WIPOD – Page Points: Transcript of Episode 18

Intellectual Property and Counterfeit Goods

Estefania Arias
Hello, Page Point listeners. I hope you're doing well today. I am pleased to welcome Michael Blakeney, Winthrop Professor of Law at the University of Western Australia and author of the book, Counterfeit Goods and Organized Crime. His work dives into a critical issue that impacts development, consumer safety, and public order worldwide. That is the intersection of counterfeit goods and global criminal networks. In his book, Professor Blakeney also argues for an approach to disincentivize IP crime.

Michael, thank you for joining us today.

Michael Blakeney
Thank for the invitation. Look forward to speaking with you.

Estefania Arias
It is a pleasure for us too. So, Michael, can you start by explaining what counterfeiting is and what makes it such a large, yet dangerous trade?

Michael Blakeney
Counterfeiting involves the offering for sale of goods which masquerade as the genuine products of IP rights holders. It typically involves the unauthorized use of another's trademarks, industrial designs or patents. It has become a large trade because it's extremely profitable for counterfeiters. In 1986, when negotiations began for an international agreement to deal with the trade in counterfeit products, its size was estimated to be US $60 billion per annum. Ten years later, it was estimated to be worth $600 billion US per annum. And the most recent estimates are in excess of $2 trillion US dollars per annum. The principal reason for this growth is the involvement of organized crime groups both within countries and between countries.

So, for example, the Camorra mafia groups in Naples sell their counterfeit fashion products to mafia groups in the USA and South Korea. The Ndrangheta mafia group in Calabria sells its counterfeit olive oil into the USA through American mafia groups.

It's a dangerous trade because counterfeiters do not have to comply with health and safety standards. There is no recourse for those persons who are injured by counterfeit products as the counterfeiters are underground operators and not accountable to consumers.

Estefania Arias
As you mentioned, it is a big problem with big impacts. And I would like to ask you, because in your book, you outline the different impacts of trade in counterfeit goods for economies and societies, including those directly affecting consumer health and safety.

So, could you share some statistics or examples that illustrate the impacts of this activity?

Michael Blakeney
Well, the obvious health and safety impact arises from the sale of counterfeit medicines which contain no active ingredients. This has an obvious negative impact.

I should also explain that the way in which counterfeit medicines are distributed is generally through the mail. So, there are online sales, and they're distributed through the mail. So, it's very difficult for the customs to seize these counterfeit medicines. So, they don't add to the statistics at all.

In addition, counterfeit herbicides, fertilizers and pesticides are estimated to represent 10% of sales in Europe, with much higher percentages in Africa.

Given the massive size of illicit counterfeit production, legal businesses are significantly impacted as trade is diverted to counterfeiters and national revenues are substantially reduced.

And where the trade in counterfeit products is rampant, there's a negative impact on investment as investors don't want to go into countries where counterfeiting is at large.

Another related commercial impact is upon employment. A study by Frontier Economics estimated that job losses caused by counterfeiting around about 5 million in 2022.

Estefania Arias
Those are very concerning numbers and I see that the impacts of trade in counterfeit goods is not something that has a direct and immediate impact on societies, on consumers and public health and order, but it's more something that corrodes everything over time because it's the constant trade that, as you mentioned, is oftentimes very difficult to locate and for example for customs officials there's also the difficulty of tracing personal mail where a lot of counterfeit products are traded so it is something that it is worth taking close attention to.

So, moving to the next question, in your book you detail how organized crime networks are involved in the counterfeit production and distribution.
Could you elaborate what are those methods and strategies that these networks use and what are their motivations for engaging in counterfeiting?

Michael Blakeney
Well, the substantial profits that are made from counterfeiting make it attractive for organized crime groups to use these profits to corrupt public officials, such as customs officers, the police and the judiciary.

So, the distribution of counterfeit goods generally follows the same channels as those already established for the trade in illicit drugs, as I previously mentioned, because corruption has been established so channels that are reliable for the counterfeiters have been identified and these are used for counterfeit products, the same as for drugs, illicit drugs. Organized crime groups in different parts of the world work together to source and distribute their products.

For example, Chinese slave laborers have been identified in Italy working on the production of counterfeit cigarettes. And in Italy, mafia groups force legitimate traders into selling counterfeit products to unsuspecting customers. A significant public order development is the involvement of terrorist groups in the sale of counterfeit goods. A number of studies have identified the links between South American counterfeiters and Hezbollah.

Previously, the UK authorities have noted the involvement of the Irish Republican Army, terrorist group in the distribution of counterfeit products as the source of its funding. And the reason for this is that counterfeiting is generally considered to be a low-risk source of funds because it's not a high priority for the enforcement authorities.

Estefania Arias
I imagine that also, since it's a low-risk activity because it's like any other trade, but it doesn't involve, for example, as trading other illicit products such as drugs where there is potentially more violence and more risk associated with the production and distribution, with counterfeit products is more a parallel trade that they can get tons of profit from it.

You also argue that targeting precisely the financial motivations behind counterfeiting is key. Could you explain what is your proposed response for this issue and what are the potential benefits?

Michael Blakeney
In the book I argue that the huge profits to be made from counterfeiting is the principal driver of that trade. Consequently, the removal of those profits through confiscation is an obvious step to take. The United Nations Convention Against Transnational Organized Crime, known as UNTOC, which was adopted in 2000, identified confiscation as the primary sanction to deal with drug trafficking.

