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Article found: http://www.ibtimes.com/how-much-does-us-lose-chinas-piracy-48-billion-644062

By Simon H. Powell, 18th May 2011.

Accessed: 16th October 2012.

How much does the US lose to China’s piracy? $48 Billion

According to a report released by the U.S International Trade Comission, in 2009 China’s continuous practice of piracy over American products cost the US approximately $48 billion in business.

The losses  came from the information, service, high-tech and heavy manufacturing sectors for the most part accounting for $44 billion or 91.6% of the total loss.

The report further concluded that if China had kept its obligations to protect US businesses’ intellectual property rights, 2.1 million jobs could have been created in the US according to Reuters.

To this, Max Baucus, Senate Finance Committee Chairman, stated how China had fell short ‘time and time again’ to ensure US rights and interests over such property. He continued on by saying that the negligence of such activity produced real consequences as many Americans have lost their jobs thus that it couldn’t be ignored.

Article found: http://blogs.miis.edu/trade/2010/11/23/us-lost-profit-on-chinas-counterfeits/

By Shen Liu, 23rd November 2010.

Accesed: 16th October 2012

 

China’s Piracy & Counterfeiting Problems

The U.S. Commerce Department estimates suggest that U.S. companies lose over $1 billion per year of legitimate business due to piracy, while the U.S. Trade Representative calculates that more purchases of legitimate software and entertainment media alone would reduce the U.S. trade deficit with China by $2.5 to $3 billion per year. Understanding which businesses are most vulnerable to these losses is important for investors evaluating a company’s China strategy.

Even casual observers of China are aware that digital media, ranging from movies to software to music, are readily pirated in China due to their cheap duplication cost relative to their retail street price. Increasingly, the Motion Picture Association of America (MPAA) has been training Chinese and Hong Kong law enforcement officials to identify and bust large-scale movie pirates. This is beginning to have an impact in Hong Kong, where the local MPAA representative is a former Hong Kong policeman himself who brings good law enforcement relationships to the table. As a result of pressure from the MPAA, Hong Kong law enforcement has shutdown many malls that specialize in pirated digital media. This drop in the availability of pirated media has coincided with a drop in the price of authentic movies on DVD and VCD, which has absorbed some of the demand for movies from highly price-elastic consumers who only purchase low-cost pirated media before. However Hong Kong is a far smaller market than the mainland.

Mainland China limits the legal importation of foreign movies to twenty per year. Accordingly, it is only pirated movies that can fulfill excess demand – as well as provide copies of the 20 “allowed” films during the time the state censors are editing them. Movie industry estimates are that 95% of all videos sold in China, an estimated $1.3 billion market, are pirated. Investors in media-driven companies aspiring to make a profit selling content in China should not hold their breath because, in order for U.S. media companies to significantly profit from a crackdown in piracy in China, it may also be necessary for China to increase the number of legitimate imports of foreign films allowed each year. China’s WTO commitment under the General Agreement on Trade in Services (GATS) allows China to maintain this twenty film limit legally.

Statistics highlight the high degree of software piracy in China. As of 2004, China was the sixth largest market in the world for personal computers, yet only the twenty-sixth largest for software sales. U.S. business software publishers calculated a loss of $1.47 billion in sales in China that year due to piracy. If personal entertainment software were included added to this calculation, this number would be even higher.

There may be hope over the long-term however. A few companies have sought to use piracy to their advantage over the long run. Microsoft is a leading example of this approach. While pirated copies of the Microsoft Windows operating system abound throughout China, Microsoft has met some limited success capitalizing on this by:

  1. “Upselling” genuine copies of the software for a very low price to users of pirated copies
  2. Using the widespread distribution of pirated software to train the populace how to use your product. Thus, as a result of piracy, tens of millions of Chinese became competent using Microsoft Windows and Microsoft Office applications.

Because Microsoft regularly offers new upgrades of its operating system and applications, it can profit from the sales of later upgrades even if current users have not developed the belief that they should have to pay the retail price for their software.

