Counterfeiting: What happens in an economic downturn?

If the much-anticipated recession occurs, will IP criminality increase? Affordability of fakes continues to drive attitudes, even as social media influencers enter the fray 

Can counterfeiting activity exist independently of overall economic performance? We may be about to find out if we enter a recession in the next few months. An economic downturn can spawn a wide range of criminal opportunities and impacts, including those from organised international counterfeiting networks, which step in to fill the market with dangerous, lower-priced goods, as many legitimate products and services are pushed out of the normal reach of many consumers.  

Survey figures tend to support this viewpoint. In June this year, the EUIPO Intellectual Property and Youth Scoreboard 2022 had the disappointing job of announcing that the intentional purchase of counterfeit goods had continued to increase in popularity in the 15-24 age cohort. Some 37% of respondents bought at least one fake product in the last year, comparable to the proportion purchasing unintentionally. 

Affordability drives all? 

In the centre of all this, at any given time, the consumer is weighing a set of conflicting drivers. The EUIPO survey reported that 48% of the young people asked still see price as the main driver towards accepting counterfeiting. Even this figure is probably understating comparisons with earlier EUIPO surveys because of a change in question methodology. But it is plausible to suggest in any future recession, affordability will remain important. Other factors cited in the survey suggested product accessibility and logistics of delivery were also significant. 

Affordability may outstrip all other drivers, but new ones are potentially heading up. In the dissuading corner are fears of cybercrime risks in buying online. Environmental and slave labour issue awareness may also be positive factors in consumer decision making. 

Against this, the social context is becoming important. In the past, this may have meant attitudes formed by family and friends. The EUIPO survey noted the presence of social media influencers for the first time. A recent Buzzfeed article addressed the heart of the problem in its title: Yes, my designer bag is fake and I don’t care because the economy is collapsing. The message seems clear. Buzzfeed reporter Ade Onibada suggested, “For advocates, who proudly flaunt their fakes, buying a counterfeit is primarily about being financially savvy, especially at a time of economic uncertainty.” 

Savviness apart, the social media dimension is itself nuanced. Influencers who deal in legitimate high-end luxury goods believe fakes damage everyone, particularly if they are starting to enter the second hand (or preloved) retail chain where they can acquire an air of authenticity. Meanwhile, individual creators can acquire individual cachet from posing with fake luxury goods on their own social media as “fake products basically look the same in photos” suggested Ade Onibada. Other commentators suggest that high end department stores have themselves been called out by social media influencers to battle against counterfeits not merely from upstream supply chains but deliberately exchanged for genuine product purchases. 

The inevitable spill over 

No one should doubt the spill over possibilities all this creates. Buzzfeed’s Ade Onibada comments the loss will be borne somewhere: “Creators stripping away the taboo of fakes in the pursuit of a luxury aesthetic will inevitably leave someone at a loss, whether that be the design houses, manufacturers, department stores, or a confused consumer.”  

The replacement of legitimate goods by counterfeits, at times of crisis, results in growing harms to the economy from lost taxes, which are much needed to provide financial support for public services. Moreover, the impact on legitimate business from lost sales, leads to lost jobs and services as businesses look to reduce costs.  

Meanwhile, we are still evaluating the effects of the latest disruptor, the Covid-19 pandemic. Even as legitimate trade slumped in worldwide lockdown, illicit activity soared. According to OECD findings, some 100 000 web domains were created specifically alluding to Covid 19 for the purpose of supporting scams. The probable conclusion will be criminal activity could--and probably will--opportunistically flourish in any future downturn especially if we see supply chain difficulties. 

Seen in a wider context, it represents current counterfeiting represents potentially serious consequences. Prior to the Covid-19 pandemic, a report by the OECD and the UK Intellectual Property Office revealed that that the annual loss to the UK economy through counterfeiting and piracy is £9 billion. This is money which could be used for vital public services, instead it falls into the hands of criminals for use in other forms of illicit trade including people, drugs, and weapons. On top of this the impact of counterfeiting resulted in annual job losses of 80,500.  

A recent report by the OECD and the European Intellectual Property Office indicated that over 400,000 dangerous products were seized by global customs authorities, between 2017 and 2019. Of these 91% arrived in small parcels, by air, express couriers, and mail. Moreover, 70% originated in China, which reveals the extent of products purchased online. 

What can be done? There is a need to: 

Nevertheless, with new logistical possibilities and channels, international counterfeiting activity continues to look energised. It’s an energy that, however misplaced, urgently needs intervention especially if economic circumstances harden. 

Phil Lewis