REU, Alm.del - 2017-18 - Bilag 78: Rapporter fra EUIPO, EUROPOL og SOCTA om IPR-kriminalitet og organiseret kriminalitet i EU (2017)

Retsudvalget 2017-18
REU Alm.del Bilag 78
Offentligt

2017 Situation Report on Counterfeiting

and Piracy in the European Union

A joint project between Europol and the European Union Intellectual Property Oice

June 2017

REU, Alm.del - 2017-18 - Bilag 78: Rapporter fra EUIPO, EUROPOL og SOCTA om IPR-kriminalitet og organiseret kriminalitet i EU (2017)

www.euipo.europa.eu

2017 SITUATION REPORT

ON COUNTERFEITING

AND PIRACY IN THE

EUROPEAN UNION

REU, Alm.del - 2017-18 - Bilag 78: Rapporter fra EUIPO, EUROPOL og SOCTA om IPR-kriminalitet og organiseret kriminalitet i EU (2017)

Contents

Foreword __________________________________________________________________________________ 4

Executive Summary _______________________________________________________________________ 6

Introduction _______________________________________________________________________________ 9

Methodology _____________________________________________________________________________10

Counterfeit Goods in the EU: Extent of the Problem ___________________________________11

Key Product Sectors _____________________________________________________________________15

Key Countries of Provenance, Smuggling Routes and Transportation Methods_______18

Piracy _____________________________________________________________________________________26

Criminal Networks and Infrastructures__________________________________________________32

Challenges in Fighting Product Counterfeiting and Piracy ______________________________42

What is Being Done ______________________________________________________________________46

Threats Revisited _________________________________________________________________________48

Outlook ___________________________________________________________________________________53

Conclusions ______________________________________________________________________________55

Selected Abbreviations __________________________________________________________________57

Selected References _____________________________________________________________________58

Appendix A — Key Product Sectors by Imports (Counterfeit/Genuine) ________________63

REU, Alm.del - 2017-18 - Bilag 78: Rapporter fra EUIPO, EUROPOL og SOCTA om IPR-kriminalitet og organiseret kriminalitet i EU (2017)

2017 Situation Report on Counterfeiting and Piracy in the European Union

FOREWORD

2017 SITUATION REPORT ON COUNTERFEITING AND PIRACY IN THE EUROPEAN UNION

This situation report prepared by the EUIPO and Europol once again puts the spotlight on the

importance of tackling the international criminals who are among the principle beneiciaries of

IPR infringements in the European Union.

It builds upon the previous 2015 report, also jointly developed, by tracking the evolution of

counterfeiting and piracy, updating the key conclusions and ofering new insights into some of

the emerging trends.

IP crime afecting the European Union continues to represent a cause for concern. Criminal

activity in this area not only causes potential harm to the health and safety of EU citizens, but

also to the environment. It also afects legitimate economies, contributing to reduced revenues

for the afected businesses, decreased sales volume and job losses.

The present study conirms that IPR infringements are an important source of income for

organised criminal groups. These groups are also often engaged in other crimes, such as drug

traicking, excise fraud, human traicking or money laundering. Their activities are increasingly

facilitated by the use of corruption and document fraud.

Online marketplaces, as highlighted in

SOCTA 2017,

have increasingly become key distribution

channels for counterfeit goods, with criminals attempting to copy the notable success of legal

online business models.

Other threats are emerging however, and amongst potential challenges, this report explores

the expanding use of rail transport between China and the EU, and how IPR infringers may be

exploiting this.

In the digital world, the online dissemination of protected content has been identiied as a

particular issue, with illegal television broadcasts and digital piracy posing a further challenge

for enforcement authorities.

The current report continues the eforts undertaken by both EU agencies to develop a clearer

picture of the extent of the problem of counterfeiting and piracy, working with leading partners.

It complements, in particular, the EUIPO’s development of databases to assist the eforts of

enforcement authorities and the EUIPO-Europol collaboration within the recently established

Intellectual Property Crime Coordinated Coalition (IPC3). This centre, which has been set up to

increase information gathering and to monitor trends in the ield of online IP crime and related

areas, is already producing signiicant results. Europol has used it to help take down websites

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used to sell counterfeit merchandise, to target pirated TV decoders, and to shut down illegal

operations using the ‘bitcoin’ digital currency.

This report conirms that counterfeiting and piracy in the EU is a continuing challenge, with

organised criminal groups often ‘pulling the strings’ and beneiting inancially.

It demonstrates that the need for ongoing, enhanced cooperation and education amongst

stakeholders and intermediaries is of the utmost importance, to ensure that the ight against

such criminality and its efects becomes ever more cohesive and well informed.

Rob WAINWRIGHT

Executive Director, Europol

António CAMPINOS

Executive Director, EUIPO

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2017 Situation Report on Counterfeiting and Piracy in the European Union

EXECUTIVE SUMMARY

2017 SITUATION REPORT ON COUNTERFEITING AND PIRACY IN THE EUROPEAN UNION

This report, drawn up in partnership between Europol and the EUIPO, is intended to update

policymakers, practitioners, businesses and the general public on the current counterfeiting

and piracy landscape in the European Union (EU).

It explores Intellectual Property Rights (IPR) and their value, key product sectors, notable trade

routes and countries of provenance for counterfeit products. It also outlines and examines

the threat of piracy and other online infringements, and demonstrates how IPR and their

protection are foundation stones of the EU economy and society.

The report analyses how organised criminal groups (OCGs) are involved in IPR crime and uses a

number of case studies to highlight the dangers posed by their activities. It goes on to examine

some of the challenges faced when tackling IPR crimes, and includes a review of a series of

initiatives that are in place to combat these crimes.

A number of future outlooks are set out and investigated, including some emerging threats in

the world of IPR protection.

The value and stability that IPR-intensive industries lend to society is relected in the inding

that such enterprises remained particularly resilient during and immediately after the global

economic crisis, when many other sectors struggled. For the 2011-2013 period, IPR-intensive

industries contributed 86 % of imports and 93 % of exports to EU external trade, and 42 % to

GDP

IPR crimes, which were calculated to be worth up to USD 461 billion annually worldwide

, now

taint nearly all types of product and geographical areas. The impact of such criminality leads

to a series of hidden knock-on efects on citizens, businesses and governments, and limits the

opportunity for legitimate IPR-intensive businesses to reinvest in research, development and

employment, which constitutes a serious threat to future growth.

For certain product types, some Member States (MS) seize a lower proportion of counterfeits

by value than their ratio of overall legitimate imports may indicate. This suggests that

authorities ighting IPR crime at the external borders in some regions may beneit from risk

1 - European Patent Oice and the European Union Intellectual Property Oice,

Intellectual property rights intensive industries and

economic performance in the European Union,

2016, p. 6. Available at: https://euipo.europa.eu/tunnel-web/secure/webdav/guest/

document_library/observatory/documents/IPContributionStudy/performance_in_the_European_Union/performance_in_the_

European_Union_full.pdf.

2 - OECD/EUIPO (2016),

Trade in counterfeit and pirated goods mapping the economic impact,

2016, p. 11. Available at: http://www.oecd.

org/gov/risk/trade-in-counterfeit-and-pirated-goods-9789264252653-en.htm.

www.europol.europa.eu

www.euipo.europa.eu

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assessments of a given product group in order to target illegal imports more efectively. The

work of customs authorities to detain IPR-infringing goods at the external borders continues

to be very important, even though they are only able to stop a relatively low proportion of the

total counterfeit imports arriving in the EU annually.

China remains the key country of provenance for counterfeit goods, and Hong Kong acts as a

transit point for goods originally manufactured in China, but other countries also have speciic

trading characteristics. For instance, Turkey has been linked with Bulgaria and Belgium through

trade in counterfeit labels, tags and stickers, which facilitates internal manufacture.

Free trade zones (FTZ) continue to be associated with a number of IPR crimes, and harmonised

enforcement standards are still required in certain geographical areas.

EU-based criminals rely predominantly on manufacturers based abroad, but then organise

importation, transportation, storage and distribution of the counterfeit goods within the EU.

However, this report demonstrates how some are also active manufacturers within the EU.

Such internal counterfeit manufacture is facilitated by the use of fake labels and packaging

imported from outside the EU and is often orchestrated by OCGs; there are indications that

such criminality is on the rise.

Counterfeit goods are increasingly distributed via online marketplaces. Products sold on the

internet are usually distributed in small parcels via postal and express freight services, often

directly to customers, and the growing role of technologies in IPR crime has been noted.

OCGs linked to IPR crime are often poly-criminal, and are also engaged in other crimes, such as

drug traicking, excise fraud, human traicking and money laundering. Document fraud and

corruption continue to greatly facilitate criminal activities in this area.

In the digital world, the online dissemination of protected content has been identiied as

a particular issue. Illegal television broadcasts pose a further challenge for enforcement

authorities and fraud also continues to be rife and closely connected to acts of digital piracy.

This report highlights and deines how those at the forefront of ighting IPR crime still operate

under a number of constraints and face speciic challenges, such as the need to coordinate

cross-border investigations and tackle new technologies that criminals are using to hide their

locations and activities.

Low penalties render IPR crime attractive to criminals and, with the prospect of punishing a

defendant with an extremely low penalty, pursuing such cases in the irst place may not appeal

greatly to certain authorities in some MS.

Terrorism, cybercrime, migrant smuggling, drug traicking, and other areas of criminal activity

have all moved centre stage in the global law enforcement environment and IPR crimes have

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2017 Situation Report on Counterfeiting and Piracy in the European Union

become less of a priority. This update reveals how IPR crime is still one of the most lucrative

criminal enterprises however, and it continues to be closely linked to other criminal activities.

Nevertheless, new threats in the IPR crime landscape are emerging and this report sets

out speciic concerns regarding the increasing use of rail transport as a method of cargo

conveyance between China and the EU, and how IPR infringers may be exploiting this in a

hitherto unquantiied manner. Digitalisation of trading and transport systems is expected to

bring new opportunities for criminals.

In all aspects of IPR crime enforcement, there is an identiied and ongoing need for enhanced

cooperation and education amongst all stakeholders and intermediaries to ensure that the

ight against such criminality and its efects becomes more cohesive and well informed.

Finally, IPR crime and the criminals associated with it are luid in nature and many of the

threats and situations detailed in this report are developing on a daily basis. The overarching

conclusion however, is that in all areas of IPR crime, complacency or acceptance at any level

would be ill-advised.

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INTRODUCTION

2017 SITUATION REPORT ON COUNTERFEITING AND PIRACY IN THE EUROPEAN UNION

This report builds on the observations of the 2015

Situation Report on Counterfeiting in the

European Union,

by revisiting a number of the original key conclusions and assessing their

evolution and current impact on the 2017 EU IPR-crime enforcement landscape. The aim is to

produce an up-to-date assessment of the threats identiied in 2015, as well as to ofer insight

into some of the emerging counterfeiting and piracy trends that have developed since the

publication of the original study. Furthermore, the report addresses a series of product groups

and the phenomenon of piracy, subjects that were not covered in the irst study, but are now

considered to be evolving and therefore, appropriate issues in the world of IPR enforcement.

This update should facilitate and support the activities of national authorities and EU institutions

related to IPR enforcement. It is intended to improve understanding of the current scope

and impact of IPR infringements on the EU and to form a basis for decision-making and the

exchange of information on IPR infringements between relevant bodies and institutions.

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2017 Situation Report on Counterfeiting and Piracy in the European Union

METHODOLOGY

2017 SITUATION REPORT ON COUNTERFEITING AND PIRACY IN THE EUROPEAN UNION

The methodology used was to conduct an extensive literary review of relevant industry reports,

intelligence updates and of renewed datasets that have become available since the original

2015

Situation Report on Counterfeiting in the European Union,

and thereby to ofer relevant

insights into any evolution or developments that may have had an impact on the situation as

previously reported.

The document draws on a number of further sources, such as the European Commission

Directorate-General for Taxation and Customs Union (DG TAXUD) external border seizures

database, Europol’s

SOCTA 2017

, and publications and experiences from beyond the EU. In

addition, the indings of a discussion held in 2016 by the European Observatory on Infringements

of Intellectual Property Rights (Observatory) amongst leading EU judges on sentencing practices

were another source of information, to ascertain the attitudes and opinions of those directly

afected by product counterfeiting and piracy, either at enforcement level or as victims. Data

was also collected during the Europol, EUIPO and Eurojust joint knowledge-building seminars

that have taken place since the publication of the original study.

Illustrative case studies have been used to contextualise the tangible nature of the topic under

scrutiny where possible, providing deeper insight into the challenges faced by those at the

forefront of protecting IPR, either through direct enforcement or policymaking.

3 - SOCTA 2017:

EU Serious and organised crime threat assessment.

Available at:

http://bookshop.europa.eu/is-bin/INTERSHOP.eninity/WFS/EU-Bookshop-Site/en_GB/-/EUR/ViewPublication-

Start?PublicationKey=QL3013253.

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COUNTERFEIT GOODS IN THE EU:

EXTENT OF THE PROBLEM

2017 SITUATION REPORT ON COUNTERFEITING AND PIRACY IN THE EUROPEAN UNION

Scale and impact of counterfeiting

For the 2011-2013 period, and despite the slow overall recovery from the economic crisis, IPR-

intensive industries nevertheless remained relatively constant in terms of their contribution to total

external trade (86 % of imports and 93 % of exports) and to GDP (42 %)

, compelling testimony to

the value that IPR-intensive industries continue to add to the EU economy and society.

This level of contribution that IPR-intensive industries make, combined with the relatively low

penalties associated with IPR crime in some countries, has led to counterfeiting and allied

infringements becoming global industries in their own right. Such infringements are now

estimated to touch most brands and product types, both within the EU and beyond.

From low-level personal imports (often the result of internet commerce) to the vast quantities

of illegal products traded by organised international networks, counterfeit and IPR-infringing

goods had an overall impact on EU imports to the tune of up to 5 % in 2013, amounting

to approximately EUR 85 billion. IPR-infringing products now originate from virtually all

geographical areas and economies globally, constituting up to 2.5 % of all global trade, worth

up to USD 461 billion in 2013

Apart from the direct economic impact that IPR infringements have had on the EU, such as

reduced revenues for the afected businesses, decreased sales volumes and lost jobs, there are a

number of associated consequences and ramiications that are less obvious. IPR infringements

afect not only EU citizens directly, but also businesses and, ultimately, governments.

One signiicant implication of revenue losses for IPR-intensive industries is the impact

on inancial resources that could have been reinvested in research and development.

Counterfeiters tend to copy commercially successful products, with which legitimate industries

generate the largest share of their proits and investment capacity. This issue has been raised

by the pharmaceutical industry in particular, but the vast majority of IPR-intensive businesses

are to some extent research focused, due to the innovative nature of the goods with which

they are associated. A cut in research funding therefore, adversely afects future growth

4 - European Patent Oice and the European Union Intellectual Property Oice,

Intellectual property rights intensive industries and

economic performance in the European Union,

2016, p. 6. Available at: https://euipo.europa.eu/tunnel-web/secure/webdav/guest/

document_library/observatory/documents/IPContributionStudy/performance_in_the_European_Union/performance_in_the_

European_Union_full.pdf.

5 - OECD/EUIPO (2016),

Trade in counterfeit and pirated goods mapping the economic impact,

2016, p. 11. Available at: http://www.oecd.

org/gov/risk/trade-in-counterfeit-and-pirated-goods-9789264252653-en.htm.

www.europol.europa.eu

www.euipo.europa.eu

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2017 Situation Report on Counterfeiting and Piracy in the European Union

opportunities, not only because there is less direct inancing, but also because of the lost jobs

and government revenues.

The inancial implications of IPR crime aside, counterfeits almost always represent some form

of risk to consumer welfare, because there are invariably scant quality controls or certiication

protocols in place during manufacture. This afects the tobacco, food or pharmaceutical

industries, but also has less obvious consequences in the form of the health dangers associated

with substandard (lammable) clothing, dangerous toys, inferior sports shoes or inefective

sunglasses, all of which, if used in good faith, threaten end users with potentially serious and

ongoing health risks. IPR crime also afects the environment. Counterfeit pesticides often

contain toxic substances that may contaminate soil, water and food.

External border seizures

Defence at the borders is still considered far more efective than detaining items once they are

in circulation

In the 2014-2015 period, despite a drop in caseload (Chart 1), the overall number of counterfeit

products detained at the EU external borders increased (Chart 2)

. This indicates the interception

of higher unit numbers per case year by year, and is an indication that IPR infringers continue

to ship large volume consignments, usually as marine container transport.

Despite evidence of the ongoing use of large-scale cargo shipments by IPR infringers, Chart 3

shows how, since 2012, the majority of external border seizures have been recorded as postal

traic. Such a method of conveyance does not usually lend itself to large-scale shipments in

terms of units

The simpliied procedure for small packages aforded by Regulation (EU) No 608/2013

may

allow for many EU customs procedures to become less onerous and therefore, more numerous.

