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Counterfeiting and Infringement of Trademarks in India

Counterfeiting of goods is a common problem worldwide. In the year 2017, counterfeiting was a 1.2 trillion dollar (USD) industry[1]. This paper seeks to define a counterfeit good and briefly look at the different stakeholders it impacts. Further, it seeks to shed light on the scale and economic impact of counterfeiting in the United States, the United Kingdom, and India and how the legal framework in each of these jurisdictions deal with the problem of counterfeiting with a particular focus on India.

Introduction
The Indian Trade Marks Act, 1999 does not define the word counterfeit. At this juncture it would be important to look at the definition of counterfeit as propounded by certain english and legal dictionaries. The Oxford English Dictionary defines the word counterfeit as (of money and goods for sale) made to look exactly like something in order to trick people into thinking that they are getting the real thing[2] Black's Law Dictionary states Counterfeiting includes producing or selling an item that displays a reproduction of a genuine trademark, to deceive buyers into thinking they are purchasing genuine merchandise.[3].

Webster's New World Law Dictionary states:
To copy or imitate something without the right to do so and with the intent to deceive or defraud by representing the copy or imitation to be the original or to be genuine if no original ever existed[4]. Thus some common elements that can be drawn from these definitions is that there exists a good and someone has made a deliberate copy of it in order to deceive or defraud someone into buying the copy by suggesting it is the original good.

Further, The Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) defines counterfeiting in the context of intellectual property rights. It states, counterfeit trademark goods shall mean any goods, including packaging, bearing without authorization a trademark which is identical to the trademark validly registered in respect of such goods, or which cannot be distinguished in its essential aspects from such a trademark, and which thereby infringes the rights of the owner of the trademark in question under the law of the country of importation;

Impact of Counterfeiting on Different Stakeholders

Counterfeiting causes great loss to not just the rights holder but also the consumers and the government. A direct loss of sales occurs because brands find themselves in competition with counterfeiters [5]. Moreover, if the counterfeit product is of low quality, the deceived customer will end up forming a bad opinion of the original product leading to a loss of goodwill[6].

The impact on the consumer can also be dangerous especially in industries like pharmaceuticals, foodstuff, baby formulas, etc, where counterfeit goods can have deleterious consequence on the health of a person due to substandard quality[7]. Further, counterfeiting causes loss to a country's economy in the form of lost tax revenues. Another far reaching consequence of counterfeiting is that it ends up fuelling organized criminal networks and terrorist activities[8].

Counterfeiting and Infringement of Trademark in the United States: A review

Growing over 10,000% times over the last two decades, counterfeit products exists virtually in every industry and every country of the world, with countries like the United States being the hardest hit as their economies thrive on high-value products protected by intellectual property rights and trademarks[9].

According to the data journalist, Felix Richter, in 2018 counterfeit apparel and footwear products accounted for the most seizures at 18 and 14 percent respectively out of all the goods seized by US authorities. Whereas in the same year, the percentage of total seized value of counterfeit watches and jewellery was registered to be the highest at 44 percent of the value of total products seized.[10]

According to the official figures released by US Customs and Border Protection, CBP seized 27,599 shipments of goods that violated the IP rights of US residents. The retail value of these counterfeit goods was as high as $1.5 billion which is the highest value reported since 2013.[11](See Figure 1) The revenue loss that is caused to the government because of counterfeiting is huge. In the city of New York itself, the government lost out on $380 million in unpaid sales tax, $290 million in unpaid business tax, and $360 million in unpaid personal tax in 2003 [12]. Today, one can safely assume this number has only multiplied exponentially.

