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MUMBAI: Gieschen Consultancy has released the 2006 Mid-Year
Counterfeit and Piracy Intelligence Report derived from Bascap's
Daily Counterfeit and Piracy Intelligence Report statistics
compiled over the first half of 2006.
This focusses on intellectual property theft, citing major
links to illegal activity, the Internet, and brands.
Entertainment, software are the most heavily counterfeited
sectors. The US, UK, India, Malaysia and China top the list
of countries that have the most intellectual property violations.
Over the first six months of 2006 a total value of $699.3
million of counterfeit and pirated goods, specifically intellectual
property theft, was discovered from 760 incidents in 69 countries.
Louis Vuitton, Nike, Microsoft, Gucci and Prada are the brands
that are counterfeited the most. Pepsi is the most counterfeited
brand in the food category.
Glen Gieschen says, "This activity has major implications
upon job creation and sustainability, consumer health, safety
and security, and is driving serious criminal activity into
this seemingly innocent crime. The greatest misconception
about counterfeiting is that the impact is negligible, however
the truth is far different.
"Consumers who are unaware they are purchasing fake
products and those who are actively seeking them have consumed
adulterated drugs and died, installed fake products in their
vehicles which reduce its life or cause bodily injury when
they malfunction. We have documented an endless number of
instances where these bogus items result in serious problems,
large and small for consumers.
"Recently, counterfeit airline parts were discovered
in Russia which, as a passenger, is a concern. When seizures
are made of bootleg music, software, and films, it is becoming
a frequent occurrence to discover illegal drugs and weapons.
In some cases, phony items are sold by illegal immigrants
to support their families and fund causes in their homelands.
When you purchase these items, you have no idea of the type
of people you are supporting, where these funds are going
and for what purpose."
The top 5 (of 69) countries enforcing intellectual property
violations:
1. USA, 205 incidents, $51.7 Million seizures & losses
2 UK, 116 incidents, $31.1 Million
3. India, 87 incidents, $2.5 Million
4. Malaysia, 52 incidents, $5.9 Million
5. China, 43 incidents, $5.3 Million
The report also analyses the use of the Internet in networking
and organising the activity of counterfeiters in addition
to providing unregulated and competitive advantages which
legitimate businesses are unable to use through trade boards,
spam, auctions and cyber outlets.
The most heavily counterfeited sectors:
1. Entertainment and Software, 383 incidents, valued at $256
Million
2. Clothing and Accessories, 149 incidents, $69 Million
3. Drugs and Medical, 44 incidents. $15.8 Million
4. Food and Alcohol, 40 incidents, $1.7 Million
5. Cigarettes and Tobacco Products, 37 incidents, $276 Million
The reports conclusions are based on data obtained from actual
counterfeit and piracy activity.
- Countries, such as China and Russia, export more counterfeit
goods than they seize domestically.
- The US and UK are more effective at enforcing intellectual
property rights than other countries.
- Five per cent of all intellectual property theft is linked
to other serious criminal activity such as drugs, thefts,
and weapons offences.
- Counterfeiters are now cross selling different brands with
different types of fake goods and in some cases are dealing
illicit items with the counterfeits.
- 14 per cent of counterfeit investigations now involve the
use of the Internet.
- The Internet is being used by all types of counterfeiters
to network and organise their activity.
- Trademark and copyright goods are counterfeited in nearly
equal proportions.
The Bascap Intelligence Reports show that the Internet has
been used as marketing tool in one of every seven reported
investigations. A significant percentage of spam and junk
email is attributable to internet vendors peddling everything
from counterfeit drugs and watches to clothing, jewelry, software
and pens. Manufacturers of fakes are using the Internet to
market directly to consumers, retailers, and distributors
through trade boards, auction sites, spam, and cyber outlets.
The shift from physical marketing to cyber marketing of fake
products is due to a number of factors. The Internet is a
vast and growing consumer and business market in all economies.
Websites can be set up in minutes, at a minimal cost, with
the use of a credit card and require only basic computer skills
to design and publish. Moreover, tracing the physical location
of a counterfeiter through a website can be extremely difficult.
Some counterfeiters are able to gain a competitive advantage
over legitimate businesspeople by using Internet marketing
methods that may be illegal or that most manufacturers or
retailers would not wish to use. For example, the use of spam,
online auctions, or trade boards may dilute a brand's value
and pose legal, technical, and ethical challenges for many
legitimate brand owners.
The top 5 (of 357) items counterfeited:
1. Films, 13.3 per cent of items counterfeited
2. Music, 7.5 per cent
3. Software (Business and Games), 6.1 per cent
4. Medicine, 4.3 per cent
5. Handbags, 2.1 per cent
In reviewing the top counterfeited items reported in the
Bascap Intelligence Reports, it becomes evident that copyrighted
(51.3 per cent) and trademarked (48.7 per cent) products are
being infringed in nearly equal numbers. The variety of reported
items suggests that counterfeiters are diversifying into a
larger range of goods and industries, which phenomenon is
regularly demonstrated when a wide mix of products is seized
in raids on a single site.
