Counterfeit Goods Rampant

Counterfeit Goods Rampant

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The importation or manufacture and sale of counterfeit goods is one of the single biggest risks facing legitimate businesses on the African continent at present. Cheap, low quality goods, which more often than not do not meet local safety or health requirements, are flooding African markets, including South Africa. Such goods range from pharmaceutical products, to shoes and clothing to electronic goods and foodstuffs, to name but a few.

Annually, counterfeit goods worth an estimated $600 billion (6% of world trade) are traded around the world and, unfortunately, Africa has become a popular dumping ground for such goods.

According to the executive director of the Kenyan Anti-Counterfeit Agency, Gregory Munyao, Kenya loses revenue and taxes to the value of KES19 billion ($211 million) annually. It is also estimated that the private sector in Kenya is losing approximately KES50 billion ($556 million) annually.

Counterfeiting in Africa

Steven Yeates, Trade Mark partner at internationally recognised IP law firm Adams & Adams who battles with the issue of counterfeiting on an ongoing basis, is all too familiar with the problem – particularly in Africa.

“Despite the risks to local economies, civil court orders and criminal convictions in Africa pale in comparison to those being granted against counterfeiters in Europe and North America. In South Africa, the Counterfeit Goods Act prescribes a maximum sentence of R5 000 per item, and/or three years imprisonment in the case of a first offence, or R10 000 and/or five years imprisonment in the case of a second conviction.

“While these penalties are steep,” says Yeates, “the maximum sentences are hardly ever applied. However, in the USA and Canada two recent decisions have highlighted just how serious dealing in counterfeit goods is considered to be in those jurisdictions.

“In New York, the Federal Court ordered online counterfeiters to pay damages to Tory Burch, a luxury fashion brand, in the amount of $164 million. This is believed to be the largest damages award in the fashion industry ever. The counterfeiters had created 232 professional looking websites through which to sell counterfeit goods bearing the trade marks of Tory Burch.

“More recently, in June this year, the Federal Court in Canada issued the highest damages and costs award to date in Canada against counterfeiters dealing in Louis Vuitton and Burberry goods. Damages in the amount of $2.48 million, excluding legal fees, were awarded. Previously the highest order for damages was in the amount of $980 000, also in favour of Louis Vuitton,” comments Yeates.

Several recent successful seizures of large quantities of counterfeit goods have again put the spotlight on the efforts of our enforcement agencies to stem the flow of these products onto South African markets. In January this year, the Hawks seized five containers full of counterfeit goods at Durban harbour.

The goods, which included sunglasses, watches, shoes and clothing, were estimated to be valued at R120 million. In operations conducted in the first week of July this year, officials seized hundreds of thousands of counterfeit goods at buildings in the Johannesburg CBD. These included razor blades, children’s toys, clothing, shoes and personal hygiene products. Similar operations have taken place in November and now in December.

Difficult to convict fraudsters

Yeates explains the difficulties of convicting trademark fraudsters: “One potential drawback to the South African legal framework, particularly insofar as it relates to trade mark infringement and counterfeit goods, is that it does not provide a cost-effective and practical basis on which to claim damages against counterfeiters.”

According to Yeates, to be awarded damages in South Africa the Plaintiff has to prove its loss, which is often impossible in the counterfeiting scenario. Counterfeiters hardly ever keep accurate financial records and more often than not operate under false names and aliases.

It is for this very reason that African countries, including South Africa, are such easy targets for counterfeiters. “While the South African Criminal Procedure Act does make provision for compensation to be awarded to parties who have suffered damage to, or loss of, property resulting from offences, such compensation can only be applied for once a conviction is obtained. Even then, the trade mark proprietor has to prove the value of his loss – a virtually impossible task in the circumstances,” says Yeates.

Protecting your rights

The obvious question is thus what companies can do in South Africa to best protect their rights (as much as possible within the current legal framework). First and foremost Yeates says it is imperative that companies register their trade marks. Once a company’s trade marks are registered, the next step is to arrange for recordal of its trade marks with Customs.

Customs keeps a central database of all qualifying trade marks (i.e. registered or well known trade marks), and copyright which can be accessed by its officials on the ground. Customs officials use this database to determine whether certain trade marks are protected and, if so, who to contact in order to have samples of suspected counterfeit goods examined and checked.

“Once goods are seized by customs the proprietor of the relevant trade mark will have the option of taking either criminal or civil action, or both, against the importer, manufacturer or seller of the goods. While such action will not lead to massive damages being awarded to the trade mark proprietor, the actions will, if successful, lead to the destruction of the goods and, hopefully, the imprisonment of the counterfeiter.

“While massive damages claims against the manufacturers, importers and sellers of counterfeit goods are not yet on the horizon, local companies should protect their trade marks (and their businesses), by making use of the tools at their disposal. Failure to do so will result in our markets being overrun with counterfeit products, a scenario no developing country can afford,” concludes Yeates.

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