From an IPR Infringing Country to an IPR Protecting Country : TIPA Takes the Lead

[Interview with Jeong Nam-ki, Chairman of the Trade-Related Intellectual Property Protection Association (TIPA), who is working on an AI-based counterfeit identifying system]

Q. It might be an odd question but I think you need a luxury brand to have its counterfeit. If you have to pick one, what would be the most memorable luxury item and its counterfeit in the history of Korea involving neighboring countries?

A. I would pick the counterfeit medicine 'Joseon Cheongsimhwan' from about 400 years ago. Cheongsimhwan is originated in China, but it was said that Cheongsimhwan from the Joseon Dynasty (old Korea), had excellent medicinal effects compared to the Chinese one by adding high-quality ingredients such as Woohwang (ox bezoar). The great reputation of 'Joseon Cheongsimhwan' back in the Qing Dynasty (old China) can be found in the records of The Traditional Seasonal Customs in Yeolyang (now Seoul) written by Kim Mae-soon in 1819, “The people of Beijing in China believe that 'Joseon Cheongsimhwan' is god’s medicine which brings the sick and dying back to life. When our envoys arrived, there were no royalty or nobility gathering in Beijing who were not begging for the medicine.”

Q. I guess it was inevitable that fake Joseon Cheongshimhwan emerged.

A. Oddly enough, the domestic and foreign social phenomena influenced by the Joseon Cheongsimhwan back then, are almost identical to today’s luxury item syndrome in our society. Both items were used as a bribe. As counterfeits were manufactured and distributed, methods and institutions for identifying counterfeits were formulated. Even the shortage of the items, such as "open run" (waiting for the store to open), is similar. Joseon Cheongsimhwan was not mass produced, so it was more expensive and difficult to get, and thus the desire to get it would have grown stronger and stronger. Exploiting such desire, servants and merchants who participated in Korean envoys to China, made and sold counterfeit Cheongsimhwan. Park Je-in, who went to Qing in 1860, said in Yeonhaeng Diary the reason why Cheongsimhwan became a "new medicine" is because of the servants' business tactics. It is consistent with the process how counterfeits of today's luxury goods are made.

Q. It was said that back then Joseon’s ginseng was as popular as Joseon Cheongsimhwan in the Qing Dynasty, so how could the two items be compared?

A. With the increasing distribution of counterfeit Joseon Cheongsimhwan, a range of problems began to arise. There were some cases where people got sick from counterfeits, and there were disputes over the authenticity.

The people of the Qing Dynasty eventually stopped believing in Joseon Cheongsimhwan and the popularity of Joseon Cheongsimhwan declined. It contrasts sharply with Korean ginseng brands which still retain high popularity among Chinese people. This was because Joseon's ginseng was of good quality, and with a new manufacturing method of red ginseng, counterfeit ginseng had no place to stand.

Q. The manufacture and distribution of counterfeits seem to be linked to the nation’s prestige.

A. It takes a tremendous amount of hard work and time for a luxury product to be born, but the fall is instant. Making a counterfeit is equivalent to stealing someone else's creation, and the act of buying and selling a counterfeit constitutes being an accomplice involved in stealing. Harmless counterfeits, such as handbags, are also problematic, but counterfeit cosmetics, foods, and defective imitation electronics posing a risk of explosion can threaten citizens' lives.

Furthermore, it hinders development of creative economy by discouraging creators who make originals. Therefore, only when we continue crackdowns on counterfeits, we can build a creative society for sustainable development.

Some people might say why such a fuss over buying a counterfeit. But if this notion spreads in society, the nation cannot become an advanced or respectable country.

Q. In that sense, what value does TIPA uphold in our society?

A. TIPA is a nonprofit corporation striving to promote a creative world. It is also a private organization established by domestic distributors, importers, and exporters who want to take an active role in protecting IP companies and IPRs at home and abroad.

Intellectual property rights refer to the rights that are protected by a nation in recognition of property values of highly intellectual creations. For example, there are trademarks, design rights, utility model rights, and patent rights in the industrial sector; plants breeders' rights in the agricultural sector; and copyrights in the cultural sector. Among the IPR-related institutions, some promote inventions and others protect rights registered with the Korean Intellectual Property Office.

