Waito Report 2011: Counterfeiting Crime a major challenge
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Waito Report 2011: Counterfeiting Crime a major challenge

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The WAITO Foundation’s 2011 report provides an international reference in the fight against organized crime and dangerous counterfeiting (Counterfeiting-crime©) prejudicing the stability of States ...

The WAITO Foundation’s 2011 report provides an international reference in the fight against organized crime and dangerous counterfeiting (Counterfeiting-crime©) prejudicing the stability of States and the security of their populations, and industrial sectors, whose responsibility it is to guarantee the protection of consumers.

Contribute to the fight against Counterfeiting:
http://www.waitofoundation.org

WAITO offers an innovative approach to the fight against Counterfeiting-crime®
For the health and safety of consumers. Counterfeiting affects our daily lives and is not longer limited to luxury brands.

Having been restricted to specialized networks for three months, the report is now publicly available for free.

'The problem of counterfeiting does not only an issue of seizure volumes and tax revenues, it also has a major
impact on consumer safety and national stability'

'This is no mean feat, but the health and safety of consumers and the protection of our democracies.'

Pierre DELVAL
Membre Fondateur
Directeur Général de WAITO Foundation

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Waito Report 2011: Counterfeiting Crime a major challenge Document Transcript

  • 1.      
  • 2.   2       IF2C   Report  2011    Editorial  team:  WAITO  Foundation,  Villa  Sise,  Ch.  Grand-­‐Montfleury  48,  1290  Versoix,  Switzerland  Tel.  +41  (0)22  566  87  30;  Fax.  +41  (0)22  566  87  40    Chairman:  Chemavon  CHAHBAZIAN    Director  general  and  Editor  in  chief:  Pierre  DELVAL    Advisors:  Alain  BAUER  and  Xavier  RAUFER    Public  relations:  Laurent  ULMANN    Coordinator:  Frédéric  HAHN    Technical  coordinator:  Nicole  AGHROUM    Translator:  Esther  BARRETT    Board  of  experts:       Alain   BAUER,   Professor   of   criminology   at   the   Conservatoire   National   des   Arts   et   Métiers   (Paris),   New   York   and   Beijing,   Member   of   the   Board   and   Chairman   of   the   WAITO   Foundation  Ethics  and  Code  of  Practice  Committee.   Ghazi  BEN   TOUNES,  Economist,  Member  of  the  WAITO  Foundation  Board,  Director  of  the   WAITO  Office  in  Tunis  and  Vice-­‐chairman  for  Public  Affairs  in  the  Arab  World.   Pierre   DELVAL,   Criminologist   and   forensic   scientist,   Director   General   of   the   WAITO   Foundation.     Bernard   MARQUET,   Representative   at   the   Parliamentary   Assembly   of   the   Council   of   Europe   for   Monaco   and   Reporter   for   the   MEDICRIME   Convention.   President   of   the   Commission   on   the   Environment   and   Living   Environment   of   the   National   Council   of   the   Principality  of  Monaco.  Member  of  the  WAITO  Foundation  Board.     Kunio  MIKURIYA,  Secretary  general  of  the  World  Customs  Organization  (WCO).     Marco   MUSUMECI,   UNICRI   programme   coordinator,   Member   of   the   WAITO   Foundation   Board.     Eric  PRZYSWA,  Expert  on  Cybercrime,  Risk05  blog  editor.   Xavier   RAUFER,   Criminologist,   Director   of   studies   and   research   at   the   MCC   of   Université   Panthéon-­‐Assas  Paris  II,  Chairman  of  WAITO  Foundation  Scientific  Committee   Pau  ROCA,  Secretary  general  of  the  Federación  Española  del  Vino.     Michèle   RUDLER,   Emeritus   university   professor,   holds   a   Phd   in   Pharmacy   and   is   the   former  Director  of  the  Scientific  Police  Laboratory  in  Paris.     Christophe   ZIMMERMANN,   Anti-­‐counterfeiting   Coordinator   at   the   World   Customs   Organization  (WCO)    Editor  in  Chief:  Pierre  DELVAL       www.waitofoundation.org     (Website  coordinator:  Nicole  Aghroum)    Copyright-­‐   This   confidential   report   is   the   Intellectual   property   of   the   WAITO   Foundation   all   rights   reserved.   No   part   of   this   publication  may  be  reproduced  or  diffused  under  any  form  or  by  any  means,  including  photocopies  and  recordings,  or  by  any  information  storage  or  recovery  system.    
  • 3.   3                      Counterfeiting-­‐crime©  A  major  challenge      Report  2011Copyright-­‐   This   confidential   report   is   the   Intellectual   property   of   the   WAITO   Foundation   all   rights   reserved.   No   part   of   this   publication  may  be  reproduced  or  diffused  under  any  form  or  by  any  means,  including  photocopies  and  recordings,  or  by  any  information  storage  or  recovery  system.    
  • 4.   4                                   Acknowledgements        The   WAITO   Foundation   wishes   to   thank   the   public   and   private,   European   and   international  organizations  that  have  assisted  us  and  contributed  to  the  drafting  of  this  report.      In  particular,  we  would  like  to  thank:       THE  WORLD  CUSTOMS  ORGANIZATION  (WCO-­‐OMD)   THE  UNITED  NATIONS  INTERREGIONAL  CRIME  AND  JUSTICE  RESEARCH  INSTITUTE   (UNICRI)   THE  DEPARTMENT  OF  RESEARCH  ON  MODERN  CRIMINAL  THREATS  (MCC)  OF  THE   UNIVERSITY  PANTHEON  ASSAS  PARIS  II   THE  FRENCH  CONTRUCTION  FEDERATION  (FBB)          The  proceeds  from  the  sale  of  this  report  will  be  allocated  in  their  entirety  to  the  operation  of  the  International  Forum  on  Counterfeiting-­‐crime©  (IF2C).  Copyright-­‐   This   confidential   report   is   the   Intellectual   property   of   the   WAITO   Foundation   all   rights   reserved.   No   part   of   this   publication  may  be  reproduced  or  diffused  under  any  form  or  by  any  means,  including  photocopies  and  recordings,  or  by  any  information  storage  or  recovery  system.    
  • 5.   5      Preface  (by  Alain  Bauer)    For  a  long  time,  counterfeiting  was  only  seen  as  a  threat  to  trademarks,  particularly  in  the  luxury  sector.      Then   came   the   time   when   the   issue   of   copyright   and   brand   licensing   was   overtaken   by  concerns  regarding  public  health  and  safety.      Counterfeit   medicines,   cigarettes,   aeroplane   parts,   electric   switches   and   milk-­‐bottles  made  their  appearance,  posing  new  risks  for  society.      Counterfeiting  does  not  just  concern  seizure  volumes  or  taxes.  It  also  represents  a  major  threat  to  consumer  safety  and  national  stability.      It   has   therefore   become   necessary   to   develop   means   to   analyse   these   problems,  overcoming  confusion,  particularly  in  terms  of  statistics,  over  the  questions  raised.    Three   problems   require   separate   attention:   real   fakes,   look-­‐alikes   and   forgery.   They   have  long  been  referred  to  using,  often  confused,  terms  and  classing  them  indiscriminately  as  smuggling,   counterfeiting   and   fraud   offenses.   The   central   issue   is   determining   whether  they  constitute  crimes  or  offenses.      For   us,   as   criminologists,   in   order   to   avoid   ambiguity,   these   issues   require   simple   and  clear  definitions:    -­‐ Real   fake:   a   fiscal   problem   created   by   the   channelling   of   genuine   products  towards  sectors  that  increase  profits  lost  elsewhere,  and  avoid  taxes.  Some  right  holders  are  accomplices  to  this  practice.      -­‐ Look-­‐alike:  a  technically  compliant  product,  manufactured  by  a  company  lacking  both   the   relevant   rights   and   patents,   producing   illegal   generics   -­‐   in   the   case   of   medicines-­‐  or   using   a   usurped   trademark,   without,   however,   endangering   the   consumer.   This   is   a  problem   concerning   the   protection   of   intellectual   property   rights   and   the   prejudice   of  right  holders’  interests.  Some  States  are  accomplices  to  this  practice.      -­‐ Forgery:   the   most   dangerous   scenario,   with   graver   consequences   for   consumer  safety   and   public   health   than   for   tax   revenues   or   right   holders’   interests,   and   constituting  a  major  social  problem.  In  the  May  2010  issue  of  the  journal  The  European  Files,  Professor  Gentilini   explained   that   a   fifth   of   his   patients   in   Africa   came   to   him   with   problems   caused  counterfeit  medicines.  Organized  crime  is  the  main  supplier  of  such  products.  The  WAITO  Foundation  refers  to  this  as  Counterfeiting-­‐crime©.      The  creation  of  a  coalition  of  interests  on  public  health  and  consumer  safety  is  therefore  crucial.   This   idea   of   control   implies   the   need   to   develop   and   implement   tools   and  mechanisms   managed   by   producers,   this   being   their   interests,   but   controlled   by   the  public   authorities,   this   being   a   necessity.   Public   health   and   safety   issues,   and   political,  economic  and  social  stability  objectives  require  the  construction  of  such  tools,  but  also  create  the  need  to  protect  sovereignty  and  the  criminal  liability  of  right  holders.  These  Copyright-­‐   This   confidential   report   is   the   Intellectual   property   of   the   WAITO   Foundation   all   rights   reserved.   No   part   of   this   publication  may  be  reproduced  or  diffused  under  any  form  or  by  any  means,  including  photocopies  and  recordings,  or  by  any  information  storage  or  recovery  system.    
  • 6.   6      should   be   deterrent   and,   above   all,   effective   judicial   tools,   but   they   should   also   be  technically   preventive,   providing   irrefutable   evidence   of   the   good   or   bad   faith   of   the  manufacturer.      For  example,  it  is  time  that  a  reliable  Community  database  was  built,  able  to  anticipate  counterfeiting   trends   on   an   international   and   regional   scale   in   order   to   take   timely  measures,  in  particular,  by  implementing  tailor-­‐made  preventive  and  deterrent  policies.      It  is  also  time  that  European  and/or  global  public  specifications  were  developed  on  the  characteristics   of   a   mandatory   mechanism   identifying   the   place   of   production   and   the  destination   market,   marking   every   product   and   packet,   whatever   the   contents,   and  ensuring  that  this  device  is  visible  and  legible.  Here  I  am  thinking  of  the  tobacco  industry,  but  this  also  concerns  the  pharmaceutical  industry,  both  at  wholesale  and  retail  level.      These   new   stages   also   require   judicial   customs   departments   that   are   better   equipped  and   prepared,   with   access   to   new   files   and   devices   enabling   them   to   guarantee   the  security   of   their   officers   throughout   their   operations.   This   requires   better   targeting,  which   explains   the   need   for   early   detection   mentioned   earlier.   This   has   been  demonstrated  and  recalled  on  various  occasions  since  09/11:  here  again,  we  must  move  from  standard  to  customized  procedures.      Equipping   and   controlling   everything   is   useless   unless   these   measures   are   correctly  adapted   through   cooperation.   Excessive   and   incoherent   control   kills   control.   The  effectiveness   of   the   device   is,   therefore,   important   and   requires   both   the   private   and  public  sectors  to  work  together,  putting  aside  any  personal  interests  and  disputes.    The  crisis,  which  has  boosted  crime-­‐  not  undergoing  a  recession,  as  it  demonstrates  on  a  daily   basis-­‐,   has   indicated   that   States   must   assume   a   proactive   regulatory   and  disciplinary   role,   that   they   are   not   just   another   partner,   but   must   deliver   instructions,  listen   and,   ultimately,   decide.   The   rehabilitation   of   public   service   is   of   major   importance  for   customs   authorities,   which   have   always   defended   its   values   with   remarkable  determination,  but  also  for  the  police,  which  supplements  the  law-­‐enforcement  system  at  an  intra-­‐territorial  level.      Therefore,  cooperation  is  required  between  producers,  consumers,  regulators,  customs  officers,   judges   and   criminologists.   But   this   is   only   one   stage   in   a   process   that   must  result  in  practical  measures  to  resolve  these  problems.  Otherwise,  contrary  to  what  we  have  long  believed,  failing  to  act  will  be  as  harmful  as  acting  incorrectly.      Public   opinion   is   always   highly   sensitive   to   the   way   in   which   States   combat   criminal  activities,  which  benefit  a  large  number  of  citizens.  They  blame  the  State  both  for  having  prevented   them   from   taking   advantage   of   it,   and   for   having   done   so   ineffectively.   This  difficulty,   or   schizophrenia,   that   exists   in   the   public   opinion   must   be   taken   into  consideration.   But   we   should   now   take   full   advantage   of   the   options   open   to   us   through  the  diagnoses  provided  by  volunteer  criminologists.  It  is  up  to  the  authorities  to  decide  which  type  of  therapy  they  wish  to  undergo.    The  WAITO  Foundation’s  role  is  therefore  essential  in  enabling  this  dialogue.  This  role  will  be  enhanced  within  the  International  Forum  against  Counterfeiting-­‐crime  (IF2C)  in  Copyright-­‐   This   confidential   report   is   the   Intellectual   property   of   the   WAITO   Foundation   all   rights   reserved.   No   part   of   this   publication  may  be  reproduced  or  diffused  under  any  form  or  by  any  means,  including  photocopies  and  recordings,  or  by  any  information  storage  or  recovery  system.    
  • 7.   7      Geneva,   in   partnership   with   UNICRI,   the   WCO   and   the   Chinese   Research   and   Studies  Centre  on  Counterfeiting-­‐crime  in  Beijing,  which  WAITO  is  setting  up  together  with  the  China  University  of  Political  Science  and  Law.  The  WAITO  Foundation,  with  the  support  of   UNICRI   and   the   WCO,   will   carry   out   its   public-­‐interest   mission   by   providing  information   for,   uniting,   communicating   with   and   establishing   partnerships   between  States  and  their  public  authorities,  civil  society  and  companies.  This  first  report  on  the  global   situation   of   Counterfeiting-­‐crime©,   witness   to   their   determination   to   combat  counterfeiting  as  an  enemy  of  democracy,  is  the  starting  point  of  this  mission.          I  hope  you  enjoy  the  read.      Alain  Bauer  Professor   of   criminology   at   the   Conservatoire   National   des   Arts   et   Métiers   (Paris),   New  York  and  Beijing  President  of  the  Ethics  Committee  of  the  WAITO  Foundation.          Copyright-­‐   This   confidential   report   is   the   Intellectual   property   of   the   WAITO   Foundation   all   rights   reserved.   No   part   of   this   publication  may  be  reproduced  or  diffused  under  any  form  or  by  any  means,  including  photocopies  and  recordings,  or  by  any  information  storage  or  recovery  system.    
  • 8.   8      Foreword   (by   Kunio   Mikuriya,   Secretary   General   of   the   World   Customs  Organization)    The   volume   of   illegally   trafficked   goods,   irresolute   criminal   legislations,   the   lack   of  consumer  information,  and  technological  development  all  contribute  to  the  escalation  of  counterfeiting  and  piracy.  One  only  needs  to  look  at  the  results  of  two  major  international  operations,   Operations   TIGRE   and   FRED   60,   carried   out   in   April   and   May   2011   by   the  World  Customs  Organization.    Operation   TIGRE,   from   11   to   15   April   2011,   involved   9   countries   and   13   ports   in   the  Central   America   and   Caribbean   region.   In   5   days,   more   than   3.5   million   counterfeit  products   were   intercepted,   including   19   tonnes   of   insecticides,   151,020   bottles   of   body  products   and   creams,   176,000   medicines,   648,000   spare   mobile   phone   parts   and   2  machines   used   to   manufacture   counterfeit   cigarettes.   It   would   appear   that   organized  crime   is   becoming   more   diverse   and,   in   particular,   targets   products   with   an   effect   on  consumer  health  and  safety.      Operation  Fred  60,  carried  out  from  9  to  13  May  2011  in  West  and  Central  Africa,  brought  together  20  countries  and  21  ports.  In  5  days,  125  containers  were  intercepted  containing  some   43   million   counterfeit   products:   more   than   8   million   medicines,   hundreds   of  thousands   of   spare   vehicle   parts,   thousands   of   toothpaste   tubes,   alcoholic   drinks,   food  products,  etc.    The   results   of   these   two   operations   alone,   confirm   this   as   being   a   major   pandemic  phenomenon.  The  only  way  of  overcoming  it  is  to  act  together  and  on  a  global  scale.      The  WCO  has  put  forward  a  concrete  action  plan  focusing  on  two  main  areas.      The   first   is   to   strengthen   the   capacities   of   customs   authorities,   through   a   committed  policy   on   education   on   legal   and   practical   aspects   in   developing   and   least   developed  countries,   which   are   prime   targets   for   counterfeiters,   by   promoting   risk   analysis  techniques.   To   this   end,   between   2010   and   2011,   the   Japanese   government   financed  training  in  some  140  countries.      The   second   focus   is   on   communication   between   stakeholders,   in   particular   customs  authorities,  the  private  sector  and  non-­‐governmental  organizations.      A  taskforce  on  counterfeiting  and  piracy  (CAP)  made  up  of  customs  representatives,  has  been   set   up   by   the   WCO   to   enable   customs   authorities   to   exchange   opinions,   experiences,  good  practices  and  initiatives.    Participants   also   include   the   members   of   the   Right   holders   Consultative   Group,   a   think  tank  attached  to  the  WCO  Secretariat,  which  works  collecting  the  opinions  of  stakeholders,  to  assist  in  taking  informed  decision.  This  is  not  an  institutional  body  of  the  WCO  in  the  same   capacity   as   the   technical   committees,   but   a   WCO   Secretariat   debate   and   advice  mechanism.  The  purpose  of  the  Right  holders  Consultative  Group  is  to  provide  the  WCO  with   the   direction   it   needs   to   effectively   address   the   practical   needs   of   right   holders   to  fight  against  counterfeiting  and  piracy,  and  to  offer  a  forum  for  exchange  on  cooperation  between  right  holders  and  customs  officials.    Copyright-­‐   This   confidential   report   is   the   Intellectual   property   of   the   WAITO   Foundation   all   rights   reserved.   No   part   of   this   publication  may  be  reproduced  or  diffused  under  any  form  or  by  any  means,  including  photocopies  and  recordings,  or  by  any  information  storage  or  recovery  system.    
  • 9.   9      To  this  end,  the  WCO  has  developed  an  interface  known  as  the  Interface  Public-­‐Members  (IPM).   This   is   a   user-­‐friendly   and   functional   instrument   that   provides   frontline   customs  officials   with   all   the   information   required   to   identify   counterfeit   or   pirated   products.   In  addition   to   information   on   the   products,   IPM   provides   information   on   regular   supply  routes,  packaging  characteristics,  previous  cases  of  counterfeiting,  right  holders’  contact  information  in  each  country  and  information  on  distinctions  between  originals  and  fakes.      While  the  WCO  focuses  on  operational  aspects,  it  is  also  important  to  build  relationships  that   enable   the   up-­‐stream   consideration   of   issues.   To   this   end,   the   WCO   has   recently  established   an   agreement   protocol   with   the   WAITO   Foundation,   to   assist   in   raising  awareness  about  this  phenomenon  and  in  defining  an  effective  policy  to  fight  organized  crime.      I   am   convinced   that   this   agreement   protocol   between   the   WCO   and   the   WAITO  Foundation,   the   activities   of   the   latter   and   this   report   provide   solid   foundations   for   the  establishment  of  a  just  and  safe  society.              Copyright-­‐   This   confidential   report   is   the   Intellectual   property   of   the   WAITO   Foundation   all   rights   reserved.   No   part   of   this   publication  may  be  reproduced  or  diffused  under  any  form  or  by  any  means,  including  photocopies  and  recordings,  or  by  any  information  storage  or  recovery  system.    
  • 10.   10                      Copyright-­‐   This   confidential   report   is   the   Intellectual   property   of   the   WAITO   Foundation   all   rights   reserved.   No   part   of   this   publication  may  be  reproduced  or  diffused  under  any  form  or  by  any  means,  including  photocopies  and  recordings,  or  by  any  information  storage  or  recovery  system.    
  • 11.   11      Introduction  (by  Chemavon  Chahbazian  and  Pierre  Delval)    Throughout   history,   man   has   toyed   with   the   idea   of   world   domination.   Many   people   have  strived   to   achieve   it,   often   through   religion,   generally   by   use   of   force,   and   now,   many  pursue  it  through  trade.        In   the   wake   of   market   globalization,   organized   crime   has   set   its   sights   on   the   potential  gains   generated   by   human   misery,   whether   in   the   food   and   agriculture   sector,   the  pharmaceutical  industry,  or  in  any  other  sector  producing  goods  bought  by  consumers  on  a  daily  basis.      In   these   conditions,   will   the   States   step   up   to   the   task   of   avoiding   or   will   they   leave  companies  to  fend  for  themselves  against  the  mafias?  Will  we  end  up  being  governed  by  criminal  organizations?    Most   probably   it   will   be   neither   the   one   nor   the   other.   States   will   hold   on   to   their  supremacy,   and   Mafias   will   become   more   and   more   powerful.   However,   the   real   power  will  be  wielded  by  the  markets,  with  all  the  forms  of  fraud,  including  counterfeiting,  that  this  entails.      Illicit  trafficking  has  always  existed  but,  with  the  fall  of  the  Berlin  Wall  and  globalization,  it   has   acquired   a   transnational   dimension.   Everyone   is   now   concerned,   from   the   ordinary  citizen   to   the   government   authorities.   These   markets   have   become   interdependent,  particularly   in   the   consumer   environment   where,   up   till   now,   counterfeiting,   food   fraud  and  smuggling  followed  parallel  paths.      Despite  their  differences,  these  movements  obey  the  age-­‐old  rules  of  supply  and  demand  and  the  same  principles  of  competition,  profit,  the  drive  to  innovate,  acquire  market  share  and  reduce  production  costs.  Across  the  board,  the  aim  is  to  generate  profits  as  quickly  as  possible   and   at   the   lowest   possible   risk.   In   this   way,   the   boundary   between   legal   and  illegal  is  becoming  blurred,  and  the  dangers,  whether  technical  or  counterfeiting-­‐related,  are  increasing  for  all  participants  in  consumer  product  chains.      The  risks  of  counterfeiting  are  generated  by  its  capacity  to  deceive  consumers  through  the  production   of   identical   copies   of   the   visible   parts   of   products   and   their   trademarks.  Through  industrialization,  counterfeiting  is  carried  out  on  mass  and  is  becoming  hard  to  control.  The  annual  global  death-­‐toll  is  proof  of  this  threat  in  terms  of  public  health  and  safety:   in   2005,   according   to   the   United   States   Consumer   Product   Safety   Commission  (CPSC),  in  North  America,  some  73,000  children  under  5  had  to  be  rushed  to  hospital  after  handling   counterfeit   toys;   20   of   them   died   from   injuries   or   poisoning.   Russia   holds   the  record  for  aircraft  accidents,  with  8.6  crashes  per  million  flights  in  2007  -­‐thirteen  times  the  world  average.  These  crashes  were  mainly  due  to  the  failure  of  counterfeit  spare  parts.  Again   in   Russia,   in   2005,   the   World   Health   Organization   confirmed   the   deaths   of  thousands  of  people  poisoned  by  adulterated  vodka,  some  of  which  was  sold  under  well-­‐known   brands.   President   Putin   referred   to   this   as   a   “national   tragedy”   justifying   the  stepping-­‐up  of  control  on  the  illicit  traffic  of  alcohol.  Unfortunately,  these  measures  have  not   helped   the   situation.   In   2007   illegal   distilleries   provided   almost   two   thirds   of   the  Copyright-­‐   This   confidential   report   is   the   Intellectual   property   of   the   WAITO   Foundation   all   rights   reserved.   No   part   of   this   publication  may  be  reproduced  or  diffused  under  any  form  or  by  any  means,  including  photocopies  and  recordings,  or  by  any  information  storage  or  recovery  system.    
  • 12.   12      alcohols   consumed1.   In   the   pharmaceutical   sector,   WHO   statistics   published   in   November  2006   estimated   the   “dangerous   counterfeiting   of   active   ingredients”   at   10%   of   total  consumption  in  Russia,  25%  in  India,  35%  in  Lebanon,  40%  in  Peru,  48%  in  Nigeria  and  70%  in  Angola.  There  are  thousands  of  cases  of  deaths  or  irreversible  secondary  effects  among  the  poorest  patients.  Regarding  electrical  equipment,  the  12  million  pieces  seized  by   European   Union   customs   authorities   in   2006   showed   technical   anomalies   clearly  contrary  to  the  security  standards  in  place.  According  to  the  WCO,  seizures  of  counterfeit  food   products   increased   by   more   than   2500%   in   2008,   and   those   of   spare   vehicle   parts  increased  by  more  than  2600%  in  2009,  with  all  the  consequences  implied  in  terms  end-­‐consumer   risks.   In   their   January   2011   report,  MarketsandMarkets  predicted   that   by   2014  the   global   budget   for   the   anti-­‐counterfeiting   device   market   in   the   food   and   medicines  sector  would  have  reached  79.3  million  US$,  with  49  million  US$  for  North  America  alone,  shedding  light  on  the  potential  size  of  global  illegal  markets  in  four  years’  time.    The   most   important   development   in   contemporary   criminality   is   the   convergence   of  crime.  It  is,  thus,  no  longer  uncommon  to  find  combinations  of  fraud  and  counterfeiting  or  counterfeiting  and  smuggling.      For   a   long   time,   there   has   been   a   tendency   to   underestimate   the   real   dangers   of  counterfeiting.   Intellectual   property   rights   have   provided   practically   the   only   shield  against   this   illegal   and   protean   activity.   The   situation   is   now   explosive,   although   it   is  extremely   difficult   to   measure   the   overall   phenomenon.   As   with   any   illegal   activity,   the  overall  estimates  available  are  questionable.  However,  an  amalgamation  of  the  statistics  of   all   industrial   sectors,   added   to   those   of   the   European   customs   authorities,   confirm   a  definite  upward  trend2.      Along  with  a  number  of  other  countries,  France  has  always  distinguished  itself  in  the  fight  against  counterfeiting.  Aware  of  the  developments  in  the  domain  of  counterfeiting  crime,  it  has  consolidated  the  1994  Longuet  Act  and  its  subsequent  amendments3.  France  made  significant  progress  with  the  anti-­‐counterfeiting  act  of  29  October  2007-­‐  one  of  the  first  acts   Christine   Lagarde,   then   French   finance   minister,   presented   to   the   Parliament 4 .  Criminal   sanctions   were   increased   and   simplified   and   accelerated   procedures   were                                                                                                                  1  Communica-­‐  Spring  2007-­‐Swiss  Magazine  belonging  to  the  federal  department  for  the  control  of  alcohols    2  A  key  information  source  to  combat  the  global  plague  of  counterfeiting-­‐  The  International  anti-­‐counterfeiting  directory  2009-­‐ICC  3  What   does   the   Longuet   Act   do?   Exhausted   by   interminable   procedures,   many   industrial   counterfeit   victims   ask  themselves   this   question.   According   to   the   government   “the   Act   of   5   February   1994   has   established   a   solid   legal  foundation”  in  the  French  industrial  landscape,  in  respect  of  the  combat  against  counterfeiting.  In  reality,  while  this  Act  appears   to   be   effective   against   counterfeiting,   it   reveals   a   number   of   weaknesses   despite   the   addition   of   supplementary  legal   measures.   In   a   general   context   of   an   extremely   slow   justice   system,   it   appears   to   be   powerless   in   resolving  disputes  between  two  companies  in  the  same  sector  and  based  in  the  same  city.  It  is  common  for  a  case  to  last  five  years  and  to  result  in  “laughable  compensation”,  simply  because  the  “the  counterfeiters  knew  the  legislation  by  heart”,  as  one  specialized  lawyer  put  it.  Various  on-­‐going  cases  confirm  the  limitations  of  the  current  system.  Apart  from  the  cases  of  “servile   copies”,   where   rapid   summary   proceedings   can   be   ordered   by   the   judges,   most   cases   take   a   long   time.   The  reparation   of   damages   is   another   area   of   weakness.   The   justice   system   makes   use   of   experts   able   to   measure   the  economic  impacts  of  counterfeiting  and  unfair  business  practices.  However,  in  general,  “judges   have   little   concern   from  economic  life”.   The   Longuet   Act   has   aggravated   the   penalties   against   counterfeiters.   But   it   has   also   probably   made   them  more  cunning.  The  result  is  that  the  proceedings  become  more  complicated  and  expensive.  On  the  other  hand,  victims  do  not  consider  that  the  penalties  are  sufficiently  dissuasive.  “In  certain  cases,  we  avoid  publishing  judicial  decisions.  The  compensation  sums  are  so  low  that  they  could  give  other  counterfeiters  ideas”,  one  of  the  case  lawyers  acknowledged.    4  Act   n°   2007-­‐1544   of   29   October   2007   on   anti-­‐counterfeiting.   This   act   was   published   in   the   Official   Gazette   on   30  October  2007,  transposing  European  directive  of  29  April  2004  on  the  enforcement  of  intellectual  property  rights.  Until  then,   only   one   draft   act,   dated   7   April   2007   had   been   produced,   despite   the   deadline   for   the   transposition   of   the  directive,  which  expired  on  29  April  2006.    Copyright-­‐   This   confidential   report   is   the   Intellectual   property   of   the   WAITO   Foundation   all   rights   reserved.   No   part   of   this   publication  may  be  reproduced  or  diffused  under  any  form  or  by  any  means,  including  photocopies  and  recordings,  or  by  any  information  storage  or  recovery  system.    
  • 13.   13      established   for   filing   administrative   proceedings,   to   prevent   an   imminent   infringement   of  intellectual  property  rights.  State  department  powers  were  extended.  But  in  order  to  go  even   further   and   faster   than   this,   during   its   presidency   of   the   Council   of   the   European  Union   (second   semester   of   2008),   France   also   offered   its   European   partners   a   series   of  measures   aiming   to   reinforce   anti-­‐counterfeiting   and   anti-­‐piracy   measures.   All   the  European   states   supported   this   initiative   and   the   Competitiveness   Council   of   25  September  2008  adopted  a  resolution  on  a  comprehensive  European  plan.      This  plan,  in  particular,  aims  to  develop  action  to  raise  awareness  and  communicate.  The  Council   also   invited   the   European   Commission   to   set   up   a   European   counterfeiting   and  piracy   observatory   to   enable   a   regular   assessment   and   a   more   precise   analysis   on   the  extent  of  the  phenomenon.  This  observatory  should  be  in  place  by  end  of  December  2009.      It   was   precisely   during   the   discussion   of   the   creation   of   this   observatory   that   Jacques  Toubon,   then   a   member   of   the   European   Parliament 5 ,   warned   his   colleagues,   the  members   of   the   committees   concerned   and   anti-­‐counterfeiting   inter-­‐professional  federations  of  the  risks  of  placing  too  much  emphasis  on  intellectual  property  rights.  He  considers  that  counterfeiting  also  concerns  consumers,  who  are  too  often  forgotten  in  this  type   of   approach.   He   acknowledged   that   French   consumers   enjoy   one   of   the   best  protections  in  Europe.  However,  he  stressed  the  fact  that  they  are  nonetheless  European  consumers.  “There  is  no  advantage  to  being  in  a  highly  protected  area  such  as  France  or  Germany,   if   these   are   within   an   economic   area   and   in   a   domestic   market   with   areas   of  weakness!”  he  declared  in  July  2009  in  “Les  Cahiers  de  la  competitivité”.  Jacques  Toubon  argues  that  there  is  no  point  in  having  an  effective  anti-­‐counterfeiting  system  in  France,  if  French   products   continue   to   be   exported   to   Europe,   where   there   is   no   criminal   justice  harmonization   on   intellectual   property   rights,   and   to   areas   outside   its   jurisdiction,  outside   the   European   Union.   Jacques   Toubon,   therefore   sees   two   priorities:   “all   EU  countries   need   to   harmonize   their   legislations   and   accept   criminal   sanctions   at   a                                                                                                                  5  European  Parliament  debate-­‐  Wednesday  17  December  2008-­‐  Impact  of  counterfeiting  on  international  trade.  Speech  by  Jacques  Toubon-­‐  MEP.    (…)counterfeiting  is  an  economic,  social  and  health  menace  of  a  size  that,  in  my  view,  is  often  underestimated.  Some  people  estimate  that  a  third  of  the  goods  docked  in  containers  at  Antwerp  or  Rotterdam  are  counterfeits.  I  did  say  ‘a  third’,  and  these  are  estimates  produced  by  official  departments.  I  would  like  to  say  very  clearly,  and  I  am  not  going  to  beat  about  the  bush,  that  I  am  truly  disappointed  by  the  European  Parliament’s   proposals   and   by   the   debate   this   evening.   For   once,   I   am   more   disappointed   by   the   Parliament   than   by   the  Commission  or  the  Council,  since  in  this  sphere,  the  Council  and  the  Commission  have  done  their  work.  The  action  plan  of  25  September,  the  seminar  held  on  25  November  and  the  proposals  which  Mr  Barrot  has  just  set  out  on  behalf   of   the   Commission   are   real   actions,   not   fine   words.   Commissioner,   what   I   would   simply   like   to   say   to   you   is   that   I  would  really  like  the  observatory,  for  example,  to  be  made  operational  during  the  first  half  of  2009  and  for  the  regulation  on  market  surveillance  adopted  by  the  Council  to  be  adopted  in  this  Parliament.  As  far  as  Mr  Susta  is  concerned,  I  am  not  speaking  here  of  his  alternative  proposal  for  a  resolution,  which  unfortunately  we  are  not  going  to  debate.  I  am  speaking  of  his  report.  It  is  much  too  weak,  much  too  timid,  and  says  nothing  on  indications  of  origin,   says   nothing   on   the   observatory   and   is   timid   and   reticent   regarding   the   protection   of   intellectual   and   industrial  property.  You  talk  of  ACTA  and  say  that  we  need  to  adopt  it,  but  you  say  that  we  should  not  use  the  means  that  would  be  effective  in  enforcing  it.  In  addition,  I  must  say  that  I  was  staggered  by  the  comments  made  by  my  two  fellow  Members  from  Sweden,  who  give  the  impression  that  the  danger  comes  not  from  counterfeiting  but  from  the  fight  against  counterfeiting.  Ladies  and  gentlemen,  we  are  completely  mistaken  if  we  do  not  take  more  resolute  action.  We  are  dealing  with  this  subject  as   if   it   were   a   marginal   economic   activity,   no   more   than   that,   whereas   it   could   mark   the   end   of   our   industries,   it   could  signal   widespread   exploitation   of   workers   from   the   emerging   countries,   let   us   not   forget,   and   finally,   could   amount   to  widespread  lack  of  safety  for  consumers.  We  must  take  action!    Copyright-­‐   This   confidential   report   is   the   Intellectual   property   of   the   WAITO   Foundation   all   rights   reserved.   No   part   of   this   publication  may  be  reproduced  or  diffused  under  any  form  or  by  any  means,  including  photocopies  and  recordings,  or  by  any  information  storage  or  recovery  system.    
  • 14.   14      community   level”.   Two   years   earlier,   Michel   Danet,   then   Secretary   General   of   the   World  Customs   Organization   (WCO),   had   already   reached   similar   conclusions.   He   argued   that  the  combination  of  overly  restrictive  TRIPS  agreements  and  the  lack  of  effective  industrial  property   protection   in   more   than   60   countries   in   the   world,   rendered   European   rights   on  intellectual  protection  impractical.  Faced  with  this  lack  of  cohesion,  counterfeit  offenders,  generally   from   a   background   of   organized   crime,   have   all   the   financial   and   organizational  facilities  to  get  around  obstacles.    Although   the   defence   of   trademark   rights   is   synonymous   with   consumer   protection,  Jacques  Toubon  also  recognizes  that  the  fight  against  counterfeiting  must  result  in  direct  action   on   consumer   protection:   “this   should,   for   example,   include   law   enforcement   action  to   ensure   food   and   health   safety   and   should   not   just   be   limited   to   the   protection   of  intellectual  or  industrial  property”.      The  harmonization  of  criminal  law  and  consumer  protection  are  two  subjects  that  require  further  consideration.      Harmonization  of  criminal  law    Criminal  sanctions  are  dependent  on  the  danger  posed  by  a  counterfeit  product  and  the  issues  that  this  raises  on  a  legal  and  practical  level.  Counterfeiting,  by  definition,  violates  the  rights  of  right  holders,  but  they  need  to  provide  proof  of  the  danger  implied.  But  this  leads   to   the   question   of   how   this   should   be   gauged.   Should   the   presumption   of   danger   be  applied  de  facto  or  would  this  work  against  the  right  holder’s  interests?  This  would  raise  questions   about   the   genuine   product.   A   medicine,   for   example,   can   be   dangerous   if   the  prescribed  dosage  is  not  respected  or  if  it  is  not  adapted  to  a  specific  pathology;  it  can  also  be  dangerous,  due  to  its  secondary  effects.  If  the  right  holder  provides  private  evidence,  he   will   be   disinclined   to   expose   the   danger   of   his   product.   Moreover,   how   far   should  evidence   be   taken:   is   a   comparison   of   the   counterfeit   product   with   the   genuine   product  acceptable?  And  in  that  case,  what  about  the  possible  dangers  linked  to  a  genuine  product,  such  as  the  secondary  effects  of  a  medicine?    Customs   authorities   in   certain   countries   already   apply   heavier   customs   sanctions   to  dangerous  counterfeits,  without  having  elicited  a  reaction  from  the  judiciary.      All   this   is   generally   treated   in   terms   of   intellectual   property   law   rather   than   using   a   more  appropriate   legal   arsenal   to   supplement   the   intellectual   property   code.   In   theory,   in   the  case  of  dangerous  material  goods,  it  is  not  the  right  holder  that  should  intervene  first,  but  the   public   authorities.   The   focus   should   not   be   on   the   violation   of   intellectual   property  rights,  but  on  the  intention  to  harm  another  person’s  life  through  the  danger  posed  by  the  suspected   counterfeit   product.   Moreover,   the   limitations   of   seizures   and   legal  proceedings,  observed  in  recent  years,  speak  in  favour  of  a  more  nuanced  implementation  of  intellectual  property  legislation.  These  limitations  are  largely  the  result  of  conflicts  of  interest   between   the   right   holders   and   public   authorities   when   qualifying   the   act   of  counterfeiting.  It  is  not  uncommon  for  right  holders  to  try  to  come  to  a  friendly  settlement  with  the  counterfeiter  to  receive  rapid  compensation  and  avoid  long  and  expensive  legal  proceedings.   Nor   is   it   uncommon   for   trademark   owners   to   be   unwilling   to   bring   high-­‐profile  hazards  to  the  public  knowledge  (the  pharmaceutical  industry  kept  the  facts  about  the  counterfeiting  of  its  brand-­‐name  medicines  hidden  for  a  long  time  and  the  agri-­‐food  Copyright-­‐   This   confidential   report   is   the   Intellectual   property   of   the   WAITO   Foundation   all   rights   reserved.   No   part   of   this   publication  may  be  reproduced  or  diffused  under  any  form  or  by  any  means,  including  photocopies  and  recordings,  or  by  any  information  storage  or  recovery  system.    
  • 15.   15      industry   continues   to   keep   cases   of   dangerous   counterfeits   secret).   This   is   not   to   mention  the   fear   of   customs   authorities   and   right   holders   of   being   sued   for   unjustified  infringement  proceedings;  nor  of  weak  intellectual  property  claims  being  disputed  or  the  possibility  of  losing  a  case  for  lack  of  control  over  supply  and  sub-­‐contracting  channels.      With  only  minimal  coherence  between  national  practices,  how  can  the  issue  of  seizures  be  resolved?   How   can   effective   action   be   taken   without   the   cooperation   and   evident  expertise   of   right   holders?   How   can   more   dissuasive   criminal   sentences   be   imposed  without  having  to  show  evidence  of  a  link  to  organized  crime?      Obstacles  to  implementation:  “key”  examples    To  understand  the  situation  on  the  ground,  it  is  important  to  consider  two  key  examples:   • the  “syndrome  of  the  customs  officer  in  a  goods  port”   • the  judge  and  the  demonstration  of  proof    The  “syndrome  of  the  customs  officer  in  a  goods  port”    The   intervention   procedure   of   the   customs   authorities,   at   least   in   Europe,   requires   a  certain   level   of   responsiveness,   largely   due   to   time   restrictions.   Seizures   are   generally  made  after  a  detention  at  customs,  with  the  exception  of  certain  European  Union  Member  States,   such   as   France,   that   immediately   seize   the   products   of   certain   trademarks.   The  customs   officers   are   therefore   dependent   on   the   right   holders   who   must   identify,  authenticate  and  confirm  the  counterfeit.      The   procedure   is   generally   the   following:   when   Customs   detect   products   that   they  suspect   of   counterfeiting,   they   search   for   the   right   holders   and   notify   them   of   the  suspicion   of   counterfeiting.   Experts   appointed   by   the   right   holders   go   to   the   customs  control   post   and   confirm   or   rejects   the   counterfeiting   claim   counterfeiting   in   a   verbal  statement.   This   confirmation   results   in   detention   at   Customs,   or   a   customs   seizure  depending   on   the   type   of   counterfeited   right   (trademarks,   designs   and   models,   copyright,  patents,   etc.).   Then   a   preventive   seizure   order   must   be   requested   from   the   local   public  prosecutor’s  office  and  it  must  be  implemented  within  a  set  period  (10  days  for  ordinary  goods  and  three  days  for  perishable  goods)  after  the  detention  at  customs.    In  the  event  of  a  customs  seizure,  a  summons  must  be  issued  or  a  criminal  complaint  filed  against  the  counterfeiter  or  the  distributor  of  counterfeit  products,  almost  simultaneously.  There  is  always  time  to  file  civil  proceedings  if  this  was  not  done  when  the  case  was  filed.    The  “syndrome  of  a  customs  official  in  a  goods  port”  is  indicative  of  the  impracticality  lack  of   this   procedure.   If   we   take,   for   example,   the   port   of   Antwerp,   158   million   tonnes   of  goods   (2009)   in   thousands   of   containers   arrive   there   every   day.   A   small   group   of  authorized   customs   officers   must   examine   the   manifestos6  transferred   by   the   transporter  onto   their   computer   network,   identify   any   anomalies,   compare   them   with   any   on-­‐going  investigations,   find   the   suspected   containers   and   select   only   a   few   of   them   due   to   time  restrictions  and  the  available  means  of  identification.                                                                                                                    6  Transport  documents.    Copyright-­‐   This   confidential   report   is   the   Intellectual   property   of   the   WAITO   Foundation   all   rights   reserved.   No   part   of   this   publication  may  be  reproduced  or  diffused  under  any  form  or  by  any  means,  including  photocopies  and  recordings,  or  by  any  information  storage  or  recovery  system.    
  • 16.   16      Moreover,   when   controls   are   carried   out   in   the   middle   of   the   night,   at   the   back   of   a  container,  without   being  able  to  contact  the  right  holders  to  get  the  information  required  to  start  the  detention  procedure,  customs  officers  have  little  room  for  manoeuvre.      Despite  the  use  of  fixed  scanners,  this  raises  the  question  of  how  many  of  these  containers,  transporting   illicit   products,   manage   to   slip   through   the   control   authorities’   nets.  “Probably  the  majority”,  is  the  baffled  guess  of  the  customs  officers  at  the  Port  of  Antwerp.      The  control  authorities,  essentially  represented  by  customs  and  the  police,  evidently  lack  the   tools   to   clearly   distinguish   genuine   from   counterfeit   products,   under   pressure,  without   having   to   rely   on   the   right   holder.   The   “syndrome   of   a   customs   official   in   a   goods  port”  must  not  be  seen  as  unavoidable  and  the  use  of  heavy  and  costly  x-­‐ray  equipment,  as  suggested  by  some  Member  States,  will  only  go  so  far  in  resolving  this  tricky  problem,  and  not  very  far  at  that.      The  judge  and  the  demonstration  of  proof    In   terms   of   judicial   action,   procedures   must   allow   the   evidence   of   counterfeiting   as  violation   of   intellectual   property   rights   to   be   produced.   This   implies   establishing   that  these   rights   exist   and   providing   material   evidence   of   their   infraction   through  counterfeiting.  Without  these  specific  elements,  and  without  the  effective  cooperation  of  the   right   holders,   the  judicial   authorities   cannot   apply   their   law   enforcement   instruments  effectively.      Likewise,  in  proceedings  involving  the  seizure  of  products  suspected  of  counterfeiting,  the  judicial   authorities   need   to   be   convinced.   However,   convincing   does   not   always   mean  proving.      Questioning   the   authenticity   of   a   product   and   its   origin,   to   determine   whether   it   is   a  counterfeit,  implies  finding  out  whether  the  product  has  the  fundamental  characteristics  constituting   an   infraction.   To   provide   solid   grounds   for   an   inquiry,   the   nature   of   these  characteristics   must   be   established,   before   determining,   practically   and   objectively,  whether  the  suspect  product  presents  them  or  not.      The   predominant   litigious   trend   in   recent   case   law   highlights   the   importance   in  implementing   law   enforcement   measures.   The   strengthening   of   penalties   for  counterfeiting   crimes   has   crystallized   the   debate   on   the   way   in   which   the   evidence   of  crime  is  administered.  Procedures  are  lengthy  and  give  counterfeiting  networks  the  time  to   disappear   and   regroup.   The   research   carried   out   by   right   holders   and   the   control  authorities   (customs   and   police)   are   rendered   useless.   It   is   a   waste   of   time   and   money,  which  is  becoming  unbearable  for  everyone.      We   are   also   increasingly   seeing   the   validity   of   intellectual   property   licenses   being  contested.   With   increasingly   “perfect”   copies,   proving   that   the   genuine   article   is   truly  authentic   requires   that   title-­‐holders   provide   further   information   and   thus   reveal   their  trade  secrets  to  whoever  wants  to  use  them.  For  companies,  this  is  a  dangerous  spiral  that  only   benefits   the   counterfeiters.   But,   above   all,   it   is   a   spiral   posing   little   constraints   on  criminal   organizations,   against   which   the   intellectual   property   code,   when   applied   to  consumer  goods,  is  too  subtle  to  be  effective.  Copyright-­‐   This   confidential   report   is   the   Intellectual   property   of   the   WAITO   Foundation   all   rights   reserved.   No   part   of   this   publication  may  be  reproduced  or  diffused  under  any  form  or  by  any  means,  including  photocopies  and  recordings,  or  by  any  information  storage  or  recovery  system.    
  • 17.   17      Pharmaceutical  crime:  an  early  form  of  counterfeiting-­‐crime    It  was  in  this  context  that  the  Council  of  Europe  examined  an  innovative  legal  alternative  by   developing   a   legal   instrument   to   combat   pharmaceutical   crime   more   effectively.  During   the   meeting   at   Moscow   of   23   and   24   October   2006,   the   participants   of   the  conference  “Europe  against  counterfeit  medicines”  had  put  forward  a  proposal  to  develop  this  legal  instrument  in  order  to  protect  health  in  Europe.    The   participants   agreed   that   the   following   elements   should   be   taken   into   consideration  when  preparing  a  future  convention:       • the  definition  of  pharmaceutical  crimes  as  aggravated  crimes;     • the  penalization  of  the  manufacture  and  distribution  of  counterfeit  medicines;   • setting   up   a   network   of   contacts   in   each   of   the   sectors   concerned,   especially   in   the   health  and  legal  compliance  sectors;     • the  adoption  of  provisions  on  a  national  level  to  monitor  the  quality  of  components   for   pharmaceutical   use,   packaging,   manufacturing   processes   in   accordance   with   the  standards  established  by  the  European  Pharmacopoeia;   • greater   cooperation   between   the   bodies   responsible   for   implementing   laws   on   a   national  and  European  level.      At   the   end   of   2007,   eleven   experts   were   appointed   and   developed   the   draft   Council   of  Europe   Convention   against   Counterfeiting   of   Medical   Products   and   Similar   Crimes  involving  Threats  to  Public  Health.  Completed  on  26  February  2009,  this  draft  is  currently  being  examined  by  the  Committee  of  Ministers  of  the  Council.      This  draft  is  of  particular  interest  because,  for  the  first  time,  it  underlines  the  possibility  of   the   development   of   an   anti-­‐counterfeiting   law   enforcement   instrument   that   would  constitute   a   complete   departure   from   the   model   currently   used.   Thus,   for   example,   the  following  acts  are  classified  as  crimes  when  they  are  committed  intentionally:       • the  manufacture  of  counterfeit  medical  products,  active  ingredients  or  components,   including  their  adulteration;     • the  falsification  of  any  document  relating  to  a  medical  product,  an  active  ingredient   or  component;   • the   supply   or   offer   of   counterfeit   medical   products,   active   ingredients   or   components;   • the  promotion  of  counterfeit  medical  products,  active  ingredients  or  components.     • the   illicit   trafficking   of   counterfeit   medical   products,   active   ingredients   or   components.      Aggravating   circumstances   are   a   strong   feature   in   this   draft,   therein   highlighting   the  intention   of   harming   another   person’s   life.   These   circumstances   will   be   of   great  importance   in   determining   the   sanctions   to   be   applied.   This   is   evidently   the   case   of   an  infraction   that   causes   the   death   of   the   victim   or   harms   the   victim’s   physical   or   mental  health.   This   is   also   the   case   of   the   offenses   of   promotion   and   supply   using   mass  distribution  procedures,  and  offenses  committed  by  various  persons  acting  together,  and  those  committed  by  a  criminal  organization.      Copyright-­‐   This   confidential   report   is   the   Intellectual   property   of   the   WAITO   Foundation   all   rights   reserved.   No   part   of   this   publication  may  be  reproduced  or  diffused  under  any  form  or  by  any  means,  including  photocopies  and  recordings,  or  by  any  information  storage  or  recovery  system.    
