Legal framework

Counterfeit Goods Act

The Counterfeit Goods Act (37/1997) is specifically designed to combat the trade in counterfeit goods in South Africa and has its genesis in the Agreement on Trade-Related Aspects of IP Rights (TRIPs). The Counterfeit Goods Act was enacted to bring South African law into compliance with TRIPs.

Before the Counterfeit Goods Act came into force, enforcement against the trade in counterfeit goods was dealt with imperfectly by the Merchandise Marks Act (17/1941), the Copyright Act 1978 and the Trademarks Act 1993. These domestic laws created offences for only certain forms of trading in counterfeit goods, and lacked appropriate and effective enforcement mechanisms, procedures and penalties for combating counterfeiting. The enactment of the Counterfeit Goods Act resulted in simultaneous amendments to the above-mentioned domestic laws. The criminal provisions of the Copyright Act were retained and, where appropriate, can be used by the prosecuting authorities to include an additional criminal charge against a suspect.

Purpose

The Counterfeit Goods Act sets out streamlined and effective enforcement measures to enable owners of trademarks, copyrights and marks protected under the Merchandise Marks Act to take action against the counterfeiting of their products. Where major sporting events are held in South Africa, the rights holder in respect of those events could apply to the minister of trade and industry for certain marks to be protected in terms of Section 15 of the Merchandise Marks Act and those protected marks could then be enforced under the Counterfeit Goods Act.

Application

The act empowers inspectors, at the request of a rights holder or acting on their own initiative, to enter and search premises with a view to seizing counterfeit goods, including documentation relating to the acquisition or sale of counterfeit goods and the tools used to manufacture them.

To protect the rights of parties dispossessed of their goods, proceedings are subject to strict technical requirements and deadlines. Failure to comply with these requirements (eg, failure to institute civil or criminal proceedings within the specified timeframe) will result in the counterfeit goods being returned to the dispossessed party.

Definition of ‘counterfeit goods’

‘Counterfeit goods’ are defined as goods that unlawfully bear or embody a trademark or copyright belonging to another without authorisation, or that have the appearance of another’s goods. To constitute counterfeiting, an act must infringe (or give rise to the infringement of) a trademark right, copyright or both.

In practice, counterfeit goods are imitations of goods embodying an IP right or goods bearing spurious marks, being infringing articles in respect of an IP right (ie, the party that manufactures goods or applies the subject matter of an IP right to them, in so doing, infringes a copyright or trademark, or otherwise contravenes the Merchandise Marks Act).

The Counterfeit Goods Act does not extend to an unregistered trademark (unless the trademark is well known), common law rights or rights conferred by the Patents Act or the Designs Act.

Initiating seizure of counterfeit goods

Provision is made for the appointment of inspectors – namely:

  • any police official with the rank of sergeant or higher;
  • certain customs and excise officials; and
  • any person designated as an inspector by the minister of trade and industry by notice published in the Government Gazette. At present, certain officials of the Department of Trade and Industry have been designated as inspectors.

To ensure effective enforcement, the act confers wide-ranging powers on inspectors to search for, seize and detain goods that are suspected of being counterfeit. It is an offence to obstruct or hinder an inspector in performing his or her functions under the act.

Having received a complaint from a party with an interest in the goods that are the target of counterfeiting, an inspector may apply for a search and seizure warrant to enter any premises or vehicle to search for counterfeit goods, and seize and remove goods that are (or are reasonably suspected of being) counterfeit. In certain circumstances, inspectors may take these steps on their own initiative.

Dealing in counterfeit goods

The act prohibits certain conduct relating to counterfeit goods. This includes:

  • being in possession or control of such goods for the purpose of dealing in them;
  • manufacturing, producing or making such goods, except for private and domestic use by the party by which they were manufactured, produced or made;
  • selling, hiring out, bartering or exchanging such goods, or offering or exposing such goods for sale, hiring out, barter or exchange;
  • exhibiting such goods in public for the purposes of trade;
  • distributing such goods;
  • importing such goods into or through South Africa, or exporting goods from or through South Africa, except for the private and domestic use of the importer or exporter, respectively; and
  • disposing of such goods in any manner during the course of trade.

Section 2(2) provides that anyone that performs or engages in any prohibited conduct relating to counterfeit goods will be guilty of an offence if:

  • at the time of the act or conduct, it knew (or had reason to suspect) that the goods to which the act or conduct relates were counterfeit; or
  • it failed to take all reasonable steps in order to avoid any act or conduct of the nature contemplated in Section 2(1) from being performed or engaged in with reference to counterfeit goods. This provision is often used by the state to prove prior knowledge, as counterfeiters usually rely on lack of knowledge as a defence.

