Thanks to SHRAVAN KUMAR BANSAL from M/s United Overseas Trade Mark Company for providing us with an update of Indian Customs Regulations with respect to IPR Infringements.
Intellectual Property Crime under Indian Law
Increasingly, the global economy is dependent upon the creation and distribution of intellectual property (IP) to drive economic growth. However, markets are plagued by fakes, be it Stamps, Watches, Cigarettes, Cosmetics, Pharmaceuticals, FMCG goods, Auto Components, Software, Music, Films etc. resulting in significant loss to companies, corresponding evasion of Tax duties and violation of the rights of the consumer. Studies by industry associations bear this out, the Confederation of Indian Industries (CII) estimates that the FMCG sector loses approx. 15% of its revenue to counterfeit goods with several top brands losing up to 30% of their business due to IP crime.
The nature of the crime, its size, diversity and scope has hindered the task of coordinating a dynamic response. Lack of consumer awareness and advancement of technology are the major factors which encourage counterfeiting which is further fuelled by lax enforcement laws which make things easy for counterfeiter. The continuity of socio-economic growth and industrial competitiveness depends upon high level of IP protection and enforcement raising profound concerns of the rapidly growing piracy of IP rights and production of counterfeit goods.
IP crime is more generally known as counterfeiting and piracy. Counterfeiting is, willful trademark infringement, while piracy involves, willful copyright infringement. These are very similar and often overlapping crimes. IP crime is not a new phenomenon but due to globalization and advances in technology counterfeiting and piracy has become big business.
Counterfeiting – A Global Problem
Chris De Buysscher, a Belgian customs official, intercepted a shipment of 20,000 kg of fake Lipton Tea from China last year. He also discovered 800,000 knock-off Oral-B Toothbrushes because the accompanying paperwork was vague about their final destination. De Buysscher, head of the port of Antwerp’s counterfeit-hunting squad, is on the frontline of a new battle in the war against knock-offs: Colgate-Palmolive Co., warned American consumers that counterfeit toothpaste that may contain a chemical used in antifreeze was found at stores in four US states. Multinational manufacturers in general loose about 10% of sales to counterfeiting, said Guy Sebban, secretary general of the International Chamber of Commerce.
The damage to companies is “immeasurable” because seizures represent a tiny portion of counterfeit goods and lost sales are only one part of the equation. Any attempt to quantify it seriously will underestimate the extent of the problem, but they will suffer in terms of the reputation of their brands.
The boom is being driven by the Internet, which makes it easier to find customers, and the development of cheap, high-quality printing equipment that allows criminals to mass-produce packaging. Growing trade with Asia, where trademark rules are less rigorously enforced, is also contributing to the trend. The potential danger of counterfeit food was driven home in 2004, when at least 13 babies in China died after they were fed fake infant formula that had no nutritional value, the official Chinese press service, Xinhua, reported at the time.
Customs Authorities and Parallel Imports
Having complied with the TRIPS regime in satisfying the minimum standards of intellectual property protection, India is now looking at ways and means to ensure a full proof enforcement mechanism. With a view to limit the adverse effects of parallel imports, the Government of India has issued the Intellectual Property Rights ( Imported Goods) Enforcement Rules, 2007 vide Notification No. 47/2007-CUSTOMS (N.T.) that provide for a registration mechanism with the Customs Authority to legally intercept and restrict the intrusion of parallel imports into the official and authorized channels of trade. .
The Customs Authority is empowered and authorized to intercept, seize and confiscate goods found to be or suspected to be infringing intellectual property rights registered and in-force in India. Registration of the intellectual property right with the Customs Authority will enable the Customs Authority to store the IPR in their electronic database which will be flashed across all entry points in India.
These Rules serve as a welcome change especially for corporations having registered intellectual property rights or who are looking at obtaining a registration and enforcing their patents, trademarks, copyrights and designs in India and enjoying presence through authorized distributors. This registration is in addition to the conventional registration for intellectual property rights such as Trademarks, Copyrights, Patents and Designs.
The Rules are in addition to Intellectual Property law and serve as an enforcement mechanism at the points of entry into the country. The Rules give the custom officials the authority to intercept, detain, confiscate and destroy the same even before such parallel imports enter the ordinary circulation of trade.
The Customs Authority is empowered to suspend the clearance of such infringing goods either on the basis of the registration appearing in the electronic database or even suo motu in the interest of the trade and protection of intellectual property rights. An intellectual property right owner today is therefore in a position to minimize his losses and intercept any actual or potential loss by parallel imports or even counterfeit goods, by a mere registration with the Customs Authority at a cost that is negligible compared to the losses incurred. Section 139 of the Trade Marks Act requires the intellectual property right owner to apply an indication of the country or place in which they are made or produced or the name and address of the manufacturer or person for whom the goods were manufactured. This notification coupled with the Intellectual Property Rights (Imported Goods) Enforcement Rules, 2007 serves to curb unauthorized and unaccounted imports of counterfeit and infringed products.
