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Research shows counterfeiting not victimless crime

  • 25 November, 2003 15:26

<p>Counterfeit software, toys and games are big business, especially at Christmas. But according to a study released today, counterfeiters not only rip off consumers – they cost Australian jobs and legitimate Australian businesses hundreds of millions of dollars a year.</p>
<p>The Cost of Counterfeiting Study released by the Australian Toy Association (ATA), Business Software Association (BSAA) and Interactive Entertainment Association of Australia (IEAA), found that the direct costs of counterfeiting are largely borne by the legitimate industries that make and distribute original products. However governments, which lose tax revenue because counterfeiters tend to operate outside the tax net; and consumers, who may be deceived into buying non-original and inferior goods, are also impacted.</p>
<p>Total lost sales in the Australian toy, software and video games industries was found to be up to $677 million, which conservatively represented $200 million in lost profits, according to the study.</p>
<p>The study concluded that a reduction in counterfeiting of just one third over five years, bringing Australia into line with New Zealand and the USA, would have significant macroeconomic benefits for Australia. For example, real GDP would increase by around $41 million per year, representing a gain in net present value terms of $466.3 million, while real government tax revenues would be $34.4 million higher per year, representing a gain in net present value terms of $487.2 million.</p>
<p>Speaking today at the launch of the study, which included demonstrations by each industry association on how to identify counterfeit products, the author of the report and director of The Allen Consulting Group, Jeremy Thorpe, said: “The costs of counterfeiting are substantial and varied, and while it is becoming easier, faster and cheaper to create counterfeit products, this report clearly shows that the combined costs of counterfeiting far exceed any potential benefits.”</p>
<p>Key Findings – Toys</p>
<p>Approximately 52 percent of non-traditional outlets and discount stores appear to endorse the sale of counterfeit products according to ATA spokesperson, Dennis Bond.</p>
<p>“While this causes significant financial losses to both the industry and government, more importantly it creates serious health and safety risks to small children. We would encourage anyone purchasing a toy to ensure they are in fact purchasing a legitimate, guaranteed product and not being deceived by a copy which has not gone through proper quality assurance and testing processes.”</p>
<p>o $132 million in lost gross sales for the toy industry in 2002</p>
<p>o $15.7 million in lost profits for toy suppliers in 2002 due to counterfeiting (adjusted for price effects and sales margins)</p>
<p>o $3.5 million in lost profits for toy retailers in 2002 due to counterfeiting (adjusted for price effects and sales margins)</p>
<p>Key Findings – Business Software</p>
<p>According to the Chairman of the BSAA, Jim Macnamara, the study’s findings support the BSAA’s stand and demonstrate the significant economic benefits, which could be gained with more effective enforcement of intellectual property rights in Australia.</p>
<p>“Australia’s software piracy rates are significantly higher than other developed markets such as the US, New Zealand and UK. While Australia’s copyright enforcement has been improved, it is still inadequate to significantly reduce the rates of software piracy and more stringent enforcement is needed to protect businesses and consumers,” Mr Macnamara said.</p>
<p>Software piracy findings of The Allen Consulting Group study included:</p>
<p>o $446 million in lost sales for industry due to counterfeiting;</p>
<p>o $142.5 million in lost profits for software supplier due to counterfeiting (adjusted for price effects and sales margins)</p>
<p>o $11.9 million in lost profits due for software retailers due to counterfeiting (adjusted for price effects and sales margins)</p>
<p>Key Findings – Computer and Video Games</p>
<p>Piracy is the single most important issue facing the interactive games industry according to Michael Ephraim, President of the IEAA.</p>
<p>“The Australian market for electronic games is expanding rapidly and this growth is expected to continue through 2004, so future losses from counterfeiting in this industry are likely to grow substantially in absolute terms unless the problem is successfully addressed. The biggest problem area, in terms of counterfeit games production, is the ‘backyard’ operator who sells the games at markets, or distributes them to friends and family.</p>
