IP CRIME ON THE RISE

IP crime is on the rise, particularly during these unprecedented times. An OECD report, based on data for 2016, estimates that in that year, the volume of international trade in counterfeit and pirated products could amount to as much as USD 509 billion. This represents up to 3.3 % of world trade. This amount does not include domestically produced and consumed counterfeit and pirated products, or pirated digital products being distributed via the Internet. The intensity of counterfeiting and piracy is on the rise, with significant potential risk for intellectual property (IP) in the knowledge based, open and globalized economy. In 2016, imports of counterfeit and pirated products into the EU amounted to as much as EUR 121 billion (USD 134 billion), which represents up to 6.8 % of EU imports. These results rely on customs seizure observations and do not include domestically produced and consumed counterfeit and pirated products; nor do they include pirated digital content on the Internet. Counterfeit and pirated products continue to follow complex trading routes, misusing a set of intermediary transit points. Many of these transit economies host large free trade zones that are important hubs of international trade. The use of small shipments for trade in fakes also keeps growing. Small shipments, sent mostly by post or express services, are an example of greater trade facilitation; on the other hand, they are also a way for criminals to reduce the chance of detection and minimize the risk of sanctions. The proliferation of small shipments raises the cost of checks and detention for customs and introduces additional significant challenges for enforcement authorities. There is thus a need for co-ordinated examination of policies in this area. Fake products can be found in a large and growing number of industries, such as common consumer goods, (footwear, cosmetics, toys), business-to-business products (spare parts or chemicals), IT goods (phones, batteries) and luxury items (fashion apparel, deluxe watches). Importantly, many fake goods, particularly pharmaceuticals, food and drink, and medical equipment, can pose serious negative health and safety risks. While counterfeit and pirated goods originate from virtually all economies in all continents, China and Hong Kong, China continue to be by far the biggest origin. The companies suffering from counterfeiting and piracy continue to be primarily registered in OECD countries; mainly in the United States, France, Switzerland, Italy, Germany, Japan, Korea and the United Kingdom. However, a growing number of companies registered in high-income non-member economies, such as Singapore and Hong-Kong, China, are becoming targets. In addition, a rising number of rights holders threatened by counterfeiting are registered in Brazil, China and other emerging economies. Counterfeiting and piracy thus present a critical risk for all innovative companies that rely on IP to support their business strategies, no matter where they are located. To understand and combat this risk, governments need up-to-date information on the magnitude, scope and trends of counterfeit and pirated trade.

EU Legislation

As defined in EU Regulation 608/2013, “counterfeit goods” in the EU are:

(a) goods which are the subject of an act infringing a trade mark in the Member State where they are found and bear without authorization a sign which is identical to the trade mark validly registered in respect of the same type of goods, or which cannot be distinguished in its essential aspects from such a trade mark;

(b) goods which are the subject of an act infringing a geographical indication in the Member State where they are found and, bear or are described by, a name or term protected in respect of that geographical indication; or

(c) any packaging, label, sticker, brochure, operating instructions, warranty document or other similar item, even if presented separately, which is the subject of an act infringing a trade mark or a geographical indication, which includes a sign, name or term which is identical to a validly registered trade mark or protected geographical indication, or which cannot be distinguished in its essential aspects from such a trade mark or geographical indication, and which can be used for the same type of goods as that for which the trade mark or geographical indication has been registered.

Some goods, including what are known as “grey market” goods, are not protected under the EU Regulation. Grey market goods are usually one of two types: either the goods were manufactured with the consent of the IP rights holder, but marketed without that consent, or the goods were excess goods that the manufacturer produced without the IP rights holder’s consent.

Goods that are for non-commercial purposes found within travelers’ luggage and goods that are in free circulation between EU member states are also not protected under the EU Regulation.

It is possible to submit an Application for Action (AFA)at the EU level (for customs action in two or more member states), which allows customs to identify potentially infringing goods. IP rights holders are able to provide technical data found on authentic goods, such as descriptions of the labels and bar codes found on those goods, which can be used by customs to help identify and prevent potentially infringing goods from entering the market. There is no fee for submitting an AFA, although rights holders are asked to reimburse the costs incurred by customs if infringing or counterfeit goods are detained and/or destroyed.

Moreover, IP rights holders can submit further information about their products via the New Trends form once an AFA form has been submitted to customs. And it is also possible to notify customs of urgent intelligence regarding counterfeit goods via the Red Alert form.

When customs detains potentially counterfeit goods, it will notify the IP rights holder, who has ten working days from the date of the goods’ detainment to inspect the goods and advise customs whether they are actually counterfeit. When what is involved are perishable goods such as food, customs will only detain the goods for up to three working days. But in that situation, customs will also notify the party who brought the goods into the EU (confusingly called the “holder of the goods” in the regulation) and give it up to ten working days to either object to their detainment or provide consent for their destruction. Further, if the holder objects to the detainment of its goods, customs will continue to detain them if the IP rights holder can demonstrate that it has commenced legal proceedings against the holder to determine if the goods are in fact infringing.

It is also possible for the rights holder to be notified of potentially infringing or counterfeit goods even where an AFA was not previously submitted, although this is fairly uncommon.

