E‑Commerce Challenges in Illicit Trade in Fakes

1. E-commerce trends and developments

Background

This report studies the issue of abuse of on-line e-commerce platforms by sellers of counterfeits goods.

The risks of counterfeiting have been analysed by the OECD for more than 10 years. An in-depth report prepared in 2008 analysed the economics underlying the illicit trade, providing sector-specific and country assessments (OECD, 2008[1]). Subsequent work included an assessment of digital piracy (Stryszowski and Scorpecci, 2009[2]) and an analysis of governance frameworks for countering illicit trade (OECD, 2018[3]).

In 2016 the OECD joined forces with the European Union Intellectual Property Office (EUIPO) to deepen the understanding of the scale and magnitude of IP infringement problems in international trade. The results were published in a series of reports that provide a general overview of the situation: Trade in Counterfeit and Pirated Goods: Mapping the Economic Impact (OECD/EUIPO, 2016[4]), Mapping the Real Routes of Trade in Fake Goods (OECD/EUIPO, 2017[5]) and Trends in Trade in Counterfeit and Pirated Goods (OECD/EUIPO, 2019[6]).

In addition to these core reports, further studies have deepened understanding on specific aspects of trade in counterfeit goods. These include Trade in Counterfeit Goods and Free Trade Zones: Evidence from Recent Trends (OECD/EUIPO, 2018[7]), Why Do Countries Export Fakes?: The Role of Governance Frameworks, Enforcement and Socio-economic Factors (OECD/EUIPO, 2018[8]); Misuse of Small Parcels for Trade in Counterfeit Goods (OECD/EUIPO, 2018[9]); Trade in Counterfeit Pharmaceutical Goods (OECD/EUIPO, 2020[10]), Misuse of Containerized Maritime Transport in Counterfeit Trade (OECD/EUIPO, 2021[11]) and Global Trade in Fakes, A Worrying Threat (OECD/EUIPO, 2021b[12]).

The techniques and strategies of counterfeiters are constantly evolving as they seek to avoid detection. One of the vehicles that they are currently exploiting is e-commerce, which provides expanding opportunities to sell counterfeit products, with a relatively low risk of detection.1 IP rights holders are deeply concerned about developments and trends and have been working closely with government agencies and e-commerce platforms to address challenges. The stakes are high as growth in business to consumer (B2C) e-commerce sales is soaring globally, rising by 82% between 2016 to 2019, with a COVID-associated boost of 25.7% in 2020, to USD 4.2 trillion.2 By 2025, e-commerce retail sales are currently forecasted to rise to USD 7.2 trillion, which would represent about 24.5% of total retail sales, as compared to 17.8% in 2020.

This report examines how e-commerce is evolving, identifies some of the key issues and explores what stakeholders are doing to address the challenges posed by counterfeits. The assessments in parts II and III draw extensively on discussions held with the stakeholders through a series of webinars and individual follow-up discussions during April-July 2021.

This report looks at the issue of abuse of online e-commerce platforms by sellers of counterfeits goods. Two important points should be kept in mind in this context:

First, the term “counterfeiting” refers to a range of illicit activities related to the infringement of IP rights mostly trademarks. Following the (OECD, 2008[1]), (OECD/EUIPO, 2016[4]) (OECD/EUIPO, 2019[13]) and (OECD/EUIPO, 2021b[12]) studies, this report focuses primarily on the infringement of copyright, trademarks, design rights and patents. The term counterfeit used in this report refers to tangible goods that infringe trademarks, design rights or patents. This wording is used for the purpose of this report only and does not constitute any definition outside its scope. In particular, this study does not include intangible infringements, such as online piracy or infringements of other IPRs. Further, his report does not look at substandard, adulterated or mislabelled products, that do not violate a trademark, patent or design right.

Second, the usage of the term e-commerce varies in different contexts, and the understanding of e-commerce is not universal. For instance, definitions employed by the Eurostat and the US Census Bureau differ with respect to taking into account sales negotiated on extranets, email, and mobile devices (m-commerce). Even though these differences appear slight, one should keep in mind that discussions that fed into this report might come from stakeholders that refer to different definitions of e-commerce. Of course, just as for counterfeiting, this report does not introduce any new definition of e-commerce, rather it uses the working description used in other prior OECD reports3.

Market trends

The development of the Internet has served buyers and sellers of goods and services well, by greatly enhancing the efficiency of markets, via e-commerce (OECD, 2013[14]). Consumers, for example, can access a broader range of products from a larger number of suppliers, than was previously the case. Additionally, businesses can expand the reach of their operations in a highly cost-effective manner that has proven beneficial to large and smaller entities alike. The increased transparency of markets has at the same time enhanced competition, spurring innovation.

