Global Innovation Policy Center

For the first time in nearly a decade, new statistics update our understanding of the global counterfeit threat. The results are frightening.  The Organization for Economic Cooperation and Development (OECD) finds that global sales of counterfeit or pirated products amounts to nearly half a trillion dollars annually, or two-and-a-half percent of global GDP. The study finds the problem is even more pronounced in regions such as the European Union, where counterfeit could amount to as much as five percent of all imports.  In other words, one in every 20 dollars Europeans spend on globally traded products is simply stolen—or worse.

The worse for consumers is this:

• The sunglasses you saved for broke—turns out they were a flimsy knock-off.
• You hit the brakes and slammed into the car in front of you—fake auto parts failed at a critical moment. Maybe your fake airbag exploded, too, sending shrapnel into your face and body instead of protecting you.
• You were excited to find a cheaper version of your prescription medicine at an online pharmacy, but it didn’t work—the active ingredient was missing, or, worse ye,t contained a toxic substitute that made you sicker.
• Identity theft emptied your 401K—the unlicensed software you found cheap online or the pirate website you guiltily frequent for free movies infected your computer. You may never know which one it was.

The worse for business is this:

• Lost sales to counterfeits have a direct impact on the brand owner’s market share and bottom line.
• Cheap counterfeits damage a company’s brand when customers mistake an inferior product for the real thing.
• Unknowing victims may complain about their purchases online, further harming the reputation of the blameless branded product.

The worse for government is this:

• Illicit trade is big business, providing a major source of revenue to transnational criminal organizations, including terrorist networks.
• Counterfeits pose numerous public health dangers that governments are ill-equipped to handle.
• The loss of tax revenue from legitimate commerce further diminishes public sector resources.
• Government prerogatives regarding taxation and regulation of commerce are pre-empted and circumvented.

The worst: Ultimately, the market system, including especially online commerce, which has enabled so many quality of life enhancements, breaks down because consumer trust in the market is irreparably compromised.

Counterfeit is a worsening problem. The last time the OECD issued these statistics using 2005, the dollar figure for global counterfeits was $200 billion; today, using 2013 data, the total has risen to $461 billion. The OECD found that counterfeit and pirated products plague virtually all economies and all continents. And unfortunately, the enforcement against such illicit trade is haphazard at best.

At the same time, the challenge of stopping counterfeits has become even more complex for global customs authorities.  The illicit trade is no longer concentrated by container load at large ports of entry.  Today, counterfeiters are exploiting the availability of international small package shipping.  Knock-offs have moved from a mostly wholesale to an increasingly retail business, exponentially exacerbating the tracking problem for border authorities.

And too often, those authorities lack the tools they need to carry out their enforcement responsibilities. On the U.S. Chamber’s International IP Index, measuring IP strength in key global markets, few of the economies measured provide adequate statutory authority for an effective enforcement deterrent to counterfeiters.  Among the gaps in countries’ intellectual property (IP) laws were a lack of pre-established civil damages and criminal penalties for infringement, or even the legal mechanisms for the IP rights holder to seek remedies.  At the most basic level, customs authorities often lack the authority to seize counterfeit goods at the border, even if officials have the specialized training needed to identify the fakes.  Beyond the legal mandate, authorities frequently lack the basic resources to fund enforcement efforts.

Thankfully, with its new global counterfeit data, the OECD has made it clearer than ever that the costs of counterfeiting and piracy are widespread and too steep to ignore.  We all—consumers, business, and government—have an interest and a role to play.  This World IP Day, April 26, let’s all pledge to do our part to shop carefully, collaborate productively, and enforce thoroughly to end the illicit trade in counterfeit products.

For more information on the business value and consumer protection provided by trademarks, please visit the GIPC’s Global Brand Council homepage.

ABOUT THE AUTHOR
Patrick Kilbride is Executive Director of International IP for the Global Intellectual Property Center.