Parliamentary Assembly
Assembl�e
parlementaire

Counterfeiting: problems and solutions

Doc. 10069
11 February 2004 

Rapport
Committee on Economic Affairs and Development
Rapporteur: Mr Bernard Schreiner, France, Group of the European People’s Party

For debate in the Standing Committee — see Rule 15 of the Rules of Procedure


Summary

Counterfeit goods - whether manufactured in Europe or brought in from other parts of the world - are on the rise, causing risks to consumers’ health and well-being, distorting competition, damaging legitimate producers’ interests and their brand names, undermining employment and reducing tax income.

The report calls for reinforced policies to combat counterfeit. They include better data collection on the phenomenon, improved controls including at customs, intensified communication with industry and the public and the harmonisation of legislation at European level. It welcomes recent and proposed European Union legislation aiming to strengthen the protection of intellectual property rights against counterfeit and pirated goods.

This notwithstanding, the report argues that certain confiscated counterfeit goods – such as clothing and shoes – could be donated for social and charitable purposes rather than being destroyed. Such exceptional use could only be admitted if these goods meet minimum safety standards and after any distinctive signs have been removed.

The struggle against counterfeit must be waged on many fronts and Europe-wide. Because the effects of counterfeiting are felt throughout society, responses to the problem should come from all levels: international organisations and business associations, legislators, industry, companies, enforcement agencies, regional authorities and consumers.

I.          Draft Recommendation [Link to the adopted text]

1.         The Parliamentary Assembly notes with concern the rapidly rising incidence of counterfeit goods in Europe – a phenomenon which places customers’ health and well-being at risk, erodes the markets for legitimate producers, damages the reputation of brand names, distorts competition, undermines employment and reduces tax income.

2.         The image of counterfeiting as a harmless activity must be challenged.  Council of Europe member states should improve data collection on the linkage between counterfeits and injuries or deaths, in particular as regards products such as pharmaceuticals, spare parts, toys, personal care and household items, foodstuff, alcoholic drinks and tobacco.

3.         Policies for better surveillance, control and prevention of counterfeit related risks to public health and well-being should be developed, as should communication with the public and industry.  Special regulations are also needed to oversee the sale of medicines and other sensitive products over the Internet.

4.         The Assembly welcomes the adoption in July 2003 by the European Union’s Council of Ministers of a regulation aimed at protecting intellectual property rights against counterfeit and pirated goods entering the EU and hopes that it can soon be supplemented by a proposed directive on the harmonisation of procedures within member states for combating counterfeiting and piracy of goods circulating in the EU.  The Assembly in this context welcomes the application of the new regulation within the enlarged European Union as from July 2004.

5.         To make anti-counterfeit laws and measures more efficient, they should be harmonised as far as possible throughout the continent. While intellectual property rights must be protected, there could also be reason to use confiscated counterfeit goods for social and charitable purposes. The Assembly therefore supports the idea that further use could be made of certain counterfeit goods - such as clothing and shoes - in exceptional circumstances and under certain conditions guaranteeing their conformity with minimum quality and safety standards of a national or European origin, and only after any distinctive brand signs on the goods in question have been removed. These items could be given to orphanages and humanitarian organisations – wherever possible via the rightful owners of the imitated brands– instead of being systematically destroyed as is the current practice in many countries, in line with countries’ moral obligation to assist their most vulnerable citizens, especially when the latter cannot otherwise be given adequate living conditions.

6.         In conclusion, the Assembly recommends that the Committee of Ministers ask the member states of the Council of Europe:

i.    to further tighten national laws and measures against counterfeiting and to seek their harmonisation at European level as exemplified by European Union legislation;

ii.    to entrust the competent authorities with the gathering of statistical data on the links between counterfeits and injuries or deaths among the public, in particular for the groups of products listed in paragraph 2 above;

iii.    to shape policies for better surveillance, control and prevention of public health risksassociated with counterfeit goods;

iv.    to improve communication with consumers, alerting them to the risks posed by counterfeit goods and ways of identifying such goods;

v.    to encourage industry to enhance information sharing on counterfeiting related problems and to strengthen practical measures against counterfeiting, including consumer hotlines and improved data management systems;

vi.    to draw up special regulations to oversee the sale of medicines and other sensitive goods over the Internet;

vii.    to consider permitting the exceptional use of certain confiscated counterfeit goods for social purposes along the lines set out in paragraph 6;

viii.    to involve more actively local actors, inter-professional groups and consumer associations in national anti-counterfeiting efforts, in particular via information campaigns;

ix.    to ensure appropriate training of customs officials on the means and policies to detect counterfeit goods;

7.         The Assembly also recommends that the Committee of Ministers invite the European Union to consider an alternative social and charitable use that could be made of certain seized counterfeit goods in exceptional circumstances and under certain conditions, as outlined in paragraph 5 above, by making the necessary adaptations to existing or planned EU legislation.