The e-commerce market has three main segments: business to business (B2B), which dominates the market, business to consumer (B2C), which has risen sharply in recent years and consumer to consumer (C2C) which covers the sale of products between individuals that are not treated as businesses.4 In 2019, e‑commerce was estimated at USD 26.7 trillion, which accounted for about 30% of world GDP (Table 1.1). The United States, Japan and China were the top 3 economies in terms of e-commerce sales accounting for close to 60% of the world total. The importance of e-commerce, measured as a share of GDP, varied significantly across economies, ranging from 14% of GDP in the case of Germany, to 79% in the case of Korea (see Table 1.1 for additional measures). As indicated above, B2B transactions dominate the market, accounting for 82% of all e-commerce in 1989, including both sales over online market platforms and electronic data interchange transactions.

Table 1.1. World e-commerce in 2019 (Billions of USD and percent)

Economy	Total e-commerce sales	Share of world total	Share of GDP	B2B e-commerce		B2C e-commerce
				Sales	% of total sales	Sales	% of total sales
United States	9,580	36	45	8,319	87	1,261	13
Japan	3,416	13	67	3,238	95	178	5
China	2,604	10	18	1,065	41	1,539	59
Korea	1,302	5	79	1,187	91	115	9
United Kingdom	885	3	31	633	72	251	28
France	785	3	29	669	85	116	15
Germany	524	2	14	493	94	111	21
Italy	431	2	22	396	92	35	8
Australia	347	1	25	325	94	21	6
Spain	344	1	25	280	81	64	19
Subtotal	20,218	76	36	16,526	82	3,691	18
Other	6,455	24	20	5,277	82	1,179	18
Grand total	26,673	100	30	21,803	82	4,870	18

Source: UNCTAD, 2021.

The B2C market has experienced continued and rapid growth in many economies over recent years. Table 1.2 shows how the situation has changed with respect to online retail sales, which represent a subset of the B2C sales reported in Table 1.1. The overall increase in sales of 41% between 2018 and 2020 contrasts with the 0.1% decrease in total retail sales. At the country level, all countries listed experienced growth in online retail sales exceeding 33%, with sales in Canada and Singapore doubling. Total retail sales, on the other hand, declined in five of the seven economies listed, rising by less than 2% in the remaining two. As a result, the share of online retail sales to the total rose sharply in all the economies, increasing to more than 20% in three economies.

Table 1.2. Retail sales in selected economies, 2018-20 (Billions of USD and percent)

Economy	Online retail sales			Total retail sales			Online share of total
	2018	2019	2020	2018	2019	2020	2018	2019	2020
Australia	13.5	14.4	22.9	239	229	242	5.6	6.3	9.4
Canada	13.9	16.5	28.1	467	462	452	3.0	3.6	6.2
China	1,060.4	1,233.6	1,414.3	5,755	5,957	5,681	18.4	20.7	24.9
Korea	76.8	84.3	104.4	423	406	403	18.2	20.8	25.9
Singapore	1.6	1.9	3.2	34	32	27	4.7	5.9	11.7
United Kingdom	84.0	89.0	130.6	565	564	560	14.9	15.8	23.3
United States	519.6	598.0	791.7	5,269	5,452	5,368	9.9	11.0	14.0
Total of above	1,770	2,038	2,495	12,752	13,102	12, 773	14	16	19

Source: UNCTAD, 2021.

The recent rise in online activity is, however, part of a longer-term trend. In the United States, for example, B2C e-commerce shipments rose by 267% during 2008-18, compared to 85% in the case of B2B manufacturing shipments.5 In the process, the share of e-commerce retail sales to the total rose from 3.6% in 2008 to 9.9% in 2018, and to as high as 15.2% in the fourth quarter of 2020; at the same time the share of B2B manufacturing online activity rose from 40% in 2008, to 67% in 2018. Moreover, in the United Kingdom, B2C retail sales surged during 2020 and into 2021, jumping from 4.9% in 2008, to 28% in 2020 and 33% during January-April 2021.6. By the end of 2021, some 93% of UK Internet users are expected to have engaged in e-commerce (OECD, 2021[15]). Surveys indicate that the shift to online purchases is likely to continue as some 60% of those surveyed expected their online purchases to continue at elevated levels following the pandemic.

The Internet provides an effective mechanism for engaging in B2C cross-border trade, which in 2019 amounted to USD 440 billion (UNCTAD, 2021[16]). As shown in Table 1.3, cross border transactions represented 2.3% of world merchandise exports in that year. While their role was relatively small in some economies, it reached 8.2% in the case of the United Kingdom. The share of cross border transactions in total B2C transactions amounted to 9%, exceeding 10% in six of the top 10 merchandise exporters listed.

Table 1.3. Cross-border B2C e-commerce sales of the top 10 merchandise exporters, 2019 (Billions of USD and percent)

Economy	Sales	Share of total merchandise exports	Share of total B2C e-commerce sales
China	105	4.2	6.8
United States	90	5.5	7.1
United Kingdom	38	8.2	15.2
Hong Kong, China	35	6.2	94.3
Japan	23	3.3	13.2
Germany	16	1.1	14.7
France	12	2.2	10.6
Korea	5	0.9	4.4
Italy	5	0.9	13.9
Netherlands	1	0.2	4.3
Total of above	332	3.4	9.0
World	440	2.3	9.0

Source: UNCTAD, 2021.

