• United States



by Christopher Burgess and Richard Power

Part III: When Counterfeiters, Pirates and Organized Crime Target Products

Jun 08, 20067 mins
CSO and CISOData and Information Security

Software, Technology, Shoes and Apparel, & Entertainment


According to a December 2005 global study commissioned by the Business Software Alliance, piracy rates in 50 countries have increased over the prior year. Leading the list is Vietnam, where it is estimated that 92 percent of all software purchased is pirated. But while the top 20 countries with a high rate of software piracy include mostly developing nations, the list also includes China with a rate of 90 percent and Russia not far behind at 87 percent. By comparison, the United States has the lowest rate at 21 percent. The study opines that a 10-point drop in piracy in Asia-Pacific alone would generate $135 billion worth of additional economic growth and create approximately 2 million new jobs.

Law enforcement is the critical issue, and the biggest problem. For example, in October 2005, two people were arrested in Cebu City, Philippines, for attempting to sell pirated software valued at approximately 9 million Filipino pesos (more than US$160,000). If convicted, they face fines from 50,000 to 1.5 million Filipino pesos (approximately US$900 to $25,000) and prison terms from one to nine years. However, according to the Filipino press, no one has ever been convicted of software piracy in the Philippines. It appears that these are token arrests and enforcement efforts, and are not directed at the large wholesale piracy efforts.


Counterfeiting isn’t limited to software, of course. Samsung, for example, has been repeatedly targeted. Crimes perpetrated against the Korean technology manufacturer range from outright theft of its intellectual property to the counterfeiting of its cutting-edge product lines.

In November 2005, four people, who were all current or former Samsung employees, pilfered blueprints and other documents related to a new mobile phone design. They were caught by the National Intelligence Service (NIS), South Korea’s counterespionage organization, which discovered the group attempting to deliver the files to Chinese mobile phone manufacturers. (Note that the Korean NIS exercises its counterespionage capabilities within the economic espionage milieu and in support of Korea’s industrial base.)

According to Samsung, its investment in the design project was 25 billion won (approximately US$25 million). If the quartet of thieves had been successful, Samsung could have taken a market hit of approximately 500 million won (US$500,000) in the handset market. It also stood to lose almost 8.8 trillion won (approximately US$8.8 billion) worth of intellectual property on its entire line of technology products, which were included in the data trove. What company could withstand a fiscal loss valued at more than $8 billion due to blueprints and documents being stolen?

One of the perpetrators was discovered sharing approximately four gigabytes of computer files, including documents, blueprints, program source code and circuit diagrams for mobile phones. This individual used multiple technological avenues to successfully transfer data to his co-conspirators outside of Samsung, such as DVDs, e-mail and wireless connectivity between laptops. Of course, Samsung had a “policy” in place, which prohibits employees from sharing data outside the company, or retaining or copying such data for personal retention. So what? Policies without enforcement programs are relatively meaningless.

A study conducted by Samsung’s own Economic Research Institute indicates that 39 percent of all technology stolen from Korea is destined for China. Korean manufacturers of mobile phones and other electronic devices, such as MP3 players, say that approximately 70 percent of LG Electronics and Samsung products available in the Chinese marketplace are counterfeit products.

Shoes and Apparel

Counterfeit shoes are commonplace in the open markets of Southeast Asia. Adidas, the German sports clothing conglomerate, recently filed a lawsuit against three separate Chinese companies for intellectual property violations. Adidas has requested 3 million yuan (approximately US$370,000) in compensation from the three companies for violating its logo and trademarks.

The apparel and fashion goods industries have also proven to be juicy targets. In early November 2005, the assistant U.S. attorney for the District of Massachusetts, the U.S. Immigration and Customs Enforcement in New England (ICE) and the U.S. Internal Revenue Service announced the arrest and indictment of four people charged with trafficking in more than US$1.4 million worth of counterfeit goods. The 10-count indictment details how the four people used 13 separate self-storage units within a storage facility as their base of operations. (Ten of the units were for storage, two were showrooms, and one was the manufacturing facility.)

When raided, the units contained: 12,231 counterfeit handbags, 7,651 counterfeit wallets, more than 17,000 generic handbags and wallets, and counterfeit labels and medallions in sufficient quantity to turn more than 50,000 generic handbags and wallets into copies of the “originals.” Trademarked brands that were “copied” included Louis Vuitton, Kate Spade, Prada, Gucci, Fendi, Burberry and Coach, and those of other manufacturers. Other items contained in the storage units included scarves, belts, umbrellas, sunglasses, duffle bags, hats, visors, garment bags, coats, shoes, necklaces, bracelets, rings and earrings bearing counterfeit marks. The indictment places the value of the counterfeit goods at approximately $1.4 million and $6 million had the goods been authentic.

The sales methodology used by this group of counterfeiters, according to the indictment, was to sell the items at flea markets or “purse parties.” Indeed, it is alleged that they held more than 230 purse parties throughout Massachusetts.

According to an ICE statement:

The public needs to know that when they buy a counterfeit purse at a house party or on the street, their dollars are ultimately helping to finance large-scale counterfeiting organizations. And every time they buy a knock-off purse, they are contributing to legitimate companies losing billions of dollars in revenue to counterfeiting every year.


In November 2005, a judge in Hong Kong sentenced Chan Nai-ming to three months in jail for the copying and distribution of three motion pictures via the Internet. Chan operated under the Internet alias “Big Crook,” utilized BitTorrent software to conduct the file sharing, and apparently did not charge for the films.

The Chan case was the first in Hong Kong to result in a jail sentence for the online piracy of motion pictures. Customs investigators determined that 30 to 40 individuals accessed Chan’s computer to obtain illicit copies. The fact that Chan did not charge for the films was not found to be material.

Meanwhile, Antipiratbyran, the Swedish anti-piracy group, was disciplined by the country’s Data Inspection Board for breaking privacy data rules in its hunt for illegal file sharers. In its exuberance to locate and identify individuals who were illegally sharing music and film files over the Internet, it hired a paid informant within Bahnof, a Swedish ISP, to provide the IP addresses of “file sharers” within the network. The Data Inspection Board noted that an individual’s IP address is considered private, and the manner in which the information was collected illegal.

In August 2005, the Motion Picture Association of America (MPAA) declared Internet-driven film piracy losses to be approximately $1.9 billion, and that the overall piracy of films in other formats was estimated to be $3.5 billion.

And yet, instead of expending its energy searching out wholesale pirates, the MPAA, on behalf of the major studios, filed 286 lawsuits against individuals whose names were provided by 30 BitTorrent site operators who were shut down earlier in 2005. These prosecutions, although appropriate, are insignificant. Of course, the suits against individuals aren’t difficult to win, since most individuals don’t have the fiscal resources to compete with the MPAA or the motion picture industry itself. But it would certainly be more effective for the MPAA to invest its investigative funds in identifying those organizations with robust infrastructure producing thousands of copies.