Chapter 5. The European Union case study
This chapter looks at the current situation of counterfeit trade in the European Union. Quantitative findings are primarily based on counterfeit seizures data received through DG TAXUD of the European Commission.
IP intensity of the EU economy
Today, all types of intellectual property rights, the infringements of which are analysed in this study, are protected in the EU according to national, European and/or international regulations. This refers to trademarks, design rights, copyrights and patents.
For trademarks and industrial designs, rights are governed by European Union law and national laws of EU members. In the EU, trademarks can be registered within individual countries or across the whole of the EU as EU Trade Marks (EUTM) (until March 2016, these were called community trademarks). These trademarks can be registered by the European Union Intellectual Property Office (EUIPO). An EU Trade Mark may consist of any distinctive signs, such as words, numerals, colours, shapes, packaging or sounds that can be represented in a form appropriate to the trademark type and are capable of distinguishing the goods or services of one undertaking from those of another. EUTM applications are made directly to the EUIPO office in Alicante, Spain.
Between 2010 and 2017, EUIPO registered a steady growth of EUTM application filings. Over that period, the annual average growth rate of filings registered by EUIPO amounted to 5.9%. As a result, in 2017 the number of applications filed at EUIPO was 48.8% larger than in 2010 (EUIPO, 2018a).
Firms and individuals based outside of the EU make for a substantial share of EUTMs applicants. China, Switzerland and the United States are among the top 10 countries with the highest number of cumulative EUTM filings over the 2010-17 period. Those statistics highlight the economic importance and commercial appeal of the European Union common market.
Source: EUIPO (2019), Statistics of European Union Trade Marks, https://euipo.europa.eu/tunnel-web/secure/webdav/guest/document_library/contentPdfs/about_euipo/the_office/statistics-of-european-union-trade-marks_en.pdf.
Similar trends of steady growth can be observed in the filings of Registered Community Designs (RCDs). Between 2010 and 2017, RCD filings experienced an average annual growth rate of 4.3%. The number of applications filed in 2017 was 33.8% larger in comparison with 2010 filing volumes. China, Japan and the United States are among the top 10 countries in the ranking of cumulative RCD filings between 2010 and 2017 (EUIPO, 2018a).
Source: EUIPO (2018b), Statistics of Community Designs, https://euipo.europa.eu/tunnel-web/secure/webdav/guest/document_library/contentPdfs/about_euipo/the_office/statistics-of-community-designs_en.pdf.
Patents can be declared in the EU either nationally, through national patent offices or through a centralised patent examination process at the European Patent Office (EPO). The EPO grants European patents on the basis of a single application; applicants can choose to protect their rights in up to 38 European countries.
Although patent applications filings at European Patent Office (EPO) have experienced some annual fluctuations over the last 8 years, number of applications registered in 2017 was 9.6% higher than in 2010. Protection of patents in Europe is of utmost importance for many non-EU firms active on the European market. Among the top 10 countries of origin are China, Japan, the Republic of Korea, Switzerland and the United States.1
Among the top filers for European IP rights are market leaders representing all major economies in the world.
Source: Own calculations based on EPO (2018), European Patent Applications Database 2008-2017 per Country of Residence of the Applicant, https://www.epo.org/about-us/annual-reports-statistics/statistics.html#filings-.
In the European Union, copyright is protected by the laws of the Member States which have been harmonised to a certain extent by EU directives and regulations. To date, the EU institutions have adopted eleven directives, and two regulations.2 Member States have to transpose directives into their national laws. At the same time, Member States can choose the form and method of adapting their laws. Regulations are binding in their entirety, and they are directly applicable in the Member States.
Intellectual property rights are of fundamental importance for the competitiveness of the EU economy as a whole. At the macroeconomic level, the IP-intensive industries have generated on average 42% of EU GDP between 2011 and 2013. This corresponds to EUR 5.7 trillion annually. In addition, IP-intensive industries contributed directly to 27.8% of employment.
IP rights are also very important for the productivity and performance of European firms. Empirical studies have found that companies applying for IPR protection employ more employees than companies without IPR. In addition, firms registering IP rights have, on average, 28% higher revenue per employee and pay on average 20% higher wages than firms that do not register those rights (OHIM-Europol, 2015).
Import of fakes to the EU: The updated picture
The quality of seizure statistics for the European Union allows for a thorough quantitative assessment of counterfeit trade in the EU context. This is done using the EU-specific GTRIC indices. In the EU context these indices illustrate:
-
Relative propensity of industry sectors to contain counterfeit products in the trade flows to the European Union (GTRIC-p).
-
Relative propensity of economies to be the provenance of trade in counterfeit and pirated goods to the European Union (GTRIC-e).
Concerning the relative propensity for products traded to the EU to include counterfeit or pirated goods, the range of sectors prone to counterfeiting is not narrower for the EU than for world trade. This implies that the problem of counterfeit imports to the EU is not narrower in industry scope and is not focused on certain industries only (see Table 5.3).
At the first glance, imports of fake goods to the European Union appears to be most intensive for luxury products such as articles of leather and handbags (HS 42), watches (HS 91), perfumes and cosmetics (33), footwear (64), jewellery (71), and sunglasses (90). However, common consumer products imported into the EU also tend to be often targeted by counterfeiters. This includes toys and games (95), footwear (64) and apparel (60 and 61). In addition, counterfeit or pirated intermediary products, such as electronic goods and ICT devices (85) or spare parts (87) are also frequently traded to the European Union.
