Supply and demand: the need for a comprehensive approach to combating counterfeits

In fiscal year 2013 the Department of Homeland Security and its agencies – US Customs and Border Protection and Immigration and Customs Enforcement’s Homeland Security Investigations – seized more than $1.7 billion worth of counterfeit and pirated goods at and within US borders. In the same year enforcement agencies effected more than 24,000 seizures of cargo, mail and express delivery shipments, made nearly 700 arrests, filed more than 400 indictments and secured over 450 convictions for IP crimes. During that same period 1,413 internet domains were seized for distributing counterfeit merchandise. A review of previous years’ statistics, both in the United States and throughout the world, tells a similar tale. Rights holders in the private sector continue to spend millions of dollars annually to support those criminal enforcement efforts and to undertake their own civil enforcement programmes. But while the public and private sectors have stepped up efforts to identify and seize shipments of counterfeit goods, the volume of traffic remains exceedingly high and counterfeit goods continue to flood the market. Simply put, the magnitude of the global trade in counterfeit and pirated goods is too great to arrest and seize everything. New strategies must be considered to increase the impact of enforcement efforts – namely, the expansion of anti-counterfeiting efforts not only to address the supply side of the counterfeiting problem, but also to reduce significantly the demand for such goods.

Parties with day-to-day involvement in anti-counterfeiting – whether from the legal, brand protection, product security or other sectors – may take the explosive growth in the trafficking and sale of counterfeit goods in recent years for granted. The days when counterfeiting was a concern only for high-end luxury brands or well-known fashion labels are long past. News reports about counterfeit automotive parts, cancer medications, computer software and everyday household goods fail to raise an eyebrow, because counterfeiting poses a threat to every product sector. Unfortunately, that level of awareness is not shared among the general consumer population. Further, even where consumers may be aware of counterfeiting issues to some degree, they often lack an understanding of the full range of harms posed by counterfeits. For many, the only victims of counterfeiting are perceived to be the manufacturers of authentic goods themselves, and little – if any – thought is given to the damage that the illicit trafficking of counterfeit goods causes to consumers or governments. As a result, the general public perception of counterfeiting as a significant threat remains low.

Low consumer awareness

Some relatively recent events in the United States illustrate the lack of consumer awareness of the importance of IP protection and the poor public perception of the harm caused by IP theft. Perhaps the most significant example involves the debate surrounding two pieces of legislation introduced during the 112th Congress: the Stop Online Piracy Act and the Preventing Real Online Threats to Economic Creativity and Threats to Intellectual Property Act. While the debate surrounding the bills in Washington focused largely on issues such as the technical feasibility and likely effectiveness of the proposals, the potential impact of expanded legal liability on intermediaries and online service providers, and the appropriate balance between effective enforcement tools and due process, the tenor of the debate among the general public was decidedly less focused on such legal and technical points.

The two acts were introduced to address the explosive growth in the online marketing and sales of counterfeit and pirated goods via ‘rogue’ websites. More specifically, they were intended to attack counterfeiters’ and pirates’ exploitation of legitimate tools and services to facilitate their illicit businesses. The bills were directed at foreign-based sites, typically beyond the reach of rights holders’ existing enforcement tools, and further limited to sites dedicated exclusively or nearly exclusively to trafficking in counterfeit or pirated goods. However, the public discussion devolved into near hysteria that the Internet would be irreparably harmed or that popular sites – particularly social media sites or those hosting user-generated content – would be legislated out of existence overnight. Regrettably, the intensity of the public response precluded any real discussion about why the legislation was contemplated in the first place and why it had garnered widespread bipartisan support when it was introduced. Similar public responses have been seen in the context of the Anti-counterfeiting Trade Agreement and TransPacific Partnership negotiations, and will undoubtedly continue to crop up in relation to future international proposals involving intellectual property, unless rights holders make substantially greater efforts to engage and educate the public at large about the importance of IP protection to both rights holders and consumers.

Educating consumers

In response to this clear need, the International AntiCounterfeiting Coalition (IACC) and a number of other organisations have undertaken a variety of initiatives to educate consumers about the full range of harms that result from the illicit trade in counterfeit goods. On June 24 2014 the IACC opened a permanent exhibition, “Counterfeit Crimes: Are You Part of the Black Market?”, at the National Museum of Crime and Punishment in Washington DC. This exhibit – the first of its kind in the United States – was developed with the assistance of rights holders from a broad range of sectors. The gallery asks visitors tough questions while educating them on the topic, calling on them to rethink the purchases they make and to re-examine the products in their closets, in their medicine cabinets and under their car hoods, while exploring the harms associated with supporting the counterfeit trade. The exhibit is designed to challenge consumer perceptions of counterfeiting as a ‘victimless’ crime and highlights the connections between IP theft and other insidious activities to which most consumers would never knowingly contribute, including transnational organised crime. In addition, visitors are shown how they too are victimised by the trafficking of counterfeit and pirated goods in the form of identity theft and consumer fraud, lost jobs and decreased innovation, and the diminishment of the tax base that provides essential government services to the community. Finally, they are educated about the health and safety threats presented by counterfeit goods manufactured and distributed in an unregulated supply chain by criminals who have every incentive to sacrifice quality and safety in exchange for higher profit margins.

While there is no doubt that some consumers actively seek out counterfeit goods, presented with clear and accurate information regarding the risks associated with such goods and the variety of external harms associated with them, most consumers will choose to seek out legitimate goods instead. This belief also underlies a number of other public awareness campaigns and tools that have been developed in recent years both to inform consumers and to help them identify legitimate sources for goods. With the rapid growth in both legitimate and illegitimate online commerce, these resources have assumed even greater importance.

