COUNTERFEITING IN A TIME OF CRISES
Outstanding Senior Student Intern, Center for Anti-Counterfeiting and Product Protection
Class of 2020 Graduate, James Madison College and College of Arts and Letters
Michigan State University
Assistant Director Education and Outreach, Center for Anti-Counterfeiting and Product Protection
Michigan State University
Counterfeit goods are becoming increasingly common, with more and more products seized every year. It is hard to imagine a situation in which they suddenly get worse than normal, yet, this is the case of counterfeiting in times of crisis. Counterfeit manufacturers capitalize on crises, exploiting the increased consumer demand to sell low quality goods under the guise of trusted brands. When regional conflict, epidemics and natural disasters occur, markets often experience certain broad trends that create an environment hospitable for counterfeits. The disruption of tangible assets, such as equipment, buildings and even human capital, decreases a firm’s production capacity (Carey, 2018). At the same time, demand for often necessary and fundamental products skyrockets, creating an unequal supply-and-demand model.
In the case of COVID-19, an added layer of uncertainty has compounded onto this market imbalance. Misinformation, false claims and deceptive marketing tactics misdirect consumers, who, in their search for safety and security, are more susceptible to purchasing counterfeit products. Fueled by the explosive growth of and in third-party e-commerce marketplaces, these facets create the perfect storm for consumers in crisis, who become more likely to fall victim to the fast acting, malevolent nature of counterfeit actors aiming to make money at the expense of public health.
First, as a result of increased consumption augmented by public fear, demand for utilitarian goods during crises, such as food, water and medical supplies, increases (Larson & Shin, 2018). In conjunction with a supply shock that decreases the quantity of a good, the imbalanced supply-and-demand model produces a gap that counterfeiters capitalize on. In the case of COVID-19, surgical face masks best highlighted this phenomenon. For reasons spanning misinformation to herd instinct (Yap, 2020), as COVID-19 spread from country to country, surgical face masks experienced massive upsurges in demand. Figure 1 demonstrates the Google Search Trend for “Particulate Respirator Type N95,” the most sought-after face mask, as well as all related search inquiries (Google Trends, 2020).
Figure 1: Global interest in N95 Particulate Respirators, demonstrated by Google Search Terms popularity over time. Example: A value of “50” indicates that the term was searched for half as often as its most frequently search day.
As interest in face masks increased, so did the manufacturing of counterfeit products in the first country where COVID-19 hit. On January 25, 2020, police in Zhejiang, China arrested four individuals for attempting to sell 100,000 counterfeit 3M masks (Shui, 2020). Two days later, Chinese e-commerce site Taobao reported removing 80 shops for selling counterfeit surgical masks (Chen, 2020). For context as to how detrimental this can be, this same site reportedly sold 80 million masks within two days (Chen, 2020). One day later, Amazon vendors PacingMed and BLBM stated that they had run out of masks, warning shoppers that all remaining listings on the e-commerce site were likely counterfeit (Biron, 2020). By February 27, Chinese authorities stated that they had seized over 31 million counterfeit masks (Kyodo News, 2020). As the need for surgical masks increased beyond what legitimate suppliers could provide, counterfeit manufacturers capitalized on the remaining demand. Combined with disrupted supply chains, this gap between supply and demand creates an environment perfect for counterfeit products.
Second, disasters now shift traditional brick and mortar purchases online, often to third-party ecommerce sites, particularly when the primary distributor is out of supply. This is a newer phenomena from disasters of even ten years ago. When consumers perceive an increased risk or frustration in shopping at a store directly before, during or after a disaster, they become more likely to purchase online (Herzenstein, 2015). Since the first case of COVID-19 in the United States, year-over-year online retail orders have increased by nearly 30%, with online orders in the month of April alone increasing by 94% when compared to orders last year (COVID-19 Commerce Insight, 2020). By shopping online, consumers encounter pages of goods with similar images, prices and ratings. This not only affects the consumer’s ability to differentiate between genuine and counterfeit goods, but the urgent demand and fear decreases their level of suspicion. In early March, Amazon stated that it had removed over one million products making false coronavirus claims, yet two weeks later, one online group highlighted that a search for N95 facemasks on the e-commerce site still revealed over 100 counterfeit listings (Conklin, 2020). Unbeknownst to the typical consumer, the increased shift to online marketplaces confronts them with an unprecedented rate of counterfeit listings, forcing them to assume responsibility for quality assurance in every purchase.
