CASE It's a Knockoff World
Companies are dogged by piracy-the illegal irnitation,
copying, or It's a
counterfeiting of their registered products.
tense issue given that it cuts to issues of innovation, history,
culture, politics, and prosperity. Making matters worse is
that pirates, besides being everywhere, come in every form:
individuals making unauthorized copies at work, imitators
laboring in dingy sweatshops, and hardened criminals run-
ning global networks.
The problem, basically. is straightforward: intellectual
property (0P) in the form of books, music, product designs,
brand names, process innovations, software, film, and the
like is tough to conceive but ridiculously easy to copy.161
Moreover, notwithstanding moral shortcomings, pirates do
not lack initiative or imagination. In our knockoff world, if it's
being made, it's being faked. Fair game includes virtually
everything-from the humble aspirin to the flashy Ferrari.
And, for the kicker, knockoffs sell for a fraction of the price
of the real thing to eager buyers worldwide.
Big Money, Big Risks
IP theft is big business. Globalization and the Internet fuel
the perfect storm, the former moving much of the world's
manufacturing to countries with poor IP protection, the latter
providing cheap, easily accessible marketing platforms and
distribution channels. The costs of counterfeit IP, from lost
sales, eroded consumer confidence, diminished brand rep-
utation, dangerous products, enforcement expenses, and
legal costs, is staggering. The International Anti-Counter-
feitingCoalition (ACC) estimates that international trade in
illegitimate goods runs more than US$1.75 trilion a year
approximately 7 percent of world merchandise trade. To top
it off, piracy has grown more than 10,000 percent in the past
three decades-it was a
paltry $5.5 billion in 1982.153
Piracy grows because counterfeiting is astoundingly
profitable; gross margins of 500 to 5,000 percent are com-
Counterfeit medicines are more profitable than
mon.
heroin, copywatches may run a couple of bucks to make
but sell for $20 in Beijing's Silk Market and $250 on Internet
sites, and sales of high-end counterfeit software rival the
return from cocaine trafficking.
The lucrative rewards of piracy entice even notorious
Mexico's La Familia and Los Zetas,
drug cartels to diversify.
for example, generate hundreds of millions of dollars selling
counterfeit DVDs. Their expanding operations have made
Mexico the piracy capital of Latin America. The cartels ex-
port so many bootleg movies to Central America, for exam-
ple, that some studios have stopped shipping their products
there. Also, whether buying it in Cancun, Cozumel, Monter-
rey, or Tijuana, the bootleg DVD more than likely bears a
stamp indicating it was distributed by La Farnilia (a butter
fly) or Zetas (a stalion). Sirnilarly, the carnels pirate sot
waro. La Farnilia sells counterfeit Micronoft software through
kiosks, markets, and stores inthe Michoacan region. Add-
insult to counterfeit OMicn dircs with its
ing
"FMM" logo, 1 /
injury, it starmps
Microsoft's predicarment in China highlighrtss cmmon
are
problems. Copies of its Office and Windows prograrns
their
peddled in market stalls for a few dollars, a fraction of
retail price. Rampant software piracy means Microsoft's
revenue in China is a small fraction of its U.S. sales-even
though personal-computer sales are higher in China. Early
s total revenue in
on, explained its former CEO, Microoft
China, with its population of 1.34 billion, was less than hat
mil-
it collects in the Netherlands, a country of fewer than 17
lion.8 This situation is not Microsoft's particular problem;
thousands of companies in dozens of countries struggle
with the same challenge.
Nothing Is Off-Limits
Many think piracy is the problem of snobbish, expensive
brands. Certainly, counterfeits target high-end brands-the
top 10 brands counterfeited include Microsoft, Nike, Adidas,
Burberry, Louis Vuitton, and Sony. Luxury fakes, however
account for about 5 percent of the problem. The remaining
95 percent include copies of everyday products. Nothing is
off-limits; "If it's making money over here in the U.S., it's go-
ing to be reverse-engineered or made overseas.
The pharmaceutical supply chain is a pirate's paradise
and counterfeiting threatens global health and safety, coun-
terfeit medicines annually kill tens of thousands and it's any-
one's guess how much fake medicine is floating around the
world today. The Food and Drug Administration estimates
that counterfeits account for 10 percent of all drugs sold
in the United States. Studies of anti-infective treatments in
Africa and Southeast Asia peg up to 70 percent as fake.0
The United Nations estimates that half of the anti-malarial
drugs sold in Africa are counterfeits. Imitations of Pfizer's
best-selling drugs in legitimate supply chains in
show up
more than 50 countries.161
Waging a Multifront War
Companies, industry associations, and governments use
a battery of weapons to wage war on pirates. An enduring
approach relies on dispatching squads of lawyers on
search-and-destroy missions. Big companies lawyer-up
to lobby officials, monitor the web, prod Internet providers
to take down copycat sites, and file injunctions against
 a