The best way to ensure that customs will take action at the border is to submit an AFA form containing all the necessary information on how best to identify genuine products. Ensuring that customs is kept up to date with any product or label chances is critical to the enforcement of your rights, as is notifying customs of recent counterfeit trends in the market via the New Trends procedure.

Brands are finding new ways to educate consumers and staff on how to identify fake products on the EU market through the use of social media and other online tools. For example, some companies have run competitions in which they’ve offered prizes to consumers who provide information on counterfeit operations, and other companies have offered discounts to consumers who provide that information. These are powerful ways to build brand awareness and foster consumer loyalty.

Additionally, building strong relationships with suppliers, distributors, and other business partners is a crucial way to prevent counterfeits or grey market goods from entering the EU market. And it is imperative that all of the contracts with business partners include language that expressly protects  intellectual property rights and also sets out the way in which any disputes over those rights will be resolved.

Note

The latest Intellectual Property Crime Threat Assessment, produced jointly between Europol and the European Union Intellectual Property Office (EUIPO), reveals that the distribution of counterfeit goods has been thriving during the COVID-19 pandemic. The health crisis has presented new opportunities for trade in counterfeit and pirated products, and criminals have adjusted their business models to the meet the new global demand.

1. In addition to the categories of counterfeited clothes and luxury products seized, there is a growing trade in fake products which have the potential to damage human health, such as counterfeit medicines, food and beverages, cosmetics and toys.
2. Counterfeit pharmaceutical products, ranging from a variety of medicines to personal protective equipment or face masks, have been increasingly identified in  recent years. Distribution has shifted almost entirely from physical to online markets, raising public health concerns. These illicit products largely continue to originate from outside the EU, but they may also be produced in illegal laboratories within the EU, which are difficult to detect and can be set up with relatively few resources.
3. The production of illicit food products, and especially drinks, has become more professional and sophisticated, with some counterfeiters covering the whole supply and distribution chain. Violations of protected geographical indications continue to be widely reported too.
4. Clothes, accessories and luxury goods remain among the most popular product categories for counterfeit goods, sold both online and in physical marketplaces. They are one of the top categories of the approximatively 66 million counterfeit items seized by authorities in the EU in 2020.

How criminal networks operate

The threat assessment highlights that the distribution of counterfeit products mostly relies on digital platforms, a trend which has been reinforced by the pandemic and widespread online consumption. Counterfeit goods are offered on online marketplaces, via live-streaming, videos and advertising on social media platforms, and instant messaging services, usually targeting customers with misleading discounts or low-price branded products.

Counterfeiting is a highly lucrative activity for the criminal networks involved, which reap large profits while running relatively few risks. 

IP crime has been included as one of the EU’s priorities in the fight against serious and organised crime from 2022 to 2025 as part of the European Multidisciplanary Plaftorm Against Criminal Threats (EMPACT).

Although the majority of counterfeits in the EU market are produced outside Europe, mainly in China and other parts in Asia, domestic manufacturing within the EU is an increasing trend. The increasing importation of counterfeit packaging materials and semi-finished products into the EU clearly points to the presence of illegal manufacturing facilities in the EU. Criminal networks based in Europe involved in IP crime carry out the distribution of imported counterfeits and, in some cases, operate modern production facilities that assemble semi-finished products.

Law enforcement seizures indicate that the production of these goods is increasingly taking place within the EU, and criminals rely reliance on the digital domain to source and distribute their illegal goods. There needs to be a concerted, cross-border action. The unscrupulous counterfeiters should be the only ones paying a steep price.

Other fake goods in the market

1. Mobile phones, their accessories and components are also among the top categories of fake goods seized, and are sold in great numbers during sales events such as Black Friday and Cyber Monday. Counterfeiters have recently been exploiting the global supply shortage in semiconductor chips. 
2. In the case of perfumes and cosmetics, the illicit production relates to everyday goods, such as shampoo, toothpaste, or detergents. 
3. The trade in illicit pesticides remains a low-risk, high-profit activity, sustained by a high demand and low sanctions for the offenders.
4. The COVID-19 pandemic also led to an increased offer of illicit digital content, which is often linked to other cybercriminal activities. Piracy is now mostly a digital crime, and websites illegally distributing audio-visual content are hosted on servers across Europe, Asia and the Middle East.

Sectors and Product Categories Summary

1. counterfeited clothes
2. counterfeited luxury products
3. counterfeited accessories
4. counterfeit medicines
5. counterfeited food
6. counterfeited beverages
7. counterfeited cosmetics
8. counterfeited toys.
9. counterfeited pharmaceutical products
10. counterfeited personal protective equipment or face masks
11. counterfeited packaging materials
12. counterfeited semi-finished products
13. counterfeited mobile phones, their accessories and components
14. counterfeited semiconductor chips
15. counterfeited perfumes
16. counterfeited cosmetics (shampoo, toothpaste, or detergents)
17. counterfeited tobacco
18. counterfeited parts (aviation, automobile)
19. counterfeited pesticides
20. illicit digital content
21. illicit audio-visual content