Boom in Holiday E-Commerce Brings Fear of Increased Consumer Fraud

The International Anti-Counterfeiting Coalition (IACC) estimates that trademark infringement and counterfeiting robs the United States of $200 billion annually.

REDMOND, Wash., Nov. 15, 2000 — This time of year, Santa is busy making his list and checking it twice. To keep up with the times, he's probably checking that list on a computer database and then cross-referencing his address list on the Internet.

If so, Santa won't be the only one using the Internet this holiday season: the Gartner Group consulting firm estimates consumers will spend more than $19.5 billion in online shopping transactions this holiday season -- twice last year's total. However, the ease of Internet shopping and the anonymity of the Web combine to form a troubling specter of Holidays Yet To Come. A sizeable percentage of the commerce that will take place over the Internet this holiday season will involve counterfeit or fraudulent merchandise.

The International Anti-Counterfeiting Coalition (IACC) estimates that trademark infringement and counterfeiting robs the United States of $200 billion annually. Internet shopping and auction sites have become a major venue for the dissemination of counterfeit goods. While the majority of Internet businesses are honest, the anonymity of the Web makes it easy for criminals to sell counterfeit and fraudulent materials.

According to IACC president Tim Trainer, the coalition was "formed to combat counterfeiting and piracy by promoting laws, regulations and directives designed to render the theft of intellectual property undesirable and unprofitable." The members of the IACC -- which include Microsoft, Electronic Arts, Novell, Nike, Disney, Puig, Warner Bros. and Louis Vuitton -- provide law enforcement officials with information and training in counterfeit and pirated product identification and in other methods of preventing the infringement of its members' intellectual property rights.

Counterfeiting: Why Should Consumers Care?

Why should a consumer care if a designer label jacket, a copyrighted music CD or trademarked computer game software is counterfeit? Trainer notes the $200 billion loss of revenue to U.S. companies, which directly translates to lost jobs and lost tax revenue to state, local and federal governments that support public services. There's also risk involved: counterfeit products are usually made without oversight of legally established health and safety standards, he said. The IACC reports the risk of counterfeit children's toys manufactured with toxic paints, knock-off pharmaceuticals containing toxins, and counterfeit cosmetics made from industrial chemicals and carcinogens.

"The members of the IACC believe that acts of counterfeiting can and do create severe public health risks and safety hazards, as well as economic harm," Trainer said.

Finally, there's the question of quality, Trainer said. Counterfeit products are very likely inferior in quality to products manufactured to the standards of a nationally recognized company. The quality of illegal videos can be poorer than those made from a master copy, the quality of knock-off leather bags doesn't justify the price, and illegal software can infect an unsuspecting consumer's system with harmful viruses and bugs, according to Trainer.

Cheaper Isn't Always a Bargain

When Sherry Husack decided to order software from an Internet auction site, she was motivated to find a good price. The software was for the small church school where Husack works as a volunteer teacher, and she needed to be careful with the budget.

Despite the price, the inexpensive software she purchased didn't turn out to be a bargain. Several weeks and many frustrated emails later, the software finally arrived. Husack soon discovered that the software was counterfeit and full of bugs -- and she had no recourse. "The end result," Husack said, "was that I had useless software and no way to get my money back."

Microsoft estimates that 90 percent of software available on Internet auction sites is for sale illegally. Besides being illegal, counterfeit software exposes consumers to technological risks that can be costly and harmful. Counterfeit software may not work and may be incomplete -- worse, it can also contain viruses that will cripple your computer.

Consumers can protect themselves from falling victim to counterfeit software and other fraudulent merchandise by educating themselves about both the products they want to buy and the telltale signs of counterfeit merchandise. That is their best defense against being duped while shopping online.

"Internet piracy is growing nearly as rapidly as the Internet itself, and it is severely harming consumers and their confidence in feeling safe to conduct legitimate business online," said Nick Psyhogeos, a Microsoft corporate attorney who works on anti-piracy issues. "There is a possibility that this problem could spiral out of control, and we need consumers to help us hold back the floodgates by being knowledgeable online shoppers."

Don't Buy a Fake

The IACC has developed a set of tips to help consumers avoid buying counterfeit and fraudulent products this holiday season. While these tips are intended for online shopping, most of them can and should be applied when shopping at your neighborhood mall or superstore.