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Counterfeits and Unauthorized Copies

Tuesday, 10 June 2014 07:03

For some reason the NYT continues to have problems distinguishing between the concept of a counterfeit item and an unauthorized copy. The confusion appears in a column by Yu Hua which uses the term "counterfeit" and "pirated" interchangeably.

The distinction between the two terms is simple and important. A counterfeit item is one where the seller misrepresented its origins to the consumer. In this case the consumer has been ripped off by the seller. By contrast, an unauthorized copy may violate a company's trademark or other intellectual property claim, but it doesn't involve a rip-off of the consumer.

This matters because consumers will presumably assist in cracking down on counterfeits, they are the victims in such cases. On the other hand they benefit from getting unauthorized copies. They are able to buy products at prices that are substantially less than the ones produced by the company's whose intellectual property claims are being violated.

Since this column does not distinguish clearly between the two, it's not possible to understand its complaint. It's not clear whether its common for people in China to order goods on the Internet and not receive the product they are expecting (if this is the case, presumably they would stop buying products on the Internet) or whether goods are being sold that violate intellectual property claims of various companies.


Note: Correction made, thanks Andrew and Robert.

Comments (3)Add Comment
written by Andrew T, June 10, 2014 8:17
At the end of the second paragraph it should say "... but it does not involve a rip-off of the customer."
If It's the Same Ole Same Ole, What's the Problem?
written by Last Mover, June 10, 2014 9:33

Interestingly the author blames government for the problem of counterfeits, copycats and knockoffs, citing Alipay as the payment intermediary solution which effectively gives veto power to the consumer of fake or flawed products over the internet to cancel a transaction for a refund.

The author ends with:
Here’s my proposal: I’d like to pay my taxes through Alipay. Then, if the government delivers on its commitments and re-establishes trust, I will confirm it has fulfilled its side of the bargain and make my payment. Otherwise, I want my money back, in full.

It's right out of the playbook of an anti-government conservative blaming the government for everything.

But China's government has always been soft on intellectual property rights until hounded by MNCs to enforce their "huge" losses from them (read "losses from effective competition that dissolves economic rent).

Take generic versus brand drugs for example. They're identical so there's no counterfeit problem per Dean Baker. This could apply to many goods in the sense of being identical but made by different producers.

As long as they pass the Alipay veto test what's the difference? There are legitimate exceptions. Sometimes they can't pass the veto test because the original version indeed contains something unique not reproduceable, but many times a copycat version is just as good or even better. Sometimes they can't pass the test because transaction costs of identifying the good are too high such as phony dangerous drugs that look the same on the outside, so strict regulation is necessary.

The author implies Alipay solved a problem from the private sector that government could not. This is unwittingly in agreement with Dean Baker to get the government out of the business of using blunt force to overprotect intellectual property rights and subject them instead to competitive forces instead - enough to avoid economic rent but not too much to deter innovation.

Who knew? China agrees with Dean Baker. There's alternatives to get prices down from overprotected intellectual property that don't require inferior counterfeits.
Don't Expect a follow-up from Yu Hua
written by John Parks, June 10, 2014 8:32
Yu Hua is treading on very thin ice. One of the most stifling concepts in Chinese discourse is a law on the books, often used to stifle dissent, called “picking quarrels and provoking trouble." It is very efficient and detention is quite common. The same law may be invoked when you perhaps insult, intentional or not, someone who is better connected than you.

In our culture we have more subtle restraints but just as effective. Here you lose business, lose a chance at promotion, lose your tenure, lose your job, lose financial support, face social and professional isolation or worse.

While I agree with some of Yu Hua's sentiments, they could be expanded even more. I am all for eliminating our military industrial complex and support crowd funding to satisfy our defense budget needs.

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About Beat the Press

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.