Chapter 8: Trafficking inCounterfeit Goods

Introduction

In very general terms and avoidingany reference to legal definitions, we can identify counterfeiting as theactivity dedicated to reproducing the result of someone else's work orinventive and artistic creativity without authorization and with the aim toobtain an undue profit. Within these general terms, counterfeiting is not a newphenomenon Intellectual property rights (IPRs) have a rather long history too.The interest and involvement of organized crime is probably the most importantfactor causing the expansion of counterfeiting activities around the globe andmaking it an example of transnational crime. This element mixed with otherfavorable factors played a very important part in the process of renderingcounterfeiting a global phenomenon in modern times. This chapter discussescounterfeit goods—their production, trafficking, and distribution; the harmthey impose to consumers; and the response to counterfeiting that should beadopted by law enforcers as well as by the international community.

Counterfeiting,the Quest for a Definition

Defining counterfeiting is adifficult task. According to the World Intellectual Property Organization(WIPO), the terms counterfeiting and piracy are used invarious ways but generally refer to cases of intentional IPRs infringements.

The conventions that exist on thesubject matter are focused on the establishment, protection, and enforcement ofIPRs, identifying counterfeiting as a violation to the established rightsrather than attempting to define what the term means. This choice is completelyunderstandable, especially if one considers that the purpose of the majority ofthese international instruments was to establish IPRs. Furthermore, they datesome time back, having been negotiated and approved in a historical moment inwhich the awareness of the important consequences caused by counterfeiting andpiracy for the society was not as high as it is today. It was 1994 when, forinstance, under the auspices of the WTO, the Agreement on theTrade-Related Aspects of Intellectual Property Rights (TRIPs) was signed.This agreement broadly identified counterfeiting as the illegal reproduction orimitation of products, including both counterfeit trademark goods and piratedcopyright goods. Being dedicated to the use of IPRs in international trade, theagreement specifically considered trademarks and copyright infringements. Someyears later, in 1998, the European Commission published a green paper dedicatedto the fight against counterfeiting and piracy that identified counterfeitgoods as those goods infringing an IPR (thus violating trademarks or tradenames, industrial designs or models, patents, utility models, and geographicalindications); pirated goods were identified as those goods violating acopyright.

After more than 10 years, however,recent discussions at the intergovernmental and experts' level have shown thatattempts to define counterfeiting exclusively or in prevalence as a violationof IPRs may lead to very strong reactions from a series of actors that wouldprefer to take out IPRs from counterfeiting, concentrating theattention more on the commission of the illicit activity itself rather than onthe rights that are infringed. This process gave light to the progressive useof alternative agreed language, as is the case of theterms fraudulent and falsified used in recent internationallegal instruments. Without taking a position in this respect and withoutdisserting too much on the motivations at the basis of this trend, it isnonetheless interesting to analyze how it directly influenced the negotiationsfor the adoption of new conventions and resolutions within the UnitedNations and other international organizations.

This new trend manifested itselfwith a certain prominence in the area of counterfeit medicines. One of the mostimportant issues is that international discussions often consider the word counterfeit asstrictly related to IPRs issues. In reality, the fight against counterfeitmedicine goes well beyond the mere protection of IPRs, being a struggle forprotecting patients and public health while combating organized criminalsprofiting from counterfeiting schemes. For this reason, and to avoid having thecontroversy over the use of the term counterfeit block the adoption of newregulations at the international level aimed at protecting public health, theuse of this term is sometimes avoided or well specified. An example of thefirst case is Directive 2011/62/EU of the European Parliament and of theCouncil Amending Directive 2001/83/EC in regard to the prevention of the entryinto the legal supply chain of medicinal products that are falsified inrelation to their identity, history, or source. The directive uses theexpression “falsified medicine,” defined as follows.

Any medicinal product with a falserepresentation of: a) its identity, including its packaging and labelling, itsname, or composition as regards any of the ingredients, including excipientsand the strength of those ingredients; b) its source, including itsmanufacturer, its country of manufacturing, its country of origin, or itsmarketing authorisation holder; or c) its history, including the records anddocuments relating to the distribution channels used.

An example of the second case is thenew Council of Europe “Medicrime” Convention (opened for signature on October28, 2011). The full name of the Convention is Council of Europe Convention onthe Counterfeiting of Medical Products and Similar Crimes Involving Threats to PublicHealth, but the use of the term counterfeit has been well-explained in theconvention itself, as well as in its explanatory report. This situationreflects the long negotiation process. The explanatory report clarifies thatthe term has to be considered with a broader meaning than the mere protectionof IPRs. In particular, counterfeit encompasses any “false” productas well as the “manufacturing of a false product and passing it off asoriginal”. The convention focuses on the threat to public health posed bymedical products that are counterfeited, manufactured, or distributed withoutproper authorization and/or in breach of safety standards and on deals withmeasures of criminal law aimed at counteracting “Medicrime” in general—anyillegal activity posing a risk for public health by the means of medicalproducts. The convention does not address the issue of IPRs, other than to saythat they shall be applied without prejudice to criminal prosecution for theirinfringement.

