Disruption by Blockchain Part 86: StopTheFakes

  • 9 April 2018 05:30:21 PM
  • Expert Insights

Our new Disruption by Blockchain series aims to highlight companies that are leveraging the incredible potential of blockchain technology to disrupt and revolutionize their industry. Through one on one interviews, we'll speak directly with industry leaders to cut beyond the hype and get directly to the heart of practical use cases and examples of how it will change the world, one industry at a time.

The following is an interview we recently had with StopTheFakes.

1. What’s the history of StopTheFakes? How and where did you begin?

We took an interest in the problem of intellectual property rights over a year ago. We don’t like the current state of the world — and that’s why we want to change it for the better. However, we’re not completely selfless and our noble intentions are not our only incentive. At a conservative estimate, the global counterfeiting market amounts to over $461 billion; the pirated software market alone is $63 billion. We won’t even try to estimate the pirated content market.

As a rule, criminals sell counterfeited goods and services at a much lower price. In other words, the above mentioned sums should be multiplied by at least 3 in order to estimate how much rights holders are losing — it ends up being quite an impressive sum, doesn’t it? The total sum turns out to be higher than the costs of advertising all over the world — some $547 billion.

Let us be entirely frank: our objective is to destroy this market and to earn money by protecting the holders of intellectual property rights.

2. Who are the founders and key team members? 

Mikhail Krzhanovsky

Mikhail co-authored the project idea. Being a natural team-builder, he provides general guidance for the team and always comes up with some new ideas. Mikhail has a four-year legal experience in copyright protection. He worked in information security for four years and supervised a franchise project for another three years (18 facilities in the CIS). He sold his share in the franchise business and is currently investing in various online projects. Mikhail has two university degrees.

Igor Salikov

Igor is the co-author of the project idea and is in charge of the ongoing operations. For over a decade he has been working on the problem of counterfeit beauty products in EU countries. He has 12-year experience in photography and video production and two-year experience in virtual reality business. Many studios seek his expertise as a photographer and artist regarding video filming and the production of commercials and auteur movies.

Dmitry Kostachev

Dmitry is in charge of technological processes in our team. For 23 years, he held top position in IT sphere and was actively involved in creating telecommunication networks in Moscow. He also worked as Information Technology Adviser to Director General of TsAGI, or the Central Aerohydrodynamic Institute, in Moscow. Under Dmitri's direction, there have emerged and grown companies, which later on would form a nucleus of Rostelekom. He holds a Ph.D. in Technical Sciences.

Aleksey Zhunin

Aleksey supervises Blockchain development and implementation. An active participant in Blockchain Hackathons, he has five years' experience in IT development and three years' experience in Blockchain. He was involved in developing backend solutions for Sberbank when serving as Chief Engineer at SberTech, a Russian joint-stock company. Aleksey also worked on controlling Vneshekonombank’s Blockchain-based supply chain.

3. What problem are you solving? Who are you solving it for?

Giant factories in China are staffed by child labourers, receiving a laughable wage for long hours of hard work. Most child labourers working in these factories are born without the State’s authorization and therefore have no passport. They cannot vote, have no access to health service and cannot even travel to Beijing if they wished to do so; which is why they are welcomed with open arms by factories producing fake merchandise.

We created StopTheFakes.io with a view to building up a strong community of people. In this global system, rights holders can involve all consumers in searching for locations that sell fakes and pirated content.

  • Blockchain technology guarantees that no proof will be lost or modified.
  • Ethereum-based smart contracts guarantee that no doer will be unpaid.
  • STF tokens guarantee that transactions will be as cheap and quick as possible.

Our interface is simple and user-friendly: please visit our website, StopTheFakes.io, and see for yourself.

4. What is your solution to this problem?

Are you doubtful that a small team, even of highly qualified specialists, can bring down this giant industry? Well, you may be right there — but we aren’t going to be working on our own. We intend to create a huge army of people fighting piracy and fake goods by having millions of people from all over the world join our ranks and make a decisive dent in the industry. We would like to invite you to join us to change the world and to get proper remuneration for your work.

5. Why is your industry ripe for disruption?

When we came up with the idea to create StopTheFakes.io, we were fully aware of the scope of the counterfeit market. We couldn’t imagine, however, how serious the problem is. Government watchdogs missed the emergence of a global industry and allowed it to turn into a monster devouring law-abiding businesses. Currently, governments keep discussing what can be done to deal with this problem while continuing to apply the old methods, such as tax surveillance, customs and few cybersecurity units.

Out of all the global research studies on the issue, we decided to choose the most conservative one to give you a big picture. This article is based on the facts and figures provided by the Organization for Economic Co-operation and Development (OECD) and the European Union Intellectual Property Office (EUIPO).

For research purposes, officials draw on two main sources of data:

  • Official international trade statistics
  • Reports of the customs authorities on confiscated counterfeit goods

In other words, they take into consideration the detected infringements, which are almost less numerous than the non-detected ones. What follows is the most conservative evaluation of the volumes of counterfeit goods. The real extent of the fake and piracy market is much larger.

First glimpse of the problem’s extent

The data obtained from customs reports of various countries for 2013 gives us the following figures.

In 2013, sales of counterfeit goods and pirated content exceeded $461 billion, or some 2.5% of the total amount of international trade.

