Cover Story (#04 April 2014)

Stop Counterfeiting

Alexander Pakharenko

Fighting counterfeiting became the leading light in the IP industry over the past decade. Indeed, anti-counterfeiting policies have been introduced at all levels — starting from business (big multinationals succeed here a lot), states and even at global level. We asked Alexander Pakharenko*, attorney-at-law, patent attorney and partner with Pakharenko & Partners, to share his expert views on the current state of play and solutions in Ukraine.

 

UJBL: Is counterfeiting in Ukraine such a big problem? What kinds of items are usually counterfeited? Why?

Alexander Pakharenko: Unfortunately, yes. Certainly, it is unreasonable to say that Ukrainians consume and use only goods of low quality and harmful fakes. However, criminal activities, such as manufacture and distribution of counterfeit goods, target practically anyone to a greater or lesser degree. It is a global problem, and not just something confined to Ukraine. According to the recent data disclosed by the UN, the global trade in counterfeit goods amounts to USD 250 billion a year.

We may be not aware that we face counterfeits anywhere and in all kinds of goods, either in food we consume, videos we watch, pharmaceuticals we take or clothing and footwear we wear. Such goods pose serious threat to our health and safety. Counterfeit medicines, infant food and toys, tires, break shoes and airbags, spare parts for planes, electric household appliances are a real threat.

Since manufacture and distribution of counterfeit goods is quite a profitable business from a commercial point of view and, as compared with other crimes (such as, for example, distribution of drugs), is much less risky, the scale of counterfeiting involving violation of IPRs keeps growing year after year. 

 

UJBL:  Which Ukrainian laws contain anti-counterfeiting provisions?

A.P.: General provisions on remedies against counterfeiters are contained in:

— the Civil Code;

— the Commercial Code;

— the Criminal Code;

— the Code on Administrative Offences; and

— the Customs Code.

The relevant legal procedures are set out in:

— the Civil Procedure Code;

— the Commercial Procedure Code;

— the Criminal Procedure Code; and

— the Code of Administrative Proceedings.

There are no laws or regulations dealing specifically with counterfeiting in Ukraine. Thus, this type of infringement is dealt with under the provisions of the Trademark Act. Although that statute contains no definition of “counterfeit goods”, the relevant civil and criminal laws contain blanket provisions referring to the Trademark Act, particularly the definition of “use of a trademark”.

The Customs Code provides for border measures against IP infringements, including counterfeiting. These measures extend to both imports and exports, but do not cover goods in transit.

Until recently, control by Customs did not extend to goods carried into Ukraine by individuals or shipped to them in consignments. On 14 February 2011 new regulations under the Customs Order (1527/2010) entered into force, stating that all goods brought into Ukraine by individuals may be inspected for infringement. The regulations may be applied even if an individual carries the goods for personal use or as a gift.

 

UJBL:  Which preventive strategies should be considered by IPR holders to protect their interests in Ukraine, aimed particularly at fighting counterfeiting? 

A.P.: Rights holders should concentrate their activities on implementing both financial tools (e.g., regular market monitoring, checks and test purchases), technical tools (e.g., use of protective technologies), and information tools (e.g., use of mass media and other resources to raise public awareness).

In the current context, the most important steps towards preventing counterfeiting, which can be taken by IPR holders include:

— registering with Customs;

— cooperation with enforcement agencies (including information exchange and training); and

— raising awareness among consumers.

I would particularly stress on the important role of raising awareness among consumers.

Moreover, government agencies, enforcement agencies and consumers must ensure that rights holders are proactive in defending their rights, and show zero tolerance to infringements, particularly counterfeiting.

In this context, one cannot understate the role of non-governmental anti-counterfeiting organisations whose common objective lies in exchanging and sharing information, participation in appropriate joint activities and cooperation in the resolution of specific IP problems and challenges in their respective national or regional areas.

Ukraine is not standing aside in these activities. In 2003, the Ukraine Alliance Against Counterfeiting and Piracy (UAACP) was established with the support of the Global Anti-Counterfeiting Group (GACG). The key goal of the Alliance is to increase the effectiveness of intellectual property rights holders in the campaign against the trade in fake goods in Ukraine and in international commerce with Ukraine. The Alliance has already been working with both private and public organisations in Ukraine and internationally to particularly raise awareness with the public, government and the enforcement agencies about the economic and social costs of counterfeiting and piracy. 

 

UJBL: The Ukrainian Customs Code contains provisions for IPR, particularly trademark border measures. How would you evaluate the efficiency of the Customs Register?

A.P.: With the implementation of the new Customs Code of Ukraine on 1 June 2012, the application of border measures was extended to a broader list of IPRs to also include patents of inventions, utility models and plant varieties.

Over the years the customs register has proven to be a truly efficient tool in tackling the problem of trademark counterfeiting allowing rights holders detaining counterfeit goods at the border and preventing their entry in trade channels. As far as the overall efficiency of the IPR border measures is concerned, particularly the application of these measures to goods incorporating other IPR objects, e.g., inventions/utility models and industrial designs, for example we all know how big a problem we are facing with industrial designs. Due to imperfect registration system, the State Register of Industrial Designs of Ukraine contains a whole range of identical non-registrable, i.e. not novel, industrial designs which have also been recorded with customs, which undermines the very legal basis of the IPR registrations system, as well as the main goals and objective of IPR border measures.

There is also a whole range of challenges related to the application of border measures against importers of goods incorporating patented inventions and plants.

 

UJBL: How could the relevant laws be revised to improve the environment, enabling efficient tackling of the problem of counterfeiting?

A.P.: I believe that the following steps might improve the situation.