Legal framework governing counterfeiting and trademark infringement in the United States

There are two federal legislations in the United States concerning trademark infringement and counterfeit violations. These two federal statutes are the Lanham Act and the Trademark Counterfeiting Act 1984. Unlike the Indian Trademarks Act, the US trademark act defines both infringement and counterfeiting.[14]

Civil remedies available to a trademark owner

The Lanham Act is the civil statute that deals with providing civil remedies for both registered (15 U.S.C. § 1114) and unregistered trademark (15 U.S.C. § 1125(a)). Under US law, an owner of the trademark may either elect a jury or a bench trial. Usually for a civil case, a private investigation by the trademark owner is initiated. Later, the trademark owner can seek an ex parte seizure order from the court after establishing that it is the only adequate remedy and that he will suffer irreparable injury if seizure is not ordered.[15]

The civil remedies under the Lanham Act can be found in 15 U.S.C. § 1117. Statutory remedies given under the section include injunctive relief, an accounting for profits, damages, including possibility of treble damages when appropriate and attorney's fees in exceptional cases and costs.

Legal framework for criminal prosecution of a trademark infringer

The criminal prosecution of trademark violates or infringers is given under the main criminal code of US i.e. 18 USC § 2320. The code provides for various penalties for intentional trafficking of counterfeit products. For an individual first time offender the punishment can go up to 10 years of imprisonment and a fine up to $2 million and an imprisonment up to 20 years and a fine of $5 million for repeat offenders. Whereas for corporations and other entities a fine up to $5 million for first time offenders and $15 million for repeat offenders.[16]

Counterfeiting and Infringement of Trademark in the United Kingdom: A review

The IP rights of UK residents have been subjected to counterfeit violations for a large range of product categories, ranging from common goods to luxury products. According to the Organisation for Economic Co-operation and Development (OECD), the percentage of seized value of counterfeit clothes is more than any other counterfeit product[17]. (See Figure 2)

According to the same report of OECD, the UK is a top destination in terms of the number of custom seizures and second destination in terms of value. China, India and Turkey are the main Provenance of counterfeit goods that infringed the IP rights of a UK resident over the period of 2011-2013.[19](See Figure 3) The UK government lost about £3.8 billion in tax revenue due to counterfeiting in 2013[20].

Legal framework governing counterfeiting and trademark infringement in the United Kingdom
The Primary piece of legislation in the United Kingdom relating to the trademark law is the Trademarks Act,1994. Whereas, the legal framework in the United Kingdom concerning anti-counterfeiting laws arises out of both national and European Union Legislation. The EU Trademark Regulation (2017/1001) with EU customs Enforcement Regulation (608/2013) governs the use of unauthorised EU Trademarks and concerns the custom enforcement of IP rights by custom authorities.[22]

Civil remedies available to a trademark owner

Section 10 of the Trademark Act, 1994 and Article 9 of the EU Trademark Regulation (for EU trademarks) sets out all the civil provisions applicable relating to trademark infringement in the UK. As per section 10 (1) of the Trademark Act, 1994, a person infringes a registered trademark if in the course of trade he uses a sign identical with the trademark in relation to the goods or services which are identical with those for which it is registered. Article 9 2(b) of the EU Trademark Regulation reinforces the same idea behind trade mark infringement in relation to EU Trademarks.

The trademark act of the UK provides several forms of civil remedies against future infringement in the form of permanent injunctions such as offender to pay damages or an account of profits to the trademark owner, to deliver up or destroy the infringing goods; and costs awards in favour of the trademark owner. Under certain circumstances, if an urgent action is required the court can also grant interim injunctions and search and seizure actions against the infringer.[23]

This protection granted under the UK act is not only for similar goods and services but also for goods and services which are similar to the registered trademark. Although in case of an identical mark on identical goods, the trademark holder is not required to demonstrate a likelihood of confusion.[24]

Legal framework for criminal prosecution of a trademark infringer

Section 92 of the Trademark Act, 1994 deals with criminal provisions relating to trademark infringement in the UK. As per Section 92 it is a criminal offence, to act with an intention to cause loss to another and to gain oneself by sale/hire/distribution of goods that bear a sign identical/similar to a registered trademark and the said acts are done without the consent of the trademark owner.

The UK Supreme Court in R v C & Ors[25] expanded the definition of criminal liability for trademark infringement by going beyond the traditional scope of counterfeiting. The Supreme Court held in the case that the provision of Section 92 would also apply to goods that are manufactured with the trademark owner's consent but are sold without his consent. Another case called R v Keane[26]held that in the cases relating to trademark infringement, the prosecution does not have to prove ‘mens rea' and also that the offence of infringing a trademark is one of near-absolute liability.[27]

The punishment under this section can range from an imprisonment for 6 months with/without a fine of 5000 GBP to a maximum of ten years' imprisonment with/without unlimited fine.

