Counterfeiting Brochure

INTRODUCTION

Recently, counterfeiters have targeted South Africa as a dumping ground for their counterfeit products. In order to gauge the extent of this problem, one merely has to look at the projected retail value of the goods confiscated over the past five years. Since 1997, counterfeit goods worth in excess of R600 million have been seized. By way of comparison, this figure is far higher than the figure for the whole of the United Kingdom during the corresponding period.

Initially, the products copied were limited to consumer products - such as watches, sunglasses, shoes and clothing - bearing popular and well-known international trade marks. Recently, however, counterfeiters have extended their activities to more sophisticated markets, such as business software, entertainment software, ink cartridges for computer printers, automotive parts and components, pharmaceuticals and so on. It seems that almost any conceivable product is vulnerable to being copied these days and the extent of such copying is determined by the popularity of the relevant brand.

It is impossible to calculate the precise losses in sales of genuine products attributable to counterfeiting. It is clear, however, that counterfeiting erodes the market for those individuals and businesses involved in the selling of genuine products. It is the sellers of genuine products who incur the expense of obtaining licences to sell their products; who invest heavily in infra-structure and who employ staff to assist in the running of their businesses. Counterfeit products - almost without exception - are sold at greatly-reduced prices in comparison to the genuine articles and are often successfully passed-off as the genuine products. The cumulative effect of this is a loss in sales and profits, which loss is shouldered by the legitimate sellers of genuine goods. This eventually culminates in retrenchments and exacerbates our ever-increasing unemployment figures.

In the international arena, the impact of counterfeit goods has been felt mainly within the sectors of pharmaceuticals and children's toys. With reference to pharmaceuticals, it has been established that up to twenty percent of medicines in the local market are either counterfeit or stolen, resulting in annual losses of up to R2 billion within the industry. Apart from this clear economic impact, the use of counterfeit or "fake" medicines - as well as of counterfeit or "fake" toys - poses a substantial danger to human health and safety among consumers. In addition to this, counterfeit food products are often found to be of highly-inferior quality and have even been found to be toxic on occasion. The threat that the consumption of these goods poses to human life cannot be over-estimated.

Software piracy is a further area of grave concern. Global piracy studies have revealed that a reduction in software piracy of just ten percent in South Africa, over a four-year period, would likely boost the South African economy by an amount in excess of R12 billion. Thousands of jobs could be created and hundreds of millions of rands in tax revenues stand to be gained. In May of 2005, a further study showed South Africa's piracy-rate to stand at thirty-seven percent, a figure that is not far off the world-wide average. Over the period of 2003-2004 alone, over 475 000 counterfeit or pirated DVD's were seized in South Africa. The seriousness of these statistics - which statistics are by no means unique to South Africa - have caused several countries (recently in particular the United States and Italy) to consider and pass new laws and legislation in the fight against piracy. South Africa has joined this struggle.

In 1997, the Counterfeit Goods Act No 37 was proclaimed and came into force in South Africa on 1 January 1998. This Act provides the owners of various intellectual property rights with effective enforcement mechanisms against counterfeiters.

It is important for intellectual property owners to be aware of the offences created by this Act, which offences are as follows:

1. The possession of infringing goods in the course of business;

2. The manufacture, making or production of infringing goods for use which is not of a private or domestic nature;

3. The selling, hiring or exchanging of infringing goods;

4. The exhibition of infringing goods for the purposes of trade.

5. The distribution of infringing goods for the purposes of trade, or any other activity or action which could cause prejudice to the rights of an intellectual property owner;

6. The importation of infringing goods into or through the Republic of South Africa, with the exception of doing so for private or domestic use.

REMEDIES AVAILABLE

As previously mentioned, in order to combat counterfeiting, the Act has introduced various far-reaching remedies. The Act provides for three courses of action in this regard:

1. Action taken by the South African Police Services and by Inspectors appointed by the Department of Trade and Industry

The intellectual property owner, his licensee, exporter or distributor of the goods, including the intellectual property owner's attorneys, may lay a complaint to the effect that an offence of dealing in counterfeit goods has been committed. The complaint is lodged with the South African Police Services or with an Inspector who has been appointed as such in terms of the Act. If satisfied that such an offence has indeed been committed, the South African Police Services or the relevant appointed official will support a request for a search and seizure warrant, which warrant is obtained from any High Court Judge or Magistrate. Such a warrant permits the seizure and detention of any goods, as well as the taking of all steps that are reasonably necessary to terminate the act of dealing with or in counterfeit goods. The subject goods are then removed from the premises to a designated "counterfeit goods depot" (which depots are designated as such by the Minister and are self-funding), whereafter criminal and / or civil prosecution may commence.

2. Action taken by Customs

In the past, customs authorities acted independently of the South African Police Services in fulfilling their duties to secure the prevention of the importation of counterfeit goods into South Africa. Now, however, in terms of the Act, an intellectual property owner may make application to the Commissioner of Customs and Excise for the seizure and detention of certain counterfeit goods that are being imported into the Republic of South Africa. Once again - following the completion of the seizure - criminal and / or civil prosecution may commence.

3. Civil Action By Intellectual Property Right Owners

The Act has introduced extensive measures aimed at assisting intellectual property right owners in combating the problem of counterfeiting. An intellectual property right owner may apply ex parte to a judge in chambers, to obtain an order directing the Sheriff or any authorised official to search, seize and remove documents or counterfeit goods, specifically with a view to preserving the seized goods as evidence in relation to counterfeit activities. The owner must satisfy the judge that his or her rights to inspection (discovery) of documents will be frustrated or that - owing to the time-consuming nature of court proceedings - the relevant goods (evidence) are likely to be destroyed or concealed. The provisions thus create statutory relief of a nature similar to the common law "Anton Piller"-type order, which order is available to an intellectual property right owner only in certain circumstances.

WHAT ARE THE PENALTIES?

Apart from a Court Order declaring the counterfeit goods in question to be forfeited to the state or the goods, packaging and tools used in their manufacture to be destroyed, the Act also introduces strict penalties which may be imposed upon counterfeiters in the event of their conviction. Any person convicted of an offence in terms of the Act will, in the case of a first conviction, be punishable by a fine in respect of each article or item, which fine may not exceed R5000.00 per article or item, or imprisonment for a period that may not exceed three years, or both. In the case of a second or subsequent conviction, the fine in respect of each article or item may not exceed R10 000.00 per article or item, while the imprisonment-term may not exceed five years. Furthermore, the Act has introduced an interesting provision that operates as an incentive to assisting in the combating of trade in counterfeit goods. Any person who submits any counterfeit goods purchased by him or her to an inspector, together with proof of the price that was paid for these goods, will be entitled to receive payment of a sum of money equal to three times the amount of the relevant purchase price, under certain circumstances. It is hoped that this provision will lead to an increasing number of "tip-offs" from consumers.

CONCLUSION

There are a number of causes behind the debilitating phenomenon of counterfeiting: the high price-tags attached to the purchase of genuine products; technological developments which contribute to the ease with which a particular product is able to be copied or pirated; the demand by consumers for more cost-effective alternatives. Ultimately, counterfeiting is fuelled by the consumers who are willing to buy counterfeit goods: the evaporation of the market for non-genuine articles will rapidly see the evaporation of the counterfeit-goods industry itself. Consequently - and apart from the extreme importance of global co-operation on all levels against counterfeiting - consumer education is key.