First of all, the legislator should consider providing for more severe criminal liability for the manufacture and distribution of counterfeit goods.

These measures have to be applicable against every element in the chain of manufacture and distribution, including manufacturers, lessors, agents and sellers. This would require amending Article 229 of the Criminal Code of Ukraine to provide for an alternative punishment, either in the form of a fine, or restraint of liberty. Furthermore, it is important to consider an issue of holding third parties liable for contributory infringement, particularly shippers, lessors, shopping centers and market operators that assist in the distribution of counterfeit goods.

A focus should also be made on the following.

First, providing for mandatory destruction of seized counterfeit goods.

Paragraph 8 of Article 243 of the Customs Code of Ukraine (disposal of goods) provides that goods seized based on the court decision under the provisions of Article 476 of the Customs Code (IPR infringing goods) be either transferred for the purposes of medicinal, educational, social and cultural institutions and other institutions financed from the state or local budgets, or be subject to recycling, utilization or destruction.

However, it should be borne in mind that IPR infringing goods are counterfeit goods, goods of unknown origin and of questionable quality. In such a case, both civil and criminal laws provides for their destruction. Respectively, the State Enforcement Service is in a position to apply this alternative sanction. However, neither the suffered party whose rights have been infringed, or its representative is not allowed to participate in the destruction. They are neither included in the respective commission, nor are allowed to sign the document for transfer of the goods and have limited control over the procedure.

Therefore, it is advisable to amend the sanctions provided by Article 476 of the Customs Code by adding the provision for destruction of goods infringing IP rights protected by the law.

It is also necessary to include provision on the destruction of seized counterfeit goods, materials and equipment used for their manufacture in Article 51-2 of the Code on Administrative Offences.   

Secondly, mechanisms of cooperation should be improved between customs divisions to facilitate protection of intellectual property rights.

Both IPR holders and law practitioner faced situations when the customs division for fighting contraband does not inform the IPRs protection division about the detection of goods infringing IPRs. Neither do they check whether the goods are authentic. As a result, quite often counterfeit goods of an unknown origin and questionable quality get into trade channels.

It is thus recommended to provide for mandatory inspection of contraband goods for IPR infringement, as well as for mandatory notification about the revealed IPR infringements of the special IPR division with customs. The Customs Code must also provide for mandatory destruction of counterfeit goods to prevent their marketing. Moreover, in this case, the imposed fines shall be calculated based on the cost of the original goods.       

Thirdly, the mandatory indication of the trademark and manufacturer of goods declared for customs clearance with the Customs Service should be provided for.

Since subparagraph c) of section 8, Article 257 of the Customs Code provide that a trademark and manufacturer of goods shall be indicated only in case they are mentioned in the shipping and other commercial documents, unfair declarants often take advantage of this provision for concealing the fact of importation of counterfeit goods. In view of this, these provisions have to be revised.

Fourthly, it is essential to provide for the right holders’ or their representatives’ right to participate in the process of destroying counterfeit goods.

To solve this issue, it is recommended to amend paragraph 2 of Article 7 of On Enforcement Proceedings Act of Ukraine by extending the list of parties that may be involved by the state bailiff in the enforcement proceedings.

Fifthly, regular educational activities aimed at raising awareness are another important step forward.

It is important that educational events aimed at raising awareness are arranged on a regular basis. This would allow persuading Ukrainian consumers not to use counterfeit goods, raise awareness about the importance of intellectual property for economic growth and product quality and safety.

Sixthly, it is necessary to amend provisions related to the calculation of damages caused by IPR infringement.

For the time being, calculation of damages caused by IPR infringement is regulated by Article 26 of the National Standard No.4 “Evaluation of proprietary rights in intellectual property” (Decree of the Cabinet of Ministers of Ukraine No.1185 of 3 October 2007). In particular, according to Article 26 “the scope of damage caused by unlawful use of an intellectual property object shall be established as of the date of evaluation with the use of the evaluation procedure based on the principle of accumulation of profit which had not been received by the IP rights holder and/or its licensee due to unlawful use of the intellectual property object, particularly in view of the scale of manufacture and/or sales volumes of counterfeit goods”. As a result, for example, if the goods are stored at a warehouse, the amount of such goods is not taken into account upon calculation of damages since such goods are not deemed to have been sold. In view of the aforesaid, this article must be amended to provide for calculation of the extent of damage caused not only based on the manufacturing and/or sales volumes of counterfeit goods, but also taking into account the extent of other forms of unlawful use of IPRs.

Moreover, to ensure effective protection of trademark owners’ rights it is necessary to introduce the mechanism of one-time compensation as an alternative to an award of damages caused by unlawful trademark use. In view of this, it is recommended to amend Article 21 of the Act of Ukraine On the Protection of Rights to Marks for Goods and Services by adding paragraph 3, which reads as follows: “3. The court may render a judgment on payment of one-time compensation determined by the court within the confines of 10 to 50,000 minimum wages, instead of damages.

When deciding on the amount of the one-time compensation payable as an alternative to damages the court shall take into account the guilt of the person who committed the infringement and other relevant circumstances”.   

 


* Alexander’s practice in the intellectual property field includes counselling on the protection and enforcement of IPRs, with a particular focus on anti-counterfeiting and anti-piracy activities, IPR- litigation and licensing.


Pakharenko & Partners

Key facts:

  • Year of establishment
    1992
  • Number of lawyers/partners
    21/4
  • Core practice areas
    Intellectual Property Rights (IPR) Protection and Enforcement; Anti-Counterfeiting & Anti-Piracy; Corporate & Commercial Law; Advertising & Media Law; Pharmaceutical Law; Competition Law; Commercial and IP Litigation
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