Facebook, Google, and Counterfeiting.
By Matt Stoller and cross-posted from his substack page, BIG.
Last week, I got an email from a frustrated customer of the luxury shoe brand Rothy. “On Memorial Day weekend,” she wrote. “I was on Facebook and there was a sale on my favorite shoe brand, Rothy. The sponsored advertisement said Rothy so I clicked on it and ordered 2 pairs of shoes. When they arrived a few days later, I immediately knew they were counterfeit shoes. I went onto Paypal and requested a refund. A few days later, I received a response that I have to return them to China in order to provide a refund. The return address was in complete Chinese characters. How do Americans write 12 chinese characters?”
Rothy’s is a high quality branded women’s apparel company focusing on sustainability. Rothy shoes and bags are well-made, and the company charges a reasonably high price for them, a price chosen to convey that the Rothy brand means quality. It does not, as a rule, ever put its shoes on sale. I went back and forth with this customer, and she told me that she had called Rothy to complain, and “they shared that they are getting hammered by fraud on Facebook and Instagram but can’t get these goliaths to stop it.”
Such a high quality brand offers an enticing target for Chinese counterfeiters, who have found the perfect criminal accomplice: Facebook. Chinese counterfeiters are buying ads offering Rothy’s shoes for a low price, and directing people to fake websites. People then buy the shoes, which are counterfeit, and customers then complain to Rothy’s. Facebook does take fake ads down, but it is reactive, not proactive about doing so. Rothy’s is in a constant whack-a-mole trying to find the fake ads so they can get Facebook to act.
It gets even more interesting when you throw the Facebook ad boycott into the mix. A few weeks ago, Rothy’s, like a lot of companies, pulled its ads from Facebook in solidarity with Black Lives Matter over Mark Zuckerberg’s policies around hate speech. Many companies did so, which had an interesting effect on ad prices. Facebook ad prices are done on an auction model, which means that high ad demand pushes prices up, and low ad demand pushes them down. With a boycott going on from advertisers, ad prices on that particular day were likely lower than usual. With no Rothy ads on Facebook and Instagram, and low ad prices, Chinese counterfeiters took advantage, and Facebook and Instagram were full of ads for fake Rothy’s. In other words, intentionally or not, Facebook damaged Rothy’s business by allowing counterfeiters to steal the company’s brand equity when the company sought to make a political point with its ad spending.
Why does Facebook enable such scams? It’s simple. The law lets Facebook make a lot of money enabling counterfeiting. Section 230 of the Communications Decency Act immunizes Facebook from any consequences for the content of ads bought on their platform; they can’t be sued for facilitating fraud and counterfeiting, so they don’t have any incentive to do anything about it. With no one at Facebook actually paying attention to the scam artists who are buying these ads, scams proliferate…