'Whac-a-mole kind of business': How small U.S. firms fight off floods of Chinese knockoffs

In this case, they are real. But many brands like sunglasses company 100% find themselves in an uphill battle against cheap knockoff products that come from China. (100%/Yahoo Finance)

Two months after the new model of sunglasses came out in May, knockoffs started popping up.

“It was amazing,” says Ludo Boinnard, CEO of 100%, a California-based eyewear company whose popularity has ballooned in the past year. “Two months!”

It was the second time this had happened. Just over two years before, the motocross-rooted company turned to cycling eyewear, and the fakes sprung up in early 2017.

For a small, up-and-coming company looking to gain market share — 100% has fewer than 30 employees in San Diego — there’s an aspect of flattery at seeing facsimiles, both branded with the company logo and unbranded, show up in the marketplace. But it’s also the source of stress.

“They just started to show up. It’s been just exponential; we used to see a lot of Oakley knockoffs but we never paid much attention because we were not in that world. Sometimes you’d see the Facebook and [Instagram] ads with the fake Oakleys,” said Boinnard. “Now, because we’re in the eyewear business, we’re more aware of what’s going on and it’s insane.”

Incidents like these have been going on for a long time, as domestic intellectual property (IP) is co-opted and duplicated with lesser materials abroad, either to be sold as cheap counterfeits, fraudulently, or as something of a generic.

The ongoing trade conflicts and back-and-forth tariffs with China have largely been about the President’s interest in closing the trade deficit, but intellectual property has also been at the forefront of U.S. complaints: China has been guilty of ripping off American tech in the past. (The U.S. has long said that theft of intellectual property, including copyrights, trademarks, patents, has cost American companies billions of dollars.)

In the discussions of IP by China, the focus has often been on the theft of technology and electronics, often via foreign ownership restrictions that require U.S. companies to show their cards to China or a Chinese corporate partner if they want to operate there. But while a simple copy-paste for consumer goods like sunglasses may not pose the same security risks or enormous financial damage of a complex tech algorithm, it does significant damage to a company.

The potential harm to the company has a few layers. The simplest is that they take away business, as some people will buy the cheaper knock-off on eBay or China’s Ali Express for $25 instead of $150 from an authorized retailer. Many companies and brands suffer from this issue, from Ray-Ban to Gucci to Apple earpods.

Sometimes people know it’s a fake, but mistakenly believe they are getting the same product from the same factory simply with a different logo, or maybe the factory stayed open an extra day off-contract. (This is not the case for 100%, which sources from France and Italy only.)

But the fakes are sometimes sold at full price to unsuspecting consumers, which for sports sunglasses that require shatter-resistance, can cause serious injury. Other times, “people think they’re getting a deal,” said Boinnard. Unfortunately, the lower prices for knock-offs usually means that there isn’t a budget for R&D or safety testing.

“One of the first occurrences is one guy who called and said, ‘I’m very unhappy about your product, I was injured by it,’” said Boinnard. He sent photos of the cracked product and cuts of his forehead, and the company told the guy to send the product. It turned out to be fake. “He bought it full pop on a Chinese website,” said Boinnard.

In other instances, he said, people import fakes and sell them at events — at full price.

“They have the experience of touching and feeling it and saying ‘oh this product is crap,’ which hurts us at a different level,” he said.

A game of ‘Whac-a-mole’

For the most part, 100% contracts out the job of enforcing design patents and IP to Red Points, a firm based in Barcelona that has the technology to crawl the web for design infringement. The company told Yahoo Finance’s sister site TechCrunch that catches around 200,000 fake products for sale every month. Tools like reverse-image search help, as many listings use the company’s actual product photos.

“We have it automated and we have a clear message to all our distributors – if you find a link to a fake please send it and that email gets forwarded to Red Points,” said Boinnard. If there’s a question of legitimacy, the company does have to manually look through flagged products to make the final judgment, something that costs time and money. “It’s a whac-a-mole kind of business,” he said.

Interestingly, China’s Ali Express is much faster at taking down fraudulent listings than eBay or Amazon, Boinnard said.

(“We have key partnerships and processes in place with rights owners to ensure a trusted shopping experience,” said an eBay spokesperson. Amazon told Yahoo Finance that it invests “heavily—both funds and company energy—to ensure our policy against the sale of such products is followed” and has been implementing machine learning to fight back.)

Companies like 100% are waiting for something to change in China, but it’s hard to say exactly what type of change would actually yield a meaningful drop in pirated designs and counterfeit products.

“Until the Chinese government decides to take actions, there’s no clear solution today for anyone,” said Boinnard. “I don’t know if they ever will, we have people on location who are working on this but it’s a long-term project.”

For its part, China has pledged to do better, and President Xi Jinping said last July, “wrongdoing should be punished more severely so IP infringers will pay a heavy price.”

In the future, however, 100% is looking at modern tech to try to handle the problem that uses passive RFID receivers in a product to confirm legitimacy.

“There’s ID tech coming up. We’re working with one right now on a solution: Just with your phone you can scan the product — like Apple Pay — and know if it’s real,” said Boinnard. “Still, there will always be counterfeits and people who want to buy them.”

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Ethan Wolff-Mann is a writer at Yahoo Finance focusing on consumer issues, retail, personal finance, and more. Follow him on Twitter @ewolffmann.

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