Lodging a complaint with an inspector

A complainant is a party with an interest in protected goods (including the lawyer, agent or representative of such a party), whether as the owner or licensee of an IP right or as an importer, exporter or distributor of protected goods. While it is common practice for lawyers to depose an affidavit of complaint dealing with formal requirements on behalf of the rights holder, an expert affidavit should be signed by a person duly qualified to determine the counterfeit nature of the goods in question.

The complainant must lodge a complaint, in the form of an affidavit, which must include the following:

  • material allegations that an act of dealing in counterfeit goods has been, is being or is likely to be committed (such allegation must be based on a reasonable suspicion and the affidavit should contain sufficient facts to support the conclusion);
  • information and particulars to the satisfaction of the inspector that the alleged counterfeit goods are prima facie counterfeit; and
  • sufficient information and particulars as to the subsistence and extent of the relevant IP right. When relying on trademark rights, the certificate of registration will suffice. However, as there is no registration process for copyright in South Africa, when relying on copyright, it is necessary for the complainant to prove ownership of the copyright and produce an affidavit proving the subsistence of copyright.

Inspector’s reaction

An inspector who is reasonably satisfied that the complaint meets the act’s provisions is entitled to take various steps thereunder if the complainant’s suspicions appear reasonable in the circumstances. An inspector must seek a warrant (from a judge or magistrate with jurisdiction) to conduct a search and seizure raid. When no complaint has been made, the inspector may, in certain circumstances, act on his or her own initiative, without a warrant, in relation to any act or conduct believed (or suspected) to be an act of dealing in counterfeit goods, subject to prescribed constraints. If an inspector acts on his or her own initiative, he or she must bring an application to confirm the actions taken. This application is to be sought from and given by a judge or magistrate (having jurisdiction) in chambers (and not in open court) within 10 days of the date of the actions taken.

Post-search and seizure procedure

Once an inspector has undertaken a search and seizure operation, he or she must give written notice of the seizure to the suspect and the complainant, specifying the actions taken and the address of the designated depot where the seized goods will be stored.

The notice issued to the complainant will state its right to lay a criminal charge against the suspect within three days.

While no time period is prescribed for giving this notice, current practice is for the inspector to issue such notice immediately.

Seizure of goods

An inspector who has seized any suspected counterfeit goods and any documentation (which will be crucial evidence in any civil or criminal proceedings) should seal them and record an inventory, each original version of which must be certified as correct by the suspect.

The seized goods must be stored safely at a designated counterfeit goods depot until its manager is ordered by the court or inspector to return, release, destroy or otherwise dispose of them.

The complainant will be responsible for monthly storage costs while the goods remain in the depot. Such costs may be recovered should the complainant pursue civil proceedings against the suspect.

Relief available

In addition to the quick and effective seizure of counterfeit goods by inspectors, the act empowers the courts to order (among other things) that:

  • goods found to be counterfeit be delivered up to the owner of the relevant IP right (or a complainant deriving title from such owner), irrespective of the proceedings’ outcome;
  • the accused or defendant disclose the source from which it obtained the counterfeit goods, as well as the identity of the persons involved (or ostensibly involved) in the import, export, manufacture, production or distribution of the goods and their channels of distribution; and
  • counterfeit goods and their packaging be destroyed, as well as any tools used by the infringer to manufacture, produce or make these or other such goods.

However, the court may also order that the seized goods be released at any time to any specified person (including the suspect). Goods will typically be released to a suspect where the court has made a determination that the goods are not counterfeit. The court may also order that the complainant pay damages in an amount determined by it, together with costs, to the suspect.

Other available measures include:

  • cease and desist letters or letters of demand (which are often the first legal step and are used in matters where the quantity of goods is low and the costs of litigation are not justified); or
  • civil litigation against the perpetrator.

Usually, the latter proceedings are instituted where the provisions of the act are not applicable (eg, where the rights holder wishes to take action in cases where the trademark or copyright infringement does not fall within the ambit of the act). These civil proceedings will also be invoked in cases relating to patents, designs, plant breeders’ rights and common law rights for passing off and unlawful competition.