<p>o $100 million in lost sales for the industry due to counterfeiting</p>
<p>o $21.8 million in lost profit for computer and video games suppliers due to counterfeiting</p>
<p>o $4.3 million in lost profit for computer and video game retailers due to counterfeiting</p>
<p>Consumer Attitudes</p>
<p>One of the most concerning factors highlighted by the study is the attitude of the Australian public, who do not perceive counterfeiting as a crime.</p>
<p>The results of an AC Nielsen survey, conducted as part of the broader research, showed that around 18% of Australians would knowingly purchase pirated goods if they were slightly cheaper than the original product, rising to about 40% if they were 75% cheaper and almost 50% if the product were free. Up to 17% of households interviewed had knowingly purchased pirated computer or video games.</p>
<p>According to Michael Ephraim of the IEAA, “While it can be argued that consumers benefit from counterfeiting because they gain access to goods that they would otherwise have to pay (more) for, this is a short term benefit that needs to be considered in light of longer-term costs. In particular, acceptance of property right violations, even if that acceptance is tacit, undermines the fundamental rule of law that underpins our economy.”</p>
<p>This study, conducted in 2003, included a detailed analysis of previous counterfeiting estimates in Australia and overseas, the use of confidential industry and firm-specific data on sales and profit margins; a national survey of 1400 Australian households and a rigorous economic modeling methodology (MMRF Green Model) conducted by the Monash University Centre of Policy Studies.</p>
<p>What is Counterfeiting?</p>
<p>Counterfeiting is the unauthorized duplication of a product protected by one or more intellectual property rights. It may also involve the unauthorized distribution of the counterfeit product, possibly with the intention to deceive the consumer as to the product’s authenticity.</p>
<p>About the BSAA</p>
<p>The Business Software Association of Australia (BSAA) is affiliated with the Business Software Alliance (BSA), which operates globally in 65 countries. BSA members develop the software, hardware and the technologies building electronic commerce. Principal issues include copyright protection, cyber security, trade, e-commerce and public policy initiatives that impact the Internet.</p>
<p>BSAA members include Adobe, Apple, Autodesk, Borland, Macromedia, Microsoft and Symantec.</p>
<p>Visit for more information or call toll free for public enquiries (anonymously if preferred) 1800 021 143.</p>
<p>About the IEAA</p>
<p>IEAA is the Australian not-for-profit trade association dedicated to serving the business and public affairs needs of companies that are responsible for sales, marketing, distribution and development of computer and video games software, hardware and accessories.</p>
<p>IEAA members are the leading organisations in the Australian interactive entertainment industry: Acclaim Entertainment, Activision, Atari Australia, EIDOS Interactive, Electronic Arts, Microsoft, Nintendo Australia, Sony Computer Entertainment, Take 2 Interactive, THQ, Ubi Soft and Vivendi Universal Games.</p>
<p>Visit for more information</p>
<p>About the ATA</p>
<p>ATA is an independent well resourced industry body representing and servicing Australian industries specialising in products for kids &amp; family leisure, learning and entertainment to enhance their future health and prosperity.</p>
<p>ATA members (over 250) include include manufacturers, distributors, importers, retailers, agents and licensors and these represent 90% of total industry sales.</p>
<p>Visit for more information.</p>
<p>About The Allen Consulting Group</p>
<p>The Allen Consulting Group is a leading Australian strategic consulting firm that occupies a niche at the interface between business and government. Established in 1988, the Group has grown rapidly and now has over 40 staff and offices in Melbourne, Sydney, Canberra and Perth.</p>
<p>The Allen Consulting Group provides high-quality advice in two broad areas:</p>
<p>o economics, public policy and regulation; and</p>
<p>o public affairs, stakeholder and issues management.</p>
<p>The Allen Consulting Group works across a range of sectors including agriculture, resources, manufacturing, information industries, utilities, transport, banking and finance, health, education and government.</p>
<p>For further information please contact:</p>
<p>The Allen Consulting Group, Jeremy Thorpe, M: 0416 245 535,</p>
<p>ATA, Beverly Jenkin, CEO, T: (03) 9320 2600, E:</p>
<p>BSAA, Pru Quinlan, On behalf of the BSAA, M: 0405 100 585, E: IEAA</p>
<p>Beverly Jenkin, CEO, T: (03) 9320 2666, E:</p>

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