ilhaga sales JGS Astala

DenJan atorony
Jwn hASAnS washes sallng tte
1S.Pz
r d ON
The Bandits Are Everywhere"
t
owabsites sellng oamtetets ana: N an h e giocai cat-and-mOUse game between MNE
escaates. oomin
a ar tom winding down.
embads ado tregano markets like China:
eraioBT tastgroaing emergirng
RF DDs troubie. As more andDinracy
Spels big. as-groing peopie erntert
gecal market many of them are eager to consume
income constraints. Experts warn
bramds despite that e
Ghana. medgree e s
Osnas e Sutng quest for lovr prices turbocharges piracy
thar mobie ghoh
tConn ne DOITs in acditen. crafty pirates qucky overcome IP det
Pune. uyes cal n a spac
They crack licensing codes. duplicate holograms. aish eferses
mail headiers and utlize
verhies s athertoity
Moving Staying
crypto-curencies. one Step
weavng CTSTaDC Makers inio aionarc some artepte ahead of the P poiice is a widespread competency.
products paagre ke
drug taficking. the counterfeiting problem is so
massve
atyou don't knoe how to get a handle on it. The oardits
gans. The are orrisomely. successful
The
Eurapean Unon anks P net as a ngh
pror eeryainere pirates evche
Unted Sates has asaAd into sophistcated entrepreneurs. "When you are deair
a
msoemaanor 3O a felony and boosTAdStNare pracy rom aith high-end counterfeits. you are talking about organy
Snionemert eorS
by thestening to Sanction notoriaus tonsthat have a full supply chain a ful distribution char
prates wtneoords of
onerous and egregious" PR voistions uliset of manufacturing tools aill in place and it is al baser
Such as China. RUssia incudng ounoies on
Agen1na ndia Thaiend. uriky. profits*Lamented one analyst. "Counterfeitingis ike
and Uirainel. Likewse, S
Feoea Drug Administation has a baloon filed with verater. You push it on one side, but wher
opened ofioes in China india Soum Arca and Mlenico ycu remove your hand. it bounces back even stronger.
among othes. in efect taking the fight o he iondier. On Piracy gets a huge boast from the increasing availablk
other fronts hetoric escalates. The US Ta0e ty of counterfeit goods through Internet channels, such as
thve. for instance. declared "We TUSt
Represerta P2P le-sharing sites, mail order sites, or auction
defend ideas, i e n sites. Out
Tions. and oreativty irom
ip-off artsis and i e e s * guroned and outfoxed, some companies surrender. Foiey
MNEs ocas and trade associations Corinna ahigh-end handbag maker, explained that as
iobby tansnation more
it saw
a nstitutiors to apply intemet fakes it stopped looking
stonger toos. ndusty associations aitogether. "Es us
ike the ACC. spaarhead eforis to oo frustraing. You can
toughen laus Govem and so fast"*
try to do something, but it's so big
ments woridwide provide gioba senvioes in pubic
palicy. Then again, there are those who treat IPRas
business deveiopment, and consumer education The Wiorid the price of doing business.
Despite everyday piracyof nis
rrelectual Property Organization (wPO) fortes P teaties products in the Ghinese market, an executive reasoned tha
and spurs members to bolster antipiracy programs Likewse the profitabiity of his
legal sales more than offset the losses
due to counterieits.70
the WTO applies the Trade Reiated Aspects of Intellactua
Property Rights (TRIPS) program to reguiate eniorcement
which requires member nations to protect and anaorce PRs
according to giobal, not iocal. standards
Is Piracy Inevitable?
A barage of legal assauits, novei technoiogies smarter The pervasiveness of piracy. in the face of
investigations. dipiomatic efforts industry initiatives awyering. sophisticated tracking and aggress
consumer education. stronger IP policies. aggressive aw ges. database software. and tagging techre
enforcement. and concerted politica. commercial, and profound questions for security controis. posthat
institutional action one would think, shouid prove more than different legal protecting IPRs. Some Womy
sufficient. Then, to make things a bit more nterestng, add in
legacies and political ideologies a ong
countries complicate basic
the firepower of the giobai reach of vigiant MNs. high-profile Zing codes and norms. should
issues. TRIPS. by stand r
legal proceedings. increased govemment cooperaton have settled such tro
blesome issues. and
criminalization of piracy. and tougher trade agreements Legal operational boundans
imited its impact.
Such a shock-and-awe campaign shouid devastate the Others tear that the
pirates, right? Surprise. surprise: Piracy continues to grow antipiracy war may already
Evidentty. a
at an increasing rate. For instance. in 2009. Pfizer found not-too-smalt number of consumers a bus
nesses around the abcu
worid have few ethical
counterfeitversions of 20 of its medicines in 81 countres. in uSing counterfeits. Take software, for quai
instance. Giood so
 CHAPTER 3 The Political and Legal Environments Facing Business

ware piracy is rampant. In 2013, the worldwide PC software ness models. Sharing knowledge to benefit all, not protect
piracy rate hit 43 percent. Put differently, of all the pack- ingit for personal gain, is the moral imperative. But, counter
others, wthout protection, ultimately there will be no IP
aged software installed on PCs worldwide, 43 percent was to
obtained illegally, at a cost of US$62.7 billion in lost rev- share or, for that matter, steal.
enue (up from losses of $29 billion in 2003). For many na-
tions, such as Armenia, China, Indonesia, Nigeria, Thailand,
Ukraine, Venezuela, and Vietnam, software piracy rates top QUESTIONS
70 percent. Even the best-behaved nations, like France, authori-
3-5. Would you expect piracy to thrive in a democracy or
Japan, and the United States, report software piracy rates tarian state? Why?
north of 18 percent. Consequently, Microsoft's biggest and consumers of
3-6. Can you envision a scenario where developers
rival is not another software company-it is counterfeiters. of
IP develop a relationship that eliminates the profitability piracy?
Ultimately, the quest to live prosperous lives on tight
budgets pushes people to seek counterfeits. Similarly, 3-7. Put yourself place of a poor individual in a poor country
in the
life. What thoughts
struggling to improve the quality of your
some in collectivist cultures reason that IP holders should
of IPRs?
honor society by abandoning their profit-maximizing busi- might shape how you interpret the legality

Endnotes
http://www.pearsoned.co.in/JohnDDaniels/.
For Endnotes, go to