INFRINGEMENT OF IP RIGHTS: WHAT IS THE REAL DAMAGE?

On the occasion of the World AntiCounterfeiting Day, the European Union Intellectual Property Office (EUIPO) has published a Synthesis Report on IP Infringement this month. This Report contains valuable information on criminal activities against the IP community relating to the last five years and aims to inform the public about the important economic consequences of product infringement in the EU area.

                                                                                                       Source: EUIPO

I. Value of IP Rights (IPR)

The grave importance that counterfeiting has on the EU economy cannot be fully comprehended, without evaluating the growth of IPR-intensive industries first. According to the aforementioned Report, IP proves to be a lucrative business contributing to 42% of the total EU Gross Domestic Product (GDP), which roughly translates to a staggering € 6 trillion in 2016 only. In the same year, IP business employed 28% of the total EU employees, while offering them a 46% wage premium over employees of other business areas. Interesting enough, IPR- intensive industries have contributed to a decline in unemployment rates in countries like the Czech Republic and Hungary, which only joined the EU in 2004. What is also characteristic of the significance of IP in the economic field, is that the trademark intensive accounts for 35% of the total IPR-intensive Industries, since it is used for the identification of the products and services offered by companies. Besides, the contribution of the trademark in differentiating a business from their competitor is undeniably essential for a healthy free market economy.

II. The reasons behind IPR infringement and the role of the internet

IPR counterfeiting can be a prolific business for those engaging in these criminal activities, since the high amount of income that comes from related undertakings combined with lenient sentences offers a solid motive. The low production costs and the lower risk of detention are faces of the same coin. And here how it is done: Transporting a massive amount of products by the sea and then changing the transportation method through shipment via rail makes it hard for the authorities to keep a tab on the whole procedure. Bribery, document falsification, product re-labelling and factory over-runs are all considered effective measures in reinforcing those criminal ventures. A perfect example is counterfeiting pharmaceuticals, the sales of which can lead to $500.000 profit.

The role technological development plays is also decisive for the expansion of those activities. In the era of digitalization, the internet is a medium in which not only infringed products can be freely promoted and purchased, but also where pirated digital content (films, television shows, music) can be downloaded with mostly zero to minimum consequences. The internet’s impossible-to-control nature makes it a great playground for criminal gangs, which enjoy impunity for the most part. While investigating the benefits of illicit internet activity, among the 1.400 web pages that came under EUIPO’s scrutiny, 13% of them were Bit Torrent Portals (sharing pirate copies of films, TV shows, music and computer games), while 64% of them were not illegal per se, but were linking consumers to other illegal web sites.

III. Who is buying counterfeiting goods?

In other words, who is supporting all this criminal activity? Do people really need to buy products that are the result of illegal production methods? In surveys conducted by EUIPO, 10% of the people asked (all citizens of the EU), had purchased counterfeit goods and the same amount had illegally downloaded/streamed online content, notwithstanding the fact, that almost all of them are firm supporters of IPR protection. Naturally, most of them belong to the 15-24 age range, citing the affordable prices of the counterfeit products bought as a reason behind the purchase, while also maintaining the notion that most products they buy illegally are not available in the mainstream market. When it comes to illegal downloading and/or streaming, the typical respondent is -as the Report describes him- a young, educated, employed male, with good internet access, and who most probably resides in a large town.

IV. The financial (and other) consequences of counterfeiting

To put it simply: Everything is counterfeited. From laptops and computer software to shampoo and toothpaste, there is no limit to product piracy. High-risk sectors include foodstuffs, pharmaceuticals, perfumery & cosmetics, articles of leather and handbags, clothing & textile fabrics, footwear and jewellery among others.

That reflects to € 85 billion of total imports of counterfeit and pirated products into the EU alone in 2013, which make 5% of the total EU imports. China holds the sceptre of product piracy, since it illegally produces goods that belong to almost all of the aforementioned categories, with Hong Kong being the channel of their export to other parts of the world. India, Turkey and Thailand come next, with Turkey specializing in leather goods and cosmetics, while Thailand focuses on mobile phones and accessories, the latter of which surprisingly find a market in Germany. Direct lost sales due to counterfeiting amount to almost €60 billion per year and that also leads to a considerable annual loss of jobs (435.000). Moreover, a large company spends roughly €159 thousand battling infringement every year. Those financial losses are minor in comparison to the health and safety issues arising with the use of counterfeit goods as chemicals, cosmetics and pharmaceuticals, which can also be life threatening to the consumer.

V. Battling infringement

Terrorism, migrant smuggling and drug trafficking have all stolen the spotlight from battling IPR criminality. Nevertheless, EUIPO offers a few solutions towards that direction. With its Enforcement Database, it allows owners to keep in contact and provide information in regards of the goods they are selling, so that their counterfeits could be identified more easily from the authorities. Cross-border investigations in co-operation with Europol are to be intensified, since EUIPO is funding the organisation’s Intellectual Property Crime Coordination Centre, which provides training to law enforcement on IP criminality and also monitors the modus operandi of the individuals engaging in this kind of criminal activity. Europol, in turn, co-operates with Interpol on battling counterfeiting on an international level. Last, but definitely not least, the implementation of higher penalties will at least weaken the incentive for those criminal groups and discourage them from undertaking those financially harmful actions.

For more information and infographics please see:

https://euipo.europa.eu/tunnel-web/secure/webdav/guest/document_library/observatory/docs/Full%20Report/Full%20Synthesis%20Report%20EN.pdf