Counterfeiting and Infringement of Trademark in India : An in-depth analysis

Counterfeit goods have caused a great blow to the Indian Economy. The Authentication Solution Providers Association(ASPA) estimated that the Indian Government suffered a loss of INR 392 billion in 2014 due to counterfeit goods [28]

Further the FICCI Committee Against Smuggling and Counterfeiting Activities Destroying Economy released a report where it identified seven sectors which were affected the most due to counterfeiting: auto components, alcohol, computer hardware, personal goods, packaged goods, mobile phones, and tobacco[29]. The report found that the direct tax loss to the government in these seven sectors alone was 3,504 crores in 2012, apart from an indirect tax loss of 22,686 crores[30].

Further, the total loss incurred by the seven industries was 72,969 crores[31]. From these numbers itself one can fathom how big the counterfeit industry is in India. Thus, it is clear that apart from hurting businesses themselves, the government loses out on a huge amount of money. This money could have been used by the government to carry out social welfare schemes so ultimately it is the common public that loses out.

Legal framework governing counterfeiting and trademark infringement in India

When people sell a counterfeit good, they copy the mark of another brand in order to deceive customers into thinking they are buying the real thing. For instance, a person might use the iconic Nike swoosh mark on a shirt and give people the impression that it is indeed a Nike shirt. When the registered mark of a person is misused by an unauthorized person in this manner, then the trade mark holder can file a case for infringement under Section 29 of the Indian Trade Marks Act, 1999. Section 29(1) states that trademark is infringed when a person who is not the trade mark holder, uses in the course of trade in an unauthorized manner, a mark which is identical with, or deceptively similar to, the trade mark in relation to goods or services in respect of which the trade mark is registered and in such manner as to render the use of the mark likely to be taken as being used as a trade mark. When selling counterfeit clothes the person is clearly doing so in the course of his trade.

Further, the trademark is identical in most cases because the whole idea behind counterfeiting is to benefit from another trade mark owner's goodwill. Section 29(6) further clarifies that a person uses a registered mark if he affixes it to goods or the packaging thereof and offers or exposes goods for sale, puts them on the market, all of which is done when a person sells counterfeit clothes.

Further in the case of counterfeiting, the question of deceptively similar as mentioned in Section 29 does not arise, as these goods are blatant copies of the trademarked goods. Thus, the plaintiff does not have to prove anything else once it is found that the counterfeiter has used the identical mark[32]. Whereas when the mark is not identical, the plaintiff would need to establish the similarity and how it would likely confuse the consumers[33].

However, an important thing to note about Section 29 is that it only applies if the mark is registered. Thus, under the statute, only a registered trade mark holder can file for infringement.

In case a trade mark is not registered, one can avail of the common law remedy of passing off. Section 27(2) of The Trade Marks Act, 1999 states that just because a trade mark is not registered, will not act as a bar against a person who is pursuing an action for passing off. However, in the case of passing off, the plaintiff has to fulfil certain criteria for successfully bringing a suit of passing off.

In the case of Warnick BV v Townend & sons (Hull) Ltd (1980), Lord Diplock stated five essential characteristics of a passing of action [34]. Soon, however, the requirements of a passing off action crystalized into three elements which is referred to as the classic trinity[35].

This was laid down in Reckitt & Coleman Products Ltd v Borden Inc where Justice Oliver laid down the three elements required to successfully establish a case for passing off which is, the goods of the plaintiff have a reputation or goodwill attached to it, misrepresentation by the defendant to the public, and damage due to the misrepresentation caused to the plaintiff[36].

In the case Trego v Hunt, Lord Macnaghten defined goodwill as:
the whole advantage, whatever it may be, of the reputation and connection of the firm, which may have been built up years of honest work, or gained by the lavish expenditure of money[37].

