ANTI-COUNTERFEITING WHY COMBATING COUNTERFEITING SHOULD BE OF HIGHEST PRIORITY

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1 WHY COMBATING COUNTERFEITING SHOULD BE OF HIGHEST PRIORITY

2 WHY COMBATING COUNTERFEITING SHOULD BE OF HIGHEST PRIORITY Globalization of trade and a huge increase in online cross border sales has proven beneficial for companies and people acting in the course of trade. The development has, however, also meant a vulnerability to a rapidly growing counterfeiting industry. Counterfeit and pirated products are no longer just apparel related goods trading on well-known names and logos and being sold by sidewalk vendors. Counterfeiting now impacts every thinkable product category from foods and pharmaceuticals to airplaneand auto parts and imposes a threat to global economic development, innovation, safety and public health. This white paper explains why combating counter-feiting should be of highest priority and what you can do to prepare your business. WHAT ARE COUNTERFEIT AND PIRATED PRODUCTS? A counterfeit product is defined as a product subject of an act infringing a trademark where it bears without authorization a sign which is identical or confusingly similar to the trademark validly registered in respect of the same type of goods or which cannot be distinguished in its essential aspects from such a trademark. A pirated good is defined as a product subject of an act infringing a copyright or related right or a design which are or contain copies, made without the consent of a right holder of a copyright or related right or a design 1). A common factor for counterfeit and pirated products is the intention of the infringer to free-ride and illegally profit on right holders reputation and goodwill by imitating famous trademarks, designs, inventions and works in order to deceive buyers to believe they are purchasing a genuine product. THREATS IMPOSED BY COUNTERFEITING As the circulation of counterfeit and pirated products has reached a significant magnitude within all sectors and product categories and has become a core activity of criminal organizations 2), counterfeiting does not only impose a threat to economy, industry and innovation but also to consumers health and safety. Products like food stuffs, beverages, cigarettes, medicines, hygienic products, children s toys and various electric components must usually meet certain standards or authorizations before being put on the market. Counterfeit and pirated products are mostly substandard, beyond health and safety control and regulations of authorities and contain non approved substances. Particularly the pharmaceutical industry experiences great problems with counterfeit products containing non active ingredients, poisonous ingredients or actually active ingredients but in the wrong dose and combination. The car industry is experiencing e.g. fake automotive parts. Defective counterfeit airbags are just some of the products being imitated which obviously can have fatal consequences as they are not discovered before it is too late. The greatest threats imposed by counterfeiting are: 1. Public health and safety is jeopardized 2. Economic development is reduced due to lost tax and income putting jobs at risk 3. Innovation and investment incentives are discouraged and undermined 4. Counterfeit activities are often operated by organized crime and terrorist organizations 5. The market is eroded for genuine products and end buyers and users are defrauded 1) Article 2 Regulation (EU) no. 608/2013 of the European Parliament and of The Council of 12 June 2013 concerning customs enforcement of intellectual property right and repealing Council Regulation (EC) no 1383/ ) Zacco

3 TRENDS AND CHALLENGES The counterfeiting industry is becoming increasingly professionalized. Highly profitable global businesses with mass production and complex global distribution networks have developed. Combined with the rapidly growing online trade, counterfeiters are enjoying a great profit potential. It is estimated that counterfeiting activities account for over 200 billion in losses for the world economy 3). Websites with domains resembling names of well-known brands and in relevant languages are opening rapidly and infringing products are being offered for sale. Closing these websites is a challenge for right holders as it can be a difficult and costly affair to pursue and usually the closed websites reappear shortly after under new domains. Counterfeit products are usually substandard and easy to spot. However, with technology and profit the counterfeiting industry has become more professional and counterfeit products more sophisticated making it even more difficult for buyers to differentiate between counterfeit and genuine products or worse encouraging people to purchase counterfeit products. A central aspect and challenge which has encouraged the growth of global counterfeit activities is the fact that many countries have low risk of sanctions and prosecution, if any, for counterfeiting. Compared to the profit potential this makes counterfeiting activities an attractive enterprise for people who don t care about IP rights and the potential damaging consequences. Time and costs associated with pursuing infringers is another challenge in combating counterfeiting. However, the harmful effects of counterfeiting and piracy are not only manifested in lost sales. Not pursuing severe infringements can therefore in the long run have damaging consequences for right holders. In the EU, Member States respective legislation on counterfeiting has not yet been harmonized. For instance it is completely prohibited in some Member States to purchase and possess counterfeit products whereas in others Member States it is legal if the counterfeit products are intended for private use only. Further, current EU legislation and recent case law 4) on parallel trade and goods in transit has left a grey zone area and has been criticized by people engaged in anti-counterfeit work. WHAT CAN YOU DO TO PREPARE YOUR BUSINESS? With the counterfeit industry s rapid development and the globalization of trade and online cross border sales very few industries, can remain beyond the reach of skilled and determined counterfeiters. No precautions guarantee your business protection from counterfeit activities. There are, however, steps which you should take in order to protect and enforce your IP rights. Secure your IP rights It is essential to secure your IP rights either by trademark or design registration or by taking out a patent or utility model protection. Copyright protection is automatically obtained if your created work is of a certain level of originality, however, in certain countries such as in China registration is required to secure an effective enforcement. In all circumstances our recommendation is to always involve IP experts in developing an IP protection strategy which takes into consideration the threat of counterfeit and pirated goods specifically to your business as well as in the registration process in order to obtain the best possible protection of your IP rights. 3) European Commission - MEMO/13/346 19/04/ ) See for instance: The Court of Justice of the European Union s judgment in the joint cases C 446/09 Koninklijke Philips Electronics NV vs Lucheng Meijing Industrial Company e.a. and C 495/09 Nokia Corporation vs Her Majesty s Commissioners of Revenue. Zacco

