'More Than 10 Times More Profitable Than Drugs' 2,000% Margins... 'Bought Unknowingly, Bought Knowingly' [The Invasion of Counterfeits] ④

Profit Margins of 2,000%: A Highly Lucrative Business
Consumers Knowingly Buy Fakes... 74% Have Purchased Counterfeits
Territoriality Makes Punishing Counterfeit Sellers Difficult

Editor's NoteThe global counterfeit market is valued at 2,000 trillion won. Fake products have become more sophisticated, and their distribution more audacious. It is not only high-end luxury brands that are falling victim. While consumers remain silent about counterfeit goods, Korean brands expanding into the global market are also being copied. Local brokers are preemptively registering trademarks, blocking market entry, and companies are being frustrated by enormous litigation costs. In the borderless online marketplace, there are clear limitations to enforcement and monitoring. Asia Economy investigated the explosive growth of the counterfeit market since the COVID-19 pandemic, exposed its realities, and explored solutions to prevent copycat products of 'K-brands' that have made waves in the global market.

"There are many Cheongsimhwan pills in the Qing Dynasty, but most are fake. Only those made in Joseon can be trusted as genuine."

This is a passage from "Yeolha Ilgi" by Park Ji-won. "Yeolha Ilgi" is a travelogue written by Park Ji-won after he visited the Qing Dynasty as an envoy to celebrate Emperor Qianlong's 70th birthday. The account reveals that counterfeit Uwhang Cheongsimhwan pills were widely distributed in Qing China at the time. In the Joseon Dynasty, various counterfeit products existed, and those who sold them were called "inhwasang" (counterfeit merchants). (Excerpt from Kim Jongmyeon's "Online Counterfeit War")

Counterfeiting has existed throughout human history. Sellers enjoy profits dozens of times higher than the cost, while consumers get to experience brands at lower prices. As counterfeit sales have moved online, enforcement has become more difficult, and the lack of penalties for consuming counterfeit goods has fueled steady demand, causing the counterfeit market to grow explosively.

Luxury brand bags from Miu Miu, Celine, and Gucci are displayed. A sale is also underway. Photo by Jae Hyun Park.

'2,000 Trillion Won' Counterfeit Market, Tripling in Size Over Three Years

According to the Organisation for Economic Co-operation and Development (OECD) on September 10, 2021, the global trade in counterfeit goods was valued at about 645 trillion won (467 billion dollars). This accounts for 2.3% of total global trade. Compared to 2019, when the market was valued at 610 trillion won (464 billion dollars), this represents an increase of 30 trillion won. Since the COVID-19 pandemic, as online markets have expanded worldwide and offline counterfeit sales have shifted online, the counterfeit market is projected to have grown nearly threefold, reaching close to 2,000 trillion won.

The explosive growth of e-commerce platforms such as Amazon and Alibaba has fueled the expansion of direct global purchases, which in turn has driven the growth of the counterfeit market. Counterfeit goods are delivered directly to consumers as small parcels, making it easy to bypass official customs channels.

The number of counterfeit items entering the domestic market has also shown a steady upward trend each year. According to the Trade-Related Intellectual Property Protection Association (TIPA), an agency under the Korea Customs Service, there were 102,219 cases of intellectual property (IP) infringement detected at the customs clearance stage last year. This is about a 20% increase from the 85,247 cases detected the previous year. Compared to 34,773 cases in 2020, this represents a 194% increase.

The Counterfeit Market as a 'Financial Lifeline' for Global Criminal Organizations

The reason the counterfeit market has not been eradicated, and in fact has seen explosive growth, lies in its high-profit margin structure. According to an official gazette published by the French government in 2016, counterfeiting is a highly lucrative business, generating margins of up to 2,000% over cost. This is more than ten times the profit margin of drug trafficking, which stands at 200%. For this reason, counterfeit sales have recently become a means of financing for criminal organizations. The Institute for Economics and Peace's 'Vision of Humanity' explains, "The counterfeit market is less strictly regulated and allows for the immediate acquisition of untraceable cash, making it an effective means for financing terrorism."

In Korea, there are criticisms that lenient penalties have contributed to the growth of the counterfeit market. According to Article 230 of the Trademark Act, those who distribute, sell, or store counterfeit goods may face up to seven years in prison or fines of up to 100 million won. However, over the past five years, the average fine imposed for selling counterfeit goods has been only 2 to 3 million won. The lack of effective punishment has allowed counterfeit sales to thrive in online markets such as live commerce and open marketplaces.

The difficulty in punishing overseas sellers is another factor fueling the counterfeit market. Of the counterfeit goods entering Korea, 94% originate from China, and blocking these imports or seeking damages requires sanctions against Chinese sellers. However, due to the principle of territoriality, Korean law cannot be applied to punish Chinese sellers. Territoriality means that a country's laws are only effective within its own territory. This means consumers who purchase counterfeits from Chinese sellers cannot claim damages or impose penalties, and the same applies to domestic brands whose trademark rights have been infringed. Since cross-border transactions of counterfeit goods are common, territoriality is cited as a limitation on enforcement and penalties.

Kyungok Heo, a professor of Consumer Industry Studies at Sungshin Women's University, explained, "Since the cost is low but the product can be sold at a high price by attaching a luxury brand name, sellers can make significant profits. Also, because most of these goods are imported from China, even if detected, it is difficult to impose sanctions, which is why counterfeiting continues to occur."

No Penalties for Consuming Counterfeits... France and Italy Impose Strict Punishments

Demand is another pillar supporting the counterfeit market. According to the "Global Anti-Counterfeiting Consumer Survey" conducted in 2023 by the Center for Anti-Counterfeiting and Product Protection at Michigan State University, which surveyed more than 13,000 consumers in 17 countries, 74% of respondents had purchased counterfeit goods. Of these, more than 52% had knowingly purchased counterfeit products (multiple responses allowed), and among them, 38% unknowingly purchased counterfeits but chose not to return them and simply used them.

The consumption of counterfeit goods is spreading further, fueled by the recent trend of "dupe consumption." Dupe consumption refers to purchasing low-priced imitation products that slightly modify the design or function of high-end brands. Consumers in their teens to thirties worldwide are participating in dupe consumption for "economic reasons." As most countries do not penalize buyers of counterfeit goods, it has become a global trend.

In contrast, France has designated possession of counterfeit goods as a punishable offense since 1994 and imposes fines of up to three times the retail price of the genuine product for purchasing fake goods.

<To be continued in Part 5 of "The Invasion of Counterfeits">