WHITEPAPER
Tackling the Problem
of Counterfeiting
with IT
Introduction
The manufacture, smuggling and sale of
counterfeit goods is a growing problem for
society and industry. The total global
economic value of counterfeited products
is estimated at $650 billion and is
expected to rise to $960 billion by 2015
(Frontier Economics, 2011).
Drawing on a wide range of research
reports and publications, this whitepaper
looks at the scale and consequences of the
global counterfeiting problem. It then
considers the specific issues faced by a
number of key sectors including
pharmaceuticals, food and drink, tobacco,
electrical products, chemicals and
designer goods.
The whitepaper concludes by discussing
how the power of Information Technology
(IT) can be harnessed to improve the
efficiency and efficacy of organisations’
anti-counterfeiting operations.
ABM
Britannia House
Mere Way
Ruddington
Nottinghamshire
NG11 6JS
T
T
E
W
(UK) +44 (0)115 977 6999
(USA) +1-703-326-0473
[email protected]
www.abmsoftware.com
The Problem
The Global Problem of
Counterfeiting
Counterfeiting, the production of imitation
goods that are passed off as genuine products,
is a growing problem across the world.
Although it is difficult to measure accurately,
the International Anti-Counterfeiting Coalition
estimated that, since 1982, the annual global
trade in illegitimate goods has increased from
$5.5 billion (USD) to approximately $600
billion (USD), equating to 5-7% of world trade.
Frontier Economics published a report valuing
the total global economic value of counterfeit
and pirated products at $650 billion (USD) per
year. The same research estimates the traded
counterfeit and pirated products could be
worth up to $960 billion (USD) by 2015.
In 2009, 3.7 million counterfeit articles were
intercepted at UK borders. 118 million articles
were seized on EU borders (European
Commission, 2010).
An Organised Crime Task Force study by Bryce
and Rutter (2005) found that 73% of people in
the UK had seen counterfeit goods for sale
and 13% had bought fakes thinking they were
real.
Whichever way it is measured, counterfeiting
is clearly a significant phenomenon. But what
are the consequences of counterfeit
products?
WHITEPAPER: TACKLING THE PROBLEM OF COUNTERFEITING WITH IT
MAY 2011
COPYRIGHT © 2011 – ABM UNITED KINGDOM LTD
Total global
economic value of
counterfeit products:
$650 million
…Expected to grow
to $960 million
by 2015
118 million
counterfeit articles
seized at EU
borders in 2009
PAGE 2 OF 12
http://www.abmsoftware.com/intellicase
The Consequences of Counterfeits
Socio-Economic
The OECD (2008) identifies six primary socioeconomic consequences of counterfeiting:
1. Trade
In countries or regions where the
production and sale of counterfeits is
high, the import/export of legitimate
goods is reduced. Legitimate importers
are put off by the threat of intellectual
property theft and exporters may see the
reputation of their goods tarnished by
poor quality counterfeits. This can
negatively affect countries’ ability to
engage in international trade.
2. Foreign Direct Investment
Organisations are less likely to invest in
research and development or
manufacturing if they fear that new
WHITEPAPER: TACKLING THE PROBLEM OF COUNTERFEITING WITH IT
MAY 2011
COPYRIGHT © 2011 – ABM UNITED KINGDOM LTD
developments or knowledge will be
quickly copied by illegitimate imitations.
3. Innovation and Growth
Counterfeiting undermines the efforts of
innovators through the selling of cheap
fakes. This reduces the financial rewards
of innovation.
4. Employment
Growth in counterfeiting leads to a shift of
employment from legitimate employers to
clandestine operations where working
conditions are unregulated and often
substandard. Frontier Economics (2011)
states that, “if counterfeiting and piracy
could be eradicated, up to 2.5 million jobs
could be created in the legitimate
economies of the G20.”
PAGE 3 OF 12
http://www.abmsoftware.com/intellicase
5. Environment
Counterfeits can harm the environment in
three ways. Firstly, the production of
counterfeit products may subvert
environmental regulations so that
production processes and waste may
contaminate land, air or water. Secondly,
the use of counterfeit products, such as
counterfeit pesticides, may cause
environmental damage to the
environment. Thirdly, the destruction of
counterfeit products can result in more
landfill waste or toxic fumes from
incineration.
6. Criminal Activity
Counterfeit operations often provide
criminal networks with financial resources
to conduct illegal activity. In its current
“Fake Goods Fund Crime” campaign, the
UK charity Crimestoppers points out the
wider consequences of counterfeit goods
highlighting links to people smuggling,
drug-related crime, gun and weapon
possession, money laundering and benefit
fraud. Crimestoppers estimates that in
2007 around 70% of the £1.3 billion made
from intellectual property crime flowed
back to organised crime.
