Practice Areas Review: Counterfeiting & Piracy

Preventing and Combating Online Counterfeiting

Alexander PAKHARENKO

Alexander PAKHARENKO

Partner, Attorney-at-Law, Ukrainian Patent and Trademark Attorney, Pakharenko & Partners. Mr. Pakharenko provides a full range of services in the field of intellectual property, including the receipt, management and protection of intellectual property rights both through administrative (before competent authorities) and judicial proceedings. He is a leading expert in Ukraine in anti-counterfeiting and anti-piracy issues.

PROfile

PAKHARENKO & PARTNERS

Address:
Business Centre Olimpiysky,
72 Velyka Vasylkivska Street, Kiev, 03150
Tel.:
+380 44 593 9693
Fax:
+380 44 451 4048

IP and Law Firm Pakharenko & Partners was established in 1992 and has offices in Kiev and London. As a firm providing full IP service coverage we are keen on developing successful protection and enforcement strategies for our clients, covering the development of IP portfolio, acquisition of IPRs, commercialization of IPRs, enforcement and management of IPRs including patents (inventions and utility models), designs, trademarks and geographical indications, domain names, copyright and related rights, rights of plant breeders at both national and international level. 

The firm provides assistance to national and foreign clients in securing and enforcing their intellectual property rights in Ukraine and CIS countries.

The company’s lawyers have been involved in anti-counterfeiting and anti-piracy activities since the implementation of the relevant provisions on IPR enforcement in Ukrainian laws.

Our staff also has expertise in pharmaceutical law, competition law, media law, corporate and commercial law, commercial litigation.

We are able to service the needs of our clients around the world through our established network of associates. The special relationships developed by our company with many attorney firms in key foreign markets provide ongoing, substantial benefits to our internationally focused clients.

 

Main practice areas:

Intellectual Property Law, Anti-Counterfeiting and Anti-Piracy Operations and Legal Support, Media Law, Advertising Law, Competition Law, Pharmaceutical Law, Corporate Law, Customs Law, Commercial and IP Litigation.

 

Membership in organization:

The company and its members are actively involved in the operation of a number of national and international intellectual property associations, such as: AIPPI, INTA, FICPI, LES, MARQUES, PTMG, ECTA, ACG, IACC, ICC/CIB, ICC Ukraine, IBA, European Business Association (EBA), American Chamber of Commerce (ACC) in Ukraine, Ukrainian Patent Attorney’s Association (UPAA), Ukrainian Alliance Against Counterfeiting and Piracy (UAACP) which is a member of the GACG Network, CIOPORA.

 

One can hardly imagine everyday life without the Internet. Modern people use the World Wide Web for getting information, communication, making money, shopping, entertainment. The Internet is a virtual reality with endless possibilities. Unhappily, these possibilities are often exploited by various rogues and IP thieves who sell fake goods through online shops. Consumers are attracted to such e-commerce websites due to low prices, round-the-clock availability and direct delivery.

Studies carried out in April 2015 by the EU Observatory on Infringements of Intellectual Property Rights under the Office for Harmonization in the Internal Market (OHIM) in collaboration with Europol, proved that counterfeiting becomes very profitable business that exists due to the permanently high consumer demand for cheap products and the low cost of producing and distributing of fakes, while infringers are not deterred by severe punishment for this type of crime.

Some websites selling fakes may be of such a high quality that they can even compete with the right holders’ websites. Infringers may operate in several countries at once, evading capture, and may launch new websites after taking down the old ones overnight without losing their customer base.

The Scale of the Problem and its Consequences

Counterfeit goods are not only damaging the reputation of counterfeited brands but, first and foremost, they may pose a serious threat to consumers’ life and health in case of low-quality medicines, cosmetic products, toys, spare parts for cars and aircrafts, agricultural chemicals, etc. Counterfeiting also has a negative impact on economies by depriving them of billions of Euros of potential tax revenues and attributing to growing corruption and crime, lack of fair competition in the market and reducing employment. 

By generating profits for organized crime groups this illegal business has already become an integral part of a huge criminal industry and may only be compared to arms and drug trafficking.

From March 2015 to February 2016 the EU Observatory on Infringements of Intellectual Property Rights under OHIM held a series of studies into sectors known to be vulnerable to intellectual property rights infringements which confirmed that the Internet is the main tool for distributing counterfeits and the disappointing results of the studies can be seen in the table below.

Lost revenues translate into many lost jobs in each sector as legitimate manufacturers sell less than they would have done in the absence of counterfeiting and, therefore, employ fewer people.

Thus, illegal trade in counterfeits online poses threat not only to the economic interests of manufacturers of original products but also to the global economy which is based upon the protection of IP rights.

