The ongoing battle with counterfeiters

Considering this multi-billion-dollar global crime that results in significant lost revenue to genuine brand owners.

by Stuart Morgan

The temptation to purchase what appears to be the latest fashion footwear or the most recent technologically advanced sports shoe at a fraction of the normal retail price is a very strong one. However, many consumers grabbing such ‘bargains’ may not realise that they might be receiving poor-quality fake products, and that their actions could have a negative impact on the very footwear industry from which they are buying.

Counterfeiting has been a growing problem for footwear companies for many years. Not only does such illegal activity cost the brand owner money, but the poor quality and design of fake footwear can also cause lasting damage to a brand’s reputation.

One research study found that more than 55 per cent of respondents had been unable to spot the difference between fake and original footwear online and, as a direct result, their trust in the genuine brand was impacted – even if they realised the goods that had been delivered to their home were bogus. Many respondents to the study stated that they would no longer buy a specific brand if they knew it was being counterfeited. This decision can obviously impact on the good name – and the revenue – of a brand owner endeavouring to provide a world-class product.

Of course, some shoppers know full well that the footwear they are paying for is fake, but the temptation to get those trainers that apparently look just like the more expensive real thing is strong enough for them to ignore the warning messages. Nevertheless, when the goods arrive, they often come to the realisation that their money had been wasted.

According to the European Union’s law enforcement agency Europol, the production and sale of counterfeit goods represents approximately 2.5 per cent of world trade, with a value of USD 461 billion (GBP 363.7 billion). The situation within the EU is reportedly even worse, with imitation and pirated products said to account for some 5 per cent of all imported items. In addition to the importation of counterfeit goods, authorities have detected other criminal activities being carried out by the criminal networks involved.

Legal action in Europe

Between March and December 2022, Europol coordinated the first EU-wide operation against the illegal sale of counterfeit accessories, apparel and footwear. Called ‘Operation Fake Star’, this action was led by the Spanish and Greek police forces with support from the European Union Intellectual Property Office, and involved a total of 17 nations.

Authorities carried out 3,921 inspections to check ‘flea markets’, commercial and industrial areas, ‘pop-up shops’ and established retail establishments, tourist sites, warehouses and other places where bogus goods could be traded. Operational activities were also conducted by the relevant agencies in ports and at the premises of small companies offering e-commerce parcel distribution services.

During Operation Fake Star, almost two million items of counterfeit clothing, shoes and garments were seized which had an estimated street value of EUR 87 million (USD 93.8 million/GBP 74.1 million). The Intellectual Property rights of 258 brands were found to have been infringed, and the operation led to the opening of 646 judicial and 1,311 administrative cases and 378 individuals being arrested.

Unsurprisingly, the report on the success of the operation highlighted that the production of counterfeit sports and luxury goods is a particular problem. Investigations have confirmed expectations that such criminals are exploiting social media networks to advertise their imitation products.

Counterfeit products in the United States

The US Customs and Border Protection agency has identified the most-counterfeited products entering the country – by number of products seized – as follows: handbags/wallets – 30.3 per cent, wearing apparel/accessories – 28.1 per cent, watches/jewellery – 13.8 per cent, footwear – 11.7 per cent, consumer electronics – 3.7 per cent, pharmaceuticals/personal care – 3.6 per cent, automotive/aerospace – 2.4 per cent, consumer products – 1.9 per cent, optical media – 0.3 per cent, all other products – 4.2 per cent.

Online sales of fakes

Since the birth of internet shopping and ongoing advances in technology, it has become easier for unscrupulous companies to deceive consumers by selling low-quality goods as being authentic merchandise. The online trade in counterfeit goods has reportedly grown significantly in recent years, and this is commensurate with the increasing market share of e-commerce platforms.

Counterfeiters have created literally thousands of highly professional websites selling fake footwear, and customers who purchase bogus items from such sites are unaware that they are actually breaking the law in some countries. These websites have become so common that one designer brand has placed a cautionary message on its official website, warning shoppers about the high number of fake shoes on sale.

Successful prosecutions

Case study 1 – 2018: A man in the USA was sentenced to four months in prison followed by a three-year period of supervised release for selling counterfeit branded sneakers online and then laundering the proceeds of his crime. Over a 27-month period, he paid nearly USD 174,500 (GBP 137,682) to overseas footwear manufacturers, most of which was for imitation shoes and packaging. The money he obtained from the sale of this counterfeit footwear was then combined with legitimate revenue achieved from a trade in genuine products in order to conceal the illegal source of much of his income.

