There is quite a lengthy article on the Modern Distribution Management website that explores one of the biggest problems the wholesale/retail industry faces — counterfeiting. It sites statistics such as "The Counterfeiting Intelligence Bureau estimates counterfeiting accounts for 5 percent to 7 percent of world trade" and "most counterfeit goods (close to 95 percent) can be traced back to China, according to a report from the International Anti-Counterfeiting Coalition."

While counterfeiting is not a new trade by any means, what IS new is how the development of e-commerce has aided in its proliferation. “The Internet has made it possible for people to represent themselves more readily to more people in a professional manner that makes it look like they are legitimate.” So what is the industry doing to counteract this widespread (and growing) problem?

Well, there have been many associations; national government policies; and international agreements that were formed as part of the World Trade Organization. Individually, companies can create agreements with "authorized distributors" as well as pursue legal action upon catching any counterfeiters.

What are you doing to protect yourself from fakes ?

Wholesale Product Sourcing for Your Business

It includes tips on dropshipping, sourcing closeouts and liquidations, and spotting fake merchandise.

Furthermore, as venues such as eBay and Yahoo Stores attempt to arrest the growth of counterfeits from taking over their sites, it is becoming increasingly important for wholesalers and small resellers to take necessary steps to protect themselves from getting duped into purchasing fakes.

Why? Because, quite simply, it is illegal to sell counterfeit merchandise. And as a seller, ignorance is no excuse. It is your duty to know the provenance of the merchandise that you resell for capital gain. Furthermore, you need to be able to demonstrate that you have taken the proper steps to purchase authentic merchandise.

So, how can you protect yourself as a buyer of goods? If challenged by a brand, or a third party venue, how can you demonstrate good intent on your part, and avoid serious legal repercussions (and, you can be certain, if you are selling fakes, it will catch up with you one day)?

Fortunately, there are a number of steps that you can take to protect yourself and avoid at least 95% of the scams that are out there.

Here are 10 Golden Rules that you should scrupulously follow when purchasing trademarked and branded merchandise from third party vendors:

Rule 1 – Use your common sense!! If a deal is too good to be true, you can be sure that it is not true. For instance, Louis Vuitton(TM) does not have sales and burns all its surplus, so basically if someone is selling new Louis Vuitton(TM) merchandise, it is fake – and that probably means everything else they are selling is fake too!! Prada(TM) handbags do not sell for $50, period. Got it?

Rule 2 – Know your brands. If you are selling a brand, please do your due diligence on it – research it before you sell it. This is easy to do and will save you a lot of problems later. For instance, authentic Chanel(TM) sunglasses are very, very hard to purchase in the excess market, over 90% of them are fake. This is easy to learn. Chanel(TM) is a brand that is licensed to Luxottica(TM), the largest manufacturer of designer sunglasses in the world. And they also own Sunglass Hut(TM) retail stores. So they do not need to sell their surplus sunglasses, they keep them in-house – and thus, it is very hard to get them. This is different from Gucci(TM) and Christian Dior(TM) sunglasses. These are made under license to Safilo(TM). Safilo(TM) does not have its own retail distribution, so it outsources its surplus inventory and, thus, it is easier to find them in the surplus market (which does not mean that all Gucci’s(TM) are real, of course!!).

Rule 3 – Quality Control. This is the rule that most people do apply, but it is a lot harder than people realize to spot a fake. Sometimes, there are just cheap knock offs, and these are easy to spot. However, many fakes are actually exactly the same as the real thing. So, when inspecting merchandise, do you know what to look for? The best way is to go and buy one of the real ones from an authorized store (you can always return it later). If you cannot do this, then check two samples side by side. Count the stitches – the stitch count should always be the same. Check the labels – the content, font, positioning. Smell the merchandise, silly as it may sound. Measure it. And know your brands – every brand adopts certain anti-counterfeiting measures, so try to search online and find out what these are. And, finally, if you are investing a lot of money, there are specialist laboratories that will do a full spectrum of tests for you. Oh, and one thing – pay for a sample if you have to. Better to lose a little than a lot!!

