Estimating the Size of the Market for Counterfeit and Pirated Goods in Canada: A Methodological Discussion

1.	TITLE

Estimating the Size of the Market for Counterfeit and Pirated Goods in Canada: A Methodological Discussion


2.	BACKGROUND

Counterfeit and pirated goods make up a notable part of the global market of illicitly produced and/or traded goods.  Illicit trade may be defined as “… trade that infringes the rules – the laws, regulations, licenses, taxation system, embargoes and all the procedures that countries use to organize trade, protect their citizens, raise the standard of living and enforce codes of ethics” (Naim, cited in Picard, 2013: 5).  As such, illicit trade carries grave implications for citizens, societies, economies, and judicial systems in Canada and around the world.  Further, there is evidence that transnational organized crime groups are heavily involved at various stages of the illicit trade.  

The website havocscope.com is dedicated to quantifying and estimating the dollar value of illicit trades of various products around the world.  It uses a variety of publicly-available sources such as newspaper articles, academic journals, government agencies, and non-governmental organizations (NGOs) in order to arrive at estimates of the total market value of counterfeit and pirated goods.  According to the website, about $30 billion is the value of counterfeit trade in Canada ($651.77 billion worldwide), $1.141 billion is the value of the pirated software trade ($63 billion worldwide), and $118 million is the value of the pirated movies trade ($2.5 billion worldwide) .  While Havocscope admits that their reported values are not perfect, its enormous estimates sourced from publicly-available information demonstrate just how important it is to focus on producing reliable estimates of the illicit counterfeit and pirated goods.  Proper market estimates could help raise awareness of the problem, influence the creation or adjustment of necessary policies, and properly allocate resources to combat the illicit trade.  

The United States Congress passed the Prioritizing Resources and Organization for Intellectual Property Act in October, 2008.  Part of the Act requested the Government Accountability Office (GAO) to examine the impact of the counterfeit market on consumers and the overall economy.  The study found that the presence of a counterfeit market in the United States carries many negative effects, some of which include lost sales and revenue, lost brand value, lost taxes for governments, and potential damage to health and safety to consumers (GOA, 2010: 9-10; Picard, 2013a).  The study further concluded that there is a big gap in data and methods to estimate the size of the counterfeit and piracy market in the United States.  

At times, counterfeit and pirated goods are hardly distinguishable from genuine goods, and as such are hard to detect and confiscate.  Furthermore, such goods are often traded through either legitimately operated businesses or well-disguised illegitimate businesses (Picard, 2013). Detecting illicit operations within these businesses may be a complex task for law enforcement authorities.  The illicit nature of the counterfeit and piracy trade makes it extremely difficult to obtain reliable estimates of the size of trade. 

There is an important difference between counterfeit and pirated goods, which becomes relevant when estimation methods are developed.  For the purpose of this project, the World Trade Organization’s (WTO) Trade-Related Aspects of Intellectual Property Rights (TRIPS) definition shall be adopted (WTO, 1994: 342): 

•	counterfeit goods may be defined as “any goods, including packaging, bearing without authorization a trademark which is identical to the trademark validly registered in respect of such goods, or which cannot be distinguished in its essential aspects from such a trademark, and which thereby infringes the rights of the owner of the trademark in question under the law of the country of importation;” and 

•	pirated may be defined as “any goods which are copies made without the consent of the right holder or person duly authorized by the right holder in the country of production and which are made directly or indirectly from an article where the making of that copy would have constituted an infringement of a copyright or a related right under the law of the country of importation.”

There were several past attempts to estimate the size of the market for counterfeit and pirated goods.  No single method has been applied across all industries to calculate reliable estimates (GOA, 2010).  
 
Seizure data is one of the very few sources of hard evidence on counterfeit and pirated goods.  The estimation method involves assuming the quantity, value,  and other identifiers of seized goods as a baseline, and extrapolating national estimates based on the available data.  The approach uses existing data, provided it is easily obtainable.  However, a major limitation of the method is that it presupposes a constant level of effort and efficiency of law enforcement efforts.  However, if more law enforcement efforts are dedicated to seizure activities or methods become more effective, it can be assumed that more goods will be seized and more offenders will be arrested.  Nevertheless, this does not mean the actual size of the market has increased.

Supply and demand surveys were used in the past in attempts to estimate the size of the market for counterfeit and pirated goods.  Such surveys have the advantage of asking questions on consumer preferences and tendencies to purchase counterfeit goods, as well as other indicators of the counterfeit goods market.  The surveys carry the potential to provide insight into a heavily under-researched subject.  However, such surveys could be tedious and extremely expensive to implement, especially for the first time.  Also, due to the illegal nature of the goods, respondents might be reluctant to share truthful information about the purchase and consumption of counterfeit goods.  Such biases in responses to the survey are very hard to identify and control.  Finally, consumer tendencies might not be very indicative of the overall state of the legitimate goods market since: a) purchases of counterfeit and pirated goods might not represent missed sales of the legitimate goods since such transactions might not have happened in the legitimate market to begin with; and b) there is some evidence that the trade of counterfeit and pirated goods may have a positive effect on consumers’ tendencies to purchase legitimate goods. 

Use of economic multipliers is an economic measure of how a change in one industry affects the outputs and employment in other industries.  In the case of counterfeit and pirated goods, industry losses were derived from past studies and applied to estimate the harm to employment and the overall industry.  This approach, however, is designed to mostly look at a one-time change in the industry due to a particular event, rather than a gradual incursion of counterfeit goods into a market.  

Triangulation of methods was used in past by the OECD to estimate the size of the market for counterfeit and pirated goods on a global scale (OECD, 2009).  The researchers extrapolated national seizure data, later comparing it to the international trade data, and finally using that data in an econometric model to develop an estimate.  The estimates created by the OECD are probably the most reliable estimates of the size of the market for counterfeit and pirated goods existing to date. 

Other possible methods that could be applied to estimating the size of the market include the “Data Confrontation Method” and the “Capture-Recapture Method.”  Using the “Data Confrontation Method,” the total size of the market would equal the legal size of the market subtracted from the total estimated consumption.  The “Capture Recapture Method” would estimate the size of the market using the information about the re-offences of known offenders.  

It is evident that no one method would reliably estimate the size of the counterfeit and pirated goods market. Further, it is unclear whether the data required for one or a combination of methods is available in Canada.  It is thus the purpose of this project to review the existing data and methods and their applicability in the Canadian context, as well as come up with possible recommendations on detailed methodologies that could be used to estimate the size of the market for counterfeit and pirated goods in Canada.


3.	OBJECTIVES

The objective of this project is to review and critically assess the current methods that can be used to estimate the size of the market for illicit counterfeit and pirated goods in Canada.  

This project should provide detailed recommendations for the methods that carry the most potential to provide reliable estimates for such markets in Canada.  (This project is not required to actually estimate the size of the counterfeit and pirated goods market in Canada.)

With the discussion of each of the proposed methods, the project will provide a discussion of the existence of data suitable for the proposed method and/or recommendations on how the data could be collected and recorded in the future to allow for accurate estimates to be made in the future.


4.	PERIOD OF WORK

The period of the Contract is from date of contract award to March 31, 2014


5.	BASIS OF SELECTION

Highest combined score of technical points (70%) and financial points (30%).


6.	CONTRACTING AUTHORITY

Rachel Hull
Contracting and Procurement Section
Public Safety Canada
340 Laurier Avenue West, 1st Floor Mailroom
Ottawa ON  K1A 0P9

Tel:  613-949-1048
Fax: 613-954-1871
contracting@ps-sp.gc.ca 

The Contracting Authority is responsible for all matters of a contractual nature. 


7.	ENQUIRIES - SOLICITATION STAGE

All enquiries or issues concerning this procurement must be submitted in writing to the Contracting Authority named in Part 1, item 5 as early as possible within the bidding period.

Enquiries and issues must be received by the Contracting Authority no later than five (5) business days prior to the bid closing date specified on the cover page or this RFP document to allow sufficient time to provide a response. Enquiries or issues received after that time may not be able to be answered prior to the bid closing date. To ensure consistency and quality of information provided to Bidders, the Contracting Authority will provide, simultaneously to all bidders to which this solicitation has been sent, any information with respect to significant enquiries received and the replies to such enquiries without revealing the sources of the enquiries.

It is the responsibility of the Bidder to obtain clarification of the requirements contained herein, if necessary, prior to submitting a bid.

A request for a time extension to the bid closing date will be considered provided it is received in writing by the PS Contracting Authority at least five (5) working days before the closing date shown on page 1 of this RFP document. The request, if granted, will be communicated by www.BuyandSell.gc.ca at least two (2) working days before the closing, showing the revised closing date.  The request, if rejected, will be directed to the originator at least three (3) working days before the closing date by the PS Contracting Authority.


8.	SECURITY

There is no security requirement identified.