The economic cost of intellectual property rights infringement in the cosmetics and personal care sector

The European Observatory on infringement of Intellectual Property Rights (hereafter the Observatory) recently published a very interesting study on the economic cost of IPR infringement in the cosmetics and personal care sector.

The Observatory was created as part of the European Commission’s Internal Market and Services Directorate-General in April 2009. Following a proposal by the Commission, backed by the European Parliament and the Council, the Observatory has since 2012 been functioning under the supervision of OHIM, the European Agency in charge of Community trademarks and designs.

The Observatory network is composed of public and private sector representatives and it carries out many studies on intellectual property and infringement.

The study which will be detailed hereafter is the first ever study carried out by the Observatory attempting to quantify the scale and impact of IPR infringement for a specific sector, in this case the sector of cosmetics and personal care.

This sector covers many types of products, especially perfumes and toilet water, beauty and make-up preparations, sunburn prevention and suntan preparations, shampoos, shaving preparations, deodorants, depilatories and cosmetic soap.

To assess the impact of counterfeiting in the cosmetics and personal care sector, the Observatory estimates first the consumption of these products in the European Union. This total consumption is estimated at Euro 60 billion in 2011, or about Euro 120 per capita.

For the European Union as a whole, the estimated total counterfeiting effect amounts to 7.8% of consumption, which represents the very important sum of Euro 4.7 billion. This is a direct estimate of sales lost by the legitimate industry in the European Union each year due to counterfeiting in this sector, including losses in the manufacture, wholesale and retail trade sectors.

The member State where the legitimate industry is the less impacted by sales lost due to infringement is Finland, with less than 1% of sales lost between 2007 and 2011 while the more impacted State is Greece with more than 20% of sales lost, France being in the European average with 7.5%.

The estimated number of jobs lost in the legitimate cosmetics and personal care sector totals 51,561 jobs across the European Union, among which 26,884 jobs lost in the retail trade sector, i.e. more than 50% of the total, 14,010 in the wholesale trade sector and 10,667 in the manufacturing sector.

The Observatory explains indeed that as the legitimate industry sells less than it would have sold in the absence of counterfeiting, it also employs fewer workers.

Moreover, the infringement has also an indirect impact.

Indeed, in addition to the direct loss of sales in the cosmetics and personal care sector, there are also impacts on other sectors of the European Union economy, as the sector suffering lost sales due to counterfeiting will also buy fewer goods and services from its suppliers such as the chemical industry or the packaging industry, causing sales declines and corresponding employment effects in other sectors.

In such connection, if we add the knock-on effects on other industries and on government revenue, when both the direct and indirect effects are considered, counterfeiting in the cosmetics and personal care sector causes approximately Euro 9.5 billion of lost sales to industry, which in turns leads to employment losses of about 80,000 jobs and a loss of Euro 1.7 billion in government revenue.

This study, because it provides important information on the scale and impact of the infringement, should incite the managers of all concerned companies, especially the managers in charge of the defence of IPRs, to establish precise programmes to fight infringement as well as evidence-based public awareness campaigns.

This study also demonstrates how important it is, for the cosmetics and personal care sector, to receive advice from in-house counsels and lawyers specialized in IP, to protect their immaterial assets with the filing of trademarks and designs as early as possible.

Indeed, without a valid and registered trademark or design, it is impossible (or extremely difficult) to start an infringement action before the courts.

It is also hoped that this study of the Observatory will convince the courts of the importance of severely punishing the infringers, precisely because of the importance of the problem of counterfeiting for legitimate businesses and society.

Finally, it is important to notice that this first sectorial study should be followed during the coming months by other similar studies covering a dozen of industrial sectors including clothing, footwear and accessories, medicines, tobacco, luggage and handbags, alcoholic beverages, games and toys, computers and automotive parts, as well as watches and jewellery.

The study of the Observatory can be accessed via the following link: