OBSERVATORY
Survey on counterfeit labels and packaging materials - Asurvey
SURVEY ON COUNTERFEIT LABELS AND PACKAGING MATERIALS Analysis and Results
1/10/2020
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Survey on counterfeit labels and packaging materials
Survey on Counterfeit Labels and Packaging Materials – Analysis and Results
Background
Counterfeiting of labels and packaging materials is an emerging threat in intellectual property rights infringements, as it is the indicator of delocalised, multiphase and well-organised supply chains of illegal products. Moreover, the importation of packaging might reveal the national manufacture of fake products that are finally assembled with their labels on local premises.
The import of fake packaging seriously affects the EU. In 2018 this category of products appeared as the largest in terms of number of detained articles in the statistics of seizures at the borders, with packaging materials constituting 9 % of all the detained articles together with a further 9 % of labels, tags, and stickers (1). Europol and the EUIPO confirmed this trend in their joint threat assessment on intellectual property crime that was published in 2019 (2).
Despite the high number of cases reported, serious information gaps still exist on the modus operandi, enforcement reaction and criminal market for counterfeit packaging materials. The present paper contains the analysis of the results of a survey aimed at filling those gaps, carried out by the EUIPO’s European Observatory on Infringements of Intellectual Property (the Observatory) in collaboration with Europol for the Council of the European Union’s Customs Cooperation Working Party (CCWP).
Framework of the survey
As one of the Council’s preparatory bodies, the CCWP deals with operational cooperation between national customs administrations, with a view to increasing their enforcement capabilities. In the framework of police cooperation as established by Article 87 of the TFEU3, it focuses on seeking results in terms of seizures, identification of new threats and disruption of criminal gangs.
(1) European Commission (2019). Report on the EU customs enforcement of intellectual property rights: Results at the EU border, 2018. Available at: https://ec.europa.eu/taxation_customs/business/customs- controls/counterfeit-piracy-other-ipr-violations/ipr-infringements-facts-figures_en (2) Europol-EUIPO (2019). Intellectual Property Crime Threat Assessment 2019. Available at: https://euipo.europa.eu/tunnel-web/secure/webdav/guest/document_library/observatory/documents/ reports/2019_IP_Crime_Threat_Assessment_Report/2019_IP_Crime_Threat_Assessment_Report.pdf (3) The Treaty on the Functioning of the European Union, OJ C n. 203 of 7.6.2016 (consolidated version; http://data.europa.eu/eli/treaty/euratom_2016/2019-05-01).
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The CCWP works under biannual action plans built, amongst others, on the inputs provided by different institutions and agencies which closely cooperate with it, such as Europol, the European Anti-Fraud Office (OLAF), Frontex and the EUIPO as regards IPR related matters.
The CCWP 9th Action Plan (2018-2019) included an action focusing on the counterfeiting of labels and packaging materials for which the collaboration of the Observatory was sought. The action’s mandate included a comprehensive analysis and assessment of data on detentions of counterfeit packaging items carried out by customs at the EU border and by other law enforcement authorities within the internal market.
On the Observatory’s proposal, the survey was extended to the private sector in order to have the rights holders’ viewpoint.
Methodology
The survey covered the period from 1 July 2016 to 1 July 2018.
For the data collection, the Observatory, in collaboration with the CCWP project leader from the Bulgarian Customs authority, prepared two questionnaires: one for law enforcement authorities (LEAs) and the other for rights holders.
For the private sector questionnaire, advice was sought from representatives of rights holders associations in the Observatory’s network, aimed at pinpointing relevant aspects that could not be addressed through the EU authorities (non-EU border seizures, market seizures in non-EU territories, etc.).
Regarding the LEAs, data was also collected from police and market surveillance authorities, in order to gain wider knowledge about the itineraries and follow-up of illegal shipments. In addition, far from being a mere repetition of the customs statistics already available in the COPIS database (4), the questionnaire for enforcers focused on aspects such as the handling of unbranded products, combined shipments or lots of labels and products, local activities detected, follow-up investigations on local criminal actions, collaboration with rights holders, etc.
The questionnaires, approved by the CCWP, were circulated in January 2019 for online completion via the EUIPO’s systems. All EU Member States’ Customs administrations
(4) The Anti-Counterfeiting and Anti-Piracy System (or ‘COPIS’) is the central database established by Regulation (EU) No 608/2013 of the European Parliament and of the Council of 12 June 2013 concerning customs enforcement of intellectual property rights, to collect data from customs detentions of goods suspected of infringing an IP right.
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received the questionnaire through the CCWP, while Europol circulated it through its network of national contact points.
