How big is the counterfeiting problem, and how can it be addressed?

A dramatic escalation in the levels of counterfeiting of trade marks and copyright works has taken place in recent years, resulting in a huge surge in the availability of counterfeit products in South Africa.

 

How big is the counterfeiting problem, and how can it be addressed?

 

Source Adams & Adams, Pretoria

 

June 2005

 

A dramatic escalation in the levels of counterfeiting of trade marks and copyright works has taken place in recent years, resulting in a huge surge in the availability of counterfeit products in South Africa.

 

The field of intellectual property has not escaped the increasing onslaught of fraudulent activity experienced in other areas of business and industry. A dramatic escalation in the levels of counterfeiting of trade marks and copyright works has taken place in recent years, resulting in a huge surge in the availability of counterfeit products in South Africa. Have you recently been approached by a street vendor at a traffic light and asked to buy a DVD, bottle of perfume, t-shirt, cellphone or any number of other articles bearing a brand name? Have you wondered, knowing that these goods are possibly not original, what the effect of counterfeiting has on the South African economy?

 

Information on the topic is limited and what information is available paints a frightening picture. For the first time between February 2002 to February 2003, the South African Revenue Service (SARS) kept statistics of goods which they stopped at South African border posts (there are 19 border posts in South Africa). These statistics have been broken down into specific goods seized and a value has been assigned, at a street sale value, for all the items. Bearing in mind that SARS is only responsible for seizing goods on entry or exit at these border posts, and cannot seize goods actually made in this country or those which slip through the system, their statistics for this period show that goods with a value in excess of R340 million were seized during this period.

 

The Business Software Alliance has recently conducted a survey which revealed that, if counterfeiting declined by 10% in the next 4 years, the economy would benefit by R12.8 billion. Nearly 3300 new high income-earning jobs could also be created. In addition, R784 million in tax revenues would be earned by 2006. The South African Federation Against Copyright Theft (SAFACT) has also recently compiled its seizure figures for 2003 and 2004. In 2003 197,700 DVD’s were seized; up to June 2004, the figure was 200,000. The industry estimates that pirated DVD’s make up 40 – 50% of the market. This equates to a loss to the industry of R200 million per annum.

 

A major sportswear retailer recently calculated that goods valued at over R45 million were seized in one year. Another industry which is affected is the cigarette industry. Cigarettes sell at a high premium, which appears to encourage smuggling and counterfeiting. One of the largest cigarette manufacturers in South Africa has, with the assistance and co-operation of SARS and the SA Police Services, seized in excess of 3,546,000 units in 2003. This equals a loss of sales to the value of R40 million and a loss to SARS of R18.3 million.

 

These statistics are disturbing. There can be no doubt, looking at them, that the effect of counterfeiting on South Africa and its economy is substantial.

 

South Africa has a modern and sophisticated legal framework, which can effectively be used to protect intellectual property rights. The Counterfeit Goods Act, 1997, which is fully compliant with the TRIPS agreement (Agreement on Trade-Related Aspects of Intellectual Property Rights), an international instrument of the WTO of which South Africa is a member, provides severe penalties for counterfeiting. Unfortunately these penalties, which on a first offence basis are as much as R5 000 per item seized, or imprisonment of up to 3 years, or both, are not always effectively enforced, as the counterfeiters are masters of deception and disappearance. Advances are however being made to improve enforcement and all government agencies now work closely with business to attempt to curb the problem.

 

The Counterfeit Goods Act provides for the following mechanisms to deal with counterfeiting  problems:

 

Seizure by Customs and Excise

 

Section 15 of the Counterfeit Goods Act offers a way to deal with the importation or exportation of counterfeit goods into or from South Africa, and allows the owner of a trade mark or copyright work to request the South African Revenue Service (SARS) through its Division: Customs and Excise to detain and seize all goods which qualify as counterfeit goods in terms of the Act. This is a formal application, accompanied by supporting documents setting out the relevant trade mark registrations or copyright works, and the use which is being made of the relevant trade marks or copyright works. SARS’ head office will examine the application, and provided that it meets with all formal requirements, and the indemnity which SARS requires is in place together with an undertaking to pay all storage costs and any costs arising from the action of SARS, they will detain counterfeit goods entering or exiting South Africa.

 

Seizure by Police Service

 

Any person with an interest in ‘protected’ goods (ie goods protected by certain IP rights) who reasonably suspects that a counterfeiting offence is being committed, may lay a complaint with an ‘inspector’, who may be an official appointed by the Minister of Trade and Industry or a police official holding the  rank of sergeant or higher. A complainant must furnish the inspector with sufficient information that a prohibited act is being performed.

 

The inspector must obtain a warrant from a Judge or a Magistrate, or may in certain circumstances proceed without a warrant, to seize, detain and /or remove any counterfeit goods; collect evidence relating to the counterfeiting activities; conduct any searches reasonably necessary; seize, detain, and/or remove any tools used in the counterfeiting activities; question persons and take down statements; procure relevant books, documents and materials; and take reasonable steps to terminate the counterfeiting activities.

 

Seizure must be followed, within certain time limits, by criminal or civil proceedings, wherein the Court may order that the seized goods be delivered up to the owner of the intellectual property right or to the complainant and that the identity be disclosed of any persons involved in the manufacture, importation or distribution of the counterfeit goods. In certain circumstances, goods which have been delivered up may not be released again into commerce.

 

Civil steps

 

Special statutory provision is made for the granting of Anton Piller-type orders to preserve evidence relating to counterfeiting activities. Where counterfeiting activities are suspected on reasonable grounds, an ex parte application may be brought before a Judge in chambers for an order directing the Sheriff or another designated person to enter any place or premises, to search, seize and remove documents, records and alleged counterfeit goods. The order may also direct the disclosure by the respondent of relevant documents, information and material. Before an ex parte order will be granted, there must be a prima facie case of infringement and the Judge must be satisfied that the usual procedure for the discovery of evidence is likely to be frustrated by the concealing or destruction of evidence.