Industry structure

Overview

Goods and services can be sold on the Internet via e-commerce by companies, organisations and individuals, regardless of their size. Individuals, for example, can set up store fronts easily, at low cost, as can small shops. The number of sites engaging in e-commerce is constantly changing as new players enter the market and others exit. Some have estimated that there are currently 12 to 24 million e-commerce sites; most are small as less than one million sellers sell more than USD 1,000 per year.7 The larger e-commerce companies are multi-billion enterprises, headquartered principally in China and the United States (Table 1.4). The 13 largest e-commerce companies sold goods and services valued at USD 2.9 trillion in 2019, which accounted for close to 60% of total B2C sales in that year.

Table 1.4. Largest B2C e-commerce companies, 2020 (Billions of USD)

Company	Headquarters	Gross merchandise volume
		2018	2019	2020
Alibaba	China	866	954	1,145
Amazon	United States	344	417	575
JD.com	China	253	302	379
Pinduoduo	China	71	146	242
Shopify	Canada	41	61	120
eBay	United States	90	86	100
Meituan	China	43	57	71
Walmart	United States	25	37	64
Uber	United States	50	65	58
Rakuten	Japan	30	34	42
Expedia	United States	100	108	37
Booking Holdings	United States	93	96	35
Airbnb	United States	29	38	24
Total	--	2,035	2,401	2,892

Source: UNCTAD, 2021.

As indicated above, there are various types of B2C e-commerce platforms. Marketplace platforms, such as Alibaba, Amazon and eBay, sell a broad range of products, which are offered for sale from internal stocks or by outside vendors. The platform operator is responsible for attracting potential customers, advertising offers and processing transactions; they may also take responsibility for shipping products to buyers. Retail store platforms are operated by brick-and-mortar businesses; they provide consumers with a means to shop for and purchase products, for pick-up or shipping. They may also offer products from third party vendors, serving, in this case, as a marketplace platform as well. Other types of platforms include those operated by companies that offer virtual products or services, and those operated by manufacturers interested in selling their branded products directly to consumers, such as Apple, Godiva, Gucci, Levi’s, Tiffany and Nike.

In terms of trends, conventional firms and retailers are increasingly experimenting with online distribution channels, alongside their brick-and-mortar operations (OECD, 2020[17]). This includes smaller retailers that are trying to survive due to the drop-off of sales in physical stores during the pandemic. There are challenges however as leveraging the Internet, or other electronic networks, to integrate e-commerce into an existing firm-level business model often requires complementary investments. These can include supply-chain and fulfilment arrangements, as well as consolidated inventory systems. In general, however, e‑commerce shows much promise for small and medium enterprises (SMEs), provided they have the resources needed to establish and maintain their own websites or, alternatively, engage with e‑commerce platforms. There is scope for significant expansion; in 2019, e-commerce accounted for 24% of economic turnover in large firms, but only 10% in small firms (OECD, 2020[17]).

Innovation is ongoing in e-commerce markets. Sellers have, for example, deployed “click-and-collect” mechanisms, which enable consumers to order and purchase online and then collect purchased items in a local brick-and-mortar store or another location, such as a locker (OECD, 2020[17]). This allows consumers to immediately purchase a good or service at a distance, and to save on shipping costs, delays and the inconveniences that may be associated with delivery. The “click-and-collect” mechanism enables firms to retain their centralized inventory system, while reducing the operational costs associated with physical brick-and-mortar stores. Furthermore, it enables them to acquire useful data about users. To the extent that click-and-collect mechanisms are in a brick-and-mortar store, they may allow consumers to check the quality and assess the colour, style and size of a product within the store itself prior to purchase. In addition, consumers can often make returns in-store, which can increase their willingness to purchase online.

Some online businesses in the apparel sectors are innovating by including offline features to enable the sale of fit-critical goods and services online (OECD, 2020[17]). While an offline distribution channel may increase costs, it can increase the extensive margin of e-commerce by enabling new types of products to be sold online. Firms that sell heterogeneous or customized products like clothing may benefit from consumers’ ability to physically inspect the product before purchase. For example, several online apparel retailers have opened brick-and-mortar stores that allow consumers to try on products before ordering them online.

Other firms are experimenting with online ordering mechanisms within or near brick-and-mortar stores (OECD, 2020[17]). After entering a store via a mobile application, consumers can select the products and then leave the store without a formal checkout.

Distribution

E-commerce has given certain distribution channels a big boost, providing a means for businesses to bypass retail outlets and ship small quantities of items directly to individual consumers in a cost-effective manner. The success of this business strategy is borne out by the profitability and growth of the largest e‑commerce market platforms. The distribution channels that have been most favourably affected are the postal services and local and international express delivery services such as FedEx, UPS and DHL. In the case of the post, traffic in domestic and international letters has declined sharply over time, falling by close to one third from 2001 to 2019 (Table 1.5). On the other hand, fuelled by e-commerce, the volume of parcel traffic, both domestic and international more than quadrupled during the same time, rising to 21.3 billion items in 2019.8 In the five-year period 2015-2019 alone, parcel traffic rose by more than 70%.

