American consumers love bargains. But that zest for getting a coveted product at the lowest price also has an economic downside: It creates a giant opportunity for the scads of shady operators -- especially from China -- that specialize in pumping out counterfeit versions of the real thing.
U.S. companies lose at least hundreds of millions of dollars a year in sales from products that are counterfeited overseas and shipped to America. The problem's exact scope isn't entirely known because most of these products are never seized and, therefore, the federal government can't get an accurate measurement of the economic loss.
To get a better handle on just how extensive counterfeiting has become, 24/7 Wall St. reviewed data from the U.S. Homeland Security Department's Customs and Border Protection unit, the federal agency charged with enforcing intellectual property rights (IPR) within America's borders.
Most Counterfeited Products
Although it is nearly impossible to get an exact number for the amount of money lost to counterfeit goods each year, sources estimate that businesses lose $225 billion in sales in the United States alone.
Joerg Kock, AFP/ Getty Images
Joerg Kock, AFP/ Getty Images
The CBP does so by seizing products that infringe the originals' copyrights and patents. According to the agency, "The theft of intellectual property and trade in fake goods threatens America's economic vitality and national security, and the American people's health and safety. Trade in these illicit goods funds criminal activities and organized crime. In Fiscal Year 2009, there were 14,841 intellectual property rights seizures with a domestic value of $260.7 million. Goods from China accounted for 79% of the total domestic value for all IPR seizures."
The first notable aspect of the data is the astonishing level at which China takes advantage of the U.S. markets. Some estimates by economists say 8% of China's GDP comes from the sales of counterfeit goods, from software to designer clothing.
In addition to the CBP data, 24/7 Wall St. reviewed information from the Alliance for Gray Market and Counterfeit Abatement, the International Authentication Association, the U.S. Food and Drug Administration, and PC World magazine.
The one thing that becomes clear from these investigations is that while counterfeiting improves China's GDP, it undermines economic growth in the U.S. The federal government can do only so much to combat the problem with current resources. Unfortunately, that means the erosion of sales in some industries due to counterfeit goods coming into the U.S. will continue.
Here are the 10 product categories, in descending order, that lose the most money to counterfeit goods.
Value: $99.8 million
Percent of Total Seizures: 38%
Just under $100 million worth of counterfeit footwear was seized entering the U.S. in 2009, by far the greatest amount of any product. By value, 98% of counterfeit footwear originated in China. This was the fourth year in a row that footwear was the top commodity seized.
2. Consumer Electronics
Consumer electronics, such as cell phones, digital music players and cameras, made up 12% of all seizures worth nearly $32 million. China produces most of these electronics, with approximately $18.5 million worth of seizures originating from there. Consumer electronics are also the most popular illegitimate product coming out of Hong Kong, second only to China. They make up 40% of all counterfeit goods that are intercepted from Hong Kong.
Anyone who has walked down a major New York City street has had the opportunity (or several) to buy a fake designer handbag. The CBP seized $21.5 million worth of counterfeit handbags, wallets and backpacks coming into the country. This accounts for 8% of all seized commodities that violated IPR. China exported $19.5 million of these goods.
There was only slightly less apparel seized than handbags, wallets and backpacks. The amount exported from China is also similar, worth $17.9 million. Counterfeit apparel is most often made to resemble designer fashion brands such as Polo Ralph Lauren.
lthough counterfeit watches are readily available in the U.S., over $15.5 million worth of watches and watch parts were seized in 2009. The majority of these items (just over $7.9 million in value) came from Hong Kong. The industry is currently flooded with replicas of every Rolex model available, as well as Panerai and Omega models.
Over $12.5 million worth of computers and components was seized coming into the U.S. in 2009 -- almost double the amount taken the year before. It's a growing issue that causes several problems for consumers: Counterfeit computers and parts can work poorly, corrupt a user's data or even blow up. According to the Alliance for Gray Market and Counterfeit Abatement, up to 10% of all high-tech products sold worldwide are counterfeit.
In 2008, just under $6 million worth of media, including compact disks and DVDs, was seized entering the country. In 2009, that jumped to just over $11 million. Approximately half of these goods came from China. Counterfeit media is often referred to as "bootleg" media, and is widely available in street markets and for purchase on the Internet.
Slightly more than $11 million worth of pharmaceuticals were seized in 2009, most of which came from China. Pharmaceuticals also accounted for the majority of all counterfeit goods coming from India, making up 86% of intercepted goods originating from that country. Pharmaceuticals were the top commodity presenting "potential safety or security risks" according to the CBP. Pharmaceuticals account for 34% of all the items in this security risk category, which also includes electrical articles (power cords, lights) and critical technology components (networking equipment, semiconductor devices).
Counterfeit jewelry has a huge market in the U.S. In 2009, approximately $10.5 million worth of fake jewelry was seized. One popular means of counterfeit jewelry distribution is through online auction sites. Tiffany & Co. lost a lawsuit against eBay this past September regarding the sale of counterfeit Tiffany jewelry on its site.
10. Toys/Electronic Games
f the $5.5 million worth of toys and electronic games that were seized in 2009, just under $4.9 million came from China. Counterfeit toys have the potential of being extremely dangerous. Some are made with poisonous materials, such as lead, and others can malfunction and hurt children, such as electronic toys that overheat or even explode.