How Fashion and Luxury Brands are Turning the Tide Against Rogue Websites

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1 White Paper How Fashion and Luxury Brands are Turning the Tide Against Rogue Websites Executive Summary As counterfeiting in digital channels proliferates, fashion and luxury brands find themselves in a seemingly never-ending battle to shut down rogue websites. Until recently, counterfeiters enjoyed strong upside potential with very little downside, as brand owners struggled to identify the thousands of rogue sites selling counterfeit items. In fact, the unique dynamics of online counterfeiting have led to the whack-a-mole phenomenon where one or more sites pop up the moment one is shut down. But today fashion and luxury brands can enhance their traditional anti-counterfeiting efforts with a powerful new weapon, which disrupts the counterfeiters business and counters the enforcement challenge. This new approach identifies networks of rogue sites at scales never before possible, resulting in massive, timely and cost-effective shutdowns by brand owners. Taking on counterfeiters at scale boosts the effectiveness of legal strategies and litigation for greater return on investment. In fact, it s been successfully used by brands to recover thousands of domain names and turn the tide against criminals.

2 Contents Executive Summary... 1 The Frustration of Combatting Counterfeiting in the Digital World... 3 Disrupt Counterfeiters by Attacking the Scale of the Problem... 3 One-Two Punch... 4 Gain New and Valuable Insights into Consumer Trends... 5 Take Your Anti-Counterfeiting Strategy to the Next Level

3 The Frustration of Combatting Counterfeiting in the Digital World The Internet has become prime hunting ground for counterfeiters who see the same benefits in the digital world as legitimate businesses do a global audience and reduced cost of doing business. And, counterfeiters receive an extra benefit they can remain anonymous. In fact, the selling of counterfeit goods through digital channels is big business. MarkMonitor estimates counterfeiting and piracy in digital channels is a $350 billion problem globally. Counterfeiters are adept at setting up e-commerce businesses designed to evade detection and make effective legal action more difficult. It s common to see web servers hosted in one country, domain names registered in another, payment processing in a third and shipping from a fourth. Core to their strategy is establishing an inventory of domain names, such as designerforsale.com, cheapdesignerclothes.com and designeroutlet.com, which provide substantial agility and resilience in response to traditional enforcement actions by brands. Instead of operating a single site, counterfeiters can now run a massive network containing tens of thousands of rogue sites targeting a single brand or multiple brands. Counterfeiters know that the large number of linked rogue sites slows traditional anti-counterfeiting efforts remove one site, or even a hundred sites, and another hundred pop up. The success of this model is often referred to as the whack-a-mole phenomenon. The most effective enforcement is to attack the scale of the problem. What is Rogue Website Litigation? Rogue website litigation allows brands to treat linked sites as a single defendant and to use supplemental orders to associate all future sites affiliated with that defendant to the original filing. Augmenting litigation with technology serves as a force multiplier, helping brands add sites to an existing suit, increasing the effectiveness of litigation. The North Face Apparel Corp v Fujian set the precedent for employing a single injunction to seize multiple sites operated by the same counterfeiter(s). The court ordered the transfer of more than 100 rogue sites to Polo Ralph Lauren and North Face. As in any successful anti-counterfeiting litigation, the trail of evidence included evidentiary purchases from the highest trafficked site and a record of communicating with rogue sites. That evidentiary trail was the basis for securing the permanent injunction that applies to current sites in the network as well as to future linked sites via a supplemental order. Since the North Face case, other brands have called upon this strategy to seize hundreds of domain names that pop up after the initial judgment. Disrupt Counterfeiters by Attacking the Scale of the Problem In our experience, a single counterfeiter may operate percent of all rogue sites targeting a particular brand and generate up to 70 percent of the traffic to sites selling counterfeit versions of the brand s wares. Shutting down such a network is an effective way to disrupt, and even potentially cripple, the counterfeiter s business and send a powerful message. However, fighting these networks via conventional, manual means is frustrating, time-consuming and ineffective. A new strategy uses advanced technology to focus on the scale of the problem and is proving quite effective in rogue website 3