Table 1.5. Processing of letters and parcels by postal authorities in recent years

Year	Letters			Parcels
	Domestic	International	Total	Domestic	International	Total
	Billions				Millions	Billions
2001	416	6.9	423	4.8	43	4.8
2010	356	4.3	360	8.0	62	8.1
2015	310	3.3	313	12.2	115	12.3
2016	301	3.1	304	14.6	133	14.7
2017	303	2.9	306	16.3	174	16.5
2018	290	2.7	293	18.4	179	18.6
2019	284	2.6	287	21.1	192	21.3

Source: UPU (see https://www.upu.int/en/Universal-Postal-Union/Activities/Research-Publications/Postal-Statistics#query-the-database, accessed 18 July 2021.

While statistics are not yet available for 2020 and 2021, the impact of COVID-19 could well have accelerated the growth in parcel trade. In the United States, for example, mail volumes declined precipitously in FY20209 as marketers restrained from spending and adapted to changes in consumer behaviour (USPS, 2020/21[18])). Package volumes, on the other hand, rose by 19% from FY2019 to FY2020, to 7.3 billion pieces as people minimized in-person shopping and ordered goods delivered to their homes.

Postal services are keen on strengthening their participation in e-commerce. The United States Postal Service (USPS), for example, has focused on growing e-commerce and implementing marketing campaigns to increase business by offering day-specific delivery, improved tracking, text alerts and up to USD 100 of free insurance included on most Priority Mail packages. At the international level, the Universal Postal Union (UPU) updated its e-commerce guide (originally published in 2014), in 2020, to include new and expanded information on recent trends, business models, e-commerce key elements, strategies and UPU enablers to facilitate e‑commerce (UPU, 2020[19]).

As noted, the ability of suppliers to furnish consumers with goods in a cost-effective manner via the post and related delivery services has been highly beneficial for the parties concerned. It has, however, provided an opening for those involved in illicit trade to carry out their operations with little risk of detection as the quantities of merchandise shipped in individual parcels and letter packets tend to be small and the shipments are intermingled with billions of legitimately traded items. Additionally, the law of the vast majority of economies exempts importations in small quantities from being subject to seizure for infringing intellectual property rights, whereas a minority of economies have only exempted from seizure small quantities of infringing items that accompany an incoming passenger, are for their personal use only, and are not packaged for retail sale.

The problem is a significant one that commands considerable attention from legislative and enforcement authorities. In the case of items that cross borders, the OECD estimated that counterfeits amounted to USD 503 billion in 2016, or 3.3% of world trade; the problem, it was noted, is growing worse.10 Trade in counterfeits via parcels is an important vehicle for facilitating the illicit trade, which is reflected in seizures by border officials. In 2019, some 63.9% of seizures involved mailed items (WCO, 2020). Most of the seizures involved a small number of items, with mail accounting for only 12.1% of the total number of items seized.11 The challenges in combatting the counterfeits are ongoing as the criminal networks involved are constantly adapting their techniques to evade the efforts of enforcement authorities to intercept the illicit products (OECD/EUIPO, 2020[10]). Problems are seen as most pronounced in goods moving through postal channels, given the difficulties in screening the huge volume of small parcels and letter packets moving within and across borders and the limited or misleading information that can be provided on the content of parcels and packets (OECD, 2021[15]).

E-commerce fraud

One of the top concerns about e-commerce is its potential to be used to commit fraud. This reflects the ease with which purveyors of counterfeit, pirated goods and/or unsafe goods can pollute e‑commerce distribution channels. Selling counterfeit and pirated merchandise is illegal as it infringes trademark and copyright law, to the detriment of the companies which developed the goods concerned. Counterfeit products often do not meet regulatory standards that legitimate goods must. Unsafe products consists of all goods which threaten consumer health and safety, whether or not they infringe intellectual property rights. As discussed below, the largest marketplace platform providers have developed mechanisms to undermine the bad actors who, knowingly or unknowingly, seek to sell illicit or unsafe goods via e-commerce. Governments have also taken measures in this regard, but the challenges are great and remain of keen concern to all stakeholders, with some governments now actively pursuing legislation to address problems.

As mentioned above, it is relatively easy to set up e-commerce websites in most jurisdictions, as the large number (12 to 24 million) attests. Fraudsters who are intent on swindling consumers are thus in good position to establish a web presence, through which their fraudulent acts can be committed. Many of the fraudsters who establish sites are active traders of counterfeit and pirated products. Once detected, governments can act to have rogue websites taken down; the ease of re-establishing such websites using new domain names, however, is problematic.

