The boom in e-commerce has been a boon for fraudsters
The COVID-19 pandemic has greatly accelerated the growth of e-commerce. And counterfeiters are raking in the cash.
Dr. Jay Kennedy, Assistant Professor at Michigan State University and Assistant Director of Research at the Center for Anti-Counterfeiting and Product Protection, joins NCL’s VP of Public Policy, Telecommunications and Fraud John Breyault to talk about the dangers of counterfeit products and how these products flourish on digital marketplaces.
*Due to COVID-19 safety protocols, this episode was recorded remotely. Audio quality may not be consistent throughout.*
Transcript: The boom in e-commerce has been a boon for fraudsters
John: Hi everybody, and welcome to We can do this podcast, the National Consumers League. My name is John Breyault, and I am the Vice-President of Public Policy Telecommunications and Fraud at NCL. And I also have the pleasure of being the manager for one of our flagship campaigns, which is called fraud.org. And it’s in that capacity today that I am really excited to welcome our special guest Professor Jay Kennedy. He is the Assistant Professor at the School of Criminal Justice Michigan State University, go Spartans. And he’s also the Assistant Director of Research at the Center for Anti-counterfeiting and Product Protection. Hi Jay, welcome to the show.
Professor Kennedy: Hi John. Thanks very much for having me.
John: Thanks a lot for being on the show. For those of you that don’t know already know Dr. Kennedy’s background, he is one of the leading voices and thought leaders in America when it comes to counterfeiting. In addition to his role at Michigan State and at the Center for Anti-counterfeiting and Product Protection. He’s also been published in dozens of peer-reviewed articles for academic journals and other publications. He still teaches classes which I’m sure is something we can talk about, how that went in the COVID time. But I think the reason that we’re really excited to have you on today is just how much consumers have over the past 18 months now, since the pandemic really took hold, how much they have embraced the online world, like e-commerce in particular. I know I have seen statistics that say things like the kind of growth that we’ve seen in e-commerce in the past year due to COVID would have taken five years to achieve that kind of growth if we hadn’t been in this unique unprecedented time.
And while that raises all kinds of unique questions and issues for consumer advocates like me, I think one area that I’m particularly concerned about, and I’m glad you’re here to talk to us about this today Jay is the opportunity that this has given for fraudsters. So at fraud.org, we hear from consumers all the time about being victims of all kinds of scams, everything from lottery scams to phishing emails, to robocalls. But interestingly, the one type of complaint that we’ve received, it’s been at the top of our list for years and years has always been consumers who have experiences buying merchandise online, people who encounter websites that either steals their information or what they get back when they buy products aren’t what they ordered. And I think that all of that ties into sort of why we are so so honored and interested to have you on the show today. So Dr. Kennedy, you know, I kind of rambled there a little bit, but would you agree that sort of the COVID and these past 15 or 16 months have really kind of changed how we look at e-commerce generally and counterfeiting your area of expertise in particular?
Professor Kennedy: Yeah, John, you know, you’re spot on when you talk about the numbers that have changed and the ways in which the pandemic has shifted consumer behavior and the way in which we buy products. The growth has been exponential. I don’t think that anyone really appreciated how the pandemic would have shifted the move from physical commerce to e-commerce in the ways that it did and in the areas that it did. I mean, we, I guess we all could have anticipated that with home goods and, you know, office supplies, maybe, or convenience items. We would see an uptick there, but we’ve also seen an uptick in personal goods and healthcare, and people going online to buy pharmaceuticals and things like that. The growth has really, really been staggering. And it’s something that we don’t think is going to go away, because as you hinted to it was the growth that we were already expecting to happen.
We just weren’t looking for it for a number of years to come. And so it’s, it’s likely going to stay. There were a large number of people who went online to buy items for the first time ever during the pandemic. And I think they found that it was very convenient, very easy to access a wide range of products, and they’re going to stick with it which is not necessarily a bad thing until you start talking about the risks of product counterfeiting. You know counterfeiters did not take a nap during COVID. They did not humble themselves and think about the greater good of society while the world has been facing this pandemic. They’ve seen it as an opportunity and from the very early stages of the pandemic counterfeiters have taken advantage of not only the lack of knowledge that consumers had about the virus and about what would help with the virus but also panic buying, which happens quite a bit in crisis situations. They took advantage of all those things to put products online to deceive consumers, to put out counterfeit testing kits, fake cure-alls, ultimately counterfeit vaccines, which we’re still seeing an issue with. All of that to take advantage of the crisis and to victimize consumers in new and sometimes old ways. But in ways that are really very nefarious because it touches everyone in ways that we hadn’t seen before.
