The importance of trademarks as a source identifier in
commercial industries ranging from pharmaceuticals to apparel
cannot be discounted. This is because a trademark enables consumers
to recognize and associate with their preferred brands which in
turn helps brand owners to develop their reputation and grow their
business in a competitive market. However, when third parties in an
unlawful and illegal manner misrepresent their goods as originating
from another source mostly associated with a popular/famous brand
in order to to ride on the goodwill and reputation associated with
that brand, and to unjustly enrich from the same, such
products/goods are termed as 'counterfeit goods' i.e. goods
that are fake and do not originate from the legitimate brand owner.
The Trade Marks Act, 1999, in this regard provides for imprisonment
of three (3) years and a fine up to two lakh rupees (USD 2814.10)
as penalties for counterfeiting under Section 103, in addition to
Sections 102 and 135 which deal with falsification and false
application of a trademark.
In industries dealing with consumer health and safety, the offence
of counterfeiting becomes all the more serious as the element of
public policy comes into play. One such industry is the cosmetic
and personal care products industry which is now becoming all the
more popular owing to an increase in commercialization and consumer
consumption. Consequently, brands that are engaged in
manufacturing/selling make-up, skin-care and/or hair-care products
are now investing considerable resources into the research and
development of cosmetics that are safe to use and do not have any
adverse effects on consumers. Given that cosmetics deal with the
upkeep and care of consumers' skin and/or hair, the effects of
toxic ingredients and chemical formulas that have not undergone the
mandated testing procedure can be very harmful to an unwary
consumer and can prompt the onset of additional medical
conditions/diseases.
STATUTORY FRAMEWORK IN INDIA
The Drugs and Cosmetics Act, 1940 (hereinafter "the
Act") regulates the import, manufacture and distribution as
well as labelling and packaging of drugs and cosmetics in
India.
The Act defines 'cosmetic' as, "any article intended
to be rubbed, poured, sprinkled or sprayed on, or introduced into,
or otherwise applied to, the human body or any part thereof for
cleansing, beautifying, promoting attractiveness, or altering the
appearance, and includes any article intended for use as a
component of cosmetic "
The primary objective of the Act is to inter alia ensure that the
cosmetics sold in India are safe, effective and conform to
prescribed quality standards. In this regard, the Act has defined
'misbranded cosmetics' and 'spurious cosmetics' in
the following manner:
Cosmetics shall be deemed to be misbranded —
(a) if it contains a colour which is not prescribed; or
(b) if it is not labelled in a prescribed manner; or
(c) if the label or container or anything accompanying the cosmetic
bears any statement which is false or misleading in any
particular.
Whereas cosmetics shall be deemed to be spurious —
(a) if it is imported/manufactured under the name which belongs to
another cosmetic; or
(b) if it is an imitation of, or is a substitute for, another
cosmetic or resembles another cosmetic in a manner likely to
deceive or bears upon it or upon its label or container the name of
another cosmetic, unless it is plainly or conspicuously marked so
as to reveal its true character and its lack of identity with such
other cosmetic; or
(c) if the label or the container bears the name of an individual
or company purporting to be the manufacturer of the cosmetic, which
individual or company is fictitious or does not exist; or
(d) if it purports to be the product of a manufacturer of whom it
is not truly a product."
Furthermore, Sections 10 and 18 of the Act prohibits the import,
manufacture, sale and distribution of such
- misbranded and/or spurious cosmetics
- cosmetics which are harmful or unsafe to use
- cosmetics not of standard quality (as prescribed by the
Act)
Notably, Sections 10A and 26A confers power on the Central
Government to prohibit the import, manufacture and sale of
cosmetics if it is in 'public interest'. Lastly, the Act
also mandates for stringent punishments extending from fines to
confiscation and even imprisonment for contravening any provisions
laid down under the Act.
Clearly, the above statutory framework is squarely applicable on
counterfeit or fake cosmetics and the remedy stipulated for
misbranded and spurious cosmetics therein can be availed by brand
owners in addition to the remedies provided under the Trademarks
Act, 1999.