Employing Global Approach

Since counterfeiting and piracy is a global problem and the Internet has no borders, it should be addressed on an international level via the consolidated efforts of all countries by tracking supply chains and payment schemes, disrupting illegal production, improving the system of legal prosecution for dismantling illicit networks, raising consumer awareness on intellectual property rights and possible consequences of buying fake goods. IP rights will work most effectively where they are respected by potential consumers and where legitimate consumer interests in access to those rights are respected by rights holders.

For this very reason there is a need to improve the legal framework and ensure that there is an effective infrastructure which allows rights holders to enforce their rights where they are infringed, but within which rights holders understand the role they must play in providing appropriate routes for consumers to access their IP legally.

Ukrainian Realities

For the time being the fight against counterfeiting in Ukraine is carried out directly by manufacturing companies (right holders) who protect their brands and by state authorities aiming to protect consumers from fake, low-quality goods. However, to increase the effectiveness of anti-counterfeiting efforts in the Internet it is necessary to introduce a number of legislative changes and strengthen law-enforcement activities in this sphere.

One of the priority legislative measures is providing notaries with the power to secure evidence obtained from the Internet by certifying web-pages containing information on the infringement of IP rights. Moreover, a hosting provider’s obligation to notify a website owner about the right holder’s complaint on the activity of the website and report to a right holder about the forwarding of his complaint should also be formalized in legislation. These two legislative innovations would allow a right holder (or his representative) to promptly perpetuate an offence and obtain documentary proof of illegal activity on the Internet.

Strengthening the capacity of competent law-enforcement officials can be achieved by vesting the responsibility of fighting online counterfeiting on a specific department of the National Police. One of the mechanisms for implementing this initiative may be establishing a single central authority as a point of contact for all right holders concerned, which designates the territorial bodies to carry out further actions within administrative/criminal proceedings and coordinates the activity of the said bodies. Furthermore, it is also essential to step up the administrative liability of persons involved in online sales (i.e. of counterfeit goods) without their registration as an economic entity under the established procedure (according to Article 164 of the Administrative Procedure Code of Ukraine).

Consumer Rights Protection    

There is an increasing need to restore the state authorities responsible for protecting consumer rights. The tough political situation in Ukraine, the moratorium on inspections of small and medium businesses and reforming the public authorities responsible for consumer rights protection resulted in a situation where Ukrainian consumers have in the last two years been restricted in their ability to protect their rights, particularly in the Internet. Now there is the hope that the situation will change for the better with the launch of the newly-established State Service of Ukraine on Food Safety and Consumer Rights Protection.

It should be noted that the effective fight against the increasing amount of counterfeits in the Internet is possible only via joint efforts of all stakeholders involved such as manufacturers, non-government organizations and public authorities, and broadening cooperation between market participants in ensuring economic security. A set of tools has already been developed by our European colleagues to block the possibilities of fraudulent use of the Internet.

In particular, effective practices of consumer protection are proposed by the Canadian Anti-Fraud Centre (CAFC), that sets up a cooperation scheme between financial institutions (Bank, Visa, MasterCard, etc.), trademark owners, public authorities and consumers. All Canadian citizens (residing in Canada or abroad) and all foreign citizens that purchased counterfeit goods from a Canadian company may turn to the CAFC. The system has the following benefits:

— consumers get their money back whenever counterfeiting has been proven;

— counterfeiters forfeit the goods (which are destroyed to prevent resale), and fail to recoup production costs, mailing costs, etc.;

— the trader’s bank account is closed by the bank (this takes 1-5 days) and the trader is banned from the Visa or MasterCard network;

 — Canadian financial institutions have a zero-tolerance policy towards sellers of counterfeit goods.

— the competent authorities in the fight against counterfeiting provide the financial institutions with a notification of investigation and termination, along with a copy of a cease and desist order.

Awareness-raising Among Consumers

Another important element of combating counterfeiting is the sharing of knowledge between a wide audience. There is a need to change consumer’s attitude towards purchasing fake goods,  build respect for intellectual property rights, shape rational model of behavior and raise public awareness on the consequences of purchasing counterfeit products.

 

Industrial sector vulnerable to counterfeiting Annual revenue loss of legitimate EU manufacturers from the sale of counterfeits, EUR billion Annual cost of counterfeiting for the economies of EU-member states from loss in taxes, social contributions and VAT

Perfumes, cosmetics, other personal care products (such as sunburn protection creams, shampoos, etc.)

4.7

1.7

Clothes, shoes and accessories (like ties, scarves, belts and gloves)

26

8

Sports equipment (like footballs, sports helmets, tennis rackets, skis, gym equipment and skateboards)

0.5

0.15

Toys and games (dolls, action figures, stuffed animals, board games, toy musical instruments, model trains and puzzles)

1.4

0.37

Jewellery, watches, handbags and luggage

3.5

1.1