Lastly, there are significant volumes of trade to the EU of fake goods that put consumer health and safety at direct and significant risk. This is a large range of products, such as fake cosmetics, pharmaceuticals, spare parts, tools and machinery, or toys and games. These fakes are often substandard and pose health and safety risks to consumers that range from mild inconveniences to life-threatening situations.
The list of top 15 industries likely to suffer from counterfeit EU imports between 2014 and 2016 is comparable to the one from 2011-13 (Figure 5.4). Industries such as watches, leather goods, footwear, tobacco and cosmetics were the most subject to counterfeit in 2011-13. The main change comes from the increase of the propensity of the toys industry and industries that are directly threatening the health and safety of consumers, such as beverages, pharmaceuticals, and vehicles and spare parts.
On comparing the GTRIC-p indices calculated for world trade and EU imports, it appears that the scope of goods sensitive to infringement in the EU is as broad as the scope of infringed products in world trade. However, differences do exist and are highlighted in Figure 5.4. and Figure 5.5. Differences in industrial composition of counterfeit trade between world trade and EU imports, 2014-16
Figure 5.6, which compare the topmost counterfeit product categories in EU trade with those in world trade.
Two main sectors are less targeted in EU trade than in world trade: ICT devices (85) and jewellery (71). However, industry sectors in which counterfeit trade is more intense in EU trade than in world trade are those putting consumer health and safety at direct and significant risk, namely tobacco and manufactured tobacco substitutes (24), pharmaceuticals (30) and foodstuffs (02-21).
Lastly, counterfeit or pirated intermediary products, such as machinery and mechanical appliances (84) or spare parts (87), also appear to be more frequently traded to the European Union than globally. The relatively larger share of counterfeit instruments in EU imports suggests that counterfeiters have, to some extent, successfully managed to infiltrate the production processes of EU industries.
Given the large complexity of global value chains, this is likely to lead to great risks when low-quality counterfeit products enter production as intermediary inputs. Moreover, these risks may then emerge in other industry sectors that rely on the production processes that use these counterfeit intermediary inputs.
Regarding the provenance economies for counterfeit and pirated goods imported to the EU, information captured in the EU-specific GTRIC-e index shows that, as with world trade, their scope is wide and global. Table 5.4 shows the top 20 provenance economies of counterfeit goods entering the EU in 2014-16, with Hong Kong (China) at the top (see Annex B for a complete list).
In 2011-13, China, Hong Kong (China), Turkey and the United Arab Emirates were already the main provenance economies of counterfeit goods entering the EU but the rest of the ranking has undergone some changes (Figure 5.7). It should be noted that compared to 2011-13, India and Morocco have moved up in the top 15 provenance economies of counterfeit goods entering the EU while Greece and the Syrian Arab Republic have moved down.
Estimates of counterfeit and pirated imports in the EU
Through applying the GTRIC methodology, the global estimates show that total trade in counterfeit and pirated products to the European Union amounted to as much as USD 134 billion (EUR 121 billion) in 2016. This number implies that as much as 6.8% of EU imports in 2016 was in counterfeit and pirated products. As with global imports, this percentage should not be directly applied to the values of total trade in other years as the structure of trade tends to be dynamic.
Two important factors should be considered when calculating these figures:
-
First, as with the OECD/EUIPO (2016) report, this number represents an upper limit of counterfeit imports to the EU. In terms of the model, the fixed point used in this exercise is the same as the one used in the OECD/EUIPO (2016) study, yet both numbers refer to the maximum possible amount of imports of counterfeit goods.
-
Second, the above-presented amount does not include domestically produced and consumed counterfeit and pirated products, and pirated digital products being distributed via the Internet.
References
EPO (2018), European Patent Applications Database 2008-2017 per Country of Residence of the Applicant, European Patent Office, Munich,
EPO (2017), Annual EPO Report 2017 - European Patent Applications, European Patent Office, Munich, http://documents.epo.org/projects/babylon/eponet.nsf/0/B01321A30990659DC1258248002D2251/$File/european_patent_applications_en.pdf.
EPO-EUIPO (2016), “Intellectual property rights intensive industries and economic performance in the European Union”, Industry-Level Analysis Report, EPO-EUIPO.
EUIPO (2019), Statistics of European Union Trade Marks, European Union Intellectual Property Office, Alicante.
EUIPO (2018b), Statistics of Community Designs, European Union Intellectual Property Office, Alicante.
OECD-EUIPO (2018a), Misuse of Small Parcels for Trade in Counterfeit Goods: Facts and Trends, Illicit Trade, OECD Publishing, Paris, https://doi.org/10.1787/9789264307858-en.
OECD-EUIPO (2016), Trade in Counterfeit and Pirated Goods: Mapping the Economic Impact, Illicit Trade, OECD Publishing, Paris, https://doi.org/10.1787/9789264252653-en.
OHIM-Europol (2015), 2015 Situation Report on Counterfeiting in the European Union.
Notes
← 1. European patent applications include direct European applications and international (PCT) applications that entered the European phase during the reporting period (EPO, 2017).
← 2. For the complete list see: https://ec.europa.eu/digital-single-market/en/eu-copyright-legislation