In addition to national actions, several initiatives have been taken at the international level to combat the online sale of counterfeit items. INTERPOL, for example, has coordinated campaigns against the online sale of illicit drugs and medical devices (OECD/EUIPO, 2020[10]). Operation Pangea has been carried out since 2008, with the number of countries participating rising from 8 to a record 123 in 2017. Participating agencies carried out coordinated operational activities against illegal websites during the same week with a view towards identifying the criminal networks behind the trafficking (Table 1.6). During Pangea XI, which was carried out in 2018, police, customs and health regulatory authorities from 116 countries targeted the illicit online sale of medicines and medical products, resulting in 859 arrests worldwide and the seizure of USD 14 million worth of potentially dangerous pharmaceuticals. Almost one million packages were inspected during the week of action, with 500 tonnes of illicit pharmaceuticals seized worldwide. Seizures included anti-inflammatory medication, painkillers, erectile dysfunction pills, hypnotic and sedative agents, anabolic steroids, slimming pills and medicines for treating HIV, Parkinson’s and diabetes. More than 110,000 medical devices including syringes, contact lenses, hearing aids and surgical instruments were also seized.

Table 1.6. Operation Pangea 2008-2018

Year (Pangea number)	Number of countries	Seizures		Number of arrests	Number of websites closed
		Quantity	Value (millions of USD)
2008 (I)	10	NA	NA	NA	NA
2009 (II)	24	167,000 items	NA	221	72
2010 (III)	45	1 million	2.6	NA	290
2011 (IV)	81	2.4 million items	6.3	551	13,500
2012 (V)	100	3.75 million items	10.5	80	18,000
2013 (VI)	100	9.8 million items	41	58	9,000
2014 (VII)	111	9.4 million items	31	237	10,600
2015 (VIII)	115	20.7 million items	81	156	2,414
2016 (IX)	103	12.2 million items	53	393	4,932
2017 (X)	123	25 million items	51	400	3,584
2018 (XI)	116	500 tones	14	859	3,671

Notes: ¹ Arrested or under investigation; 2 NA: Not available

Source: INTERPOL news releases at www.interpol.int/News-and-Events.

One of the main trends identified during the decade of Pangea operations is the continuous growth of unauthorised and unregulated online pharmacies, which are capitalising on increasing consumer demand worldwide.12 Also of note, criminals are shipping packages containing smaller numbers of pills and tablets to try and avoid the more stringent checks which have become routine in many countries.13

Social media

Use in e-commerce

Another trend concerns the emergence of social media platforms as vehicles for facilitating e‑commerce.14 Businesses have become active on the platforms, which are being used by them to deepen interactions with consumers. Social networks, which are the most popular online activity in most countries, were used by nearly three-quarters of Internet users in the OECD in 2019 (OECD, 2020[17]). Businesses have taken note; more than half in the OECD had a social media presence in 2017, up from one-third in 2013. As in other areas, there is a marked contrast between countries. Usage ranged from over 65% in Iceland, Norway, Brazil, the Netherlands, Ireland and Denmark, to below 30% in Japan, Poland and Mexico. Medium and large enterprises are the predominant users. In 2017, less than one in three small firms in the OECD used social media compared to almost three-quarters of large firms. Growth in e‑commerce, combined with similar growth in social media usage has encouraged companies to turn to influencer marketing (see below) and user generated content to promote brand awareness (Phaneuf, 2021[20]).

Businesses primarily use social media for developing the enterprise’s image and marketing products, as well as to obtain or respond to customer opinions, reviews or questions (OECD, 2020[17]). They may also use social media to involve customers in the development or innovation of goods or services. The use of social media for commercial purposes (referred to as “social commerce”) is booming, with US retail social commerce sales forecast to rise by 34.8% in 2021, to $36.1 billion, representing 4.3% of all retail e‑commerce sales (Phaneuf, 2021[20]). While fashion categories including apparel and accessories are the largest segment of social commerce, electronics and home decor are also significant. Companies can use influencers, consumer call to actions, and user generated content, to capitalize on the power of social commerce.

Influencers

One aspect of note is the role of “influencers” on social media platforms. Influencers are persons who can generate interest in something (such as a consumer product) by posting on social media (AAFA, 2021[21]). Once limited to celebrities with massive followings, influencers now include a growing number of persons with more limited followings, who nonetheless can have significant impact on the sales of a product. Influencers are in fact considered to be a vital part of the fashion industry, with many brands incorporating influencer marketing into their digital strategies. The brands count on the influencers to promote their brands in ways that complement their traditional marketing strategies. The influencer industry is large and growing, with estimates that it will be worth $15 billion by 2022.

Influencers can thus play a critical role when it comes to shopping decisions online (AAFA, 2021[21]). People who follow influencers tend to consider them more as friends or acquaintances, rather than celebrities or advertisers. The influencers can therefore help to build trust and authentic relationships with followers, with their recommendations having considerable weight in consumer decisions.

With respect to counterfeiting, concern has been expressed about the growth of “dupe” influencers, which are persons who use their influence to promote off brand or, in some cases, counterfeit items. In some instances these influencers claim or suggest that the items are genuine, or just like a similar branded product. In the past, the counterfeit products have been referred to as “knockoffs,” “reps,” “AAA,” “mirror quality,” “replicas,” and “inspired” (AAFA, 2021[21]). In recent times, the term “dupes” has gained popularity on social media platforms to refer to counterfeits. Some dupe influencers pride themselves as providing online resources for finding fake versions of highly sought-after fashion items.

