Counterfeiting at the Olympics

Local authorities will have a key role to play in clamping down on counterfeiting around this year's Olympic Games, write Andrew Campbell-Tiech QC and Ed Jenkins QC.

The equation is simple: no brand protection, no sponsorship. No sponsorship, no Games.

Counterfeiting is an industry, one of few that can expect to grow in these straightened times. In the last twenty years, the International Anti-Counterfeiting Coalition estimates it has expanded by 10,000%, fuelled in large part by internet sales.

In 2010, customs officials within the European Union made twice the number of seizures than the previous year, detaining goods with a domestic retail value in excess of one billion euros. [1] Whilst the number of cases represents an all-time high, the number of items seized was down by 75 million from 2008, meaning that a greater number of consignments are being sent containing smaller numbers of infringing items, making the work of customs even more demanding.

According to the International Chamber of Commerce, counterfeiting is said to account for between 5% and 7% of world trade (some estimate as high as 10%), worth an estimated $6000bn per year.

Counterfeiting polarises opinion within society and the judiciary are no exception. Some continue to believe it to be a relatively trivial criminal offence. Perhaps once it was. But in 2012, counterfeiting like corruption, destroys fair competition and livelihoods, deprives the Treasury of revenue, stifles innovation and leads to unemployment. Walker J described it as “...a serious contemporary problem having adverse economic effects on genuine trade.”’ [2]

The economic implications are as nothing compared to the human cost; it is also believed to help fund terrorism, arms-running and drug smuggling and unquestionably sustains the sweat shop culture of the Far East where the vast majority of counterfeit goods are produced.

Others believe, with some justification, that counterfeiting is a serious offence which should be met with serious punishment, among them Bingham LCJ (as he then was) who observed: “We recognise the damage done to the conduct of legitimate trade by the production and marketing of fake products. The owners of trade marks have a commercial asset which is entitled to legal protection.  Deliberately using someone else’s trade mark is in effect to steal their commercial goodwill. This is properly a criminal offence and a penalty must follow on conviction.” [3]

Policing the sale of counterfeit goods has always been difficult, yet is becoming harder still.  Traditionally, the counterfeiter would have attended markets and boot fairs to sell his wares, but in times of real economic pressure, some otherwise legitimate businesses are also turning to counterfeit goods. Trading Standards authorities around the country have noticed an increasing quantity of such goods in small shops and newsagents, where counterfeit cigarettes and alcohol may be sold to the unsuspecting public, alongside counterfeit batteries, condoms, razors and even medicinal products such as paracetamol. Those who are willing to sell such items will not be slow to fill their shelves with Olympic-themed merchandise as London 2012 fever grips the nation.

Counterfeiting is as old as time, and certainly as venerable as the Olympics itself. In the 4th century BC, the statues of Praxiteles were copied and sold as genuine. A little later, an illiterate Gallic trader attempted to copy the stoppers placed in the amphorae in which the Roman wine merchant Lassisus sold his popular wine, hoping thereby to pass off his inferior local product as the more expensive (the stopper is now on display at the Union des Fabricants Museum of Counterfeiting in Paris). ‘Stealing the commercial goodwill’ of others, as Lord Bingham put it, is nothing new. But the scale has changed. An irritation has become an epidemic, as recent Olympiads demonstrate.

Authorities in the United States estimated that during the 1996 Olympic Games in Atlanta, as much as 50% of all merchandise sold infringed intellectual property rights. Such a significant percentage represents a significant loss in revenue.

In response to this, prior to the Olympic Games in Sydney in 2000 the Australian Government enacted the ‘Sydney 2000 Games Indicia and Images Protection Act’, which permitted the Sydney Organising Committee for the Olympic Games (SOCOG) to apply DNA and optical tags to Sydney 2000 Olympics merchandise.