Border measures

Section 15 of the act deals with the powers of Customs in relation to counterfeit goods being imported into South Africa. A rights holder may apply to the commissioner of customs to seize and detain all goods that are suspected of being counterfeit and that are imported into or enter South Africa during the period specified in the application. Rights holders are encouraged to record their rights with the commissioner, failing which Customs will not assist with border enforcement.

In practice, when an application is filed and accepted by the commissioner, the customs officials at all ports of entry will be notified and will be on the alert for suspected counterfeit products bearing this right.

When a consignment of suspected counterfeit goods is detected, the customs authorities should detain it and immediately notify the rights holder or its local representative (usually, local lawyers).

Samples of the suspected counterfeit goods will be made available for inspection and Customs will require an affidavit (within five working days) confirming that the goods are counterfeit; failing this, the goods will be released to the importer. An extension may be requested and the complainant will usually be given an additional five days within which to file the affidavit.

Having filed the affidavit, the customs official will then (in his or her capacity as an inspector) apply for a search and seizure warrant and formally seize the offending goods. The aforementioned post-search and seizure procedure applies to customs seizures.

Criminal prosecution

If, following the issuance of a seizure notice, the complainant wishes to bring criminal charges against the suspect for dealing in counterfeit goods and to request that a criminal investigation into the matter be undertaken, it must do so by lodging an appropriate affidavit within three days of the seizure notice being issued.

If no charges are brought within three days, the seized goods must be released to the suspect, unless the complainant exercises its right to institute civil proceedings.

Where a criminal charge is brought against a suspect, the state (represented by the National Prosecuting Authority) must inform the suspect in writing, within 10 working days of the seizure notice being issued, of its intention to institute a criminal prosecution against it. If this notice is not issued, the seized goods must be returned to the suspect, unless the complainant has exercised its right to institute civil proceedings against the suspect.

While a primary criminal charge will apply to dealing in counterfeit goods, rights holders are encouraged to consider any additional criminal charges that could apply. These will depend on the nature of the product. For example, if the product is subject to compliance with a South African national standard, non-compliance with the national standard would constitute a criminal offence under the National Regulator for Compulsory Specifications Act 2008.

Offences and penalties

An individual convicted of dealing in counterfeit goods is liable, in the event of a first conviction, for a fine of up to R5,000, imprisonment for up to three years or both for each article to which the offence relates.

In the case of a subsequent offence, the maximum fine increases to R10,000 and the maximum period of imprisonment to five years.

As it is unusual for the courts to impose the maximum penalties, the inclusion of additional charges against suspects would encourage the courts to hand down heavier sentences. The nature of the counterfeit goods is also relevant for sentencing purposes, as the court can take into account any risk to human or animal life or health and safety, or any danger to property, which the counterfeit goods in question may present.

Civil enforcement

If a complainant wishes to institute civil proceedings against a suspect, it must give written notice (within 10 days of the seizure notice being issued) of its intention to do so. Otherwise, the seized goods must be returned to the suspect, unless the state has notified the suspect of a pending criminal prosecution.

Having given written notice to the suspect, the prospective plaintiff (or the state in criminal proceedings) must institute proceedings within 10 working days. Otherwise, the seized goods must be returned to the suspect.

It is essential for rights holders that intend to pursue a matter under the act to understand these post-seizure requirements.

Anti-counterfeiting online

Online dealing in counterfeit goods can be enforced under the Counterfeit Goods Act using the procedures outlined above. Note should also be taken of the Electronics Communications and Transactions Act (25/2002), in particular Chapter XI on the limitation of service providers’ liability.

Preventive measures/strategies

Due to the sophisticated nature of the illegal activities conducted by particular importers, manufacturers and distributors, it is essential that rights holders develop an anti-counterfeiting strategy that includes an investigative strategy to combat the trade in counterfeits. For this purpose, local counsel and investigators that specialise in anti-counterfeiting can be of great assistance in advising on and recommending appropriate strategies. In the recent past, these strategies have proven to be crucial in identifying local manufacturing facilities and warehouses storing counterfeit goods.

The domestic customs and police authorities have always encouraged rights holders to meet with officials to provide brand identification training and to furnish them with any information that will help them to be proactive and prevent the import and trade of counterfeit goods. While local manufacturing is on the increase, most counterfeit goods are imported into South Africa. Working with domestic customs and police authorities, especially at the harbours and airports, is an important part of any anti-counterfeiting strategy.

Mohamed Khader

This article first appeared in World Trademark Review. For further information please visit www.worldtrademarkreview.com.