Intellectual Property and the Internet/Counterfeit consumer goods
Counterfeit consumer goods, commonly called knock-offs, are counterfeit or imitation products offered for sale. The spread of counterfeit goods has become global in recent years and the range of goods subject to infringement has increased significantly. According to estimates by the Counterfeiting Intelligence Bureau (CIB) of the International Chamber of Commerce (ICC), counterfeit goods make up 5 to 7% of world trade. A report by the Organisation for Economic Co-operation and Development (OECD) states that up to $200 billion of international trade could have been for counterfeit and pirated goods in 2005, and around $250 billion in 2007. Other estimates conclude that a more accurate figure is closer to $600 billion lost, since the OECD estimates do not include online sales or goods counterfeited and sold within the same country.
The range of consumer goods that are counterfeited and sold as genuine is wide. Besides numerous smaller goods such as watches, purses, cigarettes, movies and software, larger items such as cars and motorcycles are also being knocked off, including Porsches and Ferraris. A bank in Germany found a fake gold ingot. There is a rapidly growing trade in fake drugs and computer parts, with some counterfeit electronic parts discovered by NASA, the U.S. Navy and the U.S. Army, which alone estimates that the growth in counterfeit electronics has more than doubled between 2005 and 2008. Among the causes for its growth are many: more of the world's manufacturing is being transferred overseas, the growth in internet e-commerce sales, and the fact that consumers hit by the recession will seek out lower-cost items.
The United States faces the most economic impact, being the world's largest consumer nation. Underwriters Laboratories (UL) confirms that counterfeiting is "a thriving multi-billion dollar global industry," where the risks of legal consequences are low. In addition, counterfeiting profits fund other organized criminal activities. It estimates 750,000 jobs have been lost in the U.S. alone due to counterfeiting. The value of counterfeit goods seized at U.S. borders jumped 40% in one year, from 2007 to 2008, while Europe seized over 50% more during that same year.
U.S. Attorney General Eric Holder stated that "intellectual property crimes are not victimless. The theft of ideas and the sale of counterfeit goods threaten economic opportunities and financial stability, suppress innovation and destroy jobs.” Director John Morton of the Department of Homeland Security’s Immigration and Customs Enforcement (ICE) adds that "the sale of counterfeit U.S. brands on the Internet steals the creative work of others, costs our economy jobs and revenue and can threaten the health and safety of American consumers. . . we are dedicated to protecting the jobs, the income and the tax revenue that disappear when counterfeit goods are trafficked.” According to the U.S. Chamber of Commerce, for every $1 invested in fighting against counterfeits, the country gains $5 in new tax revenue.
According to the OECD, counterfeit products encompass all products made to closely imitate the appearance of the product of another as to mislead consumers. Those can include the unauthorised production and distribution of products that are protected by intellectual property rights, such as copyright, trademarks and trade names. In many cases, different types of those infringements can often overlap: Music piracy mostly infringes copyright as well as trademarks; fake toys infringe design protection. The term "counterfeiting" therefore addresses piracy and related issues, such as copying of packaging, labelling, or any other significant features of the goods.
Among the leading industries that have been seriously affected by counterfeiting are software, music recordings, motion pictures, luxury goods and fashion clothes, sportswear, perfumes, toys, aircraft components, spare parts and car accessories, and pharmaceuticals.
Apparel and accessories
Counterfeit clothes, shoes and handbags from designer brands are made in varying quality; sometimes the intent is only to fool the gullible buyer who only looks at the label and doesn't know what the real thing looks like, while others put some serious effort into mimicking fashion details. Others realize that most consumers do not care if the goods they buy are counterfeit and just wish to purchase inexpensive products. The popularity of designer jeans in 1978, spurred a flood of knockoffs. Factories that manufacture counterfeit designer brand garments and watches are usually located in developing countries. Many international tourists visiting Beijing will find a wide selection of counterfeit designer brand garments at the infamous Silk Street. Counterfeiting in China is so deep rooted that when shops selling relevant merchandise in Silk Street were shuttered by authorities, the owners protested publicly against this action.
Expensive watches are vulnerable to counterfeiting; it is a common cliché that any visitor to New York City will be approached on a street corner by a vendor with a dozen such counterfeit watches inside his coat, offered at bargain prices.
