- Fakes. - (wacky music)
- (camera clicks) - Phonies.
- (register dings) - They're everywhere.
Some are easy to spot.
- (man screams) - (Nessie roars)
Some took us a little longer to figure out.
(bell dings)
- From our currency. - This dude looks like me.
- To our gadgets. - (drone whirs)
From our medicine,
to the logoed merchandise we wear,
fakes siphon off billions of dollars a year
from the global economy.
(twitchy music)
It's their uncanny ability
to effectively imitate the real thing
that gives them their power.
They can undermine multi-million-dollar brands,
destroy trust in governments,
and pay for some really bad shit.
- Terrorists can use counterfeits to fund their attack.
- Holy shit.
How do the fakers get away with it?
We're about to find out.
Yeah, this is counterfeit,
just like your mom.
What?
(dramatic music)
Whether you like it or not, we're all connected by money.
I'm Kal Penn, exploring this giant beast
that is the global economy.
♪ Gimme that money ♪
♪ Gi-gi-gimme that money ♪
♪ Gimme that money ♪
♪ Gimme that that money ♪
- Money, we use it to pay our debts,
spend it to buy good times,
and save it for rainy days,
but in the US, counterfeit money has been circulating
almost as long as real money has.
So, who protects our currency
when counterfeiters are targeting our dead presidents?
(cool jazz music)
I'm in our nation's capital to find out.
- [Trent] Welcome to Secret Service headquarters. - Thank you.
- [Trent] This building has every major division
the Secret Service operates in.
- That would explain all the stairs.
Meet Secret Service agent Trent Everett.
This is what they look like without sunglasses and earpieces.
A lot of people don't know
that the Secret Service goes after counterfeit currency.
Everybody always thinks of,
well, you guys protect the president and the first family.
(snappy parade drum music)
- So, the reason the Secret Service came about was,
at the end of the Civil War it was reported
that about 1/3 to 1/2 of all currency out in circulation
- was counterfeit. - Wow, that much?
- That much.
So, on April 14th, 1865,
President Abraham Lincoln began drafting up the idea
to create the Secret Service.
So, later that evening, with the legislation
drawn out on his desk to create the Secret Service
is when Abraham Lincoln left the White House for Ford's Theater,
where he ultimately was assassinated by John Wilkes Booth.
- [Kal] Whoa.
At the time of the Civil War, the US had no single currency.
Banks could issue any dollar amount in any style.
This made counterfeiting an easy game to play.
A glut of fake bills quickly led to inflation.
The price of a pound of tea ballooned to $35,
while a barrel of flour could cost you 1,000.
This led to the first real move by the US
to take on counterfeiting.
- [Trent] This next part I think you'll enjoy.
I'm gonna have you meet one of my coworkers, Irina,
who's one of our document analysts.
- Welcome to Criminal Investigative Division. - Thank you.
- I'm going to take you into the specimen library,
and take a look at the actual counterfeit collection
the Secret Service has here on site.
- [Kal] We're looking at money.
Irina Geiman's job is to make sure our nation's currency systems are protected.
- [Irina] Secret Service sees about 2 1/2 million pieces
of counterfeit currency a year.
- [Kal] When it comes to money, Irina means business.
- So, I have a couple of different counterfeits laid out,
then also I have two genuines.
So, for example, these are all real.
- You're welcome to hold them. - Thank you.
- Thank you so much. - No, no, no, no, buddy.
- I appreciate, no? - I really cannot do that.
- [Kal] Since the birth of the Secret Service,
America has been in a race against counterfeiters,
to protect our money and the trust Americans have in it.
- So, here's some security features
that's kind of really easy to remember.
So, for example, if we take a look at it
in transmitted light, we can actually see
that there are images that's built into the paper.
- There is an image of a large five right there. - Oh cool, yeah.
- Yeah, and then three little fives to the left, and there's actually,
there is a little skinny strip to the right of the portrait.
- Yeah, that's cool.
- [Irina] Our 100 also has an additional feature.
We call it a 3D motion ribbon.
If you tilt the note away from you and back,
the images move up and down.
- This is why, when you're a huge baller,
and you go to the store, the person goes like this.
- Oh yeah, yeah. - Before telling you
that they don't accept hundreds anyway.
(Irina laughs)
- So here's some other counterfeits
that we've been seeing quite a bit.
Is there anything about them that catches your eye?
- Okay.
Even Ben Franklin looks unconvinced by this one.
(Irina laughs)
This one looks like Grant just found out
how many Confederate statues there are.
(Irina laughs)
Wait a minute. This dude looks like me
more than he looks like Abraham Lincoln.
- A huge part of what Secret Service does is education.
We do a lot of outreach, and really travel around the globe,
and teach people, how do you recognize genuine currency?
- [Kal] As counterfeiters get more high-tech,
the US has had to innovate new security features
to ensure its money is as counterfeit-proof as possible.
