Unofficial translation

“Business is war” is an aphorism created inthe U.S., not in Russia.  However, warsdiffer.  Large and well-equipped armiesdefeat their enemies by the power of their arms, while mobile guerrilladetachments have to be smart and responsive. Counterfeit industry provides ample opportunity for highly contrivedarrangements and schemes.

Foreigners Fall Victim to Fraud

It is common knowledge that internationalcompanies are most frequent victims of the counterfeit industry.  They simply happen to own widely recognizedbrands which local companies use to make profits.  Perhaps this is one of the reasons why the government is not keento side with the original brandholder to fight counterfeit industry.

Let’s take the well-known Gorbushka marketas an example. In recent months the practice for Gorbushka is to do licensed CDsof local singers and pirated CDs of foreign musicians.  The market has a turnover of tens ofmillions of dollars and contributes some revenue to the Moscow budget.  Gorbushka employs hundreds of people, mostlyyoung men who will have difficulty in finding a job if Gorbushka did not offeremployment opportunities.

Thousands of other young people flock in onweekends and sometimes spend here a few hours. It has become a permanent base for Maximum radio station to hold musicfestivals where pop-singer perform in the open air.  This is another social advantage for the young people who can notafford to pay for more expensive cultural events.

A number of businesses have beenestablished in the Moscow Region to meet the demand for pirated compact discs(according to an unofficial source, these are no longer delivered fromBulgaria) which means more jobs are created in Zelenograd or elsewhere.

Let’s summarize what was said above. In thecase of Gorbushka it provides job opportunities for employees, highlyprofitable business opportunities for employers and reasonable value forreasonable money for the consumers. Revenue collections flow to the budget.   This is one side of the problem.

If Gorbushka is closed,  international producers of licensed goods (acouple of companies) will get an impetus to develop business in Russia, whileRussia will have an image of a country which combats pirating.  This is another side of the problem.

Let’s assume that you work for the Moscowgovernment or Moscow West District authority which is in charge of the areawhere the market is located.  Which ofthe two considerations would you choose as a priority?

The answer is clear, and that is whyGorbushka still exists. The market near Gorbunov community center is anexplicit example of the Russian paradox. “Beware Counterfeits!” is no doubt an appropriate slogan to follow andthe government should obviously protect consumers from counterfeitedgoods.  However, it is clearly at oddswith another slogan which reads “Buy locally produced goods”.

The Best of the Worst

It therefore appears that governmentofficials relegate anti-counterfeit measures to a residual priority.  The government has nonetheless learnt how touse sham combat arrangements to their advantage.  In the best case they are keen to collect additional revenues forthe budget, in the worst case they are biased by personal interest.

“All recent attempts of the government tocombat counterfeit have been severely criticized by experts”, says OlegKomarovsky, head of Consumer Association Confederation press service.  “So far all efforts have essentially comedown to regulations by which the government is trying to introduce mandatorygoods labeling by stamps.  However,these initiatives have an opposite impact.”

Regulation by way of enforcing stamps hasrecently become a favourite means used by the government to go ahead with apseudo fight against counterfeit industry. “Counterfeiting is a problem whichcannot be easily resolved”, assumes Vadim Zheldin, General Director of theAdvertiser Association. “Some subnational and even federal authorities usesimple and harmful ways.  By this I meanmandatory stamps.  These stamps do notcontribute in any way to anti-counterfeit arrangements but result in a pricemarkup.  Another recent phenomenon isregional stamps.  In particular,Kemerovo regional administration requested that all alcohol-free beveragesshall be marked with a stamp. These initiatives hinder circulation of goods in theRussian market”.

It is a voluntary international practice toattach holographic marks and stamps to protect authentic goods fromcounterfeit.  Similar examples can befound in Russia.  However, governmentofficials do the opposite thing: they force companies to attach stamps.  If we take into account the lengthydistribution cylcle from the vendor to the distributor, from the distributor tothe dealer etc. it means that at each step in the process the buyer has toattach a new stamp.  Can you imagine howmuch the ultimate price will increase as a result?

“Moscow authorities introduced excisestamps for video and audio production,” says Soyuz-Video Deputy GeneralDirector Viktor Alisov.  “Each stampcosts three to five rubles and a company like ours is to pay to the Moscowbudget about $100 thousand a month.  Wecould spend this money to contract police who would scare away all pirates inless than a minute’s notice”.

Police raids is another favorite methodwhich the government uses to combat counterfeit industry.  Brandholders like it much more than thestamps.  However, sometimes it wouldappear that these raids are not targeted against counterfeit businesses butpursue somewhat different objectives. Let us come back to the Gorbushka market where police raids is a regularthing to happen.  Would not it besimpler to conduct a raid of Zelenograd-based factories producing goods whichare sold in the market?  This couldshake the roots of counterfeited audio business.  However, it appears that such approach is not part of the policeagenda.

Nonetheless, international brandholdersregard actions of the interior ministry as a more valuable contribution to thecounterfeit combat arrangements than inputs of other Russian governmentagencies.You can imagine how efficiently the latter operate.

The way they fight with counterfeit industry:
Interior Ministry Guidelines

International producers assume that theInterior Ministry is more effective in dealing with counterfeit industry thanthe State Customs Committee, Anti-Trust Policy Ministry, Russian Trademarks andPatent Agency, courts and Prosecutor’s Office. We got an Interior Ministry document dealing with the subject inquestion and decided to publish an abridged version of this instruction for youto be able to see what on-site supervision measures are recommended by theInterior Ministry.  On paper it looksquite simple.

“Investigation is carried out to detectpersons who engage in selling counterfeited products.  Sample goods are bought from these persons without disclosing theintention of the purchase subject to test.

After receiving evidence of tradingcounterfeited alcoholic beverages traders are watched closely.  As a rule, these are NIS citizens who occupya small space in the market and sell in small quantities (3-5 bottles).  All actions are documented on videos andphotos.  Delivery agents are followed toidentify the supply source.  Normallygoods are delivered from leased apartments, private residences, abandonedwarehouses and garages.

Therefore, a whole chain of counterfeit-relatedpersons is established.  Anotherinformation is obtained that helps understand in what way the bootleggerbusiness operates which allows to better plan the time for case actioning andon-site inspection.

Sample goods are bought and the intention ofsuch purchase is disclosed to the trader. The delivery agent is detained.Subsequently action is taken as appropriate by the investigation officer tostop production of counterfeited alcoholic beverages.  Criminal proceedings are instituted.