Rights-Holders
Counterfeiting impacts upon legitimate
businesses by reducing their income and
increasing costs.
1. Reduction in Sales
Producers of genuine products lose sales
to consumers who mistakenly purchase a
counterfeit product believing it to be
genuine. To a lesser extent, sales are also
lost to consumers who knowingly
purchase counterfeit products due to
their cheaper price-tag.
2. Increased Price Pressure
Counterfeiters are able to undercut the
genuine product’s price, putting
downward price pressure on legitimate
products.
3. Damage to Brand Value
Poor quality counterfeits can negatively
impact upon the reputation of the brand.
Such counterfeiting activity makes a
mockery of the millions spent on building
brand value through advertising and other
marketing expenditure.
4. Loss of Royalties
Intellectual Property Rights holders may
miss out on royalties from the sale of
licensed products.
5. Cost of Anti-Counterfeiting Operations
Brand owners can invest considerable
sums in product protection, special
packaging, litigation and counterfeit
investigations in order to prevent and/or
detect the production and sale of
counterfeit products
Around 70% of revenues from Intellectual
Property Crime flow back to organised crime
WHITEPAPER: TACKLING THE PROBLEM OF COUNTERFEITING WITH IT
MAY 2011
COPYRIGHT © 2011 – ABM UNITED KINGDOM LTD
PAGE 4 OF 12
http://www.abmsoftware.com/intellicase
Consumers
Government
While some consumers knowingly buy
counterfeit products due to the lower price,
others unwittingly purchase counterfeit
products. Expectations of the quality of the
product will vary between these two groups
but the following negative effects can be
identified:
It is estimated that counterfeiting costs the UK
government €4.1 billion per year in lost taxes
and increased benefit payments (Frontier
Economics, 2011).
1. Health and Safety
Counterfeit products may not meet safety
standards which can put consumers’
safety at risk. In extreme cases –
counterfeit automotive parts or
medicines, for example – the products are
potentially life-threatening.
2. Consumer Utility
Counterfeit products may not perform as
expected. They may not last as long as
expected (e.g. counterfeit fashion items)
or they may entirely fail to serve their
intended function (e.g. counterfeit
pesticides).
3. Identity Fraud
Counterfeit products are increasingly sold
on websites run by criminal organisations.
Although the counterfeit product may be
delivered, there have been numerous
cases of identity fraud following purchases
from such websites.
1. Loss of Tax Revenues
Most counterfeit products, due to their
illicit nature, evade legal tax
requirements, costing governments and
society significant tax revenues.
2. Increase in Benefits Payments
Counterfeiting results in the loss of jobs in
legitimate businesses, leading to
increased unemployment and a greater
burden on governments in supporting the
unemployed.
3. Anti-Counterfeiting Initiatives
Law enforcement, judicial proceedings,
public awareness campaigns and the
handling and disposal of seized goods are
all costs that governments must bear in
the fight against counterfeit goods.
4. Government Corruption
Failure to crack down on counterfeit
products allows organised criminal
networks to influence public officials
through bribery so that they can continue
their illicit operations unheeded.
Counterfeiting costs UK
taxpayers €4.1 billion per year
WHITEPAPER: TACKLING THE PROBLEM OF COUNTERFEITING WITH IT
MAY 2011
COPYRIGHT © 2011 – ABM UNITED KINGDOM LTD
PAGE 5 OF 12
http://www.abmsoftware.com/intellicase
Major Counterfeiting Sectors
Although counterfeiting affects all products, it
is a particular problem in a number of sectors.
The following considers briefly the scale and
impact of counterfeiting on these particularly
vulnerable products.
Pharmaceuticals
Counterfeit pharmaceuticals are not subject
to production controls, can contain ineffective
or dangerous ingredients and can ultimately
lead to death. Fake pharmaceuticals have a
negative impact upon the most vulnerable
people in the global society, with 10% to 30%
of medicines sold in developing markets
believed to be counterfeit.
OECD (2008) notes that “In cases where fake
antiretroviral drugs contain incorrect levels of
active ingredients, the disease becomes more
quickly resistant to first-line therapies, forcing
healthcare officials to resort to second-line
and potentially more toxic therapies,
increasing healthcare costs and reducing
access to essential medicines.”
IMPACT (2008) noted that, “the use of
substandard or counterfeit medicines can lead
to therapeutic failure or drug resistance. In
some cases, it can lead to death. In 2004, fake
medicines led to a trail of death in Argentina.
