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The Consumption of Counterfeit Goods: `Here be Pirates?'

Jason Rutter & Jo Bryce
Cyberspace Research Unit, School of Psychology,
University of Central Lancashire, Preston, PR1 2HE. UK.




Abstract

Social science, policy and popular discourse around counterfeiting regularly position
consumers of counterfeit goods as part of a technological elite or motivated by anti-
capitalist or anti-corporate positions. In order to explore this construction and
highlight its associated limitations, this paper presents quantitative data collected
through postal and web-based questionnaires looking at the frequency, location and
motivations for the purchase of counterfeit leisure items for consumers in the United
Kingdom. The paper suggests the purchase and consumption of counterfeit goods is
commonplace across a broader variety of age, gender and socio-economic status
categories than often assumed. The study also highlights the value of viewing the
consumption of counterfeit goods as social and situated, occurring within existing
social networks and familiar locations, and as closely related to other consumption
practices.


Keywords

Consumers, counterfeit goods, intellectual property, leisure goods, software piracy


Introduction

Counterfeit goods are those which illegally imitate, copy or duplicate a good or use a
registered trademark without authorisation and, therefore, infringe upon the legal right
to copy of the right's owner. In many working definitions of a counterfeit ­ especially
in relation to currency or pharmaceuticals ­ the issue of intent to defraud is added but
for most cases this is not a defining factor (as in the copying of CDs onto writable
media). Although counterfeit goods can infringe on patents, they are most strongly
linked to infringement of copyrighti which, in the UK at least, is an automatic
(although transferable) right given to the creator of an artistic, literary, or


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typographical work (such as a manuscript, computer program, photograph, song,
sound recording or magazine) or the author's employer.


Counterfeiting is not a new phenomenon. Phillips (2005) describes French stoppers
for amphorae of wine dating back to 27BC that bore a counterfeit seal intended to
pass off local wine as a more expensive Roman import. The Roman philosopher and
military commander, Pliny the Elder (23-79 AD) records how counterfeit coins were
desirable items amongst contemporary collectors, with good examples being
purchased for several times their face value (Barry, n.d.; Chen et al. 2005).
Counterfeiting of goods and currency, therefore, appears to have been used to
generate profit and avoid taxation for almost as long as market and currency systems
have existed to manage economic transactions.


Counterfeiting also has a history of being employed as a political tool, particularly
during times of war when it has been used to devalue an enemy's currency by
flooding a country with fake coinage or notes. For example, the British government
sought to undermine the Continental Congress during the War of American
Independence by counterfeiting the dollar during 1777 and 1778. This resulted in
inflation, the withdrawal of that year's issue of the currency, the passing of laws
forbidding counterfeiting of money, and, the complete withdrawal of the Continental
Dollar in 1779 (Baack, 2001). A similar scheme was formulated during the Second
Word War where `Operation Bernhard' involved the use of prisoners in
Sachsenhausen concentration camp to produce English notes of five, ten, 20 and 50
pound values, with the plan to drop the currency from airplanes. Although the
currency was never delivered in this way, some of it was laundered through an Italian
bank and used to fund German purchase of munitions and covert operations
(Robertson, 2005).


Today, the production and sale of counterfeit goods is a significant international
industry and there are few types of manufactured goods that have not been the object
of counterfeiters' attention. While the counterfeiting of currency still occursii, growth
in consumerism, technology and globalized markets (including that for labour) have
contributed to the diversification of counterfeits produced. Counterfeit consumer
goods from sports shirts to popular music, watches to sunglasses, as well as


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pharmaceuticals, car and aeroplane parts, children's toys, software and alcohol have
been used to satisfy lucrative illegal markets.


