How knockoffs took over America

• Online shopping has made it easier for counterfeiters to sell fake products.
• Counterfeits cost businesses more than $200 billion a year and contribute to 750,000 jobs lost.
• The surge is impossible to control; online listings are created faster than they can be taken down.

Daniel Shapiro's work is never done.

As quickly as he's scanned between 30 and 50 million listings for illegal products, a new crop is awaiting him.

Shapiro's job at Red Points, a brand-protection software company that works with brands such as Puma, Fila, and Hugo Boss, is to discover where counterfeit products are hiding on the World Wide Web and get them taken down. He started his career as a buyer for Macy's in the 1980s, then led anti-counterfeiting teams at eBay for more than seven years.

The "old days" of street hawkers on Canal Street selling knockoff Fendi and Coach bags are long gone, he told Insider.

"The evolution today with online e-commerce, the game has changed dramatically," he said.

In his 13 years of combating counterfeit products, he's seen it all: shoes, high fashion, socks, underwear, supplements, home goods, car parts, and sex toys.

"Everything gets counterfeited at some point," he said. "And by the way, the money being made by counterfeiters is staggering."

Counterfeits have invaded US markets at an astounding rate, and government agencies seem too overwhelmed to stop them all. The US Department of Homeland Security reported that seizures of counterfeit and pirated goods increased tenfold between 2000 and 2018.

In 2017, the International Chamber of Commerce and Frontier Economics projected counterfeiting and piracy would drain $4.2 trillion from the global economy by 2022. Shapiro said the true cost has likely blown past that estimate, considering the pandemic's outsize effect on e-commerce.

For many, knockoffs are just a way to get a deal on a handbag or shoes that would otherwise be outside their budgets. But these fake products have major financial and societal impacts that can lead to lost sales, jobs, and livelihoods.

Counterfeits and piracy cost legitimate US businesses more than $200 billion a year and contribute to 750,000 jobs lost, according to a report by the Office of the United States Intellectual Property Enforcement Coordinator.

In 2020, the fashion industry lost more than $50 billion in potential sales because of counterfeit merchandise. The underground art market is estimated to generate as much as $6 billion a year in stolen, fake, looted, and illegally imported works, according to the United Nations Office on Drugs and Crime.

Counterfeit goods have also been linked to organized-crime rings that fund terrorism, human trafficking, and the illicit drug trade, the UN Office on Drugs and Crime says. Not to mention, some counterfeit products can cause physical harm. Cheap electronics can start fires, untested makeup can pose health risks, and counterfeit drugs have killed people.

"Not all counterfeits are equal," Shapiro said. "There's some danger in accidentally buying a counterfeit in a particular industry."

What is the difference between a counterfeit and a dupe?

Counterfeits are not to be mistaken for dupes, which are products that are similar to a popular brand's trending items, usually sold at a much lower price. Since the US has very few legal protections for three-dimensional fashion design, dupes are legal as long as they don't violate copyright or trademark laws.

Chanel's quilted leather flap bag, first designed by Gabrielle Chanel in 1955, is an example of a style that has been copied time and time again. In fact, nearly every major handbag brand from Michael Kors to Gucci has its own version. Companies can produce as many generic quilted purses with chain straps as they want, as long as they don't claim they are Chanel bags. Dupes are not exact replicas, but a lower-quality, "get the look for less" product, such as a $22 synthetic-leather quilted bag you can find on Amazon.

Fueled by TikTok videos of finding dupes of popular fashion, cosmetics, and food products, Gen Zers are embracing knockoffs of designer products in part to subvert capitalism and elitism.

It is a counterfeit, however, if a brand replicates that Chanel bag in great detail, with the double-C logo on the front and an interior label claiming to be an authentic Chanel bag.

Why sales of counterfeit goods have soared

E-commerce has been a breeding ground for knockoffs. Counterfeit sellers can easily set up shop on marketplaces such as Amazon, Alibaba, Shein, and Temu, where many knockoff sales go undetected.

The Organisation for Economic Cooperation and Development reported that counterfeit goods traded internationally increased from $200 billion in 2005 to $509 billion in 2016. Counterfeit goods cost the global economy $500 billion a year, according to the US Chamber of Commerce.

Technology has not only escalated the counterfeit market but made it increasingly difficult to tell the genuine products from the imposters. Superfakes have emerged as manufacturers have become increasingly skilled at replicating designer goods. They've been able to recreate handbags and shoes with such precision and detail that it can be difficult for authenticators to tell the difference between the real and fake products.

The surge in counterfeit goods is impossible to control, primarily because online listings can be created faster than they can be taken down. "Tomorrow there'll be somewhere between 2 and 3 billion new listings that didn't exist today," Shapiro said.

And even if a seller is banned from a site, it often does little to deter them. "They don't go away, they just go somewhere else, to another marketplace or another social-media site," he said.

Red Points helped remove a total of 4.6 million listings last year, a company representative said. Shapiro estimated that he discovers a new e-commerce marketplace every one to two months.

"I've been in this space 13 years and I'm always shocked when a new one comes up," he said.

While the US government intercepts some counterfeit products, there are limitations. For one thing, many packages shipped through e-commerce sites are small, low-value orders. More than 90% of all counterfeit seizures happen through international and express mail, according to the US Customs and Border Protection.

Another factor could be that for sellers, the return outweighs the cost.

"The penalty for trafficking and counterfeits is about three to six months in federal prison," Shapiro said. "So the penalty is very low and the money is very good."

According to the US Sentencing Commission, the maximum sentence for selling counterfeit goods is 10 years in prison. In 2021, the average sentence for copyright and trademark infringement was 10 months, the agency reported.

Shapiro said a law-enforcement official once told him that selling counterfeit Nike sneakers can reap higher profit margins than selling drugs.

"It might cost you $8.50 per pair of shoes, and if you could sell them on e-commerce sites for $85," Shapiro said. "That margin was greater than the margin if you were trying to buy heroin or cocaine from your dealer and then resell it on the streets."

The US government often relies on corporations to fill in the gaps.

After complaints and pressure from retailers, Amazon increased its efforts to combat counterfeits, which are rampant on the marketplace.

In 2020, Amazon established its Counterfeit Crimes Unit, which works with brands to identify and remove counterfeit products. It also conducts investigations and sends criminal referrals to law enforcement. In some cases, Amazon files civil lawsuits. The company recently filed a joint lawsuit alleging a crime ring attempted to sell counterfeit Therabody massage devices on Amazon.

Last year, the company removed more than 6 million counterfeit items from the marketplace and referred over 1,300 individuals to law enforcement in the US, UK, Europe, and China, according to Amazon's annual Brand Protection Report.

Shapiro said online counterfeits will continue to be a never-ending battle for most brands.

"There's too much money," he said. "It's not going away." But without a strategy, brands can suffer reputational damage from bad reviews when people buy phony products marketed as their own.

"Reviews can pile up and we can then go in and take down the counterfeits," he said. "We can't fix your reviews for you."