Insights into the business of counterfeiting

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Counterfeiting has become a multibillion dollar industry, but insights into the supply side of counterfeiting are very limited. In the full article from which this abstract is drawn, we explore the supply side of counterfeiting and identify different business models of counterfeiters.

In all cases, effective anticounterfeiting requires a differentiated approach.

Our insights are based on a qualitative empirical study comprising 290 expert interviews from 190 different firms and institutions.

Understanding counterfeiters’ business models

We identified four basic counterfeiting business models that centered on different core activities of value creation, i.e., manufacturing, distribution, coordination and financing:

  1. Counterfeit manufacturers
  2. Counterfeit distributors
  3. Counterfeit coordinators
  4. Counterfeit financiers

In combination with the four generic business models, our experts identified four additional strategic parameters to distinguish different piracy businesses:

  1. Deceptive versus non-deceptive counterfeiting, i.e., whether the operations are open or masked.
  2. The scope of IP-infringement. For example, many counterfeit manufacturers specialize in patent piracy without trademark infringements, whereas some counterfeit distributors adhere to brand piracy and simply add original trademarks to functionally distinct products.
  3. The geographical range. The degree of internationalization positively correlates with the degree of business risk. Thus, many counterfeiters limit their activities to domestic markets, to avoid anti-counterfeiting activities and thereby achieve learning-curve benefits without the potential for conflict.
  4. Counterfeiting can be a full-time or part-time business. Full time counterfeiters pursue their business actively. In contrast, part-time counterfeiters use piracy only to complement their legitimate product portfolio.

Implications for anti-counterfeiting in practice

As core recommendations, rights holders should ensure the following:

  • Develop a strategic approach to anti-counterfeiting (an anti-counterfeiting strategy framework is described in the full article). Organizations can then select the appropriate instruments for fighting counterfeiters, depending on their business models.
  • Integrate anti-counterfeiting into product and service (pre-) development processes rather than only beginning to consider how to respond after the first instance of piracy has occurred.

The complete article was written by:

  • Prof. Dr. Michael Stephan
    Head of Technology and Innovation Management Department, Philipps-University Marburg, Germany
  • Dr. Martin J. Schneider
    Project Leader, ID-Consult GmbH, Munich, Germany

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