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Monday, 28 October 2013

Is counterfeiting a real problem or a fake one? A response

A week and a half ago, experienced IP barrister Ashley Roughton posed the question "Is counterfeiting a real problem -- or a fake one?" (here). While very few comments were posted by readers, this Kat received a number of emails from people who felt that some sort of response was called for. One such response has been received by Roy Crozier, a partner in the Manchester office of Clarke Willmott LLP. This is what Roy writes:

ICC estimates that counterfeits
account for 5 to 7% of world trade
"No one can seriously doubt that counterfeiting is a major issue for some brands, though it tends to be premium brands in certain industries such as the wider fashion industry (in which I would include perfumery and in-demand electrical products) which face the greatest impact. While reliable figures on the extent of the trade in counterfeit goods are hard to come by, the figure is generally put at somewhere between 5-10% of world trade – for example the International Chamber of Commerce puts the figure at 5-7%. Indeed the EU reports that the number of products seized at the EU border in 2012 was 40 million units (see Report on EU customs enforcement of IPR – 2012). Given that most consignments are not detected (I know this from both liaising with Customs Officers and from cases which I have worked on) this demonstrates the scale of the issue. Indeed, in raids in Manchester last week on various premises 50 tonnes of counterfeit goods were seized, as well as drugs and firearms.

I work with a number of brands which are regularly notified by Customs across Europe of the detention of large consignments of suspected counterfeit goods. One seizure this week was of products which, if genuine, would retail for around £600,000 but would probably have been sold for nearer £100,000. Further, we deal with very large numbers of enquiries from the police and other enforcement agencies about seizures of suspected counterfeit products. Added to this  are daily reports which brands can obtain, from agencies such as MarkMonitor, of large numbers of specific identified traders on eBay, other marketplace and social media sites selling counterfeit products and it is clear to such brands that the problems which they face are not illusory. In some rare cases the scale of the issue is such that retailers are reluctant to stock the genuine product due to the proliferation of poor quality counterfeit items being sold at a fraction of price of the genuine item – in simple terms, the retailers do not think they can compete with traders selling counterfeit versions of the product.

The issue of the safety of counterfeit goods is an interesting one. Certain types of counterfeit goods clearly pose a safety concern such as pharmaceutical and electrical goods. Indeed I have seen test reports on numerous counterfeit products (in particular electrical products) and, while many pose no safety issue whatsoever, others -- for example electrical products containing counterfeit and poorly made fuses -- do. As such, I do not think that we should be dismissive of the safety issue.

Similarly, the question of whether brand owners should “vet” products for traders is one which is often debated. Aside from the issue of who should pay for this service, I have been involved in several cases where the letters of authentication from a brand have been adapted and used by traders to offload counterfeit consignments both in the UK and internationally, and even to try to prop up a defence under the criminal aspects of the Trade Marks Act 1994. It is a classic “switcheroo” of having genuine product vetted and authenticated and then replacing it with several consignments of counterfeit product validated by the same letter. Colleagues who have acted in validating “grey” market goods on behalf of High Street value retailers can attest to the frequency with which such so-called letters of validation are recycled when traders are seeking to prove a legitimate chain of title to genuine goods placed on the market with the brand-holder’s consent.

The question of the Trading Standards Authorities (TSAs) authenticating product also poses problems. TSAs have a multitude of duties outside of dealing with the sale of counterfeit goods. This is in an era of great strain on their budgets. Good training on behalf of brand owners will assist TSAs in deciding whether or products being offered for sale are suspicious. Once suspicions are aroused, the best course of action for any TSA is to ask the brand owner itself to confirm whether they believe the products to be genuine. This is what regularly happens and brand owners who provide prompt and efficient support to TSAs reap the benefit of doing so.

On the issue of taxes, at the higher end of the counterfeiting trade are sophisticated criminals who will often use a number of front companies to import and distribute counterfeit goods. Often these companies fail to submit accounts to Companies House and are struck off. I have my doubts that those with a cavalier attitude to the criminal law would be interested in ensuring their tax affairs are in order -- and that is certainly my understanding from speaking to law enforcement on the issue and working alongside them in investigations".
Well, wonders the IPKat, whose reality is the more real -- Ashley's or Roy's? as before, readers' comments and responses are warmly welcomed.


Anonymous said...

I am no expert on counterfeited goods, but I was surprised to read the claim that 5 – 7 % of world trade consist of counterfeited goods, according to the International Chamber of Commerce. In a report titled "Observations on Efforts to Quantify the Economic Effects of Counterfeit and Pirated Goods" (2012), the United States Government Accountability Office (GAO) concludes that there is absolutely no factual basis for this estimate, although it has been widely circulated. GAO suggests that the 2 % estimate made by OECD is much closer to truth. At least this shows that there is a real lack of reliable data here.

IPmouse said...

The industry always promotes the highest possible "estimate" of the extent of counterfeiting. And it is in the political interests of those in enforcement to do the same.

For GB retail spending in August 2013, for every pound spent in the retail industry:
• 42 pence was spent in food stores;
• 41 pence in non-food stores;
• 6 pence in non-store retailing; and
• 11 pence in stores selling automotive fuel.

[SOURCE: ONS Statistical Bulletin 13 Sept 2013 - Retail Sales, August 2013 ]

That does not allow much scope for the simply unbelievable 5-7% of retail trade in GB being in counterfeit goods. It would be pretty easy to find counterfeits in stores if that were the scale.

Anonymous said...

The figures are not for GB retail trade but for world trade. In reality no-one knows with precision but the trade will be higher in some countries than others as anyone who has been on a trip to China, Thailand or Turkey etc will be able to testify.

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