FALSE, FORGED & PHONEY: THE COUNTERFEIT CONUNDRUM (PART 1)

At one time or another, everyone around the world, has been exposed to counterfeit goods or has been a victim of counterfeiting and its adverse effects. In one way or another, they have spent their hard earned money to buy products and later discovered they were counterfeit.

Definition of Counterfeiting

According to “The Law Dictionary” Counterfeiting can be defined as “…forgery; to copy or imitate, without authority or right, and with a view to deceive or defraud, by passing the copy … or forged for that which is original or genuine. Most commonly applied to the fraudulent and criminal imitation of money.”

Simply put, Counterfeiting can be termed as the manufacture of goods with the intention to imitate or closely resemble other goods. The imitation leads to consumers being confused and thus are misled into purchasing the product which they did not intend to purchase. Section 2 of the Anti-Counterfeit Act of Kenya gives a very elaborate definition of what counterfeiting is;

“counterfeiting” means taking the following actions without the authority of the owner of intellectual property right subsisting in Kenya in respect of protected goods—

(a)  the manufacture, production, packaging, re-packaging, labelling or making, whether in Kenya, of any goods whereby those protected goods are imitated in such manner and to such a degree that those other goods are identical or substantially similar copies of the protected goods;

 (b)  the manufacture, production or making, whether in Kenya or elsewhere, the subject matter of that intellectual property, or a colourable imitation thereof so that the other goods are calculated to be confused with or to be taken as being the protected goods of the said owner or any goods manufactured, produced or made under his licence;

 (c)   the manufacturing, producing or making of copies, in Kenya or elsewhere, in violation of an author’s rights or related rights;

 (d) in relation to medicine, the deliberate and fraudulent mislabeling of medicine with respect to identity or source, whether or not such products have correct ingredients, wrong ingredients, have sufficient active ingredients or have fake packaging:

 What can be counterfeited?

 Any good can be counterfeited; be it machinery, medication, cosmetics, furniture, electronics. Most of the time, it is fast moving consumer goods that are counterfeited. This is because the counterfeiter is only interested in the profit margin (which is illegal) and the attractiveness of such profits.

I invite you to have a look at the following pictures and spot the difference between the original product and the counterfeit.

From the above, it is clear that there are individuals and organisations that come up with products to imitate other well-known products which, undoubtedly, will cause confusion from the general public. From the cosmetics industry to the pharmaceutical industry, the problem of counterfeiting is pervasive and it would seem like there is no product that cannot be counterfeited.

 Availability of counterfeit goods

 Counterfeit goods are readily available within an open market and can be found within the black market. As is the case around the world, there is an underground market for the sale and export of these counterfeit goods.  China is arguably the biggest source market of counterfeit goods and their counterfeit goods can be found worldwide. This, however, does not mean that other states do not contribute to the counterfeiting problem.

According to an article published on 7th April 2015 in the Daily Nation, Kenya is not only the largest market for counterfeit goods in East Africa, but it is also the smuggling hub of the said goods to other countries. In addition, Kenya’s strategic position in East and Central Africa makes it a gateway and distribution hub for counterfeit products; which puts other economies within the region at risk of economic losses.

 What is the monetary data on Counterfeiting?

A study was done by the Organisation for Economic Cooperation and Development (OECD) which was published and titled “Trade in Counterfeit and Pirated Goods: Mapping the Economic Impact” and in the said publication, it was stated that the importation of fake goods worldwide stood at the value of 461 billion Dollars in the year 2013. This is in comparison to a worldwide total import figure of 17.9 trillion Dollars for the same year. According to a 2011 report by the Frontier Economics and The Business Action to Stop Counterfeiting and Piracy (BASCAP), it was estimated that in the year 2015, the international trade in counterfeit and pirated products would stand at an estimate of 770 to 960 billion Dollars.

