An extensive and thriving counterfeit trade is robbing genuine industries globally

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English cleric, writer and collector, Charles Caleb Colton, once said, “Imitation is the sincerest form of flattery.”

Yet, when that imitation takes on dark overtones as in counterfeit products, it becomes a totally different ballgame. As CEO of International Trade Mark Association (INTA), Etienne Sanz de Acedo, said, “The unchecked growth of counterfeiting and piracy is an enormous drain on the global economy. This illegal business activity deprives governments of revenues for vital public services, forces higher burdens on tax payers, dislocates hundreds of thousands of legitimate jobs and exposes consumers to dangerous and ineffective products.”

Retracing the steps that led to this situation, brings to the fore one of technology’s greatest triumphs – robust globalization of business through various options online. Studies show that an increasing number of people buy products online, increasingly using mobile devices to browse and purchase, from trinkets to furniture and even articles or papers custom written for you. Goldman Sachs forecast a significant increase in consumer mobile spending from $204 billion in 2014 to $626 billion by 2018. Rising popularity of ecommerce has Facebook, too, entering the fray, engaging customers through Facebook Marketplace. Over 450 million people engage with “Buy, Swap and Sell” groups on Facebook, as they join in the rising tide of ecommerce.  

However, this unprecedented rise in e-commerce, and sites like Amazon and eBay, have led to an uncontrollable surge in fake products that seem like the original brand, but are definitely not of the same quality, and sell for unbelievably low prices. In these instances, shoppers think they are getting a good deal, when they really are not. They ignore the well-known saying that if it seems too good too be true, it probably is.

As it turns out, the counterfeit industry is one of the most lucrative industries in the world, as the recent annual report of the Organization for Economic Co-operation and Development (OECD) and the European Union Intellectual Property Office (EUIPO), indicated. The report underscored that counterfeit products are currently more than 2.5% of all world trade, including 5% of all imports into the European Union. Furthermore, the counterfeit industry is expected to surge in the coming years, with China taking the lead as the world’s leading producer of fake products, from clothes to electronics, and dubious fake medicines and cosmetics.

Furthermore, the United Nations Commission on Crime Prevention and Criminal Justice has found that counterfeiting is currently the second largest source of criminal incomes worldwide According to a recent report enabled by INTA and the International Chamber of Commerce, the counterfeit market was worth $1.7 trillion, in 2015, which is estimated to increase to $2.3 trillion in 2022. While fake products are nothing new, their extensive reach today to all corners of the world, is unparalleled. As a recent report by the global research company, Frontier Economics analyzed, that counterfeit products will, in the coming years, wipe out 5.4 million “legitimate jobs” and incur global costs in the region of $4.2 trillion.

Counterfeit products are also driving out legitimate businesses by robbing their profits. Helena Steele, who founded Jessie Steele Kitchenware Company in 2002, says that counterfeits are driving her out of business. She began selling online seven years after she launched her company, but stopped about five years later. Yet, even though she does not sell online anymore, fake products under her brand are still selling online. According to her, counterfeits have resulted in her sales dipping from an annual $5 million to $500,000. Apart from depleting profits, counterfeits tarnish brand names and painstakingly built reputations for many years.

Intellectual property expert Amy Goldsmith says “The Internet is really the Wild, Wild West” because the US Congress has given companies that provide online services, “safe harbor” immunity in the 1998 Digital Millennium Copyright Act. As such, these providers are “highways” that goods travels over and they are not responsible for the contents of the trucks on the highway.

The global rise in consumerism has led to extensive production of fake products that are not foolproof, even to alert consumers. Former president, OECD Task Force on Countering Illicit Trade, David Luna said, “The size of illicit markets is massive. An array of consumer goods are impacted, from medicines and electronics to shoes, apparel and auto parts. They’re extremely profitable, so we see a tremendous amount of fake goods, and some, possibly dangerous. Smart products, cosmetics, movies, watches—you name it, there are counterfeits. The reality is that every IP product can be counterfeited by criminals and illicit networks.”

In this situation, blockchain technology is probably a savior, because, by creating unique identities for items, blockchain is able to identify and expose counterfeits. Through barcodes, serial numbers, or cryptographic seals, companies are able to develop a link between the physical object and its digital life on the blockchain. This kind of link brings greater transparency and builds trust in the genuineness of the product. With an identity attached to an item, the blockchain gets updated each time the item changes hands, whether it is from manufacturer to distributor to consumer or wholesale to retail to consumer. A verifiable chain of care and handling makes it possible to detect any discrepancies. If a distributor is selling items from an unauthorized person, the disappearance of those items from the product chain can be traced to the last person who had custody of the product. Blockchain will make easier identification of counterfeit products because fake products will not have a unique identity.

If something can be made, it can also be faked, so a flourishing fake product trade is not easy to break. However, blockchain is an aggressive and tamper-proof start. And as American writer Herman Melville said, “It is better to fail in originality than to succeed in imitation.”

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