Two such tools are the National Association of Boards of Pharmacy (NABP) Verified Internet Pharmacy Practice Sites (VIPPS) tool and the Centre for Copyright Information’s Copyright Alert System (CAS). VIPPS was created in response to the rapid growth seen in online pharmacy websites as a means of helping consumers to determine whether a given pharmacy is legitimate. VIPPS-accredited pharmacies must undergo a thorough review of their legal and regulatory compliance, as well as an onsite inspection of facilities used by the website. A complete database of VIPPS-accredited pharmacies is maintained on the NABP website (www.nabp.net) and at www.AwareRx.org. As of September 2014, the NABP had reviewed more than 10,000 online pharmacies offering prescription medications for sale; of those reviewed, more than 96% have been found not to comply with legal or regulatory requirements or with accepted patient safety and pharmacy practice standards. Ensuring that consumers have access to this sort of information is important not only to decrease the overall trafficking in counterfeit and illicit pharmaceuticals, but also to protect consumers.

The CAS, launched in 2013 as a collaborative initiative between the music and film industries and the five largest US internet service providers (ISPs), takes a similar approach. Research has shown that where consumers have access to, and are aware of, legitimate outlets to obtain copyrighted content, they are more likely to obtain that content legally. Designed primarily as an educational tool, the CAS helps to increase that awareness by providing a means by which copyright owners may notify individuals when their internet access accounts have been used to download or share copyrighted music, television shows or films illegally. Users are notified of illegal download activity, provided with information about the negative consequences of piracy and encouraged to make use of legitimate outlets for copyrighted content. In its first 10 months of operation, over 1 million alerts were sent to consumers through the CAS. Of those alerts, users challenged the findings only 265 times and there were no findings of false positives. Approximately 70% of the notices involved the initial education stages, with only about 3% occurring at the final mitigation stages. In short, the system appears to be having the intended effect of discouraging illegal downloading. The programme is now set to expand significantly, with an increased focus on the public awareness component. Changing attitudes and behaviour among users – many of whom have grown up in an era where free, albeit illegal, access to copyrighted content is commonplace – is an essential part of ensuring a robust market for copyrighted works in the future.

Collaboration remains a key component of ensuring the vitality of the online marketplace for both manufacturers of legitimate goods and content producers, and of preserving consumer trust in that marketplace. Service providers – including search engines, ISPs, registrars and registries, online marketplaces, payment processing networks and online advertising networks – all have a role to play in this process, alongside rights holders. The past two years have seen great advances in cross-sector collaboration between these groups, which have led to significant improvements in enforcement to address the supply side of counterfeiting and piracy problem. The IACC’s RogueBlock® initiative, which was launched in 2012, provides ample evidence of the value to be gained through collaboration between industry sectors. Working in cooperation with dozens of rights holders and nearly every major company in the credit card and money transfer industries, the RogueBlock programme has leveraged the intelligence and expertise of a diverse range of participants to identify the misuse of legitimate payment services by rogue merchants to facilitate the trafficking of counterfeit and pirated goods, illicit pharmaceuticals and circumvention devices. The results of the efforts include the termination of thousands of merchant accounts servicing networks of infringing sites, while maintaining a 0% false positive rate. The IACC has also involved a number of government partners in the programme since its inception and continues to seek additional partnerships in the public sector. Such relationships help to preclude any interference with ongoing investigations, while also generating actionable intelligence for further targeting and enforcement actions by criminal and customs authorities.

Tackling the demand side

While great strides have been made with regard to cross-industry collaboration to address the supply side of the equation, much remains to be done in regard to the demand side. Rights holders and their counterparts throughout the online ecosystem must increase their efforts to engage consumers and educate them about the threats posed by illicit goods, taking an active role in guiding consumers away from rogue merchants and towards legitimate outlets.

Trademarks originated, in part, as a means of consumer protection. Their essential function is as a source signifier, a message and a guarantee to consumers of a product’s quality. Consumers’ decisions to purchase particular goods are often driven by those marks and the reputations that they represent. By ensuring that the general public are well educated about the benefits of buying authentic goods and the harms to which they are exposed when they knowingly or unknowingly buy counterfeits, rights holders and their partners should be able to reduce overall demand for counterfeit goods.

Conclusion

Although illegal, the trafficking of counterfeit goods is big business. While efforts to reduce the supply of counterfeit goods in the marketplace must continue, it would be foolish to focus on the supply side alone. Reducing demand for counterfeit goods – indeed, stigmatising their purchase altogether – should also be a priority for rights holders. As long as the consumer market for counterfeit goods remains, goods will be supplied to fill it. But as that demand decreases, along with prices and profit margins for counterfeiters, counterfeiters may find that the risks in terms of fines, imprisonment and other enforcement measures outweigh the rewards of filling that demand.

International AntiCounterfeiting Coalition

1730 M Street NW

Suite 1020

Washington DC 20036

United States

Tel +1 202 223 6667

Fax +1 202 223 6667

Web www.iacc.org

Travis D Johnson

Vice president, legislative affairs and policy

[email protected]

 

Travis Johnson serves as vice president of legislative affairs and policy for the International AntiCounterfeiting Coalition (IACC) in Washington DC. He oversees all aspects of the organisation’s government relations and policy development functions at the state, federal and international levels, and serves as the IACC’s primary lobbyist in Washington.

While at the IACC, among other things, he has co-authored the IACC/International Trademark Association Model State Criminal Trademark Counterfeiting Statute and overseen the organisation’s annual Special 301 submission to the Office of the US Trade Representative.

Mr Johnson is a member of the Florida Bar and the Association of Government Relations Professionals, and is a frequent lecturer on trademark counterfeiting and broader issues of IP rights protection and enforcement and international trade.