Rule 4 – Pricing. The price that you are being asked to pay for a piece of merchandise tells you a lot about the merchandise. Much of this is the application of Rule 1 – common sense. For instance, if you search on eBay, you will see a lot of listings for black Prada(TM) micro fiber MV515 handbags. They retail for $236. They are on eBay for as little as $50. Most importantly, they retail for 136 Euros in Italy. So do the math: These bags are part of every season’s collection, with minor modifications each season, so they are never heavily discounted. Best price you will pay in Italy is 50% of retail, plus you can get your Value Added Tax back upon export (20% in Italy). So that is 56.66 Euros. The current exchange rate is $1.35 to 1.00 Euro. So that is $76.49. Then you have to import them (shipping costs, say 5%) and pay US Customs duties, which are 19% for synthetic material handbags. Now the landed cost is $95. And the seller has to make a profit for their efforts. So, basically, unless it is fake, are you really going to find an authentic MV515 handbag for less than $110?? No – and apply the same pricing analysis to all your purchases. Understand and be familiar with the normal surplus price for different product categories that you specialize in.

Rule 5 – Know who you are buying from. You have to know who you are buying from. The best is to always visit their warehouse/showroom and get to know them. If you cannot do this, then it is essential to only deal with vendors that:

• Have a US domiciled business

(are a legally incorporated company within your jurisdiction – whether it be the US or any other Country) such as a Corporation or an LLC.

• Have a US address, together with contact details – phone, fax, email address

(non-free), website, etc. The more the better.

• Have a trusted and good reputation within your merchandise category. Check them out, or verify third party references.

You really want to avoid purchasing trademarked/branded goods altogether from vendors that do not meet these strict criteria – unless you are buying the goods yourself overseas. You have absolutely no recourse if you have any problems. You are just exposing yourself to be extorted. If a trademark owner comes after you, how are you going to catch up with your supplier? You do not know where they live or how to find them. Are you really going to sue a supplier through the Italian Law courts? No, did not think so.

Rule 6 – Chain of Title. Everyone always asked for the so-called "Sanitized Invoice". Frankly, these are generally not worth the paper that they are written on unless they form part of the "chain of title". The chain of title is the trail of invoices from the original trademark owner, or authorized third party seller, to you, the buyer. This is what a trademark owner is going to look for when they come after you – that you form a link in the appropriate chain of title, and that you have the paperwork to back that up. A sanitized invoice on its own does not give you this at all. In fact, you can go online, or to a street corner in Italy, and buy lots of "sanitized invoices" – they are all useless. You need to be in the chain of title. What this means is that, having adhered to Rule 6 above, you get an invoice from your supplier. That invoice must specify exactly what you purchased including the brand name written out in full, and the style number of the items that you purchased. In addition, the invoice must specify that the goods that you are purchasing are guaranteed to be authentic. This invoice is much more valuable to you and will protect you far more than a sanitized invoice. Of course, if you are buying a large volume of merchandise, you should also ask to inspect or receive copies of the suppliers own invoices with its suppliers. Many suppliers are reluctant to provide these as the do not want to divulge their sources, and this is understandable. Furthermore, you can then reuse these invoices time and again outside of the control of your supplier to protect your own sale of counterfeit merchandise (a practice known as "mixing"). Accordingly, many genuine suppliers are very wary to provide original supplier invoices. And, as long as you have fully applied Rule 6 above, and have the invoice in hand as specified here in Rule 6, you are generally going to be OK.

Rule 7 – Know the US Customs & Import Laws. You must research and understand the US Parallel Import laws. It is completely within your rights to import authentic merchandise from non-US domiciled brands and resell them, within certain limitations. However, it is not permitted to import US domiciled brands, such as Ralph Lauren(TM) and Tommy Hilfiger(TM), into the US without the permission of the respective brands. So know the rules up front and avoid obvious mistakes and pitfalls.

Rule 8 – Start Small and Insist on Returns. When you are starting out with a new supplier, always start small. Do not be bullied into a large order. That in itself is a red flag. Furthermore, insist on your ability to return the merchandise if you are not happy with it. After all, this is your right. Again, another red flag if the supplier does not accept returns.

Rule 9 – Pay with a credit card. Credit card payments protect you, they are always better than cash or bank wire transfers, until you get to know a supplier and your orders grow in size. If you use a credit card for payment, keep records, and you can always file a chargeback.

Rule 10 – Use your Common Sense!!! Yes, that again. And again.

If you apply these 10 simple rules, you are not going to avoid every scam, but you are going to avoid 95% of them, and while you are at it, you are also protecting yourself from any legal liability. Good luck out there!