The threat that counterfeiting poses to firms’ performance is particularly dangerous to SMEs. In fact, for a number of reasons SMEs are more exposed to the risk of IPR abuse than large firms. Although the scale of production of SMEs is limited due to their small size, they often offer excellent quality products that are highly reputed. Consequently, they become very profitable targets for counterfeiters and other IPR infringers, as there are high potential returns from IPR infringements.
Large companies may be able to overcome the effects of IPR abuse, but SMEs face far greater potential impact, as they might not be able to secure effective protection and enforcement of their IPR. In particular, many small firms doing business overseas may not appreciate that their trademarks only provide protection in home markets and are not valid in other markets where the infringing goods are produced and shipped from.
In addition, SMEs often do not have sufficient resources and capacities to monitor this threat, and to develop effective countermeasures. As discussed below, in Chapter 4, as many as 40% of SMEs in the EU do not monitor their markets for potential infringement of their IPR, or they rely only on incidental information on infringement (for example feedback from customers or business partners). Consequently, the impact of counterfeiting on SMEs can be much more severe than for big companies with the experience and capacity to deal with the risks of such unfair and illegal practices (Box 3.1).
Finally, enforcement actions might also have be biased towards big companies, as they are often triggered by the applications for actions (AFAs). An AFA is the essential requirement in the EU for customs authorities to block IPR-infringing products at the border. The AFA is a free-of-charge mechanism used by companies that own an IP right in the EU. An AFA is filed electronically through national systems or through the IP Enforcement Portal.1
The use of AFAs is more common among large companies with the financial and human resources to track and fight against violations of their IP rights, and consequently customs’ operations can be skewed towards products that infringe the IP of big companies. Structured interviews with industry experts also highlight that due to their limited resources, small and medium companies in the EU tend not to use AFAs, and, consequently, do not enforce their IP proactively.