Counterfeit consumer goods

Counterfeit sports shoes

Knockoff Shure ('Shupu') microphones

A knockoff of the Samsung Electronics logo

Counterfeit consumer goods are goods, often of inferior quality, made or sold under another's brand name without the brand owner’s authorization. Sellers of such goods may infringe on either the trade mark, patent or copyright of the brand owner by passing off its goods as made by the brand owner.^[1]:3

The term knockoff is often used interchangeably with "counterfeit," although their legal meanings are not identical. A "knockoff" is a colloquial term which describes products that copy or imitate the physical appearance of other products, but which do not copy the brand name or logo of a trademark. They may, or may not, be illegal under trademark laws.^[2] Such products are considered illegal when they are intended to confuse consumers. And someone can be a counterfeiter even if he doesn’t make the products, but knowingly sells them to others.^[2] Another overlapping term is pirated goods, which generally refers to copying copyrighted products without permission, such as music, movies and software.^[3]:96 Exact definitions are determined by the laws of various countries.

Counterfeit products exist in virtually every area, including food, beverages, clothes, shoes, pharmaceuticals, electronics, auto parts, toys, and currency. The spread of counterfeit goods is worldwide, and in 2008 a study by the International Chamber of Commerce (ICC) estimated the global value of all counterfeit goods reached $650 billion every year. The same study projected that in 2015 the upper bound of the global value of counterfeit and pirated goods could be $1.77 trillion.^[4] Counterfeit products make up 5 to 7% of world trade^[5][6] and have cost an estimated 2.5 million jobs worldwide,^[7] with 750,000 jobs lost in the U.S. alone.^[8] However, the Government Accountability Office found that many estimated figures were unreliable.^[9]

Types

General description

Growth in seizures of counterfeit goods by U.S.

According to the OECD, counterfeit products encompass all products made to closely imitate the appearance of the product of another as to mislead consumers. Those can include the unauthorised production and distribution of products that are protected by intellectual property rights, such as copyright, trade marks and trade names. Counterfeiters illegally copy trademarks, which manufacturers have built up based on marketing investments and the recognized quality of their products, in order to fool consumers.^[10]

In many cases, different types of infringements overlap: unauthorized music copying mostly infringes copyright as well as trade marks; fake toys infringe design protection. The term "counterfeiting" therefore addresses the related issues of copying packaging, labelling, or any other significant features of the goods.^[11]

Among the leading industries that have been seriously affected by counterfeiting are software, music recordings, motion pictures, luxury goods and fashion clothes, sportswear, perfumes, toys, aircraft components, spare parts and car accessories, and pharmaceuticals.^[11]

Apparel and accessories

Counterfeit Rolex watches

Counterfeit clothes, shoes, jewelry and handbags from designer brands are made in varying quality; sometimes the intent is only to fool the gullible buyer who only looks at the label and does not know what the real thing looks like, while others put some serious effort into mimicking fashion details. Others realize that most consumers do not care if the goods they buy are counterfeit and just wish to purchase inexpensive products. The popularity of designer jeans in 1978, spurred a flood of knockoffs. Factories that manufacture counterfeit designer brand garments and watches are usually located in developing countries. International tourists visiting Beijing, China, will find a wide selection of counterfeit designer brand garments at the infamous Silk Street. Expensive watches are vulnerable to counterfeiting. In Malaysia, Thailand, Vietnam and the Philippines, authentic looking but poor quality watch fakes with self-winding mechanisms and fully working movements can sell for as little as US $20 to good quality ones that sell for $100 and over. Also some fakes' movements and materials are of remarkably passable quality – albeit inconsistently so – and may look good and work well for some years, a possible consequence of increasing competition within the counterfeiting community. Thailand has opened a Museum of Counterfeit Goods displaying over 4,000 different items, in 14 different categories, which violate trademarks, patents, or copyrights.^[12] Oldest museum of this kind also exists in Paris, it is Musée de la Contrefaçon.

Electronics

An authentic flash memory IC and its counterfeit replica. Although the packaging of these ICs are the same, the x-ray images reveals that the inside structure of the counterfeit one (on the left) is different.^[13]

Counterfeit electronic components have proliferated in recent years, including integrated circuits (ICs), relays, circuit breakers, fuses, ground fault receptacles, and cable assemblies, as well as connectors. The value of counterfeit electronic components is estimated to total 2% of global sales, or $460 billion in 2011.^[5] Counterfeit devices have been reverse-engineered (also called a Chinese Blueprint due to its prevalence in China) to produce a product that looks identical and performs like the original, and able to pass physical and electrical tests.^[5] Incidents involving counterfeit ICs has led to the Department of Defense and NASA to create programs to identify bogus parts and prevent them from entering the supply chain.^[5] "A failed connector can shut down a satellite as quickly as a defective IC,"states product director Robert Hult.^[5] Such bogus electronics also pose a significant threat to various sectors of the economy. They undermine the security and reliability of critical business systems which can cause massive losses in revenue to companies and damage their reputation.^[14] They can also pose major threats to health and safety, as when an implanted heart pacemaker stops,^[15] an auto braking system (ABS) fails, or a cell phone battery explodes.^[16]

In early to mid-2010s, counterfeit smartphones and tablets from Vietnam, China, South Korea and Thailand, became popular in South East Asia and India. Most/all of the counterfeit smartphones and tablets ran on MediaTek's processor rather than the original and proprietary components used. They can be found easily around some online websites (notabbly DHgate), vendors night markets (in some countries) and street markets. Packaging and branding were somewhat different than the original, features were also much more different than original.

Media

Compact Discs, videotapes and DVDs, computer software and other media that are easily copied can be counterfeited and sold through vendors at street markets,^[17] night markets, mail order, and numerous Internet sources, including open auction sites like eBay. In some cases where the counterfeit media has packaging good enough to be mistaken for the genuine product, it is sometimes sold as such. Music enthusiasts may use the term "bootleg recording" to differentiate otherwise unavailable recordings from counterfeited copies of commercially released material. In August 2011, it was reported that at least 22 fake Apple computer stores were operating in parts of China, despite others having been shut down in the past by authorities at other locations.^[18] The following month, also in China, it was discovered that the popular mobile game Angry Birds had been re-created into a theme park without permission from its Finnish copyright or trade mark owners.^[19]

Toys

Australian-based Moose Toys has started experiencing problems with counterfeiting of their popular Shopkins toys from around mid-2015,^[20] and a number of YouTube videos have surfaced from customers who have received counterfeit Shopkins (including a few user-created guides to help identify such counterfeits^[21]), along with a guide from the manufacturer, Moose Toys to help collectors and others identify counterfeit and genuine Shopkins.^[22]

Medication

Counterfeit Viagra

According to the U.S. FBI, the counterfeiting of pharmaceuticals accounts for an estimated $600 billion in global trade, and may be the "crime of the 21st century." They add that it "poses significant adverse health and economic consequences for individuals and corporations alike." The World Health Organization (WHO) estimates that over 30% of pharmaceuticals in developing countries are fake, stating that "Anyone, anywhere in the world, can come across medicines seemingly packaged in the right way but which do not contain the correct ingredients and, in the worst-case scenario, may be filled with highly toxic substances.”^[23][24] The U.S. Food and Drug Administration (FDA) describes counterfeit drugs as those sold under a product name without proper authorization:

"Counterfeiting can apply to both brand name and generic products, where the identity of the source is mislabeled in a way that suggests that it is the authentic approved product. Counterfeit products may include products without the active ingredient, with an insufficient or excessive quantity of the active ingredient, with the wrong active ingredient, or with fake packaging."^[25]

Experts estimate that counterfeit medications kill at least 700,000 people a year, mostly in undeveloped countries.^[26][27] According to The Economist, between 15%-30% of antibiotic drugs in Africa and South-East Asia are fake, while the UN estimates that roughly half of the antimalarial drugs sold in Africa—worth some $438m a year—are counterfeit.^[28]

Pfizer Pharmaceuticals has found fake versions of at least 20 of its products, such as Viagra and Lipitor, in the legitimate supply chains of at least 44 countries. Pfizer also found that nearly 20% of Europeans had obtained medicines through illicit channels, amounting to $12.8 billion in sales. Other experts estimate the global market for fake medications could be worth between $75 billion and $200 billion a year, as of 2010.^[26]