Likewise, online games that provide free desktop software but require a monthly usage fee, such as Worlds of Warcraft, are less susceptible to piracy in China. These games are able to limit access to the gameplaying community, which is essential to enjoyment of the game, to those who actually pay the fee. However desktop productivity software, such as Google Apps, that are provided online in exchange for a recurring fee, may not be able to turn its rental-based income stream into profits in China because desktop-based substitutes are readily available.

Damage to Brand Names

The U.S. Commerce Department estimates that, on average, twenty percent of all consumer products in the Chinese market are counterfeit. When counterfeit products fail, it can impact the real brand’s reputation as well. In China and around the world, counterfeit Chinese medicines have injured and killed hundreds of thousands, ranging from toothpaste and cold medicine in Panama to diet pills in Japan. Chinese authorities estimated that nearly 200,000 people were killed in China in 2001 due to counterfeit medicines. In a recent raid on a printing factory in the southern Chinese province of Guangdong, police seized bogus packaging and labels for Coca Cola bottles, Wrigley‘s chewing gum, General Mills‘Trix breakfast cereal, and Nestle‘s Purina cat food. In order to prevent a scare similar to the Tylenol-tampering episode in the U.S. many years ago, foreign companies need shift into publicity overdrive to discredit and distinguish dangerous or shoddy counterfeit goods, lest their own products be tarred.

Similarly, counterfeit products impinge on the ability of Western companies to select and control their own distribution channels. Thus, even though Starbucks (SBUX) invested heavily in training its Chinese workers, it had to rush to court in 2003 to stop a copycat rival from misappropriating its logo and store look under the name “Xingbake” in 2003. “Xing” means “star” in Mandarin and “bake” sounds like “bucks” when pronounced in Chinese.

Effects Outside of China

The Motor and Equipment Manufacturer’s Association estimates that eighty percent of all counterfeit automobile parts imported into the U.S. originate in China or Hong Kong, costing the auto industry over $9 billion per year in lost sales. Likewise, hundreds of millions of dollars per year are lost to due to the export of China pirated DVDs and CDs each year; this figure may accelerate with the proliferation of new digital movie formats, including HD-DVD and Blu-Ray. U.S. Department of Homeland Security (DHS) agents, working in conjunction with the Chinese government and private industry, conducted the first ever joint U.S.–Chinese enforcement action on the Chinese mainland and seized more than 210,000 counterfeit movie DVDs. Similarly, DHS agents recently stopped a combined Chinese and Middle-Eastern organization that was responsible for the smuggling and nationwide distribution of over 100 containers of counterfeit trademark merchandise, valued in excess of $400 million, that had already been smuggled into the U.S in less than a year..

 

 Impact on Chinese Innovation and Future Export Potential

Chinese counterfeits are hurting the country’s own future export potential. A recent case of counterfeit ingredients poisoning medicines in Panama and Australia has put authorities there on guard against all Chinese imports of food and medicine. Similarly, dangerous fake dog food ingredients from China have made U.S. consumers wary of any foodstuffs coming from there.

 

 Impact of Foreign Direct Investment

Foreign direct investment in China is limited by fears of counterfeiting. Many Western companies who possess proprietary technology are hesitant to move production, let alone research and development to China, for fear it will be copied. This means China is losing valuable opportunities to move its production to more sophisticated, higher value-add and higher margin products, as well as missing opportunities to train its workforce on more sophisticated product development techniques. As low-wage competitors like Vietnam develop their industrial output, China will be forced to compete solely on the basis of wages if it cannot improve its know-how and export product mix.

 

 Future of China’s Piracy & Counterfeiting problems and TRIPS laws

The Chinese have taken some steps to combat piracy and counterfeiting, although there remains much more to be done in actions vs. issuing statements. The recent creation of the State Intellectual Property Offices, is one small step.

China only joined the WTO in 2001, until recently the country was in a discretionary period which that have just gotten out of. This period gave them some leeway in terms of which of the organization’s rules the country had to adhere to. Now that the probationary period has ended the country is trying to demonstrate an effort towards compliance. Universities are endeavoring towards IP law and there is some effort by the National Copyright Administration to close down unlawful websites and servers.

