Don’t Find Yourself Wrapping Fakes This Year

Tyler Armstrong, Lucy Ching and Tori Curtis, 2020

**Please enjoy this inaugural issue of the Front & Center bulletin crafted jointly by the Michigan State University Center for Anti-Counterfeiting and Product Protection (A-CAPP Center) and the National Intellectual Property Rights Coordination Center (IPR Center).  
Sincerely, Jeff Rojek, Director of MSU A-CAPP Center and Steve Francis, Director of National IPR Center


As we approach the holiday season, many of us – this year especially – will search online for great deals on wonderful gifts that we can provide for the loved ones in our lives. Before you hit that check-out button, however, consider where your toys and games are coming from.

Unseen Dangers

Imagine you want to buy a four-year old child a fun and popular toy. When the toy arrives, the child immediately puts it in his mouth, but it seems big enough that they won’t choke on it so any safety fears you have are reduced. But the toy breaks open and the child accidentally swallows the thirteen small magnets inside. He is rushed to the hospital and he needs surgery to remove portions of his intestines and colon due to this toy.

This was the reality for Jennifer White, the mother of four-year old Beck White. She received a toy for Christmas that was advertised to be compatible with Magformers, implying similar quality and safety, and only a few days later her son was in the hospital.[1] Several media sources claimed that the toy was Magformers, but was later clarified to be an intellectual property infringing product by the Chinese company, Imden.[2] There was significant damage to Magformers brand reputation and consumer trust as this occurred during the busy 2018 holiday season. Magformers Senior Sales and Operations Director, Merle Saddick, explained that the brand rigorously tests its products to ensure durability and child safety in order to avoid these types of accidents. In fact, Leigh Moyers, Senior Manager of Federal Government Affairs for the Toy Association, stated that there are over one hundred federal regulations that must be followed in order to make an authentic toy, which counterfeiters do not have to abide by. 

Real Magformers

Fake Magformers

The low-quality build of counterfeit toys, and the hazard from such low durability, is not the only harm. “L.O.L. SURPRISE!” dolls were a must-have toy in 2018, which counterfeiters saw as an opportunity for profit. Subsequent counterfeit versions of the dolls were found to contain phthalates, which is a group of toxic chemicals that can damage the liver, kidneys, lungs and reproductive system.[1] Saddick from Magformers warned that phthalates are not the only toxic chemicals in counterfeit toys. Lead, mercury, and cadmium have also been found. The physical harm to children by toxins and by poor build-quality are just the start of issues within counterfeit products.

The occurrence of consumers purchasing such counterfeit toys has continued to grow with the expansion of e-commerce. Within the United States, e-commerce has grown from .6% of all retail sales in 1999 to 16% of all sales in 2020,[2] and toy industry sales also reflect this online growth trend.[3]  This growth in e-commerce has diversified the retail options for consumers and increased the efficiency of shopping, among other benefits, and has also provided brands the ability to expand their consumer base. However, e-commerce has also provided an outlet for counterfeits to direct connect and sell to the consumer, offering products under the false pretense they are authentic.

One of the biggest challenges for toys brands is parents are not educated on the prevalence of counterfeits online. A 2019 Toy Association funded study[1] found that 70% of American parents were planning to do half or more of their holiday shopping online. The study further found that one in three parents do not believe that there are counterfeit toys being sold online. The same margin of parents do not know that counterfeits are not held to the same safety standards as authentic toys. The Toy Association found three main reasons why parents turn to unverified sellers (not verified as selling authentic goods) online: the toy was out of stock everywhere legitimate (32%), the toy being sold was exactly what their child wanted (31%), or they just saw the unverified seller was offering the toy at a lower price point (27%). The research points to a large missing piece in the fight against counterfeit toys, the education of parents.

Impact on the Toy Industry

In addition to the unseen dangers of purchasing counterfeit toys, the sale of counterfeit goods hurts the company and the employees that make and sell the legitimate goods. Meaghan Kent of Venable LLP, outside counsel for The Toy Association, emphasized that companies’ number one goal is to protect their customers, but the combination of consumers’ lack of awareness of counterfeits and e-commerce marketplaces’ lack of attention to seller and product vetting on their platforms gives counterfeiters the advantage. When counterfeit goods are purchased, the company who created the real product loses revenue for lost sales. Between 2012 to 2016, the toys and games sector in Europe had a direct loss of €1 billion, 7.4% of total income, in purchases due to the sales of counterfeit goods.[1] As a result of these significant losses in sales, a company may have to either decrease workers’ hours, switch workers to seasonal employment, or implement supply chain monitoring or intellectual property protection investments that increase the cost of production.

