Is counterfeiting a real problem -- or a fake one?

Wednesday's Katpost on the first session of this year's IP and the Fashion Industry Conference (here), with its mention of the damage caused by counterfeit products, inspired Katfriend and IP-focused barrister Ashley Roughton (IP Counsel in Pillsbury's London office) to respond as follows:

A genuine fake ...?

Scott Farnsworth’s article (“High Price of Fake Goods”, The Times, January 2002) is one to read with interest. My fear is that there are many, with billing targets to achieve or positions to justify, who are talking up a problem the existence of which is uncertain and certainly the extent of which is extremely unclear. There are a number of important points to be made. But before I make them (and apologies for starting a sentence with 'But'), at every possible occasion I implore enforcement agencies and interest groups to provide reliable and concrete statistics and values of loss  -- in 25 years of practice my pleas are in vein.

First, over 15 years ago, along with other lawyers in the AIPPI, I looked into the whole question of the extent of loss which industry suffers as a result of the activities of counterfeiters. We ascertained that there were no reliable figures, they all being based upon subjective “estimates” made by the industries themselves.

Secondly, the level of seizures by trading standards authorities is no guide. Trading standards authorities seize goods for a variety of reasons and pursuant to a diverse number of powers. Some, but by no means all, of those seizures relate to counterfeit goods.

Thirdly, there is a world of difference between what Trading Standards Authorities (TSAs) determine as counterfeit and what the courts recognise as counterfeit (indeed there is in fact no domestic legal definition of what constitutes counterfeit goods). Further, there is no record of how many of those seizures resulted in cautions, convictions or pleas of guilty before the courts. Even then it is not clear how many are well- and how many are badly-advised and how many defendants pleaded or accepted a caution because they wanted the thing out of the way -- a powerful factor.

Fourthly, the figures relating to loss due to counterfeiting should be discounted by the gain in producer surpluses (at the expense of consumer surpluses) by reason of the benefit of international price discrimination which European industries derive as a result of the artificial market partition created by the Trade Marks Directive and as confirmed by the Court of Justice of the European Union in the Silhouhette case. There is no objective justification for this policy and, as such, it is a benefit which industry should not be credited with.

Fifthly, the maximum penalty for counterfeiting is 10 years imprisonment, three years more than for theft. This tends to make the determined counterfeiter (for whom I have no sympathy) even more circumspect in his activities. More importantly, if the quoted figures are correct (which I doubt), it is clear that the term of 10 years imprisonment is no deterrent -- so why have it?

Sixthly, to an extent industry only has itself to blame.  It has a lamentable record in assisting honest traders in determining whether goods which they have come by, quite innocently, are counterfeit and should not be sold. If industry were serious about counterfeiting then it would provide a quick, reliable and cheap means of certifying goods as genuine. Apart possibly from one company (which I do not mention by name) I do not know of any company which offers such a service.

Seventhly, when the time came for industry to make its representations to Parliament concerning the Trade Marks Bill in relation to counterfeiting, few if any representations were made by brand owners and, in any event, the Government of the day gave them, such as they were, little credence, preferring instead to concentrate instead upon the comments of retailers (who, by and large at that time at least, owned no trade marks).

Eighthly, there is a need for continuity in how TSAs work. I have come across many cases where one TSA in one area of England has passed goods as genuine only for that trader to be prosecuted in another area of England by a different authority for selling those self-same goods. If traders are to respect the policing role of TSAs, then decisions made by one department ought to be binding on the others.

Usually the argument then goes on to speak of lost revenues to society by way of lost taxes and lost foreign investment. As far as lost taxes are concerned, this is mere suggestion. There is no evidence that generally people who are otherwise engaged in counterfeiting activities do not pay their taxes. It is true that the Anti-Counterfeiting Group in its evidence to the House of Commons select committee on Trade and Industry in 1999 (HC 380) estimated that about £1 billion of value added tax is lost to the treasury, but no evidence was provided by it as to how it arrived at that figure. In relation to lost foreign investment this again, is supposition.

"Well, it looked okay
and tasted fine ..."

Further, it is wrong to confuse issues of health and safety with issues of counterfeiting and it is also wrong to say that a counterfeit product is necessarily unsafe or unhealthy. Although I only have my own experience to go by, it has inevitably been the case that quality, health or safety issues in counterfeiting cases evaporate by the time the case gets to trial. I readily concede that there have been cases where there have been quality, health or safety issues -- but there is a specific body of (non counterfeiting) legislation which deals with this, and effectively so.

That counterfeiting is an activity which happens is not in doubt; but that it is as serious a problem as many make out is to be doubted. It should be remembered that industry is against counterfeiting not out of some altruistic desire to help consumers but to protect, if not bolster, its profits. This is no bad thing as such because rich companies are good for the economy and thus welfare is enhanced. However there is a real danger that, by highlighting the dangers of counterfeiting, too much attention will be paid to strengthening brands in their own right as opposed to improving the quality of goods and services on the market and the efficiency of their production and distribution. The overall social advantages of the letter far outweigh those of the former.

The IPKat is left a little speechless by all this.  He agrees that it is important to act upon evidence, to legislate against actual wrongs rather than hypothetical threats and to commit public and private resources where they are most needed and most effective.  However, in his innocence he thought that the case for counterfeiters being a serious and credible threat to the well-being of the consumer, to market confidence and to our long-accepted standards of morality had been established beyond doubt and that, even if it hasn't, the case for accepting it is stronger than any case for dismissing it.  Merpel says, can this mean that there is a real need for OHIM's European Observatory after all?

Readers' responses are warmly welcomed, as ever.

The Real McCoy here
The Fake McCoy here
Real Madrid here
Fake Madrid here