By Alban Kwan, regional director | East Asia
Lan Huang,subject matter expert | CSC domain and Brand Abuse Enforcement
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We’re in an interregnum where society has paused, and there’s no telling how things may turn. In such times of crisis, we are the explorer; exploring the uncharted waters of change, where dangers and opportunities lie.
How the pandemic caused this greater societal change may not be something that an individual can alter, we may, however, take the helm and navigate. In our daily line of work, how should we maneuver the sea of change around us? Recovery is the key here, as this will be the primary focus for businesses around the world. Digital assets and brand protection, whether looking from intellectual property (IP) or cyber security perspectives, are traditionally understood as an expense. If we can understand where the winds are blowing, we can help companies avoid the risks and better capitalize on the changing landscape to aid the recovery.
1. Proliferation of eCommerce
It’s widely predicted that with COVID-19, there will be a renewed proliferation of eCommerce globally. According to Professor Deborah Tannen at Georgetown University, after the pandemic, instead of asking, “Is there a reason to do this online?” we might be asking, “Is there any good reason to do this in person?” The lockdown and social distancing guidelines are forcing people to buy online in most countries. According to recent statistics, U.S. eCommerce revenue has grown by 110%, EU 69%, APAC 45%, and the rest of the world 200% YoY. This may have two lasting effects for brands online:
Growth in start-up eCommerce platforms or online marketplaces. In the Chinese market, the top five eCommerce platforms or marketplaces already account for around ~85% of market share, whereas the top five in the U.S. only account for 64%, and Europe is even more diverse. In China, businesses may diversify their online sales channels, but they seem to diversify horizontally by putting their goods on multiple online marketplaces, such as Alibaba, WeChat Mini-program, JD.com, etc.). Establishing their own website is secondary. With Western businesses, it’s typical for brands to primarily use their own brand.com for online eCommerce while using online marketplaces, which are more diverse, as a supplement. However, more such marketplaces are emerging—even in the West—to support the smaller businesses that now struggle to survive without the ability to conduct physical business. Even larger players like Facebook® launched Facebook Shops recently in support of small businesses.
New online users. Another trend we observe is an influx of new eCommerce users. In the developed world, these users are likely to be people who were not familiar with the internet, and possibly from the older generations. This demography is now forced to try online shopping. With shopping accounts already set up and the sense of insecurity of buying online curbed, they will be less resistant to shopping online in the future.
New virtual ways of shopping. Virtual reality shopping is not new, and the Alibaba Group launched its Buy+ service in 2016 that offers virtual reality shopping. Some major furniture companies such as IKEA have been providing augmented reality services for customers since 2017. However, it didn’t seem that consumers were able to adapt to this way of shopping. This may change now. In the U.K. government, for example, they’re considering easing the lockdown, and reports in the U.K. suggest that social distancing rules may be in place for the rest of 2020, which can be burdensome for shopping. Major U.K. retail companies such as Currys and John Lewis may see this as an opportunity, and are launching virtual shopping services to provide their customers with virtual in-store experiences. The customers are able to speak with customer representatives who may ask customers for personal information or credit card information for purchases. This presents the opportunities for fraudsters who may orchestrate new forms of phishing ,,.
For Chinese companies who are expanding overseas, they’ll need to determine the most appropriate channels for their businesses, such as establishing their online presence with their own primary brand website for eCommerce, and identifying selected online marketplaces.
Chinese companies now require more than just a deep understanding and relationships with a few platforms such as Alibaba and JD for brand protection. They need to seek help in building a central online brand protection policy that expands beyond counterfeiting on the likes of Alibaba, and can support its continuous global expansion. They would also require a deeper understanding of a variety of issues associated with establishing their online portfolio, from domain strategy, cyber security, privacy, and logistics, as they establish their own eCommerce sites.
Email-based phishing attacks didn’t use to be a primary threat vector in China, as most of their consumers use popular mobile apps for shopping, transactions, and receiving marketing communications. As a result, many Chinese firms are less prepared to manage such phishing attacks. Global email phishing scams have increased by over 660% this year so far due to cyber criminals capitalizing on COVID-19 fears, and over a third are related to brand impersonation. As Chinese companies develop their brands overseas, there will be a greater reliance on email communication with their global consumers. Coupled with the influx of inexperienced new online shoppers, they will need to be ready to protect their consumers from phishing and fraud attacks.