The Role of E-commerce Website
With the advancement in technology and ease of availability of
cosmetics and personal care products on social media and e-commerce
websites, the likelihood of counterfeit cosmetics pervading in the
market has increased manifold. The threat of unregulated and
untested cosmetics that do not prescribe to the import and/or
manufacturing standards laid down under the Act is now a cause of
alarm for regulatory bodies. For instance, in 2018, the Drug
Controller General of India (DCGI) issued notices to popular
e-commerce websites for selling/offering for sale
"adulterated", "unregulated",
"spurious", "unlicensed" and "illegally
imported" cosmetics that were being sold without evaluating
their safety and quality, and were thereby not fit for human
application. As per a statement issued by the DCGI, online
retailers have been ordered to remove unregulated and counterfeit
cosmetics from their platforms and have been further asked to enter
into "agreements with sellers to prevent sale of fake
cosmetics." The DCGI further put the onus on online retailers
to be aware and take responsibility of whether the cosmetics
available on their platforms are genuine or not. Although, this
seems unlikely as e-commerce websites can always take the defense
of being 'intermediaries' under the Information Technology
Act, 2000, with the liability resting with the seller/manufacturer
of the counterfeit product.
However, the Delhi High Court in a recent 2018 judgment refused to
grant such protection to an online retailer claiming to be
'intermediary' under the Information Technology Act, 2000
in a case filed by the luxury brand L'Oreal against sale of
counterfeit L'Oreal cosmetics on the defendant's e-commerce
website ShopClues. The Hon'ble court enumerated several
factors, demonstrating that the role of the defendant was more than
that of a mere intermediary, as below:
"For example: i. the website guarantees that "all
products are 100% genuine"; ii. repeated sales of counterfeits
have been encountered on the website; iii. despite several
infringement actions against it, the website doesn't seem to be
taking precautions to stop sale of counterfeits; iv. there is a
separate category for replicas on its website. On this window,
various lookalike products are advertised and sold. The use of the
term replica itself denotes that it is a lookalike or a copy of the
original. While the PIP programme appears to be effective, the
display of a replica window is definitely not condonable. v. this
REPLICA window encourages sellers to post lookalike products as the
feature of the replica window would constitute aiding and abetment
of violation of intellectual property."
As such, the court was of the view that these aforementioned acts
disqualify the defendant from claiming the exemption provided under
Section 79 of the Information Technology Act, 2000, and thereby
restrained them from using, manufacturing, supplying, selling,
displaying, advertising on the online marketplace through the
defendant's website or any other mode, with respect to the
trademark L'Oreal and/or its formatives.
Steps Taken by Brand Owners
Since the dissemination of counterfeit products results in loss
of reputation and revenue for brand owners themselves, brand owners
are now capitalizing on increased consumer sophistication and the
internet to better educate their customers into not being deceived
by fakes in the market. For example, several cosmetic brands
operate their own e-commerce websites from where they provide
online retailing services that eliminate the chances of purchasing
a counterfeit altogether. Apart from this there are cosmetic brands
which on their website regularly post blogs spreading awareness
about how to identify fake cosmetics in the market. Additionally,
brand owners now provide authentication certificates to consumers
along with their products or a list of authorized retailers so that
consumers can steer clear of independent sellers who deal in
counterfeits.
As regards the Indian market, the All India Cosmetics Manufacturers
Association (AICMA) (representing small scale cosmetic manufactures
in India) along with big market players such as L'Oreal and
Hindustan Unilever Ltd have also weighed in on curbing brand
dilution owing to the circulation of counterfeit cosmetics in the
Indian market. They have identified some important factors that are
contributing to the menace of counterfeiting in the Indian cosmetic
industry, as below:
- Rising demand for heavily discounted cosmetic products
- Parallel imports
- Anti-competitive pricing
- Decline in domestic manufacturing of cosmetics and personal care
products
- Lack of enforcement by regulatory bodies to curb IP
violations
With increasing dialogue around IP rights and enforcement, brand
owners are now taking prompt action including conducting criminal
raids and filing suits against third parties that are infringing
their trademark rights in the domestic market. Even at the import
stage, brand owners can take steps to record their trademarks with
the Customs Authority of India for the purposes of monitoring and
confiscation. Such recordal can be done under the Intellectual
Property Rights (Imported Goods) Enforcement Rules, 2007 which can
act as a preventive measure on part of brand owners wherein
counterfeit goods can be detected and disposed off at the border
itself. However, a crackdown on counterfeiters can only be achieved
once the regulatory bodies and the consumers themselves make a
concerted effort towards aiding brand owners in mitigating this
menace of counterfeiting.
For further information please contact at S.S Rana & Co. email: info@ssrana.in or call at (+91- 11 4012 3000). Our website can be accessed at www.ssrana.in
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.