16 June 2015, Place du Congres, Brussels
Summary of proceedings of stocktaking seminar at the Centre for European Policy Studies (CEPS)
Highly respected think-tank CEPS organised in conjunction with MSLCROUP a successful seminar on the topic of how industry and government can come together to help fight counterfeiting and illicit trade across sectors, from agri-food to pharmaceuticals. With over 50 attendees, from European Commission representatives to business leaders in affected industries, discussions were lively and questions plentiful.
The session opened with Piotr Stryszowski, Project Manager at the OECD’s Directorate for Public Governance and Territorial Development, and Helge Kleinwege, Legal officer at the Unit for Intellectual Property and Fight against Counterfeiting int the European Commission’s Directorate General GROW, discussing the impact of illicit trade on EU economies and policy priorities. This was complemented by Stefano Betti, Senior Counsel at Interpol’s Office of Legal Affairs, who discussed the challenges of enforcement, and Patrice Pellegrino, Brussels Liaison Officer at the Office for the Harmonisation in the Internal Market (OHIM) who put the problem of counterfeiting in context by showing its effect and impact on the economy and the society.
Piotr Stryszkowski, from OECD, highlighted the problem linked to the horizontal nature of the fight against counterfeiting, which makes it difficult to relate all areas together. There are often several different departments and officials involved, which creates a governance problem, and there is a greater need for a clear international response. Beyond the challenge of coordination within a country and internationally cross-borders, there is the critical question of consumer’s education. Piotr Stryszkowski finally insisted on the question of effective implementation of legislation: “ even the best legislation is useless if not well enforced “.
Helge Kleinwege, from DC GROW, emphasised also the challenge of internal coordination given the involvement of several EC departments in the fight against counterfeiting. The main focus of DC GROW is about the implementation and follow-up of the EC action plan on Intellectual Property Rights adopted in 2014. Meanwhile it support cross-border cooperation through the IPR experts group. He recalled the “key role played by intermediaries and the need to reduce the risk of infiltration into the supply chain. He anticipated that the Commission will launch after summer a public consultation in this area. He also recalled the work carried out in the context of a Memorandum of Understanding launched in 2011 by the Commission with a view to foster industry cooperation. He finally acknowledged the supportive response ensured by the European Parliament and by the Council with only one main concern: ” ensure that the regulatory framework is fit for purpose “. And he added ” the problem of counterfeiting doesn’t often originate in the EU but the solution is often in the EU “.
Stefano Betti, from Interpol, highlighted that counterfeiting creates huge profit and little risk for the person responsible for the crime. Additionally, counterfeiting is often sanctioned as “ administrative fraud ” and not as a criminal matter. Even in countries where counterfeiting can be judged according to criminal laws, this ground is rarely used as criminal justice prosecutors often underestimate the gravity of counterfeiting.
According to Stefano Betti there are 5 key areas to tackle counterfeiting: 1) Apply organised crime legislation to counterfeiting, also for legal entities and support of witnesses 2) Strengthening the confiscation rights of the crime, today often lacking on member state level 3) Smooth cooperation between authorities and customs 4) Strengthening the international cooperation 5) Leverage technical solutions and support by concerned industries, notably in relation to training for officials to enhance their ability to detect counterfeited goods. ” In a context of limited resources, where the budget for criminal justice systems is shrinking but criminality is growing, the role of the industry and brand owners is essential and their support is crucial to succeed “.
Citing OECD figures, Mr Pellegrino from OHIM recalled that the cost of illicit trade was estimated at €250bn a year. Mr Pellegrino clarified that the impact includes not only the loss in tax revenues, but also the broader economic impact caused by a decrease in consumer spending by loss of wages in legitimate industries, the cost of enforcement by authorities, of storage and destruction of product, which can in cases such as pesticides be extremely costly, and in the health and safety implications caused by counterfeit products.