John: Yeah. I couldn’t agree with you more and you talk about panic buying. And I think obviously when we think of panic buying in the context of COVID, many of us still kind of remember March and April when like stock up on the toilet paper, because it’s all going to be out, but you know what, seeing what we’ve seen here in the Washington DC area over the past week with the Colonial Pipeline shut down, people just lining up to buy gas. And I heard the other day that 80% of the gas stations in DC were out of gas. They just didn’t have any, it had all been bought up. And I think that those two experiences gave me a new appreciation for the role that consumer psychology, particularly, mass consumer psychology plays in these decisions on what to buy and how to buy and how much to buy.
So it’s interesting, but let me bring it back to counterfeiting. You know, for folks who may not be as familiar with counterfeiting as you are, I’m thinking when they think counterfeits, they’re thinking of sort of the knockoff handbags that are sold on street corners, or maybe they think of counterfeit money. You remember the movie catch me if you can, with Leonardo DiCaprio all about counterfeiting, but I feel like that’s probably just scratching the surface of what counterfeiting is all about. Can you give our listeners a sense of sort of what does this modern world of counterfeiting look like from where you stand?
Professor Kennedy: Yeah, sure. I mean, those examples are the very normal examples and you’re right, they’re great lead-Ins and the, I don’t want to say confusion, but the reason why I think those examples come up for a lot of people is because that’s what we’re kind of familiar with, right? We’ve seen it from either our own experiences or we’ve seen it on the news. But the world of product counterfeiting is actually much greater, it’s a much more vast enterprise than simply handbags and counterfeit money. And in my research, I don’t do anything regarding counterfeit money. It’s all kinds of fit products and that’s a whole different animal, but even just counterfeit products is a world in and unto itself. You know, the handbags and watches and wallets and the counterfeit luxury goods that brings up a bit of nostalgia for people either because, you know, they enjoyed their trip to Santee Alley or Chinatown in New York or one of their friends had a purse party or whatever.
And it comes across as a very harmless form of consumerism, right. I know it’s fake, it looks nice and I would never try and pass it off as legitimate, but it’s just a nice piece of indulgence. The reality is that whenever we find that there is a product that is in demand, we are going to find a counterfeit. And so that means everything from pharmaceuticals to automotive parts and supplies down to parts of equipment for money, the electronic circuits that go into defense department equipment and nuclear submarines and child products that we buy when we have kids. All of those products are counterfeited, and it’s all driven by the fact that there is a demand for those goods. And I like to use the term mercenary crime when talking about counterfeiting and mercenary crime was a term that was coined back in the early 1930s by a small section, former section of the American Bar Association that looked at crimes that were for-profits, right.
They had no other motive other than elicit gain, and counterfeiting is one of those crimes. And so when you think about the crime of counterfeiting, all you really have to do is think what product is out there, that if it were sold, could produce, a profit, and that’s every product that’s out there. I had a colleague at the Center, who’s now retired, a gentleman named Rod Kinghorn, who worked for General Motors for a number of years as their head of security, and I remember when I first came on to the Center, one of the things that he told me was, one of his lines was, if your company and your product, if you’re not at risk for counterfeiting, then you don’t have a good product in essence, right? If you have a product that consumers want, you’re at risk for counterfeiting, because there is a market there for a fake that can come in underpriced, under the radar screen, and take away a bit of that market because people are price-conscious buyers in many ways. And so the amount of things that are counterfeited I think I’ve ceased to be amazed when people say, oh, here’s an example of X that’s been counterfeited. Like, yeah, I can see that people want it and there’s money to be made in it. So it’s going to be counterfeited.
John: Well, what leads somebody to acquire sort of counterfeit goods? You talked about the purse party and that people might view it as a sort of a harmless form of consumerism. Do they just want the appearance of luxury without the price, or do they even know that they are buying a counterfeit? Or is this something where, you know, I think you talked about automotive parts, what an auto mechanic that wants to save on parts, sell me something like a real set of brakes, for example? But in fact, it’s counterfeit, and they’re just going to pocket the difference. What leads people to acquire these goods in the first place?
