These Costs emerge from Infringement in Jewellery and Watches

The EUIPO released a report about the economic cost of IPR infringement in the jewellery and watches sector. It gathers direct and indirect industry revenue losses and job losses due to the presence of imitated products and their impact on public finance. The study is only about manufacturing and doesn’t inclued wholesale and retail trade.

Direct costs to industry

Infringement of Intellectual Property Rights is not only illegal it also brings a loss of sales for the holder of the IP right. It is estimated that the total consumption of jewellery and watches in the EU (without wholesale and retail trade margins) was EUR 14 billion in 2012.

From 2007 to 2012 the EU lost 13.5% of sales by the sector due to counterfeiting. Additional €1.6 billion of sales were lost in related sectors. The three largest producers Italy, France and Germany had also the highest losts in sales (€400 million; €336 million ; €247 million) in Europe.

In many companies a loss of sales leads to the need to cut jobs. In total approximately 15,000 manufacturers of jewellery and watches lost their jobs in the EU from 2007-2012. Additionally 13,500 people who worked indirectly for the industry lost their jobs as well.

Effects on other sectors

If one sector suffers from a loss in sales and employment it will have an impact on other sectors as well. These indirect effects are a result of the fact that the different sectors of the economy buy goods and services from each other for use in their production processes. If one sector’s sales are reduced because of counterfeiting, then this sector will also buy fewer goods and services from its suppliers, causing sales declines and corresponding employment effects in other sectors.

In numbers: During the time from 2007-2012 the european countries lost an annual average of EUR 3.5 billion due to counterfeiting. Thus, beyond the direct effects on the sectors involved in the manufacture of jewellery and watches (EUR 1.9 billion in annual sales), a further EUR 1.6 billion is lost in other sectors of the economy due to counterfeiting. This is the indirect effect of counterfeiting.

Impacts on public finances

Since the production of counterfeit goods is illegal, it is likely that the producers do not pay taxes on the resulting revenues and incomes. Therefore, an additional impact of counterfeiting is the resulting losses of tax revenue by government, specifically income taxes and social contributions, corporate taxes, and indirect taxes such as excise taxes or VAT. Furthermore the reduced economic activity leads to fewer government revenues as well.

The lost VAT is estimated on the basis of household consumption of direct lost sales in jewellery and watches (EUR 1.9 billion), accounting for EUR 268 million.
The lost household income tax, amounts to EUR 135 million.
The lost tax on corporate profits is estimated from the share of direct and indirect costs to industry and amounts to around EUR 45 million.
Social security contributions linked to the direct and indirect employment losses are also estimated and amout to EUR 145 million