Other counterfeit prescription drugs that have been found in the "legitimate" supply chain are Plavix, used to treat blood clots, Zyprexa for schizophrenia, Casodex, used to treat prostate cancer, Tamiflu, used to treat influenza, including Swine flu, and Aricept, used to treat Alzheimers.^[29] The EU reported that as of 2005 India was by far the biggest supplier of fake drugs," accounting for 75 per cent of the global cases of counterfeit medicine. Another 7% came from Egypt and 6% from China. Those involved in their production and distribution include medical professionals such as pharmacists and physicians, organized crime syndicates, rogue pharmaceutical companies, corrupt local and national officials and terrorist organizations.^[3]

Food

Food fraud, "the intentional adulteration of food with cheaper ingredients for economic gain," is a well-documented crime that has existed in the U.S. and Europe for many decades. It has only received most attention in recent years as the fear of bioterrorism has increased. Numerous cases of intentional food fraud have been discovered over the last few years. As of 2013, the foods most commonly listed as adulterated or mislabelled in the United States Pharmacopeia Convention's Food Fraud Database were: milk, olive oil, honey, saffron, fish, coffee, orange juice, apple juice, black pepper, and tea. ^[30]

United States

• In 2008, U.S. consumers were "panicked" and a "media firestorm" ensued when Chinese milk was discovered to have been adulterated with the chemical melamine, to make milk appear to have a higher protein content in government tests. It caused 900 infants to be hospitalized with six deaths.^[31]
• In 2007, the University of North Carolina found that 77 percent of fish labeled as red snapper was actually tilapia, a common and less flavorful species. The Chicago Sun-Times tested fish at 17 sushi restaurants found that fish being sold as red snapper actually was mostly tilapia. Other inspections uncovered catfish being sold as grouper, which normally sells for nearly twice as much as catfish.^[31] Fish is the most frequently faked food Americans buy, which includes "...selling a cheaper fish, such as pen-raised Atlantic salmon, as wild Alaska salmon." In one test, Consumer Reports found that less than half of supposedly "wild-caught" salmon sold in 2005-2006 were actually wild, and the rest were farmed.^[32]
• French cognac was discovered to have been adulterated with brandy, and their honey was mixed with cheaper sugars, such as high-fructose corn syrup.^[31]
• In 2008, U.S. food safety officers seized more than 10,000 cases of counterfeit extra virgin olive oil, worth more than $700,000, from warehouses in New York and New Jersey.^[31] Olive oil is considered one of the most frequently counterfeited food products, according to the FDA, with one study finding that a lot of products labeled as "extra-virgin olive oil" actually contained up to 90% soybean oil.^[32]
• From 2010 until 2012 the conservation group Oceana analyzed 1,200 seafood samples from 674 retail outlets in 21 U.S. states. A third of the samples contained the DNA of a different type of fish to the one stated on the product label.^[33] They found that fish with high levels of mercury such as tilefish and king mackerel were being passed off as relatively safe fish like grouper. Snapper (87%) and tuna (59%) were the most commonly mislabeled species.^[34]
• Genetic testing by the Boston Globe in 2011 found widespread mislabelling of fish served in area restaurants.^[35]

The Food and Drug Administration, the primary regulatory body for food safety and enforcement in the United States, admits that the "sheer magnitude of the potential crime" makes prevention difficult, along with the fact that food safety is not treated as a high priority. They note that with more than 300 ports of entry through which 13 percent of America's food supply passes, the FDA is only able to inspect about 2 percent of that food.^[31]

New U.S. seafood tracing regulations were announced by the National Oceanic and Atmospheric Administration in 2015.^[36]

Europe

Food counterfeiting is a serious threat in Europe, especially for countries with a high number of trademark products such as Italy. In 2005, EU customs seized more than 75 million counterfeited goods, including foods, medicines and other goods, partly due to internet sales. More than 5 million counterfeit food-related items, including drinks and alcohol products were seized. According to the EU's taxation and customs commissioner, "A secret wave of dangerous fakes is threatening the people in Europe."^[37]

