Getting real about fakes: the high cost of counterfeit goods

The counterfeiting industry has never been more prolific—and the real cost of counterfeit goods is far higher than many realise. It is a vast global industry with wide-reaching negative impacts, including but not limited to the exploitation of child labour and people trafficking, increased pollution, funding for organised crime, identity theft, and dangers to health and safety.

For businesses, cheap fakes undercut their legitimate sales, undermining the value of their business, inhibiting innovation, and restricting employment opportunities. Counterfeiting also leads to reputational damage as consumers lose trust in the ability of their favourite brands and online marketplaces to protect them from theft.

For consumers, the potential damage can go much deeper than losing money on a purchase that looked like a bargain but turns out to not be the real deal. The risk is greater, as buying fake products online often involves unwittingly sharing personal data that can be used in criminal activities such as identity theft.

Poorly made counterfeit goods also present a very real danger to users. In recent years, criminal cases in the UK have been brought against counterfeiters selling fake products like vehicle parts, baby carriers and Covid testing kits because of the damage caused to consumers.

Fake cosmetics often contain harmful substances, while counterfeit electronics can risk injuries from fires and electric shocks. The most common fake vehicle parts worldwide include filters, brake pads, lights, wheel rims and airbags—if these parts fail, this can lead to serious accidents.

For the planet, counterfeit goods create more pollution—across production, distribution and disposal—and offer none of the protections on environmental impact offered by businesses creating legitimate products.

What’s more, counterfeiting has deep links with organised crime. According to the UN Commission on Crime Prevention and Criminal Justice, counterfeit goods are the second largest source of criminal income worldwide after drugs. With many of these goods being produced by forced labour, counterfeiting is also a key driver of modern slavery and people trafficking as propagated by organised crime.

When taking all of this into account, it’s easy to see why tackling the challenge of counterfeiting is essential. Combatting counterfeit goods would not only minimise costs for businesses and protect brands but also help to reduce serious crime. Achieving this requires a collaborative approach between authorities, decision-makers, businesses and consumers.

PIPCU under pressure

In the UK, the Police Intellectual Property Crime Unit (PIPCU)—a unit of the City of London Police—is the specialist police unit dedicated to investigating and deterring serious intellectual property crime nationally.

Created in 2013 and funded by the Intellectual Property Office (IPO), PIPCU is doing important work and has established itself as a world-leading crime agency.

By targeting digital piracy and online retailers and their premises, PIPCU has been able to disrupt vast counterfeit operations. Since its inception, the unit has investigated intellectual property crime worth more than £100 million and suspended more than 30,000 websites selling counterfeit goods. In the 12 months to July, it confiscated goods worth a total retail value of £41.6 million. In that same period, more than 10,000 website domains enabling counterfeit sales were suspended. These websites also have links to identity theft.

But surprisingly, PIPCU is not as well known as it should be and is an overstretched unit, meaning it is unable to address the full extent of counterfeit trade in the UK. It largely relies on the resource-intensive process of raids and seizures to identify counterfeit goods.

Even the storage and disposal of such vast seizures of goods is incredibly costly—in the 12 months to July, PIPCU spent £125,400 on storage and £68,400 on destruction across just two of its major operations.

What’s clear is that more needs to be done, to support the efforts of PIPCU and ensure real change is achieved—and at the heart of this is the involvement of businesses themselves.

To avoid the high costs of raids and seizures, PIPCU needs more intel that will allow it to intercept counterfeiters early. Referrals from businesses impacted by counterfeiting—through Action Fraud online, for example—can help to narrow the gap between the criminals and investigators. But this is just one part of the solution.

A collaborative approach to stop counterfeiting

Businesses can do more to disrupt the trade of counterfeit goods and protect their IP and brand reputation. An important area to consider here is the move online—as consumers have moved more towards e-commerce, so too have the trading operations of counterfeit suppliers and sellers, who might previously have focused on marketplaces and street corners.

This movement online has granted counterfeiters anonymity, and opened up new ways for organised crime gangs to access and exploit consumers’ personal data. And the problem is not going away any time soon.

So what more can businesses do to disrupt the trade, protect their brand and protect consumers?

The greatest challenge PIPCU faces is businesses not being aware of the work it is doing, and how they can support it. Through the internal work that most businesses do to investigate and stop fraudsters copying their brand, they possess plenty of information which can aid investigations into the counterfeit trade.

However, few have considered or are aware of how they can report intelligence of counterfeit goods into a central system. A simple referral form on the PIPCU website allows people to report any information they have about a possible IP crime and is a key way for businesses to help disrupt counterfeit trade.

PIPCU also maintains the Infringing Website List (IWL) which details sites that have been verified by the police as providing copyrighted content illegally. Businesses can help to cut off a significant source of revenue for IP criminals by excluding these sites from all their ad buying, selling or trading.

Businesses also need to be acutely aware of what IP they own, and the full value of that IP, so that they can assert their rights to it and the damage done by counterfeits. To do this, they need the right advice and guidance—including legal expertise.

By effectively monitoring counterfeiters, businesses can take action against rogue sellers. If a counterfeiter is found to be using a protected asset in a product, businesses can apply through civil courts to freeze the seller’s assets, stopping the activity and cutting their funding stream. PIPCU can play a vital role in taking similar action, but by proactively taking specialist legal advice, businesses can take control of the situation and take action themselves.

It doesn’t stop with businesses reporting counterfeit goods or infringement of their own IP—what’s required is a collaborative effort. Businesses must support one another, share insights, and communicate efforts to combat counterfeiting.

In doing so, they are not just protecting brands and preventing commercial impact, they are helping to protect vulnerable groups and communities. The production of counterfeit goods contributes to child labour and people trafficking, harming individuals around the world, often from poorer or developing countries. There is a legal, moral, and ethical responsibility to do more than simply report fakers aping your own products.

Consumers play a role

Lastly, it’s important to consider how businesses can educate consumers to change their behaviour. Where there is demand, supply inevitably follows. Consumers can limit the damage of counterfeiting by knowing how to spot fakes, understanding when and where to spend their money online, and ultimately by avoiding these purchases altogether.

They can also play a key role in identifying and reporting fraudulent practices. By making better-informed purchasing decisions and doing their due diligence, buyers can become part of the solution—rather than a part of the problem.

Publishing information to customers about counterfeiting, including through marketing materials or websites can help their customers to better understand the human impact of buying counterfeit goods.

These solutions should be working in concert to beat the criminals producing and selling fake goods. Specialist teams like PIPCU in the UK are doing what they can to tackle this industry, but it’s clear that greater collaboration between authorities, businesses and consumers is essential.

Joanna Corbett-Simmons is a legal director at Blake Morgan, specialising in contentious intellectual property matters. She can be contacted at:  joanna.corbett-simmons@blakemorgan.co.uk