For example, there are a number of invention associations including the Korea Intellectual Property Association in the private sector, and as a public institution, there is the Korea Invention Promotion Association. IPR-related government agencies include the Korean National Police Agency and the Korea Intellectual Property Protection Agency for general IPR issues, and the Korea Customs Service and TIPA specialized for trade-related IPR issues. Further, the Korean Intellectual Property Office is the overseeing agency in charge of both promotion of invention and IPR protection, and the National Intellectual Property Committee is the national policy supervision body that reports directly to the President.

Q. So, what are TIPA’s specific roles?

A. TIPA’s articles of association stipulate its roles as realization of an advanced country that protects IPR holders and consumers through IPR protection activities, and promotion of the rights and interests of its members. The pinnacle example of the role in the public sector would be our joint efforts with customs offices nationwide to crack down on IPR infringing goods at the customs clearance stage. During import/export clearance, if the Customs detects goods suspected of IPR infringement, TIPA facilitates IPR holders’ verification of authenticity of the goods. For some world-famous luxury brand goods suspected to be counterfeit, TIPA directly conducts verification of product authenticity with partial powers entrusted by its members.

In the private sector, TIPA, after customs clearance, directly conducts a full inspection of goods imported by distributors before they are sold in the market at the request of online and offline distributor members. For suspected goods, we are preventing consumer damage by appraising the authenticity of goods in collaboration with IPR holders.

In addition, TIPA is participating in developing an AI-based counterfeit identifying system (continuing project for 4 years from 2020 to 2023) by the government, and each year we conduct regular training programs on identifying counterfeits for customs officers nationwide, as well as training programs for people engaged in distribution, including e-commerce platforms. We are also carrying out programs to protect K-Brand (Korean brands) by making requests to other customs authorities and by supporting them in crackdowns to prevent IPR violation of K-Brand abroad. In particular, starting from the first half of 2023, we plan to implement a support program for IPR protection of K-Brand in China for investigation of IPR infringement cases and crackdown activities, even up to the litigation stage.

Q. Hearing all that, I think TIPA's status in our society is significant.

A. Most certainly. Protecting intellectual property rights is now passing the point of a simple economic approach. We also need to pay attention to how criminal proceeds earned by counterfeit manufacturers, who are generating easy revenues, is used. It is not a mere matter of purchasing counterfeits for ostentation or amusement. Major developed countries, including the U.S. and European countries, even consider a linkage between counterfeits and terrorism. Thus, the punishment is becoming more severe.

Q. What is Korea's status among OECD countries in this aspect?

A. Actually, Korea, until recently, was also singled out to be an exporter of counterfeit luxury brands. However, we have now joined the ranks of developed countries in IPR protection. It is considered that TIPA took an important role in the process.

According to the 2022 Annual International Intellectual Property Index released by the U.S. Chamber of Commerce's Global Innovation Policy Center (GIPC) on February 23, 2022, Japan ranked 6th and Korea 12th in the overall scores. Looking at this, Japan as a whole, is quite ahead of Korea.

According to the index, Korea ranked second only to Singapore in patents, trademarks, and system efficiency, but received relatively low scores in design rights, trade secrets, commercialization of intellectual property assets, and international treaty accession and ratification. It was evaluated that the revision of Korea’s Unfair Competition Prevention and Trade Secret Protection Act strengthened the foundation for compensation for damages from patent and trade secret infringements. In addition, the Korean patent standard is generally consistent with international best practices, and it is analyzed that online and digital copyright protection is strong except for software. Weaknesses include some market access barriers discriminating against overseas intellectual property holders, as well as inconvenient license registration requirements.

Q. It seems that TIPA’s role was crucial for Korea to gain confidence in IPR protection.

A. As mentioned earlier, Korea ranked 12th in the overall score of International IP Index released by the U.S. Chamber of Commerce's Global Innovation Policy Center (GIPC), but in terms of patents and trademarks Korea is second to Singapore in ranking. Particularly, a recent surge in exports of Korean audio-visual contents due to the popularity of K-pop, as well as Korean TV shows and movies, seems to have had a significantly positive impact on the gained confidence.

