods, and consequently fuelling the black market. The second type of consumer is willing to pay for authentic luxury goods from top brand names, yet is unknowingly purchasing fake alternatives. These victims fall for imitation websites, and are left with unsatisfactory, poor quality purchases, creating the category of counterfeit consumer that is most damaging for brands. It results in frustrated customers and tarnishes brand names, affecting both revenues and reputation. The most valued asset for a luxury brand is the trademarks and intellectual property that distinguishes it as such. In addition to top quality products, high-end brands also work tirelessly to cultivate an elite customer experience that differentiates them from mass-market equivalents and upholds their aspirational status. Poor quality replicas are therefore detrimental to the carefully cultured character of the brand, as well as a blow to profit margins.

Fighting the fraudsters Large scale change may be a futuristic goal, but initially, individual businesses must be aware of the threats that exist on the internet and how they can work to minimise the damages to their brand and customers with the help of industry experts.

With the problem so vast and the online platform lacking an effective global enforcement process, tackling the issue could seem like an impossible and daunting task for firms. However, the good news is that action can be taken before lengthy legal disputes, in the form of proactive measures and gaining a full understanding of the dangers. Firms must deploy an effective brand protection strategy, enabling them to quickly identify and eliminate fake websites and the listings of counterfeit goods. Brand protection specialists can aid companies with such strategies, enabling them to use search terms to find counterfeit goods – the very same search terms fraudsters must use to attract traffic to their websites. With adequate expertise, the websites can be located and swiftly shut down, thus it is never too late to launch an attack on the cyber-criminals and protect your brand. In addition, building a good relationship between brand owners and common online marketplace sites like eBay, can be a fundamental part of the fast elimination of fake goods up for sale. Ultimately, a strategy must be well designed and all encompassing.

A secure strategy

So where should brand owners start?
• The initial step for a company is to take control of their domain name. This is the most valuable online asset for a brand, as it represents its internet visibility. Knowing what domain names you own is therefore a crucial part of maintaining control and security. Once relevant domains are registered, they must be managed and monitored closely to ensure consistent registration, allowing cyber-squatters and imitation sites to be acted upon swiftly and effectively.
• Brands must also be aware of the changes currently being experienced by the internet. The introduction of new domain name endings, also referred to as generic Top Level Domains (gTLDs), means that the internet will become segmented into new communities of interest, such as .clothes, .shopping, and so on. Brands will also have the opportunity to buy their own .BRAND website endings, allowing them to own a specific slice of the internet – .chanel, .gucci and .montblanc have all been registered, to name a few examples. As a result, being educated on changes and having a strategy in place has never been more essential in this revolutionary phase.
• As well as the opportunities, it is equally important to pinpoint the biggest risks to your brand. Identifying the threats and ensuring full visibility means that even if firms choose not to take action, they are fully aware of imitation websites and fraudulent attempts, enabling them to maintain the upper hand and the option to act.
• Similarly, considering the values and goals of your own online presence is fundamental to developing an approach. By identifying your company’s desired outcomes, whether it is to increase prominence in the marketplace, profits, or customer reach, understanding your digital purpose is a solid foundation for combatting the attempts to infringe upon it.

Implementing a strategy and understanding necessary actions is less complex than it sounds, due to the specialist organisations providing support in planning, securing and monitoring for brand infringements. Their priorities and advanced technology allow firms to take control of their online presence, while developing and protecting their brand name and loyal customers. Visitors to authentic websites can be reassured and encouraged to make purchases by the use of a Secure Sockets Layer certificate, permitting retailers to guarantee the highest level of security, and developing trust between retailer and customer.

Action Whether it is luxury goods, or any other retail sector, intellectual property and brand reputation are precious elements of all businesses. The fraudulent issues and legal conflict experienced by eBay and LVHM should sharpen the focus for firms, and be a call to action. Rather than being intimidated by cyber threats and the black hole that is the internet, dangers must be tackled head on with the help of experts. The internet may have opened up brands to new dangers but cyber technology can be advantageous and profitable for companies, but in order to maximise benefits and minimise threats, firms need to know the facts and ensure they are taking the correct actions. Fake goods and their fraudulent platforms can be identified and eliminated if the right attitude and strategies are implemented with aid and support of specialist knowledge. The quicker brands recognise this, the sooner they can move forward in confidence, customer trust and competitive advantage in the growing world of ecommerce.

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