These figures are almost equivalent to the GDP of Austria or the combined GDP of the Czech Republic and Ireland. In a way, a pirate state has essentially been created; a state as big as a medium-sized EU member. This pirate state exerts a strong influence on the global economy. Incidentally, the market capitalization of the world’s largest retailer, Amazon.com Inc., also amounted to $461 billion. However, this retailer has a less impressive turnover, its revenues being less than $140 billion last year.

The worst thing is that counterfeit trade volumes are growing rapidly. Back in 2008, global counterfeit trade volumes were estimated at only $200 billion, or 1.9%.

These figures didn’t impress you, did they? Well, then just imagine that they are destroying the modern business model based on intellectual property rights. Modern economy reposes on innovations and original ideas protected by copyright, whereas counterfeit producers level out the innovations’ economic dimension by appropriating someone else’s achievements.

Furthermore, pirates counterfeit not only luxury brands, but also mass-produced goods and even products intended for business. They operate in all market segments and are present all over the world. Even China, known for its fake products, suffers from counterfeiting.

What Rights Are Violated?

Violations of law in terms of types of intellectual property rights are as follows:

  • Trademarks: 95%
  • Copyright: 2%
  • Design rights: 2%
  • Patents: 1%

In most developed countries, legislation and law enforcement practices aim to protect copyright and patented technologies. Violations of law in this segment represent only 5%, while most crimes concern trademark property rights. As of now, there are no mechanisms to ensure their protection, so right holders are left face to face with offenders and have to meet enormous expenses to protect their rights.

If we divide into categories the counterfeits seized by the customs authorities all over the world, we’ll come up with the following results for 2013 (in thousands of fakes seized; the figures are rounded up):

  • Footwear: 27
  • Sewed or knitted clothes: 18
  • Leather products: 18
  • Electrical devices and tools: 16
  • Watches: 9
  • Tools, optical products, medical equipment: 8
  • Other types of clothing: 7
  • Perfume and cosmetics: 5
  • Toys: 4
  • Medicines: 3
  • Jewelry: 3

Comparison of the counterfeit market with other types of criminal activities

  • Counterfeit products; $461 billion
  • Prostitution: $186 billion
  • Marijuana sales: $141 billion
  • Illegal gambling: $140 billion
  • Cocaine sales: $85 billion
  • Heroin sales: $68 billion
  • Oil theft: $37 billion
  • Human trafficking: $32 billion

Important point

As can be seen from the table above, the total turnover of illicit drugs remains well below the counterfeit trade volumes. However, police in every country has a Drug Enforcement Agency. Let us remind you that we use the data provided by the customs authorities. Therefore, when drugs cross the border and get into the domestic market, law enforcement agencies continue to keep track of them. Counterfeiting is a different story. As soon as fake running shoes pass through customs, they get out of sight of the regulatory bodies. The trademark owner is left alone with offenders and has to invest money in detecting and documenting cases of counterfeit sales.

Global Piracy Market

We can estimate the counterfeit market by analyzing how many counterfeits are detected at customs. If a consumer ordered a fake Swiss watch in China, it is expected to cross the border where the customs authorities may intercept it. Pirated content is a more complicated story. An Internet user downloads a torrent or watches a pirated movie at home. Attempts of the regulatory bodies to block access to pirate websites look pathetic, because basic computer skills are all a user needs to get a VPN connection and bypass any bans.

This is why it is extremely hard to estimate, if approximately, the extent of the piracy market. MUSO, a London-based tech company, has been the most successful of all in this respect so far. Their research focused on the pirate website traffic in 2016. The results are listed below:

  • Total number of Internet users’ visits to piracy websites: 191 billion
  • Total number of one user’s visits to piracy websites throughout 2016: 53.33 times throughout 2016
  • Number of Internet users around the world: 3.37 billion
  • Global population: 7.38 billion

The development of network technologies has only aggravated the situation. In the past, pirates used to steal only ready content (movies, musical compositions and software), but now they are stealing Internet broadcasts of various events and channels too. It is difficult to estimate the amount of money lost by a right holder who organized, suppose, a pay-per-view broadcast of the World Cup Final. Immediate reaction –in an online mode, literally — is required to detect and put a stop to this infringement.

The users’ interests in pirated content are as follows. Below is the number of one user’s visits to different websites by topic:

  • Online (streaming) broadcasting: 32.05
  • File downloads: 8.79
  • Public torrent trackers: 9.48
  • Private torrent trackers: 0.67
  • Broadcast recordings: 2.34

Important point

As a matter of fact, fighting Internet piracy is not that hard. US legislation allows rights holders to directly address the management of search engines and of Internet providers demanding that they block access to this content. Information on how Internet users learn about piracy websites is provided below:

  • Direct visits: 41.9%
  • Search results: 34.7%
  • Links posted on other websites: 20.4%
  • Social networks: 2%
  • Ads: 0.6%
  • Emails: 0.4%

As can be seen from these figures, most of these sources can be shut down, if detected, on time.

StopTheFakes

6. What’s the future of your industry?

A giant army of volunteers searching for and documenting infringements is the best way to change the status quo in the counterfeit and piracy market.

This idea led us to the creation of our project, StopTheFakes.io. We are fully confident that it will be a success: right holders will never miss the opportunity to get users involved into the search for infringements, all the more so because their efforts will be remunerated. Join us and we’ll change the world for the better.

  • September 2018 Reaching user count of 850 000 and a total of 40,000 breaches detected.
  • June 2019 Big Data implementation. Expanding the range of services for Applicants.
  • August 2019 Аudience building. A total of 400,000 copyright infringements detected.
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