II.         Explanatory Memorandum by Mr Schreiner, Rapporteur

Table of contents

1.         INTRODUCTION

2.         BACKGROUND

2.1        Counterfeit: What is it and whom does it affect?
2.2        The extent of counterfeiting: facts, figures and trends
2.3        Consumer protection
2.4        Euro counterfeiting

3.         WHAT CAN WE DO AGAINST COUNTERFEITING?

3.1        International co-operation structures
3.2        Companies’ and industries’ role
3.3        Beyond the EU
3.4        Empowering local authorities
3.5        Educating the consumer

4.         CONCLUDING REMARKS

1.         INTRODUCTION

1.         In February 2002, Mr Gilbert Mitterrand and other members of the Assembly presented a motion for a recommendation (Doc. 9365) on the issue of counterfeiting.  While pointing out the forms counterfeiting takes and the punitive actions to curb it, the motion suggests that an alternative use could be found for certain of the seized counterfeit goods, such as clothing and shoes, in forwarding them to orphanages and international humanitarian organizations instead of systematically destroying such goods, as is the current practice. This would require changes to the legislation in force in many of the Council of Europe member states.

2.         In response to the motion, which was referred to the Committee on Economic Affairs and Development for a report to the Assembly, this report will examine the current situation as regards counterfeiting. It will offer definitions, illustrate the dynamics of counterfeit markets and clarify risks posed to consumers, as well as implications for industries, labour markets, national economies, legislation and society at large.

3.         The Rapporteur in so doing will draw on earlier work of the Committee on Economic Affairs and Development on economic crime[1] and make use of data from the European Commission’s Green Paper on ‘Combating Counterfeiting and Piracy in the Single Market’, the Counterfeiting Intelligence Bureau of the International Chamber of Commerce, the World Intellectual Property Organisation (WIPO), the Anti-Counterfeiting Group[2], the World Customs Organisation (WCO), Europol and Interpol, the law firm of Squire, Sanders & Dempsey L.L.P., and articles from news sources such as The International Herald Tribune, The Economist, Financial times and others.

2.         BACKGROUND

2.1        Counterfeit: What is it and whom does it affect?

4.         Counterfeit is deceit. It is something that has been forged, copied or imitated without the perpetrator’s having the right to do so, for the purpose of extracting money from credulous or consenting consumers. The term ‘counterfeiting’ is generally used in relation to the copying of trademarks (covering words, pictures and symbols), the infringements of patents (protecting inventions), licensing and copyright (relating to software, literary, musical and artistic works), as well as the faking of industrial designs, currency, consumer goods, substances, even plants and works of art but also packaging and labelling. Altogether these categories form the notion of intellectual property, as defined by the WIPO (World Intellectual Property Organisation).

5.         The Anti-Counterfeiting Group (ACG) defines counterfeiting as “a deliberate attempt to deceive consumers by copying and marketing goods bearing well known trade marks, generally together with packaging and product configuration, so that they look like they are made by a reputable manufacturer when they are, in fact, inferior copies”. However, the spread of digital technologies has not only made copying faster and cheaper but also radically improved its quality, with the result that modern imitations are more and more difficult to distinguish from the genuine articles.

6.         The likelihood for someone to be confronted with the fake is very high. It is estimated that counterfeiting represents up to 9% of world trade and is omnipresent throughout industries and countries. Although this offence is not new – faking valuables has been known from ancient times – the situation over the past twenty or thirty years has changed radically. Technological advances and the increasing delocalisation of manufacturing into poorer countries with low labour cost but often inadequate protection for intellectual property since the 1970s have transformed once marginal counterfeiting activities into well organised, highly productive and profitable ‘parallel’ businesses.

7.         At the same time, the growing popularity and rocketing value of brands enable – through smart marketing – to convert a rather simple and cheaply produced designer item into an expensive object of desire. The value-added by a brand-name is nowadays so significant that it becomes a golden opportunity for imitators to exploit consumers’ wishes without having to pay a high price. Moreover, with the advent of the ‘knowledge economy’, intellectual property is becoming a major company asset.