Without their efforts,
the country could be overrun by counterfeiting masterminds
looking to destroy an economy.
(suspenseful big band music)
- Greetings, world citizens.
I am The Counterfeiter.
I destabilize world governments.
Not with nuclear warheads,
but with a simple copy machine. (laughs maniacally)
I can cause inflation with the touch of button.
Doubt me? Why don't you ask Yugoslavia?
Oh, that's right: they no longer exist.
Counterfeit bills crippled Yugoslavia's economy
in the midst of civil war.
You're no match for me, Milosevic.
Villains with shrink rays are so small-minded.
I shrink the value of the bills in your wallet
simply by making my own.
Bombs are so primitive.
Dropping bills could do just as much damage.
-(bill shooters whirring) -(laughs maniacally)
If not, why did Hitler make fake British pounds
during World War II?
The Bank of England had to withdraw all notes over five pounds.
-(bill shooter whirring) -(laughs gleefully)
(sonar pings)
I target cash-based economies,
hurting the poorest people on Earth.
If you can find someone worse than me,
I'd like to meet them,
so I can copy them for mass production.
-(laughs maniacally) -(door slams)
- Freeze, you counterfeiter. - (distant siren blares)
- It's The Counterfeiter.
(energetic rock 'n' roll music)
Copy Cat, attack!
(cat thuds)
Oh, Copy Cat.
Wish I'd never had you cloned.
- Time for you to be brought to justice, The Counterfeiter.
What? Where'd he go?
-(energetic rock'n'roll music) -(light switch clicks)
- You fool, I'm everywhere,
especially cash-based economies.
(car horns blaring)
(pulsating music)
- [Kal] India, it's a country of over 1.3 billion,
and most of their financial transactions are done in cash,
making it especially vulnerable
to the destabilizing effects of counterfeiting.
What can I do with these old currency notes?
- Sir, you can't buy anything with that, it has no value.
- No one will accept these? - No. Indian government has voided them.
- What can I do with them?
- You can tear them up.
- You can't even buy anything worth a rupee with these,
he says.
Why did stacks and stacks of India's currency
suddenly become worthless?
In 2015, India experienced an alarming rise
in counterfeit rupees,
primarily the 500 and 1,000-rupee denominations.
Much of it had been intentionally pumped in from Pakistan,
looking to disrupt India's economy.
So, in 2016, in a move that shocked the nation,
the prime minister of the country
took steps to protect India's currency.
- Enemies from across the border
have run their operations using fake currency notes.
Fake currency, fake notes,
and terrorism.
To break the grip of corruption and black money,
we have decided
that the 500 rupee and 1000 rupee currency notes
presently in use
will no longer be legal tender
from midnight tonight.
- What the prime minister did is called demonetization.
It isn't a new concept.
In the past, countries used it
specifically to fight inflation or tax dodgers,
but not to battle counterfeiters.
- And there is no need for panic.
- [Kal] To help you understand how it works,
imagine if, tonight, the US government told you
your 20s, 50s, and $100 bills
were no longer any good.
That's exactly what happened
to over 85% of the currency in India.
(energetic rock music)
The prime minister was looking to protect India's economy
from the bogus bills
by throwing out the good ones with the bad,
but it led to unintended consequences.
Gargi Bhattacharjee is a financial analyst
who had a ringside seat for the 2016 demonetization,
and the impact it had on the Indian people.
How did demonetization affect all these guys?
- I think hugely.
All these guys you see around, they're all paid in cash.
You probably will not be able to pay them in check
because, end of the day, it holds no value to them.
- So, how did you hear about demonetization?
How did it first sort of take hold?
- It was on TV.
8 o'clock news.
Suddenly, there was Narendra Modi speaking,
the Prime Minister.
And he was talking about
some notes that are no more in existence
from that point of time.
The reason that was given
was that counterfeit money needs to be stopped.
And slowly after half an hour, 45 minutes,
I saw a serpentine queuing up
happening in all the ATMs.
Because they were not understanding what was happening.
It was a mayhem.
(people yelling in foreign language)
- [Kal] The country was not ready
to take on the move the prime minister had mandated.
Updated currency was printed, but the ATMs in India quickly ran out of the new bills,
and some of them didn't even fit into the bank machines.
- There were deaths which happened because of this,
because suddenly a person in the middle of nowhere,
he-- he was bankrupt.
Farmers have died, laborers have died,
because they did not have money
to follow through. What do they eat?
How do they feed their children?
- So, people have died because of this. - Of course.
Demonetization led into so many other things
apart from putting the focus only on counterfeit money.
- So why did this take place?
I mean, India has incredibly talented economists.
Who were the folks who were advising the prime minister?
Why was this such a drastic measure?
- It is said there were about eight to ten people who knew about demonetization,
but this person named Mr. Anil Bokil,
apparently he introduced this idea to the Prime Minister.
But it did not go the way it was introduced.
(music)
- This is Anil Bokil, known locally as Guru Uncle.
