LEGAL VIEW

For meeting the challenges arising out of the new intellectual property regime and to derive maximum benefits from the intellectual wealth of the nation, the innovative and creative activities have to be stimulated, encouraged, protected and exploited.

Most successful brands across the world are victims of IPR abuses. The most common violation being counterfeiting. Counterfeiting circumvents the delivery of legitimate products in legitimate packaging through legitimate distribution channels without authority or right and with a view to deceive, by passing the copy or thing forged for that which is original or genuine.

While counterfeiting is generally associated with the infringement of trademarks, it actually involves all aspects of IPR's (i.e. patents, copyrights, geographical indicators, design, trade secret etc., or a combination of them). The effect of counterfeiting can be extremely debilitating for the IPR holder, as the fake goods are usually of lower quality and price. Thus, in so far as such goods confuse or mislead consumers, they tend to eat into the originator's (IPR holder) market and the value of the originator's intellectual capital.

Why does it take place?

Some of the reasons why piracy and counterfeiting are conducted on a commercial scale are discussed below:

Profitability in pirated and counterfeit products can be easily achieved. These goods are sold for much less than the cost of the genuine product but still at a considerable return, either by pitching the price just below genuine product or alternatively by pitching it very low and selling a much larger quantity. The lack of effective intellectual property law in many jurisdictions coupled with the lack of resource and/or the high cost in enforcing such intellectual property laws is also a prime factor encouraging people to resort to such means.

A public perception is that piracy and counterfeiting are low-grade harmless crimes. Theft of intellectual property is not yet considered to be equivalent to other property crimes, such as theft of personal property or trespass to land or fraud. There is an attitude amongst some people that piracy and counterfeiting are merely "commercial offences" unlike other property offences, which are regarded as crimes.

Implications of counterfeiting

Industry

The counterfeiters deprive legitimate industry of revenue, goodwill and consumer loyalty build over time and with considerable effort. Industry loses substantial revenue which reduces investment efforts in bringing better products to market. Products for human consumption/applications carry a high risk of being held legally accountable. In addition, there is the possibility of product liability, at least until the manufacturer is able to prove that the defective product is not their responsibility because it is a counterfeit.

Government

The government loses revenue since the counterfeiters do not pay any duties or taxes. The resultant reduction in the net tax is highly significant. In the long run manufacturers of spurious products harm the economy and the government's attempts towards development.

MNC companies

Foreign companies in the drugs sector will analyze the IPR regime before investing in India, as they would be concerned if their investment in India can be negated by competing counterfeit activity followed by loss of goodwill and revenue.

Society

The consumer is not only cheated into buying a product (often at same price) but at times it can be dangerous particularly, in cases, of spurious drugs/pharmaceuticals and food products.

Enforcement challenges of IPR in India

In India, counterfeiting has been a major problem. Studies undertaken on counterfeiting in the pharmaceutical sector shows that 15-40 percent medicines are counterfeits.

In this scenario, the industry and the enforcement agencies need to step up their efforts and become more innovative to combat counterfeiting. It is now critical for the Indian industry to understand the implications of counterfeiting-both legal and economic, to protect its own business interests in India and abroad. There is a need to develop advanced authentication technologies for counterfeit detection. On the enforcement side, various departments such as the customs and police department need to be aware of the latest techniques being employed in other countries to detect and counter counterfeiting.

The enforcement of IPR is the ability of the right holder to protect his assets. An efficient system that provides effective protection through enforcement mechanizations is necessary to make the IP rights meaningful.

The legal framework for tackling counterfeiting is in place in India. India has a number of laws dealing with counterfeiting which are, inter alia, such as The Trademarks Act, 1999 Copyright Act, 1957, Indian Patents Act, 1970 Designs Act, The Drugs and Cosmetics Act, 1940, The Prevention of Food Adulteration Act, 1954, Consumer Protection Act, 1986 and recourse can also be taken to the Indian Penal Code. All have penal provisions and have made counterfeit a cognizable offence, however the same does not provide for a strong deterrent to the counterfeiters.

One of the major drawbacks even if ex parte seizure orders are granted by the Indian courts and goods are subsequently seized is that the counterfeiters are adept at the "shell game", moving across to another area or to another trade to resume operations. Such a method of enforcement would fail to serve as a convincing deterrence to the profit-maximizing entrepreneur who engages in such a piracy.

Secondly, the officers are poorly trained and underpaid and smuggling is common. There is protection provided by local officials and lack of strong legislative tools. Inadequate civil damages and low criminal penalties are one of the primary factors for counterfeiters to flourish and hence as a result, the laws do not provide for adequate punishments.

Lastly, there is a complete lack of coordination among various agencies.

Strategies for action

The key element necessary for a successful approach to enforcement is to have a good dialogue and cooperation between right holders (industry) and enforcement authorities. In addition, the strategy must remain flexible and it must be continuously reviewed.

It is vital to have/collect as much information as possible about the problem. This is dependant on an effective investigation. Some of the key issues for consideration are:

• How widespread is the problem (in that market/country/elsewhere)?

• Where is the manufacturing taking place?

• Is the product for export/import, or produced only for the local market?

• How easy/difficult is it to manufacture the goods?

• What is objectionable –labeling? Embroidered marks?

• Where/how are the objectionable aspects applied to the goods? How do you differentiate the genuine from the counterfeit?

• What is the value of the genuine product?

• How much of a genuine market is under threat (a vital criterion in order to assess the proportionality of any enforcement effort in terms of cost and management time)?

While the right holders may be able to seek injunctive relief and pursue civil action against violators such as street vendors and retail outlets, it is much more difficult for right holders to infiltrate the operations of a large commercial scale infringement operations to bring about raids and criminal prosecutions. It will require the involvement of police and other enforcement authorities having legal powers to conduct undercover investigative operations and further raids.

It is in this context, that the industries would need high quality professional services to enforce their IP rights (by bringing about raids, criminal prosecutions, etc). This perhaps will be the most effective way to tackle the problem of counterfeiting.

It is vital that the government, industry and enforcement bodies work together to ensure consumers and business are properly protected and not exploited by organized crime. Counterfeiting and piracy is growing and the measures outlined here will go a long way in combating this criminal activity. By sharing information and intelligence it will become more difficult for counterfeiters and pirates to operate. This will spell in better protection of consumers; disruption of organized crime and the industry will stop losing staggering amount of revenue every year.

The Government of India should seriously consider coming out with a National Intellectual Policy or a Task Force committee to address the important issues of IPR, especially to study the growing menace of infringement of IPR rights of right holders. This would help instill confidence in the foreign investors and the Indian industry.

By Kirit S. Javali, Partner
advocates@jafajavali.com

Law Offices of Jafa & Javali is a full-fledged corporate law firm with niche expertise in IPR & Biotech law, with offices in New Delhi, Bangalore and Mumbai.