Coalition for Intellectual Property Rights (CIPR) and
Consumer Advocates Release First Consumer Study of Counterfeiting

POLL FINDS THREE OUT OF FOUR MOSCOW SHOPPERS BOUGHT FAKES

Moscow — New evidence demonstrating that counterfeiting in Moscow is a pervasive and growing threat emerged today with the release of a new consumer survey that found that 93 percent of Muscovites have "encountered" counterfeits where they shop during 2002.

"The most noteworthy statistic is that nearly three out of four Moscow consumers interviewed admit purchasing fakes of one or more products in the past two years," said Peter B. Necarsulmer, President of the Coalition for Intellectual Property Rights (CIPR).

"Nevertheless, 90% of all consumers have a negative attitude toward the practice, including 58% who are very negative," added Necarsulmer.

Clothing, footwear and sportswear are the counterfeit products most encountered by consumers (51%), followed by alcohol (47%), food, (46%), pirated music and film (37%), medicines (31%), soft drinks (24%), tobacco (23%), household cleaning goods (20%) and personal care items like perfume, cosmetics, shampoo and toothpaste (18%).

Fifty three percent of the respondents were able to independently name specific brands they come across most often in the stores and markets where they shop that are counterfeit. Adidas, Nike, Reebok, Kristall and Nescafe were among the more than 25 international and Russian brands and trademarks most frequently mentioned.

Asked about specific counterfeit prescription and over-the-counter medicines encountered most often, 35% named, unaided, the following specific brands: Noshpa, Analgin, Aspirin UPSA, Validol, Sumamed, and Mezim Forte, among others.

"The survey was not an academic exercise in sociology although securing this treasure trove of previously unavailable data on consumers and counterfeiting practices is extraordinarily interesting in its own right," said Necarsulmer.

"Instead, this unique research project was undertaken to focus the attention and priorities of Russian political leaders, brandholders, retailers, enforcement authorities and consumer organizations on the most immediate actions needed to stem the criminal tide of counterfeiting and piracy."

The opinion poll was conducted by Interactive Research Group (IRG) and The PBN Company for CIPR, the International Confederation of Consumer Organizations (KonfOP), the Union of Consumers of Russia, and the Pharmaceutical Research and Manufacturers of America (PhRMA).

Face-to-face interviews of approximately 50 minutes each were conducted from 5 November through 5 December 2002 in the homes of 1,200 Moscow consumers and an additional sample of 800 Samara residents.

"We also looked at Samara consumers,'' said IRG Research Director Tatyana Veretinova, ''to assess whether the counterfeiting experiences of Moscow shoppers are different from or similar to the rest of the country. We found attitudes and behavior in Samara, a typical industrial city in central Russia, to be completely consistent with Moscow.''

The survey found that most consumers had purchased counterfeit products at open markets (45%), followed by small shops (22%), kiosks and street vendors (14%), hypermarkets, supermarkets and department stores (6.5%), and pharmacies (6%).

Three-quarters of the respondents said they were unaware that they were purchasing counterfeit products, and only one quarter knowingly sought out fake products to buy.

Dmitry Yanin, Chairman of the Board of KonfOP, said: "There is no doubt that consumers feel at risk of purchasing tainted or fake products when shopping at small stores, pharmacies and, especially, in kiosks and open markets. However, consumers are clearly less tolerant of certain counterfeit products than others," he said.

Eighty-four percent of the respondents said that counterfeit medicines are "absolutely unacceptable," followed by counterfeit food (81% ''absolutely unacceptable'') and counterfeit alcohol (77% ''absolutely unacceptable''). On the other hand, consumers are much more lenient regarding both clothing and sportswear (34% ''absolutely unacceptable'' and 22% ''absolutely acceptable''), and counterfeit music and film (42% ''absolutely unacceptable'' 27% ''absolutely acceptable'').

KonfOP's Yanin underscored two other survey findings proving that consumers hold very different opinions both about the perceived risk and the appropriate punishments for fakes which threaten health and those which do not.

