Counterfeit CE Devices Still Readily Available Online, Manufacturers Say

Counterfeiting is a “large and growing” problem, said Chuck Westfall, Canon U.S.A. technical advisor, at Thursday’s event. An estimated $145 million in counterfeit CE devices entered the U.S. in 2013, an increase of more than $40 million from 2012, he said. About 56,000 counterfeit CE chargers alone were seized in the U.S. during 2012, along with thousands of batteries and other parts, he said. CE devices are the second-most counterfeited product category, behind only apparel, he said. Knockoff merchandise “diminishes the quality of our brand,” but, more importantly, they “put our customers at risk of bodily harm” because they are not safe to use, he said.

Terrence Brady, Underwriters Laboratories chief legal officer, said UL’s stamp of approval on a product signals that it’s been tested and safe, and counterfeit merchandise is often dangerous to consumers. UL has a “zero-tolerance policy” when it comes to companies illegally using its UL mark on knockoff products, he said at the event.

Many consumers aren’t able to tell the difference between counterfeit and genuine CE products, said the findings of a November Canon online poll of about 1,100 U.S. consumers who bought CE products, it said. Eighteen percent of respondents said they unknowingly bought counterfeit CE products, said Westfall.

Canon cameras and camcorders are typically not counterfeited because there’s “too much detail” in those products, Westfall said in an interview. Chargers and batteries are much easier to manufacture, he said. When asked if most of the counterfeit CE merchandise was coming from China, he said “we hate to point the finger at any one country,” but that area of the world is an “area of concern."

Canon started an anti-counterfeiting group in its intellectual property division to combat the problem about 10 years ago, it said. Like several other device manufacturers, it started using hologram labels on its product packaging a while ago to make it harder for counterfeiters to copy their packaging and easier for consumers to spot genuine Canon products, Westfall told us. It also started putting those hologram labels directly on its products starting this year as a “further way for us to combat the problem,” he said. Canon has also been aggressive in educational efforts and working with law enforcement agencies to seize counterfeit products, he said.

What has made the counterfeiting problem so much worse is the Internet, which has become the main way that many consumers shop for products, said Westfall. Three years ago, less than 20 percent of Canon’s photographic device revenue came from online sales, and that has grown to about 30 percent and it’s still growing, he said.

Counterfeiting isn’t a new problem, said David Tognotti, Monster general counsel, referring to it as the “second oldest profession in the world.” Monster saw a “huge uptick” in counterfeit CE products being sold starting in 2009, right after the economy crashed, he told us before the Canon event. The products included knockoffs of genuine items from a cross-section of manufacturers, including Monster, he said.

The problem has “definitely become worse,” despite the many efforts put in place by Monster and certain other companies, said Tognotti. But it’s “hard to gauge” exactly how many counterfeit products are being sold, he said. “All we can judge” is the number of listings his company sees for such products online, as well as the number of enforcement efforts and product seizures that take place, he said, estimating that the issue has cost Monster “tens of millions” of dollars.

"Several factors” played a major role in the increased counterfeiting since 2009, said Tognotti. Consumers globally “still wanted branded goods” despite the economic downturn, but they had “less disposable income” to buy such products, he said. Factories in China, “where the vast majority of this stuff comes from, had excess capacity and keeping the factories open was obviously of importance” to the companies operating them, he said. Some of them started churning out an increased number of counterfeit products, he said. Online buying patterns have “changed dramatically” and consumers have become “more comfortable” buying products from websites, he said.

Before counterfeit products became easy to buy online at websites including Alibaba, U.S. consumers “had to go to Canal Street” in New York or certain areas of Los Angeles to buy such items, said Tognotti. Consumers could “buy a lot” of counterfeit items online -- “a hundred units” or a thousand of them and have them shipped to their houses, so they could resell them for a profit, he said. Monster also saw increased sales of counterfeit products at the “traditional places” you would find such items, including flea markets, he said. Monster products that the company saw counterfeited in increased numbers included the most top-of-the line cables and headphones -- those from it and the ones it used to market as part of a pact with Beats by Dr. Dre, said Tognotti.

It wasn’t just websites like Alibaba that have sold counterfeit products, said Tognotti. Many third-party sellers on the Amazon and eBay websites also sold counterfeit items, although those online marketplaces have cracked down significantly on such practices, he said.

