How brand owners can help to protect against Fakes
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This article was previously published in IP Magazine in October 2012
In July 2012, the European Commission published statistics showing that there had been an increase in the number of shipments received into the EU which were suspected of infringing intellectual property rights. Medicines, packaging materials and cigarettes were the main items amongst the detained shipments.(1)
The economic consequence of this is twofold. On the one hand there is significant gain to be made by the criminal perpetrators with profits from counterfeiting being used to fund serious crime. On the other hand, there is a serious impact to the UK economy. Counterfeits affect UK interests in a number of ways including: low quality goods, lost sales for UK businesses and lost tax revenue. The Business Action to Stop Counterfeiting and Piracy ("BASCAP") estimates that counterfeiting costs the UK €4.1 billion in lost taxes and higher welfare spending and that for every 1% increase in crime due to counterfeiting there will be a further cost to the UK of €1.7 billion.(2)
On-line piracy is, unsurprisingly, a huge, lucrative and ever-growing business today. Technological developments have resulted in mass access to the internet with sharing and distribution of counterfeit content quicker and easier than ever before, whether multiple users sharing music and film files via a peer-to-peer network or buying and selling physical products via on-line auction sites.
Further, the universal scope of the internet presents monitoring and enforcement challenges for rights owners who have to grapple with differences in local laws, policies and procedures to protect their rights.
In acknowledgement of these difficulties, there have been efforts to streamline international IP enforcement, for example, the Anti-Counterfeiting Trade Agreement ("ACTA") – an international treaty aiming to establish an international legal framework for targeting counterfeit goods. While the European Parliament recently voted to reject ACTA, the European Commission has committed to continue to seek ways to protect IP on a global scale and to seek guidance from the Court of Justice for the European Union as to whether ACTA would indeed harm fundamental rights of European citizens (such as freedom of speech) as some had feared(3).
Dealing with the problem
There are both pre-emptive, ideally preventative, steps and post-sale enforcement steps that rights holders can take to firm up their anti-counterfeiting strategy and these are considered below.
1. Border protection
The simplest measure any company with a registered IP right can take is ensuring that it has a watch notice in place with HM Revenue and Customs (HMRC) to intercept goods coming into the UK. The watch notice provides HMRC with intelligence for identifying counterfeit items enabling HMRC to detain goods which are suspected of infringing intellectual property rights.
HMRC does not charge a fee for lodging a watch notice, although the IPR owner must provide a wide undertaking that it will be responsible for all costs and liabilities that may be incurred by HMRC in acting upon the notice and seizing goods, including storage and destruction costs. Given that the IPR owner has only 10 days in which to make a decision, these costs should be relatively limited.
The more guidance a rights owner can give to HMRC as to the nature of the rights protected and how to distinguish counterfeit from genuine goods, the better HMRC is equipped to identify suspect counterfeit shipments and help the rights owner combat the counterfeiter. It is therefore important that rights owners keep Customs informed of the items which follow at paragraphs (2) and (3) below.
2. Marking genuine goods
Identifying genuine goods in a consistent and uniformed way increases the effectiveness of border protection measures in addition to making identification easier for consumers.
For example, companies may wish to consider:
- Limiting genuine goods to specific colours, materials, stitching, finish etc
- Using uniform bar codes
- Using serial numbers along with a database of these for consumers to check
- Use of holograms
3. Methods of selling genuine goods
In addition to having consistent physical identifiers for genuine goods, rights holders should also have a structured sales regime. For example, it is worthwhile considering:
- Maintaining a list of and using official retailers and distributors
- Using specific and limited import / export routes
- esignating specific manufacturing centres for certain goods to show that different products are sold in different territories and intentionally so
- Packaging goods in a consistent manner – for example, always having [x] number of units to a carton and [x] number of cartons to a shipment.
