Remarks of Robert C. Barchiesi
President
The International AntiCounterfeiting Coalition (IACC)
Before the Parliamentary Committee Inquiry on Counterfeiting
March 16, 2017
Good afternoon, Mr. President, Mr. Rapporteur, and other distinguished members of the Committee.
My name is Bob Barchiesi, and I am the President of the International AntiCounterfeiting Coalition (IACC), a Washington, DC-based non-profit devoted solely to combatting product counterfeiting and piracy. Founded in 1979, we are the longest-standing organization of our kind.
I want to thank you, on behalf our more than 250 member companies, for the opportunity to appear before this esteemed committee. Although I was born and raised in America, I have deep roots back to Italy. My grandfather was born in Rome, and my grandmother in Avellino. I can only imagine how they’re proudly looking down upon this incredible moment taking place in such a historic building designed by two of Italy’s greats – Bernini and Fontana. And addressing Members of Parliament, no less. I am truly honored to be here, and I hope that my testimony will assist you in your important work.
Over the past four decades, the IACC has grown substantially both in the size and diversity of our member companies. And it’s no coincidence that our growth has paralleled the expansion of counterfeiting around the world. Our association now includes nearly all product sectors, including many of the world’s best-known brands. Whether from the apparel, agriculture, pharmaceutical, software, electronics, entertainment, automotive, or consumer goods industries, the members of the IACC are committed to working with government and industry partners to improve intellectual property protection for the benefit of both legitimate manufacturers and consumers.
Recent years have seen explosive growth in online commerce – both legitimate and illegitimate. And while legitimate manufacturers and retailers have increasingly leveraged this technology to modernize their distribution chains, unfortunately, the same is true for counterfeiters. Once confined to brick-and-mortar shops, street vendors, and informal markets, the Internet has provided new outlets for these criminals to sell their illicit goods, as well as an ever-widening pool of customers. Additionally, the pronounced shift that we’ve seen towards the online distribution of counterfeit goods has resulted in a number of practical difficulties to enforcement, whether by police and customs officials, or by trademark owners themselves. Counterfeiters today are able to use the Internet to operate with anonymity, hiding behind proxies, and often using unverified and falsified information to establish their online commercial presence. Even when they are detected, they take advantage of jurisdictional loopholes to avoid prosecution, frequently hosting their operations in countries with insufficient legal or enforcement regimes. And perhaps most concerning, they regularly exploit legitimate business services including the international financial and postal systems, as well as online service providers, to facilitate their criminal enterprises.
The proliferation of this illicit trade online poses an existential threat to consumer confidence in the Internet as a safe and trusted commercial platform. Addressing this problem however requires the honest cooperation of all participants in the e-commerce system: manufacturers and retailers, commercial platforms, credit card companies and payment service providers, search engines and online advertising networks, internet access providers, and international mail and express shipping companies. This fact underscores much of the work that the IACC has undertaken in recent years, and I’m happy to share our experiences to date in this area.
Background on IACC’s Voluntary Collaborative Efforts
As we began looking at the trafficking of counterfeit goods online, we recognized that although counterfeiting is illegal, it is also a for-profit business. Our approach was to identify ways in which we could demonetize their operations, by disrupting and dismantling their ability to process payments, and thereby profit from these illicit operations. Basic economics and common sense tell us that a business, whether legal or otherwise, will stop operating if it isn’t able to make money. This is not necessarily a new approach – in the field of anti-counterfeiting, we often speak of customs’ seizures and criminal or administrative fines as a “cost of doing business” for counterfeiters. Similarly, in the online context, brands have pursued a variety of strategies over the years in their efforts to thwart counterfeiters and increase their business costs. These include the use of notice-and-takedown procedures, ICANN’s Uniform Domain-Name Dispute Resolution Proceedings and civil litigation to seize websites, but such tools often provided hollow victories. Counterfeiters would simply re-post listings that were taken down, or migrate their operations to a new website. The disruption to their business was often minimal, and certainly not a sufficient means to lasting deterrence. Accordingly, we’ve sought to identify key characteristics of the online distribution model through which we could have a more lasting and substantial impact. Our analysis identified several “choke-points” where we believed, with the assistance of other partners in the online ecosystem, we could achieve significant progress on the issue.
RogueBlock: Background, Goals, and Operations
Following several months of discussions to establish a set of best practices with some of the world’s largest credit card and payment service companies – a process facilitated by the White House’s Office of the Intellectual Property Enforcement Coordinator – we launched what is now known as the RogueBlock® program in January 2012. RogueBlock is the first and only program of its kind, developed to enforce intellectual property rights by “following the money,” even when that money flows beyond national borders and traditional jurisdictional lines. The IACC and its partners in the global financial sector have established a cooperative relationship that allows us to identify counterfeiters through their presence in cyberspace, to connect those virtual storefronts to bank accounts in the real world, and to cut-off their ability to profit from afar while selling their illicit goods across the globe.
