Dropshipping: A Gateway for the Sale of Counterfeit Goods

Earlier this year, we discussed various strategies employed by bad actors using social media platforms to sell and distribute counterfeit goods and evade enforcement, including live selling and hidden links. In addition to these strategies, recent trends show that for individuals and criminal networks, dropshipping has also become a popular method for counterfeiters and their willing (and unwitting) enablers. Dropshipping involves shipping goods from a manufacturer or wholesaler directly to a customer instead of to the retailer who took the order. Similar to the live selling and hidden links trends, dropshipping is not a new activity. However, the rise of social media and the ability for consumers to shop directly on particular platforms has boosted the popularity of this business model.

A 2019 report published by Grand View Research estimated the value of the global dropshipping market at USD $102.2 billion in 2018, and likely to reach USD $557.9 billion by 2025 due to the developments and advancements in mobile e-commerce and buying behaviour.

Importantly, dropshipping is not illegal. Many legitimate businesses and retailers use this model to limit storage costs and streamline global shipping logistics. Additionally, not all dropshippers engage in the sale of unauthorized goods. However, the low investment costs and anonymity involved with dropshipping makes it an attractive and lucrative option for counterfeiters. In particular, the disconnect between the manufacturer and the shipper (retailer) allows for unauthorized and/or counterfeit products to easily enter the stream of commerce. It permits individuals selling counterfeit goods to make a sale without handling or storing any of the merchandise. For example, an individual may advertise goods sourced overseas on an apparently legitimate social media page or website, and when the order is placed the goods are shipped directly from the manufacturer (or dropshipping supplier) to the customer without physical possession ever passing through to the seller. Since the seller never directly handles the goods, they are unaware of what is actually being sent to the consumer and cannot attest to the quality of the goods — moreover, they have no control over whether the goods are actually delivered to the paying customer or done so in a timely manner. In the context of counterfeits, dropshipping provides the seller with an excuse to claim they did not know the shipped goods were indeed counterfeit, and that they simply facilitated the sale.  

The rise in influencer marketing has exacerbated the role dropshipping plays in the sale of counterfeit goods. Many influencers are eager to promote their personal brand and can be lured into a partnership with illegitimate brands (or individuals posing as legitimate brands) that engage in dropshipping. The influencer has no control over the supply chain, or quality of the product being promoted and sold. Another difficultly is that for many new developing “brands” that rely primarily on social media influencers and other digital avenues to promote their product, is that reviews of their product are often inconsistent — so it is difficult to tell whether the products promoted are genuine. Because illegitimate business typically do not consider transparency to be a top priority, consumers must properly research a product and its origin before assessing the risks involved with placing an order.

Dropshipping operations will remain an attractive option for companies, perhaps more so as online shopping has surged in popularity during the COVID-19 pandemic. It is important for consumers to remain vigilant and rights owners to be aware of suspicious activity related to popular products online. It is equally important to remain aware of advertisements of these products by influencers and others that may actually be endorsing and advertising unauthorized reproductions.