Social selling has empowered counterfeiters – how can you fight back and protect your brand?

By Julia Wray
August 1, 2022

Bharat Kapoor, Vice President of Authentix’s proprietary online trademark and content rights protection service, Strategic IP Information, or “SIPI,” explains Cosmetics Business how his process helps find online targets to stop piracy across industries, including cosmetics

As online sales continue to increase, businesses are turning their attention to digital marketing and promotional products across various social media channels.

As a result of Covid-19, there has not only been a rapid shift towards sales through online channels, with companies such as L’Oréal reporting a 62% increase in online sales across all divisions and regions[1]the marketing of products by influencers has also experienced a dramatic upswing.

The influencer marketing industry was valued at $9.7 billion in 2020 and influencers have become key players in the cosmetics industry today.

However, according to a report released by Instagram, 20% of posts connected to top social media brands contained fake or illegal content.

“The way customers interact with brands has changed over time, and there are two things driving this change,” says Kapoor.

“One is technology; You have omnichannel sales, you get news from social media feeds, ecommerce, marketplaces, influencers and so on.

“Customers who buy products online also have access to delivery infrastructures that have not existed in their current form. When you buy something from Amazon in Southeast Asia, Asia or the US, it can get to you within hours.

“And what counterfeiters really take advantage of is exactly that: they find places where it’s easy for them to advertise and sell anonymously, and they use this delivery infrastructure that was created by other legitimate companies that have billions and billions of dollars in invested in e-commerce. ”

The second thing helping pave the way for piracy is payment systems that allow funds to move seamlessly across borders, often associated with e-commerce and the rise of China’s cross-border “daigou” trade becomes. With this method, counterfeiters try to use the price gap between retail prices and gray market products to sell fakes.

“Today, with the various transaction methods, it’s also possible to bring money into China from anywhere in Europe,” Kapoor says, noting that the financial infrastructure is designed to help scammers.

“What we’ve seen is that cross-border e-commerce channels are becoming extremely popular because they’re offering crazy discounts. These deals are backed by sellers in a foreign country who are responsible for delivering the product once a transaction is completed. For example, we found and researched sellers in Singapore who don’t hold stock and simply place a back-to-back order when they receive an order. This makes it difficult for the police to take criminal action against such sellers.

“From a brand perspective, the cosmetics industry is not just about counterfeiting,” Kapoor explains. “Counterfeiting can account for 30-40% of the problem. But you will find violators using other assets of yours — your films, your photos, your design patents, a wide array of intellectual property — to sell a specific product that may be counterfeit or even a similar product.”

Find out who sells fakes

SIPI has a unique strategy for discovering the online vendors responsible for trading counterfeit products and those trading legitimate goods through its proprietary online monitoring and enforcement solutions.

The aim is not only to protect the customers’ brand image and copyright, but also their customers and reputation.

Founded in 2010 by Bharat Dube – former Head of Anti-Counterfeiting & IP Litigation at Richemont Group – SIPI was acquired by authentication solutions industry leader Authentix in 2021 and offline to identify high-value targets.

The process begins with data collection, where SIPI scrapes data for its clients’ brands from around 500 different e-commerce marketplaces and social media platforms.

This data is fed into its online underwriting platform and risk-scored by SIPI’s proprietary algorithms, which Kapoor says consider over 30 parameters (including price, images, keywords, customer ratings, and seller activity).

“You have to approach your research and potential research from the algorithms perspective [infringing] listing by looking at the listing in a broader context,” says Kapoor cosmetics shop.

“Sometimes it is quite difficult to identify a counterfeit product just from the listing as legitimate brand owners may also be selling their products at discounted prices. They have other channels and many other ways of selling. So you can’t just say that if a product is priced 30% or 40% below average, that alone is an indication that it’s counterfeit.

“You have to be a bit more precise when evaluating a seller. And that’s exactly what we’ve trained our algorithms to do – so they know what else to watch online. For example, you can look at customer comments, store ratings, the age of the stores, and the types of products the store sells such as: B. Luxury goods alongside very generic products,” which Kapoor singles out as suspicious.

To identify offline targets, high-risk sellers are further examined to create seller and product clusters, the term for groups of sellers who are focused on a region or trade a single product.

A full digital profile is created for high-value targets, after which these leads are shared with an offline investigator for further investigation and action.

The remaining infringing posts will be reported to the respective marketplaces and social media platforms for removal.

SIPI currently files over 120,000 complaints per month for the perfume and cosmetics industry and maintains a 94% success rate across all platforms. “While we aim for a 100 percent success rate, certain major marketplaces in China and Asia make it extremely difficult to file complaints against every single counterfeit,” notes Kapoor.

And it’s not just about how sophisticated or poorly made the counterfeit products are, whether they’re obvious versions. There are several avenues for illegal commercial activity.

The company says it has seen a sharp rise in the number of sellers claiming to manufacture products and supply packaging materials that support the counterfeit trade.

There are also cases where verifiable and legitimate products are sold illegally.

For example, in a recent China-based case study, SIPI categorized the sellers it studied into specific “buckets” based on specific types of risk.

As Kapoor explains: “We were commissioned to investigate over 1,500 sellers in China to find the different types of fakes. SIPI categorized each seller by developing a risk matrix designed to group sellers by product type – counterfeit, grays and illegal grays – to develop an effective enforcement strategy to find targets for offline investigations and those sellers who deal in counterfeits.”

I’m looking forward to

With the broader e-commerce landscape playing so well into the hands of counterfeit sellers, Kapoor believes the combination of Authentix and SIPI’s expertise comes at an opportune time for brand customers.

Authentix’ acquisition of SIPI expands the scope of its offering to brand protection customers by integrating digital security technologies and online anti-counterfeiting and content rights services for a comprehensive, end-to-end brand protection solution.

Over 200 brands are currently protected by SIPI’s services, including 50 cosmetic brands. In the last two years alone, the number of cosmetic brands monitored by SIPI has increased by 35%.

“We aim to provide our customers with solutions to digitize their supply chains and use our investigative techniques to identify instances of counterfeiting and diversion, while trying to keep the internet counterfeit-free by building effective online enforcement programs,” says Kapoor. For a limited time, SIPI is offering a free online brand risk assessment to qualifying brands. More information can be found here.





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