  • 18.   18      The   signatory   parties   to   this   convention   (47   Pan   European   Member   States)   will   grant  themselves   the   right   to   enter   into   bilateral   or   multilateral   agreements   on   issues  addressed  by  said  convention,  in  order  to  complete  or  reinforce  its  provisions  or  facilitate  the  implementation  of  the  principles  that  it  enshrines.      The   Group   of   Specialists   on   Counterfeit   Pharmaceutical   Products,   created   by   the  Committee   of   Ministers   of   the   Council   of   Europe   and   under   the   authority   of   the   European  Committee   on   Crime   Problems,   thus   delivers   a   highly   uncomplimentary   verdict   on   the  legal   arsenal   currently   applied   to   curb   the   production   of   counterfeit   medicines.   Firstly,  without  severe  sanctions  to  suppress  the  counterfeiting  of  pharmaceutical  products  and  medical  devices  worldwide-­‐  and  often  without  any  criminal  law  provisions  whatsoever-­‐,  it  is  easy  to  produce  and  distribute  counterfeit  products  without  running  any  particular  risks,   let   alone   being   penalized   for   it.   This   loophole   partly   explains   why   pharmaceutical  crime   has   become   an   area   of   activity   for   organized   crime.   Moreover,   national   legislations,  where   they   exist,   vary   considerably.   The   Group’s   experts   insist   on   the   fact   that   varied,  deterrent  and  proportionate  penalties  are  essential  in  punishing  the  perpetrators  of  these  violations  and  contributing  to  their  effective  prevention.  They  also  specify  that  the  control  of   this   type   of   counterfeiting   cannot   be   limited   to   violations   of   intellectual   property  rights7,   and   argue   that   the   main   objective   of   a   future   anti-­‐counterfeiting   instrument  should   focus   on   criminal   law   measures   against   criminal   behaviour,   targeting   medicines  and  medical  devices,  and  threatening  public  health.  Lastly,  the  group  of  experts  indicates  that   “There   is   no   harmonisation   or   at   least   approximation   in   international   law   of   the  offences   relating   to   counterfeiting   of   medicinal   products   and   medical   devices.  Furthermore,   at   the   time   of   internationalisation   of   trafficking   of   counterfeit   medicinal  products   and   medical   devices,   aggravated   by   internet   trade,   which   undermines   the  credibility   of   legitimately   distributed   genuine   products   and   makes   it   impossible   to  guarantee   the   quality   and   efficacy   of   products   supplied,   there   is   no   international   legal  instrument,  aiming  to  combat  pharmaceutical  crime  and  defining  corresponding  offences”.    Consumer  protection    “There  is  no  such  thing  as  a  good  counterfeiter,  who  has  anti-­‐brand  strategy  and  produces  fake   handbags,   and   a   bad   counterfeiter,   who   wants   to   poison   medicine   consumers   or  endanger   children   who   are   given   counterfeit   toys.   They   are   one   and   the   same.   The  purchase   of   counterfeit   luxury   products   directly   finances   the   counterfeiting   of   non-­‐processed   products.   In   the   field   of   illegal   imitation,   there   is   no   difference   between  criminal   capital   that   kills   and   that   which   does   not”.   The   situation,   as   described   on   16  November   2004   by   the   President   of   an   intellectual   property   rights   defence   association,  has  hardly  changed.  Although  he  is  essentially  right,  he  suggests  that  the  consumer  could  be  considered  as  the  counterfeiter’s  “accomplice”.  It  is  therefore  essential  to  re-­‐establish  the  distinction  between  the  good  and  bad  intentions  at  play  in  the  act  of  purchasing.                                                                                                                    7  According   to   Information   Solution   for   Pharmaceutical   and   Healthcare   Industries,   an   international   service   provider  that   provides   the   pharmaceutical   industry   with   commercial   data   and   consultancy   services,   within   European   Union  Member   States,   the   proportion   of   the   volume   of   medical   products   on   the   market   that   are   not   protected   by   a   patent  varies   from   69%   (Italy)   to   90%   (Cheque   Republic).   According   to   the   European   Generic   medicines   Association,   the  proportion  of  generic  medical  products  (not  protected  by  intellectual  property  rights)  in  comparison  with  the  volume  on  the  market  in  certain  European  countries  lies  between  7.2%  (Italy)  and  79.3%  (Lithuania/Estonia).    Copyright-­‐   This   confidential   report   is   the   Intellectual   property   of   the   WAITO   Foundation   all   rights   reserved.   No   part   of   this   publication  may  be  reproduced  or  diffused  under  any  form  or  by  any  means,  including  photocopies  and  recordings,  or  by  any  information  storage  or  recovery  system.    
  • 19.   19      The  purchasing  act:  psychological  considerations      The   large   majority   of   consumers   consider   that   illicit   trafficking   in   general,   and  counterfeiting  in  particular,  are  major  problems.      To   “buy   genuine”   or   “compliant”   products   on   a   daily   basis,   the   consumer   has   to   feel   at  ease   and   be   able   to   see   that   the   whole   consumption   chain   is   fair   and   genuine,   which   is  evidently  not  the  case.      The  consumer  and  the  trademark    These   personal   strategies   have   been   bolstered   by   a   critical,   almost   moral,   distance  acquired   in   respect   of   the   consumer   system,   raising   strong   doubts   about   it   and   making  people   disinclined   to   pay   a   high   price.   Why   pay   the   price   of   the   intangible   value   (the  trademark)  of  products,  when  we  do  not  know  whether,  and  how,  this  can  be  justified?    This   price   difference,   which   should   indicate   the   originality   and   uniqueness   of   the  trademark,   is   increasingly   seen   as   a   way   to   finance   marketing   and   communication,   rather  than   the   work   and   creativity   that   go   into   the   product.   For   the   consumer,   there   are   two  alternatives:   either   to   buy   a   similar   product,   meeting   the   same   criteria   as   the   brand  product,   but   at   a   lower   price;   or   find   a   brand   product   at   an   acceptable   price.   However,  while   the   illicit   purchase   of   so-­‐called   luxury   product   is   generally   done   knowingly,   the  purchase   of   consumer   goods   is   based   on   different   criteria.   Thus,   buying   brand-­‐name  clothes   at   a   market’s   cost   price,   knowing   that   only   authorized   shops   can   sell   the   brand,  automatically  makes  the  consumer  aware  of  his  responsibility.  However,  buying  a  brand  product   or   its   look-­‐alike   at   a   discount   price   in   a   hypermarket   is   an   act   of   opportunism,  done  in  good  faith.      This   distinguishes   the   dishonest   act,   severely   condemned   by   Marc   Antoine   Jamet  (occurring   in   an   illogical   environment8),   to   an   act   of   good   faith   (occurring   in   a   logical  environment),  which  is  innocent  until  proven  guilty.  This  nuance  between  the  accomplice  and   victim   consumer   points   to   the   potential   solutions   to   counterfeiting.   If   we   consider  that   the   consumer   is   the   victim,   solutions   should   focus   on   prevention   education   and  raising   awareness.   However,   if   we   consider   that   the   consumer   is   an   accomplice,   solutions  require   disciplinary   and   law   enforcement   measures.   Consequently,   penalties   and   law  enforcement   measures   are   only   valid   where   the   consumer’s   legal   situation   is   clearly  defined.   Moreover,   the   right   holder   is   responsible   for   providing   consumers   with   all   the  information  needed  to  make  an  educated  choice.      For   example,   France   is   now   affected   by   the   transit   of   counterfeit   medicines   that   pose  health  hazards.  Consumers  need  to  know  that  in  some  countries,  especially  in  Africa,  the  volume   of   counterfeit   medicines   is   particularly   high.   This   is   a   question   of   information.  Among   the   many   forms   of   counterfeit   Viagra,   some   do   not   even   contain   any   active  ingredients,   while   others   contain   adjuvants   that   increase   the   risks   of   heart   attack.   The  risk   in   consuming   counterfeit   medicines   is   increased   by   online   sales.   The   medicine                                                                                                                  8  Counterfeiting   is   more   and   more   easy.   In   front   of   a   luxury   leather   goods   shop   in   Rome,   the   shop   window   dressers   sell  counterfeit  products  of  the  same  brand  when  the  shop  closes.  Everyday  consumables  such  as  cigarettes  can  be  bought  outside   distributions   circles.   What’s   more,   Internet   and   express   freight   enables   consumers   to   receive   counterfeit  products  in  less  than  48  hours.    Copyright-­‐   This   confidential   report   is   the   Intellectual   property   of   the   WAITO   Foundation   all   rights   reserved.   No   part   of   this   publication  may  be  reproduced  or  diffused  under  any  form  or  by  any  means,  including  photocopies  and  recordings,  or  by  any  information  storage  or  recovery  system.    
  • 20.   20      marketing  system  in  France  is  not  as  protected  as  some  might  believe.  This  channel  poses  an   identified   risk.   The   marketing   authorization   system   is   efficient,   but   it   is   nevertheless  possible   to   order   medicines   that   have   not   yet   received   marketing   authorization   in   France  from  Italian  or  Spanish  pharmacies.  Although  the  purchase  itself  is  illegal,  there  is  nothing  to   suggest   that   the   medicine   is   a   counterfeit.   Therefore,   can   the   patient   be   accused   of  being   an   accomplice   if   there   is   no   evidence,   not   of   the   means   by   which   the   product   has  been  purchased,  but  of  its  danger?    Likewise,   when   consumers   buy   packets   of   cigarettes   on   the   street,   they   are   fully   aware  that   buying   tobacco   outside   the   network   of   authorized   tobacconists   is   illegal.   They   also  know   that   the   tobacco   could   have   been   smuggled.   But   there   is   nothing   to   protect   them  from  the  product  being  a  dangerous,  highly  carcinogenic,  counterfeit.      Does  a  trademark  guarantee  compliance?      From  the  right  holder’s  perspective,  a  trademark  certifies  the  quality  of  the  product,  the  distribution   network   and   its   authorization.   But   if   the   trademark   is   not   physically  protected,   how   can   it   provide   all   these   guarantees?   Counterfeit   toys   and   vehicle   parts   can  constitute   a   safety   risk.   The   public   authorities   wish   to   protect   the   consumer,   but   the   legal  framework  makes  this  difficult.  On  23  October  2003,  the  Court  of  Justice  of  the  European  Union   upheld   the   free   movement   of   goods   over   the   protection   of   trademark   rights   and  powers  to  control,  detain  and  confiscate  products.  Consequently,  products  that  are  freely  manufactured   in   a   European   country   can   be   distributed   without   undergoing  any  controls  to  determine  their  authenticity  or  whether  they  pose  a  health  hazard!      On   21   September   2004,   the   French   Court   of   Cassation   upheld   the   analysis   made   by   the  European  Union  Court  of  Justice.  Much  progress  is  still  to  be  made  regarding  the  means  of  detection,   seizure   and   analysis,   in   order   to   protect   endangered   consumers,   especially   in  the  automobile  part  industry.      It  is,  therefore,  important  to  change  thinking  on  consumer  behaviour  and  safety.      Consumers  must  not  become  “victims”  of  their  own  ignorance.  They  should  be  reminded  of   the   regulations   through   information   campaigns.   The   most   important   means   of  prevention  is  the  use  of  law  enforcement.  Once  people  know  that  they  can  be  penalized,  they  will  think  before  acting.      Nevertheless,   criminal   measures   need   to   be   progressive.   The   different   response   levels  need  to  be  improved,  to  raise  consumer  awareness  and  prevent  consumers  from  believing  themselves  the  victims  of  injustice.  To  this  end,  the  solution  involves  providing  evidence  of  intention.      In  addition,  to  establish  the  consumers  as  the  victims,  it  is  essential  to  refer  to  the  right  holders  and  of  distributers’  ethical  dimension.    Finally,   where   appropriate,   the   victim   status   of   consumers   must   be   recognized   in   the  criminal  procedure,  enabling  them  to  file  complaints  and  contribute  to  proceedings,  thus  allying  product  and  consumer  protection.    Copyright-­‐   This   confidential   report   is   the   Intellectual   property   of   the   WAITO   Foundation   all   rights   reserved.   No   part   of   this   publication  may  be  reproduced  or  diffused  under  any  form  or  by  any  means,  including  photocopies  and  recordings,  or  by  any  information  storage  or  recovery  system.    
  • 21.   21      Thus,   the   fight   against   counterfeiting   cannot   simply   continue   on   the   basis   of   the  protection   of   right   holders.   The   approach   must   ally   proportionate   technical   prevention  and   deterrence,   and   harmonized   criminal   law   enforcement,   with   the   sole   aim   of  eradicating  organized  crime,  protecting  consumers  and  increasing  State  control.      To   understand   the   approach   behind   the   WAITO   Foundation’s   move   to   create   the   first  international   observatory   for   the   fight   against  Counterfeiting-­‐crime   (IF2C),   the   basis   for  security  policies  against  the  counterfeiting,  smuggling  and  fraud  of  mass-­‐market  products  must  be  explained.  It  is  equally  necessary  to  evaluate  the  impact  that  these  policies  will  have  on  the  agri-­‐food  (food  and  drink),  pharmaceutical,  cosmetic  and  industrial  (electric  equipment,  spare  parts  and  toys)  sectors.  This  raises  three  fundamental  questions:  What  are   the   real   risks   for   consumers?   What   solutions   can   the   public   authorities   provide  through  principle  of  due  diligence  and  related  provisions?  And  lastly,  what  strategies  can  the  public  authorities  and  companies  adopt  to  meet  the  new  challenges  of  regulating  and  protecting   consumer   products   in   the   face   of   globalization?   These   three   questions   provide  the  basis  for  this  annual  report.      The   objectives   are   self-­‐evident.   The   protection   of   intellectual   property   rights   is   clearly  useful.  It  defends  the  interests  of  right  holders,  but  demonstrates  its  limitations.  The  rise  of   globalization,   the   free   movement   of   goods,   the   60   countries   that   are   not   covered   by  intellectual   or   industrial   property   law,   the   weaknesses   in   the   TRIPS   agreements9,   the  industrialization   of   organized   counterfeiting,   the   mass   production   of   illegal   or   irregular  consumer   products,   are   all   obstacles   that   intellectual   property   law   cannot   seriously  overcome.      An   innovative   global   approach   is   therefore   needed,   uniting   intellectual   property   law,  consumer   rights,   criminal   law   and   other   existing   legal   instruments   that   are   compatible  with  the  global  growth  of  illegal  trafficking,  that  could  be  immediately  transposed  to  the  field  of  anti-­‐counterfeiting  technical  prevention  and  deterrence  and  are  compatible  with  the  legislative  instruments  of  each  country.      This  report  has  no  polemic  intention.  It  is  simply  the  expression  of  a  different  approach,  devoid   of   any   commercial   interest   and   convinced   of   the   importance   of   preventing   the  globalization   of   fraud   and   counterfeiting.   In   this   area,   there   can   be   no   space   for  inevitability.      The   WAITO   Foundation,   its   partners,   such   as   the   WCO,   and   the   International   Forum  against   Counterfeiting-­‐crime©   are   prepared   to   take   up   this   challenge.   They   have   the  capabilities,   resources   and   skills   required   for   the   task.   This   first   WAITO/UNICRI   report  will  perhaps  provide  answers.  Then  it  will  be  a  question  of  using  them!        Chemavon  Chahbazian               Pierre  Delval  President                   Director  general  WAITO  Foundation                 WAITO  Foundation                                                                                                                      9  The   WTO   TRIPS   Agreement   aims   to   decrease   the   differences   in   the   way   that   these   rights   are   protected   throughout   the  world   and   to   submit   them   to   common   international   rules.   It   sets   the   minimum   protection   level   for   intellectual   property  that  each  government  must  ensure  the  other  members  of  the  WTO.    Copyright-­‐   This   confidential   report   is   the   Intellectual   property   of   the   WAITO   Foundation   all   rights   reserved.   No   part   of   this   publication  may  be  reproduced  or  diffused  under  any  form  or  by  any  means,  including  photocopies  and  recordings,  or  by  any  information  storage  or  recovery  system.    
  • 22.   22      I. COUNTERFEITING-­‐CRIME:  A  MAJOR  GLOBAL  CHALLENGE     A  -­‐  ORGANIZED  CRIME:  UNPRECEDENTED  PROFIT  FROM  COUNTERFEITING-­‐CRIME©       Counterfeiting   is   increasingly   the   illegal   activity   targeted   by   organized   crime,   which   finances  and  develops  it,  to  such  an  extent  that,  along  with  drugs  and  prostitution,  it  has   become   one   of   its   main   sources   of   income.   James   Moody,   the   former   head   of   the   FBI   Division  on  Organized  Crime  and  Drugs,  predicted  that  counterfeiting  “will  become  the   crime  of  the  21st  century”.     In  fifteen  years,  the  face  of  counterfeiting  has  changed:  earlier  cottage  industry  has  given   way   to   competitive   and   dynamic   companies   and   holdings.     These   criminal   businesses   now  use  models,  prototypes  and  market  research  to  target  lucrative  products  and  rising   brands.   This   dynamism   among   counterfeiters   has   made   it   possible   to   manufacture   a   product  even  before  the  official  launch  of  the  original.       Electric  equipment  manufacturers  suffer  from  this  every  year  and,  in  the  pharmaceutical   sector,  Sanofi-­‐Aventis  discovered  the  first  case  of  counterfeit  Rimonabant  (Acomplia)10   trafficking  before  the  French  marketing  authorization  was  issued  in  2007.       Counterfeiting   currently   offers   criminal   organizations   an   ideal   opportunity11:   there   is   little  public  awareness  of  this  area  of  crime,  the  criminal  sanctions  are  low,  evidence  is   hard  to  prove,  and  overall  losses  are  almost  impossible  to  determine.  It  generates  vast   business  opportunities  worldwide  and  fabulous  income  prospects.       The   large   supply   of   counterfeit   or   pirated   products,   the   limited   anti-­‐counterfeiting   provisions   in   national   legislations,   added   to   the   significant   profits   that   these   products   generate,   make   counterfeiting   an   attractive   illegal   activity,   particularly   for   criminal   organizations.   Moreover,   public   awareness   regarding   the   problem   of   counterfeiting   is   still  low.  In  short,  the  economic  potential  of  counterfeiting  is  particularly  vast.         This  does  not  just  concern  one  specific  market  but  to  multiple  markets.  Demand  is  not   just   limited   to   wealthy   countries;   it   is   equally   strong   in   poor   countries.   Markets   have   become  global  and  the  profits  generated  by  these  illegal  activities  can  be  phenomenal.       According   to   UNICRI12,   the   largest   criminal   organizations   are   involved   in   counterfeiting.   The  Chinese  triads,  the  Yakuza  (Japan),  the  Neapolitan  Camorra  and  the  Russian  mafias   are   frequently   cited   by   the   World   Customs   Organization   and   by   Interpol   as   major   players  in  this  problem.                                                                                                                       10  Rimonabant  (Acomplia)  was  withdrawn  from  the  European  market  on  23  October  2008.  ACOMPLIA  is  prescribed   for  the  treatment  of  obese  patients  (BMI  exceeding  or  equal  to  30  kg/m2)  or  overweight  patients  (BMI  exceeding  27   kg/m2)   with   the   risk   associated,   such   as   type   2   diabetes   or   dyslipidaemia,   in   conjunction   with   a   diet   and   physical   exercise.     11  For   further   information   on   this   please   consult   the   2003   report   of   the   Union   des   Fabricants:   “Contrefaçon   et   criminalité  organisée”  (www.unifab.com)     12  United  Nations  Interregional  Crime  and  Justice  Research  Institute  Copyright-­‐   This   confidential   report   is   the   Intellectual   property   of   the   WAITO   Foundation   all   rights   reserved.   No   part   of   this   publication  may  be  reproduced  or  diffused  under  any  form  or  by  any  means,  including  photocopies  and  recordings,  or  by  any  information  storage  or  recovery  system.    
  • 23.   23       a) The  industrialization  of  counterfeiting    Apart   from   its   marketing,   the   industrialization   of   counterfeiting   requires   considerable  investments.  Drug  traffickers,  increasingly  limited  by  bank  regulations  and  the  control  of  international  and  European  anti-­‐money  laundering  organizations,  are  much  more  eager  to  place  part  of  their  illegal  income  in  investment  funds  for  the  construction  of  factories,  especially   in   China.   Equipment   used   in   manufacturing   counterfeits   requires   a  considerable   budget.   According   to   the   Union   des   Fabricants,   certain   moulds   cost  between   50,000   and   100,000   euros   and   a   production   line   for   plastic   materials   costs  between   300,000   and   600,000   euros.   Established   in   low-­‐income   countries   (China,  Thailand,   Turkey,   Morocco,   etc.)   or   in   ex-­‐USSR   countries,   like   Russia   or   Ukraine,   local  criminal   organizations   and   mafias   have   considerable   production   capacities.   China   is   a  perfect  example  of  the  industrialization  of  counterfeiting.      In  the  northern  suburbs  of  Beijing,  in  the  Zheng  Guang  Cun  district,  1,500  shops  selling  heaps  of  random  pieces  of  electric  and  electronic  equipment  stretch  out  on  either  side  of  a   4   kilometre-­‐long   street.   The   most   amazing   thing   about   this   gigantic   market   is   that   it  sells   copies   of   devices   that   have   only   just   appeared   in   the   right   holders’   professional  catalogues.    Chinese   counterfeiting,   therefore,   appears   to   be   tightening   its   grip   and   becoming  unstoppable.   It   traditionally   targeted   toys,   luxury   items   and   leather   goods;   it   is   now  extending  its  mass  industry  to  the  unlikely  sector  of  electric  and  electronic  equipment.  The  situation  is  getting  worse  without  western  industries  based  in  China  being  able  to  protect   their   products.   Local   know-­‐how,   resulting   from   delocalization,   outclasses  Thailand,  South  Korea,  Italy  and  Turkey.  The  strength  of  Chinese  companies  infiltrated  by   local   organized   crime   is   based   on   two   well-­‐known   factors:   finding   technical   niches   in  mass   markets   with   a   high   exposure   to   increasingly   savvy   consumers   and   creating  opaque  production  lines.      The   increasing   number   of   distribution   networks,   built   on   a   drug-­‐cartel   model,   makes  any  enquiry  highly  complex,  and  attempts  to  identify  the  source  of  the  problem  comes  up   against   one   shell-­‐company   after   another.   This   is   a   decentralized   economy,   widely  spread   and   therefore   hard   to   stamp   out.     It   particularly   affects   unsophisticated  consumer  products.  Designs  are  copied,  but  the  components,  such  as  electric  parts,  are  rudimentary  and  dangerous.  Thus,  a  third  of  Schneider  circuit  breakers  sold  under  the  Merlin-­‐Gérin  brand  were  found  to  be  fakes.  Hong-­‐Kong  is  widely  recognized  as  being  the  source   of   this   business,   and   its   traders   pull   the   strings   of   a   vast   network   of   Chinese  subcontractors.  Here,  professionalism  has  been  taken  to  an  extreme.  Merlin-­‐Gérin  fakes  have   been   produced   for   more   than   five   years   in   approximately   fifty   Chinese   factories,  sometimes   employing   up   to   a   hundred   workers.   These   products   are   sent   to   the   Hong  Kong  sorting  station  before  being  assigned  to  Egypt,  Morocco,  Algeria,  Turkey  and  even  Spain  or  Italy.  The  Chinese  market  itself  is  also  well  supplied.    Mafia  offshoots  find  willing  accomplices  in  certain  respectable  companies,  especially  by  selling   their   products   via   mail   order   or   in   large   retail   outlets.     They   are   suspected   of  encouraging   the   production   of   counterfeiting   electrical   equipment   in   China,   and   then  selling  this  on.  This  situation  has  a  harmful  impact  on  many  European  suppliers,  who  are  under   pressure   to   remain   silent   unless   they   want   their   products   removed   from   the  Copyright-­‐  This  confidential  report  is  the  Intellectual  property  of  the  WAITO  Foundation  all  rights  reserved.  No  part  of  this  publication  may  be  reproduced  or  diffused  under  any  form  or  by  any  means,  including  photocopies  and  recordings,  or  by  any  information  storage  or  recovery  system.    
  • 24.   24      shops.  It  is  a  well-­‐oiled  machine;  as  soon  as  one  factory  is  shut  down,  another  one  opens  a  few  kilometres  away.  Against  this  corruption,  western  response  is  too  weak.  Chinese  courts,   which   have   recently   acquired   panels   specializing   in   industrial   property   rights,  and   the   AIC   (Administrations   for   Industry   and   Commerce),   employing   350,000   civil  servants,   regularly   hand   out   penalties,   closing   down   a   factory   here,   issuing   a   fine   of  several  thousand  euros  there  (3000  persons  were  convicted  in  2005).      The  mass  industry  of  counterfeit  products  is  highly  diverse  and  can  therefore  take  on  a  number  of  different  forms,  even  that  of  respectability.  A  typical  example  is  that  of  Cipla,  established  in  Bombay  and  directed  by  Yusuf  Hamied.  This  Cambridge-­‐educated  chemist,  currently  offers  hundreds  medicines  manufactured  in  his  own  industrial  premises:  these  include  Erecto,  a  copy  of  Viagra;  Nuzac,  a  copy  of  Prozac;  Forcan,  a  copy  of  Difucan,  an  antifungal,  etc.  In  India,  these  products,  marketed  by  Cipla,  are  sold  at  one  twentieth  or  one   fifteenth   of   the   US   price.   Under   Indian   law,   patents   only   cover   the   manufacturing  procedures   and   not   the   products   themselves.   Indian   laboratories   can   therefore   sell  copies  at  a  lower  price  in  India,  in  the  interest  of  local  health  policy.  In  parallel  to  this  blossoming   and   perfectly   legal   activity,   this   laboratory,   like   its   local   rival   Rambaxy,  supplies  certain  American  and  European  laboratories  with  the  substances  used  in  their  own   production.   However,   although   there   is   no   clear   evidence   of   this,   it   would   appear  that  some  of  these  Indian  laboratories  also  offer  these  substances  to  other  laboratories  that  produce  illegal  generics  to  be  sold  on  the  international  market.      According   to   Dr   Javid   Chowdhurry,   the   Indian   Minister   of   Health   in   2004,   “western  laboratories  must  take  responsibility  for  their  own  pricing  policy.  We’re  a  self-­‐contained,  developing  economy.  We  live  on  little,  but  we  survive.  The  per-­‐capita  health  expenditure  in  India  is  of  $10  a  year.  If  western  pharmaceutical  laboratories  are  able  to  lower  their  price   by   80%   for   anti-­‐retroviral   medicines   sent   to   Africa,   it   must   be   that   their   initial  price  was  not  correct”.      In   India,   more   than   17,000   companies   manufacture   medicines   and   most   of   them   only  produce   substandard   copies.   However,   70%   of   the   national   market   is   held   by   20  laboratories,   some   of   which   are   subsidiaries   of   multinationals   like   Glaxo   India,   which  belongs   to   GlaxoSmithKline.   These   laboratories   are   monitored   by   Western   inspectors   to  ensure   that   the   procedures   are   respected,   but   this   provides   no   guarantees   for   other  laboratories.     b) Transportation  and  distribution  of  illegal  products    Apart   from   their   commercial   and   industrial   strength,   these   criminal   organizations   are  also  perfectly  aware  of  real  border  control  capacities;  checks  are  only  carried  out  on  3  to  5%   of   incoming   goods.   According   to   the   European   Commission   Taxation   and   Customs  Union   Directorate-­‐General,   any   attempt   to   push   customs   controls   beyond   this  percentage   would   be   doomed   to   failure.   It   is   not   so   much   the   lack   of   resources   that  impinges   customs   action,   but   the   simple   fact   that   more   controls   would   “block   any  international   trade   logistics”.   Accordingly,   10,000   containers,   particularly   from   Asia,  leave  Dubai  every  year  bound  for  European  ports.  What’s  more,  a  quarter  of  containers  in   transit   in   the   world   pass   through   China.   In   these   conditions,   there   are   few   customs  authorities  that  could  even  attempt  to  stem  this  trade  for  control  purposes.      Copyright-­‐  This  confidential  report  is  the  Intellectual  property  of  the  WAITO  Foundation  all  rights  reserved.  No  part  of  this  publication  may  be  reproduced  or  diffused  under  any  form  or  by  any  means,  including  photocopies  and  recordings,  or  by  any  information  storage  or  recovery  system.    
  • 25.   25      However,   customs   seizures   only   concern   the   visible   part   of   the   phenomenon.   Various  administrative   sources   estimate   that   the   volume   of   counterfeit   products   crossing  European  borders  is,  at  least,  3  to  5  times  higher  than  the  number  of  items  intercepted.  However,   some   professionals   consider   that   real   figures   are   higher   still,   reaching,  according  to  a  Lacoste  representative,  up  to  20  times  the  number  of  goods  controlled.    In   short,   not   only   is   counterfeiting   spreading,   but   also,   as   the   abovementioned   examples  show,  it  is  becoming  a  mass  phenomenon.  This  affects  all  types  of  consumer  items  and  not   only   in   the   luxury   sector.   Through   its   mass   industrialization,   counterfeiting   has  established  a  parallel  global  economy,  and  can  be  seen  as  being  one  of  the  main  evils  of  globalization.  This  explains  the  increasing  interest  of  organized  crime  in  this  particularly  profitable  market  with  little  risk  of  criminal  sanctions.        Starting   from   common   production   areas,   counterfeiters   use   complex   and   varied  transportation   and   distribution   networks,   exploiting   all   possible   means   of   transport.  Counterfeiters   have   become   particularly   expert   in   intermediate   reloading,   which  conceals   the   country   of   origin   of   the   counterfeit,   by   making   it   pass   through   various  countries  or  regions  before  reaching  its  final  destination,  mostly  in  Europe  or  the  United  States   due   the   purchasing   power   of   these   regions.   Moreover,   an   increasing   number   of  goods  are  sent  “decomposed”,  in  other  words,  containing  all  the  unassembled  elements  that   make   up   the   product   (label,   textile,   wrapping,   etc.).   This   technique   means   that   a  counterfeit   product   can   be   partially   manufactured   in   a   country,   assembled   in   another,  transported   by   a   third,   before   being   marketed   in   a   fourth.   As   the   Union  des  Fabricants  highlights,   the   mobility   and   opaqueness   of   these   channels   means   that   each   counterfeit  production  line  has  its  own  method  of  transportation  and  distribution.        Mafia   organizations   do   not   lack   ideas   for   increasing   their   profits.   In   Botswana,   where  40%  of  the  population  is  HIV-­‐positive,  a  laboratory  offered  patients  free  antiretrovirals  in  2006.  The  medicines  provided  were  diverted  by  a  local  mafia  organization  and  then  sold   abroad.   Meanwhile,   the   organization   had   imported   counterfeits   manufactured   in  Asia   under   the   Chinese   triads.   Developed   countries   are   not   spared   either.   The   United  States  is  particularly  vulnerable,  as  highlighted  by  two  well-­‐known  cases.  In  2002,  GSK  discovered  flasks  labelled  Combivir®  (lamivudine  and  zidovudine),  a  treatment  for  AIDS,  which  contained  another  antiviral,  Ziagen®.  Then  in  2003,  traffickers  sold  fake  Lipitor  through  Med-­‐Pro  (a  repackaging  company  in  Nebraska)  to  Albers  Medical,  a  distributor  specializing  in  discount  prices.      Moreover,   being   closely   linked   to,   and   involved   in,   the   legal   globalized   economy,  counterfeiting   uses   the   same   operation   systems   and   mechanisms.   Counterfeiters   use  externalization   and   delocalization   to   reduce   their   production   costs.   They   use   the   main  distribution   channels,   mixing   their   good   with   millions   of   others,   and   their   preferred  means  of  transport  are  the  gigantic  containers  loaded  onto  the  multipurpose  cargo  ships  that   criss-­‐cross   the   world’s   seas.   The   withdrawal   of   customs   barriers   makes   the  distribution  of  counterfeit  goods  easier  and  more  profitable.    Laxity,  corruption  and  the  scarcity   of   customs   officials   have   turned   certain   countries   into   thoroughfares   for  counterfeit   goods   controlled   by   organized   crime.   The   ports   of   Antwerp,   in   Belgium,  Schiphol  airport  and  the  port  of  Amsterdam  in  Holland,  Roissy-­‐Charles-­‐de-­‐Gaulle  airport  in   France,   the   ports   of   Dubai,   Hong   Kong   and   various   ports   in   the   United   States   are   very  popular   destinations   for   these   goods.   Surprisingly,   however,   Canada   appears   to   be   the  Copyright-­‐  This  confidential  report  is  the  Intellectual  property  of  the  WAITO  Foundation  all  rights  reserved.  No  part  of  this  publication  may  be  reproduced  or  diffused  under  any  form  or  by  any  means,  including  photocopies  and  recordings,  or  by  any  information  storage  or  recovery  system.    
  • 26.   26      most  “worrying”  country  according  to  IACC  (International  Anticounterfeiting  Coalition),  second  only  to  China.  Canada  is  on  the  “Special  301”  surveillance  list  of  the  United  States,  established  jointly  with  the  IACC,  denouncing  countries  with  excessively  lax  intellectual  property  rights  protection  policies.  “In  Canada,  the  risk  of  being  caught  and  the  penalties  incurred   are   very   low.   Traffickers   can   comfortably   pay   the   couple   of   thousand   fine   if  they  are  caught,”  economist  Jason  Myers  explains.        Traffickers   proceed   in   the   following   way:   the   products   arrive   through   the   ports   in   the  Toronto  area  and  through  Pearson  airport.  Jason  Myers  explains  that  Canada  is  the  entry  point  to  the  lucrative  American  market.  A  good  is  first  manufactured  in  Asia,  and  if  it  is  to   be   sold   in   the   United   States,   it   is   sent   to   Canada,   where   the   risks   of   it   being  intercepted  are  low.  From  there,  the  product  can  easily  enter  the  United  States,  due  to  the   North   American   Free   Trade   Agreement.   William   McKay   claims   that   the   contrary   is  also   true13.   “Most   of   the   counterfeit   batteries   that   are   found   on   the   Canadian   market   are  imported   by   an   American.   That   is   something   that   the   Americans   do   not   brag   about.    Goods  travel  in  both  directions.  The  same  happens  in  Europe  and  in  all  free  trade  areas”,  he  says.  Everywhere  you  look,  port  authorities  are  overwhelmed.  Counterfeiters  exploit  each  administrative  loophole.  They  can  hide  copied  goods  under  tonnes  of  legal  goods  or  mix  them  with  authentic  products,  which  have,  of  course,  been  stolen.  “The  authorities  in  charge  of  monitoring  goods,  such  as  Transport  Canada,  cannot  check  each  container.  That   would   take   a   tremendous   amount   of   time   and   would   cost   a   fortune”   says   Irene  Marcheterre  of  the  Canadian  Air  Transport  Security  Authority  (ACTSA).      On  the  ground,  local  mafias  and  urban  gangs  take  over  for  the  end-­‐of-­‐line  sale  of  these  goods   shipped   in   via   full   or   mixed   containers,   depending   on   the   demand.   The   role   of  these  street-­‐sellers  or  “dealers”  is  well  known.  However,  much  less  publicity  is  given  to  the   role   played   by   large   distribution   companies.   Admittedly,   distributers   intervene   at  the   end   of   the   line   and   it   is   therefore   hard   for   them   to   identify   all   the   participants   in   the  procedure.   However,   low-­‐cost   strategies,   relying   on   unscrupulous   wholesalers   who   do  not  hesitate  to  buy  on  the  parallel  imports  distribution  or  counterfeits  market,  result  in  the  sale  of  “real  fakes”  on  the  shelves  of  French  supermarkets  like  Auchan  or  Carrefour.  As   highlighted   by   the   Director-­‐general   of   Customs   and   Indirect   Taxes   of   the   French  Ministry   of   Economy   and   Industry,   mass   distribution   procurement   offices,   used   to  buying  batches  of  products  on  mass,  cannot,  in  such  conditions,  avoid  buying  counterfeit  products.   Therefore,   should   the   sale   of   these   large   batches   in   supermarkets   be  considered   intentional   or   unintentional?   The   French   Senate   Commission,   assigned   in  2004  to  examine  the  thorny  subject  of  the  anti-­‐counterfeiting  draft  law,  denounced  the  laxity  of  certain  companies,  which  took  little  notice  of  their  quality  control  obligations  in  respect   of   their   customers,   or   of   the   fair   competition   regulations   in   respect   of   other  retailers.    Accordingly,   the   Versailles   Court   of   Appeal   (France),   in   an   order   of   20   June   2002,  convicted   a   distributor   of   counterfeiting,   following   a   complaint   filed   by   Reebok   that   it  had   sold   football   shoes   in   its   Velizy   hypermarket   under   the   CUP’s   brand,   with   stripes  imitating  the  “Reebok”  sign,  thereby  creating  the  “same  overall  impression”,  which  could  mislead   consumers.   In   that   case,   the   court   ordered   the   payment   of   12,000   euros   in  damages  to  Reebok  International  Limited  and  1500  euros  to  Reebok  France.  Again,  on  11   June   2002,   the   first   division   of   the   Regional   Court   of   Pontoise   (France),   following   a                                                                                                                  13  Royal  Canadian  Mounted  Police  (RCMP)  Copyright-­‐  This  confidential  report  is  the  Intellectual  property  of  the  WAITO  Foundation  all  rights  reserved.  No  part  of  this  publication  may  be  reproduced  or  diffused  under  any  form  or  by  any  means,  including  photocopies  and  recordings,  or  by  any  information  storage  or  recovery  system.    
  • 27.   27      complaint   filed   by   Nike,   ordered   the   company   Continent   to   pay   34,301.03   euros   in  damages  for  having  sold  counterfeit  products,  t-­‐shirts  and  jogging  trousers  in  its  Sannois  and   Montigny-­‐les-­‐Cormeilles   shops,   constituting   “vulgar   imitations”.   In   this   case,   the  court   declared   that,   “being   a   professional   distributor,   this   company   should   check   the  origin   of   the   products   that   it   puts   into   circulation”.   Finally,   the   regional   court   of   Lyon  (France),   in   a   decision   of   5   February   2004,   ordered   the   company   Auchan   to   pay   the  company  Timberland  70,000  euros  in  damages  for  counterfeiting,  due  to  the  illicit  use  of  its   brands   by   selling   brand   products,   at   reduced   prices   and   outside   the   authorized  distribution  networks  in  over  40  sale  points.  In  this  order,  the  court  also  stated  that  such  behaviour   constituted   an   act   of   unfair   competition   as,   in   this   case,   the   distributor   had  sold  these  products  without  “having  ensured  the  legality  of  its  supply”,  and,  what’s  more,  it  had  done  so  at  prices  “largely  inferior  to  those  charged  by  the  members  of  the  network”  and  had  thereby  benefitted  “from  an  advantageous  position  due  to  an  equality  breach  in  respect  of  other  stockists”.    The   problem   of   the   sale   of   illegal   products   by   certain   mass   distribution   supermarkets   is  taken   so   seriously   by   the   European   Economic   and   Social   Committee,   that   in   its   Green  Paper   “combating   counterfeiting   and   piracy   in   the   single   market”,   it   said   that   the  distribution   sector   “should   be   encouraged   -­‐   in   association   with   manufacturers   -­‐   to  develop  labels  of  quality  and  codes  of  ethics  to  root  out  suspect  products  and  services”.  In   this   way,   the   Committee   suggests   that   the   European   Commission   should   take  initiatives   in   this   sector   in   conjunction   with   the   representative   trade   associations,   to  raise   awareness   and   educate   its   members   as   to   the   risks   of   being   linked   directly   or  indirectly   to   organized   crime.   When   referring   to   this   sector,   it   is   important   to   specify  that   it   concerns   both   wholesale   and   retail   distribution   circuits,   mass   distribution   and  small   traditional   shops,   and   service   activities   targeting   both   professional   and   private  individuals.    In  conclusion,  the  danger  is  real  because  it  is  concealed  behind  the  sale  of  legal  products.  This   was   the   case   of   the   fluoride-­‐free   toothpaste   without   fluoride   sold   on   mass   in   the  United   States.   In   June   2007,   Colgate-­‐Palmolive,   the   biggest   toothpaste   manufacturer   in  the   world,   let   it   be   known   that   counterfeit   toothpaste   possibly   containing   diethylene  glycol   (DEG)   had   been   discovered   in   shops   in   the   four   American   States   of   New   York,  New  Jersey,  Pennsylvania  and  Maryland.  The  FDA  (Food  and  Drug  Administration)  had  issued  a  warning  on  1  June  2007  to  stop  the  entry  into  the  United  States  of  toothpaste  containing   DEG   and   notified   consumers,   via   the   media,   of   the   risks   of   using   brand  toothpaste   produced   in   China.   The   FDA   specified   that   deaths   and   injuries   had   been  reported   in   other   countries   due   to   the   use   of   cough   medicine   containing   DEG.   The  situation  in  the  United  States  was  becoming  alarming,  following  the  warning  of  the  FDA  on   the   possible   presence   of   DEG   in   imported   toothpaste   products.   Since   then,   the  Centres   of   Health   Sciences   of   Mississauga,   in   Ontario   and   Santa   Fe   Springs,   and  California   provide   screening   services   for   ethylene   glycol   and   dyethylene   glycol   in  toothpaste.  Comparative  analyses  of  the  fake  Colgate  products  and  the  Chinese  brands  identified   by   the   FDA-­‐   such   Cooldent   Spearmint,   Cooldent   ICE,   Dr.   Cool,   Everfresh  Toothpaste,  Superdent  Toothpaste,  Clean  Rite  Toothpaste,  Oralmax  Extreme,  Oral  Bright  Fresh   Spearmint   Flavor,   ShiR   Fresh   Mint   Fluoride   Paste,   DentalPro   and   DentaKleen-­‐  produced  identical  results.  Everything  indicates  that  most  of  these  products  come  from  the   same   factories,   manufacturing   toothpaste   for   the   local   brands   and   for   the  counterfeiters.  According  to  FDA,  the  shops  suspected  of  having  sold  this  illegal  product,  Copyright-­‐  This  confidential  report  is  the  Intellectual  property  of  the  WAITO  Foundation  all  rights  reserved.  No  part  of  this  publication  may  be  reproduced  or  diffused  under  any  form  or  by  any  means,  including  photocopies  and  recordings,  or  by  any  information  storage  or  recovery  system.    
  • 28.   28      had   entered   into   deals   with   the   import-­‐export   companies   under   the   control   of   the  Chinese  triads.       c) Internet:  a  major  instrument  for  illegal  distribution    While   retailing   is   a   new   mass   distribution   sector   for   counterfeit   consumer   goods,  Internet   is   a   major   instrument   in   their   promotion   and   sale   to   a   large   number   of  opportunist   consumers.   The   Internet’s   system   architecture,   allowing   sellers   to   remain  anonymous,   makes   it   a   counterfeiting   goldmine   and   a   prime   instrument   for   the  development  of  this  criminal  activity.  One  only  needs  to  go  onto  the  online  auction  site  eBay,   with   pages   posting   “all   counterfeits   at   one   euro”   offers,   Burberry   jacket,   the  indications  “confidential”  in  the  “Seller  info”  section  or  a  discussion  forum  denouncing,  for  example,  happyangel8899,  selling  fake  Dior  bags  in  China,  etc.      The   Department   of   the   International   Chamber   of   Commerce   in   charge   of   anti-­‐counterfeiting   considers   that   the   value   of   the   counterfeit   products   exchanged   on   the  Internet  every  year  is  of  approximately  25  million  dollars.  This  activity  attracts  even  the  most   timid   criminals.   A   recent   study   sponsored   by   the   French   Ministry   of   Economy14  highlighted   this   situation.   The   report   was   based   on   a   qualitative   analysis   of  approximately   1000   “mushroom”   sites   and   on   the   observation   of   consumer-­‐to-­‐consumer   sales   sites.   According   to   the   study,   counterfeiters   operate   on   the   Internet  through  these  two  separate  channels:     • The  first,  known  as  “mushroom  sites”15,  are  short-­‐lived  web  sites  specializing  in   counterfeits   and   targeting   intermediary   sellers   or   directly   targeting   consumers.   They  mainly  consist  of  large  Asian  platforms  that  offer  anything  from  children’s   toys  to  business  jets,  chemical  products,  medical  devices  or  medicines.     • The   second   types   of   sites   are   consumer-­‐to-­‐consumer   platforms.   Even   the   most   famous  sites  (e.g.  eBay)  are  affected.      These  findings  pose  a  major  challenge,  not  only  for  the  authorities  but  also  for  the  sales  platforms   (consumer   or   business   to   consumer,   at   fixed   prices   or   at   auction)   whose  activity  is  in  full  growth  and  which  are  being  flooded  with  counterfeits.  According  to  a  French  study,  this  area  of  counterfeiting  can  affect,  up  to  70%  of  certain  products.  The  owners  of  these  Internet  sites  are  therefore  confronted  with  major  legal  problems:  their  level  of  liability,  the  anonymity  of  sellers,  the  lack  of  a  general  supervision  obligation  for  their  sites,  etc.    Internet   profiling   gives   an   idea   of   the   type   of   counterfeiters   operating   on   the   Internet.  Among  the  three  most  recurrent  profiles-­‐  poly-­‐delinquent,  industrious  and  intermittent  offenders  -­‐  the  first  two  have  caught  our  attention.                                                                                                                      14  “Evaluation  de  l’ampleur  de  la  vente  des  produits  contrefaisants  sur  Internet”  –  Report  directed  by  Erich  Schmidt-­‐  Study  ordered  by  the  General  Directorate  for  Competitiveness,  Industry  and  Services.  Ministry  of  Economy,  Industry  and  Employment.  February  2009.      15  A   significant   percentage   of   B2C   sites   sell   counterfeit   products.   Many   of   them   are   sales   sites   registered   on   Asian  online  B2B  sales  site  platforms.  The  control  of  these  so-­‐called  “mushroom  sites”  rendered  particularly  complex  due  to  their  rapidity  of  their  appearance,  disappearance  and  development.      Copyright-­‐  This  confidential  report  is  the  Intellectual  property  of  the  WAITO  Foundation  all  rights  reserved.  No  part  of  this  publication  may  be  reproduced  or  diffused  under  any  form  or  by  any  means,  including  photocopies  and  recordings,  or  by  any  information  storage  or  recovery  system.    
  • 29.   29       • Poly-­‐delinquents.   Although   they   are   involved   in   other   forms   of   trafficking   and   offenses,  the  Internet  provides  poly-­‐delinquents  with  a  new  source  of  income,   which   is   less   risky   in   terms   of   visibility   and   penalties.   Being,   in   general,   known   to  the  police,  they  try  to  keep  risks  at  a  minimum  by  working  from  home.       • Industrious   offenders.   For  these  individuals,  the  sale  of  counterfeit  products  is  a   major   activity,   generating   additional   income,   but   with   no   connection   to   organized   networks   and   other   types   of   crime.   Offenders   are   mainly   students,   seeking  to  finance  their  studies  or  hobbies,  and  unemployed  persons,  who  use   this  as  a  means  of  sustenance.    These   two   categories   contribute   significantly   to   the   distribution   of   counterfeits  produced  by  organized  crime.      The  economic  sectors  that  are  victims  of  counterfeiting  are  not  equally  affected  by  this  new   means   of   communication   via   the   Internet.   Due   to   their   purchasing   and   consumer  practices,   and   the   more   or   less   structured   organization   of   their   physical   distribution  channels,   highly   specific   counterfeit   models   have   developed   online   for   certain   product  types.   The   products   thought   to   be   dangerous   include   medicines,   food   products,   spare  vehicle  parts,  capital  goods,  cosmetics,  perfumes  and  toys.      New   technologies   provide   a   major   outlet   for   counterfeit   medicines,   especially   through  frequent   use   of   spamming   techniques.   The   phenomenon   affects   a   growing   number   of  countries,  reaching  alarming  proportions  in  developing  countries,  and  adapting  itself  to  needs   and   cultures.   The   sale   of   “fake”   antimalarials   or   antiphrastic   especially   affects  Sub-­‐Saharan   African   countries,   while   developed   countries   are   more   affected   by   the  counterfeiting  of  “comfort”  medicines,  which  often  require  medical  prescription.      Within   the   European   common   market,   food   production   and   the   consumption   of   all   27  Member   States   is,   in   theory,   carefully   measured   for   each   product   category.   For   food  counterfeiters   and,   in   particular,   the   criminal   organizations   that   distribute   their  products,  the  aim  is  to  infiltrate  the  first  “bloc”  of  lightly-­‐taxed  imports,  at  the  expense  of  genuine  products.  The  supply  of  counterfeit  food  is  not  just  a  figment  of  criminologists’  imaginations.   On   the   markets   of   Shenzhen   and   Canton,   or   of   Tunisia   and   Turkey,   it   is  increasingly   common   to   find   counterfeit   products   (Ketchup,   chocolates,   cereals,   etc.).  For   the   time   being,   the   exportation   of   these   products   on   mass   is   not   viable,   but   in   the  wake  of  the  financial  crisis  new  Member  States  are  starting  to  feel  the  pressure.  Without  new   illegal   export   methods,   this   activity   continues   to   be   limited   in   general   to   Asian  countries,  where  these  products  are  manufactured  (China,  Thailand,  Vietnam,  Malaysia,  South  Korea,  etc.),  and  to  Africa.  In  this  context,  counterfeit  food  products  are  not  often  seen  on  the  Internet,  due  to  their  perishable  nature  and  to  traditional  purchasing  trends,  which  are  still  not  adapted  to  the  Internet.      Considering   their   increasing   presence   in   physical   distribution   channels,   the   possibility  of   the   online   sale   of   this   type   of   counterfeits   should   not   be   dismissed.   Two   prime  examples   are   expensive   rare   wines,   and   alcohol   for   under-­‐16s   or   18s-­‐   depending   on   the  country-­‐  bought  on  the  internet  in  order  to  circumvent  legal  drinking  age  rules.      Copyright-­‐  This  confidential  report  is  the  Intellectual  property  of  the  WAITO  Foundation  all  rights  reserved.  No  part  of  this  publication  may  be  reproduced  or  diffused  under  any  form  or  by  any  means,  including  photocopies  and  recordings,  or  by  any  information  storage  or  recovery  system.    