China has dramatically increased its patent filings producing over 200,000 patents in 2006. While some would say that this increase of patents gives them more reason to abide by international law, it remains to be seen whether this is proven.

Article found: 

http://www.itestcash.com/history-of-counterfeiting.html

Accessed: 16th October 2012.

History of Counterfeiting 

Counterfeiting is not a new phenomenon – it is a crime that has been around since ancient times. The act of copying and printing fake currency is just about as old as currency itself. At one point counterfeiting was so serious and widespread that it was considered treasonous and punishable by death if the perpetrator was caught. This was because many believed that anyone who disturbed the market with fake money was putting the nation’s economy and its general stability and strength in serious jeopardy.

The ancient Romans were frequent victims of fake currency. The majority of Roman currency consisted of pure gold and silver coins. Counterfeiters would mix various metals, cast them as coins and plate them with either gold or silver to create a much less valuable copy of the money which was called fourrée. Old coin molds have been found that prove the existence of a widespread counterfeiting operation by criminal minded inhabitants of the Roman empire. Authentic Roman coinage was struck, not cast with molds.

In America, during the American Revolution and the Civil War, counterfeit money was abundant. The British counterfeited Continental American money and flooded it into the money system to the point where the currency became worthless. This is where the expression “Not worth a Continental” came from. During the Civil War over 1,600 state banks were responsible for designing and printing their own currency, so eventually there were so many different varieties of currency floating around (approximately 7,000) that it was virtually impossible to tell a real from a fake. More than one-third of the currency in circulation at that time was phony. Finally in 1862 the U.S. Government had to establish a national currency to fix the counterfeit problem, but counterfeiters easily copied the new currency. The amount of fake currency circulating around the country at that time made it necessary for the government to establish the Secret Service in 1865, a division responsible for stopping the spread of forged money in the United States.

Recently, the counterfeit problem is again on the rise due to new technologies in printing and design software. However, the spread of fake bills has been suppressed by creative measures by the U.S. Department of Treasury’s Bureau of Engraving and Printing, the division of United States government that is responsible for the actual design and printing of money. The Bureau has recently recrafted the 10, 20, 50 and 100 dollar bills with bigger faces, multi-colored paper, holograms, and reflective inks that change color depending on the lighting. They also have implemented the EURion constellation on newer bills, a technology that makes it impossible to duplicate the money on a photocopier. The two main purposes of these measures is to make it easier for the average person to recognize a fake when presented with one, and to discourage attempts to copy the bill.

While an ever growing technological environment has made it easier for law enforcement officials and the general public to stop the spread of counterfeit money, technology has also made it easier for criminals to carry on with their illegal actions. It is extremely important that governments maintain a proactive and ever changing policy towards thwarting the spread of bogus currency.

Article found:

http://www.cbsnews.com/8301-18563_162-57433030/counterfeit-goods-from-china-a-continuing-problem-that-costs-billions-a-year/

By Bob Orr, 11th May 2012.

Accessed: 16th October 2012.

 

Counterfeit goods from China a continuing problem that costs billions a year

(CBS News) ELIZABETH, N.J. – The Justice Department said Friday it shut down a number of web sites that were selling counterfeit sports jerseys made in China. Agents said they also seized $1.5 million dollars in illegal profits. But this is just one victory in a never-ending battle against Chinese counterfeiters. CBS News correspondent Bob Orr looks into this problem.

It’s a search that plays out every day inside this cavernous warehouse in Elizabeth, New Jersey — customs officers looking for counterfeit goods such as phony Louis Vuitton handbags.

“If you had to guess, based on your expertise, this looks to be fake,” Orr asked Paula Heacock, who oversees the inspections at the Port of New York and New Jersey.

“This looks to be counterfeit, yes,” she said.

Two and half million containers arrive here each year. Mixed in with legitimate cargo are knock-off iPhones and imitation Ugg boots churned out by Chinese counterfeiters.

