Did eBay Start a Counterfeit Crackdown?
Louis Vuitton and Tiffany both brought counterfeiting suits against eBay recently, claiming eBay wasn’t doing enough to eliminate counterfeits sold on its site. (EBay lost the Vuitton case in Europe but won the Tiffany case.)
Similarly, Estee Lauder filed a lawsuit against CVS and Family Dollar last month, claiming the stores sold knock-offs of its brands. And city agents shut down 32 shops on Canal Street in Manahattan last February for selling counterfeit goods.
It didn’t look much different this morning:
Is this the start of a counterfeiting crackdown or will it go on largely unabated?
We asked Judith Zaichkowsky, author of Counterfeiting — The Psychology Behind Trademark Infringement and Counterfeiting; and co-authors of “The Piracy Paradox,” Kal Raustiala, director of the UCLA Ronald W. Burkle Center for International Relations, and Christopher Sprigman, associate professor of law at Virginia Law, about the suits and how they’ll affect counterfeiting culture.
Q: CVS, Family Dollar, and eBay all encountered similar suits recently. Is this due to a heightened awareness of counterfeiting?
Raustiala/ Sprigman: We doubt that: counterfeit goods are quite common and this sort of litigation is not new. In any event, it wasn’t a surprise to us that the court ruled against Tiffany and in favor of eBay.
There is one big difference between previous counterfeiting cases and what we see in the eBay case: eBay is not a seller, but rather an online marketplace that connects sellers and buyers. Brick-and-mortar stores like CVS have the ability to inspect the merchandise they stock and perhaps distinguish genuine from fake. EBay can’t do that — they never take delivery of the merchandise that people auction using their site.
As the court in the eBay case recognized, it makes little sense to hold eBay responsible for counterfeit goods sold on their site — just so long as eBay, when it is told that particular counterfeit goods are being offered for auction, responds by quickly shutting that auction down. The evidence in the case against eBay suggests that eBay does just that.
The CVS case involved not true counterfeiting but so-called “gray market” goods. Gray market goods are not fakes, but rather genuine goods obtained from unauthorized distributors. Gray market selling is very lightly regulated.
Then there are “knock-offs”: goods that appropriate some aspect of the design or appearance of another good but not the trademark itself — for example, perfume that is marketed as “smelling like” Chanel No. 5, or dresses that are “inspired by” the work of a famous fashion designer. Knock-offs are almost always legal.
We have written an academic paper arguing that fashion knock-offs, in addition to making designer-inspired apparel more accessible, are also (on balance) good for the fashion industry. Knock-offs play an important role in the creation of fashion trends, and the industry relies on trends to sell more fashion.
Zaichkowsky: Maybe. The interesting thing is that people have been selling counterfeits on-line since there have been counterfeits and since there has been online commerce. EBay is not the only reseller of counterfeits but maybe they are the biggest and easiest target to attack. Furthermore the problem is not just that they have been used to sell counterfeits, but the goods sold are advertised as “real.” It is one thing to knowingly buy a counterfeit and another to buy it under false labels.
This is likely a big part of the eBay-Vuitton suit and in the end, one could say that perhaps Louis Vuitton is doing a lot of customers of eBay a big service by wielding a big stick.
Q: What will, or won’t, change in counterfeiting culture because of high-profile suits like eBay? What will happen to vendors like those on Canal Street (will prices go up or supply down)?
Raustiala/ Sprigman: The result in the eBay case won’t change anything fundamentally — but then again, the same would be true even if Tiffany had won that case. Counterfeiting is very hard to control — in part because of the very high prices that some genuine goods (like prestige handbags) command. The off-line markets in counterfeits are already enormously robust and competitive. Even if eBay were to ban all luxury goods auctions on its site, the effect would likely be limited to items that are less popular, and thus less frequently counterfeited.
For these “niche” fakes, eBay’s worldwide online market may provide enough buyers and sellers to make trade in these items economic, whereas even vendors on Canal Street in New York City or Santee Alley in Los Angeles may find too few buyers to make some counterfeits worthwhile.
So for this class of goods, prices may rise and supply shrink. But overall, the business of counterfeiting is likely to outlive us all.
Zaichkowsky: Lawsuits like this do a lot to bring counterfeiting to the attention of business, but the lawsuit focus is on the company selling, not the consumer buying. You need to stop the demand before you can stop the practice. And the only country in which I think it is illegal to buy counterfeits is Italy.
When the consumer demand is there, there will always be manufacturers and sellers. The solution lies not in the law but in creating a negative image of a counterfeit consumer: one who buys counterfeits supports organized crime or is a fake person for buying a fake item.
Japan has the lowest consumption of counterfeit handbags. The Japanese covet quality and the real thing. They would lose face if their friends found out they had a fake bag.
As long as U.S. consumers think it “fun” to own a few counterfeits, New York City vendors will sell them.
As for prices, this is interesting because manufacturers in China produce 4 grades of counterfeits. Do you want A, B, C, or D? Prices vary as does quality.
My colleague in Paris told me of a story where the head of Louis Vuitton was approached in China by a manufacturer of fake Vuitton bags. He wanted to be licensed by Vuitton to manufacture for them. His product was excellent and of high quality. But there was no way Vuitton wanted to manufacture in China.
So some of these fakes are excellent quality and sell for more.
Another rumor that abounds (told to me by my secretary) is that the real stores have fakes mixed into their selection of real items, and/or that people bring fake bags into Vuitton and the staff can’t tell the difference. This is pretty dangerous territory for Vuitton and they need to reassure customers that their staff knows the difference between fakes and real goods.
One solution that seems to be ignored so far is to number pieces, much like limited edition prints by an artist. Customers can check if numbers are registered and where. This is not a new idea, but I am sure it is a bit cumbersome.
Q: In what industry is counterfeiting most “accepted” and in which is it least accepted/most penalized?
Raustiala/ Sprigman: Real counterfeiting is not accepted anywhere. Knock-offs, however, are more accepted — or perhaps it is better to say tolerated — in some creative industries than others.
An interesting example is the music industry, which presents a split personality on this issue. If you sample even a few notes from another’s sound recording, you may end up on the wrong end of a copyright lawsuit. But at the same time, the practice in (and the legal rules governing) the industry permits you to take someone else’s music composition and, for a small fee, make your own cover version. So don’t touch someone else’s recording, but feel free to re-make their entire song!
Zaichkowsky: One could say the only industry where counterfeiting is really not accepted is currency. Counterfeit currency operations are always prosecuted to the full extent of the law because it is the government which is harmed and the government makes the laws of the country.
I am not sure any industry accepts counterfeiting. The industry where the most counterfeiting is consumed is media/software. In a recent man-on-the-street survey done in Hong Kong we found about 60 to 70 percent of people readily admitted to purchasing counterfeit audio/visual (CD/DVD/VCD) and software. This is likely under represented because of social bias. I think some stats say about 90 percent of CDs and software are counterfeit in some countries.
The areas where consumers are not keen to purchase counterfeit goods are in drugs and certain electrical goods where they are afraid product failure may harm them. In fact, a woman recently died here in B.C. (Canada) after consuming “vitamins” she bought online. Most Viagra sold online is likely counterfeit and surely does not contain the same ingredients as that from Pfizer.
There are several attitudes at play from the consumer side. First a lot of CDs, software, etc. is consumed privately and is a necessity good for most. Therefore a lot of times the consumer is not subject to scrutiny when purchasing these items. A lot of the software comes from Microsoft which is a huge American company and many people think there is no harm in ripping off Microsoft.