Product Piracy – Product Piracy – A Growing Global Challenge and How to Combat It

Product Piracy – A Growing Global Challenge and How to Combat It

I. Introduction

Product piracy is a growing global challenge for companies in many industries. Counterfeit products mean damage to image, sales, jobs and even dangers for consumers. Companies face an international challenge here, because the counterfeit products often originate from (non-European) foreign countries, the perpetrators sell the counterfeits online and are technically well equipped to do so – and to disguise their origin. Digitization offers opportunities and risks for companies, because while increasing online commerce enables anonymity on the one hand, it can also represent an opportunity in effective tracking. Companies are increasingly using legal tech to intelligently analyze Big Data online and offline in the fight against piracy. In addition, decisive success factors are legal expertise and local presence in the fight against pirates.

II. product piracy – a growing global challenge

In 2019, 90,000 counterfeit goods were seized at European borders. This corresponds to a merchandise value of approximately 760 million euros and sales losses of approximately 83 billion euros.[1] Globally, sales losses were as high as 460 billion euros. Of this total, 19 billion euros of last year’s lost sales alone came from the cosmetics, pharmaceuticals, wine and spirits, and gaming categories.[2] According to an EUIPO study, the top five categories for counterfeit products were lifestyle and luxury goods, cigarettes, packaging materials, toys and apparel[3].

Product piracy has a devastating impact on the economy and the labor market. In 2019, 671,000 workers in the EU lost their jobs due to piracy.[4] Counterfeit products also pose dangers to consumers: Chemical poisoning, fire, choking and strangulation hazards, electric shocks, and hearing damage.[5] Due to the ingestion of counterfeit medicines, an estimated 1 million people die worldwide each year.[6]

Last but not least, this leads to reputational damage for the brand owners. The consumer always associates the counterfeit goods with the manufacturer of the originals, which can lead to permanent damage to the image.

The above figures show that this is a global problem. Therefore, the prosecution of product piracy poses great challenges for companies.

III. digitization – opportunities and risks for companies

Digitization is advancing worldwide and is being turbo-charged by the ongoing pandemic. While only 1.6 billion euros in sales were made via e-commerce in Germany in 1999, 59.2 billion euros in sales were already made in the e-commerce sector in 2019. [7] The number has almost quadrupled in the last 20 years.

This development offers new opportunities for all parties involved. Consumers can buy more and more products online – and are also getting used to this convenience – and counterfeiters can offer their products directly, regardless of the consumer’s location and language. The opportunities for online retail are constantly growing due to new platforms. Products are no longer only offered and sold via websites or online marketplaces, but new sales channels such as social media or app stores are being added.

The Covid19 pandemic in particular plays an important role in this development. Due to the ongoing lockdown, consumers are ordering more and more online and are likely to turn their backs on brick-and-mortar retail more and more in the future. In addition, job losses and lost wages due to the pandemic cause consumers to buy cheaper goods and, if necessary, to deliberately buy counterfeits.

In China in particular, product piracy and the trade in counterfeit goods have been a problem for years. This is where many of the counterfeit products are manufactured and sold through online marketplaces. For this reason, the E-commerce Law came into effect in China on January 1, 2019. Platform providers who fail to take action against product piracy on their own platform may be fined up to EUR 260,000.

IV. Legal Tech – in the fight against product piracy

In the fight against product piracy, legal tech can offer decisive advantages. A large number of offers can be found in the shortest possible time regardless of language, time of day and borders.

The way companies deal with product piracy still varies widely. Some large companies have developed and are working with their own counterfeit tracking tools. Others work with outside vendors. The flood of results can quickly overwhelm the user. Some underestimate the extent of piracy or turn a blind eye to it.

The use of specialized technology brings considerable advantages here – namely time and cost savings and a disproportionately higher range and effectiveness. The tools used usually search automatically for counterfeits on various platforms and channels, such as online marketplaces, websites, social media and sometimes even on the dark web.

The use of legal tech solutions can reduce the aforementioned revenue losses. Some tools can even calculate the so-called return on investment (ROI). In addition, companies report that counterfeiters let go of brands and products as soon as they realize that companies are resisting their actions. The company is then no longer interesting for the counterfeiters, because, for example, their pages are blocked and they have to create new accounts for sale with considerable effort.

Simplifying enforcement is necessary to stem the tide of counterfeiting. In 2019, around 41 million counterfeit items were seized at European borders – but claims were only brought in court over around 5 million of these counterfeits. Over about 1 million counterfeits, the parties settled out of court. Criminal proceedings have been initiated within the EU over approximately 3 million counterfeits.[8]

An international network of detectives, lawyers and other service providers is required to enforce claims against the counterfeiters. However, the use of such a network means high costs and great effort for many companies.

In addition, there is the difficulty of preserving evidence. If there are any proceedings, evidence must be provided. With the mass of counterfeits, this is often not easy. The counterfeiters are fast and excellently organized. Often the offers can no longer be found within a very short time. A tremendous amount of effort is required here to preserve the evidence. Legal tech solutions and automation can significantly reduce this effort.

Digitalization therefore brings risks for online retailing, but at the same time it also offers opportunities to combat product piracy more efficiently. With the use of legal tech solutions, companies get efficient and cost-effective solutions for taking action against counterfeiters. By consistently combating product piracy, companies can stop the resulting decline in sales. Technology can be used to reduce personnel costs to a minimum.

[1] EUIPO’s 2020 Status Report on Infringements of Intellectual Property Rights.

[2] Report on the EU customs enforcement of intellectual property rights by the European Commission.

[3] Report on the EU customs enforcement of intellectual property rights by the European Commission.

[4] EUIPO’s 2020 Status Report on Infringements of Intellectual Property Rights.

[5] EUIPO’s 2020 Status Report on Infringements of Intellectual Property Rights.

[6] MIS Quarterly Executive, 2019, How an Enterprise Blockchain Application in the U.S. Pharmaceuticals Supply Chain is Saving Lives.

[7] https://de.statista.com/statistik/daten/studie/3979/umfrage/e-commerce-umsatz-in-deutschland-seit-1999/

[8] Report on the EU customs enforcement of intellectual property rights by the European Commission.