To bring this closer home, between 2015 and 2016, the Kenya Bureau of Standards (KEBS) destroyed counterfeit goods worth approximately 57 million Kenya Shillings. Consider this as well; the Kenya Association of Manufacturers estimated that Kenya loses 368 Million Dollars annually through the trade of counterfeits. In addition, Kenya loses an annual revenue of approximately 30 billion Kenya Shillings from counterfeit and unlicensed products such as alcoholic and illicit brews because they do not pay taxes (this figure only covers only illicit brews and counterfeit alcoholic drinks).

 The Effects of Counterfeiting

 The following are the effects of counterfeiting in brief;

a.     Loss of business- legitimate businesses bear the brunt of counterfeits as they are not able to earn from their products due to an influx of counterfeits goods, thus they incur heavy losses and may end up closing entirely. Eveready Kenya is an example of what can happen. The dry cell manufacturer had to stop production and close its plant due to cheap imported counterfeit goods that ate into its business.

b.     Loss of jobs- there are job losses due to closure of businesses. Following the closure of Eveready Kenya plant that was situate in Nakuru, all their workers lost their jobs and consequently, their income.

c.      Unfair competition- unfortunately, counterfeit products are cheap and readily available. Due to this, people opt to buy what is cheap and this creates unfair competition for original products that are priced higher. Most people will purposely ignore original products for the cheaper counterfeit.

d.     Loss of revenue- governments of the world are robbed of revenue in form of taxes as counterfeiters do not pay taxes.

e.      Maiming and Death- in extreme cases, counterfeit products can maim and cause death. This is seen mainly from counterfeit alcoholic drinks or counterfeit medicines.

f.      Damaged reputation-  original products suffer damage of reputation as a result of counterfeit products passing off as the original ones because consumers are not sure of the quality of the products

g.     Discouraging investment- counterfeiting discourages investors from investing in various industries as they may  incur losses. This is especially true for foreign direct investment. This stifles growth of that industry and generally the economy will suffer.

In order to effectively deal with counterfeiting, measures have been put in place to combat the vice and the progress, if any, that has been made. In my next article, I will delve into the efforts to fight counterfeits and what solutions have been offered.

References

  1. Law Dictionary: What is COUNTERFEIT? Definition of COUNTERFEIT (Black’s Law Dictionary) .”
  2. Anti-Counterfeit Act of 2013 Laws of Kenya

3.     “The Fake and the Fatal: The Consequences of Counterfeits” Kevin Lewis. Read more at https://www.iwu.edu/economics/PPE17/lewis.pdf

4.     “Global trade in fake goods worth nearly half a trillion dollars a year – OECD & EUIPO” at http://www.oecd.org/industry/global-trade-in-fake-goods-worth-nearly-half-a-trillion-dollars-a-year.htm

5.     “The makers of fake goods now cover practically every sector” by Edwin Okoth in the Daily Nation, April 17th 2016 Read more at http://www.nation.co.ke/lifestyle/DN2/Fakes-flood-Kenya-markets-kebs/957860-3163416-d5dgoe/index.html

6.     “China in Kenya: Addressing Counterfeit Goods and Construction Sector Imbalances” (2012) by Hilary Patroba https://www.saiia.org.za/occasional-papers/37-china-in-kenya-addressing-counterfeit-goods-and-construction-sector-imbalances/file

7.     “Kenya A Top Counterfeits Market” by Mazera Ndurya and Eunice Kilonzo in the Daily Nation on 7th April 2015 at http://www.nation.co.ke/news/Kenya-Counterfeit-Goods-Imports-India-China/1056-2678866-2iayl0z/index.html

8.     “Estimating The Global Economic And Social Impacts Of Counterfeiting And Piracy”(February 2011) https://cdn.iccwbo.org/content/uploads/sites/3/2016/11/ICC-BASCAP-Global-Impacts-Full-Report-2011.pdf

9.     Counterfeit products cost Kenya Sh30 billion in revenue by Stephen Mutoro on 25th April 2017 at: https://www.standardmedia.co.ke/business/article/2001237600/counterfeit-products-cost-kenya-sh30-billion-in-revenue

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