8.         Companies thus end up competing not only with visible rivals but also have to face unfair competition from ‘unofficial’ contenders. They gradually lose sales, market share, revenue and, to a certain degree, money spent in research and product development; their brand risks losing value (by being seen as less exclusive or of poor quality due to confusion with counterfeit copies) and even company reputation may suffer. In addition, companies may have to bear the cost of anti-counterfeiting measures or legal liability. Small businesses are particularly vulnerable.  

9.         State interests are hurt through the loss of job opportunities and tax revenue, lower GDP and investment. There is also increasing evidence that organized crime and terrorists have become involved in the production and distribution of counterfeit goods, which provides them with funds for their illicit activities and undermines state authority.

10.        While the general public rightly views trade in drugs or human trafficking with great concern, few would feel as strongly about counterfeiting. Since the risks that imitation goods pose to health and well-being of the consumer are generally underestimated - and the acquisition of fake products is still too often seen as ‘better value for money’ - counterfeiters can take advantage of a growing demand for the counterfeit in relative safety.

11.        If modern tools, such as the internet, computer equipment and precision technologies, enable the fakers to imitate fairly well not only the design but also the quality of certain products, bogus spare parts, toys and pharmaceuticals are sometimes of such a poor quality as to be potentially dangerous or even lethal. Counterfeiters do not have to respect consistent quality standards to ensure user benefits, loyalty or safety, nor do they provide any after sale service. The image of counterfeiting as a harmless activity has to be challenged.

2.2        The extent of counterfeiting: facts, figures and trends

12.        Counterfeiting is as diverse as any legal business. Its capacities range from an individual venture with a street market as an outlet to full-scale factories with their own distribution networks. Making copies is facilitated by smart technologies but also through ‘leaks’ or indiscretions by employees in companies with a coveted brand, and sometimes even through licensed suppliers and manufacturers who exceed their authorised production quantities with the aim to sell ‘extras’ on the side.

13.        No country in the world is immune to counterfeiting – be it because it hosts a ‘producer’, serves as a transit hotspot or is a ‘final market’ for counterfeits. A recent US survey lists some forty nations as key producers of imitation goods. These include not only developing and newly industrialised countries but also every member state of the EU and the United States itself.

14.        Though legitimate businesses bear the brunt of counterfeiters’ operations, the effects of faking on national economies go far and deep, too. It is estimated that counterfeiting costs the European Union over 100 000 jobs every year[3] and reduces EU-GDP by billions of euros annually. To this should be added government revenue losses (counterfeiters rarely pay duties or taxes) and, to a certain degree, lost foreign investment. With world merchandise exchanges reaching $ 6.3 trillion in 2002, up to $ 560 billion are thought to have been absorbed in counterfeit markets. (The US Trade Representative puts American industry’s losses due to counterfeiting at $ 200-250 billion a year).

15.        The Counterfeit Intelligence Bureau (CIB) of the International Chamber of Commerce believes that some $ 25 billion worth of counterfeit goods are traded each year on the internet. The World Health Organisation in 2003 issued a report maintaining that nearly a quarter of pharmaceuticals sold in developing countries, including those used to treat AIDS, tuberculosis and malaria, are poor quality imitations that are at best ineffective and at worst fatal. The spread of purchases on the internet coupled with the absence of effective controls suggests that some of these products could easily find their way into European homes.

16.        Counterfeiting in Europe is clearly on the rise. In the European Union - where, in accordance with Article 5 of Community Regulation ((EC) 1367/1995) member states have to report quarterly to the Commission on counterfeit goods intercepted at their borders - the rise was 900% between 1998 and 2001 in overall counterfeit seizures. Figures on seized pirated CDs, DVDs and the like were up 15 times from 1999 to 2001. The figures for 2002 show a significant increase in the seizure of counterfeit foodstuffs, cigarettes, cosmetics, clothing, toys, medicaments, car parts and especially mobile phone products, whereas seizure of digital goods, such as pirated CDs, DVDs and cassettes diminished.

17.        These numbers are probably just the tip of an iceberg. EU customs are physically able to inspect no more than 3-5% of all cargo passing Community borders. In its annual reports on the action of Community customs authorities against counterfeiting and pirating, the European Commission noted a clear trend of growing counterfeiters’ preference for quantity and variety over quality. Losing interest in articles with high value addedand big brand names, the fraudsters seem to turn to mass production of household goods or anything that promises to sell well. The 2003 trends show that there has been a notable increase in the number of imported disassembled articles, for subsequent re-assembly in local markets.  

18.        The counterfeit invasion of different sectors of the Internal Market varies considerably. Software, audio-visual, textile/clothing and music are the industries most concerned with piracy rates of, respectively, 39%, 16%, 10-16 % and 10%[4], but the manufacturers of car spare parts and sports equipment are also alarmed. Once viewed as a problem of developing countries, counterfeit pharmaceuticals are now emerging as a growing abuse in Europe and the United States, as shown by an increase in fraudulent medicine investigations on both sides of the Atlantic.

19.        Fake goods in the countries of central and eastern Europe may be different but they are no doubt becoming more frequent there. A consumer survey carried out by the Coalition for Intellectual Property Rights[5] found that 93% of Muscovites encountered counterfeits in 2002. Although fake clothing, footwear, sportswear, fuel, alcohol beverages and food products are the most frequently cited by these consumers, pirated music, films, medicines, tobacco, household goods, perfumes and cosmetics are high on the hit-list, too. One of five interviewed shoppers turned out to knowingly seek fake products to buy, judging the prices of original goods excessive.

20.        In the European Union, most counterfeit goods originate in Asia (Thailand, China, Hong Kong, Taiwan) but substantial quantities are thought to be manufactured also in Europe, such as Turkey, countries of central and eastern Europe and EU member states themselves. Exploiting legal loopholes, innovative logistic strategies and different routings, fraudsters are constantly trying to evade customs controls. This holds in particular for their attempts to conceal the product’s origin through multiple cross-border movements for their consignments. Customs of various countries therefore may prove to be a strong or a weak link in countering the major international flows of counterfeit goods before these are broken up into smaller quantities.

2.3        Consumer protection

21.        With the avalanche of the counterfeit ever more strongly felt across Europe, consumer protection remains inadequate. The threat to consumer health and safety is real. Even though the counterfeit phenomenon has in part developed in tacit complicity with some consumers, it more often than not works to their disadvantage. A consumer may be lured into acquiring a pirated CD one day, and nothing serious will come out of it. However, none of us would want to, say, travel in a car or an aircraft with counterfeit parts, receive fake medicaments, let alone by doctors with fake diplomas, or have our children play with poisonous toys. There can be no compromise with product safety.

22.        Consumer behaviour studies reveal that counterfeits are bought for two reasons. One type of consumers would knowingly buy fake goods, because they believe these will confer them higher social status while they are unable or unwilling to pay the price of the genuine item. Some buyers would go for imitation goods whose performance is not affected by the fact of being counterfeit. Designer labels and digital format goods (such as CDs and software) are particularly attractive for such buyers. Another type of consumers would acquire counterfeit goods simply because they are unable to recognise them as being fakes, especially when these are mixed with genuine articles. In the end, both types of consumers are used and abused by copycats.

23.        If, in theory, there are many ways to distinguish imitations from original products – from code bars, suspiciously low prices, packaging, product appearance, labelling to laboratory tests – most of such methods are not within reach for ordinary buyers. Product verifications need to be made by producers, vendors and control authorities so as to spot and eliminate corrupt items along the supply chains before they reach buyers. However, providing consumers with more adequate information on counterfeits is also indispensable: for consumers to be more attentive and sensitive to this problem, producers and traders will have to meet them halfway.

24.        It is also important to strike the right balance between intellectual property protection and societal needs. The issue grabbed headlines a few years ago, as developing countries challenged stiff patents on life-saving drugs. A group of countries have since defended their right to fair and affordable access (through domestic production or facilitated imports) to essential medicines, notably via the global trade talks led by the WTO on TRIPS (Trade Related Intellectual Property Rights)[6]. As some 95% of the pharmaceuticals on the World Health Organisation’s Essential Drug List are now ‘off patent’[7] and the Doha Declaration allows over-riding patents in case of major public necessity, a preliminary compromise agreement on poor countries’ imports of cheap generics made under compulsory licensing – if these countries are unable to manufacture such medicines themselves – was reached shortly before the WTO Ministerial Conference in Cancun in September 2003. However, numerous NGOs, including the 1999 Nobel Peace Prize winner M�decins Sans Fronti�res, criticise the deal as being flawed and insufficient.

25.        A recent report[8] on Counterfeit Goods and the Public’s Health and Safety released by the International Intellectual Property Institute highlights the growing problem of counterfeit goods in developing countries. The findings also indicate that even though concerns are the greatest in countries where legal provisions for the protection of intellectual property rights are insufficient, ‘good governance’ is lacking and public health and safety systems are insufficient, consumer safety remains a major challenge all around the world. Although a direct cause-and-effect linkage between counterfeits and deaths or injuries[9] is still difficult to quantify, data on seizures of fake alcohol, drugs, food, personal care items, toys and cigarettes combined with the increasing evidence[10] of harm related to faulty goods show a high and prevalent risk of exposure to such harm.Among sub-standard counterfeit goods coming into Europe are mobile phone batteries susceptible to explode upon use.

26.        There is therefore a need for systematic data collection examining the link between counterfeit and harm to the public, leading to policies for better surveillance, prevention and control. Counterfeit goods should be viewed not only as a violation of intellectual property rights and wider economic interests, but also as a public health problem calling for maximum quality assurance for goods which, if counterfeited, could cause harm. Special regulations are particularly needed for the sale of drugs and other sensitive products over the internet.

2.4        Euro counterfeiting

27.        Currency forgeries is one of the many faces of the counterfeiting. When the euro was introduced on 1 January 2002 in the twelve countries of the EMU and also in Monaco, San Marino and the Vatican, there had been legitimate fears that it would fall prey to counterfeiting. According to Interpol and Europol data, during the first six months of 2002, counterfeiting activities were at very low levels and the quality of the counterfeits was poor.Afterwards, the quality and quantity of counterfeit euros seized increased steadily, as did the involvement of organised crime groups in this field.

28.        Important seizures of counterfeit euro bills were made not only in EU countries but also in the nearby states of central and eastern Europe. By mid-2003, police authorities and banks had detected over 300,000 counterfeit notes worth over 16 million euros. Although the proportion of detected fake notes to the about 8 billion genuine notes in circulation remains modest, national authorities and their international partners will have to remain vigilant and centre their efforts on penetrating criminal networks at the earliest possible stage. The most recent reports on euro counterfeiting point to an upsurge.

29.        To the forgeries of money bills should be added those, today of much greater importance, of payment cards. For the United Kingdom alone losses due to counterfeit cards amounted to � 160.3 million in 2001. With so-called ‘skimming’, or copying of the magnetic stripe on a card being the most common form of card counterfeiting, it is hoped that a gradual spread of a ‘microchip and PIN identification’ system would significantly reduce the problem.

3.         WHAT CAN WE DO AGAINST COUNTERFEITING?

30.        The importance of intellectual property protection is now widely recognised. Every country needs a well developed and functioning mechanism to make best use of its human capital for enhanced economic and social well-being. At international level, intellectual property protection helps to preserve fair competition among traders in the global marketplace and self-evidently seeks to eliminate illegal practices such as counterfeiting and piracy. Because the effects of counterfeiting are felt throughout society, responses to the problem should come from all levels: international organisations and business associations, legislators, industries, companies, enforcement agencies, regional authorities and consumers.

3.1        International co-operation structures

31.        The World Intellectual Property Organization (WIPO) unites 179[11] of the world’s countries around the common task of protecting the rights of owners of intellectual property in their countries and worldwide. Its origins go back to 19th century, when the first international treaty on the matter – the 1883 Paris Convention for the protection of Industrial Property (such as inventions, trademarks, industrial designs) – was signed by fourteen states. In 1886, the notion of ‘copyright’ was established with the Berne Convention for the protection of Literary and Artistic Works. The WIPO, as we know it today, is a specialised agency of the United Nations and administers a total of 23 treaties. Against the background of its expanding role in the management of world trade, WIPO in 1996 started formal co-operation with the World Trade Organisation.

32.        WIPO’s work in promoting the development and application of internationally agreed norms and standards to protect intellectual property relies on its member states’ success in adopting and enforcing legal provisions. National customs are no doubt an essential element of these efforts in facilitating the flow of licit goods but filtering out illegal cargos. The World Customs Organisation (WCO) is co-ordinating the work of 161[12] national customs administrations and tries to build a global multilateral security chain for international trade. Good co-operation between national authorities with and through bodies such as WIPO, WTO, WCO, WHO (World Health Organisation) and Interpol/Europol is vital for capacity building and increased integrity.

33.        These and other international organisations make a valuable contribution to tackling counterfeiting. They should also build up databases on injuries, diseases and deaths related to counterfeit goods. The WHO has a database on counterfeit drugs but could also usefully gather information on other counterfeits with adverse effects on health. Steps to address this information deficit could also be taken by national health organisations and government agencies.

34.        At the European level, the EU took the first measures to reinforce the protection of the Single Market against the influx of counterfeit goods in 1994, via its Regulation 3295/94. It was meant to supplement WTO Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPs). The Regulation was subsequently amended. The interested parties were consulted in 1998 on the basis of a ‘Green Paper’ on combating counterfeiting and piracy in the Single Market, and an action plan setting out priorities and initiatives followed in 2000. This notwithstanding, there has been a steady escalation in intellectual property offences, especially over 1998-2001 period.

