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- April 14, 2010 -


Global Supply Chain News: Growth in Counterfeit Goods Shows No Sign of Abating, as US Sting Operations Finds $240 Million Fakes Entering the US, Mostly from China


Two Containers Full of Fake Nikes in New Jersey; Effort Increasingly Run by Sophisticated Gangs; Can Anything be Done?


SCDigest Editorial Staff

SCDigest Says:
Counterfeiting is moving from local operators trying to make a buck to organized criminal enterprises.

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In late April, there were two separate efforts, US authorities captured hundreds of millions of counterfeit goods entering the US in a single day.


One raid was executed by a combination of federal, state and local authorities across some 30 cities, with another raid focused specifically on fakes coming in through the port of Baltimore.


The multi-city raid found and confiscated about $40 million worth of counterfeit goods, including fake Rolex watches, Coach handbags, Nike shoes, pirated DVDs and counterfeit pharmaceutical products.


The Baltimore focused raid came after a long-running investigation and confiscated goods worth some $200 million.


The $240 million in goods taken in the April raids compared with about $260 million in fake goods confiscated in all of 2009. The largest single raid last year took place in December, when officials seized about $26 million worth of fake toys, Christmas ornaments, perfume, and electronics.


Federal officials says that criminal gangs from China are behind most of the fake goods entering the US, accounting for about 80% by value of the counterfeit goods seized last year. The products most commonly counterfeiting by value come from footwear products (e.g., fake Nikes), followed by consumer electronics, luxury goods (e.g., fake Coach purses), and pharmaceutical products. (See graphic below).


Source: US Immigration and Customs Enforcement (ICE)

Of course, those numbers only reflect actual seizures of counterfeit goods. The actual numbers brought into the US and especially sold abroad are likely multiple times that figure, likely running into the billions of dollars.


The 30-city raid was dubbed operations “Spring Cleaning,” and in Port Elizabeth, NJ, officials found two containers full of some 15,000 pairs of fake Nike athletic shoes, said to be worth about $1 million dollars. Fake Nikes were found in other ports as well.


In Philadelphia, authorities nabbed 24,000 counterfeit high-end watches.


Even the US military is worried. Starting last week, the Naval Criminal Investigative Service and the Defense Criminal Investigative Service says it will begin targeting counterfeit goods that could get into the military’s own supply chain.


Meanwhile, the US General Services Administration will target fake goods in the federal civilian supply chain. Additionally, federal, state, and local officials will create more than 20 "IP theft enforcement teams" to target the traffic of fake goods nationwide, Immigration and Customs Enforcement (ICE) officials said.


New Government Report Highlights the Problem


Following on the heels of the raids, the Office of the United States Trade Representative (Ron Kirk) issued its annual report on the state of intellectual property protection across the globe. That focuses not only counterfeit goods but also outright knock-offs where existing US patents, trademarks, etc. are not enforced.


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The report (available here) identifies 11 countries as being on its “Priority Watch List” for lack of protection of the intellectual property of US companies. Those 11 are: 

  • Algeria
  • Argentina
  • Canada
  • Chile
  • China
  • India
  • Indonesia
  • Pakistan
  • Russia
  • Thailand
  • Venezuela

While the report notes some positive trends in China of late, including its largest ever prosecution over IP theft, “the overall level of IP theft in China remains unacceptable,” and “China’s IP enforcement regime remains largely ineffective and non-deterrent.”


It may be surprising to many to see Canada on the Priority list, but the report says the country’s support for copyright protections is weak, and that it does not do enough at its borders to prevent counterfeit goods from entering into Canada.


On the positive side, the report notes marked improvement in intellectual property protection in several Eastern European countries, such as Poland, Czech Republic, and Hungary.


As with similar trends in cargo theft, the report notes that “Counterfeiting has evolved in recent years from a localized industry concentrated on copying high-end designer goods to a sophisticated global business involving the mass production and sale of a vast array of fake goods, including items such as counterfeit medicines, health care products, food and beverages, automobile and airplane parts, toothpaste, shampoos, razors, electronics, batteries, chemicals, and sporting goods.”


In other words, counterfeiting is moving from local operators trying to make a buck to organized criminal enterprises.


The report also says the sales channels for counterfeit products are moving rapidly from “street vendors” to on-line sales, with unsuspecting shoppers not realizing what they are ordering are not the real thing but in fact fakes.


The growing sophistication of counterfeiters shows up in many ways. For example, the report says another notable trend involves shipping counterfeit products separately from labels and packaging to evade enforcement efforts.


For example, infringers in Russia reportedly import unbranded products, package these products with unauthorized packaging materials bearing the rights holders’ trademarks, and subsequently export the products to various countries. Infringers in countries such as Paraguay reportedly facilitate these illegal activities by exporting label and packaging components to these counterfeit and pirated product assemblers.


The issue of counterfeit products and lack of IP protection continues to grow – with no clear answers what to do about it other than further stepping up investment in enforcement and pressuring more country’s to step up their own efforts, as the Eastern European countries have.


Just how bad is the counterfeiting problem? What if anything more can be done? Should traditional supply chain play much of a role in any of this? Let us know your thoughts at the Feedback button below.

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