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MEMO/10/272

Brussels, 23 June 2010

Counterfeiting and Piracy - frequently asked questions

What is the difference between counterfeiting and piracy?

A counterfeit good is an unauthorised imitation of a branded good. The official definition can be found in the enforcement section of an agreement on intellectual property rights negotiated in the World Trade Organisation, known as the TRIPS Agreement¹:

"Counterfeit trademark goods shall mean any goods, including packaging, bearing without authorisation a trademark which is identical to the trademark validly registered in respect of such goods, or which cannot be distinguished in its essential aspects from such a trademark and which thereby infringes the rights of the owner of the trademark in question under the law of the country of importation."

Piracy consists in making an unauthorised exact copy–not a simple imitation–of an item covered by an intellectual property right. It is officially defined by the TRIPS Agreement as:

"Pirated copyright goods shall mean any goods which are copies made without the consent of the right holder or person duly authorised by the right holder in the country of production and which are made directly or indirectly from an article where the making of that copy would have constituted an infringement of a copyright or a related right under the law of the country of importation".

What is the problem with counterfeiting and piracy?

It is very difficult to produce exact figures, as counterfeit and pirated goods fall outside the mainstream economy. According to figures from the OECD project on counterfeiting and piracy²- is estimated that the international trade in counterfeit and pirated goods is growing in magnitude and could have amounted to USD 250 billion in 2007. The OECD figures do not include domestic production and consumption of counterfeited and pirated goods, nor the volume of pirated digital products being distributed via the internet. If these items were added, the total magnitude of counterfeiting and piracy worldwide could well be several hundred billion dollars more.

Over the last few years, there has been an alarming expansion in the types of products being infringed. They range from luxury items such as sportswear, watches and jewellery, to household items that have an impact on personal health and safety, such as pharmaceuticals, razor blades, foodstuffs, beverages, children's toys and car parts. Asia emerges as the largest source for counterfeited and pirated products, with China being the largest source.

In 2008, EU customs officials carried out 49,331 procedures and intercepted more than 178 million counterfeited and pirated articles, almost double the amount recorded in 2007. (Report on EU Customs Enforcement of Intellectual Property Rights 2008 - DG Taxation and Customs Union-)³

How do counterfeiting and piracy affect the EU?

Firstly, counterfeiting and piracy are detrimental to innovation, directly affecting job creation and economic growth. Industries protect their ideas through a variety of legal instruments such as patents, copyrights, designs, models and trademarks. Without the protection of their intellectual property rights, they may be less inclined to develop new ideas and products. Risks are particularly high for industries in which the research and development costs are high compared to the production costs of the finalised product (e.g. pharmaceuticals). Faced with a diminishing turnover due to counterfeiting and piracy, industry investment in research and innovation could well slow down. This would limit development, growth and competitiveness, forcing industries to simply close or at least limit production.

Secondly, counterfeiting and piracy are a growing risk to consumer health and safety. While some consumers are looking for what they believe to be bargains, knowingly buying counterfeit and pirated products, others may purchase counterfeit and pirated products believing they have purchased genuine articles. In both cases, a growing number of products are often sub-standard and carry significant risks that range from mild to life threatening. Sectors where health and safety effects tend to occur include: car parts (brake pads, hydraulic hoses, engine and chassis parts, suspension and steering components, airbags, spark plugs, filters), electrical components (circuit breakers, fuses, switches, batteries), food and drink (tea, rice, vodka, raw spirits, baby formula), chemicals, toiletry, household products and tobacco products. In 2008, customs seizures reflected a 26% rise in fake foodstuffs, a 38% rise in counterfeit electrical equipment and 118% increase in fake medicines.

Thirdly, the profit margins from counterfeiting and piracy are extremely high and in comparison to other forms of illegal trafficking the penalties are low. As a result the trade in fake goods is considered to be high profit and low risk. As a result, they have become an attractive investment for organised crime.

Finally, counterfeiting and piracy affect the public budgets of the Member States. Every year, millions in tax revenues are lost as a result of pirated and counterfeited goods smuggled through customs and sold on grey markets. Meanwhile, Member State governments often bear the costs associated with addressing the consequences of counterfeiting through further expenditure on consumer health and safety and on law enforcement.

What actions is the EU already taking against counterfeiting and piracy?

Within the EU, the Enforcement Directive (2004/48/EC) is the cornerstone of legislation in the fight against counterfeiting and piracy. It aims to harmonise the laws of the Member States on means of enforcing intellectual property rights (via sanctions and remedies). The Directive covers infringements of all intellectual property rights (trade marks, designs, patents, copyright etc.) which cause significant harm to rights holders.