The illicit and covert nature of counterfeiting makes evaluating the exact value of
these markets problematic and to be regarded with some caution (OECD, 1998; Dixon
and Greenhalgh, 2002). However, estimates of the economic cost of counterfeiting to
industry and government offer some indication of the size of the markets. Quoting
European Commission figures, the OECD estimated in 1998 that counterfeit goods
were worth between 5-7 per cent of world trade, and had demonstrated 150 per cent
growth in value between 1990 and 1995 (OECD, 1998, p.23). The share of counterfeit
products in total sales have been estimated to be as high as 50 per cent for video sales,
43 per cent for software, and 33 per cent for music (OECD, 1998, p.8). Recent
estimates from the OECD suggest that, with a value of $200 billion, the international
market for counterfeit goods was larger than the GDP of 150 economies in 2005
(OECD, 2008).


Developments in, and availability of, new production technologies which have
reduced the cost and time necessary to make illegal copies of goods have played a
part in this growth. This has contributed to growth in markets for counterfeit goods as
the amount and range of products create increased profits for those involved in this
activity (Savona and Mignone, 2004). In addition, increasing consumer access to the
internet ­ especially through midband and broadband services ­ has enabled new
methods of distribution for counterfeit goods through online auction sites and via
peer-to-peer systems. These digital copies are commonly referred to as `pirated'
goods whether in physical form (CD, DVD) or electronic in the case of `file sharing'
or direct downloads. Recent estimates have suggested that the impact of illegal file
exchange on peer-to-peer systems is such that for every 100 legal computer games
sold, 43 sales are lost because of piracy (Loudhouse and Macrovision, 2005).


Results from the International Intellectual Property Association's survey of 68
countries with particularly high piracy ratesiii suggest that counterfeiting and software
piracy doubled between 2000 and 2005, accounting for losses of more than $15.8
billion in the countries surveyed (IIPA, 2006). Figures from the Business Software
Alliance's analysis of 102 countries estimate a global loss to the industry in 2006 of


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approximately $39.6 billion in sales (Business Software Alliance, 2007). The value
for software losses due to counterfeiting in the European Union was estimated to be
approximately $11 billion in 2006 compared with losses of $7.2 billion in the USA
(Business Software Alliance, 2007). A similar story is apparent for the film industry
with the Motion Picture Association of America reporting, through a survey of 22
countries, losses to its member studios of $6.1 billion in 2005, with $2.3 billion of that
being made up of internet piracy. In the UK it has been estimated that the government
lost approximately $176 million worth in tax revenue during 2005 because of this
illegal market (MPAA, 2006).


Such figures also suggest that international markets for counterfeit goods have an
effect more locally. This is supported by claims made by Trading Standards that in the
North West of England counterfeit goods cost legitimate businesses around £750
million and resulted in approximately 1000 job losses in 2003 (NCIS, 2005). The
Police Service of Northern Ireland (PSNI) reported seizing counterfeit goods with a
street value of £9.9 million in the year 2005/06 (OCTF, 2006) and have previously
estimated that the market for counterfeit goods in Northern Ireland is worth
approximately £135 million per year (OCTF, 2003).


This growing industry also has impacts beyond revenue losses to industry and
national governments. For example, the links between intellectual property theft,
organised crime (NCIS, 2005; Union des Fabricants, 2004; OCTF, 2006) and
terrorism (Noble, 2003; Ranger and Wiencek, 2002) are increasingly well-established.
Counterfeiting offers criminals a lucrative market with a relatively low risk of
detection and minimal penalties for those convicted. This has ensured that the activity
has been associated with a range of other crimes including the trafficking of drugs,
arms and people. Internationally, counterfeiting has become established as a
successful method for laundering money and, in some cases, the financial gain from
counterfeiting is more lucrative than that of selling illegal drugs. It has been suggested
that, `one kilo of pirate CDs is worth more in the EU than a kilo of pot,' and a truck of
counterfeit cigarettes has been estimated to generate approximately 475,000 in
profits (Union des Frabricants, 2004, p.9).




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The unregulated nature of counterfeit goods also presents challenges to consumer
protection as there is no way to monitor poor manufacturing or toxic ingredientsiv
which may pose a threat to consumers. Unregulated distribution also means what may
be regarded as potentially harmful media content (e.g., films, computer games and so
forth) are available to children in ways that bypass systems of certification and
content regulation (O'Connell and Bryce, 2006).


