PROTECTING SMALL BUSINESS, PROMOTING ENTREPRENEURSHIP

Guarding Against Counterfeits at Christmas

By at 2 December, 2016, 4:37 pm

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by Raymond J. Keating-

Stealing intellectual property (IP) via counterfeiting is massive and global problem. It’s also an act of theft that consumers and small businesses need to guard against during the Christmas holiday shopping season.

On November 23, the U.S. Immigration and Customs Enforcement’s (ICE) Homeland Security Investigations (HSI) and U.S. Customs and Border Protection (CBP) came together to warn about the ills of counterfeit goods during the holiday shopping season. They go on to make several important points, including:

• “In 2015, the number of seizures made nationally due to Intellectual Property Rights (IPR) violations increased 25 percent from the previous year, totaling more than 28,000 seizures with an estimated value of more than $1.3 billion.”

• “While watches and handbags are considered the most counterfeited items, intellectual property thieves will counterfeit any product that can be sold or marketed.  Some of those trends include counterfeit drugs, medical equipment, aircraft and automobile parts, computer hardware, military components, and electrical safety devices.”

• “While the sale of merchandise with IPR violations has traditionally been seen in store fronts, warehouses or on the street, criminal organizations have become savvy in setting up online stores to trick the public into believing they are purchasing legitimate goods on legitimate websites.”

Counterfeiting Costs are Staggering

As for the economic costs, the International AntiCounterfeiting Coalition reports that the total value of IP-infringing goods seized coming into the U.S. in 2014 registered an estimated $1.22 billion, with $1.08 billion coming from China (including Hong Kong).

And in a June 2016 report – “Measuring the Magnitude of Global Counterfeiting: Creation of a Contemporary Global Measure of Physical Counterfeiting” – published by the U.S. Chamber of Commerce’s Global Intellectual Property Center, it was noted: “Fueled by the proliferation of internet use and social media platforms, the magnitude of global physical counterfeiting is estimated to have increased considerably since the beginning of this century. One prominent example for this increase is reflected in the OECD’s studies on global counterfeiting. In
its first study from 2008—The Economic Impact of Counterfeiting and Piracy—the OECD estimated that global trade of counterfeit goods accounted for 1.9% of world trade in 2007, or 250 billion USD. In its recently published study of 2016—Trade in Counterfeit and Pirated Goods: Mapping the Economic Impact—the OECD now estimates that global trade-related counterfeiting accounts for 2.5% of world trade, or 461 billion USD.”

Zeroing in on the negative impact that counterfeiting has on small businesses, a May 2016 CNBC story focused on counterfeit goods being offered in Amazon.com’s third party marketplace. It was reported:

Designers of custom T-shirts, iPhone cases and pillow covers who sell their work through websites like Zazzle and Society6 are seeing copies of their products pop up at an alarming rate on Amazon. The sellers, often hawking the items for a fraction of the price of the originals, range from fraudsters trying to make a quick buck to apparent bots scraping listings from other commerce sites…

It’s a giant game of virtual whack-a-mole that’s punishing many small businesses.

“They respond and take down the images, but the very same images go up within a week by another new seller,” said Kristi Spencer, whose e-commerce site Golly Girls sells personalized sports-themed T-shirts, backpacks and notebooks. “Counterfeiters are selling low-quality knockoffs of other people’s artwork.”

The report also noted that similar challenges exist on Ebay and Alibaba.

In SBE Council’s book  “Unleashing Small Business Through IP:  The Role of Intellectual Property in Driving Entrepreneurship, Innovation and Investment,” we highlighted the following about the challenges faced by one small business:

SylvanSport was founded in 2004, as noted on the company’s website, “to develop great gear, to support our evolving sense of adventure.” The SylvanSport GO multi-use camping trailer, launched in 2007, has been “hailed by National Geographic Adventure as the Coolest. Camper. Ever.’” SylvanSport has earned awards from Men’s Journal, National Geographic, and IDEA (International Design Excellence Awards). But as reported in The Wall Street Journal (“Entrepreneurs Bemoan Counterfeit Goods,” April 28, 2014), the company has faced IP theft: “In 2012, SylvanSport Inc. founder Thomas Dempsey says he thought he succeeded in getting Alibaba.com to remove listing for a China-made recreational camper-trailer that closely resembled a product he had designed, after he showed proof of his company’s patent filings in the U.S.” As of the report, though, counterfeits were still being sold. Dempsey worried about confused customers and lost business, and noted that chasing down copycats “would be a full-time job.”

In a June 2016 oped in The Wall Street Journal, Jack Ma, founder and executive chairman of Alibaba Group, pledged to fight counterfeiting, writing:

I want to let you know where I stand on this: Counterfeit goods are absolutely unacceptable, and brands and their intellectual property must be protected. Alibaba is only interested in supporting those manufacturers who innovate and invest in their own brands. We have zero tolerance for those who rip off other people’s intellectual property.

Failing to protect original designs, trademarks and technology is akin to thievery, and it is detrimental not only to innovation but also to the integrity of the marketplace. We do not and will never condone any act of stealing.

Again, in “Unleashing Small Business Through IP,” we spelled out what IP protections mean for entrepreneurship: “The entire entrepreneurial process is dependent upon strong property rights and protections, including intellectual property. Without strong IP rights, entrepreneurs, innovators and investors simply would be far less likely to undertake the tremendous risks involved with creating, and bringing a new or improved good or service to the marketplace. In turn, of course, consumers wind up with fewer choices and benefits, economic growth falters, and workers face reduced job opportunities and lower incomes.”

Tips for Protection

In terms of what can be done, this how-to article offers some of the basics on how businesses can protect themselves from having their products counterfeited. For a small business, these endeavors obviously come with real and often significant costs.

But make no mistake, a holiday shopping season rich with opportunities for small businesses and choices for consumers rests on economic and institutional foundations that must feature the protection of private property rights, including intellectual property. Indeed, protecting private property is one of the first duties of government. And IP protection and enforcement must be strong at home, and in the global marketplace via international trade accords.

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Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council.

Keating’s latest book published by SBE Council is titled Unleashing Small Business Through IP:  The Role of Intellectual Property in Driving Entrepreneurship, Innovation and Investment and it is available free on SBE Council’s website here.

 

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