“China is still our number-one source country for counterfeit and pirated goods. About 62 percent of our seizures are from China,” said Heacock.

The losses from counterfeit goods are enormous. Last year, customs officers seized more than a billion dollars in phony sneakers, electronics and handbags. Yet no one knows how much is still getting through.

In California, Beachbody, a producer of workout videos, knows how much it is losing. Company executive Jonathan Gelfand said thieves copy his exercise discs and peddle the fakes at half price.

“Piracy is absolutely leveling our bottom line and it is really hurting the company,” he said.

Gelfand estimates Beachbody is losing $75 million a year to counterfeiters. He arrived at that figure by pretending to be a counterfeiter.

“We put up some replicated sites. We just copied what the pirates were doing. We sold it for what they were selling it for and we did it for a very long period of time. And it was well over $75 million,” he said.

Other counterfeit goods like purses and sneakers are sold on the black market and on street corners.

Heacock said the counterfeiters are also adaptive, constantly changing their schemes in an effort to pass inspections. For example fake Nike manufacturers have tried hiding the signature swoosh behind tear-away panels.

“It is a cat-and-mouse game,” she said. “They are always trying to stay a step ahead of us to get their products in.”

Heacock likes to think she’s winning. But with billions of dollars in corporate profits, and U.S. jobs on the line, it’s a battle with no foreseeable end.

This article is taken from:

http://www.intangiblebusiness.com/Brand-Services/Marketing-services/News/Brand-piracy-faking-it-can-be-good~290.html

By Stuart Whitwell. On 15th May 2006.

Accessed on 16th October 2012.

Brand Piracy: It can be good

Introduction
If, as the old expression goes, imitation is the sincerest form of flattery then the top brass at brands such as Louis Vuitton, Sony and Microsoft must be blushing like crazy. Approximately seven percent of world trade is in counterfeit goods, according to The International Chamber of Commerce and 40% of brands counterfeited are composed of a list of only 25 brands. That’s $350billion a year that could be funnelled through legitimate channels and into the hands of companies that invest in their development and promotion.

That counterfeiting is a criminal activity that can have tragic consequences is not in dispute. What is in dispute, however, is that counterfeiting is not always damaging to brands and can actually be leveraged to a brand’s advantage. Counterfeiting can give brands access to new markets and be a benchmark of a brand’s health. It can increase a brand’s awareness such that when the economic climate of a country or an individual’s improves, sales migrate from counterfeit to original. And it can also compel the authentic brand owner to protect, innovate and expand its products, services and markets to keep ahead of its imitators and squeeze out the competition.

The good, the bad and the ugly
There are three main channels to market; the good, the bad and the ugly. In the ‘good’ first channel, authentic goods through authentic channels, the brand owner is in full control of the distribution and pricing and supports the product with investment. This is the position most brand owners seek to maintain as brand equity can be controlled fully.

However, it is not a perfect world. With the increasing demand for higher margins and lower prices, brands have outsourced the manufacture of their goods to developing countries where labour and cost of production are much lower. 80% of seizures of counterfeit brands are traced back to Asia where they were manufactured and distributed. The ‘bad’ second channel, also known as the grey market, is partly fuelled by this production in countries like China and India. Authentic products find their way into non-authorised retail distribution outlets which are beyond the control of the brand owner. The retail outlet could be a street hawker, a backstreet shop or it could be a mainstream retailer, such as Asda. Asda, having been denied supply of the new England football shirts by Umbro in February 2006, sourced five thousand shirts from surplus stock in Europe and sold them at a 12% discount to the official ones to be launched by the FA three days later – scuppering both the FA’s and Umbro’s pricing and distribution strategy.

The third ‘ugly’ channel is also known as the black market, where unauthentic goods are sold through unauthorised channels. This can have disastrous consequences with products that are imbibed, such as cigarettes, pharmaceutical products or baby formula, with products such as machinery which cause automobile or aeroplane accidents, or with other products such as cosmetics and software. This is the dark side of counterfeiting. But ugly ducklings can turn into swans.