These issues suggest that regardless of one's position on the ethics of copyright,
patent or brand legislation, regulation and attempts to control counterfeiting, this
activity has significant social as well as economic importance. However, the majority
of research on counterfeiting has focused primarily on its economic, legal and
technological aspects. As such, while the above contextualises the international
markets and economic consequences of counterfeit goods, it is important to recognise
that this, and research on counterfeiting in general, is primarily production and market
orientated (Penz, 2006).


There    remains      a   need    to      develop   an   understanding   of   the   associated
consumption/demand side issues related to counterfeiting which focus on sociological
and psychological dynamics (Bryce and Rutter, 2005). This includes addressing,
`questions like "Who buys?", "How do they buy?", "When do they buy?", "Where do
they buy?", and "Why do they buy?"' (Wee, Tan and Cheok, 1995, p.20). Whilst
recent authors (including Carruthers and Ariovich, 2004; Cooper, 2001; Goldman,
2005: Marshall, 2004; Yah, 2005) have begun to engage with the possible and varied
implications of the growth of counterfeiting, there is still a need to address the manner
in which the consumption of counterfeit goods sits within a range of legal and illegal
consumption practices and choices. This paper seeks to address this issue in greater
detail. Rather than exploring counterfeiting as a branch of criminology, subcultural
theory or economic modelling, the focus of this paper is on the consumption of
counterfeit goods as a widespread, situated and everyday practice. In an attempt to
develop such a perspective, the paper draws upon empirical data examining the
frequency, purchase locations, and motivations for the purchase and consumption of
counterfeit goodsv.




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The Consumer of Counterfeit Goods

In popular discourse, academic research and trade association awareness campaigns,
the consumer of counterfeit goods is frequently constructed as `other'.vi In industry
and policy they are represented as outside accepted everyday experience either as part
of a criminal or technological underworld, terrorist organisation, or as socially
isolated, morally corrupt or part of a subversive subculture. For trade associations,
there is a political rationale for such representations as they campaign for the
enforcement (or extension) of legislation and judicial actions against counterfeiters
and consumers of counterfeit goods. To symbolically link counterfeiting and deviance
has value in raising the political profile of the area.


This emphasis on the spectacular and exotic, consistent with an oppositional or
marginal view of the consumer, is often also emphasised in academic writing on
counterfeiting. Consumers of counterfeits are often represented through anecdotal
narratives which serve as a proxy for deeper understanding of consumer motivations.
For example, Lasica (2005) illustrates his work with case studies which potentially
confuse everyday users with vanguard consumers. This encourages the consumption
of counterfeits to be symbolically overwritten with various meanings, for example, as
associated with the hacker ethic. This again reinforces the separateness of the
individual from others: they are characterised as `the Different', `the retiring, little kid
at school, sitting at the last desk', `strange people' (Electronic Minds, n.d.) and united
by a political opposition to the `profiteering gluttons' (Blankenship, 1986) who
manage the mechanisms of capitalism. This is what Kwong et al. have generically
referred to as an `anti-big business attitude' (Kwong et al., 2003).


With an emphasis on the potential for disruption and change, there is in such writing a
characterisation of the consumer of counterfeits that employs a binary opposition
between the `normal' or legitimate world and the `abnormal' or oppositional
practices. For example, sociological research on file sharing through peer-to-peer
(P2P) networks, internet exchange of pirated music, films and software along with
digital rights management (DRM) hacks, represents users as part of a distinctive
subculture (e.g. Condry, 2004; Giesler and Pohlmann, 2003). To assume that such
groups represent the majority of consumers of counterfeits may present a seductive



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notion for the industry as well as consumers themselves who may adopt such attitudes
in justifying their own behaviour. However, its value for developing a broader
understanding of the consumption of counterfeit and pirated goods is limited.