He claims to be on a mission to save the economy of India.
He put together a theory
that India's financial crisis could be solved
by demonetization,
and to lend credibility to his theory,
he did what everyone else does: he built a PowerPoint.
Guru Uncle presented this PowerPoint,
pushing the benefits of demonetization across all of India.
Eventually, he managed to secure himself
a nine-minute meeting with soon-to-be Prime Minister Modi.
Modi decided he liked what he heard,
despite the fact that Guru Uncle isn't an economist,
isn't a member of government,
and has no background in policy-making whatsoever.
Hey.
I'm meeting with Guru Uncle
and his think-tank-slash-entourage, known as ArthaKranti.
His tiny group has managed to influence
a great deal of India's economic thinking.
Hi guys, how are you?
- Hello. - Hello.
- I've worked here before. I was not able to get to India
- in the amount of time-- - [Anil] Ah, so you lost it.
- (laughing) - Yeah, all of this.
- It's worth almost $400 US dollars. - It is not.
- It's, it's-- - It's worth nothing.
It is not backed by any gold standard or anything.
- So, I'm screwed. - [Anil] Yeah.
- Okay, so the implementation of demonetization
and this economic restructuring,
how does this all tie into counterfeit currency?
- Money in India is a very raw state.
We are using more currency than digital money.
Digital money is an advanced state of money,
which is accountable.
But when you follow the cash practice or currency practice,
you'll not get any footprints behind
after every transaction.
So counterfeit was a major thing to be addressed.
- And how was it addressed, and what was the difference
between your proposal for demonetization
and the reality in which it was implemented by the Modi government?
- So we were never expecting 86% of our value,
in one go, demonetized.
What we proposed, you just withdraw 1000 rupees bill.
After 6 months, you can go for 500 bills.
But what happened actually was a complete cut off solution.
So that created a lot of pain in our society.
But the operation was required.
- If a country has to go this far
to battle counterfeit money and save its economy,
the upside had better be substantial.
It's a lot to absorb,
so I'm meeting with a local business owner to find out more,
and take a bit of the stress off.
- Vikash. - Hi.
- [Kal] Vikash Kapur runs an Indian production company
that has experienced the effects of demonetization first-hand.
And how does he feel about the prime minister's changes?
- I think the way he did it was
the way to do it.
And it takes guts
to tell 1.3 billion people
that your money is useless.
I mean, if I was in his place, I would have done the same thing,
because I have encountered counterfeit notes.
What happens is that when you deposit counterfeit currency
into the bank, they have, I mean, you don't know,
but when you're depositing it, they have the machines to check.
And if they find a fake note, they just tell you that it's fake
and you lose that money.
- You do lose it. - You do lose that money, yes.
So the whole demonetization and all of that,
when all of that happened,
there were just so many stories that unfolded.
And that's when the real truth came out that
there's actually so much counterfeit money, you know,
which has made its way into the system,
into the country.
- What were some of the challenges that you saw
below sort of that middle-class economic strata?
- It was a painful period.
We had to stand in line, we had to stand in queues.
People had to take off from their jobs.
It was tough. But then I look at the bigger picture.
I mean, ever since this has happened,
I know that the number of taxpayers has doubled.
- Are you saying that the reason people are paying more taxes
is because they were forced to open bank accounts,
and there's now a track record of what they're making?
- Exactly. Exactly. And it's been made simple.
There are online, you know, payments.
Opening bank accounts right down into the villages.
And that also helps people understand
the economy. It educates them.
They get educated in how to, you know, really deal in the real world.
- The hardship that people felt in different economic classes,
you're acknowledging that it was tough,
but you're also acknowledging it just had to happen
- 'cause there's no other way to have gotten rid of-- - I am.
Oh, yes, definitely am. I am acknowledging it.
Because I think it was overdue.
Because when all of that happens,
it helps the government do more.
You know, better medical benefits,
you know, better infrastructure,
better roadways, better schools.
If the government has money,
they can pay better wages, you get better teachers--
Kids start going to public schools. Everything grows.
So all these things, they keep adding up,
which I think is great, and which is what I think is required for the country.
(electronic music)
- So after all this effort, where is India now?
Is counterfeiting no longer a problem?
Well, not exactly.
Turns out those new notes
are already being successfully counterfeited.
So, could India have handled the problem differently?
(pulsating electronic music)
Confronted with their own counterfeiting problem,
the European Union took a different approach,
and attempted to make fake bills
easier for everyone to spot.
This is cool. This is a neuroscientist's office.
- Lair. Yeah, exactly, yeah. - Lair.
- David Eagleman is a neuroscience professor
at Stanford University, and his lab appears to be
the secret headquarters of SkyMall.
In 2013, he was recruited by the European Central Bank
to design a bill resistant to counterfeiting,
drawing on his knowledge of sensory substitution
and brain plasticity.
So, we're sure to have a lot in common.
You're a neuroscientist. How the heck does a neuroscientist
get involved in designing currency?
