Published in MIP – Brand Management Focus May 2009
Perfidious imitation of a brand by traders to sell their own products and services, generally understood as counterfeiting or piracy, can have a detrimental and even serious effect on not only the profitability of a company but also to public health and safety. Pirated or counterfeit products, which more often than not are substandard, effect the goodwill and reputation of rights holders, expose consumers to safety and health hazards and have a deleterious impact on Government revenues.
Acts of counterfeiting and piracy of intellectual property rights are witnessing a robust growth the world over, via criminal networks and organized crime and it is estimated that international trade in counterfeit and pirated products could have been excess of US$ 200 billion in the year 2005 alone. It is pertinent to note that this estimated figure is larger than the national Gross Domestic Product of over a hundred countries around the world.
These staggering estimates give a clear indication of the magnitude of counterfeiting and piracy that is rampant around the world and is growing day by day. These figures also reveal a disturbing picture that counterfeiters, pirates and infringers are no longer only targeting luxury brands and designer products but, slowly and steadily, the threat of counterfeiting and piracy is spreading to household commodities, including electronics, food and drink items, automobile spare parts, tobacco products and, most disturbingly, pharmaceuticals and drugs.
In India alone, a recent study has estimated that the Indian Government suffers a loss of about US$ 200 million from evasion of taxes by counterfeiters in consumer goods.
According to a study by Indian Market Research Bureau, the market share of counterfeit spare parts is as high as 39 to 46% of the total market for automobile spare parts industry. In Russia, it is estimated that 2.5% of all car accidents are due to fake automobile parts. At a global level, the Motor & Equipment Manufacturers Association (MEMA) conducted a survey indicating that the global automotive industry loses US$12 billion to counterfeiting, thereby resulting in the loss of 750,000 jobs.
The global tobacco industry estimates that counterfeit cigarettes currently occupy 3 per cent of global trade in their products, with the total number of fake cigarettes produced and sold each year being approximately 150 billion sticks. In the year 2001, illicit vodka containing methyl alcohol killed 60 people in Estonia.
The analysis of sale of counterfeit consumer products turns grimmer when we look at the pharmaceutical industry.
In Nigeria, an estimated half of all medicines purchased are counterfeit, and between 200,000 to 300,000 deaths each year in China can be attributed to counterfeit medicines. In India, in the year 2003 it was estimated that fake medicines occupy between 15 and 20% of the domestic market, valued at about US$1 billion.
According to WHO sources, the value of worldwide sales of counterfeit pharmaceutical products is estimated to reach €55.5 Billion by 2010, an increase of 90% over 5 years and in the European Union alone an estimated 1% of all pharmaceutical products sold are counterfeit.
Counterfeiting is generally perceived as a victimless crime with 'fakes' simply being offered for sale as cheap alternative purchase. However, few realize that counterfeiting not only causes immeasurable losses to companies but also poses a serious threat to health and safety, the world over.
II. IPR REGULATIONS AND REGISTRATION
Many countries, including India, recognize and protect unregistered intellectual property rights, although registration of intellectual property rights under national laws still remains one of the strongest tools in protection and enforcing of intellectual property rights.
Registration of intellectual property rights is prima facie evidence of the registrant's legitimate ownership of such rights. In addition to the right to initiate passing-off proceedings, on grounds of likelihood of confusion or deception, registration of trademarks, designs, patents and other forms of intellectual property entitle the rights holder to initiate infringement proceedings against pirates, infringers and counterfeiters. These proceedings not only cover civil remedies like destruction of goods, financial compensation and damages but also criminal remedies like imprisonment and fines.
Registration of intellectual property rights under national laws helps in policing the intellectual property rights of a registrant against acts of infringement, counterfeiting and piracy within a country and even at the international border, by way of registration with the Customs authorities.
This relatively recent border control regime sets out clear conditions under which the Customs authorities may intervene in cases where goods that are suspected of infringing intellectual property rights, are being imported into a particular country.
Under the Intellectual Property Rights (Imported Goods) Enforcement Rules, 2007, Customs authorities, either on their own or through a Complainant, can prohibit the import of goods that, if imported, would infringe the intellectual property rights of Registrants or Complainants, and impose a fine on the importer of such goods with the object of prohibiting import of goods to prevent injury to the domestic economy.
Apart from the laws that are already in place, the Indian legislation is seeking to further strengthen the Intellectual Property regime in India by enacting newer legislations. For instance, the Trademarks (Amendment) Bill, 2007, which introduces the Madrid Protocol to India and makes trademark applications analogous to Patent Cooperation Treaty filings, has recently been tabled in the Indian Parliament.
The entertainment industry in India alone suffers a loss of about US$ 3.2 Billion due to theft and piracy, apart from the estimated 80,000 direct jobs that are lost and to counter such socio-economic looses, the Indian Legislation is proposing to enact the Optical Disc Law, under which a license would be a pre-requisite for manufacturing CDs or DVDs and would additionally require a special secret coding on each disc so that tracking of discs is made easier. Also on the anvil is the Innovation Act, based upon the US Competes Act, to focus upon increasing research investment; strengthening educational opportunities in science, technology, engineering, and mathematics from elementary through graduate school; and developing an innovation infrastructure.