Intellectual Property Rights (Imported Goods) Enforcement Rules 2007
The IPR Rules are based on the model legislation drafted by the Geneva-based World Customs Organisation, followed by most member countries for border enforcement by customs. The new rules, under Section 156 of the Customs Act 1962, in addition to the Copyrights Act and Trademarks Act, would further strengthen border enforcement to prevent entry of pirated and counterfeit merchandise into the country.
The scope of enforcement was being expanded to include designs, geographical indications and patents, over and above copyright and trademark violations, which are covered under the existing rules. Detention of suspect merchandise (on IPR violation) would be made by Customs at border points, and the matter would be proceeded against only if the right-holder (of the merchandise) joins issue. If the party declines to show interest, the consignment would be released by customs.
The new provisions add strength to existing Customs provisions for better IPR protection, however detention of the merchandise would not be beyond a total period of 20 days (in two phases of 10 days each).
On adjudication post-detention, however there is still no agreement on this among all member countries of WIPO, as some feel it was the role of the judiciary and not the customs authorities. Generically customs laws are different from IPR Law, as the former applies strictly to offences against the State.
Customs Laws and Border Protection Measures in India
In the present global scenario, which is indentured by increased international trade, the new Enforcement Rules mark a significant achievement in the evolution of border protection measures in India and alignment of Indian Customs and IPR related legislation with global adjustment.
Further, considering India’s obligation as a WTO member to implement border measures as envisaged in Articles 51 to 60 of TRIPS, Notification No. 47/2007-Cus. (N.T.), has been issued, after which the Intellectual Property Rights (Imported Goods) Enforcement Rules, 2007 (“Enforcement Rules”) were introduced in mid 2007.
The Enforcement Rules, which are of recent origin, have been modelled on the lines of the legislation drafted by the Geneva-based World Customs OrganizationWCO and seek to define the role of the Indian Customs in combating IP right (“IPR”) infringements at the borders. It is noteworthy that while the mandatory obligations under Articles 51 to 60 of the TRIPS dealing with border measures are restricted to Copyright and Trade Marks infringement only, the Enforcement Rules deal with Patents, Designs and Geographical Indications violations as well, in conformity with the best practices prevailing in certain other countries, most notably within the European Union.
The Enforcement Rules have been made applicable only to goods of a commercial nature and do not apply to goods of a non-commercial nature and goods contained in small consignments for personal use. It is also pertinent to note that the present definition of the term “goods infringing intellectual property rights”, which is the focal point of the legislation, covers any goods which are made, reproduced, put into circulation or otherwise used in breach of the intellectual property laws in India or outside India, which is used without the consent of the rights holder or his authorised representative.
The Enforcement Rules, which provide for actions to be taken against goods infringing IPR like prohibition/suspension in trading/ confiscation and disposal of such goods inter alia, provide for:
1. the filing of a notice by the right holder;
2. registration of said notice by the Customs;
3. a time limit for right holders to join proceedings;
4. a single point for registration of the notice filed by the right holder;
5. adequate protection to the Customs for bona fide act;
6. suo-motu action by the Customs in specified circumstances; and
7. disposal of the confiscated goods.
Even in terms of the provisions of the Enforcement Rules, the determination of the fact as to whether any particular consignment which has been imported violates any of the rights of the rights holder would require to be done taking into account the provision of the Parent Acts, namely the Copyright Act, 1957, the Trade Marks Act, 1999, the Patents Act, 1970, the Designs Act, 2000, and, the Geographical Indications Act, 1999. This would necessarily entail a good working knowledge of such Acts by the concerned Customs officials and specific subject expertise.
Japan’s Customs Tariff Law seeks to resolve this issue by enjoining their Patent Office to assist Customs Officials in complex patent infringement cases. The above issue has also been recognised by the Indian Customs authorities and the formation of a separate IPR cell within each Customs House, which will deal with any action involving suspected infringement of IPR’s by any import has been mooted. In this context, note should however be made of the provisions of the Patents Act, 1970, which provides that the determination of the issue of infringement/non-infringement of a patent can only be made by the District Court or High Court having jurisdiction.
Indian Case Law and the New IPR Enforcement Rules 2007
Indian Law is quite liberal in permitting parallel imports of genuine goods bearing registered trademarks provided such goods have not materially altered after they have been put on the market. Once genuine goods are released into commerce anywhere by or with the proprietor’s consent, all associated Indian trademark rights are exhausted. Such consent may be expressed or implied, direct or indirect. The underlying rationale for liberal exhaustion is that trade marks are deemed to connote trade origin and not control.