Thus, the definition as propounded by the learned Lord Macnaghten when putting it into the context of the first prong of the classic trinity seems to suggest that the goods of the plaintiff must be such that it has earned a reputation in the minds of the public that has been built up over the years.

The second part of the test talks about the defendant misrepresenting his goods as the goods of the plaintiff and it is not necessary for the misrepresentation to be deliberate[38]. Further, the extent of the damage does not have to be tangible[39].

There have been cases where business selling goods have been protected from a potential threat as in the case of Tattinger SA v ALbev Ltd, where the court did not require for a show of damage or loss of trade[40]. Thus, a strong likelihood that the plaintiff would suffer damage to his goodwill in quick time was enough. However, when it comes to an international brand, one needs to ask the question whether the brand enjoys the same reputation or goodwill within India. For instance, Hollister is a well-known brand in the USA, but it is not well known to most Indians. Thus, Hollister might not be able to win a passing off action in India.

The Supreme Court looked at this issue of trans border reputation in the case of Toyota Jidosha Kabushiki Kaisha vs M/S Prius Auto Industries Limited[41] The court analysed an authoritative book and certain judicial decisions to come to the conclusion that when it comes to a foreign claimant pursuing an action of passing off, one should apply the territorial principle when it comes to establishing reputation[42]. The court stated that one had to see whether the goodwill of the claimant's mark was spilled over to a particular territorial jurisdiction. In ascertaining this spill over there need not be a real market for the goods, and that the presence of the goods in a more subtle form in the market is sufficient[43].

In this case, the court was trying to decide whether Prius had acquired goodwill in the Indian market, and held that although Prius had advertised in automobile magazines and there was information regarding it on the internet, it was not enough to establish goodwill in India, particularly because of the limited exposure Indians had to the internet when the case came up[44]. Further, there was very limited advertisement in India as well[45]. Which led the court to believe that even though one need not look at the general public, but the section of the population that dealt with such products when analysing goodwill, Prius had not established such a reputation[46].

Thus, an international brand that did not have a registered trade mark in India, would not be able to win a passing off action if there is no substantial awareness about it in India. Thus, a company like Hollister as discussed above would not be able to win a passing off suit because it has virtually no presence in India in the form of advertisements or otherwise.

Civil remedies available to a trademark owner
The relief available to a trade mark holder upon infringement is mentioned in Section 135 of the Trade Marks Act, 1999. It must also be noted that the section clearly mentions that these reliefs are also available for passing off actions as well. One can ask for an injunction, damages or an account of profits, and destruction of the goods. In the case of Nike Innovate C.V vs Ashok Kumar, Nike alleged that the defendant was selling counterfeit goods under their trade mark[47].

The Saket District Court found that the defendant was infringing on Nike's trademark and granted Nike a permanent injunction and damages which were not only compensatory in nature but punitive damages as well[48].

Legal framework for criminal prosecution of a trademark infringer in India

Apart from civil remedies, one can also avail criminal remedies. Section 104 of the Trade Marks Act, 1999 imposes a penalty on a person selling goods with false trade marks. The punishment for the same is imprisonment for a minimum of 6 months and maximum of 3 years along with a fine as well. Further, one can avail of the Indian Penal Code, 1860 (IPC) as well to punish people for counterfeiting. Unlike the Trade Marks Act, Section 28 of IPC, defines counterfeit. Under Section 415 of the IPC, the counterfeiter can be booked for cheating.

In fact, explanation b of the Section clearly describes a situation of counterfeiting of a trademarked good:
A, by putting a counterfeit mark on an article, intentionally deceives Z into a belief that this article was made by a certain celebrated manufacturer, and thus dishonestly induces Z to buy and pay for the article. A cheats. Further, Section 486 of IPC punishes someone selling goods using a counterfeit property mark and subjects him or her to imprisonment for up to a year or a fine or both.

Conclusion
Despite the massive scale at which counterfeiting takes place and the impact it has on the economy not enough is done to curb this problem. Although there are laws in place in India, one needs to look at how they are being implemented in practice. The police in India are already overburdened because of the high crime levels and limited financial resources which is why they tend to focus on violent crimes[49].

