How knockoff DVDs could cost you your job – and health

Counterfeit goods and piracy – also known as intellectual property crime – has become a multi-billion pound business that is coordinated by organised criminals.

Now the Intellectual Property Crime Report, from the Department for Innovation, Universities and Skills, has revealed the true impact it is having on our economy. Dr Gillian Whitfield, managing director of Astrum, pictured left, assesses its findings

YOU can view it as an act of rebellion – cheating the system. A chance to get the latest films at a fraction of the cost of buying them in the shops, and frequently months before they go on general release, often arises in pubs and shopping malls.

But would you be willing to buy a knockoff DVD if you knew that the sale could have a direct adverse impact on the livelihoods of the people around you, and the economy in general?

When Apollo Video Film Hire went into liquidation last year, with the closure of over 100 shops in the UK, including its Music Zone chain, industry observers said its misfortunes was considerably contributed to by piracy. As well as a loss of local business, which can change the make-up of our high streets, intellectual property crime has been described as “the biggest threat to the prosperity and development of our creative industries”, by the Alliance Against IP Theft. Small wonder, when you consider that publishing, music, film, software and arts contributes more than 1 trillion euros to the European Union’s economy each year, employing over five million people.

International trade in counterfeiting and piracy is estimated by the Organisation for Economic Cooperation and Development to be worth $200 billion a year, and £1.3bn in the UK alone. Here in Wales, seized counterfeit goods have included everything from mineral water to a fake Dalek, taken in Cardiff.

Such criminal activity is hugely affecting our health service, too. “In the UK alone, the Treasury lost £191bn to tobacco smugglers in the five years to 2005,” Jan du Plessis, the Chairman of British American Tobacco, has claimed. Over half of the two billion cigarettes seized by HM Revenue and Customs in 2005-2006 were believed to be counterfeit, with the Tobacco Manufacturers Association estimating that two billion cigarettes smoked in 2006 came from illegal sources, making a shortfall in duty of £18.5bn.

This trade increases the strain on already-stretched NHS resources, by robbing it of valuable funding while delivering possibly more people into its care, as counterfeit cigarettes have been shown to contain up to 160% more tar, 80% more nicotine, and 133% more carbon monoxide.

IP criminals have also moved in strength into the drinks market. At least one person has died from drinking illicit vodka, while another was put into a coma for 11 days for drinking another counterfeit brand. Here in Wales, a raid on an illegal vodka factory in Cardiff found that drink produced there contained 38 times more than the permitted level of methanol and “possessed the chemical composition of a diluted industrial methylated spirit which, if consumed, would be injurious to human health”. The vodka was also discovered in a number of other authorities, including here in Newport, as well as in Bridgend and Torfaen.

Other health concerns surrounding counterfeit goods have included sunglasses that are not shatterproof or afford UV protection, safety-critical mobile phone goods like batteries and car chargers, and Panasonic was prompted to warn that fake batteries for its camcorders could lead to explosions. In July last year, one US manufacturer said counterfeit, untested parts for its cranes were being produced in Asia.

The Intellectual Property Crime Report also found that IP theft was having a considerable impact on innovation. Almost a quarter (23%) of SMEs surveyed recently believed that their businesses had been affected by such criminal activity, with job losses of 5% or more on the previous year, giving rise to the very real possibility that companies could be affected to the point where their viability could be called into question.

In addition the International Chamber of Commerce reported in 2005 that investment and technology transfer were being hit. “Businesses are less likely to transfer advanced technology, or invest in production or R&D facilities in countries where they are likely to have their products copied or technology stolen. This is particularly true of industries where intellectual property plays a key role, such as IT, biotechnology and pharmaceutical sectors, which many countries aspire to develop,” it found. When you consider what a premium the Welsh Assembly Government places on attracting high value work of this kind, this takes on added significance.

Businesses are affected by IP theft on a number of levels. Counterfeit goods undercut prices, and successful, consequential litigation is difficult. But they also serve to damage the reputation of brands – particularly those in the luxury market - reducing sales of real goods and making it much harder to market to new customers.

Organised IP criminals, often operating on an international level, are having an impact on our lives in other ways, too. Many are engaged in identity theft. Even more disturbing, child labour and illegal immigrants are exploited to bring us these illegal goods.

The Serious Organised Crime Agency, which calls intellectual property theft a “serious organised criminal activity”, has said, “Criminals at all levels are involved in IPC. Serious organised criminals are particularly involved in the manufacture and distribution of counterfeit products. Mainland Chinese organised crime groups are heavily involved in the distribution of counterfeit DVDs and exploit illegal immigrants or asylum seekers to sell them on the streets in the UK”. A recent BBC undercover investigation found evidence of Chinese criminals employing illegal immigrants to sell DVDs in order to pay back as much as £15,000 they had charged them for bringing them to the UK.

In 2006, HMRC intercepted more than 128 million counterfeit and pirated articles in over 37,000 cases. This compares to 2005, where customs seized 75 million articles involving around 26,000 cases. All the evidence suggests that these figures will continue rising.

The Intellectual Property Crime Report describes IP theft as “a double-edged crime”, unfairly undercutting the legitimate trader while defrauding and threatening the customer. It makes a series of recommendations (which can be seen at www.ipo.gov.uk/ipcreport.pdf). However, all of us, at street level, can make a difference here.

(This feature first appeared in the Western Mail and Chamber Chat, December 2007 and January 2008)