Hefty fines for US, Canadian counterfeiters, slap on the wrist for South Africans

Such goods range from pharmaceutical products, to shoes and clothing, to electronic goods and foodstuffs ,among others.

Annually, counterfeit goods worth an estimated USD600 billion (6 percent of world trade) are traded around the world and, unfortunately, Africa has become a popular dumping ground for such goods.

According to the executive director of the Kenyan Anti-Counterfeit Agency, Gregory Munyao, Kenya loses revenue and taxes to the value of KES19 billion (USD211 million) annually. It is also estimated that the private sector in Kenya is losing approximately KES50 billion (USD556 million) annually.

I battle with the issue of counterfeiting on an ongoing basis and am all too familiar with the problem - particularly in Africa.

Pale in comparison

Despite the risks to local economies, civil court orders and criminal convictions in Africa pale in comparison to those being granted against counterfeiters in Europe and North America. In South Africa, the Counterfeit Goods Act prescribes a maximum sentence of R5000 per item, and/or three years imprisonment in the case of a first offence, or R10 000 and/or five years imprisonment in the case of a second conviction.

While these penalties are steep, the maximum sentences are hardly ever applied. However, in the US and Canada, two recent decisions have highlighted just how serious dealing in counterfeit goods is considered to be in those jurisdictions.

In New York, the Federal Court ordered online counterfeiters to pay damages to Tory Burch, a luxury fashion brand, in the amount of USD164 million. This is believed to be the largest damages award in the fashion industry ever. The counterfeiters had created 232 professional-looking websites through which to sell counterfeit goods bearing the trademarks of Tory Burch.

Highest damages and costs

More recently, in June this year, the Federal Court in Canada issued the highest damages and costs award to date in Canada against counterfeiters dealing in Louis Vuitton and Burberry goods. Damages in the amount ofUSD$2.48 million, excluding legal fees, were awarded. Previously the highest order for damages was in the amount ofUSD980 000, also in favour of Louis Vuitton.

Several recent successful seizures of large quantities of counterfeit goods have again put the spotlight on the efforts of our enforcement agencies to stem the flow of these products into South African markets. In January this year, the Hawks seized five containers full of counterfeit goods at Durban harbour. The goods, which included sunglasses, watches, shoes and clothing, were estimated to be valued at R120 million. In operations conducted in the first week of July this year, officials seized hundreds of thousands of counterfeit goods at buildings in the Johannesburg CBD. These included razor blades, children's toys, clothing, shoes and personal hygiene products. Similar operations have taken place in November and now in December.

Potential drawback

One potential drawback of the South African legal framework, particularly insofar as it relates to trademark infringement and counterfeit goods, is that it does not provide a cost-effective and practical basis on which to claim damages against counterfeiters."

To be awarded damages in South Africa the plaintiff has to prove his loss, which is often impossible in the counterfeiting scenario. Counterfeiters hardly ever keep accurate financial records and, more often than not, operate under false names and aliases. It is for this very reason that African countries, including South Africa, are such easy targets for counterfeiters. "While the South African Criminal Procedure Act does make provision for compensation to be awarded to parties who have suffered damage to, or loss of, property resulting from offences, such compensation can only be applied for once a conviction is obtained. Even then, the trademark proprietor has to prove the value of his loss - a virtually impossible task in the circumstances.

What can companies in South Africa do?

The obvious question is, thus, what can companies in South Africa do to protect their rights (as much as possible within the current legal framework)? First and foremost, it is imperative that companies register their trademarks. Once a company's trademarks are registered, the next step is to arrange for recordal of its trademarks with Customs. Customs keeps a central database of all qualifying trademarks (i.e. registered or well-known trademarks), and copyright, which can be accessed by its officials on the ground. Customs officials use this database to determine whether certain trademarks are protected and, if so, who to contact in order to have samples of suspected counterfeit goods examined and checked.

Once goods are seized by customs, the proprietor of the relevant trademark will have the option of taking either criminal or civil action, or both, against the importer, manufacturer or seller of the goods. While such action will not lead to massive damages being awarded to the trademark proprietor, the actions will, if successful, lead to the destruction of the goods and, hopefully, the imprisonment of the counterfeiter.

While massive damages claims against the manufacturers, importers and sellers of counterfeit goods are not yet on the horizon, local companies should protect their trademarks (and their businesses), by making use of the tools at their disposal. Failure to do so will result in our markets being overrun with counterfeit products, a scenario no developing country can afford.