11 Trillion Won Damage from Overseas Counterfeit Goods and Intellectual Property Rights 'Warning Signal' [Why&Next]

The scale of counterfeit goods trade outside the country exceeded 11 trillion won in 2021. This means that counterfeit goods infringing on Korean intellectual property rights were distributed in large quantities through international trade. Experts warn that such illegal trade poses a serious threat not only to consumers and intellectual property rights holders but also to the national economy. They also suggested strengthening international cooperation, such as multilateral treaties, to prevent illegal trade of counterfeit goods, citing the difficulty of independently responding to illegal activities beyond borders.

According to the Korean Intellectual Property Office and the Korea Intellectual Property Research Institute (hereinafter referred to as the Intellectual Property Research Institute) on the 6th, the Organisation for Economic Co-operation and Development (OECD) recently analyzed and announced the scale of damage to Korea's intellectual property rights caused by illegal trade transactions and the adverse effects on the domestic economy through the report "Illegal Trade and the Korean Economy."

The report is the result of research commissioned by the Korean Intellectual Property Office to the OECD and is the first case in which the OECD analyzed the economic impact on Korean companies due to the distribution of counterfeit goods. The OECD completed the report by quantitatively analyzing the damage and trends of counterfeit goods based on the "Global Customs Seizure Data on Counterfeit Goods."

According to the report, the international trade value of counterfeit goods infringing on Korean intellectual property rights reached 11.096 trillion won in 2021. This corresponds to 1.5% of the total domestic genuine product exports for that year.

The largest damage from counterfeit goods was in the fields of home appliances, electronics, and telecommunications equipment. The scale of intellectual property infringement damage in these sectors amounted to 6.978 trillion won, accounting for 62% of the total international trade value of counterfeit goods infringing on Korean intellectual property rights in 2021.

The main source country of counterfeit goods (country of origin) was China (including Hong Kong), with 85% of the total volume of international trade produced and exported from China. This result was derived by investigating the source countries of counterfeit goods infringing on Korean intellectual property rights seized by customs. Counterfeit goods were mainly transported via postal delivery (57% of the total), with air (25%), land (11%), and sea (7%) transportation also used.

Notably, since the COVID-19 pandemic, cases of counterfeit goods purchased on online platforms (non-face-to-face) being transported via small postal parcels have been increasing. As counterfeit goods transactions have become frequent through online platforms, warnings have been raised that the adverse effects of illegal trade of counterfeit goods (intellectual property infringement) on society as a whole will also increase.

First, the OECD warned in the report that illegal trade of counterfeit goods threatens consumer health and safety and causes damage such as sales loss, revenue decline, and brand value deterioration for intellectual property rights holders. It also emphasized that at the national level, additional costs will increase, such as tax revenue decline, rising unemployment burdens, and the enactment of laws to address public safety issues.

In fact, the total sales loss of Korean companies caused by intellectual property infringement in international trade in 2021 is estimated at 6.798 trillion won. The report also states that the number of jobs lost in the Korean manufacturing sector due to the same reason was 13,855, and the government's reduced tax revenue reached 1.8 trillion won. The decrease in government tax revenue from intellectual property infringement in international trade is an estimate reflecting reductions in corporate tax, income tax, and social security contributions.

Even if the damage caused by illegal trade of counterfeit goods comes to light, individual countries face limitations in effectively responding. For example, the Intellectual Property Research Institute identified representative obstacles encountered in responding to illegal trade of counterfeit goods, including ▲low penalties for counterfeit crimes ▲limited global cooperation in responding to counterfeit goods ▲low linkage between e-commerce platforms and legal systems ▲cost issues arising during criminal litigation against counterfeit goods manufacturers.

The Intellectual Property Research Institute also appealed that to resolve these obstacles and minimize damage from illegal trade of counterfeit goods, domestic institutions related to counterfeit goods issues need to unite and cooperate, while active international cooperation and the conclusion of multilateral treaties for this purpose are necessary.

Jang Byeong-deuk and Lim So-jin, research fellows at the Economic and Industrial Research Office of the Intellectual Property Research Institute, said, "The issue of counterfeit goods negatively affects value-added creation and innovation, which are major sources of a country's long-term economic growth," and added, "Intellectual property policymakers and the private sector must continuously pay attention and show willingness to respond to the illegal trade of counterfeit goods."

In particular, these researchers emphasized, "To more effectively crack down on counterfeit goods in the global trade market, active international cooperation and multilateral treaties for this purpose are necessary," and "Above all, cracking down on counterfeit goods distributed on overseas online platforms and cooperation between countries in the process of cracking down on and punishing counterfeit goods manufacturing factories are essential requirements."

Meanwhile, before Korea, major countries such as the United Kingdom (2017), Italy (2018), Sweden (2019), and Switzerland (2021) also commissioned the OECD to analyze the scale of economic damage caused by counterfeit goods trade transactions in their countries. As a result, the UK suffered economic damage of 13.4 billion GBP in 2013 (base year), Italy 35.58 billion EUR in 2013, Sweden 28.3 billion SEK in 2016, and Switzerland 6.97 billion CHF in 2018.

This indicates that damage caused by trade transactions of counterfeit goods is not limited to specific countries and is expected to serve as a starting point for inter-country cooperation to prevent damage.