Professor Kennedy: That’s a great question, and the answer to that question is one that helps us think about the counterfeiting market from the consumer’s perspective. And we generally talk about consumers in two different camps, which helps us identify why people would buy these goods. And in one camp, we have the individuals, we call the complicit consumers. These are people who willingly buy counterfeit products and there’s a range of different complicit consumers, most are who we think about as you mentioned, right? They maybe want a luxury product, and they don’t want to pay the price or they feel like they can get value, or they can be a savvy shopper by paying a lesser price for goods that looks like the legitimate. So in some way, they want an item that they can pass off as authentic without having to pay the price for the authentic good.
And this really takes advantage of the fact that one, as humans, I think we’re all pretty good-natured people in that if someone is wearing a really, really expensive purse, nine times out of ten, we’re not going to question them on whether or not that purse is legitimate. And even if we did, do we really have the skills and the acumen to be able to determine ourselves whether or not it’s legitimate? And if we do, why would we do that? So you’ve got the complicit consumers who buy because they want to own this item. You have other individuals who may not necessarily go out looking for a counterfeit, but they’re not going to pass up a really good deal. And so the cues are there that this might not be something legitimate, but their desire to have the item makes them overlook all those cues that would say, this is something that’s not genuine.
That generally happens with a product that we don’t think is going to harm us. The third group of consumers or I guess two and a half since I mentioned two initially, but that last group of consumers are the people who are just duped, right? You’re going out to buy a legitimate product. You want to buy a legitimate product. You take your car into the shop, you ask to have new brakes put on, you get your car. Your mechanic has said he’s put on new brakes, and lo and behold, they are counterfeits on the car. Those consumers don’t go out looking for a counterfeit. Someone has sold them a counterfeit because that seller has realized there’s an opportunity to make money. And this is real, these are the true victims of counterfeiting schemes, right? They’re the ones who are taken advantage of by people whom they trust or places that they trust. They’re looking to buy the legitimate item and they get taken advantage of. The complicit consumers that I mentioned initially, right? They’re the ones who they kind of know what they’re buying and they go after it. Many of us don’t know that we’re not getting the real thing.
John: Well, I’d like to talk to you a little bit more about this third group you talked about, or two and a half that sort of the duped consumer. You know, it’s one thing when you’re duped into buying say, luxury goods, something like that. It’s another thing when you’re buying say as your example, breaks that you don’t know are counterfeit, and that might be dangerous. I know that you’ve done a lot of work on counterfeiting of pharmaceuticals by their very nature counterfeited, consumer pharmaceuticals, don’t go through the kind of regulatory processes that we all take for granted to ensure the safety of the medicine. Let’s talk about those threats to life and limb from counterfeiting. How is that different, let’s say in pharmaceuticals, for example?
Professor Kennedy: Yeah. So now you get down to the things that really keep a lot of people up at night, right? While there can be harm that can come from counterfeit, athletic apparel, handbags, or something like that, the risk is relatively low. Now, when you talk about pharmaceuticals and the ingestion or the injection, in some cases of counterfeit pharmaceuticals, there’s a number of different harms that can come. The first one can be, and I guess the best-case scenario is that you get instead of an injection or some type of medicine that you’re looking for, you get a chalk pill or saline solution. That’s going to be harmless. You’re still being denied the medicinal benefits that you’re looking for from the actual pharmaceutical. So there’s still harm that’s being done, but there’s no harm necessarily that’s created by that counterfeit that you’re taking. There are some items that fall in the middle. They’ve got some active ingredients and so you may get some benefit, but we’ve also seen cases where individuals were given counterfeit pharmaceuticals that were diluted or adulterated. They had some minuscule amount of the active ingredient and the individuals became resistant to that chemical makeup that ultimately would have benefited them, had they gotten it in full strength dose. And then you have counterfeit pharmaceuticals that can cause serious harm or even death. And we’ve seen that happen across the world, particularly in developing world nations, but across the world, people dying because they have consumed counterfeit pharmaceuticals. This is a constant concern for the manufacturers of counterfeit pharmaceuticals for governments, for law enforcement for many healthcare providers, because as consumers, we don’t know how to discern in many ways, legitimate from illegitimate. And so it makes it very difficult to really protect ourselves aside from the sites that we may go to. But even then if we believe that it’s legitimate and it’s not it’s tough to know whether or not it’s legitimate. And so the harm that’s posed by those medical devices are the same is quite substantial.
