International trade in counterfeit and pirated goods amounted to some $250 billion in 2007, an increase of more than 25% over the previous two years, according to the OECD.  Their share in world trade is only estimated at 2% of world trade.  But these figures do not include domestically produced and consumed counterfeit and pirated products, or the significant volume of pirated digital products being distributed through the Internet, or other IPR infringements like geographical indications.  They would clearly add several hundred billion dollars to this figure.  What’s more, given that counterfeiting and piracy are illicit and clandestine activities, measurement is very difficult and any figure is surely an underestimate.

Is this a problem?  What should we do about it?

Creators can be given the right to prevent others from using their inventions, designs or other creations — and to use that right to negotiate payment in return for others using them. These are “intellectual property rights”. They take a number of forms. For example books, paintings and films come under copyright; inventions can be patented; brand names and product logos can be registered as trademarks; and so on. Governments and parliaments have given creators these rights as an incentive to produce ideas that will benefit society as a whole.

Counterfeiting and piracy are illicit activities and represent an infringement of trademarks, copyrights, patents and design rights, items that are described and defined in the WTO Agreement on Trade Related Aspects of Intellectual Property (TRIPS).  Virtually everything can and probably has been counterfeited, and is taking place in every economy.  Today, there is now counterfeiting of increasingly complex products, sophisticated packaging and even security items.  Counterfeiting goes way beyond CDs and handbags to car parts, pharmaceuticals and food and drink.

While many counterfeited goods are smuggled, most are in fact transported through normal commercial channels, in part because they are immensely difficult to identify without rigorous testing.

Export processing zones and special economic zones are increasingly conduits for counterfeit and pirated components and parts.  Such goods are more difficult to track down in the production and packaging processes, and their origin can be easily disguised.  These zones also have much lighter customs surveillance to the benefit of counterfeiters.  Counterfeiters are very skillful, with vast complex and sophisticated networks which cover fabrication, labeling, packaging and distribution.

Does it matter?  In fact, counterfeiting and piracy have many adverse effects.  The classic effect is negative impact on innovation.  Why go through the hassle of innovating, if someone else is going to copy your innovation and rip off all the profits.

And if counterfeiting and piracy act as a deterrent on innovation, they adversely affect employment, investment, tax revenues – in fact, the whole economy.  It can also deter foreign direct investment – why invest in a country which will rip off your products.  But it is even worse than that, counterfeited and pirated products can have adverse health and safety effects for consumers, and also for the environment.  They can also undermine trust in a company’s products which have been counterfeited.  And last, but certainly not the least, much counterfeiting and piracy is controlled and managed by organized crime syndicates and is associated with other criminal activities like bribery and corruption.

Are our governments taking counterfeiting and piracy seriously?  Most governments have laws against counterfeiting and piracy, but enforcement of these laws is not strong enough.  Penalties are rarely a sufficient deterrent which means that there are high rates of repeat offenders.  Priority is usually given to other illicit activities like drugs, human trafficking and gun running.

Too often in the minds of governments and citizens counterfeiting and piracy is associated with CDs, DVDs and luxury products.  The effects on health, safety, environment and organized crime are not sufficiently understood.  And when it comes to international counterfeiting and piracy, courts may go soft on locals who are being accused by multinational firms.

One of the OECD’s conclusions is that we need have better data on counterfeiting and piracy.  But too many companies are reluctant to reveal the extent of counterfeiting and piracy of the products, so as not to undermine their corporate reputation.

Building pubic support to combat counterfeiting and piracy through awareness-raising is also essential.  But even this is a challenge because often times consumers knowingly buy counterfeit products because they like a bargain.  But these same people may not be aware that they also often purchase counterfeit products believing that they have purchased genuine articles.

The WTO and IPR (drawn from WTO website)

The extent of protection and enforcement of IPR varies widely around the world.  As intellectual property became more important in trade, these differences became a source of tension in international economic relations. New internationally-agreed trade rules for intellectual property rights were seen as a way to introduce more order and predictability, and for disputes to be settled more systematically.