A question was asked regarding whether or not the problem was actually driven by consumers seeking out counterfeit luxury goods, which they are aware are not genuine. Piotr Stryszowski from OECD, replied that while in this case consumers are conscious of the fake nature of the product, counterfeiting is designed to defraud consumers into believing they have purchased a genuine item, and even in luxury goods there can be worries with resellers.
He added that one of the key issues in tackling the crime was the problem of data collection and exchange across markets. This was echoed by a comment from Eric Marin, Deputy Head of the Unit dealing with enforcement issues in relation to food safety at DC SANTE who informed the forum that the Commission has well recognised the need to work across member states and share information on what is a pan-European issue.
Karl-Christian Roediger, from SAP, questioned the panel on the ability to utilise existing data to conduct a risk analysis, looking at where the greatest dangers were, e.g. counterfeit pharmaceuticals. Mr Pellegrino referenced the initiative called ‘Follow-the-Money’ which uses Track & Trace to follow money and identify illegitimate funds, and speculated on the applications for other sectors, especially given the relationship counterfeit good sales have with funding terrorism. Mr Kleinwege added that while technology can play a major part in tackling the issue it is also important that Covernment awareness of the impact of illicit trade grows.
Christina Sleszynska from the International Trademark Association asked the panel about priorities for awareness raising. Mr Pellegrino suggested that people need to be more aware of the impact that counterfeiting and the illicit trade has on the lives of ordinary people, not just the brand owners, and cited a 2014 IPP study that looked at the reduction in entrepreneurship amongst communities affected by intellectual property infringement. Mr Kleinwege added that we need to be aware that illicit trade is a global issue and the need to convince the consumer of the harm that purchasing illicit goods can do.
Following a short break, the delegation reconvened to hear from a new panel, this time focused on designing and using innovative technological solutions in tracking, tracing and authentication.
Craig Stobie, Head of Global Life Sciences Team at Domino, a world leader in product printing for track & trace and authentication in particular in food and life science, opened by stating that falsification was on the increase, something legislation like the Falsified Medicines Directive tries to address for that specific sector. He argued that one of the key challenges was the need for interoperability in systems, something that can only be achieved by open standards that allow for data to be shared across markets, and for adequate competition among service providers that would be pushed to develop cost-effective systems for brand owners and intermediaries. He gave the example of how 2D barcodes and mass serialisation are already transforming distribution.
Eric Lequenne of ATOS Worldline, echoed Mr Stobie and further emphasised the importance of integrated security features that were tamper proof and digital to overcome the challenge of ever more sophisticated counterfeiters. “Technology should be part of the policy strategy” according to Eric Lequenne with a wealth of tracking and tracing system solutions now available relying on modern technology and open standards which capture and leverage existing solutions created by the right holders and assure predictability to be successful. He also shared with attendees the news that a number of businesses from across Europe involved in combatting counterfeiting and trade in contraband had come together to form the Coalition Against Illicit Trade (CAIT). He added that ATOS, and CAIT, also believed in the need for open standards to enable cooperation, the need to capture industry knowledge and involved brand owners and the requirement to invest in predictive systems – such as that used by the state of Michigan – to use analytics to identify where illicit trade may be occurring. Mr. Lequenne mentioned also the positive experience carried out by EFPIA in the pharma sector with independent standard setter GS1 that brought together pharmacists and producers.
This panel was concluded by a contribution from Alexandra Ilipoulou, Policy and Legal Adviser, BASCAP-ICC, who explained that BASCAP was helping to deal with the “ global epidemic ” of counterfeiting which exposes consumers to dangerous products and costs thousands of jobs. She confirmed that it was BASCAP’s position that technologies must be based on open standards to allow interoperability and that authorities must have the right tools to authenticate product to hand; she referenced digital coding and automatic content recognition technology as two good examples of the new digital fight against illicit trade. International responses and international cooperation is also a crucial element.