The tactics used by the influencers include i) unboxing promotional videos, ii) sponsorships and giveaways, iii) tutorial videos and hidden links, and iv) influencer shopping apps (AAFA, 2021[21]). The influencers use the unboxing videos to showcase their products. The unboxing videos typically start with commentary on where the item was purchased and/or gifted from, how much it cost, and how long it took for the product to arrive. Typically, dupe influencers will film the process of unwrapping or unboxing the product, along with their reaction. The influencers will then comment on the quality of the product, sometimes posting side by side comparisons of the authentic and the counterfeit or go into a detailed analysis of what makes the two versions different. The influencers can also act as sponsors for suppliers of counterfeit products, receiving free merchandise for review; influencer followers may also be provided with special discount codes to encourage sales. Additional free merchandise may be provided to the influencer, with a view towards promoting the products through giveaways. Tutorial videos posted by influencers include specific, step-by-step tips and tricks to find popular counterfeit items. Influencer shopping apps have streamlined the process to shop for counterfeits. Dupe influencers will often direct their social media followers to their tagged posts on these apps.

In some instances the influencers promoting a counterfeit provide links to nondescript or generic products which are being sold on online shopping platforms; the actual product being sold, however, is the counterfeit (OECD discussions, 2021). This technique is designed to undermine the efforts of rights holders and platforms to detect and remove listings for counterfeit products.

COVID-19

The COVID-19 pandemic has re-shaped illicit trade in counterfeit goods. Regarding the observed effects, enforcement officials highlight that the pandemic has aggravated existing problems, through lockdowns, closed borders, and closures of shops.

Criminal networks have reacted very quickly to the crisis, by taking advantage of people working online at home, with less secure infrastructure. Law enforcement officials have reported significant growth in cybercrime, including fraud and phishing. According to law enforcement authorities, in the EU, e-commerce is a predominant channel for distributing fraudulent COVID-19 related products.

The boom of misuse of the online environment also resulted in a considerable growth of abuse of online marketplace and online platforms that were created during the COVID-crisis. Apart from websites, criminals are also beginning to misuse new online channels of communication, such as WhatsApp and Facebook messenger.

Enforcement and industry experts report observable growth in the online supply of counterfeit goods that occurs on all types of online platforms, including those that used to be relatively free from this risk. In addition, a large number of new platforms and domains have been created with the purpose of deceiving consumers. For example, since March 2020, at least 100 000 new domain names containing COVID-19 related words (e.g. Covid, corona or virus) were registered to sell related medical items. This also reflects growing demand for pharmaceuticals and personal protective equipment (PPE) such as masks, safety glasses, protective clothing. Counterfeiters exploit this demand by offering online fake PPEs and counterfeit equipment to produce the PPEs or spare parts of machines.

Online platforms tend to be aware of these risks. For example, during the pandemic, Amazon detected price gouging and ill-described (including counterfeit) goods. Amazon reacted quickly and has worked closely with legal and communication teams, and collaborated with EU law enforcement to share information related to fraudulent goods related to COVID-19 pandemics.

Consumers

Developments and trends

Internet use, of which e-commerce is but one aspect, has risen sharply (OECD, 2020[17]). In 2019, 70% to 95% of adults used the Internet in OECD countries with smartphones became the favoured device for Internet access. There are, however, disparities within age groups and education level. Some 58% of individuals aged 55-74 used the Internet frequently in 2019, which is up from 30% in 2010. On the other hand, nearly 95% of individuals aged 16-24 were daily Internet users.

Increased Internet use is also reflected in an expanding number of persons engaging in B2C e‑commerce. In 2019, some 1.48 billion persons, or close to one quarter of the world’s population aged 15 and older, made purchases online (Table 1.7) (UNCTAD, 2021[16]). This represented a 16.5% increase over the 1.27 billion e‑consumers in 2017. While consumers bought mostly from domestic vendors, some 360 million made cross-border purchases, a 38.4% increase form 2017. As a result, the share of persons making cross-border purchases rose from 20% in 2017, to 25% in 2019.

Table 1.7. Number of online shoppers worldwide, 2017-19

Type of purchase	2017	2018	2019
Cross-border	0.26	0.29	0.36
Domestic	1.01	1.09	1.12
Total	1.27	1.38	1.48

Source: UNCTAD, 2021.

In the OECD area, B2C e-commerce was more pronounced. Almost 60% of individuals bought products online in 2019, up from 38% in 2010 (OECD, 2020[17]). Within the area, the share of people buying online still varied significantly across countries, as well as across different product categories. Age, education, income and experience all influenced uptake. In Denmark, the Netherlands and the United Kingdom, more than 80% of adults shopped online, while in other countries, the participation level was 25%, or less. In 2018, the items most purchased online were clothing, footwear and sporting goods, and travel products, event tickets, reading materials, movies and music, photographic, telecommunication and optical equipment, and food and grocery products. The trend towards online shopping is expected to continue, especially considering the COVID-19 pandemic, with an ever-increasing number of persons buying products using mobile devices (OECD, 2020[17]). In addition to purchasing items, consumers are also increasingly selling goods and services online. In 2019, nearly 20% of individuals in the European Union sold goods or services online, which was more than double the 2008 level.

