rogue finder study

Copyright © 2012 RogueFinder LLC. All Rights Reserved.

Study of “Rogue Websites”

Selling Counterfeit Products

Issued: May 15, 2012

www.RogueFinder.com

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Conclusions • Online counterfeiters can collect immense profits by generating over

$10,000 in sales with a $1,000 initial investment.1

• This low-risk business model offers a comparable return on investment (ROI) to trafficking in illegal narcotics.

• Because of this dramatic ROI, online counterfeiting networks are exponentially spreading on the Internet like an infection.

• The ROI from a single successful website selling counterfeit products encourages the creation of many more such websites.

• Skilled programmers who have access to sophisticated technology and an extensive supply of counterfeit products are creating and operating these sites.

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• To protect their business model, they are employing a variety of creative tactics to frustrate efforts to monitor them and remove them from the marketplace.

• For example, they dynamically redirect their websites across multiple servers located in different countries.

• Significant server bandwidth is dedicated to hosting such sites, with large

blocks of server space and IP addresses dedicated to managing the Internet traffic to them.

• Counterfeiters’ websites are creating significant actual consumer confusion.

• The prices for counterfeit goods are designed to be credible to suggest genuine, discounted products rather than low quality counterfeits.

• Goods received are typically shipped directly from locations throughout China and Hong Kong.

• China is most commonly named as the country of the domain name Registrant.

• However, Registrants do not usually provide legitimate or consistent contact information when registering new domain names, often using gibberish, nonsensical words and false addresses.

• Some Registrants are using the “Privacy Protection” services offered by Registrars to purchase a cloak of further anonymity.

• Software applications make it easier for infringers to create, register and warehouse thousands of domain names that contain permutations of trademarked brands.

• Visa® is the most commonly accepted form of payment accepted by rogue websites, but MasterCard®, Western Union®, JCB® and PayPal® are also commonly accepted.

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Methodology Numerous federal lawsuits have been filed by Intellectual Property owners in recent years to attempt to address the intensifying online threat from “rogue websites.” Additionally, the US Department of Justice and US Department of Immigration and Customs Enforcement have seized millions of dollars in assets, as well as shuttered many such websites by utilizing existing criminal laws. However, while Internet traffic to these sites has been measured and determined to be substantial, little research has been done to empirically survey the existing body of data related to this phenomenon. RogueFinder LLC, in conjunction with the Gioconda Law Group PLLC, a leading New York-based anti-counterfeiting and brand protection law firm, conducted a comprehensive empirical survey of over 3,000 Internet websites that federal courts have ordered shut down because of their sale of counterfeit goods.

RogueFinder Investigative Software efficiently and effectively seeks out, collects, organizes and analyzes a wide variety of forensic clues to systematically uncover the underground networks behind seemingly unconnected websites. RogueFinder software can generate new leads, and connect hundreds of separate rogue websites and hijacked domain names to common sources. In this study:

Ø Only public information from dockets/court filings was reviewed.

Ø No confidential or privileged information of any type was reviewed or included.

Ø Litigation involving a variety of major brands was reviewed. However, the inclusion of a particular case or brand in this study does not suggest or imply that the brand owner agrees with or endorses this study or its conclusions.

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Ø Only commercial websites and domain names that federal courts have ruled upon were included.

Ø This study did not evaluate websites accused of offering illegal pharmaceuticals, unauthorized digital media downloads, software, music, e-games, e-books or movies, but focused only on websites selling tangible products such as fashion accessories, apparel, jewelry and footwear.

Ø Products were offered for sale and/or sold directly to consumers by the websites’ owner/operator (not by third parties through auction or trading platform sites).

Cases Reviewed Verified information was typically presented to the Court in the form of a detailed exhibit attached to the Complaint, or appended to a witness affidavit or sworn declaration. Data relating to over 3,000 websites/domain names has been accepted as reliable evidence of the respective Defendants’ counterfeiting operations in the following litigations (date refers to when action was commenced):

Ø Abercrombie & Fitch Trading Co. v. 4CheapBags.com, a partnership or unincorporated association, et al., 1:12-cv-21088-UU (S.D. Fla., March 19, 2012).

Ø Burberry Ltd. (UK), et al. v. Burberry-Scarves.com, et al., 10 Civ. 9240 (TPG) (S.D.N.Y., Dec. 9, 2010).

Ø Burberry Ltd. (UK), et al. v. John Doe 1 a/k/a Ling Jian Yu, et al., 11 Civ. 8306 (TPG) (S.D.N.Y., Nov. 16, 2011).

Ø Burberry Ltd. (UK), et al. v. John Doe 1 a/k/a Qiao Renfeng, et al., 12 Civ. 0479 (TPG) (S.D.N.Y., Jan. 20, 2012).

Ø Chanel, Inc. v. eukuk.com et al., 2:11-cv-01508-KJD –PAL (D. Nev., Sept. 20, 2011).

Ø Coach Inc., et al. v. John Does 1 through 351, 1:12-cv-00241-GBL-JFA (E.D. Va., March 5, 2012).

Ø Deckers Outdoor Corp. v. Does 1-1,281 et al., No. 12-cv-1973 (N.D. Ill., March 19, 2012).

Ø Deckers Outdoor Corp. v. Does 1-101, et al., No. 12-cv-277 (N.D. Ill., March 29, 2012).

Ø Gucci Am., Inc. v. MyReplicaHandbag.com, et al., No. 07 Civ. 2438 (JGK)(S.D.N.Y., Feb. 26, 2008).

