"If there is a demand for it, there is someone who will find a way to fake it."

Counterfeiters are great business people, Peter N. Fowler will attest. Apart from their keen sense of what sells, they cleverly diversify their investments and expand their markets. They can make just about anything.

At a meeting of the APEC Intellectual Property Experts' Group held earlier this year, Fowler, a Senior Counsel at the United States Office of Intellectual Property Policy and Enforcement, explained that in spite of their extraordinary business acumen, the products distributed by counterfeiters can be dangerous and even deadly:

"...batteries that explode, smoke detectors that don't detect smoke, condoms that don't work, baby clothes that are not flame-resistant, food products that are contaminated... The United States Food and Drug Administration and the Federal Bureau of Investigations even seized a shipment of counterfeit - and defective - heart valves!"

Phoney over-the-counter pharmaceuticals are another popular product often containing more than, less than or none of the active ingredients cited on their labels. This is particularly dangerous as consumers fail to receive the medication they require or are unwittingly overdosing.

"People may not even see the connection between the products they consume and the impact on their health," he says. "So there are no real statistics to indicate the number of deaths caused by the inefficiency or contamination of counterfeit products. But it is safe to guess that it is somewhere in the millions."

The reason why counterfeiting and piracy is such huge business is because it's such huge business. Profit margins are impressive at 100-200 percent for something like coffee, larger for high-risk products like marijuana and cocaine and, notably, best for DVDs which see returns of up to 1400 percent.

In fact, pirating DVDs looks a lot like a perfect crime: governments are not as concerned about DVDs as they are about other illicit goods. With fewer resources allocated to sniffing out fake music and movies (than, say, to sniffing out cocaine), pirating intellectual property offers a high return with a low risk.

Add to that a lack of public outcry. Stealing a pile of money from a bank is widely conceded as criminal but stealing ideas is sometimes imbued with a sort of vigilantism. The argument that "Bill Gates can afford it" has led to a good number of guilt-free software instalments. But the bigger picture is not so harmless:

Counterfeiting and piracy damages legitimate businesses.
The existence of counterfeit goods damages the reputation of legitimate brands, and reduces overall sales. Even sharing music files, which is argued to have a positive impact on album sales by relatively unknown artists, has such a negative impact on well-known artists that the overall result is still negative.1

Supporting counterfeiters and pirates gives rise to other crimes.
"We're not talking about a guy running a little counterfeit business from his basement," explains Fowler. "We're talking about global networks - violent criminal organisations." Counterfeiters and pirates are like any good business people: they diversify their investments and one profit-making arm of the business supports another. Intellectual property crime goes hand-in-hand with credit card theft, human trafficking, dumping of hazardous waste, food contamination, exploitation and even slavery. There is no such thing as a "harmless" copy: purchasing fake goods is counterproductive, strengthening the criminal activities that harm people and societies.

Developing economies are more likely to be affected.
For those segments of society who are able to shop at established international chains or who have access to doctors who can oversee the dispensing of prescribed drugs, exposure to fake goods may be relatively low. For those whose consumer experience is limited to smaller, less established or even unlicensed businesses, the risk is more significant. According to the World Health Organisation:2

"In most industrialised [economies] with effective regulatory systems and market control, incidence of counterfeit medicines is extremely low - less than 1 percent of market value according to the estimates of those concerned. But in [economies] in transition, a much higher percentage of the medicines on sale may be counterfeit. Not only is there a huge variation between geographic regions in terms of incidence of counterfeit medicines, variation can also be significant within [economies]: for example, between urban and rural areas, and between cities."

Criminal groups eventually permeate legitimate markets.
Potentially fooled by look-alike labels, ostensibly parallel market goods and convoluted shipping routes, it is possible for illegitimate goods to be passed on to the consumer via legitimate businesses. By supporting intellectual property theft, consumers increase the chances that they will, at some point, accidentally purchase counterfeit goods. According to Fowler, consumers put disproportionate faith in the common supply chain of distributor, government and public health. For small and locally-based businesses, which lack the international support network, it is even more difficult to distinguish fake from legitimate goods.

In the right hands, intellectual property is a hot commodity.

In 2009, as APEC Leaders considered strategies for new growth, the group was unanimous in recognising that, in the post-crisis landscape, economic potential will be best expanded through knowledge. If wealth was once correlated to tangibles like natural resources or means of production; new growth extends to non-tangibles like ideas and innovation.

