The Nature of Knock-Offs and Counterfeiting
Part Two of our Knock-Offs Report
Earlier this week we posted an article discussing knock-off IQOS HeatSticks (HEETS). In that article we briefly discussed the production and sale of knock-off Heat-Not-Burn components, like HeatSticks. In this article we want to dive a bit deeper into knock-off, or counterfeit, culture to better understand why it happens and how it affects you, the HnB/harm reduction product consumer.
Knock-Offs and Counterfeit Culture
Knock-off and counterfeit items are thriving in the current global market. In a 2018 interview with Forbes Magazine, Craig Crosby, founder of the Counterfeit Report, explained that “counterfeiting is now the largest criminal enterprise in the world.” Our global society has a phenomena known as ‘counterfeit culture,’ which is when manufacturers create products that replicate other pre-established products in every aspect, including logo, then sell them as the real thing even though they are not. That is counterfeiting. The term ‘knock-off’ is often used interchangeably with ‘counterfeit’ but they are actually different. Knock-offs are items that mimic pre-established products in appearance and function, but do not claim to be those products. Sometimes, though, its difficult to draw the line between a counterfeit item and a knock-off. In our last post, the sellers never explicitly claimed the items were IQOS HEETS, they only inferred it. This indicates that the products they were selling were knock-offs. However, their HEETS packaging did replicate the official packaging perfectly, logo and all, which is characteristic of counterfeit items, so it becomes a bit of a blurred line as to what to call the items. For now, we’ll stick with calling them knock-offs.
As discussed in our last article, there are pros and cons to counterfeit and knock-off items. For consumers, the main con tends to be that item quality can’t be guaranteed and there is no warranty or refund option if you’re not satisfied with the product. The seller also often times is not verified by any official source and therefore could scam you out of your money. This happened to our team last year, when we purchased 5 devices from AliExpress which never came. We contacted the seller who insisted that they had been shipped and were ready for pickup, despite us not having received them. We ended up losing over $200CAD.
Nevertheless, if you feel that the potential gain outweighs the potential loss, then knock-offs and counterfeit items can be a great investment for the consumer. They are a portion of the cost, but look similar enough to pass as the real thing. Moreover, in our experience knock-off HnB devices that come from China, one of the largest and most advanced manufacturers of such, tend to have features not included in some of the bigger name brands, such as a HeatStick eject button or environmentally friendly materials.
A Thriving Knock-Off Market
It’s easy to say that there are pros and cons of knock-offs and counterfeit items for consumers, but what about the original manufacturers? Their designs are, essentially, being stolen and then someone else is profiting off it, while the original manufacturer loses money. It makes sense why companies like Philip Morris and British American Tobacco have copyrights to protect their products and their hold on the market.
Unfortunately for manufacturers, copyrights tend not to hold that much weight up against knock-offs and counterfeit items made in China and other developing countries, like Bangladesh, Singapore, etc. Oftentimes the knock-off and counterfeit producers simply ignore any existing legal rights. The scale and velocity of these producers makes it extremely difficult for companies, legal officials, and governments to pursue infringed upon copyrights.
There are thousands of knock-off and counterfeit producers, whose businesses open just as quickly as they close. Here at Heat180 we often have difficulty finding online retailers for knock-off devices since many of them close as soon as they sell their inventory. Just today we noticed that one seller from an order we are waiting on, has removed their their seller profile and business information from AliExpress. Our order is still being processed, so it is yet to be seen whether the device will arrive or not. The Chinese counterfeit situation has repeatedly been described as being like a game of whack-a-mole since it is so difficult to control.
Moreover, even if copyright infringement is established and brought before a judiciary committee, there are still going to be several obstacles, including;
- Choice of Law – if the original manufacturer is not based in the same country as the knock-off or counterfeit producer then whose laws will apply? (For example, if PMI, which is headquartered in Switzerland, sued a knock-off producer in Singapore, which nations’ courts would they appear before and are they both held to the same business practise standards? Would they have to appeal to the ICC International Court of Arbitration?)
- Poor International Relations – current relations between the home countries of the original manufacturer and the knock-off or counterfeit producer may negatively affect any legal proceedings. (For example, tensions between China and the US are currently quite high as a result of the trade war and therefore one must ask if a suit were brought forward against a Chinese knock-off producer would China even be willing to cooperate?)
- Unwillingness to pursue to the full extent – Why would a country with a thriving knock-off market want to allow legal proceedings against unofficial HnB manufacturers anyways? While it is in now way good for the original manufacturer, knock-off products bring large profits into their home country’s economy, the manufacturing process creates jobs, and thus raising the living standards of people employed. It is largely businesses like these that contribute to the economic and global advancement of developing countries. From a protective stance it makes sense to allow these sorts of operations to continue unless major national and international laws are being broken, such as producing devices that directly threaten peoples’ health.
Because of these obstacles, there isn’t alot done about knock-off and counterfeit items, in general. Some companies try to pursue producers (look to Juul who, in Sept 2018, sued 30 Chinese counterfeiters), but there always comes another.
Knock-Offs, Counterfeits, and Heat-Not-Burn
While manufacturers would ideally like to stop the creation of these items, they too benefit from them, albeit in smaller returns. Nobody knock-offs or counterfeits products that are of no value. If consumers don’t value a product in the first place, why would they want a fake version of that product? Instead, knock-offs survive on exclusivity and prestige. Knock-offs are $50 newly released video games, $400 Gucci sunglasses, and $180 HnB device kits. The very existence of HnB knock-off and counterfeit products indicates that the industry as a whole has value. This means that there is a large enough existing market, and potential for a larger future market, for HnB devices. Knock-offs, in some strange way, validate original Heat-Not-Burn manufacturers’ claims that HnB could become the future of smoking. Now, whether or not that will stand true in all regions of the world is unknown, but at the very least it proves that within the home country of knock-off and counterfeit product manufacturers the devices are proven to be profitable.
There is also the potential for industry growth and expansion as a result of knock-offs. The more people who being using the devices, whether name brand or not, the more people will become aware of HnB as a concept. If people can easily access knock-offs that mimic expensive/exclusive devices, then perhaps others would be more willing to try. This could bring new members into the Heat-Not-Burn community. If user numbers grow it will signal to exporters, tobacco retailers, and legislators/legislative bodies globally that HnB is in demand, which could potentially provide the push necessary to allow HnB in all regions where tobacco is currently available.
The Future of Knock-Off and Counterfeit Products
A large number of economists think that, eventually, as China, and other like countries, develop, the knock-off and counterfeit markets will begin to slow down. As business and innovation grow, national brands will begin to loose capital to knock-off and counterfeit products as well. Economists theorise, that the companies will, while looking out for their own best interests, enact anti-counterfeit measures. It is at this point that powerful players will emerge in the markets. In the meantime, we can choose to both embrace the positive aspects of knock-off and counterfeit products, while still working to minimise the negative.
Have you found any good HnB knock-offs on counterfeits? Let us know in the comments and we’ll work to review them!