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07 November 2019

Intellectual property rights (IPR) are increasingly becoming the target of counterfeiting and piracy on the Internet. Online infringements pose new challenges to right holders and authorities in the fight against illegal offers. The Office of the European Union for Intellectual Property (EUIPO) and the Swiss Federal Institute of Intellectual Property (IPI) are also keen to help enforce IPR online.

Lucrative online infringement of intellectual property rights

Incentives for counterfeiting and piracy lie in the potentially high profits due to the economic appeal of IP-intensive industries, such as the pharmaceutical, processing or technology industries. According to studies by the EUIPO and the European Patent Office (EPO), IP intensive sectors accounted on average for almost 45% of the GDP in the years 2014 to 2016 (mainly due to sectors with a high trademark density) and over a quarter of employment (mainly patent-intensive sectors) in the EU (see Industry-Level Analysis Report of the European Patent Office and the EUIPO). In Switzerland, the share of employment in IPR-intensive branches of industry was 30.7%, even above the European average (cf. Industry-Level Analysis Report of the European Patent Office and the EUIPO, see also the comparison for Switzerland and the EU). Wages in these sectors are on average over 45% higher in the EU and particularly SMEs owning IPR are generally larger and generate almost 30% more revenue (per employee) than companies without such rights (see Status Report on IPR Infringement).

IPR infringements occur online, in particular by selling counterfeit products and offering of copyright-protected content (primarily films, music or games). Global trade with counterfeit products is increasing: In the EU, counterfeit products already account for 6.8% of all imports (Status Report on IPR Infringement). These counterfeits are primarily luxury and fashion products such as handbags, watches, jewelry, perfumes and cosmetics (cf. the counterfeits at Swiss customs). Illegally offered copyright protected contents are mostly software, films, music, e-books and games.

Negative consequences for rights holders, states and consumers

IPR infringements lead to considerable losses for the right holders concerned. Between 2012 and 2016, the sales figures of the affected industries in the EU fell by an average of 7.4% because of such infringements, corresponding to a drop in sales of 56 billion euros per year (see Status Report on IPR Infringement). In addition to the losses sustained by the right holders, the governments across the EU lose over EUR 16 billion each year in taxes and social security contributions (see Status Report on IPR Infringement). The purchase of counterfeit products also entails risks for end customers: As the range of counterfeit products has expanded in recent years to include everyday products such as cosmetics, medicines and batteries, there are risks to the health and safety of consumers by using counterfeit goods.

Difficult prosecution of online infringements

Legal protection does not reflect the high economic importance of IPR: IP infringements tend to be sanctioned more gently than other illegal transactions such as drug trafficking (see Status Report on IPR Infringement).

According to the EUIPO, imports of counterfeit goods mainly derive from countries with a high level of corruption and with gaps in IPR enforcement. Free trade zones, logistics facilities and a trade facilitation policy in particular tend to encourage trade in counterfeit goods. Among the main exporters are countries such as China (and Hong Kong), Turkey, India and the United Arab Emirates (see Status Report on IPR Infringement, the statistics for Switzerland on counterfeiting and piracy in IP law 2018 of the Federal Customs Administration).

The Internet offers the ideal platform for offering counterfeits, sometimes under a concealed identity, while at the same time generating additional income through advertising. The demand for cheap and easily available counterfeits continues to exist and the purchase of counterfeit products is not socially frowned upon. The constant development and change of distribution methods in a global market are particularly challenging when it comes to enforcing IPR (see Status Report on IPR Infringement). The EUIPO estimates that the average cost of combating such violations per company concerned is approximately EUR 115,000 (see Status Report on IPR Infringement). These costs are very burdensome especially for smaller companies.

Support from EUIPO and IPI

The "follow the money approach" is central to the fight against online counterfeiting and piracy: measures should be taken where economic interests are pursued through violations of rights. The EU authorities try, for example, to prevent delivery to the end consumer through voluntary agreements between rights holders and actors in the sales chain of counterfeit products (e.g. online retail platforms; see Status Report on IPR Infringement). This also includes the involvement of the online advertising industry (see also the Memorandum of Understanding on online advertising and IPR, June 25, 2018).

Both the IPI and the EUIPO support right holders in prosecuting infringements on the Internet: The online portal of the EUIPO, which summaries various enforcement instruments for combating such infringements, is an illustrative example. It enables right holders to establish secure communication with customs officials and the police and to upload data on their IPR. At the same time, right holders will be informed about confiscations at the EU border through this platform and thus supported in their risk management. The Swiss IPI is also supporting the fight against counterfeiting and piracy on the Internet, e.g. as a founding member of STOP PIRACY, an association set up as a public-private partnership. The corresponding online platform is intended to sensitize the public to the risks and to encourage the cooperation between industry and authorities to combat counterfeiting and piracy on the Internet. Rights holders have access to information on the assistance provided by customs authorities in Switzerland and the EU. Violations of IPR lead to considerable economic losses in Europe and to risks to the health and safety of consumers. The defense of IPR on the Internet is never "completed"; rights holders must constantly adapt their protection strategy to the new business models. The services of the EUIPO and the IPI are a valuable help for right holders.

Our Intellectual Property team will be pleased to support you in your protection strategy and enforcement of rights - online and offline.

Our series "Online Enforcement" focuses on special aspects of the enforcement of rights on the Internet.

Authors: Delia Fehr-Bosshard and Lea Germann

Topics: EUIntellectual PropertyMedia & MarketingEnforcementCounterfeitingPiracy

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