Counterfeit hotspots in Italy that brand owners should be aware of

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In a new addition to our long-running series on physical marketplaces that reportedly engage in the trade of counterfeit goods,we head to Italy.
Italy is home to some of the biggest luxury fashion brands in the world, including Fendi, Giorgio Armani, Gucci, Prada andVersace. However, it is also a prime destination for counterfeit goods. As revealed in a recent OECD report , imports ofcounterfeit and pirated goods to Italy accounted for as much as €8.7 billion in 2019, meaning that around 2% of Italian importsare fake. Most of those illicit goods are imported from Asia, led by Hong Kong, China, Turkey, Singapore, Lebanon and Thailand.

With that in mind, we reached out to Cesare Galli, managing partner at IP Law Galli, and Juna Shehu, general secretary at INDICAM, to discover the hotspots across Italy that brand owners should be aware of.

Anti-counterfeiting enforcement in Italy at a glance:

In a nutshell, what should rights holders know about enforcing against counterfeit goods in Italy?
Contrary to common belief, the Italian legislative instruments against IP infringement and counterfeiting are quite effective. In2003 specialised IP divisions were set up in 12 existing civil courts. In September 2012, these increased to 21. Due to thisspecialisation, the civil courts have reached a high level of effi ciency, which is due in part to their keenness to: grant urgent measures (eg, injunctions, seizures and orders for the withdrawal of goods from the market); and order the judicial investigation of evidence (eg, description orders, normally granted ex parte).

No specialisation has been introduced, at least for the time being, in criminal courts (apart from the Court of Milan, where a poolof anti-counterfeiting public prosecutors has been created). However, the effi cacy of criminal prosecution has increased with theimplementation of the Anti-counterfeiting Information System, a computerised platform which also allows rights holders tosend information on their infringed products for ready reference by the control agencies in the fi eld. Furthermore, in the case of Cesare Galli and Juna Shehu

14 November 2022

counterfeiting, police investigations, undercover operations and seizure measures are available. They must be confi rmed by acourt and may be subject to re-examination. If criminal organisations are running the counterfeiting operation, the more severepenalties under Articles 416 onwards of the Criminal Code are also applicable.

Italian case law is also quite severe. The Supreme Criminal Court ruled that trademark infringement under Articles 473 and 474of the Criminal Code includes post-sale confusion (Case 12926, 17 March 2004). The court also ruled that in the case ofproducts bearing infringing marks, the more severe penalty provided under Article 648 of the Criminal Code must be applied –even if the defendant was only handling the goods (Case 23427, 7 June 2001).

Italy is on the front line of law enforcement actions, not only at the judicial level (including granting, in a very short time, cross-border measures, in particular to protect EU trademarks and Community designs, and therefore with pan-European effects), butalso on the administrative level. Effective action has been taken, on the one hand, by the Italian Competition and MarketAuthority, which in Italy has competence not only in antitrust matters, but also in the fi ght against unfair competition practices.On the other hand, the Italian Telecommunications Authority has developed methods to counteract online infringement that canbe qualifi ed as best practices and therefore act as a model at European level. Notwithstanding these efforts, counterfeiting in Italy remains a serious threat to rights holders, consumers and the properfunctioning of the market.

In fact, analysing the reality of counterfeiting in Italy means dealing with a criminal phenomenon that has assumed, in recentyears, the characteristics of an organised enterprise “with an international reference market and with a transnational productionand distribution network”. This is not only because of the wide geographical spread of the phenomenon across national territory,but also because of the mixture of interests with organised crime linked to the Italian mafi a and other comparable foreignorganisations.

In addition to being one of the international and European reference places of the counterfeit market, Italy is one of theEuropean countries most affected by counterfeiting. In Italy, companies damaged by counterfeiting, including those thatconstitute the excellence of ‘Made in Italy’, are no longer only those linked to the world of fashion, but also include thoserelating to consumer goods of common use and even productive assets, with a decisive impact on the health and safety ofconsumers.

As far as the Italian scenario is concerned, as of 2017, estimates of counterfeiting turnover among Italian consumers mark atotal of more than 7 billion fake products and €200 million. Consequently, the damage generated to the Italian gross domesticproduct amounts to approximately €7 billion. Other numerical data that highlights the importance of the illegal phenomenon inItaly includes the volume of counterfeit goods imported into the Italian market, which is worth around €12.4 billion, and thevolume of world trade that violates the rights of ‘Made in Italy’, which has exceeded €30 billion.

As a result, around 90,000 jobs are lost each year in Italy due to the fake market, while the loss of tax revenue that the statecoffers amounts to about €6 billion every year.

Counterfeit hotspots you should know in Italy:

The ‘Final Report on Counterfeiting’ in Italy, edited by the Censis Institute, highlights the territorial peculiarities of some Italianprovinces representative of the criminal counterfeiting phenomenon, dividing them into three clusters: the provinces known as places of production of counterfeit goods; the provinces interested in the phenomenon of counterfeiting due to being strategic logistical hubs; and the territories essentially concerned with the marketing of these goods. What is more, the aspects that characterise the reference clusters can coexist in one province.
Having mentioned the necessary premises, the production cluster is represented more qualitatively and quantitatively by the provinces of Naples, Prato and Florence.

