Clubbing together to tackle the illegal trade in sporting goods

By Dr. Jochen M. Schaefer, Legal Counsel, World Federation of the Sporting Goods Industry (WFSGI)

This year’s top-tier sporting events, from the European football championships to the 2016 Rio Summer Olympic Games, have once again put the world’s leading sporting goods brands in the spotlight. This is great news for sporting goods manufacturers because such high visibility will translate into significant increases in turnover and sales both in stores and online.

But while online platforms are very effective vehicles for legitimate businesses to boost sales and reach new customers, they also make it easier for counterfeiters to peddle an expanding range of fake goods. That is the shadier side of the story. 

The illegal trading of fake goods is on the rise. A 2016 study by the OECD and the European Union Intellectual Property Office (EUIPO) entitled Trade in Counterfeit and Pirated Goods – Mapping the Economic Impact highlights the “significant economic and social losses” incurred by “right holders, governments and the formal economy” as a result of counterfeiting.

The study estimates that the international trade in counterfeit products represented up to 2.5 percent of world trade, or USD 461 billion, in 2013, while counterfeit and pirated products accounted for up to 5 percent of imports in to the EU – that’s EUR 85 billion (USD 116 billion) worth. A significant proportion of this trade relates to the sale of fake sporting goods and lifestyle products. While it is extremely difficult to quantify the exact scale of the trade in counterfeit goods, its sheer volume in both the online and offline worlds suggest that it is the work of highly sophisticated and organized criminals. Lured by high profits and minimal penalties if caught, at least in many parts of the world, counterfeiters and pirates do not care about the impact of their activities on consumers or legitimate businesses.

Within the sporting goods sector, as in other areas of industry, the relentless flow of counterfeit products onto the market is undermining legitimate businesses, damaging brand values and infringing intellectual property (IP) rights. Iconic brands like Adidas, Nike and Under Armour, as well as smaller, more specialized manufacturers like the producers of bicycles and bicycle components, are equally affected.

In an endeavor to tackle this problem head-on, in 2013 the World Federation of the Sporting Goods Industry (WFSGI) joined ranks with Convey, an Italian Internet brand protection company, to develop a mechanism to curb brand abuse and the sale of counterfeit sporting goods products online.

The main aim of the project is to efficiently and collectively combat illegal activities on multiple online platforms. This is done by:

• identifying and analyzing existing online threats for brands covering domain name abuses and the marketing and sale of counterfeit products on third-party-operated online platforms;
• removing counterfeit offerings from major e-commerce platforms and online marketplaces and permanently banishing the offending operators and sellers;
• shutting down illicit websites and regaining control of abusive domain names used and registered by third-party operators; and
• safeguarding the trademarks and domain names of WFSGI member companies, including new generic top-level domains.

Under the initiative, four types of services are available under preferential terms to WFSGI members. These include:

• preliminary screening of the actual online situation facing the WFSGI member concerned;
• measures to remove counterfeit offerings from the most prominent and dangerous online marketplaces;
• steps to shut down abusive websites and to regain control of hijacked or otherwise illegally used domain names;
• steps to safeguard new domain names through the registration of trademarks owned by WFSGI members in the Trademark Clearinghouse of the Internet Corporation for Assigned Names and Numbers (ICANN).

The project is attracting wide interest among WFSGI’s membership, which includes over 180 sporting goods manufacturers, in particular those operating in the bicycle sector. There are a number of reasons for this, as follows.

Health and safety. Counterfeit sporting goods pose serious threats to consumer health and safety. In the cycling sector, for example, the use of substandard, fake components can seriously injure or kill cyclists. All too often, unsuspecting customers looking for a “good deal” end up buying inferior, fake parts – bicycle frames, handlebars, wheels, saddles – that readily show material fatigue when subjected to standard quality control protocols. If you buy a fake bicycle component that fails, the consequences can be catastrophic.

Similarly, consumers tempted into buying fake sportswear online often find they have acquired a low-quality product that is either tainted with toxic chemicals or made with highly flammable materials, exposing them to serious health risks.

Brands share a common enemy. When it comes to tackling counterfeit sporting goods, brands are not competing with each other. As a general rule, illegal operators – sophisticated, professionally run organizations – target multiple brands. These large-scale criminal operations have reverse engineering capabilities and use computer-aided design (CAD) software, automated manufacturing processes and complex logistics to produce and ship their fake products. And they use standard web pages and dedicated apps to lure unsuspecting consumers into buying their “irresistible products”, which are extremely difficult to distinguish from the genuine article. In tackling this problem, all brands face a common enemy, and by working together and with the WFSGI, the global industry can speak with one powerful voice.

Online counterfeiting is indiscriminate and widespread. And it affects both large sporting goods manufacturers and small and medium-sized businesses in all geographic regions of the world. Counterfeiting undermines the operations of legitimate businesses and damages their hard-won brand value, reputation and goodwill as well as their IP rights.

Sporting goods manufacturers need modern tools to tackle a modern-day challenge. The only hope of curbing this illegal trade is to use technological tools that are fit for the task. Traditional methods, including the use of “cease and desist” letters, continue to have a place in the anti-counterfeiting armory, but proactive engagement with Internet Service Providers (ISPs) promises to yield better dividends. The online world is dynamic, and counterfeiters are adept at finding ways to hide or outsmart the system when they come under attack. That is why it is important to engage with ISPs and to use highly sophisticated big data-mining technology with image-detecting capabilities to systematically trawl the web to detect and curb these activities. While ISPs per se are not legally responsible for content posted on their platforms, in certain jurisdictions – including China (Tort Law of the People’s Republic of China (Article 36)), the European Union (Directive 2000/31/EC, Article 46) and the United States (17 US Code § 512) – once an ISP has been notified of an infringement it is required to take down the offending content.

Results

The tools that WFSGI and Convey are making available to sporting goods manufacturers are already yielding concrete results. Upon notification of an infringement – in relation to any type of IP right – Convey acts to take down the infringing websites within days.

Since the project’s launch in 2013, more than 40 prominent brand owners, including premier European football clubs and many bicycle manufacturers, have started using these services. In the bicycle sector alone, more than 160,000 counterfeit listings with a commercial value of more than EUR 8.6 million had been directly deleted as at March 15, 2016.

The success of the initiative is generating a lot of interest, and it promises to serve as an effective model for other industrial sectors to adopt in their anti-counterfeiting efforts. 

While complete eradication of the illegal trade in counterfeit goods is unrealistic, the WFSGI and its members have demonstrated that modern data-mining technologies can be an effective weapon in tackling it. The next step is to develop a sophisticated industry-wide authentication system. Our hope is that this will provide legitimate businesses with a higher degree of brand protection and of course make life even more difficult for counterfeiters.

Counterfeiting is a complex and sophisticated global operation that requires a multi-pronged strategy underpinned by the use of modern technologies. This is our best hope of limiting the damage caused by this illegal trade.