Sixty-three percent of respondents agree that for certain categories of counterfeits ''punishments should be much more serious, and for other products should be weaker or none at all.'' Also, 77% of consumers agree strongly with the statement, "Consumers will never buy legitimate consumer software, CDs or DVDs as long counterfeit versions are available at low prices."

"The findings illustrate the tough dilemma facing the software, recording, apparel and sportswear industries," said CIPR's Necarsulmer. "These industries must work much harder and join with coalitions of all IP holders if they hope to persuade government officials and consumers that piracy is no less criminal, immoral or costly to the state than counterfeited products. CIPR is ready to assist copyright owners in this task,'' Necarsulmer said.

Low Household Income Encourages Counterfeit Purchases

Consumers are very clear in their own minds about why counterfeiting continues to rise. The low income of the average Russian households; high prices of genuine goods; easy profits with little risk of punishment to counterfeiters; weak anti-counterfeiting laws; and, lack of effective law enforcement are the primary culprits identified by consumers for the continuing rise in counterfeits.

"Some people think it is chic among friends to say that counterfeit products are a blessing for Russia, because many of our poor citizens can't afford genuine products,'' said Piotr Shelisch, Chairman of the Consumer Union of Russia and a member of the State Duma from St. Peterburg. ''Of course, it is easier to steal than to make a decent living,'' he added, ''but tolerating fakes of any kind undermines both honest producers, honest consumers and our country's future," he said.

Consumers report that the volume of counterfeits and the quality of counterfeit packaging has increased significantly across the 12 product categories evaluated in the study, with the most dramatic increases in volume reported for clothing and sportswear (50%), medicines (48%), alcoholic beverages (48%), and personal care products (36%). They also believe that prices for fakes have increased in the last two years, with the price of counterfeit food, medicines, alcohol, soft drinks and clothing/sportswear escalating the most.

Counterfeit Medicines of Particular Concern

Nine in 10 Muscovites said that the problem of counterfeit medicines is an important problem, with 80% percent saying this issue is ''personally very important'' to them.

Three out of four respondents expressed concern about the cost of medicines, saying current prices are ''not justified.'' ''As a strong indication of just how seriously worried consumers are about fake drugs,'' said Necarsulmer, ''the survey shows that, despite concerns over pricing, more than half of Moscow consumers said they would pay even more for medicines if it would ensure these products were not counterfeits.'' As many as 28% of consumers are willing to pay between 5%- 30% more to have confidence that the medicines they buy are legitimate.

"PhRMA members are particularly concerned by the issue of counterfeit medicines in Russia," said Susan Kling Finston, Associate Vice President for Intellectual Property for the Pharmaceutical Research and Manufacturers of America. "Counterfeit medicines hurt patients and can even lead to the creation of new drug-resistant strains of bacteria or viruses. This means that potentially toxic counterfeits not only hurt individual patients in the short run, but also threaten public health over the long term."

Nearly nine out of 10 consumers say that there is inadequate available information on counterfeit medicines and most would like to receive information from the Ministry of Health (64%), pharmacies (44%) and doctors (32%).

Consumers Support Tough Penalties for Retailers

Consumers are clear that actions required to solve the problem include much tougher penalties not only for counterfeit producers, but for distributors and retailers as well.

"The survey should be taken as a fire-alarm for retailers large and small,'' said CIPR's Necarsulmer, 'and not simply because 70% of consumers want harsher penalties specifically for distributors and retailers who sell counterfeits," said Necarsulmer. "Eight in 10 respondents said retailers should be required to certify to customers that they do not sell counterfeited products."

The survey found that of the 57% of all consumers aware of measures currently taken in Russia to fight counterfeiting and piracy, less than four percent were aware of any efforts being undertaken by retailers in Moscow. In contrast, 25% were aware of anti-counterfeiting efforts being waged by manufacturers and 61% were aware of law enforcement activities by customs and police authorities.

''Retailers should be particularly concerned that consumers view them as the least reliable of 16 different sources of information about counterfeits,'' added Yanin. ''Sixty-two percent of poll respondents said they would call a special hotline for consumers to report about when and where they encountered counterfeits on sale.''

