e-fencing: Hawking Stolen Goods on eBay

An ever-increasing volume of merchandise showing up on Internet auction sites like eBay has either been stolen by organized, professional shoplifting rings or counterfeited by people seeking to profit from the prestige of a popular brand.

And if retailers and manufacturers want to stop these activities and discourage perpetrators through arrest and prosecution, they are pretty much on their own.

eBay, the largest online auction site, will “take down” a listing through its Verified Rights Owner (VeRO) program if it violates intellectual property rights or if the police prove a crime has been committed, but it’s up to the retailers or law enforcement to identify any wrongdoing and initiate pursuit of the perpetrators.

That may soon change. New York-based Tiffany & Co. has filed a lawsuit against eBay, and a host of other major retailers and trade associations (including NRF) are trying to persuade eBay and other online auction companies to partner with them to combat electronic fencing and to share the costs associated with online surveillance and criminal apprehensions.

eBay typically lists about 78 million items on its site at any given time, and some six million new items are posted every day, according to spokeswoman Catherine England. Therefore, she says, eBay “cannot become expert on all of the products, trademarks, copyrights, patents, publicity rights, licenses and pricing structures of all rights owners. This is why we ask retailers and other rights owners for their participation in protecting their rights.”

eBay, England says, “is a venue -- a marketplace. eBay does not write or edit listings, and the company complies with all laws related to notice and removal of listings.”

Many retailers, however, do not accept eBay’s position that it does everything it can to identify and combat fraudsters: Tiffany has merely issued the industry’s first legal challenge.

In its lawsuit, Tiffany is arguing, in effect, that “just because eBay doesn’t feel like devoting the resources to set up a pre-screening department, that doesn’t mean that they don’t know about the problem,” says Lou Ederer, an intellectual property rights expert and attorney with Torys, a business law firm in New York. “There is very obvious illegal stuff going on that they should have known about. I think it’s a pretty good argument.”

Joe LaRocca, NRF vice president of loss prevention, stresses that, unlike fences using flea markets or pawn shops to offload goods, criminals are now e-fencing product to a national audience without any face-to-face interaction. “This reaps huge rewards for the bad guys and reduces their risk of being identified or apprehended,” he says.

The perceived general lack of cooperation from Internet auction companies “indicates to many retailers that the online sites are not being good corporate citizens, that they are shirking their legal responsibilities and should be held responsible,” LaRocca says. “With the sophistication of technology these days, asking a company to develop exception reporting based on proven trends of illegal activity is not all that difficult.”

Online trafficking of stolen and counterfeit merchandise is starting to get the attention of state and federal lawmakers, says Maureen Riehl, NRF vice president, government and industry relations counsel. “Activities like these are treated as crimes if they are conducted on the street, and fair-minded legislators are coming to believe that ‘street rules,’ penalties and enforcement need to be applied similarly to online criminal transactions.”

NRF, she says, “is working with LP leaders to open the eyes of lawmakers at all levels of government to this growing problem.”

Collaborate with LP teams
Limited Brands is among the retailers currently in discussions with eBay attorneys, trying to identify practices and procedures that eBay could put in place to help retailers recoup some of their losses attributable to the sales of stolen and counterfeit merchandise.

Among other things, Limited Brands would like eBay and other online auction sites to work collaboratively with retail LP teams without retailers having to wait for a law enforcement investigator to request that kind of cooperation, says vice president of loss prevention John Talamo.

eBay and some other online auction sites “are great working with the police, but the police have huge workloads and they don’t always have the time or the resources to investigate e-fencing,” Talamo says. “Retailers have the best success fighting crime when we do the groundwork investigation, collect all the evidence and documentation and then go to the police.”

Talamo, like a number of other retailers, would also like eBay to help fund cyber crime investigations. Limited Brands alone has “documented over $500,000 [in adjudicated cases and admissions] of stolen goods that were sold on online sites,” he says. The online auctions make money on those transactions, yet it’s the retailers who have the expense of monitoring their sites.

“Since it’s the online auction sites that enable the sale of stolen and counterfeit product, I would simply like the online auction sites to step up and help us retailers defer some of those costs,” Talamo says.

England says that eBay defends against fraud through a variety of measures.

“We have an entire department dedicated to fraud investigation,” she says. “The focus is working with law enforcement to track and apprehend criminals. This team often spots suspicious activity, gathers information and pro-actively submits it to law enforcement so they can open investigations.

For most eBay transactions, she says, “there’s a paper trail. We have physical addresses, IP addresses, credit card information, etc. That’s not the case in more traditional venues for fencing such as pawn shops, flea markets and allies.”

Additionally, “more than 14,000 rights owners have participated in our VeRO program, and we’ve worked closely with industry associations and government agencies to develop policies that help protect our community from stolen property and counterfeit goods.”

eBay will “restrict accounts and often suspend users when they’ve been involved in a confirmed case of fraud, be it in the form of selling stolen property or counterfeit goods,” England says, and it “will also submit user information to participants in our VeRO program to help them investigate unlawful activity.”

Cybercrime specialists
Limited Brands, which has seen hundreds of thousands of dollars in stolen and counterfeit merchandise show up for sale on online auction sites, has attacked the problem in a variety of ways, including opening a dialog with big players like eBay and expanding its LP department to include two cybercrime specialists.

In its organized retail crime (ORC) department, Limited Brands now has a cybercrime investigator who scours the web for stolen product. A cyber brand protection analyst looks for counterfeit products, diverted products and any copyright violations.

In one instance, the cybercrime investigator spotted an online seller who had an unusually large inventory of Victoria’s Secret panties. The investigator purchased some and was able to match them to a recent theft.

Posing as a shopper, the investigator opened an e-mail dialog with the seller, a woman who said she could get more product. Having a fairly strong sense of the particular locations from which the merchandise was being stolen, Limited Brands marked the targeted products with invisible ink.

“When the items were sold to us, we were able to prove that they were stolen,” Talamo says. “The police then obtained search warrants, conducted a raid and arrested their suspect,” who had approximately $15,000 in cash and $100,000 in stolen Limited Brands merchandise in her possession.

The cyber brand protection investigator recently identified a Los Angeles-based seller who was e-fencing counterfeit goods. Wanting to apprehend the source of the counterfeit goods as well as the fence, the investigator worked with Los Angeles police on a joint investigation.

“We conducted five raids, arresting five people in Sri Lanka who were manufacturing the counterfeit goods,” Talamo says. “The goods were seized and destroyed, and then the LAPD arrested the seller.” In that one instance alone, Limited Brands recovered more than 6,000 counterfeit units.

In the last 18 months, the cyber investigators have pursued about 200 cases involving well over $1.5 million in stolen/counterfeit merchandise, recovering approximately 100,000 units and closing down numerous auctions selling counterfeit goods.

Merchandise sold on online auction sites quickly becomes used product, so the full value often cannot be recovered, but Limited Brands is pursuing monetary damages in court (it was just awarded a $132,000 restitution order from an online fence)