  • 30.   30      Fake   cosmetics,   perfumes   and   toys   are   some   of   the   most   common   counterfeits   on   the  Internet  due  to  the  notoriety  of  their  brands  (creating  a  high  demand  among  consumers),  and  their  highly  profitable  investment  cost-­‐benefit  relationship.  This  trafficking  is  seeing  the  rapid  rise  of  the  “trader-­‐counterfeiter”  who  plays  an  intermediary  role  between  the  buyer  and  the  supplier,  but  is  never  in  (physical)  possession  of  the  products.  The  buyer  is   rarely   aware   of   the   real   threats   posed   by   these   products.   When   counterfeit   toys   are  detected   on   a   “mushroom”   website,   the   company   attempts   to   find   the   supplier.   But   it  normally   encounters   two   major   difficulties:   the   responsiveness   of   the   criminal  organizations   in   charge   of   distributing   these   products   and   the   fact   that   they   mainly  operate   from   outside   Europe   (i.e.   in   China).   However,   detecting   counterfeits   on   the  Internet   (excluding   websites   known   for   exclusively   dealing   in   counterfeit   products)  continues   to   be   very   difficult   and   often   requires   right   holders   to   order   the   products  themselves  to  identify  the  counterfeit.  With  regards  to  cosmetics  and  perfumes,  90%  of  these  products  also  come  from  China  and  pass  through  countries  like  Italy  or  Belgium,  known   for   harbouring   large   quantities   of   counterfeit   cosmetic   products   and   perfumes.  These   are   the   countries   that   supply   the   sellers.   In   France,   75%   of   people   selling   false  L’Oreal   products   live   near   borders,   in   cities   like   Lille,   Roubaix   and   Nice.   The   networks  are   well   established   and   often   linked   to   organized   crime.   Right   holders   spend  considerable   amounts   on   combating   the   online   sale   of   counterfeits16.   However,   the  flexibility  and  transferability  of  online  counterfeiters,  and  the  difficulty  in  enforcing  the  payment  of  damages,  raises  doubts  about  the  effectiveness  of  legal  procedures.  Criminal  organizations  are  fully  aware  of  this  and  therefore  multiply  their  online  activities.    Spare   vehicle   parts   and   capital   goods   are,   almost   exclusively,   sold   via   physical  distribution  channels,  rarely  on  the  Internet,  even  though  some  easily  installable  parts  can   be   sold   on   C2C   platforms,   or   on   Asian   B2B   platforms.   It   is   nevertheless   important   to  highlight  the  alarming  growth  of  the  trade  of  electric  equipment  on  the  Internet.      According  to  the  15  June  2006  issue  of  the  French  journal  Contrefraçon-­‐Riposte,  various  sites  like  as  generic.electric.fr,  alternative-­‐elec.fr  and,  of  course,  ebay.fr,  sell  counterfeit  products   in   France.   Since   2007,   in   addition   to   the   procedures   of   counterfeit-­‐seizure,  customs-­‐seizures   or   provisional   bans,   which   the   French   Intellectual   Property   Code  already   provided   to   help   right   holders   collect   material   evidence   of   counterfeiting   and   to  put  a  stop  to  it,  new  provisions  set  out  strong  investigatory  measures,  that  are  not  just  limited  to  original  suspected  counterfeiter.  These  provisions  target  all  persons  found  in  possession   of   counterfeit   products,   supplying   services   for   counterfeiting   activities,   or  having   been   identified   as   participating   in   the   production,   manufacture,   or   transport   of  these  products  or  the  provision  of  these  services.      In   the   case   of   spam17,   the   problem   is   aggravated   by   its   global   reach.   The   three   countries  that  send  out  the  most  spam  are  the  United  States  with  1513  domains,  followed  by  China  (477)   and   Russia   (302).   Spammers   in   Russia   are   organized   under   the   control   of   local  mafias  and  114  of  them  send  80%  of  spam.  Although  there  are  less  than  in  other  areas,                                                                                                                  16  A   legal   action   against   the   counterfeiting   of   a   trademark,   including   a   preliminary   counterfeiting-­‐seizure,   costs  between  7000  and  15,000  euros  (in  particular  the  costs  of  the  preliminary  enquiry,  lawyers’  fees,    industrial  property  consultant  fees,  bailiff  and  IT  expert  fees).      17  Spam   refers   to   a   non-­‐solicited   electronic   communication,   mainly   via   email.   In   general   it   takes   the   form   of   mass  publicity   emailing,   either   bogus   or   with   particular   aim   other   than   annoying   the   addressee.   Other   types   of   spam  contain   useless,   and   often   provocative,   messages   with   no   link   to   the   subject   of   discussion,   are   posted   on   mass   on  forums  or  news  groups  leading  to  a  pollution  of  the  network.    Copyright-­‐  This  confidential  report  is  the  Intellectual  property  of  the  WAITO  Foundation  all  rights  reserved.  No  part  of  this  publication  may  be  reproduced  or  diffused  under  any  form  or  by  any  means,  including  photocopies  and  recordings,  or  by  any  information  storage  or  recovery  system.    
  • 31.   31      Eastern  European  gangs  appear  to  be  the  most  dangerous:  6  of  the  10  main  spammers  operate  from  Russia  and  Ukraine.  To  overcome  the  progressive  improvement  of  security  software,  spammers  are  constantly  changing  their  techniques.  To  get  around  the  content  analysis   filters,   spammers   alter   the   appearance   of   words   by   inserting   foreign   accents,  invisible   text,   colours,   etc.   Another   widely   used   technique   is   to   send   spam   in   the   form   of  images.  Scammers  also  tend  to  use  the  identity  of  the  sender  through  phishing18,  which  gets   personal   user   information   by   going   through   a   trusted   third   party   or   by   using  trusted   host   sites.   Across   the   board,   spam   plays   on   the   same   recurrent   themes:  improving   sexual   performance,   medicines,   financial   services,   counterfeits   and  pornography.   These   sectors   are   constantly   developing   as   spammers   try   to   access   new  markets.   A   larger   and   increasing   amount   of   spam   promotes   illegal   pharmacies,   which  constitute   a   profitable   and   interesting   business   opportunity.   The   Federal   Trade  Commission  recently  said  that  it  was  aware  of  the  identity  of  the  persons  involved  in  the  campaigns  for  illegal  pharmacies  such  as  the  European  Pharmacy.  Not  only  have  these  persons   been   identified   by   Interpol’s   criminal   files,   but   they   have   also   been   located  geographically   in   Russia.   Russia’s   lack   of   collaboration   has   been   denounced,   since   the  mafias  that  specialize  in  the  illegal  sale  of  medicines  can  be  easily  identified.  Moreover,  this   form   of   trafficking   is   well   organized.   Previously   known   as   Pharmacy   Express,  European  Pharmacy  (or  Canadian  Pharmacy)  has  been  identified  by  Spamhaus19  as  the  world’s   worst   spammer.   Spam   communication   strategies   are   based   on   the   principle   of  affiliation  campaigns  established  by  the  company  Glavmed.  The  principle  is  simple:  the  affiliate   sites   send   out   the   advertiser’s   publicity   material   and   receives   performance-­‐based  remuneration,  starting  at  40%  of  profits.     d) Russia  and  its  mafias      Two   facts   sum   up   the   situation   of   counterfeiting   in   Russia.   Firstly,   the   main  pharmaceutical  counterfeiter  is  a  member  of  the  Duma,  who  goes  nowhere  without  his  armed   bodyguards;   and   secondly   the   lawyer   of   Pernod-­‐Ricard,  who   was   a   specialist   in  the   protection   of   intellectual   property   rights   in   Russia,   has   been   assassinated.   Is   this   the  work  of  organized  crime  or  of  the  local  mafias?      In   our   view,   organized   crime   should   not   be   seen   merely   as   a   set   of   activities   directed   by  criminal  organizations.  In  Russia,  these  are  increasingly  taking  on  the  form  of  coherent  social  interactions  united  by  the  common  objective  of  illegal  profit.    From   Moscow   to   St   Petersburg,   organized   crime   uses   the   front   of   firms,   businesses   or  industries   oriented   towards   the   production   of   goods   and/or   services.   Organized   crime  has  a  fundamental  profit-­‐making  objective.  In  this  sense,  there  is  nothing  to  distinguish  them  from  other  economic  enterprises.  However,  the  difference  lies  in  the  methods  they  use.   Criminal   organizations   generate   profits   by   every   possible   means,   in   particular,  through  crime.  All  companies  can  resort  to  illicit,  or  clearly  criminal  practices,  to  achieve  their  objectives,  but  this  tends  to  be  referred  to  as  white-­‐collar  crime  or  corporate  crime.                                                                                                                    18  A   technique   used   by   online   fraudsters,   aiming   to   usurp   an   individual’s   identity   or   that   of   a   known   entity.   The  principle   is   the   following:   an   internet   user   receives   an   unsolicited   email   (spam)   which   appears   to   have   been   sent   by   a  recognizes   entity(   portal,   bank,   etc.).   The   aim   is   to   lure   Internet   users   onto   fake   sites   to   register   their   personal   details  (bank  card,  telephone  number,  etc.)  This  information,  saved  onto  a  fake  form,  can  then  be  used  by  the  online  criminal.      19  The  “Spamhaus  Project”  is  an  international  non-­‐profit  student  organization  that  studies  spam,  tracking  the  culprits  and  providing  means  of  protection.      Copyright-­‐  This  confidential  report  is  the  Intellectual  property  of  the  WAITO  Foundation  all  rights  reserved.  No  part  of  this  publication  may  be  reproduced  or  diffused  under  any  form  or  by  any  means,  including  photocopies  and  recordings,  or  by  any  information  storage  or  recovery  system.    
  • 32.   32      The   growth   of   criminal   businesses   in   Russia   is   encouraged   by   the   demand   for   illegal  goods  and  services,  dissatisfaction  with  the  supply  of  legal  goods  and  services  (e.g.  in  the  event   of   shortage),   employment   market   conditions   and   the   regulations   on   economic  activities.   According   to   Lev   Timofeev20,   “of   all   the   possible   methods   of   regulating   a  branch  of  activity-­‐  taxation,  nationalization,  prohibition-­‐  prohibition  is  the  least  effective.  Prohibiting   a   market   does   not   destroy   it,   but   places   it   totally   under   the   control   of  criminal   organizations   and   allows   the   latter   to   exert   an   influence   over   the   State   and  society”.      Organized  crime,  as  a  social  phenomenon,  is  not  only  linked  to  the  economy  but  also  to  the  political  situation.  Organized  crime  could  be  defined  as  a  social  phenomenon  when  it  not  only  refers  to  the  amalgamation  of  criminal  organizations,  but  to  global  interaction  between  criminal,  economic  and  political  factors  in  a  given  country.  This  is  the  case  of  Russia  today.      From   a   legal   point   of   view,   article   35   of   the   Criminal   Code   of   the   Russian   Federation  makes   a   distinction   between   criminal   groups   (prestoupnaïa   grouppa)-­‐   organized   and  coordinate   groups,   created   to   commit   serious   or   particularly   serious   offenses-­‐   and  criminal   associations   (prestoupnoe   soobchtchestvo)-­‐   associations   of   criminal   groups.  This  imprecise  definition  underlies  the  action  of  organized  crime  control  services.  It  is  even  harder,  though,  to  provide  a  criminological  definition  of  criminal  organizations.  It  is   best   to   exclude   politically   motivated   criminal   organizations   (e.g.   fascist   political  organizations),   and   legal   organizations   that   use   criminal   methods   to   further   their  activities.   This   focuses   our   attention   on   criminal   organization   created   to   exploit   the  production  and  distribution  of  illegal  goods  and  services.  As  social  organizations,  their  structure   is   closer   to   a   professional   organization   than   to   a   family,   interest   group   or  company.  As  in  all  professional  organizations,  the  size  of  criminal  organizations  can  vary  and   they   carry   out   their   activities   on   a   more   or   less   sustainable   and   diversified   basis.  The   complexity   of   their   organizational   structure   also   varies,   and   is   based   on   clearly  established   rules   that   they   try   to   impose;   they   protect   their   activities,   in   order   to  maximize   their   gains.   Criminal   organizations   are   characterized   by   considerable   stability  and  adaptability,  as  a  result  of  their  strict  rules  on  membership,  discipline  and  recruiting  the  youngest,  strongest  and  most  motivated  collaborators.  They  are  therefore  extremely  competitive.            Therefore,  the  criminal  groups  that  most  interest  us  have  the  following  characteristics:       • associative  stability  and  sustainability     • they  seek  to  generate  maximal  profits   • they  produce  and  redistribute  goods  and  services   • they  exercise  both  legal  and  illegal  activities   • they  operate  hierarchically  and  roles  are  clearly  defined   • they  use  corruption   • they  tend  to  monopolize  a  sector  or  geographical  area                                                                                                                    20  Lev  Timofeev,  An  Initial  Theory  of  the  Drug  Industy,  Mosow,  RGGOu,  1998  Copyright-­‐  This  confidential  report  is  the  Intellectual  property  of  the  WAITO  Foundation  all  rights  reserved.  No  part  of  this  publication  may  be  reproduced  or  diffused  under  any  form  or  by  any  means,  including  photocopies  and  recordings,  or  by  any  information  storage  or  recovery  system.    
  • 33.   33      In   comparison   with   other   professional   organizations,   criminal   organizations   are  characterized  by  the  systematic  use  of  corruption  and  the  production  and  redistribution  of  illegal  goods  and  services.      In   the   mid-­‐1990s,   the   most   profitable   criminal   activities   were   drug   trafficking,   real  estate,   the   metal   and   arms   trade,   the   production   and   sale   of   pirated   discs,   videos   and  software  when  the  protection  of  copyright  was  weak,  and  the  counterfeiting  of  wine  and  spirits.   The   purchase   of   factories   or   industrial   wasteland   also   became   important.   The  use  of  corruption  and  violence  made  it  possible  to  purchase  factories  and  start  up  new  businesses,  by  converting  them  into  clubs  and  restaurants,  but  also  into  counterfeiting  workshops  and,  in  the  2000s,  copyright  counterfeiting  centres.    Russia   is   one   of   the   main   copyright   offenders:   64%   of   music   and   recordings,   90%   of  software   and   75%   of   films   sold   are   counterfeits.   By   2005,   the   Special  301,   published   the  figures  produced  by  the  American  market,  evaluating  losses  due  to  copyright  piracy  at  1.7  billion  dollars.  The  director-­‐general  of  Rospatent,  the  Russian  agency  for  patents  and  trademarks,   highlighted   the   significance   of   this   phenomenon,   specifying   that   in   one   of  the   three   factories   manufacturing   pirated   DVDs,   closed   by   the   authorities   in   2006,   the  manufacturing   material   was   labelled   “US   for   Russian   Products”.   In   other   words,   if   the  problem  exists,  it  is  largely  because  it  has  been  imported  from  abroad!  In  the  realm  of  film   piracy,   it   is   interesting   to   see   that   only   foreign   and   no   Russian   films   tend   to   be  copied,  no  doubt  as  a  result  of  an  agreement  between  the  mafia  controlling  the  local  film  industry  and  the  mafia  controlling  the  manufacture  of  DVDs.      Alcohol   smuggling   and   counterfeiting   have   developed   considerably.   Know-­‐how   was  acquired   in   1985,   when   Mikhaïl   Gorbatchev,   having   just   come   into   power,   introduced  the   so-­‐called   “dry   law”   to   curb   the   consumption   of   alcohol   in   the   Soviet   Union.   Since   the  beginning  of  the  1990s,  legal  alcohol  production  entailed  low  manufacturing  costs  and  was  often  linked  to  embezzlement  and  low  quality  requirements.  Various  major  foreign  brands  are  produced  in  the  distilleries  and  cellars  of  St  Petersburg  and  the  region.      After   an   anti-­‐counterfeiting   reform   launched   in   2007,   wines,   cognacs,   whiskeys   and  especially  vodkas  disappeared  from  Russian  shops  and  restaurants.  This  was  caused  by  a  series  of  cases  of  poisoning  from  adulterated  alcohol,  some  which  had  been  sold  under  established   trademarks.   This   episode,   which   had   also   occurred   in   previous   years,   in  which   thousands   of   people   died   from   alcohol   poisoning21,   was   seen   as   a   “national  tragedy”.  A  law  came  into  force  on  1  July  2007  requiring  all  importers,  wholesalers  and  retailers   to   pass   all   their   transactions   through   a   centralized   IT   system   EGAIS,   to   identify  each  bottle  and  the  origin  of  its  contents.  It  required  that  a  tax  label  be  used  as  a  control  guarantee   and   in   proof   of   payment   of   the   excise   tax.   While   the   Russian   government  should   be   commended   for   its   attempts   to   stamp   out   this   problem,   its   methods   have   had  catastrophic  results.  The  authentication  labels  are  often  out  of  stock,  the  EGAIS  system  is  not  very  reliable  as  its  server  is  often  down.  As  for  the  companies  responsible  for  fixing  these   labels,   they   are   unwilling   to   buy   the   equipment   due   to   their   cost.   The  consequences  have  been  rapid  and  shelves  on  alcohol  aisles  are  often  empty  and  some  restaurants   are   out   of   stock.   The   loss   of   the   main   distribution   channels   has   led   to   an  estimated   loss   of   over   100   million   US$   and   yet   counterfeiting   continues   to   thrive.   Up   till  now,  traffickers  and  counterfeiters  controlled  nearly  50%  of  the  Russian  alcohol  market.                                                                                                                  21  Source  WHO.    Copyright-­‐  This  confidential  report  is  the  Intellectual  property  of  the  WAITO  Foundation  all  rights  reserved.  No  part  of  this  publication  may  be  reproduced  or  diffused  under  any  form  or  by  any  means,  including  photocopies  and  recordings,  or  by  any  information  storage  or  recovery  system.    
  • 34.   34      This   market   share   is   likely   reach   90%   under   the   current   paralysis   of   the   legal   market.  Moreover,   this   illegal   production   is   exported   and   the   Ukraine   is   the   first   country   to   bear  the  cost.        Food  products  are  also  counterfeited.  A  few  months  after  the  companies  Bonduelle   and  Lesaffre  established   themselves   in   Russia,   their   employees   found   counterfeit   versions   of  their   tins   of   green   peas   and   their   yeast   sachets   being   sold   in   local   markets.   Both  companies  are  reluctant  to  notify  the  authorities,  as  they  could  risk  losing  their  client’s  trust  and  custom.  Nevertheless,  they  employ  private  detectives,  including  a  former  KGB  agent,   to   identify   the   sale   points   of   the   counterfeit   products,   and   contact   the   police   to  carry  out  raids.  However,  the  aim  is  to  “frighten  or  inconvenience”  and  not  to  stop  the  production  of  counterfeit  by  identifying  and  shutting  down  the  source.  These  companies  have  not  been  able  to  identify  the  persons  or  companies  counterfeiting  their  products.    In   the   vehicle   part   sector,   Renault,  which   has   opened   a   factory   with   a   60,000   vehicles  capacity  to  manufacture  their  Logan,  expects  to  fall  victim  to  counterfeiting.  According  to   estimates,   in   2002,   30%   of   spare   parts   on   the   Russian   market   were   counterfeits,  compared   with   a   global   average   of   10%.   The   most   affected   are   the   maintenance   and  wearing   parts,   such   as   the   filters   and   the   spark   plugs.   In   2005,   networks   providing  counterfeit   spare   parts   became   more   complex,   highlighting   business   relationships  between   the   Chinese   mafia   and   Russian   criminal   groups.   Counterfeit   spare   Mercedes  parts,   made   in   China,   were   recently   seized   in   Russia.   These   parts   had   passed   through  Hong  Kong,  Lebanon,  the  United-­‐States  and  Finland,  even  though  China  and  Russia  share  a  common  border.      But   this   complexity   does   not   end   in   Moscow.   On   24   May   2009,   the   Algerian   Trade  Minister   announced   the   seizure   of   1316   tonnes   of   spare   vehicle   parts   imported   in   2008.  This  was  3%  of  the  44,250  tonne  total  of  spare  parts  imported  over  the  same  period,  and  was   valued   at   five   million   dollars.   These   counterfeits   mainly   come   from   China,   but  before   reaching   their   final   destination,   the   goods   go   through   Russia,   imported   by   local  operators   that   all   belong   to   the   fartsovchtchiki   groups,   or   speculators.   Their   activity  consists  in  buying  and  reselling  counterfeit  consumer  goods  and  spare  vehicle  and  plane  parts  mixed  in  with  legal  products.  To  access  these  high-­‐demand  goods,  speculators  buy  them  in  bulk  directly  from  the  producer  (who  is  most  often  Chinese),  through  Russian  contacts  on  the  ground.        In  the  case  of  pharmaceuticals,  the  volume  of  counterfeits  is  increasing,  and  represents  between   12   and   15%   of   the   Russian   market.   According   to   a   source   at   the   Russian  Ministry   of   Health,   counterfeit   products   imported   from   other   CIS   Member   States,  especially   in   Central   Asia   (e.g.   Kazakhstan,   which   shares   a   7000   km   border   with   Russia)  or  China,  represent  40%  of  the  counterfeit  medicines  sold  on  the  Russian  market.  Others,  like   the   laboratories   Servier,   the   first   prescription   medicine   supplier   in   Russia,   have  highlighted  the  importance  of  local  production,  which  they  claim  represents  80%  of  the  available  “supply”.      Furthermore,  in  one  proven  case  of  counterfeiting,  the  representative  of  Servier   further  notified   the   rapporteur   that   the   company   had   not   able   to   mobilize   the   prosecutor  assigned  to  the  case.  The  company  also  pointed  to  the  difficulty  of  controlling  a  market  made  up  of  more  than  60,000  pharmacies,  including  “kiosks”  selling  “a  bit  of  everything”.  Copyright-­‐  This  confidential  report  is  the  Intellectual  property  of  the  WAITO  Foundation  all  rights  reserved.  No  part  of  this  publication  may  be  reproduced  or  diffused  under  any  form  or  by  any  means,  including  photocopies  and  recordings,  or  by  any  information  storage  or  recovery  system.    
  • 35.   35      It  should  be  added  that  one  of  the  “institutional”  counterfeiters,  operating  in  the  full  light  of  day,  is  the  army.  A  representative  of  Rusbrand,  an  association  for  the  defence  of  right  holders,  told  the  rapporteur  that  the  public  authorities  know  which  barracks,  and  even  which   factories,   belonging   to   the   Ministry   of   Defence   and   supposed   to   be   “top   secret”,  manufacture  counterfeits.    In   theory,   there   are   a   number   of   legal   remedies   in   Russia   that   enable   victims   of  counterfeiting   to   defend   themselves.   The   Russian   Civil   Code   provides   for   the  reimbursement   of   losses   suffered   by   trademark   holders,   and   for   the   destruction   of  product   stocks,   at   the   counterfeiter’s   expense,   following   a   court   decision.   The   Code   of  Criminal  Procedure  states  that,  in  an  enquiry,  the  prosecutor  can  ask  the  court  to  order  a  police  seizure  of  all  goods,  the  possession  or  use  of  which  constitutes  an  offense.  These  proceedings   can   lead   to   fines   of   approximately   5500   euros,   a   community   service  sentence   or   to   a   5-­‐year   prison   sentence   if   the   crime   was   committed   by   an   organized  gang.      In   practice,   through,   according   to   the   abovementioned   Rusbrand   representative,  prosecutors  hardly  ever  use  their  powers.  Moreover,  according  to  this  spokesperson,  the  Prosecutor  General,  despite  the  requests  made  by  the  embassies  of  various  countries,  so  far   refuses   to   meet   foreign   industrial   victims   of   counterfeiting.   Moreover,   the  Prosecutor’s   office   only   investigates   claims   backed   by   a   solid   and   precise   body   of  evidence,   thus   increasing   the   obstacles   for   complainant   companies.   In   the   case   of   the  violation  of  trademark  law,  documents  are  often  required  to  certify  the  notoriety  of  the  trademark,   as   well   its   use   by   another   person,   the   duration   of   use,   where   the   trademarks  have   been   used   and   distributed,   etc.,   all   of   which   is   practically   impossible   to   obtain   or  extremely  expensive  to  collect.      According   to   the   lawyers   of   Gide,  Loyrette  et  Nouel,   judges’   legal   practices   and   culture  can   be   “frustrating”.   They   highlight   a   lack   of   professionalism,   leading   to   incorrect  interpretations  of  the  law,   lack  of  training  in  the  area  of  intellectual  property  rights  and  corruption,   which   pervades   certain   courts.   On   this   last   point,   in   one   case,   after   the  complaint   had   been   filed,   the   procurator’s   office   inspector   went   to   the   law   firm   to   make  it  understood  that  it  would  have  to  pay  a  cash  sum  for  evidence  to  be  investigated.    With   regard   to   police   corruption,   one   of   the   representatives   of   Rusbrand   gave   the  example   of   the   outcome   of   the   seizure   of   a   container   filled   with   Dior   and   Hugo   Boss  perfume   packages.   It   came   from   India   and   was   travelling   to   St   Petersburg,   where   the  bottles   were   going   to   be   filled.   The   police   took   the   contents   of   the   container   to   their  depot,  but  by  the  time  the  right  holders  arrived  the  goods  had  disappeared.      Even  when  right  holders  victims  of  counterfeiting  manage  to  draw  up  cases  backed  by  solid   and   convincing   evidence,   there   is   still   no   guarantee.   To   obtain   satisfaction,   two  essential   but   rare   conditions   must   concur:   political   backing   and   the   effective  implementation  of  enforcement  measures.      Customs   has   the   power   to   stop   counterfeit   products   from   entering   Russia.   Their  intervention,   however,   requires   the   rights   holder   to   file   a   request   that   counterfeit   goods  be   prevented   from   crossing   the   border.   Here   again,   corruption   undermines   the  effectiveness  of  the  procedure,  which  is  therefore  only  theoretical:  the  secretary-­‐general  Copyright-­‐  This  confidential  report  is  the  Intellectual  property  of  the  WAITO  Foundation  all  rights  reserved.  No  part  of  this  publication  may  be  reproduced  or  diffused  under  any  form  or  by  any  means,  including  photocopies  and  recordings,  or  by  any  information  storage  or  recovery  system.    
  • 36.   36      of   L’Oreal  Russia  has   indicated   that   the   company,   which   registered   all   its   brands   a   few  years   ago,   has   since   then   only   received   a   couple   of   calls   from   customs,   even   though  counterfeit   products,   especially   from   Eastern   European   countries,   are   being   sold  everywhere.   It   also   mentioned   the   case   of   a   lorry   full   of   beauty   products   of   another  brand,  which  was  stopped,  but  where  it  appeared  that  the  driver  had  simply  gone  to  the  wrong  border  crossing.      The   only   satisfactory   point   is   the   procedure   reserved   to   the   anti-­‐monopoly   federal  service   (FAS),   which   has   special   police   force   that   can   initiate   enquiries   into   cases   of  unfair  competition,  once  the  victim  has  filed  a  complaint.  If  there  is  sufficient  evidence  of  counterfeiting,   the   authorities   can   issue   an   order   suspending   the   production   and  marketing  of  the  fake  products.  This  has  been  identified  on  a  number  of  occasions  as  the  fastest   (3   to   6   months)   and   most   effective   procedure,   and   it   constitutes   the   only  emergency   procedure   available   in   Russia.   However,   its   major   drawback   is   that   the  counterfeit  products  can  only  be  seized  while  the  complaint  is  being  processed.      Transnational   organized   crime,   which   has   developed   considerably   in   the   last   twenty  years,   has   thus   become   the   main   threat   to   democratic   societies   in   the   21st   century.   Its  potential   influence,   due   to   its   colossal   financial   power,   enables   it   to   influence   national  economies  –  all  be  it  indirectly  –,  when  it  is  not  trying  to  take  them  over  completely.  It  has   directly   benefitted   from   the   opening   up   of   borders,   following   the   collapse   of   the  Communist  block,  where  although  assets  –  especially  monetary  assets  –  and  individuals  can   move   freely,   police   forces   and   the   judiciary   encounter   great   difficulty   in  coordinating   their   action.   In   general,   organized   crime   is   careful   in   avoiding   publicity,  turning   media   limelight   towards   the   threat   of   terrorism,   the   conflicts   in   Iraq   and  Afghanistan,  etc.  This  secrecy  enables  it  to  prosper  far  from  prying  eyes,  which  it  tries  to  avoid   at   all   costs.   Casual   observers   talk   about  the   “disappearance  of  the  mafias”,   and   the  demise  of  the  “last  godfathers”,  etc.  However,  the  exact  opposite  is  happening.  According  to   Europol,   there   are   currently   more   than   4000   criminal   organizations,   with   40,000  members   in   Western   Europe!   The   key   words   of   organized   crime   are   “innovation,  diversification  and  flexibility”  to  achieve  the  highest  gains  at  the  lowest  risk.  To  that  end,  it   makes   the   most   of   globalization   and   technological   progress,   especially   in   the  information  technology  sector  (and  the  Internet).      A   major   concern   is   the   appearance   of   so-­‐called   “grey   zones”,   in   other   words,   cities,  regions   or   countries   where   criminal   groups   operate   under   political   or   ideological  protection.   These   zones   run   the   risk   of   falling   entirely   under   the   control   of   organized  crime.   This   is   the   case   of   Herzeg-­‐Bosnia,   an   area   under   Croat   control,   the   capital   of  which,   Western   Mostar,   is   currently   considered   to   be   one   of   the   European   capitals   of  crime.   In   Republika   Srpska   and   in   Montenegro,   the   authorities   are   directly   involved   in  various  trafficking  activities-­‐  famously  in  cigarettes-­‐  in  connection  with  Italian  mafias.  In  Albania,  criminal  groups  are  better  armed  and  are  a  lot  richer  than  the  security  forces.  Albanian   mafias   have   gained   a   firm   foothold   in   Kosovo,   partly   through   unwitting  western   cooperation.   Other   particularly   renowned   regions   are   Transnistria,   a   self-­‐proclaimed  republic  located  between  Moldavia  and  Ukraine.      In  view  of  the  above,  it  is  clear  that  organized  crime  in  Russia,  and  in  all  former  Soviet  countries,   cannot   be   controlled   with   traditional   law   enforcement   methods   alone,   and  even   less   on   the   basis   of   intellectual   property   rights.   Countries   need   to   rethink   their  Copyright-­‐  This  confidential  report  is  the  Intellectual  property  of  the  WAITO  Foundation  all  rights  reserved.  No  part  of  this  publication  may  be  reproduced  or  diffused  under  any  form  or  by  any  means,  including  photocopies  and  recordings,  or  by  any  information  storage  or  recovery  system.    
  • 37.   37      enforcement   measures   on   a   national,   European   and   international   level.   These   are  already   overwhelmed   by   routine   crime   and   have   to   pay   an   increasing   cost   in   terms   of  time,   procedures,   personnel   and   resources.   Countries   need   to   find   solutions   that   will  bring   about   profound   changes,   not   limiting   themselves   to   punishing   individuals   but  aiming   to   dismantle   the   criminal   organizations   they   belong   to   and   to   seize   the   profits  obtained  through  their  mass  counterfeiting  activities.    Copyright-­‐  This  confidential  report  is  the  Intellectual  property  of  the  WAITO  Foundation  all  rights  reserved.  No  part  of  this  publication  may  be  reproduced  or  diffused  under  any  form  or  by  any  means,  including  photocopies  and  recordings,  or  by  any  information  storage  or  recovery  system.    
  • 38.   38       Expert report: A criminologist’s perspective (Xavier Raufer) President of the WAITO Foundation Scientific Committee A. Counterfeiting as a criminal activity Firstly, let us consider the scale of this problem taking the example of the two Californian ports of Los Angeles and Long Beach. Together, these two ports see more than 50,000 ships a day, and manage 1 billion US$ of goods. Each 40-foot long containers can hold up to 12,300 boxes of shoes, 20,000 dolls or 6,000 dresses on hangers. One container full of contraband cigarettes, sold on the American black-market, means a loss of 350,000 US$ in fiscal income for the federal budget and for the US States concerned. As outlined in further detail below, mass criminal counterfeiting is dangerous and harmful for societies on both sides of the North-South divide. Both in the real and virtual worlds, and in various converging ways: • Criminal counterfeiting seriously harms public health (adulterated products, counterfeit medicines, etc.); • Criminal counterfeiting also constitutes a societal threat (falsification of identity or official documents, and social, economic and financial certificates); • Finally, it constitutes a social threat (job loss, etc.) Therefore, transnational organized crime no doubt sees criminal counterfeiting as a major st “cash cow” for the first part of the 21 century – and perhaps soon its main source of revenue, as is explained in the second part of A Criminologist’s Perspective, “Drugs and counterfeiting: a domino effect?”. Geopolitical approach: the Gulf awash with counterfeit objects Let us take a look at the wave of counterfeit material goods that is flooding the countries of the Arab Persian Gulf States, in particular the United Arab Emirates (UAE). Two reasons for this are that: • It is a society of well-off, or wealthy, consumers; • In geopolitical terms, the region is a unique crossroads for trade, half-way between Asia, Sub-Saharan Africa and Europe, and close to the Middle East; Moreover, the European Union observes that the United Arab Emirates are often used as a transit port for large shipments of counterfeit products arriving from Asia. Thus: • In 2008, 12.3% of counterfeits seized in Europe came from the Emirates; • In 2009, 14.6% of counterfeits seized in Europe also arrived from this region. In 2009, the Emirates were also the last identified ports of transit for 73% of counterfeit medicines, 30% counterfeit CD/DVDs and 15% counterfeit cigarettes seized in the 1 European Union. In the UAE themselves, except for the Emirate of Abu-Dhabi , counterfeit products in the following sectors are available on mass:Copyright-­‐  This  confidential  report  is  the  Intellectual  property  of  the  WAITO  Foundation  all  rights  reserved.  No  part  of  this  publication  may  be  reproduced  or  diffused  under  any  form  or  by  any  means,  including  photocopies  and  recordings,  or  by  any  information  storage  or  recovery  system.    
  • 39.   39         • Industrial sector Counterfeit refrigerators, ventilators, air-conditioning units, computers, printers, car batteries, chargers or telephone and computer batteries, neon strips, spare car parts, 2 counterfeit accessories, pieces and consumables (ink cartridges) HP or other cooling cylinders for refrigerators and air-conditioning units. • Pharmaceutical, healthcare, cosmetics and herbal sector Counterfeit erectile dysfunction products, antibiotics, body lotions, shampoo, soaps, slimming products, etc. • Luxury sector Watches with different trademarks and origins, handbags, suitcases, sunglasses, perfumes, clothes. • Electronic sector Mobile phones such as the fake Blackberry Curve, know as BB China (10 times cheaper than the genuine product), identical to the original, iPods, DVDs, hands-free sets, and fake earphones. • Food sector Packets of saffron, chocolate bars, fizzy drinks, etc. • Sportswear sector Clothes, gloves, shoes, etc. New and worrying: everyday consumer goods Not all these counterfeits are dangerous in practice. However, in the predatory world of crime, where professional specialization is not necessary, counterfeiting everyday consumer goods goes hand in hand with other abuses and trafficking, and helps to finance other criminal activities. Therefore there is an evident continuum between the phenomenon as a whole and each of its individual branches. In Australia, according to the customs authorities, the volume of counterfeit products constitutes a full-scale consumer product “black market”, operating from discount shops, street markets, etc. This includes products such as alcohol, batteries, toothbrushes, tobacco, nappies, household appliances, toys, shaving razors, spare vehicle parts, washing powder, soaps, mobile phones, etc. Trading losses are estimated at 635 million US$ a year, for the sportswear market alone. However, Australia is a minor target country when compared with the sportswear sector in Mexico, which suffers losses of 10 billion US$ a year. In the area of household products, US Customs is concerned by the development of a fake detergent market. In September 2010 alone, 25,000 packets of fake Ariel were seized. However, the greatest concern is for products that endanger consumers.Copyright-­‐  This  confidential  report  is  the  Intellectual  property  of  the  WAITO  Foundation  all  rights  reserved.  No  part  of  this  publication  may  be  reproduced  or  diffused  under  any  form  or  by  any  means,  including  photocopies  and  recordings,  or  by  any  information  storage  or  recovery  system.    
  • 40.   40           The Indian government estimates that, in the spare vehicle part sector, beyond the financial injury evaluated in 2009 at 340 million euros, these counterfeit products are directly or indirectly responsible for the deaths of 25,400 people and the injuries of 93,000 others. In the food sector, it is difficult to distinguish between the health risks of counterfeit products caused by the products themselves and their industrial environment, and those caused by the storage of these products.Counterfeiters have no qualms about adding forbidden antibiotics and sometimes even steroids to counterfeit products. But mostly, products are already contaminated with mycotoxins or heavy metals, not to mention the animals that absorb counterfeit veterinary or phytosanitary substances. And the list continues. Counterfeit medicines, in particular, are highly profitable, generating a turnover of approximately 200 billion US$ a year, according to the World Customs Organization, killing tens of thousand of patients. The official experts do not hesitate in comparing the drug market with the pharmaceutical crime market: 1000 US$ invested in the manufacture of heroine generate a 20,000 US$ return. The same sum invested in counterfeit medicines generates 450,000 US$. In the space of 4 years, from 2003 to 2007, one internet counterfeit medicine supplier alone sold 9 million US$ of counterfeit Viagra. The tobacco industry is not far behind the high profits generated by pharmaceutical crime. Counterfeit cigarettes and fake cigarettes together generate approximately 50 billion US$ a year. However, these counterfeit cigarettes are a highly toxic: they contain up to 30 times more toxic agents than legal cigarettes, capable of turning tobacco-hooked teenagers into a generation lung cancer victims under the age of 40. B. Drugs and counterfeiting: a “domino effect”? Does one swallow a summer make? No, but it is interesting to see that, for two years now, there has been a significant decrease in the use of drugs in the United Kingdom, home to the “Swinging London” of the 1960’s, which saw the start of the “fashion” for drugs in Europe. This was a disaster for the United Kingdom. While in 1960 only 5% of young Britons confessed to having taken drugs at least once, the figure had risen to almost 50% in 2005, the year when drug consumption peaked. Therefore, over 40 uninterrupted years, an increasing number of Britons consumed an increasing amount of drugs more often. Now, however, the trend seems to have become inverted, particularly among younger generations. According to the British National Health Service, only 20% of 16-24 year olds took some kind of drug in 2010 (22.6% in 2009)- an all-time low since the study began (1996: 30%). The same goes for the decrease in the consumption of the most toxic drugs (heroine, cocaine): 8.1% of young users in 2009, 7.1% in 2010.    Copyright-­‐  This  confidential  report  is  the  Intellectual  property  of  the  WAITO  Foundation  all  rights  reserved.  No  part  of  this  publication  may  be  reproduced  or  diffused  under  any  form  or  by  any  means,  including  photocopies  and  recordings,  or  by  any  information  storage  or  recovery  system.    
  • 41.   41           This trend was confirmed by a survey carried out regarding the consumption of drugs in nightclubs (Mixmag magazine, March 2011). At the beginning of 2011 (year-on-year) results showed that, in clubs, the consumption of cocaine had fallen by 20% and cannabis and ecstasy by 5%. This is a significant decrease given that, while in 2000, 9 out of 10 clubbers took drugs, today the figure has dropped to no more than 50%, 40% less drug users in a decade! The same goes for the youngest age group (11-15). In 2008, 85% had not taken drugs and in 2009 this had risen to 88%. This covers all temporal variants: taking drugs “at least once in your lifetime”, “in the last year” and “in the last month”. So even if, for the time being, this decrease only concerns the United Kingdom and although drug addiction continues to be a major and vicious problem on the continent, especially in France and Germany, this significant insular decrease- over several years now- is nevertheless, and our words are weighted, of considerable geopolitical importance. This is for two reasons: • The drugs market, starting with cannabis, is a mass market in our continent: according to the European Monitoring Centre for Drugs and Drug Addiction, there are 23 million cannabis consumers in Europe, of which 4 million consume various times a week. • According to the UN, this is, above all, because the international drugs market- worth a yearly 235 billion dollars for wholesale operations (enriching the cartels and st mafias)- is the third largest market in the world, after the (legal) petrol (1 ) and the arms nd (2 ) markets. Therefore, the decrease of drug-use in the United Kingdom is a trend that should be followed closely, and which raises two important questions: • Why has there been such a decrease among young people? This reversal of the trend is, of course, too recent to be able to give a proper explanation. But here is a first attempt: in a generation that increasingly operates “horizontally”; constantly linked to its peers via countless electronic means of communication (mobile phones, text messaging, Facebook, Twitter, etc.), currents of opinion develop rapidly and can win over a whole age group. One of these major currents says that drugs- at least those sold by drug-dealers- are “not cool”. In short, young people have no wish to resemble haggard zombies of the Pete Doherty or Amy Winehouse ilk, constantly shown by celebrity magazines staggering from one overdose to the next. • Does this decrease only affect the demand for drugs? In other words, is this decrease only produced by a younger generation, previously fascinated by drugs but now rejecting the “trashy” lifestyle of fallen celebrities? No, the drugs supply in the United Kingdom has also decreased for two different reasons: - In recent studies, young people say that they are less often offered drugs on the street, or in the normal dealing grounds (clubs, etc.); - When they do find some, the drugs are of a very poor, sometimes appalling, quality; e.g. highly diluted cocaine and ecstasy without any ecstasy! However, this quantitative and qualitative decline in supply among dealers, is the result of police work. The UK now has an effective criminal intelligence tool in the “Serious Organised Crime Agency” SOCA, which delivers stronger and increasingly precise blows against drug traffickers.  Copyright-­‐  This  confidential  report  is  the  Intellectual  property  of  the  WAITO  Foundation  all  rights  reserved.  No  part  of  this  publication  may  be  reproduced  or  diffused  under  any  form  or  by  any  means,  including  photocopies  and  recordings,  or  by  any  information  storage  or  recovery  system.    
  • 42.   42         Drug trafficking is increasingly controlled, the penalties against drug traffickers are heavier and confiscations are better targeted and more effective. However, we also know that when criminals consider that one cash source is too risky, or too complicated to mine, they switch to another. The displacement effect is an intangible law of criminology. No matter when or where, criminals with a predatory instinct relinquish prey that put up too much resistance, are too well protected or are sufficiently-equipped to defend themselves, for other, more fragile and more naïve targets. For example, if there is too much protection around banks, they will move on to supermarkets, and so on. Criminals do not aim to achieve great exploits or beat any records; they simply want to get rich as quickly as possible, running the least possible risk. The recipe for this is agility, opportunism, and a basic cost-benefit analysis. Although, there is no material evidence so far, this suggests that certain sectors of organized crime are leaving drug trafficking (too risky, less lucrative) for another source of revenue, just as lucrative and hardly and poorly controlled: mass counterfeiting. Is this theory justified? In any case, it is worth exploring, assessing and seeing whether it holds water in the long term. Conclusion- Looking to the future In terms of counterfeit-smuggling, the worst is yet to come. Particularly, in two particular areas: counterfeiting/identity theft, and the criminal colonization of e-commerce. Identity theft kits In April 2011, Customs at the Airport of Chicago seized 1700 high-quality American driving license falsifications, most probably ordered in China by Chinese students living in the United States. These falsified licenses claimed to have been issued in the States of South Dakota, Florida, Georgia, Illinois, Ohio, Pennsylvania and Wisconsin. This could herald the falsification of a whole range of ID and social documents, and bank cards. The invasion of e-commerce Bogus websites are flooding the Internet. They appear, operate and disappear in a short space of time- making them difficult to control. Often, these sites are used to sell counterfeit products and goods: CD/DVDs, luxury brands, toys, vehicle parts, mobile phones, wines, food products, software, beauty products and sportswear. They also sell medicines. Experts say that most of the medicines currently sold on the internet are counterfeits. In 2004, French customs’ seizures of products sold online accounted for 2% of all the products seized. In 2010 this had risen to 10%. Currently, out of 6.2 million counterfeit products seized, 1 million are sold online. What can be done? Firstly, we need to become aware of the gravity of the problem. Public opinion and the media need to demand that political leaders and professionals reveal the real state of play, including precise figures. Without such figures, we have no way of identifying any lack of figures. There should be more international conferences on this subject, with reports and publications.    Copyright-­‐  This  confidential  report  is  the  Intellectual  property  of  the  WAITO  Foundation  all  rights  reserved.  No  part  of  this  publication  may  be  reproduced  or  diffused  under  any  form  or  by  any  means,  including  photocopies  and  recordings,  or  by  any  information  storage  or  recovery  system.    
  • 43.   43           The global economy must encourage and help those who are focusing on the real problem - counterfeiting as a criminal activity - instead of losing time and money on those who just want to bury their heads in the sands of “intellectual property”. First, thought, the official services in charge of controlling criminal counterfeiting must be unified, harmonized, simplified and given precise mandates and clear instructions. The example here is taken from the United States, which in 2003 merged the Immigration and Naturalization service, the US Customs, the Border Patrols and the Federal Agriculture Inspectors. As a whole the US Customs and Border Protection (CBP) is a force of approximately 58 000 employees, the main preventive/control service in the country. In fighting criminal counterfeiting, Europe and large European countries, will also benefit from unifying their ranks and simplifying their administrations. Sources - Interviews with professionals concerned, - Recent media sources: 2001 Le Monde, 8/06/2011 “Contrefaçon : le fléau se propage dans l’e-commerce” Bellingham Herald, 22/05/2011 “Mexico’s crime groups grabbing lucrative market for pirated goods” AFP, 19/05/2011 “US companies losses to counterfeit goods in China” The National, 15/05/2011 “Brands urge big fines for fakes” The National, 15/05/2011 “Fakes prompt genuine concern” CBS News, 11/05/2011 “Counterfeiting threat looms over drug industry” Gulf Today, 10/05/2011 “Police deal with 198 fake cases in 4 months, 825 000 HP items seized” Le Figaro, 4/05/2011 “La déferlante des contrefaçons” The Age (Australia), 1/05/2011 “Fake detergent a new face on dirty money laundering” Associated Press, 14/04/2011 “Customs: fake US licences being sent from China” Los Angeles Times, 8/04/2011 “Los Angeles and Long Beach ports are on the font lines of a crackdown on counterfeit goods” EFE, 30/03/2011 “Piracy soars 500% in Mexico, security firm says” The Herald, (Ulster) 23/03/2011 “Warning over number of crime gangs” Gulf News, (& Department of Economic Development Dubai) 8/03/2011 “International anti- counterfeiting coalition” Khaleej Times, (Emirates) 3/03/2011 “ UAE - Fake drugs, a dangerous choice” CNBC, 25/02/2011 “Gangs, terrorists, mafia make huge profits selling… cigarettes” The Economic Times, (India) 22/02/2011 “Counterfeit auto parts costing government Rupees 2 200 crore per annum”Copyright-­‐  This  confidential  report  is  the  Intellectual  property  of  the  WAITO  Foundation  all  rights  reserved.  No  part  of  this  publication  may  be  reproduced  or  diffused  under  any  form  or  by  any  means,  including  photocopies  and  recordings,  or  by  any  information  storage  or  recovery  system.    