Counterfeiting Seen as Top National Priority

More than half of the consumers surveyed said counterfeiting is an important problem facing Russia today, with one in three rating it as "very important." Respondents put counterfeiting on par with other social problems including unemployment, alcoholism and poor medical service.

Not surprisingly, respondents oppose stronger penalties for citizens who knowingly buy counterfeits and pirated products. At the same time, 70% said they would use a special consumer hotline to get answers to their questions about counterfeits.

Asked to identify who is most responsible for solving the problem, 67% named state and regional authorities. Three quarters of respondents believe that organized crime is behind the counterfeiting, and one out of three believes it is linked with terrorist groups. Consumers also say that counterfeiting will never be eliminated in Russia, unless corruption in government circles is eliminated. They say the problem will only be solved if President Putin makes it a priority.

CIPR, Consumer Advocates Calls for More Education and Increased Penalties

"We must take a comprehensive approach to stopping counterfeiting by focusing on the three "Es" — eradication, enforcement and education,'' said Pyotr Shelisch. ''The Consumer Union of Russia strongly endorses CIPR's policy to fight counterfeits and piracy on all fronts, and to join producers, retailers, consumers and government in a comon effort.''

As a result of the survey, Necarsulmer said, CIPR will work even harder with brandholders, consumer groups, customs and law enforcement authorities, Rospatent and other partners to:

• Provide consumers with clear, concise guidelines to help them distinguish counterfeits from genuine products.

• Encourage the RF Government to increase penalties not only for producers, but for distributors and sellers of counterfeit products as well.

• Encourage retailers to develop a credible, voluntary system of ensuring consumers that their stores do not sell counterfeited or pirated products.

• Demonstrate to President Putin, using the results of the survey, that Russian consumers want and expect his leadership in solving this problem.

The Coalition for Intellectual Property Rights (CIPR) is a private-public partnership dedicated solely to protecting and enforcing intellectual property rights in the CIS countries and the Baltic States. Through legislative initiatives and lobbying, coalition building, enforcement actions, public awareness, and opinion and economic research, CIPR assists governments and IP owners to establish transparent IPR regimes that adhere to international standards.

CIPR's Corporate Members include a number of the world's most famous trademark owners in the food, beverage, pharmaceutical, fashion, computer, tobacco and luxury goods industries. CIPR's Associate Members include 30 international and regional business and trade organizations and anti-counterfeiting groups, which, combined, represent thousands of IP rights holders.

NOTE TO EDITORS: Some of CIPR's Associate Members from Russia include: Russian Union of Professional Pharmaceutical Organizations, Russian Authors' Society, Consumers Union of Russia, Russian Chamber of Commerce and Industry; American Chamber of Commerce in Russia; Association of International Pharmaceutical Manufacturers; Association of Russian Patent Attorneys; European Business Club; Russo-British Chamber of Commerce; and, US-Russia Business Council. Corporate Members of the Coalition include Anheuser-Busch Companies, Baker & McKenzie, BAT, Becton Dickinson, Coca-Cola, Dell Computer, Diageo, Four Seasons Hotels Limited, Geom Ltd., Fross Zelnick Lehrman & Zissu, Gallaher, Guinness UDV, ICN Pharmaceuticals, Kraft Foods, Kroll, Pfizer, Philip Morris International and Tiffany and Company.

For more information please contact:

Peter B. Necarsulmer, President & CEO, CIPR
Alexander Shelemekh, Sr. Vice President, CIPR
Tel. 775-0077 Fax. 775-0075

Dmitry Yanin, Chairman, KonfOP
Tel. 298-4885 Fax. 298-4718

Tatyana Vereitinova, Research Director, IRG
Tel. 795-0981 Fax. 933-0942

Susan Kling Finston, Associate VP International Affairs, PhRMA
Tel. 202-835-3492 Fax. 202-835-3413

Pyotr B. Shelisch, Chairman, Consumer Union of Russia
Tel. +7812-274-0936