The economic impact of counterfeiting

Experts discuss the need for businesses and government to take a proactive approach in combating piracy

According to most estimates, businesses worldwide are losing between $600 billion and $700 billion annually to the black market trade of counterfeit goods and theft of intellectual property. A large majority of these goods include clothing, handbags and multi-media products like CDs and DVDS, but more recently, counterfeiters have delved into pharmaceuticals and car parts, putting a large portion of the public at risk.

One of the people at the frontlines in the war against economic espionage is Camilla Herron, a former intelligence analyst for the United States Drug Enforcement Agency, who has participated in anti-counterfeiting efforts for software giants Microsoft and Symantec.

"It’s growing every year," she said. "Often times these groups, though not affiliated, will help each other get their products to the market."

What was once a small collection of "mom and pop" operations, Herron says that the counterfeiting industry is now run by organized crime syndicates, complete with sophisticated global supply chains.

Another concern among those who are trying to put a stop to the production of counterfeit goods is that in some cases, the money from the sale of these items not only serves to prop up organized crime, but is also being funneled to terrorist organizations.

Despite the recent economic losses of certain businesses and banks, those numbers are minuscule when compared to the losses incurred by the sales of counterfeit goods.

"Its’ gotten to the point where if you think the Wall Street problem is huge, it pales in comparison with the economic losses that this country and other industrialized countries are facing because of this problem," said Lynn Mattice, chairman of the board of advisors of the Security Executive Council.

Mattice, who has served as chairman of the board of directors for the National Intellectual Property Law Institute in Washington, D.C., and as an industry advisor to the U.S. Intelligence Communities National Counterintelligence Center, has seen the counterfeiting problem grow by leaps and bounds and says that many businesses either underestimate or don’t have the resources to deal with this crisis.

"Some of the real challenges companies face is really understanding the risks and threats that they face. When you look at high-technology areas where there’s a lot of patenting done, 97 percent of companies patenting in the telecommunications field have 500 or fewer employees, 95 percent of companies patenting in the area of software development have 500 or fewer employees, and on and on and on," he said. "(These companies) don’t understand -- when they’re trying to do things around the world -- the risks and threats that they face. They don’t have sophisticated security departments like the Fortune 500 companies have to help show them how to mitigate risks and threats. They don’t know that many times when they turn to a company to help them that that company may be off-shoring its work somewhere around the world and there’s no protection for their intellectual property."

Brett Kingstone, author of the book, ""The Real War Against America," can personally testify to the economic impact that counterfeiters have on business owners. As a 19-year-old student at Stanford University, Kingstone founded Super Vision International, a manufacturer of fiber optic systems and components. He then saw his business nearly ruined by Chinese counterfeiters.

"At one point, our company saw close to 50 percent of its sales overseas evaporate in a 12-month period. We went from being one of the top 50 fastest growing companies in the state of Florida, one of the top 500 fastest growing technology companies in the U.S. … to one year where our sales dropped by nearly 50 percent and that was due to our products being counterfeited," he said.

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