In 2006 more than 100 patients have been
killed in Panama by medicines manufactured
with counterfeit glycerin.”
WHITEPAPER: TACKLING THE PROBLEM OF COUNTERFEITING WITH IT
MAY 2011
COPYRIGHT © 2011 – ABM UNITED KINGDOM LTD
Technical Components and Electrical Items
The problem of counterfeit computer chips
and technical components has been widely
reported in the media. In 2008 it was revealed
(Grow et al, 2008) that counterfeit microchips
had been detected in US military fighter jets
while hundreds of counterfeit routers,
pertaining to be manufactured by technology
giant Cisco Systems, have been retrieved from
the U.S. Army, Navy and Air Force. The use of
counterfeit components in military operations
present a number of problems, including the
potential failure of mission-critical systems
and possible espionage attacks arising from
security vulnerabilities.
Aircraft and automotive parts are also
vulnerable to counterfeiting operations.
Forzley (1998) found that counterfeit parts
were identified in incidents or crashes in the
US in which 110 persons were injured in 1998.
In the automotive industry, critical
components including counterfeit brake pads,
hydraulic hoses, engine and chassis parts all
pose a serious health and safety risk.
Electrical items ranging from hair
straighteners to MP3 players, are heavily
counterfeited. The British Electrotechnical and
Allied Manufacturers Association (BEAMA)
reports that annually “around £30 million
worth of electrical counterfeits enter the UK
market”.
PAGE 6 OF 12
http://www.abmsoftware.com/intellicase
Food and drink
Software
Food and drink counterfeiting may range from
repackaging cheap products as more
expensive alternatives to manufacturing fake
products.
Frontier Economics (2011) finds that the
commercial value of digital software piracy is
something between $1.5 billion and $19
billion, while the Business Software Alliance
(2010) found that “the commercial value of
software piracy grew 14 percent globally
[since 2009] to a record total of $58.8 billion.”
Growing PC ownership and internet access is
making it increasingly easy for software to be
copied and distributed.
3 million food and drink items were seized by
customs officials on the EU border in 2009
(European Commission, 2009). HMRC seized
45,000 alcohol products in the UK in 2009/10.
Counterfeit food and drink can be dangerous.
In April 2011, for example, the UK’s Food
Standards Agency issued a health alert for
counterfeit vodka containing dangerous levels
of methanol which can lead to blindness.
Tobacco products
The manufacture of counterfeit tobacco
products is a major problem for tobacco
manufacturers and government. In 2006,
China’s State Tobacco Monopoly
Administration seized 9.07 billion counterfeit
cigarettes. The relatively high retail price of
tobacco products means that cheaply
produced fakes can yield significant profits for
counterfeiters. British American Tobacco
estimates that approximately 390 billion illicit
cigarettes (which includes genuine products
smuggled to avoid taxes) are sold every year,
representing 6% of total world cigarette
consumption and denying governments of
around $20 billion (USD) in annual tax
revenue.
Designer goods
The Intellectual Property Office (2010) reveals
the scale of counterfeit fashion. Nearly 70,000
footwear items, 524,000 items of clothing,
15,000 watches and 10,000 jewellery items
were seized by HMRC and UKBA in 2009/10.
Brand value is crucial to designer brands. Poor
quality counterfeit products harm the hardearned brand reputation and diminish brand
exclusivity.
WHITEPAPER: TACKLING THE PROBLEM OF COUNTERFEITING WITH IT
MAY 2011
COPYRIGHT © 2011 – ABM UNITED KINGDOM LTD
Audiovisual
Counterfeit DVDs and music reduce income
for film and music producers. The Motion
Picture Association of America (2005) found
that MPAA studios lost $6.1 billion to piracy in
2005 and that the UK loses $176m (USD) per
year in taxes due to piracy.
An IPSOS Survey in 2007 found that the
annual loss to the UK’s audio visual industry
through copyright theft is £486m. In 2007, the
Federation Against Copyright Theft (FACT)
seized 2.8 million DVDs and videos.
Chemicals and pesticides
The NFU highlights that the use of counterfeit
pesticides in farming can harm the crop yields,
the environment and people.
The European Crop Protection Association
found that 5-7% of Europe’s plant protection
products are illegal and that the number is
increasing year after year. The annual market
for counterfeit and illegal plant protection
products is estimated at €700 million, leading
to an estimated annual loss of €21-30 million
in tax revenues.
