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15 December 2020

Orbis underpins world-first research on impact of digital counterfeiting

Content team

Orbis underpins world-first research on impact of digital counterfeiting

Bureau van Dijk’s Orbis database has been used in the first ever large-scale analysis of the effects of counterfeiting of digital goods using company-level data. The research, published by members of the Polytechnic University of Milan in 2020, uses empirical data to identify digital technology companies targeted by counterfeiters and assesses the impact on their innovation and economic performance, as well as the wider economy.

The identification of relevant companies had been a challenge to previous researchers, because they belong to an increasing number of sectors. This was solved by integrating Orbis’ extensive company data with a report on counterfeiting published by the Organization for Economic Co-operation and Development’s European Union Intellectual Property Office, creating the first counterfeiting database of its kind.

The effects of digital counterfeiting on innovation and individual company performance have been heavily debated by researchers. As the report highlights, in recent years discussion has intensified, in part due to the rise of digital counterfeiting and concurrent economic growth in China and South Korea.

It has been unclear whether counterfeiting negatively affects the companies targeted, through loss of sales, brand dilution and, ultimately, profitability. Some researchers have argued that counterfeiting increases innovation and economic growth through knowledge sharing, claiming that digital counterfeiting, in fact, helps economic growth.

The research used Orbis’ financial accounting and patent data to confirm that counterfeiting has a significant negative effect on the profitability of digital technology companies and, crucially, found no evidence to support the theory that counterfeiting increases the sales of affected companies or that it contributes to wider market growth.

The researchers also noted that the companies targeted by counterfeiters often had a high propensity to innovate and did not appear to experience lower sales but they did have smaller operating profits compared to non-targeted companies. The likely reason for this seeming paradox is the extra costs incurred by those businesses protecting themselves against the counterfeiting activity.

This research follows the release of the Sixth Anti-Money Laundering Directive, which requires Member States to criminalize counterfeiting goods by December 2020. It also extends criminal liability in counterfeiting to legal entities and people in leading positions. In finding no evidence of market benefits, the report provides empirical justification for the introduction of these new regulations.

Read the full report here.

Content team, Bureau van Dijk

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