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Can Internet Providers Stop the Sales of Counterfeits Online?

Richemont scored a big win against counterfeiters late last week by targeting Internet service providers.

Dealing with copycats may be an unavoidable part of the high fashion business, but Richemont scored a win against online sellers of counterfeit goods on Friday. A UK judge ruled in favor of the Swiss luxury group in a case against a number of Internet service providers (ISPs), mandating that they "block or attempt to block access" to six websites selling knockoff goods.

The defendants included British Sky Broadcasting Limited, British Telecommunications PLC, EE Limited, TalkTalk Telecom Limited and Virgin Media Limited, giving Richemont a broad swath of security against these particular vendors, at least in the UK. 

According to Justice Richard Arnold's ruling, "The ISPs have an essential role in these infringements, since it is via the ISPs' services that the advertisements and offers for sale are communicated to 95 percent of broadband users in the UK."

This isn't the first ISP case that a luxury company has taken to court. In 2009, Louis Vuitton won a lawsuit against the California-based internet service Akanoc Solutions, preventing it from hosting sites selling counterfeits. So while Richemont's case is just one battle in the long-term war against knockoffs, it does lend support to the idea that major service providers are on some level responsible for the sale of knockoffs.

The issue with getting ISPs to block specific sites, of course, is that vendors can always open up shop under new domain names. Howard Hogan, an intellectual property lawyer at Gibson, Dunn & Crutcher, says that he's seen counterfeiters re-emerge the day after receiving a court order to shut down their operations, requiring his team to go back for a modified order. (Hogan has represented Richemont before, in 2007, but agreed to speak with Fashionista about counterfeit law generally.)

Because the vendors are more or less anonymous and often operate outside the U.S., targeting them directly can be slippery. Besides, it's not particularly efficient to go after sites one by one -- as Fordham Law's Susan Scafidi puts it, it's like playing a game of Whack-a-Mole.

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"Instead, current strategy starts upstream, focusing on counterfeit kingpins and the commercial infrastructure that makes their activities possible, like credit card merchants and ISPs," Scafidi says. "If the sellers of fakes can't reach consumers online or process payments electronically, they've effectively been sent back to the retail stone age. Richemont's victory is another example of this winning approach."

In Hogan's experience, the most successful avenue for shutting down a counterfeiter is to cut off its flow of funding. That means working with credit card companies and banks. According to Hogan, most U.S. and European banks "have no interest in doing business with counterfeiters" and readily comply with court orders. Chinese banks, however, might fight back by claiming that they are abiding by banking secrecy law.

So with the success of Richemont's case, will be be seeing more luxury players attempting to tackle knockoffs at the ISP level? 

Hogan predicts that for the forseeable future, brands will be using this as one way to shut down sites. Almost exactly one year ago, Richemont won a permanent injunction against, a business-to-business global marketplace like Alibaba that housed counterfeit goods. LVMH, meanwhile, has been working with Google to stem advertisements for counterfeit sites in search.

But working with ISPs has to be part of a multi-pronged strategy, since counterfeiters are terribly creative about keeping their operations going.

"What I would say is that brands need to be proactive in monitoring the marketplace and finding the weak spot that counterfeiters try to exploit," Hogan says.

A rep for Richemont declined to comment on whether the company will be pursing more cases of this nature.