In Malaysia, Thailand, Vietnam and the Philippines, extremely authentic looking, but very poor quality watch fakes with self-winding mechanisms and fully working movements can sell for as little as US $20. On the other hand, some fakes' movements and materials are of remarkably passable quality — albeit inconsistently so — and may look good and work well for some years, a possible consequence of increasing competition within the counterfeiting community.
Media products and stores
Compact Discs, videotapes and DVDs, computer software and other media which are easily copied can be counterfeited, and sold through vendors at street markets, night markets, mail order, and numerous Internet sources, including open auction sites like eBay. In some cases where the counterfeit media has packaging good enough to be mistaken for the genuine product, it is sometimes sold as such. Music enthusiasts may use the term "bootleg recording" to differentiate otherwise unavailable recordings from counterfeited copies of commercially released material.
In August 2011, it was reported that at least 22 fake Apple computer stores were operating in parts of China, despite others having been shut down in the past by authorities at other locations. The following month, also in China, it was discovered that the popular mobile game Angry Birds, had been re-created into a theme park without permission from its Finnish copyright or trademark owners.
According the U.S. Food and Drug Administration (FDA), counterfeit drugs consist of those sold under a product name without proper authorization:
- "Counterfeiting can apply to both brand name and generic products, where the identity of the source is mislabeled in a way that suggests that it is the authentic approved product. Counterfeit products may include products without the active ingredient, with an insufficient or excessive quantity of the active ingredient, with the wrong active ingredient, or with fake packaging."
Experts estimate that counterfeit medications kill at least 100,000 people a year, mostly in undeveloped countries. According to the Economist magazine, between 15%-30% of antibiotic drugs in Africa and South-East Asia are fake. The UN estimates that roughly half of the antimalarial drugs sold in Africa—worth some $438m a year—are counterfeits. Pfizer Pharmaceuticals has found fake versions of at least 20 of its products, such as Viagra and Lipitor, in the legitimate supply chains of at least 44 countries. Pfizer also found that nearly 20% of Europeans had obtained medicines through illicit channels, amounting to $12.8 billion in sales. Other experts estimate the global market for fake medications could be worth between $75 billion and $200 billion a year, as of 2010. Other counterfeit prescription drugs that have been found in the "legitimate" supply chain are Plavix, used to treat blood clots, Zyprexa for schizophrenia, Casodex, used to treat prostate cancer, Tamiflu, used to treat influenza, including Swine flu, and Aricept is used to treat Alzheimers.
The EU reported that as of 2005 India was by far the biggest supplier of fake drugs," accounting for 75 per cent of the global cases of counterfeit medicine. Another 7% came from Egypt and 6% from China. Those involved in their production and distribution include medical professionals such as pharmacists and physicians, organized crime syndicates, rogue pharmaceutical companies, corrupt local and national officials and terrorist organizations.
In 2005, counterfeit pharmaceuticals affected less than one percent in developed countries, such as the U.S. , Australia, and the EU, the problem was growing due to increased global sourcing and manufacturing. A study by the OECD concluded that "a worrisome trend is that counterfeits are increasingly being detected as having entered the supply chain of some of the most regulated jurisdictions," noting an example of one source reporting a 27% increase in number of incident over one year." According to the World Health Organization (WHO), by 2006 developing countries had a counterfeit prevalence of 10-30 per cent or higher.
Food fraud, "the intentional adulteration of food with cheaper ingredients for economic gain," is a well-documented crime that has existed in the U.S. and Europe for many decades. It has only received most attention in recent years as the fear of bioterrorism has increased. Numerous cases of intentional food fraud have been discovered over the last few years:
- In 2008, U.S. consumers were "panicked" and a "media firestorm" ensued when Chinese milk was discovered to have been adulterated with the chemical melamine, to make milk appear to have a higher protein content. It caused 900 infants to be hospitalized with six deaths.
- In 2007, the University of North Carolina found that 77 percent of fish labeled as red snapper was actually tilapia, a common and less flavorful species. The Chicago Sun-Times tested fish at 17 sushi restaurants found that fish being sold as red snapper actually was mostly tilapia. Other inspections uncovered catfish being sold as grouper, which normally sells for nearly twice as much as catfish. Fish is the most frequently faked food Americans buy, which includes "selling a cheaper fish, such as pen-raised Atlantic salmon, as wild Alaska salmon." In one test, Consumer Reports found that less than half of supposedly "wild-caught" salmon sold in 2005-2006 were actually wild, and the rest were farmed.