Counterfeited and IPR-infringing goods had an impact on overall EU imports to the tune of

up to 5 % in 2013, amounting to approximately EUR 85 billion. Applying this 5 % ratio to the

2015 legitimate import statistics

and comparing this with the 2015 seizure statistics

reveals

6 - Alfadhel, L., ‘TRIPS and the Rise of Counterfeiting: a comparative examination of trademark protection and border measures in

the European Union and the Gulf Cooperation Council’,

Trade, Law and Development,

Vol. 7, No 2, National Law University, Jodhpur,

2015, p. 6. Available at: http://www.tradelawdevelopment.com/index.php/tld/article/viewFile/7%282%29%20TL%26D%20388%20

%282015%29/262

7 - European Commission, Directorate-General for Taxation and Customs Union,

Report on EU customs enforcement of intellectual

property rights: results at the EU border 2015,

Publications Oice of the European Union, Luxembourg, 2015. Available at: https://

ec.europa.eu/taxation_customs/sites/taxation/iles/2016_ipr_statistics.pdf.

8 - With the possible exception of tobacco, labels/packaging and pharmaceuticals.

9 - Regulation (EU) No 608/2013 of the European Parliament and of the Council of 12 June 2013, OJ L 181, 29.6.2013, pp. 15-34

Available at: http://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:32013R0608&from=EN

10 - Available at: http://ec.europa.eu/eurostat/tgm/refreshTableAction.do?tab=table&plugin=1&pcode=tet00018&language=en and

http://ec.europa.eu/eurostat/statistics-explained/index.php/International_trade_in_goods.

11 - European Commission, Directorate-General for Taxation and Customs Union,

Report on EU customs enforcement of intellectual

property rights: results at the EU border 2015,

Publications Oice of the European Union, Luxembourg, 2015, p. 7. Available at:

https://ec.europa.eu/taxation_customs/sites/taxation/iles/2016_ipr_statistics.pdf.

12| www.europol.europa.eu

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that the overall results of customs IPR enforcement at the borders of the EU represents a low

percentage of counterfeited goods entering the EU by value.

Postal consignments constituted 70 % of cases in 2015 but only accounted for 2 % of the

number of detained articles, indicating that bulk cargo remains the main threat in terms of the

volumes and values of counterfeit goods that have an impact on the EU economy.

CHART 1: EXTERNAL BORDER CASES 2013 - 2015

98.000

96.000

94.000

92.000

90.000

88.000

86.000

84.000

82.000

2013

2014

2015

CHART 2 EXTERNAL BORDER UNITS 2013 - 2015

32.000.000

30.000.000

28.000.000

26.000.000

24.000.000

22.000.000

20.000.000

2013

2014

2015

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2017 Situation Report on Counterfeiting and Piracy in the European Union

CHART 3 EXTERNAL BORDER CASES BY TRANSPORT METHOD 2012 - 2015

80.000

70.000

60.000

50.000

40.000

30.000

20.000

10.000

2012

2013

2014

2015

Post

rail

Road

Sea

Air

Express Courier

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KEY PRODUCT SECTORS

2017 SITUATION REPORT ON COUNTERFEITING AND PIRACY IN THE EUROPEAN UNION

The range of counterfeit products recovered in the EU remains broad and includes nearly

all types of goods and also, increasingly, everyday products, such as cosmetics, shampoos,

toothpaste, toys, medicines, food and beverages, and household products. Various technical

products, such as bearings, electronic chips, and mechanical parts are also often counterfeited.

Counterfeit goods sold in the EU tend to be of lower value and increasingly include spare parts

or other elements used in combination with genuine products. This development is relected

in the increasing seizures of low-value goods, such as replacement parts for mobile phones,

including replacement screens or batteries. These spare parts are easy to ship because of their

small size and can be assembled into a inal product in the destination country.

Regarding product types, the top categories of detained articles at the external borders in 2015

were cigarettes, which accounted for 27 % of the overall amount of detained articles, followed

by other goods (10 %), toys (9 %), labels, tags and stickers (8 %) and foodstufs (7 %). These

percentages are by unit volume however, and by caseload the leading results were sports

shoes (17 %), bags/watches/purses (15 %) and clothing (14 %). By value, watches prevailed

(24 %), followed by wallets/purses (9 %) and clothing (7 %)

Although not entirely harmonised, it has been possible to compare datasets showing legitimate

product import ratios by value, to the ratios of IPR-infringing seizures reported by each MS at

the external borders over a series of product categories and a comparable timeframe.

Depending on the product group or MS in question, a number of countries were found to

be intercepting a much lower proportion of IPR-infringing goods by value than the legitimate

import igures indicated would be likely, suggesting that there may be potential for enhanced

focus on certain product types by bodies tasked with assessing and prioritising risks in terms of

identifying the goods most likely to be subject to IPR infringements in a given MS.

With a number of product groups, MS that reported a high proportion of IPR-infringing seizures

compared with their legitimate share of the market often neighboured MS that reported

incongruously low seizures compared with genuine imports. One explanation for this is that

the MS reporting higher than expected seizure rates at the external borders may, in some

cases, be established points of entry for illegal products that would subsequently have been

distributed in neighbouring states, if they had not been intercepted at the point of entry.

12 - European Commission, Directorate-General for Taxation and Customs Union,

Report on EU customs enforcement of intellectual

property rights: results at the EU border

2015, Publications Oice of the European Union, Luxembourg, 2015, pp. 16-18.

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2017 Situation Report on Counterfeiting and Piracy in the European Union

A full analysis and additional insight into what efect counterfeiting in each of these sectors has

on wider EU society can be found in Appendix A.

Labels/packaging and increasing intra-EU production

The issue of labels, packaging and products being sent to the EU separately is a growing

concern. Such items combined constituted one of the largest product types seized at the

external borders. In 2015 they ranked second overall by units seized (behind inished, packaged

tobacco)

. A sizeable number of the counterfeit labels, tags and stickers intercepted at the

external borders pertained to batteries manufactured by two of the world’s leading electronics

giants, leading to the suspicion that they may have been counterfeit stickers used to disguise

lower-end batteries as genuine branded articles and that the counterfeits would be passed of

as genuine at a signiicant proit.

FIGURE 1: 1 000 000 ITEMS OF BATTERY PACKAGING AND LABELS FOUND IN THE

NETHERLANDS

Source: Dutch Customs

13 - European Commission, Directorate-General for Taxation and Customs Union,

Report on EU customs enforcement of intellectual

property rights: results at the EU border 2015,

Publications Oice of the European Union, Luxembourg, 2016, p. 29. Available at:

http://ec.europa.eu/taxation_customs/sites/taxation/iles/2016_ipr_statistics.pdf.

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Counterfeit sportswear and fashion labels have also been reported in relatively high volumes.

This is of particular signiicance, as EU-based counterfeit clothing and footwear manufacturers,

potentially criminal groups, may be importing labels and tags to append to unbranded clothing

in order to manufacture and distribute counterfeits within the EU. Evidence of such domestic

manufacturing was found in Italy, where most of the counterfeit manufacturing and sales in

Catania were by non-Europeans

. Chinese gangs made the shoes on the Italian mainland or

smuggled them in from Asia through the port of Naples. Brand logos were often not added

until they reached the point of sale, to avoid scrutiny from authorities.

However, most seizures of packaging materials were of items associated with tobacco products

(74 % of units recovered).

The majority of this packaging was stopped at the United Kingdom, the Netherlands or French

borders and was recorded as having originated predominantly from China and Hong Kong. Large

numbers of branded counterfeit tobacco pouches are manufactured in China and Hong Kong,

but possibly not the counterfeit tobacco itself. This could be shipped separately as an unbranded

product, manifested as a non-IPR-infringing import, and therefore not be liable to seizure.

FIGURE 2: 64 000 ITEMS OF COUNTERFEIT TOBACCO PACKAGING FOUND IN

THE

NETHERLANDS

Source: Dutch Customs

14 - Associated Press, ‘In Italy, seized knock-of shoes go to help new migrants’, 12 May 2015. Available at: http://www.dailymail.co.uk/

wires/ap/article-3078188/In-Italy-seized-knock-shoes-help-new-migrants.html.

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2017 Situation Report on Counterfeiting and Piracy in the European Union

KEY COUNTRIES OF PROVENANCE,

SMUGGLING ROUTES AND

TRANSPORTATION METHODS

2017 SITUATION REPORT ON COUNTERFEITING AND PIRACY IN THE EUROPEAN UNION

China

China has long been recognised as the engine of the global counterfeiting industry. Counterfeit

goods are estimated to amount to approximately 12.5 % of China’s total exports and over

1.5 % of its GDP. This results in estimations that 72 % of counterfeit goods currently in circulation

in three of the world’s largest markets for such products, namely the EU, Japan and the USA,

have been exported from China

Altogether, 49 % of all IPR-infringing seizures made in the United States in 2015 emanated

directly from China

. Simultaneously, Japan reported 91 % of all cases being of Chinese

provenance

. EU statistics show Chinese exports as amounting to 56 % of all recoveries by

caseload

. In combination, Chinese counterfeit exports recovered in the EU, Japan and the

United States were valued at EUR 1 083 823 626 in 2015 alone, contributing signiicantly to

the estimation that up to 2.5 % of all global trade and up to 5 % of EU imports concern IPR-

infringing products. The long-distance cargo train connections between China and the EU may

also ofer a new advantageous route for transportation of counterfeits.

China is not just responsible for direct exports however, and a number of transit countries are

also known to contribute signiicant numbers of Chinese-made counterfeits to the overall picture.

Hong Kong

Seizures from Hong Kong contributed only 4.2 % to the Japanese caseload in 2015, but a much

larger 34 % to US igures and 26 % to those of the EU, indicating that the territory plays a

15 - US Chamber of Commerce,

Measuring the magnitude of global counterfeiting: creation of a contemporary global measure of physical

counterfeiting,

GIPC, Washington DC, 2016, p. 3. Available at: http://www.theglobalipcenter.com/wp-content/themes/gipc/map-

index/assets/pdf/2016/GlobalCounterfeiting_Report.pdf.

16 - US Customs and Border Protection Oice of Trade, Homeland Security,

Intellectual Property Rights: iscal year 2015 seizure statistics,

CBP, Washington, 2016, p. 13. Available at: https://www.cbp.gov/sites/default/iles/assets/documents/2017-Jan/2015%20IPR%20

Annual%20Statistics.pdf.

17 - Japan Customs,

2015 Seizure statistics of IPR border enforcement,

Customs and Tarif Bureau, Tokyo, 2016, p. 5. Available at: http://

www.customs.go.jp/mizugiwa/chiteki/pages/statistics/statistics2015.pdf.

18 - European Commission, Directorate-General for Taxation and Customs Union,

Report on EU customs enforcement of intellectual

property rights: results at the EU border 2015,

Publications Oice of the European Union, Luxembourg, 2016. Available at: http://

ec.europa.eu/taxation_customs/sites/taxation/iles/2016_ipr_statistics.pdf.

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major role in handling illegal exports destined for locations outside of Asia. Hong Kong is not a

leading counterfeit manufacturing hub in its own right however, and many of the IPR-infringing

goods seized internationally of Hong Kong provenance are believed to have originally been

manufactured in China. One of Hong Kong’s main communications assets is the port of Hong

Kong, which has been recorded as the world’s busiest container port and the largest serving

southern China

. EU border seizure statistics for 2015 show that 21 % of all units recovered of

Hong Kong provenance at the external borders arrived by maritime transport, indicating that

the port may to some extent be used to facilitate the bulk export of Chinese counterfeits from

Asia to Europe by sea.

A second element in Hong Kong’s status as a global logistics centre is its airport, which was the

world’s busiest for air cargo throughput, handling 4.38 million tonnes. In all, 66.3 % of inward

traic emanated from Asian territories and 15.4 % of outward movements were destined for

Europe, suggesting that a degree of this statistic corresponded to Chinese exports transiting

Hong Kong airport and in the process, acquiring Hong Kong provenance

The country’s air communications continue to play a signiicant role in the illegal supply chain for

IPR-infringing goods destined for the EU. Altogether, 33 % of units recovered at the EU external

borders in 2015 of Hong Kong provenance arrived by air freight. Generally, express courier traic,

international post and air freight in combination constitute the most commonly used transport

methods. The seized consignment arriving in the EU from Hong Kong consisted of 10 items or

less. This is strongly indicative of internet trade and may be the result of Hong Kong based entities

fulilling low-volume electronic orders made in Europe, either as a subsidiary of large-scale Chinese

counterfeit manufacturers or independently, based on bulk imports from mainland China.

Finally, Hong Kong shadow companies are increasingly being used to engage in counterfeiting

and other infringing activities in China

. These companies do not generally conduct business

in Hong Kong, but carry out counterfeiting and other illegal activities in mainland China under

the Hong Kong company name, with the intention of misleading consumers and avoiding legal

liabilities in mainland China. A new trend has been identiied in China, whereby online vendors

increasingly use shadow companies to set up e-shops, thereby misleading consumers as to

their whereabouts. Counterfeit goods manufactured and sold by such companies in China

are deliberately shipped through Hong Kong, in order to maintain the pretence of their having

originated in the territory.

Overall in 2015, China and Hong Kong together were the provenance of 86 % of global

counterfeiting and USD 396.5 billion worth of counterfeit goods and in combination, they form

the largest ongoing threat to global IPR integrity

19 -

Hong Kong Yearbook 2007,

p. 249. Available at: http://www.yearbook.gov.hk/2007/en/pdf/E13.pdf. Accessed 26 March 2017.

20 - Hong Kong International Airport,

Monthly Digest of Statistics,

January, 2016, Hong Kong, Trade Statistics Processing Section, Census

and Statistics Department, p. 5. Available at: http://www.statistics.gov.hk/pub/B71601FA2016XXXXB0100.pdf.

21 - Michisita, R.,

Hong Kong shadow companies are increasingly being used to engage in counterfeiting and other infringing activities in China,

Bird & Bird, London, 2015. Available at: http://www.twobirds.com/en/news/articles/2015/global/brandwrites-december/hong-kong-

shadow-companies-are-increasingly-being-used-to-engage-in-counterfeiting. Accessed 26 April 2017.

22 - US Chamber of Commerce,

Measuring the magnitude of global counterfeiting,

2016, p. 3. Available at: http://www.theglobalipcenter.

com/wp-content/themes/gipc/map-index/assets/pdf/2016/GlobalCounterfeiting_Report.pdf.

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Turkey

The third highest country of provenance in the external border seizure statistics by caseload in

2015 was Turkey, which was the reported provenance of 4 217 of IPR-infringing consignments

that year, 37 % of which were intercepted at the Bulgarian border

. All but one of these involved

road traic, and infringing products were frequently encountered in volume, indicating that a

proportion of the consignments, if they had not been stopped, would have been intended for

wider distribution subsequently.

There would also appear to be a relationship between Turkey and Belgium, where 864

interceptions of IPR-infringing goods of Turkish provenance were reported over the year.

Antwerp, Bruges, Ghent and Ostend have in the past been identiied as points of entry for large

infringing consignments and have often been cited as the reason that Belgium consistently

reports high numbers of recoveries annually. Nearly all consignments from Turkey recorded by

Belgium arrived either by air (45 %) or by post (51 %), with the remainder being shown as road

transport. Furthermore, 310 of Belgium’s 373 clothing seizures from Turkey pertained to ive

items or less, indicating personal imports, most likely the result of internet commerce

Further analysis of EU-wide external border seizure data relating to Turkey reveals that only

18 maritime interceptions were reported across the EU in 2015 and that, with the exception

of road traic crossing the Bulgarian border, IPR-infringing seizures were far more likely to

be sent by air, either by traditional air freight or by post. Ready-to-wear clothing consistently

topped seizures of Turkish provenance by unit volumes, but the country also shipped large

volumes of counterfeit labels, tags and stickers, frequently to the same MS to which the clothing

was sent. This was seen most frequently in Belgium, Bulgaria, Germany and Italy and could

be indicative of domestic manufacture, or of goods and labels sent separately, with the inal

products assembled within the EU.

Seizures of Turkish provenance are increasingly likely to be lower unit volume consignments,

intercepted in higher frequency, most probably sent as small packages.

Thailand

Another notable country of provenance was Thailand, which appears to have had speciic

links to the United Kingdom and Germany. Altogether, 1 154 interceptions of items of Thai

provenance were recorded in the United Kingdom, and a further 866 by Germany in 2015

Once more, the vast majority of these seizures involved airborne consignments and in the

case of Germany, the key product types were labels, tags and stickers in combination with

ready-to-wear clothing. Notably, very few of the Thai clothing seizures in the United Kingdom

23 - Based on data supplied to the EUIPO by DG TAXUD.

24 - Based on data supplied to the EUIPO by DG TAXUD.

25 - Based on data supplied to the EUIPO by DG TAXUD.

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and Germany were large scale, with the majority (1 079) comprising only one or two items.

This is again highly indicative of internet commence and may be a signal that Thai e-shops are

speciically targeting the United Kingdom and German markets or that distributors operate

from these regions.