Globally, with the proliferation of online shopping sites, consumers are more vulnerable if they are unable to distinguish genuine sites among the masses. New online shoppers especially may be more easily scammed to disclose their personal details unwittingly on malicious fraudulent sites. To make things more difficult, today, almost 75% of phishing sites also display HTTPS, usually with free domain-validated secure sockets layer (SSL) or transport security layer (TSL) digital certificates for encryption, fooling even the experienced shopper to believe the site is trustworthy.
In an environment of mistrust and fear, and with inexperienced online shoppers entering the market, it becomes more crucial for businesses to step up and protect their consumers. Online security will be essential, as is proactive internet monitoring and takedown of fake sites.
Businesses now have the impetus to ramp up their digital transformation efforts, and go online. Privacy and policy compliance, like that of the General Data Protection Regulation (GDPR), are additional considerations for companies to ensure adequate privacy policies are in place, as more customers transact online. The integration of virtual reality into online shopping experiences, though further in the future, may also open up privacy concerns beyond mere exposure of account credentials, including preferences, voice, images, and other personal data.
There was an observed spike in cyber criminal activity that mirrored the spike in Covid-19 around the world. However with GDPR, information on WHOIS has been redacted, hampering the ability for companies to investigate and take down cyber criminals who create fraudulent websites.
2. Deglobalization leading to more local infringements
Some critics argue that deglobalization has taken place since 2008 and COVID is the nail in the coffin. Some others argue that deglobalization is merely a temporary rebalancing while globalization is still inevitable in the long run. Regardless of the view, it’s a fact that a retreat on world trade as a percentage of GDP in various countries has been in decline. COVID-19 has forced some of the strongest advocates of a globalized economy, like the EU, to re-impose borders during the pandemic, and states were forced to re-prioritize national interests.
Internet advancement is arguably one of the key forces behind globalization, but deglobalization could have a huge impact on the internet, because it is transnational by nature. Deglobalization may eventually lead to a more local supply chain and localized brand infringements.
Localized infringements may take many forms. To capitalize on national sentiment, we could see more frequent use of country code top-level domains (ccTLDs) or even internationalized domain names (IDNs) to signify local content, rather than consolidation of sites under a global, generic .COM. A higher percentage of infringements may use local languages, which will become more difficult to detect. Infringement will be more geo-targeted, and will be distributed locally, such as local social media, forums, and logistics companies. It will be more challenging to enforce on infringements due to different local regulations for IP infringements, be it more complex, or too relaxed.
For Chinese companies whose market is predominantly domestic, they may not feel a substantial impact from deglobalization, other than a stronger consumer preference for locally produced goods.
Both Chinese companies expanding outside of China and global multinationals may face a stronger need to greater localize for overseas markets than before.
3. Geographic shifts in supply chain and the source of counterfeits
Currently, China is the so-called “factory of the world,” however, as China’s wage continues to grow, there have been reports that factories are moving to South and South East Asia, such as Vietnam and Bangladesh, as well as Brazil to diversify and reduce logistic costs. The U.S.-China trade war and deglobalization may accelerate this trend. Furthermore, according to Todd Tucker of Roosevelt Institute, the world will experience a substantial reorientation after COVID-19, where governments will play a much stronger role in building domestic supply chains, even between traditional allies. We can already see this re-orientation happening with both U.S. and Japan providing substitutions for firms to move factories back to the local market.
The reorientation of supply chains will change the dynamics of counterfeiting. Counterfeit networks also have their own supply chains, otherwise, even fake goods cannot be produced and distributed. In the past, most counterfeit goods originated from China, partly because production facilitates of legitimate brands may overproduce or have defective goods that need to be disposed of. Even for completely fake goods, they’re easier to produce in China because of the “Goldilocks effect”—the supply chain, production facilities, and materials are readily available, making the conditions “just right” in China.
When a substantial number of factories move to Vietnam, for example, it will eventually aid the creation of local supply chains. The new cohort of counterfeiters will require a trusted channel to distribute these products, and it is far easier to distribute online. This may lead to the creation of new local eCommerce platforms, as well as the exploitation of existing global platforms, such as Alibaba, to sell these products.
If the manufacturing industry diversifies out of China, there may be a short-term overcapacity in China. This may deflate the price of raw materials and components that may benefit local companies, but will also be picked up by counterfeiters for their own production.
In the longer term, we expect that IP infringement issues will no longer be largely a China-only problem, but will come from multiple sources. Furthermore, China has been improving its IP protection law in recent years, but it may still insufficient for the amount of goods it produces. There are also more established vendor and cooperation structures established within China. As manufacturing (and counterfeit production) moves to other countries, there will be a new eco-system established in these countries, and IP issues are certain to arise.
