4. Conclusions

This report examines the challenges that brand owners, consumers, governments and major online platforms face in the context of online trade in counterfeit and pirated goods, focusing on the latter two. The economic environment surrounding e-commerce is analysed, highlighting the features underlying its large and rapidly evolving role in economies.

One of the keys to the success of e-commerce lies in the efficiencies and conveniences it has introduced into commercial transactions. For businesses, e-commerce has significantly enhanced competition by lowering or eliminating operating barriers, reducing costs, and by vastly expanding the ability of even the smallest businesses to operate globally. For consumers, e-commerce confers benefits by providing information on a much broader range of goods and services that are available on global markets, helping consumers locate sellers and facilitating price comparisons. Convenient delivery options and the possibility for consumers to purchase items easily via computers or mobile devices wherever they are further enhance the attractiveness of e-commerce to consumers, while greatly lowering their search costs.

At the same time, the openness of the Internet and the anonymity that surrounds many online transactions also make it attractive to counterfeiters, providing them with easy access to markets, with low risk of detection and, if caught, relatively low penalties in many jurisdictions. As highlighted by OECD research, in many jurisdictions counterfeiting goes largely unpunished due to difficulties in coordinating effective responses, the impact of corruption in markets, lenient sanctions, and perceptions that these are ‘victimless’ crimes that do not warrant significant action (OECD, 2018[1]).

The larger online platforms host third-party sellers, which are subject to comprehensive terms of service agreements which are designed to ensure that the sellers operate in ways that establish a climate of trust between the platform operators, consumers and the providers of the goods and services sold on the platforms. The third-party sellers are often individuals or small businesses, about whom little is known. When they operate illegally by, for example, selling counterfeit products, questions arise as to which parties involved in the illegal transactions should bear responsibility when the interests of consumers and brand owners are compromised.

The COVID-19 crisis further exposed the challenges posed by bad actors. During the lockdown, the online environment was misused more intensely, with cyber law enforcement reporting skyrocketing levels of e-crimes. As a result, e-commerce has become a leading platform for trade in illicit products, including fake and substandard medicines, test kits and other COVID-19-related goods.

Quantitative analysis confirms these points. E-commerce is an important vehicle for sales of counterfeit goods, and many types of fakes tend to be ordered online including footwear, clothes, toys, leather goods, electric equipment, watches, cosmetics and automotive spare parts.

Policymakers have recognized the problem and have taken actions to address the challenges, while enforcement agencies have been turning their attention increasingly to the on-line environment. Governments in some jurisdictions have engineered ambitious voluntary agreements with platform operators and other stakeholders that are designed to combat counterfeiting more effectively through enhanced co-operation and collaboration. In addition, new laws are being considered in a number of jurisdictions to deal more forcefully with e-commerce challenges.

Platform operators have also been active in enhancing their efforts to combat sales of counterfeit items. Their efforts are directed at third-party sellers (e.g. by limiting the risk of bad actors selling on a platform), buyers (by providing them detailed information on third-party sellers and through public awareness campaigns) and right owners (by providing mechanisms for monitoring and taking down of IP infringing offerings). In addition, platforms have ongoing efforts to improve their ability use artificial intelligence and machine learning to proactively block attempted abuse of their stores before counterfeiters can even offer products for sale. They have also worked to share information amongst themselves and with law enforcement to identify criminals and purse criminal and civil prosecutions to hold them accountable.

Challenges, however, remain as criminal networks have been able to react quickly and dynamically to avoid detection and circumvent law enforcement. The risk of interdiction, severity of penalties and sanctions applied to trade in illicit products like counterfeits, and the degree to which penalties and sanctions are applied, are factors that parties engaged in such trade take into account when pursuing criminal activities. Simply put, illicit actors will prefer to trade in goods where rewards are highest, and the risks are lowest and the high volume of counterfeiting in e-commerce suggests that national and international legal frameworks, policies, and governance capacities to punish and deter counterfeiting have not yet altered the risk-reward incentive balance for counterfeiters. As a result, governments’ and industry response needs to be re-examined and iterated upon regularly. In doing so, important issues need to be addressed, including:

• engaging e-Commerce platform operators in efforts to detect online transactions in illicit products and take action against the criminals and criminal networks behind those illicit activities;

• promoting the establishment of industry-led solutions, including the development of voluntary “codes of conduct” to enable online-marketplaces and other industry intermediaries and sectors to distinguish themselves with standards of excellence;

• the flexibility that platform operators need to respond to emerging threats and the role that industry self-regulation could play in responding to emerging challenges;

• reviewing national and international prioritization of anti-counterfeiting policies and associated resource allocations as well as enabling legal frameworks and the adequacy, and use of, penalties and sanctions to shift the risk-reward ratio for counterfeiters;

• promoting even stronger information sharing and collaboration among government stakeholders, among private-sector stakeholders, and between the private and public sectors to overcome the jurisdictional and institutional gaps exploited by criminals ;

• engaging all intermediaries, to include postal, courier, social media, logistics providers, and payment processors;

• Reviewing the adequacy of information on small shipments and the role of intermediaries and vendors;

• the need for economies to apply the WTO-TRIPS Article 60 de minimis exemption only to goods accompanying incoming passengers and not to mail importations and small parcels;

• the need for enhanced scrutiny and vetting of third-party sellers; and

• ensuring the need to adequate protection of the privacy of online stakeholders.

Further analysis is needed to support work in the above areas. In this context, more in-depth country studies would be beneficial, as would efforts to identify and promote best practices.