  • 44.   44           Report RSSFeed/Zach Bowman (Automotive News China), 16/02/2011 “Counterfeit parts overwhelm China, include fake airbags, oil seals” Khaleej Times, (Emirates) 21/01/2011 “Fake Blackberries proliferate in Sharjah, Dubai” Reuters, 20/01/2011 “Nokia: out of five cell phones sold is one unlicensed copy” Scotland TV, 19/01/2011 “Investigation reveals true danger of counterfeit cigarettes” Seattle Times, 15/01/2011 “Port sleuths on the trail of counterfeit goods” The Hill, 2/01/2011 « Study: 24% of web traffic involves piracy » Emirates 24/7, 2/01/2011 “Abu Dhabi destroys 3 000 kilos of fake cosmetics” World Economic Forum - Global Risks 2011 - Table 3, Rough estimated market size of illicit goods based on public sources HAVOCSCOPE specialized site www.havocscope.com 2010 Emirates News Agency, 30/12/2010 “Economy ministry organises first conference on combating commercial fraud and counterfeiting” Korea Times, 21/12/2010 “Counterfeit Vuitton bags - distorted status symbol” Emirates 24/7, 13/10/2010 “Largest watchmaker ‘fed up’ with Gulf fakes” Le Monde, 7/10/2010 “L’agroalimentaire, source mondiale de trafics“ Le Figaro, 4/10/2010 “La contrefaçon sur Internet, fléau européen” International Herald Tribune, 21/08/2010 “Inside a factory making knockoff shoes” European Commission, Brussels - IP/10/995 - 22/07/2010 “Fight against fakes: Commission publishes Annual Report on EU Customs actions to enforce intellectual property rights” International Herald Tribune, 10/07/2010 “Pfizer sends its own agents on the trail of counterfeit Viagra” Reuters, 11/06/2010 “Customs group to fight $ 200 billion bogus drug industry” The Star, 11/06/2010 “UN - Illicit cigarette trade funds terrorism, organised crime.         v v v       1  The   authorities   of   this   Emirate   routinely   carry   out   inspections   and   raids   of   workshops,   warehouses,   etc.   Specific   sanctions  (10,000  dirhams,  approx.  1900€)  are  imposed  f or  each  infraction  and  shops  are  closed  after  the  third  offense.   In  total  and  for  the  whole  of  the  UAE,  some  444,000  counterfeit  products  were  seized  in  2008,  900,000  in  2010  from   the  2.4  million  products  seized  in  the  l arger  M iddle  East  region.     2  In  the  first  quarter  of  2011,  825,000  HP  products  alone  were  seized  in  the  E mirates.  Copyright-­‐  This  confidential  report  is  the  Intellectual  property  of  the  WAITO  Foundation  all  rights  reserved.  No  part  of  this  publication  may  be  reproduced  or  diffused  under  any  form  or  by  any  means,  including  photocopies  and  recordings,  or  by  any  information  storage  or  recovery  system.    
  • 45.   45      B    -­‐  STATISTICS:  A  DEAD  WEIGHT  AGAINST  COUNTERFEITING-­‐CRIME©    Without  reliable  statistics,  no  effective  action  can  be  pursued  to  develop  counterfeiting  prevention   and   dissuasion   policies.   Likewise,   inaccurate   information   used   by   right  holders’   associations   and   inter-­‐professional   associations   only   increase   the   confusion  and  doubts  of  the  public  authorities.  At  this  stage,  it  would  be  a  great  mistake  to  think  that  the  State  can  act  on  unsubstantiated  figures.  It  is  no  longer  possible  to  operate  on  such  an  illogical  basis.      Since   2004,   anti-­‐counterfeiting   associations   have   progressively   outbid   each   other   with  their   figures   on   this   problem,   going   from   a   350   billion   US$   loss   in   2005   to   600   billion  US$  in  2009,  and  1  billion  US$  in  2010.  In  2005  and  2006  the  OECD22  made  an  effort  to  update  the  figures  on  counterfeiting,  which  had  not  been  seriously  evaluated  since  1998.    Although  its  conclusions  were  contested  both  by  the  industrial  sectors  and  by  the  public  authorities  of  various  countries,  they  confirmed  a  5  to  7%  trend  in  world  trade,  already  put  forward  in  2003  and  2004.      This   OECD   report   clearly   raises   doubts   about   the   figures   provided   by   the   industrial  sector   and,   in   particular,   about   those   provided   by   the   International   Chamber   of  Commerce,   without   denying   the   threat   to   the   world   economy.   The   report   estimates   that  instead   of   “a   minimum   of   600   billion”   dollars   lost   every   year   to   pirates   and  counterfeiters,   it   is   “at   most   200   billion   dollars”,   in   other   words,   only   a   third   of   the  original  figure.      The  International  Chamber  of  Commerce,  which  reacted  very  rapidly  to  the  OECD  report,  challenged  the  published  figures.  Guy  Sebban,  secretary  general  at  the  time,  claimed  that  “up   to   1000   million   dollars”   were   lost   every   year   in   international   transactions.   The  OECD,  recognizing  that  the  report  was  “politically  sensitive”,  was  tactfully  retracted  its  statement   and   finally   admitted   that   it   had   not   covered   all   the   bases,   in   particular,   piracy  on  the  Internet.      However,   the   OECD   closely   monitored   another   report,   produced   by   the   Government  Accountability   Office   (GAO),   the   American   government   evaluation   agency.   The   GAO,  known   for   its   neutrality   and   its   indifference   to   lobbying,   discredited   the   figures  published   recently   by   North   American   industrial   groups   reconfirming   the   “5   to   7%   of  world   trade”   figure.   Far   from   finding   these   results   in   the   United   States,   the   GAO   notes  that   out   of   287,000   border   spot-­‐checks   between   2000   and   2005,   only   0.06%   violated  intellectual   property   rights.   In   value   terms,   even   if   seizures   of   counterfeit   goods   are  increasing,  violations  only  represent  0.02%  of  the  total  value  of  goods  imported.  This  is  200  times  lower  than  the  figures  provided  by  the  industrial  sector.  The  figures  for  North  America   have,   however,   considerably   increased   since   2005,   and   the   GAO   2008   figures  confirm   the   trends   announced   in   2005   by   the   industrial   sector.   However,   this   again  shows   major   statistical   inconsistencies   between   different   authorities.   In   this   matter,   the  GAO   figures   raised   serious   doubts   about   the   credibility   of   the   data   provided   by  American   industrial   groups,   who   are   constantly   demanding   more   controls   and  clampdowns.                                                                                                                      22  Organization  for  Economic  Co-­‐operation  and  Development.    Copyright-­‐  This  confidential  report  is  the  Intellectual  property  of  the  WAITO  Foundation  all  rights  reserved.  No  part  of  this  publication  may  be  reproduced  or  diffused  under  any  form  or  by  any  means,  including  photocopies  and  recordings,  or  by  any  information  storage  or  recovery  system.    
  • 46.   46      More  control  and  clampdowns  are  exactly  what  is  needed.  However  they  should  not  be  carried   out   haphazardly,   but   must   follow   a   coherent   and   coercive   strategy.   In   other  words,  counterfeiting  is  a  global  reality  and  its  consequences  are  of  great  concern.  Doing  nothing   would   be   a   crime   against   the   global   economy.   However,   it   is   best   to   take   an  ordered  approach  based  on  clear  data  and  objectives.      Starting   with   the   data,   the   figures   quoted   above   are   neither   true   nor   false;   they   are  obscure.   Obscurantism,   which   is   only   too   present   in   the   fight   against   counterfeiting,   is  fostered   by   those   who   oppose   the   progress   of   truth   and   refuse   to   accept   other   more  innovative   and,   above   all,   effective   anti-­‐counterfeiting   approaches.   The   aim   is   simple:   to  withhold  their  expertise,  protect  their  knowledge  and,  most  importantly,  continue  their  activities.   In   this   context,   the   example   of   the   pharmaceutical   industry   speaks   volumes.   It  claims  that,  on  average,  counterfeiting  affects  10%  of  its  global  turnover,  amounting  to  more  than  45  billion  US$.  According  to  Havocscope,  in  2010  the  Pharmaceutical  industry  lost   out   on   200   billion   US$   due   to   counterfeiting.   When   referring   to   pharmaceutical  counterfeiting   a   distinction   must   be   drawn   between   trademark   counterfeiting   and  constant   struggle   between   brand-­‐name 23  and   generic   medicines,   which   does   not  threaten   consumers   but   is   crucial   to   pharmaceutical   industry’s   economy,   and   on   the  other   hand,   placebo   and   under   or   over-­‐dosed   medicines   that   can   be   particularly  dangerous  for  patients.  Although  some  would  apply  this  figure  to  both,  in  this  context,  can   we   really   equate   counterfeiting   (in   its   IPR   sense)   and   pharmaceutical   crime   or  counterfeiting-­‐crime®   (in   the   criminal-­‐law   sense,   affecting   the   safety   of   another  person)?  This  ambiguity  carries  enormous  weight  and  adds  to  the  confusion  regarding  such  problems.    Aside  from  the  public  health  sector,  another  source  of  concern  are  IPR  consultancy  firms,  which  focus  on  achieving  the  payment  of  damages  to  their  clients  by  any  means  possible,  thereby   threatening   to   undermine   the   whole   judicial   procedure.   Their   under-­‐the-­‐table  negotiations   with   counterfeiters   preclude   the   production   of   reliable   legal   statistics.    Some   inter-­‐professional   associations   could   also   be   singled   out,   in   particular   those  representing   right   holders,   and   whose   entire   activity   consists   in   intense   political  lobbying,  mainly  focusing  on  the  promotion  of  their  governing  body  rather  than  on  the  legal  actions  filed  by  their  members,  who  act  as  mere  observers  rather  than  participants.  As  for  the  customs  authorities,  they  justify  their  existence  using  inaccurate  statistics,  and  this  at  a  time  when  the  number  of  free-­‐trade  agreements  is  increasing.  Stakeholders  in  targeted   sectors,   therefore,   greatly   benefit   from   grossly   exaggerating   the   economic  influence   of   counterfeiting   in   order   to   coerce   public   authorities   into   supporting   them.  Economic   data   traders   have   every   interest   in   continuing   their   strong-­‐arm   and   highly  paid  research,  elaborating  on  the  truth,  to  get  the  best  price  for  their  “expertise”.  In  turn,  journalists  have  every  incentive  to  reproduce  this  nonsense  without  bothering  to  follow-­‐up  on  basic  details.    Underneath  all  these  layers  of  suspect  information,  the  real  dangers  blossom;  industrial  counterfeiters   are   becoming   organized;   small   and   medium   companies   suffer   the   full  force   of   unfair   competition   and   are   completely   unprotected   in   terms   of   their   criminal  liability;  and  consumers,  who  are,  after  all,  the  prime  focus  of  this  threat,  are  forgotten;                                                                                                                  23  A  brand-­‐name  medicine  (brand-­‐name  assigned  by  the  pharmaceutical  laboratories)  can,  after  20  years,  lead  to  the  production  of  generic  medicines  with  exactly  the  same  characteristics  as  the  original  molecule,  which  has  since  passed  into  the  public  sector,  but  which  have  a  lower  sales  price.    Copyright-­‐  This  confidential  report  is  the  Intellectual  property  of  the  WAITO  Foundation  all  rights  reserved.  No  part  of  this  publication  may  be  reproduced  or  diffused  under  any  form  or  by  any  means,  including  photocopies  and  recordings,  or  by  any  information  storage  or  recovery  system.    
  • 47.   47      so  much  so  that  they  end  up  losing  interest  in  the  subject.  Industrial  sectors  lacking  the  sufficient   financial   means   simply   give   up.   Organized   crime   supplies   the   local   mafias.  Customs   authorities   patrol   their   patch   without   coordinating   with   the   other   public  authorities  and  policies  continue  to  develop  under  the  economic  and  social  influence  of  right   holders,   omnipresent   in   the   media   and   in   the   corridors   of   European   and  international  powers.      And  this  is  not  the  worst  of  it.  Counterfeiting  is  changing  hands.  It  is  becoming  more  and  more   professional   and   converging   with   smuggling   and   food   fraud,   producing   products  that  endanger  consumers.  The  luxury  sector  is  now  far  from  our  concerns.      Up   till   now,   and   with   a   few   exceptions,   no   anti-­‐counterfeiting,   fraud   or   smuggling  mechanism   has   managed   to   meet   its   main   objective   of   affording   universal   access   to  economically  acceptable  products,  while  guaranteeing  their  integrity  and  compliance.    Copyright-­‐  This  confidential  report  is  the  Intellectual  property  of  the  WAITO  Foundation  all  rights  reserved.  No  part  of  this  publication  may  be  reproduced  or  diffused  under  any  form  or  by  any  means,  including  photocopies  and  recordings,  or  by  any  information  storage  or  recovery  system.    
  • 48.   48         Expert report: A statisticians perspective (Pierre Kopylow) Former United Nations demographic statistics officer     The scale of the global phenomenon of counterfeiting has now been acknowledged, but the most reliable statistical method has yet to be identified. Precise assessments of such methods are hard to carry out for two reasons: • Measuring production. Counterfeiting is an underground activity and counterfeit products are produced, distributed and sold outside official channels. Counterfeiters never declare their activity and generally avoid paying taxes. Counterfeit production is therefore hard to quantify on a large scale. • Measuring sales. Income forgone by genuine product manufacturers cannot be calculated by subtracting the number of articles sold from the total number of articles that could have been absorbed by the market, or from the estimated total volume of the market. The genuine product market and the counterfeit product market must therefore be treated separately, and the statistical instruments to evaluate the one do not necessarily apply to the other. Indicators for each market can only be usefully and precisely compared if there are reliable ways of measuring counterfeiting. The different sources Customs seizures This is the main source of evidence used by national and international reports, mostly providing ratios of products seized to genuine products in a procedure that is influenced more by the estimates fitting their vision of the phenomenon than by a real statistical analysis (based on samples, requiring a methodology, sample tests, sample rates, the classification of each geographical area and product, and, as always, a significant financial investment). The basis of many reports, can be ascertained from the foreword by the Secretary General of the World Customs Organization, who makes no secret of the fact that the figures published for 2009 are largely under-estimated, even in respect of the number of seizures: • “The content of this year’s report clearly indicates that IPR seizures by Customs continue to increase and that pirated and counterfeit goods, particularly so those that have an adverse effect on consumer health and safety, remain a significant concern”. “Customs have responded to these changing global conditions in a proactive manner with a significant percentage of Members increasing surveillance for IPR infringing goods at international border crossings to protect both their revenues, brand holder’s rights and their citizens from harm”Copyright-­‐  This  confidential  report  is  the  Intellectual  property  of  the  WAITO  Foundation  all  rights  reserved.  No  part  of  this  publication  may  be  reproduced  or  diffused  under  any  form  or  by  any  means,  including  photocopies  and  recordings,  or  by  any  information  storage  or  recovery  system.    
  • 49.   49           There has certainly been an increase in the number of seizures, as indicated by the 13,280 seizures recorded in 2009 by the customs authorities, compared to the 11,176 1 seizures recorded in 2008 (+19%) , revealing an upward trend in counterfeiting, especially in sectors that could potentially affect the health and safety of consumers. However, statistical conclusions (and seemingly reliable indicators) on the real volume of counterfeit products and their economic and social impact on a global or regional level should not be drawn too hastily from these figures; with only 70 of the 176 WCO members providing statistics, customs and police seizures communicated to the CEN (Customs enforcement Network) are only part of total counterfeit products per sector comparable in terms of volume and especially price. Anyone wishing to carry out analyses on a global scale comes up against serious methodological problems; “the limitations of reports are not the same in all regions” and seizures meet criteria (number of items, price) fixed by the CEN, which tends to eliminate aggregate statistics, with a considerable number of small seizures being carried out on “small-time smugglers”, particularly in high-risk counterfeiting sectors (tobacco, medicines, etc.). Statistical data on seizures highlight contradictory trends, if we consider the increasing number of countries giving their customs and police services stricter orders to reinforce their border controls against fraudulent and counterfeit products. Even where identified, the increase of counterfeiting in high-risk sectors, going beyond the imitation of luxury brands (clothing, leather items, perfumes, etc.), could therefore diverge from published figures. Professional organizations The figures provided by professional associations and organizations give no clear indication regarding the origin of their sources and, in various sectors of trade and finance, there is a strong tendency to overestimate the effects of counterfeiting on 2 employment . Thus, for example, in April 2010 the Union des Fabricants (Unifab)- a French anti- counterfeiting association with 300 members, sponsored by the French Ministry of the Economy, Industry and Employment- published a report evaluating the impact of counterfeiting on companies domiciled in France. This association claims, in a very generalized manner, without providing any reasoning or specific figures or indicators, that: “An overview of the global phenomenon has been established, country by country, product by product, through a catalogue produced by international organizations, local administrations, associations, private agencies, etc. The most severe consequences of this form of trafficking include national fiscal losses, prejudice to sustainable development, and increased unemployment.” The report only mentions a few figures, and includes many non-sourced statements. 3 The authors of this study acknowledge that their figures were not easy to analyse, even though they converges on the fact that here has been a surge in this phenomenon in recent years. v v v 1  291  million  pieces  in  2009  compared  to  225  pieces  in  2008.     2  On  this  subject,  see  the  highly  critical  foreword  by  Pierre  Delval,  Le  Marché  Mondial  du  Faux  et  Contrefaçons,  CNRS   Editions,  Paris  2010.     3  In  its  report  Unifab  publishes  “a  new  study  carried  out  in  2008  among  55  companies  established  in  France  on  the   damages  caused  by  counterfeiting,  in  17  sectors.  These  55  companies,  of  which  only  a  third  were  listed  on  the  CAC   40,  are  not  representative  of  the  French  industrial  and  commercial  landscape.Copyright-­‐  This  confidential  report  is  the  Intellectual  property  of  the  WAITO  Foundation  all  rights  reserved.  No  part  of  this  publication  may  be  reproduced  or  diffused  under  any  form  or  by  any  means,  including  photocopies  and  recordings,  or  by  any  information  storage  or  recovery  system.    
  • 50.   50      C  -­‐  THE  GLOBAL  ECONOMIC  CRISIS  AND  ITS  MANY  CONSEQUENCES    World   history   shows   that   an   economic   crisis   can   have   dire   consequences   on   a   great  many   levels.   In   January   2009,   Resolution   1651   (2009)   of   the   Council   of   Europe  highlighted   that   the   current   crisis   could   have   consequences   “which   could   possibly  threaten  to  undermine  the  very  foundations  of  democracy”  and  reminded  governments  that   “despite   financial   difficulties,   citizens’   social,   economic   and   human   rights   must   be  safeguarded”.  Unfortunately,  a  year  and  a  half  later,  a  large  number  of  Council  of  Europe  Member  States  are  no  longer  capable  of  “stimulating  the  economy,  notably  by  increasing  aggregate   demand   in   order   to   boost   consumer   spending,   through   greater   public  authority  investment  in  infrastructure  and  housing”.      On   the   contrary,   certain   governments   are   obliged   to   reduce   their   spending   and   will  therefore   have   to   apply   one   or   various   of   the   following   measures:   reducing   of   public  spending,   freezing   or   reducing   of   the   number   of   civil   servants,   increasing   taxes,  increasing  the  age  of  retirement  and  freezing  or  cutting  salaries  and  pensions.  Various  governments   have   already   announced   salary   cuts   in   the   public   sector.   The   social  consequences   will   probably   be   a   lot   more   serious   than   they   have   been   imagined   in  recent  years.      But   beyond   an   enlarged   Europe,   the   global   economic   crisis   is   extremely   serious   and  constitutes   a   challenge   not   only   at   a   national   level   but   also   at   a   European   and  international  level.      The   reassuring   fiction   of   an   international   order   of   collaboration   between   states   must  now  give  way  to  global  chaos24.      In  the  face  of  such  chaos  everything  goes  very  quickly.  Criminal  organizations  rub  their  hands   and   continue   to   carry   out   their   profitable   trafficking   on   mass.   The   global   crisis  provides  fertile  ground  for  these  dangerous  organizations  to  sow,  grow  and  harvest  the  fruits   of   their   crimes.   The   convergence   of   food   fraud,   smuggling   and   counterfeiting  displays   the   full   firepower   that   these   alliances,   hybridizations   and   mutations   are  achieving,   leaving   us   powerless   to   do   anything,   and   sometimes   oblivious   to   what   is  happening.      The   major   axes   search   out   the   areas   of   strongest   demands   that   provide   the   highest  margins:   medicines,   foodstuffs,   tobacco,   construction   material   and   machinery,   spare  parts,  etc.    Demand   is   vast.   The   economic   crisis   has   created   a   weakened   industry   in   the   northern  hemisphere   with   new   manifestations   of   poverty.   In   the   southern   hemisphere   it   has  further  increased  the  gap  between  rich  and  poor.        Everywhere,   low-­‐cost   medicines   are   cruelly   lacking   in   the   South   and   the   brand   war   is  escalating   in   the   North.   Forecasts   on   food   production   have   not   yet   begun   to   return   to  normality   in   developing   countries   and   rich   countries   are   seeing   the   sustainable  establishment  of  “low-­‐cost”  mass  distribution.                                                                                                                    24  “La  face  noire  de  la  mondialisation”-­‐  Alain  Bauer  et  Xavier  Raufer  –  CNRS  Editions  2009  Copyright-­‐  This  confidential  report  is  the  Intellectual  property  of  the  WAITO  Foundation  all  rights  reserved.  No  part  of  this  publication  may  be  reproduced  or  diffused  under  any  form  or  by  any  means,  including  photocopies  and  recordings,  or  by  any  information  storage  or  recovery  system.    
  • 51.   51      The   Internet’s   success   continues   and   informal   markets   prosper   without   the   public  authorities  being  able  to  exert  any  real  control  over  them.  Construction  machinery  and  materials  are  still  suffering  from  the  housing  crisis  and  private  individuals,  victims  of  the  decline   in   purchasing   power,   reinvent   themselves   as   master-­‐builders,   looking   for   the  best  possible  deals  on  low-­‐cost  materials.  In  all  sectors,  and  under  the  influence  of  the  crisis,  the  world  is  changing  rapidly  and  consumer  behaviour  adapts  itself  instinctively,  preparing  itself  for  the  worst  and  introducing  widespread  loss  in  confidence.      The  prospects  for  crime  are  much  brighter.  Business  has  never  been  so  good.  And  on  a  global   level,   the   consolidated   turnover   of   illicit   trafficking,   in   terms   of   fraud   and  counterfeiting   of   consumer   goods,   will   soon   top   the   300   billion   US$   mark,   hot   on   the  heels   of   drug   trafficking.   The   dangers   that   have   long   been   predicted   by   the   most  imminent   criminologists   and   often   weighed   up   by   uninformed   politicians,   have   deep  roots   in   our   societies.   These   many   dangers   can   be   external   or   internal   and   include  subversive   or   anti-­‐democratic   activities   against   national   institutions,   symbols   and  ideologies.   They   also   affect   the   cultural   integrity   of   social   groups.   Lastly,   they   have   an  effect  on  the  economy,  due  to  industrial  competition  and  unemployment.      Thus,   counterfeiting-­‐crime©   is   a   political   threat   because   it   uses   corruption   within   a  State   to   import   illegal   products.   Certain   crimes,   like   the   traffic   of   medicines   or   food  products,  represent  a  societal  threat  with  devastating  effects  for  individuals  and  whole  communities.  Economically,  organized  crime  feeds  off  legal  trade  and  financial  activities.  In   legal   terms,   it   exploits   loopholes   in   legislation,   due   to   the   inflexibility   of   intellectual  property  law,  to  carry  out  complex  cross-­‐border  trafficking  between  North  and  South,  or  to  participate  in  established  trade  activities,  which  are  impossible  to  control  in  certain  parts  of  the  world  where  borders  are  often  porous.      a) Tunisia,  a  concrete  example    Illicit  activities,  counterfeiting,  smuggling  and  food  fraud  are  popular  among  organized  crime   and   local   mafias,   which   finance   and   develop   them   to   the   extent   that   they   have  become,  along  with  drugs  and  prostitutions,  one  of  their  main  sources  of  revenue.      Tunisia  is  no  different  and  the  country’s  post-­‐revolution  instability  and  the  effects  of  the  global  economic  crisis,  only  contribute  to  the  speedy  development  of  the  illegal  domestic  and   transit   markets,   which   had   previously   established   themselves   and   had   been  tolerated  under  Ben  Ali.      The   size   of   this   illegal   sector   is   difficult   to   measure   precisely   without   carrying   out   an   in-­‐depth   study.     According   to   the   estimates   of   the   Union   Tunisienne   de   l’industrie,   du  commerce   et   de   l’artisanat   (Tunisian   Union   for   Industry,   Trade   and   Handicraft)   and  certain  businessmen,  it  represented  15  to  20%  of  GDP  at  the  end  of  December  2010  and  employed   at   least   31.4%   of   the   non-­‐farming   working   population.   Since   the   Jasmine  Revolution,  this  figure  has  risen  to  over  40%  of  the  working  population.    In  Tunisia  the  informal  sector,  which  contributes  to  the  development  of  these  illegal  markets,  is  made  up   of   a   large   number   of   medium-­‐sized   independent   micro-­‐businesses   or   family  businesses   of   2.4   to   3.6   employees.   Employment   conditions   are   based   on   occasional  employment,   family   connections   or   personal   and   social   relationships,   rather   than   on  contractual  agreements  providing  proper  guarantees.    Copyright-­‐  This  confidential  report  is  the  Intellectual  property  of  the  WAITO  Foundation  all  rights  reserved.  No  part  of  this  publication  may  be  reproduced  or  diffused  under  any  form  or  by  any  means,  including  photocopies  and  recordings,  or  by  any  information  storage  or  recovery  system.    
  • 52.   52      For   many   Tunisians,   it   would   appear   that   this   illegal   situation   is   not   concealed   but  tolerated.  Thus,  in  a  study  carried  out  by  the  Tunisian  Consumer  Defence  Organization  in   the   spring   of   2006,   77.6%   of   Tunisians   buy   products   sold   on   parallel   markets   and  69.6%   declared   that   they   continued   to   buy   unauthorized   imitation   products   knowing  that  they  posed  a  potential  health  or  hygiene  threat.  88.1%  of  consumers  bought  them  because   of   their   low   price   and   44.8%   thought   that   they   were   simply   markets   with   an  abundant  and  diversified  supply.  Across  the  board,  businessmen  denounced  the  laxity  of  the   authorities   of   the   day,   which,   moreover,   recognized   that   they   made   no   attempt   to  enforce  the  legislation  because  it  was  not  convenient.  Tax  authorities  rarely  prosecuted  sellers  and  showed  great,  corruption-­‐fuelled,  tolerance,  since  the  sector  sustained  more  than   15,000   families   and   provided   a   social   security   and   sustenance   that   the   official  sector  was  incapable  of  providing.  However,  the  Ministry  of  Trade  now  plans  to  setting  up  a  legal  framework  specific  to  products  sold  on  parallel  markets.    All   sorts   of   trafficking   are   also   prospering   along   the   borders   between   Algeria   and   Libya,  so   much   so   that   some   Algerian   tourist   agencies   specialize   in   organizing   bus   trips   to  villages   in   the   Kef   Governorate.   On   weekends,   the   residents   participate   in   full-­‐blown  illegal   souks.     This   trafficking   reportedly   amounts   to   more   than   200   million  US$   according   to   Algerian   customs   statistics.   In   the   interior   of   the   country,   a   parallel  economy   is   also   developing   in   various   cities.   Goods   come   in   from   South-­‐East   Asia   and  arrive  via  container  in  the  ports  of  Sousse,  Sfax  and  Radès.  They  are  then  transported  by  lorry  to  large  warehouses;  from  there  they  are  distributed  to  wholesalers  and  retailers  in  various  cities,  El  Djem,  M’saken,  Sousse  or  even  Tunis  (the  Mocef  Bey  market,  Zarkoun  street,   Sidi   Boumendil   street,   etc.).   The   prices   of   these   imported   goods,   which   meet  Tunisian  demand,  are  affordable  in  comparison  to  the  formal  sector  prices.      Counterfeiting  in  particular,  regardless  of  the  legal  brand-­‐protection  mechanism  in  place,  has  reached  such  as  scale  that  it  is  very  hard  for  companies  to  defend  their  rights.  While  Tunisia   and   Algeria   are   establishing   themselves   as   consumer   and   transit   areas,   Morocco  is   the   only   northern   African   country   that   has   been   actually   identified   as   a   producer   of  brand  counterfeits.  However,  Tunisia  tends  to  specialize  in  food  fraud  and  counterfeiting  (olive   oil,   wines   and   vegetables   in   jars   and   tins),   mainly   exported   to   Europe,   which  makes  the  crime  even  more  serious.      The   liberalization   and   diversification   of   foreign   trade   has   flooded   Tunisia   with  counterfeit  products  from  countries  like  China,  Turkey  and  Dubai.  The  counterfeiting  of  medicines   (despite   its   health   policy,   Tunisia   is   not   protected),   food,   cosmetics   and   spare  parts   not   only   harms   the   national   economy   but   also   constitutes   a   threat   for   consumer  health  and  safety.  Foreign  carmakers,  for  instance,  that  have  been  operating  for  a  long  time  on  the  Tunisian  market,  must  now  balance  their  production  cost  advantages  with  the  losses  from  the  counterfeiting  of  spare  parts.      As   explained   above,   these   counterfeits   are   especially   sold   on   informal   markets.   It   would  seem  that  instead  of  losing  ground,  this  parallel  market  is  growing.  In  certain  sensitive  areas,   shops   selling   mobile   phones,   household   appliances,   clothes   and   toys   “sprout   up  like   mushrooms”.   Shopkeepers   or   individuals   buy   all   sorts   of   products   in   such   shops  taking  advantage  of  the  price  difference  compared  to  official  markets.      Copyright-­‐  This  confidential  report  is  the  Intellectual  property  of  the  WAITO  Foundation  all  rights  reserved.  No  part  of  this  publication  may  be  reproduced  or  diffused  under  any  form  or  by  any  means,  including  photocopies  and  recordings,  or  by  any  information  storage  or  recovery  system.    
  • 53.   53      In  counterfeiting  cases,  it  is  possible  to  opt  for  either  civil  or  criminal  proceedings,  and  common   sense   will   make   right   holders   chose   the   civil   courts   as   they   will   have   more  control  over  the  process.      Likewise,  legal  actions  against  unfair  competition  can  be  filed  by  brand  owners  if,  as  in  the   French   system,   they   can   prove   that   they   have   been   prejudiced   by   specific   acts   of  counterfeiting.   The   offense   will   most   often   be   linked   to   the   intention   of   stealing   the  brand  owner’s  clients  or  to  create  confusion  in  their  minds  regarding  the  origin  of  the  products.  Prejudice  is  generally  defined  as  a  financial  loss  or  the  loss  of  an  opportunity  for  economic  development.      But  do  the  damages  paid  meet  the  expectations  of  the  trademark  owners?  It  would  be  more   accurate   to   say   that   damages   are   on   a   par   with   Tunisia’s   level   of   economic  development;   in   other   words,   they   not   very   high   in   European   terms,   but   represent  considerable   sums   for   Tunisians.   As   in   France,   damages   cover   nothing   more   than   the  prejudice   itself.   However,   this   prejudice   is   often   extremely   difficult   to   assess   because  most  local  counterfeiters  do  not  keep  accounts.  Moreover,  courts  base  their  decisions  on  the   seizures   carried   out   and   on   the   counterfeiter’s   profits,   which   can   be   very   frustrating  for  the  right  holder  and  not  very  helpful  for  Tunisia’s  prevention  and  dissuasion  policy.      Companies  affected  by  counterfeiting  are  not  primarily  interested  in  obtaining  adequate  compensation;  above  all  they  want  to  put  a  stop  to  the  criminal  activity.  They  can  obtain  satisfaction   on   this   point   as   courts   systematically   order   the   destruction   of   the  counterfeit  products.  This  would  be  acceptable  if  it  only  concerned  harmless  products.  However,  this  is  far  from  being  the  case,  and  consumers  are  the  first  to  pay  the  price.      Smuggled  goods  include  fuel,  textiles,  livestock,  medicines,  tobacco,  copper,  stolen  cars,  drugs,  etc.  which  are  transported  illegally  between  the  border  “wilayas”  (governorates)  of  Kasserine,  Sidi  Bouzid  (a  smuggler  route),  Kef  on  the  Tunisian  side  and  Souk-­‐Ahras,  El-­‐Tarf,   Tébessa   and   Oum   El   Bouagui   on   the   Algerian   side.   Smuggling   has   never   been   so  good   in   certain   cross-­‐border   towns.   In   these   areas,   such   in   increase   in   smuggling   is  endemic,  especially  since  part  of  the  population  has  reconverted  to  this  lucrative  activity.  Some   people   have   happily   left   their   farming   activities   to   specialize   in   such   customs  infringements,  from  which  they  can  make  a  profit  quickly  and  relatively  easily.  Not  a  day  goes   by   without   land   border   authorities,   either   on   the   Tunisian   or   Algerian   side,  dismantling   a   criminal   network,   mainly   smuggling   fuel,   copper   scrap,   watermelons,  mobile   phones   and,   above   all,   stolen   vehicles.   Likewise,   not   a   day   goes   by   without   the  Tunisian  or  Algeria  media  reporting  on  a  new  “Contra”  or  “Trabendo”  case  (local  terms,  used  by  the  Tunisians  and  Algerians  respectively  to  refer  to  smuggling).  The  irony  is  that  the  dynamism  and  resourcefulness  of  smugglers  seems  to  be  a  character  trait  admired  by  both  media  and  public  authorities  alike.      Regarding  tobacco,  its  illegal  trafficking  is  particularly  profitable  for  mafia  organizations  and  catastrophic  for  the  local  economy.      This   infiltration   of   crime   in   the   affairs   of   the   Tunisian   State   results   in   social   injustice,  unfair   competition,   national   impoverishment   and,   in   the   long   term,   the   bankruptcy   of  the  whole  country,  threatening  the  local  economy  and,  above  all,  the  health  and  safety  of  Copyright-­‐  This  confidential  report  is  the  Intellectual  property  of  the  WAITO  Foundation  all  rights  reserved.  No  part  of  this  publication  may  be  reproduced  or  diffused  under  any  form  or  by  any  means,  including  photocopies  and  recordings,  or  by  any  information  storage  or  recovery  system.    
  • 54.   54      its   consumers.   This   could   create   new   tensions   capable   of   undermining   their   dearly  bought  democracy.      In  this  context,  the  Tunisian  State,  along  with  transnational  firms  and  other  companies  have  a  major  responsibility  in  the  social  and  economic  stability  of  Tunisia,  especially  at  a  time  when  the  country  is  seeking  political  stability.  They  must  recognize  and  respect  the  rules   of   international   law;   legal   and   regulatory   provisions   and   national   administrative  practices;   the   rule   of   law;   public   interest;   development   goals;   social,   economic   and  cultural  policy,  including  the  transparency  of  products  sold  and  taxed;  the  liability  and  the  illegality  of  corruption;  and,  in  the  case  of  multinational  firms  and  other  companies,  in   particular,   the   authority   of   the   countries   in   which   they   operate.   Multinational   firms  and  other  businesses  must  therefore  abstain  from  any  activity  that  could  further,  incite  or  encourage  States  or  any  other  entity  to  violate  human  rights  and  consumer  protection.  They  must  ensure  that  the  goods  and  services  that  they  offer  and  produce  are  not  used  to  violate  citizens’  rights  and  to  divert  State  revenues.      In   short,   multinational   firms   and   other   companies   must   respect   economic,   social   and  cultural   rights,   as   well   as   civil   and   political   rights,   and   contribute   to   their  implementation.  In  particular,  they  need  to  uphold  the  right  to  development,  the  right  to  sufficient  and  clearly  identified  food  and  to  the  total  traceability  of  products  imported  or  manufactured   locally,   and   they   must   abstain   from   any   action   that   could   hinder   or  prevent  the  fulfilment  of  these  rights.      To   this   end,   multinational   firms   and   other   companies   must   also   adopt   fair   trade,  marketing   and   publicity   practices   and   establish   the   provisions   required   to   ensure   the  safety   and   the   quality   of   the   products   and   services   that   they   provide.   They   should   not  provide,   distribute   or   market   dangerous   or   potentially   dangerous   products   for  consumers,  nor  should  they  promote  them.      On   the   basis   of   these   considerations,   the   Tunisian   government   has   decided   to   act   in  order   to   protect   consumer   health   and   safety,   national   economic   stability   and   fiscal  equality,  and  to  provide  a  sovereign  guarantee  for  foreign  investors.    b) Health:  a  key  area  for  organized  crime25    We   know   from   past   experience   that   in   times   of   crisis,   health   outcomes   and   the   risk   of  health-­‐related  financial  hardship  may  be  affected  by  changes  in  the  resources  available  for  health  systems  (financial  and  human  resources,  drugs  and  medical  devices,  running  costs   and   infrastructure),   by   changes   in   living   conditions,   lifestyles   and   consumer  behaviours,   and   by   changes   in   social   norms   and   values.   Ideally   the   health   system   can  and   should   do   three   things:   protect   those   most   in   need,   concentrate   on   areas   in   which   it  is   effective   and   adds   value,   and   behave   as   an   intelligent   economic   actor   in   terms   of  investment,  expenditure  and  employment.    In  countries  whose  health  system  is  financed  through  general  tax  revenues,  decreases  in  GDP  and  economic  outputs  have  resulted  in  significant  reductions  in  public  revenue  for  health.   Alternatively,   in   countries   that   rely   predominantly   on   wage-­‐related                                                                                                                  25  http://www.euro.who.int/__data/assets/pdf_file/0006/66957/RC59_edoc07.pdf  Copyright-­‐  This  confidential  report  is  the  Intellectual  property  of  the  WAITO  Foundation  all  rights  reserved.  No  part  of  this  publication  may  be  reproduced  or  diffused  under  any  form  or  by  any  means,  including  photocopies  and  recordings,  or  by  any  information  storage  or  recovery  system.    
  • 55.   55      contributions   to   health   insurance   funds,   increases   in   unemployment   have   constrained  revenues   earmarked   for   health.   International   prices   for   drugs   and   other   consumables  have  increase  owing  to  inflation  and  currency  depreciation.  These  pressures  on  revenue  generation  and  purchasing  power  persuade  policy-­‐makers  to  cut  budgets,  introduce  or  increase   user   fees,   co-­‐payments   or   other   forms   of   private   financing,   reduce   benefit  packages  or  tolerate  longer  waiting  times.      However,   although   both   detailed   and   synthetic   economic   reviews   and   forecasts   have  been   published   at   least   quarterly   since   mid   2009,   the   direct   effects   of   this  multidimensional  crisis  on  health  are  still  unclear.  So  far,  the  information  and  evidence  available   on   the   precise   impact   on   individuals,   vulnerable   groups   and   the   health   system  in  general  remain  anecdotal  and  fragmented.  Furthermore,  this  type  of  data  is  proving  difficult  to  compile  and  analyse;  existing  health  information  and  monitoring  systems  are  proving  rather  unfit  to  serve  the  needs  of  policymakers  regarding  these  critical  issues  in  many  countries.    Few   changes   in   health   system   expenditures   have   been   observed.   The   European   health  sector  (which  employs  about  10%  of  the  total  workforce)  seems  not  to  have  lost  many  jobs  and  in  fact  appears  as  a  stabilizing  sector.  As  is  also  the  case  in  the  United  States,  health   is   indeed   one   of   the   very   few   economic   sectors   that   is   still   creating   jobs.   The  “credit   crunch”   seems   to   have   mostly   affected   health-­‐related   private   investors   or  medical  insurance  schemes  and  undermined  some  forms  of  public/private  partnerships.  Depreciations   have   increased   the   prices   of   imported   medicines   and   medical   devices   in  the   countries   concerned,   causing   initial   problems   to   the   less   rich   among   the   affected  countries.   Already   facing   threats   in   terms   of   expiry   of   patents   on   “blockbuster   drugs”  and   rising   research   and   development   costs,   the   pharmaceutical   industry   has   signalled  difficulties   in   accessing   credit   and   seems   to   expect   additional   downward   pressures   on  drug  prices.    Whether   or   not   it   is   related   to   unemployment,   the   foreseeable   reduction   in   household  income  affects  private  expenditures  on  health  and  the  ability  of  families  to  pay  for  health  care.  It  is  known  that  globally  150  million  people  are  pushed  into  poverty  yearly  through  the  catastrophic  household  health  costs  that  result  from  payments  for  access  to  health  services.  It  is  known  that  non-­‐adherence  to  medical  treatment  could  in  the  longer  term  result   in   wider   prevalence   of   disease,   complications   of   chronic   conditions   and   increased  drug  resistance  in  the  case  of  infectious  diseases.    Rising  unemployment,  the  deterioration  of  millions  of  people’s  living  conditions,  and  the  additional  stress  caused  by  the  crisis  have  led  to  less  healthy  lifestyle  choices  or  riskier  behaviour  –  such  as  increased  use  of  smuggled  cigarettes,  drugs  and  alcohol.  It  is  known  that   even   small   changes   in   behaviour   today,   compounded   over   time,   could   manifest  themselves  in  health  outcomes  years  later.  Signs  of  individuals  changing  their  behaviour  have  been   reported   in   ways   that   have   a   negative   impact   on   health.   For   example,   there  have  been  reports  of  increasing  consumption  of  fast  food,  and  the  purchase  of  cheap  but  uncontrolled  food  products,  threatening  to  create  new  dangerous  pathologies.    The  IMF,  the  World  Bank,  the  Organization  for  Economic  Co-­‐operation  and  Development  (OECD),   the   European   Commission   (EC)   and   some   other   agencies   are   producing   very  Copyright-­‐  This  confidential  report  is  the  Intellectual  property  of  the  WAITO  Foundation  all  rights  reserved.  No  part  of  this  publication  may  be  reproduced  or  diffused  under  any  form  or  by  any  means,  including  photocopies  and  recordings,  or  by  any  information  storage  or  recovery  system.    
  • 56.   56      similar   economic   forecasts.   According   to   these,   global   growth   rates   could   gradually  recover  in  2012,  though  only  to  lower  levels  than  the  ones  observed  in  2007  (up  to  2%).    However,   in   the   current   economic   climate,   all   experts   agree   that   the   uncertainties  attached   to   any   forecasts   are   very   large   –   there   are   many   risks,   financial   market  conditions   will   take   time   to   normalize,   whatever   the   approach   adopted,   and   it   takes  longer   for   industries   to   recruit   than   to   fire.   Not   only   is   the   outlook   on   the   downside,  but  also  the  risks  of  a  long  and  deep  recession  or  even  a  depression  cannot  be  excluded.  As  the   crisis   evolves,   some   issues   are   emerging   regarding   possible   approaches   and  measures   to   help   resolve   it.   Some   revolve   around   the   relative   priority   to   be   given   to  investment   versus   boosting   consumption   in   economic   recovery   programmes,   around  how   to   minimize   social   damage   and   protect   the   most   vulnerable   groups,   and   even  around   what   role   the   health   sector   could   play   as   an   economic   area   to   help   countries   get  out  of  the  crisis.  Member  States  are  considering  different  approaches  to  perform  better  and   doubt   whether   the   crisis   should   be   used   as   an   opportunity   to   introduce   drastic,  often  long-­‐postponed  changes  in  functions  and  in  the  overall  architecture  of  their  health  systems.      The  health  impact  of  the  rapid  deterioration  in  public  finances  are  already  strongly  felt.  In   view   of   the   levels   of   public   debt,   it   is   more   than   likely   that   the   fiscal   “room   to  manoeuvre”  will  remain  limited.  The  deterioration  of  public  finances  and  a  consequent  shrinking   of   fiscal   space   could   force   governments   to   adopt   drastic   adjustment   and  austerity   measures.   Resources   for   health   systems   could   be   under   severe   pressure   in   the  years  ahead.  Health  authorities  and  related  stakeholders  will  have  to  navigate  through  particularly   difficult   times   in   the   foreseeable   future,   including   focusing   on   what   will  happen  after  the  crisis  (for  a  start,  debts  will  have  to  be  paid).    The  effects  of  the  crisis  on  health  and  health  systems  vary  significantly  from  country  to  country,   depending   on   the   structure   of   their   economy,   their   dependency   on   exports  and/or  fluctuations  in  their  domestic  currency,  as  well  as  the  policy  actions  developed  by   their   government.   There   will   certainly   be   no   “one   size   fits   all”   or   ready-­‐made  approach.   In   such   a   context,   solutions   will   have   to   be   customized   to   meet   countries’  specific   needs.   Exchange   of   information   and   experience   between   countries   and  coordination   of   activities   will   certainly   be   needed,   but   supporting   the   preparation   and  implementation  of  country-­‐specific  programmes  has  to  be  the  top  priority.    Moreover,   public   authorities   are   becoming   more   sensitive   to   the   crucial   importance   of  the   health   sector   and   to   the   role   of   the   health   sector   in   the   economy.   Thanks   to  campaigns  to  introduce  primary  health  care,  Health  for  All  and  Health  in  All  Policies,  the  work   of   the   Commission   on   Social   Determinants   of   Health   and   the   Tallinn   Charter   on  Health   Systems   for   Health   and   Wealth,   many   policy-­‐makers   in   the   WHO   European  Region  now  recognize  that  making  health  services  accessible  is  one  of  the  most  effective  and   efficient   ways   to   reduce   poverty   and   social   inequalities,   and   that   investing   in   health  is  good  for  social  stability  and  for  the  economy.  The  experience  in  Finland  in  the  crisis  in  the   1990s   is   being   corroborated   every   day,   indicating   that   in   times   of   economic   disaster  robust   health   systems   protect   people   and   preclude   many   from   having   to   face   disease-­‐related  catastrophic  expenses      Since  strong  health  systems  are  essential  for  weathering  the  storm,  the  commitment  by  Member   States   in   the   WHO   European   Region   to   strengthening   their   health   systems  Copyright-­‐  This  confidential  report  is  the  Intellectual  property  of  the  WAITO  Foundation  all  rights  reserved.  No  part  of  this  publication  may  be  reproduced  or  diffused  under  any  form  or  by  any  means,  including  photocopies  and  recordings,  or  by  any  information  storage  or  recovery  system.    
  • 57.   57      based  on  the  values  and  principles  agreed  in  the  Tallinn  Charter  is  more  relevant  than  ever   (“to   promote   shared   values   of   solidarity,   equity   and   participation   through   health  policies,   resource   allocation   and   other   actions,   ensuring   due   attention   is   paid   to   the  needs   of   the   poor   and   other   vulnerable   groups”).   The   particular   social   context   will   need  to  be  carefully  taken  into  account  in  determining  the  precise  way  to  strive  for  equitable  health   gain,   financial   protection,   responsiveness   and   efficiency   improvement.   Member  States   need   to   carefully   review   the   way   they   provide   services,   generate   the   necessary  inputs,  finance  their  services  and  provide  stewardship  for  the  ensemble  of  all  public  and  private   organizations,   institutions   and   resources   mandated   to   improve,   maintain   or  restore  health  within  the  political  and  institutional  framework  of  each  country.    Nevertheless,  countries  with  a  highly  monitored  public  health  system  would  be  advised  to   be   particularly   vigilant   of   everything   that   might   appear   “under   control”.   In   2011,  France   underwent   a   healthcare   crisis   due   to   information   revealed   by   the   MEDIATOR  (benfluorex)  scandal,  a  drug  that  is  thought  to  have  caused  a  number  of  deaths  (between  500   and   2000   depending   on   the   study).   According   to   the   report   carried   out   by   IGAS,   the  French   inter-­‐ministerial   audit   and   evaluation   office   for   social,   health,   employment   and  labour   policies,   submitted   on   15   January   2011   to   the   French   authorities,   the   national  agency  in  charge  of  medicine  marketing  authorizations,  the  AFSSAPS  (Agence  Nationale  de  Sécurité  du  Médicament),  “incomprehensibly  tolerant  towards  MEDIATOR”  according  to   the   IGAS   members,   was   found   to   be   seriously   wanting   in   its   approach   and   in   the  organization   of   its   pharmacovigilance   system.   Likewise,   the   French   public   authorities  have  been  blamed  for  their  poor  monitoring  of  pharmaceutical  networks.  This  case  has  at   least   highlighted,   among   other   things,   the   AFSSAPS’s   lack   of   control,   for   lack   of  resources,   over   generic   medicines   sold   in   pharmacies.   According   to   previous   studies  submitted  to  the  Ministry  of  the  Interior  between  2004  and  2006,  the  dosage  of  certain  generic   medicines   no   longer   meets   marketing   authorization   requirements,   once   again  indicating  the  vulnerability  of  renowned  health  systems  to  the  risks  of  official  and  bona  fide  sales  of  potentially  counterfeit  medicines.      In   this   context   and   considering   the   threat   of   organized   crime   in   the   area   of  pharmaceutical   crime,   as   stewards   of   their   respective   health   systems,   ministries   of  health  have  a  duty  to  offer  a  deal  to  the  other  stakeholders  and  advocate  for  government  policies  that  take  a  central  position  in  terms  of  stewardship  and  health  financing,  as  well  as  a  pro-­‐health  and  pro-­‐poor  approach  across  all  sectors.  This  is  certainly  the  case  when  it  comes  to  discussions  with  ministries  of  finance,  in  the  context  of  economic  recovery  plans,  regarding  the  share  of  the  budget  to  be  allocated  to  health  and  other  social  sectors,  which   should   not   focus   merely   on   growth   or   on   the   immediate   protection   of   existing  jobs.    In  order  to  anticipate  risks,  it  will  be  essential  to  make  regular  analyses  at  national  and  international   levels   of   the   economic   and   social   situation   and   its   effects   on   health   and  health  systems.  In  many  cases,  the  existing  information  systems  in  Member  States  may  not  be  able  to  provide,  in  a  timely  manner,  the  health  intelligence  needed  by  decision-­‐makers   and   other   stakeholders.   A   WHO-­‐supported   virtual   network   and   exchange  platform  and  a  “hot  line”  are  being  put  in  place  at  regional  level,  to  help  ministries  and  stakeholders  access  relevant  information  and  advice.  Ministries  or  other  health-­‐related  authorities  may  also  need  to  function  in  a  “crisis  management”  mode,  emphasizing  the  collection   of   information   (including   anecdotal),   regularly   analysing   the   situation,  Copyright-­‐  This  confidential  report  is  the  Intellectual  property  of  the  WAITO  Foundation  all  rights  reserved.  No  part  of  this  publication  may  be  reproduced  or  diffused  under  any  form  or  by  any  means,  including  photocopies  and  recordings,  or  by  any  information  storage  or  recovery  system.    
