A dissertation submitted in partial fulfilment of the requirements
of the University of the West of England, Bristol for the degree
of MSc International Management
Bristol Business School, University of the West of England

A NEW FRAMEWORK FOR COMBATING
PIRACY AND COUNTERFEITING

JOERG DRISCHEL

April 2004

Chapter One ... 3
INTRODUCTION  ... 3
DECEPTIVE vs. NON-DECEPTIVE COUNTERFEITING ... 6
METHODOLOGY  ... 7
EFFECTS OF COUNTERFEITING  ... 7

Chapter Two ... 10
DEMAND FOR PIRATED AND COUNTERFEIT GOODS ... 10
THE RATIONALE FOR COUNTERFEITING AND ITS ANTECEDENTS  ... 13
IP INFRINGEMENT AND THE INTERNET ... 16

Chapter Three ... 18
EVIDENCE OF VICTIM FIRMS’ RESPONSES ... 18
ISD  ... 18
Diageo ... 23
Procter and Gamble ... 24
US Olympic Committee ... 25
Cartier  ... 28
NEC ... 29
Microsoft ... 32
Nike ... 33
Reebok  ... 35
New Balance  ... 36
Miscellaneous  ... 38
SUMMARY ... 40

Chapter Four  ... 41
ESTABLISHING ANTI-COUNTERFEITING STRATEGIES ... 41
NO ACTION ... 42
LOBBY GOVERNMENT AUTHORITIES FOR IMPROVED LEGISLATION AND ENFORCEMENT  ... 44
CO-OPT OFFENDERS  ... 46
ANTI-COUNTERFEITING ADVERTISING CAMPAIGN ... 46
WARN/ALARM ... 48
APPEAL  ... 49
THREATEN  ... 50
PRIVATE INVESTIGATION ... 52
MOVING TARGET & AUTHENTICATION DEVICES ... 53
ANTI-COUNTERFEITING ALLIANCES ... 55
EDUCATION AND SUPPORT OF ENFORCEMENT AGENCIES ... 56
EDUCATION OF CHANNEL MEMBERS  ... 57
USE OF TELEPHONE HOTLINES FOR CUSTOMER REPORTS ... 58
PRICE REDUCTIONS ... 59
SELECT DISTRIBUTION ... 61
MARKETING & PRODUCT DEVELOPMENT  ... 61
LICENSING  ... 63

CONCLUSION ... 65

Chapter One

INTRODUCTION

This study deals with the growing problem of piracy and counterfeiting successful companies have to face nowadays. The aim of the study is to recommend suitable strategies that victim companies should adopt in reaction to Intellectual Property Rights (IPR) infringement and trademark counterfeiting. In order to formulate appropriate strategies, one must first gain an understanding of the rationale behind counterfeiting for both producers as well as purchasers. It is also imperative to distinguish between different types of counterfeiting as some types certainly have a greater potential for harm. Each category requires a different approach. A look into buyer behaviour is necessary in order for firms to be able to formulate a successful anti-counterfeiting advertising campaign and to target the right audience as well as an investigation into the varying vulnerability to counterfeiting of different product categories.

Companies as well as society as a whole are plagued by a phenomenon that is clearly not yet receiving the attention it deserves. Theft is a problem for every employer. It occurs in shops where would-be customers shoplift but it does not stop there. Employees stealing company property is a much bigger problem. This does not merely refer to a company’s own workforce but also everyone at any stage of the supply chain. The trend toward outsourcing certainly has not helped as it is difficult enough to keep an eye on your own workforce without having the additional problem of policing the supply chain. Products can and do go missing due to theft. The phenomenon this study investigates is not conventional theft but rather theft of a different sort: theft of intellectual property and counterfeiting. Piracy and counterfeiting are not theft of finished products but of ideas, inventions, creations and discoveries, which are protected by trademarks, patents and copyrights.

The terms piracy and counterfeiting are often used interchangeably. Even though both terms refer to the unauthorised copying or imitation of copyrighted, patented or trademarked products, a distinction should be made. Whilst product counterfeiting is commonly defined as unauthorised copying of trademarked or copyrighted goods (Bloch, Bush & Campell 1993), piracy refers more specifically to the illegal copying of software, data, recorded music and films (Economist Intelligence Unit 2002). A Michael Jackson album copied to a blank CD is therefore a pirated version of the original. If it is the case that the CD is also made to look like the original with a cover and booklet in a proper CD case, one would speak of a counterfeit as illegal copies of labels, packaging and other brand identifiers are used (Economist Intelligence Unit 2002). This distinction is, however, not vital but merely helpful as these terms will be used accordingly throughout this paper. It is much more important to distinguish between deceptive and non-deceptive counterfeiting as will become apparent later in this paper. Prendergast, Chuen & Phau (2002) actually define counterfeit brands as identical copies of the original deceiving customers while pirated brands are nondeceptive copies in their view. Whereas their definition for pirated brands as nondeceptive copies holds true, counterfeit items are not necessarily deceptive although they are more likely to be so.

“As recently as the late ‘80s, US Companies were losing more than $50bn a year as a result of inadequate protection from foreign infringement of intellectual property rights” (Retsky 1997, p. 10). The problem dates back to before the Christian era and is as old as humanity itself. Anyone outperforming the rest always had to live in fear of being copied and facing increased competition. The Greeks and Romans applied crests and brands to valuable, crafted goods. As early as the 15th century, the term piracy could be found in law papers and by the 18th century it had found its way into the Oxford Dictionary describing piracy as the unauthorised exploitation of works or inventions of someone else for the purpose of profit. In those days, counterfeiting was crafts-based. Not too long ago, luxury brands were almost the exclusive targets for counterfeiters. “It [counterfeiting] mushroomed in the 1970s; then it seemed the only victims were manufacturers of overpriced consumer goods, such as apparel and luggage, and for the most part, the economic effects of counterfeiting went unnoticed” (Harvey & Ronkainen 1985, p. 37).

Today, the situation has somewhat changed. One could be naïve and assume that the problem has been successfully tackled in the meantime and maybe even eradicated. Unfortunately, quite the contrary is the case. Technological innovations and globalisation seem to have widely facilitated counterfeiting rather than the fight against it. The International Chamber of Commerce estimates that counterfeiting accounted for eight per cent of world trade in 1998 (Freedman 1999). Only three years prior to that, the corresponding figure had been five per cent resulting in an estimated global loss of $200bn (Nia & Zaichkowsky 2000). Not only has counterfeiting increased immensely in volume, it has also expanded into virtually all product categories. Originally a problem primarily associated with elite consumer goods such as Cartier jewellery or Calvin Klein jeans, counterfeiting today affects manufacturers of products such as fertilisers, aircraft parts and prescription drugs (Bush, Bloch & Dawson 1989). It would probably be easier to list products that have not been counterfeited than products that have. This proliferation of counterfeiting into almost every product category means that the negative effect of counterfeiting is not only measured in terms of revenue lost to the rights owners, but may also result in deaths.

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