The economic impact of counterfeiting

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


Refusing to give up, however, Kingstone launched his own fight against the counterfeiters with the help of private investigators and was eventually awarded a $42 million verdict from a Florida court against nearly a dozen companies based in Hong Kong, Shanghai and Panama. Kingstone has yet to receive a penny from the judgment.

"The annual costs of counterfeiting, industrial espionage and trade secret theft by China actually exceeds our annual costs of the war on terror. It’s a huge economic impact," Kingstone added.

Facilitators of counterfeiters

Despite efforts by some in law enforcement to stem the tide of counterfeiting goods by implementing new anti-piracy laws and ratcheting up enforcement, some members of the global community have either turned a blind eye to the problem or are actually enabling counterfeiters to manufacture and peddle their wares.

Most experts agree that the main facilitator of counterfeiters is China, and they also agree that there is a virtual lack of enforcement when it comes to tackling the problem. According to Herron, nearly 80 percent of the world’s counterfeit goods come from the communist state.

"There’s a lot of lip service on the part of the Chinese that they’re increasing the number of cases and that they’re doing this and they’re doing that," she said. "But the reality is that it’s still exploding everywhere."

In fact, according to Mattice, some countries are actively engaged in economic espionage on behalf of businesses in their own country.

"As we’ve seen with what’s going on with China, India and a broad range of a number of our allies, some (countries) have even gone to the extent of having entire sections of their training manuals for their intelligence agencies on how to collect intellectual property and technology from countries for the economic advantage of companies in their own country," he said. "It’s taking the concept of stealing state secrets for military and political purposes… to the point of stealing company information for use in the supporting the economies of their own countries."

Kingstone agreed, adding that not only are the Chinese and other governments facilitators of counterfeiting, but that they actually encourage and support the crime.

"Basically, my experience confirms that the Chinese government is [working] hand-in-hand with all of these organizations, giving them both support and encouragement to steal American technology and counterfeit it," he said.

According to Kingstone, one of the reasons that Chinese counterfeiting has gone unchecked is due to the lack of will of the U.S. government to ensure that anti-piracy laws are enforced.

"I just think it’s a shame that we’ve allowed ourselves to get to the point where we’ve lost our sovereignty," he said. "We can’t even enforce our laws for fear that a country that has bought up all our debt will put us further into an economic depression."

Though the Chinese have been the biggest purveyors of intellectual property theft, industry experts also say they are seeing emerging counterfeit markets in Russia, Eastern Europe, Latin America, and in certain parts of Africa.

"The United States economy is literally being stolen out from under us while those Neros in Congress continue to fiddle. If this continues we will completely lose our industrial base to China and all those middle class manufacturing jobs will completely evaporate," Kingstone said. "We’ve lost four million manufacturing jobs to this counterfeiting and trade secret theft just in the last few years and it continues."

Finding a solution

Most counterintelligence experts agree that the biggest obstacle to stopping the counterfeiting plague is getting the governments of the U.S. and other industrialized nations involved in the enforcement of anti-piracy laws.

"You cant’ blame thieves for stealing if there is absolutely no deterrent or disincentive for them to do so," Kingstone said. "If you expect someone who breaks into your house and steals your TV set to go to jail, why wouldn’t you expect someone who breaks into your place of business and steals your entire livelihood and that of all your employees to go to jail?"