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Fighting Counterfeit in Lebanon January 1, 2012

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Introduction


Intellectual Property (IP)1 is increasingly becoming one of the main priorities of both Businesses and Individuals in the 21st Century. Its value, despite the difficulty in measuring it due to its nature2, has become a main concern in today's economy, referred to as the “new IP Economy”. Few things happen in this new economy without ideas leading to innovation: it is the creation, acquisition and exploitation of exclusive, valuable, and powerful IP rights, which build strong and successful businesses3.

These rights are becoming major players in the growth of multinationals as much as SMEs, thus inside any strategic or forward thinking entities. IP Rights (or IPRs) are treated now as core corporate assets (intellectual assets or IAs).  It is worth keeping in mind that any misguided policy in managing a company's IPRs will have direct negative effects on its future.

Moreover, knockoffs can seriously knock out some businesses4 which is why decision makers have to be vigilant about the IPRs of companies, and aware of the way they should be managed, to avoid any costly mistakes or lost opportunities, and thus expand the capacities of their company. Nowadays, the protection of property rights is considered one of “the keystones of a free and flourishing society”5.
 

I - Importance of Trademarks


All businesses own trademarks and other trade identity symbols. The evolution of IP has meant that without trademarks, no business entity can compete and survive in a free market economy6.
Usually, trademarks can be obtained at very little cost7 soon after, they will acquire a notoriety that will make them worth more than other assets. Trademarks constitute, on average, 18% of the total business value of leading companies8.

Furthermore, rights over a trademark can exist indefinitely through registration and its subsequent renewal, unlike patents and copyrights. However, in order to keep it "alive", a trademark owner has an obligation to monitor and police his rights.

Unfortunately, trademarks can still be attacked through different means, for example, they may be lost if not maintained effectively. So, it is important to recognize that trademarks have no real value except if they are protected and rights are enforced.
 

II - Fighting a worldwide “economic cancer”: the counterfeit industry9


Some consider counterfeiting the “crime of the century”; others consider fighting it a “Global Challenge”. It is preferable to consider the manufacturing and trade of counterfeit goods as an “economic cancer”. It is a problem amongst all economies, and presents a threat to, and has far-reaching consequences on, TM Holders, consumers and the Government. It is worth mentioning that counterfeiting is not merely a national concern, but an international issue. In 2005, the global market for counterfeit goods was estimated at 200 billion US dollars, from which 24.8 billion generated from the Middle East “Market”10. The counterfeit business is affecting “virtually all economies11” and has reached a total of between 5% and 7% of global trade12.
 

A - Threats on Consumers and society


Technical advancement is aiding counterfeiters in the production of exact imitations of original products, which can, amongst other things, harm consumers’ health and wealth, as well as damaging warranties.
  • Citizens’ health: Citizens’ health and safety are under “increasing threat from the industrialized production of fake(s)13” especially in what is referred to as dangerous fake goods such as medicines, car parts and foodstuffs14.
  • Citizens’ wealth: The counterfeit business effectively “steals” from its consumers, and can even ruin their property.
  • Consumers’ warranties and guaranties: In the case of counterfeit goods, the consumer’s normal warranties and guaranties are affected. These are usually offered with genuine goods only.
  • Environment: The destruction of seized counterfeit goods, alone, can be costly and “creates considerable waste15”, especially if the goods contain chemicals.


B - Effects on Government and Businesses


Governments and businesses, and thus the whole economy, are affected by counterfeit activities; their global losses from counterfeiting are estimated in the billions16. The main impacts are as follows:
  • Innovation:  “Wealth came from use of mind to make old products better and create new industries where nothing existed before17”. We live nowadays in a society, where economic growth depends heavily on creativity and innovation: this is why companies are investing increasingly in “intellectual capital”, which is “more vulnerable to theft18”, especially in industries which require substantial funding for their research and development, such as the pharmaceutical industry19.
  • Tax revenues or tax evasion: Counterfeiters do not pay taxes and under-declare the value of their goods, thereby making substantial profits without paying the relevant taxes to the Government20.
  • Corruption: Counterfeiting encourages corruption. Dealers require certain protection from law enforcement officials in order to perform this illicit trade. The protection of customs officials and police, for example, is acquired through corruption, usually bribery or blackmail.
  • Employment: Counterfeit results in an extensive loss of “legal” employment openings due to the shift of jobs employed by right holders to infringers, and thus, threatening the welfare of employees by not complying with health, safety and other regulations21. The authors of such illegal activities normally employ their workforce via illegal means, without paying any social security and insurance charges for example, and given the size of the industry, there is a “considerable number of people employed” especially on a distribution level22.
  • Criminal activities: Counterfeit activities are almost always linked to other criminal activities, such as money laundering, prostitution, human trafficking and drug trafficking. They can also be linked to terrorism and organized crime23.
  • Cost of anti-counterfeiting activities: The government spends a large amount on preventing counterfeit, including customs and law enforcement agencies, as well as judicial proceedings24.  
  • Local Industry: Counterfeit activities smother local industries25.
  • Lower foreign investment: Companies, which normally would be investing in foreign markets, may be unwilling to do so, particularly in the markets known to be at the forefront of counterfeit production.