Aside from an expected increase in eCommerce stores, local manufacturing entails a more diversified, local logistic arrangement that may also lend itself to an increased chance for counterfeiting. Enforcement action can no longer focus solely on large shipments from China as the easy target for customs seizures. New relationships with the new ports of call and local law enforcement need to be established.
While counterfeits may be only one perspective, other types of IP issues, such as fraudulent domains, websites, social media and mobile apps, and appropriate enforcement will need to be addressed across more jurisdictions.
There are media reports sighting increasing sinophobia around the world, and the level of distrust has reached a significant level. U.S. perception of China continues to degrade in various sectors. The recent tone on Chinese social media suggests the feel the same about the U.S. Distrust is also growing within countries, and there has been a strong increase from the public for CEOs in private organizations to lead change. This is quite a departure from our traditional self-optimization expectation for private organizations.
To illustrate how global distrust can impact an organization, both the U.S. and China are accusing the other side of distributing fake news and incorrect accusations. Regardless of what’s real, the largest mobile phone brands in both the U.S. and China are coming under attack and potential boycotts. It’s possible that fake news could become a tactic for competitors to attack the reputation of a brand. While it is not necessary for the fake news to escalate to the geopolitical level, it can begin to damage a brand using distrust and polarization.
In such times, brand image and trust are paramount for businesses. In the past, online brand protection normally focused on infringement. Issues such as misrepresentation, false affiliation, and disinformation were not the primary focus. In the world of distrust, organizations may need to include these factors in their overall brand protection strategy.
Trust is critical for any brand regardless of its origin. Based on the Forbes 2000 list, U.S., European, and Japanese companies have long been ranked as the most valuable brands in the world. However, Chinese brands have risen rapidly, from only 136 companies in 2013 to 356 in 2019. These established Western and Japanese brands, due to their long-standing, recognizable brands and reputation around the world, may receive a greater share of these trust-based attacks, such as IP spoofing attacks, and email fraud, for instance.
On the other hand, Chinese firms face a different problem, and may find themselves in an uphill battle with distrust and disinformation as major hurdles in their brand-building exercise. Chinese brands may find their reputation at stake due to the political climate. They will be compelled to exhibit higher levels of integrity, transparency, and accountability to counter this external factor. This unfortunate situation is not caused directly by the brand, however, the brand may have to take an extremely strong stance to demonstrate to the world that it’s trustworthy.
Any fake website, questionable social media account, or phishing emails could have a magnifying effect. Chinese brands that want to continue building may have to adopt a zero-tolerance policy. Participation in the international internet community to facilitate mutual understanding will benefit not only the individual company but the wider community as well.
And as supply chain moves and new and old suppliers fight for market share during an economic downturn, there may be an increase in false affiliation with well-known brands, resulting in the delivery of sub-standard products that could damage consumer trust. To maintain trust, brand owners may also need to improve their authentication process. For example, we’ve observed a case where the counterfeiter created a fake verification website to phish for the real verification codes to be used in the counterfeit product.
As building trust and the reputation of a brand become more important, strategies may have to change from infringement detection and enforcement to reputation management and trust maintenance.
We’ve outlined some of the potential impacts on online brand protection due to shifting trends brought about by COVID-19. Some of these effects may be short term while some may change the landscape fundamentally. Commercially speaking, recovery is the keyword. IP is traditionally understood as an expense, so how can IP professionals assist with the recovery? IP professionals can add value by proactively anticipating the potential impacts listed above, and developing the appropriate response strategies. For a Western brand that may experience a shift in the supply chain, it would benefit from proactive measures to prevent new counterfeit channels arising. For a Chinese brand, which may suffer inadvertent distrust, they’d benefit from a strong and direct response to online brand abuse. What action should be applied will have to be tailored to the individual company, however, if there is one thing that we can be sure of, it’s the proliferation of eCommerce and the use of technology. That means that from an IP and security perspective, online IP protection is ever more important.
Deborah Tannen, politico.com/news/magazine/2020/03/19/coronavirus-effect-economy-life-society-analysis-covid-135579
 COVID-19 Commerce Insight: ccinsight.org/
 How the coronavirus pandemic is changing the world | Fareed Zakaria: youtube.com/watch?v=ldKtWp7jlHI
 Todd N. Tucker, Director of Governance Studies at the Roosevelt Institute, politico.com/news/magazine/2020/03/19/coronavirus-effect-economy-life-society-analysis-covid-135579