Piracy’s benefits
There are a whole raft of brands for which both black and grey market counterfeiting is advantageous. We’ve all seen the fake Rolex watches, Burberry caps and Louis Vuitton bags. Contrary to popular belief this doesn’t actually damage the brand equity but actually supports it. There is no cannibalisation as the people who generally buy these fake products are not in a position to buy the original – as soon as their economic condition changes they will run to the front of the queue to buy the original. Awareness of the brand rockets in markets in which the authentic product operates as more consumers have access to these products that would otherwise be out of their reach. This increased brand exposure helps drive sales of authentic products from those who can afford them.

Understanding of the product’s values is also not diluted as the owner of the counterfeit products knows it is just that, a fake, and therefore does not expect the same performance from it. In fact, decisions to purchase the counterfeit products usually reaffirm the brand’s values as the recipient buys the article to project the very image the brand is trying to portray through its advertising and promotion. This endorsement encourages loyalty, generates awareness and strengthens the brand’s values with the owner of the fake as well as everyone with whom they come in contact.

Another reason brand piracy can help increase a brand’s value is it is a good indicator of a brand’s strength. Brands which are not faked are considered too weak to generate consumer demand and are consequently not produced. Consumers know this is the case so their decision to buy an original is, in part, derived from the popularity of their chosen brand in the grey channel.

If counterfeiting is damaging to brands, how come none of the most commonly counterfeited brands, such as Nike, Gucci, Adidas, Prada, Chanel or Burberry are suffering? Turnover at Nike, for example, has increased by 45% since 2001. Burberry has seen turnover increase by 68% over the same period with operating profit more than doubling. And Microsoft, which accounts for more incidents of IP theft than any other brand, has seen its turnover up by 57%. Figures like these defend the position that counterfeited brands are more likely to succeed.

Some brands do embrace the counterfeit market rather than seeing it as a threat. Georgio Armani, on a recent trip to Shanghai, purchased a fake Armani watch for instead of the £710 his authentic watches retail for. He said “It was an identical copy of an Emporio Armani watch…it’s flattering to be copied. If you are copied, you are doing the right thing.” Although this was a publicity stunt it does highlight the fact that consumers of fake merchandise are polar opposites to consumers of the authentic and therefore pose no significant threat to the brand owner.

Another benefit of counterfeiting is that it closes off the competition. High priced branded goods encourage competition to enter the market at slightly lower price points. Counterfeiters then produce branded goods and sell at significantly below the cost of the competition. This means the competition is squeezed out as it has nowhere to go – it’s priced out of the top market by the original brand and can’t compete with the counterfeit as their prices are too low.

Counterfeiting in these circumstances therefore presents a significant opportunity for branded goods. One such example of an opportunity that was taken was with Spanish brandy Fundador in the Philippines. Counterfeit was rife of Fundador, it was an endemic way of life in virtually all Philippines’s communities. Children would collect the labels and bottles of the original and sell them to counterfeit production plants who would refill the bottles with a counterfeit product to sell back to the Philippine communities. This eventually offered the brand owner the opportunity to convert them over to the genuine product by developing an extremely generous advertising promotion. Prizes such as Harley Davidsons and Pajero cars were offered on the bottles’ labels which the counterfeiter’s could not either compete with or copy because the offers were changed every six weeks. Sales of the genuine product quadrupled in three years with this strategy.

Counterfeiting can give brands access to new markets. For example, a Thai based manufacturer of branded tinned produce used to have a large presence in China. It pulled out a number of years ago and since then the Chinese competition have copied the brand and developed the market. There now remains a much larger market opportunity for the genuine, original brand to exploit by re-entering the market. Awareness has been maintained, penetration has increased and the competition has been closed off.

Conclusion
There are, of course, negatives to counterfeiting. But if the fake is distinguishable from the original then the genuine brand owner is presented with significant opportunities: increased awareness, access to new markets, closing off the competition and an affirmation of the brand’s values. And if brand owners take hold of these opportunities and leverage counterfeiting to their advantage, then they will be blushing not just from the imitation but also from the congratulations from their achievements.