The WTO’s TRIPS Agreement (agreed as part of the Uruguay Round) is an attempt to narrow the gaps in the way these rights are protected around the world, and to bring them under common international rules. It establishes minimum levels of protection that each government has to give to the intellectual property of fellow WTO members. In doing so, it strikes a balance between the long term benefits and possible short term costs to society. Society benefits in the long term when intellectual property protection encourages creation and invention, especially when the period of protection expires and the creations and inventions enter the public domain. Governments are allowed to reduce any short term costs through various exceptions, for example to tackle public health problems. And, when there are trade disputes over intellectual property rights, the WTO’s dispute settlement system is now available.

What are some of the key elements of the TRIPS agreement?  It covers the two main areas of IPR: (i) Copyright and rights related to copyright; and (ii) Industrial property.  More details are set out below.

Copyright

Computer programs will be protected as literary works under the Berne Convention.

Performers must also have the right to prevent unauthorized recording, reproduction and broadcast of live performances (bootlegging) for no less than 50 years.

Producers of sound recordings must have the right to prevent the unauthorized reproduction of recordings for a period of 50 years.

Trademarks

The agreement defines what types of signs must be eligible for protection as trademarks.

Geographical indications

A place name “geographical indication” is sometimes used to identify a product which include “Champagne”, “Scotch”, “Tequila”, and “Roquefort” cheese.

Industrial designs

Industrial designs must be protected for at least 10 years.

Patents

Patent protection must be available for inventions for at least 20 years.  This covers both products and processes, in almost all fields of technology.

Undisclosed information and trade secrets

Trade secrets and other types of “undisclosed information” which have commercial value must be protected against breach of confidence and other acts contrary to honest commercial practices.

Enforcement

Having intellectual property laws is not enough. The agreement says governments have to ensure that intellectual property rights can be enforced under their laws, and that the penalties for infringement are tough enough to deter further violations.

Technology transfer

Developing countries in particular, see technology transfer as part of the bargain in which they have agreed to protect intellectual property rights. The TRIPS Agreement requires developed countries’ governments to provide incentives for their companies to transfer technology to least-developed countries.

Trade-related intellectual property rights and access to medicines

There have been concerns that IPR on medicines could restrict access for people in poor countries, although IPR constitute only one piece of a much bigger puzzle that determines the level of access to medicines by patients in a given country.  The Doha Declaration on the TRIPS Agreement and Public Health is a delicate balancing act between guaranteeing the protection of intellectual property rights as an important incentive for the development of new medicines on the one hand, and addressing concerns about the potential impact on prices for such medicines on the other hand.

Conclusion

Are we making much progress in tackling counterfeiting and piracy, and protecting IPR?  Not really.

East Asia and especially China which are the leaders of the world economy, and have also become the world capital for counterfeiting and piracy.  In recent years there has been an alarming expansion of counterfeit products from luxury items (such as deluxe watches and designer clothing), to items that have an impact on personal health and safety (such as pharmaceutical products, food and drink, medical equipment, personal care items, toys, tobacco and automotive parts

According to the American Chamber of Commerce in China, notwithstanding some progress China’s “continued failure to adequately enforce IP rights continues to cost China’s trading partners, including US knowledge-based industries, billions of dollars in lost exports.  America’s copyright industries of software, films and sound recordings are a prime example.  Lack of effective copyright enforcement is also retarding the growth of China’s innovative IP industries.  More deterrent enforcement and greater coordination between criminal and administrative authorities are needed to ensure that China is to be a place where IP can develop and thrive”.

References:

OECD project on counterfeiting and piracy

http://www.oecd.org/document/22/0,3343,en_2649_34173_39542514_1_1_1_1,00.html

The American Chamber of Commerce, People’s Republic of China

2010 White Paper on the State of American Business in China

http://www.amchamchina.org/whitepaper

Intellectual property: protection and enforcement.  World Trade Organisation

http://www.wto.org/english/thewto_e/whatis_e/tif_e/agrm7_e.htm