John: So, let’s delve down a little bit more into that. So, one of the things that we hear a lot about is that the price of medicine is just so high that consumers just can’t afford it. You hear horror stories about people who are getting charged thousands of dollars for basic medication like insulin, right. You know, for those people, if the choice is between not being able to afford the medicine or being able to afford something that may or may not be what they actually think it is, but maybe it could work. I mean, how is a consumer to know? I mean, if they’re in these sorts of impossible situations, and am I oversimplifying this; is this sort of like a person who really needs this and just needs to get it more cheaply, somebody who is a target of counterfeiters?
Professor Kennedy: Yeah. Unfortunately, you’re not oversimplifying it. The best examples of this come out of Africa, where, in other developing world Asia, but typically many nations in Africa where we’ve seen the hard examples of this, where the healthcare infrastructure is not very stable. Drug prices are high and incomes are relatively low. And so people will make the conscious choice to buy a counterfeit product, hoping that it has some bit of the active ingredient because that’s the only thing they can afford or it’s the only thing that they can get access to. And I wish that I had an answer for that problem, right? I wish that I could say drug companies lower your prices. Well, that’s not necessarily the answer, because there are a lot of things that drive up the cost of medication.
I wish that I could say governments do a better job of developing healthcare infrastructure that brings decent pharmaceuticals to your patients. Well, that’s great, right but instability, regional instability, conflict lack of federal resources or governmental resources, they impose challenges there. There are situations like that where individuals will make the conscious choice because that is the best that they can get. And they hope that they get something. Now, the counterfeiters don’t care, right? They don’t care that there are individuals who are putting their health at risk because they can’t afford anything else. They’ll still put whatever they want into those pills. It’s a very lucrative market for them. Actually, it’s one of the best markets for them because it is direct revenue for them. They’re not fighting against legitimate companies to try and displace real medications in the supply chain.
They have consumers who are coming directly to them. And it is one of the largest challenges to disrupt, particularly when we have individuals, consumers who willingly and knowingly buy, say a counterfeit pharmaceutical, hoping that it has some benefit, they realize some turnaround in their health status, or they get some benefit from it. Now their reticence to buy a counterfeit in the future, goes down substantially, right? They may even sing the praises of the counterfeits because hey, here, there is someone who’s making a drug that we can get access to. It’s not big pharma or government, that’s keeping these things from us. We should have access to these knockoffs or these off-brand drugs as they term them. It is a substantial problem when it comes down, not only to decision-making but also coming up with a way to address that problem.
John: Well, let me shift gears a little bit on this. How are consumers obtaining these counterfeit goods? You know, we started off our conversation by talking about how e-commerce has really become supercharged during COVID. And we know that we see eye-popping numbers about how many goods are being sold on marketplaces like eBay and Amazon and Shopify and others. But we also know that those are platforms that host millions of sellers. Some of them are selling legitimate products, some of them may be selling counterfeits. What is the responsibility of the platforms for keeping counterfeits off their sites?
Professor Kennedy: Yeah, that’s a great question. And it’s one that we struggle with quite a bit in terms of finding a balance. You know, there’s several pieces of legislation pending that we can talk about a bit later, but the responsibility of the platforms really is to do their best to ensure that one, they are keeping identified bad actors off of the sites. These are individuals who the platforms know have committed these types of crimes before. Keeping them off of their platforms, being active in searching for counterfeit goods, and elicit postings on their websites. And that requires a lot of collaboration with law enforcement and brand owners. And so that requires a platform to be open to that. The platforms have a responsibility to be responsive to consumers. Consumers are some of the foremost people to tell you when something is wrong and being responsive to that is definitely the responsibility, if you’re going to make money off of the consumers who patronize your platform – sorry, and then platforms also have a responsibility to ensure that they are working with law enforcement and brand owners to deal with counterfeiting incidents that they identify on their platforms. So bad actors will get on who are maybe unknown to the platform. But once the platform realizes that something is going on, I think there’s a requirement to gather and share data so that prosecutions can happen, takedowns can happen that records can be kept of these actors. And all of these things come at a cost. But if your model is to earn revenue based upon the third parties acting on your platform, sharing information, it is your responsibility to ensure that you are doing that record-keeping, that you are spending those funds to protect your consumers.
John: Well, I guess that begs the question then, are all of these funds and resources that the platforms are putting into fighting counterfeiting on the platform; are they effective; is it working?