- Well, a big part about understanding counterfeiting
is understanding what people actually see
and what they don't see.
So, governments spend a lot of money
putting in security features
that we don't typically see unless we really attend to it.
- Oh, interesting, okay. - Yeah, so what the European Central Bank did is
they had a campaign where they tried to get people to look at money,
where they said, hey, instead of just passing a bill along,
stop, and look at it, and really pay attention to it.
And it turns out that didn't work,
because if someone passes me a counterfeit 50,
I don't know if it's counterfeit,
and if I pass it on, and it works,
then it doesn't even matter to me, as a citizen.
So, what they're trying to figure out is,
how can we better design the bill?
So, that's how they came to look at neuroscience.
- Okay, and what were your recommendations?
What did they end up doing?
- So, I gave a few different recommendations.
The first one was,
all the money should be made the same size in Europe.
- The reason being-- - Oh 'cause their bills are--
- Exactly, bills are different sizes,
and if it's the same size,
it forces you to actually look at it
for a fraction of a second longer
to detect obvious differences.
Whereas, if it's different sizes,
you already feel like you know what it is,
and you're passing it on.
The second thing was,
what they have is the watermark on the bills is a building,
and it turns out
that we don't have too much neural real estate
devoted to recognizing what's going on with buildings.
We have a lot devoted to recognizing what's going on with faces,
and it turns out that with watermarks,
that's the hardest part of a bill to counterfeit.
So, what they ended up doing
was putting in a watermark of Europa, the mythical figure.
My third recommendation was,
there's so much on a bill that's distracting,
that has nothing to do with the security features of a bill.
So, here's what I'd like you to do.
So, take this bill and look at it for five seconds.
- [Kal] Okay, yup.
- And then hand it back to me,
and I'm gonna give you a new one,
and you tell me what the difference is there.
- I couldn't tell you the difference.
- Okay, this illustrates the point
that the more stuff that you're putting on a bill,
the harder it is for you to detect obvious differences.
These bills are actually quite different from one another.
If you look at the hologram on them,
which is the single security feature
that the government is paying a lot of money for.
- Oh wow, that's super-subtle.
- It's super-subtle, and here's the thing, right,
because of all this other stuff on there,
it's hard for you to see that.
- This is, yeah, wow.
- So, I said, what you really want
is just a completely blank bill
with a single hologram in the middle,
and get rid of all the other stuff that's a distraction.
- I see what you're saying,
where the simplicity is something
that the consumer can be able to vet pretty quickly.
- Exactly, so the European Union
thought that was a very good suggestion,
but they decided they just couldn't do that in the end,
because countries look regal by having beautiful money,
and they look important that way,
and so you can't have, they decided,
a bill that's just blank with a hologram in it,
even though that would make more sense.
- So, there's a little bit of vanity
associated with what governments want on their currency.
They want branding.
- Yeah, exactly right.
- [Kal] It's crazy to think that vanity
helps put a nation's currency at risk,
but I guess it makes sense.
I mean, sure, we all wanna look good,
but we don't all have the money to do it.
That's where counterfeit brands come in.
Those brands that we know, love,
and even wear on our bodies,
are being counterfeited all around the world.
For example, a real Hermes bag
could cost over $100,000,
but you could snag a counterfeit version
for a few hundred bucks.
This is how counterfeits steal away $460 billion
from legitimate companies every year.
( twangy rhythmic music)
Hong Kong is a global financial hub,
and due to its proximity to China,
where copyright laws are rarely enforced,
Hong Kong is the marketplace
for nearly 25% of the world's counterfeit goods.
So, what's real, and what's fake,
and who's doing something about it?
Those are the questions I'm here to get answered.
- So, Kal, this is the ladies market in Hong Kong.
We're gonna walk through, and we're gonna see a lot of people
from all around the world who come here to buy a lot of fake product.
All of this traffic is driven by demand,
let's say from the US.
- [Kal] Ted Kavowras, a former New York policeman,
is now an international counterfeit crime-fighter.
He's hired by global brands who suspect their products are being counterfeited.
- If you're running an anti-counterfeiting effort,
as a country, or as a police, or even as a company,
you need to attack at all different stratas.
So, attacking it at the point of sale
is one of the policies to try to stop counterfeiting.
- So these Paul Frank headphones, right?
- 100% fake.
- So, these are obviously fakes? - [Ted] Yeah.
- [Kal] Here's Star Wars, and Spiderman, and--
- [Ted] Marvel, the comic books that are turned into movies.
- [Kal] My Little Pony.
- [Ted] This market is where a tourist would come
to buy one or two products,
but big buyers from overseas would go straight to the factory.
- What do you mean by big buyers?
- Big buyers buy container and sell it in their home market.
- A shipping container. - Yeah, 20, 40-foot container.
- Oh, so a big buyer
is buying an entire shipping container worth of this stuff.
- Lots of them. So, my focus is to
- I see. - stop the factory
from producing it so it ends up here.
