The Business of Fake Goods

Risk & Insurance, April 1, 2001 by Lori Widmer

"In the United States, we have very good laws regarding counterfeiting," says Warren. "There are huge civil penalties, there are damages up to $150,000 per violation, there are fines up to a quarter million dollars and five years in jail. They don't enforce intellectual property rights as well in countries like China and a lot of companies here are reluctant to do business there. On the other hand, it's a market of a billion people, so how do you ignore that? If you're a multinational company, you're probably losing millions of dollars per year overseas in these markets."

The IACC has the ability to impose sanctions on non-WTO members such as China, but once China becomes a member, their hands are tied, according to Trainer. According to Duperouzel, regulations in China do exist. "China's recent agreement with the U.S. regarding ascension into the WTO was agreed in part when China put in place a number of strong anti-counterfeiting and pro intellectual property laws. Many of my legal friends tell me that the laws are amongst the best in the world. The issue however is enforcement of those laws."

Unfortunately, security isn't able to address the enormity of the counterfeiting problem. In fact, as stricter laws and enforcement are applied in the United States, counterfeiters are finding new ways to operate. "One interesting trend that we've seen over the last few years is that many Chinese and Asian companies are now producing generic or unmarked items for sale to the U.S. and Europe and that the counterfeiters are putting the brands on them, say by sewing in the label, within the target country, thus avoiding the possibility of customs seizure," says Duperouzel.

What may finally bring about change in the counterfeiting industry is the offending country's desire to enter the global marketplace. The need to jump-start their lagging economies will ultimately convince government officials to crack down on the piracy and counterfeiting in their own back yards, says Warren.

"The U.S. is still the biggest consumer market and there are good and effective laws," he says. "But there's nothing you can ever do to stop the guy in Beijing from ripping off your software. Until we get to the point where other countries recognize intellectual property rights, there's virtually nothing you can do other than decide either that you want to be part of that market or that you don't."