- French cognac was discovered to have been adulterated with brandy, and their honey was mixed with cheaper sugars, such as high-fructose corn syrup.
- In 2008, U.S. food safety officers seized more than 10,000 cases of counterfeit extra virgin olive oil, worth more than $700,000, from warehouses in New York and New Jersey. Olive oil is considered one of the most frequently counterfeited food products, according to the FDA, with one study finding that a lot of products labeled as "extra-virgin olive oil" actually contained up to 90% soybean oil.
However, in the U.S. , where the Food and Drug Administration (FDA) is the primary regulatory body for food safety and enforcement, they admit that the "sheer magnitude of the potential crime" makes prevention difficult, along with the fact that food safety is not treated as a high priority. They note that with more than 300 ports of entry through which 13 percent of America's food supply passes, the FDA is only able to inspect about 2 percent of that food. "
Food counterfeiting and piracy is a serious threat in Europe. "A secret wave of dangerous fakes is threatening the people in Europe," states a EU high official. In 2005, EU customs seized more than 75 million counterfeited and pirated goods, including foods, medicines and other goods, party due to internet sales. More than 5 million counterfeit food-related items, including drinks and alcohol products were seized.
There has been at least one instance of an entire fake parallel manufacturing / distributing / retail system. NEC, a large Japanese electronics company, was apparently copied and sold throughout South East Asia. An enterprising customer, dissatisfied by the fake NEC's warranty service, complained to the real NEC headquarters in Japan, who thereupon found that they were manufacturing and distributing products they had never heard of.
On November 29, 2010, the U.S. Department of Homeland Security seized and shut down 82 websites as part of a U.S. crackdown of websites that sell counterfeit goods, and was timed to coincide with "Cyber Monday," the start of the holiday online shopping season. Attorney General Eric Holder announced that "by seizing these domain names, we have disrupted the sale of thousands of counterfeit items, while also cutting off funds to those willing to exploit the ingenuity of others for their own personal gain.” Members of Congress proposed a PROTECT IP Act to block access to foreign Web sites offering countefeit goods.
Some U.S. politicians are proposing to fine those who buy counterfeit goods, such as those sold in New York's Canal Street market. In Europe, France has already created stiff sentences for sellers or buyers, with punishments up to 3 years in prison and a € 300,000 fine. Also in Europe, non-profit organizations such as the European Anti-Counterfeiting Network, fight the global trade in counterfeit goods.
During a counterfeit in bust in New York in 2007, federal police seized $200 million in fake designer clothing, shoes, and accessories, from one of the largest-ever counterfeit smuggling rings. Labels seized included Chanel, Nike, Burberry, Polo, Ralph Lauren and Baby Phat. Counterfeit goods which are a "major plague for fashion and luxury brands," and numerous companies have made legal efforts to block the sale of counterfeits from China. Many of the goods are sold to retail outlets in Brooklyn and Queens.
For trademark owners wishing to identify and prevent the importation of counterfeit goods, the U.S. Customs and Border Protection agency supports a supplemental registration of trademarks through their Intellectual Property Rights e-Recordation program."U.S. Customs and Border Protection Intellectual Property Rights e-Recordation Application" (PDF). U.S. Customs and Border Protection. 2006. https://apps.cbp.gov/e-recordations/docs/trademark_Application.pdf. Retrieved 2010. These registrations may be supported by brand manuals prepared by or on the behalf of brand owners in order to facilitate the identification of counterfeit goods, including use as evidence by trademark owners as evidence in obtaining court orders for the seizure of infringing merchandise. This mechanism may be used by brand owners to gray market goods, also referred to as channel diversion, in reference to goods produced legitimately but sold through unauthorized distributors and vendors, in addition to counterfeit goods produced as copies of brand name items.