Wine

In China, counterfeit high-end wines are a growing beverage industry segment, where fakes are sold to Chinese consumers.^[38] Knock-off artists refill empty bottles from famous chateaux with inferior vintages. According to one source, "Upwardly mobile Chinese, eager to display their wealth and sophistication, have since developed a taste for imported wine along with other foreign luxuries." In China, wine consumption more than doubled since 2005, making China the seventh-largest market in the world.^[39] The methods used to dupe innocent consumers includes photocopying labels, creating different and phony chateaux names on the capsule and the label. Sometimes authentic bottles are used but another wine is added by using a syringe. The problem is so widespread in China, the U.S. and Europe, that auction house Christie's has begun smashing empty bottles with a hammer to prevent them from entering the black market. During one sale in 2008, a French vintner was "shocked to discover that '106 bottles out of 107' were fakes." According to one source, counterfeit French wines sold locally and abroad "could take on a much more serious amplitude in Asia because the market is developing at a dazzling speed." Vintners are either unable or hesitant to fight such counterfeiters: "There are no funds. Each lawsuit costs 500,000 euros," states one French vintner. In addition, some vintners, like product and food manufacturers, prefer to avoid any publicity regarding fakes to avoid injuring their brand names.^[40] Counterfeit wine is also found in the West; it is primarily a problem for collectors of rare wine, especially of pre-WWII French wines, as producers kept spotty records at the time. Famous examples of counterfeiting include the case of Hardy Rodenstock, who was involved with the so-called "Jefferson bottles,"^[41] and Rudy Kurniawan, who was indicted in March 2012 for attempting to sell faked bottles of La Tâche from Domaine de la Romanée-Conti and Clos St. Denis from Domaine Ponsot.^[42] In both cases, the victims of the fraud were high-end wine collectors, including Bill Koch, who sued both Rodenstock and Kurniawan over fake wines sold both at auction and privately.

Cigarettes

Illicit cigarettes are an example of the multi-pronged threat of counterfeiting, providing hundreds of millions of dollars per year to entities such as Hamas, Hezbollah, al-Qaida, Islamic Jihad and the PKK.^[43] Counterfeit cigarettes cost taxpayers in every nation billions in lost revenues while foisting on an unsuspecting public a product found to contain things like human excrement, asbestos and dead flies.^[44]

The harm arising from this amalgam of contaminants sits on top of any baseline hazard ascribed to commercial tobacco products. With the sales of illicit cigarettes in Turkey, for example, exceeding 16.2 billion cigarettes per year, Turkish Prime Minister Erdogan labeled counterfeit tobacco as "more dangerous than terrorism".^[45]

Military items

According to a U.S. Senate committee report in 2012 and reported by ABC News, "counterfeit electronic parts from China are 'flooding' into critical U.S. military systems, including special operations helicopters and surveillance planes, and are putting the nation's troops at risk." The report notes that Chinese companies take discarded electronic parts from other nations, remove any identifying marks, wash and refurbish them, and then resell them as brand-new – "a practice that poses a significant risk to the performance of U.S. military systems.^[46][47]

Enforcement

United States

On November 29, 2010, the U.S. Department of Homeland Security seized and shut down 82 websites as part of a U.S. crackdown of websites that sell counterfeit goods, and was timed to coincide with "Cyber Monday," the start of the holiday online shopping season.^[48] Attorney General Eric Holder announced that "by seizing these domain names, we have disrupted the sale of thousands of counterfeit items, while also cutting off funds to those willing to exploit the ingenuity of others for their own personal gain.”^[49] Members of Congress proposed a PROTECT IP Act to block access to foreign Web sites offering countefeit goods. Some U.S. politicians are proposing to fine those who buy counterfeit goods, such as those sold in New York's Canal Street market. In Europe, France has already created stiff sentences for sellers or buyers, with punishments up to 3 years in prison and a $300,000 fine.^[50] Also in Europe, non-profit organizations such as the European Anti-Counterfeiting Network, fight the global trade in counterfeit goods.^[51] During a counterfeit bust in New York in 2007, federal police seized $200 million in fake designer clothing, shoes, and accessories from one of the largest-ever counterfeit smuggling rings. Labels seized included Chanel, Nike, Burberry, Polo, Ralph Lauren and Baby Phat. Counterfeit goods are a "...major plague for fashion and luxury brands," and numerous companies have made legal efforts to block the sale of counterfeits from China. Many of the goods are sold to retail outlets in Brooklyn and Queens.^[52]