4 litigation for the fashion and luxury industry. By identifying clusters of sites that display the same characteristics, brands can apply one injunction to shut down multiple rogue sites as well as future rogue sites that can be tied back to the original network. This approach maximizes the impact and the ROI of litigation. Our objective is to disrupt the counterfeiters business sufficiently so that it no longer makes sense for them to continue. Attorney Roxanne Elings of Davis Wright Tremaine LLP, a nationally known pioneer in rogue website litigation This new technology can identify a larger volume of sites, zeroing in on clusters by analyzing the following types of data: 1. Non-visible content, such as page code (scripting, DOM) 2. External associations to a site, including IP address, ISP and payment processors 3. Visible content on a site, such as prices and graphics These fingerprints are used to identify clusters of sites, often numbering in the thousands, which form networks of rogue sites. Gathering these fingerprints cost-effectively speeds the investigative phase of litigation and lays the groundwork to identify additional sites that pop up after the first round of domain names are seized. As a result, brand owners can determine the true scope of infringement and maximize the impact of their litigation investments. Before this technology existed, brand owners only knew the number of rogue sites they had discovered, not how many they had missed and which continued to operate unabated. In one recent instance of a brand utilizing the new technology in litigation, the brand identified and shut down roughly 500 counterfeit sites through traditional investigative services. Once they incorporated this new technology, the brand was able to immediately identify another 1,800 sites operated by the original defendants and seized those sites in a supplemental order. As a follow-up, the brand filed a second supplemental order for 2,700 more sites activated by the original defendants following the initial seizure. One judgment and two supplemental orders led to the brand recovering more than 5,000 sites, resulting in greater ROI from the litigation and a real disruption to the counterfeiter s business. One-Two Punch Using this new strategy isn t a substitute for the traditional approach to anticounterfeiting. Instead, it complements traditional methods and addresses the problem of scale as increasingly sophisticated criminals operate networks of rogue sites. This new approach disrupts counterfeiters business on another front: shutting down payment processor accounts. For example, Tory Burch was able to permanently disable and gain ownership of 232 domain names that were being used to sell counterfeit products. The financial accounts used to sell the counterfeit goods were restrained, and a New York federal court judge granted Tory Burch the ability to collect money from third-party payment sites as well as millions of dollars in damages. 4

5 The damage award is massive, but the action against rogue Web sites is even more impressive, said Susan Scafidi, director of Fordham University s Fashion Law Institute. Like the judgment won by Polo Ralph Lauren and North Face at the end of last year, this decision is an indicator of the broad scope of Internet-facilitated counterfeiting, but also of the potential for a single decision to cut a wide swath through a network of illicit sites. 1 Gain New and Valuable Insights into Consumer Trends Not only does this approach provide a practical and efficient solution to counterfeiting, it delivers a substantial amount of business intelligence in the process. The data that IP professionals collect about rogue websites enables brands to better understand many aspects of the business, from marketing and pricing to customer service and product planning, as the brand capitalizes on the wants and needs of consumers. For instance, a brand that sells high-end sports jerseys may find that a limited-run jersey continues to draw significant interest on rogue sites even though it is out of production. Based on this information, the brand can extend the production cycle to satisfy demand and increase legitimate sales while undermining counterfeiters. This type of intelligence helps brands quantify illegal distribution of their goods and formulate strategies to respond in a way that gives them a competitive market edge and additional revenue. Another way to potentially cripple counterfeiters is to take down their payment provider; by disabling the counterfeiters payment provider(s) you cutoff their ability to monetize their sites. This strategy can be used alone or in tandem with website litigation. Take Your Anti-Counterfeiting Strategy to the Next Level As criminals increasingly turn to digital channels to push fake goods, brands in the fashion and luxury industry should embrace the latest technology so they can meet and overcome the challenge of enforcement. Combating counterfeiting at scale protects a brand and disrupts the counterfeiters business while providing brands with crucial business intelligence to drive new insights into the full spectrum of consumer buying behaviors insights that can be converted into additional revenue. The most cost-effective, efficient, proven approach for targeting networks of sites and successfully countering enforcement challenges is to combine advanced technology with litigation. Adopting this approach allows brands to increase returns from their litigation investment while disrupting counterfeiters in the digital world. 1 Women s Wear Daily, Tory Burch Wins $164M in Cybersquatting Suit, June 10, Accessed online April 18, 2013 from the following source: 5

6 About MarkMonitor MarkMonitor, the world leader in enterprise brand protection and a Thomson Reuters Intellectual Property & Science business, provides advanced technology and expertise that protects the revenues and reputations of the world s leading brands. In the digital world, brands face new risks due to the web s anonymity, global reach and shifting consumption patterns for digital content, goods and services. Customers choose MarkMonitor for its unique combination of industryleading expertise, advanced technology and extensive industry relationships to preserve their marketing investments, revenues and customer trust. To learn more about MarkMonitor, our solutions and services, please visit markmonitor.com or call us at More than half the Fortune 100 trust MarkMonitor to protect their brands online. See what we can do for you. MarkMonitor Inc. U.S. (800) Europe +44 (0) Boise San Francisco Washington D.C. London 2013 MarkMonitor Inc. All rights reserved. MarkMonitor is a registered trademark of MarkMonitor Inc., part of the Intellectual Property & Science business of Thomson Reuters. All other trademarks included herein are the property of their respective owners. Source Code: WPWAM