Singapore

Singapore was found to be a signiicant contributor to the German, Belgian and Italian caseload

statistics in 2015. Mobile phones (or their accessories) formed the bulk of exports to Belgium

and Germany, and these were again predominantly recovered in volumes of one or two items

The accessories for mobile phones that were shipped from Singapore to Italy were recovered

in signiicantly higher unit volume consignments however, indicating that they were due for

subsequent distribution.

During the anti-fraud daily activity performed in 2015, the

Customs Anti-Fraud Unit of the Italian airport of Milan Malpensa

seized 793 counterfeit branded mobile phone covers: 715

Chanel, 77 Adidas, 1 Jack Daniels.

The counterfeit goods were identiied at the postal oice of

Linate Pozzolo: 12 suspected postal consignments containing

several famous branded goods coming from Singapore to Milan

Malpensa were not accompanied by commercial documents

and were all destined for Naples, in the same street but to be

delivered to six diferent consignees.

Both the scanning inspection and the technical expertise

provided by rights holders conirmed that goods were

counterfeited. All consignees were unknown.

Source: Italian Customs

In 2015, 14 million smartphones fewer were sold by the legitimate industry across the EU than

would have been the case in the absence of counterfeiting

. This translates into approximately

EUR 4.2 billion lost due to the presence of counterfeit smartphones in the EU marketplace,

corresponding to 8.3 % of the sector’s sales. After China and Hong Kong, Singapore was the

third highest country of provenance for IPR-infringing seizures of such items at the EU external

borders by caseload in 2015.

26 - Based on data supplied to the EUIPO by DG TAXUD.

27 - EUIPO,

The economic cost of IPR infringement in the smartphones sector,

2017, p. 6. Available at: https://euipo.europa.eu/tunnel-web/

secure/webdav/guest/document_library/observatory/resources/research-and-studies/ip_infringement/study11/smartphone_

sector_en.pdf.

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2017 Situation Report on Counterfeiting and Piracy in the European Union

Malaysia

Although the country barely features in terms of caseload, signiicant numbers of IPR-infringing

items were sent from Malaysia to France, Slovenia and, to a lesser extent, Spain in 2015. The

French statistics are almost entirely accounted for by a single detention of 1 000 000 body care

items that arrived by maritime container, and are compounded by a further seizure of 10 800

items of foodstufs, again sent by sea. Slovenia reported a series of very large-scale recoveries

of toys, labels, oice stationary, bags and sports shoes, virtually all of which were the result of

maritime container interceptions. Spain recorded a series of bulk shipping container seizures

of parts and technical accessories for mobile phones, ready-to-wear clothing and sports shoes.

In total, Malaysia was recorded as the provenance of 2 615 869 IPR-infringing items seized at

EU container ports in 2015.

Vietnam

There were 496 000 packets of counterfeit cigarettes of Vietnamese provenance seized in a

single maritime consignment in Greece, and a further 500 000 packets were recovered whilst

being transported by road into Poland. Not only are these seizures indicative of a Vietnamese

speciality of tobacco counterfeiting, they also shine some light on potential transport routes

within the EU, whereby goods enter by ship in Greece and are subsequently moved by road

to their ultimate destination. Greece seized 7 306 656 packets of cigarettes in 2015, indicating

either that the MS may be a signiicant point of entry for such products, or that Greek customs

may have prioritised detentions of cigarettes.

The above seizures show how the EU is afected on two levels by two diferent types of IPR

crime business models. The irst being e-shops or distributors that supply IPR-infringing items

to end customers in the form of frequent, small consignments, and secondly bulk exporters

that continue to favour large-scale freight consignments as a means of transportation but

may also supply e-shops, which will subsequently export the goods in smaller numbers. The

existence of particular relationships between speciic countries may be the result of distinct

cultural, geographical or iscal associations.

Key routes

The majority of counterfeit goods continue to arrive at the EU external borders from countries

in Asia, via sea, air or land routes.

The imported goods arrive typically from third countries to the major ports of entry in the EU

and transit via other MS to their inal destination. However, once the goods are there, they can

be reshipped to other countries in the EU. This emerging pattern aims to diversify the routes

and disguise the origin of the goods. Goods shipped from EU MS are seen as at less risk of

interception than goods from outside the EU.

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In recent years, Europe has also been used as a transit region for counterfeit goods such as

pharmaceuticals and mobile phones destined for African countries. Counterfeit goods also

transit the EU on their way from China to Russia, often via Scandinavian or Baltic countries.

In this regard, the enforcement of IPR rights has recently been signiicantly strengthened with

the introduction of the 2016 European Union Trade Mark Regulation

. The proprietor of an

EU trade mark is now entitled to prevent all third parties from bringing goods into the Union

without being released for free circulation there, where such goods, including packaging, come

from third countries and bear a trade mark without authorisation. Therefore, EU customs

authorities may now take action in relation to goods from third countries that are transiting

the territory without being released for free circulation, if they bear an identical or essentially

identical trade mark to an EU trade mark

. This will have to be taken into account in the

customs enforcement of IPR, including goods in transit on their way from a third country to

another country, or under a storage procedure in a free zone.

Transportation methods

The traditional transport methods continue to be used. Counterfeit goods traicked to and

intended for distribution in the EU are typically shipped in bulk using maritime shipping

containers. The volume of counterfeit goods detected in the EU having arrived in this manner

relects the enormous production capabilities in Asia. The use of roll-on roll-of (ro-ro) ships

as a means of transport for counterfeit products can pose a risk, and with the expanded

capacity of the Tanger Med FTZ, this risk may increase in the coming years, afecting mostly the

Mediterranean area and seaports with ro-ro terminals. Counterfeit products also arrive in the

EU by air freight as postal shipments.

Upon arrival at the seaports or airports, goods continue to be transported by road, in trucks,

vans or passenger cars, or even aeroplanes. Certain goods are transported across EU land

borders in lorries and even on long-distance buses, predominantly in the south.

In addition, long-distance cargo trains between Europe and China ofer a possibility for quick and

relatively cheap transportation of goods and could be abused by criminals. Beijing to London

by train, a distance of nearly 12 000 km, only takes 18 days, about half the time of maritime

consignments. Despite the rising number of trains arriving from China at the EU external

borders, seizure igures attributed to this method of transport have remained consistently low.

In 2013, 6 cases were reported, 12 in 2014 and only 2 in 2015. This number of interceptions

28 - Regulation (EU) 2015/2424 of the European Parliament and of the Council of 16 December 2015, which entered into force on 23

March 2016. Available at: http://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:32015R2424&from=EN.

29 - http://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=OJ:C:2016:244:FULL&from=EN.

30 - Ro-ro ships (roll-on roll-of) are vessels designed to carry wheeled cargo, such as cars, trucks, trailers, and railroad cars, which are

driven on and of the ship on their own wheels or using a platform vehicle. They are diferent from lo-lo (lift-on lift-of) ships, which

use a crane to load the cargo.

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would appear to be especially low when considered against the advantages that rail transport

could potentially ofer to international IPR-infringing criminal networks. Counterfeiters often

need to produce and ship products quickly, usually in reaction to emerging product trends and

demands in their chosen marketplace. Such goods are frequently cheap at the point of sale and

the use of air freight, despite being fast, is often too expensive. The average shipping container

can take up to 6 weeks and, although maritime transport still appears to be the preferred

means of transporting bulk shipments, largely because it is the most economic option, the time

delay incurred could impede a fast route to market for certain IPR-infringing goods. Therefore,

such rail connections could ofer concrete advantages to international IPR-infringing criminal

networks, and should be kept on the radar. Alongside the traditional transport methods,

criminals increasingly use parcel and postal services to import and distribute counterfeit

products, this being closely related to the growing online sales.

Counterfeit goods or their spare parts are often sent as small parcels via postal or courier

services. This high-volume, low-quantity traic makes controls and detections of counterfeits

more diicult, especially given the increasing low of goods sold online and shipped in small

consignments. The increased use of postal freight and express freight for distribution of

counterfeit medicine is especially alarming.

Small consignments, now regulated by Article 2(19) and 26 of Regulation (EU) No 608/2013,

are deined as postal or express courier consignments that contain three units or less or that

weigh less than two kilograms. Postal and courier traic constituted 77 % of all detentions

in 2015, even if detentions in postal traic dropped by more than 20 % compared to 2014.

The most prevalent product types in postal traic were electronic equipment (32 %) and

medicines (16 %)

. These are items that are widely available online and the vast majority of

these interceptions were likely to be personal imports purchased by individuals online, either

as ‘knowing’ customers, or as innocent parties. This decrease of 20 % was directly related to the

fact that applicants did not want to apply for the small consignments procedure. Regulation

(EU) No 608/2013 did facilitate a simpliied procedure for processing IPR-infringing small

packages but, on the other hand, it limited access to data on origin, provenance, means of

transport and transhipment. In addition, it does not allow IPR holders to keep trace of cases

infringing their rights, which could have deterred some of them from applying for customs

actions in the irst place

. Overall, the new Regulation is viewed as a more efective measure

for controlling small consignments, albeit that the process established for 2014 temporarily

placed extra administrative burdens on rights holders and customs, regarding reapplications

and the recording and processing of data.

31 - European Commission Taxation and Customs Union,

Report on EU customs enforcement of intellectual property rights Results at the EU

border 2015,

p. 7. Available at: https://ec.europa.eu/taxation_customs/sites/taxation/iles/2016_ipr_statistics.pdf.

32 - European Commission, Directorate-General for Taxation and Customs Union,

Report on EU customs enforcement of intellectual

property rights: results at the EU border 2015,

Publications Oice of the European Union, Luxembourg, 2016, p. 7.

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Free trade zones

External FTZs continue to pose a threat in the counterfeiting landscape, because the areas

aford counterfeiters the capacity to land consignments, adapt or otherwise tamper with the

loads or associated paperwork and then potentially re-export the products without customs

intervention, thus disguising the true origin and the nature of the goods, as well as the identity

of the original supplier.

Currently there are an estimated 3 500 free zones and special economic zones around the

world, indicating the speed with which new areas are becoming established

. Current FTZs

do not just service maritime traic, as many are also located at international airports and at

national frontiers from which goods can be transported overland.

The challenge of regulating activities in FTZs stems largely from the absence of harmonised IPR-

enforcement standards. A small number of IPR-related incidents involving FTZs have resulted

in judicial enforcement but, despite widespread infringements associated with FTZs and

transhipments of infringing goods being suspected, relatively few cases have been reported

concerning enforcement of IPR in FTZs or in transit

Weaknesses continue to be found in several FTZs; some facilitated a series of organised crimes,

including narcotics traicking, the illegal ivory trade, people smuggling and the counterfeiting

industry

. The seizure of a consignment of pharmaceutical products at Heathrow airport in

London, in transit from the Sharjah FTZ in Dubai, to a pharmacy located in the FTZ of Freeport,

Bahamas, is one example

Other cases variously involved counterfeit handbags, wallets and electrical equipment and,

whilst these incidents may not have a direct impact on the EU, they nevertheless demonstrate

that FTZs are used to facilitate international IPR crime

33 - World Free Zones Organization,

Message from our CEO,

http://www.worldfzo.org/Pages/CeoMessage.aspx. Accessed 26 March

2017.

34 - Business Action to Stop Counterfeiting and Piracy,

Controlling the zone: balancing facilitation and control to combat illicit trade in the

world’s free trade zones,

ICC, Paris, 2013, p. 25. Available at: http://www.ip-watch.org/weblog/wp-content/uploads/2013/05/FTZ-

report.pdf.

35 - DuBarry, S., Ametova, E.,

The paradox of free trade zones: economic prosperity and transnational crime,

Florida International University,

Miami, 2014, p. 4. Available at: https://maga.iu.edu/academic-tracks/capstone-project/2014-capstone-working-papers/socom-

capstone_dubarry_ametovav_edited-inal_dawndavies.pdf.

36 - DuBarry, S., Ametova, E.,

The paradox of free trade zones: economic prosperity and transnational crime,

Florida International University,

Miami, 2014, p. 4. Available at: https://maga.iu.edu/academic-tracks/capstone-project/2014-capstone-working-papers/socom-

capstone_dubarry_ametovav_edited-inal_dawndavies.pdf.

37 - National Association of Foreign-Trade Zones,

Zones Reports,

Washington, NAFTA. Available at: http://www.naftz.org/publications/

zones-report/. Accessed 26 March 2017.

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2017 Situation Report on Counterfeiting and Piracy in the European Union

PIRACY

2017 SITUATION REPORT ON COUNTERFEITING AND PIRACY IN THE EUROPEAN UNION

Legal supply chain (digital)

‘Copyright and related rights protected content’ covers a

wide area of original works, performances, recordings and

broadcasts including ilms and other audiovisual works,

television and radio broadcasts, musical compositions and

lyrics, recorded music, digital games and software, e-books

and other literary works, or even entire databases.

The legal digital supply chains for the diferent content types

are not identical, but some commonalities nevertheless apply.

In electronic gaming, for instance, with so many diferent

digital platforms, methods of accessing media, and consumer

preferences in the electronic gaming world, comes a

multitude of diferent supply chain models. For the purposes

of this section, the supply chain will relect accessing content

by downloading a inished product to a digital platform (either

legally or illegally) and, for clarity, both of the models have

been simpliied to very basic forms.

In the legal digital games supply chain, authors create the

games and the publishers inance, market and distribute

them to retailers. The retailers then supply end customers.

FIGURE 3:

Author

€

Publisher

€

Legal

Website

€

Legal

Gamer

Whilst many of the major digital games hardware

manufacturers develop their own games, the EU also has a

thriving industry of third-party authors and publishers that sell games created on their own or

by other independent development studios.

Legitimate sales to the end customer would take place through a trusted (and often proprietary)

website where, for a fee, the game could be downloaded.

With each link in the chain paying the previous one, the proits low in the other direction and

each entity is remunerated accordingly.

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Illegal supply chain (digital)

In its most basic form, the illegal supply chain contains only two entities, both of which are

knowingly acting illegally.

As an illegal ile-sharing website does not develop software itself, there is no illegal manufacture,

production or publishing in the strictly illicit model and, as the illegal gamer downloads the

software free of charge, there is no inancial incentive for other intermediaries to involve

themselves in the process. This supply chain as a business model is somewhat compromised

therefore.

In order to overcome the issue of obtaining the digital games that are made available for

free downloading, and in order to generate revenues, the illegal digital games supply chain

integrates itself both with the legal model and with selected intermediaries.

Firstly, the infringers must gain access to an original copy in order to make the game available

illegally. This may be achieved by sourcing a genuine game from a legal paid download and then

re-engineering it, or by sourcing media from an end user that can then be used to produce the

copy for free downloading.

FIGURE 4:

Author

€

Publisher

€

Legal

Website

Illegal ﬁle sharing

Website

€

Legal

Gamer

Illegal

Gamer

Advert

Agency

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However, no funds are generated when the digital game is downloaded. This shortcoming is

often overcome by the sale of advertising space on illegal ile-sharing sites and this process is

facilitated by advertising intermediaries.

Games (digital)

An average of 49 % of people aged from 11 to 64 in Germany, Spain, France and the United

Kingdom played some kind of digital game in Q1 2016, demonstrating the reach that this

industry now has

With the plethora of types of digital games, platforms and ways to access content comes a

multitude of opportunities to commit IPR crime, and many of these have long been exploited

by infringers.

In terms of hardware, counterfeiters have targeted games controllers in the past and a number

of instances of fakes in the apparently legitimate marketplace have been reported.

Counterfeiters have also been known to target games consoles themselves.

A further form of IPR infringement in the digital gaming industry is the counterfeiting of packaged

games, usually intended for use with a PC or games console. However, more recently, newer

technologies and faster internet speeds and accessibility have resulted in a rise in video-game

piracy and a corresponding decline in the production of packaged counterfeit games.

Some (but not all) further examples of IPR infringement in the digital gaming environment would

be purchasing a hacked paid game or the sale of paid game codes, cheating paid subscriptions,

downloading a game that has been ‘cracked’, whereby the password protection or security may

have been removed, purchasing existing passwords, user account numbers or downloading a

full game, with access codes, directly onto a chosen platform.

Whichever of these activities the illegal gamer chooses to pursue, there are numerous

websites ofering the above services or products as free downloads or torrent iles, and it is by

downloading that the majority of players will access their IPR-infringing content.

38 - ISFE Gametrack,

GameTrack Digest: Quarter 1 2015,

Brussels, ISFE. Available at: http://www.isfe.eu/sites/isfe.eu/iles/attachments/

gametrack_european_summary_data_2015_q1.pdf. Last Accessed 26 March 2017.

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Business models (digital)

Over the last two years, infringements of digital content protected by copyright and related

rights

have attracted increasing attention as an area of criminal threat against IPR holders,

consumers and general societal interests

While digital piracy still exists in a physical form as illegal CDs

and DVDs, the most prevalent

current threat stems from the online dissemination of protected content. Well known acts

of piracy on the open internet include the sharing of protected content through BitTorrent

networks, illegally facilitating downloading or streaming from central sources and (under

certain conditions) illegally making links

to IPR-protected content freely available without

rights holder consent.