One of the main areas that Monster has focused on is education of consumers to help them more easily spot knockoffs before buying them, said Tognotti. The company has also worked with law enforcement and customs representatives globally, he said, citing Monster’s alliance with the U.K. Trading Standards Office that resulted in the largest-ever U.K. seizure of counterfeit Monster products in 2011. The company has also helped Chinese authorities in efforts that led to the shutdown of factories producing copycat products, he said. But it remains “very difficult” to seize the tooling used at factories to create the counterfeit CE items, he said, estimating that 99 percent of such products are being created in China. “It really is a China problem” when it comes specifically to counterfeit CE merchandise, he said.

Several Sennheiser headphones were seized in the same 2011 U.K. raid, said Greg Beebe, that manufacturer’s president, who called counterfeit products a “global challenge” for his company. The issue “affects us tremendously on a global scale” and has cost the company about $2 million a year in the U.S. alone for each of the past five years, he said.

The problem became especially prevalent in the U.S. for Sennheiser about five years ago, said Beebe, citing consumers’ growing comfort levels buying products online, helped in part by alternative payment options including PayPal, as a major factor. The company started seeing poor online reviews for certain products and found that the items getting those negative notices were counterfeit, he said. Sennheiser products that were counterfeited most often were low-end mics and headphones, items that had the “least barrier to entry,” he said. It was often hard to tell for certain where counterfeited items were being produced, he said, estimating most of them were coming from Asia.

Despite a U.K. crackdown and other similar efforts, counterfeit products remain widely available, said Tognotti. “Even a company like Apple, with its infinite resources, still has a counterfeit problem” that is “pervasive,” he said. Apple didn’t comment.

Counterfeiting was “like a dirty little secret” for some manufacturers, who “didn’t want to talk about it,” said Tognotti. CE manufacturers that declined to comment included Panasonic, Samsung and Skullcandy, all of which have warned consumers globally online about counterfeit products.

It’s important for manufacturers to warn consumers about the issue because many of them don’t want to buy a knockoff, said Tognotti. In about 2009, Monster started a “Verify Before You Buy” program, setting up a page at its website helping consumers figure out how to spot a counterfeit item, he said. Monster also started “blacklisting” online sellers selling such products by listing those sites, he said. “We got some criticism because some of the websites were marketplaces that people liked,” including those of Amazon and eBay, he said. But those two companies have “worked extensively” with Monster since then to crack down on counterfeit items sold at their site, he said. Offshore websites have been less responsive to Monster’s concerns and that’s where the “vast” majority of counterfeit products are being sold online today, he said.

In some cases, there are manufacturers’ factories that are “running a third shift” in which they become the very ones producing items for the counterfeit market, said Tognotti. But that hasn’t been the case for Monster, which has never found any counterfeit product it has examined to have been produced by the factories it uses, he said.

The vast majority of Sennheiser products are manufactured at its own factories in Germany, Ireland and the U.S., said Beebe. It was easy to figure out that counterfeit Sennheiser products weren’t being made in those facilities, but some of the copycat items were found to be coming out of Asia, where a small number of low-cost headphones have been made for it by contract manufacturers, he said. Sennheiser has since cut back on using contract manufacturers, in part to ensure they weren’t the source of any of the counterfeit items, he said.

Like Monster, Sennheiser has taken a multi-prong approach to combat counterfeit products, said Beebe. In addition to working with law enforcement, it started an extensive consumer education campaign, communicating that “if it’s too good to be true, it probably is,” he said, referring to the typically much lower pricing of knockoff items compared to authentic Sennheiser products. If a consumer is seeing headphones that typically cost $100 at a legitimate dealer for only $49 online, “chances are it’s not real,” he said. Sennheiser also started including holographic designs on its packaging that would be hard for counterfeiters to duplicate, he said. The manufacturer’s packaging and products started carrying a new authenticity label, the PrioSpot, in 2012, it said. The security label offered a strong level of protection against counterfeit for customers by using “visible and hidden security features,” said Volker Bartels, president-Sennheiser corporate services, at the time. By using the new label features, consumers, retailers and even customs agents could confirm the authenticity of a product in seconds, it said.

One challenge is that consumers “inherently” want a deal when buying products -- they want a cheaper price on an item they want and will often buy a device from the seller offering it for even $1 less, Beebe said.

If most counterfeit products are being made in China, some observers ask why manufacturers don’t opt to have their products made in different countries instead of China, said Tognotti. But there are manufacturers who don’t make their products in China that still have a counterfeiting problem, he said. As long as there is demand and “money to be made,” factories will continue to make counterfeit products, he said.

