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Counterfeit A Global Problem

Written by: Kaustubh Nandan Sinha - I am a final yr law student from Pune
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Rapid advances in technology and liberalisation of the Indian economy has created an ideal market for people trying to misuse existing brand values that have been cultivated and nurtured over a period of time. Counterfeiting is a serious crime. The law punishes counterfeiters and those who purchase counterfeit goods (with fines and legal actions). Counterfeiting is often associated with money laundering and exploitation of child labour. The first and foremost thing is know what is counterfeit.

The answer is counterfeit is an imitation which is a fake made usually with the intent to deceptively represent its content or origins, thus increasing sales appeal due to the reputation of the imitated product. The word counterfeit most frequently describes forgeries of currency or documents, but can also describe clothing, software, pharmaceuticals, watches, or more recently, cars and motorcycles, especially when this results in patent infringement or trademark infringement.
History of counterfeit

Portuguese Bank Note Crisis of 1925

When the British banknote printers Water low and Sons produced Banco de Portugal notes equivalent in value to 0.88% of the Portuguese nominal Gross Domestic Product, with identical serial numbers to existing banknotes, in response to a fraud perpetrated by Alves dos Reis. Similarly, in 1929 the issue of postage stamps celebrating the Millennium of Iceland's parliament, the Althing, was compromised by the insertion of 1 on the print order, before the authorized value of stamps to be produced (see Postage stamps and postal history of Iceland).

Counterfeit scandal of Hungary1926

When several people were arrested in the Netherlands while attempting to procure 10 million francs worth of fake French 1000-franc bills which had been produced in Hungary; after 3 years, the state-sponsored industrial scale counterfeit operation had finally collapsed. The League of Nations' investigation found Hungary's motives were to avenge its post-WWI territorial losses (blamed on Georges Clemenceau) and to use profits from the counterfeiting business to boost a militarist, border-revisionist ideology. Germany and Austria had an active role in the conspiracy, which required special machinery. The quality of fake bills was still substandard however, due to France's use of exotic raw paper material imported from its colonies.

German counterfeit bills during World War II

During World War II, the Nazis attempted to do a similar thing to the Allies with Operation Bernhard. The Nazis took Jewish artists in the Sachsenhausen concentration camp and forced them to forge British pounds and American dollars. The quality of the counterfeiting was very good, and it was almost impossible to distinguish between the real and fake bills. The Germans could not put their plan into action, and were forced to dump the counterfeit bills into a lake. The bills were not recovered until the 1950s.

Counterfeit in world

A recent survey from the US has come out with the finding that worldwide 10 per cent of perfumes and cosmetics, 11 per cent of clothing and footwear and around six per cent of drugs bought by consumers are fakes. The figure rises to a staggering 80 per cent in some developing countries. According to the International Anti-Counterfeiting Coalition, in the US alone trademark counterfeiting robs the country of $200 billion (Rs 9, 20,000 crore) annually.
The Anti-Counterfeiting Group (ACG), organiser of a pan-European survey, put the total loss to the European Union economy from counterfeiting and piracy at £250 billion (Rs. 20, 00,000 crore) per year; of this £30 billion is lost in taxes and excise. Polo Ralph Lauren, Gap, Banana Republic, American Eagle, Abercrombie and Fitch, Guess, J.Crew, Nautica Timberland are brands which most prone to counterfeiting. Another estimate says 4,100 jobs are lost each year in the UK alone because of counterfeiting - wrecking industries and draining funds which otherwise would have reached public services,

Counterfeit in Asia

Talk about counterfeit products and one automatically thinks of a few countries. While India is not lagging behind the rest of the pack - mostly developing countries - it is China that is head and shoulder above others in this category.

China is the biggest source of counterfeit goods in Asia and piracy rate in China is more than 90 per cent. As much as 30 per cent of the counterfeit products worldwide is being made in China. China spurious goods are sold all over the world including India counterfeit goods is easily accessible in Indian market.
Countries like Singapore and Hongkong which are regarded as shoppers paradise are also den for counterfeited goods brands like Louis Vuitton are most effected also electronical appliance are the one which are targeted the most.

Counterfeit in India

Indian metros have become bases for manufacturing counterfeit products and account for maximum IPR violations. Delhi is the hub of counterfeit products in India as nearly 70 per cent counterfeit products originate there. A FICCI survey has estimated the loss of revenue to the Indian exchequer by way of taxes to be roughly around Rs 1,000 crore a year. FMCG, software, automobile, packaged water, and garments sectors are the most affected by IPR violations, though there are laws in India against counterfeiting, their enforcement is tedious. "Lengthy legal proceedings often yield no results Indian courts are becoming aware of the need for the Judiciary to develop progressive and novel methods of granting relief to check infringers and counterfeiters.

The Supreme Court has taken the lead and in the case of Laxmikant Patel vs Chetanbhat [1] Shah held that "once a case of passing-off has been made out, the practice is generally to grant a prompt ex-parte injunction followed by the appointment of a local commissioner, if necessary". And also authorizing the Court Receiver to seize the goods whether they are lying at the defendant's factories or at the premises of their retailers. These are known as roving orders. The Court Receiver is often authorised to take the help of the police in conducting the raids. also in case of Microsoft Corporation Vs.Mr. Kiran and Anr [2]

A decree is passed for permanent injunction in favor of the plaintiff and against the defendants restraining the defendants from using or otherwise copying, selling, offering for sale, distributing, issuing to the public, counterfeit/unlicensed versions of the plaintiff's software, in any manner, amounting to infringement of the plaintiff's copyrights in the said computer programs and related manuals.