Parallel import – i.e. imports that have not been authorized by original manufacturers- of trademark shall be defined. If a person legally imports a product with the same trademarks as the one of the exclusive license of the domestic person without the consent of the person having the ownership of trademark or the domestic person owning the right of trademark exclusive license, the import activity is regarded as trademark parallel import.
The term parallel imports refer to goods containing copyrightable material or bearing trademarks imported from outside of the country. These goods are usually imported because the particular version or style is either unavailable here or the cost of the imported goods is lower. Lower costs may be the result of fluctuations in currencies, or simply due to the structure of distribution imposed by the manufacturer.
Parallel imports are generally imported without actual authorization from the proprietor of the copyrights or trademarks. In the first ever case involving parallel imports and trademarks in India, CISCO TECHNOLOGIES Vs SHRIKANTH, the plaintiff’s employed sec. 29(6)(c ) read with sec 140 defense and were successful in getting an exparte order directing the customs authorities to notify all ports to bar imports of defendant goods and also appointing a local commissioner to seize all goods bearing the mark in issue and inventory the same.
New Rules statutorily introduce concept of exhaustion under Section 30 (3) which provides that where the goods bearing a registered trade mark are lawfully acquired, the further sale or other dealings in such goods by the purchaser or by a person claiming to represent him is not considered as an infringement if the goods have been put on the market under such mark by the proprietor or with his consent. But goods should not be altered or impaired materially after they were put on the market. The trade mark proprietor may, however, impose contractual restrictions on a third party, such as a foreign licensee against importing genuine goods into India, provide, that such restrictions pass muster under the Trade mark Act and the MRTP Act, 1969, Indian’s competition Statue. In the judgement of the Delhi High Court Samsung Electronics Company Case defendants, who were the parallel importers were held liable for infringement of Trademark.
In this case plaintiffs, the registered owner of the Trademark “Samsung” filed a suit against the defendants for importing from China and selling in cartridges and toners branded “Samsung” manufactured by the plaintiff itself in China. The plaintiff argued that although the products are genuine, they were not meant for Indian markets. The reasons cited by the plaintiff included that the descriptions that accompanied the products were in Chinese, there was no warranty offered and that the use of these products were likely to constitute a breach of warranty of other legally purchased machinery.
While finding that parallel imports per se could not be held to be infringement in view of the legal provisions in India, it was held that cause of action for trade mark infringement may be available to the proprietor against importer where genuine goods have been materially altered without proprietor’s consent after placing them in the market.
Recent Case Law
Equipped with the powers of adjudication provided by the Rules, 2007 customs department for the first time in July 2008 ordered absolute confiscation of counterfeit goods. Importer M/s. Womens World Jewels Pvt. Ltd., and M/s. Impac Enterprises imported consignment containing cosmetics, gift items etc., bearing registered trademarks ‘L’Oreal, ‘Nivea’, ‘Dove’, and ‘Sunsilk’.
Commissioner of Customs noted that the act of importing into India and/or market these goods in India without having any authorization from the manufacturers, amounted to infringement of rights of right holders and thus prohibited the importer from importing the goods. It ordered absolute confiscation of the imported goods and also imposed of penalty on the importer. The fairly recent order of confiscation is passed in December, 2008 against M/s P.S. Grover and Sons for importing cosmetic and toiletries products of registered trademark ‘L’Oreal’ and ‘Garnier’ for importing without first having obtained authorization from registered trademark owners M/s L’Oreal and M/s Laboratoire Garnier & CIE. The Customs Department not only ordered confiscation of imported goods but also imposed huge penalty on the importer.
Ideas and knowledge are an increasingly important part of trade. The value of most of the products traded today lies in invention, innovation and design. Products that used to be traded as low-technology goods or commodities now contain a higher proportion of invention and design in their value and it is for this reason that it becomes increasingly essential to develop laws to protect the intellectual property contained in goods.
In the present international scenario, which is characterized by globalization and increased international trade, the Enforcement Rules mark a significant achievement in the evolution of border protection measures in India and alignment of Indian Customs and IPR related legislation with global best practices.
Internationally, such regulations have successfully been used on numerous occasions, notably by the EU against Argentine soybeans that were grown using seeds subject to Monsanto patents, and by Fuji PhotoFilm which initiated action in a number of countries, including the United States and Japan, when faced with countless inexpensive infringing disposable cameras. Taking into consideration, India’s unique geographical location wherein it has eight neighbouring countries and 30 major ports, the Enforcement Rules are a welcome step in the move aimed at evolving India into a more favoured and IPR compliant trading destination.