The research detailed in this paper is used to question the utility of investigating the
consumption of counterfeiting not through the lens of subcultures, ethics or legality,
but as a more routine and situated practice. As such it draws upon broad survey data
of consumers and non-consumers of counterfeit and pirated goods. It also details a
range of consumer and leisure items to address the limitations of previous empirical
research based upon smaller or more homogenous consumer samples (e.g., Albers-
Miller, 1999) or products (e.g., Ang et al., 2001). The use of a broader sample
exploring the frequency, distribution and motivations surrounding the consumption of
counterfeit goods, as well as consumer attitudes toward these goods, aims to question
whether a priori assumptions about the subcultural status of counterfeiting are
representative of consumer practice. It also explores the validity of the construction of
consumers of counterfeits as anti-capitalist or part of a technological elite.


Data Collection

This paper draws upon data from a research project undertaken in Great Britain and
Northern Ireland.vii The focus on consumers/end users to develop a broad and situated
view of the consumption of counterfeit goods led the data collection to focus
primarily on counterfeit versions of leisure goods (e.g., fashion clothes, music, film,
games, and other software). The distinction between leisure goods and other types of
counterfeit items is not merely one of convenience. Leisure items, we believe, are a
productive     focus     for    understanding   the   purchase   and    consumption   of
counterfeit/pirated goods for several key reasons.


At a basic quantitative level, leisure goods form the majority of counterfeit goods
seized by police and customs in Europe. In France, the most common counterfeit
products confiscated are shoes, representing 21% of items, followed by clothes and
watches. In Germany, clothes account for 90% of impounded fakes (Wischermann,
1999). However, these goods also provide a choice to purchase and consume between
counterfeit and legitimate items. While we recognise that few, if any, choices to


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consume are entirely free, we believe there is utility in pragmatically distinguishing
between the choice to purchase a music CD and the choice to purchase
pharmaceuticals prescribed to treat life-threatening conditions. Further, leisure goods
include many items (e.g., fashion items, DVDs, music CDs, perfume, etc.) that are
not, per se, prohibitively expensive for many consumers, and this allows the
exploration of consumer motivations to purchase beyond those which are simply
economic. Partially because of these factors, this is an area where a large amount of
goods (e.g., films, music or fashion items etc.) are consumed with the knowledge that
they are counterfeit as price, location of purchase, and the form of the good itself all
act as indicators of the item's illegal status. Finally, leisure goods are distinctive in
that although there is a growing counterfeit trade in `disassembled' counterfeit goods,
(e.g. components of a product such as labels, packaging or insignia), consumer goods
themselves tend not to be components for other items in the way that laser cartridges
are for office printers. That is, their purchase is not essential to other activities.


This paper focuses primarily on analysis of the quantitative aspects of the research,
although this form of data collection was complemented by a series of consumer
focus groups.viii The data was gathered using a postal and web-based questionnaire
that contained identical items. Although each sample was analysed individually, in
this paper these datasets have been combined and any notable differences highlighted
where appropriate. The questionnaires collected information on awareness of,
frequency and location of purchase of counterfeit goods, as well as a number of
demographic variables (e.g., age, gender, income) which were subsequently used to
examine variations in measured attitudes, behaviour and the perceived effectiveness
of messages in public awareness campaigns. They also collected data on frequency,
location and motivations across a variety of different product categories, as well as
distinguishing between the purchase of counterfeit goods and the illegal downloading
of files from the internet.


The postal, paper-based, questionnaire was distributed to a sample derived from direct
marketing lists purchased in both Northern Ireland (NI) and Great Britain (GB). Two
separate lists were purchased for the GB sample: male magazine subscribers
(N=5000) and female catalogue customers (N=5000). As lists organised by gender
were not available for NI, a general list was purchased (N=5000). All lists purchased


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were constructed using a sampling frame of 1 in N names in the database and
reflected the general age, gender and income distribution of list membership. Separate
lists were purchased for males and females in order to obtain generally equal sample
size by gender. The overall response rate was approximately 11 per cent (N=1689).


The web-based questionnaire was hosted on commercial web space leased specifically
for the project and participants were recruited through a variety of websitesix. This
mechanism of data collection allowed a specific focus on (predominantly male)
technology users such as computer gamers and music enthusiasts - two populations in
which the consumption of counterfeit goods is believed to be frequent (ACG, 2003).
The number of responses to the web-based questionnaire was 681. The overall sample
size was 2370.