  • 58.   58      articulating   strategic   options   and   suggesting   anti-­‐crisis   measures   and   interventions,  taking   the   criminal   threats   of   dangerous   counterfeits   and   illegal   trafficking   of   medicines  into  account.      With   the   scarce   information   available,   it   is   hard   to   predict   at   this   stage   with   any  accuracy   how   people   in   Member   States   will   be   affected.   However,   the   experience   gained  and   lessons   learned   from   previous   crises   helps   to   direct   attention   towards   specific  issues   in   order   to   anticipate   difficulties,   explore   options   and   prepare   anti-­‐crisis  measures.  c) Overview  of  the  pharmaceutical  market  in  the  WHO  European  Region      The  pharmaceutical  market  is  affected  by  the  financial  crisis  in  that  it  is  exerting  upward  pressure   on   medicine   prices.   In   Lithuania,   price   rises   are   linked   to   VAT   increases.  Kazakhstan,  the  Republic  of  Moldova  and  Ukraine  report  pharmaceutical  price  increases  of  up  to  30%.  The  general  upward  pressure  on  prices  across  the  Region  is  exacerbated  by  country-­‐specific  currency  depreciations,  as  in  the  case  of  Armenia.  This  pricing  policy  inevitably  leads  to  a  resurgence  in  illicit  trafficking,  given  the  lack  of  protection  against  this  kind  of  overspill.      Concerns  about  the  effect  of  the  crisis  on  the  utilization  of  care  are  only  now  emerging.  In  Italy,  the  risk  of  excluding  patients  from  dental  care  that  traditionally  comes  with  high  levels   of   user   charges   and   correspondingly   heavy   financial   burdens   on   household  budgets  has  led  to  a  regional  initiative  to  protect  dental  care  for  vulnerable  population  groups.  In  the  eastern  part  of  the  European  Region,  there  are  substantial  concerns  about  increases  in  the  price  of  health  services  and  pharmaceuticals.  In  Ukraine  during  first  two  months   of   2009,   for   instance,   health   service   prices   increased   by   more   than   30%  compared   with   the   same   period   in   2008.   Price   increases   have   a   considerable   effect   on  private   health   expenditures   (in   the   form   of   official   user   charges   and   co-­‐payments,  payment  for  medicines,  or  informal  payments)  in  numerous  countries  in  the  Region,  and  it  is  feared  that  this  may  deter  patients  from  seeking  the  necessary  care  as  it  becomes  unaffordable,   who   may   turn   to   illegal   services   and   online   purchases.   Even   before   the  crisis,   in   2005   WHO   recorded   private   health   expenditure   as   accounting   for   more   than  50%   of   total   expenditure   in   Albania,   Armenia,   Azerbaijan,   Cyprus,   Georgia,   Greece,  Kyrgyzstan,   Tajikistan   and   Uzbekistan.   In   December   2008   Lithuania   removed   the   VAT  rate   of   5%   on   pharmaceuticals.   Medicines   are   now   taxed   at   a   standard   rate   of   19%,  leading  to  a  close  to  14%  increase  in  pharmaceutical  prices  and  a  10%  increase  in  health  care  expenditure  as  compared  to  December  2007  In  Armenia,  Consumer  price  inflation  in  2008  stood  at  9%,  a  relatively  high  level,  but  dropped  to  5.3%  at  the  end  of  the  year.  However,   in   early   March   2009,   Armenia   abolished   the   fixed   exchange   rate   for   the  Armenian   dram   and   introduced   a   floating   rate.   This   led   to   an   immediate   increase   in  prices   of   commodities   such   as   oil   and   food   of   between   20   and   30%.   This   explosion   in  prices  now  also  affects  essential  medicines  such  as  antibiotics  or  vaccines,  to  the  great  delight  of  the  local  mafias.    Copyright-­‐  This  confidential  report  is  the  Intellectual  property  of  the  WAITO  Foundation  all  rights  reserved.  No  part  of  this  publication  may  be  reproduced  or  diffused  under  any  form  or  by  any  means,  including  photocopies  and  recordings,  or  by  any  information  storage  or  recovery  system.    
  • 59.   59      d) A  general  public  health  policy  (African  Region)    According   to   the   United   Nations   Millennium   Development   Goals   Report,   published   in  September   2009,   the   importance   of   commitments   to   combat   poverty   in   the   world   had  been   heightened   by   the   economic,   food   and   climate   crisis.   2010   saw   no   improvement  and  the  socio-­‐economic  situation  is  now  even  more  critical.    The   report   ‘Strengthening   the   Global   Partnership   for   Development   in   a   Time   of   Crisis’  was   drafted   by   the   Millennium   Development   Goal   (MDG)   Gap   Task   Force,   which  included   more   than   twenty   UN   agencies,   the   IMF,   the   World   Bank,   the   WTO   and   the  OECD,   and   whose   purpose   is   to   monitor   the   progress   of   the   development   partnership  established  in  the  eighth  Millennium  Development  Goal.    According  to  this  report,  official  development  assistance  (ODA)  had  increased  by  10%  in  2008,   to   reach   119.8   billion   $.   ODA   as   a   percentage   of   gross   national   income   in   donor  countries   also   improved,   going   from   0.28%   in   2007   to   0.30%   in   2008.   But   this   increase,  sustained   in   2010,   is   not   strong   enough   to   reach   the   goal   of   0.7%   before   2015.   Donor  countries   also   failed   to   meet   the   objective   of   bringing   their   annual   assistance   up   to  approximately   155   billion   US   dollars   by   2010.   The   global   crisis   has   put   pressure   on  donor   countries’   aid   budgets,   making   this   intermediate   goal   harder   to   reach.   The   report  also   indicated   that   the   distribution   of   ODA   was   “skewed”,   since   much   of   the   increase  since   2000   had   gone   to   a   handful   of   countries   recovering   from   war,   such   as   Iraq   and  Afghanistan.   Some   of   the   poorest   African   countries   have   seen   very   little   increase   in  assistance.      Developing   countries   have   been   affected   by   the   collapse   of   trade   financing   since   the  beginning  of  the  financial  crisis,  with  a  decrease  of  100  to  300  billion  US$.  The  choking  of  trade  financing  adds  itself  to  the  negative  effects  of  new  trade  restrictions  in  a  many  countries,   and   to   the   deadlock   in   trade   negotiations   under   the   Doha   Development  Agenda.    A   2005   agreement   of   the   World   Trade   Organization   in   Hong   Kong   to   grant   duty   free  access   to   97%   of   imports   from   poor   countries,   resulted   in   only   80%   of   exports   from  least   developed   countries   (LDC)   being   granted   a   “duty   free”   status   on   the   markets   of  developed  countries.      Even   after   the   success   of   two   important   debt   relief   initiatives,   high   fuel   prices   and  imported  foodstuffs,  added  to  the  low  demand  for  export  goods,  have  prevented  many  developing  countries  from  paying  their  external  debt.  The  consequences  have  been  swift,  especially   through   a   strong   increase   in   the  illicit   trafficking   of   medicines   since   2010   (20  to  60%  depending  on  the  economic  situation  of  Western  and  Eastern  African  States).      e) Access  to  medicines    At  a  time  when  the  poor’s  purchasing  power  is  under  pressure,  the  cost  of  many  basic  medicines   is   rising.   On   average,   people   living   in   developing   countries   are   currently  paying   three   to   six   times   the   international   reference   price   for   the   cheapest   generic  medicines.    Copyright-­‐  This  confidential  report  is  the  Intellectual  property  of  the  WAITO  Foundation  all  rights  reserved.  No  part  of  this  publication  may  be  reproduced  or  diffused  under  any  form  or  by  any  means,  including  photocopies  and  recordings,  or  by  any  information  storage  or  recovery  system.    
  • 60.   60      The   “Strengthening   the   Global  Partnership   for   Development”   report   recommended   the  establishment  of  public/private  partnerships  to  improve  access  to  basic  medicines.      The   main   message   that   resulted   from   this   study   was   that   achieving   the   MDGs   could  encourage   economically   and   ecologically   sustainable   growth,   thereby   mitigating   climate  change   and   addressing   political,   economic   and   public   health   needs   linked   to   extreme  poverty.  However  change  is  yet  to  be  seen.      In  a  joint  programme  with  UNICEF  and  the  Global  Fund  to  Fight  Aids,  Tuberculosis  and  Malaria,   UNITAID   transferred   more   than   15   million   US   dollars   to   UNICEF   for   the  purchase   of   more   than   9   million   artemisine-­‐based   combination   therapy   (ACT)  antimalarials   for   eight   African   and   Asian   countries.   Thanks   to   a   UNITAID   donation   of   23  million   dollars,   in   2010,   projects   supported   by   the   Global   Fund   extended   access   to   ACTs  to   13   African   and   Asian   countries   where   malaria   is   endemic.   In   addition,   UNITAID  pledged  109.2  million  US  dollars  to  UNICEF  in  2008  for  the  purchase  and  distribution  in  2009  and  2010  of  20  million  mosquito  nets  in  eight  of  the  worst  affected  countries.      Although   malaria   can   be   cured   in   a   matter   of   days,   the   lack   of   rapid   diagnoses   and  effective   treatment   means   that   it   is   often   still   deadly.   Immediate   intervention   is  particularly   important   for   the   most   vulnerable   groups,   i.e.   under   fives,   pregnant   women  and   persons   with   a   weakened   immune   system,   for   example   due   to   HIV/Aids.   Today,  malaria  is  mainly  controlled  through  early  diagnosis,  effective  medical  treatment  and  by  preventing   transmission,   essentially   through   the   use   of   insecticide-­‐treated   mosquito  nets.  Resistance  to  traditional  malaria  treatment  using  chloroquine,  for  instance,  which  is  already  widespread  in  Africa  and  Asia,  exacerbates  the  problem  and  contributes  to  the  high  death  rates  recorded  since  the  1990s.  Artemisin-­‐based  combination  therapies  are  the   only   truly   effective   treatments   in   regions   where   resistance   to   other   medicines   is  widespread,  but  access  is  still  not  sufficient  to  reverse  malaria’s  fatal  incidence.  Malaria  control  comes  up  against  two  major  obstacles:  the  high  cost  of  ACTs  and  the  time  it  takes  to   deliver   mosquito   nets.   In   addressing   this   situation   UNITAID   and   its   partners-­‐   UNICEF  and   the   Global   Fund   to   Fight   Aids   Tuberculosis   and   Malaria-­‐,   have   concentrated   their  actions  on:       • Strengthening   ACT   treatment,   aiming   to   treat   54.5   million   malaria   cases   by   the   end   of   2011,   and   using   its   market   model   to   influence   the   number   of   manufacturers   and   products   on   the   market,   lower   prices   and   help   expedite   quality  assurance  procedures;     • Improving   access   to   mosquito   nets   by   supplying   10   million   mosquito   nets   in   2010,  and  using  its  market  model  to  reduce  price  and  delivery  time.      Despite  the  existence  of  ACTs  that  cure  malaria  in  just  three  days,  in  2010  close  to  one  million   deaths   were   registered   owing   to   insufficient   access   to   this   effective   treatment  and   the   exponential   growth   in   the   traffic   of   counterfeit   antimalarials.   The   high   cost   of  ACTs  constitutes  a  major  obstacle,  in  addition  to  the  scarcity  of  paediatric  ACT  formulas.  Without   sustainable   funding   that   would   allow   for   proper   planning   and   an   effective  technical   and   legal   prevention   and   deterrence   policy   against   counterfeiting,   countries  are   reluctant   to   switch   from   chloroquine,   which   is   a   lot   cheaper,   to   ACTs.   By   way   of  comparison,   the   price   goes   from   5   American   cents   for   chloroquine   to   1   US   dollar   for  Copyright-­‐  This  confidential  report  is  the  Intellectual  property  of  the  WAITO  Foundation  all  rights  reserved.  No  part  of  this  publication  may  be  reproduced  or  diffused  under  any  form  or  by  any  means,  including  photocopies  and  recordings,  or  by  any  information  storage  or  recovery  system.    
  • 61.   61      Coartem  produced  by  Novartis  and  approximately  90  cents  for  an  ACT  manufactured  by  Cipla.  Various  manufacturers  produce  ACTs  but  only  nine  of  these  have  been  granted  the  World  Health  Organization  prequalification  programme  quality  assurance.  And  although  under-­‐fives  have  a  higher  risk  of  dying  from  malaria,  only  one  ACT  formula  intended  for  paediatric   use   has   received   a   quality   label.   As   with   other   diseases,   the   lack   of   interest   in  paediatric  medicines  among  manufacturers  is  of  great  concern.      f) The  danger  of  private  labels  26    Europe   remains   true   to   its   reputation   for   being   a   leading   market   for   private   labels,   in  particular   because   regional   specificities   that   used   to   slow   down   them   down,   although  still   present,   are   decreasing.   Private   labels   are   not   only   boosted   by   consumer   crisis  behaviour,   but   also   by   the   interest   of   retail   chains,   which   can   thus   draw   more   of   their  supplies   from   Europe.     As   a   result,   the   valuation   of   the   top   companies   specialising   in  private  labels  tends  to  meet  that  of  brand-­‐name  companies  in  mergers  and  acquisitions.      Europe   is   the   world’s   leading   market   for   private   label   products.   Private   labels   have   a  23%  market  share  in  Europe  compared  to  just  16%  in  the  US  and  between  2  and  4%  in  Latin  America  and  Asia,  according  to  a  study  carried  out  by  Close  Brothers  International  in  2009.  However,  there  is  great  variation  within  the  European  zone,  whether  in  terms  of  the  market  penetration  of  private  labels  or  of  the  increase  of  their  penetration.  Private  label   market   share,   which   is   traditionally   strong   in   the   United   Kingdom   and   in  Switzerland  has  levelled  off  in  the  last  two  years  having  reached  saturation  point  at  40%  in   value   terms.   In   countries   like   France,   Germany   and   Spain,   where   retail   chains   are  strong,  private  labels  hold  20%  of  the  market  and  are  still  growing.  Italy  is  a  special  case  in   Western   Europe:   its   network   of   small   retailers   remains   strong   making   it   harder   for  private   labels   to   establish   themselves   in   the   market   and   they   are,   therefore,   growing  more  slowly.      Central   European   countries,   however,   are   an   area   of   rapid   growth,   driven   by   the   double  push  of  higher  purchasing  power  and  the  rapid  and  widespread  establishment  of  large  retail   outlets.   Regional   brands   are   still   widespread,   but   the   situation   is   undergoing  considerable  change.      Until  recently,  in  the  majority  of  European  countries,  end  consumers’  main  motivations  for  buying  were  the  same  and  focused  on  value-­‐for-­‐money.  However,  the  situation  has  now  changed  considerably  and,  depending  on  the  category  and  country,  consumers  have  a  different  image  of  private  labels:       • Consumer   price   perception   places   private   labels   approximately   20   to   30%   below   brand-­‐name  products  (even  though  the  difference  is  actually  smaller);   • An  increasing  number  of  consumers  consider  that  private  labels  are  high-­‐quality   products  (up  to  82%  of  Dutch  consider  that  the  quality  of  private  labels  is  as  good   as  that  of  brand  products);   • Private   labels   are   considered   to   be   increasingly   innovative,   and   their   products   are  seen  to  set  trends.                                                                                                                    26  This   analysis   has   been   developed   on   the   basis   of   the   most   recent   brand   marketing   studies   for   2008-­‐2009,   in  particular  Close  Brothers.    Copyright-­‐  This  confidential  report  is  the  Intellectual  property  of  the  WAITO  Foundation  all  rights  reserved.  No  part  of  this  publication  may  be  reproduced  or  diffused  under  any  form  or  by  any  means,  including  photocopies  and  recordings,  or  by  any  information  storage  or  recovery  system.    
  • 62.   62      In  parallel,  the  range  of  private  labels  has  become  segmented  in  response  to  changes  in  the  market;  3  types  of  private  label  can  currently  be  identified:       • Low-­‐price   products   with   a   clear   “price”   positioning,   in   response   to   the   development   of   discount   shops,   and   which   aim   to   “reclaim”   consumers   that   have   left  traditional  large  retail  outlets  for  discount  prices;     • The  “me  too”  products,  that  are  in  direct  competition  with  national  brands;     • “High  quality”  products,  the  most  recent  development  among  large  retail  outlets   that   have   adopted   a   “quality”   positioning   (at   a   price)   to   attract   and   retain   new   consumers.    A  new  and  important  characteristic  of  the  private  label  market,  providing  a  good  outlook  for   the   future,   is   that   young   people   (16-­‐34)   are   the   most   frequent   buyers;   so   much   so  that  the  percentage  of  consumers  that  say  they  will  buy  more  private  label  products  is  much  higher  than  those  who  say  that  they  will  not.      Within  the  private  label  sector,  there  continues  to  be  a  strong  variation  in  terms  of  the  market   penetration   of   different   products.   However,   there   is   no   doubt   as   to   the   basic  trend.   Market   penetration   is   increasing   in   almost   all   sectors,   especially,   and   for   some  time   now,   for   yoghurts   and   ready-­‐made   meals.   What   is   even   more   surprising   is   that  there   has   been   recent   rapid   growth   in   sectors   where   brand-­‐name   products   were  generally  safe  from  private  label  competition.      Close  Brothers  indicates  this  to  be  the  case  for  organic  products  and  baby  food,  where  consumers  had  traditionally  sought  the  security  of  brand  names,  despite  having  to  pay  significantly  higher  prices;  this,  however,  is  the  area  of  the  private  label  market  that  is  growing   most   (+34%).   The   only   products   that   are   now   safe   from   private   label  competition   are   impulse-­‐buy   products   such   as   chocolate   confectionery,   where   the   act   of  purchasing   is   largely   irrational;   brand   names   still   have   a   strong   influence   here   due   to  their  strong  innovative  policies  and  associated  publicity.      In   a   difficult   economic   situation,   which   puts   greater   pressure   on   purchasing   power,  private  labels  are  ideally  positioned  to  meet  increasing  concerns  among:     • consumers:   to   obtain   the   best   value   for   money;   the   next   few   years   are   likely   to   see   the   growth   of   private   label   market   penetration   for   the   large   majority   of   products;     • retail  chains:  to  offer  homogenous  product  ranges  across  certain  markets  such  as   Europe  and  the  United  States.      Innovation  is  the  greatest  challenge  facing  private  label  products.  In  the  past,  they  were  mainly   known   for   being   copies   of   well-­‐known   brands.   To   change   this   trend,   private  labels   now   offer   fair-­‐trade   products   such   as   chocolate   or   coffee.   The   other   important  innovative   trend   is   the   launch   of   organic   product   ranges.   This   includes   yoghurts,   butter,  biscuits,   fruit   and   vegetables,   to   name   but   a   few.   In   general,   private   labels   are   exploiting  the  fashion  for  traditional  recipes,  while  paying  attention  to  packaging.      Copyright-­‐  This  confidential  report  is  the  Intellectual  property  of  the  WAITO  Foundation  all  rights  reserved.  No  part  of  this  publication  may  be  reproduced  or  diffused  under  any  form  or  by  any  means,  including  photocopies  and  recordings,  or  by  any  information  storage  or  recovery  system.    
  • 63.   63      However,  while  this  development  in  the  private  label  market  appears  to  be  perfectly  in  line   with   the   needs   expressed   by   a   population   of   consumers   seeking   value   for   money,  the  threat  of  food  fraud  and  counterfeiting  is  nevertheless  present.      Private   labels   are   rarely   manufactured   by   the   supermarket   group   itself,   with   certain  exceptions   such   as   Intermarché   in   France   and   Migros   in   Switzerland.   These   highly  specialized   industries   have   become   focused   on   reaching   their   critical   size,   as   in   the  United   Kingdom.   However,   a   large   proportion   (more   than   70%)   of   private   labels   in  France  are  still  supplied  by  small  and  medium-­‐sized  enterprises  (SME),  given  that  large  national  brand  manufacturers  are  becoming  increasingly  interested  in  them  as  a  means  of  reducing  their  operating  costs  by  putting  their  production  mechanisms  to  full  use,  and  to   access   the   discount   circuit.     However,   a   specialized   industry   is   beginning   to   emerge  resulting   in   buy-­‐outs   and   mergers   in   this   sector27.   The   manufacture   of   private   labels  requires   industrial   known-­‐how   to   produce   high-­‐quality   and   competitive   products   and  services   (logistics,   innovation,   etc.).   These   businesses,   which   often   go   unnoticed,   are  flexible,   creative   and   responsive,   permanently   reinventing   themselves   to   perfect   their  production  mechanism  and  staff  training.      Nevertheless,   there   is   a   great   temptation   for   some   to   import   raw   materials   without  carrying   out   proper   quality   controls,   as   in   the   Lesieur   scandal   in   France,   or   simply   to  directly  subcontract  products  in  high-­‐risk  countries  like  China.      Private   labels   play   an   important   role   in   the   relationship   between   producers   and  distributers.   These   relationships   are   complex,   involving   both   collaboration   and  competition  to  gain  control  of  the  distribution  chain.    The   dazzling   success   of   the   private   label   market   has   prompted   a   reaction   from  producers  that  are  determined  to  remain  standing.  This  competition  between  producers  and   distributers   has   been   referred   to   as   the   “brand   wars”   and   it   can   be   analyzed   on  various  different  levels.  Firstly,  we  can  see  that  in  terms  of  quality,  certain  distributers  provide   services   (quality-­‐control   services   relying   on   engineers   and   technicians)   or  commission   external   service   providers   to   carry   out   audits   to   assess   the   reliability   of  suppliers7.   Competition   between   producer   and   distributor   is   also   present   in   terms   of  positioning.   When   they   were   first   launched,   private   labels   were   entry   point   brands  trying   to   break   the   monopoly   held   by   brand   manufacturers.   Today,   however,  distributers   invest   in   expanding   markets,   previously   exploited   by   brand   labels.   This  brand   war   is   a   potential   risk   factor   both   in   terms   of   fraud   and   quality   control.   Catalyzed  by  the  crisis,  this  situation  will  soon  provide  another  mass  market  for  organized  crime,  especially   in   emerging   European   markets,   with   all   the   risks   that   this   entails   for   public  health  and  safety.      The   European   Union   Committee   on   Environment,   Public   Health   and   Food   Safety   is  aware   of   this   risk.   It   invited   the   Agriculture   and   Rural   Development   Committee,  specialized   in   this   area,   to   incorporate   the   following   proposals   into   the   2009   draft  resolution:     • the  quality  certification  systems  for  food  should  offer  consumers  information  and   a   guarantee   regarding   the   authenticity   of   ingredients   and   the   local   production                                                                                                                  27  Patrick   Déniel,   Yves   Dougain,   Concentrations  dans  les  marques  d’hypers,  L’Usine   Nouvelle,   n°3057,   24/05/2007,   p.24.    Copyright-­‐  This  confidential  report  is  the  Intellectual  property  of  the  WAITO  Foundation  all  rights  reserved.  No  part  of  this  publication  may  be  reproduced  or  diffused  under  any  form  or  by  any  means,  including  photocopies  and  recordings,  or  by  any  information  storage  or  recovery  system.    
  • 64.   64       methods;   therefore,   it   is   important   to   enforce   and   exploit   these   systems   by   applying  more  inspections  and  traceability  systems;     • labels  should  indicate  the  origin  of  the  main  ingredient  or  ingredients  of  a  food   product  where  the  main  ingredient  is  not  covered  by  a  “Protected  Geographical   Indication”   (PGI)   or   a   “Protected   Designation   of   Origin”   (PDO);   the   main   ingredient   being   the   ingredient   constituting   more   than   50%   of   the   product.   However,  the  use  of  labelling  systems  should  be  optional;       • further   simplification   of   the   marketing   standards   through   a   more   precise   definition  of  the  main  criteria  to  be  applied;  European  Union  guidelines  should  be   developed  for  the  use  of  general  indications  such  as  “low  sugar  content”,  “low  CO2   emissions”,  “diet”  or  “natural”,  to  prevent  misleading  practices;       • the  promotion  of  organic  products  and  farming  methods,  producing  high-­‐quality   food   products   and   contributing   to   the   protection   of   the   environment   and   the   wellbeing  of  animals;  a  simplification  of  the  certification  system,  for  the  further   development  of  the  organic  market,  and  the  speedy  development  of  an  obligatory   EU  logo,  enabling  consumers  to  recognize  organic  products  more  easily;       • consumers  have  greater  demands  in  terms  of  the  food  quality,  regarding  safety,   but   also   on   an   ethical   level,   especially   in   respect   of   the   protection   of   the   environment,   the   wellbeing   of   animals   and   techniques   using   genetically   modified   organisms   (GMO);   the   Commission   should,   therefore,   define   criteria   for   initiatives  to  promote  quality,  such  as  voluntary  labelling  systems  certifying  the   absence  of  GMOs,  thus  enabling  consumers  to  chose  their  products  responsibly.      In   2010,   Asia   was   the   frontrunner   in   the   production   of   counterfeit   food   products   with  70%   of   goods   seized   coming   from   China.   A   new   development   concerns   the   considerable  increase   in   products   from   Africa.   At   16.8%,   Africa   has   taken   second   place   in   terms   of  counterfeit  production.    The  third  place  is  held  by  the  European  Union,  with  9.1%,  the  most   common   products   being   biscuits,   milk   products   and   mineral   water.   This  constitutes   a   genuine   risk.   In   a   difficult   socio-­‐economic   context,   consumer   products,  brand  products  and  private  label  products,  in  particular,  must  establish  a  relationship  of  trust   with   consumers.   This   trust   will   be   created   through   guarantees   of   compliance   on  technical   aspects   and   origin,   communicated   using   labels   of   authenticity   and   by   setting  up   interactive   communication/education   channels   between   the   producer   and   the  consumer.      g) Local  products:  a  new  market  for  illicit  trafficking    In  2009,  Pau  Roca,  the  Secretary  General  of  the  Spanish  Wine  Federation,  drew  attention  to  the  subject  of  wine  from  a  particularly  interesting  perspective;  not  in  terms  of  wine  itself,  but  more  generally  in  terms  of  foodstuffs  that  are  in  high  demand  due  to  their  high  added  value.  Whether  it  is  olive  oil,  wine,  spirits,  cheeses,  hams  (especially  in  Spain  and  Italy)   or   any   other   product   that   represents   good   taste,   authenticity   and   exclusiveness,  local  products  are  a  major  target  for  all  kinds  of  scammers  and  criminals.    Copyright-­‐  This  confidential  report  is  the  Intellectual  property  of  the  WAITO  Foundation  all  rights  reserved.  No  part  of  this  publication  may  be  reproduced  or  diffused  under  any  form  or  by  any  means,  including  photocopies  and  recordings,  or  by  any  information  storage  or  recovery  system.    
  • 65.   65      There  were  many  examples  of  this  in  2009.  Counterfeiting  and  fraud  have  become  a  real  problem   for   public   health   as   we   had   foreseen   this.   Having   already   dealt   in   software,  spare  parts  and  medicines,  counterfeiting  has  now  moved  onto  luxury  food  products.    Certain   producers   are   prepared   to   add   harmful   chemical   substances   to   food,   as   in   the  case  of  olive  oil.      In   April   2009,   during   a   conference-­‐debate   organized   by   the   General   Union   of   Algerian  Traders  and  Craftsmen  (UGCAA)  on  the  production  of  olives  and  the  olive  oil  market,  Mr.  Rachid   Bouziane,   Director   of   the   Mitidja   canning   sector,   claimed   that   certain   retailers  were   selling   counterfeits.   He   claimed   that   he   had   discovered   that   his   own   products,  bearing   his   own   label,   had   been   counterfeited   by   a   reseller   who   had   added   dangerous  chemical   substances   to   it   (waste   oil)   to   improve   its   colour.   In   view   of   combating   this  public  health  threat,  the  conference  participants  called  on  the  competent  public  services  to  intensify  their  consumer  awareness  campaigns.      In   addition,   producers   requested   that   specialized   laboratories   and   quality   control   be  strengthened   in   order   to   control   this   type   of   counterfeiting.   It   should   be   noted   that  Algeria  is  the  seventh  oil  producer  in  the  world  and  imports  a  certain  amount  of  oil  to  satisfy   its   domestic   market   demand.   According   to   the   Ministry   of   Agriculture,   national  olive   oil   production   stands   at   an   annual   average   of   35,000   tonnes   and   80,000   table  olives   per   year.   On   the   other   hand,   Algeria   imports   350,000   tonnes   of   vegetable   oil,  other  than  olive  oil,  for  an  oil  and  fat  consumption  estimated  at  100  000  tonnes  a  year.  Algeria   is   one   of   the   olive   oil   producers   in   the   Mediterranean   region,   which   provides  98%   of   global   production,   with   Spain   in   first   place,   followed   by   Italy,   Greece,   Portugal  and   Tunisia.   There   is   no   doubt   that   the   increasing   demand   of   high-­‐end   products  amongst  a  certain  consumer  group  provides  fertile  ground  for  the  development  of  illegal  trafficking.    On   19   May   2009,   the   Italian   farmers’   union   Coldiretti   and   the   French   union   FNSEA  (National   Federation   of   Farmers’   Unions)   signed   an   agreement   known   as   the   “European  Pact   with   Consumers”,   to   guarantee   fair   prices   and   protect   registered   products   from  food   counterfeiters.   According   to   the   accompanying   press   release,   the   agreement  between   the   two   unions,   signed   by   the   Chairman   of   Coldiretty,   Paolo   Bedoni,   and   his  FNSEA   counterpart,   Jean-­‐Michel   Lemetayer,   is   intended   to   guarantee   honest   prices,  transparency   regarding   the   origin   of   food,   and   the   protection   of   health   and   the  environment.  It  also  provides  for  the  protection  of  local  products  against  international  imitations  and  piracy.      The   WTO   has   a   long   list   of   products   to   protect.   Among   these,   Regianito   (instead   of  Parmigiano   Reggiano)   in   Argentina,   Grana   Padona   (instead   of   Grana   Padana)   in   South  America.   Parmesan   is   the   most   imitated   Italian   food   speciality   in   the   world.   All   these  products   are   part   of   a   list   of   41   food   specialties   (including   14   Italian   and   15   French  specialities),   which   were   examined   by   the   negotiators   of   the   WTO   in   Hong   Kong   in  December   2009,   under   the   discussion   on   the   protection   of   products   in   geographical  indications.  Products  to  be  protected  include,  Chianti,  Marsala,  Gorgonzola,  Parmigiano  Reggiano,   Parma   Ham   and   Bologna   Mortadella   for   Italy,   and   Beaujolais,   Bordeaux,  Burgundy,   Chablis,   Champagne,   Saint-­‐Emilion,   Sauternes,   Comté,   Reblochon   and  Roquefort  for  France.  Both  organizations  thus  support  the  European  Union  proposal  to  Copyright-­‐  This  confidential  report  is  the  Intellectual  property  of  the  WAITO  Foundation  all  rights  reserved.  No  part  of  this  publication  may  be  reproduced  or  diffused  under  any  form  or  by  any  means,  including  photocopies  and  recordings,  or  by  any  information  storage  or  recovery  system.    
  • 66.   66      afford   greater   protection   to   geographical   indications   to   combat   food   fraud   in   global  markets.      Winegrowers  and  wine  traders,  eager  to  protect  the  reputation  of  their  products,  make  great  efforts  throughout  the  world  to  avoid  their  products  being  copied  or  falsified.  The  market  is  vast:  2.3  billion  bottles  are  produce  in  Spain  every  year,  and  900  million  are  exported   outside   the   European   Union.   Argentina   and   Chile   alone   produce   1.7   billion  bottles   a   year   and   China   claims   it   produces   7   billion   bottles   a   year!   The   situation   is  becoming   complex.   Confidence   in   these   products   is   suffering,   especially   when   wines   are  found   to   be   sub-­‐standard   and   the   sale   prices   in   certain   wine-­‐growing   areas   defy   all  market  logic.    For   the   first   time,   during   a   conference   at   the   2011   International   Wine   Exhibition   in  France,   Philippe   Casteja,   chairman   of   the   Council   of   Grands   Crus   Classés   du   Médoc   et  Sauternes,   admitted   that   “counterfeiting   now   particularly   affects   Bordeaux   wines   and  our  classified  Grand  Crus.  While  the  protection  of  our  brands  and  chateaux  is  naturally  and   primarily   the   responsibility   of   their   owners,   the   protection   of   our   geographical  indications  is  a  matter  of  public  interest”.      In   this   light,   Pau   Roca   considers   that   it   is   essential   to   react   decisively   against   a  phenomenon  that  will  undoubtedly  harm  consumers  and  producers  if  nothing  is  done  to  stop  it.    Wine  is  one  of  the  rare  agricultural  products  that  is  presented,  in  a  bottle,  but  still  in  its  natural  state.  The  use  of  a  labelled  bottle  with  a  cork  stopper  to  transport  the  wine  to  the  end-­‐consumer   is   a   relatively   recent   invention.   Wine,   as   has   often   been   the   case   in   the  food   and   drink   industry,   set   the   precedent   for   packaging.   Wine   was   the   first   foodstuff   to  be   presented   in   packaging   on   the   consumer’s   table,   in   the   way   many   bought   food   and  drink   products   are   today.   Wine   is   therefore   classified   as   a   foodstuff.   It   is   consumed,  digested,   metabolized,   it   makes   up   part   of   our   calorific   and   nutritional   intake   and   is  finally   excreted.   In   Spain,   a   law   in   2003   confirmed   wine’s   status   as   a   “foodstuff”,   subject  to  food  standards,  especially  regarding  traceability.  Wines  and  their  packaging  in  wine  bottles  have  therefore  progressively  adopted  various  safety  measures.  Depending  on  the  value   of   the   wine,   winegrowers   have   opted   for   more   or   less   expensive   protection,  marking   being   one   of   them.   For   example,   when   wine   began   to   be   bottled,   corks   had   iron  markings   and   bottles   were   labelled.   Until   very   recently,   lead   capsules   were   also   used.  These  were  eventually  replaced  with  tin  and  other  materials.  Certain  bottlenecks  were  even  sealed  and  some  bottles  were  wrapped  with  a  net  held  by  a  lead  seal.      Trade   documents   from   the   18th   and   19th   centuries   show   that   importers   were   the   ones  that  required  exporters  to  place  precise  marks  on  their  barrels  or  bottles.  The  exporter’s  mark,   symbols   and   seal   provided   a   guarantee   for   the   importer.   If   these   could   not   be  produced,   the   letter   of   credit   or   the   trade   letter   was   not   paid   and   the   transaction   was  cancelled.  More  recently,  producers  have  added  labels  on  the  back  of  bottles,  appellation  of   origin   labels,   registration   numbers,   holograms,   etc.   Today,   all   these   elements   have  taken   on   an   identification   and   marketing   function   and   are   starting   to   lose   their   initial  purpose,  that  of  guaranteeing  the  authenticity  of  the  product.  For  example,  due  to  their  redundancy  and  cost,  lead  seals  or  metal  nets  are  no  longer  used.  They  are  now  no  more  than   a   decoration   suggesting   quality,   while,   at   one   time,   they   represented   a   proper  Copyright-­‐  This  confidential  report  is  the  Intellectual  property  of  the  WAITO  Foundation  all  rights  reserved.  No  part  of  this  publication  may  be  reproduced  or  diffused  under  any  form  or  by  any  means,  including  photocopies  and  recordings,  or  by  any  information  storage  or  recovery  system.    
  • 67.   67      guarantee  system.  Likewise  certain  labels  can  be  photocopied,  the  shape  of  the  bottles,  produced  using  unique  moulds,  can  be  copied  and  even  holograms  can  be  counterfeited.      Wine  has  therefore  been  a  precursor  in  terms  of  food  law  and  policies  on  quality.  Certain  countries   have   imposed   taxes   on   wine   and   have   consequently   had   to   increase   the  volumes  in  circulation.  In  Roman  times,  the  emperor  Diocletian  established  a  vineyard  register   and   issued   a   ban   on   planting   vines   without   official   authorization.   These   decrees  had   a   fiscal   objective;   but,   subsequently,   the   system   developed   to   permit   a   better  identification  of  land  and  better  traceability,  to  thus  meet  tax-­‐payers’  expectations.      In   the   history   of   wine-­‐growing,   fraud   (wines   mixing),   wine   swapping   and   tampered  mixed   wine   have   been   a   constant   problem   that   the   authorities   have   prosecuted   and  condemned.   In   France,   the   authorities   under   the   Second   Empire   supported   Louis  Pasteur’s   research   out   of   economic   interest.   This   research   developed   science-­‐based  oenological   practices,   the   first   example   of   what   today   we   call   “food   security   policy”.  Fraud  and  scandals  continue  to  exist  but  now  certain  instruments  and  mechanisms  can  be  used  to  combat  them.      The  mass  poisoning  from  adulterated  rapeseed  oil  in  Spain28  caused  great  social  concern,  but   this   phenomenon   was   geographically   limited.   A   few   years   later,   mad   cow   disease,  while   the   European   common   market   was   being   established,   indicated   that   governments  needed   to   place   part   of   their   sovereignty   over   food   and   health   under   community   and  international   control.   The   principle   of   due   diligence   as   an   administrative   criteria   for  consumer   protection   is   often   considered   to   be   disproportionate;   it   is   nevertheless  completely  accepted  by  the  food  industry  and  integrated  into  cost  calculations.      This   recent   development   in   food   law,   triggered   by   the   need   to   find   new   solutions   in   a  globalized  world  where  communication  is  easy  and  where  there  are  few  obstacles  to  the  circulation   of   goods,   requires   an   international   regulation   as   well   as   protocols   on  traceability   and   safety.   All   this   had   been   anticipated   in   the   1970s   in   European  winegrowing  legislation,  which  established  a  precise  list  of  tested  oenological  practices.  In   addition,   there   is   a   system   of   registered   designations   of   origin,   recognized   by   the  TRIPS   agreement   on   intellectual   property-­‐   an   agreement   enshrined   in   the   Marrakesh  Agreement  Establishing  the  World  Trade  Organization  (1993).      As   we   can   see,   the   European   winegrowing   sector   has   made   considerable   regulatory  progress.   It   has   developed   a   system   that   enables   food   fraud   to   be   brought   to   light   (a  traceability   system   based   on   registers   and   certificates,   with   a   precise   procedure).   It  relies   on   the   identification   of   geographical   areas   where   production   meets   regulated  criteria.  In  addition  to  this  considerable  regulatory  capital,  there  is  a  basic  multilateral  recognition  framework.  Unfortunately  this  framework  has  seen  little  progress,  as  seen  in  the   failure   of   the   Doha   round29.   It   nevertheless   met   with   some   success   with   bilateral                                                                                                                  28  In  1981  adulterated  rapeseed  oil  caused  the  death  of  thousands  of  consumers.    29  The   Doha   round   was   a   round-­‐table   negotiation   carried   out   under   the   auspices   of   the   WTO.   It   mainly   focused   on   the  “liberalization   of   international   trade”   with   an   explicit   purpose   to   “develop”   what   was   formally   known   as   the   “third  world”.   The   Ministerial   Conference   of   Doha   (Qatar)   was   held   from   9   to   13   November   2001,   while   the   fourth  ministerial   conference   of   the   WTO   launched   a   new   round   of   multilateral   negotiations   (started   under   GATT,   the  predecessor  to  the  WTO)  known  as  the  “Development  Agenda”.  Most  of  the  Doha  negotiations  focused  on  agriculture  and   on   improving   access   for   agricultural   produce   from   developing   countries   to   the   markets   of   rich   countries.   The  Doha   round-­‐   which   failed   due   to   the   different   countries   failure   to   reach   an   agreement-­‐   included   an   agreement   on  TRIPS.    Copyright-­‐  This  confidential  report  is  the  Intellectual  property  of  the  WAITO  Foundation  all  rights  reserved.  No  part  of  this  publication  may  be  reproduced  or  diffused  under  any  form  or  by  any  means,  including  photocopies  and  recordings,  or  by  any  information  storage  or  recovery  system.    
  • 68.   68      expansion  in  certain  areas.  Thus,  the  European  Union  has  concluded  specific  agreements  with  various  countries  for  certain  wines.  These  agreements  run  along  similar  lines:  the  adoption  of  oenological  practices  for  the  production  of  wines  throughout  the  world;  and  the  recognition  of  registered  appellations  of  origin  and,  more  generally,  of  geographical  indications   of   origin   identifying   wine   as   a   product   belonging   to   collective   territorial  brands.      The  advantage  of  a  well-­‐designed  regulatory  framework,  is  the  guarantee  of  safety  that  it   procures.   But   this   framework   has   to   apply   to   everyone   on   an   international   level.   A  standardization   procedure   is   currently   under   way   but   it   is   not   fast   enough   to   keep   up  with  the  growth  of  international  trade.  Here  again,  rules  and  regulations  are  overtaken  by   reality.   Moreover,   an   international   legal   framework   would   establish   common   rules  and  therefore  considerably  reduce  unfair  competition.      Therefore,   in   comparison   with   other   agri-­‐food   sectors,   winegrowing   has   had   a  practically   fraud-­‐free   past,   has   been   a   pioneer   in   terms   of   research   and,   early   on,  established  mechanisms  to  prevent  fraud.  This  progress  has  gradually  established  itself  on  an  international  level.    Although   this   is   a   very   mature   product   and   market,   price   differentiation   and  segmentation   is   still   strong,   from   table   wine   to   grand   crus   registered   under   particular  vintages,   sold   on   auction   at   extremely   high   prices   and   making   the   headlines.   These  different   prices   provide   an   average   supply   with   sufficient   added   value,   and   it   is   perhaps  the  very  structure  of  this  supply  that  protects  its  price  and  value  from  erosion.      Only   two   years   ago,   counterfeiting   did   not   particularly   affect   the   wine   sector   for   the  simple   reason   that   counterfeiting   focused   on   high-­‐end   wines   at   a   high   added   value.  Today,  the  wine  sector  provides  fertile  ground  for  the  development  of  the  latest  forms  of  fraud  and  counterfeiting  because  it  is  a  highly  regulated  sector  where  infringement  can  generate  considerable  profits.  The  possibility  of  tax  fraud  also  exists,  in  particular  due  to  the   incapacity   of   certain   regulatory   bodies   to   operate   effectively   on   an   international  level.    There  are,  therefore,  major  flaws  in  the  wine  industry  that  are  open  to  perfected  forms  of  illegal  trafficking.  In  the  context  of  globalization,  amid  economic  crisis,  where  surplus   production   boosts   the   export   of   low-­‐cost   wine   in   bulk,   the   wine   industry   is  threatened   by   these   highly   complex   crimes   combining   the   counterfeiting   of   various  brands  and  appellations  of  origin,  the  extortion  of  small  businesses  and  the  breach  of  the  internal   control   and   security   systems   of   certification   bodies.   The   strengths   of   this   highly  regulated   sector   with   apparently   solid   foundations   can   also   become   weaknesses;  security   systems   have   become   more   sophisticated   but   they   are   powerless   against   the  latest  attacks.      Means   of   protection   must   be   developed   against   mafia   organizations,   capable   of  infiltrating   and   gaining   control   over   the   wine   sector.   The   sector’s   greatest   weakness   lies  in   its   organizational   complexity   and   in   its   independent   entrepreneurship.   Just   as  counterfeiters  operate  using  lower  value  bank  notes  to  pass  under  surveillance  radars,  organized   crime   or   local   mafias   will   produce   lower   quality   wine,   on   mass,   from   bulk.  These  counterfeit  products  can  then  be  distributes  in  emerging  markets  with  a  weaker  wine   culture,   destroying   the   image   of   quality   that   producers   try   to   protect   and  exploiting  the  current  weakness  of  small  producers.  Copyright-­‐  This  confidential  report  is  the  Intellectual  property  of  the  WAITO  Foundation  all  rights  reserved.  No  part  of  this  publication  may  be  reproduced  or  diffused  under  any  form  or  by  any  means,  including  photocopies  and  recordings,  or  by  any  information  storage  or  recovery  system.    
  • 69.   69      D   -­‐   TREATIES   AND   REGULATIONS:   THE   DISCONNECT   BETWEEN   NATIONAL   INTERESTS   AND   MORAL  CRITERIA    The   avowed   wish   of   many   countries   in   the   world,   in   particular   in   the   European   Union  and  the  United  States,  is  to  eradicate  counterfeiting  as  far  as  possible,  and  at  least  in  its  most  harmful  and  dangerous  forms.      The  example  of  the  European  Union,  however,  shows  the  obstacles  to  an  effective  policy  on   criminal   deterrence.   In   recent   years,   EU   law   has   attempted   to   take   this   criminal  phenomenon   into   consideration   to   develop   criminal   legislation   to   counter   the  development  of  counterfeiting-­‐crime©.  This  reinforced  legislation  was  to  be  one  of  the  constituents  in  a  comprehensive  European  Union  policy  to  guarantee  a  better  protection  of  all  intellectual  property  rights.    Given   that   criminal   penalties   must   be   proportionate   to   the   seriousness   of   the   offence,  the   objective   was   to   bring   Member   States’   criminal   laws   into   line   and   strengthen   such  laws   through   existing   provision.   In   particular,   this   involved   tackling   the   most   serious  cases   of   counterfeiting,   such   as   those   committed   by   criminal   organizations   and   those  endangering   the   health   and   safety   of   consumers.   Given   the   gravity   of   such   acts,   it   was  not   only   a   question   of   obtaining   compensation   for   damage   caused,   but   also   of   taking  appropriate   criminal   measures   that   were   sufficiently   deterrent   to   prevent   the  (re)occurrence  of  such  acts.      Unfortunately,  the  criminal  guidelines  that  were  used  focused  on  the  basic  principles  of  IPR   protection   and   not   on   principles   governing   the   most   serious   violations   of   consumer  safety.      Intellectual  property  rights  are  included  under  the  fundamental  rights  protected  under  article  17  of  the  Charter  of  Fundamental  Rights  of  the  European  Union.  It  was  therefore  legitimate   to   sanction   serious   infringement   of   these   essential   rights   with   measures  severe  enough  to  demonstrate  intolerance  towards  such  acts.    This   approach,   which   has   currently   lost   momentum   in   the   Council   of   the   European  Union,  is  a  continuation  of  an  indecisive  policy  that  has  been  conducted  for  various  years.      However,  a  number  of  important  initiatives  have  been  taken  in  recent  years  within  the  EU  and  on  its  borders.  In  1994,  the  European  Community  adopted  the  so-­‐called  Customs  Regulation,   allowing   border   controls   of   imported   fake   goods30 .   Later,   in   1998,   the  Commission   published   its   Green   paper   on   Combating   Counterfeiting   and   Piracy   in   the  Single  market31.  As  a  result  of  reactions  to  the  Green  Paper,  the  Commission  presented  an   Action   Plan   on   30   November   200032.   This   action   plan   was   followed   by   a   directive  harmonizing   Community   IPR   enforcement   measures33  and   a   regulation   improving   the  customs   mechanisms   provided   under   the   previous   customs   regulation   to   combat  counterfeit   or   pirated   goods 34 .   Moreover,   on   10   November   2004,   the   Commission                                                                                                                  30  http://ec.europa.eu/justice/doc_centre/criminal/doc/sec_2005_848_en.pdf  31  COM  (98)569  final  32  COM(2000)789  final  33  Directive  2004/48/EC,  OJ  L17,  30/04/2004,  p45  34  Council  Regulation  (EC)  No  1383/2003  of  22  July  2003  OJ  L  196,  02/08/2003  p.7    Copyright-­‐  This  confidential  report  is  the  Intellectual  property  of  the  WAITO  Foundation  all  rights  reserved.  No  part  of  this  publication  may  be  reproduced  or  diffused  under  any  form  or  by  any  means,  including  photocopies  and  recordings,  or  by  any  information  storage  or  recovery  system.    