With respect to trends, subscription services provided through e-commerce channels are becoming more popular (OECD, 2020[17]). Such subscriptions are characterized by regular and recurring payments for the repeated provision of a good or service. In the e-commerce context, this can include subscription to streaming digital products, such as movies, as well as subscriptions to products, such as food or cosmetics which deplete with use and require replenishment. Online technologies enable easy ordering of the goods and services, avoiding associated transaction costs and thus improving convenience for consumers. Firms, on the other hand, benefit from regular and ongoing revenue streams. Interestingly, connected devices that use streams of data through sensors, software and network connections have become linked with physical goods to make continuous or recurring purchases.

Counterfeits

As suggested above, the counterfeit market targets different types of consumers: i) those who will buy counterfeits thinking that the product they are purchasing is genuine, ii) those who knowingly purchase lower-priced counterfeits, and iii) those who do not know whether a product is genuine or counterfeit, and do not care. Persons who knowingly purchase counterfeits or are indifferent may expose themselves to health and safety risks if the counterfeits are substandard. The consequences of buying the counterfeit may be low, or, in the case of food, drugs and electrical equipment the consequences could life-threatening; in these cases consumers are likely to be selective in the types of potentially counterfeit products that they would buy.

Raising consumer awareness of the risks and potential consequences of purchasing counterfeits, including the potential enrichment of organised crime groups which are involved in counterfeiting and the damaging environmental impact of counterfeits, is viewed as a necessary element of anti-counterfeiting strategies by stakeholders (OECD, 2021[15]). Such programmes can provide concerned consumers with information on how to detect and avoid counterfeits, and hopefully can have positive effects on longer term perceptions on the value of IP protection, to rights holders and the economy at large. At the same time, the limited impact of such campaigns on persons who seek out counterfeits requires that other actions are needed to disrupt counterfeit markets.

The quantitative analysis provided in OECD-EUIPO (2021) sheds more light on the quantitative relationship between illicit trade in counterfeits and the indicators on e-commerce. Findings confirm a positive and statistically significant correlation between the indicators of e-commerce activity in an economy, and imports of counterfeits to that economy.

Furthermore, the correlation becomes stronger for indicators of imports of fakes with small parcels. Countries that report high degrees of e-commerce intensity tend to report higher rates of imports of fakes smuggled in small parcels. Although indirectly, it shows that small parcels tend to be the preferred way of shipping of fake products ordered via e-commerce. A closer look into specific streams reveals that the postal distribution channel clearly dominates. Over 90% of seizures of fakes ordered online were carried by post.

In terms of products, many types of fake products tend to be ordered on-line including footwear, clothes, toys, leather goods, electric equipment and watches and cosmetics (Figure 1.1). Looking at the values of seizures, instead of their numbers, yields similar results, with footwear and clothing being product categories on top of the list of products with highest shares of detentions.

Figure 1.1. Distribution of number of detentions not related to online sales between product categories

Source: OECD-EUIPO, 2021.

References

[21] AAFA (2021), Dupe Influencers: The Concerning Trend of Promoting Counterfeit Apparel, Footwear, and Accessories on Social Media, American Apparel & Footwear Association, http://www.aafaglobal.org/AAFA/Solutions_Pages/Dupe_Influencers_The_Concerning_Trend_of_Prom.

[15] OECD (2021), Discussions with stakeholders, unpublished.

[17] OECD (2020), OECD Digital Economy Outlook 2020, OECD Publishing, Paris, https://dx.doi.org/10.1787/bb167041-en.

[3] OECD (2018), Governance Frameworks to Counter Illicit Trade, Illicit Trade, OECD Publishing, Paris, https://dx.doi.org/10.1787/9789264291652-en.

[14] OECD (2013), “Electronic and Mobile Commerce”, OECD Digital Economy Papers, No. 228, OECD Publishing, Paris, https://dx.doi.org/10.1787/5k437p2gxw6g-en.

[1] OECD (2008), The Economic Impact of Counterfeiting and Piracy, OECD Publishing, Paris, https://dx.doi.org/10.1787/9789264045521-en.

[11] OECD/EUIPO (2021), Misuse of Containerized Maritime Shipping in the Global Trade of Counterfeits, Illicit Trade, OECD Publishing, Paris, https://dx.doi.org/10.1787/e39d8939-en.

[10] OECD/EUIPO (2020), Trade in Counterfeit Pharmaceutical Products, Illicit Trade, OECD Publishing, Paris, https://dx.doi.org/10.1787/a7c7e054-en.