The final panel of the seminar looked specifically at preventative measures that can better empower industry and consumers. Maarten van Baelen, Market Access Director, European Generic and Biosimilar Association, described the work that the European pharmaceuticals industry was doing to prevent falsified medicines entering the supply chain by stipulating that all medicines carry a serialised number and anti-tamper specifications, with these numbers captured on in a centralised European hub, with the system in place by the end of 2018. He highlighted the problems the pharmaceutical industry faces today since they are not involved in the work being carried out by the European Commission in relation to the so called “delegated act” due to describe the unique feature that will be required in accordance with EC legislation. This is problematic since the implementing measures don’t integrate fully the knowledge and views of the industry experts. This can also easily lead to delays in implementing the system since there is a big risk that the industry won’t be able to implement the measures in time due to the expected short notice. Thus the result may be that the security measures are delayed.
Questioned by Graham Smith, Director at Aegate, about the reason for the pharma-industry waiting for the legislation rather than working on solutions already, Maarten van Baelen highlighted that EGA would be ready to proceed with their own standards, but that the economic cost and implication are too big for taking such a risk before EU standards are decided.
An expert in data capture and transaction revenue, Karl-Christian Roediger, Solution expert Track & Trace Supply chain from global industry leader SAP gave an overview of the many sectors that his business operates, many of which are subject to counterfeit. With 74% of the world’s transaction revenue touching upon a SAP system, he argued that the opportunities and danger of a hyper connected world were greater but that the creation of smart products increasingly will enable consumers to make more educated and powerful decisions. He further highlighted that the problem today related to the unique identification system (serialisation) is that there are different rules all over the world. It is therefore important to harmonise the
systems. He concluded with saying that in a decade we will have instant data for each product because it isn’t a technology issue since the technology is already existing.
The session was closed by Benoit Goyens, Project manager IPM Private Sector, World Custom Organisation, who explained that the work the WCO was doing in creating the Interface Public Members (IPM) database tool for customs officers; often the first line of defence in fighting the scourge of illicit trade. The system has rolled out in 87 countries and uses a smartphone app to help identify illicit goods. According to Benoit Goyens counterfeiting needs to tackled on many different arenas simultaneously, including technology, interoperability, cooperation between customs authorities and the private sector, training of officials and customs enforcement.
He shared some staggering statistics on the scale of the problem, identifying that the cost of counterfeiting globally had nearly tripled in the past few years, from $600bn to $1.7tn, in excess of the total world defence budget. While the WCO feels it can reverse this trend he stressed the need to work effectively with other organisations like BASCAP, Interpol and standard setter such as GS1, since the use of modern technology, interoperability, cooperation with the private sector, training of officials and consumer enforcement together are the main focus areas which can allow us to catch up with the negative trend of counterfeiting. Regarding the training of officials he highlighted that training of customs officials by the industry is very important and that the involvement of all parties is crucial to reverse the trend of increasing global counterfeiting.
In the final round of questions, the issue of consumer awareness was raised again, and Mr Stobie made the point that consumers are likely to remain relatively unengaged so it is up to industry and authorities to make sure the problem is tackled. To assure this it is crucial to make the infrastructure to work. Mr Lequenne, of ATOS, added that it was important to ensure the industry is given a voice and an opportunity to contribute with factual insight in the debate at European Commission level.
Diego Ricchetti, senior manager for quality and food safety at Barilla underlined the wide range of initiatives launched by his company notably to assess the most critical and biggest areas of risk for counterfeiting and fraud. He underlined that the risk analysis has shown that the solutions cannot solely be in-house for brand owner, but must involve the vendors and that requires a huge capacity to follow all steps. He drew the attention of panellists on the opportunity to develop international standards and international platforms to facilitate such work.
The seminar agreed that one of the key challenges was the increased sophistication of counterfeiters, raised in a question from Syngenta. Mr Goyens confirmed that the WCO had found counterfeited holograms and that adequate security was a challenge, something Florent Denjean from Arjowiggins Solutions added could be solved by the use of fingerprint technology that provide each products packaging with a unique identifier.
Mr Stobie summed up proceedings by stating there was ” no silver bullet solution ” but by different industries and organisations coming together to share their knowledge there was an opportunity to tackle this rising problem.