A DNA ‘ink tag’ was applied to official merchandise in the certain knowledge that a would-be counterfeiter would have only a ‘one in a trillion chance’ of duplicating one of the tags. Such marking certainly acts as a useful enforcement tool when the counterfeiter is caught or being unearthed, but how would the consumer know the souvenir they were purchasing was official when the only fool-proof indicator to authenticity is invisible to anything but forensic testing?

Nonetheless, the Australians reported their DNA programme as a major success, estimating that less than 1% of revenue from official merchandise was lost to the counterfeiters. [4] If accurate, this marked an extraordinary and welcome improvement on the losses sustained by the Americans four years earlier.

In Athens in 2004, the financial implications of counterfeiting were at the forefront of the minds of the Athens Organising Committee (ATHOC) as they stood to receive 10% of all sales of official Olympic merchandise. In the final analysis ATHOC earned the equivalent of £61 million.  Counterfeiting was estimated to have generated approximately £30 million, meaning that the vast improvement seen in Sydney had been matched in Athens.

Beijing 2008 presented the Chinese authorities with a conundrum. Accused by many over the years of turning a blind eye to China’s role as a key source of counterfeit goods, they took an iron fist to the trade in fakes. During 2007, they destroyed 3.2 million tonnes of unauthorised ‘Olympics’ merchandise and took an unprecedented number of cases against those responsible for producing or selling it. [5] But once the stadia emptied and the Olympics circus commenced its journey to London, the Chinese could not be said to have used the Olympics as an opportunity to stamp out counterfeiting - 85% of goods seized in the EU during 2010 emanated from China. [6]

How will law enforcement agencies in the UK react to the problems they inevitably will face during the summer of 2012?

Primary responsibility for enforcing the criminal provisions of the Trade Marks Act 1994 rests with local authorities (section 93 -(1) It is the duty of every local weights and measures authority to enforce within their area the provisions of section 92 (unauthorised use of trade mark, &c. in relation to goods), although in a joint venture announced in 2009, the Intellectual Property Office has provided training to Crown Prosecution Service lawyers to equip to deal with the expected surge in intellectual property crime. Yet local authorities’ trading standards departments have had their budgets slashed, staff cut and subsidies from central Government significantly reduced.

How will they cope with the expected surge in counterfeiting in the weeks and months leading up to and beyond the Olympics?

The brands themselves are entitled to expect protection given the vast sums of money they themselves invest into the Olympics and the country which hosts the Games. In March 2011, Trading Standards Officers from the City of Westminster seized fake ‘Olympics’ goods with a street value of approximately £100,000, having seized a number of items the previous year. Thus far there have been relatively few instances of such seizures across London, but as the Olympic Games get closer, Mike Roylance, brand protection manager for Adidas (speaking with the BBC) [7], expects a ‘tidal wave’ of counterfeiting.

It is vital that the Government acts to ensure local authorities have sufficient funds to combat this proliferating trade in counterfeit goods. It is not mere reputational damage that the UK will suffer if this call goes unheeded. We risk fatally prejudicing all bids to host any future sporting or cultural event that depends on the inviolacy of its own brand. For that is what the sponsors ultimately pay for.

Andrew Campbell-Tiech QC is a barrister at Dyers Chambers while Ed Jenkins QC is a barrister at 5 Paper Buildings.

The authors are members of ‘D5’, a unique and innovative collaboration between Dyers Chambers and 5 Paper Buildings, each of whom has pooled the expertise of their specialist practitioners in intellectual property crime to deliver a comprehensive investigation, advice and advocacy service.

[1] European Commission – Report on EU customs enforcement of intellectual property rights 2010

[2] CPS v Morgan [2006] EWCA Crim 1742

[3] Bhad [1999] 2 Cr. App. R. (S.) 139

[4] ‘Fighting Fraud with DNA’ – The Scientist, 21/06/04

[5] Association of Business Schools, Media Bulletin 20

[6] European Commission – Report on EU customs enforcement of intellectual property rights 2010

[7] November 2011