Professor Kennedy: There’ve been a variety of responses across the different platforms. So we talk about e-commerce holistically as you know, all the platforms generally, and social media are thrown in there as e-commerce. But the reality of the situation is that each of the platforms has taken its own kind of unique approach. Some are doing better than others. Some are effective I would say. There are several efforts out there by platforms that are starting to produce results. Some of them, we have to kind of wait for a while and see what the data flesh out to see how effective they are. But irrespective of what is kind of effective now, the one thing that platforms need to be doing, and I don’t know if they’re doing this because it’s not one of those things that they regularly share with the public. But one of the things that they really need to be doing is developing ways to be proactive in this fight.
So all the data that’s gathered from the take-downs that they do, from the requests for take-downs that they get, the lawsuits that they file, any activities that they do around the ways in which illicit sellers go to market. All of that information has to be used internally to start thinking, all right, where’s our next step. We know that once we take these bad actors off the platform, they’re going to try and come back here again, because as you mentioned, and as we talked about at the beginning, e-commerce is where everything is going. The counterfeiters are going to come to the consumers and try and bring their wares. And the platforms have the responsibility of trying to stop them and understanding how the counterfeiters operate, being cognizant of the fact that they will change their methods and being ready to address that adaptation is a big part of what they should be doing.
I could call out a couple of platforms by name given what they’ve done. But I’m sure that it’s easy enough to find out. There are a couple of platforms that are really leading the field in terms of what they’re doing to not only address the counterfeiting problem but also to work with brand owners and law enforcement and industry groups to help brands protect themselves. There are other platforms that are well behind the curve and on which you can very easily find prolific numbers of counterfeit products. And in some cases, the platform’s algorithms actually help the counterfeiters because they direct products to consumers.
John: That’s really interesting, particularly the part about algorithms sort of directing people to these products. I hadn’t really thought about that particular role. I mean, obviously, I had heard about this sort of cat and mouse game. That’s constantly getting played, but actively directing people to these counterfeit goods are scary.
Professor Kennedy: It is scary, and if I can give a real brief example. As part of my research, I go on a variety of e-commerce platforms and look for products as self-educated things. And I was on a platform and I found several listings for counterfeit handbags. And it was very clear that these were “replicas” or as good as the genuine items products. And so I’m not a brand owner. I can’t verify that they were counterfeit, but they had all the cues of being counterfeits. I looked at the items, obviously didn’t purchase them. And a couple of days later received an email, push notification from the platform saying, hey, are you still interested in this item? And so that wasn’t the platform like someone’s sitting down punching into a computer, but their algorithms are set up to follow, obviously what I’m looking at. And if I didn’t make a purchase to prompt me, maybe I’ll make the purchase once I get the prompt. That works for legitimate goods, but it also works for illegitimate goods. And so that’s a problem.
John: Well, that brings up an interesting point. As a consumer advocate, I am paid to think about, what are the incentives that are in the marketplace that exist to try and get companies to do “the right thing.” When we’re talking about platforms, these are often platforms that exist, they make their money not on, and sometimes I guess they do, they make their money on a percentage of the sale of the good but their incentive is to push volume through the system, right? That’s getting more people onto the platform buying and selling is good for their business model. So I imagine that that sort of creates a tension between people – the bean counters who want to make as much money and have as many sales in the platform as possible.
And then the people on the other side, who were saying, wait, wait, wait, we need to do more to try and control what’s getting put onto the platform in the first place, right? And by the way, we need you to invest a couple of million dollars in people to help us with that. So I guess that the question if I’m correct in how I’m looking at it from that tension then are the incentives in place to get platforms to actually take counterfeiting and fight back counterfeiting seriously. And if not, is that a market failure? Is there a role that the government needs to play through regulation? You talked about some of the Bills that have been introduced in Congress. So let me stop there. I thought that was going to be one question, I teed up about five. So feel free to take them in any order you want.
Professor Kennedy: Sure. So let’s talk about the incentives first. And I think you’re exactly right when you talk about that tension with the revenue model and the way that the platforms work is, as you mentioned, volume, sales going through that gets met with I guess, a tangential tension of what is our legal responsibility and liability to stop counterfeits going on. And I would say that the platforms that are at the leading edge of their anti-counterfeiting activities are the ones who have said beyond the legal requirements, what are our social requirements? And it’s almost bringing back that term corporate social responsibility in some cases, right? What ought we be doing to stop these things from getting into the market? And so I don’t know if we’re talking about it straight from the revenue generation model that pushes e-commerce platforms forward and makes the stockholders very happy at the end of the year.
