The Ethics of Counterfeiting in the Fashion Industry: Quality, Credence and Profit Issues Brian Hilton Chong Ju Choi Stephen Chen ABSTRACT. One of the greatest problems facing lux- ury goods firms in a globalizing market is that of coun- terfeiting. The purpose of this paper is to analyze the different types of counterfeiting that take place in the fashion industry and the ethical issues raised. We argue that the problem partly lies in the industry itself. Copying of designs is endemic and condoned, which raises several ethical dilemmas in passing judgment on the practice of counterfeiting. We analyze the ethical issues in a number of different types of counterfeiting encountered in the fashion industry. We conclude with some obser- vations on the general implications for ethics in intellec- tual property rights. KEY WORDS: fashion, business ethics, marketing, counterfeiting Introduction In this paper we examine the ethical issues involved in counterfeiting in the fashion industry. We argue that the problem partly lies in the industry itself. Copying of designs is endemic and condoned, which raises several ethical dilemmas in passing judgment on the practice of counterfeiting. As illustrated by several recent reports in the press, the problems are extensive, growing and global. For example, according to the European Commission, customs seized almost 85 million counterfeit or pirated articles at the EU’s external border in 2002 and 50 million in the first half of 2003 (European Commission, 2003) while the U.S. customs made over 6,500 seizures in 2003 worth over $94 billion (International Anti- Counterfeiting Coalition, 2004a). Worldwide the International Chamber of Commerce estimates that seven percent of world trade is in counterfeit goods and that the counterfeit market is worth $350 billion (George W. Abbott and Lee S. Sporn, Trademark Counterfeiting 1.03 [A] [2] quoted in International AntiCounterfeiting Coalition report, 2004b). In some countries, such as the United States, such problems are compounded because their legal system only protects functionality and not design or style. In other countries there is not even this level of pro- tection (Belhumeur, 2000). There is either no formal Brian Hilton is currently on the staff of the Australian National University’s National Graduate School of Business. He has responsibility for its programme of global collaboration. He has written extensively on international business in the new knowledge-driven age. He specializes in the impact of such changes on the state especially the tenability of its role in defence and security issues now that the ICT revolution and globalization has fuzzied the significance of traditional geo- political boundaries. In this he is particularly interested in the complementarity that drives the very distinct ethics that drive respectively public servants and entrepreneurs. Stephen Chen is a Senior Lecturer at the National Graduate School of Management, Australian National University. He has an MBA from Cranfield School of Management and a PhD from Imperial College, London. Previously he has taught at City University, Manchester Business School, Henley Management College and the Open University and was a visiting associate professor at the Anderson School of Management at UCLA. His research interests include the management of knowledge and intellectual property, en- trepreneurship, innovation, and the business-society interface. Chong Ju Choi is presently Dean and Executive Director of the Australian National University’s National Graduate School of Management. His areas of research are international business, knowledge and creativity management and com- parative business systems. His research papers have been published in journals such as: Journal of International Business Studies, Management International Review, Human Relations, Organization Studies, Economica, Journal of Knowledge Management. Journal of Business Ethics 55: 345–354, 2004. Ó 2004 Kluwer Academic Publishers. Printed in the Netherlands.