35.        In January 2003, the European Commission published a new proposal for a Council Regulation “concerning customs action against goods suspected of infringing certain intellectual property rights and the measures to be taken against goods found to have infringed such rights”. It was followed by a Directive laying down “measures and procedures to ensure the enforcement of intellectual property rights”. The latter is designed to curb the flow of counterfeit goods within the EU, whereas the former is meant to improve the efficiency of customs action for seizing counterfeits at the EU’s external borders. These acts would replace the existing Regulation 3295/94. 

36.        The adoption by the European Parliament, in June 2003, of a written Declaration on the fight against piracy and counterfeiting in the enlarged EU, signed by 231 Members of European Parliament (MEPs), came shortly before the EU Council of Ministers’ adoption in July 2003 of the above-mentioned Regulation, which will enter into force in July 2004. These moves are indeed very welcome steps, coming so quickly after the Commission’s initiatives. This allows hoping for a speedy progress also on the legislative process regarding the proposed Directive.

37.        The new Regulation, amongst other things,

(a) extends intellectual property rights protection to new domains (covering e.g. plant varieties, geographical indications and designations of origin),

(b) seeks to improve information exchange between customs and the right holders as regards suspect consignments,

(c) streamlines customs verifications procedures,

(d) strengthens the protection of SME right holders,

(e) tries to tighten control of small-scale trafficking and

(f) authorises customs authorities to destroy suspected goods under certain conditions without court permission.

It is against this background that the Rapporteur recalls the idea that an alternative use could be found for some of the seized counterfeit goods, such as clothing and shoes, in forwarding them to orphanages and international humanitarian organizations instead of systematically destroying them, as is the current practice. The Rapporteur noted that members of the Economic Affairs Committee marked their agreement in principle to the exceptional and restricted use for such purposes of counterfeit clothing and shoes.

38.        The proposed Directive puts forward a series of practical measures aimed at overcoming the existing disparities between national systems in enforcing intellectual property rights – with the goal of harmonising the legislative, regulatory and administrative provisions in EU member states. Some experts believe that the draft Directive needs to be improved so as to clarify provisions for implementation and as regards the definition of ‘infringements with severe effects’. They also say it should better address the issue of unfair commercial practices (such as look-alikes) and the need to foresee out-of-court settlements, as well as to extend the ‘presumption of authorship’ also to legal persons. In terms of penalties for infringements, the Directive does not go as far as the United States Anti-Counterfeiting Consumer Protection Act of 1996 whichpermits US law enforcement officials to seize not only the counterfeit goods but also the property, equipment and storage facilities associated with the criminal enterprise.

3.2        Companies’ and industries’ role

39.        While waiting for stronger laws and enforcement mechanisms at EU level, companies should continue to take measures to better protect their products. These include:

(a) more active information sharing among industry players, public authorities, enforcement agencies, law making bodies and consumer associations;

(b) research on, and implementation of, technical anti-counterfeiting solutions (for instance, optical and electronic security devices, micro-engravings, watermarks, holograms and ‘smart packaging’);

(c) improved management systems to prevent ‘strategic information leaks’ and ‘back-door shipping’ (tougher rules may be needed with regard to licensed partners and company staff need to be coached on confidentiality principles and data protection); the same holds for detecting and reporting suspicious goods (e.g. via customer hotlines), means to monitor the flow of goods on the market, and methods to pursue offenders.

40.        The industries concerned must also become more active in combating piracy and counterfeiting. They could bolster the general regulatory framework by developing codes of conduct and guidelines for the circles directly affected by the problem. Industry associations should set up databases on cases of counterfeit and the harm they cause, which would permit them to communicate better to the public about direct damages due to counterfeiting.

3.3        Beyond the EU

41.        Non-EU states should work to align their legislation and enforcement mechanisms not only with international legal standards but also with EU legislation. This is already the case for the ten candidate countries set to join the EU in 2004 under the Europe Agreements concluded in 1990s; for Norway, Iceland and Liechtenstein through the European Economic Area Agreement that entered into force on 1 January 1994; and for Switzerland via the Bilateral I Agreement concluded between that country and the EU.