I don’t know if there’s a way to create an incentive that would lead them to say let’s slow down the pace at which we bring on new sellers and the pace at which transactions happen and the pace at which consumers are able to get their goods from these third-party sellers. All the incentives will work in the opposite direction. And so at a certain point, you have to say, okay, now, is there an incentive that we’re not really quantifying? And that is what the reputational incentive is. What is the disincentive that is provided by lawsuits and legal action that’s brought against us by either consumers, the government, or brand owners who feel that their rights are being violated? Right now many platforms are operating under the Safe Harbor provision of the Digital Millennium Copyright Act. I think that’s going to go away at some point in the future.
I would argue that it needs to but there’s been again, some good work by some other platforms, but if you take the fact that there are liabilities there and look at what those costs are, that revenue model may not look as stable as it did before. So we’re talking incentives and disincentives there. The issue with those types of incentives is they’re very tough to quantify when you’re talking to the bean counters, right? It’s very easy to quantify sales and your margins on sales and sales of certain items. It’s very difficult to quantify in concrete terms that you can put into a calculation, your basic ROI, or an NPV calculation on, what the cost of a brand owner’s actions will be, or you look at the very complex returned goods system, right?
We’ve already seen talk about changes to many platforms, return goods systems where, if it’s below a certain item, they don’t even bring it back. They just issue a credit and the consumer can do whatever they want with the item. That’s a big challenge when it comes down to counterfeit items. So yes, a consumer may get their money back, but that item is still out there. In terms of whether the incentives are correct. I kind of think that, well, I don’t want to say kind of thing. I really think that that depends upon the maturity of the market, the e-commerce marketplace with regard to its anti-counterfeiting activities to date.
For some marketplaces where it is just blatant and obvious and very easy to find counterfeits or individuals who are even violating the terms of service for some of these specialty e-commerce marketplaces and e-commerce platforms. You know, there need to be some very strict measures I believe, put in place. Whether that happens from a regulatory standpoint or dare I say, an industry self-regulation perspective. I’m not sure which one is best. I’ll talk about regulation in a minute. But the correct incentives really need to match the activities that are going on on the platform. Now, okay, so I’ll jump to regulation. When it comes to regulation, is that the right incentive?
I would say if the regulation is written appropriately, it can be. The challenge that we run into with regulation and with taking a strict legislative approach to it, is that that regulation is much more stable. It creates much more issues of inertia than the counterfeiters and their activities. So passing a law or putting in place the regulatory standard today may meet the issues that the platforms and consumers and brand owners are facing today. But quite honestly, with the speed at which e-commerce is changing with the speed at which counterfeiters are adapting next month, that legislation may be outmoded.
And so if we require platforms to do a set of things that we believe will mitigate or substantially reduce, I’m not going to say eliminate, but substantially reduce the threat that’s posed by counterfeit products on their platforms that mitigation may work in the very short term, but counterfeiters are going to quickly adapt. Legislation won’t adapt as quickly. And so the right legislation needs to be one that prompts, incentivizes in a number of different ways, platforms to do things that leverage the strengths that they already have with access to data, data collection, right. The algorithms, the very sophisticated algorithms that they use to look at consumer behavior and to market to consumers, to leverage the use of those activities, to develop solutions that fit within the context of counterfeiting as it exists at that time and allows them to be able to be one entrepreneurial so they can grow try and get ahead of the curve, but also be much more responsive without fear of having to meet a set of standards that are now outmoded and outdated.
John: We all are familiar with the idea that, and I see this all the time in the tech space, this well-worn phrase that says, you know, the whatever law Congress is going to pass will be obsolete the minute, before the ink dries, right. And that’s what I’m hearing from you talking about how Congress is looking at this today, that they’re looking at the problem that they face today and what are solutions to address that problem, but am I hearing you right on that?
Professor Kennedy: In many ways, yes. And I think one of the reasons why is because there may be a bit of a disconnect between what the proposed legislation is trying to do and what it may actually do in terms of targeting aspects of the problem in terms of mitigating risk. There are elements of the acts that I think are good. But I think we need to be very realistic about what it is they will actually do to affect the structure and the opportunities for counterfeiting, namely because they don’t address consumer decision-making or opportunities for consumers to buy products. If you have options as a consumer you’re going to make those choices based upon a certain set of factors. And I know that the Bills are trying to work so that the only options that consumers have are legitimate options.
But the ways in which counterfeiters are adapting, their behavior makes it very difficult in some cases for that legislation or actions like that to be effective. And part of it is because the counterfeiters are really smart at what they do. They’re really good at what they do. And so for example, when you have a product listing, that’s showing just a generic handbag online but people get an Instagram message or a Tik Tok, or some other direct message through social media that says, hey, go on this platform, look for this generic purse. When you buy that, you will actually get this counterfeit luxury item.