Television broadcasts using internet protocol television (IPTV) are digital and are available on a

variety of platforms such as mobile phones, tablets, smart TVs and set-top boxes (STBs).

In recent years, the use of STBs to access large numbers of television channels, ilms and other

protected content has increased due to low prices, improving quality of services, reliability and

user friendliness. The illegal servers are almost always hosted with companies based outside

the jurisdiction of the countries targeted by the provider.

On 20 July 2016, the presumed founder of the most popular ile-sharing website was arrested in

Poland and faces extradition to the USA for prosecution following federal charges against him for

extensive criminal copyright violations.

Wired.

KickAss Torrents’ alleged founder arrested after Apple hands over record.

Available at:

http://www.wired.co.uk/article/kat-alleged-founder-arrested. Last Accessed 26 March 2017

39 - On 21 September 2016, the EUIPO published a consumer-friendly frequently asked questions (FAQ) service in all oicial EU

languages. The FAQ addressed a number of practical issues concerning copyright protection and provided information about legal

and illegal activity, especially in the online environment. The FAQ are available here: https://euipo.europa.eu/ohimportal/en/web/

observatory/faqs-on-copyright.

40 - In the second EUIPO and EPO study on the contribution of copyright intensive industries to the European economy it was

estimated to be 6.8 % of GDP and 7.1 % of employment. The study is available at: https://euipo.europa.eu/tunnel-web/

secure/webdav/guest/document_library/observatory/documents/IPContributionStudy/performance_in_the_European_Union/

performance_in_the_European_Union_full.pdf.

41 - In the EUIPO report,

The economic cost of IPR infringement in the recorded music industry

(published 24 May 2016), it is noted that in

the largest market for recorded music, Germany, 75 % of music is sold in physical format. The report is available at: https://euipo.

europa.eu/ohimportal/en/web/observatory/ipr_infringement_music.

42 - EUIPO,

Research on online business models infringing Intellectual Property Rights: phase 1,

EUIPO, Alicante, 2017, p. 12. Available

at: https://euipo.europa.eu/tunnel-web/secure/webdav/guest/document_library/observatory/resources/Research_on_On-line_

Business_Models_IBM/Research_on_On-line_Business_Models_IBM_en.pdf.

43 - The Court of Justice of the European Union has deined in a number of judgments when linking to protected content is legal

or illegal, most notably the

GS Media

ruling of 8 September 2016, C 160/15. Available at: http://curia.europa.eu/juris/liste.

jsf?num=C-160/15.

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A typical subscription to an illegal service provides the customer with access to potentially

thousands of television channels and often also ofers the client access to ‘video on demand’

(VOD) and music catalogues as part of the subscription. The number of operators providing

illegal IPTV appears to be on the rise and this trend is expected to continue at an accelerated

rate in the future.

In a Danish criminal case that was investigated and prosecuted in 2014-2015, a young man had

launched a website making links to streamed popular television broadcasts freely available. The only

(very limited) revenue was generated from voluntary donations. The website ran from 27 November

2013 to 28 January 2014, when he let two friends take over the website. They immediately revised

the business model to include advertising revenue. The new website ran from May/June 2014 to

August/September 2014.

Three persons were convicted for copyright and related rights infringement and sentenced to 10

days’ suspended imprisonment, 60 days’ suspended imprisonment and 8 months’ suspended

imprisonment (in conjunction with other charges) respectively.

District Court of Aalborg, 22 April 2015, and District Court of Næstved, 1 October 2015. Available at:

http://www.stoppiratkopiering.dk/domssamling.aspx)

Card sharing (CS) involves several people sharing one or more legally purchased subscription

cards. Such card-sharing networks consist of several connected servers, making it possible to

access television signals. In practical terms, it is actually only the control codes (a small amount

of speciic data) that are shared in the networks, rather than the broadcast signal itself. When

such signals are encrypted by the commercial providers of legal broadcasts, they have to be

decrypted for the user to actually see the broadcast on a television set. By sharing the control

codes in the card-sharing network, users can gain access to the broadcast signals for a fee that

is substantially lower than a legal subscription.

Whilst previously popular networks with restricted or permissioned access are still used to share

protected content, the use of hidden internet services like Darknet

, although still comparatively

limited, appears to be increasingly facilitating the illegal sharing of e books, entire databases

and, especially, illegally retrieved access codes to legitimate subscription services, which allow

unauthorised access to large libraries of IPR-protected ilms, music and other media.

In terms of inancing the organised sharing of IPR-infringing digital content online, the main

source of revenue for infringing web services continues to be derived from advertising, but

illegal proits are also generated through subscription payments, payments per download and

44 - Ibid., pp. 14 and 17-18.

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voluntary user donations. Altogether, 51 % of advertising on 280 suspected piracy websites

available in Europe in the summer of 2015 were connected to various types of malware

(malvertising) and 91 % of this publicity originated from only 10 advertising intermediaries.

Furthermore, 41 % of the illegal websites identiied were also engaged in further advertising

fraud, such as stacked pixel stuing

Malware connected to copyright infringement can also be found embedded in website

content itself, predominately in the form of executable iles containing software and digital

games downloads. During 2017, the EUIPO plans to expand upon its existing research into the

particular threats to IPR that diferent types of malware pose, including an exploration of the

speciic functionalities of malware regarding piracy websites

Payment options for pirated content are often traditional credit card payments, but in recent

times, a number of services have increasingly been seen to provide payment options in virtual

currencies

, and certain sites have even limited the payment options exclusively to virtual

currencies.

The entities behind such infringing websites have increasingly developed and employed

methods to conceal their true identity and location. Legally available privacy shields and other

ways to conceal their identities have been efectively applied by the infringers. The websites

also often use several domain names and host identical content simultaneously at diferent

internet locations, thus avoiding disruption of services should law enforcement or civil action

be taken against them. This is very often combined with encouraging users of the websites to

bypass blocking orders and hide their identities, by way of reverse proxies and virtual private

network (VPN) services

Along with the perceived increase in the number of illegal websites, legal sources providing

access to digital content have also been increasing year by year, and such sites have evolved

signiicantly, both in terms of the number of services that they ofer, and the quality and variety of

their content

. However, for many users, identifying whether a service is legal or not continues

to be a challenge. It is known that some European internet users continue to mistakenly take

the fact that a digital content service is freely available online without the authorities having

taken action as a sign that the service provides legal access to digital content

45 - OHIM,

Digital advertising on suspected infringing websites,

OHIM, Alicante, 2016. Available at: https://euipo.europa.eu/ohimportal/

documents/11370/80606/Digital+Advertising+on+Suspected+Infringing+Websites.

46 - EUIPO,

Observatory work programme 2017

(DW4 initiative), 2017, p. 16. Available at: https://euipo.europa.eu/tunnel-web/secure/

webdav/guest/document_library/observatory/documents/about_us/observatory_work_programme_2017_en.pdf.

47 - EUIPO,

Research on online business models infringing Intellectual Property Rights: phase 1,

2017, pp. 13-14.

48 - Oice of the Intellectual Property Enforcement Coordinator,

Supporting Innovation, Creativity & Enterprise: Charting a Path Ahead

(US

Joint Strategic Plan on Intellectual Property Enforcement FY 2017-2019), White House, Washington DC, 2016, pp. 22-24. Available

at: https://obamawhitehouse.archives.gov/sites/default/iles/omb/IPEC/2016jointstrategicplan.pdf .

49 - On 3 October 2016, the EUIPO launched agorateka (https://agorateka.eu/ea/), which provides access to national portals with links

to legal online digital content.

50 - EUIPO,

Test case: legal online ofers of music,

EUIPO, Alicante, 2016. Available at: https://euipo.europa.eu/ohimportal/

documents/11370/80606/Test+case+-+Legal+on-line+ofers+of+music+%28Oct+2016%29/d33bc6c6-30d6-4b01-a1bc-

5cbc0c2fb5c2.

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CRIMINAL NETWORKS AND

INFRASTRUCTURES

2017 SITUATION REPORT ON COUNTERFEITING AND PIRACY IN THE EUROPEAN UNION

Criminal groups

IPR crime is an area that allows a variety of criminal groups to operate. Criminals involved in IPR

crime may be part of an OCG or act as individuals. They can engage either in separate stages

of the illicit activity, such as production, transportation, distribution or retail, or be involved

throughout the entire process. The scope of their involvement partially depends on their

resources, expertise and focus (either explicitly in IPR crime or also in other crime areas).

Since the production of counterfeit goods continues to take place predominantly outside

Europe, EU-based OCGs catering for the EU market rely heavily on manufacturers of counterfeit

goods abroad. These groups therefore, are not directly involved in the production. Instead,

they place orders with the producers and manage the next stages of the criminal activity:

importation, transportation, storage and distribution of the counterfeit goods.

Only a limited number of OCGs are involved in the production of counterfeit goods in the EU.

However, these groups tend to control the entire process, from the supply of raw materials

and machinery, the establishment of a clandestine production facility and production of goods,

to their transportation, storage and retail. Criminal groups involved in large-scale production

often display substantial inancial resources and links to other forms of crime, typically money

laundering, excise fraud or drug traicking. Other EU-based OCGs focus on the production of

small quantities of counterfeit products, such as clothes and leather products.

Although OCGs involved in counterfeiting tend to operate independently, contacts with other

groups may be established on an ad hoc basis to carry out speciic activities. Criminal groups

may outsource certain activities, such as importation or transportation, to beneit from other

groups’ expertise, resources or competitive advantages, such as favourable locations for EU

entry points.

The majority of identiied OCGs are hierarchically structured. The leader manages the overall

activity, gives orders to subordinates, and recruits new group members. He or she is also

in charge of the inancial side, controls the proits, and decides on possible reinvestments.

The leader often also has the primary access to the network of contacts, including to corrupt

oicials collaborating in the activities. In such centrally managed groups, the tasks and roles are

clearly divided between the members. Typically, diferent group members are responsible for

organising the import, transportation, storage, sales, and distribution of the counterfeit goods

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The Neapolitan area of Italy is characterised by the presence of counterfeit manufacturing sites specialising in producing

leather goods and footwear, products that have been legitimately manufactured in the region for generations. Whilst

legal industry has reduced in size, the necessary know-how for the production of illicit goods remains and this is used

to manufacture counterfeits. There is also the phenomenon of local factories that produce licit and illicit products in

parallel.

The area is also an important point of entry for foreign goods, in particular from countries such as China, Egypt and

Turkey, from which many counterfeits originate, as well as unbranded products that are subsequently labelled in

Campania with counterfeit logos and packaging.

The presence of the abovementioned ex-employees and their associated know-how ensures the process of production

runs successfully.

Recent times have seen the arrival of a large community of Asian citizens, especially Chinese, who have created their

own IPR-infringing business areas, which may include the import and/or manufacture of such goods.

A further challenge for authorities in this area is that many people pay little attention to the provenance of goods, even if

buying counterfeits results in purchasing an item that is of a lower quality than the original. Large amounts of counterfeit

goods (except food, medicines and cosmetics) are sold by street vendors and their non-authenticity is clearly evident

and fully accepted by the customer, who wishes to fulil a desire for luxury items at a low cost.

Organised criminals in the area rarely produce counterfeits directly but involve themselves in the following ways:

through their control of the territory, they acquire a right to a share of the proits originating from those who

manage the local production of counterfeited goods. Because this is an illegal activity that is relatively easy for law

enforcement to detect, the counterfeiters appreciate the guarantee of protection ofered by organised crime;

with inances to invest in the counterfeiting activities, which ofer high proitability and a reduced risk of lengthy

criminal sentencing compared with other criminal activities, such as drugs or extortion.

Whilst there are many business models, the predominant illegal IPR-infringing phenomena in this region are:

wholesale importation of counterfeits, which are either sold locally or dispatched to other areas of the country;

importation of unbranded goods, in particular from the clothing sector, which are then transformed locally with the

addition of fake logos to produce counterfeits;

local production of counterfeited goods, particularly leather goods and shoes, copying the authentic models and

reproducing fake labels and logos;

local production of identiication marks (also boxes, labels and other objects) for the transformation of the inal

product into a counterfeit;

counterfeits being openly sold by small street traders in various market areas.

Source: Public Prosecution Service, Naples, 2017

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or parts thereof. The common roles include drivers, logistics support, storage keepers, front

men or women, couriers, distributors, and people securing the import and its transportation.

In addition, some group members are explicitly tasked with laundering the proits from the

criminal activity. These groups generally bring together several nationalities; they are highly

mobile and are usually active in several countries inside and outside the EU.

Certain criminal groups involved in counterfeiting consist of members linked by ethnic ties or

kinship. Groups composed of members of Asian origin remain especially active in the EU and

often take advantage of an extended network of contacts across Europe and in their countries

of origin. Such groups are particularly hierarchical, well organised and disciplined. They rely on a

strong concept of belonging and solidarity among members and potential ailiates. Moreover,

these groups are often poly-criminal and engage in other crime areas, such as traicking in

human beings or drug traicking.

However, family-based OCGs tend to have a more egalitarian approach towards their members.

They usually have similar functions and importance in the group.

The majority of the identiied OCGs are large in size. They typically consist of more than 12

members, with 5-6 core members on average. This may be explained by the number of

diferent tasks within the supply chain that have to be carried out.

Use of expertise

The level of specialisation, and the need for it, varies throughout the stages of the illicit activity.

The production and import of counterfeit goods, unlike distribution, often require speciic

expertise. For instance, OCGs make use of chemists for the production of certain goods, such

as counterfeit pharmaceuticals or pesticides. Some criminal groups also seek specialists at

later stages of their activity, primarily to develop and manage their illicit businesses. Financial

experts, lawyers or other specialists with a strong knowledge of EU trade and migration law

tend to be used in advisory roles. The increasing importance of online trade also requires a

speciic set of IT skills. However, the oline distribution of goods does not involve any particular

expertise and can be widely carried out by non-professionals.

In the area of piracy, IT specialists are used to create and manage sharing and streaming

platforms. They also establish a network of uploaders (people who contribute the IPR-infringing

content), who are paid depending on the quality of supplied product, linked to the number of

downloads. In some very limited cases, coding, knowledge of malware and speciic software

used for illicit inancial transactions can be in demand.

Generally, the overriding purpose behind the involvement of experts and specialised tools is to

perfect the criminal activity and avoid detection.

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In May 2016, a criminal network specialised

in the illegal distribution of pay TV channels

was dismantled in Spain. The OCG imported

decoders from China and was able to design the

irmware used to decrypt the TV signals and use

internet protocol television (IPTV) technology

to illicitly distribute over 1 600 TV channels.

The group displayed a high level of expertise,

operating through a complex network of

shell companies and laundering its proceeds

through bitcoin (XBT) mining. The operation led

to the arrest of 30 suspects, the dismantling of 6

bitcoin mining centres, with XBT 78.3 (value EUR

31 320), and the seizure of 48 800 decoders, signiicant amounts of cash and bitcoins, as well as IT

equipment, luxury vehicles and a private plane.

Europol Press release, 25 May 2016, ‘Spanish network behind the illegal distribution of pay TV

channels’

Business models (OCGs)

The modi operandi in counterfeiting and piracy have partially changed over the past few years

and are expected to evolve further in the future. The growing role of technology and online

trade shapes the new dynamics within this crime area. Almost every stage of organised criminal

activity can be increasingly inluenced by technological developments. This only proves that, to

a certain extent, the evolution of the trade in counterfeit products resembles the evolution

seen in the legal business sector.

A digital business

Technology continues to facilitate the organisation and coordination of criminal activities.

Communication between members of criminal groups is no longer conined to telephones and

the internet, but also increasingly relies on encrypted communication tools and anonymisation

software. In some cases, malware, stolen payment cards and bitcoins have been reported to

be at the disposal of criminal groups. With increased accessibility of technologies, criminals

tend to have very limited personal contact with each other, even when counterfeit goods are

moved and transported.

This is particularly true for the procurement of counterfeit goods. The internet greatly enables

contacts with providers or manufacturers of goods located in other countries, often in Asia.

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Businesses run by criminals increasingly develop and maintain online trade relations with

manufacturers in source countries. Transactions are now often exclusively inalised via the

internet, without the necessity of travelling to the source country to negotiate and conclude

the trade deal. An example of one EU-based OCG shows how easily available technology has

contributed to the cost-eiciency of its operating methods. In that case, trade deals were

inalised between Europe and Asia entirely digitally. Pictures of counterfeit goods, including

clothing, shoes, watches, perfumes and pharmaceutical products were sent to the mobile

phones of the criminals. Following price negotiations, the goods were also ordered by mobile

phone. These transactions were quickly concluded and did not require any personal contact

between the parties involved.

Distribution and sales follow a similar approach. Online marketplaces have become key

distribution channels for counterfeit goods. Fake products are sold on major, widely available

and trusted platforms, or by online pharmacies. Even space in containers can be purchased on

some of the well-known online marketplaces.

