The Fraud Examiner

Buyer Beware: Intellectual Property Theft Can Lead to Counterfeiting
 

By Misty Carter, CFE, CIA 

September 2014


A Texas emergency room doctor nearly died after having purchased weight loss pills online that looked like the real thing. As reported by USA TODAY, the fake pills, fraudulently sold as the weight-loss drug Alli, had also been linked to injuries suffered by others. This is just one example of many of an ongoing issue that is part of the global trade in counterfeit products.


Today, just about anything can be counterfeited – and just about everything is. Most counterfeit goods are made from stolen intellectual property. Intellectual property (IP) is any product or idea that is protected by the law from unauthorized use by others. IP can be comprised of patents, copyrights, trademarks or trade secrets. Counterfeiting of goods involves the manufacture and distribution of an inferior good using stolen IP with the intent to sell a cheaper version of the brand name product without the owner’s permission.


How Does Theft of Intellectual Property Lead to Counterfeiting?

Stealing intellectual property differs from traditional crimes, such as robbing banks or pickpocketing. It involves stealing someone’s ideas or inventions, things that are often intangible. Theft of intellectual property can occur in many forms. For example, domestic or foreign companies might attempt to illegally acquire a company’s information through computer hacking. Or an IP thief might connect a device to a computer system internally and download proprietary information. Others might attempt network intrusion, while some might just access information from an unsecured laptop or workstation.


Once the intellectual property is obtained, its usage for fraudulent means can be endless. However, a common use for stolen intellectual property is counterfeiting. A rise in overseas outsourcing of the manufacturing of brand name goods has resulted in a number of intellectual property thefts. Individuals in foreign countries who gain access to the blueprints or designs of such goods can use it to their advantage. In addition to manufacturing legitimate goods for the company who owns the IP rights, they might also mass-produce similar goods or counterfeits, usually with the only difference being in the quality of the product.


How Prevalent is Counterfeiting?

Even though numerous government agencies, such as the FBI and Department of Justice in the U.S., are on the lookout for counterfeiting operations, they fight an ongoing battle due to the sheer volume of fake goods being produced and sold, especially since the majority of these products come from overseas.


In 2009, the Customs and Border Protection Agency of Immigration and Customs Enforcement of the Department of Homeland Security made 14,841 seizures of counterfeit goods. As part of this action, the following was seized:


Footwear valued at $100 million

Electronic products (cell phones, cameras, computers, etc.) valued at more than $38 million

Accessories (handbags, wallets, etc.) valued at more than $21.5 million

 

In 2013, counterfeit goods valued at more than $1.7 billion were seized by the Department of Homeland Security at U.S. borders. This growth in the trafficking of counterfeit goods can be largely contributed to increased consumer demand.




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