1 The OECD Study on Counterfeiting & Piracy FIVS Public Policy Forum Brussels 12 October 2007 The views expressed are those of the author in his private capacity and do not necessarily represent those of the OECD or its Member governments.

2 1. Bring participants up to date on the OECD’s Study on counterfeiting and piracy 2. Discuss some of the major findings and issues that have arisen in the study 3. Touch briefly on possible future action Objectives

3 Economies with which the OECD has working relationships Working with countries around the world

4 Phase 1: Counterfeit and pirated products –Scope: Tangible products that infringe trademarks, copyrights, patents or design rights Phase 2: Digital piracy –This is being scoped, and is waiting for agreement of member governments and industry and funding before moving forward Phase 3: Other IPR infringements –Yet to be scoped and funded and must take account of progress in the Doha Development negotiations –If it goes ahead this would mostly cover Geographic Indicators Structure of the project >>> Three phases

5 Surveys undertaken of governments, industry, and customs authorities with the assistance of the World Customs Organisation (WCO) Methodology developed to assess the magnitude of the problem using statistics on customs seizures and international trade Analysis conducted of trends and developments; effects; drivers of consumption and production of C&P, and distribution channels Country profiles and sectoral case studies carried out to overview country activities and to address the specific circumstances that exist in a number of industries affected by counterfeiting and piracy General outline of the study

6 Effects on firms whose IPRs are infringed –prices, –costs (defending rights, technology to counter counterfeiting), –sales revenues and volume, –firm value (share prices, brand value etc.), –investment, –innovation, –potential legal liability, –workers/employment, –consumer confidence Effects of Counterfeiting & Piracy Effects on consumers… –health and safety –security & welfare effects (utility, jobs, consumer confidence) Effects on governments… –in all economies: tax receipts, terms of trade enforcement costs –in economies where counterfeiting is widespread: jobs, production, level and scope of criminal activity, international trade, foreign investment, internal development of brands, innova tion

7 Sectors studied in depth automotive products food/drink products pharmaceuticals tobacco products music recordings motion pictures and other video content electrical components (including batteries) Other possibilities explored luxury goods, perfumes and fashion clothes chemicals and pesticides sportswear and other branded clothing personal care, toiletry and household products books industrial and consumer motor lubricants aircraft components toys computer software Sectoral case studies

8 ► Outcomes: Magnitude of the problem Measurement needs rigorous methodology, but data is hard to find activities are illicit and clandestine enforcement and customs data are sparse, incomplete and inconsistent Analysis suggests that up to US$ 200 billion of international trade could have been in counterfeit or pirated products in 2005 The figure does not include –domestically produced and consumed products –non-tangible pirated digital products If added, the figure could be several hundred billion dollars higher Earlier figure of 5-7% of world trade lacks rigorous foundation and could not be confirmed or disproved

9 Definition for this study (Phase 1) “A counterfeit or pirated product is a product that infringes on an intellectual property right (IPR)” Trademark Copyright Patent Registered design Example: a “generic” replacement motor vehicle part, or an unbranded spirit called vodka would not be a counterfeit unless this requirement is met. What is counterfeiting and piracy?

10 What difference does a definition make? Federazione Italiana dell’Industria Alimentare 2003 report:  In 2002 legitimate exports Italian food € 13.9 billion  Sale of illegal imitations €2.6 billion  Estimated sales of “Italian sounding” products €52.6 billion FEDERALIMENTARE – Cibo Italiano, tra Imitazione e Contraffazione (Italian Food, between Imitation and Counterfeiting, December 2003

11 Seizures of imported counterfeit and pirated products from the top 20 source economies Customs seizures

12 ► Outcomes: Scope of counterfeiting Virtually everything can (and probably has) been counterfeited, and is taking place in virtually every economy Analysis confirms counterfeiting of increasingly complex products sophisticated packaging security items (i.e. holograms) Growing trend towards everyday products intended to deceive consumers, many of which may affect public health and safety car parts Pharmaceuticals food/drink Evidence of growing infiltration of legitimate supply chains – an area of special interest to organised crime