Thousands of internet websites ofer IPR-infringing merchandise.

In 2016, Operation In Our Sites (IOS) VII resulted in the seizure of 4 780 domain names and

associated online shops selling counterfeit merchandise. It led to the arrest of 10 people and seizure

of goods worth over EUR 1.75 million. The operation tackled copyright-infringing websites and third-

party marketplace listings selling luxury goods, sportswear, spare parts, electronics, pharmaceuticals,

toiletries and other fake products.

Europol Press release, 28 November 2016, ‘Over 4 500 illicit domain names seized for selling

counterfeit products’

An increase in online trade ofers numerous advantages for criminal groups. Counterfeit goods

are available to a large number of potential buyers and as a result, stable proits for OCGs

are ensured. Secondly, the internet allows for greater anonymity of sellers and possibilities of

covering their tracks. The borderless nature of the internet is instrumental in facilitating criminal

activities that, to a large extent, take place internationally. A website may be registered in one

country, the bank account for payments in another, consignments are sent from yet another

country — all of these elements can be easily coordinated by criminals that do not reside in

any of these countries. It is also relatively easy to introduce counterfeit goods into the online

marketplace. They can enter undetected and become part of the broad range of products

already available online, on numerous e-shops and platforms. Consumers buying from online

platforms provide their own product speciications and have access to a greater variety of

counterfeit products. The counterfeit goods sold on the internet are usually distributed in small

parcels via postal and express freight services, often directly to customers.

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The online distribution of counterfeit pharmaceutical products is particularly dangerous. In 2016,

Europol supported Operation Pangea IX, led by Interpol, which speciically targeted online vendors

of counterfeit medicines. It led to the arrest of 393 suspects, the seizure of potentially dangerous

medicines worth more than USD 53 million and the suspension of 4 932 websites selling illicit

pharmaceuticals. The seized items ranged from lifestyle medicines, hormones, life-threatening fake

cancer medication to various types of medical devices, including substandard HIV and diabetes

testing kits, counterfeit dental equipment and illicit surgical equipment.

The operation also targeted the main areas exploited by organised crime in the online medicine

trade: rogue domain name registrars, electronic payment systems and delivery services.

Europol Press release, 10 June 2016, ‘Online sale of fake medicines and products targeted in

Operation Pangea’

Counterfeiters are also well aware of the importance of online marketing. They tend to use

social media platforms to advertise their products and steer potential consumers to online sales

platforms. On the other side of the advertising industry, websites selling IPR-infringing products

also inancially beneit from the advertisements. Sometimes, even famous brands unconsciously

publish their advertisements on such websites, causing damage to their reputation and

bringing no return on investment

. Such practices are risky as the advertisements placed on

commercial-scale IPR-infringing websites and apps may lead to malware or spyware. Both the

brands and advertising companies bear some responsibility in this regard. The legitimacy of

online platforms should be duly veriied in order to prevent or minimise any additional revenue

for IPR-infringing websites.

The internet is borderless and online trade in counterfeit goods afects all EU countries and

increasingly all products.

An illegal mirror economy

The trade in counterfeit goods continues to resemble the licit trade. First of all, criminal groups

tend to operate like businesses, following the logic of trade and aiming to increase their

efectiveness and proits. In order to succeed, illicit trade, very much like the trade in legitimate

goods, has signiicantly shifted to online marketplaces. It also increasingly makes use of online

advertising and other efective sales techniques. Secondly, criminals, driven by inancial proit,

are capable of expanding their activities by engaging in sales of a broader range of counterfeit

products, diverting fake goods from one country to another or even shifting to other crime

51 - OHIM,

Digital advertising on suspected infringing websites,

OHIM, Alicante, 2016. Available at: https://euipo.europa.eu/ohimportal/

documents/11370/80606/Digital+Advertising+on+Suspected+Infringing+Websites.

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areas. For the very same reason, improving proitability, intra-EU production continues to attract

criminal groups. It reduces transportation costs and lowers the risks of detection by customs.

Thirdly, like successful legitimate businesses, OCGs involved in IP crime continue to adapt to

the changes in the environment they operate in. They remain well informed about trade laws

and customs procedures and use loopholes in the system to increase their inancial proits.

Criminal groups continue to monitor market demand and diferences in prices of products

across the EU in order to move counterfeit products quickly from one country to another.

Finally, similarly to legitimate companies, criminal groups involved in IP crime rely heavily on

commonly used business structures in order to carry out their activities efectively.

Legal business structures and iniltration of the legal supply chain

Criminal groups continue to set up or iniltrate existing legal business structures. In order to

operate, they tend to establish numerous multipurpose companies to organise import/export,

transportation, delivery and distribution of goods. The process of setting up such companies

is often facilitated by the use of illegally obtained documents, such as visa or work permits, or

fraudulent identity cards.

To diminish their liability whilst developing and maintaining illegitimate business links with

manufacturers in other countries, criminals often rely on various front companies. These companies

often incorporate a well-known brand name with the intention of misleading the customers.

Generally, these business structures are often used to merge legal and illegal proits and to

maintain a facade of legitimacy.

Criminals iniltrate legitimate supply chains at diferent levels, often by means of fraudulent

documents and/or corrupt practices. They are also specialised in diverting trade from one

country to another based on the diferences in demand and price of products. Diverted

counterfeit pharmaceuticals pose a special risk. To enter the supply chain in another country,

where prices for medicines are higher, they are often repacked and contain translated

instruction lealets. Criminal groups also insert counterfeit products into discarded genuine

packaging, in order to introduce them into the legitimate supply chain.

OCGs may also iniltrate production lines and wholesalers. Wholesalers and semi-wholesalers

are weak points, especially for counterfeit technical products, such as fake semiconductors

or ball bearings. Some cases have highlighted that even a secure supply chain of oicial

wholesalers or major international companies can be abused by criminal groups and result in

companies unintentionally purchasing counterfeit products.

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In June 2016, one of the biggest online sellers of counterfeit products was arrested in the Spanish

province of Malaga. The individual, originating from Italy, specialised in the distribution of high

volumes of counterfeit sport items. The economic damage to one brand alone was estimated to

reach EUR 2 million. The ofender would establish contact with potential clients via online platforms

and provide them with samples for which a deposit was paid. After conirmation of the purchase, the

goods would be delivered and the payment inalised. Investigations revealed links with legal business

structures in Brazil, China and Hong Kong for sourcing materials and laundering the criminal proits.

Europol press release, 29 June 2016, ‘One of Europe’s biggest online sellers of counterfeit products

arrested’

Easy access to resources

To be able to carry out such a variety of activities, criminal groups need stable access to resources.

However, this does not seem to pose any major diiculty for criminals. Widely available and

afordable information and communication tools increasingly facilitate their activities. Being in

possession of properties, often used as warehouses, and vehicles, used for transportation of

goods, makes it easier for criminals to operate. In addition, capability to recruit new members

ensures smooth running of the criminal business. Last but not least, OCGs are able to inance

their actions. Their capital has often been obtained from other criminal activities.

Poly-criminality

The example of inancial resources derived from other criminal activities reinvested in IPR crime

shows the typical poly-criminal nature of crime groups involved in this area. They frequently

engage in other criminal activities, mostly in drug traicking, excise fraud, human traicking

and money laundering.

In addition, criminals acting as distribution networks tend to traic more than one illicit product.

Their portfolio is diverse and often includes the distribution of other illegal product types, such

as illicit drugs.

Even OCGs that are exclusively dedicated to IPR crime often need to rely on VAT fraud and

acts of corruption in order to operate. Money laundering is also frequently an indispensable

element of IPR crime.

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2017 Situation Report on Counterfeiting and Piracy in the European Union

In 2015 and 2016, Europol supported an operation targeting an Italian OCG selling counterfeit

champagne in various Member States. Investigations in Italy and Germany revealed that one of the

main suspects was also involved in the traicking of cocaine.

During house searches in Germany, investigators seized more than 12 000 bottles of fake champagne.

The investigation also uncovered links to VAT and excise fraud.

Europol, SOCTA 2017

Document fraud

Document fraud continues to play a key enabling role in traicking of counterfeit goods to the

EU. Fraudulent documents are widely used to facilitate the transportation, distribution and sale

of counterfeit goods.

For the purpose of importation, counterfeiters provide false shipping documents, such as bills

of lading, to conceal the content of containers of packages and the origin of shipments. They

often use false invoices issued for imported goods in declarations to customs. This practice is

also used to undervalue their imported products.

At the stage of distribution of counterfeit goods, fraudulent retail licences enable the iniltration

of the legitimate supply chain.

Generally, in order to run their illicit businesses, OCGs establish companies and bank accounts

using fraudulent identity documents or under the name of a front person, and regularly make

use of bogus invoices. The OCGs purchase or rent vehicles using fake documents. Number

plates of cars belonging to criminal groups are registered abroad or under a fake identity.

Corruption

Corruption also continues to greatly facilitate criminal activities in this area. For instance,

corrupting public servants enables the import and transit of counterfeit products. Issuance

of visa or work permits by corrupt oicials may also allow criminal actors to legally establish

companies involved in IPR crime. A network of brokers and agents uses corrupt practices to

iniltrate the legitimate supply chain, especially during distribution and sales. Bribes are also

used to persuade owners of legitimate businesses to cooperate with criminal groups along the

supply chain.

Criminal inances and money laundering

IPR crime proves to be a lucrative business. OCGs involved in counterfeiting and piracy regularly

launder their criminal proceeds. The capital is often moved through various bank accounts

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established in diferent countries, under diferent company names. OCGs make use of money

transfer services to move inances internationally and between the numerous bank accounts

of their companies.

Illicit inancial gains are often introduced into the legal economy, mostly through real estate

investments or purchases of luxury products and gold. Legal businesses, owned by criminals,

remain an essential element of money-laundering activities. They enable trade-based schemes

that do not often involve the physical movement of cash and provide a facade of legitimacy for

money transfers.

Some OCGs use their illicit proceeds to expand their criminal activity.

In December 2016, a criminal network involved in intellectual property crime and money laundering

was dismantled in La Junquera, Spain. The criminals imported clothing and accessories from

companies in various countries, mainly China, Portugal and Turkey. Some products, (leather goods

and belts) were counterfeited in Spain through the purchase of ‘white’ label products to which they

applied logos and names of recognised brands. The goods were distributed through legal retailers.

Secret warehouses concealed behind fake walls were used to hide the newest merchandise in the

event of police intervention. The network was structured in three homogeneous groups with no

clear hierarchical leader and operated in a perfectly coordinated way to share supply channels,

warehouses and money-laundering mechanisms. They relied on a sophisticated network of ictitious

companies and front persons to launder the proceeds of their criminal activities (estimated at EUR

9 million). Investigation led to the seizure of 150 bank accounts, 30 high-end vehicles, EUR 13 000 in

cash and about 265 000 products infringing intellectual property rights (textiles, footwear, watches,

sunglasses, leather goods and jewellery).

Europol press release, 9 December 2016, ‘Main European Union hub for distribution of counterfeit

goods dismantled’

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2017 Situation Report on Counterfeiting and Piracy in the European Union

CHALLENGES IN FIGHTING PRODUCT

COUNTERFEITING AND PIRACY

2017 SITUATION REPORT ON COUNTERFEITING AND PIRACY IN THE EUROPEAN UNION

The move online

The shift towards online trade in counterfeit goods poses new challenges for law enforcement.

The internet allows criminals to employ international operating methods. These increase the

challenges for cross-border investigations, and often hamper prosecutions in multiple jurisdictions.

Products sold online are frequently distributed in parcels via postal services. It remains

diicult to detect illicit goods within the increased overall traic of parcels. Criminals identify

this low-risk opportunity and exploit it to their advantage. Whilst sending counterfeit goods,

component parts or labels via postal services, criminal groups tend to use fraudulent identities.

This signiicantly complicates operational activities such as controlled deliveries and searches

performed by law enforcement. In addition, they seem to adjust the volume of their shipments

to reach the potential level of tolerance shown by customs and rights holders. One box of

counterfeit shoes may not necessarily lead to an investigation into IPR crime, as opposed to

one seized container of such products. Moreover, the increased intra-EU production has an

impact on the work of law enforcement. It has been reported that identifying and dismantling

domestic clandestine production facilities proves diicult, partly due to the efective methods

used by criminals to conceal their activities.

Techniques

Over recent years, criminal groups and individuals involved in IPR crime have developed a

good understanding of law enforcement techniques. They are able to regularly use various,

predominantly traditional, countermeasures. In the irst place, criminals aim to secure their

communications by regularly changing telephone numbers, using numerous foreign SIM

cards or prepaid mobile cards, and encrypted communication tools. They sometimes also

communicate using diferent dialects or codes.

Other operating practices regularly used by criminals also hamper the detections made by

law enforcement. For instance, OCGs often separately import and transport diferent parts

of counterfeit products to be assembled later. Counterfeit goods are also often shipped

together with genuine products. When transported in bulk in containers, they are usually

well hidden between other legally declared product types. To further conceal their criminal

activities, criminals frequently change vehicles, often hired or leased using fraudulent IDs,

and rely on cash payments not to leave any tracks of unlawful transactions. Such approaches

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require increasingly more time and resources invested by law enforcement authorities in

detection and investigation of IPR crime. However, this is often a challenge in itself, mainly

due to a continuously complex law enforcement landscape and particularly, the division of

the IPR-crime-related responsibilities and roles between various authorities in EU Member

States. More eicient coordination and collaboration between the relevant actors and better

streamlining of eforts are needed.

Powers

In certain MS, the relevant authorities still lack adequate powers to efectively tackle

counterfeiting. Under criminal procedures, they cannot seize counterfeit goods or start

investigations into IPR crime without the rights holder’s conirmation of the IPR infringement.

IPR holders might also opt for a civil procedure to enforce their rights in some instances. A

low number of criminal investigations may partially result in a fragmented intelligence picture

of IPR crime. The limited enforcement powers within the FTZ remain especially challenging.

Unspecialised or insuicient resources also hamper the eforts of law enforcement to prevent

and combat this crime.

Acceptance

Over recent years, customers of counterfeit goods have developed a higher level of tolerance

towards this crime. Due to the perceived low inancial damage and apparent common social

acceptance of the phenomenon, they may sometimes refrain from reporting these incidents

to the authorities. Consequently, they remain uninvestigated.

Generally, a lack of satisfactory enforcement, combined with low sanctions for IPR crime

continue to attract OCGs into this crime area.

Priorities

The threat and prevention of terrorist acts in their many forms, as well as addressing other

serious organised crimes, often overshadow other priorities. IPR crime nevertheless continues

to be one of the most lucrative criminal enterprises, and the fact that the illegal funds generated

have been linked to organised crime means that tackling IPR crime should remain on the EU

law enforcement and policymaking radars, not least to deprive those involved in other criminal

enterprises of their revenue streams.

Customs focus

The number of overall detentions at the external borders has remained relatively stable in

recent years, indicating that customs administrations may be working close to their maximum

capacities allocated to IPR enforcement. However, an overall reduction in customs resources,

along with the fact that they are facing the challenge of processing ever-increasing numbers

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of small packages, could cause the total amount of counterfeit products entering the EU to

remain stable.

Penalties

Criminal sanctions for trade mark and copyright infringements remain a matter for MS

individually and the measures available difer.

The average maximum number of years that a defendant can be sentenced to for trade mark

infringements is four

. The average maximum ine (derived from submissions from 12 MS)

amounts to EUR 126 691. For copyright ofences, the maximum period of imprisonment is

again on average four years and the maximum average ines stood at EUR 120 183.

Certain MS have the capacity to apply substantial punitive measures for the commission of IPR

crime. Indeed, some theoretically have the power to levy very substantial sanctions. However,

the above penalties apply only in the most severe and often repeat levels of commercial scale

IPR crime, and at the lower end of the spectrum, where it is a irst ofence or there are other

mitigating circumstances, sentencing in some MS stands at short-term imprisonment, often

suspended, or a ine of as little as EUR 38.

IPR crime is not only attractive to criminals as the sentences are low, but in addition, with the

prospect of punishing a defendant with a ine of EUR 38 or one month’s imprisonment (if at all),

pursuing such cases may not have great appeal for prosecutors or investigators in some MS

and therefore, some cases may not come to court in the irst place.

Storage and destruction

When an IPR-infringing seizure is made, the illegal products and the associated packaging

must ultimately be destroyed, subsequent to being stored (securely and potentially for a

long period) and used as evidence in legal proceedings. In over 90 % of the external border

seizures performed by EU customs in 2015, the goods were either destroyed, or the rights

holder initiated a court case to establish IPR infringement, usually resulting in destruction, and

constituting a inancial commitment

Regarding destruction costs in criminal proceedings, the MS usually bore the inancial burden,

but in customs proceedings it was the rights holder that was frequently liable for the costs of

both storage and destruction. Where storage and destruction costs could be recovered by the

MS, signiicant diferences were found in the level of restitution.

52 - EUIPO, Seminar for Intellectual Property Rights and enforcement judges and prosecutors, held in May 2016.

