Transcript OECD Counterfeiting & Piracy Project

The Economic Impact of
Counterfeiting and Piracy
Madrid – 26 February 2009
Hisashi Yoshikawa
Deputy Director
Directorate for Science, Technology and Industry
OECD
Danny Scorpecci
Principal Economist, Structural Policy Division
Directorate for Science, Technology and Industry
OECD
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.
The OECD Project
Impact of innovation processes on growth and
social welfare
• Innovation is an important goal for policymakers
Innovation important as:
• a long run objective to stimulate growth
• one of the responses in this time of economic crisis
The OECD Project
Innovation processes are complex and there is a need
for trends, evidence, analyses and guidelines.
• OECD Innovation strategy formulates some innovation
enhancing recipes.
Intellectual property -- foundation and fuel for
innovation in the time of knowledge economy
• Importance of studies on IP infringements; scale,
effects, mechanisms
The OECD Project
Economic Impact of Counterfeiting and Piracy
Phase 1: Counterfeit and pirated products
• Tangible products that infringe trademarks, copyrights, patents or
design rights, report published in May 2008
Phase 2: Digital piracy
• With Governments for final approval. We hope it will be released
shortly. Some preliminary points will be touched on in this
presentation.
Phase 3: Other IPR infringements
• To be scoped and funded.
Phase I
The Economic Impact of Counterfeiting and Piracy
Tangible products that infringe trademarks, copyrights,
patents or design rights.
• Magnitude of the problem
• Effects of counterfeiting and piracy
• Market analysis
• Government and industry initiatives
• Sectoral case studies
phase I counterfeit and pirated products
Sectoral case studies
Sectors studied in depth
Other sectors considered
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automotive products
food/drink products
pharmaceuticals
tobacco products
music recordings
motion pictures and other video
content
• electrical components (including
batteries)
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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
phase I counterfeit and pirated products
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
• enterprises may be reluctant to divulge data
• Analysis showed that international trade in counterfeit or pirated
products could have been up to US$ 200 billion 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 was ill-defined, lacked
rigorous foundation and could not be confirmed or disproved
phase I counterfeit and pirated products
Extent of the problem
• 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, eg
• car parts
• Pharmaceuticals
• food/drink
• Evidence of growing infiltration of legitimate supply chains – an
area of interest to organised crime
phase I counterfeit and pirated products
Customs seizures
Seizures of imported counterfeit and pirated
products from the top 20 source economies
Region of top 20
source economies
Number of source
economies in region
Seizures
(% of total)
Asia (excl. Middle East)
Middle East
Africa
Europe
North America
South America
12
2
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1
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69.7
4.1
1.8
1.7
1.1
0.8
Top sources
20
79.2
phase I counterfeit and pirated products
What drives the demand/supply of C&P,?
Counterfeit or pirate supply
Knowing demand for
counterfeit or pirated products
Driving factors
Driving factors
Market characteristics
High unit profitability
Large potential market size
Genuine brand power
Product characteristics
Low prices
Acceptable perceived quality
Ability to conceal status
Production, distribution and technology
Moderate need for investments
Moderate technology requirements
Unproblematic distribution and sales
High ability to conceal operation
Easy to decieve consumers
Consumer characteristics
No health concerns
No safety concerns
Personal budget constraint
Low regard for IPR
Institutional characteristics
Low risk of discovery
Legal and regulatory framework
Weak enforcement
Penalties
Institutional characteristics
Low risk of discovery and prosecution
Weak or no penalties
Availability and ease of acquisition
Socio-economic factors
phase I counterfeit and pirated products
Main Effects
Counterfeiting and piracy…
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can impact negatively on innovation and growth
may reduce employment where originals are produced
can reduce foreign direct investment (FDI) where C&P takes place
damages sales volume, profits, brand value and capitalisation of rights’
owners, and can lead to unwarranted potential legal liability
can negatively affect consumer confidence
can seriously affect health and safety of users
evidence that legitimate supply lines are being infiltrated
reduces tax revenues to governments
induces high costs on governments and industry to combat C&P
encourages participation by organised crime and corruption
phase I counterfeit and pirated products
Outcomes: Distribution channels
• Most counterfeited goods are transported through commercial
transport services
- often with appropriate documentation (such as Bills of Lading)
• Growing use of transit points;
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especially Free Trade Zones
• The internet has emerged as a new and powerful means to sell via
auction sites, stand alone e-commerce and e-mail solicitation
phase I counterfeit and pirated products
Free Trade Zones
(or Economic Processing Zones – EPZs)
• FTZs have grown in importance in the context of
counterfeiting and piracy
• A definition of FTZs given in an OECD report* shows
why:
“a territorial or economic enclave in which goods
may be imported, stored, repacked, manufactured and
reshipped with a reduction in duties and/or minimal
intervention by customs officials”
* Export Processing Zones: Past and Future Role in Trade and Development, OECD 2007
phase I counterfeit and pirated products
Counterfeiters use FTZs
• Growing use of free trade zones
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these are used as gateways and way-points where goods
can be
• broken down into smaller consignments
• Documents sanitised to disguise point of manufacture
• elaborated and repackaged (often goods only become
counterfeits at this point)
• transhipped to disguise actual origin
• The lower intensity of customs surveillance in
free trade zones can be to counterfeiters’
advantage
phase I counterfeit and pirated products
Frequently used transit points for automotive parts
Number of times localities mentioned as transit points for counterfeited goods
Frequency
Frequently Mentioned
Moderately Frequently Mentioned
Sometimes Mentioned
Source: OECD Survey of the Automotive Industry.
Localities
UAE/Dubai
Lebanon
Turkey
Jordan
Saudi Arabia
Malta
Canada
Hong Kong (China)
Singapore
Eastern Europe
Chinese Taipei
Egypt
Colombia
Bulgaria
phase I counterfeit and pirated products
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 always considered to be
serious crimes
• Penalties don’t always deter
phase I counterfeit and pirated products
Why is organised crime interested in C&P?
• Profitability is high
• Market is large
• Demand is heavy
• Risk of detection and prosecution is relatively low
• Even if successfully prosecuted penalties low
• Bribery, corruption and coercion can facilitate business and
reduce risks
phase I counterfeit and pirated products
Attributes of organised crime suitable for C&P
• Resources to invest in production facilities
• Can obtain templates, plans and originals for copying
• Can create and maintain complex supply chains
• Experience in smuggling
• Can establish effective distribution/sales networks
• Can infiltrate legitimate supply chains
• Can protect operatives at all levels
• Can use bribery/corruption/coercion
phase II digital piracy
Phase II covers digital piracy of all copyrighted
materials.
• Pirate transactions that do not involve the use of physical
media
e.g. via Internet, LAN networks etc.
• Numerous industries affected by digital piracy:
music, movie, radio, television (including sports broadcasting),
software (business and entertainment)
• Many technical ways of market formation; most of them
rely on solutions developed for legal purposes:
Peer-to-peer networks (P2P), One-click hosting services, “Warez” sites,
streaming services, leech sites, etc.
Why have different Phases to the study?
This reflects very different markets for products covered
• Phase I: addressed physical/tangible goods, hence:
– fabrication facilities (hence investment), physical
transportation/distribution, targeted markets, products attacked
often mature
• Phase II: addresses digital content, hence:
– Virtually zero marginal cost of reproduction, no physical goods,
digital delivery; broad markets, products attacked at point of
greatest intrinsic value
phase II digital piracy
Markets for pirated digital products
Special economic properties:
• Some pirated digital content appears to be offered to
customers at almost zero price
perhaps driven by non-monetary supply drivers
• Some customers appear to pay for (pirated or legal)
digital content even though they could acquire pirated
alternatives for free (demand)
Important role of “transaction costs“ for customers decisions
phase II digital piracy
Possible market drivers
Supply drivers
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Attitude towards piracy
Reciprocity mechanism
Ease of distribution
Profitability
Legal and regulatory framework
Demand drivers
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Attitude towards piracy
Availability
Technical quality
Low security awareness
Ineffective enforcement
phase II - digital piracy
Case Study – Sports Rights Owners Sector
Market characteristics of live sports broadcasts
• Internet streaming technology enables pirates to attack
the live broadcast; when product has greatest value,
• Potentially legitimate markets may not be covered by
broadcasts and these may turn to illegitimate sources,
• Distribution can be located off-shore to minimise
detection – which delays/hinders redress,
• Unlike physical fabrication facilities distribution facilities
easy to re-establish even if closed down.
phase I counterfeit and pirated products
Importance vs. Priority
• Most governments have labelled counterfeiting and piracy
as important problems.
• However, not always matched by priority. Other illicit
activities given first call on resources (drugs, people
smuggling, gun running)
• Governments may better respond to these problems if
they appreciate the corrosive effects of C&P.
– especially if full account taken of role of organised
crime, the effects on health and safety, foregone tax
revenue and weakened incentive to innovate
phase I counterfeit and pirated products
Improving data collection
• This study has highlighted just how poor data really is
• Governments and industry can help by ensuring data is
– systematically collected
– comparable
– Comprehensive
• The reporting framework developed by the World
Customs Organization (WCO) offers useful template for
law enforcement agencies and industry
For the attention of policymakers
• Improve co-ordination amongst domestic agencies
• Consider having a clear C&P policy
• Have a clear and enforceable legal and regulatory framework
• Ensure effective enforcement
• International co-operation where there are cross-border
transactions,
• Increase awareness amongst government officials and
education of consumers
• Enhance co-operation with industry
• May be need to embrace new business models – especially in
the digital market
For further information
>>> Contact us
Danny Scorpecci
Directorate for Science,
Technology and Industry
OECD
2, rue André-Pascal
75775 Paris CEDEX 16
France
Email: [email protected]
Phone: (+33) 1 4524 9433
Fax: (+33) 1 4430 6257
Website: www.oecd.org/sti/counterfeiting