USTR: Counterfeit and pirated physical products valued at nearly half a trillion dollars

In January the office of U.S. Trade Representative (USTR) Robert Lighthizer announced that it had released the findings of the 2017 Special 301 Out-of-Cycle Review of Notorious Markets, the most recent version of a report designed to increase public awareness about the sale of counterfeits and other products which infringe on trademarks or other intellectual property rights. According to the Office of the United States Trade Representative, imports of counterfeit and pirated physical products are valued at approximately half a trillion dollars, or about 2.5 percent of all imports around the globe.

The recent review of notorious markets identifies 43 such markets offering counterfeit or pirated goods either through physical stores or online channels. A total of 25 notorious markets identified in the report operate in the online space as websites either facilitating infringing conduct or lacking consumer privacy safeguards, some of which even enable the installation of malware on consumer computers. This malware can include remote access Trojans (RATs) which can steal sensitive personal information, like bank account information, or gain control of computer hardware.

Unsurprisingly, illegal streaming of copyrighted content, especially movies, seems to be the most prevalent form of piracy committed by online markets identified in the USTR’s notorious markets report. Perhaps the site earning the greatest notoriety for copyright infringing activity is The Pirate Bay, a site which is “of symbolic importance as one of the longest-running and most vocal torrent sites of admittedly illegal downloads of movies, television, music, and other copyrighted content,” the USTR’s report notes. Pirate Bay has been around for a decade and ranks among the top 100 most popular websites online with availability in 35 languages. Openload.co is another major provider of pirated movie content which received a total of 270 million visits during November 2017. Openload incentives copyright infringement by offering a reward for content uploads which receive 10,000 downloads or streams. Repelis.tv is another notorious online market identified by the USTR which provides more than 150,000 links which enables access to more than 10,000 movie and television titles which have been illegally reproduced.

Other notorious online markets engage in the sale and distribution of counterfeit physical goods such as pharmaceuticals. Scattered among the legitimate online marketplace listings found on IndiaMart.com include counterfeit and illegal pharmaceuticals which are available to the more than 10 million buyers purchasing goods through the site. IndiaMart’s domain name registrar maintains 2,530 top level domains for allegedly rogue Internet pharmacies. Rebel is another domain name registrar which is notably unresponsive to abuse notifications regarding illegal online pharmacies hosted by it. Other counterfeit physical goods sold by online markets include textbooks, offered through Chinese business-to-business e-commerce platform DHGate.com, and automotive parts, available through Chinese e-commerce platform Taobao.com.

Taobao.com is one notorious online market of significant importance because of its ties to Alibaba, China’s major e-commerce company which owns Taobao, and Taobao’s popularity as the country’s largest mobile commerce destination. Through 2017, more small- and medium-sized enterprises (SMEs) requested assistance from federal-level agencies regarding infringing products sold on Taobao than any other e-commerce platform. Alibaba has reported that more than 230,000 Taobao vendors have been removed over a one-year period for the sale of IP-infringing goods, resulting in a 25 percent reduction in the number of takedown notices addressed to the site. Alibaba’s ownership of a major notorious market like Taobao conflicts with statements from Alibaba founder and executive Jack Ma, who pushed in early 2017 for federal legislation that would criminalize counterfeiting activity.

The USTR’s Notorious Markets report also identifies 18 physical markets engaging in the sale of counterfeit products and the report notes that China is the primary source of counterfeit products for physical markets around the globe. A total of six physical notorious markets from China are included in the USTR’s report. Among these are included the Hongqiao Market in Beijing, a collection of more than 1,000 shops as well as many clandestine locations where counterfeit products are sold. In January 2017, the Hongqiao Market was ordered to pay $75,000 in damages to one rights holder for its joint liability along with counterfeit sellers operating at the market.

North America is home to three physical notorious markets, including one in Canada and two in Mexico. The Pacific Mall in Markham, Ontario, is allegedly the home of much counterfeit activity involving products such as cosmetics, sunglasses and fragrances. The 270,000-square-foot facility, which is home to 500 shops, is considered to be the largest Chinese mall in the western world, strengthening the ties between that country and counterfeiting activity around the world. In Mexico, counterfeit apparel and video games are known to be sold at El Tepito, a market spanning 80 square blocks in Mexico City, and more video game circumvention devices are sold at Mercado San Juan de Dios in Guadalajara. Other physical notorious markets operate in the countries of Argentina, India, Indonesia, Italy, Paraguay, Spain, Turkey, the United Arab Emirates and Vietnam.

The list of notorious markets released by the USTR is very helpful to rights holders according to Brian Pomper, executive director of ACTION for Trade, a coalition of rights-holding businesses and trade organizations. “It really matters to countries, they really do not like being on this list,” Pomper said. Although the USTR’s report isn’t an exhaustive list of all markets engaging in the sale of counterfeit and pirated goods, nor does it make findings of legal violations, it is seen as a valuable tool to those entities operating in creative industries. “Copyright and trademark holders think that the list has been a useful tool against notorious markets in China,” Pomper said, adding that there have been some indications, at least anecdotally, that China is interested in developing a stronger IP regime. “It’s a big place coming from a low bar, there are plenty of places in China where you can get pirated content and counterfeit goods pretty readily,” Pomper said.

A focus area highlighted in the USTR’s Notorious Markets report was illicit streaming devices (ISDs) which pose a piracy threat to pay TV and other content industries. ISD piracy involves the combination of hardware like set-top boxes or other devices and software like piracy apps to stream or access unauthorized content from the Internet, circumventing technology protection measures (TPMs) in the process. “The fact is that TPMs allow business models like Netflix’s to exist,” Pomper said. “You will not have a Netflix creating this business model unless it can control who gets access to its services.” The ISD piracy ecosystem, including revenues earned from the sales of ISDs and earnings for unlicensed video providers and hosts, reaches nearly $840 million in annual revenue in North America alone, costing the entertainment industry anywhere from $4 billion to $5 billion per year.

The USTR’s report did note some positive developments which have occurred since the 2016 Out-of-Cycle Review of Notorious Markets. This included the shutdown of youtube-mp3.org, a website noted in the 2016 report which facilitated the unauthorized ripping of audio from music videos and legitimate streaming services. Other previously identified notorious markets which had been largely shut down since their inclusion in the 2016 list include Nanjing Imperiosus Technology, Putlocker and Extratorrent. Increased IP enforcement efforts from the governments of Argentina and Thailand were also noted, such as increased raids of infringing products and evictions of illegal street vendors. “It’s surprising the lengths to which some national governments will go to in order to get off of the notorious markets list,” Pomper said.