On October 1, 2011, the governments of eight nations including Japan and the United States signed the Anti-Counterfeiting Trade Agreement (ACTA), which is designed help protect intellectual property rights, especially costly copyright and trademark theft. The signing took place a year after lengthy negotiations among 11 parties: Australia, Canada, the European Union, Japan, the Republic of Korea, Mexico, Morocco, New Zealand, Singapore, Switzerland and the United States. The EU, Mexico and Switzerland have not yet signed the agreement. Some commentators ague that the agreement is nonetheless worthless without Chinese involvement, as China is the main source of the world's counterfeit goods.
Photos of counterfeit products
- ICC Counterfeiting Intelligence Bureau (1997), Countering Counterfeiting: A Guide to Protecting and Enforcing Intellectual Property Rights, United Kingdom.
- "The Economic Effect of Counterfeiting and Piracy, Executive Summary" (PDF). OECD, Paris. 2007. http://www.oecd.org/dataoecd/13/12/38707619.pdf. Retrieved 2007.
- "The spread of counterfeiting: Knock-offs catch on" Economist magazine, March 4, 2010
- "Magnitude of counterfeiting and piracy of tangible products – November 2009 update" (PDF). OECD, Paris. 2009. http://www.oecd.org/dataoecd/57/27/44088872.pdf. Retrieved 2010.
- "Caught selling fake microchips to the Navy", Applied DNA Sciences, April 4, 2011
- "Havocscope Counterfeit and Piracy Markets by Countries". http://www.havocscope.com/activities/counterfeit-markets-by-countries/. Retrieved April 14, 2010.
- "Product counterfeiting puts consumer safety at risk", Underwriters Laboratories (UL)
- "Poison pills" Economist magazine, Sept. 2, 2010
- "Federal Courts Order Seizure of 82 Website Domains" U.S. Dept. of Justice Press Release, Nov. 29, 2010
- "The Economic Impact of Counterfeiting" OECD, 1998
- LaFraniere, Sharon (1 March 2009). "Facing Counterfeiting Crackdown, Beijing Vendors Fight Back". The New York Times. http://www.nytimes.com/2009/03/02/world/asia/02piracy.html. Retrieved 2 March 2009.
- "22 more fake Apple stores found in Kunming, China, says report", CBS News, August 11, 2011
- "China steals "Angry Birds" for theme park", CBS News, September 16, 2011
- "Counterfeit Drugs Questions and Answers" FDA
- "News Releases" U.S. Immigration and Customs Enforcement, Jan. 15, 2009
- "New counterfeit report highlights worrying trends" Outsourcing-Phrama.com, Nov. 7, 2007
- "The Fake-Food Detectives" Newsweek, Feb. 8, 2010
- "Something fishy? Counterfeit foods enter the U.S. market" USA Today, Jan. 23, 2009
- "Counterfeit food a 'serious threat' says EC" MeatProcess.com, Nov. 13, 2006
- "Statement of NEC Group’s Anti-counterfeiting Activities", press release by NEC, March 12, 2009
- "U.S. Shutters 82 Sites in Crackdown on Downloads, Counterfeit Goods" Wired magazine, Nov. 29, 2010
- "French warning on counterfeits: don't sell 'em, don't buy 'em", Applied DNA Sciences, May 3, 2011
- REACT: European Anti-Counterfeiting Network
- "Counterfeit Luxury: Feds Bust Largest-Ever Counterfeit Smuggling Ring." Second City Style, Dec. 6, 2007
- Curry, Sheree (13 May 1996). "Farewell, My Logo: A Detective Story - Counterfeiting Name Brands is Shaping Up as the Crime of the 21st Century. It Costs U.S. Companies $200 Billion a Year.". Fortune. http://money.cnn.com/magazines/fortune/fortune_archive/1996/05/13/212869/index.htm. Retrieved 11 February 2010.
- "Anti-counterfeiting agreement signed in Tokyo", Reuters, Oct. 1, 2011
- "ACTA is worthless without Chinese involvement", The Inquirer, Oct. 7, 2010
- "EU defends final Acta text on counterfeiting", EUObserver.com, Oct. 7, 2010
- Phillips, Tim. Knockoff: The Deadly Trade in Counterfeit Goods Kogan Page, U.K. (2006)
- Wilson, Bee. Swindled: The Dark History of Food Fraud, from Poisoned Candy to Counterfeit Coffee, Princeton University Press (2008)
- Naitonal Food Safety and Toxicology Center, "The Counterfeit Food Scope and Threat - Seminar " Michigan State University