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December 28, 2022

Counterfeiting vs. IP Infringement: Understanding the Difference

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To protect the brands that sell on their sites, marketplaces – as well as the payment providers that enable transactions – must be diligent about preventing intellectual property (IP) infringement and the sale of counterfeit products. But it’s also essential to understand the subtle differences between the two.  

Do you know how counterfeiting and IP infringement differ?  

What is IP infringement? 

IP infringement occurs when someone’s intellectual property rights have been violated. Intellectual property is something that’s been developed through a creative process that begins with an idea. It includes things like songs, manuscripts, designs, patents, trademarks, copyrights, and even trade secrets.

When an individual or an organization infringes on a trademark or other intellectual property, they may be acting intentionally, but this is not necessarily the case. They may be entirely unaware they are infringing on someone else’s intellectual property rights. For example, a new brand might unknowingly create and use a logo that looks very similar to another brand’s logo. 

What is counterfeiting? 

Counterfeiting involves producing goods that intentionally look like branded products protected by patents, trademarks or copyrights. Those who counterfeit products typically do it with the intent to deceive consumers into thinking they are buying the real thing. As part of their deception, counterfeiters typically use logos that look very similar or identical to the legitimate logos used by the original brands they are copying. 

Counterfeit products are often, but not always, made with lower-quality materials, and they often lack the same craftsmanship as the products being copied. However, this is not always the case. Some counterfeit products are actually well made using quality materials, even though they are still fraudulent. 

Why counterfeiting is bad even when consumers know what they’re buying 

Some consumers may still want to purchase counterfeit items even if they are aware of the counterfeiting because the items are less expensive and can pass for the legitimate product. If someone can’t afford an expensive Rolex watch, for example, they may be perfectly content to buy a fake Rolex, because they want the status symbol without paying the price for the real thing. This still doesn’t make counterfeiting right. It’s a crime and its consequences can be far-reaching. 

Those who counterfeit products are doing it on purpose for financial gain. The more products they can sell, the more successful and profitable they are. They are often criminals connected to organized crime that use counterfeiting profits to fund acts of terror or other serious crimes such as drug and arms smuggling. 

How counterfeiting and IP infringement are alike 

Counterfeiting is actually a type of IP infringement, so all counterfeiting is IP infringement.  This is because, by definition, counterfeiting involves the illegal manufacture and branding of patented, trademarked, and copyrighted goods without the brand’s – the intellectual property owner’s – permission. However, the opposite is not always true. All IP infringement is not counterfeiting. 

How counterfeiting and IP infringement differ 

Counterfeiting typically involves physical products that are smuggled into an area or sold over the internet, while IP infringement may involve tangible or intangible property. 

As we’ve already mentioned, another main difference between counterfeiting and IP infringement is that counterfeiting is almost always an intentional act of deception, while IP infringement may or may not be intentional.  

Those infringing on someone’s IP rights may not be aware of what they’re doing, and they aren’t necessarily counterfeiting products. They may have written a song that has a verse that sounds similar to a line in another band’s lyrics, or inadvertently designed a website that looks very similar to a competitor’s.  

In fact, there are many types and levels of IP infringement. IP dilution, for instance, occurs when a brand feels that its logo is devalued by the excessive use of a product with a very similar logo to its own.  

3 IP infringement examples 
  1. A brand includes a trademarked logo belonging to a competitor (without their authorization) on a product sold on an e-commerce site. The brand whose trademark was infringed upon may send a cease and desist letter requesting that their trademarked logo be removed from the product. 
  2. An organization hires someone to spy on a competitor to steal their trade secrets. 
  3. A shoe manufacturer copies a shoe design patented by another brand without their permission and then sells the shoes. (This example would qualify as both IP infringement and counterfeiting.)  

3 Counterfeiting examples 
  1. A manufacturer produces a handbag that looks like a popular luxury bag and then adds the luxury brand’s logo to the bag without permission. 
  2. A factory manufactures medication in an environment that lacks proper controls using sub-par ingredients and then markets the medication to consumers using another brand’s name without their permission. 
  3. A manufacturer makes and sells car parts of lower quality components and applies another brand’s logo, compromising the safety of consumers that use these products. 
The risk to marketplaces  

Last year, nearly 20 percent of global retail e-commerce sales ($5.2 trillion) consisted of counterfeit products. As retail e-commerce transactions are expected to increase over the coming years, the problem of IP infringement and counterfeit items sold online will continue to grow. 

Brands expect a certain level of due diligence on the part of marketplaces to protect them against IP infringement as well as counterfeiters selling knock-offs. Failure to detect and prevent such illicit activity will result in brands’ loss of confidence in partnering with the online marketplace. 

Not only can IP infringement and the sale of counterfeit products result in substantial damage to both the reputation and sales of online marketplaces, but regulators are also committed to imposing severe penalties on marketplaces or payment processors facilitating those transactions. For instance, the US introduced the Shop Safe Act in 2021, which would specifically hold online platforms responsible for the selling or advertising of counterfeit goods or products exhibiting IP infringement on their websites.

A solution that detects counterfeit products 

MarketView enables marketplaces and payment providers to mitigate risk by detecting fake, illegal, and dangerous products so you can remove them.  

Learn More