On the one hand, the Neapolitan city is characterised by the presence of a real parallel economy, which is controlled in its entire supply chain by criminal groups. For this reason, it is not unlikely that there are production (and trade) activities even in the city center, given that counterfeiters benefit or are subject to the ability to control the criminal territory.
The Tuscan cities are instead strongly characterised by a vocation for craftsmanship (eg, local leather processing) and brandssuch as Gucci, Ferragamo, Fendi, Chanel, Louis Vuitton and Hermes. Also in the Tuscany region, in particular the province ofPrato, the phenomenon of counterfeiting is intertwined with that of the exploitation of workers, often perpetrated by Chineseentrepreneurship.
In such contexts, the know-how obtained by specialised companies allows counterfeiters to faithfully reproduce originalproducts and resell them at retail resale prices. Unauthorised overproduction by subcontractors is also a serious threat in thearea. On 6 November 2017 the Court of Florence awarded more than €6 million damages for trademark infringement by adisloyal subcontractor. We also understand that data indicates Prato topped the list of provinces for the number of pieces seizedin 2021, surpassing cities in other regions such as Lazio and Campania.
During the pandemic period, two representative cases of places that concentrated on the production of sanitary material (eg,masks and disinfectant gels) were the district of Forcella (Naples) and Vittoria (Ragusa).
In addition to damage related to health and safety standards, signifi cant environmental damage cannot be excluded. The Campania region is among the territories most affected by environmental crime. Since 2018, national and regional governmentinstitutions have joined forces to combat environmental crime by stipulating an “Action Plan to combat waste fi res” in order tostrengthen the protection of public goods with a view to prevention and control.

As mentioned above, Italy is a crossroads of lawful and illicit routes because of its geographical position, which positions it as apoint of contact at a transnational level both by sea and by air. Especially for Northern-central Italy, road transport must also beconsidered in order to understand illicit routes.
The cities of Milan, Rome, Genoa, Venice, Catania and Bologna are part of the logistics cluster. Other hubs such as the port of Livorno,

Gioia Tauro and Naples can also play a strategic role for sorting and storage activities. The latter, in particular, are thefi nal destinations for hundreds of containers arriving from the east.
Milan and Rome are appointed as central to logistics activities, due to their geographical location and the availability ofinfrastructures, as well as the concentration of a strong economic demand for fake goods. In the “capital of fashion”, temporarystores, which include real and fake boutiques, are an interesting phenomenon.

Set up for a few weeks in luxurious buildings in the center, these temporary stores become an innovative sales channel. Thepractice is unique for combining the physical market with the online market, the latter based on the use of social networks andaimed at loyal customers. Particularly critical in this latter respect is the problem of hidden links (ie, codes communicated onsocial network pages that openly propagate fakes, taking advantage of their very low level of control and which function as’passwords’ to buy fakes on apparently innocent stores hosted on marketplaces).

Genoa represents a cohabitation of the characteristics mentioned above. In addition to being a crucial hub, Genoa represents alarge assembly center, supplied by goods from the nearby
Lombardy region.

The third cluster is that of marketing, and includes Turin, Imperia, Pesaro, Urbino, Palermo, Salerno, Avellino, Bari and Benevento.

The central discrimination is the type of goods sold and the channel through which the goods intended for the consumer pass.

Often found in these urban areas are shops, only apparently regular, that sell (in a hidden way) counterfeit goods.
The same Parliamentary Commission of Inquiry on Counterfeiting reports on a report by the National Anti-Mafi a Directorate,which, citing a report published by SOS Impresa of the Confesercenti Association, highlights how local criminal organisationshave been able to impose in the form of extortion the sale of counterfeit goods to regular businesses.
Focusing on Southern Italy, we observe how the characteristics of the marketing of products still differ from city to city. For example, Bari is becoming the scene of resales of so-called luxury goods, while metropolitan cities such as Palermo or traditional maritime tourist places aimed at families see counterfeiters target medium-low income consumers seeking fun and
ordinary consumer goods.

Therefore, even the distribution channels of counterfeit goods are obviously diversified: from retail stores to itinerant sales, from local markets to the vast world of online sales.
Regarding the nature of counterfeit goods in the Italian market, we can refer to some 2018 data reported by MISE, in collaboration with the Censis Institute.

In detail, the product categories most affected were clothing, footwear and accessories, audio and video materials, food products, alcohols and beverages, electrical products and equipment, jewellery and watches, computer equipment, cosmetics and personal hygiene, toys and games, automobile spare parts, sporting goods, pharmaceuticals and pesticides.

If we consider the number of pieces of counterfeit goods seized by Guardia di Finanza and Agenzia delle Dogane e Monopoli,we observe an incredible heterogeneity in the product categories. In fact, the top category was clothing accessories, followed by toys and games, which pose a significant risk, especially to the health of children.

In all these cases, it is essential to be able to control the circulation of original products as much as possible, in particular by providing them with identification tools that allow buyers to easily identify fakes. It is also important to communicate the existence of these tool as much as possible, including possibly using certification tools for reliable sites and even regulating internet access by retailers, requiring them to comply with specific rules to protect the reputation of a brand. To this purpose, private associations such as INDICAM play an important role, as they act as consultants to the legislature, bring key cases that promote the development of case law and cooperate with both companies and public authorities governing the fight against counterfeiting and piracy to raise awareness, including among consumers, and to develop the professionalism of the people involved in these law enforcement activities.

Once again, it is a mix of prevention and repression, protection and communication that can make the difference. The insights in this article are based on the professional experiences of local experts. Therefore, the information provided should be viewed as guidance for fellow professionals and not general information on the listed areas.

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