Piracy and counterfeiting is illegal - and flourishing

By Alauddin Masood

The Chief Justice Iftikhar Muhammad Chaudhry has observed that spurious drugs, which are poison to the nation, are heavily pouring into Pakistan. Responding to the CJP’s observation, Secretary Ministry of Health, Mr. Khushnood Akhtar Lashari informed the Supreme Court of Pakistan that the government of Pakistan was preparing a policy to control the flow of spurious drugs into the nation and the new policy would be fully prepared within three months. The health secretary assured the court that an effective policy, in accordance with the law, would be pursued and that a monthly report would be submitted to the court.

The vice of piracy, counterfeiting and infringement of intellectual property rights is not confined to any single sector of the economy or any single country or region. Rather, it has emerged as a major international problem of the contemporary times, hurting almost every segment of the economy and inflicting huge losses to the general public as well as to the national exchequers of countries afflicted by these vices.

This evil practice hampers the economic development of societies by discouraging competition, new research and legitimate investments on one hand and on the other, depriving the affected nations of the much needed new job opportunities and incomes from duties and taxes. According to a decade old study, revenue loss to Pakistan’s national exchequer alone exceeded 10 billion rupees annually. However, the current losses to the state, attributable to piracy and counterfeiting can exceed our wildest imaginations.

It is accepted as a truism that promoting a level playing field and fair competition enables the economy to maximize productivity and efficiency; while curtailed competition as a result of smuggling, piracy, counterfeiting and cartelization prevents the economy from achieving its true potential.

The degree of competition, according to research studies, not only influences the overall performance of an economy, but also provides it a host of ancillary benefits as spin-off rewards. Some major benefits include; development of new industries accompanied by new job opportunities, innovation, new product development, absorption of new technologies, incentives and determination to produce better quality products at lower costs, improved production and management processes, continuous increase in government revenues/taxes in addition to research and development to discover what the consumer really wants and prefers.

At the global level, the huge dimension of this illegal trade may be judged from the fact that the annual cost of piracy and counterfeiting is now estimated to be around $700 billion against $600 billion, as estimated by the World Economic Forum in 2003. Thus, the illicit trade in counterfeit and pirated products continues to aggravate the economic deprivation and ever-expanding poverty, particularly in the third world countries.

Against 10 per cent some five decades ago, according to a global study, now over 50 per cent products are affected by some form of violation of intellectual property rights (IPRs). In other words, there has been a 500 per cent increase in the incidence of IPR violation or sale of fake, substandard, pirated and counterfeit products, over the last five decades, raising dramatically the need to protect the people and products from counterfeiting and associated challenges.

As far as Pakistan is concerned, respect for IPRs is almost non-existent and over 50 per cent of products sold in the country are either fake or look-alike or substandard. Resultantly, creative minds – poets, writers, authors, scientists, artistes, designers, architects, technologists, innovators and producers of products – do not truly benefit from what they create or produce. Their works or products are widely copied and pirated, bringing them meager, and in certain cases, no returns. In the process, the genius and creative minds as well as the entrepreneurs suffer, while pirates and violators of IPR make quick illegal money.   

Furthermore, piracy is not the only mode of abuse or theft of IPR. One can easily find “number two” versions of almost every product, ranging from tea, cigarettes, auto-parts, foodstuffs (including baby food), soft drinks, electrical appliances, perfumes, clothing, footwear, pesticides, washing powder, toothpaste, glassware, cosmetics, toys, sunglasses and even life-saving drugs, in the market.

By nature, man is price conscious and the pirates, fixers and counterfeiters exploit the human tendency to buy the cheapest among goods to market their inferior and substandard products. Furthermore, piracy and counterfeiting is not restricted to expensive luxury goods, but the range of illicit production of shoddy goods also covers daily use household items. The ever growing use of internet and the rise in the number of free-trade zones have provided the unscrupulous elements new avenues for the sale of their inferior and harmful products. 

However, substandard fake items badly affect the health of consumers, more so in the case of counterfeit medicines, which are flooding the medical stores, particularly in rural areas where not more than 10 per cent of the standard drugs can be found. The counterfeit and substandard drugs available in the market include many antibiotics, analgesics, antihistamines and steroids. Sometimes these drugs contain inert substances which are not harmful as such, but they do not fulfill the purpose and also affect drug efficacy. These counterfeit drugs are illegal and inherently dangerous; therefore these have become a rapidly growing public health problem.

In the food industry, the counterfeiters are creating havoc. The dimension of the problem in the food industry can be gauged from the fact that there are around 300 brands of cooking oil and bottled water in the markets in various sizes of tins, bottles and plastic cans, but only nine or ten cooking oil and 22 Banaspati manufacturers are registered with the Pakistan Standards and Quality Control Authority. The availability of skilled labour at dirt cheap wages and weak enforcement of trademark and copyright laws provide these counterfeiters with the ideal climate to carry out their activities.

The magnitude of direct loss to the national exchequer from the smuggling and counterfeit production of cigarettes alone can be vouched from the fact that against a total annual demand of 85 billion sticks in the country, the two big companies in the legal sector produced some 71 billion sticks with a tax/revenue liability of almost 46 billion rupees on their 17 brands this year. All other licensed manufacturers of tobacco products, some 50 in number, continue to pay 20 million rupees annually in revenues/taxes on 118 brands marketed by them; while the smugglers and counterfeiters cater to the rest of the demand. These unscrupulous elements, it is estimated, evade payment of about eight billion rupees annually in taxes and duties to the national exchequer.

The deteriorating IPR situation is highly detrimental to the growth of Pakistan’s economy; overall investment and business climate in the country, market access for export-led growth strategy and fast track integration with global economy as well as cost of doing genuine business and consumer interest in terms of competitive quality and prices.

Pakistan is a developing economy, needing continued investment for sustained progress and prosperity. However, to attract foreign investment, the country needs to guarantee that IPRs are respected, genuine competition is encouraged, laws are actively implemented and culprits are not only discouraged but also brought to book.

But, despite the existence of basic structure to ensure protection of IPR rights and competition in Pakistan, the problem of IPR infringement and cartelization or colluding for price fixing continues to grow in the country. The situation calls for adoption of stringent measures to curb the growing menace of piracy, counterfeiting and cartelization, while  creating mass awareness against these vices by educating the people at all levels (from schools to universities to general masses as well as the law enforcement officials) about the ill consequences of these scourges.