This article is written by Abhisek Swain, 5th Year, BBA LLB of SOA National Institute of Law pursuing a LawFirm Boot Camp Course. This article has been edited by Ojuswi (Associate, Lawsikho).
This article has been published by Sneha Mahawar.
Table of Contents
Introduction
Trading goods or services through computer networks like the Internet is referred to as electronic commerce or E-commerce. Approximately 20 million online shops are thought to be operating globally at this time, bringing in more than USD 1 trillion in sales. Electronics, clothes, books, and tickets are the top categories for e-commerce, with the biggest markets for it being the United States of America, China, the United Kingdom, etc. The fact that e-commerce does away with time and geographical restrictions is one of its main benefits. E-commerce often helps to attain cheaper costs by streamlining activities in the process. Today’s consumers are transferring their preferences from the physical to the online realm, and in response to this demand, a number of firms have begun to focus on improving their online visibility, safeguarding their brand equity, and boosting lucrative e-commerce sales growth.
The number of e-marketplaces has increased significantly in recent years. But as these e-commerce platforms have grown, the threat of fake goods has also grown significantly. The scope of the counterfeiters’ issue is staggering. According to estimates from the FBI, Interpol, World Customs Organization, and the International Chamber of Commerce, counterfeit products account for 7 to 8% of global commerce each year. The issue of counterfeiting exposes businesses to the danger of losing their trademarks, brand value, and goodwill, but it also exposes consumers to the risk of acquiring inferior products that might eventually harm their health and well-being.
The European Union Intellectual Property Office (EUIPO) and the Organisation for Economic Co-operation and Development (OECD) collaborate to publish studies and research on the international trade in fake and pirated goods through the European Observatory on Infringements of Intellectual Property Rights. The most recent research, Misuse of e-commerce for Trade in Counterfeits, examines how e-commerce aids in the trade in counterfeit products.
E-commerce
E-commerce is the practice of doing commercial activities such as information sharing, relationship management, and transactional activities utilising computers linked to a communications network.
E-commerce, electronic money transfers, supply chain management, Internet marketing, online transaction processing, electronic data interchange (EDI), inventory management systems, and automated data gathering systems are just a few of the technologies that are used in electronic commerce. Although it may also employ other technologies like e-mail, modern electronic commerce often leverages the World Wide Web for at least one phase of the transaction’s life cycle.
General threats in the e-commerce
- Hackers trying to get client data or cause site disruption.
- Theft of a server carrying client data.
- To steal money from customers, imposters might duplicate your e-commerce website.
- Downloading active material that targets the e-commerce system by authorised administrators or users of an e-commerce website.
- A disgruntled worker causing trouble for the online marketplace.
- In order to secure your website against dangers, it is important to think about where they could originate from your e-commerce site.
- What amount of competence a possible hacker could have; if your tiny business is unlikely to be a target for hackers, expensive, complicated security measures might not be required.
Counterfeiting in e-commerce
Since most products sold through e-commerce platforms are not physically checked and inspected, they are more prone to fraud and forgery. Products that are counterfeit not only cause customer confusion but can significantly harm a brand’s goodwill, resulting in reputational harm and financial loss.
Fake designer clothing, purses, watches, jewellery, accessories, fragrances, pirated DVDs and CDs, cell phones, video games, and many more items can be considered counterfeit products. They may also consist of pharmaceuticals and car and aviation parts.
The expansion of the internet environment has also been noted by counterfeiters, who have modified their methods in response. The development of online marketplaces has also aided counterfeiters in exploiting these channels to sell their fake items. While transactions are handled by the marketplace operator, many third parties contribute product or service information in an e-marketplace. The marketplace operator processes consumer transactions, and then participating shops or wholesalers deliver and complete them. In comparison to vendor-specific online retail sites, e-marketplaces often provide a bigger assortment, greater availability, and more reasonable pricing since they combine items from a variety of vendors.