TIPA has expanded its range of business to protecting other IPRs including design rights for balanced IPR protection, from mostly protecting trademark rights. Also, TIPA expanded products for IPR protection and crackdown activities to consumer safety-related items such as electronics, automobile parts, cosmetics, and toys, from clothing and general merchandise. We believe that promoting international cooperation for enhanced protection of K-Brand exports and upgrading inspection techniques using innovative IT technologies against IPR-infringing goods have also played a part in the increased confidence in Korea.

The GIPC's 2021 International IP Index Report (See page 263.) placed a high value on the effect of Korean Customs Service’s ongoing efforts to work with IPR holders (TIPA) for crackdown activities on inbound counterfeits via small-sized postal and express cargo.

Q. What is the latest international trend on IPR protection?

A. This year, the 15th International Law Enforcement IP Crime Conference was held in Seoul, and chiefs of brand protection at global brand companies attended the conference. During their visit to TIPA and the Customs, the chiefs of brand protection commented, in summary, that the customs authorities in so-called IP leader countries are still focusing crackdowns on bulk cargo. Korea is actively cracking down on not only bulk cargo but also small-sized e-commerce goods that have been increasing rapidly recently. The reason for that is the number of counterfeits in small-sized cargo is growing at a much faster rate than that of counterfeits in bulk cargo. Thus, Korea’s expanded enforcement is highly praised.

In response to the surge of counterfeits in small-sized cargo, TIPA opened the Product Authenticity Verification Center at Incheon Airport International Postal Customs in July last year, and also at Express Cargo Clearance Center of Incheon Customs since April this year. In addition, TIPA’s Product Authenticity Verification Centers are in operation at the customs inspection site of Incheon Port, as well as Pyeongtaek Customs, both of which handle large volumes of imports and exports.

In Japan or any other countries, there is no case of a private organization’s product authenticity verification center inside the customs office to provide close support for verification of authenticity of products against counterfeiting.

Q. Do you think there will be emerging game changers in the near future as an opportunity for innovation in the field of trade-related IPR protection?

A. The huge wave of digital transformation is also driving innovation in the field of IPR protection. Some global brand companies have already created and operated in-house AI-powered apps that identify genuine and counterfeit products, and Entrupy and Neural Square with specialties in app development are also launching commercial programs, which are expected to bring significant changes in the future.

The AI-powered apps are programs made by machine learning from data such as photos of genuine products and various counterfeits. When you take a picture of an item for authenticity verification with a phone that has an AI-powered app, it indicates whether it is genuine or counterfeit, or suggests a similarity to the genuine product. Based on this, the authenticator can make a judgement, but if still uncertain, a 3rd or 4th examination will be thoroughly conducted. Such authenticity verification is much faster than relying on human senses, and if you continue to accumulate data, even less skilled people can make accurate verification of authenticity. However, we are now at the beginning stage, and most IPR holders are still developing IPR protection measures using blockchain and AI technology while verifying authenticity of goods by their in-house experts' five senses.

Q. It is known that many domestic and foreign companies have developed or are developing AI-based counterfeit identifying systems, and I am concerned about overlapping investments.

A. As I mentioned earlier, this field is still in need of a variety of technologies and capacity building. In particular, the AI-based identifying system development project led by the Korean government was initiated with TIPA’s proposal and the system will enable actual protection of design rights.

This is the world's first effort to build such a system, which is in the interest of both domestic and foreign IPR holders who are hoping for a successful development and application of the system. Unlike the trademark right which was in the previously-mentioned AI application examples, the identification techniques for the design right is different, especially due to the technology that identifies design right infringing products among actual products by learning drawings registered by IPR holders.

If this project succeeds, it will mark a big milestone in the history of "protecting intellectual property rights" at the government and private level. It will bring a bigger impact around the world than Korea's IPR protection activities for small shipments imported and exported through e-commerce.

In addition, even before our proposal to the Korean government about the AI-based system project, TIPA has been developing an AI system to support the detection of trademark infringing products that can be used in the private sector, which will be in use for actual inspections from 2023.

Q. How large is the global counterfeit market estimated to be?

A. The OECD reported that as of 2016, global transactions of counterfeit goods amounted to USD 509 billion (KRW 575 trillion), up more than 10% from USD 461 billion in 2013. The share of the counterfeit goods in total trade also increased from 2.5% to 3.3% during the same time period. There are no accurate statistics, but if you look around in real life, the number of counterfeits would have increased, not decreased.

