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Intellectual Property Rights Crime
Overview of Criminal Activity
In a post-industrial age, where innovation is at the very heart of an advanced society’s economic well-being and growth, ideas can be among the most valuable commodities.The legal framework behind intellectual property in the form of trademarks, patents, copyrights, and other provisions,was established to protect original inventions, promote innovation and progress, and, in turn, safeguard economic security and prosperity.The nature of intellectual property makes this form of commodity highly susceptible to theft and violation.Although intellectual property rights (IPR) crime has existed for as long as these rights have, its scope and magnitude have increased in recent years due to the effects of globalization on the worldwide production of and consumer demand for inexpensive brand-name consumer and luxury products.This demand is facilitated in part by the perception that this activity is a victimless crime. However, unlike the theft of physical property, which usually deprives only the property’s rightful owner, intellectual property theft affects all consumers, and has a pervasive impact on the society as a whole.
“Organize crime doesn’t just affect large cities. If left unchecked, it would threaten the safety and security of all Manitobans, and pose risks to our institutions, society, economy and the quality of life.” RCMP Chief Superintendent |
To various degrees, organized crime is involved in all types of IPR crime. IPR crimes generally fall under one of three categories: violations of copyright, which includes the piracy and counterfeiting of digital media such as software,music, and movies; violations of trademark, which involves the counterfeiting of brand names; the theft of trade secrets, which includes the theft of proprietary information such as design templates and production schematics.
The range of actors and groups involved in IPR crime is a testament to the significance of this criminal activity. Indeed, product counterfeiting and piracy are not constrained by regional or national boundaries, and virtually no consumer sector is beyond its exploitive reach.
The Secretary General of Interpol has recently stated that, internationally, IPR crime is dominated by organized crime. It is clear, however, that the more sophisticated networks in Canada and operations have organized crime involvement at some or all points of the supply chain from manufacturing to sales.
Complex supply chains can involve compartmentalized operations that are carried out in different countries. For example, counterfeit goods could be partly manufactured in a factory in Country X, assembled and packaged in Country Y, to be eventually sold in Country Z.Asia continues to be the primary source continent for counterfeit goods sold throughout the world.Approximately 80% of the counterfeit goods for sale in Canada, on the streets by vendors, at flea markets, or even retail chain stores, originate from abroad, primarily the Asia-Pacific region and, to a lesser extent, Europe and the U.S., while the remainder is manufactured in Canada.There are indications that Canada functions as a conduit for foreign-manufactured counterfeit goods destined for the U.S. market.
Canada participated in an operation targeting criminal organizations involved in Internet software piracy and the illegal distribution of copyrighted works, including software, movies, music, and games on the Internet. Searches and seizures were conducted in British Columbia,Alberta, Ontario and Quebec. Operation SITE DOWN also focused on individuals and organizations that illegally provided copies of copyrighted works to criminal groups that would provide the works for illegal distribution and downloading via the Internet.The investigation also encompassed Australia, Belgium, Denmark, France, Germany, Israel, Korea, Poland, the Netherlands, the United Kingdom, and the U.S. |
In recent years, some international counterfeit operations have been increasing in sophistication, reflected in both the structural complexity of the operations as well as in the apparent attention to detail in the production of the counterfeit goods themselves.
Technological advances have facilitated the ability to produce, in some cases, high-quality representations of packaging and product markings, sometimes including lot numbers, bar codes, and other details. In some cases, laboratory analysis is needed to differentiate the fake from the genuine product. In the past, consumers would usually be aware that they were buying counterfeit or knock-off products; the illegitimacy of the item would often be betrayed by the obviousdeficiencies in craftsmanship and packaging, if not by the nature of the transaction. However, one trend that has been facilitated by technological advances and the growth of the illegitimate industry is that, today, some counterfeiters are successfully passing off their products as genuine.The accuracy of the counterfeit’s representation, at least superficially, means that they can often be sold at up to retail value. Counterfeit products have been found in some major retail chains in Canada.
In July 2005, CSA International issued a consumer safety alert regarding a type of electrical extension cord that had been distributed by an Ontario-based company.This product, which bore counterfeit CSA marks, was found to be highly hazardous. |
To dupe consumers into thinking they are purchasing genuine products and to avoid regulatory action, some counterfeiters are reproducing the safety certification and quality assurance markings that appear on genuine products.A particularly alarming trend is the incorporation of counterfeit Underwriters Laboratories (UL) or Canadian Standards Association (CSA) markings on electrical devices. On genuine products, the UL or CSA marking gives assurance to the consumer that the device has undergone rigorous independent inspection and safety testing, and is deemed safe for use. On counterfeit goods, however, fake UL or CSA markings contribute to the item’s deception and can give a false, if not dangerous, sense of security to the user. In January 2005, the RCMP executed a search warrant on a Toronto business and seized large quantities of electrical power bars and extension cords bearing forged UL certification markings. While the inferior quality of these electrical products may not have been apparent to the consumer at the time of sale, subsequent UL testing revealed that these devices presented serious fire and safety hazards.
Negative Socio-economic Effects
Intellectual property crime has a negative impact on the entire economy and, therefore, adversely affects all Canadians.The substantial financial losses incurred each year are compounded by the potential threat of undermined consumer confidence as Canadians unknowingly purchase substandard goods that illegitimately bear brand names usually associated with quality and safety.The proceeds of counterfeiting and piracy can also be used to fund other, more serious criminal activity, and may help to sustain or expand the reach and scope of an organized crime group.
“Canadians need to get the message that faulty counterfeit items can kill. Counterfeiters don’t limit themselves to watches, CDs and fashion accessories. They produce items that may present a real danger to people’s lives, such as faulty circuit breakers, computer power supply units, safety footwear, holiday lights and even gas ranges.” R.J Falconi, vice-president, |
The adverse socio-economic effects incurred by the counterfeiting of DVDs and designer clothing represent only one dimension of IPR crime’s impact on Canadian society.While great attention may be devoted to a counterfeited item’s presentation, these cosmetic measures only conceal the lack of quality beneath the surface; to a great extent, counterfeiter’s profit by using the cheapest materials possible, by taking shortcuts wherever convenient, and by cutting out expensive quality and safety testing.The counterfeiting of such critical products as medicines, electrical devices, and auto parts elevates the potential impact of intellectual property crime to a very different level involving public safety concerns.
The World Health Organization (WHO) estimates that 10% of the world’s pharmaceuticals are counterfeit, an alarming figure when one considers that a large percentage of counterfeit pharmaceuticals contain either no active ingredients or incorrect medicinal levels. In developing countries, counterfeit pharmaceuticals have claimed hundreds of thousands of lives, and continue to create or exacerbate major health crises around the world. Counterfeit electrical devices, such as commercial batteries, extension cords, and power bars, present a serious risk of personal injury, as these devices have bypassed the regulatory system designed to ensure such products are safe for consumer use. In some cases, counterfeit electrical devices seized by Canadian law enforcement melted, caught fire, or exploded during laboratory testing.