53 - European Commission, Directorate-General for Taxation and Customs Union,

Report on EU customs enforcement of intellectual

property rights: results at the EU border 2015,

2016, p. 7. Available at: https://ec.europa.eu/taxation_customs/sites/taxation/

iles/2016_ipr_statistics.pdf.

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Article 29 of Regulation (EU) No 608/2013 attempted to address these variations in storage

and destruction costs and policies by decreeing that customs authorities may decide that the

holder of the decision should reimburse all the costs incurred by the customs authorities in

taking action to enforce his or her intellectual property rights.

Industry concern focuses mainly on the possibility that rights holders, be they large companies

or SMEs, may not be prepared, or could not aford to pay for storage and destruction costs

in the more expensive MS. Although enforcement of IPR under the rules of Regulation (EU)

No 608/2013 is a cost-efective measure for rights holders to protect their rights, due to the

fact that there is no fee for submitting an Application for Action (AFA), the obligation for rights

holders to bear the storage and destruction costs, along with the lack of control over the

costs, may deter some of them from submitting the AFA. The danger of this is that counterfeit

goods may enter the EU undetected as the authorities have not been alerted to the potential

existence of illicit consignments.

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2017 Situation Report on Counterfeiting and Piracy in the European Union

WHAT IS BEING DONE

2017 SITUATION REPORT ON COUNTERFEITING AND PIRACY IN THE EUROPEAN UNION

Despite the complex challenges, there are many initiatives and good practices aiming to

address them.

OECD-EUIPO studies: improved understanding

The successful launch of the joint OECD-EUIPO report on Trade in Counterfeit and Pirated

Goods (the 2016 Study) has triggered the attention of numerous public stakeholders. Follow-

up topics to be analysed from 2017 to 2018 are the role of FTZs in the process of illicit trade,

postal and courier/express distribution streams of illicit trade, as well as an analysis of illicit

trade conducted via the internet. Furthermore, selected in-depth quantitative investigations in

the area of trade in counterfeit and pirated products will be produced. The planned work will

result in four main, stand-alone, joint OECD-EUIPO studies, addressing the main intelligence

gaps in the area of IPR.

It will be undertaken as an activity of the OECD Task Force on Countering Illicit Trade in the

context of the OECD High Level Risk Forum in collaboration with other relevant OECD bodies,

including the Committee on Industry, Innovation and Entrepreneurship (CIIE), international

organisations (such as the WCO, WIPO, Europol and Interpol), civil society and, private

stakeholders.

Europol Intellectual Property Crime Coordinated Coalition (IPC3) and EUIPO enforcement

tools: supporting the work of national law enforcement authorities

To strengthen the ight against counterfeiting and piracy online and oline, Europol and the

EUIPO joined forces to launch the Intellectual Property Crime Coordinated Coalition (IPC3) in

July 2016.

The IPC3, located at Europol and funded by the EUIPO, provides operational and technical

support to law enforcement agencies and other partners in the EU and beyond. Among other

activities, it facilities and coordinates cross-border investigations, monitors and reports online

crime trends and emerging modi operandi, raises public awareness of this type of crime and

provides training to law enforcement oicers on how to combat it. Currently, the IPC3 supports

more than 50 IPR-infringing cases, all classiied as high priority. The operational and technical

support provided by the IPC3 to law enforcement agencies and other partners is increasing

steadily

54 - https://www.europol.europa.eu/about-europol/intellectual-property-crime-coordinated-coalition-ipc3.

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The Enforcement Database (EDB)

The EDB is built on existing EUIPO databases, such as TMview for trade mark information and

DesignView for registered Community designs. It is endorsed by the European Commission,

which has agreed to connect it to their EU customs’ secure network.

Customs authorities from the 28 MS currently use the EDB, as do a number of national police

authorities. They can view information and product details, making it easier for them to identify

counterfeits and take action. The database is integrated with the EU law enforcement agency,

Europol, and the European anti-fraud oice, OLAF.

Companies from various sectors of industry doing business in the EU are already using the

database — from small businesses to multinational corporations

Anti-Counterfeiting Intelligence Support Tool (ACIST)

The EUIPO, through the Observatory, works with EU enforcement authorities to establish best

practices in data collection across the EU. ACIST converts the collected data into a harmonised

format so that it can be compared and aggregated. Currently, ACIST provides information on

the counterfeited and pirated goods detained at all EU MS borders. It also provides information

on the national markets of 17 Member States. ACIST is a good source of information, also used

for the purpose of this report in order to present a comprehensive picture of IPR infringements

across the EU.

Virtual Training Centre (VTC) on IPR

Based and located on the CEPOL

e-net, as of October 2017, the VTC on IPR will ofer learning

content and other useful material provided by the EUIPO and its partners. It is designed for

students from law enforcement authorities of the EU Member States enforcing IP rights at

national and local level (police and customs oicers, prosecutors, judges and market inspectors).

Learning content will be organised in knowledge areas and levels: basic, intermediate and

advanced.

The VTC on IPR will also have an area dedicated to training the trainers. Learning content will be

ofered as e-learning modules, live and recorded webinars, presentations and video materials

Other useful materials cover reports and studies of the Observatory and other relevant EU and

international bodies.

55 - https://euipo.europa.eu/ohimportal/en/web/observatory/enforcement-database.

56 - CEPOL is the European Union Agency for Law Enforcement Training.

57 - https://euipo.europa.eu/tunnel-web/secure/webdav/guest/document_library/contentPdfs/about_euipo/the_oice/work_

programmes/EUIPO_Work_Programme_2017_en.pdf.

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2017 Situation Report on Counterfeiting and Piracy in the European Union

THREATS REVISITED

2017 SITUATION REPORT ON COUNTERFEITING AND PIRACY IN THE EUROPEAN UNION

The

2015 Situation Report on Counterfeiting in the EU

identiied a series of potential future threats

to EU IPR integrity and this section of the report will irst review developments in the ields

originally covered, before assessing any further issues that have arisen, or could materialise in

the coming years.

Tanger Med

Concerns were raised around the then uninished works to extend the size of Tanger Med

as an FTZ and free port by 2017, and the potential dangers that the FTZ could pose to EU IPR

integrity, given its proximity to Spain. It was thought that the extension of Tanger Med could

provide an opportunity for counterfeiters to tranship and prepare products for distribution in

the EU from just outside the borders.

Tanger Med is now believed to be operating close to the full capacity predicted but the full

impact of this facility so close to EU external borders in terms of IPR integrity has yet to be

quantiied. No noticeable increase in seizures from this region at the Spanish borders was

recorded in 2013–2015, with the vast majority of Spanish IPR-infringing cases emanating from

China and Hong Kong

Certiication labels

The misuse of certiication labels, not just in relation to safety and quality certiicates applied

to counterfeit or substandard industrial machinery, but also in the food and beverage sector,

was highlighted in 2015.

Depending on the product, or a product’s intended application, there are many organisations

globally with core competencies in safety and quality certiication. In many cases, evidence of

endorsement by one of these entities is compulsory by law. Counterfeiters therefore regularly

falsify these certiication marks and apply them to fake products to make them appear genuine.

One such organisation has recorded approximately 400 current known abuses of their

certiication labels or certiicates, through their being counterfeited and used illegally on unsafe

products

58 - DG TAXUD.

59 - http://www.tuev-sued.de/product-testing/_services/markets_and_competition/quality_and_test_marks/abuse_of_quality_marks/

black_list.

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It is evident therefore that the misuse and counterfeiting of certiication labels continues to be a

major issue for rights holders in a series of diverse industries, especially as such marks purport

to testify to the quality and safety of a product that, if counterfeit, is likely to be substandard

and potentially highly dangerous.

Organic and certiied origin food labels

In 2015, the food industry saw a growth in the abuse of ‘organic’ labels attached to products

that did not comply with the organic certiication but had higher retail prices, and a growth in

the misuse of such labels in the future was anticipated.

The value of falsely labelled geographical indication infringing (GII) products in the EU remains

high, with the main producers of the original products, such as Germany, Spain, France, Italy

and Greece, being the most afected by counterfeit labelled comestibles

. The products

afected included wine, other spirits, cheese, meat, fruit, vegetables and cereals

There were reported seizures of 16 618 items of such goods at the EU external borders in

2014, but very few in 2015. The current low number of AFAs concerning GII could also partly

explain the low number of customs detentions concerning this type of IPR. Regardless of the

fact that very few seizures were recorded, the risk of GII products remains substantial, but

potentially it is more a matter for domestic enforcement, because many of these goods are

manufactured and traded in proximity to the regions in which they claim to be legitimately

manufactured.

Doping products and food/herbal supplements

These products were identiied in 2015 as an increasing phenomenon in the EU, developing

in parallel with increased demand for lifestyle drugs and organic foods, EU MS started to see

growing seizures of doping products and food/herbal supplements arriving by parcel post.

Since 2013, when 2 062 items of foodstuf were intercepted as express courier traic, minimal

recoveries of such infringing product types in this, or any other, transport stream have

been recorded in the external border seizure statistics. Nevertheless, food and beverage

counterfeiting in its many forms is clearly still a serious issue for EU IPR integrity and consumer

welfare.

60 - EUIPO, Infringement of protected geographical indications for wine, spirits, agricultural products and foodstufs in the European

Union, EUIPO, Alicante, 2016, p. 7. Available at: https://euipo.europa.eu/tunnel-web/secure/webdav/guest/document_library/

observatory/documents/Geographical_indications_report/geographical_indications_report_en.pdf.

61 - EUIPO, Infringement of protected geographical indications for wine, spirits, agricultural products and foodstufs in the European

Union, EUIPO, Alicante, 2016, p. 7. Available at: https://euipo.europa.eu/tunnel-web/secure/webdav/guest/document_library/

observatory/documents/Geographical_indications_report/geographical_indications_report_en.pdf.

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In September 2015, a joint US Drug Enforcement Administration and Europol operation targeted

every level of the illegal anabolic steroid industry — from the manufacturers in China to the traickers

that market the lethal doses in Europe and beyond.

In total, 135 000 steroid dosage units were seized, as well as 636 kg of raw steroid powder of

Chinese origin. USD 2 million and assets were also seized, and dozens of search warrants were

executed on targets, resulting in 92 arrests and the seizure of 16 rogue steroid laboratories. Raw

ingredients, equipment and instructions on how to make complex, illicit and potentially dangerous

pharmaceuticals are often found in these underground steroid laboratories. The above products

are frequently obtained by the criminals on the internet from Chinese chemical manufacturing

companies.

Europol, Operation Underground 2015

Other foodstuf and beverage infringements

In 2016, EUR 1.3 billion of revenue and taxes were directly lost annually to the MS through such

IPR infringements, along with EUR 3 billion of lost sales to the EU economy, and job losses of

about 23 400

This type of IPR infringements continues to pose a threat. The methods are increasingly diverse,

and range from the abuse of geographical indications to more traditional counterfeiting, such

as reilling high-end bottles from recognised producers or the use of fake labels and packaging.

62 - EUIPO,

The economic cost of IPR infringement in spirits and wine,

EUIPO, Alicante, 2016, p. 5. Available at: https://euipo.europa.eu/

tunnel-web/secure/webdav/guest/document_library/observatory/resources/research-and-studies/ip_infringement/study8/wines_

and_spirits_en.pdf.

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In 2016, an illicit alcohol production and a distribution network were identiied in Greece. Three

illicit factories counterfeiting famous brands of alcohol were dismantled. The alcohol was produced

in Greece using genuine empty bottles smuggled from Bulgaria; in all, 7 439 bottles and 4 000

counterfeit labels were seized. Investigation revealed collusion between the producers and another

criminal network led by the deputy director of a chain of of-licence shops. Both criminal groups

developed a partnership to distribute the illicit bottles. The alcohol, mainly whisky and vodka, was

sold in bars and night clubs in the Attica region.

More widely, the joint Europol-Interpol Operation Opson V ran over the course of four months

(November 2015-February 2016) across 57 countries. It resulted in the total seizure of 11 131.18

tonnes, 1 449 056.40 litres and 5 549 328 units of either counterfeit or substandard food and

beverages, as a result of checks carried out at shops, markets, airports, seaports and industrial

estates across the globe.

Europol-Interpol, Report Operation Opson V, October 2016.

In February 2016, Italian Guardia Di Finanza found over 9 000 bottles of counterfeit Moët & Chandon

in Padova, describing the seizure as ‘one of the most signiicant seizures of counterfeit bubbly in

Europe’. The illicit batch was estimated to have a potential resale value of EUR 350 000, making it one

of the largest seizures of counterfeit champagne in Europe. Along with the fake Moët & Chandon

bottles, 40 000 counterfeit labels were also discovered, estimated to be worth a further EUR 1.8

million, if they had been used to produce further counterfeit bottles.

Guardia Di Finanza, 2016

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2017 Situation Report on Counterfeiting and Piracy in the European Union

3D printing

The

2015 Situation Report

identiied 3D printing as a possible emerging threat, both in terms of

the opportunity these devices could aford counterfeiters to produce illegal replicas of existing

objects, and the potential for entities currently involved in the production of conventional

counterfeit toner cartridges to diversify into producing fake raw materials for use with 3D

printers.

Many of the concerns expressed have yet to materialise however, largely due to the fact

that in the most part, current 3D-printing technology lends itself more to low-volume, time-

consuming and, arguably, costly manufacture. In order for a counterfeit product to be viable, it

would generally need to be produced in high volumes, at a low cost and quickly, none of which

are features of most current 3D-printing solutions available publicly. That is not to say that

‘counterfeits’ have not already been seen however.

In 2015 Nintendo iled a patent for a new digital games controller, to be launched alongside the

company’s new system in 2016.

Soon afterwards, rumours of the device’s revolutionary design and pending launch began to circulate

on digital gaming forums and associated social media. As interest grew, photos of the device, looking

remarkably similar to the patent previously iled by Nintendo, were subsequently uploaded by

diferent Reddit users.

Those products were counterfeits, created with the use of 3D-printing technology.

They were not functional or intended as counterfeits in the traditional sense, but nevertheless, the

cases demonstrate that if IPR criminals are willing to apply themselves, as the technology inevitably

becomes more accessible, afordable and expeditious, 3D printing has the potential to pose an

increasing threat to IPR integrity in the future.

Source: Polygon, ‘A pair of elaborate fakes convinced the internet this was the Nintendo NX controller’, March

2016, http://www.polygon.com/2016/3/25/11303690/nintendo-nx-controller-hoax. Last accessed 2 May 2017.

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OUTLOOK

2017 SITUATION REPORT ON COUNTERFEITING AND PIRACY IN THE EUROPEAN UNION

More changes to IPR crime business models are expected in the future.

The trade in counterfeit goods will continue to increasingly take place online. Equally, online

marketplaces will become even more popular with a wider group of customers. The range

of counterfeit goods sold online is expected to further broaden and diversify. In addition, the

use of social media for advertising counterfeit products is expected to continue in the future.

Online marketing will be even better directed at the ever-increasing number of internet and

particularly, social media users.

Many of the counterfeit goods that are sold online will continue to be distributed in parcels

via postal services. Due to reinforced checks and monitoring of the express freight couriers,

counterfeiters may make increased use of postal freight. Targeting and controlling suspicious

shipments in postal freight are a great challenge however, as not only are there implications

for law enforcement resources, but also, unlike freight, express couriers and postal services are

not managed by an integrated operator and include parcels from diferent companies.

The increasing digitalisation of the trading and transport system may bring new opportunities

for OCGs in future. The more widespread use of electronic bills of lading may be increasingly

exploited by criminals and lead to other risks such as hacking or e theft. Replacing paper-based

transport and customs procedures with electronic ones does not eliminate all kinds of possible

abuses by OCGs, even though, through the use of electronic risk analysis systems, customs are

in a better position to identify illicit cases.

In terms of new transport methods, trains may become more frequently used in future.

In January 2017, London became the 12th European city to be directly linked to China by freight

train and currently, there are 39 lines connecting Europe with 16 Chinese cities, all ofering freight

services

. With cargo trains ofering logistics solutions between China and the EU for nearly half

the price of air freight, which take approximately half the time of traditional container shipping,

the rail solution would appear to be a logical choice for many counterfeit consignments. Add to

this the number of EU destinations that are now directly served and the potential opportunity to

oload infringing goods en route, then the very low number of rail-borne seizures reported at the

external borders to date appears somewhat discordant. As rail freight services between the EU

and China become more numerous and eicient, and China develops its Belt and road transport

infrastructure, which are planned for the coming years, it is thought likely that increasing numbers

63 - Webb, J.,

The New Silk Road: China launches Beijing-London freight train route,

Forbes.com, New York, 3 January 2017. Available

at: https://www.forbes.com/sites/jwebb/2017/01/03/the-new-silk-road-china-launches-beijing-london-freight-train-

route/2/#6d93fe447446.

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2017 Situation Report on Counterfeiting and Piracy in the European Union

of IPR-infringing consignments may arrive at the eastern EU external borders by train from where,

if they are not intercepted, they could then travel throughout Europe.

