TCS Daily

A New Balance on Counterfeit Goods

By Martin Krause - August 22, 2005 12:00 AM

The sports shoe manufacturer New Balance is about to return to Argentina after four years of absence, after it completes some sort of "cleaning" of the market of pirated copies of their famous shoes. Tired of complaining about counterfeits they hired a law firm which followed the trace of copied shoes to stores and traders and by the end of July, requested the seizure of 35,000 pairs with a value of around $2 million.

The law firm has started to change its tactics though. In the past, they used to go after the manufacturers of the counterfeit shoes, but as soon as they were caught they would move shop and start someplace else. They are now going after the supply chain which seems to be more stable. This activity to combat counterfeit goods has convinced New Balance that conditions are now starting to exist in Argentina whereby they can return for business.

It is not only New Balance that has become more active in the fight against piracy. The department of Customs has reported they are also stepping up their efforts to combat counterfeit products. Customs Director, Ricardo Echegaray reported that they recently seized and destroyed a batch of 3,000 fake Stanley hand-tools and also seized Sony electronics worth $100,000 dollars. The director said it was their first major seizure of counterfeits and acknowledged that counterfeit toys, shoes, textiles, cigarettes, perfumes and jewelry are regularly introduced.

One of the hotbeds of these illegal activities is what is called the "Triple Frontier" and area between Argentina, Brazil and Paraguay, which is more or less a no-man's-land in terms of trademarks and copyrights, and probably, terrorism's financiers. In June the Global Business Leaders Alliance Against Counterfeiting (GBLAAC), based in Brussels, held a conference in Rio de Janeiro where they evaluated Operation Jupiter, led by Interpol, which centered activities in that area. The organization was formed by companies such as Coca Cola, Gillette, Henkel, Procter & Gamble, Sara Lee and Unilever from the consumer products, beverages and foods industries; Novartis from drugs/pharmaceuticals; Daimler Chrysler and General Motors from automotive; BP from oils and lubricants; Pentland from sports apparel and clothing; Allied Domecq and Heineken from alcohol and spirits; and British American Tobacco, Japan Tobacco International and Philip Morris International from the tobacco industry.

According to press reports, millions of cigarettes, CDs, DVDs, pharmaceutical products, computers and electronic products have been seized and eyes were directed to China. But local counterfeiters are not inactive. The executive director for the Argentine Garment Industry Chamber, H├ęctor Kolodny, reported that more than 60 percent of garments sold in Argentina are counterfeit. These activities are related to an underworld active in the theft of textiles, buttons and zippers; informal shops and the possibility to market those products through formal and legal stores.

A 2004 report focusing on the music industry cited that 15 million counterfeit CDs were sold in the country, 49 percent of which were sold in Buenos Aires, which has represented a loss of almost $100 million to the local industry.

Buenos Aires has become the center of much of this trade in counterfeits. A survey by the Argentine Chamber of Commerce found that in June there were 1,230 illegal street vendors within the 150 blocks they surveyed, an increase of 6 percent compared to May. The Chamber even has an Illegal Sales Index which tracks this and stood in June at 118.9 (base February 2004 = 100).

There is some good news though. Argentina's National Administration of Drugs, Foodstuffs & Medical Technology (ANMAT) this week called for the government to impose tougher penalties against the copying of drugs. Although they did not offer any figures, they reported that a large number of copied and counterfeit drugs come to market through borders that are hard to control, if at all. Consumers, however, are not as aware about counterfeits within this industry. While they are happy to save a buck or two on counterfeit sport shoes or garments while disregarding manufacturers' rights, let's see if they think the same about drugs and the effect this may have on their own "right to life".

Politicians and legislators have sadly not been active in the protection of trademarks in Argentina, as the comments by the Customs director show. Pirated software has even been found in many governmental agencies and most probably do not hesitate to buy these fakes from illegal street vendors. It is not surprising then that pirated software accounts for 75 percent of the entire of software in Argentina.

Nevertheless, politicians are very active in the courts with regard to libel suits, either between themselves or against media reporters or anyone else. Isn't this curious? They seem to be very concerned about protecting their own names and reputations (and you may consider curious that those reputations could be protected anyway), but they do not care about the names, trademarks and reputations of producers.

Dr. Martin Krause is the Professor of Economics and Dean of ESEADE Business School in Buenos Aires, Argentina.


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