  • 70.   70      adopted  a  strategy  aiming  to  ensure  the  respect  of  intellectual  property  rights  in  third  countries35.   Combating   counterfeiting   is   included   in   the   actions   to   be   taken   for   the  protection  of  intellectual  property  in  the  first  Commission  action  plan  for  innovation  in  Europe36.   The   Commission’s   1998-­‐99   work   programme   for   the   fight   against   fraud37  also  expressly   targets   counterfeiting   and   piracy   as   areas   requiring   measures   to   strengthen  the   fight   against   economic   crime.   Moreover,   the   conclusions   of   the   Brussels   European  Council  of  20  and  21  March  200338  called  on  the  Commission  and  the  Member  States  to  improve   the   exploitation   of   intellectual   property   rights   by   taking   measures   against  counterfeiting  and  piracy.  One  of  the  Commission’s  responses  to  counterfeiting  was  the  anti-­‐counterfeiting   initiative   directed   by   the   Forum   on   the   prevention   and   control   of  organized  crime,  set  up  by  the  Directorate-­‐General  for  Justice  Freedom  and  Security.  The  aim  was  to  direct  efforts  towards  raising  awareness  and  mobilizing  all  stakeholders  in  the  fight  against  organized  crime,  particularly  at  the  prevention  stage.    On   30   January   2003,   a   meeting   was   organized,   enabling   the   private   sector,   public  authorities  and  law  enforcement  services  to  discuss  the  means  of  controlling,  preventing  and  detecting  intellectual  property  violations.  The  parties  concluded  that  they  needed  to  take  legislative  action  to  harmonize  law  enforcement  standards.    Subsequently,   a   round   table   was   held   on   30   September   2003   on   the   partnership  between  the  public  and  private  sectors.  Here  again,  participants  concluded  that  criminal  legislation   was   essential   at   Union   level   to   combat   counterfeiting   and   piracy.   The  proposed   criminal   measures   are   in   keeping   with   Community   efforts   to   fight  counterfeiting   and   piracy   and   supplement   existing   mechanisms.   They   also   dovetail   with  EU   policy   combating   organized   crime,   of   which   counterfeiting   and   piracy   are   one  important  form.  Already,  the  Amsterdam  European  Council  of  16  and  17  June  1997  had  adopted   a   detailed   action   plan   to   fight   organized   crime   proposing   specific   initiatives  with   a   coherent   and   coordinated   approach   mobilizing   Community   and   3rd   pillar  instruments   simultaneously.   A   multidisciplinary   group   was   created   with   the   task   of  implementing  the  programme.  The  provisions  of  the  Amsterdam  Treaty  were  designed  to  give  European  citizens  a  high  level  of  protection  in  a  space  of  freedom,  security  and  justice.   For   the   first   time,   it   was   stated   that   this   objective   would   be   achieved   by  prevention  and  the  fight  against  organized  crime.    The   Tampere   European   Council   of   15   and   16   October   1999   defined   a   number   of  guidelines  concerning  the  definition  of  minimum  standards  for  harmonizing  legislation  and   intensifying   cooperation   in   the   fight   against   crime.   Since   3   May   2000,   the   EU’s  actions   in   the   fight   against   organized   crime   have   been   based   on   a   document   entitled  “The   prevention   and   control   of   organized   crime:   a   strategy   for   the   beginning   of   the   new  millennium”.  The  European  Council  of  4  and  5  November  2004  ended  with  the  adoption  of   the   Hague   Programme,   a   new,   multi-­‐annual   work   programme   on   issues   relating   to  justice,   freedom and security for the period 2005-2010. The programme’s aim was to  strengthen   cooperation   between   European   states   in   justice   and   home   affairs   and   to  make   operational   a   strategic   concept   informing   the   fight   against   organized   cross-­‐border  crime  at  EU  level.                                                                                                                  35  COM  (2004)  749,  10/11/2004  36  COM  (96)  589,  20/11/1996  37  COM  (98)278,  06/05/1998    (cf.  p10)  38  Paragraph  37  of  the  conclusions  of  the  Council  of  Europe  Copyright-­‐  This  confidential  report  is  the  Intellectual  property  of  the  WAITO  Foundation  all  rights  reserved.  No  part  of  this  publication  may  be  reproduced  or  diffused  under  any  form  or  by  any  means,  including  photocopies  and  recordings,  or  by  any  information  storage  or  recovery  system.    
  • 71.   71      Lastly,   the   AGIS   framework   programme   was   adopted   on   22   July   2002.   It   promoted  police  and  judicial  cooperation  in  criminal  matters  and  supported  experts’  contribution  to   the   development   of   European   policy   in   this   area.   The   programme   incorporated   the  counterfeiting  issue  into  cooperation  projects  to  be  co-­‐financed  in  2005  as  part  of  efforts  to   prevent   and   combat   organized   crime.   The   work   programme   focused   on   awareness  raising,   information,   the   training   of   experts   in   infringements   of   intellectual   property  rights   and   the   issue   of   links   between   counterfeiting/piracy   and   organized   crime   and  terrorism.   Lastly,   it   encourages   public/private   partnerships   in   the   exchange   and  processing  of  data  on  counterfeiting.    However,   in   spite   of   the   work   carried   out   over   these   years,   action   against   counterfeiting  can   be   effective   only   if   based   on   a   comprehensive   and   uniform   approach   that  encompasses  prevention,  civil  and  administrative  issues,  customs  aspects  and  criminal  law.  The  proposed  measure,  which  set  out  to  strengthen  and  improve  the  criminal-­‐law  framework  for  combating  infringements  of  intellectual  property  rights,  followed  on  from  the  work  that  the  Community  has  already  carried  out  in  this  field  over  various  years.  In  terms   of   criminal   law,   the   proposed   measure   was   essentially   against   serious   forms   of  crime,   in   particular   organized   crime,   but   not   particularly   against   consumer   safety  violations.   Security   and   justice   practitioners   in   Europe   were   widely   mobilized   against  counterfeiting,  which  posed  a  serious  challenge.  A  core  body  of  criminal  legislation  was  a   vital   factor   here,   although   not   sufficient   on   its   own.   Such   a   mechanism   would   have  complemented   the   substantial   body   of   customs   rules   -­‐   used   as   a   basis   for   intercepting  many   counterfeit   products   -­‐   and   other   measures   adopted   for   the   internal   market   and   at  international  level.    The  scale  of  counterfeiting  and  piracy  in  the  European  Union,  its  spread  to  all  branches  of   economic   activity,   its   internationalization,   its   links   to   organized   crime   and   the  dangers   it   poses   both   in   economic   terms   and   for   the   safety   of   individuals   –   all   these  factors   point   to   the   need   for   a   harmonized   body   of   European   criminal   provisions   in  order   to   combat   the   most   serious   forms   of   this   phenomenon.   In   order   to   cover   this   field  while   respecting   the   breakdown   of   responsibilities   laid   down   by   the   Treaty,   two  instruments   were   needed   to   supplement   the   present   legislation,   and   in   particular  Directive   2004/48/EC   on   the   enforcement   of   intellectual   property   rights:   one   under   the  first  pillar  and  a  second  under  the  third  pillar.  In  this  directive,  the  experts  established  that  any  serious  infringement  of  intellectual  property  rights  -­‐  or  any  act  of  attempting,  aiding   and   abetting   or   inciting   such   an   infringement   -­‐   must   be   subject   to   criminal  penalties.   Such   a   provision   was   in   line   with   the   undertakings   given   under   the   TRIPS  Agreement,   in   particular   its   Article   61,   while   having   the   added   advantage   of   clearly  enshrining   this   obligation   in   a   Community   instrument.   The   text   provided   for   criminal  penalties,  which  comprised  imprisonment  for  natural  persons  and,  for  both  natural  and  legal   persons,   fines   and   the   seizure   of   the   infringing   goods   and   the   materials,  instruments   or   media   used   predominantly   in   the   manufacture   or   distribution   of   those  goods.  Other  possible  penalties  might  include  the  destruction  of  the  infringing  goods,  the  total   or   partial   closure,   permanently   or   temporarily,   of   the   establishment   used   to  commit   the   infringement,   a   permanent   or   temporary   ban   on   engaging   in   commercial  activities,   placement   under   judicial   supervision   or   judicial   winding-­‐up,   and   a   ban   on  access  to  public  assistance  or  subsidies.  Lastly,  the  publication  of  judicial  decisions  was  to   serve   as   an   additional   deterrent   and   could   also   be   used   as   an   information   channel   for  both  right  holders  and  the  public  at  large.  Copyright-­‐  This  confidential  report  is  the  Intellectual  property  of  the  WAITO  Foundation  all  rights  reserved.  No  part  of  this  publication  may  be  reproduced  or  diffused  under  any  form  or  by  any  means,  including  photocopies  and  recordings,  or  by  any  information  storage  or  recovery  system.    
  • 72.   72      A  second  legal  instrument,  in  the  form  of  a  framework  decision,  also  supplemented  the  provisions  of  the  above  directive  with  appropriate  implementing  rules  for  the  criminal  field.   This   text   could   contain   measures   aligning   criminal   penalties   and   measures   on  cooperation  and  criminal  proceedings:    Measures  aligning  criminal  penalties  could  include,  for  example:     • Prison   sentences   comparable   with   those   for   offences   relating   to   organized   crime,   at   least   where   the   acts   of   counterfeiting   or   piracy   had   been   committed   under   the   aegis  of  a  criminal  organization,  and  a  more  serious  penalty  where  the  offences   carried  or  had  carried  a  health  or  safety  risk.     • Sufficiently  dissuasive  financial  penalties.     • In  the  most  serious  cases,  extensive  powers  to  confiscate  goods  belonging  to  the   offender.     • Measures  on  cooperation  and  criminal  proceedings  designed  to:     • Ensure   that   the   Member   States   take   the   necessary   steps   to   set   up   joint   investigation   teams   so   as   to   forge   closer   cooperation   between   their   competent   authorities  for  the  effective  pursuit  of  investigations.  The  holders  of  intellectual   property   rights   or   their   representatives   should   be   allowed   to   assist   in   investigations  carried  out  by  the  joint  investigation  teams  into  the  offences;     • Provide   for   coordination   between   the   Member   States   to   decide   which   of   them   will   prosecute   offenders,   when   the   offence   falls   within   the   jurisdiction   of   more   than   one   Member   State   and   any   of   those   States   can   validly   commence   proceedings   on   the   basis   of   the   same   facts,   the   aim   being   to   centralize   proceedings   in   a   single   Member   State,   where   possible.   A   list   of   the   criteria   for   determining  jurisdiction  would  make  it  easier  to  apply  such  a  provision.     • Ensure   that   investigations   into   -­‐   or   criminal   prosecution   of   -­‐   counterfeiting   and   piracy  offences  are  not  dependent  on  a  report  or  accusation  made  by  a  victim  of   the   offence,   so   as   to   speed   up   investigations   and   avoid   delays   that   would   be   harmful  to  the  victims.  This  is  the  option  that  was  most  strongly  advocated  by  the   EU   Directorate-­‐General   for   Justice-­‐Freedom-­‐Security,   an   option   that   fell   under   the  measures  that  could  be  taken  in  the  field  of  justice  and  home  affairs  and  was   the  only  solution  that  could  provide  the  Union  with  common  minimum  core  rules   of   criminal   law.   These   measures   were   vital   to   ensure   smooth   cooperation   between   the   Member   States   in   criminal   proceedings   and   could   also   serve   as   a   reference  framework  for  future  negotiations  at  international  level.  They  provided   a   follow-­‐up   -­‐   in   the   justice   and   home   affairs   field   -­‐   to   other   Community   measures   to  combat  counterfeiting  and  piracy.    How  could  subsidiarity  and  proportionality  be  taken  into  account?    There  are  currently  considerable  differences  in  the  criminal  legislation  and  regulations  of  the  Member  States  on  enforcement  of  intellectual  property  rights.  Counterfeiters  take  Copyright-­‐  This  confidential  report  is  the  Intellectual  property  of  the  WAITO  Foundation  all  rights  reserved.  No  part  of  this  publication  may  be  reproduced  or  diffused  under  any  form  or  by  any  means,  including  photocopies  and  recordings,  or  by  any  information  storage  or  recovery  system.    
  • 73.   73      advantage   of   these   discrepancies   by   carrying   out   illegal   activities   in   those   Member  States   where   enforcement   mechanisms   tend   to   be   applied   less   effectively,   thereby  trafficking  on  a  truly  transnational  scale.    In   2004   it   was   therefore   clear   that   counterfeiting   and   piracy   could   not   be   effectively  countered  solely  by  action  on  the  part  of  individual  Member  States,  hence  the  need  for  an  EU  initiative  aimed  at  stepping  up  criminal-­‐law  measures  in  order  to  align  the  rules  in   the   Member   States   while   respecting   their   different   legal   traditions   and   systems.   In  accordance   with   the   principle   of   proportionality,   the   proposed   measures   did   not   go  beyond   what   was   necessary   to   achieve   the   objective   set.   These   measures   respected  fundamental   rights   and   observed   the   principles   recognized   by   the   Charter   of  Fundamental  Rights  of  the  European  Union.  It  should  be  pointed  out  here  that  Article  17,  paragraph   2   of   the   Charter   states   that,   “Intellectual   property   shall   be   protected”.   Once  applied,   the   proposal   was   intended   to   supplement   the   legislation   already   in   place   and  help   curb   the   most   serious   types   of   intellectual   property   offences.   When   assessing   the  positive  effects  of  the  measure,  it  should  be  borne  in  mind  that,  for  the  most  part,  those  effects  were  the  result  only  of  a  reduction  in  illegal  activities  and  that  the  absence  of  any  measures  would  make  the  consequences  even  more  serious.    The   measure   had   various   objectives:   improve   the   level   of   cooperation   between   the  police   services   and   the   judiciary,   a   reduction   of   crime,   impact   business,   impact  employment,   investment   and   competition   of   European   businesses,   increase   tax  revenues,   improve   awareness   regarding   the   criminal   nature   of   intellectual   property  infringement,  etc.      a) Improvements  expected  from  cooperation  between  police  services  and  the  judiciary    One  aim  was  to  improve  the  level  of  cooperation  between  the  authorities  responsible  for  investigating,   prosecuting   and   trying   counterfeiting   and   piracy   offences,   considering  that   the   authorities   charged   with   enforcing   the   law   would   thus   have   appropriate  investigation   powers.   Moreover, it was thought that the   establishment   of   contact   points  for   exchanging   information   would   facilitate   and   speed   up   investigations   and   that   the  definition   of   criteria   for   determining   jurisdiction   would   prevent   conflicts   of   jurisdiction;  and  the  setting-­‐up  of  joint  investigation  teams  would  guarantee  a  cross-­‐border  approach  that  is  vital  for  combating  counterfeiting.    b) Reduction  of  crime    The  introduction  of  tougher  penalties  -­‐  with  minimum  levels  of  maximum  sentences  -­‐   and   improved   cooperation   commendably   aimed   to   make   it   more   difficult   to   commit  infringements   of   intellectual   property   rights   and   have   a   deterrent   effect.   The   tougher  penalties   targeted,   in   particular,   the   more   serious   forms   of   counterfeiting,   such   as  infringements  committed  under  the  aegis  of  a  criminal  organization  and  those  resulting  in  serious  risks  to  public  health  and  safety.  The  Union  experts  thus  hoped  to  draw  the  attention   of   judges   and   public   authorities   to   the   seriousness   of   certain   acts   of  counterfeiting  and  to  the  need  to  come  up  with  an  appropriate  response  in  the  criminal  law  field.  These  experts  also  hoped  to  encourage  holders  of  intellectual  property  rights  to  bring  criminal  proceedings  and  thereby  help  to  improve  the  effectiveness  of  the  police  Copyright-­‐  This  confidential  report  is  the  Intellectual  property  of  the  WAITO  Foundation  all  rights  reserved.  No  part  of  this  publication  may  be  reproduced  or  diffused  under  any  form  or  by  any  means,  including  photocopies  and  recordings,  or  by  any  information  storage  or  recovery  system.    
  • 74.   74      and  the  criminal  justice  system.  The  measures,  when  applied  would  therefore  constitute  a  deterrent  by  creating  a  feeling  of  insecurity  among  criminals.  This  deterrent  effect  was  to   be   heightened   by   the   imposition   of   exemplary   penalties   to   increase   the   criminals’  sense   of   insecurity.   According   to   the   criminal   lawyers   at   the   time,   these   traditional  criminal-­‐law   mechanisms   would   make   counterfeiting   less   attractive   for   criminal  organizations   and   help   bring   about   a   general   reduction   in   crime.   A   naïve   vision   of   a  process   that   will   never   have   the   expected   results   due   to   the   deep   roots   of   mafia  organizations  in  Member  States!      c) Impact  on  business    According   to   the   same   Union   experts,   it   was   agreed   that   the   instrument   they   were  developing   should:   “avoid   any   abuse   and   misuse   of   criminal   proceedings   by   right  holders  wrongly  claiming  to  be  victims”.  They  also  agreed  that  they  should  avoid  the  risk  of   only   benefiting   large   firms   with   the   system,   since   counterfeit   versions   of   their  products   might   be   more   readily   identifiable   than   those   of   smaller   firms.   Had   they  already  identified  a  two-­‐tier  mechanism  in  their  anti-­‐counterfeiting  arsenal?      d) Impact  on  employment    Continuing   to   display   much   naivety,   the   experts   considered   that   the   harm   to   business  due  to  intellectual  property  infringement  would  have  a  knock-­‐on  effect  on  the  number  of  jobs   on   offer,   although   “the   precise   impact   on   employment   across   the   industry   as   a  whole  is  difficult  to  quantify”.  Nevertheless,  they  were  convinced  that  the  effectiveness  of   the   criminal   measures   taken   would   serve   to   step   up   the   fight   against   counterfeiting  and   hence   improve   the   employment   situation   in   the   Community.   In   as   much   as   in   its  most   serious   forms,   counterfeiting,   like   other   criminal   activities,   contributes   to   an  increase   in   undeclared   work,   the   dismantling   of   criminal   organizations   on   the   basis   of  criminal  legislation  was  expected  to  help  clean  up  the  labour  market.    e) Impact  on  investment  and  the  competitiveness  of  European  businesses    Under   European   guidance,   businesses   were   to   enjoy   equivalent   levels   of   protection  across   the   whole   Community   territory:   “this   favourable   environment   will   shore   up   their  confidence  in  the  internal  market  as  a  place  where  they  can  exercise  their  creativity  and  innovation  in  a  secure  setting.”    This  situation  would  ensure  that  they  received  a  fair  return  on  the  investments  they  had  made  on  research  and  development  -­‐  or  on  the  process  of  artistic  creation  -­‐  and  would  encourage  them  to  invest  further.  It  is  true  that  innovation  and  creativity  play  a  key  role  in  business  competitiveness.  Firms  must  constantly  improve  or  renew  their  products  if  they   want   to   maintain   or   increase   their   market   share.   Sustained   innovative   and   creative  activity  developing  new  products  or  services,  places  businesses  at  an  advantage  on  the  market   and   are   an   important   factor   in   their   competitiveness.   For   firms   to   be   in   a  position  to  innovate  and  be  creative,  they  need  an  environment  that  is  conducive  to  their  activities,  particularly  as  regards  the  protection  of  intellectual  property.  According  to  the  experts,   the   effectiveness   of   criminal   measures   to   combat   counterfeiting   would   help  Copyright-­‐  This  confidential  report  is  the  Intellectual  property  of  the  WAITO  Foundation  all  rights  reserved.  No  part  of  this  publication  may  be  reproduced  or  diffused  under  any  form  or  by  any  means,  including  photocopies  and  recordings,  or  by  any  information  storage  or  recovery  system.    
  • 75.   75      foster  the  innovative  activities  of  businesses  in  the  internal  market  and  thereby  secure  their   competitiveness   at   both   an   European   and   international   level.   This   would   also   have  a  beneficial  effect  on  the  diversity  of  products  available  to  consumers.    f) Impact  on  tax  revenue    Since   trade   in   counterfeit   and   pirated   products   is   by   definition   illegal   and   undeclared,   it  deprives  governments  of  significant  amounts  of  tax  revenue  (VAT,  customs  duties,  etc).   Effective   measures   to   counter   those   phenomena   reduce   lost   tax   revenue.   An  effective   criminal   policy   would   also   cut   financial   fraud   associated   with   undeclared  labour.    g) Limits  of  the  measure’s  effectiveness    A  reading  of  these  draft  Community  criminal-­‐law  provisions  reveals  the  naivety  and  lack  of  vision,  in  respect  of  real  and  future  risks,  with  which  this  problem  was  examined.  This  approach   of   even   greater   concern   in   that   it   is   not   up   to   date   with   the   reality   on   the  ground.   In   response   to   the   rapid   changes   in   modern   crime,   drafts   submitted   and  adopted   after   various   years   of   unending   discussion   and   debates,   are   outdated   even  before   they   come   into   force.   The   proposed   measure   is   only   one   weapon   in   the   fight  against  counterfeiting,  which,  six  years  ago,  formed  part  of  a  wider  picture.  It  could  be  effective   only   if   there   was   sufficient   awareness   within   the   Union   of   the   seriousness   of  the   problems   in   question;   and   that   was   not   the   case   at   the   time.   The   measure   was  intended   to   improve   the   effectiveness   of   the   fight   against   the   most   serious   forms   of  counterfeiting  only,  not  against  all  forms.  However,  the  seriousness  of  the  problem  as  it  was   perceived,   only   included   the   problem   of   the   risk   for   consumers   as   a   subsidiary  concern.  This  threat  was  mainly  identified  in  terms  of  organized  crime.      This   measure   was   therefore   only   to   be   considered   as   an   additional   element   in   the  Community’s  anti-­‐counterfeiting  policy.  Moreover,  like  any  other  criminal  measure,  this  legislative   measure   would   only   be   effective   if   it   was   actually   enforced   by   national  judiciaries.   In   this   respect,   it   had   the   benefit   of   sending   a   strong   message   to   national  judges  regarding  the  seriousness  of  counterfeiting  and  piracy  and  the  need  to  put  a  stop  to   it.   This   is   what   happened   when   Directive   2004   was   transposed   to   France   via   law  2007-­‐1544  of  29  October  2007,  when,  on  11  April  2008,  four  years  after  the  directive,  the  Ministry  of  Justice  sent  round  a  notification  39  on  the  criminal  aspects  of  this  law.  The  Member   States   were   not   only   required   to   put   in   place   legislation   that   complied   with   the  new   rules,   but   also   had   to   raise   awareness   among   -­‐   and   give   appropriate   training   to   –  those   responsible   for   combating   counterfeiting   and   piracy.   This   therefore   required  appropriate   training   and   awareness-­‐raising   measures   aimed   at   the   police   forces   and  judicial   authorities   that   had   to   deal   with   counterfeiting   cases.   Moreover,   these  provisions  would  only  be  fully  effective  if  action  was  also  taken  at  an  international  level.  Introducing,   toughening   and   harmonizing   criminal   penalties   did   not   suffice   in   itself   to  eliminate  counterfeiting.  If  it  was  to  be  highly  effective,  the  legislation  must  go  hand-­‐in-­‐hand   with   campaigns   designed   to   increase   consumer   awareness.   Criminal   proceedings                                                                                                                  39  Directorate   of   Criminal   Affairs   and   Pardons   (DACG)   Notification   No.   CRIM   08-­‐10/G3   of   11   April   2008.   Various  criminal  provision  were  introduced  in  parallel  with  new  measures  that  could  be  ordered  by  the  civil  judge;  others  aim  to  improve  the  treatment  of  criminal  proceedings  for  cases  of  counterfeiting.    Copyright-­‐  This  confidential  report  is  the  Intellectual  property  of  the  WAITO  Foundation  all  rights  reserved.  No  part  of  this  publication  may  be  reproduced  or  diffused  under  any  form  or  by  any  means,  including  photocopies  and  recordings,  or  by  any  information  storage  or  recovery  system.    
  • 76.   76      would   be   truly   effective   only   if   consumers   were   fully   aware   that   counterfeiting   was   a  criminal  offence,  posing  a  direct  threat  their  own  safety.    Before   the   debate   on   the   criminal   approach   had   time   to   be   integrated   by   the   EU   Council  of   Ministers,   a   preliminary   consultation   process   had   already   identified   the   need   for  Commission   initiatives   to   protection   of   intellectual   property   rights.   In   October   1998   the  Commission  had  published  a  Green  Paper  on  combating  counterfeiting  and  piracy  in  the  single   market   (COM   (98)569   final),   six   years   before   any   directive   was   published.   It  received   nearly   145   written   contributions   from   all   the   sectors   concerned.   A   summary   of  these   contributions   was   published.   The   European   Parliament   and   the   Economic   and  Social  Committee  had  also  been  given  an  opportunity  to  submit  their  comments  on  the  Green  Paper.  In  addition,  the  Commission,  together  with  the  German  Presidency  of  the  Council   of   the   European   Union,   organized   a   hearing   open   to   all   interested   parties   in  Munich   on   2   and   3   March   1999   and   a   meeting   with   experts   from   Community   Member  States  on  3  November  1999,  to  hear  their  views  on  this  issue.  During  the  consultation,  participants   had   already   pointed   out   that   the   current   anti-­‐counterfeiting   measures  lacked   a   deterrent   effect;   they   also   pinpointed   the   same   weaknesses,   i.e.   that   the  penalties   imposed   were   far   too   lenient   and   not   sufficiently   deterrent.   Disparities  between   national   penalty   systems   had   also   been   mentioned   as   an   obstacle   to   effective  action  against  counterfeiting  and  piracy  in  domestic  markets.    More   recently,   the   Commission’s   Directorate-­‐General   for   Justice   and   Home   Affairs  commissioned  a  study  on  the  impact  of  counterfeiting  and  piracy  in  Europe.  The  study,  carried  out  by  the  research  team  of  the  Centre  d’études  internationales  de  la  propriété  industrielle  (CEIPI),  published  its  findings  in  a  final  report  on  9  July  2004.  To  carry  out  its  research,  the  team  had  had  to  consult  a  large  number  of  public  bodies  at  a  European  and   national   level   and   private   sector   representatives.   They   also   contacted  manufacturers   in   a   wide   variety   of   sectors   –   pharmaceuticals   and   medical   equipment,  perfumes  and  cosmetics,  food  products,  alcohol  and  beverages,  cigarettes,  clothing  and  clothing  accessories,  toys,  watches  and  jewellery,  spare  parts  and  accessories,  electrical  appliances  and  equipment,  computer  material,  software,  CDs  and  DVDs.  Finally,  the  data  obtained   from   these   various   stakeholders   was   supplemented   by   consultations   with  consumer  organizations.    In  parallel,  consultations  were  held  under  the  auspices  of  the  Forum  on  the  prevention  of  organized  crime.  As  part  of  its  work  in  2003,  the  Forum  looked  at  anti-­‐counterfeiting  measures,   the   aim   being   to   concentrate   efforts   on   raising   awareness   among   –   and  mobilizing  -­‐  all  the  bodies  responsible  for  combating  these  activities,  particularly  at  the  prevention   stage.   A   Forum   meeting   on   30   January   2003   provided   an   opportunity   for  dialogue  between  the  private  sector,  governments  and  law  enforcement  services  on  the  means  of  combating,  preventing  and  detecting  intellectual  property  offences.  Among  the  main   recommendations   made   for   increasing   the   effectiveness   of   anti-­‐counterfeiting  measures  was  the  need  to  harmonize  legislation  and  step-­‐up  law  enforcement.      In   addition,   a   round   table   on   the   public-­‐private   sector   partnership   was   held   on   30  September   2003,   mainly   involving   private   bodies   representing   the   various   industries  affected   by   counterfeiting   and   piracy.   This   meeting   confirmed   the   need   for   action   on  criminal   legislation,   which   was   taken   up   on   9   December   2004   when   private   sector  representatives  came  together  to  contribute  to  the  report  of  9  July  2004.    Copyright-­‐  This  confidential  report  is  the  Intellectual  property  of  the  WAITO  Foundation  all  rights  reserved.  No  part  of  this  publication  may  be  reproduced  or  diffused  under  any  form  or  by  any  means,  including  photocopies  and  recordings,  or  by  any  information  storage  or  recovery  system.    
  • 77.   77      Over  these  years,  until  the  2004  directive,  and  especially  the  first  Directive  to  harmonize  national   criminal   law   in   2006   (still   under   debate   in   the   Council   of   Ministers),   public   and  private  stakeholders  affected  directly  or  indirectly  by  the  problem  of  counterfeiting  have  continually  discussed  and  re-­‐discussed  these  criminal  aspects,  without  reaching  any  real  agreement.   In   general,   the   lack   of   a   deterrent   effect   in   the   current   measures   for  combating   intellectual   property   has   been   highlighted   on   numerous   occasions.   The  disparities   between   national   penalty   systems   are   considered   to   be   an   obstacle   to  effective  action  against  counterfeiting.  The  sectors  concerned  want  penalties  and  other  means  of  enforcing  intellectual  property  rights  to  be  equally  effective  across  all  Member  States.   It   is   widely   felt   that   there   is   an   urgent   need   for   tougher   and   more   closely   aligned  criminal  legislation.    European  Union  public  authorities  therefore  note  that  this  type  of  crime,  which  is  most  often   committed   by   criminal   organizations   and   sometimes   even   by   terrorist   groups,  poses   a   threat   to   the   economy,   to   creativity   and   to   health   and   safety.   They   stress   the  need   for   Union-­‐wide   harmonization   of   criminal   legislation   on   counterfeiting   and   for  maximum   police   and   judicial   cooperation,   particularly   where   offenses   are   linked   to  organized   crime.   To   this   end,   these   authorities   consider   that   substantial   prison  sentences   need   to   be   imposed,   fines   must   be   sufficiently   high   and   provision   must   be  made   for   the   seizure   of   assets   linked   to   the   offences   committed.   Lastly,   the   bodies  consulted   observe   a   link   between   the   introduction   of   criminal   penalties   and   raising  public   awareness.   However,   nothing   seems   to   change   in   practice.   While,   in   theory,   the  world   wants   to   change   things,   in   practice,   the   initial   point   of   the   discussions   has   been  missed,  or  possibly  ignored.    Thus,   there   continue   to   be   great   disparities   within   the   EU,   which   stop   intellectual  property   right   holders   from   receiving   uniform   protection   throughout   the   European  Union.   There   are   considerable   differences   regarding   criminal   sanctions,   especially   in  respect  of  the  penalties  set  out  in  national  legislations.    At   an   international   level,   the   situation   is   even   worse.   The   Agreement   on   Trade-­‐related  Aspects  of  Intellectual  Property  Rights  (TRIPS)  has  been  the  subject  of  painstaking  and  up-­‐hill   WTO   negotiations,   but   it   rightly   predicts   that   developing   countries   will   have   to  wait  for  a  long  time  before  they  can  benefit  from  the  Agreement  measures.  The  freedom  applied   to   emerging   countries   has   resulted   in   an   implementation   of   these   measures,  which   has   been,   at   best,   fragmentary,   and   TRIPS   flexibility   created   great   disparity   in  national   application   of   these   controls,   rendering   international   cooperation   in   this   area  even  more  complex.    Ultimately,   despite   the   efforts   made   on   the   protection   of   intellectual   property   rights,  results   vary.   Enforcement   instruments   are   undoubtedly   stronger   and   collaboration  between  public  and  private  sectors  is  progressively  falling  into  place.  Public  authorities  are  well  aware  of  the  need  to  protect  consumers,  but  in  practice,  crime  in  this  area  is  not  decreasing.  On  the  contrary,  it  is  spreading  to  new,  vast  and  eclectic  markets.  Intellectual  property   law   naturally   reveals   its   limitations   and   right   holders   are   in   a   clearly  vulnerable   position.   Beyond   the   luxury   brand   sector,   consumers   are   no   longer  accomplices  to  counterfeiting,  but  its  victims.      The   world   is   changing,   as   is   crime,   and   citizens   are   becoming   the   prime   target   for  Copyright-­‐  This  confidential  report  is  the  Intellectual  property  of  the  WAITO  Foundation  all  rights  reserved.  No  part  of  this  publication  may  be  reproduced  or  diffused  under  any  form  or  by  any  means,  including  photocopies  and  recordings,  or  by  any  information  storage  or  recovery  system.    
  • 78.   78      entrepreneur-­‐counterfeiters  in  a  context  of  disorder.  As  a  result,  action  should  no  longer  be  directed  against  counterfeiting,  but  against  counterfeiting-­‐crime.        Counterfeiting-­‐crime   mainly   affects   consumer   safety   and   patient’s   health.   Its   objective  is  not  necessarily  to  kill,  but  the  products  generated  by  industries  directly  or  indirectly  linked   to   local   mafias   and   organized   crime   seriously   endanger   Southern   Hemisphere  populations   with   potential   consequences   for   the   populations   in   the   Northern  Hemisphere40.      If  we  consider  that  despite  the  efforts  of  national  and  international  players  in  the  fight  against  counterfeiting,  this  problem  continues  to  grow  and  become  more  complex;  If  we  acknowledge   that   we   can   no   longer   ignore   the   convergence   between   counterfeiting-­‐crime,  food  fraud  and  smuggling;  if,  according  to  Philippe  Collier  of  Contrefaçon  Riposte41,  customs  in  France  only  controls  3%  of  products  and  is  more  interested  in  counterfeiting  in   terms   of   trademarks,   designs   and   models,   than   in   terms   of   product   conformity;   if  intellectual  property  law  does  not  have  the  most  effective  weapons  against  new  criminal  trends   and   if   this   law   cannot   be   applied   correctly   throughout   the   world;   and   lastly,   if  consumer   protection   has   become   a   matter   of   public   concern   triggering   action,   of  political   importance   and   supported   by   public   opinion,   a   new   criminal-­‐law   approach  must  be  taken,  in  addition  to  the  intellectual  property  law  approach.    Beyond  this  change  of  approach,  new  regulations  and  state  controls,  checking  the  flow  of  dangerous   products   also   requires   corporate   investment   and   innovation,   especially   to  protect   the   entire   supply   and   distribution   channel.   However,   according   to   Les  cahiers  de  la   Compétitivité   du   Figaro42,   companies   are   still   not   doing   enough   and   are,   above   all,  reluctant  to  talk  about  the  subject  for  fear  of  raising  doubts  among  their  clients.      However,  in  order  to  compete  with  low-­‐cost  products,  brands,  especially  flagship  brands  such   as   Nestle   or   Unilever   for   food,   l’Oreal   for   cosmetics,   Johnson   &   Johnson,  Pfizer   or  Sanofi-­‐Aventis   for   medicines,   have   no   other   alternative   than   to   provide   additional  guarantees,   to   strengthen   confidence   in   their   products.   In   this   light,   providing  sufficiently  effective  evidence  to  try  counterfeiters  or  scammers  in  a  criminal  court  and  to   apply   truly   dissuasive   criminal-­‐law   mechanism   to   them,   would   lend   previously  unexploited  dimensions  to  the  fight  against  counterfeiting.      h) The  ACTA  agreements    In   parallel   to   this   initiative,   a   proposed   multilateral   international   treaty   on   intellectual  property  rights,  drawn  up  by  the  members  of  ACTA  has  entered  the  final  signature  stage.  This   Agreement   is   a   clear   improvement   in   terms   of   consumer   protection,   but  nevertheless,   remains   too   focused   on   the   protection   of   intellectual   property   rights,  making   it   considerably   difficult   to   reach   a   general   consensus   on   anti-­‐counterfeiting   in  global   terms.   Thus,   for   example,   only   brands   are   protected   in   the   US   while   protected  designations  of  origin  are  not  recognized.                                                                                                                    40  The  issues  addressed  in  the  following  chapters  illustrate  these  statements.    41  Chief  Editor  of  the  Contrefaçon  Riposte  newsletter  42  “Monde”  dossier,  9  July  2009-­‐  No  20047.    Copyright-­‐  This  confidential  report  is  the  Intellectual  property  of  the  WAITO  Foundation  all  rights  reserved.  No  part  of  this  publication  may  be  reproduced  or  diffused  under  any  form  or  by  any  means,  including  photocopies  and  recordings,  or  by  any  information  storage  or  recovery  system.    
  • 79.   79      ACTA   has   been   drafted   by   various   States   that   meet   regularly   to   negotiate:   Australia,  Canada,   South   Korea,   the   United   Arab   Emirates,   the   United   States,   Japan,   Jordan,  Morocco,   Mexico,   New   Zealand,   Singapore,   Switzerland   and   the   European   Union   (EU),  and  it  is  described  as  a  response  to  “the  increase  in  global  trade  of  counterfeit  goods  and  pirated  copyright  protected  works”.    The  idea  of  creating  a  multilateral  treaty  on  counterfeiting  was  developed  by  Japan  and  the   United   States   in   2006.   Canada,   the   European   Union   and   Switzerland   joined   the  preliminary  discussions  between  2006  and  2007.  The  official  negotiations  began  in  June  2008,   with   Australia,   Mexico,   Morocco,   and   New   Zealand,   joined   by   the   Republic   of  Korea  and  Singapore  along  the  way.      According  to  the  minutes,  the  negotiations  led  to  an  initial  agreement  at  the  beginning  of  October  2010,  with  few  strong  disagreements43.  According  to  the  EU,  a  final  agreement  was  expected  in  the  following  weeks44.  After  a  series  of  drafts  in  2008,  2009  and  2010,  the   parties   published   an   official   version   of   the   “draft”   on   20   April   2010.   A   reworked  version   of   the   text,   resulting   from   the   last   round   of   negotiations   in   Tokyo   was   made  public  on  6  October  2010.      The   themes   presented   by   the   European   Commission   proposal   for   a   Council   decision  (Brussels,  24  June  2011-­‐  COM  (2011)  380  final).      ACTA  aims  to  establish  a  comprehensive  international  framework  that  will  assist  the  EU  in  its  efforts  to  effectively combat the  infringement  of  intellectual  property  rights  (IPR)45.  This   infringement   undermines   legitimate   trade   and   the   EUs   competitiveness   with   the  subsequent   negative   repercussions   on   growth   and   jobs.   ACTA   includes   state-­‐of-­‐the-­‐art  provisions  on  the  enforcement  of  IPR,  including  provisions  on  civil,  criminal,  border  and  digital   environment   enforcement   measures,   robust   cooperation   mechanisms   among  ACTA   Parties   to   assist   in   their   enforcement   efforts,   and   the   establishment   of   best  practices  for  effective  IPR  enforcement.      Although  ACTA  does  not  modify  the  EU  acquis,  because  EU  law  is  already  considerably  more   advanced   than   the   current   international   standards,   it   will   introduce   a   new  international   standard,   building   upon   the   World   Trade   Organizations   TRIPS   Agreement  (adopted  in  1994).  Thus,  it  will  provide  benefits  for  EU  exporting  right  holders  operating  in  the  global  market  who  currently  suffer  systematic  and  widespread  infringements  of  their  copyrights,  trademarks,  patents,  designs  and  geographical  indications  abroad.    At   the   same   time,   ACTA   wishes   to   be   a   balanced   agreement,   because   it   fully   respects   the  rights   of   citizens   and   the   concerns   of   important   stakeholders   such   as   consumers,  internet  providers  and  partners  in  developing  countries.    Further   to   the   adoption   of   the   negotiating   directives   by   the   Council   on   14   April   2008,  negotiations   were   launched   on   3   June   2008.   The   agreement   was   concluded   on   15                                                                                                                  43  “Countries  Reach  Tentative  Anti-­‐Counterfeiting  Pact”  [archive],  ABC  News,  2  October  2010.    44  “Global  anti-­‐counterfeiting  agreement  still  weeks  away”  [archive],  L.A.  Times,  1  October  2010.    45  http://eur-­‐lex.europa.eu/Notice.do?mode=dbl&lang=en&ihmlang=en&lng1=en,fr&lng2=bg,cs,da,de,el,en,es,et,fi,fr,hu,it,lt,lv,mt,nl,pl,pt,ro,sk,sl,sv,&val=577911:cs&page=  Copyright-­‐  This  confidential  report  is  the  Intellectual  property  of  the  WAITO  Foundation  all  rights  reserved.  No  part  of  this  publication  may  be  reproduced  or  diffused  under  any  form  or  by  any  means,  including  photocopies  and  recordings,  or  by  any  information  storage  or  recovery  system.    
  • 80.   80      November   2010   and   the   text   was   initialled   on   25   November,   after   11   rounds   of  negotiations.    The  EU  Member  States  were  kept  informed  of  the  negotiations  orally  and  in  writing  via  the  Councils  Trade  Policy  Committee.  The  rotating  EU  Presidency  led  the  negotiations  on   criminal   enforcement,   based   on   positions   unanimously   agreed   and   adopted   by   the  Council  in  COREPER46.  The  European  Parliament  has  also  been  kept  regularly  informed  on  developments  via  its  Committee  on  International  Trade  (INTA)  and  by  Commissioner  De   Gucht   in   three   plenary   debates   in   2010.   On   24   November   2010,   the   European  Parliament  adopted  a  Resolution  supporting  ACTA.    ACTA   contains   a   number   of   provisions   on   criminal   enforcement   that   fall   within   the  scope  of  Article  83,  paragraph  2  of  TFEU47.  Those  parts  of  the  agreement,  in  distinction  to   those   parts   falling   under   Article   207,   fall   under   the   area   of   shared   competences  (Article  2,  paragraph  2,  TFEU).  Where  a  matter  falls  under  shared  competence  either  the  European   Union   or   Member   States   may   legislate   and   adopt   legally   binding   acts.  Regarding   the   signature   and   conclusion   of   ACTA,   the   Commission   has   opted   not   to  propose   that   the   European   Union   exercise   its   potential   competence   in   the   area   of  criminal   enforcement   pursuant   to   Article   83,   paragraph   2,   TFEU.   The   Commission  considers   this   appropriate   because   it   has   never   been   the   intention,   as   regards   the  negotiation  of  ACTA,  to  modify  the  EU  acquis  or  to  harmonize  EU  legislation  as  regards  criminal   enforcement   of   intellectual   property   rights.   For   this   reason,   the   Commission  proposes   that   ACTA   be   signed   and   concluded   both   by   the   EU   and   by   all   the   Member  States.    The   Commissions   position   as   regards   ACTA   and   Article   83,   paragraph   2   of   TFEU   is  without   prejudice   to   the   position   of   the   Commission   on   the   future   EU   exercise   of   the  shared   competences   established   in   Article   83,   paragraph   2,   TFEU   as   regards   other  initiatives.    Thus   ACTA   aims   to   provide   a   new   legal   framework   that   States   can   adhere   to   on   a  voluntary   basis   and   to   create   it   own   governance   body   outside   already   existent  international   institutions   (e.g.   World   Intellectual   Property   Organization   or   the   United  Nations).    The  lack  of  transparency  in  negotiations,  denounced  by  certain  politicians,  was  met  with  strong   criticism,   indicating   the   greater   comprehensiveness   and   restrictiveness   of   the  provisions   of   new   agreement   in   comparison   with   those   established   in   TRIPS   (WTO  agreement  on  intellectual  property),  negotiated  at  the  end  of  the  GATT  Uruguay  Round  in   1994.   However,   certain   documents   were   leaked   in   May   2008   by   Wikileaks,   provoking  a   strong   reaction   among   civil   society   against   the   agreement,   demanding   a   democratic  negotiation   procedure.   An   official   version   was   therefore   not   published   until   20   April  2010,   with   another   version   published   on   6   October.   Although   initiated   in   2007,  negotiations  did  not  officially  begin  until  2008,  two  years  before  an  initial  text  was  made  public.                                                                                                                      46  EU  Committee  of  Permanent  Representatives  47  Treaty  on  the  Functioning  of  the  European  Union    Copyright-­‐  This  confidential  report  is  the  Intellectual  property  of  the  WAITO  Foundation  all  rights  reserved.  No  part  of  this  publication  may  be  reproduced  or  diffused  under  any  form  or  by  any  means,  including  photocopies  and  recordings,  or  by  any  information  storage  or  recovery  system.    
  • 81.   81      With  regards  to  the  reasons  for  not  pursuing  ACTA  through  the  G8,  the  WTO,  the  WIPO  or   other   existing   structures,   the   European   Commission   explains   that   this   kind   of   path  breaking  project  requires  great  flexibility  to  pursue  this  project  in  interested  countries,  while   membership   to   these   organizations   (G8,   WTO   and   WIPO)   is   simply   not   the   best  way  of  bringing  it  about48.        An   official   summary   of   the   key   elements   of   discussion,   published   in   November   2009,  indicates  that  the  aim  of  ACTA  is  to:      “ACTA  aims  to  build  on  existing  international  rules  in  the  area  of  intellectual  property,  in  particular  on  the  TRIPS  Agreement,  and  is  intended  to  address  a  number  of  enforcement  issues  where  participants  have  identified  that  an  international  legal  framework  does  not  exist  or  needs  to  be  strengthened.  49.”    The  European  Commission  indicates  that  it  aims  to  improve  international  standards  on  measures   against   large-­‐scale   infringements   of   intellectual   property   rights.   To   this   end,  ACTA  is  pursued  through  three  primary  components:     • international  cooperation;     • enforcement  practices;  and     • a  legal  framework  for  the  enforcement  of  intellectual  property  rights.      Officially,   ACTA   mainly   targets   emerging   economies,   “where   IPR   enforcement   could   be  improved,   such   as   China   or   Russia”,   and   who   would   sign   up   to   the   “global   pact”.   This  could   be   justified   in   France   by   the   fact   that   70%   of   counterfeit   products   seized   by  customs   come   from   China.   The   Special   301   Report,   published   in   2008   by   the   United  States  Trade  Representative  (USTR),  indicates  that,  “ACTA  will  bring  together  countries  that   recognize   the   critical   importance   of   strong   IPR   enforcement   for   a   prosperous  economy.   ACTA   is   envisioned   as   a   leadership   effort   by   countries   that   will   raise   the  international   standard   for   IPR   enforcement   to   address   today’s   challenges   of  counterfeiting   and   piracy.   It   will   build   upon   the   Administration’s   prior   bilateral   and  regional  cooperation  successes”50.    Articles   5   and   6   include   the   creation   of   an   “ACTA   Committee”   which   could   amend   the  agreement,   with   the   approval   of   the   participants.   A   public   or   judicial   report   is   not  required   to   make   amendments   to   text,   and   industry   representatives   will   be   able   to  provide  advisory  opinions  on  amendments.      Among   other   measures   and   for   anti-­‐counterfeiting   purposes,   the   text   would   establish  measures   to   block   the   circulation   of   generic   medicines.   Generic   medicines,   especially  those   produced   in   India,   are   recognized   in   certain   countries   and   approved   by   the   World  Health   Organization.   However,  they   remain   under   the   monopoly   of   patents   in   many  of  the   countries   that   they   are   transported   through.   In   view   of   strengthening   the   fight  against   counterfeiting,   ACTA   would   systematize   the   measures   to   block   generic                                                                                                                  48  “Fact   Sheet:   Anti-­‐Counterfeiting   Trade   Agreement”   [archive]   -­‐   European   Commission,   23   October   2007   (Updated  November  2008)  49  "The  Anti-­‐Counterfeiting  Trade  Agreement  –  Summary  of  Key  Elements  Under  Discussion”  (PDF)-­‐  Swiss  Intellectual  Property  Federation,  November  2009.    50  http://www.ustr.gov/sites/default/files/asset_upload_file553_14869.pdf  Copyright-­‐  This  confidential  report  is  the  Intellectual  property  of  the  WAITO  Foundation  all  rights  reserved.  No  part  of  this  publication  may  be  reproduced  or  diffused  under  any  form  or  by  any  means,  including  photocopies  and  recordings,  or  by  any  information  storage  or  recovery  system.    
  • 82.   82      medicines,   treated   as   counterfeits.   This   fear   is   based   on   recent   events,   such   as   the  blockage  of  antiretroviral  medicines,  bought  by  the  UNITAID  procurement  department,  carried  out  for  more  than  a  month  by  the  customs  authorities  in  Amsterdam  in  February  200951.      In   the   United   States,   the   agreement   was   treated   as   a   “sole   executive   agreement”  requiring  only  President  Barack  Obama’s  signature,  without  the  Senate’s  ratification.  At  the  end  of  October  2010,  75  law  professors  criticized  this  procedure  in  an  open  letter,  claiming   that   the   executive   was   overstepping   its   rights   since   the   “sole   executive  agreement”  is  limited  to  certain  domains  not  including  intellectual  property.      A   request   for   the   transfer   of   preparatory   documents,   submitted   by   James   Love,   the  director  of  Knowledge  Ecology  International  (a  non-­‐governmental  organization  founded  by   Ralph   Nader),   on   the   basis   of   the   FOIA   (Freedom   of   Information   Act),   was   refused   by  Washington   in   March   2009.   The   Obama   administration   stated   that   these   documents  were   classified   in   the   interest   of   “national   security”,   pursuant   to   Executive   Order  1259852.      Following  the  declarations  of  the  United  States  Trade  Representative,  the  socialist  MEP  Françoise  Castex  inquired  whether  ACTA  was  legally  biding,  since  article  1.2  grants  each  State   the   responsibility   of   transposing   the   agreement   to   domestic   law   according   to   its  own   procedure   and   the   United   States   government   had   stated   that   this   transposition  would   be   carried   out   in   a   flexible   manner.   Castex   highlighted   that   ACTA   article   2.2  contradicted  certain  provisions  in  the  Patient  Protection  and  Affordable  Care  Act  (law  of  2010  reforming  the  United  States  health  system),  which  established  a  limit  on  damages  in  cases  of  medicine  patent  infringements.  Did  this  mean,  asked  F.  Castex,  that  ACTA  was  only  legally  binding  for  Southern  States?    In   the   European   Parliament,   political   divergence   increased   the   difficulty   of  implementing  the  Agreement.  On  17  September  2008,  the  EPP  (European  People’s  Party,  right),  the  UEN  (Union  for  Europe  of  the  Nations)  and  two  members  of  ALDE  (Alliance  of  Liberals   and   Democrats   for   Europe),   including   Silvana   Kock-­‐Mehrin   (of   the   German  FDP)  submitted,  on  behalf  of  ALDE,  a  draft  resolution  on  European  priorities  for  2009,  which   “invites   the   Commission   to   conclude   the   ACTA   (Anti-­‐Counterfeiting   Trade  Agreement)  as  soon  as  possible”.    On   18   December   2008,   the   European   Parliament   adopted,   by   309   votes   to   232,   the  resolution   presented   by   the   Green   Party,   inviting   it   to   make   the   preparatory   documents  public.    On  10  March  2010,  the  European  Parliament  adopted,  by  633  votes  to  13,  a  resolution  endorsed   by   five   of   the   most   important   political   groups,   urging   the   European  Commission   and   the   Council   of   Europe   to   publish   the   documents   of   the   ACTA  negotiations.  The  Parliament  threatened  to  bring  an  action  before  the  European  Court  of  Justice  if  the  European  Commission  did  not  respect  the  Lisbon  treaty,  which  requires  the  European  Parliament  to  be  kept  informed  at  all  stages  of  negotiations.                                                                                                                      51  “UNITAID  statement  on  Dutch  confiscation  of  medicines  shipment”,  2009.  Consulted  on  21  March  2010.    52  James   Love   (director   of   Knowledge   Ecology   International,   Obama   Administration   Rules   Texts   of   New   IPR  Agreement  are  State  Secrets,  Huffington  Post,  12  mars  2009.  Copyright-­‐  This  confidential  report  is  the  Intellectual  property  of  the  WAITO  Foundation  all  rights  reserved.  No  part  of  this  publication  may  be  reproduced  or  diffused  under  any  form  or  by  any  means,  including  photocopies  and  recordings,  or  by  any  information  storage  or  recovery  system.    