The impact of counterfeiting can have a number of other indirect but nonetheless far reaching implications for toy producers, particularly smaller companies. For example, while industry toy fairs are common around the world, some of the larger toy companies have stopped taking part in these industry gatherings in an attempt to better protect their intellectual property from being copied by counterfeiters who attend them. Smaller toy companies need to attend toy fairs to continue building their brands and increasing their product’s exposure to customers, this makes avoiding intellectual property theft harder to escape.[2] As counterfeit products become more prevalent and readily available, smaller toy companies are struggling to stay in business and larger companies are struggling to make a profit, all while keeping their workers and customers safe in the process.[3]

Taking Action: The Toy Brand Owners

In the case of  “L.O.L. SURPRISE!” the owner, MGA Entertainment, Inc., filed a trademark counterfeiting complaint – among others – against eighty online merchants in December 2018.[1] MGA’s mark is widely known for its use on collectible doll toys and accessories found within small, unwrappable spheres.[2] Likely attributable to the product’s success in the market, MGA found through routine investigation that illicit listings existed on Alibaba, AliExpress, and DHgate e-commerce platforms.[3] A federal district court in California ordered a default judgment against the counterfeiters, requiring each to pay damages, permanently enjoining them from infringing upon MGA’s trademarks, and ordering that funds frozen by a prior asset freeze order be “immediately turned over to MGA in partial satisfaction of [the] judgment.”[4] In more digestible terms, the court made the counterfeiters pay large fines and stop making counterfeits. Actions such as this, locating counterfeiting products and pursuing legal remedies, represent reactive strategies by toys brands to address counterfeits. However, given the enormous volume of e-commerce worldwide, brands face a considerable challenge in locating and addressing counterfeiters. This highlights the toy industry cannot combat this problem alone, they need the help of e-commerce and the consumer.

Online Marketplaces

In 2019, Amazon launched Project Zero, an online self-service portal where brand owners can register their intellectual property and take advantage of Amazon’s machine-learning to scan billions of listings for fake products bearing their intellectual property.[1] Amazon’s investment allows brand owners to directly remove any infringing listings and the removals “feed into [Amazon’s] automated protections,” allowing for future proactive measures against counterfeits.[2] Additionally, Amazon has established a global Counterfeit Crimes Unit, “made up of former federal prosecutors, experienced investigators, and data analysts.”[3] Amazon reported two and half million blocked accounts and over six billion suspected counterfeit listings in 2019.[4] This new global unit will allow Amazon to bring counterfeiters to justice as it continues with its goals of protecting both brands and consumers alike.[5] Amazon is not alone, other major e-commerce market places such as the Alibaba group of marketplaces, Walmart and eBay have established efforts to work with brand owners in addressing counterfeits to varying degrees.

While this is a good start, proponents like the Toy Association suggest there is much more to be done.[6] In a recent conversation about the state of the toy industry, Leigh Moyers from the Toy Association expressed concerns about the current process of vetting sellers on many e-commerce platforms – often all that is needed is an email address, with no further requirement of submitting valid identifying information. She offered that marketplaces can do better by strictly vetting sellers. Such efforts are in line with a handful of bills introduced in the United States Congress in 2019 and 2020 that aim to increase transparency in e-commerce to address counterfeits.[7]

The Part Consumers Play

The responsibility to avoid counterfeits does not rest solely in the hands of corporations, however. All of us as consumers should take the time to educate ourselves on the rampant problem of product counterfeiting. It also requires a little more savviness in purchasing decisions online to avoid falling victim to counterfeiters, which applies to all forms of e-commerce to include advertisements and other shopping options on social media. Consumers can reference the following check-list in order to avoid buying counterfeit toys.

For additional tips on how to avoid buying counterfeit toys, see the Toy Association’s suggestions for consumers.

In addition to being a more informed shopper, consumers can also be a critical link in identifying counterfeit toys. Carolina Guiga of Lego Group notes that fans of their products are often their best detectives in locating counterfeits. Reporting counterfeits can be a little more challenging than a common offense, as a counterfeiter operating online can often be outside the country. However, reporting this activity can allow toy brands, responsible e-commerce marketplaces and law enforcement to take action.  Reporting the counterfeit item to the customer service of the actual toy maker gives them a lead to pursue and hopefully prevents someone else falling victim to the counterfeiter. Consumers call also report retailers selling counterfeit goods to the National Intellectual Property Rights Center.

