Online commerce and counterfeits

Everyone involved in the industry agrees: the more counterfeit perfumes, foundations and lipsticks appear on the Internet, the greater the damage to the economy and society. How big is this damage currently? Our qualitative survey paints a clear picture of the situation of German companies. Here are some of the core results:

• Overall, the participants rated the danger of plagiarism for the German economy as 4.96 and for their own industry as 4.66 on a scale of 1 to 6.

• Only 37.5% secure their brands and products in China, although 55.4% of the sales of counterfeits take place in China.

• The annual damage caused by counterfeits for the companies surveyed is between 1 million and 50 million euros.

• 65.2% confirmed that copies of their products were already in circulation, which posed an increased risk potential for end customers. Almost 40% discovered counterfeits whose production or distribution poses a danger to the environment.

• Companies discover the majority of fakes found through the active use of brand protection software.

So these are the facts of the German economy when it comes to product piracy. Has the peak been achieved because tactile authenticity features, digital tracking and alerted legal departments are putting the counterfeiters at risk? Unfortunately no! There are new challenges and trends in online business that make the increase in fakes likely. As expected, in 2024 the real and digital worlds will continue to flow into one another. This means that consumers are encountering more and more online spaces in which products are offered to them. For example, almost all relevant social media platforms integrate their own live shopping functions, online shops are becoming marketplaces for third-party providers and virtual shopping is constantly developing with a variety of technologies. New scope is opening up for plagiarists, which in turn challenges brand manufacturers, online marketplaces and shop operators.

We consume at a time when more and more people are becoming aware of products and services via social networks. They discover and buy directly from their news feed without having to additionally visit a website or online shop. Manufacturers are increasingly selling their cosmetics via Instagram and TikTok and implementing dedicated social commerce strategies. On TikTok, for example, unique shopping dynamics develop through hyped products that quickly sell out. The hashtag #tiktokmademebuyit alone has almost 30 billion hashtag views. At the same time, YouTube is also presenting new live shopping features with survey options and opportunities such as selling exclusive, branded products via content creators. A possible problem: If products quickly disappear from the platforms, this also makes it difficult to trace whether they are originals or counterfeits.

In the context of social commerce, there are new opportunities for brands, but also well-known dangers. The more present and popular a product is advertised on social media, the more attractive the business becomes for counterfeiters. They blatantly use the same hashtags to draw attention to their fake offers and fake shops. There are no real people behind most of the product pirate accounts, but rather social bots - computers with artificial intelligence that, controlled by software algorithms, can flush thousands of posts into social networks every day. While Instagram deletes one account, 100 new ones are created at the same time.

In the coming year we expect a strong increase in counterfeits in social commerce and live commerce. The latter discipline in particular is still in its infancy in Germany. But a look at China and international studies suggest that a lot will change here in the future. In China, prominent influencers are already making enormous sales with shopping formats. There is also the trend of community group buying in China, in which WeChat and other social groups can be found that can negotiate lower prices for products with manufacturers due to their community size.

Like Alipay, WeChat is considered a super app. This refers to applications that, in addition to messenger functions, also cover e-commerce and payment features and, with this range of functions, have a lot of insight into the usage behaviour of their users.

Thanks to their almost closed system including payment processing, super apps can serve as a profitable platform for counterfeiters to sell counterfeit products. Product pirates specifically use the complex and non-transparent structure of these apps to offer their products. Because in the structures that are highly individualised to the user, not everyone necessarily sees the same thing, but offers can be specifically controlled via personal feeds, chats, streams, groups, etc.

The brand protection industry is facing major technological challenges due to the increase in social commerce. It is becoming increasingly important for manufacturers to consider social media platforms when pursuing trademark infringements.

Brand manufacturers can take targeted measures to stop counterfeiters who promote and distribute replicas of their products via social networks. Primarily, they should ensure that their brands are protected in all relevant countries in order to avoid scope for counterfeiting. We recommend using brand protection software that monitors social media and reports suspicious products. Close cooperation with the operators and awareness campaigns about fakes on social media channels can also help to minimise the damage. If you want to be even more on the safe side, choose to only offer your products through authorised dealers or exclusively through your own online shop or your own brand channel.

Digital spaces such as metaverse platforms are evolving. But it is true that these virtual worlds and AI-generated content pose challenges for brand manufacturers. In the future, beauty brands will have to defend their brands in both the virtual and real world. Over the past year, there has been a surge in trademark registrations due to the increasing popularity of the metaverse and virtual goods NFTs. A search of the EUIPO database shows that there are hundreds of trademark applications pending there claiming protection for products related to “NFTs”, “metaverses” and/or “virtual goods” - a large number have been filed in the last three months.

Companies should consider various steps to protect their brands. Above all, intellectual property owners should seek legal advice as to whether they should also register their trademarks for virtual products and services, for example. It may also be advisable to monitor online environments, particularly NFT marketplaces, for violations and to extend existing monitoring services to new types of uses. Given the large number of different platform providers, monitoring them requires considerable effort. Legal departments should also focus more on the topic.