On the other hand, counterfeiting is seen as mostly a business problem, causing little harm to the public especially when seen in contrast with crimes against the body[50]. Thus, counterfeiting is low on the list of priorities of the police. The government needs to allocate more personnel and resources to curb counterfeiting especially in view of the fact that it loses out on vast amounts of tax revenue because of it.

End-Notes:
[1] The Global Brand Counterfeit Report 2018 (R Strategic Global, 2017)
[2] Counterfeit (Oxford Learner's Dictionary) accessed May 15, 2020
[3] Bryan A. Garner (ed), Black's Law Dictionary (9th edition, West, 2009) [402-403]
[4] Susan Ellis Wild (ed), Webster's New World Law Dictionary (Webster's New World, 2006)
[5] Organisation for Economic Co-operation and Development, The Economic Impact of Counterfeiting (1998) accesses May 15, 2020
[6] Ibid
[7] Ibid
[8] Organisation for Economic Co-operation and Development, Fake Goods, Real Losses: Trade in Counterfeit Products and the UK Economy accessed May 15, 2020
[9] International Chamber of Commerce, Global Impacts Study accessed on May 13, 2020
[10] U.S. Customs Seized Counterfeit Goods Worth $1.5 Billion in 2019 accessed on May 07, 2020
[11] Ibid
[12] City of New York Officer of the Comptroller, Bootleg Billions: The Impact of the Counterfeit Goods Trade on New York City (2004)
[13] U.S. Customs Seized Counterfeit Goods Worth $1.5 Billion in 2019 accessed on May 07, 2020
[14] Mondaq, India: Counterfeiting And Infringement Of Trademarks: The Thin Line Of Difference Between The Laws , accessed on May 07, 2020
[15] World Trademark Review, Procedures and strategies for anti-counterfeiting: United States , accessed on May 07, 2020
[16] Ibid
[17] Organisation for Economic Co-operation and Development, Fake Goods, Real Losses: Trade in Counterfeit Products and the UK Economy (2017) accessed May 13, 2020
[18] Ibid
[19] Ibid
[20] Ibid
[21] Ibid
[22] World Trademark Review, Procedures and strategies for anti-counterfeiting: United Kingdom , Accessed on 09 May, 2020
[23] Ibid
[24] Ibid
[25] R v C and ors [2017] UKSC 58
[26] R v Keane [2001] FSR 7
[27] Torbay Council v Satnam Singh (1999) 163 JP 744
[28] FICCI Committee Against Smuggling and Counterfeiting Destroying the Economy, Emerging Challenges to Legitimate Business in the Borderless World (2018)
accessed May 15, 2020
[29] FICCI Committee Against Smuggling and Counterfeiting ,Destroying the Economy, Counterfeiting, piracy, and smuggling in India: Effects and Potential Solutions (2018) accessed May 15, 2020
[30] Ibid
[31] Ibid
[32] Cadbury India Limited And Ors. vs Neeraj Food Products 142 (2007) DLT 724
[33] Ibid
[34] Duncan Spiers, Intellectual Property Law Essentials (Edinburgh University Press 2009) 70
[35] Ibid 71
[36] Ibid 71
[37] Gabriel A. D. Preinreich, The Law of Goodwill (1936) 11(4) The Accounting Review 318 accessed May 15, 2020
[38] Duncan Spiers, Intellectual Property Law Essentials (Edinburgh University Press 2009) 71
[39] Ibid 71
[40] Ibid 71
[41] Toyota Jidosha Kabushiki Kaisha vs M/S Prius Auto Industries Limited (2018) 2 SCC 1
[42] Ibid
[43] Ibid
[44] Ibid
[45] Ibid
[46] Ibid
[47] Nike Innovate C.V vs . Ashok Kumar (2017)
[48] Ibid
[49] FICCI Committee Against Smuggling and Counterfeiting ,Destroying the Economy, Counterfeiting, piracy, and smuggling in India: Effects and Potential Solutions (2018) accessed May 15, 2020
[50] Ibid

Written By:
  1. Sandhya Gaur
  2. Aandrita Deb
    [email protected]

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