Press reports indicate that a Chinese court recently handed down a lifetime prison sentence to the leader of a gang that made fake Hermes handbags.  The leader’s accomplices were sentenced to terms ranging from seven to 10 years.  In the past, Chinese courts have handed down prison sentences ranging from three to seven years for counterfeiting. The scale of the counterfeit Hermes operation was certainly quite large – the gang was found to have some US$15 million worth of fake goods in its possession – yet the sentences still sent shockwaves around the word.  As far as I am aware, this is the first time that anyone has received a life sentence for counterfeiting. 

This story is interesting for a number of reasons. First, it should go some way to removing the perception that China does not take intellectual property rights seriously.  Whilst China’s efforts to provide adequate protection for the rights of foreign companies may have been somewhat lacking in the past, this is changing rapidly – something that I can attest to after having attended the recent Global IP & Innovation Summit in Shanghai.  This change of behaviour is probably down to self-interest more than any desire to appease the West - with China fast becoming the next economic superpower, Chinese companies have as much of an interest in protecting their intellectual property rights as their western counterparts do. A Chinese politician was quoted as saying this in relation to the life sentence:   ‘If it was foreigners demanding that we protected intellectual property rights five to 10 years ago, now we are demanding this ourselves. If there isn’t a comprehensive system for protecting intellectual property rights, and a serious attack on (infringements), our own economic transformation and upgrading will fail.’

The story is also interesting because it relates to the luxury goods market. In the past, Chinese courts have handed down the most severe sentences to counterfeiters of pharmaceuticals and other health-related goods, presumably because of the public health consequences associated with such counterfeiting. The fact that a court has now handed down the longest-ever sentence to a counterfeiter of handbags is significant and can be seen as recognition of the problems that luxury goods manufacturers face in the emerging economies, where there is a seemingly insatiable demand for high-end Western labels.   A similar trend has certainly been recognised in another BRICS country, Russia, where luxury goods company Richemont recently took a case all the way to the Russian Federal Supreme Court.  Richemont managed to persuade the Supreme Court that a Russian company called Ritter Gentleman should not be allowed to register for clothing two trade marks that Richemont uses and has registered for watches, Jaeger-Le Coultre and Vacheron.  The court, which overruled decisions of two lower courts, was apparently prepared to accept that use of these marks on clothing could lead to consumer confusion.  A World Intellectual Property Organisation (WIPO) official was quoted in the Financial Times as saying this in relation to the case:  ‘There is an added temptation with luxury companies because of the prestige associated with their brands.’

The story also puts the spotlight on counterfeiting.  But what exactly is a counterfeit product in the context of intellectual property rights, and how does it differ from a product that simply infringes an intellectual property right? For many people a counterfeit means an exact or near-exact imitation of a product, but in South Africa the term has a wider meaning.  South Africa has a piece of legislation that deals specifically with counterfeiting, the Counterfeit Goods Act of 1997, which creates various criminal offences and establishes mechanisms for seizing counterfeit goods. The act defines a counterfeit both as a ‘substantially identical’ copy, as well as a ‘colourable imitation’ that is ‘calculated to be confused'.  The act has been examined by the Supreme Court of Appeal in two cases involving the companies Gap and Puma, and as a result of these decisions we know that in South Africa cloning is not required in order for a product to be regarded as a counterfeit. In fact, a product can be a counterfeit even if the manufacturer of the copied product has never manufactured goods of that type, provided that such goods are covered by the manufacturer’s trade mark registration.  So, for example, if you copy the Puma trade mark but apply it to a type of shoe that Puma doesn’t even make, it’s still a counterfeit. Or, to use an example from the world of finance mentioned by the judge in the Puma case, it would be no defence to say that the R300 note you’ve produced isn’t a counterfeit because there isn’t a real R300 note.  What is required for something to be a counterfeit rather than a mere infringing article, however, is an intention to deceive the public, something that is not a requirement for a straightforward infringement. 

Which brings us to a final interesting aspect to consider:  it puts the spotlight on the criminal aspects of intellectual property law.  Infringements of intellectual property rights are usually dealt with in the civil courts, with the owner of the right suing the infringer for an interdict and possibly damages, but there are a number of criminal offences too.  The Counterfeit Goods Act  provides that it is  an offence for anyone to manufacture, possess, sell, exhibit in public, distribute for the purposes of trade,  or  import counterfeit goods if they knew ‘or had reason to suspect'  that the goods were counterfeit.  The penalties that can be imposed are severe: for a first offence an offender can be slapped with a fine of R5 000 or a prison term of up to three years per article; in the case of a subsequent offence, these go up to R10 000 or five years imprisonment per article.  Other statutes create offences too, for example the Copyright Act makes it an offence to knowingly sell infringing copies of works that enjoy copyright.

Infringing intellectual property rights can be a very dangerous game. Especially if you do so knowingly!