That’s tough to stop. And so, it’s that adaptation is something that, as we dig through the data, there may be patterns that are able to pull out that the focus on recreation in the way that it is from the current legislation may not be able to get to. Now, not again, not saying that we should just write off the legislation that’s being proposed but maybe have a bit more of an in-depth conversation about what the actual outcomes may be and what we’re trying to affect.
John: So are there particular pieces of legislation that you’re looking at now that you think on balance would move the ball forward in protecting consumers, and opposed to that, are there ones where you think good intentions, but the way it’s written is not the way we should be going?
Professor Kennedy: Yeah. So there are several variants of the Informed Consumers Act that is coming out at the State level that I have not had the chance to look at deeply. Despite the fact that I’m in criminal justice, I’m not a lawyer, so I don’t get into a ton of legislation. But as I look at the, and I have dug into these, the Informed Consumers Act, which I know was recently brought back up, the Shop Safe Act and the Sante Act. All three of those Bills were proposed last summer to fall, and COVID kind of put everything that was happening with the elections and everything put a stop to everything, but when I look at those three pieces of legislation, the main thing that they’re driving for is transparency for the buyers.
So, it’s mandating that e-commerce platforms do a better job of gathering information about who the sellers are and providing that information to the consumers. And I am definitely all for that, right. Transparency in any regard is definitely a better thing. The question that I have from a practical standpoint is the way in which the Act mandates that it be done and the loopholes that are in there. So for example, the Informed Consumers Act has a requirement that official that copies of official government IDs be submitted by sellers, that the platforms keep a copy of those, and verify that the identification is legitimate. Verifying that a piece of identification is legitimate from the 51 different jurisdictions in the United States can be difficult in and of itself if you’re a platform.
But now what about if it’s someone from halfway around the world and you’re could say, well, you need official documentation from a government agency. We’ve seen document forgeries before, right? And yes, the access that the platform should take every reasonable step every reasonable measure to verify it. But if there’s the expectation that the platforms are verifying the legitimacy of the individuals who are selling, but those sellers are using nefarious purposes as they will to hide their identity, to lie about the documents that they have, where does the liability, and it may end legally for the platform, but socially for the platform. And my big worry, and this is in general when we talk about corporate regulation, my big worry about that is you are going to have platforms out there that will see any piece of legislation as the benchmark, right. The legal standard automatically becomes the minimum ethical standard and doing anything above that requires some individual or entity within that business to argue for why they should spend, as you mentioned, millions of dollars on this endeavor when they’re not legally required to, and they’re not exposed to liability by not doing so.
John: You know, there’s legal liability, and what I’ve heard you say is that let’s wave a magic wand and say tomorrow, Congress passes a law that makes platforms legally liable for counterfeit goods on their platforms. What I’m hearing you say is that could actually be somewhat, counter-intuitively counterproductive to the goal of incentivizing companies to meet this social liability standard or ethical responsibility standard that I think you talked a little bit about earlier. If what I’m hearing there is correct, how can consumers put pressure on platforms, for example, to meet that? Is it simply voting with your pocketbook or is it going to your legislator? Is it making noise on social media? Like, what is the role of consumers themselves, and as a consumer advocate, I’m thinking of the people that I talk to every day in fighting back against counterfeiting generally and dealing with counterfeits on platforms in particular?
Professor Kennedy: Yeah. So, if we did wave that magic wand, and we’re talking about things from the consumer perspective, and I know that the lawmakers, the congressmen, and women who put together several bills. They spoke with their constituents and consumers about what it is that they want. I think there needs to be a larger forum for dialogue, where consumers can get feedback about their experiences with platforms when it comes down to counterfeit goods because some of those experiences are really, really bad. And this is where I see a place like a consumer product safety commission or the FTC, a role for them to really moderate that discussion and to have some type of administrative authority where they can sanction platforms that are essentially deaf to consumers’ issues. The other thing they can do as you mentioned, is they can vote with their feet.