The RogueBlock system was created as a collaborative platform to share information related to online counterfeiting, providing rights-holders with a streamlined, simplified procedure for reporting illicit websites selling counterfeit and pirated goods, and for payment services companies to report back regarding actions that had been taken against the merchants behind such websites. In implementing the program, the IACC sought to leverage the abilities and expertise of its participants, while also taking into account the limitations and relative burdens on the respective actors. For example, though the payment services companies have all established policies prohibiting the use of their services to facilitate illegal activity, they typically had little or no experience in authenticating branded goods, and in turn, limited abilities to proactively police such use with regard to the sale of counterfeit goods.
Accordingly, the RogueBlock process begins with intellectual property owners’ own investigations to identify websites selling counterfeit versions of their products, and which purport to use one or more of the participating payment providers’ services to accept payment from consumers. The IACC plays a direct role in terms of quality control – ensuring that submissions to the system meet legal standards for the asserted claims, and that the brands have provided sufficient information and evidence to support their claims. The IACC also performs a deconfliction function, filtering out duplicate claims when more than one trademark owner submits a complaint against a single website, to preclude any unnecessary duplication of efforts. We’ve also sought to engage with law enforcement to ensure that those sites submitted through the program are not the subject of any ongoing criminal investigation, which might be impacted by the private sector action. Upon clearing review by the IACC, the payment providers then conduct their own independent review and investigation to determine whether the sites, and the owners of the associated merchant account have violated their contractual obligations by using their accounts to facilitate illegal activity. If they are found to have done so, remedial action including fines and the termination of their account may be imposed. Such remedial action is then reported back to the IACC and the brand that initiated the process.
Over the past five years, this model for collaboration has resulted in the termination of over 5,300 merchant accounts that were used to service illicit sites trafficking in counterfeit goods. In gauging the effectiveness of the program though, it is important to consider the relative impact of this type of action in comparison to some of the approaches taken in the past such as notice and takedown or UDRP proceedings. As previously noted, the removal of individual listings or even gaining control over a particular domain generally has only a nominal effect on a counterfeiter’s operations. While listings can be replaced and websites can be migrated very quickly, in contrast, the process of establishing a new merchant account is far more protracted. It may take a counterfeiter months to establish a new merchant account, while in the intervening period, he or she is unable to transact business. With a history of violations, many banks will simply refuse to do business with such an individual at all, and those banks that do may charge significantly higher rates for their services, thereby decreasing profitability. Finally, because many counterfeiters use a single account to process payments across networks of websites, a successful action against a single site can have an exponential effect. We estimate that the 5,300 merchant accounts terminated as a result of the program directly impacted well over 200,000 illicit sites. The websites involved, their operators, and their associated merchant accounts have spanned the globe; but we’ve demonstrated through the RogueBlock program that infringing sites, unscrupulous merchants, and complicit banks have no place to hide when rights-holders and intermediaries cooperate to fight counterfeiting online.
Over the past five years, we’ve introduced a number of enhancements to the RogueBlock program, and continue to do so today. Among these are the use of network mapping techniques to determine the highest-value targets, the expansion of the program to include cyber-lockers and certain online marketplaces, and the engagement of new partners to aid in the process. We’re also happy to report that we’ve begun working with the City of London Police, extending the impact of RogueBlock beyond just the merchant accounts, to facilitate domain takedowns at the conclusion of the process. Perhaps equally important, the program has helped to establish cooperative efforts throughout the broader financial sector, including opportunities to provide training to banks regarding their onboarding and monitoring of high-risk merchants.
The online enforcement landscape is constantly evolving, and the criminals we’re dealing with have grown increasingly sophisticated in their operations. With RogueBlock program, we’ve seen this evolution firsthand, as illicit sites have migrated from one payment service to another. In some instances, we’ve seen sites forego accepting credit card payments altogether, adopting a payment model based on bank transfers or electronic currencies such as Bitcoin. It’s unclear whether these changes were made pro-actively, in an effort to avoid detection and enforcement, or if they were made as a fall-back response to the sites’ merchant accounts being terminated. In either case, we know that consumers are far less likely to transact business with a company that is unwilling or unable to process credit card payments, so we view these developments very positively.
We do, however, continue to face a number of challenges in our online enforcement efforts. Among these are the increasing use of payment aggregation services and other intermediaries in an effort to obfuscate the merchant accounts involved in the trafficking of counterfeits, the use of geolocation, blacklisting and other technological tools and methods to avoid detection by investigators. As with the above example though, the more resources that these illicit operations are forced to devote to evading enforcement, the less profitable they become. More remains to be done however, and we will continue to work with our existing partners and other responsible service providers to further impact illicit online trafficking.