Conclusion

Staying informed on the issue of product counterfeiting is a great way to keep your family safe. Don’t be afraid to share this message with your friends and family. Awareness may be one of the greatest gifts you could share this year! From all of us at the A-CAPP Center at Michigan State University and the National IPR Center, we wish you a happy and safe shopping season.



[1] United States Census Bureau, Monthly Retail Trade, https://www.census.gov/retail/index.html.

[2] IBISWorld, Online Children’s Toy Sales in the US Market Size 2002–2025 (Sept. 10, 2019). https://www.ibisworld.com/industry-statistics/market-size/online-children’s-toy-sales-united-states/.

[3] Adrienne Appell, 1 in 3 Parents Don’t Know that Counterfeit Toys are Lurking Online, Toy Association (Nov. 4, 2019),

https://www.toyassociation.org/PressRoom2/News/2019-news/1-in-3-parents-dont-know-that-counterfeit-toys-are-lurking-online.aspx.

[4] EUIPO, 2019 Status Report on IPR Infringement: Why IP Rights are Important, IPR Infringement and the Fight Against Counterfeiting and Piracy, Eur. Intell. Prop. Off., 1, 22, https://euipo.europa.eu/tunnel-web/secure/webdav/guest/document_library/observatory/docs/2019_Status_Report_on_IPR_infringement/2019_Status_Report_on_IPR_infringement_en.pdf.

[5] Id.

[6] Meaghan Kent & Claire Wheeler, The Real Threat of Fake Toys: The Increase of Knockoff and Counterfeit Toys Sold Online and How to Fight Back, Toy Association, https://www.toyassociation.org/App_Themes/toyassociation_resp/downloads/research/whitepapers/intellectual-property.pdf.  

[7] MGA Entm’t, Inc. v. Alltony_Stock, No. CV 17-08878-RGK-MRW, 2018 WL 1942140, at *1 (C.D. Cal. Apr. 17, 2018); see also MGA Entertainment Awarded $1.1M from Counterfeiters of Fake L.O.L. Surprise! Toys, CPA Practice Advisor (Apr. 25, 2018).

[8] LOL Surprise! Dolls: The Surprise Package that Became 2017’s Must-Have Christmas Toy, Telegraph (11 December 2017, 2:42 PM), https://www.telegraph.co.uk/christmas/2017/12/04/find-buy-lol-dolls-christmas/.

[9] MGA Entm’t, Inc. at *5.

[10] Id. at *5.

[11] Dharmesh Mehta, Amazon Project Zero Launches in 7 New Countries, Amazon Blog (Aug. 10, 2020), https://blog.aboutamazon.com/company-news/amazon-project-zero-launches-in-7-new-countries.

[12] Id.

[13] Amazon Establishes New Counterfeit Crimes Unit, Amazon Blog (June, 24, 2020), https://blog.aboutamazon.com/company-news/amazon-establishes-new-counterfeit-crime-unit.

[14] Id.

[15] Id.

[16] Kent & Wheeler, supra note 9  

[17] Stopping All Nefarious Toys in America Act, S. 3073, 116th Congress (2019), https://www.congress.gov/bill/116th-congress/senate-bill/3073/text; Stopping Harmful Offers on Platforms by Screening Against Fakes in E-commerce Act of 2020, H.R. 6058, 116th Congress (2020), https://www.congress.gov/bill/116th-congress/house-bill/6058/text; Integrity, Notification, and Fairness in Online Retail Marketplaces for Consumers Act, S. 3431, 116th Congress (2020), https://www.congress.gov/bill/116th-congress/senate-bill/3431/text.

[1] Rebecca Smithers, Christmas Shoppers Warned of Danger of Fake Toys, Guardian (Dec. 6, 2019, 7:01 PM),  https://www.theguardian.com/society/2019/dec/07/christmas-shoppers-warned-of-danger-of-fake-toys.

[1] Meghan Holohan, Mom Warns About Toy Magnets After Son Swallows 13, Needs Emergency Surgery, Today (Dec. 28, 2018, 5:24 PM), https://www.today.com/health/toy-magnets-mom-warns-after-boy-needs-emergency-surgery-t146003.

[2] Jeff Bercovici, Beware: Dangerous Counterfeit Toys for Your Baby Are Being Sold on Amazon, Inc. (Apr. 4, 2019), https://www.inc.com/jeff-bercovici/amazon-dangerous-kids-products.html.