However, the Directive only covers civil measures. The remedies available to rights holders include the destruction, recall or permanent removal of pirated or counterfeited goods from the market, financial compensation, injunctions and damages. The Directive also contains the necessary safeguards and limitations to protect the interests, not only of the defendant, but also of potentially innocent offenders, who have unknowingly been involved in counterfeiting or piracy. (See IP/04/540)

As regards criminal sanctions, the Commission has adopted a proposal for a Directive and for a Framework Decision on intellectual property infringements. Within this, Member States would be required to treat all infringements of intellectual property on a commercial scale as a criminal offence. The proposal is currently pending in the Council. (See IP/05/906 and IP/06/532)

Concerning protection at the EU's external borders, EU customs legislation was modernised in 2003. The new regime sets out clear conditions under which the customs authorities may intervene in cases where goods are suspected of infringing intellectual property rights. The European Commission, in close collaboration with the Member States, has recently carried out a review of the Regulation 1383/2003. Following this, a public consultation was launched to gather the views of stakeholders. The Commission is currently summarizing the responses.

In Relations with Third Countries, the Commission is reinforcing enforcement activity and cooperation with a number of priority countries, in particular in the EU's trade relations with China, Russia, ASEAN (Association of Southeast Asian Nations), South Korea, Mercosur (Southern Common Market), Chile and Ukraine. The Commission also works to improve enforcement in Turkey in the context of accession negotiations.

Other cooperative agreements are also being discussed. Negotiations on the Anti Counterfeiting Trade Agreement (ACTA) were launched in July 2008. The goal of the ACTA is to provide an international framework that improves the enforcement of intellectual property right (IPR) laws, by improving international standards as to how to act against large-scale infringements of IPR, often conducted by criminal organisations.

ACTA should include provisions on civil, criminal and customs enforcement, on internet infringements as well as on procedural rules (e.g. seizure of goods, ex officio actions and damages), i.e. on the main instruments that allow right-holders and authorities to address infringements of IPR. It also considers "soft law" commitments about increased co-operation and co-ordination among enforcement authorities, technical assistance and partnerships with industry.

What is the role of the European Counterfeiting and Piracy Observatory?

On 2 April 2009, the European Commission launched the European Counterfeiting and Piracy Observatory at a High Level Conference on Counterfeiting and Piracy. The overall aim of the Observatory is to produce continuous, objective assessments and up-to-date research that leads to exchange of best practices and knowledge gathering among policymakers, industry experts and enforcement bodies.

Next to serving as a platform that allows for exchanging experiences, creating public awareness and sharing best practices on enforcement techniques, the Observatory is a central resource for gathering, monitoring and reporting crucial information that will improve the EU's knowledge about the dangers of counterfeiting and piracy. (see MEMO/09/146)

What more needs to be done?

There are already a number of legal instruments in place, but in order to make them more effective, the European Commission is seeking stronger administrative cooperation between authorities at all levels in the fight against fake goods. Key pillars of work include:

• Improving the collection and quality of data. As stated before, data on counterfeiting and piracy is still very incomplete and fragmented. The Commission will therefore analyse how data collection at the European level can be improved.

• Within Member States coordination between key players can be enhanced by sharing best practices. Between Member States, an efficient network of cross-border cooperation could be set up to facilitate a rapid exchange of information.

• Greater public-private cooperation can also be a useful tool to improve enforcement, for example through a platform that would enable this cooperation, facilitating the collection and exchange of information, while monitoring the developments in the trade of counterfeits.

• Inter-industry dialogues to crack down on the most evident forms of counterfeiting and piracy, including those on the internet, could prove to be a very effective and efficient ways to diminish the extent of the problems. Opportunities also exist in the field of standardized tracking and tracing methods, possibly even across sectors, and user-friendly ways to authenticate original products.

Is there a link with the EU patent strategy?

Yes. The creation of an EU patent and a unified litigation system would strengthen the EU in the fight against fake goods. A unitary title providing equal protection throughout the entire territory of the EU would enhance the fight against counterfeiting and the copying of products which are protected by patents owned by European companies. Complete geographical protection without any loopholes would help to prevent the entry of counterfeit products into the EU. An EU-wide scope of application would facilitate their effective seizure by customs authorities at all external borders of the EU and their removal from the market wherever they enter distribution channels.

More information can be found on:

http://ec.europa.eu/internal_market/iprenforcement/index_en.htm

IP/10/785

¹ :

Agreement on the Trade-Related aspects of Intellectual Property Rights

² :

http://www.oecd.org/document/22/0,3343,en_2649_34173_39542514_1_1_1_1,00.html

³ :

http://www.iccwbo.org/uploadedFiles/BASCAP/Pages/Report%20on%20EU%20Customs%20and%20Enforcement%20of%20IPR%202009.pdf