In addition to e-commerce websites, counterfeiters have begun building phoney websites that resemble the layout and design of the website of a legitimate company. Scammers may use bogus websites to deceive customers into paying for products that they never receive while also stealing their credit card and bank information. These fraudulent websites might appear quite realistic, making it challenging to distinguish them from legitimate pages. Fake websites are made by copycats to duplicate the “look and feel” of the real brand’s website. Scammers can use bogus websites to deceive customers into paying for products that they’ll never receive while also collecting their credit card and bank information. These fraudulent websites might appear quite authentic, and it could be challenging to distinguish them from genuine articles.
The rise of online marketplaces has benefited counterfeiters as well because many of them use these channels to peddle their fake goods. In an e-marketplace, transactions are handled by the marketplace operator while many third parties contribute information about the products or services. The marketplace operator processes customer transactions in an electronic marketplace, and the participating merchants or wholesalers subsequently deliver and complete the transactions. Other features might include RFQ, RFI, or RFP capabilities, catalogues, ordering, wanted ads, trading exchange capability, and auctioning (forward or reverse). In comparison to vendor-specific online retail sites, the selection is typically larger, availability is higher, and prices are more competitive on e-marketplaces since they combine items from a wide range of suppliers.
How to quickly identify counterfeiting in e-commerce
On these e-commerce websites, one should key in the following keywords to quickly identify counterfeit goods while looking for names that are identical or similar to a company’s brand or product name or looking for counterfeit products:
- Brand name/Product name + ‘Grade AAA’
- Brand name/Product name + ‘Replica’
- Brand name/Product name + ‘Inspired’
The following are some helpful signs that items are being sold that are fake or not authorised:
- The things are offered at substantially less than what they would normally sell for;
- The vendor is not a member of the approved channel or the official distribution;
- There are several listings and apartments available from the vendor;
- The product is listed several times, with a wide variation between prices for each listing.
Laws governing e-commerce counterfeiting
Counterfeit is defined under Section 28 of the Indian Penal Code of 1860, as:
“A person is said to “counterfeit” who causes one thing to resemble another thing, intending by means of that resemblance to practice deception, or knowing it to be likely that deception will thereby be practised.”
Products that are counterfeited are subject to criminal prosecution under IPC Section 486. It says that anyone who helped the merchants deceive the buyers is subject to punishment, including jail time or a fine.
Trademarks Act, 1999
Instead of defining or using the term “counterfeiting” in its provisions, the Trademarks Act of 1999 uses the phrases “falsifying” and “falsely applying for a trademark.”
However, the Judiciary has noted on a number of occasions that imitation constitutes trademark infringement under Section 29 of the Trademarks Act.
In light of the foregoing, counterfeiters may be subject to penalties under Section 104 of the Trademarks Act.
Copyright Act, 1957
Under Section 63 of the Copyright Act of 1957, the party who has been wronged may file a criminal complaint against the person selling the counterfeit work if there is an unauthorised sale of a work on which copyright is still in effect, or if an original work is copied.
The Consumer Protection (E-Commerce) Rules, 2020
The Consumer Protection (E-Commerce) Rules, 2020 have the potential to improve the selling strategies utilised by Indian e-commerce companies. Consumers are protected by the E-Commerce Rules against price rigging, inappropriate networking tactics, and misrepresenting the quality of goods and services.
The obligations of e-commerce entities are listed in Rule 5(2) of the e-commerce Rules, which also mandates that each e-commerce entity must exercise due care and demand that each seller give an assurance that the descriptions, images, and other content pertaining to the goods or services hosted on the e-commerce platforms are accurate and genuine.
Rule 5(3)(a) of the E-Commerce Rules subsequently stipulates that every E-commerce platform must give comprehensive information about the vendor in a way that is understandable to all users. As a result, in the event of counterfeiting using e-commerce platforms, the harmed party may seek compensation under the aforementioned E-Commerce Rules clauses.
Information Technology (Intermediaries Guidelines) Rules, 2011
Section 2(1)(w) of the Information Technology Act, 2000 defines “intermediaries” as including e-commerce platforms and marketplaces.
