NetEnforcers Fight Internet Piracy

By Amy Gilroy On May 17 2004 - 6:00am

Almost 15 months since it opened its doors, NetEnforcers has established itself as a welcome leader in an escalating battle against unauthorized Internet sales.

The company now says it thwarts close to tens of thousands of unauthorized transactions per month and that it is beginning to offer new services in the war on Internet piracy.

Many suppliers say the problem of unauthorized car A/V sales is growing, and it is incumbent upon suppliers to take action against it, either through NetEnforcers or through their own legal actions

Directed Electronics legal counsel KC Bean said he is seeing an increase in cease-and-desist actions on the part of Directed and an increase in the number of unauthorized Web sites.

Alpine said it is shutting down 1,500 to 2,000 Internet auctions and/or sites per month through NetEnforcers and that it has terminated three dealers in the last three weeks due to transshipping to Internet sites. Rockford Fosgate has terminated four dealers since January, it said, and MB Quart has terminated two.

NetEnforcers uses software that constantly sends out "spiders" on the Internet to detect a Web site using photos, product descriptions or trademarks owned by a supplier. It then screens its findings against an authorized dealer list, and contacts the site if it is in violation.

"Eighty-five to 90 percent of the time they comply and stop selling the client's products," said VP Adam Cohen.

But now the company is getting involved in the remaining 10 percent to 15 percent. NetEnforcers recently began offering product tracing. It will buy products from questionable Web sites and then locate the transshipper by tracing the serial number on the products.

"We make a product purchase and find out who is handing off that product to the retailers. It could be a distributor in violation of distribution agreements," said Cohen.

In addition, NetEnforcers said two suppliers have asked it to contact unauthorized sites and offer them the option of becoming authorized sellers. "We are sending out notices to the sites. We inform them that the manufacturer will give them access to photos, full support and the latest products, and here's what the dealer policies are for an online retailer," said Cohen, adding, "It's relatively new but I think we'll see more of it this year."

NetEnforcers itself is growing rapidly, signing on nine new supplier clients since January and now moving into other markets, such as professional audio. But car audio customers remain up to 90 percent of its business.

NetEnforcers says Internet piracy affects retailers and suppliers alike. Cohen notes "Some of the dealers say they have lost 5 or 10 percent of their business to the Internet, and some say 60 percent." There tends to be less of an impact on service-oriented dealers who install versus product-oriented retailers that compete on price," he said.

Cohen said a common problem is one of Internet sites selling products below cost. "A lot of the product is shipped to foreign markets where they don't have service centers, so [suppliers] knock out part of the price related to tech support. And then someone goes into Mexico or elsewhere and buys this product that's not supposed to have tech support, at a rock bottom price, and puts it on eBay as a brand new fully warranteed product."

Many suppliers say they are supplementing NetEnforcers' efforts with their own in-house anti-piracy initiatives.

Alpine says it has devoted "significantly more resources" to tackle piracy and that it has toughened its stance. "Our vice president of sales, Glenn Ihrke, has taken a position that enough is enough. And as hard as we have worked to develop partnership relationships with retailers, there is still some authorized distribution that is feeding this transshipping problem. We are going to hold our retailers accountable to the contractual agreements we enter into," said Witt.

Although it does not supply car audio, Klipsch in January sought an injunction against five Web sites for "inducing" authorized dealers to transship Klipsch products. In April, the five defendants in the lawsuit, Crazyeddie.com, 50TopSellers.com, AuthorizedElectronics.com, TheBestPriceStore.com and Home TheaterPhiles.com, agreed to stop selling Klipsch product.

Witt said a key benefit of NetEnforcers' efforts is that the remaining unauthorized Internet sellers appear unprofessional, as they cannot use manufacturer-supplied photos and materials.

Witt said it typically takes about 48 hours to shut down an unauthorized seller.

Blaupunkt agreed that most Web sites comply when contacted by NetEnforcers or the manufacturer. "When a letter comes from Bosch, which is a big company, they think twice about continuing on," said sales director Ken Noda.