Ø Gucci Am., Inc., et al. v. Weixing Li, et al., No. 10 Civ. 4974 (RJS) (S.D.N.Y., August 23, 2011).

Ø Hermès Int’l, et al. v. John Doe 1 a/k/a Li Hua, et al., 12-cv-01623 (DLC) (S.D.N.Y., March 6, 2012).

Ø Hermès Int’l, et al. v. AAAQualityReplicas.com, et al., 2012-cv-60635 (S.D. Fla., April 10, 2012).

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Ø Klipsch Group Inc. v. Shenzhen Sosound Technology Co. Ltd. et al., 1:11-cv-09187 (PAE)(S.D.N.Y., Dec. 15, 2011).

Ø Louis Vuitton Malletier S.A. v. 100Wholesale.com, et al., 1:12-cv-21778-PAS (S.D. Fla., May 10, 2012).

Ø Michael Kors LLC v. John Doe 1 a/k/a Zheng Little, et al., 11 Civ. 8653 (S.D.N.Y., Nov. 22, 2011).

Ø Nike, Inc. v. John Does 1-37, 2:12-cv-02564-CCC-JAD (D.N.J., April 30, 2012).

Ø The North Face Apparel Corp., et al. v. Fujian Sharing Import & Export Ltd. Co., et al., No. 10 Civ. 1630 (AKH) (S.D.N.Y., Sept. 13, 2010).

Ø Oakley, Inc. v. BuyOakley.net, et al., 1:10-cv-01192-GBL–JFA (E.D. Va., October 20, 2010).

Ø Sherri Hill, et al. v. John Doe a/k/a Wang Qinghe, et al., 12 CV 3014 (JMF) (S.D.N.Y., April 17, 2012).

Ø Tiffany (NJ), LLC v. 925ly.com, et al., 2:11-cv-00590-LDG –GWF (D. Nev., April 18, 2011).

Ø Tiffany (NJ), LLC v. Does 1-1000, 1:12-cv-21160-WJZ (S.D. Fla., March 23, 2012).

Ø Tory Burch LLC, et al. v. Yong Sheng Int’l Trade Co., et al., No. 10 Civ. 9336 (SAB) (S.D.N.Y., May 13, 2011).

Ø True Religion Apparel Inc., et al. v. Xiaokang Lei D/B/A TRUERELIGION4JEANSOUTLET.COM, et al., 11 Civ. 8242 (HB) (S.D.N.Y., November 20, 2011).

Other Authorities Considered Ø 2011 U.S. Intellectual Property Enforcement Coordinator Joint Strategic Plan, Executive Office of the

President of the United States, June 2011.

Ø Do the Math: Why the Illegal Drug Business is Thriving, NPR/PBS Frontline, DRUG WARS, 1998.

Ø GoDaddy.com: Product Catalog and Pricing, http://www.godaddy.com/catalog.aspx?ci=8922, visited on May 14, 2012.

Ø Internet Forensics, Robert Jones, O’Reilly Media: 2006.

Ø Internet Technologies at Work, Fred T. Hofstetter, McGrawHill: 2005.

Ø The New York Times, Letter to the Editor, Mark Elliot, Exec. V.P., US Chamber of Commerce, November 18, 2011.

Ø This is Your Data on Drugs: Lessons Computer Security Can Learn from the Drug War, David Molnar, et al., Proceedings of the 2010 Workshop on New Security Paradigms (2010).

Ø Traffic Report: Online Piracy and Counterfeiting, MarkMonitor: January 2011.

Ø Who Controls the Internet? Illusions of a Borderless World, Jack Goldsmith and Tim Wu, Oxford Univ. Press, Second Ed., 2008.

1 An analysis of an online counterfeiters’ potential profit margin can be summarized in the sample breakdown of typical revenue and costs as follows:

• Average cost of registering a single Internet domain name: $10-$20 per domain name, annually. • Average cost of hosting multiple e-commerce websites on a shared server: $120 to $160, annually. • International shipping is either paid for by the customer, or absorbed by seller if it is a nominal cost (less

than $10 per item).

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• Credit Card/online payment processing fees: 3-5% of sale price. • Wholesale cost of counterfeit goods varies by brand and product category. For example:

o Typical counterfeit coat: $40-$50 wholesale cost, retails for $230-$300 on rogue website. o Typical counterfeit handbag: $40-$50 wholesale cost, retails for $200-$300 on rogue website. o Typical counterfeit bracelet: $10 wholesale cost, retails for $70-$80 on rogue website. o Typical counterfeit watch: $10 wholesale cost, retails for $160 on rogue website.

• Therefore, starting with a $1,000 investment, if one sets up a hosted e-commerce website ($160) linked to five domain names ($100), and invests the remaining funds ($700) in selling and shipping wholesale counterfeit goods, one could generate:

o Up to $11,200 by selling 70 counterfeit watches (11.2x the initial investment); o Up to $5,600 by selling 70 counterfeit bracelets (5.6x the initial investment); or o Up to $4,200 by selling 14 counterfeit coats or handbags (4.2x the initial investment).

CONTACT INFORMATION

ROGUEFINDER LLC 42-‐40 Bell Boulevard Suite 607 Bayside NY 11361 718 423-‐3610 e: [email protected] www.roguefinder.com

GIOCONDA LAW GROUP PLLC 1 Penn Plaza 36th Floor New York, NY 10119 212 786-‐7549 e: [email protected] www.giocondalaw.com

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