  • 83.   83      In  France,  Europe  Ecology  opposed  ACTA.      On   9   September   2010,   the   European   Parliament   adopted   “written   declaration   12”   on  ACTA,   after   this   obtained   the   369   signatures   required   for   its   adoption.   Submitted   by  MEPs  Françoise  Castex  (S&D),  Alexander  Alvaro  (ALDE),  Stavros  Lambrinidis  (S&D)  and  Zuzana   Roithová   (EPP),   this   text   requests   that   the   Commission   show   greater  transparency   by   releasing   all   the   documents   relating   to   the   negotiations.   According   to  the  declaration,  the  agreement  must  not  “force  limitations  upon  judicial  due  process  or  weaken   fundamental   rights”   and   should   “not   indirectly   impose   harmonization   of   EU  copyright,   patent   or   trademark   law,   and   that   the   principle   of   subsidiarity   should   be  respected”.   It   also   highlights   that   “economic   and   innovation   risks   must   be   evaluated  prior  to  introducing  criminal  sanctions  where  civil  measures  are  already  in  place”.    The  declaration  also  considers  that  technical  intermediaries  “should  not  bear  liability  for  the  data  they  transmit  or  host  (…)  to  an  extent  that  would  necessitate  prior  surveillance  or  filtering  of  such  data”.      In   June   2010,   India   and   China,   which   are   not   involved   in   the   negotiations,   described  ACTA   as   “TRIPS-­‐plus”   measures,   arguing   that   the   draft   agreement   went   beyond   the  TRIPS  agreements,  which  were  being  negotiated  through  the  WTO.  Concern  that  ACTA  could   disrupt   trade   was   also   expressed   within   the   WTO   TRIPS   Council   and   was  reportedly  backed  by  “the  bulk  of  the  WTO’s  153  members”.      Different   national   and   private   interests   made   this   process   complex   and   tedious,  threatening  to  make  it  impracticable  or  ill  adapted  in  the  long  term.    ACTA  is  therefore  one  of  the  many  measures  used  by  the  various  trade  representatives  of   the   United   States,   the   EU,   Japan   and   other   partisans   of   a   strict   enforcement   of  intellectual  property  rights,  thereby  forgetting  the  prime  victim:  the  consumer.      Similar  agreements  where  examined  by  the  World  Customs  Organization  in  2008,  under  SECURE.   Certain   bilateral   free   trade   agreements   between   the   United   States,   the  European  Union  and  third  parties  also  contain  similar  provisions.    i) The  WCO  SECURE  programme    The   negotiation   process   of   SECURE   Standards   is   an   initiative   to   promote   TRIPS-­‐plus-­‐plus  standards  on  intellectual  property  enforcement  by  the  WCO  and  assist  developing  countries  in  addressing  emerging  global  challenges  in  intellectual  property  enforcement  initiatives.      Although   the   proponents   of   SECURE   had   adopted   a   fast-­‐track   approach   for   its   speedy  conclusion,  effective  coordination  among  developing  countries  foiled  attempts  to  adopt  the   SECURE   draft   at   the   June   2008   WCO   Council   and   led   to   the   suspension   of   the  SECURE  working  group  at  the  WCO  Policy  Commission  in  Argentina  in  December  2008.  This   struggle   provides   a   good   opportunity   for   in-­‐depth   thinking   on   the   whole  negotiation  process  and  to  find  forward  thinking  plans  in  view  of  future  challenges  and  struggles,  in  the  interest  of  long-­‐term  sustainable  development  in  developing  countries.    Copyright-­‐  This  confidential  report  is  the  Intellectual  property  of  the  WAITO  Foundation  all  rights  reserved.  No  part  of  this  publication  may  be  reproduced  or  diffused  under  any  form  or  by  any  means,  including  photocopies  and  recordings,  or  by  any  information  storage  or  recovery  system.    
  • 84.   84      This   approach   was   particularly   commendable   due   to   the   highly   positive   response   to   the  WCO  initiative  from  African  States,  particularly  affected  by  counterfeiting-­‐crime©.    The   World   Customs   Organizations,   which,   in   2008,   had   173   member   customs  administrations,   launched   an   ambitious   action   plan   to   assist   countries   wishing   to  strengthen   their   anti-­‐counterfeiting   and   piracy   measures.   To   this   end,   the   WCO  developed  SECURE  (Standards  Employed  by  Customs  for  Uniform  Rights  Enforcement).  This   instrument   included   WCO   legislation   on   intellectual   property   rights   (IPC),   risk  management  directives  to  strengthen  the  effectiveness  of  controls,  a  diagnosis  on  IPR,  a  WCO   e-­‐learning   module   on   IPR,   proposals   to   reinforce   cooperation   with   the   private  sector,  work  methods  adapted  to  the  specific  nature  of  anti-­‐counterfeiting  activities,  and  the  use  of  the  customs  anti-­‐counterfeiting  network  (CEN)  and  its  communication  tools.  By  25  April  2008,  various  African  countries  had  indicated  their  wish  to  participate  in  the  SECURE   programme,   these   included   Angola,   Botswana,   Burkina   Faso,   Burundi,   Cape  Verde,   Côte   d’Ivoire,   Ethiopia,   Ghana,   Madagascar,   Malawi,   Maurice,   Niger,   Nigeria,  Central  African  Republic,  Senegal,  Togo,  Zimbabwe.  The  WCO  also  planned  to  publish  an  annual   statistical   report   to   document   the   main   trends   and   an   instrument   to   diagnose  members’  needs,  and  to  provide  specific  training.  The  WCO  also  carried  out  specific  anti-­‐counterfeiting   and   piracy   operations   with   the   customs   authorities   of   various   African  countries.   Known   as   “Vice   GRIPs”,   the   last   operation   was   launched   on   2   June   2008,   in  Egypt,   Morocco,   Tunisia,   Ghana,   Nigeria   and   Senegal.   According   to   the   WCO   press  release,   the   aim   was   to   test   the   enforcement   of   SECURE   on   the   ground,   in   terms   of  targeting  and  risk  assessment.  This  series  of  operations  had  enabled  the  interception  of  several   tonnes   of   goods,   amounting   to   more   than   1.4   million   items.   It   should   be   noted  that,   in   many   cases,   it   was   not   possible   to   seize   these   counterfeit   goods   for   lack   of  appropriate  legal  grounds  in  the  legislations  of  the  countries  concerned.    E  -­‐  MAPPING  DANGEROUS  COUNTERFEIT  TRADE  AND  ITS  CONTROL    a)  China    Today,   the   triads   are   key   players   both   in   Asia’s   informal   economy   and   in   all   other   major  continents.   These   groups   can   be   compared   to   the   Italian   mafia.   They   are   involved   in  racketing,   prostitution   or   the   counterfeit   trade.   They   are   becoming   increasingly  specialized   in   human   trafficking,   which   is   one   of   the   most   profitable   branches   of  criminal  activity.    Poor  segments  of  the  Chinese  population  seeking  to  improve  their  lot,  give  themselves  up   to   smuggling   networks   controlled   by   the   triads.   They   pay   considerable   sums   and  often  work  for  long  periods  in  underground  workshops  set  up  in  host  countries.  This  is  a  modern   form   of   slavery   that   has   been   associated,   for   a   number   of   years,   to   the  manufacture  and  assembly  of  counterfeit  products  in  market  areas.  The  triads  are  also  behind   the   trafficking   of   drugs   from   the   Golden   Triangle.   This   region   spanning   Laos,  Thailand  and  Burma,  every  year  produces  half  of  the  world’s  opium  and  its  derivatives,  the   most   important   of   which   is   cocaine.   All   these   activities   are   now   carried   out   on   a  global   scale.   The   triads   operate   through   the   Chinese   Diaspora,   which,   with   60   million  people,   is   the   largest   in   the   world.   A   quarter   of   a   million   of   this   number   are   triad  members.      Copyright-­‐  This  confidential  report  is  the  Intellectual  property  of  the  WAITO  Foundation  all  rights  reserved.  No  part  of  this  publication  may  be  reproduced  or  diffused  under  any  form  or  by  any  means,  including  photocopies  and  recordings,  or  by  any  information  storage  or  recovery  system.    
  • 85.   85      Operating  mostly  from  Asia,  the  triads  have  contacts  in  North  America  and  Europe.  The  members,  established  in  “Chinatowns”,  become  the  local  links  for  these  activities  as  part  of   the   Tongs.   These   public   organizations   are   mutual   aid   communities   that   welcome   new  arrivals   and   help   them   settle   in.   Some   of   them   serve   as   a   cover   for   money   laundering  centres.      With   the   exception   of   one   triad,   they   are   all   established   on   the   fringes   of   the   People’s  Republic  of  China,  mainly  in  Hong  Kong.  The  handover  of  Hong  Kong  to  China  in  1997  caused   concern   among   certain   triad   leaders.   However,   the   communist   authorities  quickly  calmed  these  fears.  The  Chinese  government  shows  a  strange  level  of  indulgence  towards  the  triads.      In   reality,   it   was   quick   on   the   uptake   as   to   the   benefits   to   be   had.   These   extremely  wealthy  groups  reinvest  a  large  part  of  their  laundered  capital  back  into  China.  Thus  in  1995,   Tao   Si,   then   Chinese   Minister   of   Public   Security,   declared   that   “triad   members   are  not  all  gangsters.  If  they  are  good  patriots,  if  they  ensure  the  prosperity  of  Hong  Kong,  we   must   respect   them”.   He   even   declared   that   the   “Chinese   government   is   glad   to   be  able  to  unite  itself  with  them”.  The  arrests  of  various  triad  members  in  2004  did  little  to  cover  up  the  close  ties  that  have  developed  between  the  Chinese  authorities  and  these  secret  societies.    China   is   currently   one   of   the   most   important   counterfeit   producers   in   the   world.  Traditionally   known   for   its   illegal   production   of   luxury   goods,   various   Chinese   regions  are  seeing  the  mass  industrialization  of  the  counterfeiting  of  medicines,  food  products,  toys  and  spare  car  and  plane  parts.  In  addition  to  the  economic  damage,  these  practices  constitute   a   real   threat   to   the   health   and   safety   of   populations,   both   in   China   and   in  export   countries.   For   a   number   of   years,   the   Chinese   government   has   adopted   anti-­‐counterfeiting   measures   to   counter   criticism   from   countries   affected   by   it,   but   also  because   it   has   realized   the   threat   that   counterfeiting   poses   to   its   own   economy.  According  to  an  article  published  in  2004  in  the  French  magazine  l’Expansion,  “China  is  one   of   the   primary   victims   of   counterfeiting…   97%   of   disputes   are   Sino-­‐Chinese”,   as  reported   by   a   European   diplomat,   specialized   in   intellectual   property,   and   quoted   by  AFP.   These   Chinese   statistics   indicate   that   counterfeiting   affecting   foreign   companies  represents  less  than  10.5%  of  the  cases  discovered.  Counterfeiting  does  not  only  affect  foreign   luxury   brands,   but   also   well-­‐known   Chinese   brands,   medicines   and   the  inventions   of   small   firms.   The   Chinese   Deputy   Prime   Minister   bemoaned   the   fact   that  “99%   of   Chinese   companies   have   never   requested   a   patent   or   a   copyright.   Only   40%  have  a  trademark”.    From   21   to   24   May   2008,   the   Public   Security   teams   of   a   city   in   the   South   of   China,  directly   monitored   and   assisted   by   a   high-­‐ranking   official   of   the   Ministry   of   Public  Security   of   Beijing,   mobilized   more   than   a   hundred   police   officers   in   an   operation   to  dismantle   a   criminal   network.   After   various   weeks   of   painstaking   investigation,   phone  tapping   and   infiltrating   the   network,   simultaneous   raids   were   organized   on   seven  different   factories.   74   people   (referred   to   as   “persons   in   charge”)   were   arrested   and  placed  under  police  custody,  9  were  remanded  and  placed  in  custody,  and  2  underwent  court   investigation.   All   the   factories   were   closed   down   and   placed   under   permanent  police   surveillance.   Thousands   of   pieces   of   documentary   evidence   were   seized,  catalogued   and   filed.   The   matter   was   referred   to   the   authorities   in   Hong   Kong,   from  Copyright-­‐  This  confidential  report  is  the  Intellectual  property  of  the  WAITO  Foundation  all  rights  reserved.  No  part  of  this  publication  may  be  reproduced  or  diffused  under  any  form  or  by  any  means,  including  photocopies  and  recordings,  or  by  any  information  storage  or  recovery  system.    
  • 86.   86      where  some  of  the  network  leaders  came,  and  they  collaborated  with  their  continental  counterparts.   At   the   end   of   May,   the   case   was   transferred   to   the   Procuratorate   to   be  referred  to  the  criminal  court  competent  to  hear,  among  others,  various  citizens  of  the  former   British   colony.   The   case,   raised   to   a   status   of   “national   priority”   by   the   Public  Security  was  qualified  by  the  Procuratorate  as  “major  and  important”.  There  would  have  been   nothing   extraordinary   if   the   criminals   in   this   case   had   been   luxury   watch  counterfeiters,  with  little  to  fear  from  criminal  procedures  until  recently.      China   is   becoming   aware   of   the   modern   phenomenon   of   counterfeiting;   its   penal   code  defines  it  and  penalizes  it;  its  judicial  personnel  are  tackling  it.        A  criminal  phenomenon          In   2001,   the   annual   turnover   of   Chinese   counterfeiting   was   evaluated   at   16   billion   US  dollars  (evaluation  provided  by  the  Chinese  authorities).  Counterfeiting  represented  at  least   10%   of   national   industrial   production   and   an   annual   loss   (sales   foregone)   of  various   tens   of   billions   of   dollars   (USD)   for   foreign   companies.   In   February   2000,   the  Chinese  government  recognized  having  lost  2.4  trillion  RMB  through  counterfeiting.  In  2007,   a   marketing   study   sponsored   by   the   American   industrial   sector   estimated   the  turnover   of   counterfeiting   (including   cigarettes)   at   150   billion   dollars.   This   market   is  believed  to  operate  30%  of  Chinese  industry  and  to  employ  at  least  5  million  people.    The   market   thrives   on   all   kinds   of   products:   watches,   handbags,   perfumes,   alcohols,  beers,   food,   soaps,   shampoo,   razor   blades,   toiletries,   televisions,   cars,   medicines,   spare  plane   parts,   furniture,   cigarettes,   DVDs,   etc.   In   Canton,   99%   of   SUZUKI   two-­‐wheel  vehicles  had  reportedly  never  seen  the  Japanese  manufacturer.      Counterfeiting  is  carried  out  on  mass,  it  is  diversified  and,  above  all,  highly  profitable.  Its  undeniable   importance   for   (or   against)   Chinese   economy,   its   profitability   and   the   low  risks   it   so   far   entailed,   have   attracted   organized   crime,   and   the   Chinese   triads   in  particular.   Counterfeiting   professionals   have   now   replaced   amateur   opportunists  producing   small   batches   of   “Alain   Belon”   socks   alongside   their   day   job,   joint   venture  partners  who  kept  their  production  chains  operating  for  an  extra  hour  to  produce  better  products  under  their  own  brand  and  municipal  factories  that  produced  their  local  “coca-­‐  cola”-­‐  its  only  similarity  with  the  American  drink  being  that  it  was  black  and  fizzy.    These  professionals  sometimes  employ  several  thousands  of  workers  per  factory  and  make  the  most  of  China’s  size  to  spread  their  production  sites  hundreds  of  kilometres  away  from  each   other.   They   communicate   via   encrypted   satellite   phone,   use   the   Chinese   and  international  smuggling  networks,  manufacture  products  of  similar  quality  to  that  of  the  products   they   imitate,   buy   their   protection   from   the   local   authorities   who   are   often  totally  corrupt  and  use  counterfeiting  to  launder  income  from  other  criminal  activities  (illegal  immigration,  drugs,  prostitution,  etc.).      In   this   way,   perfume   counterfeiters   will   first   have   three   different   factories   produce   a  faithful  copy  of  the  original  bottle,  each  manufacturing  only  one  part  of  the  bottle.  Only  in  certain  cases  do  these  elements,  taken  separately,  constitute  a  violation  of  intellectual  property  rights  (model  in  this  case).  A  fourth  factory  will  be  responsible  for  assembling  the   bottle   and   filling   it.   As   the   operation   has   become   more   “dangerous”   for  counterfeiters,   a   “just   in   time”   strategy   is   used,   whereby   thousands   of   workers,   in   a  Copyright-­‐  This  confidential  report  is  the  Intellectual  property  of  the  WAITO  Foundation  all  rights  reserved.  No  part  of  this  publication  may  be  reproduced  or  diffused  under  any  form  or  by  any  means,  including  photocopies  and  recordings,  or  by  any  information  storage  or  recovery  system.    
  • 87.   87      factory  whose  declared  activity  is  perfectly  legal,  can  assemble,  fill  with  “perfume”  and  package  several  thousand  bottles  in  one  day,  the  separate  parts  having  only  arrived  that  same   morning.   The   assembly   plant   holds   no   stocks   and   the   anti-­‐counterfeiting   agents  will   find   no   evidence   of   the   counterfeiter’s   crime.   And   were   these   agents   to   be  sufficiently  quick,  they  would  only  be  able  to  seize  that  day’s  production:  bottles  with  an  identical   shape,   but   with   Chinese   brand   names,   legally   registered   by   the   counterfeiter.  They  would  also  find  that  the  scented  liquid  inside  the  bottles   has  nothing  in  common  with   the   refined   fragrances   sold   by   the   counterfeiting   victim.   In   Russia   or   in   Eastern  Europe   the   Chinese   brand   name   will   be   replaced   with   the   brand   that   the   consumer  associates  with  the  bottles;  these  will  be  emptied  of  their  Chinese  liquid  and  refilled  with  a  closer  imitation  of  the  target  perfume.      Its  industrial  workforce,  its  low  salaries  and  its  organization  has  turned  China  into  the  most   powerful   counterfeit   producer   in   the   world.   Although   they   are   developing   a  modern   and   effective   legal   system,   the   Chinese   authorities   are   aware   that   traditional  anti-­‐counterfeiting   measures,   however   effective,   are   no   longer   adapted   to   the   current  situation;  the  Administrations  for  Industry  and  Commerce  (in  the  case  of  trademarks),  those   in   charge   of   the   protection   of   patents,   designs,   models,   copyright,   unfair  competition   or   product   quality   control,   the   customs   authority,   etc.,   cannot   fight   alone  against   these   criminal   organizations.   These   organizations   know   that   in   the   worst-­‐case  scenario  they  are  only  liable  to  civil  penalties.    Criminal-­‐law  measures    On  1  October  1997  the  new  criminal  code  voted  by  the  Popular  Assembly  on  14  March  of   the   same   year   came   into   force.   This   reform   had   become   necessary   in   view   of   an  obsolete   criminal   act   of   1979,   which   was   no   longer   adapted   to   the   new   social   and  political  situation  in  China.  It  did  not  take  market  economy  and  foreign  investment  into  account   and,   above   all,   had   been   followed   by   twenty   years   of   texts   (acts,   regulations,  decrees)   that   had   added   various   criminal   provisions   to   the   interpretations   of   the  Supreme   Court   and   the   Supreme   Procuratorate.   In   1997,   approximately   130   civil,  economic   or   administrative   provisions   carried   criminal   liability.   A   comprehensive  overhaul  was  therefore  ordered.      The  new  Chinese  criminal  code  came  into  force  on  1  October  1997  and  was  revised  on  28   February   2009   by   amendment   VII,   and   the   Chinese   code   of   criminal   procedure  published   on   17   March   1996   came   into   force   on   1   January   1997.   The   general   provisions  of   these   codes   specify   that   their   purpose   is   to   ensure   the   precise   establishment   of   the  facts   of   a   case,   the   correct   application   of   the   law,   the   punishment   of   criminals   and   the  protection   of   innocent   persons   in   view   of   protecting   the   socialist   judicial   system   and  guaranteeing  the  protection  of  the  human  rights,  property  rights,  democratic  and  other  rights   of   its   citizens,   ensure   economic   and   social   security   and   promote   the   socialist  cause.    Articles   213   to   220   and   255   presents   the   criminal   liability   regime   established   for  counterfeiters.   The   non-­‐authorized   use   of   a   registered   trademark,   the   sale   of   products  counterfeiting  a  trademark  or  a  patent,  the  non-­‐authorized  use  of  a  patented  invention  and   copyright   and   trade   secret   infringement   are   expressly   defined   as   constituting   a  criminal   offense.   These   can   incur   fines   or   prison   sentences   of   up   to   seven   years.  Depending  on  the  severity  of  the  case  and  the  charges,  the  scale  of  penalties  is  of  0  to  3  Copyright-­‐  This  confidential  report  is  the  Intellectual  property  of  the  WAITO  Foundation  all  rights  reserved.  No  part  of  this  publication  may  be  reproduced  or  diffused  under  any  form  or  by  any  means,  including  photocopies  and  recordings,  or  by  any  information  storage  or  recovery  system.    
  • 88.   88      years,   or   3   to   7   years.   More   generally,   articles   140   and   following   of   the   criminal   code  prohibit  the  production  and  the  sale  of  imitated  products  and  the  sale  and  production  of  inferior   quality   products.   These   can   incur   the   criminal   liability   of   legal   persons,   in  addition  to  that  of  individuals  (article  220  of  the  Criminal  Code).  The  criminal  provisions  are   therefore   enable   the   Procuratorate   to   hear   proceedings.   However,   the  implementation  of  these  texts  is  not  without  difficulty.      Chinese   criminal   law   applies   to   offenses   committed   in   China   and   to   certain   offenses  committed   abroad.   The   scope   of   its   extraterritorial   competence   is   determined   by   the  nationality   of   the   offender   and   the   nature   of   the   offense.   In   Chinese   law   the   elements  constituting   an   offense   are   the   same   as   in   French   law.   The   intentional   element   has   a  great   importance   in   Chinese   criminal   law   as   it   determines   the   classification   of   the  offense.   Instead   of   the   tripartite   classification   that   exists   in   French   law,   Chinese   law  separates   offenses   into   two   categories;   firstly,   intentional   offenses,   and   secondly,   non-­‐intentional   offenses.   Minor   offenses   equivalent   to   infringement   in   French   law,   are  qualified  as  “administrative”  offenses  and  are  not  included  under  the  courts’  jurisdiction.    Difficulties  in  the  implementation  of  criminal  law    The  implementation  of  the  provision  can  be  problematic  since  they  mostly  only  apply  to  “significant”  of  “highly  significant”  sales  or  income,  or  “severe”  or  “exceptionally  severe  circumstances”.  Moreover,  cases  may  be  required  to  satisfy  cumulative  conditions  such  as   the   sale   of   counterfeit   products   in   full   awareness   of   the   intellectual   property   rights  infringed,  at  high  prices.      In   the   absence   of   further   texts   or   interpretative   jurisprudence,   the   Supreme  Procuratorate  and  the  Supreme  Court  have  proceeded,  via  recommendations,  to  specify  the  implementation  criteria  of  these  legal  provisions.  This  is  the  case  of  article  140  of  the  criminal   code,   establishing   the   minimum   amounts   for   its   application,   and   for   which   a  recommendation   in   1993   established   the   threshold   for   trademark   counterfeiting   at  50,000  RMB.  A  new  recommendation,  which  came  into  force  on  10  April  2001,  amended  the   criteria   for   the   enforcement   of   article   140   (the   amount   of   50,000   RMB   was  increased)   and,   by   extension,   widened   the   scope   of   article   140;   this   has   simplified   the  prosecution  of  accomplices  and  persons  who  finance  counterfeiting.    Confronted   with   highly   organized   counterfeiters,   aware   of   all   the   loopholes   in   judicial  procedures,   companies   that   have   fallen   victims   to   counterfeiting   must   concentrate   their  efforts  on  the  court  investigation,  which  will  provide  the  elements  enabling  the  referral  of  the  case  to  Public  Security.  Since  the  reform  of  the  code  of  criminal  procedure  of  17  March  1996  (in  force  since  1  January  1997),  a   criminal  complaint  cannot  be  filed  with  the   Procuratorate.   The   complainant   must   proceed   via   private   prosecution,   this   being  rarely   possible   due   to   a   private   company’s   limited   capacity   to   provide   sufficient  evidence   to   justify   the   criminal   conviction   of   the   defendants.   Otherwise,   the   case   must  be   referred   to   the   police.   The   police   will   only   accept   to   study   the   claim   and,   where  applicable,  to  open  a  preliminary  enquiry  if  “initial  evidence”  is  provided;  this  includes  samples  of  the  counterfeits,  names  and  addresses  of  production  points,  names  (photos)  of   persons   in   charge,   the   approximate   number   of   workers,   estimates   of   monthly  production,  export  capacity,  potential  danger  for  consumers,  existence  of  an  organized  Copyright-­‐  This  confidential  report  is  the  Intellectual  property  of  the  WAITO  Foundation  all  rights  reserved.  No  part  of  this  publication  may  be  reproduced  or  diffused  under  any  form  or  by  any  means,  including  photocopies  and  recordings,  or  by  any  information  storage  or  recovery  system.    
  • 89.   89      network,  involvement  of  foreign  investors,  etc.,  and,  of  course,  the  prior  demonstration  of  the  plaintiff’s  competence  and  interest  in  filing  the  complaint.      The   plaintiff’s   task   is   complex   because   Public   Security   does   not   always   apply   criteria  regarding  the  severity  of  cases  consistently  throughout  China  (which  is  not  necessarily  to   the   disadvantage   of   the   plaintiff).   Some   Public   Security   teams   apply   texts   extremely  strictly,   considering   that   the   abovementioned   criteria   only   apply   to   trademark  counterfeiters  or  to  producers  of  fake  or  poor-­‐quality  products.  Therefore,  these  teams  consider   that   the   criteria   do   not   apply   to   other   rights   infringements   (copyright,   patents,  etc.)   and   evaluate   the   severity   or   importance   of   the   case   at   its   sole   discretion.   Other  teams   consider   that   a   counterfeit   product   is   always   of   inferior   quality   and   apply   the  criteria   of   the   recommendation   of   9   April   2001,   or   they   consider   that   they   should   at  least  refer  to  this,  in  order  to  avoid  intervening  in  minor  cases,  whereby  the  objectivity  of  the  criteria  protects  them  from  being  suspected  of  laxity.      In   most   Chinese   provinces,   a   single   Public   Security   department   (known   as   “Public  Security   Service”   or   “General   Service”)   is   competent   for   counterfeiting.   But   in   some  provinces   like   Guangdong,   a   pioneer   in   this   area,   counterfeiting   cases   can   be   referred   to  two   Public   Security   services:   the   service   in   charge   of   “Public   Security”,   which   mainly  (although   not   exclusively)   deals   with   cases   that   could   pose   a   potential   threat   to  consumers;   and   the   service   in   charge   of   “Economic   Crime”   which   addresses   cases   of  counterfeiting   (trademarks,   patents,   copyrights,   etc.)   that   do   not   include   other   crimes.  The   scope   of   each   of   these   services   has   yet   to   be   clearly   defined;   each   service   will  therefore   be   able   to   intervene   in   all   cases   of   counterfeiting,   highlighting,   where  applicable,  the  factor  which  best  accounts  for  its  intervention:  threat  to  the  consumer  or  other   offenses   (smuggling,   corruption,   etc.)   in   the   case   of   “Public   Security”   and   the  infringement  of  trademark  rights  or  patents  in  the  case  of  “Economic  Crime”,  etc.      Law  enforcement    The  panels  specializing  in  intellectual  property,  currently  attached  to  the  Supreme  Court  and  found  in  most  major  cities,  have  not  yet  dealt  with  enough  criminal  cases  (in  some  cases,   none   at   all).   The   few   sentences   issued   by   the   criminal   courts   mostly   concern  counterfeiting   cases   that   could   endanger   the   consumer,   and   only   incur   fines   without   a  prison  sentence.    Chinese   judges   in   the   Courts,   Procuratorate   and   Public   Security   department   are   to   be  applauded  for  reviewing  the  laws  that  China  has  adopted  over  the  last  twenty  years.  It  should   be   remembered   that   the   involvement   of   criminal   organizations   in   the   Chinese  counterfeiting  industry  makes  any  anti-­‐counterfeiting  action  difficult  or  even  dangerous.    Companies  that  fall  victims  to  counterfeiting,  among  which  Chinese  companies  hold  the  first  position,  must  be  aware  of  these  difficulties  and  assist  the  Public  Security  as  much  as   possible   in   collecting   evidence.   The   Chinese   police   are   confronted   with   a   large  criminal  phenomenon  and  concentrate  its  efforts,  due  to  limited  resources,  on  cases  that  it   considers   to   be   “major   and   important”.   Their   credibility   depends   on   the   way   they  handle   these   new   missions.   This   is   why   Public   Security   refuses   to   hear   cases   where   it  considers  that  the  evidence  provided  by  the  plaintiff  is  insufficient.      Copyright-­‐  This  confidential  report  is  the  Intellectual  property  of  the  WAITO  Foundation  all  rights  reserved.  No  part  of  this  publication  may  be  reproduced  or  diffused  under  any  form  or  by  any  means,  including  photocopies  and  recordings,  or  by  any  information  storage  or  recovery  system.    
  • 90.   90      Despite   considerable   legislative   progress   and   the   various   actions   that   the   Chinese  authorities   carry   out   on   the   ground   (publicity   campaigns,   training   courses   for   judges,  the   establishment   of   specialized   court   panels,   anti-­‐corruption   operations,   etc.),   in  practice,   foreign   companies   have   great   difficulties   in   protecting   their   rights.   The  corruption  of  the  civil  service  by  local  mafias,  supported  by  the  triads,  does  nothing  to  help  their  efforts.  Moreover,  the  economic  significance  of  the  counterfeiting  business  in  certain  regions  (8  to  10%  of  China’s  GDP)  explains  the  lack  of  enthusiasm  of  certain  local  bodies  (administration,  police,  etc.),  which  as  well  as  having  other  priorities,  also  want  to  preserve  the  local  economy.    b) Japan    In  Japan,  counterfeit  products  still  mainly  come  from  Asia  (China,  Korea,  Thailand)  and  concern   luxury   products   such   as   bags,   clothes   and   their   accessories,   watches,   shoes,   etc.  The   crave   among   Japanese   consumers   for   major   brands   means   that   this   market  continues  to  be  attractive  despite  the  considerable  measures  taken  by  such  brands  and  both  local  and  foreign  IPR  protection  organizations.    However,  Japan  is  also  starting  to  see  the  effects  of  counterfeiting-­‐crime©,  especially  in  the  pharmaceutical  and  food  sector.  Kikkoman  soya  sauce  is  a  prime  example  of  this.    While   there   has   been   little   change   in   the   brands   targeted   by   counterfeiting   (we  continually   come   up   against   the   same   names:   Louis   Vuitton,   Cartier,   Christian   Dior,  Chanel,  Hermès,  Gucci,  Rolex,  Dunhill),  the  same  cannot  be  said  for  distribution  methods,  which   adjust   themselves   both   to   changes   in   distribution   itself,   and   to   increasing  precision  in  the  monitoring  of  counterfeit  sales.    Today,   online   sales   have   outdistanced   street   sales   and   parallel   import   distribution  networks.   On   the   Internet   itself,   distribution   methods   have   multiplied   and   changed   to  keep   up   with   the   development   of   control   methods.   First,   they   used   online   auctioning  sites,  then  virtual  shopping  malls  and  now  auctioning  platforms  that  can  be  accessed  via  mobile  phone.  The  products  sold  on  these  sites  are  imported  by  postal  order  and  cargo,  but  also  “privately”  by  persons  claiming  to  be  tourists.      Control  mechanisms  have  systematically  countered  these  changes  in  an  attempt  to  dry  out  counterfeiting  sources  through  an  increase  in  border  controls  and  exerting  pressure  on  the  networks  themselves  by  strengthening  measures  applied  to  internet  sites.  Strengthened  border  controls    Control   has   been   stepped-­‐up   in   recent   years   by   various   customs   initiatives.   In   2006  these  focused  on  achieving  a  better  control  of  commercial  imports  disguised  as  personal  imports.   To   this   end,   customs   send   a   notification   to   recipients   of   suspect   packages  asking  them  to  confirm  that  the  product  is  exclusively  intended  for  personal  use.  At  first,  this   worked   well,   as   recipients   were   reluctant   to   reply   to   this   kind   of   customs  notification.  However,  it  became  ineffective  when  recipients  realized  that  there  was  no  risk  in  replying.  In  2006,  customs  improved  its  counterfeiting  control  system  by  sending  photographs   of   suspect   products   to   brand   right   holders   via   email   (instead   of   them  having  to  go  and  examine  the  products  item  by  item).  This  measure  is  however  limited  Copyright-­‐  This  confidential  report  is  the  Intellectual  property  of  the  WAITO  Foundation  all  rights  reserved.  No  part  of  this  publication  may  be  reproduced  or  diffused  under  any  form  or  by  any  means,  including  photocopies  and  recordings,  or  by  any  information  storage  or  recovery  system.    
  • 91.   91      to   cases   involving   no   more   than   ten   suspect   products,   thus   considerably   reducing   its  effectiveness.  In  2008,  another  improvement  extended  customs’  competence  to  goods  in  transit.      Customs  officers  have  the  power  to  suspend  the  importation  of  any  product  that  appears,  at  first  sight,  to  infringe  the  law.  Therefore,  a  major  effort  has  been  on  training.  Firstly,  customs  officers  are  assisted  by  intellectual  property  specialists,  sent  to  strategic  border  controls.   These   specialists   work   for   a   national   centre   responsible   for   collecting  information,  developing  strategies  and  coordinating  the  action  of  the  specialists  on  the  ground.   Secondly,   courses   and   meetings   are   organized   with   the   brand   right   holders   to  familiarise  the  officers  with  specific  brands.      Despite   these   improvements,   the   Japanese   customs   continues   to   face   significant  difficulties.   The   fragmentation   of   shipments   into   regular   postal   mail   and   so-­‐called  “private”   imports,   limit   the   effectiveness   of   controls.   These   shipments   are   rarely  sanctioned,   due   to   the   difficulty   in   establishing   proof   of   the   intentionality   of   the   offense,  a  prerequisite  for  filing  criminal  proceedings.        Control  measures  refocused  on  the  Internet    The   Internet   is   now   the   easiest,   and   therefore   the   most   common,   way   of   selling  counterfeit   products   on   the   Japanese   market.   Among   its   other   advantages   for  counterfeiters,   the   Internet   enables   certain   information   to   be   kept   secret   during  transactions   and   the   use   cross-­‐border   networks,   with   operators   located   outside   Japan  and  Japanese  jurisdiction.      The  most  affected  websites  include  the  Yahoo,  Rakuten  and  Bidders  online  auction  sites,  virtual  shopping  malls  such  as  Rakuten  Ichiba,  Yahoo!  Shopping  and  Bidders  Shopping  and  finally  the  mobile  phone  auction  sites  (Moba-­‐Oku,  Garu-­‐Oku,  Guru-­‐Guru).  It  is  also  important   to   distinguish   between   the   various   categories   of   counterfeiting   that   exist:  “blatant”   counterfeits   that   anyone   can   identify   and   describe   with   words   such   as  “counterfeit”   or   “imitation”;   “clearly   visible”   counterfeits   that   experts   can   easily  recognize   by   observing   the   physical   and   commercial   characteristics   of   a   product;   and  finally,     “non-­‐visible”   counterfeits   that   cannot   be   recognized   visually   but   need   to  undergo   a   physical   examination   to   determine   their   authenticity.   This   last   category  includes  cases  where  publicity  images  display  genuine  products  but  the  vendor,  in  fact,  sells   and   ships   counterfeits.   Online   auction   sites   contain   many   clearly   visible  counterfeits   (more   than   90%   for   certain   brands),   which   are   therefore   easy   to   crack  down   on.   On   the   other   hand,   less   counterfeit   luxury   products   are   sold   on   virtual  shopping   malls   for   the   simple   reason   that   there   are   stricter   conditions   for   opening   a  virtual   store   (depending   on   the   sites:   copy   of   tax   return,   certificate   of   residence   or   of  registration  to  the  register  of  commerce).  Auctions  via  mobile  phone  deal  with  a  great  number   of   counterfeit   products   but   their   sale   volumes   are   lower   than   those   of   online  sites.      What  are  the  measures  used  to  combat  these  online  sales?      Copyright-­‐  This  confidential  report  is  the  Intellectual  property  of  the  WAITO  Foundation  all  rights  reserved.  No  part  of  this  publication  may  be  reproduced  or  diffused  under  any  form  or  by  any  means,  including  photocopies  and  recordings,  or  by  any  information  storage  or  recovery  system.    
  • 92.   92      Existing  but  insufficient  legal  measures    On   a   strictly   legal   level,   legislative   changes   have   been   made   but   the   current   measures  continue  to  be  inadequate  in  preventing  the  online  sale  of  counterfeit  products.  The  legal  framework  in  Japan  is  an  interesting  combination  of  laws  and  regulations  that  have  not  yet  given  rise  to  much  interpretation  in  Japanese  courts.      Firstly,  we  will  consider  Japanese  trademark  law.  Its  article  2  does  not  specifically  refer  to   the   online   sale   of   counterfeit   products,   but   a   legal   opinion   issued   by   the   Japanese  Patent  Office  in  February  2005  upheld  the  application  of  this  article  to  online  auctions.  The  situation  is  therefore  clear  with  regard  to  trademarks.      Regarding   e-­‐commerce   specifically,   the   basic   law   is   the   act   on   telecommunication  services   of   30   November   2001,   supplemented   by   a   2005   directive   imposing   certain  control  obligations  on  website  operators.    In  addition,  there  is  a  specific  law  on  business  transactions  placed  under  the  control  of  METI  (Ministry  of  the  Economy,  Trade  and  Industry),  requiring  sellers  on  online  auction  sites   to   provide   their   personal   information   (name,   address   and   telephone   number)   on  their   auction   page   if   they   sell   more   than   twenty   products   classified   as   “brand   products”.  However,   the   accuracy   of   this   information   is   not   always   strictly   monitored   and   in  practice  therefore,  the  law  is  not  widely  enforced.      Note   should   also   be   taken   of   the   role   played   by   the   Council   for   the   Protection   of  Intellectual  Property  on  the  Internet  (CPPI).  This  council  is  a  private  forum  that  brings  together  the  main  auction  platform  companies  (Yahoo!  Japan,  Rakuten,  the  Dena  group),  major  Japanese  brands  (Honda  and  Panasonic)  and  professional  associations.  Japanese  government  representatives  (Ministry  of  the  Economy,  Trade  and  Industry,  the  Ministry  of   Culture,   the   Ministry   of   Internal   Affairs   and   Communications,   the   Secretariat   of  Intellectual   Property   Strategy   Headquarters,   the   National   Police   Agency)   also   attend  these  meetings  as  observers.      In   its   directives,   the   Council   recognizes   that   right   holders   and   website   operators   must  cooperate   in   fighting   counterfeiting,   not   only   in   their   own   interest,   but   to   protect   the  interests  of  consumers.  These  same  directives  make  operators  responsible  for  drawing  up  voluntary  control  procedures  capable  of  dealing  with  the  volume  of  products  placed  on   auction   (volume   processed).   In   response,   for   example,   the   operator   Yahoo   has  developed  a  control  system  that  works  all  year  round,  day  and  night  and  employs  more  than  200  people.      Cooperation  between  websites  and  trademark  owners    Aware   of   the   need   to   cooperate   with   trademark   owners,   and   following   CPPI  recommendation,  the  most  important  Japanese  auction  sites  (Yahoo!  Japan,  Rakuten  and  DeNA)   agreed   to   negotiate   with   certain   trademark   holders   to   establish   agreements   on  systematic  control  procedures.      These  agreements  establish  three  stages  in  the  control  of  suspect  product   listings.  First,  the  websites  themselves  or  their  technical  subcontractor  platforms  immediately  delete  Copyright-­‐  This  confidential  report  is  the  Intellectual  property  of  the  WAITO  Foundation  all  rights  reserved.  No  part  of  this  publication  may  be  reproduced  or  diffused  under  any  form  or  by  any  means,  including  photocopies  and  recordings,  or  by  any  information  storage  or  recovery  system.    
  • 93.   93      blatant   counterfeit   products.   This   refers   to   entries   containing   words   such   as  “counterfeit”,   “fake”,   or   “copy”.   Next,   the   internal   team   of   the   Union   des   Fabricants  (Unifab)   in   Tokyo   removes   any   contentious   product   from   the   list   on   behalf   of   its  members  if  an  opinion  is  requested  from  the  website  operator,  the  right  holders  or  the  police.      The   third   stage   requires   the   trademark   holder   to   monitor   the   remaining   products   on  auction  that  have  not  been  identified  or  deleted  in  the  previous  stages.  One  of  the  main  difficulties   is   identifying   repeat   offenders.   The   lack   of   a   strict   vendor   identity   control  means   that   vendors   can   use   various   different   pseudonyms.   As   a   measure   against   this,  Yahoo  has  established  a  vendor  pre-­‐selection  system  to  verify  their  identity  by  sending  them  a  PIN  code  via  registered  mail.      Without  this  PIN  code,  auction  sellers  will  not  be  able  to  activate  their  accounts  or  sell  products.  This  system  also  prevents  vendors  outside  Japan  from  selling  illegal  products  via  these  sites  to  Japanese  clients.  Progress  in  the  surveillance  of  these  traditional  sites  has,  however,  resulted  in  the  transfer  of  sales  to  sites  that  are  harder  to  control,  and  in  particular,  those  using  mobile  phones.  The  reduced  screen  size  and  the  fact  that  certain  sites   (e.g.   Powa   Oku)   do   not   provide   computer   access   to   their   databases   represent  considerable  obstacles.  Despite  the  efforts  of  certain  sites,  like  Garu  Oku,  which  provides  trademark  owners  with  special  access  to  their  databases,  the  images  posted  by  vendors  are  generally  of  poor  quality  or  non-­‐existent,  and  do  not  allow  for  reliable  authentication.    Another   difficulty   is   controlling   so-­‐called   “non-­‐visible”   counterfeits   because,   in   these  cases,  there  is  no  way  of  identifying  them.  The  only  option,  in  these  cases,  is  to  purchase  control   samples,   which   are   by   nature   unpredictable.   In   these   cases,   sales   can   only   be  limited   by   obliging   vendors   to   establish   the   origin   of   the   product   before   listing   it   online,  but   for   both   technical   and   legal   reasons,   there   is   still   a   long   way   to   go   before   this   can  happen.      It  is  therefore  no  small  paradox  to  see  that  in  an  increasingly  controlled  society  where  technology   is   constantly   improving,  illegal  activities  such  as  counterfeiting  can  continue  to   flourish,   either   through   or   in   spite   of   this   same   technology.   Major   brands   in   Japan  have  therefore  not  yet  seen  the  last  of  counterfeiting.      c) The  example  of  Russia  and  European  control  mechanisms  The  example  of  Russia  (c.f.  Chapter  (d)-­‐  Russia  and  its  mafias  pg.  33)    European  control  mechanisms    This   section   provides   a   brief   overview   of   those   international   agreements   and  conventions   on   intellectual   property   rights   to   which   European   countries   and   the  European  Union  are  party.          Most   European   countries   are   among   the   contracting   parties   of   the   first   document  regulating   Intellectual   Property   at   an   international   level:   the   Paris   Convention   for   the  Copyright-­‐  This  confidential  report  is  the  Intellectual  property  of  the  WAITO  Foundation  all  rights  reserved.  No  part  of  this  publication  may  be  reproduced  or  diffused  under  any  form  or  by  any  means,  including  photocopies  and  recordings,  or  by  any  information  storage  or  recovery  system.    
  • 94.   94      Protection   of   Industrial   Property53,   signed   in   1883.   The   Convention   covers   industrial  property   in   general,   including   patents,   marks,   industrial   designs,   utility   models,   trade  names,   geographical   indications   and   protection   against   unfair   competition.   The  Convention   has   been   ratified   by   Albania,   Armenia,   Austria,   Belarus,   Belgium,   Bosnia   and  Herzegovina,   Bulgaria,   Croatia,   the   Czech   Republic,   Denmark,   Estonia,   Finland,   France,  Germany,   Greece,   Hungary,   Ireland,   Italy,   Latvia,   Liechtenstein,   Lithuania,   Luxemburg,  Malta,   the   Netherlands,   Norway,   Poland,   Portugal,   the   Republic   of   Moldova,   Romania,  Serbia,  Slovakia,  Slovenia,  Spain,  Sweden,  Switzerland,  the  former  Yugoslav  Republic  of  Macedonia,  Turkey,  Ukraine  and  the  United  Kingdom54.        Several   European   countries   are   also   part   of   the   Madrid   Agreement   concerning   the  International   Registration   of   Marks;   these   include   Albania,   Armenia,   Austria,   Belarus,  Belgium,  Bosnia  and  Herzegovina,  Bulgaria,  Croatia,  Cyprus,  the  Czech  Republic,  France,  Germany,   Hungary,   Italy,   Latvia,   Liechtenstein,   Luxemburg,   the   Netherlands,   Poland,  Portugal,   the   Republic   of   Moldova,   Romania,   Serbia,   Slovakia,   Slovenia,   Spain,  Switzerland,   and   Ukraine55.   The   agreement   was   adopted   in   1891   and   it   entered   into  force   in   1892;   then,   following   several   revisions,   it   was   amended   in   1979.   In   1989,   the  Madrid   Protocol   was   also   adopted   and   the   European   Union   joined   in   2004,   “thus  including   the   possibility   to   use   Community   Trademarks   as   a   basis   for   international  trademark   applications   and   for   the   Community   Trademarks   to   be   applied   for   via  international  routes.”56:      The   European   Union,   together   with   the   large   majority   of   European   countries57,   is   a  contracting  party  of  the  World  Trade  Organization  (WTO)  Agreement  on  Trade  Related  Aspects  of  Intellectual  Property  Rights  (TRIPS),  negotiated  during  the  Uruguay  Round  of  the   General   Agreement   on   Tariffs   and   Trade   (GATT)   in   1986   –   1994.   “The   Agreement  introduced,   for   the   first   time,   intellectual   property   rules   into   the   multilateral   trading  system   while   fixing   the   minimum   standards   for   many   forms   of   intellectual   property  regulation.”58      Switzerland,  Bulgaria,  Romania,  Denmark,  Latvia,  the  Republic  of  Moldova,  France,  Spain,  Poland,   Estonia,   Italy,   Liechtenstein,   Serbia,   Slovakia,   and   Ukraine   also   ratified   the  Singapore   Treaty   on   the   Law   of   Trademarks,   signed   in   March   2006.   The   Treaty  establishes   common   standards   for   procedural   aspects   of   trademark   registration   and  licensing.                                                                                                                            53  The  full  text  of  the  Paris  Convention  is  available  at  the  following  link:  www.wipo.int/treaties/en/ip/paris/      54  The  full  list  of  the  Paris  Convention  contracting  parties  is  available  here:  http://www.wipo.int/treaties/en/ShowResults.jsp?lang=en&treaty_id=2  55  The  full  list  of  the  Madrid  Agreement  contracting  parties  is  available  here:  http://www.wipo.int/treaties/en/ShowResults.jsp?country_id=ALL&start_year=ANY&end_year=ANY&search_what=C&treaty_id=3  56  UNICRI,   Transcrime,   GACG,   2010,   Anti   Brand   Counterfeiting   in   the   EU:   Report   on   International   and   National  Existing  Standards,  pag  .39  57  The  full  list  of  the  TRIPS  Agreement  contracting  parties  is  available  here:  http://en.wikipedia.org/wiki/List_of_parties_to_international_copyright_agreements  58  UNICRI,  Transcrime,  GACG,  Anti  Brand  Counterfeiting  cit.,  pg.  39  Copyright-­‐  This  confidential  report  is  the  Intellectual  property  of  the  WAITO  Foundation  all  rights  reserved.  No  part  of  this  publication  may  be  reproduced  or  diffused  under  any  form  or  by  any  means,  including  photocopies  and  recordings,  or  by  any  information  storage  or  recovery  system.    