3.4        Empowering local authorities

42.        Local authorities should also be concerned about counterfeiting. While counterfeiting has for long been viewed as a low priority type of crime, new evidence of the direct harm it causes and the wider economic implications it has lead to a gradually changing general public’s perception of the problem. Local communities across Europe lose billions in local taxes due to counterfeiting. Many small local enterprises can be forced out of business by counterfeit competition and scores of employees would be laid off as a result.

43.        Involving local actors in national anti-counterfeiting efforts therefore makes sense and should be encouraged. Local authorities could contribute in the organisation of information campaigns against counterfeiting, assist in investigations of reported cases, and monitor local markets in co-operation with local chambers of commerce and consumer associations. If the United States has one of the lowest rates of counterfeiting in its domestic market, it is largely due to its steep penalties and the proven ability of state (regional) and local authorities to pursue counterfeiters in support of nation-wide action by federal authorities.

3.5        Educating the consumer

44.        The quickest way to halt any market is to curb the demand that created that market.  Yet many people do not see anything wrong with buying counterfeit goods. It is therefore important to alert consumers as to the consequences and possible dangers of buying counterfeit goods. Most buyers are presumably unaware that acquiring fake products may amount to lost jobs and tax revenue, perhaps even in their region, that they may be inadvertently supporting terrorist and organized crime organizations, and that their health, safety and well-being could be at serious risk.

45.        Raising awareness of consumers can be done effectively through the dissemination of knowledge and information. Advertisements alerting the public to all the dangers of counterfeiting can be broadcast on the media and put into posters in shopping areas and magazine pages. Good advertising has powerful effects on people and a properly waged campaign can bring about an increased knowledge and prompt the desired action on the problem within the community.

4.         CONCLUDING REMARKS

46.        Counterfeiting is nothing new in Europe. What is new, however, is the growing scope and diversity of this phenomenon, which is creating substantial uncontrolled parallel markets in many product categories. The regular market is thereby negatively affected, competition distorted, consumer confidence eroded and with it sales. Jobs are lost, investments are not made, and state revenue is diminished, while risks to public health and the overall well-being of consumers rise. The European Union, in line with its commitments to various WIPO and WTO treaties, in 2003 has presented audacious draft legislation – a Community Regulation has been adopted and a new Directive proposed – even though it may be some time before any practical impact will be felt, not least due to the current EU enlargement process. Greater harmonisation and tightening of anti-counterfeiting laws and measures should be sought throughout the continent, so that no ‘weak links’ remain.

47.        Your Rapporteur on the whole supports the idea that an alternative use could in exceptional circumstances be considered for some seized counterfeit goods, such as clothing and shoes, but only under certain conditions. These could include the issuing of a certificate of conformity with minimum quality standards – national or European – and the removal of labels and other identification marks on the goods in question. They could then be forwarded to orphanages and humanitarian organisations rather than destroyed, as is the current practice in many European countries. This is not to say that regulations concerning counterfeit goods should be relaxed but rather the opposite, as ‘an exception proves the rule’.

48.        Implementing this proposal would no doubt require an adjustment of national laws and presumably also in EU legislation. The Council of Europe grouping 45 countries is well-placed to promote this process on the basis of protecting vulnerable members of society, especially in countries where state authorities face difficulties in ensuring decent living conditions for the deprived population.

49.        Council of Europe member states should also do more to collect information about the direct cause-and-effect linkage between counterfeits and deaths or injuries. This holds in particular for alcohols, drugs, food, personal care items, toys and tobacco products, which, if counterfeited, could cause serious harm. The aim is to have better surveillance, prevention and control policies, and to improve communication with and education of consumers. Special provisions are also needed to oversee the sale of medicines and other sensitive goods over the internet.

50.        Finally, the right balance has to be struck between intellectual property rights and societal needs. Developed countries, which are the most eager defenders of intellectual property rights, should be ready to show the necessary flexibility when negotiating within the WTO framework with developing countries regarding the latters’ access to essential medicines on affordable terms. Human solidarity must take precedence over sectoral interests without necessarily denying them.


Reporting committee: Committee on Economic Affairs and Development

Reference to committeeDoc. 9365 and Ref. No. 2709 of 26.03.2002.

Draft recommendation unanimously adopted by the Committee on 23 January 2004.

