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Home Publications Blogs Beat the Press Unauthorized Copies and Counterfeits: Why Does the NYT Have Such Difficulty Making the Distinction?

Unauthorized Copies and Counterfeits: Why Does the NYT Have Such Difficulty Making the Distinction?

Sunday, 01 August 2010 18:56

The NYT ran a piece today on a growing tendency for producers of unauthorized copies of merchandise to copy less high end items. The piece uses the term "knockoff" and "counterfeit" interchangeably. In fact, there is a very important and fundamental difference.

A counterfeit item is intended to fool the buyer. Its sales price depends on the buyer believing that they are getting something they are not. By contrast, buyers of unauthorized copies that are not counterfeit understand that they are not purchasing the brand item.

This distinction is important because the buyer is not being ripped off when they buy a knockoff that is not a counterfeit. They are getting what they paid for. This means, among other things, that the buyer cannot be expected to cooperate in efforts to crack down on such sales. The buyer is benefiting like the seller. In the case of an actual counterfeit item, the buyer is being ripped off and can be expected to cooperate with efforts to clamp down on counterfeiters.

This distinction also would be useful in understanding the meaning of the unsourced assertion that: "the counterfeiting industry ... costs American businesses an estimated $200 billion a year." If this is the amount of lost business associated with actual counterfeits, then this would largely be a loss to the economy. People paid $200 billion for items that they did not actually receive.

However, if this represents someone's estimate (a source would be helpful) of the lost sales to business associated with unauthorized copies, then this figure could be consistent with a net gain to the economy. Consumers were able to buy products at lower prices -- often much lower prices -- than would have been possible without the copies. In this case the gains would likely dwarf the benefits from NAFTA or other trade agreements.

Comments (7)Add Comment
written by skeptonomist, August 01, 2010 8:03
The article is almost entirely concerned with the "value" associated with exclusivity or spurious rarity of fashion items. The utility of a Louis Vuitton handbag is certainly not $2800, nor does the bag cost that much to produce. Knockoffs of this kind of product probably make the world a better place by reducing the prestige associated with the ability to pay large amounts of money for no good reason.
Knockoff vs Counterfeit Software
written by Chris V, August 01, 2010 9:19
The software industry has been attempting to mislabel copied software as knockoff or counterfeit software for some time. Microsoft has it's Genuine software push to get people from copying Windows. They attempt to label copies as counterfeit when, in fact, the software is an exact copy of what Microsoft sells. An exact copy is not a knockoff nor counterfeit.
written by izzatzo, August 01, 2010 9:24
Baker's assumptions about economic gains and losses from counterfeit versus unauthorized copies are not clear. Even if buyers of counterfeit goods don't get what they pay for, they valued it enough to pay whatever they paid, and it would likely have substantial value even if counterfeit was discovered afterwards, especially if others still believe it's real.

As the NYT article points out, fake sellers don't price too low below the real thing, because buyers will suspect it's a fake, which proves buyers can't tell the difference. To count it as a total economic loss, buyers would have to value it at zero upon discovery of counterfeit, compared to the full value given to unauthorized copies.

This is part of Baker's broader position on the gross inefficiency of intellectual property rights, from perverse incentives and pricing created via government granting of monopoly rights. That's why sales of unauthorized copies are counted as net gains, the same way for example, unauthorized copies of music or drugs would be counted, but not counterfeit versions.

Opponents will pounce on this as a flawed argument, on grounds that unauthorized sales displace sales of authorized originals, thus offsetting the claimed net economic gains by Baker. They also make the same claim about counterfeit goods, much more than whether consumers are getting what they pay for.

Baker appears to claim the net gains are still legitimate even if they displace original sales, in the context that it doesn't matter where the sales come from, they still reflect added value in the aggregate but for unauthorized copies, at much lower incremental cost as dictated by efficient markets, which is also consistent with Baker's alternative proposals on how to rid intellectual property rights of protectionism problems while retaining them in ways that still generate efficient outcomes.

For the usual opponents who don't have the attention span to get through this, they just claim Baker supports outright theft.
Knockoff vs. Counterfeit Prescription Drugs
written by Union Member, August 01, 2010 10:02

Which do you prefer?

Bankruptcy and death vs. family and health.
What's a knockoff?
written by Ben Ross, August 02, 2010 6:34
I think Dean has two categories here when there are actually three. When I was growing up in New York, a knockoff was something that legally avoided what are now called intellectual property laws. An example is a "Knights of the Round Table" branded shirt, with a logo of a man on a horse with a long stick. If you looked very closely, the man was wearing something fuzzy that might be interpreted as a suit of armor and the stick had a little spear point on the end. A more typical example is a dress that happens to look very much like this year's well-publicized designer dress.

A knockoff is different from an actual fake that the buyer knows is a fake, which in turn is different from a counterfeit that deceives the buyer.
written by Bloix, August 02, 2010 4:11
Dean has said this many times before. In this case, it's not relevant to the article, because this article is about actual fakes that are intended to fool the buyer (often sold on the internet, where the buyer relies on the brand name as a guarantee of quality, because the item cannot be inspected).
Unauthorized Copies and Counterfeits: Why Does the NYT Have Such Difficulty Making the Distinction?
written by Dr. Ernest Hamsag, August 03, 2010 2:22
I cannot agree with the last paragraph. It is not a gain to the economy if people buy unauthorized copies instead of other products.. The money they are spending, if they buy something else is the same. The only question, where is manufactured the product? If both are manufactured inland the benefits to the economy are the same.

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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.