THE Scope and Global Impactof Trade IN Counterfeit gOODS

Peter N. FowlerSenior Counsel, USPTO

peter.fowler@uspto.gov

The Case of the Wine Stopper

• In Paris, in a display case in the Museum of the Union des Fabricants (Association of Manufacturers), there is a wine stopper which was made in Arles in the south of France around 27 B.C.

• In 27 BC, Arles was a Roman town and Romans drank (and preferred) Italian wines, not the local (and poor tasting) French wines.

• Roman wine was expensive, French wine was cheap.

The Case of the Wine Stopper

• One day, a local illiterate merchant in Gaul had an idea: One amphora looks pretty much like another and one could only really tell where a wine was from by the mark on the clay stopper, which was marked with the name of the original wine merchant.

• Such a mark was a guarantee of quality and a short cut to better profits.

The Case of the Wine Stopper

• So the local merchant made his own wine stopper – although not with his name, which meant little to Romans – rather he made it to look like the stoppers provided by the Roman wine merchant called Lassisus.

• But there was a flaw in this cunning plan to get rich quick: the local wine merchant could not read or write Latin, and instead of properly writing “Lassisus” on the stopper, he notched a series of indecipherable characters, making what looks like bird footprints where the name should be.

The Case of the Wine Stopper

• To the discriminating Roman consumer, such a obviously fake mark on the clay wine stopper would have been a dead give-away of a knock-off wine to be avoided.

• History does not record, and therefore we don’t really know, if fake wines were a major commercial or legal concern to the Romans, but such counterfeiting never went away.

• It is still a fact of life today for wines and for everything else throughout the world.

What else is in the display cases at the Union des Fabricants Museum in Paris?

• Almost anything you can imagine:

• Fakes of Hermés scarves, Ralph Lauren jeans, Giorgio Armani shirts, Chanel and Dior and Coty perfumes, Citroen brake parts and Peugeot engine parts, faked dictionaries, food blenders, hand bags and hand tools, Lea & Perrins Worchestershire Sauce, disposable razor blades and disposable syringes, Dijon mustard, and lots and lots of processed cheese.

• In fact, the Museum has one of the largest and probably the finest collection of fake cheese in the world.

The Moral of This Story

• The Union was founded in 1877 by French pharmaceutical companies who banded together as a result of their concern to resist widespread knock-offs of their products (and trademarks) by German competitors.

• The same thing is going on today with IPR rightsholders banding together to take action against counterfeitors and unfair competitors.

• There is nothing that can be made that’s not counterfeited – and it seems to be a part of human nature to do it.

Importance of IP

• “In recent decades, the fraction of the total output of [the U.S.] economy that is essentially conceptual rather than physical has been rising. The trend has, of necessity, shifted the emphasis in asset valuation from physical property to intellectual property and to the legal rights inherent in intellectual property.”

--Alan Greenspan, Former Chairman, U.S. Federal Reserve Board

Scope of IP Theft

• Virtually every product line and all regions of the world are vulnerable.

• Factors contributing to IP theft:• High-tech equipment/manufacturing• Sophisticated global economy• Increased world trade/commerce• Skilled and determined counterfeiters and

pirates with organized crime connections

Scope of the Problem

• In 2004, World Customs Organization (WCO) reported that its members conducted more than 4000 seizures involving more than 166 million counterfeit or pirated good.

• The World Health Organization (WHO) estimates that anywhere from 30%-50% of medicines in developing and emerging nations are counterfeit, and the poorer the country, the higher the percentage.

Scope of the Problem

• Range of counterfeit medical products includes not just medicines, but such things as: baby formula, pregnancy test kits, condoms, antibiotics, vaccines, anti-cholesterol tablets, HIV testing kits, dental products, blood tests, eye drops.

• The U.S. Centers for Disease Control and Prevention estimates that by 2010, annual global counterfeit medication sales will surpass US$75 billion.

Some Recent Examples:

• Last year, fake meningitis vaccines killed 2500 people in Niger.

• Counterfeit cough syrup killed 89 people in Haiti and more than 100 in Panama, Guatemala and El Salvador.

• Fake anti-malarial tablets killed 30 people in Cambodia.

Not a Victimless Crime

• Counterfeiting is not a victimless crime.

• It is an illegal global industry undermining the world’s economies and healthcare systems.

• It costs jobs, cripples developing countries, breeds corruption, undermines social support for law-abiding businesses, injures or sickens millions, spreads disease, and kills thousands of people annually.

• By condoning it or turning a blind eye to the problem, we become accomplices to theft, extortion and murder.