III - Roadmap for a better IP environment


There must be a new approach in fighting counterfeit on a national, regional, and international level. The following set of guidelines might include responses on how to better the IP enforcement system:


A - Right Holders activities


Right Holders have a key role to play in fighting counterfeit. As a matter of fact, without their direct involvement no serious action can be taken. Counterfeit products have become high end products usually making it impossible for enforcement bodies to spot them without the direct involvement of right holders. The latter should cooperate with enforcement authorities “to uphold the rule of law” and commence legal actions on the correct grounds.


B - International cooperation


The international legal regime for enforcing the protection of IP rights should be improved26. Cooperation between governments through bilateral and/or multilateral International Treaties is highly recommended.  

The WIPO is playing a major and proactive role in the field of international enforcement of IP. Events related to counterfeit offer valuable opportunities to raise awareness, discuss possibilities, find solutions and share experiences. Coordination between the industry and the International Bodies is also a must.


C - Political Awareness and Legislation


Most of the current IP laws constitute a good ground for combating counterfeit. “Governments can achieve a great deal in combating IP crime by implementing effectively the existing legislative frameworks, and by giving real meaning and adequate support to the enforcement mechanisms already at their disposal27”.  

Politicians should realize that efforts to strengthen IP enforcement regimes are more of an investment than an expense: it “pays tangible dividends to economic development and society” since it “generates available revenues for additional public services28”. The introduction of legislative changes is necessary. New provisions should be adopted, such as:
  • Extending the circle of liability to include the legal persons such as companies;
  • Reach third parties facilitating the infringers in the production of counterfeit goods;
  • “Ensure that criminal penalties for IP theft reflect the magnitude of the crime and match existing legal penalties for the theft of physical merchandise, and that these penalties are applied to both online and offline IP transactions29”.


D - Courts


“Little can be achieved without the raising of awareness among members of the judiciary of the destructive consequences of IP crimes, and the need to meet out effective and deterrent penalties under national laws30”.The judiciary must take adequate, and therefore severe, judgments and even shut down production of any counterfeit goods facilities.  It is worth mentioning that Courts should also support the Brand Owner activities by giving them “fair compensation”: “the price for taking a counterfeit through court proceeding is much greater than the actual amount that a brand owner can recover from the infringer31”.  


E - Enforcement Bodies


“Improve the Enforcement” is a message that should be repeated, as frequently, and at as high a level as possible32. As a start, it is worth mentioning that there is insufficient government resources directed towards the enforcement of IP laws in many jurisdictions33, including Lebanon.

Without an adequate IP enforcement system, no factual results will be realized. Therefore, effective cooperation and an efficient communication structure between all enforcement bodies should be a primary aim.
  • Customs: Customs must take all measures needed to stop the import and export of counterfeit goods.
  • Police:The Police are carrying out numerous enforcement actions without being able to control the problem. Therefore, it is worth mentioning that the allocation of adequate resources to the Police is a necessity, if not an emergency.


F - Consumers and Social Awareness


One of the main pillars to fight counterfeit activities is the education of the Public, the “demand side of this nebulous market34”. Consumers should consciously stop dealing with counterfeit products. They should be aware of the dangers of counterfeit products. Therefore, stronger public diplomacy to broaden understanding of the public-health and consumer safety is required.


G - Establishing a National IP Enforcement Data Collection Center


Data collection is essential in combating counterfeit activities. Efforts and budgets should be done to establish a national IP Enforcement Data Collection Center where all information related to infringers should be gathered.  Such a Center should also act as coordinator between all enforcement bodies and should collect all necessary information.


H - Holding the landlord liable


One of the newer strategies, adopted by China, to tackle the problems of counterfeiting in retail and wholesale markets is holding the landlord liable. This strategy gives “the right of trademark owners to pursue civil and administrative liability against the landlords of street markets who provide premises to vendors known to be dealing in counterfeits35”, and thus, make the landlords partner in combating counterfeit. Such a strategy should be considered in Lebanon.