Cross selling of different items and brands is also becoming
a standard practice as fake Viagra is sold with cigarettes,
CDs with handbags, and perfume with watches. In a small, but
growing, trend, knockoffs are being sold with other illegal
goods such as illicit drugs, fake identification and counterfeit
currency.
The growth of the popularity as a distribution channel for
counterfeit and pirated goods notwithstanding, reports indicate
that traditional channels and mobile operations are still
a significant problem for brands. A large percentage of retail
operations are now set up in homes to minimise detection of
mail order, product assembly, copying, warehousing and distribution
operations. Mobile operations such as street vendors, flea
markets, bazaars, auctions, and boot sales remain strong due
to the large numbers of consumers attracted to discounted
items and bootleg goods.
Intelligence also suggests that counterfeiters are experts
at building upon existing brand marketing, thus saving themselves
the cost of creating and testing consumer segments, setting
up distribution channels, and advertising. For these reasons,
it is not surprising that the leading brands counterfeited
in each classification are well-known global brands. A notable
case study is the Fifa World Cup 2006 which serves as an example
of how counterfeiters implement this strategy.
Unlike brands whose images have been developed over dozens
of years, the World Cup was promoted by organisers and sponsors
in a relatively short period of time. Counterfeiters anticipated
key markets, manufactured and warehoused knockoffs well in
advance of the consumer demand, and then began attempting
to distribute them as soon as the brand image was created
by the World Cup organisers.
The top 5 (of 392) brands counterfeited:
1. Louis Vuitton, 5.2 per cent of incidents.
2. Nike, 4.9 per cent
3. Microsoft, 4.7 per cent
4 Gucci, 3.8 per cent
5. Prada, 2.5 per cent
During this reporting period, 392 brands were imitated. The
majority of the 760 investigations focused on a number of
brands, of which the top five were compiled in Table 4. Noticeably,
Louis Vuitton, Gucci and Prada represent luxury products where
supplies are limited and prices reflect the exclusivity of
the brand. Counterfeiters are successfully moving large quantities
of these products for a number of reasons. This exclusivity
includes substantial marketing and retail costs, which translate
into high prices that are easily avoided by counterfeiters.
The counterfeiters are able also to manipulate product quality
and thus lower the cost of copying the products. The result
is a substantial undercut in price of between 50 - 75 per
cent from the suggested retail price. Regardless of these
deeply discounted prices, it is common to find hundreds of
percentage points in profit margins on these knockoffs, thus
making it an attractive market to enter.
The top brands counterfeited in each category:
Cigarette and Tobacco Products - Marlboro
Clothing and Accessories - Louis Vuitton
Computer Equipment and Supplies - Canon
Drugs and Medical - Viagra
Electronic Equipment and Supplies - Underwriters Laboratories
Entertainment and Software - Microsoft
Food and Alcohol - Pepsi
Industrial Goods and Supplies - Toyota
Jewelry and Watches - Rolex
Perfume and Cosmetics - Giorgio Armani
Toys and Sports Equipment - Fifa World Cup 2006
Non-luxury goods, such as those produced by Nike, fight
the challenge of popularity as opposed to exclusivity. Due
to the high consumer demand for some brands, counterfeiters
are able to sell large quantities at the full retail or modestly
discounted prices. Again, quality is controlled by the counterfeiter
to reduce costs and increase profit margins. Perhaps the highest-margin
knockoff product is software. While hundreds of percentage
points in profit appears adequate to counterfeiters and pirates
for many phony products, margins in pirated software are in
the thousands of percentage points.
The 392 brands analysed for this report represent a significant
portion of the portfolio of consumer products available worldwide
and a significant percentage of international trade. Moreover,
the production and distribution of these brands provide millions
of jobs – many of which are at risk to growing competition
from illegal markets distributing fake versions of the original
products. In controlling the cost of production and thus the
quality of fake products, counterfeiters may put consumer
health and safety at risk and undermine the confidence placed
in these brands.
A number of factors affect sectors differently. Sales of
fake Clothing and Accessories are influenced by a large variety
of selling schemes, such as street peddlers, flea market vendors,
bazaars, purse parties, internet auctions and discount outlets.
The Entertainment and Software industries are vulnerable to
Internet file-sharing technology and simple computer manufacturing
techniques available to most consumers.
The Drugs and Medical, Food and Alcohol, and Cigarettes and
Tobacco sectors are subject to regulatory and health restrictions
such as mandatory age limits, verification of prescriptions,
and expiry of goods. In addition, added taxes levied on these
products provide incentives for counterfeiters to enter these
markets and infiltrate supply chains.
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