Who loses on counterfeit?

Main shopping street in Shanghai. ‘Many, many watch.’

There seems to be a common consensus in the IP debate that while legality and morality of copying of intangibles is a matter of discussion, producing physical counterfeit goods is uniformly immoral, illegal and hurtful to the economy.
As with the digital content ‘piracy’, huge numbers are bandied about by corporations, billions of dollars of ‘loss’, not only to them, but to the society as a whole. It seems common sense that counterfeit is bad, and for example the parts of ACTA (Anti-Counterfeit-Trade Agreement) that deal with physical piracy are not really seen as the problematic ones at all. Economic experts in media claim without a blink that without such trade agreements no viable economy is possible. Counterfeit is a terrible crime, plain and simple.

A very few people (outside China) – like Janusz Palikot in Poland – even dare to mention the need to discuss this status quo. But as usual, things are not as simple.

First, let’s set apart that which really is hurtful: the dishonest ones, or scams, where a buyer is not aware of the counterfeit, or the consequences of buying one. There is real harm in that, especially if it’s food or medicine. But we have laws against scams and dishonest trading which can be used in these circumstances, without even mentioning the terms Intellectual Property or infringing on personal freedoms. A cheater is a cheater, whether he sells you fake banknotes or fake Viagra(R).

Once we leave those out, we are left with counterfeits which are bought willingly. Because you like the design. Because you want to brag about the logo. Because you don’t really care about any of that, but your last sunglasses broke and the only ones the guy at the beach is selling are ones with a tacky ‘Emporio Armanix’ logo glued to the frame.

I don’t know the numbers, but I’d venture a guess that most counterfeit trade in the world is not a result of scams but this second type. If you buy a ‘Rolex’ watch off a guy in the street for $200, you are either fully aware it’s a fake, a stolen watch, or are too dumb to know any better. In any of these cases, you would never buy a real Rolex instead. Counting this purchase as a loss by Rolex is exactly the same fallacy the media concerns use to count all pirated mp3s as lost CD sales. It assumes people are less vain than they are greedy. It assumes people who buy counterfeits knowingly would otherwise spend their money on the real products if they had no choice – and, conversely, people who want to buy luxury goods don’t care about their provenience as long as the logo matches.

This is an obviously absurd assumption, easily debunked by real numbers. If economy worked like that, luxury companies would all be counterfeited out of the market and into bankruptcy. I don’t hear that happening. In fact, sale of luxury goods rose dramatically over the years, defying any economic indicators. People know what they’re buying. If somebody has $10,000 to spend on a watch, they will spend buy one $10,000 watch from a real dealer, not 50 $200 watches from a guy in a dark alley.

Just like the movie business is experiencing an unprecedented growth despite (some would say because of) ‘rampaging piracy’, the luxury and designer brand business thrives regardless of how many ‘Genuine Armani’ jeans are being sold on the bazaars of the world. All that counterfeiting really does is raising brand awareness among people who would otherwise sometimes never even know about a brand, breeding future customers who, when they are rich enough, will buy the genuine article.
How is that a bad thing?

A wikipedia article claims that Counterfeiting in China is so deep rooted that when shops selling counterfeit merchandise were shut down by authorities, the owners protested publicly against this action, holding weekly public protests, and mocking those attempting to prevent counterfeiting as ‘bourgeois puppets of foreigners.'”
Good for them, I say.