Fully automated self-storage facilities may also be exploited by criminal groups in future and

increasingly used for more anonymised trade, reducing the risks of detection.

Moreover, criminal groups will continue taking advantage of the Darknet. They will use it to

communicate and exchange information between members. Trade in counterfeit products

may increasingly take place on the Darknet. This can be partially explained by the increasing

oversight and control measures against IPR crime taken by intermediaries, such as online sales

platforms and social media on the open internet.

Document fraud and money laundering will continue to facilitate illicit trade in counterfeit products.

Criminal groups will make regular use of fraudulent documents at diferent stages of their activity,

particularly during transportation, distribution, iniltration of the legitimate supply chain and retail.

Money laundering will be consistently used to introduce the proceeds of crime into the legitimate

economy. Proits will be increasingly obtained via online trade and as a result, more technologically

advanced methods of money laundering are expected to be used in the future. In order to react to

these changes, the ‘follow the money approach’ will need to be implemented increasingly in order

to identify and disrupt the money trail of commercial-scale IPR-infringing activities. This will require

closer cooperation and information exchange, including on suspicious transactions potentially

linked to IPR crime, between law enforcement and private companies, and banks.

Adequate legislative measures will continue to play a crucial role in the ight against IPR crime.

The 2016 European Union trade mark regulation brought signiicant changes to the protection

of trade marks in the EU. In particular, the right to prevent the entry of goods infringing European

Union trade marks that are in transit and are destined for third countries could have a positive

impact on the seizures of counterfeit products in the EU. The legal situation at the national

level, and especially whether IPR crime is handled in administrative or criminal proceedings, is

expected to have an impact on the efectiveness of the ight against such activity.

In parallel, criminal groups will continue to exploit all possible legal loopholes in order to carry

out or expand their illicit activities. They stay informed of legislative developments and adapt

quickly to changes in the environment. Any future change in legislation or trade agreements

may have an impact on the dynamics of this crime area.

With the increased involvement of technology, IPR crime is expected to become more complex

and diversiied. Therefore, in order to tackle the new challenges, a stronger partnership

between private and public partners is necessary. The role of intermediaries, such as postal

and packet services, online sales platforms, the advertising industry, payment service providers,

transport companies and shippers, will be instrumental in combating IPR crime. Better

information exchange between law enforcement and some of the private industries, such as

express couriers, money transfer services or payment service providers, will contribute to a

more efective ight against IPR infringements.

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CONCLUSIONS

2017 SITUATION REPORT ON COUNTERFEITING AND PIRACY IN THE EUROPEAN UNION

IPR-intensive industries proved resilient during the economic crisis, which demonstrates the

economic value and importance of these sectors and the key role that IPR protection plays in the

EU.

This type of illegal activity is increasingly attractive for criminal enterprises, and counterfeiting and

allied IPR infringements are now considered ‘global industries’.

IPR crime impacts on businesses, reducing inancial resources that can be reinvested in research

and thus threatening future growth.

IPR infringing food and beverages pose a speciic risk to health, as do toys. Counterfeit components

are also a concern, as there are serious safety implications.

Labels and packaging are being imported increasingly, which allows the subsequent EU internal

production of counterfeits.

Seizures at the EU external borders are estimated to be only a small part of the total amount of

imported counterfeited goods, and enforcement against larger IPR-infringing shipments continues

to be of great importance.

China remains by far the main country of provenance for counterfeit products. Hong Kong’s

shipping terminals and airport are transit points for goods manufactured in China.

Turkey is another important hub for counterfeits, which enter the EU through large truck

consignments.

Thailand and Singapore were the provenance of large numbers of small-scale consignments,

potentially indicating the presence of e shops in these territories or of distributors.

Organised criminal groups are infringing IPR heavily in the EU, organising importation, transportation,

storage and distribution. Some are also manufacturers.

These groups linked to IPR crime are typically poly-criminal, and are also involved in other criminal

activities, often related to the distribution of illegal commodities such as illicit drugs as well as

document fraud and corruption. Money laundering is often an indispensable element of their

business model, along with corruption and document fraud, which greatly facilitate criminal

activities in this area.

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2017 Situation Report on Counterfeiting and Piracy in the European Union

Online marketplaces have increasingly become key distribution channels for counterfeit goods.

Products sold online are subsequently distributed via parcel and postal services. The digitalisation

of the trading and transport systems will continue to afect the IPR crime landscape. Criminals will

take advantage of methods to anonymise their activity, from self-storage facilities, to the Darknet.

Piracy is an activity that will have to be monitored closely in the future. The unauthorised online

dissemination of protected content is a major concern. The illegal use of television broadcasts also

poses a challenge. Fraud in this ield is often also connected to acts of digital piracy.

The growing use of cargo train transport between China and the EU is a concern and there are

many reasons why IPR infringers could exploit trains as a means of conveyance.

Technologically, IPR crime is expected to become more complex and diversiied. In order to tackle

it more efectively, cooperation between all stakeholders should be a focus.

A global focus on other areas of criminality and terrorism has resulted in a drop in IPR crime as an

enforcement priority. Nevertheless, IPR crime continues to be one of the most lucrative criminal

enterprises, and this report has shown how it is frequently closely linked to other serious crimes.

Any eicient response to IP crime requires total cooperation between all stakeholders.

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SELECTED ABBREVIATIONS

2017 SITUATION REPORT ON COUNTERFEITING AND PIRACY IN THE EUROPEAN UNION

ACIST

CEPOL

CIIE

DG TAXUD

EDB

EPO

EUIPO

Europol

FAP

FTZ

IPC3

IPR

IPTV

ISFE

NCTS

Observatory

OCG

OHIM

PIPCU

SOCTA

STB

UK IPO

VOD

VPN

VTC

WCO

WIPO

Anti-Counterfeiting Intelligence Support Tool

European Union Agency for Law Enforcement Training

Committee on Industry, Innovation and Entrepreneurship

Card sharing

Directorate-General for Taxation and Customs Union

Enforcement database

European Patent Oice

European Union

European Union Intellectual Property Oice

European Union Agency for Law Enforcement Cooperation

Federación para la protección de la propiedad intelectual

Free trade zone

Harmonised product description and coding system

Europol Intellectual Property Crime Coordinate Coalition

Intellectual Property Rights

Internet protocol television

Interactive Software Federation of Europe

Member States

New computerised transit system

European Observatory on Infringements of Intellectual Property Rights

Organised crime group

Oice for Harmonisation in the Internal Market

British Police Intellectual Property Crime Unit

EU Serious and Organised Crime Threat Assessment

Set-top box

UK Intellectual Property Oice

Video on demand

Virtual private network

Virtual Training Centre

World Customs Organization

World Intellectual Property Organization

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2017 Situation Report on Counterfeiting and Piracy in the European Union

SELECTED REFERENCES

2017 SITUATION REPORT ON COUNTERFEITING AND PIRACY IN THE EUROPEAN UNION

Alfadhel, L., ‘TRIPS and the Rise of Counterfeiting: a comparative examination of trademark

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Annual Report 2014-2015,

Australian

Government, Department of Immigration and Border Protection, Canberra, 2016.

Babcanova, D., ‘Transport of Counterfeit Goods’,

Acta Logistica,

Vol. 1, No 3, $s go., Semsa, Slovak

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Caunic, I., et al., ‘The Market for Counterfeit Goods and Financing of the extremist Organizations

in Europe in the Last Decade’,

IPEDR,

Vol. 17, IACSIT Press, Singapore, 2011

Chaoudry, P. and Zimmerman, A.,

Protecting Your Intellectual Property Rights,

Heidelberg,

Springer, 2013.

Chinese Customs,

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2015.

DuBarry, S. and Ametova, E.,

The paradox of free trade zones: economic prosperity and transnational

crime,

Florida International University, Miami, 2014.

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strategies’,

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Globe Business Publishing, London, 2013.

EPO and OHIM,

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EPO Munich; OHIM, Alicante, 2013.

Ernst & Young LLP and FICCI,

Counterfeiting, piracy & smuggling: growing threat to national security,

EY and FICCI, New Delhi, 2013.

EUIPO,

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EUIPO,

Alicante, 2017.

EUIPO,

Infringement of protected geographical indications for wine, spirits, agricultural products and

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EUIPO,

Intellectual property rights intensive industries and economic performance in the EU,

EUIPO,

Alicante, 2016.

EUIPO,

Research on online business models infringing Intellectual Property Rights: phase 1,

EUIPO,

Alicante, 2017.

EUIPO,

The economic cost of IPR infringement in spirits and wine,

EUIPO, Alicante, 2016.

EUIPO,

The economic cost of IPR infringement in the pharmaceutical industry,

EUIPO, Alicante,

2016.

EUIPO,

The economic cost of IPR infringement in the smartphones sector,

EUIPO, Alicante, 2017.

EUIPO,

Trade in counterfeit and pirated goods: PowerPoint,

EUIPO, Alicante, 2016.

European Commission, Directorate-General for Taxation and Customs Union,

Report on EU

customs enforcement of intellectual property rights: results at the EU Border 2013,

Publications

Oice of the European Union, Luxembourg, 2014.

European Commission, Directorate-General for Taxation and Customs Union,

Report on EU

customs enforcement of intellectual property rights: results at the EU border 2014,

Publications

Oice of the European Union, Luxembourg, 2015.

European Commission, Directorate-General for Taxation and Customs Union,

Report on EU

customs enforcement of intellectual property rights: results at the EU border 2015,

Publications

Oice of the European Union, Luxembourg, 2016.

European Commission,

Report on the protection and enforcement of Intellectual Property Rights in

Third Countries, Publications Oice of the European Union,

Brussels, 2015.

European Sea Ports Organisation,

Trends in EU Ports Governance 2016,

ESPO, Brussels, 2016.

Europol,

Operation Opson V,

2016.

Europol, SOCTA:

EU Serious and Organised Crime Threat Assessment,

Publications Oice of the

European Union, Luxembourg, 2017.

Europol, Interim SOCTA 2015:

An update on Serious and Organised Crime in the EU,

2015

Europol, Early Warning Notiication:

New modus operandi on the transport of counterfeit goods,

2015

Europol, SOCTA:

EU Serious and Organised Crime Threat Assessment,

Publications Oice of the

European Union, Luxembourg, 2013.

Fleming, D. C., ‘Counterfeiting in China’,

East Asia Law Review,

Vol. 10, No 2, University of

Pennsylvania, Philadelphia, 2014.

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2017 Situation Report on Counterfeiting and Piracy in the European Union

GS1,

The need for global standards and solutions to combat counterfeiting,

GS1 AISBL, Brussels,

2012.

Hagger, G.,

Global impact of intellectual property crime and links to organised crime: PowerPoint,

2011.

HM Government,

Serious and organised crime strategy,

Home Oice, London, 2013.

Hong Kong International Airport,

Hong Kong Monthly Digest of Statistics,

January, Trade Statistics

Processing Section, Census and Statistics Department, Hong Kong, 2016.

International Chamber of Commerce (Business Action to Stop Counterfeiting and Piracy),

Anti-

counterfeiting 2014, 2015.

International Chamber of Commerce (Business Action to Stop Counterfeiting and Piracy),

Anti-

counterfeiting 2015: a global guide,

2015.

International Chamber of Commerce (Business Action to Stop Counterfeiting and Piracy),

Controlling the zone,

2013.

International Chamber of Commerce (Business Action to Stop Counterfeiting and Piracy),

Roles

and responsibilities of intermediaries,

2015.

International Electrotechnical Commission,

Piracy in electrical and electronic products,

IEC,

Geneva, 2014.

International Trademark Association,

Criminal Prosecution of counterfeiting and piracy in MS of

the EU,

2010.

IP Crime Group,

IPR Crime Report: 2013/14,

IP Crime Group, Newport, 2014.

Japan Customs,

2015 Seizure Statistics of IPR Border Enforcement,

Customs and Tarif Bureau,

Tokyo, 2016.

KPMG and AGMA,

Managing the Risks of Counterfeiting in the Information Technology Industry,

2005.

National Association of Foreign Free Trade Zones,

Zones report,

NAFTZ, Washington, 2014.

National Crime Agency,

National Strategic Assessment of Serious and Organised Crime 2015,

Crown

Oice, London, 2015.

National Crime Agency,

National Strategic Assessment of Serious and Organised Crime 2016,

Crown

Oice, London, 2016.

Observatory,

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EUIPO, Alicante, 2014.

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Observatory update on storage and destruction,

EUIPO, Alicante, 2014.

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Observatory,

The economic impact of IPR infringements in toys and games,

EUIPO, Alicante, 2015.

OECD/EUIPO,

Trade in counterfeit and pirated goods: mapping the economic impact,

Publications

Oice of the European Union, Luxembourg, 2016.

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2015 Out-of-Cycle Review of Notorious Markets,

2015.

OHIM,

The economic cost of IPR infringement in jewellery and watches,

OHIM, Alicante, 2015.

OHIM,

The economic cost of IPR infringement in sports goods,

OHIM, Alicante, 2015.

OHIM,

The economic cost of IPR infringement in the clothing footwear and accessories sector,

OHIM,

Alicante, 2015.

OHIM,

The economic cost of IPR infringement in the cosmetics and personal care sector: report of a

pilot study,

OHIM, Alicante, 2015.

OHIM,

The economic cost of IPR infringement in toys and games,

OHIM, Alicante, 2015.

Royal United Services Institute for Defence and Security Studies,

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PriceWaterhouseCoopers,

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Measuring IPR infringements in the internal market,

Rand, Cambridge, 2012.

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Drug Counterfeiting,

2008.

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analysis of user behaviour,

Intellectual Property Oice, Newport, 2015.

UK Intellectual Property Oice,

IPR Crime Report 2015/6,

Intellectual Property Oice, Newport,

2016.

UK Intellectual Property Oice,

Study 2: The current status and impact of 3D printing within the

industrial sector: an analysis of six case studies,

Intellectual Property Oice, Newport, 2015.

UK Intellectual Property Oice/Foreign and Commonwealth Oice,

China-Southeast Asia anti-

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US Chamber of Commerce,

Measuring the magnitude of global counterfeiting: creation of a

contemporary global measure of physical counterfeiting,

Global Intellectual Property Center,

Washington DC, 2016.

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A-CAPP, Michigan, 2015.

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APPENDIX A — KEY PRODUCT SECTORS

BY IMPORTS (COUNTERFEIT/GENUINE)

2017 SITUATION REPORT ON COUNTERFEITING AND PIRACY IN THE EUROPEAN UNION

Although DG TAXUD uses its own product sector coding system to categorise seized items,

the alternative HS is used by many other bodies to classify goods by type and allows for

measurements of legitimate trade in a given product sector to be established. The two systems

do not overlap exactly however, but categorising DG TAXUD seizures by HS codes is possible in

certain cases, and analysts at the Observatory have identiied suicient parallels to facilitate a

breakdown of import routes into the EU for a number of key product types.

The Eurostat international trade statistics dataset (Comext) was used to measure the proportion

of overall EU imports of a given product type by MS in 2013, by value. The DG TAXUD data was

then used to measure the proportion of IPR-infringing seizures that took place in each MS

for the same product type between 2011 and 2013, again by value. These two statistics were

then overlaid, in order to establish if there were signiicant geographical incongruities either in

terms of MS that reported a very high seizure ratio compared with the proportion of legitimate

imports of the same product type by value or, conversely, a signiicantly lower proportion of the

overall seizures that legitimate import shares may indicate probable.

Ultimately, ive broad product sectors were investigated and patterns difered, according to

which type of commodity was scrutinised, and to which MS the analysis was applied. Malta, for

instance, was found to frequently record seizure values far higher than the country’s legitimate

trade statistics would indicate probable. This is because with a low population ratio, Malta does

not import a high overall proportion of any product type in the legitimate market but, as an

important maritime transport hub, the MS frequently records a high percentage of overall IPR-

infringing seizures by value, because customs focus on container traic and therefore, much

higher volumes of products than those MS that focus more on small packages.

Cosmetics and personal care sector

The legitimate cosmetics industry in Europe loses approximately EUR 4.7 billion of direct

revenue annually due to counterfeit products, which corresponds to 7.8 % of the sector’s

overall sales. If we add the knock-on efects on other industries, counterfeiting in this sector

causes approximately EUR 9.5 billion of lost sales and 80 000 job losses. Government revenue

losses are estimated at EUR 1.7 billion each year

64 - OHIM,

The economic cost of IPR infringement in the cosmetics and personal care sector: report of a pilot study,

OHIM, Alicante, 2015, p.

7. Available at: https://euipo.europa.eu/tunnel-web/secure/webdav/guest/document_library/observatory/resources/research-and-

studies/quantiication-of-infringement-cosmetics_en.pdf.

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2017 Situation Report on Counterfeiting and Piracy in the European Union

MAP 1

The Comext database

shows that in 2013 alone,

EUR 5.8 billion worth of legitimate cosmetics were

imported into the EU, with the major importing MS

being France (24 %), the United Kingdom (22 %) and

Germany (20 %).

