The counterfeit trade is flourishing online – and it's harder than ever to tell forgeries from designer originals. But now the big labels are fighting back.

Pay attention to those around you when you carry your Louis Vuitton Monogram Canvas handbag," reads the disingenuous blurb on a website flogging counterfeits. "In women's eyes, you will read envy," it continues, before pointing out that those envious stares could be focused on you, if you'd only shell out a small sum for one of their almost-plausible knock-offs.

This website is one tiny part of an huge online counterfeit fashion industry; a quick Google search for, say, "cheap handbags" will immediately plunge you into a colossal and disorientating world of bargain products, only a tiny fraction of which are authentic. In pre-internet days, ending up with fakes in your wardrobe either meant handing cash to dodgy blokes in dark glasses standing on high-street corners, or knowing someone connected with the counterfeit industry. But these days counterfeiting is endemic, according to Tim Phillips, author of Knock Off: The Deadly Trade in Counterfeit Goods. "It's a horrible mess that's been allowed to grow over the last 10 years. If you were a counterfeiter in the late 1990s and wanted to expand your business quickly, you couldn't have wished for better circumstances."

The internet provided anonymity for vendors, inexpensive sales outlets and access to customers across the globe, and despite those customers being unable to properly inspect the products they were buying, they proved to be remarkably willing to believe in their authenticity. Or, indeed, perhaps they didn't care much one way or the other. Either way, it has been a piece of cake for vendors to mop up the insatiable demand.

American private investigator Rob Holmes specialises in bringing what he calls these "mid-level distributors" to justice, but his task is complicated by the absence of warehouses full of goods, or shipments of watches, or perfume arriving on containers from the far East. "With business-to-business websites such as AliBaba and Tradekey," he explains, "anyone is able to have access to the factories in China where this stuff is manufactured. You can put $10 handbags up for sale online for $50, and you don't even have to stock them. You just ask the factory to ship them, one by one, to each customer. So massive counterfeiting operations are conducted from single computers dotted around the world."

Before Holmes begins pursuit of his prey by making undercover purchases to create what he calls a "virtual crime scene", it's down to the luxury goods firms to identify which of the thousands of vendors he should target – a herculean task that they have been largely unable, and in some cases unwilling, to meet head-on.

Amateurish websites offering counterfeits in exchange for your credit card details pop up daily, while online auction sites – pre-eminently on eBay – form the epicentre of this black market, giving vendors the ability to list products quickly and easily, along with very little information about themselves. But even monitoring eBay for fakes (an estimated 4m last year, or 11,000 dodgy items per day) has proved too colossal a task for many firms, some of which have taken eBay to court in an attempt to force them to take responsibility. Meanwhile, eBay, equally unwilling to commit resources (although willing to collect commission on every sale) has fought back hard. While they lost to Rolex in Germany and in France to Louis Vuitton, rulings went their way in the UK against L'Oréal and, perhaps most significantly, in the US, in a landmark case against Tiffany & Co. Judge Richard Sullivan finally ruled that the onus was on brands to notify eBay of any fakes that appeared on the site.

But while legal arguments rage, counterfeiting on eBay has continued to flourish – something that Tim Phillips believes is a dereliction of duty on the part of the brands. "They complain about the hit to their profits," he says, "but they have had plenty of time to address this issue, and they've simply been asleep at the wheel." Some discerning buyers will have undoubtedly been attracted to – a fashion site that proudly claims to screen all its auction listings for fakes – but there's still no shortage of fakes on eBay, according to fashion journalist Antonia Kraskowsi. "There have been spates of account hijacking," she says, "where counterfeiters hack into reputable eBay accounts for the weekend, sell a load of fake products, and by the time the breach has been noticed – well, they're long gone." But selling fraudulently isn't quite as easy as it once was; although eBay triumphed in the case against Tiffany, Holmes notes that they have become a lot more compliant since the ruling – "probably to stay above reproach" – and software packages such as MarkMonitor have proved a hit with firms by automating the process of of tracking down counterfeits and assessing which vendors to pursue through the courts.

According to Holmes, many of those who casually get involved in selling counterfeits online aren't aware of the seriousness of the crime or, indeed, the associated punishments – perhaps because the products they're selling are benign fashion accessories rather than drugs or weapons, or perhaps because there's a feeling that they're somehow "sticking it to the man". But as with any crime, fear is an important deterrent.

"If someone goes to prison for selling fake jeans or handbags online, that resonates in the community. But unfortunately [anti-counterfeit operations] tend not to get publicised by the luxury goods industry, because they don't want elegant products to be associated with law enforcement. Urbanwear manufacturers are particularly reluctant, because a good proportion of the kids who wear their stuff don't actually like the police."

There are exceptions; Louis Vuitton has publicly stated that it employs a team of 60 to work entirely on anti-counterfeiting, but to Tim Phillips, the majority of companies are simply in denial about the scale of the problem. "For example, none of them admit to how much they're losing to counterfeiters," he says. "If they were to be honest about the sums, heads would roll. They just seem to think of people who buy counterfeits as non-customers, rather than potential customers."

It's certainly true that the battle against restricting demand for counterfeits is as desperate, perhaps as futile, as that being fought against the supply chain; for every person who is furious at being palmed off with a crappy imitation, there are more who are happy to wear or carry cheap products that closely approximate the originals, and are unconcerned about the ills to society caused by counterfeiting – money laundering, criminal activity, sweatshop labour, and much else besides. "I've been called a sanctimonious twerp for saying this," says Phillips, "but we do have responsibilities beyond 'buying nice stuff'."

But it's becoming clear that consumers are as uninterested in the preservation of intellectual property rights in the world of fashion as they are in the world of music. "Once people start thinking that the benefits of owning an authentic item don't necessarily justify the price," continues Phillips, "you can't make them unthink it."

Shop in style: How to avoid the rip-offs

Spotting the fakes

The best indication that an item might not be all it's cracked up to be is simply price; while bargains can be found online, you're unlikely to ever snap up a £1,000 item for £200. Also be wary of vendors who sell several items by the same company at the same time, and listings that feature professional photos that may just be lifted from official websites. Here are some more specific things to look out for, taken from eBay's online guides:

Louis Vuitton bags

The bag's monogram is almost always symmetrical around the vertical axis, unless it's a very old vintage piece. Don't be distracted by upside-down LVs, though – some styles do have these. Stitching should be very even and regular; compare with pictures on the Vuitton website – the same number of stitches will be found in similar locations on similar bags. Look at the font carefully; counterfeiters are getting better at approximating it, but it should have very round "O"s.

Rolex watches

The usual indications of a fake Rolex watches – smoothly sweeping second hand, a "Registered Design" number – can't be seen from photos, so the focus has to be on the seller. Check their history and reputation for Rolex watches in particular, and beware of sellers who are cagey or reluctant to answer your questions. Always insist on having the original box and documents that came with the new watch.

Dolce & Gabbana clothing

If the same piece is offered in various colours and sizes, it's probably fake. Also avoid if they're labelled small, medium, or large. If it's pure polyester, it's almost certainly not authentic – But misspelled care tags – "Unsticht the acesscory before washing" – are perfectly normal, and don't necessarily indicate fakes.

Chanel bags

Ask the seller for the authenticity number: if it's 9395451, that's the number that most Chanel replicas carry. Zip fasteners should be deeply engraved with Chanel, not just scratched on the surface, and the popper buttons should also show Chanel. Again, don't be overly tempted by apparent bargains: you're not going to pick up a classic Chanel 2.55 bag for less than £500.