Counterfeiting Costs US Businesses $200 Billion Annually

In looking around for something to write I stumbled across a press release from August 10, 2010, issued by Your Baby Can, LLC. This is the company that advertises almost non-stop on Sirius/XM every morning, at least on ESPN Radio, claiming that all you have to do is put your children in front of the video and they miraculously learn to read. I have often joked about the commercial and how unrealistic and almost comical it seems, but when I noticed a copyright/counterfeiting angle I was immediately intrigued.

The press release explained that Your Baby Can, LLC was awarded another judgment against an Internet counterfeiter, this time in the amount of $155,600. On July 17, 2010 Judge Valerie Baker Fairbank signed a judgment in favor of Your Baby Can, LLC, against Ms. Judy Chan for that amount. Judy Chan was found guilty of selling counterfeits of Your Baby Can Read! on eBay under the seller ID “fine_treasure4u.” So the plot thickens.

In the past the PLI Patent Bar Review Course, which I teach for and enjoys the reputation as the Number 1 patent bar review course in the nation, has had counterfeiting problems with courses, or portions of courses, being copied and sold on eBay.  It would seem that eBay specifically and the Internet generally are a counterfeiter’s dream come true.

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As Your Baby Can explains, counterfeit products typically leave consumers quite disappointed because they are inferior. In fact, according to Your Baby Can, hundreds of unhappy customers seek help from Your Baby Can to get refunds on inferior products purchased from counterfeiters. Perhaps these purchasers mistakenly believe they are purchasing authorized products, or are just reaching out for assistance have been scammed. Unfortunately no company can help consumers that are duped by unlawful counterfeiters, so consumers need to be extremely careful when they purchase and they are not purchasing directly from the source. The best way to avoid being scammed into buying counterfeits is by purchasing products only from official websites and distributors.

According to the Your Baby Can press release, counterfeiting costs American businesses an estimated $200 billion a year. This number struck me as exceptionally high, so I did a little digging. The New York Times has recently done a couple stories on counterfeit products, and in one story – Economic Indicator: Even Cheaper Knockoffs – this $200 billion a year figure is used.

It has been pointed out on the Internet in a variety of places that there is little information to back up this figure (see Hey NY Times), and that is indeed true it seems, but hardly surprising. Counterfeiters are criminals and do whatever they can not to get caught. There are a variety of ways to judge the true costs, but unless you could get reliable information on every black-market sale the numbers would and could always be questioned. Obviously, getting criminals to report their crimes is fanciful and ridiculous to the extreme, so quibble with the figures if you will, but who among us really thinks counterfeiting isn’t a huge issue?

As explained by the Organisation for Economic Co-Operation and Development in a draft report: “The overall degree to which products are being counterfeited and pirated is unknown and there do not appear to be any methodologies which could be employed to develop an acceptable overall estimate.”  The OECD draft report goes on to explain that based on best estimates that international trade in counterfeit and pirated goods could well have accounted for up to US$ 200 billion in 2005, but that figure does not tell the entire story. This $200 billion figure does not include counterfeit and pirated products that are produced and consumed domestically, nor does it include the significant volume of pirated digital products distributed via the Internet.

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The OECD draft report also explains that the scope of products being counterfeited and pirated is expanding, making a shift from luxury goods to common products.  Given the notoriously low quality of counterfeit products there is a growing health and safety risk associated with substandard counterfeit products.

The International AntiCounterfeiting Coalition Inc., (IACC), which is a Washington, D.C.-based non-profit organization devoted to combating product counterfeiting and piracy, has some extremely eye opening statistics relating to counterfeiting and the cost in terms of jobs.  The IACC claims:

• Counterfeiting costs U.S. businesses $200 billion to $250 billion annually.
• Counterfeit merchandise is directly responsible for the loss of more than 750,000 American jobs.
• Since 1982, the global trade in illegitimate goods has increased from $5.5 billion to approximately $600 billion annually.
• Approximately 5%-7% of the world trade is in counterfeit goods.
• U.S. companies suffer $9 billion in trade losses due to international copyright piracy.
• Counterfeiting poses a threat to global health and safety.

Critics will be quick to point out that the  the IACC is comprised of a cross section of business and industry – from autos, apparel, luxury goods and pharmaceuticals, to food, software and entertainment.  As an non-profit with members from the private sector they may well have an interest in elevating the problem, and perhaps the critics are correct.  Perhaps these numbers are high but surveys carried out in the United States by Gallup indicate that 13-14% of survey respondents personally purchased, copied or downloaded products that they knew or suspected were not genuine in 2004 and 2005. See OECD draft report at section 3.27. So we are fooling ourselves if we are tempted not to believe counterfeiting is a major and growing problem.

While it is clear that counterfeiting costs U.S. businesses many billions of dollars a year and costs the economy many millions of jobs every year, which right about now could be quite helpful to have, perhaps the most alarming thing is the close tie to organized crime. According to the OECD,

There is clear evidence that criminal networks are playing a significant role in counterfeiting and piracy… The high profitability of many counterfeiting and piracy operations and low risk of detection and prosecution have provided an attractive environment for the illegal activities. The networks sometimes resort to extortion and bribery of public officials to facilitate their operations, thereby weakening the effectiveness of public institutions at the expense of society at large.

When the rule of law is compromised and justice is for sale it is hard to look the other way.  Increasingly the realities of justice for sale are making themselves known in the United States as drug lords murder politicians and those who won’t go to work for the cartels.  When public officials are bribed and criminals are given a free reign we all have a lot to worry about, and particularly at a time when our economy can hardly stand any more stress than it already has absorbed.

Counterfeiting is a major crime and innovative companies with real products, like Your Baby Can and the Practising Law Institute and so many others all suffer a little bit of damage.  This toll or tax on creativity and business is unacceptable.  It is a drag on the economy, it prevents job creation and it costs many billions of dollars in lost taxable revenue.

Companies need to enforce their rights as vigorously as possible and show that, at least in the United States, crime does not pay when it comes to unlawfully duplicating copyrighted materials.  That means enforcement actions in Court, vigorous monitoring of online websites, such as eBay, and working with local, state and federal law enforcement where possible.  It also means letting our elected Officials in Washington, DC hear from us and demand more action.

I for one am sick and tired of the government having the solutions to our economic plight sitting right there in front of them and doing nothing.  For crying out loud, pursuing job killing policies is one thing, but can’t we actually work to enforce the laws and do the day to day things that could help business and create a positive job growth climate?  Is that too much to ask for?