[13] OECD/EUIPO (2019), Trends in Trade in Counterfeit and Pirated Goods, Illicit Trade, OECD Publishing, Paris/European Union Intellectual Property Office, Alicante, https://dx.doi.org/10.1787/g2g9f533-en.

[6] OECD/EUIPO (2019), Trends in Trade in Counterfeit and Pirated Goods, Illicit Trade, OECD Publishing, Paris/European Union Intellectual Property Office, Alicante, https://dx.doi.org/10.1787/g2g9f533-en.

[9] OECD/EUIPO (2018), Misuse of Small Parcels for Trade in Counterfeit Goods: Facts and Trends, Illicit Trade, OECD Publishing, Paris, https://dx.doi.org/10.1787/9789264307858-en.

[7] OECD/EUIPO (2018), Trade in Counterfeit Goods and Free Trade Zones: Evidence from Recent Trends, Illicit Trade, OECD Publishing, Paris/European Union Intellectual Property Office, Alicante, https://dx.doi.org/10.1787/9789264289550-en.

[8] OECD/EUIPO (2018), Why Do Countries Export Fakes?: The Role of Governance Frameworks, Enforcement and Socio-economic Factors, Illicit Trade, OECD Publishing, Paris/European Union Intellectual Property Office, Alicante, https://dx.doi.org/10.1787/9789264302464-en.

[5] OECD/EUIPO (2017), Mapping the Real Routes of Trade in Fake Goods, Illicit Trade, OECD Publishing, Paris, https://dx.doi.org/10.1787/9789264278349-en.

[4] OECD/EUIPO (2016), Trade in Counterfeit and Pirated Goods: Mapping the Economic Impact, Illicit Trade, OECD Publishing, Paris, https://dx.doi.org/10.1787/9789264252653-en.

[12] OECD/EUIPO (2021b), Global Trade in Fakes: a Worrying Threat, OECD Publishing, https://www.oecd.org/publications/global-trade-in-fakes-74c81154-en.htm.

[20] Phaneuf, A. (2021), Social Commerce 2021: Social media and Ecommerce Convergence Trends Brings Growth Opportunity for Brands, Insider Inc., http://www.businessinsider.com/social-commerce-brand-trends-marketing-strategies.

[2] Stryszowski, P. and D. Scorpecci (2009), Piracy of Digital Content, OECD Publishing, Paris, https://dx.doi.org/10.1787/9789264065437-en.

[16] UNCTAD (2021), Estimates of global e-commerce 2019 and preliminary assessment of COVID-19 impact on online retail 2020, United Nations Conference on Trade and Development, Geneva, https://unctad.org/system/files/official-document/tn_unctad_ict4d18_en.pd.

[19] UPU (2020), E-commerce Guide, Universal Postal Union, Berne, https://www.upu.int/UPU/media/upu/publications/Final-November-update-UPU-E-Commerce-Guide_2020_EN.pdf.

[18] USPS (2020/21), FY 2020 Annual Report to Congress, United States Postal Service, https://about.usps.com/what/financials/annual-reports/fy2020.pdf.

Notes

← 1.  The OECD defines e-commerce transactions as those involving the sale or purchase of goods or services, conducted over computer networks by methods specifically designed for the purpose of receiving or placing of orders. The goods or services are ordered by those methods, but the payment and the ultimate delivery of the goods or services do not have to be conducted online. An e-commerce transaction can be between enterprises, households, individuals, governments, and other public or private organisations. To be included are orders made over the web, extranet or electronic data interchange. The type is defined by the method of placing the order. To be excluded are orders made by telephone calls, facsimile or manually typed e-mail. (See https://stats.oecd.org/glossary/detail.asp?ID=4721.

← 2.  See www.statista.com/statistics/379046/worldwide-retail-e-commerce-sales/ and www.emarketer.com/content/global-ecommerce-forecast-2021.

← 3.  See https://www.oecd-ilibrary.org/sites/1885800a-en/index.html?itemId=/content/component/1885800a-en

← 4.  Other segments include consumer to business (C2B), consumer to government and (C2G) and business to government (B2G).

← 5.  See www.census.gov/retail/index.html.

← 6.  See www.ons.gov.uk/businessindustryandtrade/retailindustry/timeseries/j4mc/drsi .

← 7.  See https://wpforms.com/ecommerce-statistics/.

← 8.  The data on parcels does not include the considerable number of items that are sent in letter packets, data on which are not readily available.

← 9.  The year ending on 30 September 2020.

← 10.  See https://www.oecd.org/newsroom/trade-in-fake-goods-is-now-33-of-world-trade-and-rising.htm.

← 11.  The number of seaborne seizures was far lower, but the number of items seized was considerably higher as the counterfeits tend to be shipped in bulk.

← 12.  See www.europol.europa.eu/newsroom/news/millions-of-medicines-seized-in-largest-operation-against-illicit-online-pharmacies.

← 13.  See www.interpol.int/en/News-and-Events/News/2018/Illicit-online-pharmaceuticals-500-tonnes-seized-in-global-operation.

← 14.  Facebook, Instagram, Pinterest, TikTok and WeChat are examples of social media platforms.