Let’s be very honest, right? The platforms exist because they are seen as the favorable or the favored choice of where to get products, it’s convenient, they’ve made it easy, there are a bunch of options, right? The prices are good, but when consumers start to get victimized, when consumers start to get taken advantage of the question of safety now becomes an issue. And so, yes, you can get this product in two days, it can get here, it’s going to be the, you know, the least expensive option. You’ve got a bunch of options, but there’s a 70% chance that it’s going to be counterfeit. The consumers who really care, which I’m going to assume is going to be the vast majority of them if you ask them. The consumers who really care about whether or not they get a fake product or a real product, I think we’re going to see some movement, or hopefully, we’ll see some movement where they say, you know what, if there’s an alternative, I’m going to go with the safest alternative.
And so as a platform, I think you have to be cognizant of that and say, while the going may be good right now, in the future and who knows how very soon in the future, could be very, very soon in the future, there could be a number of platform options out there where they are the safest choice and consumers start making choices about the safest choices, almost like automobiles where people did. Now, legislators can mandate seatbelts, that’s all well and good, but remember the best safety innovations were out before there were mandates to have it done. And so if consumers are demanding things, if they have a voice to go to the platform if they have a voice through industry associations, through groups like yours, or through federal agencies that have administrative powers. If they have a voice to tell the platforms what they want, we need to be listening and amplifying those voices as much as possible, so that it doesn’t seem like to the platform it’s a one-off or two-off, or even a thousand or million off given the volume of products that go through there.
But it’s a concerted coalesced voice where the consumers are saying, these are the things that we expect, and if you don’t do this, then we’re going to leave or, there’s going to be regulations that are going to make it onerous for you. And you’re going to have, as you have in every other industry, you’re going to have that small percentage that does the things ahead of the curve. And once the benefits of those things come out then as a regulatory machine pushes forward, because I’m not naive to the fact that the regulation is coming and it’s going to be there. But as we see, the real adaptations coming that have a benefit that is ahead of the curve that regulatory push is going to follow along with that curve and adopt some of those best practices and standards that work to effectively secure and keep consumers safe. And that’s really the lens through which all of this needs to be looked at is what are we doing to keep consumers safe?
John: Well, I definitely think that is the right lens. I mean, that is for an organization like mine, at the end of the day that’s where the proof is in the pudding. Is this making consumers safe? Well, first I know we could talk about these issues for another hour, and you’ve already been extremely generous with your time. I want to give you an opportunity, is there research from you or from the Anti-counterfeiting Center that we should be on the lookout for on this issue or other issues that you’re really excited about, that you think consumers might take some real value away from, stuff that you’re working on, or colleagues are working on that we should know about?
Professor Kennedy: Yeah. Thanks for that opportunity. There are two pieces of research or two research projects that I’m really, really about. I happen to be leading both of them, so you get what you ask for, I guess. But one of them is around social media and social commerce, and the way in which interactions on social media are changing people’s perceptions, particularly the younger generation, when it comes down to counterfeit products and counterfeiting becoming a bad word, but reps and dupes being okay. A colleague at the American Apparel and Footwear Association recently put out a report on dupes and reps on social media. And this is a trend that we’re going to see moving forward quite a bit. But following the change in lexicon that is going on as the social media and social commerce trend is changing counterfeiting from a social perspective, rather than a technological perspective.
And then the second one we are working right now at the initial stages of developing what we hope to be in every two years survey or in every other year survey of American consumers, about their experiences with counterfeit products, both being victimized, as well as willingly buying counterfeit products, their perceptions of what the platforms brand owners and law enforcement are doing. And the goal of this project is to be able to turn back around to the American consumers, to brand owners, to law enforcement, to legislators, what kind of the pulse is in this country regarding counterfeit products, what are the trends that are going on and what can we do to help consumers keep themselves safe, but also to help other stakeholders in the fight against counterfeiting leverage, what consumers are telling us to be more effective at what we’re doing.
John: Either one of those two could be an entire episode of the we can do this podcast. But they both sound incredibly fascinating, especially the survey. I’m always a fan of seeing consumer sentiment data in part because I’m a, I’m a consumer advocate geek, but also because I think it’s really interesting actually, you know, as an advocate, there’s what I think consumers know, what I think consumers think, but to actually see the data from surveys helps keep me grounded. So thank you for doing that research. And thank you too, for everything you’re doing. Your scholarship is incredibly valuable to consumers and the marketplace. And I couldn’t imagine having had a better guest than you on today’s episode. So, thank you so much, and we’ll definitely have you back on a future episode.
Professor Kennedy: Well, thank you, John. I really appreciate you giving me the opportunity to come on here and speak and to the NCL, I really appreciate the work that you do to advocate for and protect consumers. And I look forward to speaking with you again and sharing the results of this research.