Not Limited to Luxury Goods• Airline, Auto/Truck, and Motorcycle Parts

• Light Bulbs, Batteries, Film, Electronics

• Foodstuffs, Beverages, Ice Cream, Seafood

• Skin Lotions/Creams, Mouthwash, Hygiene Products, Toothpaste, Shampoo

• Laundry Detergent, Soap, Bleach, Dyes

• Band-aids, Prosthetics, Silicone Implants

• Insecticides, Pesticides, Crop Fertilizers

• Alcohol/Spirits, Soft Drinks, Soy Milk, Beer

Impact of IP Theft• Costs to right holder

– Loss in revenues and profits– Diminished reputation/loss of goodwill

• Costs to countries/economies– Decreased FDI levels, impeded economic

growth, discourages innovation– Reduces tax revenues and eliminates jobs– Exposes market to substandard and

dangerous counterfeit goods that present public health and safety risks

Economic Impact of IP Theft• 7% of world trade is in counterfeit goods, and

it is estimated that counterfeiting and piracy is a $650 billion a year problem, with up to US$1,000 billion in international trade lost annually to piracy and counterfeiting.-Guy Sebban, Secretary General, International Chamber of

Commerce

• Counterfeiting has grown over 10,000% in the past two decades, from an estimated US$5.5 billion in 1982 to more than US$650 billion today.- Leonard Radebe, Deputy Chief Operations Officer and Head of Customs, South Africa.

Other Impacts of IP Theft

• Counterfeiters do not pay taxes– Less money for schools, hospitals, parks, and other social

welfare programs

• Counterfeiters are unfair to their employees– Unfair wages or benefits for employees– Poor or dangerous working conditions– Forced child labor or prisoner labor

• Organized criminal groups and terrorist organizations are turning to IP theft as a means to raise funds– Low risk of prosecution and enormous profit potential

Public Health and Safety

Perhaps most troubling is the widespread threat counterfeiting poses to public health and safety.-Orrin G. Hatch, United States Senator, R-Utah

Each time you take a drug, pop a cork on a bottle of your favorite alcohol, switch on an electrical device such as a household fan, drive your car or use any one of the thousands of products that make our material world, you take a chance that the product or some part of it is not genuine. Instead it may be counterfeit and as a result you may be injured or killed.- Michele Forzley, JD, MPH, author of Counterfeit Goods and the Public's Health and Safety (IIPI, 2003).

Public Health and Safety Dangers and/or Concerns• Counterfeit drugs account for 10% of all

pharmaceuticals, and up to 50-60% in developing and least developed countries

• Counterfeit drugs may or may not have the intended effects and may even be harmful– 16% of counterfeit drugs contain the wrong

ingredients– 17% contain incorrect amounts of the

proper ingredients– 60% have no active ingredients whatsoever

• Approximately 192,000 people died in China in 2001 due to counterfeit pharmaceuticals

• Dozens of infant deaths in eastern China may have been caused by counterfeit milk formula:

– Some infants weighed less after being fed the formula than when they were born

– Other babies’ heads grew larger abnormally while their bodies actually shrunk in size

• Counterfeit diet pills in Japan may have caused at least:

–Four deaths attributed directly to ingestion of the counterfeit pills

–Dozens of cases of liver disorders

–160 cases of general illness

–Hundreds or thousands of cases of long-term negative health consequences

• In 2001, the chief of security for Novartis International AG testified before the U.S. Congress regarding a counterfeit ring that:

– “Millions of yellow tablets that were virtually indistinguishable from the genuine product…”

– “…Made of boric acid, floor wax, and lead based-yellow paint used for road markings”

Potential Benefit as a result ofStronger IP Enforcement

• Asia-Pacific region could gain US$100 billion, gaining more benefits than any other region from piracy and counterfeiting reductions

– By way of example, IT sector poised to generate 3.5 billion new jobs in next four years – more than any other region combined – with help of economic stimulus resulting from 10-point drop in its software piracy rate.

Potential Benefit as a result ofIP Enforcement

• Slashing the Asia-Pacific region’s piracy and counterfeit rate by 10% would lead to positive results:

– Add US$135 billion to regional economy– Directly create more than 2 million new jobs– Increase local industry sales by more than

$100 billion– Could add $13 billion for governments in

tax revenues

References

• Information in this presentation was gathered from the following sources:

– Knockoff: The Deadly Trade in Counterfeit Goods, by Tim Phillips (2005).

– International Anti-Counterfeiting Coalition– International Intellectual Property Alliance– International Chamber of Commerce

Thank you!