Spotlight on Counterfeits
Health, National Security and America’s Innovation Economy Are on the Line
The Organization for Economic Cooperation and Development (OECD) issued a new report, Trade in Counterfeit and Pirated Goods, offering a stark assessment of IP theft and how it threatens to jeopardize future innovation and “sustainable IP-based business models.” The report’s alarm is warranted as trade in counterfeit and pirated goods is on the rise, accounting for 2.5 percent of all world trade, or $461 billion in 2013, making it among the largest criminal enterprises on the planet. Global trade in counterfeits has dire health, national security and economic ramifications. Use of counterfeits poses health risks to consumers, discourages investment with large opportunity costs, and the revenues from illicit activities often finance criminal and terrorist activities. Counterfeiting losses suffered by businesses put people out of work – some estimates put the cost at hundreds of thousands of American jobs lost annually to intellectual property theft.
Overwhelmingly, most counterfeit products seized originate in China; however, Chinese firms are also victims of IP theft. Developed countries are targeted the most. The OECD report estimates five percent of imports to the EU, valued at $116 billion, are counterfeit or pirated goods.
Counterfeiters target every range and class of product from luxury goods to pharmaceutical and health products to children’s toys. Counterfeits have even entered the U.S. military supply chain. A New York couple recently pleaded guilty to participating in a scheme that involved importing more than 100,000 counterfeit toys from China. For eight years the two smuggled imitation Dora the Explorer, Winnie the Pooh and Power Rangers toys that contained lead and other poisonous chemicals into the U.S. According to a special agent from the Department of Homeland Security, the counterfeit toys “endangered thousands of American children.”
One in 10 medications sold internationally is fake, and Interpol reported a spike in illicit pill confiscation from 2.4 million seized in 2011 to 20.7 million in 2015. This illegal commerce poses serious health risks to consumers around the world who may unwittingly end up with an ineffective or toxic product. Counterfeit pharmaceuticals jeopardize the health of future patients by reducing the incentive for firms to invest in research and development. Without appropriate IPR protections and enforcement, companies cannot justify multibillion-dollar investments to develop innovative medicines.
Counterfeit parts are rampant in the military supply chain and pose safety and national security threats. More than one million suspect parts have been found in the U.S. in the last three years alone. Investigators working on a 2014 case, where a Pennsylvania man was sentenced to 21 months in prison for importing and distributing counterfeit circuit boards to the military, observed that the items “redistributed could likely have caused serious bodily injury or impaired military operations, personnel or national security.”
E-commerce has undoubtedly enhanced the ability of legitimate businesses to reach consumers around the world, however it has also facilitated trade in illicit goods. The OECD report describes the increase in websites created by online counterfeiters that are virtually indistinguishable from legitimate sites and frequently deceive consumers. E-commerce has also led to an increase in small shipments sent by mail which present greater challenges to law enforcement in interdicting illicit goods.
The best defenses against the domestic proliferation of counterfeits are collaborative partnerships between federal and local law enforcement officials. The investigation that ultimately led to the conviction of the counterfeit toy distributors in New York was spearheaded by Immigration and Customs Enforcement (ICE), Homeland Security Investigations (HSI) and the New York City Police Department. Similarly, local HSI agents in Maryland, Florida and Pennsylvania were responsible for apprehending the counterfeit military parts purveyor. The same collaboration and intelligence sharing thwarts illicit trade globally. The National IPR Coordination Center is a joint effort of ICE, the FBI, HSI, and Customs and Border Protection, among other U.S. agencies, working together with EUROPOL, INTERPOL and a host of law enforcement entities located outside the U.S.
Counterfeiters threaten the health and wealth of millions of people worldwide. Stronger enforcement of IP laws and increased cooperation between law enforcement agencies around the world is needed to respond to this growing threat. Otherwise dangerous fakes that put lives at risk, undermine innovation and stifle economic growth will continue to proliferate. World IP Day is an ideal time to spotlight this growing threat.