PAGE 7 OF 12
http://www.abmsoftware.com/intellicase
The Anti-Counterfeiting Process and IT
The OECD (2008) identifies four key industry
initiatives for combating counterfeiting and
piracy:
1. collecting intelligence, conducting
research and developing public
awareness about C&P issues
2. pursuing IPR violators in courts
3. supporting government efforts to
combat counterfeiting and piracy
4. taking action to make it harder for
pirates and counterfeiters to copy and
market their products
WHITEPAPER: TACKLING THE PROBLEM OF COUNTERFEITING WITH IT
MAY 2011
COPYRIGHT © 2011 – ABM UNITED KINGDOM LTD
Beyond these initiatives, an effective anticounterfeiting process consists of six key
components:
1. Intelligence gathering
2. Recording incidents
3. Investigation
4. Taking Action
5. Managing Cases
6. Reviewing
PAGE 8 OF 12
http://www.abmsoftware.com/intellicase
This cycle gradually builds up corporate
knowledge and understanding surrounding
the problem of counterfeiting. This allows
more informed decisions to be made to
support the anti-counterfeiting process.
IT supports the anti-counterfeiting process in
the following ways:
1. Intelligence Gathering
Suspicious activity, tip-offs from the public
and other unstructured pieces of
information do not, on their own, warrant
the allocation of company resources for
further investigation. However, this
information can collectively provide
important clues and information
surrounding potential or actual
counterfeiting activity.
IT can help by providing a central
database to quickly and easily record all
intelligence information. All personnel
within the organisation can submit
intelligence to ensure that intelligence is
not overlooked or missed.
2. Recording Incidents
Failure to properly record incidents of
counterfeiting is one of the primary
reasons for ineffectiveness in the anticounterfeiting process. Identifying
incidents of counterfeiting is an important
aspect of anti-counterfeiting operations,
but more can be achieved by engaging in
proper incident recording.
A structured database allows all details
surrounding counterfeiting incidents to be
properly recorded and stored. The use of
core entities helps to reduce duplicate
entries and alert the investigator to repeat
offenders.
WHITEPAPER: TACKLING THE PROBLEM OF COUNTERFEITING WITH IT
MAY 2011
COPYRIGHT © 2011 – ABM UNITED KINGDOM LTD
3. Investigations
The process of investigating counterfeiting
can be long and arduous. It can involve
teams of investigators working across
regional and international boundaries,
investigating multiple locations and
groups of people.
Software can help by providing a central
location to store securely all
correspondence, evidence and
information surrounding the investigation.
Workflow functionality can ensure that
members of the investigation team are
notified at appropriate points and that
tasks are properly allocated. Management
functionality can improve the oversight of
investigations, allowing managers to
monitor the workload of investigation
teams or individuals.
4. Take Action
Building up a database of intelligence
allows more informed decisions to be
made with regard to remedial security
initiatives. A better understanding of
areas of vulnerability allows effective
action to be targeted at the products or
locations most likely to benefit. IT allows
organisations to track the progress of
remedial and preventative action.
5. Manage Cases
Incidents and investigations may lead to
prosecution against the offending party. IT
can help to automatically create digital
case files from the intelligence and
information gathered during the
investigation. These electronic case files
can then be easily transferred to law
enforcement or solicitors to support
prosecution and pursue cases of
intellectual property violation.
PAGE 9 OF 12
http://www.abmsoftware.com/intellicase
6. Review
Any process should include a proper
review of successes and failures. By
managing the whole investigation within
one IT system, the review process is made
easier, with a clear view of outcomes and
results. IT can quickly report on the
number of investigations, the associated
costs and the level of success by value of
goods seized or number of successful
prosecutions. This information can be
used to inform future improvements to
the anti-counterfeiting process, facilitating
efficiency and efficacy improvements.
In summary, IT systems can provide a way of
recording all intelligence and investigation
details in one central location. This improves
access to information which, in turn, improves
investigative efficiency. A better informed
investigation team can deliver better results
and, ultimately, be a more effective force in
the fight against counterfeit goods.
IT systems can provide a way of
recording all intelligence and
investigation details in one
central location
WHITEPAPER: TACKLING THE PROBLEM OF COUNTERFEITING WITH IT
MAY 2011
COPYRIGHT © 2011 – ABM UNITED KINGDOM LTD
PAGE 10 OF 12
http://www.abmsoftware.com/intellicase
References
Beck, A. (2006) Staff Dishonesty in the Retail
Sector: Understanding the Opportunities.
