Exploring the supply and demand side of counterfeiting

There are several supply-side factors that make it attractive for
producers to take part in the illegal act of counterfeiting:

• The potential of attaining very high profit margins: counterfeiters benefit from the
R&D and marketing expenses invested by legitimate trademark owners. They are
in fact free riding on the economic value associated with IPR ownership.

• Low wages and almost no existing IPR enforcement in (developing) production
countries (e.g. China, South-Africa).

• Counterfeiters face far lower risks in terms of consequences than other illegal
activities (e.g. fines and prosecution). Inadequate penalties form the basis of this
phenomenon.

• The global availability of low-cost high technological equipment creates the
opportunity for counterfeiters to copy and produce nearly every product category
imaginable.

• The existence of free trade zones en free ports allows counterfeiters to engage in
origin-laundering activities by means of which the true origin of these products
can be obscured so that there exists no link towards the actual producers of
these knock-offs.

• The rise of the Internet is a major contributor toward the high availability rate of
counterfeits. Counterfeiters can easily sell their products via e-mail solicitations
(direct marketing) and it can also serve as a powerful marketing tool in reaching
customers in a more disguised way. Counterfeiters now face unprecedented
distribution opportunities.