For trade mark owners wishing to identify and prevent the importation of counterfeit goods, the U.S. Customs and Border Protection agency supports a supplemental registration of trade marks through their Intellectual Property Rights e-Recordation program.^[53] These registrations may be supported by brand manuals prepared by, or on behalf of, brand owners to facilitate the identification of counterfeit goods, including use as evidence by trade mark owners as evidence in obtaining court orders for the seizure of infringing merchandise.^[54]

From 2010 – 2012, the international organization Oceana had studied more than 1,200 samples of seafood from various retailers nationwide. Their investigations showed that 33 percent of these samples were mislabeled. With a rate of 87 percent, snapper had been the most frequently mislabeled fish type – followed by tuna with 57 percent.^[55] Another type of seafood fraud is the so-called short weighting. The weight of a fish is manipulated through overglazing (excessive ice) or soaking (using additives).

Stop Online Piracy Act (SOPA)

In October 2011, a bill was introduced entitled Stop Online Piracy Act (SOPA). If the bill had been passed, it would have expanded the ability of U.S. law enforcement and copyright holders to fight online trafficking in copyrighted intellectual property and counterfeit goods. The bill would have allowed the U.S. Department of Justice, as well as copyright holders, to seek court orders against websites accused of enabling or facilitating copyright infringement. Opponents of the bill stated that it could have crippled the internet through selective censorship and limiting free speech. In regards to the bill, the Obama administration stressed that "the important task of protecting intellectual property online must not threaten an open and innovative internet."^[56] The legislation was later withdrawn by its author, Rep. Lamar Smith."^[57]

International

On October 1, 2011, the governments of eight nations including Japan and the United States signed the Anti-Counterfeiting Trade Agreement (ACTA), which is designed to help protect intellectual property rights, especially costly copyright and trade mark theft. The signing took place a year after diligent negotiations among 11 governments: Australia, Canada, the European Union, Japan, the Republic of Korea, Mexico, Morocco, New Zealand, Singapore, Switzerland and the United States. The EU, Mexico, Switzerland and China have not yet signed the agreement.^[58] Due to the latter, critics evaluated the agreement as insubstantial.^[59][60]

In China counterfeiting is so deeply rooted that crackdowns on shops selling counterfeit cause public protests during which the authorities are derided as "bourgeois puppets of foreigners."^[61] Countries like Nigeria fight brand trademark infringement on a national level but the penalties are dwarfed by the earnings outlook for counterfeiters: "As grievous as this crime is, which is even worse than armed robbery, the penalty is like a slap on the palm, the most ridiculous of which is a fine of 50,000 naira ($307). Any offender would gladly pay this fine and return to business the next day."^[62]

Human rights laws

Counterfeit products are often produced in violation of basic human rights and child labor laws and human rights laws, as they are often created in illegal sweatshops.^[63] Clothing manufacturers often rely on sweatshops using children in what some consider "slave labor" conditions. According to one organization, there are some 3,000 such sweatshops in and around Buenos Aires, Argentina.^[64] Author Dana Thomas described the conditions she witnessed in other country's sweatshops, noting that children workers are often smuggled in to countries and sold into labor:

I remember walking into an assembly plant in Thailand a couple of years ago and seeing six or seven little children, all under 10 years old, sitting on the floor assembling counterfeit leather handbags. The owners had broken the children's legs and tied the lower leg to the thigh so the bones wouldn't mend. [They] did it because the children said they wanted to go outside and play. . . I went on a raid in a sweatshop in Brooklyn, and illegal workers were hiding in a rat hole, [and] impossible to know how old the workers were.^[65]

U.S. Supreme Court justice Sonia Sotomayor, who has tried to prosecute counterfeiters, notes that major industries have suffered the loss of hundreds of thousands of jobs due to the exploitation of child labor in sweatshops in New York and Asia. Those often produce dangerous merchandise, such as fake auto parts or toys, made of toxic and easily breakable materials.^[66]