(mellow percussive music)
- [Kal] Ted operates out of his Hong Kong office,
chock-full of the counterfeits he's seized,
mixed in with an international-man-of-mystery vibe.
- Engaging them in getting evidence of their activities
is exactly what we do,
and we do that by posing as a foreign buyer,
and that involves us going undercover
and document what they're actually doing.
- That is so cool. - You know,
so I'll play an Arabian prince, or a Mexican drug dealer,
or I'll just play a businessman, I mean--
- I'm now intrigued,
'cause I feel like, once I have to retire from acting,
- You do my kind of acting. - I can come here.
You can hire me to go undercover.
So, what's the most interesting thing you guys have seized?
- Probably the most interesting
would be the drug-testing kits.
They have fake, you know, uh,
anatomical part of you
that will let you take a urine test.
- So, like a fake dick that pees.
- Yeah, and they were being counterfeited.
- Wait-wait-wait-wait-wait, wait,
so there's a real version of this,
- Oh yeah. - [Kal] But this is a bootleg version.
- [Ted] Yeah.
- So the people who manufacture this,
it was cutting into their profits enough?
- Yeah.
- (Kal laughs) Must be pretty embarrassing
if someone finds out you have a fake fake penis,
but there are counterfeit products
-that pose an actual danger. -What are those?
- [Ted] These are fake electrical switches.
- [Kal] Oh, no way. Fake meaning they won't work,
or they're just a lower quality?
- No, there are factories that make fake ones,
and they put less aluminum in the copper for conductivity,
but the problem with that is,
if there's less copper and more aluminum,
it catches fire easily.
- [Kal] Oh man. - So that's a big safety issue.
- [Kal] Where do things like this end up? Who buys them?
Let's say you're a contractor in construction.
Would that person know they're buying dangerous fakes?
- The consumer, or the end user would not know.
- A switch like that, that could light a building on fire while a kid's sleeping,
when you've talked to these people,
is there an understanding of what they're doing
and they just don't care, or do they--
- They don't care. - They don't care.
- They know. How could you not know?
They're willing to do this, and not care about other people.
- Wow, this is getting pretty dark, and a little bit scary.
Counterfeiters aren't just low-level thugs
hanging out on the streets.
Their operations are way more complex than I realized.
If only I had an expert
who could fill me in on just how dark this crime gets.
Ah!
Alastair Gray has been an intellectual property investigator
for over a decade.
He says the Internet is the next frontier
for counterfeits and ripoffs.
- What we're seeing on that street level
is just one layer of where this all stops,
and that's the very endpoint that consumers see,
but it's shifted.
I think more transactions are being done online now.
The Internet is like a Wild West.
- I never thought about the online component before.
Is that how a lot of people get the stuff?
- Yeah, it's almost an evolution of counterfeiting,
where it's almost a shifting to brand abuse.
So, if you're a brand, and you're selling popular products,
counterfeiters now will spoof genuine sites,
and they'll take imagery from an official company site
and have all the logos and everything just feels legit,
and so you'll have people looking for a bargain,
and they'll be the ones that are actually tricked into buying counterfeit.
- How many people involved in that crime
know what they're doing?
So, the web developers, the people who work there,
do they think they're working for a legitimate company,
or do they think they're,
do they know they're working for this criminal?
- It can be both. I mean, there was an amazing story
where there was a whole Apple Store in China
that wasn't an Apple Store.
- Come on. - Yeah. Really?
- [Alastair] And everyone was in Genius T-shirt,
they're like fully branded.
Employees of that store thought they were working for Apple.
- That's crazy. - Yeah.
Counterfeiting is affecting every different industry.
There are 700,000 deaths per year
attributed to counterfeit medicine.
- Wow. - And that's where it gets really scary.
You're playing with people's lives.
If people are gonna buy that thinking it works,
and it doesn't, then it's game over.
- What are some others that impact public safety?
- It's been proven that terrorists can use counterfeits
- to fund their attacks. - Wow.
- The Paris attacks in January 2015.
Cherif Kouachi, he bought counterfeits online in China,
and then was selling it on a market in Paris,
and managed to make between 30 and 50,000 euros,
which he then used to fund trips to Oman and Yemen
to get training from al-Qaeda.
- Holy shit, so the Paris attacks were directly funded
by people buying counterfeit T-shirts and products.
- Yeah. - That's bananas.
- That's really sad. - The return on investment is amazing.
If you produce a T-shirt for less than a dollar,
and then you get a brand label, and you can put it on it,
I mean, your markup can be huge if you can sell if for like 400 times that.
- Yeah. - And very few counterfeiting crimes
- end up in a prison sentence. - Yeah.
- Most examples, you'll get a small fine,
and then you're pretty much ready to set up
and start doing it again,
because, I mean, why wouldn't you,
if you can make so much returns?
