Product Piracy Report: Déjà Vu All Over Again

The latest research report on product piracy released by the VDMA, the advocacy organization for Germany’s mechanical and systems engineering industry, is out and the findings are disturbing once again. Ironically, before writing these considerations, I checked the blog post I wrote two years ago on the VDMA 2018 report and the results are not only alarmingly similar, but actually worse.

This year, 146 members of the VDMA participated in the study on product piracy between February and March 2020. About half of the participants are small and medium-sized enterprises. While this study is focused only on the illicit reproduction of products, the report results are a microcosm of broader studies on global software piracy conducted by BSA and others.

The major headline of the VDMA report was that product and brand piracy have reached an all-time high of 74 percent among German companies in the mechanical and plant engineering industry, with estimated damages amounting to 7.6 billion euros annually. That’s up from 71% from the previous study conducted in 2018, and corporate loss has increased by 300 million euros annually. For companies with more than 500 employees, the rate is even higher, approximately 90 percent. The VDMA estimates that a turnover in the amount of 7.6 billion euros would secure almost 35,000 jobs in the industry. In addition to loss of turnover and jobs, the affected companies also suffer consequences that are difficult to assess in monetary terms, such as loss of image, loss of market advantage or unjustified legal claims.

Here are some additional lowlights:

• Compared to the last studies, the perceived threat shows a clear trend reversal: After a steady decline, with an increase of around 40 percent, 52 percent of those surveyed are now in favor of an increase in the threat level.
• The People's Republic of China is the undisputed leader on the list of countries distributing counterfeit products with 61 percent. In second place by a wide margin is Germany (19 percent), followed by Russia (12 percent).
• For 72 percent of the companies, competitors are considered the cause of the plagiarism. However, an alarming 42 percent of those surveyed also say that at least one of their business partners (customers, suppliers, joint venture partners, spare parts sellers) is a plagiarist.
• Among the infringements of industrial property rights, plagiarism in an unfair manner is again in first place with a clear 58 percent. Second place is shared by the infringement of brands and patent rights with 39 percent each. The infringement of trademark rights, design, and utility models thus falls significantly behind the last study.
• Plagiarism demonstrably poses a safety risk: 36 percent of companies report counterfeits that pose a danger to operators or users. An alarming 57 percent of those surveyed see a danger for the safe operation of the system in the case of the counterfeits they discovered.
• In 64 percent of cases, individual components remain the most frequently plagiarized. Close behind are design plagiarisms in second place with 60 percent. In nearly 40 percent of cases, entire machines, spare parts or so-called "soft" plagiarism (catalogs, brochures, product photos) are the counterfeit targets.
• In plagiarism cases, the extrajudicial enforcement of rights is the means of choice, ahead of starting proceedings under civil law. However, about half of all companies affected do not take any action. This is particularly true of small and medium-sized enterprises, where two out of three companies do not take any action.

There remains little doubt that product piracy continues to represent an enormous threat to global industry. While software-driven digital transformations are creating new challenges for the protection of data and information, both in product development and in the operation of machines, plants, and services, IP protection remains paramount to maintaining the economic strength and competitiveness of companies of all size.

As a leader in the fight against illicit copying, counterfeiting, and corporate espionage, we continue to develop and refine our software protection technologies, like our CodeMeter Protection Suite, to stay a step ahead of the nefarious actors. See how one of our manufacturing customers, VMI,  employs a centrally administrated password key protection scheme based on Wibu-Systems and Rockwell Automation technologies to secure access to Programmed Logic Controllers and in turn safeguard intellectual capital and machine investments for the future.