New Method for Estimating Costs of Counterfeiting Presented

A new method for estimating the costs of counterfeiting was published today by RAND Europe. The approach uses market data to estimate the effects of intellectual property rights infringements, such as counterfeit products, on sales of legitimate goods.

The method relies on comparing previous sales forecasts with actual sales data to estimate “unfulfilled demand” for a product, and presuming that the difference is—at least in part—caused by counterfeit products.

This methodology delivered very credible results when applied to confidential data made available by a multinational technology company producing consumer goods targeted by counterfeiters. Researchers say further piloting is required to refine the method and build evidence about its wider applicability.

The benefits of this new method in comparison with alternatives are: cost-effectiveness, broad applicability to multiple products and markets, comparability by enabling systematic comparisons across firms or markets, and reproducibility. The approach does not rely on seizure and enforcement data, which are commonly used to estimate the magnitude of counterfeit markets but are notoriously unstable.

“Our new method has the potential to become an objective, transparent, standardised and low-cost approach to estimating the impacts of counterfeiting” said Stijn Hoorens, associate director of RAND Europe and the report's lead author. “In our pilot, the RAND model produced results comparable to mystery shopping, a very expensive method that performs well for specific products.”

The study was funded by the European Commission (DG Internal Market and Services) and has been a joint effort of RAND Europe researchers based in Brussels and Cambridge, along with RAND Corporation staff in the United States.

The report, “Measuring IPR infringements in the internal market: Development of a new approach to estimating the impact of infringements on sales,” is available at http://www.rand.org/pubs/technical_reports/TR1279.html. The report was released at the 1st Plenary Meeting of the European Observatory on Infringements of Intellectual Property Rights in Alicante, Spain.

RAND Europe is an independent not-for-profit policy research organisation that aims to improve policy and decision making in the public interest, through research and analysis. RAND Europe's clients include European governments, institutions, nongovernmental organizations and companies with a need for rigorous, independent, multidisciplinary analysis.