Finally, COVID-19 created a public health crisis that few consumers understood. With little prior knowledge to rely on, the prevalent availability of misinformation, and a desire for safety and security, consumers faced a challenge of wading through false claims. Consumers, fearful of the virus, grasped onto any information that seemed logical, such as the false claim that Vitamin C could ward off the disease (McCaffery, 2020). Though unsupported by scientific literature, this claim convinced hoards of consumers to search online for the product, with Google Shopping Trends highlighting a ten-year high in search queries at the end of March —more than five-times its average interest in the decade before (Google Trends, 2020). Misinformation is guiding consumer purchasing habits at an unparalleled proportion (See Figure 2 below).
Figure 2: US Shopping Trends for Vitamin C, demonstrated by Google Shopping Trends over a decade. Example: A value of “50” indicates that the term was searched for half as often as its most frequently searched day.
Though no vaccine or medicine had been discovered, several companies were identified as selling fraudulent Coronavirus-related products, including nasal sprays, holistic medicines, testing kits and supposed cures (FDA Office of Regulatory Affairs, 2020). These untested, unproven products will not only mislead infected consumers into thinking they are healthy, but they can actually do more harm than taking nothing at all. As COVID-19 changes society’s fundamental shopping habits, consumers are now, more than ever, capable of falling victim to the false claims of counterfeit products. Unlike in the paradigm of fake purses and wristwatches, however, the consequences of these products can be deadly.
One of the greatest challenges is not just for consumers to be able to recognize authentic from counterfeit products in the online marketplace, but if they do buy counterfeit, what recourse do they have? While all 50 states in the U.S. (See BPP June, 2019, Looking at States’ Laws) and the federal government have laws in place that make counterfeit products both illegal and a basis for a civil suit, counterfeiting happens frequently, even when not in crisis. Some states have received guidance from the federal government on how to pursue criminals who are looking to take advantage of vulnerable consumers during a crisis. For example, in Michigan, the Eastern District has provided guidance for federal, state and local law enforcement’s pursuit of these individuals, whether under fraud, scams, hoarding, or sale and trafficking of counterfeit goods (Schneider, 2020). While these numbers are increasing exponentially, given the demand by consumers and their fear-based purchasing, monitoring and enforcement must also increase to protect consumers during this time.
Times of crises, whether as a result of regional conflict, natural disaster, or the COVID-19 pandemic, create uncertainty for consumers seeking safety and security. The resulting imbalanced supply-and-demand model, compounded by a lack of consumer protection on e-commerce marketplaces, puts consumers at a higher probability of victimization. The legitimacy of necessary goods, such as medicines and personal protective equipment, come under question as consumers are forced to assess risks and do what is best for themselves and their families. Yet, even worse, most consumers are unaware that these problems exist, falling victim to false claims and counterfeit products without the forewarning to question their authenticity. As the world overcomes the COVID-19 pandemic and uses this experience to prepare for future disasters, consumer safety and education need to be integrated into future response plans. Though all its effects are still yet to be realized, it is important to analyze and examine this pandemic, and perhaps other similar, smaller-scale crises, in order to move forward successfully in the field of brand protection.
THE BRAND PROTECTION PROFESSIONAL | JUNE 2020 | VOLUME 5 NUMBER 2
2020 COPYRIGHT MICHIGAN STATE UNIVERSITY BOARD OF TRUSTEES