The Observatory compiled the results of the questionnaire. Based on those results, the CCWP, together with Europol, drafted a final report that was approved by the CCWP in March 2020. Although the CCWP acknowledged that there was room for following up, on that occasion no further action was decided by Customs due to organisational reasons and the scarcity of resources reported by Member States.
Building on the data collected and the overall contributions of all the participants in the project, and Europol in particular, this paper aims to provide the Observatory’s stakeholders with an overview of the results of the survey.
The respondents
Regarding the LEAs, as expected Customs reacted more than other authorities. Of the 35 questionnaires returned, 25 were from Customs, 9 from police authorities and 1 from a consumer rights protection authority. They represented almost all of the EU Member States.
Fig. 1 – Respondent law enforcement authorities
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From the private sector, a total of 72 questionnaires were returned by IP rights holders active in different product sectors, as represented in the chart below.
Fig. 2 – Respondent rights holders’ field of work
The scale of the problem
To facilitate the reading, in this report the generic term ‘packaging materials’ is used for all of the relevant items: labels, logos, bags, tags and other packaging materials.
It can be said that the detection of fake packaging materials is equally frequent among EU LEAs and rights holders. As regards the former, 77 % of the authorities that returned the questionnaire reported that they had made a detention of these items during the period concerned. Among the LEAs, Customs reported more cases than market authorities: 22 out of 25 Customs respondents, compared with only 5 out of 9 police authorities.
Among the rights holders the rate was 65 % of respondents. It should be noted, however, that the answers of the two groups of respondents are not directly comparable, as rights holders were asked about both EU and non-EU cases.
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In terms of the number of detentions, as well as the number of items detained, the figures are significantly high in both groups. The LEAs reported 181 480 (5) detentions of packaging materials comprising more than 27.5 million items, while the private sector reported an even higher number: 32 369 360 detained items. The difference is due to the wider scope of the survey for rights holders, which were asked to respond about EU and non-EU cases, as mentioned. Fig. 3 – Items seized reported by LEAs
Packaging types
Almost all types of packaging materials were seized in both groups. However, for the LEAs, counterfeiters are far more interested in labels, followed by emblems and logos, boxes, plastic bags and paper bags.
Fig. 4 – Types of packaging detained by LEAs (6)
(5) This figure should be interpreted with caution as, due to a possible error, one MS may have reported each item as a separate seizure. Unfortunately, it was not possible to verify the numbers with the respondent. (6) It should be noted that more than half of the detained counterfeit items do not appear in this graph as they were classified as ‘others’ by the respondents.
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Affected products
In order to prevent the product sector with most respondents automatically counting for the highest number of cases, for this analysis the average number of detentions in a product sector was divided by the number of respondents from that sector.
In terms of cases, most of the detentions reported by brand owners appeared to occur in clothing and accessories and in shoes, followed by foodstuffs. The packaging of medicines and tobacco products is also widely counterfeited.
Fig. 5 - Total number of detentions reported by rights holders
In terms of items detained, labels for tobacco products appear at number one, with almost 18 million items seized in the period studied, as reported by brand owners. Shoes are also widely affected with almost 7 million items, followed by labels for clothing and accessories with 3.6 million.
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Fig. 6 - Number of detained items reported by rights holders
Key detention places and routes
One of the key questions concerned where the seizures took place. This was intended to measure the incidence of detections at borders and in the internal markets and, in both cases, from an EU and non-EU perspective.
Regarding the data from the LEAs, since most of the respondents were Customs, the majority of the reported cases took place at the EU external border (79 %), with fewer cases reported as internal detentions (national markets or internal borders).
Fig. 7 – Place of detentions by LEAs
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For rights holders the situation is different. Looking at the EU cases, not surprisingly out of 47 rights holders who reported detentions of fake packaging materials in the period, 26 mentioned the EU external border and 33 the internal market. When it comes to non-EU cases, rights holders accounted for 23 detentions at borders and 29 in third countries’ internal markets. As a general consideration, rights holders appear to be significantly active in tackling fake labels in internal markets globally. The percentages of replies on this point are reported in the charts below.
Fig. 8 – Place of detentions reported by rights holders
In terms of provenance, China appears as the major country of origin of fake packaging in the cases reported by the LEAs, followed by Honk Kong and Turkey. However, a vast variety of originating countries was indicated in the replies from Customs, including a number of EU countries which are also used as transit routes for illicit shipments to EU markets. In this respect, according to a rights holder, and substantiated by Europol intelligence, packaging materials for tobacco products are actually printed in Bulgaria and then shipped to the Baltic region, Poland and Western European countries where illicit production premises are located.