According to Rule 3 of the Information Technology (Intermediaries Guidelines) Rules, 2011, intermediaries must exercise due diligence when performing their duties, including warning users, i.e., in the case of e-commerce marketplaces, the sellers, not to display, upload, or share any information that violates any patent, trademark, copyright, or other proprietary rights.
Challenges for the brand protection managers
Although it is easier stated than done, the issue of counterfeiters using the Internet for their business must be addressed. The aim of eradicating this scourge is a challenge for brand protection managers, who are in charge of aiding and supporting the brands.
Some brand protection managers have a misperception that counterfeit goods are not a problem for their companies and only harm those of others. However, even when they believe that just a tiny percentage of their items are counterfeit, some brand protection managers believe that having such products on the market might be advantageous to their company.
Few Brand Protection Managers also recognise that they do have a serious problem with counterfeit goods, but they also believe that the problem is so big that nothing can be done about it. They have easily given up, realising that dealing with counterfeit goods is an inevitable part of doing business.
However, several brand protection managers desire to address the counterfeit concerns but are unsure of how to start. They lack a sufficient process to guide them through the crucial steps of online brand protection, or they lack the information necessary to make informed decisions. Therefore, the main obstacle for Brand Protection Managers, even if they want to work on this problem, is the lack of legal support and tactics.
Certain practices to curb counterfeiting in e-commerce
Some brand protection managers have implemented solid practices and put in place professional and commercial procedures that are successful and efficient. In their battle against online counterfeiters, the strategies or techniques that Brand Protection Managers have chosen regularly provide better outcomes.
Online counterfeiting is fought first offline. Primarily, fake goods are purchased in Chinese online stores and couriered to the US or EU. The products are then offered for sale on regional websites including eBay, Gumtree, Craigslist, and Amazon. They are increasingly being sold through social media posts, particularly Facebook. The following has to be in place in order to try to block the flow of products from China.
Certain practices are:
- Verify that trademarks are registered where you intend to use them.
- Make sure Hong Kong and China are registered.
- To lessen the likelihood of a counterfeiter using your trademarks and linked items, register domain names.
- Register your brand with customs in China, the EU, and the US to prevent the sale of fake goods.
- To ensure you are at the top of your game, implement a customs training programme and regularly deliver it to customs employees.
- Adopting a zero-tolerance policy and treating a seizure of five items as seriously as one involving five Customs agents is crucial. Brands that refuse to comply with seizures are not looked upon favourably, even when they are advised that the seizure is too minor for them to take any action.
Conclusion
Many brand protection managers find it extremely difficult to safeguard their brands online from the plague of counterfeiters, but it is not impossible. Brand protection managers give themselves a fighting chance of succeeding by understanding best practices in this field, putting a strong fit for purpose process in place, supporting that process with a creative and innovative technology platform, establishing a network of contacts in the industry, with the Police, with Customs and Trading Standards, and by understanding how the counterfeiters are themselves embracing the online world.
The counterfeiters are highly inventive and creative while being criminals. Therefore, it is essential that brand protection managers and those assigned to assist and support them are even more inventive and imaginative. They must put themselves in the position of the counterfeiters and fully comprehend how they take advantage of the internet environment. Only then can strategies be created and action plans put into place to combat this menace.
The incredible technology of the online world is being utilised by counterfeiters. It would be irresponsible for brand protection managers to not follow suit and make use of the internet’s power.
References
- https://www.kashishipr.com/blog/dealing-with-counterfeits-on-e-commerce-websites/
- https://euipo.europa.eu/ohimportal/en/web/observatory/misuse-e-commerce-trade-in-counterfeits
- https://www.ipeg.com/tackling-the-scourge-of-counterfeit-products-online/
- https://amlegals.com/counterfeiting-of-products-on-e-commerce-platforms/#
- https://www.incoproip.com/how-ecommerce-platforms-facilitate-online-counterfeiting/
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