In the total sample, 20.9 per cent of participants were aged between 16 and 30 years
of age, with 48.8 per cent of the sample being aged 31-50. Of the sample, 45.9 per
cent earned £25,000 or less per year. The gender split for this sample was 51.5 per
cent male and 48.5 per cent female. As was to be expected, although the web-based
sample did have respondents in all the age categories, it was skewed towards younger
users with approximately 64 per cent being aged 30 or below. This compares with an
age distribution of 20.9 per cent of participants in the paper-based sample being aged
30 or younger, and 48.8 per cent of the sample being aged 31-50.


The gender spilt in the combined sample was 60.2 per cent male and 39.8 per cent
female. Amongst respondents to the paper-based questionnaire, where sampling was
more possible to control, there was almost parity between the number of male and
female respondents (51.5 per cent male, 48.5 per cent female), whereas for the self-
selecting web sample the division was 82 per cent male and 18 per cent female.


Frequency and locations for purchase of counterfeit goods

One of the central objectives of the research was to gain a picture of how common or
widespread the knowing purchase of counterfeit goods was in the sample. Of the
sample, 33.3 per centx indicated that they had knowingly purchased counterfeit goods
at some time in the past. Though 63.1 per cent of respondents reported never having


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knowingly purchased counterfeit goods, 7.3 per cent indicated that although they had
never purchased counterfeit goods, they would consider doing so in the future. With
one in three respondents purchasing counterfeits, it is clear that this form of
consumption cannot be regarded as rare or restricted. Indeed, considering the market
valuations offered earlier in this paper, it would be remarkable if this level of
spending was restricted to a small section of the population.


When asked about purchase of counterfeit goods over the last twelve months, the
most commonly purchased were music (16.2 per cent of the entire sample), films
(16.0 per cent of the entire sample), and fashion items (15.5 per cent of the entire
sample). This is consistent with the products identified as providing the most lucrative
markets for counterfeiters as outlined in the introduction. For the entire sample,
downloading of pirated files was less common with 14 per cent having downloaded
illegal music tracks, 6 per cent whole albums and 5 per cent films or TV programmes.


TABLE 1 here


Analysing the relationship between demographic variables and general purchasing
behaviourxi suggested that the proportion of respondents who had knowingly
purchased counterfeits goods varied according to age and gender. A higher percentage
of respondents in the 21-30 (34.6 per cent) and 31-40 (25.4 per cent) age ranges had
purchased counterfeit goods and would do so again compared with participants in
other age categories (e.g., 2.7 per cent in the 60+ age range). A higher proportion of
male respondents (24.1 per cent) had purchased counterfeit goods and indicated that
they would do so again compared with females (20.7 per cent). However, subsequent
analysis did not demonstrate that the distribution of purchasers across most of the
product categories by demographic categories was significantly different to that of the
whole sample. The exception was computer gamesxii showing a variation in the
frequency of purchasing computer games according to gender, with males (M=1.71)
purchasing computer games significantly more frequently than females (M=1.28).
However, while the purchase of counterfeit computer games varied according to
gender, so too does the playing of computer games as a leisure practice (Bryce and
Rutter, 2003). Similarly, the consumption of counterfeit music was, not surprisingly,
at its highest level in the 20-30 years old age range given that this group is a core


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market for the music industry. This suggests that there are consistencies between
patterns of consumption of leisure goods and their counterfeit equivalents in the wider
context of gender, consumption practices and habitus.


Purchase locations

If the consumption of counterfeit goods is consistent with other forms of routine
consumption practices, it is likely that they are purchased in everyday environments
and situated within routine social contexts. Such a view is supported by the
questionnaire data. Rather than being integrated into a subcultural technical elite, the
most regular sites of purchase of counterfeit products were more mundane. The most
common site for purchasing games were local pubs or social clubs (40 per cent of the
total sample), and for purchasing business software school, college or university (28
per cent).