4 Monitor the market Further, you should monitor the market including online market places such as online auction sites, on a regular basis in order to react as against infringements as soon as possible. One of the most efficient and cost saving precautions to counteract cross border sales of counterfeit products, is to apply for customs surveillance. Over the last years about 115 million fake goods have been detained every year at the EU borders 5). Customs surveillance in the EU is obtained either by filing a national or an EU application. We have many years of experience handling customs matters and we have a unique cooperation with local customs authorities and the police. Secure and control your supply chain Counterfeiters often manage to penetrate even secure supply chains. A recommendable step in counteracting the risk of counterfeit and pirated products affecting your business is therefore to enhance the visibility and control of your entire supply chain by improving traceability and transparency. Raise public awareness Counterfeiting is still publicly seen as a victimless and non-severe crime. Changing consumers attitude towards counterfeit and pirated products could strike the very core of the counterfeiting industry s existence. Taking part in raising awareness about the negative and damaging consequences of purchasing counterfeit goods could therefore probably prove to be the best remedy in combating counterfeiting. Enforce rigidly If counterfeiters experience that they are always prosecuted, irrespective of the place and the extent of the infringement, it is more likely that they will divert to copying the products of others enforcing less rigidly and thus where the risk of being prosecuted is less. Of course the preventive effects of a rigid enforcement should be held against the costs associated therewith, and an enforcement strategy should be developed taking into consideration the industry, the products and the behavior of the counterfeiters. GENERAL SOLUTIONS In order to combat counterfeiting and prevent entry and circulation of counterfeit and pirated products general focus must be on the following: 1. Strengthening global cooperation between national law enforcement authorities, industry, right holders, customs authorities, international partners and trade associations 2. Harmonize and strengthen legal framework, enforcement possibilities, sanctions and certain administrative procedures 3. Keep developing remedies to limit counterfeiting and piracy 4. Effective deployment of global chain standards 5. Raising public awareness about the negative consequences of counterfeiting and piracy INITIATIVES Initiatives against the expanding counterfeiting industry has already been taken on different levels by the EU Commission, national governments, IP right holders and various organizations. Recently, on 1 January 2014 a new EU Customs Regulation 6) came into force with the purpose of addressing the latest counterfeiting trends and growing number of counterfeit and pirated goods coming into the EU. Further, a new EU Trademark Directive will soon come into force. The intention is to modernise and further harmonise Member States trademark law and stronger enforcement possibilities against counterfeit products is one of the expected key changes. 5) European Commission - MEMO/13/346 19/04/ ) Regulation (EU) no. 608/2013 of the European Parliament and of The Council of 12 June 2013 concerning customs enforcement of intellectual property right. Zacco

5 In some EU Member States specialised IPR Task Forces within the police have been established. Such task force is expected to be set up in Denmark in Networks between right holders, representatives and authorities have been set up where information on counterfeiting industry and experiences handling anti-counterfeiting matters can be shared on data bases 7). Zacco is member of various groups against counterfeiting and piracy and a coalition called CAPIP (Coalition against piracy) which consists of 24 law firms with offices in 35 jurisdictions offering legal advice and anti-counterfeiting services in the EU, Norway, Switzerland and the Balkan countries 8). Various anti-counterfeiting campaigns have been launched. In Denmark an information website for consumers, authorities and businesses has been started up by the Danish Ministerial Network against IPR infringements 9). Device identification systems are being developed in order to facilitate recognition of counterfeit and pirated products. Non visible chips have e.g. been placed inside design furniture in order to guarantee the origin. Further, QR code systems have been invented in order to help spotting counterfeit and pirated products and to provide business intelligence with information on where products are sold etc. SUMMARY Highly profitable businesses with mass production and complex global distribution networks, which persistently evolves with emerging trends and technology, have developed within the counterfeiting industry. And trade with counterfeit and pirated goods has become a core activity for many criminal organizations. Today there is a risk of counterfeit and pirated goods within virtually every product category imposing a threat to global economic development, innovation, public health and safety. No right holders and legitimate businesses are guaranteed protection against IP infringements. However, right holders should always try to remain one step ahead of the counterfeiting industry in order to try combatting and limit the illicit manufacturing and trade. Hence, as an IP right holder, make sure to register and monitor your rights, apply for customs surveillance, secure you supply chains and take part in raising public awareness on the damaging consequences of counterfeiting. 10) 7) See for instance WCO s IPM tool in the fight against counterfeiting 8) For more information please visit 9) The Danish Patent- and Trademark Office, Danish Customs Task Force Counterfeiting, Danish Ministry of Culture, Danish National Police, Danish Medicines Agency, Danish Safety Technology Authority, National Consumer Agency, Danish Veterinary and Food Administration, Danish Business Authority and the Ministry of Foreign Affairs. For more information see the website 10) Zacco

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