Pirates of Globalization

It pays to remember that old Latin phrase, caveat emptor ("let the buyer beware"), when tackling the production of counterfeit products on a global scale. Sophisticated pirates routinely violate patents, trademarks, and copyrights to churn out high-quality fakes of the best-known brands. Trademark counterfeiting amounts to between 5 percent and 7 percent of world trade, or around $500 billion a year. Phony products appear in many industries, including computer software, films, books, music CDs. Fake computer chips, broadband routers, and computers cost the electronics industry alone up to $100 billion annually. And the global market for fake pharmaceutical drugs is now a multibillion-dollar industry that poses a direct threat to the good health of folks everywhere.

Traditionally peddled by sidewalk vendors and in back-street markets, counterfeiters now employ the latest technology. Just as honest businesses do, they use the Internet to slash the cost of distributing their fake goods. All merchandise on some Internet sites is counterfeit, and even legitimate website operators, such as eBay (www.ebay.com), have difficulty rooting out pirates.

New York retailer Tiffany & Company (www.tiffany.com) sued eBay when counterfeits of its products appeared on eBay's website. In the complaint, Tiffany said that, of the 186 jewelry pieces bearing the Tiffany name that it randomly purchased on eBay, 73 percent were phony. Tiffany argued that eBay should bear responsibility for the sale of counterfeit merchandise on its site because it profits significantly from the sale of fake merchandise, provides a forum for such sales, and promotes it. Others disagree, saying it is impractical to require online auctioneers to verify the authenticity of every product sold on its site.

Pirates have not ignored the market for automotive parts, which loses around $12 billion annually to phony goods. Car manufacturers list harmful fakes such as brake linings made of compressed sawdust and transmission fluid that is nothing more than cheap oil with added dye. Boxes bearing legitimate-looking labels make it difficult for consumers to tell the difference between a fake and the real deal. The problem is causing fears of lawsuits because of malfunctioning counterfeits and concerns of lost revenue for producers of the genuine articles. For example, if someone is in an accident because of a counterfeit product, legitimate manufacturers need to prove the product is not their own.

Lax antipiracy regulations and booming economies in emerging markets mean potential intellectual-property traps await companies doing business there. For example, Indian law gives international pharmaceutical firms five- to seven-year patents on processes used to manufacture drugsbut not on the drugs themselves. This lets Indian companies modify the patented production processes of international pharmaceutical companies to create drugs that are only slightly different.

In China, political protection for pirates of intellectual property remains fairly common. Government officials, people working for the government, and even the People's Liberation Army (China's national army) operate factories that churn out pirated goods. An international company has difficulty fighting piracy in China because filing a lawsuit can severely damage its business relations there.

Yet, opinion is divided on the root causes of intellectual property violations in China. Some argue that Chinese legislation is vaguely worded and difficult to enforce. Others say China's intellectual property laws and regulations are fine, but poor enforcement is to blame for high rates of piracy. Amazingly, China's regulatory body sometimes allows a counterfeiter to remove an infringing trademark and still sell the substandard good. Technology companies said to have been harmed by China's weak intellectual property laws include Microsoft (www.microsoft.com), which claims that its software is widely pirated, and Cisco Systems (www.cisco.com), which sued a Chinese hardware maker for allegedly copying and using Cisco networking software.

Thinking Globally

3-16. What more do you think the international business community could do to protect its intellectual property rights?

3-17. Are international companies simply afraid to speak out against counterfeiting in potentially lucrative emerging markets for fear of being denied access to them?

3-18. By using the latest technologies, people can often create perfect clones of original works. How are the Internet and the latest digital technologies influencing intellectual property laws?

3-19. Locate information about the Tiffany versus eBay lawsuit and identify each side's arguments and who prevailed. What are the implications of that lawsuit for the sale of counterfeits in online auctions?

answer each question with references