Thursday 6 June 2019 is World Anti-Counterfeiting Day. Established by the Global Anti-Counterfeiting Network, it is now in its 21st year. Counterfeiting is thus not new. Once viewed as a problem limited to high-end luxury goods, counterfeiting now applies to goods of all kinds, including pharmaceuticals, electronics and works of art.
Counterfeit goods do not only refer to fraudulent imitation in the form of products bearing a trademark that its maker had no authority to use. A ‘knockoff’ is a broad term encompassing counterfeits as well as ‘look-alike’ items that do not use forged trademarks. Adding to this are ‘third shift’ products which represent unauthorised products made by an authorised contractor.
The ‘third shift’ problem arises when companies outsource the manufacture of their goods. The first two shifts produce goods for the company in terms of their outsourcing contract, but the third shift produces additional goods that are distributed and sold for the benefit of the manufacturer. The problem is compounded by outsourcing manufacture often being conducted in foreign countries that do not always have adequate legislation. Detection is hampered by the fact that the third shift goods are identical to the legitimate products in every way, having the same fabric, design, workmanship and trademark labels. The only differences are likely to be the price and the sales outlets.
The effects are significant, including not only losses for the original company but, more importantly, damage to brands arising from cheap substitutes and poor quality products.
Counterfeiting now extends way beyond handbags and clothing. Trade in illicit cigarettes is a problem both as regards counterfeit cigarettes and tax evasion. In South Africa, as elsewhere, steep ‘sin’ taxes comprise the major part of the cost of a pack of cigarettes. Avoiding paying those duties would, of course, increase profits. A low-risk environment (in terms of being caught) creates the opportunity for an active illicit trade. It is to be hoped that with the new SARS commissioner, SARS will be prioritising illicit trade and strengthening the capacity of its investigative units to tackle the illicit economy.
Counterfeit medicine is one of many more areas of concern. The risks associated with fake medication include that it can be contaminated, contain the wrong ingredients or no active ingredient, be the incorrect dose or be falsely labelled. The cost of medication exacerbates this problem, for example when medication is bought off the street because it is much cheaper than in pharmacies. The scale of this problem adds to its risks. The World Economic Forum estimates that the illicit sector has a turnover of at least 10% of the world pharmaceutical business, meaning that it earns tens of billions of dollars a year. According to the World Health Organisation (WHO), counterfeit medicine is the cause of around 100,000 deaths in Africa annually. The WHO estimates that one out of 10 medicines in the world is fake but the figure can be as high as seven out of 10 in Africa.
In South Africa and elsewhere there are many examples of counterfeiting official documents, such as identity documents, passports, drivers licences, residents permits and work permits. These ‘legal forgeries’ are, of course, sold. In South Africa bribing a driving instructor to obtain a drivers licence is now so endemic that Justice Project South Africa, an NGO dedicated to the improvement of road traffic law and its enforcement, estimates that one in three issued driver’s licences are illegally obtained.
The potential consequences are noteworthy. Fake driver’s licences compromise road safety, false IDs create an opportunity for identity theft, and false passports provide safe passage for criminals or terrorists. An example of the latter was the issuing of a fraudulent South African passport to Samantha Lewthwaite, one of the world’s most wanted terrorism suspects and a suspect in the September 2013 attack on Westgate shopping centre in Nairobi that killed 67 people.
Even prior to this incident, in February 2009, the lack of security of South Africa passports saw Britain for the first time impose a visa requirement on all South Africans entering the United Kingdom. In her announcement of this in the National Assembly, the then Home Affairs Minister, Nosiviwe Mapisa-Nqakula, disclosed that the decision by the British government was “based on its concerns regarding the ease with which non-South Africans can acquire genuine SA travel documents” and use them to travel to the United Kingdom.
Adding to these negative consequences, the cost of counterfeiting is considerable. It erodes the country’s tax base and leads to unemployment. For example, counterfeiting is considered to be a contributing factor to job losses in the textile and clothing industries.
The threat of counterfeiting makes the need to improve anti-counterfeiting measures imperative. In South Africa the applicable legislation is the Counterfeit Goods Act No 37 of 1997, which is jointly enforced by the Companies and Intellectual Property Commission, SARS and the South African Police Service. Organisations working to address this problem include the INTA, a global association of trademark owners and professionals dedicated to supporting trademarks and related intellectual property that is operational in South Africa. Their anti-counterfeiting committees actively work towards improving enforcement and education about counterfeiting.
However, the task of tackling this is enormous. It is an area where consumers can and should join forces with the authorities and the organisations working to eliminate – or at least curb – this scourge. The crucial contribution the public can make is simply not to buy any counterfeit goods at any price irrespective of the quality. As in all market situations, if the demand were to reduce, so too would the supply.
Cynthia Schoeman is managing director of Ethics Monitoring & Management Services which provides a comprehensive range of services and products to help organisations to improve ethical conduct, manage ethics more effectively, and build an ethical culture.