Counterfeit consumer goods

Counterfeit consumer goods (knock-offs in colloquial language) are by legal definition goods infringing the rights of a trade mark holder by displaying a trade mark which is either identical to a protected trade mark or by using an identification mark which "cannot be distinguished in its essential aspects from such trade mark, and which thereby infringes the rights of the holder of the trade mark."^[1]

At a practical level, counterfeit goods are typically of inferior quality, not subject to corporate quality control or government safety standards. While these may include nothing worse than shoddy Lululemon or Nike knockoffs, in many cases, fake consumer goods have proven to be unsafe, if not outright deadly. The counterfeit market has expanded into areas in which a reasonable person would most expect to be able to rely on some standard of quality. Counterfeit cancer drugs,^[2] HIV medications,^[3] antimalarial drugs,^[4] vehicle airbags,^[5] baby formula,^[6] cosmetics,^[7] consumer electronics^[8] and food products ^[9] have all resulted in fatalities in recent years. Both sponsored^[10] and independent news aggregators^[11] monitor ongoing developments in counterfeit consumer goods.

The range of counterfeited consumer goods is immense.^[12] Besides numerous small items such as watches, purses, cigarettes, movies and software, larger items such as cars and motorcycles are also being knocked off, including Porsches and Ferraris. There is a rapidly growing trade in counterfeit computer parts, with some fakes discovered inadvertently in use by NASA, the U.S. Navy^[13] and the U.S. Army, which alone estimates that the growth in counterfeit electronics has more than doubled between 2005 and 2008.^[14] There are several causes for this increase, including that more of the world's manufacturing is being transferred to developing nations, the growth in Internet e-commerce sales, and the fact that consumers hit by the recession will seek out lower-cost items.^[14]

The spread of counterfeit goods has become global in recent years. According to the Counterfeiting Intelligence Bureau (CIB) of the International Chamber of Commerce (ICC), counterfeit goods make up 5 to 7% of world trade.^[15] 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,^[16] and around $250 billion in 2007.^[14][17] 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.^[14]

Revenues from the counterfeit market feed back into a variety of criminal and terrorist organizations.^[18] Illicit cigarettes are a vivid example of the multi-pronged threat of counterfeiting, providing hundreds of millions of dollars per year to entities such as Hamas, Hezbollah, al-Qaida, Islamic Jihad and the PKK,^[19] counterfeit cigarettes cost taxpayers in every nation billions in lost revenues while foisting on an unsuspecting public a product found to contain things like human excrement, asbestos and dead flies.^[20] The harm arising from this amalgam of contaminants sits on top of any baseline hazard ascribed to commercial tobacco products.

The United States faces the most economic impact, being the world's largest consumer nation.^[21][21] 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. In 2007, it estimated 750,000 jobs had been lost in the U.S. alone due to counterfeiting.^[22] 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.^[23]

Counterfeiters use the reputation of a trademark, which brand manufacturers have built up on the basis of the quality of their products, to fool consumers about the true origin and quality of the goods.

—German Customs– Official Homepage ^[24]

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.”^[25] 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.”^[25] According to the U.S. Chamber of Commerce, for every $1 invested in fighting against counterfeits, the country gains $5 in extra tax revenue.^[14] Counterfeited spareparts (speaking for example of forged brake linings or safety valves) endanger road transport and general aviation as well as the associated industries.^[26] Counterfeit products are often produced in violation of basic human rights and child labor laws.^[27] As widely reported the profits support terrorist groups,^[28] drug cartels,^[29] people smugglers^[30] and street gangs.^[31] Crackdown on counterfeit goods is thus not only a matter of job security for various countries, but one of national and international security.