Endnotes


1 - Which include Trademarks, Patents, Copyrights or Authors’ Rights, Trade secrets and Know How
2 - SAVILL Brett, “IP and the competition for capital” published in “Building and enforcing intellectual property value: an international guide for the boardroom”, Globe White Page, 2002, p.38.
3 - WILD Joff, “Nasdaq companies at the forefront of the IP economy” published in “Building and enforcing intellectual property value: an international guide for the boardroom”, Globe White Page, 2002, p.14.
4 - NUNES Paul and MULANI Narendra: Can knockoffs knock out your Business?, Harvard business review, V86 Nmbr 10 Oct. 2008, p 41.
5 - KEPLINGER Michael, Combating Counterfeiting and Piracy: a Global Challenge published in WIPO Magazine February 2008 (Special Edition for the Fourth Global Congress on Counterfeiting and Piracy, p.2.
6 - GROW Michael, KLEIN Sheldon and COHEN Elizabeth, “Trademark litigation in the United States” published in “Building and enforcing intellectual property value: an international guide for the boardroom”, Globe White Page, 2002, p.104
7 - or even at no cost, if no one used it before!
8 - KEPLINGER Michael, ibidem.
9 - Counterfeiting is a term that describes the activities related to IPR infringement in general. It has many synonyms: copycats, copies replicas, fake, Knock-offs and imitations.
10 - Estimation for the year 2005; Organization for Economic co-operation and development (OECD), The economic impact of counterfeiting and Piracy: Executive summary, June 2007, p.3 www.oecd.org/dataoecd/13/12/38707619.pdf
11 -  Ibidem.
12 -  International Bar Association (Intellectual Property and Entertainment Law Committee): International Survey on Anticounterfeiting and piracy report, London, September 2008, p.5.
13 - “Customs co-operation and fight against counterfeiting and piracy in the Euro- Mediterranean Partnership” by Sandra WENS, in “Towards the Free Trade area: Euromed Market Programme (May 2002 – April 2009)” under the direction of Javier Sanchez
CANO, European Institute of Public Administration, 2009, p. 78.
14 - Ibidem.
15 - Organization for Economic co-operation and development (OECD), the economic impact of counterfeiting and Piracy: Executive summary, June 2007, p.14 www.oecd.org/dataoecd/13/12/38707619.pdf ; International Bar Association (Intellectual Property and Entertainment Law Committee): International Survey on Anti-counterfeiting and piracy report, London, September 2008, p.12.
16 - “ A new report indicates that the economic losses associated with counterfeiting and piracy extend well beyond the lost sales to legitimate businesses; they cost the G20 economies more than € 100 billion and put 2.5 million legitimate jobs at risk each year”: HARDY Jeff, “Flood of Fakes hinders business efforts to grow economy and pinches government budgets” in “Anti-counterfeiting
2010- a Global Guide”, published by BASCAP on www.worldtrademarkreview.com
17 - GRESSER Edward, Fighting the Pirate Boom, Progressive Policy institute, June 2007, p.3 (www.ppionline.org. )
18 - HARDY Jeff, ibidem.
19 - International Bar Association, (Intellectual Property and Entertainment Law Committee), ibidem.
20 - Such as, but not limited to corporate establishment taxes and tariffs, income tax, Value Added Tax, and Customs tariffs for import and export.
21 - International Bar Association (Intellectual Property and Entertainment Law Committee), ibidem.
22 - Transnational Organized Crime, Frank G. Madsen, Routledge Global Institutions, University of Manchester, 2009, p. 17
23 - Organization for Economic co-operation and development (OECD), The economic impact of counterfeiting and Piracy: Executive
summary, June 2007, p.12 www.oecd.org/dataoecd/13/12/38707619.pdf
24 - Ibidem.
25 - KEPLINGER Michael, ibidem.
26 - HARDY Jeff, ibidem.
27 - KEPLINGER Michael, ibidem.
28 - HARDY Jeff, ibidem.
29 - Ibidem.
30 - KEPLINGER Michael, ibidem.
31 - FLAME REASE Simmy, “The cost of faking it” in The Brief Magazine April 2008, p.43
32 - Official Journal of the European Union (2005/C 129/03), p.6.
33 - International Bar Association (Intellectual Property and Entertainment Law Committee), ibidem.
34 - HARDY Jeff, ibidem. “According to recent studies, 25% of consumers have purchased counterfeit goods. We need to do a better job of educating consumers and reducing the demand for fake goods”.
35 - For more information: SIMONE Joseph, “Holding the Landlord liable: New tools for the counterfeit crackdown in China”, published in WIPO Magazine N.6 December 2007, p.16.


Author

Rany J. SADER
CO-FOUNDER, MANAGING PARTNER
Rany-SADER.jpg
RANY J. SADER is a prolific author of legal books, such as the Reference Guide of Intellectual Property Jurisprudence and publications in Arabic, French and English. As President of the SADER law research center (affiliated to SADER Group, established in 1863), he has created and participated in many publications aiming at promoting the Rule of law in Lebanon and the Levant.

rany.sader@saderlaw.com

SADER & Associates

3rd floor, SADER building,
Dekwaneh, Beirut, Lebanon

Tel/Fax: +961 1 499 888
Mob: +961 3 055 056


sader@saderlaw.com