The use of the internet as a method of purchasing counterfeit goods was most
common for films, with 12 per cent of purchasers using this electronic shop front.
However, respondents were more than twice as likely to purchase films from social
environments (26 per cent) or on holiday (29 per cent). We do not wish to under-
estimate the importance of the internet for the sale and distribution of counterfeit
products, as this distribution channel is most likely to show greatest growth in the
future. However, it is notable that less than a third as many people reported acquiring
business software in the relatively anonymous online environment (9%) when
compared with school, college or university (28%). For computer games, consumers
were almost six times as likely to obtain these goods from already existing social
networks such as local pubs and social clubs (40%) when compared with online
opportunities (7%) and a similar pattern was evident for music.


TABLE 2 here


While the figures above look specifically at purchase, the figures for the downloading
of illegal content remain notably lower within the total sample. From an economic
perspective, this finding may seem somewhat incongruous. Peer-to-peer file sharing
services (e.g. BitTorrent, Azureus and Soulseek), along with websites listing pirated


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files available from web hosting services (e.g., Rapidshare and Filefactory) offer an
almost endless range of music, films and software to download. Not only do they
offer commercially available content but often films (such as screeners - an advance
copy of a film distributed within the industry) which are not yet available to purchase
legally on DVD, along with pre-release versions of music albums. In 2002, Star Wars
Episode II: The Attack of the Clones was available on P2P networks a week before its
premiere. Despite the banning of all electronic devices during preview screenings,
The Matrix Reloaded was being distributed via P2P within 24 hours of its 2003
cinema release and was downloaded approximately 200,000 times within the week
(UK Film Council, 2004).


Given the range of content available to internet users at effectively zero cost
compared with those available to purchase through established social networks, a
rational, economic decision would be primarily to use the internet to obtain
counterfeit digital goods. However, our data shows this is not the case, suggesting that
purely economic approaches to the purchase of counterfeit goods have limited value
in explaining consumption patterns. Further, accessing illegal content via the internet
offers an element of anonymity to users. While users can be contacted using the social
networking features built in to some P2P softwarexiii and identified through their IP
address, the systems do not incorporate the usual indicators and embodiments of
identity present in face-to-face or other forms on technology-mediated interaction. If
users are concerned about being discovered accessing copyrighted material, then to do
so in online systems provides safety in numbers. However, the public nature of the
places where counterfeits were purchased suggests that rather than being part of a
covert process, this engagement with this activity is seen as acceptable. The visibility
of the locations where most purchases were made suggests that the purchase of
counterfeit goods is normalised and generally acceptable. Indeed, the disparity
between downloads and purchases within established social contexts suggests that
there is a value associated with the goods purchased beyond that of the content itself
or merely an economic rationale. Although individual motivation may vary, at an
aggregate level the decision to purchase counterfeit goods in familiar social
environments rather than access them for free online suggests a strong social context
and motivation to the consumption of counterfeit good beyond that gain merely from
having ownership or access to the product.


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Motivations for the purchase of counterfeit goods

Given the positioning of the purchase of counterfeit goods within everyday leisure
and consumption routines and the emerging recognition that consumption is part of
other social practices (e.g., Miller, 1998; Gronow and Warde 2001), the purchase of
counterfeits seems to share more with an established consumption practice than a
subcultural one or a phenomenon explained by criminological perspectives.


To assume that the consumption of counterfeits is countercultural entails the
assumption (so far not established) that this form of consumption has, for those
engaged in it, a different cultural or political orientation recognisably different from
other forms of legitimate consumption. In order to explore this, it is important to
examine the reasons given by respondents for their choice to favour counterfeit goods
over purchasing their legal equivalents.


Not surprisingly, cost was the most frequently given motivation for the purchase of
counterfeit goods across all product categories. In addition, approximately 70 per cent
of respondents, including both purchasers and non-purchasers of counterfeit goods,
belived that legitimate goods were overpriced. However, as explored above, the link
between economic factors and the purchase of counterfeit goods is far from
straightforward. While respondents in the lowest household income category
(