Types

General description

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, trade marks and trade names. In many cases, different types of those infringements can often overlap: Music piracy mostly infringes copyright as well as trade marks; 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.^[32]

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.^[32]

Apparel and accessories

Counterfeit clothes, shoes, jewelry 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 does not 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. International tourists visiting Beijing, China, will find a wide selection of counterfeit designer brand garments at the infamous Silk Street. Expensive watches are vulnerable to counterfeiting. In Malaysia, Thailand, Vietnam and the Philippines, authentic looking but poor quality watch fakes with self-winding mechanisms and fully working movements can sell for as little as US $20 to good quality ones that sell for $100 and over. Also 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. Thailand has opened a Museum of Counterfeit Goods displaying over 4,000 different items, in 14 different categories, which violate trademarks, patents, or copyrights.^[33]

Wine

In China, counterfeit high-end wines are a growing beverage industry segment, where fakes are sold to Chinese consumers.^[34] Knock-off artists refill empty bottles from famous chateaux with inferior vintages. According to one source, "Upwardly mobile Chinese, eager to display their wealth and sophistication, have since developed a taste for imported wine along with other foreign luxuries." In China, wine consumption more than doubled since 2005, making China the seventh-largest market in the world.^[35] The methods used to dupe innocent consumers includes photocopying labels, creating different and phony chateaux names on the capsule and the label. Sometimes authentic bottles are used but another wine is added by using a syringe. The problem is so widespread in China, the U.S. and Europe, that auction house Christie's has begun smashing empty bottles with a hammer to prevent them from entering the black market. During one sale in 2008, a French vintner was "shocked to discover that '106 bottles out of 107' were fakes." According to one source, counterfeit French wines sold locally and abroad "could take on a much more serious amplitude in Asia because the market is developing at a dazzling speed." Vintners are either unable or hesitant to fight such counterfeiters: "There are no funds. Each lawsuit costs 500,000 euros," states one French vintner. In addition, some vintners, like product and food manufacturers, prefer to avoid any publicity regarding fakes to avoid injuring their brand names.^[36] Counterfeit wine is also found in the West; it is primarily a problem for collectors of rare wine, especially of pre-WWII French wines, as producers kept spotty records at the time. Famous examples of counterfeiting include the case of Hardy Rodenstock, who was involved with the so-called "Jefferson bottles,"^[37] and Rudy Kurniawan, who was indicted in March 2012 for attempting to sell faked bottles of La Tâche from Domaine de la Romanée-Conti and Clos St. Denis from Domaine Ponsot.^[38] In both cases, the victims of the fraud were high-end wine collectors, including Bill Koch, who sued both Rodenstock and Kurniawan over fake wines sold both at auction and privately.

Media

Compact Discs, videotapes and DVDs, computer software and other media that are easily copied can be counterfeited and sold through vendors at street markets,^[39] 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.^[40] 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 trade mark owners.^[41]

Medication

According to the U.S. FBI, the counterfeiting of pharmaceuticals accounts for an estimated $600 billion in global trade, and may be the "crime of the 21st century." They add that it "poses significant adverse health and economic consequences for individuals and corporations alike." The World Health Organization (WHO) estimates that over 30% of pharmaceuticals in developing countries are fake, stating that "Anyone, anywhere in the world, can come across medicines seemingly packaged in the right way but which do not contain the correct ingredients and, in the worst-case scenario, may be filled with highly toxic substances.”^[42][43] The U.S. Food and Drug Administration (FDA) describes counterfeit drugs as 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."^[44]

Experts estimate that counterfeit medications kill at least 700,000 people a year, mostly in undeveloped countries.^[23][45] According to The Economist, 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.^[23] 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, used to treat Alzheimers.^[46] 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.^[47] The Philippine Department of Health has found that 10% of drugs sold in their country were counterfeit.^[48] In 2005, counterfeit pharmaceuticals affected less than one percent in developed countries, such as the U.S. , Australia, and countries within the EU, with the problem 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."^[47] According to the World Health Organization (WHO), by 2006 developing countries had a counterfeit prevalence of 10-30 per cent or higher.^[47]

Food

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:

U.S.

