Nº 1 2015 > Counterfeit goods
Combating counterfeit and substandard ICT devices
An ITU event on Combating counterfeit and substandard ICT devices was held at ITU Headquarters, in Geneva, Switzerland, on 17–18 November 2014. It was chaired by Dr Eugene Juwah, Executive Vice-Chairman/CEO of the Nigerian Communications Commission (NCC), who noted that the strong attendance and interest in the event underline the importance of collective action to curtail counterfeit and substandard information and communication technology (ICT) devices.
Counterfeiting is increasingly becoming a problem within the ICT industry, partly driven by growth, especially in mobile. Counterfeit and substandard ICT devices can have a significant negative impact on industry in lost income, dilution of trademark value and lower consumer trust and governments, i.e. in terms of lost revenues, customs duties and taxes, while presenting serious health hazards, privacy and security concerns, low performance and degraded quality of service to consumers. According to presentations at the event, there is clearly a need to gather, analyse and disseminate more facts and empirical data about the nature and impact of counterfeit and substandard products — not only to gain a better understanding of the scope of the problem, but also to enable the crafting of adequate solutions to redress it.
In his keynote speech, Dr Robert Kahn, Chairman, CEO and President of the Corporation for National Research Initiatives (CNRI), described ITU–T Recommendation X.1255, entitled “Framework for discovery of identity management information”, as a conceptual framework with direct relevance to combat counterfeit goods. He introduced Digital Object Architecture (DOA) and the work of the DONA Foundation on unique persistent identifiers. In his opening address, Brahima Sanou, Director of the ITU Telecommunication Development Bureau, highlighted the adoption of World Telecommunication Development Conference (WTDC) Resolution 79 on the role of telecommunications/ICTs in combating and dealing with counterfeit telecommunication devices (these include counterfeit and/or copied devices and equipment as well as accessories and components). A new Resolution adopted at the ITU Plenipotentiary Conference on combating counterfeit ICT devices, has also introduced this issue into ITU’s work.
The policy debate
In the Policy Debate session, governments offered their perspectives on combating counterfeit and substandard ICT products. The Ukrainian State Centre of Radio Frequencies described how Ukraine introduced its Automatic Information System for Mobile Terminal Registration (AISMTRU) in 2009 to protect the national market from imports of counterfeit and substandard mobile phones. The National Communications Authority (NCA) of Ghana noted that counterfeit phones cost very little, and have actually contributed to increasing teledensity in the country, while creating youth employment. However, they pose a number of challenges in terms of health, safety, e‑waste, quality of service, interference, and tax evasion. In March 2014, the Ghanaian regulator issued IMEIXS a licence to implement the GSMA International Mobile Equipment Identity (IMEI) platform with a serial number unique to every device, in order to block counterfeit mobile phones. However, the licence does not make it mandatory for mobile network operators to connect to this platform.
The Telecommunications Regulatory Authority (TRA) of the United Arab Emirates presented the United Arab Emirates plan to minimize counterfeit products in the country. In September 2011, TRA issued the Directive on “Duplicative IMEI” and is conducting an awareness campaign among consumers, as many believe that counterfeit ICT devices perform as well as genuine ICT devices. By 2012, TRA had disconnected more than 100 000 handsets. ANATEL presented Brazil’s SIGA Project to control cloned devices. Regulations in Brazil dictate that operators can allow only authorized devices onto networks, but ANATEL believes that a considerable proportion of the terminals on the network today are currently unauthorized. ANATEL is working with all stakeholders including GSMA, operators and manufacturers to increase the success of its SIGA Project to control counterfeit and substandard ICT devices. The UK’s Department for Business, Innovation and Skills (BIS) described how the number of counterfeit devices is increasing in tug-of-war between manufacturers and counterfeiters. It was agreed that all stakeholders should work together to address this issue, while respecting the privacy of end-users, and that multilateral action and better awareness are needed.
According to participants, initiatives in other countries to combat counterfeit ICT devices include:
- Azerbaijan — A database for IMEI codes has been in operation under the Ministry of Communications and High Technologies since 2013.
