How IP Infringements Fuel the Underground Economy?

An Intellectual Property (IP) infringement is an unauthorised use of someone’s intellectual property that includes copyright, patent, trademark or design. The global IP market was valued at approximately $180 billion, with a projection of growth of $360 billion by 2030, accounting for a compound annual growth rate (CAGR) of 9.3%. While the intellectual property market offers a promising indicator of future investment and development opportunities, it is to be acknowledged that this optimistic forecast hides a vast, often overlooked underworld fueled by illicit IP activities. In fact, intellectual property infringements

accounted for an estimated 3.3% of global trade in 2020 - a staggering figure that underscores the far-reaching impact of counterfeit goods and piracy on the entire economy.

What do IP infringements look like? What is their true economic impact? And what emerging legal challenges and remedies are shaping the global response? These are the questions we seek to answer in this article.

People commonly associate IP Crimes with CDs, DVDs, film and music piracy, because this is what is proposed by the large media. However, the reality, even though less reported, is considerably worrying. IP infringements manifest in various forms - counterfeit goods,

unauthorized use of trademarks and the misappropriation of trade secrets. These violations range from fake designer handbags to serious crimes within the food, automobile and consumer industries. The World Health Organisation (WHO) states that around 10% of all pharmaceutical drugs globally produced are counterfeit, rising to even 60% in certain poor and developing nations like India.

The economic toll of these infringements is staggering as all stakeholders are negatively impacted:

1. The private sector and the industry register major losses in revenues because of pirated and counterfeit goods, and thus will pay less taxes,

2. The Governments, therefore, will register tax revenues losses,

3. The consumers lose value, by paying more for a counterfeit product,

4. Overall, the country’s IP landscape suffers and the lost resources that could have been used for R&D are now running the “black economy”

These violations not only have a negative direct impact, but considering a long-term perspective, trust, integrity and consumer’s safety are compromised. Moreover, EU studies have shown that the growing underground economy leads to billions in lost sales and tens of thousands of job losses.

Offenders are not limited to small operations, there are complex networks, often linked to organized crime that exploit legal loopholes and leverage the anonymity of the internet to distribute counterfeit goods globally. As a consequence, legal systems are scrambling to

catch up with the ever-expanding scale of IP crime. Yet, they lost ground long ago, as the challenges are deeply complex and resource-intensive. Governments often lack the capacity to fully address the costs tied to borderless digital piracy, overlapping jurisdictions, limited enforcement capabilities, and the inherent difficulty of proving damages in court.

Compounding these issues is the rapid rise of decentralised platforms and anonymous cryptocurrency transactions, which continue to outpace traditional legal frameworks.

Nonetheless, in developed jurisdictions across the world actions to combat IP Crimes are provided. For example, in the 2020 Status Report On IPR Infringements developed by the European Union Intellectual Property Office, the following methods are proposed in order to

reverse the growing trend of IP crimes:

1. Strengthening Legal Frameworks and Enforcement Mechanism, this includes harmonising laws across member states and ensuring that enforcement mechanisms are robust and effective

2. Enhancing Cooperation Among Stakeholders, the private sector, law enforcement agencies, customs authorities and judiciary have to undergo a unified effort. For this scope, the EUIPO has facilitated partnerships and information-sharing initiatives

3. Leveraging Technology and Data Analytics, the EUIPO has invested in tools and platforms that enable the monitoring of online marketplaces and detecting counterfeit products

4. Raising Public Awareness and Education, to incentivize the public to buy less counterfeit products and thus reduce the demand

5. Support Capacity Building and Training, to ensure that personnel are equipped with the necessary knowledge and skills to effectively fight IP crimes.

   
   

The last two points are particularly important since they address a real issue that exacerbates the situation, that is the perception among officers and normal people at grass-root levels, that view IP crimes as “victimless”, and not considering them “real crimes”.

Research shows that this perception stems both from the intangible nature of intellectual property and from the nature of victims, which are usually large corporations - faceless and wealthy, thus reducing the moral weight of the offence - when, in reality these crimes affect,

as discussed before, every individual.

All of the above, even though proposed by the EU, represent a general framework on how to combat IP Crimes on a global scale. There has been a growth of IP litigation cases which definitely tells a story about the future world: on one side organized crime is getting bigger and stronger, on the other side opportunities are occurring. IP lawyers are needed, education has to be updated in order to keep up with technology and provide for new legislation and qualified officials. This is merely an intellectual property issue, but a larger imperative to cut all possible sources that fund organised crime. The legal world and policy

makers have to cue on this growing trend to prevent much more damaging forms at a later date.

CC: Alessandra Albescu