• 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.^[49]
• 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.^[49] 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.^[50]
• French cognac was discovered to have been adulterated with brandy, and their honey was mixed with cheaper sugars, such as high-fructose corn syrup.^[49]
• 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.^[49] 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.^[50]

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. "^[49]

Europe

Food counterfeiting and piracy is a serious threat in Europe, especially for countries with a high number of trademark products such as Italy. In 2005, EU customs seized more than 75 million counterfeited and pirated goods, including foods, medicines and other goods, partly due to internet sales. More than 5 million counterfeit food-related items, including drinks and alcohol products were seized. According to the EU's taxation and customs commissioner, "A secret wave of dangerous fakes is threatening the people in Europe."^[51]

Cigarettes

British undercover detectives have found that counterfeited cigarettes frequently contain human excrement, asbestos, mold and dead flies.^[52] With the sales of illicit cigarettes in Turkey exceeding 16.2 billion cigarettes per year, Turkish Prime Minister Erdogan labeled counterfeit tobacco as "more dangerous than terrorism".^[53]

Corporations

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.^[54] A persistent 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.

Prisons

In China, an underground factory disguised as a prison which produced counterfeit cigarettes was uncovered by police in Sichuan.^[55]

Military items

According to a U.S. Senate committee report in 2012 and reported by ABC News, "counterfeit electronic parts from China are 'flooding' into critical U.S. military systems, including special operations helicopters and surveillance planes, and are putting the nation's troops at risk." The report notes that Chinese companies take discarded electronic parts from other nations, remove any identifying marks, wash and refurbish them, and then resell them as brand-new – "a practice that poses a significant risk to the performance of U.S. military systems.^[56][57]

Enforcement

U.S.

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.^[58] 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.”^[25] 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.^[59] Also in Europe, non-profit organizations such as the European Anti-Counterfeiting Network, fight the global trade in counterfeit goods.^[60] During a counterfeit 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 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.^[61]

For trade mark owners wishing to identify and prevent the importation of counterfeit goods, the U.S. Customs and Border Protection agency supports a supplemental registration of trade marks through their Intellectual Property Rights e-Recordation program.^[62] These registrations may be supported by brand manuals prepared by, or on behalf of, brand owners to facilitate the identification of counterfeit goods, including use as evidence by trade mark owners as evidence in obtaining court orders for the seizure of infringing merchandise.^[63]

From 2010 – 2012, the international organization Oceana had studied more than 1,200 samples of seafood from various retailers nationwide. Their investigations showed that 33 percent of these samples were mislabeled. With a rate of 87 percent, snapper had been the most frequently mislabeled fish type – followed by tuna with 57 percent.^[64] Another type of seafood fraud is the so-called short weighting. The weight of a fish is manipulated through overglazing (excessive ice) or soaking (using additives).

Stop Online Piracy Act (SOPA)

In October 2011, a bill was introduced entitled Stop Online Piracy Act (SOPA). If the bill had been passed, it would have expanded the ability of U.S. law enforcement and copyright holders to fight online trafficking in copyrighted intellectual property and counterfeit goods. The bill would have allowed the U.S. Department of Justice, as well as copyright holders, to seek court orders against websites accused of enabling or facilitating copyright infringement. Opponents of the bill stated that it could have crippled the internet through selective censorship and limiting free speech. In regards to the bill, the Obama administration stressed that "the important task of protecting intellectual property online must not threaten an open and innovative internet."^[65] The legislation was later withdrawn by its author, Rep. Lamar Smith."^[66]

International

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 to help protect intellectual property rights, especially costly copyright and trade mark theft. The signing took place a year after diligent negotiations among 11 governments: 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.^[67] Neither did China, a notoriously prolific producer of faked goods.^[68] Due to the latter, critics evaluated the agreement as insubstantial.^[69][70] In China counterfeiting is so deeply rooted that crackdowns on shops selling counterfeit cause public protests during which the authorities are derided as "bourgeois puppets of foreigners."^[71] Countries like Nigeria fight brand piracy on a national level but the penalties are dwarfed by the earnings outlook for counterfeiters: "As grievous as this crime is, which is even worse than armed robbery, the penalty is like a slap on the palm, the most ridiculous of which is a fine of 50,000 naira ($307). Any offender would gladly pay this fine and return to business the next day."^[72]