IACC MarketSafe, DataForce, and the Future of Voluntary Collaboration
The RogueBlock program was the first of its kind. But its importance goes far beyond the practical impact that we’ve been able to have on the operations of online counterfeiters. RogueBlock served as a proof of concept for cross-industry voluntary collaboration in the area of online enforcement. For years, both rights-holders and service providers of every variety have engaged in disputes seeking to delineate legal duties in the online space, whether via litigation or legislation, in Europe, the United States, and elsewhere. RogueBlock took a step back from those questions and asked instead what rights-holders and intermediaries could do together to advance their mutual interest in ensuring that the online marketplace remained one that was safe and trusted by consumers. Perhaps the greatest success of RogueBlock has been its bringing together of rights-holders and the payment sector to find common ground in responding to that question. And that success has laid the groundwork for additional cross-industry collaboration.
The most widely-known of these follow-on initiatives is our pilot program, IACC MarketSafe®, launched in 2013, in cooperation with the Alibaba Group. The MarketSafe program was developed to assist rights-holders in addressing long-standing concerns related to sales of counterfeit goods on two of the world’s largest online retail marketplace platforms – the China-based Taobao and Tmall sites. As in the case of RogueBlock, the IACC developed a streamlined and centralized portal for the submission of complaints by rights-holders, and provided a direct point of contact to assist with both day-to-day and broader policy concerns on the sites. The overarching goals of the program were to facilitate the complaint submission process on behalf of rights-holders, to ensure that such complaints provided sufficient support to allow the sites to take remedial action against sellers of illicit goods, and to aid the sites in developing effective and efficient procedures for addressing intellectual property offenses in a manner in-line with global best practices. Since the inception of the pilot program in 2013, the IACC has worked with the program’s 18 participants to facilitate the removal of over 210,000 listings for counterfeiting or other IP violations, as well as the closure of more than 8,000 online stores hosted on the sites. Furthermore, we’ve seen a number of positive steps with regard to Alibaba’s adoption of improved policies and procedures in dealing with illicit sales.
I am pleased to report that later this month, we will be launching a significant expansion of the program, which will enable a far greater number of companies to participate in the program at no cost. When the Expansion Program was announced, over 100 companies, representing 30 industry sectors, from nearly a dozen countries signed up to participate. Of those, approximately 30% are classified as Small- and Medium-sized Enterprises. The Alibaba Group has agreed to assist in sustaining the program over the next three years to continue building upon our existing efforts, and we are excited to be able to offer this program on a larger scale. We have also partnered with Intellegit, a start-up based out of the University of Trento, to conduct a comprehensive analysis of the program to ensure the program’s ongoing development and refinement. I would also like to note that tomorrow afternoon, I’ll be meeting with representatives from INDICAM to discuss how more Italian companies can benefit from our programs. I look forward to providing further details about this initiative in the coming months.
Ultimately, we recognize that greater collaboration with a number of other sectors will be required if we are to make a significant and sustained impact against the online trafficking of counterfeit goods. While we are proud of what we’ve been able to accomplish with the RogueBlock and IACC MarketSafe programs, they address only two of the choke-points identified when we began this work several years ago however. Accordingly, we are continuing to seek new partnerships with other key players in the online ecosystem. We refer to this longer-term project as the IACC DataForce Initiative.
DataForce will, in due course, bring rights-holders together with those in the online search and advertising sectors, international mail and express consignment services, and internet access providers, along with cooperating law enforcement agencies, to provide a centralized, global clearinghouse for actionable intelligence that can be used to combat the trafficking of counterfeit goods both online and in the physical world. We have already begun to lay the groundwork for some of these projects, having recently signed Memoranda of Understanding with EUROPOL, and the City of London Police’s IP Crime Unit, as well as your own Guardia di Finanza. In fact, my colleague, Lara Miller, who joins me here today, had a productive meeting with the GdF just yesterday to operationalize our cooperation with them regarding online counterfeit sales. Yesterday’s meeting comes on the heels of training events we conducted in November 2015 for over 600 Italian officers on counterfeit identification and our follow-the-money approach. We look forward to even greater engagement with Italian authorities in the future.
While much of my testimony before you today has focused on what the private sector is doing, or can do, to address these problems, there is undoubtedly an important role for governments to play as well, and we firmly believe that strong partnership between the public and private sector is essential. Just as RogueBlock began with the assistance and support of the U.S. Government’s IP Enforcement Coordinator, we will surely need similar support in the future in convening relevant partners and encouraging buy-in among key participants. I would welcome your assistance in that regard, and your input in ensuring that Italian businesses and consumers reap the full benefit of our efforts.
Thank you again for the opportunity to come before you today, and I would be happy to respond to any questions you have at this time.