Customs procedures
The survey also looked at the customs procedures under which counterfeit packaging is mostly detected at borders. Almost all LEA respondents indicated that, in the vast majority of cases, seizures of labels occur during import controls. Detentions rarely or even never take
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place during export or transit. This is the consequence of a generally low rate of control activities carried out by Customs on goods exiting the territory, and of the reduced surveillance on transit and similar ‘suspensive’ customs regimes, such as storage, free zones and others.
Fig. 9 – Customs procedures reported by LEAs
In the rights holders’ experience the trends are substantially the same, with import cases prevailing over export, although in a different proportion. The same applies for transit cases, which are more frequent than those reported by the LEAs.
Fig. 10 – Customs procedures reported by rights holders
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Modus operandi
Data from the participating LEAs show that detentions of counterfeit packaging materials at the borders are most common in shipments via post or express courier. This mode of transport is generally used to ship packaging separately from the product. Separate shipment is done either to make it harder for the LEAs to detect the infringement, or simply because the labelling is to be done at destination. In 17 out of 22 cases reported by the LEAs, only packaging material was detected. For rights holders, this occurs to a lesser extent, with combined shipments appearing in 43 % of their replies.
Unbranded products are sometimes also shipped together with packs of labels and other materials for further assembly and distribution. In all cases, the separate importation of packaging materials is an indicator of a national illegal activity, be it manufacturing, assembling or just labelling (see below).
Fig. 11 – Modus operandi reported by Customs
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Fig. 12 – Modus operandi reported by rights holders
Criminal investigations and local activities
The survey also addressed the problem of follow-up criminal investigations in fake packaging materials cases. Focussing on Customs, 64 % of the respondents reported that no investigation activities were conducted in relation to the detained goods. Only 3 out of the 14 respondents that answered positively reported that investigations are conducted often or very often.
Based on some of the respondents’ comments, one of the main reasons for this is Customs’ lack of competence in several national jurisdictions to initiate criminal investigations. In those cases, the file is forwarded to the police authorities for further investigation. Another reason not to follow up with investigations is the small quantities seized as it can be difficult to find a link to illegal organisations. DIN: 0094895743 Page 12 of 15
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Worthy of mention is that most cases in which investigations were conducted involved counterfeit packaging materials for tobacco products.
However, it is evident that the lack of investigations impedes the identification of local illegal activities linked to the trade of packaging materials. While 62 % of respondent rights holders indicated that local activities were found, the rate is 67% of the LEAs that reported follow-up investigations. It is usually the police that identify local activities, with 4 out of 5 respondents answering affirmatively. Fig. 13 – LEAs reporting local activities
The local activities most commonly reported by the LEAs are: storage of counterfeit materials, distribution, goods repackaging, products assembling, labelling and manufacturing.
Fig. 14 – Local activities reported by LEAs
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As regards rights holders, mainly product manufacture and assembling and distribution were reported.
Fig. 15 – Local activities reported by rights holders
Importantly, links to organised crime were also reported by some of the respondent LEAs (namely, 5 of the 12 positive respondents). This confirms that links between IP infringers and criminal groups are a real threat, as recently shown by the EUIPO and Europol in their IP Crime Threat Assessment 2019 (2).
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Conclusions
The survey results illustrate that counterfeit labels and packaging are a serious problem facing the EU, in line with the statistics of seizures at the EU’s external border. It highlights the existence of domestic activities within the EU in a structured supply chain, where counterfeit labels are attached to fake products that are either imported into or produced within the EU. There are also cases of counterfeit labels being shipped together with unbranded products in the same shipment.
Almost all commodity sectors are affected by this modus operandi, with textile and footwear among the items detained most often. As regards types of packaging, labels are the most counterfeited, as they are the first and most immediate means of product identification.
China and Hong Kong were reported by respondents as the most important countries of origin, with different entry points into the EU. Most cases are reported as border seizures, but this is partially due to most respondents being customs authorities. Rights holders report a higher number of cases internally. This might be the result of effective brand protection and corporate investigations in the markets.
Although the survey does not provide sufficient data for a proper assessment of the number of items detained per mode of transport, fake packaging material is frequently shipped via postal services and express couriers. Huge numbers of small consignments make it hard for the LEAs to implement effective countermeasures.
Local activities are identified when investigations are carried out to follow up on a detention. With storage and product manufacture as the most commonly identified local activities, cases reported by both LEAs and rights holders provide indications of assembling and distributing within the EU. This illustrates, yet again, the organised nature of the criminals active in IP crime.
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