Available online at
http://www2.le.ac.uk/departments/criminolo
gy/people/bna/StaffDishonestyintheRetailSect
orpdf
British American Tobacco (2008) Speech by
Michael Prideauc to the 4th Global Congress on
Combating Counterfeiting & Piracy
http://www.bat.com/group/sites/uk__3mnfe
n.nsf/vwPagesWebLive/DO7BZDAS?opendocu
ment&SKN=1
British Electrotechnical and Allied
Manufacturers Association Counterfeit Kills –
The Facts…
http://www.beama.org.uk/download.cfm/doc
id/CAAECBA0-755B-4C38-AAEFBB907639435A
Bryce and Rutter (2005) Fake Nation
http://www.cric.ac.uk/cric/staff/Jason_Rutter
/papers/FakeNation.pdf
Crimestoppers (2011) Fakes Fund Crime
http://www.fakesfundcrime.org.uk
European Crop Protection Association (2009)
Did you know?
http://www.illegalpesticides.eu/did-youknow/
European Brands Association (2005) Faking It:
Why Counterfeiting Matters
http://www.aim.be/database_sustainability_s
ocial_responsibility.htm
European Commission Taxation and Customs
Union (2009) Report on EU Customs
Enforcement of Intellectual Property Rights
http://ec.europa.eu/taxation_customs/resour
ces/documents/customs/customs_controls/co
unterfeit_piracy/statistics/statistics_2009.pdf
FACT (2011) FACT Seizure Figures and Analysis
http://www.factuk.org.uk/site/media_centre/dvd_seiz_0405.h
tm
WHITEPAPER: TACKLING THE PROBLEM OF COUNTERFEITING WITH IT
MAY 2011
COPYRIGHT © 2011 – ABM UNITED KINGDOM LTD
Framework Convention Alliance (2007) How
big was the global illicit tobacco trade
problem in 2006?
http://www.fctc.org/dmdocuments/fca-2007cop-illicit-trade-how-big-in-2006-en.pdf
Frontier Economics (2011) Estimating the
global economic and social impacts of
counterfeiting and piracy
http://www.iccwbo.org/uploadedFiles/BASCA
P/Pages/Global%20Impacts%20-%20Final.pdf
Grow, B., Tschang, C., Edwards, C. and
Burnsed, B. (2008) Dangerous Fakes
http://www.businessweek.com/magazine/con
tent/08_41/b4103034193886.htm Bloomberg
Businessweek
IMPACT (2008) Counterfeit Drugs Kill!
http://www.who.int/impact/FinalBrochureW
HA2008a.pdf
Intellectual Property Office (2010) IP Crime
Annual Report 2009 – 2010
http://www.ipo.gov.uk/ipcreport09.pdf
International Anti-Counterfeiting Coalition
The Truth About Counterfeiting
http://www.iacc.org/aboutcounterfeiting/the-truth-aboutcounterfeiting.php
Motion Picture Association of America (2005)
Worldwide Study of Losses to the Film Industry
& International Economies Due To Piracy
http://www.factuk.org.uk/site/media_centre/documents/200
6_05_03leksumm.pdf
NFU (2011) www.nfuonline.com
OECD (2008) The Economic Impact of
Counterfeiting and Piracy
http://www.keepeek.com/Digital-AssetManagement/oecd/trade/the-economicimpact-of-counterfeiting-andpiracy_9789264045521-en
PAGE 11 OF 12
http://www.abmsoftware.com/intellicase
About ABM
ABM is a global provider of secure software solutions designed to improve the management of
information and collaborative working. ABM benefits from 15 years of experience in delivering
business-critical systems for law enforcement agencies in the UK. Over 70% of the UK’s police forces
currently rely on ABM to provide the core systems which allow them to continue functioning
efficiently.
ABM has channelled its philosophy of providing secure, robust and
reliable applications into Intellicase – a solution that delivers first class
functionality coupled with the security, reliability and effectiveness that
organisations across the country depend on.
For more information about the Intellicase incident and investigation management system, visit
http://www.abmsoftware.com/intellicase
The information contained in this publication is for general guidance and information only. You should neither act, nor
refrain from action, on the basis of any such information. Whilst ABM United Kingdom Limited endeavours to ensure that
the information in this publication is accurate, neither ABM United Kingdom Limited nor ABM America Incorporated shall be
liable for any damages (including without limitation, damages for loss of business or loss of profits) arising in contract, tort
or otherwise from this publication or any information contained in it, or from any action or decision taken as a result of
reading this publication or any such information.
E Mills – 20 May 2011
WHITEPAPER: TACKLING THE PROBLEM OF COUNTERFEITING WITH IT
MAY 2011
COPYRIGHT © 2011 – ABM UNITED KINGDOM LTD
PAGE 12 OF 12
http://www.abmsoftware.com/intellicase