- [Kal] I knew exploring counterfeiting
might lead me into a criminal underworld,
but I was hoping it would be
like the fun Fast and Furious kind of criminal underworld,
with fast machines, and cool nicknames, and shit.
Oh wait, my next meeting's with a guy named...
Trappy.
That's not suspicious.
And it's in this remote paper warehouse
that looks like a haunted Dunder Mifflin.
(drones whizzing)
(frenzied percussive music)
What is this place?
Is it a drone-racing track, or is it a paper warehouse?
- Well, - Both, I guess.
- during the week it's a paper warehouse,
and on the weekends we build our racetracks here.
- (drone smacks) - Whoa!
- We have video goggles, so we see through the perspective of the drone.
The drone is an extension of yourself,
and you're navigating through any kind of environment.
- (drones smack) - Oh!
- [Trappy] Oh, that was a mid-air.
He's fine. (laughs)
- Trappy doesn't just race drones
at his buddy's warehouse on weekends.
He's also the owner of Team BlackSheep,
which produces a wide range
of drone components and accessories for the hobbyist market.
The problem is the drone industry
is very susceptible to counterfeit.
Trappy's company isn't big enough
to hire someone like Ted Kavowras,
so how does he stay ahead of the counterfeiters?
(door slams)
- Company of our size,
especially in the market that we're in,
there is just no business case
of actually enforcing patents, or even having patents,
because by the time you get granted a patent,
the product is already out of date and off the shelves.
- What are the different types of counterfeiting
that you deal with?
- We differentiate between three types of people.
You'll have the straight-out counterfeiters,
who'll produce something
that looks exactly like your product with your brand on it.
Then you will have the cloners.
They will make something that looks like your product,
but put their own brand on it.
And then copycats basically re-engineer your product,
so they will take apart your product,
figure out the technology that went into it,
the R and D, all of the innovations that we put into it,
and apply that to their own product.
Usually it takes maybe six months
for a serious copy to be released to the market,
but that time has been decreasing rapidly as well,
so that they're catching up,
- So it's-- - Hurt you?
What are the parts of it that--
- The real damage comes from copycats,
who take most of the innovation
without actually having to pay for the R and D,
and then they're at liberty to price it a lot lower,
- and we have to follow suit. - How do you combat that?
- We're very creative in the way that we combat the issues.
- Okay. - When we do get copied,
we try to bring out new innovations
that then restart the whole cycle.
For example, this product right here,
this is a remote-control link,
and it goes up to 100 kilometers.
It's a highly innovative product that we developed.
It's very R and D intensive.
We had an RF specialist work on that for over two years,
and the copy of that is now selling at cost.
But two years ago we anticipated this move,
and we have hidden features that are yet to be unlocked.
- Cool. - So over time, we keep releasing new innovations
that are already in the product,
basically forcing all the people that went with the copycats to repurchase,
which makes it more expensive for them in the long run,
and then eventually they usually see the light
and buy the real stuff.
(drones whizzing)
- [Kal] The drone market is flying forward
with awesome new technology
they wouldn't have had to innovate
if it hadn't been for copycats.
It's hard to believe that innovators and copycats
are helping each other,
but it's as much a part of the natural economy
as, well, nature.
(ethereal music)
- [Narrator] The relationship of inventors and copycats
is tantamount to to that of hunter and scavenger.
- God, I'm strong. - (carcass plops)
I'm the best at murdering your kind.
- [Narrator] They have evolved
to have a symbiotic relationship,
even if sometimes contentious.
- No way!
Look at this thing.
This looks awesome.
You kidding me?
- Whoa, whoa, fuck off, vulture.
Fuck off.
- [Narrator] This equilibrium is maintained in the economy
by intellectual property protections known as patents.
- I own the rights to this kill.
I own 'em, so back off.
- Okay, all right, I get it, I get it.
So, I don't get any fresh meat.
I gotta wait till it's rotten like a second-class citizen.
- Yeah, that's exactly right.
- Okay.
- [Narrator] The hunter, like the inventor,
- [Leopard] Oh, that's tender. - (grunts)
- [Narrator] is rewarded for its hard work
with a temporary monopoly.
- Oh, oh yeah.
Oh, that's the stuff.
- [Narrator] When it can exclusively devour
the spoils of its innovation.
- Come on, man, time's up.
It's my turn to have some.
- No!
- (repellent hisses) - (screaming) Oh, my eyes!
- This right here is mine, this whole thing,
and I'm gonna have some tomorrow,
and then I'm gonna have some the day after that,
thanks to my extra protection here.
-Eh! -(screaming) Stop it!
- I'm in no rush. - My beak!
-(sobbing) - I might take a little nap, as a matter of fact.
- [Narrator] This is how innovation is discouraged
when patent protection is too strong.
The inventor isn't as motivated
to hunt for the next breakthrough.
But if there were no protection at all,
scavengers would move right in.
- Get in there, guys.
Feast upon the carcass.
- Oh, what?
- Come on. - Oh, yeah.