13 ► Outcomes: Main Effects Counterfeiting and piracy… can impact negatively on innovation and growth may reduce employment can reduce foreign direct investment (FDI) damages sales volume, profits, brand value and capitalisation of rights’ owners can seriously affect health and safety of users reduce tax revenues to governments induce high costs on governments and industry to combat C&P encourages participation by organised crime and can be the cause of corruption

14 Specific issues related to food/drink sector Some doubt in the industry that there may be a problem Some evidence that this is a difficult sector for counterfeiters Counterfeiters focus on products that can be substituted (therefore easy to produce) Food/drink is a sector where counterfeiters set out to deceive Health risks of counterfeited food/drink can be significant Understandable reluctance to discuss instances of counterfeiting Evidence that counterfeiters targeting legitimate supply lines This heightens risk of involvement of organised crime

15 Why do people produce/consume C&P? (and why is organised crime interested?) Driving factors Market characteristicsProduct characteristics High unit profitabilityLow prices Large potential market sizeAcceptable perceived quality Genuine brand powerAbility to conceal status Production, distribution and technologyConsumer characteristics Moderate need for investmentsNo health concerns Moderate technology requirementsNo safety concerns Unproblematic distribution and salesPersonal budget constraint High ability to conceal operationLow regard for IPR Easy to deceive consumers Institutional characteristics Low risk of discoveryLow risk of discovery and prosecution Legal and regulatory frameworkWeak or no penalties Weak enforcementAvailability and ease of acquisition PenaltiesSocio-economic factors Counterfeit or pirate supply Knowing demand for counterfeit or pirated products

16 ► Outcomes: Distribution channels Most counterfeited goods are transported through commercial transport services often with appropriate documentation (such as Bills of Lading) Growing use of free trade zones these are used as gateways and way-points where goods can be broken down into smaller consignments sanitise documents to disguise point of manufacture elaborated and repackaged (often only become counterfeits at this point) The internet has emerged as a new and powerful means to sell via auction sites, stand alone e-commerce and solicitation

17 Importance vs. Priority Most governments have labelled counterfeiting and piracy as important problems. However, not always matched by priority other illicit activities are being given first call on resources (for example, drugs, people smuggling, gun running) Governments may better respond to these problems if they appreciate the corrosive effects of C&P especially organised crime and health/safety

18 Laws & regulations often ineffective Not properly enforced Insufficient public enforcement resources Low priority in courts Protection of locals Courts often lenient because counterfeiting and piracy are not considered to be serious crimes

19 Penalties do not always deter Civil remedies (including damages) generally insufficient to deter Criminal penalties and fines, even if available, rarely applied to full extent Therefore high rates of repeat offenders

20 Improving data collection This study has highlighted just how poor data really is Governments and industry can help themselves by maximising the value of data by ensuring that it is –systematically collected –comparable –comprehensive The reporting framework developed by the World Customs Organization (WCO) offers a useful template by other law enforcement agencies and industry

21 For the attention of policymakers Improve co-ordination amongst agencies Consider having a clear C&P policy, with measurable plans Have a clear and enforceable legal and regulatory framework Effective enforcement International co-operation, bilateral, plurilateral and multilateral Increase awareness amongst government officials and consumers Enhance co-operation with industry Monitor progress through programme evaluation and measurement

22 That counterfeiting and piracy is a significant and growing problem that has economic, social, health and safety consequences has been recognised at highest levels:  G8 meeting at Heiligendamm in June 2007 included Intellectual Property generally, and Counterfeiting and Piracy specifically, in its Summit Declaration A Unit has been established within the OECD to steer the implementation of the Heilingendamm Dialogue Process, including the promotion and protection of IP Dialogue will include the “O5” emerging economies: Brazil, China, India, Mexico and South Africa OECD may also do further counterfeiting work of interest to this industry sector (Phase III) and FIVS may wish to keep in touch with us Where to from here?

23 Danny Scorpecci Structural Policy Division Further information available >>> Contact us OECD 2, rue André-Pascal Paris CEDEX 16 France Phone: (331) Fax: (331) Website: