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Interview Nathan Wajsman, EU Observatory

What do consumers think about IP and why do they buy counterfeits? These are just some of the questions addressed by the EU Observatory on Infringements of Intellectual Property Rights, as its chief economist Nathan Wajsman explains

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IP owners might be reassured to know that 97% of EU citizens believe that “it is important that inventors, creators and performing artists can protect their rights and be paid for their work” and 70% believe that nothing can justify the purchase of counterfeit goods. But they might be concerned to hear that 7% of Europeans have intentionally purchased counterfeit products (compared to 4% in 2013) and that 155 of people aged 15 to 24 have done so.

These were among the findings of a recent survey conducted by the EU Observatory on Infringements of Intellectual Property Rights, one of a range of reports it has published on attitudes to IP; IP’s contribution to the economy; and the impact of IP infringement in various sectors. The survey, commissioned from Deloitte, updates a similar report on consumer behaviour published in 2013.

wajsmanThe numerous studies, all of which are published on the Observatory’s website, provide diverse insights into IP infringement and consumer behaviour. "You have to distinguish between where somebody knowingly buys a fake and where they are tricked," says Nathan Wajsman, chief economist at the Observatory, which is based at EUIPO in Alicante, Spain. Where somebody believes they are buying a genuine item from an authorised store, then there is likely to be a direct loss, but where for example they are buying a €5 t-shirt from a hawker on a beach, then that is not the case. In between these extremes, there is a spectrum of possibilities. "The grey area is the most difficult to estimate," says Wajsman.

Each study typically run to a few dozen pages and includes a wealth of sometimes bewildering data, formulas and economic analysis. Wajsman says the particular difficulty for an economist working in IP is "to get good data" that is trustworthy and independent. On the other hand, he says he finds it "gratifying" that the results of the work done feeds into the political process and may have an impact on policy making, and stresses that the Observatory does not have any agenda other than seeking to build up reliable information: "We do our studies and publish the results, whether or not industry likes them."

One study, published last year, quantified the contribution of IP-intensive industries to the economy. This was the second such study compiled by the Observatory and showed some changes since the first one, in 2013. “There is a genuine small increase in the contribution. It is very clear that the proportion of the EU’s trade surplus with the rest of the world that is due to IP has increased. It also seems that IP has withstood the crisis better than other parts of the economy,” says Wajsman.

Another study looks at small and medium-sized enterprises (SMEs) and shows, says Wajsman: “We know that SMEs that have IP rights perform better than those that don’t, but a significant proportion don’t have knowledge of the IP system, which means we need to do a better job of reaching out to them.” The survey also found that many SMEs viewed IP rights as cumbersome, difficult and costly: “The smallest companies see the cost of registration and enforcement as completely prohibitive, but those that are active outside their own market are more likely to register IP rights and have a positive view of IP.”

The industry studies, meanwhile, come up with a figure in euros for each sector’s losses to IP infringement. Wajsman explains how the figure is arrived at: "Based on the modelling we have done, we see that this sector would be expected to sell this much. We then compare that with actual sales, and we see a difference." This methodology derives from work done by the RAND Corporation for the European Commission in 2012.

Having obtained figures for actual and expected sales, the team of six or seven economists working at the Observatory then work out what proportion of the gap between them is due to counterfeits. "We try to tease this out using variables … We do not make any assumptions about the substitution rate. The methodology does not work in that way," says Wajsman.

For example, the most recently published study is on smartphones. The number of lost sales is based on the estimate of units lost to counterfeiting, and smartphones prices by country. For example the figure for smartphone sales lost to counterfeiting in Europe in 2015 is €4.2 billion, while that for Asia-Pacific is €7.2 billion and China €16.3 billion. The worldwide total is €45.3 billion.

When choosing which industries to study, says Wajsman, the Observatory chose "sectors we thought likely to be subject to counterfeiting" such as watches, leather articles, footwear and cosmetics. This selection was based partly on intuition and partly on earlier industry reports. "Certain categories of goods are more likely to be counterfeited than others," he says.

Having said that, though, he adds: "The basic takeaway I have is that counterfeiting is not confined to the luxury sector; everything that involves a brand can be and is counterfeited … even everyday products, like laundry detergent." Of the 11 industry studies published so far, the one showing the biggest impact is clothing – and that is not just about luxury labels but all kinds of clothes including €50 football shirts. It shows, says Wajsman: "Even if the price of genuine product is not very high, but you can make the fake for 10% of the cost, the profit margin is still huge."

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