- [Narrator] This is where scavenger
moves from harmless mooch to deadly parasite.
- It's vulture time. - [Narrator] If the hunter is not able
to reap the benefits of its work--
- That's just so gross.
- [Narrator] ...it does not have the resources
to hunt the next beast,
just like when inventors don't make money off their products
they lack the funding for research and development
of the next big innovation.
- Do you know how long I was crouching in the bushes,
stalking this thing?
You deformed turkey.
- Hey, whoa. - Hey, whoa.
-(paws slapping) -(wings slapping)
- [Narrator] Nature, like economics, can be harsh.
- You know what? Ow, ow, I'm out.
Good luck hunting antelope on your own from now on.
- Fine.
- [Narrator] In this scenario, without the hunter
to provide the banquet that sustains the ecosystem,
both of them will die.
Their loose skin will be stripped off their emaciated carcasses,
and if they're lucky turned into coats.
- Whoa! - Yeah, we--
We can hear you.
That is not cool.
- [Narrator] Sorry.
- You know, out of respect, I would never wear you.
- Thank you, and I would never wear you.
- Thank you. - Yeah.
- Hope you've learned something. - Yeah, have a good one.
- You too, man. See you later.
(jaunty piano music)
(energetic music)
- [Kal] The freedom to copy other people's ideas
is a necessary part of innovation.
Some industries thrive in an environment
where copycats and inventors live in harmony.
The ones that really play it right
could end up making money like it's going out of fashion.
- The wonderful thing about knockoffs,
for the luxury designer,
is that it's kinda like a gateway drug.
You know, you get a little puff,
and you get excited about the brand.
You wear the knockoff. You think, wow,
I'd really like a real Gucci,
and so that's the heroin of fashion addiction.
- Johanna Blakley runs a media-focused think tank
which has explored intellectual property laws in the US
and their impact on innovation.
What's the difference between a knockoff and a counterfeit?
- Well, a knockoff is a perfectly legal thing
in the fashion industry,
and it means that somebody has based another design
on somebody else's design,
so nobody owns any of that stuff.
What people do own in the fashion industry,
and I think this is a really good thing for the business,
is they own their name.
They own the registered trademark, the brand.
- Interesting.
- One reason that you see these really expensive bags
just laden with logos
is because that's what knockoff artists cannot copy.
- Okay, got it. - So, if the logo
is intrinsic to the design of the dress,
it's really hard to copy that,
and so that allows consumers
to understand what they're purchasing,
which is a good thing. People should know.
They're making an informed decision.
- Okay, so I see what you're saying.
So, if a high-end brand is selling a handbag for,
I don't know, how much are handbags?
- Ugh, obscene. - Okay.
- Obscene prices. - Thousands?
- Oh yeah. - All right, $10,000
- for a bag? - Oh, yeah.
- Is that? - Oh, more.
- Really, that's normal? - Oh, yeah.
- More? - Go to Barneys.
- No. (laughs) - No, no, no.
It'll take your breath away.
- Okay, so let's say $10,000 for a bag,
and then other people make a similar bag,
but it's missing the logo.
- That's totally okay. - Totally okay,
and it's because fashion designs are utilitarian articles.
- Okay. - And because they serve a utilitarian purpose,
they are not qualified for copyright protection.
- Okay. - Which is so ironic,
because we think of fashion as being very fanciful,
and fun, and totally unnecessary.
We kind of forget that underlying purpose,
which is to cover naked bodies.
- Right, and what's the benefit of that?
- That's precisely because there is no copyright protection
that fashion has elevated itself to an art form.
(throbbing dance music)
There's a huge structure of incentives
that get built into an industry
where you can be ripped off at any moment.
(camera clicking)
It's become a science to rip off these luxury designers,
and of course they complain about it,
but ultimately, when a look is knocked off,
that means you're a trendsetter.
You've been knocked off.
It means you tapped into the zeitgeist.
You get it. Crown is yours.
- Okay. (laughs)
- But that means that trendsetters
have got to get the hell out of there.
- They've got to get the next new thing. - It's not cool anymore.
- Oh, no, they want--
They cannot be part of the herd.
-(laughs) -No, no, no.
- Okay. - And what's really interesting
is that there's quite a few other industries
that cannot be copyright protected.
Cuisine: chefs do not own their recipes.
Furniture: because they're utilitarian objects,
even the most famous designers don't own the design.
Comedians, too.
Comedians develop signature styles
'cause they don't own their jokes.
The ironic thing is that's just really good for business.
When you're constantly creating
this desire for new products,
that's really good in a capitalist economy.
- [Kal] Masterful innovation could mean a great new idea
or an innovative way to steal someone else's,
and if there's one town
that is known for taking a single original idea
and creatively spinning it off forever, it's Tinseltown.
- Here we go, in the bowels of the asylum, so--
- Oh, wow.
Welcome to Asylum Studios,
celebrated for their most famous creation, Sharknado.