Further examples include the resolutionsadopted by the UN Commission on Crime Prevention and Criminal Justice in 2011and 2012. The first one focuses on “fraudulent” medicines and avoids referencesto IPRs infringements. The second one has a broader scope because it is aimedat strengthening international cooperation for the fight against transnationalorganized crime in all its forms and manifestations. Within this resolution,specific operative paragraphs are dedicated to the production and trade ofcounterfeit products but, to avoid references to IPRs, the terms falsifiedand fraudulent products have been used throughout the text,substituting for the term counterfeiting. In both cases, it has been asuccessful way to overcome complications during the negotiation phase, ensuringthe approval and adoption of the resolutions by the member states.

Taking definitional problems aside,it is clear that the trafficking in counterfeit goods is part of the globalillicit trade that involves money, goods, or value gained from illegalactivity. This type of trade generates a wide range of economic,social, environmental, and/or political harms, and it is exactly on theseelements that we will focus the rest of this article.

Production,Transportation, and Distribution of Counterfeit Goods

The production and distribution ofcounterfeit goods is a global business that relies on a series of practices andsmuggling methods successfully put in place by criminals. Criminalorganizations have transformed this activity into a mass production industry capableof supplying knowing and unknowing consumers.

The large-scale production phase ischaracterized by the availability of capital investment, a high level oforganization, and technology, as shown by the quantity of goods produced andthe size and technology employed in some of the discovered production sites.

In the distribution phase, varyinglevels of organization and complexity are identifiable. First of all, criminalnetworks need to disguise the real origin of the products. This is usuallyaccomplished by avoiding any evidence suggesting an origin from “sensitive”locations that are known as sites of counterfeit goods production. Cargoes aretherefore diverted several times in order to pass through different transitpoints for the purpose of deceiving the authorities about their actual origin.The transit or entry points are selected taking into consideration the severityof local legislation, as well as the relevant degree of application by lawenforcers. This problem has recently also become a key factor within theEuropean Union, where differing legislations in member states could serve as anelement that counterfeiters can exploit for their trafficking.

To evade border controls,counterfeiters also resort to a variety of techniques to disguise the goods—bymixing original and counterfeit products or by using double bottomedtransportation means. The problem becomes even more complex when the importedgood is not a finished counterfeit product, as the widespread practice ofsubdividing the components of a product in several shipments shows. This is thecase, for instance, of shirts and relevant counterfeit trademarks shippedseparately, or the case in which a product is delivered first followed by itscounterfeit package. In such cases, the manufacturing process is completedafter delivery so as to share the risks involved in shipping. If only thecontainer with the shirts or the products without trademarks is intercepted, itwill not be seized during customs controls. The loss would thus affect only theshipment of the counterfeit trademarks or the packages. The same manufacturingor assembly process may be subdivided into several countries so as to increasethe complexity of the distribution and to reduce the probability that traderoutes are traced.

The complexity of the distributionnetwork makes it extremely difficult to exactly identify the supply chains,also because criminal groups are capable of deftly modifying their traderoutes. As a result, on the basis of known cases, it is currently possible toidentify only a few of the major collection points: the ports of Antwerp,Hamburg, and Amsterdam or the airports of Schipol and Roissy, in Europe.Outside of Europe, Dubai, Hong Kong, and some US ports serve as importanttransit points.

The final phase of the distributionprocess—that is, when the product reaches the consumer—may also be structuredin a variety of ways, depending on the nature of the marketed counterfeit goodand the type of consumers targeted. In cases involving the offer of goods notposing evident risks to public health and safety, it is possible thatcounterfeiters will resort to street trading. This may also be implemented bymeans of small criminal groups involved in the retailing of illegal goods. Insome cases, retailers also can be involved in the distribution of counterfeitgoods either without knowing what they are doing or if they are threatened andforced to do so. Counterfeit products have been discovered in stores managedby owners in good faith deceived by the counterfeiters who inserted theirproducts at the level of major distributors. In other cases, Mafia-typecriminal organizations have forced the retailer to distribute counterfeitproducts. This method could replace the requirement of a protection money feeand is based on intimidation tactics.

In the late 1990s, for example,Humatrope, a product that is used to treat children who are short or growingslowly or adults who have growth hormone deficiency, was being illegallymanufactured in a factory in United Kingdom. The offender was sentenced to 5years, though he insisted that he was forced to manufacture the counterfeitproduct after being subject to assault and death threats by a Liverpool crimegang. Also, in Italy, high-level members of the Camorra had moved to Liguriaand were forcing local retailers to acquire exclusively fake designertrademarks.