Recent case law has highlighted the need for rights holders to consider some of the above. Currently, the law only allows Customs to seize goods where it can be shown that they are intended to be put on sale in the EU (i.e. where the goods have been sold to a consumer in the EU; or offered for sale or advertised to consumers in the EU; or where it is apparent from the documentation/correspondence that the goods will be diverted to EU consumers). Goods merely passing through the EU ("in-transit") do not fall within this and therefore Customs have no power to take any action even if the goods are clearly counterfeit.(4)
By adopting some of the above tips, a company may be able to increase its chances of in-transit goods being seized by being able to draw an inference that the goods are in fact intended for sale in the EU.
4. Notice and take down procedures
While some rights owners use specialist software to trawl the internet, identifying potentially infringing goods by way of meta-tags, keywords, logo abuse, digital fingerprinting and other Digital Rights Management tools, one of the most simple and straightforward mechanisms is the use of “notice and take down” procedures to ensure that intermediaries promptly remove infringing material from websites they host, or face potential liability themselves.
These notices are provided for under both the E-Commerce Directive(5) and the US Digital Millenium Copyright Act 1998. In addition, many ISPs and websites operate their own notice and take down procedures, such as eBay’s Vero programme to which brand owners can sign up and fill out a simple online form to request the removal of identified counterfeits. The statistics reflect the low cost but effective nature of such take downs – for example, in 2011 the British Recorded Music Industry identified and removed over 4 million illegally hosted digital media files and estimates place that figure to be in excess of 12 million for 2012.(6)
Nonetheless, take down notices do not resolve the underlying problem – the ability to sell a counterfeit good – as the removal of an infringing item from one website will often lead to the sale of the same item by the seller on the same website (albeit under a different ID or e-mail address) or on a different website.
Some rights owners therefore believe that intermediaries should play a greater role in monitoring infringement. Most ISPs are reluctant to disclose voluntarily the identity and contact details of users suspected of dealing in counterfeits, wary of striking the right balance between respecting the rights of their subscribers (for instance, to privacy, data protection and freedom of expression) against the IP rights of the complainant. The majority of intermediaries will disclose such subscriber information only when ordered by the Court to do so. EBay, however, will disclose this information, but only after the rights owner has signed up both to the Vero programme and to a Personal Information Agreement governing the use to which the personal information will be put.
5. Civil proceedings
While court action is likely to be the most expensive option, it does have its benefits and the Patents County Court now offers a more costs and time efficient route for straightforward cases as an alternative to the more expensive High Court proceedings. There is a wide range of potential remedies available – a civil court can order: delivery up of infringing products; disclosure relating to suppliers and purchasers; an injunction to prevent further infringement and various costs sanctions. This is in addition to the interim measures that can be awarded, including search and seize orders.
Further, the burden of proof for civil claims is lower than for criminal claims, requiring the claim to be proved on a balance of probabilities rather than beyond reasonable doubt.
6. Criminal proceedings
The profits from counterfeiting activities can be seized by the authorities under the Proceeds of Crime Act 2002. The Act enables investigators, prosecutors and the courts which are involved in POCA confiscation proceedings to share in 50% of the criminal assets recovered. For example, this year, a confiscation order of over £14m was made regarding the proceeds from the sale of counterfeit and unlicensed medicines.
Trading Standards officers are under a statutory duty to take enforcement action against copyright and trade mark criminal offences.(7) They are empowered to make test purchases, enter premises and inspect and seize goods and documents, all of which may assist brand owners in combating counterfeiters.
7. Rogue gallery
Keeping records of known counterfeiters along with details of the action taken and the result allows a company to build a picture of the enforcement strategies that are most effective for its business as well as being a means of reporting to shareholders and management.
(1) Click here for a report describing the customs detentions of articles suspected of infringing intellectual property rights (IPR)
(2) Click here for details.
(3) Click here for details.
(4) Koninklijke Philips Electronics NV v Lucheng Meijing Industrial Company Ltd, Far East Sourcing Ltd, Roehlig Hong Kong Ltd, Roehlig Belgium NV and Nokia Corp v Her Majesty's Commissioners of Revenue and Customs (Joined Cases C-446/09 and C-495/09)
(6) Click here for details.