What are the economic and social consequences of counterfeiting and piracy?
Piracy and counterfeiting activities not only affect the (private) rights of intellectual property right holders and their concomitant economic and moral interests, but also harm national economies and social structures. Exact figures of the impact on a worldwide scale are difficult to measure; however certain trends and consequences can be assessed.
Economic consequences of piracy and counterfeiting to the right holders are obvious. However, the economic consequences of a widespread piracy and counterfeiting business in a country may go much further. Manufacturers of affected products have a direct loss in sale revenues; this is often directly related to losses in tax revenues, and may also result in job losses. In social terms, the illegal business of counterfeiting and piracy brings with it all the negative side effects of clandestine labor.
In addition, a certain market destabilization can be seen in areas heavily affected by counterfeiting and piracy. Manufacturers, both local and from abroad, loose trust in the market place if they realize that their IP rights are not respected and cannot effectively be enforced. This has been demonstrated to lead to a decline in investment. In a classic study (Mansfield 1995), a large percentage of chemical, drug, machinery and electrical equipment firms surveyed reported that the strength or weakness of intellectual property protection in any given country was an important aspect of their decision to make direct investments there.
Additionally, an unsound environment for invention and cultural creativity as such can be a disincentive to engaging in creative work and research. This in turn will affect the cultural, economic vitality and development of a country.
Another negative impact is the illegal and often criminal environment in which the illicit piracy and counterfeiting activities take place and the resulting negative impact on the public order. Because of the high profit and the relatively low risk, counterfeit and piracy activities are in many cases related to organized crime. Profits made from illicit activities can be employed to fund other criminal activities. This interrelation between IP rights infringements undertaken on a commercial scale on the one hand, and criminal infrastructures on the other, has heightened awareness among policy makers and law enforcement agencies around the world.
Finally, the aspect of a concrete risk for security and health of consumers is becoming an ever greater threat. The highly dangerous effects on consumers of fake medicines, cosmetics, surgical equipment, food, cigarettes, alcoholic drinks, vehicle and aircraft parts, etc. receives increasingly attention among policy makers in the past years. The World Health Organization maintains a list of various cases of counterfeit medicines, some of which are less efficacious or even contain no active ingredients. In the worst cases, such medicines even contained poisonous elements, and led to disastrous effects among consumers.
Further studies on these interrelations will be needed to fully assess the impact of counterfeiting and piracy on todays society and economy, and to identify strategies and effective practices to help rightful owners protect their rights.