The punishment for counterfeiting should be both compensatory and punitive. compensatory to provide for the damages and punitive to deter wrong-doers , to emphasis that breach of intellectual property rights was a wrong not only to the plaintiff, but also society at large and the consumers who suffer on account of that deception and to underscore that it is difficult for the plaintiff to prove the actual damages suffered by him considering that infringers do not maintain appropriate accounts of their transactions as they know that the same are objectionable and unlawful.

And in one such landmark case, the Delhi High Court, in the Time Warner Inc. vs. Lokesh Srivastava & Anr[3] case, awarded "punitive and exemplary damages," in addition to compensatory damages, for flagrant infringement of trademarks and copyrights. Such decision really helps in reducing counterfeit and other kinds of IPR infringements. Modern-age counterfeiters are experts. They counterfeit goods using technologically innovative methods. Delay in judicial relief has assisted counterfeiters in remaining one step ahead of the law. In this context, Section 135 introduced in the Trademarks Act, 1999, is significant. It gives statutory powers to the courts to grant ex-parte (that is, without notice to the defendant) relief in appropriate cases. The courts are empowered to grant ex-parte injunctions against infringers restraining them from selling counterfeit goods, etc., and ex-parte order for discovery of documents, preserving of infringing goods, documents or other related evidence, and restraining the defendant from disposing of his assets in a manner which may affect plaintiff's ability to recover damages.

This provision will cause financial damage to counterfeiters by restraining the disposal of any asset of the counterfeiters even if the same are not related to the infringing activity. Section 135 of Trademark Act 1999 reads as follow- (1) The relief which a court may grant in any suit for infringement or for passing off referred on in section 134 includes injunction (subject to such terms, if any, as the court thinks fit) and at the option of the plaintiff, either damages or an account of profits, together with or without any order of the plaintiff, either damages or an account of profits, together with or without any order for the delivery-up the infringing labels and marks for destruction or erasure.

(2) The order of injunction under sub-section (1) may include an ex parte injunction or any interlocutory order for any off the following matters, namely :-
(a) for discovery of documents.
(b) preserving of infringing goods, documents or other evidence which are related to the subject-matter of the suit.
(c) restraining the defendant from disposing of or dealing with his assets in a manner which may adversely affect plaintiff’s ability to recover damages, costs or other pecuniary remedies which may be finally awarded to the plaintiff.

(3) Notwithstanding anything contained in sub-section (1), the court shall not grant relief by way of damages (other than nominal damages) or on account of profits in any case -
(a) where in a suit for infringement of a trade mark, the infringement complained of is in relation to a certification trade mark or collective mark, or

(b) where in a suit for infringement the defendant satisfies the court-
(i) that at the time he commenced to use the trade mark complained of in the suit, he was unaware and had no reasonable ground for believing that the trade mark of the plaintiff was on the register or that the plaintiff was a registered user using by way of permitted use, and
(ii) that when he becomes aware of the existence and nature of the plaintiff’s right in the trade mark, he forthwith ceased to use the trade mark in relation to good or services in respect of which it was registered, or

(c) where in suit for passing off, the defendant satisfies the court-
(i) that at the time he commenced to sue the trade mark complained of in the suit he was unaware and had no reasonable ground for believing that the trade mark of the plaintiff was in use, and

(ii) that when he became aware of the existence and nature of the plaintiff’s right in the trade mark, he forthwith ceased to use the trade mark complained of.

The most common problem is that manufacturers of genuine branded products are unable to obtain timely relief as the identity of the defendant is not easily ascertainable. This problem has been overcome by the grant of what are known as "John Doe" orders. These orders operate against infringing goods which may be seized wherever they are located and would operate against any potential defendant who is subsequently identified as the counterfeiter/infringer and the court order is served on him. One such `John Doe' order was granted by the Delhi High Court in Taj Television Limited vs Rajan Mondal [4]. This practise is fairly well developed in the UK, New Zealand and Canada.

While no organisation has come up with such an assessment in India so far, a FICCI estimate has put the annual loss of revenue to the Indian companies in excess of Rs 4,000 crore.

Conclusion
The tide in India is turning against counterfeiters and infringers. Until now they were undeterred, given the inability of genuine branded product manufacturers to cause them financial damage, and the slow judicial redress. All this is now changing as a result of progressive judicial pronouncements and legislative amendments. And with numerous judgments given against the counterfeiters by supreme court of India and various high courts it can be easily concluded that India is waging a war against the people who are into the business of counterfeit.

Endnotes
1. AIR2002SC275, 2002(1)ALD45(SC)
2. MIPR2007(3)214, 2007(35)PTC748(Del)
3. [2006]131CompCas198(Delhi), 116(2005)DLT599, 2005(30)PTC3(Del)
4. FSR 2003 (407)

The author can be reached at: kaustubh@legalserviceindia.com / Print This Article

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