Headphones are an especially appealing product for counterfeiters, said Tognotti. While many of the fake items look exactly like the real thing to the average consumer, some of the counterfeit items’ makers will do “odd” things like put Monster and Bose logos on a set of counterfeit Beats headphones, he said. Sometimes, the makers of such items will produce knockoffs in styles and colors that Monster doesn’t offer, he said. But other knockoffs are much harder for consumers to spot. In addition to headphones, there are also “still a lot of counterfeit” Monster cables, said Tognotti. The fake products are often poorly made and can even be unsafe for consumers to use, he said.

Counterfeiting is impacting many CE manufacturers, said Tognotti, saying it’s easy to find knockoffs of products from companies including Sony online. Sony didn’t comment. It has warned about counterfeit products including memory cards at its website in the past. Counterfeit products aren’t much of an issue for Alpine and Pioneer in the U.S., those companies said.

JVC’s website features a warning that “counterfeit JVC products are being sold within” the U.S. Those products “do NOT perform to JVC specifications and are not covered by any warranty” from JVC, it said. JVC was working with U.S. Customs and Border Protection and other organizations to stop the import and sale of counterfeit products in the U.S., it said. “To ensure the product that you are buying is Genuine JVC we recommend purchasing only from an authorized JVC dealer.” A list of authorized JVC dealers was made available via a link at its website. “Many” of the JVC products listed on online auction sites and marketplaces are being sold by people not authorized by JVC, it said. The company had no further comment.

Many of the counterfeit CE devices being sold are imitations of Apple and Samsung mobile devices, said Ben Bajarin, a principal analyst at research company Creative Strategies. But it’s “hard to argue” that counterfeit CE devices were “hurting” brands such as Apple and Samsung because consumers who buy knockoffs at very low prices often can’t afford those brands to begin with, he said. Most of the counterfeit CE merchandise is being made in China, but “there is some of it in India and parts” of Europe, he said. The main reason China is the main hub of counterfeit devices is that so much of the manufacturing in the sector is done in China and there is a “booming gray market for many CE devices like” tablets and smartphones, he said. “There are literally dozens upon dozens of these manufacturers cranking out” knockoffs, and “many of them don’t have” brands on the items, he said. The products just look like iPads, iPhones and Samsung devices, he said.

Counterfeiting is only “getting worse” for mobile phones and tablets, said Bajarin. “As long as the large gray market still sees demand they will make these products."

Klipsch Group mounted an all-out campaign against counterfeiters after being slammed by customer reviews and shocked by a threat from Amazon in 2011 to drop its headphone line because of poor ratings (CED July 19/12 p1). Counterfeiters were selling “virtually identical” headphones online, Klipsch said then. The company adopted a product authentication program, like Monster and Sennheiser, that it hoped would curb counterfeit product sales, the source of which it attributed to Chinese factories. Klipsch brought a counterfeiting suit against 16 Chinese headphone companies in U.S. District Court in New York later that year, following one the company filed in January 2012 against 23 defendants involved in the manufacturing and marketing of counterfeit Klipsch headphones (CED Sept 5/12 p12). Klipsch parent company Voxx has had “some successful resolution with counterfeiters,” a spokesman said Tuesday. But “the situation is still pending in various areas,” he said. “There’s not really anything new to report on” the subject, he said.

The U.K. subsidiary of DLP projector supplier Optoma Technology recently warned customers, distributors and resellers to be “vigilant” against the rising prevalence of counterfeit replacement lamps (CED April 14 p8). Optoma learned of “a few cases where fake lamps have been used, which has resulted in damage to the projector,” voiding the warranty, said Nick Price, Optoma’s U.K. territory manager. “The counterfeit lamps may be cheaper, but this is often due to cheaper components that have not been rigorously tested by the manufacturer and could damage the projector. All genuine Optoma replacement lamps carry a tamper-resistant sticker,” the subsidiary said. If the lamp module packaging doesn’t carry this sticker, or if the seal is broken or damaged, it may be a counterfeit lamp, it said. But “we have not had nor seen this issue” in the U.S., said Jon Grodem, senior director-product and marketing, Wednesday.

It came to Panasonic’s attention that counterfeit components “made to look like genuine Panasonic parts are turning up in the market,” the manufacturer said on its website, though it wasn’t clear when the notice was posted and it had no date on it other than the year 2013 at the bottom of the Web page. It acquired samples of some of those “look-alike products and determined that they are not authentic,” it warned. The counterfeit parts “can be of inferior quality and lack necessary standard safety approvals,” and using them “could cause circuit malfunctions and possible safety hazards,” it said, urging consumers to buy genuine Panasonic parts only from an authorized Panasonic dealer and sales office. Its website provided a link to authorized dealers.