Manufacturers of counterfeits make more profits than narcotics manufacturers, and yet they are actively exploiting the fact that the punishment is less severe. According to the crackdown statistics of the KCS on counterfeit goods, the number of cases increased by 156% and the weight increased by 15% from 11,384 cases of 91 tons in 2017 to 29,190 cases of 105 tons in 2021. Here, a significant increase in the number of imports compared to weight means a significant increase in individual imports of small-sized counterfeit goods through express or postal cargo.

Q. What are Korean government's long and short-term trade-related IPR protection policies?

A. Framework Act on Intellectual Property was legislated in 2011, and based on the law the National Intellectual Property Committee reporting directly to the President, was established accordingly. In addition to the Prime Minister as a co-chair, 13 minister-level officials participate from the government, and from the private sector one co-chair and 18 experts from all walks of life participate in the committee, serving as a control tower for the creation and protection of intellectual property rights.

As a long-term policy, there is the Third National Intellectual Property Framework Plan to implement from 2022 to 2026. This plan consists of five implementation strategies and 16 tasks. The five major strategies include: ①promoting the creation and use of core IP in the digital transformation era; ②strengthening strategic IP protection framework; ③fostering IP-based global small giant companies; ④developing K-contents that can lead the spread of New Korean Wave; and ⑤creating a foundation to become a global leader in IP.

As a short-term policy, at the level of the National IP Committee, there is the “National IP Action Plan” encompassing 112 tasks in the 2022 Action Plan, which is implemented by agencies of various levels including the Korean Intellectual Property Office and the Korea Customs Service.

Q. Do you think manufacturing and distributing counterfeit goods can be eradicated, or is it impossible?

A. I believe even though complete eradication is difficult, to an extent it can be controlled. I think the eradication is difficult because of vanity and ostentation in a psychological aspect, which varies from person to person, but most people seem to have. If we were to say that counterfeit luxury brand consumption and plagiarism of papers are all due to vanity or ostentation to make themselves look greater than they actually are, complete eradication of counterfeits seems impossible.

High-income and ostentatious consumers do not consume low-priced products, but they consume expensive luxury goods to gain relative superiority over others. So the Veblen effect occurs where the higher the prices of luxury goods go, the more people buy. This ostentatious consumption behavior spreads from high-income to middle-income classes, which leads to counterfeit consumption in low-income class.

It is argued that one of the reasons why counterfeit goods do not decrease in the institutional aspect is that consumers are not punished. In Korea, those who manufacture, distribute, and sell counterfeit goods are punished. On the other hand, people who simply buy counterfeits for personal use are not subject to punishment. However, some countries including France, also punish consumers. It seems that there will be a considerable number of people who consume counterfeits without any guilt because there is no punishment for consumers.

There is a saying in Korea, "Can the police stop crimes that are related to people's livelihood?" It may be difficult to eradicate crimes involving people's livelihood, but if you increase the police force and the punishment, we can increase the possibility of reducing crimes involving people's livelihood. I think it's the same with counterfeits. I believe that the higher the consciousness about counterfeit goods, the government's policy and the awareness of the general consumers, the lower the level of consumption of counterfeits and the resulting serious damages.

Q. Thank you for your detailed answers for a long time. Lastly, I would like to ask for your words of cooperation or request to your member companies and citizens.

A. TIPA is working with many IPR holders to crack down on counterfeits at the customs clearance stage. But quite a few IPR holders have yet to work with TIPA. Considering the recent increasing number of inbound counterfeits in small-sized cargo, I recommend that brand companies not participating in the TIPA program actively cooperate with TIPA for higher effectiveness of crackdowns.

In the inspection (after customs clearance inspection of imported goods and before sales) conducted by TIPA in partnership with domestic distributors, the detection rate of counterfeits is approximately 5%. Distributors of so-called luxury goods are asked to utilize TIPA's program to minimize possible damage to consumers.

Meanwhile, TIPA plans to conduct programs such as investigation of IPR infringement damage in China, public-private joint enforcement, and litigation support from 2023 to prevent damage to intellectual property rights in China. I would like to ask you to take advantage of the programs.