According to UNCTAD, "creative industries are among the most dynamic sectors in world trade. Over the period 2000-2005, international trade in creative goods and services experienced an unprecedented average annual growth rate of 8.7 percent. The value of world exports of creative goods and services reached USD 424.4 billion in 2005, representing 3.4 percent of total world trade."3

Addressing delegates at a recent APEC workshop discussing the significance of global value chains, Dr. Timothy Sturgeon of the Massachusetts Institute of Technology explained that, for businesses, knowledge-based growth effectively levels the playing field: you don't need to be based in the biggest economy or even an industrialised one to have an idea that is valued by others.

."...some developing countries, mainly in Asia, have started benefiting from the dynamism of the global creative economy and are putting in place tailored cross-cutting policies to enhance their creative industries. China, which is leading this process, became the world's leading producer and exporter of value-added creative products in 2005."4

In fact say experts, owning ideas - more than owning raw goods or manufacturing - will determine which economies prosper amid globalisation. "Apple's ability to create products that people want allows them to extract a huge chunk of the pie," says Sturgeon, even though the majority of parts and manufacture are derived from other economies.

Observing the growing importance of ideas - not to mention the increasingly virtual nature of the global market place - APEC Ministers Responsible for Trade endorsed the APEC Anti-Counterfeiting and Piracy Initiative in 2005. The initiative is a way for members to galvanise efforts to decrease counterfeit and pirated goods trade and combat transnational networks that produce and distribute these items.

In order to achieve this goal, the Intellectual Property Experts' Group (IPEG) has established a series of Intellectual Rights Protection Model Guidelines to reduce trade in counterfeit, pirated and copied goods - including sale via the internet or smuggling through existing supply chains.

Many APEC economies have had notable success through enhancing border enforcement by customs officials and blocking the entry of counterfeit and pirated goods from entering the domestic marketplace while also enhancing legal frameworks and strengthening law enforcement agencies to crack down on organised criminal activity (which is often funded by the distribution of illegal IP goods).

In this respect, the sharing of knowledge and best-practices among economies is critical. Explains Fowler, "IP pirates and counterfeiters - like those involved in any immensely profitable illegal operation - move to the most fertile ground for profit and the enforcement environment which is least threatening and there has been evidence of some criminal migration." It underscores the transnational nature of criminal activity and also points to the importance of regional cooperation on law enforcement.

The evolution of technology, the facilitation of business and the improvement of transportation infrastructure also contributes to the proliferation of opportunities for intellectual property theft and the distribution of counterfeit goods. Fowler points out that progress is a double-edged sword: what is good for legitimate businesses is just as good for illegitimate ones.

The good news is that the converse is also true: better communication infrastructure enables education and awareness-raising, and new technologies facilitate greater cross-border collaboration.

That's why IPEG promotes public awareness campaigns. Many consumers simply do not realise that their purchase decisions can have such far-reaching and even dangerous effects. Similarly, many small and medium-sized business owners are not aware of their own rights to intellectual property protection. Fowler explains that an educated, proactive public is a critical preventative measure:

"It is clearly better and more cost-effective to try to prevent the manufacturing and distribution of counterfeit and pirated goods, and to reserve the application of criminal law enforcement for the most egregious and dangerous cases of commercial-scale piracy and counterfeiting."

Last year, IP Xpedite - an e-learning programme - provided intellectual property rights training to 466 participants from across the APEC region. Similar programmes with additional e-learning content are now being developed and many economies have embarked on domestic awareness campaigns via their local media.

By promoting regional cooperation in these areas, APEC and the Intellectual Property Experts' Group are paving the way towards stronger protection and enforcement of intellectual property rights across the Asia-Pacific.

 

  1. D. Blackburn, "Online Piracy & Recorded Music Sales" (Thesis, Harvard University, 2004), http://www.scribd.com/doc/319922/blackburn-fs
  2. World Health Organisation, "Medicines: Counterfeit Medicines, Fact Sheet 275, January 2010," World Health Organisation Media Centre, http://www.who.int/mediacentre/factsheets/fs275/en/index.html
  3. United Nations Conference on Trade and Development (UNCTAD), "Creative Economy Report 2008. The Challenge of Assessing the Creative Economy: Towards Informed Policy-Making," http://www.unctad.org/en/docs/ditc20082cer_en.pdf
  4. UNCTAD, "Creative Economy Report 2008."