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Consumer Affairs
Wednesday, February 20, 2013 - 15:40
Criminal clones

The global trade in counterfeit goods is currently estimated at some US$600 billion per annum, which represents 5% -7% of world trade. Counterfeiting has proved so successful that it has grown some 10 000% over the past two decades.

Comments Lauren Frizelle, Attorney in ENS’ IP Department, “Luxury goods manufacturers are, of course, particularly susceptible to counterfeiting, and we recently published an article in which we reported that a Chinese court had handed down a life sentence to the head of a gang that manufactured fake Hermes bags. This sentence reflects just how seriously the authorities are taking counterfeiting. If you think that life imprisonment sounds absurdly harsh for someone who copies handbags, please bear in mind that a few years back a South African law enforcement officer based in Durban was murdered, seemingly because he was getting close to busting a major counterfeiting operation. Counterfeiting is organised crime!”
Counterfeit goods are, of course, rife in South Africa, and it’s no longer just foreign brand owners who are feeling the pain. She says it’s been widely reported that South African clothing manufacturers like Ninian & Lester are struggling because of counterfeit products, with fake Jockey socks selling for as little as R5 per pair (genuine products cost R22.95 per pair). In other parts of Africa where the cell phone is king, fake handsets have become a real problem. Samsung Uganda recently called on the authorities in that country to help in the fight against counterfeits.
Frizelle says a problem that has cropped up over recent years is the sale of counterfeit goods online. A recent MarkMonitor report estimates that one in five online shoppers inadvertently buy counterfeit goods. The research suggests that, although some people do deliberately seek fakes by typing in words like ‘fake’ or ‘counterfeit’ alongside the brand name, the vast majority of those who buy counterfeits online do so unknowingly, and are simply bargain hunters who have been lured to rogue sites after having typed in words like ‘discount’ or ‘cheaper’ alongside the brand name.
“Counterfeiting of luxury goods, clothing, cell phones and the like obviously affects brand owners in a big way, both in terms of damage to reputation and in terms of loss of sales,” says Frizelle. “It also affects the consumer, who’s misled into buying a product that’s invariably inferior to the real thing. And it affects the public at large – lost sales lead to lost jobs, and the fiscus loses out because counterfeiters are generally not in the habit of paying import duties, VAT, income tax and all those other burdensome levies that legitimate traders have to pay.
“But there’s another side to counterfeiting that people often overlook - you get counterfeit cigarettes, pharmaceuticals, car parts and even aircraft parts. In fact, the Federal Aviation Authority estimates that some 2% of all aircraft parts sold in the world are counterfeit. This means that if you’re a regular flier, there’s a reasonable chance you’ve flown in an aircraft that had fake parts. Counterfeiting therefore poses serious public health and safety risks too!”
But what exactly is counterfeiting in the context of products and brands? You won’t see any mention of counterfeits in the Trade Mark Act, but there is a piece of legislation called the Counterfeit Goods Act of 1997. This act is procedural in nature, in that it doesn't create any intellectual property rights. What it does do, however, is to make it an offence to  manufacture, sell or import counterfeit goods. The penalties are severe: R5 000 or a prison term of up to three years per article for a first offence, going up to R10 000 and five years per article for subsequent offences. More importantly, the act gives the authorities – police and customs - the power to search premises and seize goods that are thought to be counterfeit, with the intention of gathering evidence for a civil claim. When conducting search and seizure operations, the authorities act in concert with the trade mark owners.
But just what is a counterfeit product? Does it simply refer to a situation where the product, trade mark and get-up have been copied so closely that there’s outright deception (cloning basically), or does it extend to products where there are simply enough similarities for the consumer to be confused enough to wonder whether there might be a connection with the original, which is all you need if you want to prove that there is trade mark infringement?
In 2010 there was a case that involved Puma knock-offs that went all the way to the Supreme Court of Appeal, and the court held that the term ‘counterfeit goods’ was not limited to cloned products. “That’s because the Act defines it to mean something that is ‘substantially identical’ to or a ‘colourable imitation’ of the original, and that is ‘calculated to be confused’. What is required, said the court, is an intention to confuse, something that isn’t a requirement for trade mark infringement. Counterfeiting is therefore intentional trade mark infringement.”
So, if you’re a brand owner, the Counterfeit Goods Act provides you with a very valuable weapon to deal with blatant infringers, one that enables you to enlist the aid of the authorities to gather evidence. “But please note that your trade mark must be registered in order to avail yourself of this weapon,” says Frizelle. “And you will need the help of an experienced attorney who can liaise with the authorities and provide them with proof of the trade mark registration, a statement confirming that the use of the trade mark is unauthorised, and security for damages in the event that the seizure proves to be wrongful.”
If you’re an importer of products, on the other hand, you also need to consider the Counterfeit Goods Act, to determine what, if any, risk there is of a seizure, and how you can deal with a seizure if it does happen.

Copyright © Insurance Times and Investments® Vol:26.1 1st January, 2013
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