Internet Shopping Sites

Major internet shopping sites, such as Amazon.com, ebay.com, and Alibaba.com, provide complaint pages where listings of counterfeit goods can be reported. The reporter must show that it owns the intellectual property (e.g. trademark, patent, copyright) being presented on the counterfeit listings. The shopping site will then do an internal investigation and if it agrees, it will take the counterfeit listing down.^[73][74]

Anti-counterfeiting packaging

Packaging can be engineered to help reduce the risks of package pilferage or the theft and resale of products: Some package constructions are more resistant to pilferage and some have pilfer indicating seals. Counterfeit consumer goods, unauthorized sales (diversion), material substitution and tampering can all be reduced with these anti-counterfeiting technologies. Packages may include authentication seals and use security printing to help indicate that the package and contents are not counterfeit; these too are subject to counterfeiting. Packages also can include anti-theft devices, such as dye-packs, RFID tags, or electronic article surveillance^[75] tags that can be activated or detected by devices at exit points and require specialized tools to deactivate. Anti-counterfeiting technologies that can be used with packaging include:

• Taggant fingerprinting - uniquely coded microscopic materials that are verified from a database
• Encrypted micro-particles - unpredictably placed markings (numbers, layers and colors) not visible to the human eye
• Holograms - graphics printed on seals, patches, foils or labels and used at point of sale for visual verification
• Micro-printing - second line authentication often used on currencies
• Serialized barcodes
• UV printing - marks only visible under UV light
• Track and trace systems - use codes to link products to database tracking system
• Water indicators - become visible when contacted with water
• DNA tracking - genes embedded onto labels that can be traced
• Color shifting ink or film - visible marks that switch colors or texture when tilted
• Tamper evident seals and tapes - destructible or graphically verifiable at point of sale
• 2d barcodes - data codes that can be tracked

Counterfeit products

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  Counterfeit jerseys

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  Counterfeit jewelry

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  Counterfeit electronic chip

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  Counterfeit electrical cords

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  Counterfeit cosmetics

See also

• Anti-Counterfeiting Trade Agreement
• Authentication
• Copyright infringement
• Counterfeit electronic components
• Counterfeit medications
• Counterfeit money
• Counterfeit watch
• Goophone
• Intellectual property infringement in the People's Republic of China
• Knock Off
• Mockbuster
• Packaging and labelling
• Parallel import
• Reverse engineering
• Security printing
• Shanzhai
• Track and trace
• Trade dress
• Trademark infringement
• Game clone

Further reading

• Sara R. Ellis, Copyrighting Couture: An Examination of Fashion Design Protection and Why the DPPA and IDPPPA are a Step Towards the Solution to Counterfeit Chic, 78 Tenn. L. Rev. 163 (2010), available at http://ssrn.com/abstract=1735745.
• 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)

References

External links

Wikimedia Commons has media related to Counterfeit objects.

• National Food Safety and Toxicology Center The Counterfeit Food Scope and Threat Seminar at the Michigan State University
• Hidden Poisons in Counterfeit Medications Partnership For Safe Medicines
• French Customs against the scourge of counterfeiting French Customs Official Homepage (English)
• Why You Should Care About Counterfeiting The Anti-Counterfeiting Group (ACG) Campaigning Against the Trade in Fakes
• Ranking of Counterfeit Goods Havocscope database on counterfeit goods sold around the world
• Counterfeit Cosmetics, Fragrances - Hazardous to Your Health, FBI
• Food Fraud and “Economically Motivated Adulteration” of Food and Food Ingredients Congressional Research Service
• Fingerprinting food: current technologies for the detection of food adulteration and contamination