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The Marketing Review 2005, 5, 59-72

www.themarketingreview.com

Peggy Chaudhry% Victor Cordell'' and
Alan Zimmerman^'^
Villanova University^
San Francisco State University"
City University of New York'^

, .

Modelling Anti-Counterfeiting Strategies in
Response to Protecting Intellectual Property
Rights in a Global Environment
Counterfeiting is a iarge and growing probiem, accounting for up to $200biilion a year in lost sales. It has negative effects on producing firms, home countries, consumers and even host country economies. There are many parailei actions taking piace to reduce the amount of counterfeit goods on both a nationai and international level, however, it appears that enforcement continues to be a key probiem for individuai firms. Several researchers have proposed a multitude of possibie anti-counterfeiting actions, these tactics range from poiicing distribution channels to developing covert sting operations. IHowever, very iittie empiricai research has been compieted in this area to discover what types of tactics companies employ to deter pirates. This study develops a model of the inteliectuai property rights environment that is currentiy being tested via phone survey. The major research questions address how managers conceptuaiise the inteilectuai property environment; how the intellectual property rights environment affects the market entry decision; what anticounterfeiting strategies are frequency used; and how effective each tactic is in the host country market?

Introduction
Sony music thought they had finally solved the problem of counterfeit music CDs. They developed a proprietary technology, adding a track of bogus data to each CD to prevent computers from reading the music tracks. But, in only a short time, pirates had discovered a decidedly lowtech way of cracking Sony's copy protection - marking the rim of the disk with a felt-tipped marker (Wired 2002). The battle between owners of intellectual property and the counterfeiters continues.

The problem of product counterfeiting is significant and growing. The latest estimate of the cost to the U.S. economy is $200-billion per year ^ Correspondence: Alan Zimmerman, Associate Professor of International Business, City University of New York, College of Staten Island, 3N234, 2800 Victory Boulevard, Staten Island, New York 10314, [email protected] ISSN 1469-347X/2005/1/0059 + 13 £8.00/0

©Westburn Publishers Ltd.

60

Peggy Chaudhry, Victor Cordell and Alan Zimmerman

provided by tiie Internationai Anticounterfeiting Coaiition (IACC 2000). The iJ.S. Customs Service seized over $98 miilion counterfeit products in fiscai year 2002 (IACC 2003).
One reason for the upsurge in
counterfeiting is the growth in the number of trademarks registered. The Worid Inteiiectuai Property Organization (WIPO) estimates the number of brand names registered exceeds nine miliion and has doubied since 1974 (Ibrahim 1998). Various definitions of product counterfeiting have been offered. For purposes of this paper the definitions given by Cordeii et al (1996) wiii be used: "Any unauthorized manufacturing of goods whose speciai characteristics are protected as inteiiectuai property rights (trademarks, patents and copyrights) constitutes product counterfeiting." The whole concept of attempting to 'measure the effects' of counterfeiting is controversiai. As Green and Smith debate (2002, p, 91):

Assessment of the iosses associated with counterfeiting varies widely. Such variation is understandabie given the iliegal nature of this activity, which the necessity of using some forms of surrogate indicators, such as the extrapolation of seizures by poiice or customs authorities. Further ambiguity arises when there is no agreement about the factors that shouid be taken into account when caiculating the scale of counterfeiting. Shouid it be measured by the production costs of counterfeits, saies iost by associated brands, damages to brand equity, totai sales of counterfeits, or some combination of measures?

For fiscai year 2002, both cigarettes and media represented 67% of total seizures of over $98 miiiion. In 2003, U.S. Customs reported that cigarettes, apparei, handbags and media accounted for 79% of the vaiue of the goods they seized. (Customs Countries of Origin 2003). Tabie 1 iiiustrates the favored commodities of counterfeiters.

Table 1. U.S. Customs Service IPR Seizures by Top Commodity
Commodity 2003
Cigarettes
Wearing Apparel
Handbags/Backpacks
Media
Consumer Electronics
Watches/Parts
Footwear
Toys/Electronic Games
Sunglasses/Parts
Headwear
All other commodities

% Total
Value
44%
15%
12%
8%
4%
4%
3%
2%
1%
1%
6%

Commodity2002
Cigarettes
Media
Wearing Apparel
Consumer Electronics
Watches/Parts
Handbags/Wallets/Backpacks
Toys/Electronic Games
Cigarette Rolling Papers
Sunglasses/Parts
Headwear
All other commodities

Source: Intemational Anti-Counterfeiting Coalition 2002 and 2003

1%
8%

Modelling Anti-Counterfeiting Strategies

61

Conceptual Framework
Based on an extensive iiterature review, a modei has been developed representing the process firms empioy to assess counterfeiting and decide on entry strategy and their decisions reiated to combating the probiem. The key research questions to address in future empiricai work are: 1. How do managers conceptualise the inteiiectuai property environment? 2. How does the intellectual property rights environment affect the market entry decision?

3. What anti-counterfeiting strategies are frequentiy used?
4. How effective is each tactic in the host country market?
IPR

Actions

IP R
E n V Iro n m e n t
L e v e l of
C o n s u m er
Com pHcity

L e v e l or
Pirate
AcllvlWjg]

Mode of
E n try
L e v e l of
M arket
Co m m itm a n t

1

Level of
H o s t Cou It try
En fo ream c n t

Distribution
Channels

Host
Governm ents
International
O r g a n iz a t i o n s

Figure 1 .
The Intellectual Property Rights Environment
The existence of a iarge counterfeit market exacts costs in several ways. As Gioberman (1988) pointed out welfare effects of counterfeiting are ambiguous for host countries as weli as for the world economy. For the firms whose products are vioiated, there is an obvious loss of revenues and profits as weli as the increased costs incurred in policing and fighting pirates. Firms may also suffer from declining customer loyalty when consumers use products they believe are genuine and experience defects. Firms may suffer reduced growth because investments in research and deveiopment are limited as a result of widespread copying. Consumers may be harmed by using inferior products and may even suffer injuries from faulty industrial parts or heaith problems as a result of using counterfeit drugs that are not properiy formulated. Home countries of firms suffering from imitated products lose exports, taxes and other revenues as well as employment. Even host countries (here identified as the source of the counterfeit goods), while experien...

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