- Colombia —The Ministry of Information and Communication Technologies has two IMEI code databases, one for lost and stolen mobile devices and the other for those devices that are legally manufactured and imported.
- Egypt —The National Telecommunications Regulatory Authority (NTRA) set up a Central Equipment Identity Register (CEIR) in 2010 and has found 500 000 mobile handsets with fake IMEI codes.
- India — In 2009, the Government of India banned services on mobile handsets without IMEI numbers; up to 25 million mobile handsets are estimated to have become ineffective.
- Kenya — 1.89 million counterfeit mobile phones have been phased out since 2012, following notice by the Communications Authority of Kenya that all mobile network operators disconnect these devices from their networks.
- Sri Lanka — The Telecommunications Regulatory Commission of Sri Lanka is looking to develop and implement a National Equipment Identity Register (NEIR) that allows all mobile operators to be connected to IMEI databases and share blacklisted mobiles.
- Turkey — The Information and Communication Technology Authority of Turkey established a Central Equipment Identity Registry. By the end of 2010, some 14 million handsets had been blacklisted with cloned IMEI.
- Uganda — the Uganda Communications Commission (UCC) has launched a project which aims to gradually eliminate counterfeit phones.
Governments are pursuing anti-counterfeit programmes and establishing databases for a range of different reasons, although protecting tax revenues is a common goal.
During the session on Intergovernmental Initiatives, the World Intellectual Property Organization (WIPO), the World Trade Organization (WTO), the European Commission (EC), the Organisation for Economic Cooperation and Development (OECD) and the World Customs Organization (WCO) presented initiatives to protect intellectual property rights (IPRs) and combat counterfeit and substandard products. Participants agreed on the need for clear and correct use of terminology, neatly summarized by WTO as follows:
- counterfeit equipment is related to the infringement of trademarks with intent to deceive and defraud consumers;
- infringement of trademarks may confuse consumers, but lacks malicious intent to deceive;
- contraband equipment is a trade issue and relates to the infringement of customs regulations; and
- substandard equipment is a regulatory issue. Substandard products may be non-compliant, but they may have a national trademark, so they are not necessarily counterfeit.
These terms are different from one another and should not be used interchangeably, as the term used partly shapes the response. WIPO pointed out, for example, that the WTO’s Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) can help fight counterfeit ICT goods, but not substandard ICT goods, as this is a regulatory issue not related to IPRs. Article 61 of TRIPS gives guidance on what constitutes counterfeit goods, and creates obligations on WTO Member States to make criminal penalties available — selling fake or counterfeit goods is illegal in most WTO Member States.
The European Commission (EC) highlighted that, within the ICT industry, mobile phones are clearly the largest source of concern when it comes to counterfeiting and substandard practices. Nevertheless, counterfeit and substandard ICT accessories, chips and other components also now infiltrate the supply chain of many other industries, including aviation, construction, and health. According to the EC, the ex-post application of regulation to seek redress does not work alone; a preventative approach is needed to tackle the problem of counterfeiting and substandard ICT devices at source.
Measurement of counterfeit and pirated trade is difficult due to very limited data availability. The methodology of the OECD is based on data for tangible products that infringe trademarks based on surveys from customs authorities, which are extrapolated through WCO data. Further research and data are needed about the real nature and impact of counterfeit goods because the assumptions, for example, that counterfeit ICT devices are necessarily of poor quality and are dangerous for health need to be backed by solid empirical data. For its part, WCO pointed out that, of approximately 1.1 billion counterfeit products stopped by customs authorities in Africa as part of Operation Biyela, 40% of these were electronic appliances.
The technology debate
The Technology Debate was hosted in two sessions. Industry perspectives were presented in the fight against counterfeit and substandard ICT products. The Mobile Manufacturers Forum (MMF) cited research related to negative network performance arising from counterfeit phones. Counterfeit phones drop one in four calls, delay handover, and fail in every third handover. Operators can tackle and reduce the number of counterfeit phones operating on their networks in order to increase quality of service. GSMA described its International Mobile Equipment Identifier (IMEI) database to uniquely identify mobile phones. Over 700 operators, 14 national regulatory and law enforcement agencies, and two customs agencies have used the database to recover devices and prevent device laundering.
Cisco Systems presented its cradle-to-the-grave approach to security throughout the Machine-to-Machine (M2M) supply chain. Security must be taken into account from the very beginning in designing products through quality control, logistics, supply of solutions to end-of-life disposal — security cannot be bolted on later. Microsoft has a group of almost one hundred professionals working on counterfeiting, piracy, malware disruption and IP protection. Microsoft considers that its experience of malware and counterfeit devices is analogous to its past experience with software — first, counterfeiters make cheap replicas, sell them and make money; then, counterfeiters also aim to access users’ data and control devices. Microsoft sees existing legal frameworks as sufficient, but they need to be better utilized.
Hewlett Packard presented its Global Anti-Counterfeit (ACF) Programme, and pointed out that the issue of counterfeiting is not only limited to ICT and printing equipment. Rather, the problem also extends to ICT components and accessories such as laptops, adapters, batteries, servers, hard drives, and USB flash drives. Société Générale de Surveillance (SGS) emphasized the need to verify, survey and enforce. If counterfeit or substandard ICT goods are blocked at customs, experience shows that they may nevertheless filter into the country via other channels. Better coordination is needed between different agencies.
The Ministry of Industry and Information Technology of China explained how China has introduced the handle system and Digital Object Architecture (DOA). Today, six large firms are using this system to combat counterfeiting in the food industry. By late 2014, 80 million handles were already in use in China. The International Federation of Pharmaceutical Manufacturers & Associations (IFPMA) described issues in relation to counterfeit medicines and pharmaceutical goods. At least 10% of all medicine is fake, while in developing economies, 10–30% of drugs are counterfeit. Track and Trace systems can help increase control throughout the supply chain, but the cost of their implementation is high. Discussions highlighted that counterfeiting is growing, despite best efforts to combat it. However, a cost versus benefits approach is needed — it is possible to track, trace and tag many products, but the costs could exceed the benefits. The counterfeiting problem affects stakeholders differently — for example, telecommunication operators may not be very concerned about counterfeit goods, as long as counterfeit handsets or chips do not affect network performance or traffic.
Within the ICT industry, mobile phones are clearly the largest focus for counterfeiters, but chips and other ICT components are now found in other industries. E‑commerce is a boon to counterfeiters — criminals are adept at cross borders and moving around to avoid restrictions and tax. Regulation applied to redress the problem does not work alone — a preventative approach is needed to tackle this problem at its source.
Participants agreed that:
- An inclusive approach is needed involving regulators, governments, consumers, civil society and the industry.
- There is a need to gather, analyse and disseminate more data about the nature and impact of counterfeit and substandard products, and the role of ICTs in combating them.
- Preventative approaches are needed to reduce incentives throughout the supply chain; a better and more efficient use of existing technical solutions, such as international standards, could contribute to this.
- A reinforced policy, legal regulatory framework is needed across sectors, emphasizing enforcement.
- Raising awareness, capacity-building and consumer education are vital for all stakeholders.
ITU can play a role in implementing activities and assisting its Member States under each of these five action areas. In his closing remarks, Malcolm Johnson, the then Director of the ITU Telecommunication Standardization Bureau, and now ITU Deputy Secretary-General, thanked everyone for their interest, and noted ITU’s willingness to collaborate with all stakeholders. ITU will examine how it can implement some of these proposals, based on the mandate from the ITU World Telecommunication Development Conference (WTDC‑14) and the ITU Plenipotentiary Conference (PP‑14).
For more information and final report, see the event webpage at: www.itu.int/en/ITU-T/C-I/Pages/WSHP_counterfeit.aspx. Also learn how to spot a fake phone at: www.spotafakephone.com/.