The profits often support terrorist groups,^[67] drug cartels,^[68] people smugglers^[69] and street gangs.^[70] The FBI has found evidence that the 1993 World Trade Center bombing was financed by a store selling counterfeit T-shirts.^[66] The crackdown on counterfeit goods has not only become a matter of human rights, but one of national and international security in various countries. The FBI has called product counterfeiting, "the crime of the 21st century."^[71]

Internet shopping sites

Major internet shopping sites, such as Amazon.com, ebay.com, and Alibaba.com, provide complaint pages where listings of counterfeit goods can be reported. The reporter must show that it owns the intellectual property (e.g. trademark, patent, copyright) being presented on the counterfeit listings. The shopping site will then do an internal investigation and if it agrees, it will take the counterfeit listing down.^[72][73]

Anti-counterfeiting packaging

Packaging can be engineered to help reduce the risks of package pilferage or the theft and resale of products: Some package constructions are more resistant to pilferage and some have pilfer indicating seals. Counterfeit consumer goods, unauthorized sales (diversion), material substitution and tampering can all be reduced with these anti-counterfeiting technologies. Packages may include authentication seals and use security printing to help indicate that the package and contents are not counterfeit; these too are subject to counterfeiting. Packages also can include anti-theft devices, such as dye-packs, RFID tags, or electronic article surveillance^[74] tags that can be activated or detected by devices at exit points and require specialized tools to deactivate. Anti-counterfeiting technologies that can be used with packaging include:

• Taggant fingerprinting - uniquely coded microscopic materials that are verified from a database
• Encrypted micro-particles - unpredictably placed markings (numbers, layers and colors) not visible to the human eye
• Holograms - graphics printed on seals, patches, foils or labels and used at point of sale for visual verification
• Micro-printing - second line authentication often used on currencies
• Serialized barcodes
• UV printing - marks only visible under UV light
• Track and trace systems - use codes to link products to database tracking system
• Water indicators - become visible when contacted with water
• DNA tracking - genes embedded onto labels that can be traced
• Color shifting ink or film - visible marks that switch colors or texture when tilted
• Tamper evident seals and tapes - destructible or graphically verifiable at point of sale
• 2d barcodes - data codes that can be tracked

See also

Further reading

• Sara R. Ellis, Copyrighting Couture: An Examination of Fashion Design Protection and Why the DPPA and IDPPPA are a Step Towards the Solution to Counterfeit Chic, 78 Tenn. L. Rev. 163 (2010), available at http://ssrn.com/abstract=1735745.
• Phillips, Tim. Knockoff: The Deadly Trade in Counterfeit Goods Kogan Page, U.K. (2006)
• Wilson, Bee. Swindled: The Dark History of Food Fraud, from Poisoned Candy to Counterfeit Coffee, Princeton University Press (2008)
• Ellis, D.I., Brewster, V.L., Dunn, W.B., Allwood, J.W., Golovanov, A. and Goodacre, R. (2012) Fingerprinting food: current technologies for the detection of food adulteration and contamination. Chemical Society Reviews, 41, 5706–5727. doi:10.1039/c2cs35138b
• Ellis, D.I., Muhamadali, H., Haughey, S.A., Elliott, C.T. and Goodacre, R. (2015) Point-and-shoot: rapid quantitative detection methods for on-site food fraud analysis – moving out of the laboratory and into the food supply chain. Analytical Methods. 7, 9401-9414. doi:10.1039/C5AY02048D

References

External links

Wikimedia Commons has media related to Counterfeit objects.

• National Food Safety and Toxicology Center The Counterfeit Food Scope and Threat Seminar at the Michigan State University
• Food fraud and "economically motivated adulteration" of food and food ingredients at the Congressional Research Service
• Fingerprinting food: Current technologies for the detection of food adulteration and contamination in the Chemical Society Reviews
• Detecting Food Authenticity and Integrity, Royal Society of Chemistry themed collection
• Point-and-shoot: rapid quantitative detection methods for on-site food fraud analysis – moving out of the laboratory and into the food supply chain