Trevor Little

New research conducted by the EUIPO and International Telecommunication Union (ITU) has revealed that an estimated €45.3 billion ($52 billion) in revenue is lost annually to counterfeit trade in smartphones. Alarmingly for those in the sector, over a third of this revenue is lost in one country, China.

Following the 2013 publication of the European Commission’s study into the economic impact of IP across the EU, carried out by the EUIPO and the European Patent Office, there has been a series of sectorial reports quantifying the economic impact of counterfeiting in particular sectors. What makes the eleventh such study a little different is that the scope of the research extends beyond the EU to provide a worldwide picture, with 86 countries being considered. This stems from an agreement signed last year between the EUIPO and ITU to study the global economic impact of intellectual property infringement in smartphones. So while a similar methodology to the previous studies is adopted, there were some adjustments made to enable the incorporation of different data sources.

We have addressed methodologies for such studies in previous blogs so won’t delve into that for the purposes of this blog. As the report itself acknowledges, there are real challenges in efforts to “shed light on a phenomenon that by its very nature is not directly observable”. To that end, the report takes a transparent approach – over a quarter of its 40 pages are dedicated to an explanation of the methodology – and assumptions – adopted.

Worldwide, then, the report found that the effect of counterfeiting on smartphone sales is estimated at 184 million units, valued at €45.3 billion, or 12.9% of total sales. As a percentage, in the EU the percentage figure is slightly lower (8.3%) but – with 14 million fewer smartphones sold by the legitimate industry across the EU than would have been the case in the absence of counterfeiting (in 2015) – this still equates to €4.2 billion in lost revenue. North America had the lowest percentage of lost sales at 7.6%.

While the EU and North America registered below the average, Africa was worst hit, with 21% of total sales lost to counterfeiting. Despite this, the €1.02 billion in lost sales in Africa was the smallest of the regions outlined in the table below (one reason for this being that – in the nine African countries studied – the unit price for smartphones was amongst the lowest across the 86 countries):

Region/country

Lost sales (€ million)

Lost %

European Union

4,212.2

8.3%

Other European Countries

1,207.0

12.9%

CIS

1,122.9

20.3%

Asia-Pacific

7,166.6

11.8*

ASEAN

2,674.9

16.9%

Arab States

1,975.7

17.4%

Africa

1,024.9

21.3%

Latin America

4,706.5

19.6%

North America

4,927.2

7.6%

China

16,335.8

15.6%

Total

45,353.8

12.9%


What will immediately grab the attention of those in the sector are the figures related to China. Of the €45.3 billion in lost sales globally, over a third are in China alone.

In 2015, the year that the data was drawn from, 1.3 billion smartphones were sold worldwide. China, which boasts 20% of the world population and a smartphones penetration of 65 connections per 100 inhabitants, is the leading market with 30% of smartphones sold (385 million units). In fact, in 2015, total sales of smartphones in China, in Euro terms, exceeded that of the European Union, Latin America, Africa, ASEAN and the Commonwealth of Independent States combined.

As companies operating in the sector eye further growth in this key market, the research provides a sobering assessment of the challenge they face in clawing back revenues currently lost to infringers.

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