- You might recognize this bad boy.
He was the shark that burned up in Sharknado 3
as it was entering orbit.
'Course the shark didn't survive.
- Poor guy. - But, um, tragedy.
- While there are six Sharknadoes,
David Latt and his partner Paul Bales actually built
their empire on what are called mockbusters,
with over 250 movies produced,
these guys generate more than $30 million a year.
- You did Thor? - Well, we did that version of Thor,
- the public domain version of Thor. - Oh, interesting.
I didn't realize. Yeah, I didn't realize Thor was...
- Well, neither do they. Anyway, so over here...
- In fact, the less you're sure what movie you're watching,
the more successful they are.
You guys are known for making mockbusters.
Can you talk about what they are?
I love that term. Is that the right term?
- That's the right term.
That's trademarked and everything, so, uh...
- (Kal laughs) - [Paul] Which is true,
so if anybody tries to steal it, you know...
- Mockbusting is basically drafting
off of what the studios are doing at any given time.
So, if there's a film
about giant transforming robots called Transformers,
we're gonna probably make Transmorphers.
- [Man] Move out! (thudding)
(woman yelling)
(weapons blasting)
- [Man] Roll the team back down to the drop left corner.
- Get the hell out of there. - No!
- You mentioned drafting, that big studios do.
What is drafting?
- Drafting, it's a kinder, more gentle word
that the studios have used for decades,
that basically is the same thing as mockbusting.
They're looking to see what, if I'm Paramount,
they're looking at Warner Bros., Universal,
going wow, they're making a Star Wars movie coming out.
I better make another space movie in order to capitalize,
'cause there's gonna be so much publicity
and press around that.
- Many years ago, Da Vinci Code came out,
and we released a film called The Da Vinci Treasure.
- Did the studio have a problem
with either your version of the Da Vinci Code--
- I don't think they liked their version of it.
(Paul laughs)
- Yes, but it really didn't have anything to do
with the content.
It was marketing. It was a studio saying,
the A in your font is too close to the A in our font,
and we'd simply change the font,
and the movie went out as planned.
- The film business
regularly sees remarkably similar stories
succeeding big in the marketplace.
(asteroid roaring)
In 1998, Earth was almost destroyed
by flying rocks from space. Twice.
First came Deep Impact, and two months later, Armageddon.
And for you younger nerds, just replace these two movies
with The Avengers and Justice League.
My interest in this is a little bit selfish,
'cause I'm an actor, right?
And I don't like people
who actually pirate our movies, right?
You know, the first DVD pressing
of Harold & Kumar Go to White Castle made like $50 million.
I think that's-- if I'm remembering that right,
but then people just download it for free illegally.
That was just money that was lost.
On the flip side, there's like a porn parody
Harold & Kumar Escape From Guantanamo Bay
that I think is fantastic,
because they changed just enough of it
that it was clear what they meant.
I think it's called Farold & Fubar or something.
(laughing)
Where is that line, in terms of intellectual property?
How do you make sure that you're not violating IP law,
but still managing to capitalize
on what you think the audience actually wants?
- I think you have to have an understanding
of what piracy is, as opposed to mockbusting or drafting.
If you're downloading Transformers, or Transmorphers,
illegally, without paying for the privilege of watching it,
then you are stealing.
The difference that we're doing is that
we're making a movie about robots, okay,
and we're not stealing the content.
We're not stealing the stars.
Mark Wahlberg is not in our movie.
We have, you know, Mark Stahlberg.
-(Kal laughs) -And--
- No, that's the porn version. - That is the porn version.
- No one is going to nominate The Da Vinci Treasure
for an Oscar,
but there are examples of how copying
actually leads to innovations
that transmorph an industry forward,
instead of holding it back.
Think about prescription meds.
The FDA grants patents on new medicines
so companies can make money developing them.
But when the patent is up, generic versions arrive,
allowing more competition and much lower prices,
and generic brands at your supermarket
may have the exact same ingredients as name brands,
but cost much less
because of things like lack of promotion
and no flashy packaging.
If an economy can nail the balance between protecting IP
and allowing copycatters to drive innovation,
or simply being able to deliver goods at a better price,
then it seems counterfeiting does have a role to play,
even if it's not the hero.
Sometimes counterfeits lead to innovation,
sometimes they lead to some dark shit,
and sometimes they just lead to this.
But the cinematic geniuses who made this work of art
wouldn't let us show it to you,
so we respected their intellectual property
and made our own version.
(salacious big-band music)
- [All] Whoo! - (hot-tubbers chattering)
(laughing)
- Act-ing!
- (grunting) Yeah.
Yeah, fuck, oh, fuck.
I like to check out the meat before I eat.
Oh, this is--
This is shitty meat.
(crew laughing)
This is unbelievable.
Do you know how long I was crouching in the bushes,
stalking this thing like a pervert?
- Yeah, well you're certainly dressed like one.
- (crew laughing) - How dare you?
(whip cracking)