Members of the committee: Mrs Zapfl-Helbling (Chairperson), Mr Kirilov, Mrs Burbiene, Mrs Pericleous Papadopoulos (Vice-chairpersons), Mr A�ikg�z, Mr Adam, Mr Agramunt, Mr I. Aliyev, Mr Anacoreta Correia, Mr Andov, Mr Arnau, Mr Assis Miranda, Mr Ates, Mr Attard Montalto (Alternate: Mr Pullicino Orlando), Mr van Baalen, Mr Berceanu, Mr Braun, Mr Brunhart, Mr Budin, Mr �avusoglu, Mr Cosarciuc, Mr Crema, Mr Dimic, Mr Djupedal, Mr Figel, Mr Floros (Alternate: Mr Sfyriou), Mr Galchenko (Alternate: Mr Tulaev), Ms Griffiths, Mr Grignon, Mr Gusenbauer, Ms Hakl (Alternate: Mr Grissemann), Mr Haupert, Mr H�gmark, Mr Jonas, Mr Kacin, Mr Karapetyan, Mr Klympush, Mr Korobeynikov, Mr Kraus, Mr Krivokapic, Mr Lachnit, Mr Le Guen, Mr Leibrecht, Mr Liapis (Alternate: Mr Pavlidis), Mr Makhachev, Mr Masseret, Mr Melcak, Mr Mikkelsen, Ms Milicevic, Mrs Muizniece, Mr Naumov, Mr �hman, Mr O’Keeffe, Mr Opmann, Mrs Patarkalishvili, Mrs Petursdottir, Mrs Pintat Rossell, Mr Podgorski, Mr Popa, Mr Puche, Mr Ramoudt, Mr Ramponi, Mr Reimann, Mr Riccardi, Mr Rivolta, Lord Russell-Johnston, Mr Rybak, Mr Sasi, Mr Schreiner, Mr Severin, Mr Seyidov, Ms Smith, Mr Stefanov, Mr Tepshi, Mr Timmermans, Mr Torbar, Mrs Vadai, Mr Versnick, Mr Walter (Alternate: Baroness Hooper), Mr Wielowieyski, Mr Wikinski, Mr Zhevago.

N.B. The names of those members present at the meeting are printed in italics

Head of Secretariat: Mr Torbi�rn

Co-Secretaries to the committee: M. Bertozzi, Ms Ramanauskaite; Ms Kopa�i-Di Michele


[1] “Europe’s fight against economic and transnational organised crime: progress or retreat?” (Doc. 9018) drawn up by Ms V. Squarcialupi and “Threat to Europe from economic crime” (Doc. 7971) prepared by Ms H. Degn.

[2] A trade association representing nearly 200 manufacturers and distributors of branded products and firms of intellectual property lawyers and agents. See also <http://www.a-cg.com/>

[3] Commission of the European Communities Green Paper on Combating Counterfeiting and Piracy in the Single Market

[4] Measured as percentage in relation to legitimate trade.

[5] The Coalition for Intellectual Property rights (CIPR) is a private-public partnership dedicated to protecting and enforcing intellectual property rights in the CIS countries and the Baltic States (Estonia, Latvia, Lithuania).

[6] Paragraph 6 of the TRIPS agreement refers to the inability of many developing countries to effectively use compulsory licences to obtain affordable medicines from domestic generic drug producers, since the majority of the developing countries do not have domestic manufacturing capacity in pharmaceutical products.

[7] A 2003 WHO report on intellectual property rights, innovation and public health highlights concerns about the impact of intellectual property rights on prices of medicines. The report notes that when intellectual property rights are used beyond the original intent of stimulating innovation, as a commercial tool that overly restricts competition, the cost to society, particularly in developing countries, would be high. It also warns that extending the scope of patents might have adverse effects on future innovation and that bilateral and regional trade agreements that extract TRIPS-plus obligations from developing countries may fail to reflect the need for special treatment for health-related products.

[8] Michele Forzley, JD, MPH study of July 2003 for the International Intellectual Property Institute, with support from the United States Patent and Trademark Office

[9] Counterfeit-related health problems can stem from the absence of active ingredients, contamination, low quality raw materials, a modified expiry date, inadequate labelling and user instructions that may lead to burns, blindness, swelling, cuts, poisoning, allergic reactions, side-effects, unwanted pregnancies, hospital admissions, drug-resistance, diseases and death.

[10] According to the Russian Ministry of Health, in 2000, the number of reported cases of counterfeit medicines has risen dramatically and constituted 3.6% of the market, especially in antibiotics. A 2001 study by the Coalition for Intellectual Property Rights (CIPR) and the Association of International Pharmaceutical Manufacturers (AIPM) concluded that some 10% of drugs in Russia were counterfeit.

[11] All member states of the Council of Europe, except Moldova, belong to this Organisation.

[12] All member states of the Council of Europe, except Bosnia and Herzegovina, Liechtenstein and San Marino, belong to this Organisation.