Other crimes sought to be combated by UNTOC were people and weapons smuggling as well as money laundering. Countries that have implemented UNTOC are now going after IP crime as they realize the public order implications of IP crime. However, to date, the confiscation of the proceeds of IP crime has not been hugely successful.

This is largely because the enforcement authorities are unfamiliar with IP crime. They generally identify their job as prioritizing crimes involving violence. Identifying counterfeit trademarks or counterfeit patented goods is not something that police or customs officials can easily deal with. So, this means there's got to be close collaboration between the private rights holders and the enforcement authorities. And this is also something that doesn't easily occur. Most of the success stories in confiscation come from the USA.

So successful examples involve the seizure of the proceeds of crime from the sale of counterfeit medicines such as Lipitor, where 2.2 million US was recently confiscated. So, Lipitor, which is an anti-cholesterol, is significantly counterfeited. And other lifestyle drugs, Viagra and so on are also counterfeited and sold into the USA. Counterfeit leather products are sold into fashion centers such as in California and a case that I was recently involved in resulted in the seizure of $5 million dollars in bank accounts together with motor vehicles and condos or apartments.

Other countries are slowly discovering that the confiscation of the proceeds of crime can be a source of funding for the enforcement authorities. So, the UK and Australia, by way of example, the enforcement authorities keep a third of what they seize and that subsidizes their enforcement actions. But a lot of education has got to be conducted throughout the world to improve the performance of confiscation as a remedy for counterfeiting.

Estefania Arias
Indeed, it is an interesting approach and it would be interesting to see if in the future more countries follow the approach of the ones who are already implementing it.

So, let's move to the case studies in your book, which explore counterfeit goods across sectors like medicines, food, wines and spirits, luxury items, as well as others. What do these examples reveal about the drivers, the scale and the impacts of trade in counterfeit goods and are there any lessons here about whether a one size fits all or a more specialized approach works best?

Michael Blakeney
Well, any product can be counterfeited. I've been focusing on medicines and medical related products because of their health impacts. These are more important. If I could use a recent example from Australia, the COVID-19 crisis resulted in the arrival of millions of counterfeit face masks which were intercepted. So, four million counterfeit face masks were intercepted in the first year of COVID, as well as counterfeit ventilators and counterfeit pharmaceuticals.

As for one size fits all, each country has its own problems. Now, the COVID-19 problem was universal, but other countries, for example, tropical countries that have got the problem of malaria, will want to target their enforcement activities against anti-malarials. Likewise, with antiretrovirals. These are significant in Africa.

I've mentioned the counterfeiting of olive oil. Other counterfeited food products include fruit juices, coffee, tea, olives and milk. To these can be added wines, spirits and beers.

I've also mentioned the counterfeiting of luxury goods such as leather products, watches and jewelry and garments. Also included in this category is the counterfeiting of perfumes and fragrances, many of which become dangerously acidic from being stored in the sun. So counterfeit perfumes coming from Indonesia, which have been standing in the sun, become quite dangerous. And obviously, where these are using the trademarks of legitimate trademarks, the reputation of those trademarks is severely damaged.

Another significant category of counterfeits is tobacco products, which are distributed by various organized crime groups, particularly motorcycle gangs. Other notorious examples of counterfeiting include the counterfeiting of motor vehicle and aircraft spare parts, which have obvious adverse safety consequences.

Estefania Arias
So, finally, could you share your thoughts? And you already briefly mentioned it when you were describing the confiscation of the proceeds of crime but, what other thoughts you have about the role of international cooperation in fighting trade in counterfeit goods and implementing your proposed approach? And also, how would raising public awareness fit into these efforts?

Michael Blakeney
Counterfeiting today is an international trade with products being sourced in one country, packaged in other countries and being distributed by yet other countries, sometimes online. To deal with this trade there has to be a cooperation between the enforcement authorities of the different countries who can share intelligence about those involved in counterfeiting.

It's sometimes necessary to pursue perpetrators who move between countries. And it's sometimes necessary to pursue the assets of counterfeiters, which can be stored in some countries, which are different from the countries in which they're trading.

I've done a bit of work with the European Union in the relatively new members of the European Union, so countries like Bulgaria, Romania, Latvia, Lithuania, and so on, which came from an economic system where private rights weren't initially recognized.

Intellectual property rights are private rights. So, the enforcement authorities in those countries are unfamiliar with enforcement and the EU has worked with those enforcement authorities to develop expertise. And that expertise can be shared with countries outside the EU such as Africa, Asia and so on. Interpol and the World Customs Authority have been sharing their expertise. So, there's a lot to be done.

Estefania Arias
Indeed, we still have a long road ahead. Thank you, Michael, for such an insightful discussion on this critical issue. Your work sheds light on the complex relationship between counterfeit goods and organized crime and offers valuable guidance for addressing it, which will be of great value to our listeners and readers of your book.

Michael Blakeney
Thank you.

Estefania Arias
You're welcome. And until next time, of course.

I hope that you enjoyed our conversation about the connections between trade in counterfeit goods and organized crime. Today's book can be found in our knowledge repository. Until next time and the next Page Points. Bye for now.