This document discusses the impact of counterfeiting on international markets. It finds that counterfeiting results in billions of dollars in lost sales annually for legitimate businesses. It damages brands' reputations when customers receive low-quality counterfeit goods. Advances in technology, increased international trade, and emerging markets have all contributed to the growth of counterfeiting in recent decades. Measuring the scale of counterfeiting is difficult due to its clandestine nature. The International Chamber of Commerce estimates that the value of counterfeit goods was between $710-917 billion in 2013 and projects it could reach $991 billion by 2022 if trends continue.

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RAJIV GANDHI NATIONAL UNIVERSITY OF LAW, PUNJAB
PROJECT REPORT ON
THE IMPACT OF COUNTERFEITING IN INTERNATIONAL MARKET
SUBMITTED IN THE PARTIAL FULFILMENT OF B.A. LL.B. (HONS.)
8th
SEMESTER
DATE: 13 MAY, 2021
SUBMITTED TO: SUBMITTED BY:
PROF.IVNEET WALIA SUDHANSHU BISEN
ASSISTANT PROFESSOR OF LAW ROLL NO. 17147

2. Contents
` .......................................................................................................................................................................................... 1
INTRODUCTION TO COUNTERFEITING................................................................................................................ 3
The impact of counterfeiting ........................................................................................................................................... 3
Key impacts of counterfeiting.......................................................................................................................................... 4
Loss of Sales...................................................................................................................................................................... 4
A reputation under attack ............................................................................................................................................... 4
Civil, administrative and criminal offence..................................................................................................................... 5
Civil action................................................................................................................................................................... 5
Criminal offence.......................................................................................................................................................... 5
Administrative action.................................................................................................................................................. 6
Some factors behind the rapid increase in counterfeiting............................................................................................. 6
Advances in technology............................................................................................................................................... 6
Increased international trade..................................................................................................................................... 7
Emerging markets....................................................................................................................................................... 7
Emerging products...................................................................................................................................................... 7
Difficulties in measuring the market for fakes............................................................................................................... 8
Key data by international chamber of commerce.......................................................................................................... 9
Conclusion....................................................................................................................................................................... 10

3. INTRODUCTION TO COUNTERFEITING
To counterfeit means to imitate something authentic, with the intent to steal, destroy, or replace
the original, for use in illegal transactions, or otherwise to deceive individuals into believing that
the fake is of equal or greater value than the real thing. Counterfeit products are fakes or
unauthorized replicas of the real product. Counterfeit products are often produced with the intent
to take advantage of the superior value of the imitated product. The word counterfeit frequently
describes both the forgeries of currency and documents, as well as the imitations of items such as
clothing, handbags, shoes, pharmaceuticals, automobile parts, unapproved aircraft parts (which
have caused many accidents), watches, electronics (both parts and finished products), software,
works of art, toys, and movies.
The impact of counterfeiting
Industry world-wide loses large amounts to counterfeiters. These losses not only affect the
producers of genuine items, but they also involve social costs. The ultimate victims of unfair
competition are the consumers. They receive poor-quality goods at an excessive price and are
sometimes exposed to health and safety dangers. Governments lose out on unpaid tax and incur
large costs in enforcing intellectual property rights. There is also an increasing concern that
counterfeiting is related to other criminal activities, such as trade in narcotics, money laundering
and terrorism.
It is estimated that trade in counterfeit goods is now worth more than 5 per cent of world trade.
This high level can be attributed to a number of factors: i) advances in technology; ii) increased
international trade, emerging markets; and iii) increased share of products that are attractive to
copy, such as branded clothing and software.
Counterfeiters create serious problems for authentic businesses, but too many people are unaware
of the full extent of the impact of counterfeit goods on brands. Red Points details the five most
harmful consequences of counterfeiting.

4. Key impacts of counterfeiting
 Stealing sales by undercutting prices
 Damaging authentic brands’ reputation
 Leaving companies to deal with the fallout of counterfeits
 Harming the long-term trust built with business partners
 Forcing brands to spend time and money fighting fakes
Loss of Sales
Starting simple, if you are selling a product, and a counterfeiter competes with you by offering
customers a copy of your own product at a lower price, you lose some sales to these cheaper
items.
Not long ago, customers were better able to identify fakes and knew what they were getting when
presented with counterfeits. But, in the online world the lines between real and fake are less clear.
Counterfeiters are able to operate very effectively online, by stealing a company’s designs and
branding and even by mixing their knock-off goods with their online product reviews. The images
used of the product are sometimes the brand owners real photos, leaving the customer playing a
guessing game between what is real and fake.
Counterfeits have become real competitors, and they can gut a company’s cash flow if left to
operate freely. Over €26bn is lost annually from counterfeiters in the fashion industry alone, and
this problem extends across a multitude of sectors.
A reputation under attack
Another side-effect of counterfeiting is that companies take a hit to their reputation. Since many
customers are unaware that the product in their hands is a fake, when the knock-off item fails to
work correctly, or it falls apart quickly, or it doesn’t meet their expectations, then the customer
will blame the authentic company.
Word of mouth is, as we know is one of the most powerful forms of marketing. So, when these
customers receive poor copies of a product, word can spread that it is the real product that is not
up to scratch.
Customers will also leave negative reviews online, further cementing this new reputation crisis
and furthering the idea that the real brand makes low-quality goods.

5. This does twice as much damage on Amazon; with their combined listings system, a customer can
buy a knock-off from the official listing, and come back to the same page to share negative
opinions. These online reviews are used as public indicators for brand quality, so the impact can
truly resonate.
Civil, administrative and criminal offence
Civil action
As intellectual property rights have become more important for companies and received more
attention from governments, countries have responded to domestic and international pressures and
have strengthened legal protection in favour of right holders. The most common action against
counterfeiters is civil litigation. The action generally involves proceedings against those directly
involved in the production, distribution and sale of counterfeit goods. Judicial procedures for
some form of litigation are in place in most countries and Article 42 of the TRIPs Agreement
includes it as a basic protection for right holders:
“Members shall make available to right holders civil judicial procedures concerning the
enforcement of any intellectual property right covered by this Agreement”
Whilst the Agreement outlines basic fair and equitable procedures, their efficiency may vary
Significantly. The right holder often has difficulties in obtaining and preserving the necessary
Evidence of counterfeiting and, even if the court awards substantial damages, it may be difficult
to secure any payment.
Criminal offence
During the last two decades, many countries have taken steps towards introducing legislation that
makes product counterfeiting a criminal offence. The liability can either be based on general
matters of criminal law such as an attempt to defraud, or result from provisions in trademark
legislation. Product counterfeiting will inevitably be criminalised in all countries that are
committed to the TRIPs Agreement. Article 61 of the Agreement obliges contracting parties to:
“…provide for criminal procedures and penalties to be applied at least in cases of wilful
trademark counterfeiting or copyright piracy on a commercial scale…”

6. However, despite the development in legislation, trademark owners may still face difficulties in
persuading enforcement authorities to take action against counterfeiters. This is due to a number
of factors: i) counterfeiting is often given a low priority compared to other criminal offences; ii) it
maybe difficult to uncover the full scale of a counterfeiter’s activities; and iii) the procedural rules
are often too complex to make it worthwhile to enforce the law (Clark, 1997).
Administrative action
Administrative intervention is often necessary to prevent the distribution of counterfeit goods.
This is particularly important in the case of international trade in counterfeits where the customs
authorities play an important role. Article 51 of the TRIPs Agreement obliges contracting parties
to:
“…adopt procedures to enable a right holder, who has valid grounds for suspecting that the
importation of counterfeit trademarks or pirated copyright goods may take place, to lodge an
application in writing with competent authorities, administrative or judicial, for the suspension by
customs authorities of the release into free circulation of such goods…”
Trademark owners face several problems in trying to initiate administrative intervention in some
countries. They are often required to provide very specific information about the suspect
consignment, which may be difficult to obtain and there are often high costs involved in applying
for suspension.
Some factors behind the rapid increase in counterfeiting
While counterfeiting existed prior to industrial revolution, large-scale counterfeiting is a
postindustrial phenomenon and the modern wave of international trade in counterfeits originated
in the mid-1960s. A number of factors can be attributed to the rapid increase experienced during
the last few decades:
Advances in technology
New technology has not only benefited manufacturers of genuine products, but also
counterfeiters. The photocopying machine is, for example, considered to be one of the main tools
in a counterfeiter’s tool box. New techniques have furthermore enabled counterfeiting of what
were normally considered as “high-tech” products, too complicated to fake. Pharmaceuticals,
electronic components and rescue equipment are some examples.

7. The counterfeiter can demand a higher price for his low-cost products since these products have a
high value-added element.
Increased international trade
International trade, including trade in counterfeit products, has increased dramatically over the
last few decades. Virtually all regions are both production and consumption areas for counterfeit
products. Although an expansion of border measures would enhance the means of combating
international trade in counterfeit goods, it is unlikely to produce significant results unless matched
by a corresponding increase in the resources available to customs authorities to devote to anti-
counterfeiting work.
It is noteworthy that, despite inspecting only 3 per cent of shipments, US Customs confiscated
more than US$37 million of counterfeit goods in 1994 alone (US Customs Service, 1997). In
view of the world-wide growth of regional economic integration (e.g. the European Union and the
North American Free Trade Agreement), the effects of any expansion in border measures to
combat counterfeiting have been offset by a more general trend in favour of dismantling border
controls to ease the flow of international trade.
Emerging markets
A number of economies that were previously controlled are now being transformed into free
market economies. Unfortunately, the speed of transformation has been somewhat too fast for the
enforcement agencies, particularly in Eastern Europe and the former Soviet Union. These markets
are now emerging as both large producers and consumers of fakes. Although counterfeiting
occurs more or less throughout the world, East Asia, including China, is still pinpointed as the
main source of fakes. This region has increased its relative share in world trade, implying
increased exports of counterfeits along with genuine products.
Emerging products
The share of semi-manufactured and manufactured products have increased world trade at the
expense of trade in raw materials. Manufacturing now accounts for 75 per cent of total world
exports. Processed, high value-added goods are naturally also more likely to be counterfeited.
Electronic products, such as software and music recordings, are not included in world trade
figures. These are rapidly becoming the products most affected by counterfeiting. It is difficult to
predict whether counterfeiting will decrease or increase in the foreseeable future.

8. On the one hand, technological development is enabling counterfeiters to produce fakes relatively
cheaply and easily. The distribution of fakes is becoming increasingly sophisticated through
international networks and the range of products targeted has widened, increasing the total market
for fakes. On the other hand, there is a greater awareness among enforcement agencies and the
public about the health and safety risks of fakes, intellectual property protection has been
improved throughout the world and companies are able to protect their products with increasingly
sophisticated anti-counterfeiting technologies.
Difficulties in measuring the market for fakes
Whereas the arguments support the general perception of an increase in counterfeiting activity,
they cannot really be empirically tested. Estimates are difficult, mainly due to the following two
difficulties:
◊ Measuring production. Counterfeiting is a clandestine activity and fakes are produced,
distributed and sold outside the recorded market. Virtually no counterfeiters register their
operations or pay tax. Therefore, the production of fakes cannot be quantified.
◊ Measuring sales. The losses to producers of genuine items cannot be quantified by subtracting
the number of items sold from the total number of units that could be absorbed by the market, i.e.
the total market size. The market for genuine products and that for counterfeits should be treated
as two separate markets, where the tools to measure the former will not necessarily apply to the
latter.

9. Key data by international chamber of commerce
analysis shows that the scale of counterfeiting and piracy globally is large, that it has grown since
previous estimates, and that this growth is expected to continue. Our estimates of these values
across all four quadrants are shown in Table 1.S below.
We estimate that the value of international and domestic trade in counterfeit and pirated goods in
2013 was $710 -$ 917 Billion. We estimate that, in addition to this, the global value of digital
piracy in movies, music and software in 20153 was $213 Billion.
We estimated wider economic costs associated with the effects of counterfeiting and piracy on the
displacement of legitimate economic activity. This estimate also provides a starting point for
inferring fiscal losses. We also estimated the effects of counterfeiting and piracy on Foreign
Direct Investment (FDI) and crime.
We find significant effects on the job market through the displacement of legitimate economic
activity by counterfeiting and piracy. We estimate net job losses in 2013 to lie, globally, between
2 and 2.6 million, and we project net job losses of 4.2 to 5.4 million by 2022.
We also estimated the effects of changes in the incidence of counterfeiting and piracy on
economic growth. Our econometric model, estimating the impact of changes in the intensity of
counterfeiting and piracy on economic growth, suggests that a percentage point reduction in the
intensity of counterfeiting and piracy would be worth between $30 Billion to $54 Billion in 2017
for the 35 OECD countries.
Our forward projections begin with OECD/EUIPO’s estimates of international trade in counterfeit
and pirated goods, augmented by forecasts of growth in import volumes and the ratio of customs
seizures to real imports. Using these, we forecast that the value of trade in counterfeit and pirated
goods could reach $991 Billion by 2022.
We carry out a similar exercise to illustrate how the size of domestic production and consumption
of counterfeit and pirated goods may change over time. We use data on recent and forecast rates
of growth in global trade and GDP, and projected growth in the rate of counterfeiting. Using this
approach, we forecast that the value of domestically produced and consumed counterfeit and
pirated goods could range from $524 – $959 Billion by 2022.

10. Applying the methodology used in our previous study, we combine two different approaches to
project digital piracy into the future. The first approach assumes that digital piracy will maintain
its share of total counterfeiting and piracy over time. The second approach assumes that digital
piracy grows proportionally to global IP traffic. Combining these two approaches, we forecast
that the value of digital piracy in movies, music and software could reach from $384 – $856
Billion by 2022.
Conclusion
The impact of counterfeit goods on an organisation run deeply, and can cause long-lasting
damage. Brands will see a sales hit once the problem becomes widespread, since counterfeiters
are able to undercut them on price.
Their reputation is also under threat, since consumers will equate their brand with the possibility
of buying a counterfeit. Red Points’ research has shown that, when made aware of widespread
counterfeiting of a brand, most consumers will see that brand as less desirable.
Once a customer has bought a fake, if they don’t realise the nature of the product, many will
return to the authentic brand for a solution. This leaves the brand in a situation of cleaning up a
counterfeiter’s mess, for none of the reward.
The actions of counterfeiters can also damage a brand’s value in the eyes of distributors and other
partners. Exclusivity deals can essentially be voided by the actions of criminals, and can leave
legitimate businesses on each side of an agreement dissatisfied.
Finally, brands then have to pull resources away from important projets and growth, and
distribute them into efforts of fighting counterfeiters. Like how a city with high levels of crime
finds it hard to build parks and museums, brands suffering from counterfeiting tend to struggly to
flourish as they deserve to.
Companies like Lounge and others all tried to face the problems of counterfeiting alone when the
harms caused by counterfeiting became apparent. What they each found is that the traditional
approach is ineffective. Widespread counterfeiting operating across the internet is a modern
problem, and a modern brand protection solution is required to combat the counterfeit industry.

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