Apart from the above mentioned statutory tools, the Indian legislation also needs to fine tune its criminal redressal system by making penalties even harsher. For example, adopting the mark HILTEN for hotels costs a Defendant about Rs. 5,00,000 in a civil suit1, whereas in criminal proceedings under the Trademarks Act, 19992 or the Copyright Act, 19573 the maximum statutory penalty is only Rs. 2,00,000 with or without imprisonment for upto 3 years. This should be contrasted with countries like China where counterfeiters have been awarded death penalties while in India only the heinous crime of murder warrants a death penalty, that too in the rarest of rare cases.
III. ONLINE ISSUES
The growth of the Internet as a platform for selling products and services has provided a new medium that counterfeiters and pirates have been exploiting with great success. It is estimated that the Internet has about 500 million users worldwide and approximately 45 million domains are registered. Further, the number of servers linked to the internet is rising continuously and the actual number of internet pages is estimated to be between 6 and 8 billion.
With the ease and speed of copying enabled by advanced digital technologies and their virtual dissemination facilitated by the internet, counterfeiting business on the internet has acquired gigantic proportions and the Internet has become an important platform for product and brand piracy and counterfeiting, and a medium for misuse of brands, products and copyrights.
Sale of counterfeits and pirated products via the Internet is not only significant but is also serious. It is estimated that the internet accounts for more than 13% of all incidents of sale of counterfeit and pirated goods. In 2005, India alone accounted for 35 incidents of internet violations amounting to a loss of US$ 1 million. A report by the European Alliance for Access to Safe Medicines (EAASM) claims that 62% of the pharmaceutical products sold online are fakes which poses as major health hazard.
Catching counterfeiters on the internet poses a challenge due to the relative anonymity of online transactions. However, it is possible to trace counterfeit sales online by tracking the route for payment of money for the purchase or by checking the address of the person or entity delivering the product to the customer.
For instance, it is possible to initiate action against the website which advertises or offers counterfeits for sale. Indian Courts have granted orders restraining defendants residing overseas in cases where the infringing activity takes place through a website, such as domain name infringement or online sale of counterfeit goods. In "Tata Sons v Ghassan Yacoub" an injunction was granted against the registration of the domain name 'tatagroup.com' where the defendant was located in New York.
The exponential expansion of the Indian software and Information Technology industry has opened newer avenues for counterfeiters and pirates to exploit and benefit from. The Internet acts as a façade, whereby consumers and members of trade are not able to interact with vendors of counterfeit or pirated goods thereby making detection nearly impossible. To tackle these threats, traders and manufacturers, in order to protect their goodwill and reputation, are adopting novel techniques like payment and delivery tracking; and innovative technology like barcodes and serialisation although the success of these techniques is yet to achieve significant proportions.
Counterfeiting has indeed become of the most profitable businesses in the world and therefore, is one of the most crucial areas for manufacturers, traders and rights holders to rigorously monitor.
To counter this relentless threat of counterfeiting and piracy, the following suggestions may help in fostering better and stronger administrative cooperation at the domestic and international levels:
- Improving Data Collection: Accurate data collection on counterfeiting and piracy helps in identifying trends and patterns, which may further help in clamping down counterfeiting 'hot spots'.
- Training: Enforcement agencies and even the Judiciary should be trained to understand the technicalities of counterfeiting
- Efficient Judiciary: The Judicial System should be speeded up to ensure that the court cases are expeditiously disposed
- Sharing of Information: Countries and International Agencies like WCO, WIPO, WHO, Interpol, etc. should cooperate and share 'best-practices' so that combating piracy and counterfeiting becomes fool-proof.
- Increasing Awareness: IP awareness amongst Government Agencies, Trade Associations and even the public at large should be increased and information regarding the dangers and harms of counterfeiting should be freely circulated.
- Public-Private Cooperation: Transparent and frequent interaction between private agencies and Government enforcement agencies will help in rapid exchange of information and effective surveillance of the genesis and trends in counterfeiting.
The Indian legal system has an effective legislative infrastructure and robust judicial system but our enforcement agencies are squeezed for resources given the multi jurisdictional nature of counterfeiting and well entrenched criminal networks that have often been seen to have a close nexus with the underworld and even the global terror networks.
1. Hilton International Co. v K. V. Kumar & Anr.; CS (OS) No. 2015/2003.
2. Section 103.
3. Sections 63 & 64.
Ankit Prakash is an associate at Anand And Anand Advocates and specialises in trademark prosecutions, oppositions, assignments, licences and agreements. Mr Prakash has a bachelor's degree in commerce from Shri Ram College of Commerce and an LLB from the Faculty of Law at the University of Delhi. He also has an LLM in intellectual property from Queen Mary & Westfield, University of London and is a part-qualified trademark attorney with the UK Institute of Trademark Attorneys. Mr Prakash has been a member of the Bar Council of Delhi since 2005.
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