Chronicle Editor
Aleck Ncube
PRODUCT counterfeiting encompasses a range of illicit activities linked to the intellectual-property (IP) rights infringement of “material goods, and thus involves “fake goods. The variety of counterfeited products is diverse and expanding.
Though consumers perceive “luxury goods” (eg, jewellery, apparel, handbags) as a common target, it is estimated that these account for no more than five to 10 percent of counterfeited products. In reality, counterfeiters produce numerous products, including pharmaceuticals, food and beverages, electronics, chemical goods, household products, children’s toys, weapons and tobacco products. Some analysts claim, “virtually no product line” is safe from counterfeiters nor too cheap to counterfeit.
Product counterfeiting is a growing, global risk that poses many negative consequences for businesses, consumers, governments, national security, the economy and society.
Research suggests that the first step in formulating effective strategies to combat such crime is to understand what shapes the nature of the criminal opportunity.
This write-up seeks to highlight for SMEs the dangers of product counterfeits and the value of considering product counterfeiting as a fundamental risk to the brand, brand protection as a total business solution and making their brand protection programmes more proactive.
It is difficult, if not impossible, to estimate the costs of product counterfeiting. The origins and methods of frequently cited estimates are unclear or unreliable. Counterfeit goods, by some estimates, comprise five to seven percent of world trade. Increases in related seizures and arrests also show the mounting scale of product counterfeiting.
The impact of product counterfeiting is broad and far-reaching. First, product counterfeiting affects consumers. It results in the public having less diversity in product choice by decreasing incentives for industry innovation. More important, it poses considerable health and safety risks. One estimate suggests that about 700 000 deaths are linked to counterfeit anti-malaria and anti-tuberculosis drugs.
Seemingly innocuous counterfeit goods pose similar dangers, including, for instance, counterfeit extension cords or batteries that catch fire.
Second, product counterfeiting harms industry. Some obvious examples are lost revenue, market share and profits. The Motor and Equipment Manufacturers Association (MEMA) cited estimates suggesting that “counterfeiting costs the global motor vehicle parts industry $12 billion a year and $3 billion in the United States alone.” Counterfeit pharmaceuticals are estimated to cost drug manufacturers billions of dollars annually.
Companies also incur intangible costs such as damages to brand value or reputation resulting from poor-quality counterfeits. The costs of product counterfeiting can also reduce incentives to innovate or develop new products.
Third, product counterfeiting strains government resources. Governments lose considerable tax revenue from the sale of counterfeit products. Some estimates suggest that countries lose billions of dollars in taxes annually. Jobs lost from product counterfeiting could also impact governments by posing a detrimental effect on the economy.
At the same time, governments must allocate resources to combat product counterfeiting and support intellectual-property rights enforcement. The Zimbabwe Revenue Authority must be capacitated to identify fake and counterfeit products. Emerging evidence that international organised criminals produce, distribute and sell counterfeit products is increasing concern about this problem. The FBI and Interpol have publicly acknowledged this connection and the US Congress has included trademark counterfeiting under federal racketeering laws.
The US Department of Justice identifies the smuggling of counterfeit goods as one of the most pressing strategic threats posed by international organised criminals. The European Commission claims, “There are now few doubts regarding the implication of international criminal organisations in the worldwide trafficking of counterfeit and pirate goods.”
Product counterfeiting is a growing risk to brands. Experts contend that brand owners who don’t believe they have a counterfeiting problem either haven’t looked or don’t have a product worth “knocking off”.
Such a tongue-in-cheek statement is meant to underscore the fact that virtually every brand owner is a victim of product counterfeiting or at least they are at risk to it. Brand and product protection means different things to different companies and its implementation varies considerably from one brand owner to the next.
Through research with brand owners around the globe on a wide array of brand protection and benchmarking analysis and training issues, it was discovered that they tend to fall on a continuum, both within and across industries, relative to the effort and resources they allocate to this function.
Some are very progressive, pushing industry standards for proactive strategy and tactics. Others either do not consider the problem, fail to look for or ignore potential red-flag indicators, or simply devote minimal resources and superficial attention to it when a problem arises. The bulk of companies fall somewhere in between these two extremes.
Protecting brands is important
Reputation of a brand drives how the products willperform in the marketplace. A strong brand is what many consumers use to make the final purchasing decision. It represents a “contract of expectations” between the company and the consumer. Trademarks are used by the consumer to identify the source of the product and counterfeit trademarks violate this expectation, directly damaging the brand. When the reputation of a brand is damaged, the consumer is less likely to trust that the “contract of expectations” will be satisfactorily met.
Damage to a brand is usually more expensive to recover from than proactively taking steps to protect it.
In many instances, authenticating the brand has become the topic of standards created through professional certification organisations including SAZ and ISO and even legislation.
Long-term financial success depends on protecting the brand. Consider specifically the risk of product counterfeits, which are a trademark violation and a fundamental threat to the brand. Through the production and sale of counterfeit product, the counterfeiter can be thought of as an “unseen competitor” that undermines corporate profit.
Through inferior and unreliable products (though some counterfeits are higher quality than others), counterfeits dilute the value of the brand, which reduces customer satisfaction with the branded product.
These same products increase consumer health and safety risks, particularly as counterfeiters veer from using quality, safe materials and manufacturing products to specified standards. This, of course, is reason enough to combat product counterfeiters. Yet it also reduces customer satisfaction while simultaneously increasing the risk of litigation as a result of customers and others filing suit against the brand owner.
In sum, product counterfeiting is a serious and expanding problem that harms consumers, industry and governments. Its scope suggests the need to understand and respond to it at the national and international levels. Nevertheless, many of its aspects are identified at the local level. Therefore, state policy makers must also address product counterfeiting more locally by understanding the specific nature of the problem, the risk in their state.
Wishing All SMEs and Readers an enjoyable Festive Season!
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