Statistically, Germany also recorded a high proportion

of overall European counterfeit seizures by value

(26 %). Map 1 shows that by ratio, this MS was

relatively consistent in its legitimate import/infringing

seizures igures in this product sector.

Far less homogeneous was Bulgaria however.

Despite only 0.2 % of genuine cosmetics imported in

2013 entering the EU via this MS, Bulgarian customs

recovered 3.2 % of the overall seizures by value. If

Germany can be seen as consistent, as it imported an

approximately 20 % share of the genuine cosmetics,

and customs recovered approximately the same

proportion of the overall IPR infringing products

reported over the time frame, then the igures for

Bulgaria reveal a counterfeit recovery igure that

is far higher than would be expected based on the

country’s legal imports.

Map 2 shows the remaining EU MS by the proportion

of counterfeits they recovered compared with

the proportion of their share of total imports into

the EU. Apart from Bulgaria, countries such as

Belgium, Germany, Greece, Spain, Latvia, Hungary,

Malta, Romania, Slovenia and Finland all recovered

proportionally more of the share of counterfeits than

would be expected, given the proportion of genuine

products that they imported. With other MS

, the

reverse is true, where the proportion of counterfeits

recovered was less than the proportion of genuine

cosmetic imports.

MAP 2

65 - Comext is Eurostat’s reference database for detailed statistics on international trade in goods.

66 - The Czech Republic, Denmark, Estonia, Ireland, France, Croatia, Italy, Cyprus, Lithuania, the Netherlands, Austria, Poland, Portugal,

Slovakia, Sweden, and the United Kingdom.

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Clothing, footwear and accessories sector

When taken in combination, counterfeit versions of

these products cost the legitimate EU industry EUR

26.3 billion annually in lost sales, which is 9.7 % of the

sector’s overall revenues. It is further estimated that

363 000 job losses are directly incurred because of

counterfeiting and that the overall direct and indirect

inancial impact amounts to approximately EUR

43.3 billion of lost sales and EUR 8.1 billion in lost

government revenues. Combined employment losses

are thought to be as high as 520 000 annually

In 2013, EUR 33.7 billion worth of clothing that was

not knitted or crocheted was imported into the EU,

with the major importing MS being Germany (23 %),

the United Kingdom (16 %) and France (13 %). In

terms of the proportion of counterfeits that were

recovered at the external borders over the 2011-

2013 period (Map 3), the Czech Republic seized

the highest proportion by value (15 %), followed by

Germany (11 %) and France (10 %), resulting in the

MS appearing in pink. At the other end of the scale,

countries such as Denmark, Ireland, Greece, Croatia,

Cyprus, Latvia, Lithuania, Austria and Sweden each

reported less than 1 % of overall EU IPR-infringing

clothing items seizures by value over the time frame.

Proportionally, much of the north-western EU can be

seen to have recovered IPR-infringing garments in

approximately the same magnitude as they imported

genuine ones, resulting in these areas of Map 4

appearing in lilac. The exception is Portugal, which

is recorded as having imported 0.2 % of genuine

garments, whilst intercepting 2 % of counterfeits by

value.

Signiicant disproportionalities can be seen in

much of the south-eastern EU, most notably in the

MAP 3

MAP 4

67 - OHIM,

The economic cost of IPR infringement in the clothing footwear and accessories sector,

OHIM, Alicante, 2015, p. 7. Available

at: https://euipo.europa.eu/tunnel-web/secure/webdav/guest/document_library/observatory/resources/research-and-studies/

ip_infringement/study2/the_economic_cost_of_IPR_infringement_in_the_clothing_footwear_and_accessories_sector_en.pdf.

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case of Malta, which intercepted signiicantly more

counterfeits than its genuine import ratio statistics

would predict. Research shows that Malta is in

fact consistently in such a position; this is thought

largely to be the result of customs in this small MS

frequently targeting large-scale container traic that

may be transiting Malta, ultimately bound elsewhere.

Bulgaria, with 0.11 % of genuine imports by value,

stopped 7 % of all fakes recovered in the time frame

(far more times than the number that could be

expected) and Hungary, which intercepted a notably

higher value of IPR-infringing clothes than its genuine

import statistics would indicate probable. In all, 16

reported seizures of counterfeit clothing that

were proportionally higher than their genuine import

igures would indicate probable, strongly suggesting

that counterfeit garments may be entering the EU

from the east, as this is where the highest proportion

of external border seizures were made. It is also

thought possible that counterfeits may to some

extent be displacing genuine items in some of these

markets, as certain MS appear to be encountering

counterfeit apparel in a much higher proportion to

their share of legitimate imports, when measured by

value.

Footwear was encompassed in the above referenced

sectorial report but is a category in its own right in

the HS classiication and DG TAXUD statistics. Comext

statistics indicate that in 2013, EUR 15.7 billion worth

of footwear items were legitimately imported into the

EU, and in 2013 the top importing MS were Germany

(20 %), the United Kingdom (15 %) and Italy (15 %).

Conversely, the three MS with the lowest share of

EU legal footwear imports by value were Latvia,

Luxembourg and Malta, largely due, it is believed, to

their relatively low populations.

MAP 5

MAP 6

68 - Bulgaria, the Czech Republic, Estonia, Greece, Croatia, Italy, Cyprus, Latvia, Lithuania, Hungary, Malta, Portugal, Romania, Slovenia,

Slovakia and Finland.

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In terms of where the highest values of IPR-infringing footwear seizures took place from 2011

to 2013, Map 5 shows the Czech Republic, Spain and the United Kingdom to be particular hot

spots. In fact, statistically, Malta once more topped the footwear seizure igures by value over

the time frame, largely for the aforementioned reason that high unit volume container traic is

a speciic focus for this MS, resulting in recovery igures that far outstrip common expectations.

Despite importing only 0.03 % of genuine items, Malta seized 18 % of the IPR-infringing footwear

recovered at the external borders from 2011 to 2013, followed by the United Kingdom (13 %),

the Czech Republic and Spain, which both recovered 12 % of IPR-infringing shoes and boots.

Taking the proportion of genuine footwear that each MS imported in 2013, and overlaying the

proportion of seizures that each MS reported for the 2011-2013 period gives the results seen

in Map 6. The MS that can be seen in red in Map 6, and the only one (beyond Malta) to record

seizures higher than ten times the proportion of legitimate imports is Latvia, which accounted

for 0.04 % of the genuine import igure and 0.6 % of the IPR-infringing igure.

What will also be noted from Map 6 is that Latvia’s immediate neighbour, Estonia, recorded an

incongruously low legal/illegal import ratio. The country recorded the third lowest proportion

of legitimate imports (after Malta and Luxembourg) and the lowest share of seizures (0.01 %).

Whilst this could be an indication that externally manufactured footwear is not a popular

product in Estonia, the presence of Latvia in the vicinity and that country’s ranking in Map

6 could suggest that counterfeit products enter the region via Latvia and are potentially

subsequently distributed in the Baltic States.

Research reveals that 14 MS

recorded seizures of IPR-infringing footwear that were higher

in proportion than their share of legitimate trade. Therefore, as with the other relevant maps,

there appear to be a number of MS (14 in this case) where the proportion of counterfeit seizures

of a given product would be expected to be higher, given the country’s share of legitimate EU

imports. These can be seen in Map 6 in blue/lilac.

Jewellery and watches sector

It is estimated that legitimate jewellery and watches industry losses are approximately EUR 1.9

billion annually due to the presence of counterfeits in the EU marketplace, corresponding to

13.5 % of the sector’s sales. Counterfeiting causes losses of approximately 15 000 jobs directly and

when knock-on efects on other industries are included, approximately EUR 3.5 billion of lost sales

to the EU economy and employment losses of about 28 500 jobs. Furthermore, counterfeiting in

this sector results in the annual loss of EUR 600 million in government revenues

69 - Bulgaria, the Czech Republic, Ireland, Greece, Spain, Cyprus, Latvia, Hungary, Malta, the Netherlands, Portugal, Romania, Slovenia

and Finland.

70 - OHIM,

The economic cost of IPR infringement in jewellery and watches,

OHIM, Alicante, 2015, p. 7. Available at: https://euipo.europa.

eu/tunnel-web/secure/webdav/guest/document_library/observatory/resources/research-and-studies/ip_infringement/study5/

jewellery_and_watches_en.pdf.

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MAP 7

Analysis of legitimate imports in the jewellery sector

shows that EUR 56.3 billion worth of such goods

was imported overall in 2013 alone and it was the

United Kingdom that was responsible for by far the

largest share (40 %). This was followed by Belgium

(23 %) and Germany (17 %). Bulgaria, Croatia and

Cyprus imported the least by value in the same time

frame. It is perhaps of interest to note that Malta did

not record an especially high proportion of either

legitimate imports or IPR infringing recoveries in this

sector, potentially because jewellery is rarely subject

to the maritime container transport on which Malta

customs concentrates.

Map 7 shows a high proportion of IPR-infringing

recoveries by value between 2011 and 2013 to have

taken place in France (56 %) and, to a lesser extent,

the United Kingdom (10 %).

MAP 8

Conversely, much of the southern and eastern

EU, Ireland and Portugal reported relatively low

proportions of jewellery seizures, potentially indicating

that there is more of a demand for counterfeit items

of this nature in the central and south-western MS of

the EU.

The ratio of IPR-infringing seizures to the share of

legitimate jewellery imports by MS can be seen in w 8.

It is apparent that France, which recorded a relatively

low legal import share (5 %) and a high proportion of

seizures (56 %), recovered proportionally far more

counterfeits by value than its level of legal imports

may suggest likely. Spain, Hungary and Portugal all

recorded 18-20 times more seizures by value than

their legitimate import share.

In all, 11 MS

recorded counterfeit seizure values

that were proportionally lower than their share of

the legitimate jewellery import statistics in 2013 and

these can be seen on the map roughly forming a

north–south axis.

71 - Belgium, Denmark, Germany, Estonia, Croatia, Italy, Lithuania, Malta, Austria, Sweden and the United Kingdom.

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Watches, encompassed in the aforementioned

sectorial study, are listed under the HS designation

‘Clocks and watches and parts thereof’ and can be

compared to the DG TAXUD product category 5c

(watches).

Overall, EU imports of watches in 2013 were valued

at EUR 6.9 billion and 25 % of all watches and clocks

were imported by France. This was followed by

Germany (25 %) and Italy (14 %). The value of imports

of Estonia, Ireland and Latvia was the lowest over

the same period. Map 9 shows that the highest

proportion of seizures of IPR-infringing watches by

value over the time frame was reported by Spain,

which recorded a relatively low genuine import ratio

of 6 % of the total, as against seizures valued at 57 %

of all EU 2011 2013 recoveries. France also reported

a relatively high seizure ratio of 10 %, but this should

be seen in the context of this MS having a 25 % share

of legitimate imports in 2013. Bulgaria, Croatia and

Slovakia imported the lowest number of seizures by

value.

Unlike many of the legal/illegal import ration maps

seen in this Appendix, none of the MS was found to

have a very high value of seizures compared with its

legal import share.

Perhaps unsurprisingly, Spain recovered a higher

proportion of counterfeits by value than its share of

the legitimate total imports may indicate probable.

Eight times more watches and clocks were seized

by value in Spain than its standing in the legitimate

import igures would predict. Apart from Spain, only 7

reported seizure values that were proportionally

higher than their share of the legitimate market, with

all others recovering proportionally fewer counterfeit

watches and clocks than their 2013 genuine import

igures may indicate probable.

MAP 9

MAP 10

72 - Belgium, Denmark, Ireland, Greece, Latvia, Portugal and Slovenia.

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MAP 11

Sports goods and toys and games sectors

In the sports goods manufacturing sector, legitimate

industry loses approximately EUR 500 million

annually due to the presence of counterfeit products

in the EU marketplace, which is 6.5 % of the sector’s

sales. This translates into direct employment losses

of approximately 2 800 jobs annually and knock-on

efects (direct/indirect) of EUR 850 million of lost sales

to industry, overall employment losses of about 5

800 jobs and a loss of EUR 150 million in government

revenues

Annual legitimate industry losses in the toys and

games sector are estimated at approximately EUR 1.4

billion and correspond to 12.3 % of the sector’s sales.

These lost sales translate into direct employment

losses of approximately 6 150 jobs, and much higher

igures when knock-on efects are factored in — EUR

2.3 billion of lost sales to the EU economy, overall

employment losses of 13 200 and a loss of EUR 370

million in government revenues

In combination therefore, sports goods and toys and

games face a very high risk of counterfeiting.

Legitimate EU imports in this product category stood

at EUR 13.1 billion in 2013 and the largest share

went to the United Kingdom (25 %), followed by the

Netherlands (18 %) and Germany (17 %). At the other

end of the scale, Cyprus, Luxembourg and Malta all

imported less than 0.1 % of the European total by

value.

Map 11 shows the seizure percentages by value for

toys, games and sports requisites between 2011 and

2013. Germany and Spain are revealed as particular

hotspots. Germany once more was relatively

constant with a 20 % seizure share (as against a 17 %

MAP 12

73 - OHIM,

The economic cost of IPR infringement in sports goods,

OHIM, Alicante, 2015, p. 7. Available at: https://euipo.europa.eu/tunnel-web/

secure/webdav/guest/document_library/observatory/resources/research-and-studies/ip_infringement/study3/sports_reports_en.pdf.

74 - OHIM,

The economic cost of IPR infringement in toys and games,

OHIM, Alicante, 2015, p. 7. Available at: https://euipo.europa.eu/tunnel-

web/secure/webdav/guest/document_library/observatory/resources/research-and-studies/ip_infringement/study4/toys_games_en.pdf.

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REU, Alm.del - 2017-18 - Bilag 78: Rapporter fra EUIPO, EUROPOL og SOCTA om IPR-kriminalitet og organiseret kriminalitet i EU (2017)

legal import share) but Spain appears somewhat

discordant, having recorded a 5 % share of legal

imports, as against a 15 % proportion of overall IPR-

infringing seizures.

Overlaying the above proportions of total seizures

with the proportion of legitimate imports by value

that each MS reported in the product category gives

the results seen in Map 12, and Cyprus, Latvia and

Romania can be seen to have seized proportionally

more counterfeit products by value than they

imported legitimately. Malta once more topped the

statistics.

As with the other elements in this section however, it

is perhaps not the MS that seized a higher proportion

than could be expected that are of interest, so much

as those whose seizure ratios fell below those of

their legitimate imports. Altogether, 13 MS

found

themselves in this position to a lesser or greater

extent during the 2011-2013 period.

Pharmaceutical sector

The legitimate pharmaceutical industry in Europe is

denied of approximately EUR 10 billion of revenue

annually, due to the presence of counterfeit

medicines in the marketplace, corresponding to

4.4 % of the sector’s sales. If the knock-on efects

on other industries and on government revenues

are added, counterfeiting in this sector causes

approximately EUR 17 billion of lost sales to the EU

economy annually, which leads to employment losses

of about 91 000 jobs and a loss of EUR 1.7 billion in

government revenues

MAP 13

MAP 14

75 - The Czech Republic, Denmark, Germany, Estonia, Ireland, France, Croatia, Italy, the Netherlands, Austria, Slovakia, Sweden and the

United Kingdom.

76 - EUIPO,

The economic cost of IPR infringement in the pharmaceutical industry,

EUIPO, Alicante, 2016, p. 5. Available at: https://euipo.

europa.eu/tunnel-web/secure/webdav/guest/document_library/observatory/resources/research-and-studies/ip_infringement/

study9/pharmaceutical_sector_en.pdf.

www.europol.europa.eu

www.euipo.europa.eu

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In 2013, EUR 49.6 worth of pharmaceuticals was imported into the EU, with the major importing

MS being Belgium (22 %), Germany (16 %) and the Netherlands (13 %).

Map 13 shows that Germany also reported a relatively high proportion of the overall IPR-

infringing recoveries (20 %), but that it was UK customs that stopped the highest percentage

(24 %), despite taking only 11 % of legitimate trade.

As with cosmetics, Bulgaria reported seizures in far higher proportions than legitimate import

igures might predict. In fact, 0.2 % of genuine pharmaceuticals were imported through Bulgaria

in 2013, but the MS reported recoveries of 20 % of the overall seizures by value, indicating that

it may be a hotspot as an attempted point of entry to the EU for this type of product.

Map 14 shows the remaining EU MS by the proportion of counterfeits they recovered compared

with the proportion of their share of total imports into the EU and, once more, it is the MS

shown in dark blue that recorded a lower ratio of IPR-infringing seizures to legitimate imports.

Ireland took 3 % of overall imports but recorded 0.005 % of the seizure total, Romania was

the point of entry for 0.92 % of all 2013 EU imports, compared to registering 0.009 % of the

overall IPR-infringing seizure total and Spain showed 6 % of recorded pharmaceutical imports,

as against recording 0.19 % of the external border seizure total.

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2017 SITUATION REPORT

ON COUNTERFEITING

AND PIRACY IN THE

EUROPEAN UNION