Case study 2 – 2021: A man and his wife were convicted in a US court of ‘conspiracy to import goods falsely classified’. The woman was sentenced to one year in prison and a fine totalling USD 7,500 (GBP 5,919), and her husband was sentenced to six months in prison and a USD 6,000 (GBP 4,735) fine.

According to the prosecution team, the defendants imported counterfeit branded sneakers which were then distributed throughout the US. In addition to being passed to third-party distributors, they sold the phoney products from the back of vans, at flea markets and in clothing stores. Over 310,000 pairs of counterfeit sneakers were seized by law enforcement officers during the investigation, as well as more than one million US dollars (GBP 789,088) in cash.

Case study 3 – 2023: Two brothers in the UK were convicted of breaching the Trade Marks Act after being caught selling counterfeit trainers, shoes and boots at a local market. One of the men pleaded guilty to 13 counts relating to trademark theft for having in his possession for sale imitation footwear with a retail value of over GBP 170,000 (USD 215,385). His brother pleaded guilty to three counts of breaching the Act, having in his possession for sale counterfeit footwear with a retail value of GBP 36,140 (USD 45,788) and for selling a pair of reproduction branded trainers to an undercover Trading Standards officer.

The first of these criminals was sentenced to a four-month custodial sentence suspended for one year and 80 hours of unpaid work, in addition to being ordered to pay prosecution costs. His brother was sentenced to a 12 months’ community order and ordered to undertake 150 hours unpaid work. He was also ordered to pay prosecution costs and a victim surcharge. Destruction orders were made for all the counterfeit goods received.

Case study 4 – 2023: The Delhi High Court in India passed a decree of permanent injunction, restraining a man from manufacturing and selling products bearing any marks which could be identified as representing a well-known international brand. The court ordered a shopkeeper to pay INR 10,000,000 (USD 12,051/GBP 9,514) damages to the brand owner for selling faked shoes falsely bearing its trade name and logo. The court also ordered the defendant to deliver the seized goods to the brand owner for destruction.

When summing up the case, the judge stated: “Such infringement, if left unchecked, would also be contrary to the consumer’s interests, inasmuch as the consuming public may be purchasing the counterfeit products and paying a higher price presuming the same to be the Plaintiff’s branded products. Thus, the sale of such counterfeit products is even contrary to the public interest.”

Taking proactive action

Police action is sometimes not enough to compensate for the damage that has already occurred to a brand’s reputation and how much the industry has lost. This had led to extra measures being taken by businesses to protect themselves.

Some companies hire security firms to guard their brand name from counterfeiters, and take every step to bring legal proceedings against the alleged criminals when they are identified. One footwear producer created a high-tech label which is printed on a special material with patterns that are extremely difficult to replicate. Each shoe also contains a unique, non-sequential alphanumeric serial number, which makes the genuine product identifiable. A number of brand owners include information on their websites about how to identify fake shoes.

The sophistication of the quality of counterfeit footwear is continuing to grow. In the past, criminals have been known to manoeuvre their way into authorised factories, have ‘extra stock’ made, and then sell these reproductions for their own profit, but this is often now too tightly controlled to do. More likely, a genuine product is purchased, dismantled and re-engineered – a method which seems to be successful.

One of the newest weapons against counterfeiters is DNA marking technology. The versatility of DNA markers makes it possible for retailers to create unique codes specific to their brand. The tags can be applied to the finished product, and can even be localised to the branding, allowing for easy verification by customs officers when using fluorescent identification equipment. Please see the article ‘DNA marking and traceability’ for a full description of this technology and its application within the footwear industry.

As footwear forgeries become even more difficult to identify, it is important that brand owners regularly re-evaluate the steps they have in place to protect themselves from counterfeiters. This is an ongoing war that is becoming ever more technical and which has no obvious end in sight. However, like the Netherlands’ sea defences are vital to withstand an overwhelming threat, every proactive step taken by the genuine footwear brand owner is necessary in an attempt to hold back the flood of fakes which are threatening their sales.

Publishing Data

This article was originally published on page 26 of the February 2024 issue of SATRA Bulletin.

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