Counterfeiting as Corporate Externality: Intellectual Property Crime and Global Insecurity

Published: August 2010

Corporate negative externalities occur when corporations place some of the costs of their profit-seeking activity onto society. This paper suggests that the current global problem of intellectual property crime is such an externality, and that it has not been recognised as such because corporations present product counterfeiting and piracy as crimes which reduce their revenue, rather than as predictable side effects of corporate production and merchandising, including branding activity, which have considerable socially deleterious consequences. It is argued that corporate actors are responsible for the socially harmful effects of the global counterfeiting problem in the following respects. Branding, advertising, and other corporate activities drive the market for goods which have a fashion value over and above their use value. While corporations ‘create’ this desire, they cannot prevent it being applied to the desire for fake or replica goods. Outsourcing of corporate production activities to developing countries to take advantage of cheap manufacturing and labour costs presents considerable opportunities to producers in those countries to copy and distribute the goods in an unauthorised way. Serious measures are not taken against product counterfeiters by rights-holding corporations, since market expediency dictates that the costs of counterfeiting are not so adverse to corporations to incentivise them to change their business methods. Counterfeit and pirated goods cause a range of social harms above and beyond the spuriously-costed financial damage corporate rights-holders suggest they suffer – these include the health and safety issues created by some fake goods, and the creation and maintenance of highly profitable organised crime activity in international markets for fake goods.
This paper arose out of research undertaken for an overview of global trends in faking published as the chapter ‘Fakes’, in Brookman, Maguire, Pierpoint and Bennett (eds), Handbook on Crime (Willan, 2010). There is some overlap between the two texts. The core argument of this paper – of IPC as externality – appears here for the first time.

Authors / Editors

Prof Simon Mackenzie

Victoria University of Wellington

Research Themes

General Resources

Crimes of the Powerful: organised, white collar and state crime