The black market and counterfeiting 23 July, 2009 By Steve Wexler

The term black market refers to the buying or selling of illegal products, such as those that have been stolen or which violate intellectual property (IP) rights. Examples of IP rights violations include counterfeit and pirated software, patents, and technology. Black market goods are different than gray market goods, which are new genuine branded products bought and/or sold outside of authorized channels. Often, black market and gray market move through the same secondary routes to market that are not authorized by the brand owner or original equipment manufacturer (OEM).

Counterfeiting is defined as a deliberate attempt to deceive consumers by copying and marketing goods that bear a manufacturer's trademark so that these goods appear to have been placed on the market by the brand owner. The term generally implies intellectual property, copyright, and trademark violations, such as:

• Unauthorized production (replication) and distribution of branded goods
• Re-labeled, repackaged product resulting in a complete misrepresentation of the goods. The original products could be used, obsolete, or quality rejected goods, or just a lower quality version of the same product.
• Assembly operations which combine parts, components, and subsystems from many sources and are fraudulently labeled as branded goods ("Frankenstein Engineering"). This could also include some genuine components due to
  • Overbuilding by contracted assembly plants
  • Stolen parts or components
  • Leaks of quality rejected goods
  • Substandard components
  • Legitimate parts, components, subsystems purchased from the OEM and assembled and branded without the authorization of the brand owner

• Electronic supplies (printer consumables, batteries);
• Semiconductor parts and components;
• Software and Software Documentation;
• Printed circuit boards; and
• Higher level electronics systems (computer laptops, desktops and servers; disk drives, network equipment, telephones, etc.).

Counterfeit goods generally fail to meet the full range of product specifications and performance standards, but may have the look and feel of the genuine article. The problem is huge:

• The international trade in counterfeit goods is growing at an alarming rate and, according to the International Chamber of Commerce (ICC), has reached $650 billion (2007 number)
• U.S. Customs and Border Protection and U.S. Immigration and Customs Enforcement announced on January 8, 2009 that fiscal year 2008 seizures totaled more than $272.7 million in counterfeit and pirated goods, a 38 percent increase in domestic value over fiscal year 2007. Among the products seized for IP rights violations that might also pose health, safety or security risks were electrical articles, semiconductors, computer network hardware, sunglasses, pharmaceuticals, and perfume. The domestic value of such seizures jumped more than 120% to $62.5 million, and the number of these seizures climbed 50% to 1,950. In fiscal year 2007, CBP and ICE made 1,295 seizures of potentially dangerous counterfeit goods valued at almost $28 million (http://www.cbp.gov)
• U.S. Chamber of Commerce estimates that intellectual property theft costs domestic companies between $200-$250 billion per year in lost revenues and has resulted in the loss of 750,000 jobs in the United States

Brand owners and OEMs actively encourage customers to purchase from sources authorized to resell their products. However, if authorized channel partners do not comply with their authorizations and also purchase from the OEM or authorized sources, then the risk of counterfeits entering legitimate channels is significant. All resellers should check the integrity of their sources to ensure they are reselling legitimate goods. The legal risks for reselling counterfeits or other black market goods can be devastating to a reseller.

Take the QUIZ:

As part of the Trusted Business Advisor Business Education and Certification Program, it is imperative that you answer the modules on ethics, which include the selling of Counterfeit products. These are the 3 questions associated with this module.

Q1: The term "black market" is generally associated with:

1. Unauthorized resale of stolen intellectual property and/or goods
2. Unauthorized resale of knock-offs and pirated software
3. Unauthorized resale of fake branded product labels
4. All of the above

Q2: What can channel partners do to ensure they do not resell counterfeits or other black market goods:

1. Buy from the gray market
2. Buy only from the OEM or OEM authorized sources
3. Buy from unscrupulous sources
4. Buy deeply discounted products with no assurance of the source

Q3: How does counterfeiting impact brand owners?

1. Loss of revenues and profits
2. Damage to brand image
3. Increased cost of support and decrease in customer satisfaction
4. All of the above

To find out if you answered correctly and to get credit towards your Trusted Business Advisor Business Education and Certification Program, please email your answers, along with your contact information, to rcohen@integratedmar.com.

Thanks to AGMA for the expertise and assistance in helping to put the training together.


Previous Trusted Business Advisor articles by this author:
07/30/09 The gray market (Part 2)
06/11/09 Education key to reducing channel mistrust
05/29/09 Speed up your sales
05/15/09 Software piracy costs everybody
04/24/09 GTDC: Selling direct doesn't work
04/08/09 Is there a need for vendor-neutral education?
04/02/09 Twittering for success
03/25/09 Companies need to think smarter
03/04/09 Social media the new 'big thing'




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