  • 95.   95      The  European  legislative  framework        “Activities   of   the   European   Community   (EC)   in   the   field   of   intellectual   property   have  mainly  focussed  on  the  harmonization  of  national  substantive  law  and  the  creation  of  a  unitary   right   at   Community   level.”59  To   this   end,   the   EC   has   produced   Green   papers,  regulations  and  directives  concerning  the  protection  of  intellectual  property  rights  and  actions  against  the  production  and  trade  of  counterfeit  goods.  Among  these,  it  is  worth  mentioning:     • The   1998   EU   Green   Paper 60  with   the   primary   objectives   of   assessing   the   economic   impact   of   counterfeiting   and   piracy   in   the   Single   Market,   reviewing   the   existing  legislation  in  the  field,  and  examining  the  need  for  Community  action  in   this  sphere.     • Regulation   1383/200361,   which   was   the   first   document   addressing   the   issue   of   how   EU   customs   should   deal   with   counterfeit   goods   in   view   of   a   progressive   harmonization  of  the  customs  procedures  and  systems  of  EU  Member  States.     • Regulation   1891/200462,   implementing   the   previous   regulation   in   respect   of   customs  measures  against  goods  infringing  IP  rights.         • Directive   48/2004 63 ,   defining   measures,   procedures   and   remedies   for   the   enforcement   of   Intellectual   Property   Rights   in   EU   countries.   The   Directive   sets   minimum  standards  for  Member  States,  which  are  free  to  apply  stricter  measures   and  sanctions  to  prosecute  offenders.  In  particular,  article  2,  on  the  observance  of   intellectual  property  rights  (IPR),  of  Declaration  2005/295/CE64.    Furthermore,   in   view   of   supplementing   Directive   2004/48/EC,   the   Commission   of   the  European   Communities   put   forward   a   directive   in   July   2008   aimed   at   ensuring   the  enforcement   of   intellectual   property   rights   through   the   strengthening   of   the   criminal  law   framework65.   The   proposal   has   been   criticized   by   a   variety   of   stakeholders   claiming  that  according  to  the  EC  Treaties,  criminal  measures  and  criminal  law  in  general  should  not   fall   within   the   jurisdiction   of   the   European   Union.   Nevertheless,   a   revised   version   of  the  Directive  is  currently  being  discussed.  Border  measures      In  general,  there  are  three  main  procedures:     • ex  officio  measures,   subject   to   sufficient   grounds   to   suspect   that   goods   infringe   intellectual  property  rights,  where  customs  officials  may  detain  suspected  goods   prior  to  informing  the  registered  trademark  owner;                                                                                                                    59  UNICRI,  Transcrime,  GACG,  previously  cited  work,  pag  .42  60  The   full   text   of   the   EU   Green   Paper   is   available   here:   europa.eu/documentation/official-­‐docs/green-­‐papers/index_en.htm    61The  full  text  is  available  at:  http://eur-­‐lex.europa.eu/LexUriServ/LexUriServ.do?uri=CELEX:32003R1383:EN:HTML    62  The  full  text  is  available  at:  http://eur-­‐lex.europa.eu/LexUriServ/LexUriServ.do?uri=CELEX:32004R1891:EN:HTML    63  The  so  called  “Enforcement  Directive”  64  More  details  concerning  Declaration  2005/295/CE  are  available  here:  http://eurlex.europa.eu/LexUriServ/LexUriServ.do?uri=CELEX:32005C0295:FR:NOT    65  More   details   concerning   the   proposed   Directive   on   criminal   measures   are   available   here:   http://eur-­‐lex.europa.eu/LexUriServ/LexUriServ.do?uri=CELEX:52005PC0276%2801%29:EN:NOT      Copyright-­‐  This  confidential  report  is  the  Intellectual  property  of  the  WAITO  Foundation  all  rights  reserved.  No  part  of  this  publication  may  be  reproduced  or  diffused  under  any  form  or  by  any  means,  including  photocopies  and  recordings,  or  by  any  information  storage  or  recovery  system.    
  • 96.   96       • requests  for  action,  which  allow  trademark  owners  to  file  an  intervention  request   with  the  competent  authorities;   • simplified   procedures,   usually   applied   in   cases   where   the   infringement   of   intellectual   property   rights   is   obvious,   and   can   result   in   the   destruction   of   the   infringing   goods   once   the   trademark   owner   has   confirmed   the   goods   as   counterfeits.        Western  European  countries      In   Finland,   right   holders   may   request   the   intervention   of   Finnish   customs   to   stop   the  trafficking   of   goods   suspected   of   being   counterfeits   or   pirated.   A   special   feature   of  Finnish  rules  on  border  measures  is  that,  under  a  2005  amendment  to  the  Copyright  Act,  customs   may   seize   goods   infringing   copyright   even   if   the   goods   are   imported   or  exported  as  a  part  of  a  traveller’s  personal  baggage.    Under  both  French  and  EC  legislation,  French  customs  authorities  may  seize  goods  that  appear   to   infringe   intellectual   property   rights,   enabling   IP   right   holders   to   prevent  infringing  goods  from  being  imported  illegally  into  France.  In  France  two  different  types  of   seizure   exist:   the   ‘effective   seizure’   -­‐   whereby   a   court   authorizes   law   enforcement  officials   to   seize   infringing   goods,   and   the   ‘descriptive   seizure’   -­‐   authorizing   law  enforcement   officials   to   inspect   the   seller’s   premises   to   collect   evidence   of   the  infringement.        In  Italy,  customs  is  authorized  to  destroy  counterfeit  goods  even  without  an  order  from  the   competent   judicial   authority.   Italian   laws   provide   for   two   procedures:   ex   officio  actions   and   actions   on   the   request   of   the   injured   party.   A   simplified   procedure   is   also  applied,  although  Italian  law  does  not  provide  for  agreements  between  the  right  holder  and   the   potential   infringer.   However,   if   customs   officials   identify   goods   suspected   of  infringing   intellectual   property   rights,   they   may   confiscate   the   goods   following   ex  officio  procedures  or  by  order  of  the  competent  judge66.  Furthermore,  it  should  be  noted  that  customs  do  not  carry  out  inspections  in  cases  of  parallel  imports  or  overproduction.    In  the  Netherlands,  Dutch  legislation  establishes  three  different  customs  procedures:  ex  officio   measures,   requests   for   action   and   simplified   procedures.   Customs   authorities  acting  ex   officio  may  suspend,  release  or  withhold  goods  that  are  thought  to  infringe  an  intellectual   property   right.   According   to   Article   2.20   of   the   Benelux   Convention,   Dutch  customs   can   intervene,   not   only   in   cases   where   trademarks   are   identical   to   other  registered   trademarks,   but   also   where   there   it   is   thought   that   products   may   mislead  consumers  on  a  sound,  visual  or  conceptual  level67.    Eastern  European  countries    In  Latvia,  remedies  specific  to  certain  intellectual  property  rights  permit  right  holders  to  file   both   civil   and   criminal   proceedings.   Criminal   proceedings   are   preferable   if   the  infringement   is   blatant   and   serious,   while   civil   proceedings   are   advisable   if   the   right                                                                                                                  66  See  Finance  Act  2004  (law  dicember,  24,  2003,  no.  350  (G.U.  n.299  del  27/12/2003).  67  Vrins  O,  Schneider  M.,  2006,  Intellectual  property  rights  through  border  measures,  Oxford  University  Press,  p.797  Copyright-­‐  This  confidential  report  is  the  Intellectual  property  of  the  WAITO  Foundation  all  rights  reserved.  No  part  of  this  publication  may  be  reproduced  or  diffused  under  any  form  or  by  any  means,  including  photocopies  and  recordings,  or  by  any  information  storage  or  recovery  system.    
  • 97.   97      holder   wishes   to   obtain   a   decision   determining   the   probably   existence   of   an  infringement.    In   Lithuania,   the   legislation   provides   for   the   three   procedures   listed   above.   However,  note   should   be   taken   of   the   lack   of   administrative   remedies.   The   Administrative   Code  provides  for  administrative  liability  for  copyright  infringement  but  does  not  include  the  infringement  of  trademarks  and  other  intellectual  property  rights.    In  Poland,  aside  from  the  actions  listed  above,  officers  employed  at  the  Patent  and  Trade  Mark  Office  have  declared  that  approximately  80%  of  cases  where  a  trademark  holder  is  informed   by   Customs   of   a   suspected   violation,   result   in   private   agreements   between   the  right   holder   and   the   importer.   Such   agreements   usually   involve   the   destruction   of   the  counterfeit  goods  and  end  without  proceeding  to  examination  in  court68.    In   Romania,   the   simplified   procedure   may   lead   to   the   destruction   of   goods   seized   by  customs.  The  operation  is  carried  out  by  companies  approved  by  the  authorities,  at  the  expense   of   the   rightful   owner   of   the   trademark.   Since   such   measures   can   be   rather  expensive,   right   holders   usually   only   choose   this   procedure   if   there   is   a   significant  quantity  of  seized  goods  to  be  destroyed.    Civil  measures  in  Western  European  countries    In   Finland,   IPR   infringement   is   sanctioned   by   the   Civil   Code   of   Procedure,   which  provides   a   series   of   measures   against   intellectual   property   violations.   These   include  injunctive   relief   for   right   holders,   as   a   preliminary   measure;   the   payment   of   the   real  damages  suffered  by  the  right  holder;  financial  compensation  equivalent  to  the  licence  fee   that   the   offender   would   have   paid   had   the   use   of   the   mark   been   authorized;  confiscation,  delivery  or  destruction  of  the  infringing  goods  and  of  the  equipment  used  to  produce  them.            In   France,   IPR   holders   can   file   civil   proceedings   or   seek   pre-­‐trial   remedies,   such   as  interim  injunctions.  IPRs  holders  should  be  compensated  and  the  situation  prior  to  the  infringement   restored.   The   evaluation   of   damages   is   generally   evaluated   according   to  the  losses  suffered  and  to  the  profits  foregone  by  the  right  holders.        In  Germany,  the  legislative  framework  offers  protection  against  counterfeiting  under  the  Unfair   Competition   Act,   providing   requests   for   cessation,   compensation,   information  and  reimbursement  of  costs  generated  by  imitations  of  a  product’s  overall  appearance,  slogan  or  other  visible  features.  In  2008,  the  Markengesetz69  was  amended  to  meet  the  standards  of  Directive  2004/48.  The  most  relevant  amendment  to  the  Markengesetz  was  the   extension   of   the   right   to   information.   This   right   has   been   expanded   to   allow  trademark  holders  to  request  information  from  third  parties  involved  in  the  commercial  circuit,   regarding   the   origin   of   the   illicit   products,   their   distribution   channels   and   the  quantities   and   costs   of   the   infringing   goods.   Another   improvement   has   been   the  confirmation  of  the  right  to  disclose  and  access  relevant  documents,  even  if  the  infringer                                                                                                                  68  Barchanski  A.,  Zoszuk,  W.,  2007,  Effective  ways  to  combat  counterfeiting  in  Poland,  IP  Risk  Management  Review,  pg.  33-­‐34.  69  The  Markengesetz  provides  protection  for  trademarks,  trade  designation  and  appellation  of  geographical  origins.  Copyright-­‐  This  confidential  report  is  the  Intellectual  property  of  the  WAITO  Foundation  all  rights  reserved.  No  part  of  this  publication  may  be  reproduced  or  diffused  under  any  form  or  by  any  means,  including  photocopies  and  recordings,  or  by  any  information  storage  or  recovery  system.    
  • 98.   98      has   the   right   to   withhold   confidential   documents70.   Preliminary   measures   to   protect  right  holders,  including  the  use  of  cease  and  desist  orders,  are  also  available  in  Germany  and   they   are   fast   and   cost   effective   options.   Right   holders   can   also   obtain   corrective  measures  such  as  the  withdrawal  of  infringing  goods  from  the  market;  the  destruction  of  infringing   goods   and   machinery   used   for   their   production;   the   payment   of   damages   and  the  publication  of  the  court’s  decision.        In   Italy,   the   implementation   of   the   Enforcement   Directive   resulted   in   the   adoption   of  significant  amendments.    One  example  is  that  injunctions  can  be  issued  not  only  for  the  offender,  but  also  for  any  third  party  involved  in  the  criminal  act.  Moreover,  except  for  those   using   counterfeit   goods   to   personal   ends,   it   is   compulsory   to   return   counterfeit  goods  to  the  right  holder71,  who  can  also  claim  compensation  for  damages72.          In  Spain  act  L.  19/2006  transpose  Directive  2004/48/EC  into  the  law.  Right  holders  may  use   a   series   of   actions   to   obtain   the   cessation   of   the   infringing   activity;   the  implementation  of  counter  measures  to  prevent  future  infringements;  the  destruction  of  counterfeit   goods   and   their   packaging   and   the   donation   of   these   goods   to   charity;   the  handing  over  of  the  infringing  goods  or  compensation  of  their  equivalent  value;  and  the  publication  of  the  court’s  decision.  In  addition,  right  holders  may  also  claim  damages.  It  should  be  noted  that  the  law  provides  for  the  compensation  of  right  holders  for  direct  damages   and   entitles   them   to   claim   damages   for   prejudice   to   the   brand   image 73 .  However,   the   majority   of   Spanish   courts   only   grant   the   minimum   level   of   compensation  provided  by  the  law  (i.e.,  1%  of  the  offender’s  turnover)74.        In   the   Netherlands,   in   the   event   of   infringement   of   a   registered   trademark   there   are  different  procedures  available  to  right  holders.  In  urgent  cases  the  registered  trademark  owner  can  file  proceedings  to  obtain  an  interim  injunction,  which  consists  in  an  order  to  carry  out  or  cease  certain  actions,  or  to  hand  over  goods.  However,  this  procedure  does  not  provide  for  damages.  Pre-­‐trial  seizures75  can  also  be  used  together  with  provisional  measures,  such  as:  the  “seizure  of  the  evidence”  (art.1019b-­‐c);  a  detailed  report  of  the  findings;  the  right  to  information  on  the  origin  of  suspected  goods  and  their  distribution  channels.   It   should   be   noted   that   where   criminal   organizations   are   involved,   criminal  law  may  apply  instead  of  civil  law.  Where  an  infringement  is  established,  right  holders  can  obtain  a  series  of  measures,  including  corrective  measures;  the  payment  of  damages;  the  payment  of  legal  costs  and  the  publication  of  the  judicial  decision.      In  the  United  Kingdom,  various   procedures   are  available  to  right  holders  wishing  to  file  proceedings   for   counterfeiting.   Right   holders   may   issue   a   cease   and   desist   letter,  whereby  they  may  also  file  a  claim  for  the  delivery  or  destruction  of  the  infringing  goods.  The   payment   of   damages   can   also   be   requested   as   well   as   recognition   of   gains   and/or  reimbursement   of   legal   costs.   Pre-­‐judgment   measures   include   the   request   by   the   right  holders   that   “search   and   seizure   measures”   be   carried   out.   Urgent   cases   can   be  expedited  via  “an  interim  injunction”.  It  is  also  possible  to  file  proceedings  on  the  merits.                                                                                                                    70  Grabienski,  K.,  Weber,  N.,  2009,  World  Trade  Mark  Review:  Germany,  pag.  90-­‐91.  71  Italian  IP  Code,  Art.124,  co.  1  and  2  and  Art.  128    72  Italian  IP  Code  Art.  126    73  UNICRI,  Transcrime,  GACG,  previously  cited  work,  pag.199  74  Miranda  De  Sousa  J.,  Sirimarco  A.,  2009,  World  Trademark  Review:  Spain,  pag.  109  75  This   is   an   ex  parte  procedure   used   as   a   protective   measure   and   it   obliges   the   party   who   obtained   the   seizure   to  introduce  the  procedure  on  the  merits  within  a  fixed  time.  Copyright-­‐  This  confidential  report  is  the  Intellectual  property  of  the  WAITO  Foundation  all  rights  reserved.  No  part  of  this  publication  may  be  reproduced  or  diffused  under  any  form  or  by  any  means,  including  photocopies  and  recordings,  or  by  any  information  storage  or  recovery  system.    
  • 99.   99      Right   holders   may   obtain   a   permanent   injunction;   the   withdrawal   of   infringing   goods;  the  delivery  of  goods;  an  order  to  erase,  remove  or  obliterate  signs  from  the  infringing  goods  or  even  the  destruction  thereof;  the  payment  of  an  account  of  gains  or  damages  and  the  payment  of  legal  costs76.            Civil  measures  in  Eastern  European  countries    In   Hungary   right   holders   may   have   recourse   to   provisional/preliminary   measures   as  well  as  proceedings  on  the  merits.  With  regard  to  proceedings  on  the  merits,  the  judge  may   order   precautionary   measures,   access   to   the   alleged   infringer’s   bank   accounts,  financial  and/or  commercial  documents  and  the  lodging  of  security.  In  proceedings  on  the  merits,  courts  may  issue  a  cease  and  desist  order;  order  the  infringer  to  submit  an  apology;  and  order  the  disclosure  of  relevant  information  regarding  the  identity  of  those  involved   in   manufacturing   and   distributing   the   infringing   goods,   in   their   commercial  channels   and   distributing   networks.   The   judicial   authorities   may   also   order   corrective  measures   such   as   the   seizure   of   counterfeit   goods,   their   transfer   to   a   specific   person;  their   removal   from   the   market,   the   destruction   of   the   infringing   goods   and   of   their  packaging,  the  payment  of  damages;  and  the  publication  of  the  final  court  ruling.        Under   Latvian   Trademark   Law,   trademark   holders   may   file   a   complaint   with   the  Regional   Court   of   Riga   for   the   unlawful   use   of   their   trademark.   If   the   infringement   is  established,   the   court   may   order   the   cessation   of   the   unlawful   use   of   the   trademark,   the  payment  of  damages  and  legal  costs.    In  Poland,   courts  are  governed  by  the  general  law  of  tort  and  civil  procedures.  Art.  296  of  the  Industrial  Property  Law   stipulates  that  in  cases  of  IPR  infringement  “Any  person  whose  trademark  right  has  been  infringed  or  any  person  legally  entitled  to  do  so,  may  demand   that   the   infringing   party   cease   the   infringement,   surrender   any   illegal   profits  and,  in  cases  of  infringement  due  to  error,  to  redress  the  damage.”      In   the   Czech   Republic,   both   the   right   holders   and   the   agents   of   the   IPR   holders   or  owners   have   recourse   to   a   series   of   actions77.   In   particular,   these   persons   may   claim   the  right  to  information,  the  adoption  of  corrective  measures  (such  as  the  removal  and  the  destruction   of   infringing   goods),   the   payment   of   damages   and   the   publication   of   the  court  ruling.      Since   its   accession   to   the   EU,   anti-­‐counterfeiting   legislation   in   Romania   has   become  stricter.   The   Government   Ordinance   on   Enforcing   Intellectual   Property   Rights   (no.  100/2005)  implements  Directive  2004/48/EC  and  provides  right  holders  with  number  of   remedies.   Among   the   preliminary   measures   available   where   there   is   a   suspicion   of  infringement  of  an  intellectual  property  right,  the  complainant  may  request  an  interim  injunction.  The  court  may  also  order  the  provision  of  a  guarantee  of  the  compensation  of  the   right   holder.   Where   the   injured   party   can   provide   evidence   that   the   recovery   of  damages   is   impossible,   the   court   may   freeze   the   bank   accounts   and   seize   goods   in   the                                                                                                                  76  UNICRI,  Transcrime,  GACG,  previously  cited  work,  pag.  p.212  77  Under  Subsection  2,  the  licensee  may  enforce  the  right  only  upon  the  consent  of  the  right  holder  or  the  proprietor.  The  consent  shall  not  be  required  when  the  right  holder  fails  to  initiate  a  claim  within  one  month  from  the  receipt  of  the   licensee’s   notification   of   the   infringement.   Section   2   of   Act   no   221/2006   which   implements   the   EU   Directive  2004/48,  Enforcement  of  Industrial  Property  Rights  Act  Copyright-­‐  This  confidential  report  is  the  Intellectual  property  of  the  WAITO  Foundation  all  rights  reserved.  No  part  of  this  publication  may  be  reproduced  or  diffused  under  any  form  or  by  any  means,  including  photocopies  and  recordings,  or  by  any  information  storage  or  recovery  system.    
  • 100.   100      possession  of  the  defendant.  Regarding  proceedings  on  the  merit,  once  the  infringement  is   established,   right   holders   can   obtain   a   cease   and   desist   order;   the   removal   of   the  counterfeit  goods  from  the  market  and/or  from  distribution  channels;  the  destruction  of  the   counterfeit   goods   and   of   the   materials   used   to   manufacture   such   products;   the  payment  of  damages  and  the  publication  of  the  court  ruling  as  a  partial  or  integral  part  of  the  ordinance.    Criminal  prosecution  in  Western  European  countries    The  Finnish  Criminal  Code  provides  for  criminal-­‐law  measures  and  legal  proceedings  for  cases  involving  counterfeiting.  The  intentional  infringement  of  trademarks,  patents  and  design  rights  is  punishable  by  a  fine.  The  penalty  may  also  include  a  prison  sentence  of  up   to   two   years   or   a   fine   if   the   infringement   causes   substantial   economic   damage.  Persons   who,   intentionally   or   out   of   gross   negligence,   infringe   copyright   or   related  rights   or   import   copies   that   they   knew   or   should   have   known   constituted   an  infringement,  will  be  liable  to  a  fine.  Legal  entities  may  incur  a  corporate  fine  of  €850  to  €850,000.   In   Finland,   even   though   criminal   proceedings   in   the   area   of   intellectual  property  rights  are  not  rare,  civil  actions  are  more  common.      In   France,   the   infringement   of   intellectual   property   rights   can   be   classed   as   a   criminal  offence.  Criminal  measures  for  counterfeiting  are  not  included  in  the  Criminal  Code  but  in  the  French  Intellectual  Property  Code.  In  particular,  offenders  may  face  imprisonment  for  up  to  three  years  and  a  maximum  fine  of  €  300,000.  If  the  infringer  is  a  legal  entity,  the   fine   may   reach   €   750,000.   Sanctions   are   doubled   for   repeat   offences,   while,   if   the  involvement  of  organized  crime  can  be  proven,  imprisonment  may  reach  up  to  ten  years  and  fines  may  be  increased  to  €  500,000.    In  Germany,  the  maximum  penalty  is  a  fine  and  five  year’s  imprisonment  for  commercial  infringement  acts  on  a  commercial  scale78.  The  maximum  fine  is  of  €10.00079.      According   to   Art.   473   of   the   Italian   Criminal   Code,   “any   person   aware   of   the   existence   of  an  industrial  property  right  who  counterfeits  or  alters  national  or  foreign  trademarks,  or  brands   associated   with   industrial   products;   or   any   person   who,   without   resorting   to  counterfeiting  or  alterations,  uses  counterfeit  or  altered  trademarks  or  brands,  is  liable  to  a  prison  sentence  of  six  months  to  three  years  and  a  fine  of  €2,500  to  €25,000”.  Any  person  who  “for  profit,  imports  industrial  goods  bearing  national  or  foreign  counterfeit  or  altered  trademarks  and/or  brands  within  the  national  borders”  is  liable  to  one  to  four  years’  imprisonment  and  a  fine  of  €3,500  to  €35,00080.  Furthermore,  the  sale,  offer  for  sale,  and   circulation   of  counterfeit   goods   for   profit   are   punishable   with   up  to  two  years’  imprisonment  and  a  fine  of  up  to  €20,000.  Furthermore  the  Code  of  Administrative  Law  provides   a   fine   of   at   least   €100   for   consumers   who   have   purchased   a   counterfeit  product,  when  aware  of  its  counterfeit  nature81.                                                                                                                        78  See  Section  143  79  In  case  of  violation  of  Section  145,  Subsection  2  80  See  Art.  374  81  See  decree  no.  35  of  14th  March  2005  which  amended  Art.  1  paragraph  7  of  the  Code  of  Administrative  Law  Copyright-­‐  This  confidential  report  is  the  Intellectual  property  of  the  WAITO  Foundation  all  rights  reserved.  No  part  of  this  publication  may  be  reproduced  or  diffused  under  any  form  or  by  any  means,  including  photocopies  and  recordings,  or  by  any  information  storage  or  recovery  system.    
  • 101.   101      The   Spanish   Criminal   Code   establishes   prison   terms   of   six   months   to   two   years   and   fine  for   cases   of   counterfeiting82  .   Cases   that   present   aggravating   circumstances83  carry   a  prison   term   of   one   to   four   years,   a   fine   and   disqualification   from   work   for   a   period   of  two  to  five  years.  In  2005  an  inter-­‐ministerial  Commission  was  created  with  the  task  of  promoting   the   implementation   of   precautionary   and   enforcement   measures   against  counterfeiting   and   piracy,   through   an   effective   collaboration   between   Spanish  administrative  bodies.  Unlike  in  Finland,  criminal  proceedings  seem  to  be  preferred  to  civil  ones  because  they  are  less  costly  and  take  less  time84.        In   The   Netherlands,   criminal   proceedings   are   considered   as   a   last   resort.   Among   the  legal   provisions   applied,   imprisonment   does   not   exceed   four   years   and   it   is   only   applied  when   an   infringement   is   committed   on   a   commercial   scale   or   if   the   crime   poses   a  collective   threat   for   persons   or   property.   In   other   cases,   the   term   of   imprisonment   is   up  to  one  year.  Fines  are  also  an  option;  in  particular,  if  the  offender  is  a  legal  entity  the  fine  may  go  up  to  €740,000.      In  the  United  Kingdom,  according  to  the  Trademarks  Act,  offenders  are  punishable  by  a  fine  and/or  imprisonment  for  up  to  ten  years85.            Criminal  prosecution  in  Eastern  European  countries    The  maximum  prison  term  applied  in  Hungary  is  of  three  years.  The  punishment  may  be  doubled   if   it   is   established   that   the   counterfeiter   has   intentionally   committed   a   criminal  act   in   connection   with   organized   crime86.   The   competent   authorities   may   order   the  confiscation   of   tools,   machinery   or   other   instruments   and   property   which:   (i)   have   been  used   or   were   intended   to   carry   out   the   criminal   offense;   (ii)   may   endanger   public   safety  or  are  considered  illegal;  (iii)  were  obtained  through  means  deriving  from  or  related  to  criminal   activities.   Once   the   infringing   goods   have   been   confiscated   and   all   the  counterfeit   marks   have   been   removed,   with   the   consent   of   the   trademark   owner,   the  goods   will   be   donated   to   charity.   Any   financial   gain   or   advantages   resulting   from   the  infringing  activities  must  be  reimbursed.  Any  seized  assets  shall  become  State  property.    In  Latvia,  sanctions  for  the  deliberate  unauthorized  use  of  registered  trademarks  include  prison  terms  not  exceeding  one  year;  custodial  arrest;  community  service;  and/or  a  fine,  with  or  without  confiscation  of  property.    The   Lithuanian   criminal   code   establishes   criminal   sanctions   for   the   illicit   use   of   a  trademark   causing   damage   or   violating   patent   and   design   rights.   Sentences   applied  depend  on  the  gravity  of  the  crime  and  may  amount  to  a  term  of  imprisonment  of  up  two  years.  After   negotiations   regarding   Romania’s   accession   to   the   EU,   a   specialized   department  was   created   to   combat   counterfeiting   and,   more   specifically,   to   prevent   intellectual  property  right  infringement.  If  the  infringement  jeopardizes  the  health  and/or  safety  of  consumers,   the   offender   is   liable   to   two   to   ten   years’   imprisonment   and   the   loss   of                                                                                                                  82  Crinminal  Code,  Art.  274  83  See  Art.  276  of  the  Criminal  Code  84  UNICRI,  Transcrime,  GACG,  previously  cited  work,  pag  .201  85  See  Section  92  of  the  Trademarks  Act  86  See  Section  98  of  the  Penal  Code,  Crimes  committed  as  an  activity  of  organized  crime.  Copyright-­‐  This  confidential  report  is  the  Intellectual  property  of  the  WAITO  Foundation  all  rights  reserved.  No  part  of  this  publication  may  be  reproduced  or  diffused  under  any  form  or  by  any  means,  including  photocopies  and  recordings,  or  by  any  information  storage  or  recovery  system.    
  • 102.   102      certain  rights.  In  Romania  the  State  is  though  to  suffer  much  damage  from  counterfeiting  activities   and,   for   this   reason,   proceedings   are   conducted   by   state   institutions.  Consequently,   criminal   proceedings   tend   to   be   slower   than   civil   ones   and,   on   average,  investigations  take  three  to  six  months.      The   Criminal   Code   in   Slovakia,   establishes   harsher   penalties   for   IPR   infringements87.  Offenders  that  earn  a  significant  profit  or  carry  out  their  infringing  activities  on  a  large  scale,   may   face   six   months   to   five   years’   imprisonment,   a   fine   or   the   seizure   of   the  infringing  goods.    Recent  cases     2010:   In   Romania,   over   78,000   glass   containers   marked   with   various   brand   names   including   Dolce  &  Gabbana,  Clinique  and  Gucci  were  seized,  on  suspicion  of  counterfeiting.   Source:  Business  Action  to  Stop  Counterfeiting  And  Piracy  (BASCAP)  Digest  15-­‐28  February   2010       2010:   In   the   UK,   £180,000   worth   of   counterfeit   medicines   were   seized   in   a   joint   operation   between  police  and  the  UK  Medicine  and  Healthcare  products  Regulatory  Agency  (MHRA).   Source:  BASCAP  Digest  1-­‐14  March  2010     2009:   As   of   1   April   2009   and   in   just   four   months,   the   UK   Border   Agency   (UKBA)   seized   £1,646,173   of   counterfeit   goods.   The   fakes   seized   by   UKBA   officers   included   England   football   shirts,   GHD   hair-­‐straighteners,   designer   watches,   handbags,   shoes   and   cigarettes.   A   spokesman   said   that   the   popular   hair-­‐straighteners   and   cigarettes   were   made   with   potentially  dangerous  materials.   Source:  The  Independent  (Press  association)     2009:  Italian  police  seized  counterfeit  goods  from  China  worth  more  than  €20  million  ($28   million)   during   raids   on   17   warehouses   in   Rome.   Italys   financial   police   say   18   Chinese   citizens   are   being   investigated   for   importing   counterfeit   goods   including   clothes,   electronic   goods  and  some  150,000  childrens  toys.   Source:  Associated  Press    The  involvement  of  organized  crime  in  Central,  Eastern  and  Western  Europe      The   globalization   of   markets   and   information   technology   progress   have   boosted  demand   for   both   legal   and   illegal   goods.   In   terms   of   illegal   goods   and   services,   the  increase   in   demand   means   new   profit   opportunities   for   organized   crime   and   the  creation   of   a   series   of   alliances   among   various   organizations   to   better   manage  production  and  distribution  networks.      Alliances   among   criminal   organizations,   often   involved   in   simultaneously   trafficking  several   illicit   products,   enable   counterfeit   goods   to   be   transported   along   the   same   trade  routes  used  for  drug  and  arms  trafficking.    The   Italian   Camorra,   which   often   collaborates   with   criminal   groups   from   China   or  Eastern  Europe,  plays  a  fundamental  role  in  the  production  and  trafficking  of  counterfeit                                                                                                                  87  See  Section  152  of  the  Criminal  Code    Copyright-­‐  This  confidential  report  is  the  Intellectual  property  of  the  WAITO  Foundation  all  rights  reserved.  No  part  of  this  publication  may  be  reproduced  or  diffused  under  any  form  or  by  any  means,  including  photocopies  and  recordings,  or  by  any  information  storage  or  recovery  system.    
  • 103.   103      goods.   Albanian   and   Turkish   gangs   also   seem   very   active   and   control   criminal   networks  operating  in  the  counterfeiting  industry.      With  regard  to  the  Camorra’s  operations,  investigations  confirm  that  counterfeit  goods  are  often  also  sold  through  retail  channels  –  not  only  by  exploited  immigrants  but  also  by  regular  retailers  who  purchase  such  goods  because  of  their  low  costs.  Although  Italy  is  affected  as  a  whole,  the  Campania  region,  especially  the  port  of  Naples,  is  particularly  active.  This  criminal  organization  often  controls  legal  commercial  activities  which  it  uses  to   introduce   imitation   goods   into   the   market,   creating   a   large   economic-­‐financial   web  involving  a  number  of  countries  –  particularly  Western  European  countries,  the  United  States,  Brazil,  Canada  and  Australia.  This  entrenched  financial  system–  which  indicates  the   Camorra’s   high   level   of   organization   and   internationalization–   generates   capital  funds,   which,   after   being   “laundered”,   can   be   reinvested   in   a   variety   of   different   legal  commercial  activities,  thereby  increasing  the  organization’s  operational  capacity.    The   Camorra   manages   all   the   stages   of   the   production,   distribution   and   sale   of  counterfeit   products   and   is   extremely   active   in   the   clothes   and   fashion   goods   sector   and  in   respect   of   pirated   CDs   and   DVDs.   Several   cases   show   the   entrepreneurial   approach  taken   by   the   leaders   of   organized   crime,   intent   on   satisfying   their   “clients”   requests   and  on   differentiating   the   quality   of   their   imitations   to   meet   their   clients’   needs.   Complex  production   and   distribution   networks   link   the   Italian   Camorra   with   Chinese   and   African  criminal  organizations  based  in  Italy,  ensuring  that  production  and  distribution  (even  at  street  level)  are  under  the  organization’s  control.    Albanian  gangs  are  particularly  active  in  the  port  of  Antwerp  in  Belgium  and  they  deal  with   all   types   of   counterfeit   products.   Asian   gangs   operating   in   the   EU   specialize   in  manufacturing   and   distributing   counterfeit   products.   They   are   known   to   collaborate  with  organized  criminal  groups  in  Eastern  Europe,  Eastern  India  and  Nigeria.      The   complexity   of   the   distribution   network   makes   it   extremely   difficult   to   identify  supply   chains   precisely,   especially   because   criminal   groups   are   capable   of   deftly  modifying  their  trade  routes.  As  a  result,  known  cases  only  enable  us  to  identify  a  few  of  the   major   collection   points:   the   ports   of   Antwerp,   Hamburg   and   Amsterdam   or   the  airports   of   Schipol   and   Roissy,   in   Europe.   Outside   of   Europe,   Dubai,   Hong   Kong   and  some  US  ports  serve  as  important  transit  points.      The   majority   of   counterfeit   products   sold   in   the   EU   come   from   outside   the   EU,   in  particular   from   China,   Thailand,   Morocco   and   Turkey.   However,   the   EU   itself   is   very  active  in  producing  a  certain  range  of  imitation  products.  Countries  like  Italy  or  Portugal,  are  often  associated  with  the  counterfeiting  of  clothing  items,  while  Spain  and  Italy  are  the   countries   most   associated   with   counterfeiting   spare   vehicle   parts.   These   products  are   not   only   intended   for   domestic   markets,   but   are   also   exported.   As   a   result,   the  European   Union   is   a   major   strategic   area   for   the   sale,   production   and   transit   of  counterfeit  goods.    d) The  United  States    This  next  chapter  provides  an  overview  of  the  legal  framework  regulating  counterfeiting  control   as   well   as   the   mechanisms   implemented   by   the   Governments   of   the   United  Copyright-­‐  This  confidential  report  is  the  Intellectual  property  of  the  WAITO  Foundation  all  rights  reserved.  No  part  of  this  publication  may  be  reproduced  or  diffused  under  any  form  or  by  any  means,  including  photocopies  and  recordings,  or  by  any  information  storage  or  recovery  system.    
  • 104.   104      States   of   America   and   Canada   to   combat   this   growing   problem.   This   also   includes   an  overview  of  the  counterfeit  goods  market  and  the  organized  crime  networks  present  in  these  two  countries.  In  particular,  it  examines  the  multilateral  efforts  to  combat  crime,  trends   in   investigation/prosecution   and   the   rapid   development   of   international   crime  networks.    The  US  legal  framework    The  Lanham  Act  has  been  the  basic  legislative  text  on  trademark  law  in  the  United  States  since   1946.   In   view   of   the   rampant   growth   of   trafficking   in   counterfeit   goods   over   the  past   few   decades,   the   US   Congress   passed   four   additional   laws   strengthening   the  Lanham  Act:     • The  Trademark  Counterfeiting  Act  of  1984;     • The  Anti-­‐counterfeiting  Consumer  Protection  Act  of  1996;     • The  Stop  Counterfeiting  in  Manufactured  Goods  Act  of  2006:     • The  Prioritizing  Resources  and  Organization  for  Intellectual  Property  Act  of  2007.    Their   objective   is   to   increase   both   criminal   and   civil   penalties   for   intentional   trademark  counterfeiting  and  extend  the  powers  of  US  Customs  and  Border  Protection.    Criminal  prosecution  US   law   provides   penalties   of   up   to   5   years   in   prison   and   a   fine   of   $250.000   for   first-­‐time  offenders   and   15   years   in   prison   and   fines   of   up   to   $1   million   for   repeat   offenders.  Furthermore,   and   under   the   Prioritizing   Resources   and   Organization   for   Intellectual  Property   Act   of   2007,   if   the   defendant   knowingly   or   recklessly   causes   or   attempts   to  cause  prejudice  to  consumer  health  and  safety,  the  penalty  he/she  may  face  is  increased  to  life  imprisonment.88  The  2007  Act  also  provides  fines  of  up  to  $1  million  for  first-­‐time  offenders   and   up   to   $5   millions   for   repeat   corporate   offenders.   The   2007   Act  contributed  to  strengthening  the  Lanham  Act  by  expanding  its  scope  beyond  import,  to  export   and   trans-­‐shipment   of   counterfeit   goods.   Regarding   penalties,   the   Stop  Counterfeiting   in   Manufactured   Goods   Act   of   2006   provides   that   a   counterfeiter   must  forfeit   not   only   the   goods   bearing   counterfeit   marks,   but   also   any   proceeds   of   the  activity,   and   any   property   used   or   intended   to   be   used   to   commit   the   offense.   The  counterfeiter   must   also   pay   damages   to   the   trademark   holder.   Furthermore   “the   2006  Act   expands   the   definition   of   ‘counterfeit   good’   to   include   labels,   containers   and   all  forms   of   packaging   not   actually   attached   to   the   goods.” 89  The   Anti-­‐counterfeiting  Consumer   Protection   Act   of   1996   allows   law   enforcement   officials   to   seize   not   only  counterfeit   goods,   but   also   equipment   and   materials   used   to   manufacture   counterfeit  goods  and  vehicles  used  to  carry  out  the  offense.                                                                                                                    88  G.R.  Elings,  S.  Gelin,  The  World  Trademark  Review,  Anti-­‐Counterfeiting  2010  –  A  global  guide:  United  States”,    pg.  236  89  G.R.  Elings,  S.  Gelin,  The  World  Trademark  cit.,  pag.  236  Copyright-­‐  This  confidential  report  is  the  Intellectual  property  of  the  WAITO  Foundation  all  rights  reserved.  No  part  of  this  publication  may  be  reproduced  or  diffused  under  any  form  or  by  any  means,  including  photocopies  and  recordings,  or  by  any  information  storage  or  recovery  system.    
  • 105.   105      Border  intellectual  property  (IP)  enforcement      In   the   United   States,   the   Customs   and   Borders   Protection   (CBP)   is   competent,   under  federal   law   (19   USC   §1595),   to   inspect   carriers   and   seize   counterfeit   goods   that   enter  the  country.  The  CBP  also  has  the  authority  to  detain  goods  entering  the  U.S.A.  if  they  are  suspected   of   being   counterfeits.   The   maximum   detention   period   is   30   days,   during  which   the   trademark   owner   and   the   importer   will   be   informed   and   summoned   to  authenticate   the   goods.   If   they   do   not   succeed,   the   goods   will   be   formally   seized   and  confiscation  proceedings  initiated.      Trademark  owners  play  an  important  role  in  supporting  the  work  of  the  CBP.  First,  they  must  register  their  trademarks  with  the  CBP  and  provide  information  that  may  help  to  identify  counterfeit  goods.  They  can  initiate  the  seizure  process  through  the  CBP,  or  they  can  file  a  civil  action  with  the  US  International  Trade  Commission  (ITC)  -­‐  under  Section  337  on  the  Tariff  Act  of  1930.  In  this  last  case,  proceedings  directly  target  the  import  of  specific   infringing   goods   and   the   aim   is   to   obtain   an   exclusion   order   from   the   ITC,  enabling   the   CBP   to   exclude   infringing   products   from   entering   the   United   States.   The  order   generally   concerns   products   issued   by   specific   sources,   but   in   certain   cases,   it   can  apply  to  any  source  worldwide.  “In  addition,  the  ITC  may  issue  cease  and  desist  orders  that   prohibit   domestic   entities   from   importing   and   selling   infringing   products   in   the  United   States”90.     The   investigations   carried   out   under   Section   337   are   in  rem   actions,  and   “commission   exclusion   orders   may   even   cover   products   imported   by   entities   that  were  never  named  as  parties  and  never  had  notice  of  the  commission’s  investigations”.91  Courts   have   consistently   recognized   the   commissions   trademark   rulings   as   having  preclusive   effect   (Union  Manufacturing  Co.  v.  Han  Baek  Trading  Co.,  763  F.2d  42  (2d  Cir.  1985)).    Civil  measures    Trademark   owners   usually   prefer   to   file   civil   proceedings   against   counterfeiters   since  there  is  no  mechanism  that  gives  them  a  private  right  of  action  to  enforce  criminal-­‐law  provisions.          The   anti-­‐counterfeiting   provisions   of   the   Lanham   Act   specifies   that   trademark   owners  are   entitled   to   receive   treble   the   defendant’s   profits,   the   plaintiff’s   damages   or   statutory  damages.   The   minimum   and   maximum   damages   awarded   have   been   doubled   by   the  Prioritizing   Resources   and   Organization   for   Intellectual   Property   Act   of   2007,   to   $1  million  and  $2  million  respectively  per  counterfeit  mark  per  type  of  goods  sold,  offered  for  sale  or  distributed  (see  15  USC  §1117(c)(1))  92.      Civil   proceedings   have   one   major   limitation   in   that   the   infringer   receives   an   advance  notice  of  the  action  filed  by  the  trademark  owner.  This  is  a  great  obstacle  in  identifying  the  counterfeiters  and  uncovering  their  real  identities,  and  the  location  and  scale  of  their  operations.   Civil   proceedings   give   counterfeiters   the   time   to   destroy   evidence,   such   as  business   records,   counterfeit   goods   production   and   assets.   However,   in   this   respect,                                                                                                                  90  M.L.Doane,  V.J.Adduci  II,  Curbing  Counterfeit  Goods,  available  here:    http://www.adduci.com/articles/Curbing%20Counterfeit%20Goods    91  M.L.Doane,  V.J.Adduci  II,  Curbing  Counterfeit  cit.    92  G.R.  Elings,  S.  Gelin,  previously  cited  work,  pag.  236  Copyright-­‐  This  confidential  report  is  the  Intellectual  property  of  the  WAITO  Foundation  all  rights  reserved.  No  part  of  this  publication  may  be  reproduced  or  diffused  under  any  form  or  by  any  means,  including  photocopies  and  recordings,  or  by  any  information  storage  or  recovery  system.    
  • 106.   106      section   34   of   the   Lanham   Act   (15   USC   §1116)   provides   the   possibility   of   filing   an   ex  parte  action,  whereby  a  brand  owner  can  unilaterally  appear  before  a  judge  in  a  federal  court  to  seek  an  injunction  authorizing  surprise  seizures  of  goods  and  records93.      The  context    Internet  piracy  and  anti-­‐counterfeiting  online    The   growth   of   e-­‐commerce   and   globalization   has   also   created   new   possibilities   for  criminals  and  has  contributed  to  altering  the  dynamics  of  the  trade  of  counterfeit  goods.  The   anonymity   granted   by   the   Internet   and   the   possibility   of   offering   goods   to   a   vast  range  of  potential  buyers,  makes  online  advertising  and  sales  an  unmissable  opportunity  for  counterfeiters.  In  this   light,   the   doctrine  of  contributory  liability  has  become  a  useful  tool   in   the   control   of   counterfeiting.   According   to   this   doctrine,   a   third   party   is  considered   liable   when   it   deliberately   assists   or  enables   counterfeiting   activities   to   take  place,   even   where   the   third   party   does   not   directly   engage   in   the   counterfeiting  activity94.      The  following  box  provides  an  example  of  a  recent  contributory  liability  ruling  involving  an  e-­‐commerce  service  provider.       On   August   28   2009   a   unanimous   federal   jury   in   California   awarded   Louis   Vuitton   Mallettier   SA   $32.4   million   against   the   internet   service   provider   Akanoc   Solutions   Inc   for   failing   to   shut  down  dozens  of  websites  it  had  hosted  that  were  selling  counterfeit  Louis  Vuitton  bags,   even  if  Louis  Vuitton  had  sent  19  notices  to  Akanoc.     Source:   G.R.   Ellings,   S.   Gelin,   The   World   Trademark   Review,   Anti-­‐Counterfeiting   2010   –   A   global  guide:  United  States,  pag.  237    The   doctrine   of   contributory   liability   has   primarily   developed   through   case   law,   even  though  it  has  also  been  codified  in  at  least  one  instance.  “Section  231(2)  of  the   New  York  Real   Property   Law   provides   that   landlords   can   be   held   jointly   and   severally   liable   for  damage  resulting  from  unlawful  use,  occupancy,  trade,  manufacture  or  business  on  their  premises”95.    In   the   box   below   the   ruling   provides   an   example   of   the   type   of   efforts   made   by   the  Department  of  Justice  Task  Force  on  Intellectual  Property  (IP  Task  Force).  The  IP  Task  Force   was   created   to   combat   the   growing   number   of   domestic   and   international  intellectual   property   crimes,   to   protect   the   health   and   safety   of   consumers,   and  safeguard   US   economic   security.   The   IP   Task   Force   aims   to   strengthen   intellectual  property   rights   protection   through   heightened   criminal   and   civil   enforcement,   greater  coordination   among   federal,   state   and   local   law   enforcement   partners,   and   an   increased  focus   on   international   enforcement,   including   reinforcing   relationships   with   key   foreign  partners  and  US  industry  leaders96.                                                                                                                    93  G.R.  Elings,  S.  Gelin,  previously  cited  work,  pag.  236  94  G.R.  Elings,  S.  Gelin,  previously  cited  work,  pag.  237  95  G.R.  Elings,  S.  Gelin,  previously  cited  work,  pag.  237  96  http://www.justice.gov/opa/pr/2010/October/10-­‐crm-­‐1229.html  Copyright-­‐  This  confidential  report  is  the  Intellectual  property  of  the  WAITO  Foundation  all  rights  reserved.  No  part  of  this  publication  may  be  reproduced  or  diffused  under  any  form  or  by  any  means,  including  photocopies  and  recordings,  or  by  any  information  storage  or  recovery  system.    
  • 107.   107       On  October  29  2010  Todd  Alan  Cook,  24,  of  Wichita  Falls,  Texas,  was  sentenced  to  18  months   in   prison   by   U.S.   District   Court   Judge   T.S.   Ellis   III   for   selling   more   than   $1   million   worth   of   pirated   computer   software   through   the   Internet,   in   violation   of   criminal   copyright   infringement   laws,   announced   Assistant   Attorney   General   Lanny   A.   Breuer   of   the   Criminal   Division,  U.S.  Attorney  Neil  H.  MacBride  for  the  Eastern  District  of  Virginia  and  John  Morton,   Department  of  Homeland  Security’s  Director  of  U.S.  Immigration  and  Customs  Enforcement.   Cook   was   also   sentenced   to   three   years   of   supervised   release   and   was   ordered   to   pay   restitution   in   the   amount   of   $599,771.     Cook   pleaded   guilty   on   March   11,   2010,   to   criminal   copyright   infringement   in   the   U.S.   District   Court   in   Alexandria,   Va.   This   case   is   part   of   the   Department   of   Justice’s   ongoing   initiative   to   combat   online   commercial   counterfeiting   and   piracy.   Including   Todd   Cook’s   guilty   plea,   the   department   has   obtained   46   convictions   involving  online  auction  and  commercial  distribution  of  counterfeit  software.     Source:     “Texas  Man  Who  Was  Part  of  Father  and  Son  Team  of  Pirated  Software  Sellers  Sentenced  to  18   Months  in  Prison”,  The  United  States  Department  of  Justice,  29  October,  2010,  available  here:   http://www.justice.gov/opa/pr/2010/October/10-­‐crm-­‐1229.html          Counterfeit  drugs    Counterfeit   medicines   have   grown   exponentially   over   the   last   decade,   largely   due   to   the  wide   availability   of   technology   at   affordable   prices   enabling   counterfeiters   to   build   up  their  capacities  to  imitate  any  product  on  the  market.  The  ease  with  which  they  can  be  manufactured  and  anonymity  in  distribution  has  made  counterfeit  medicines  a  lucrative  business   for   criminal   networks.   Sadly,   the   consequences   for   consumer’s   health   are   far  from  favourable.    Consumers  in  the  United  States  often  dismiss  counterfeit  medicines  as  a  problem  limited  to   developing   countries.   Counterfeit   medicines   are   reaching   unsuspecting   American  patients   with   increasing   frequency.   In   2010   the   United   States   held   $307.4bn   of   the  world’s  $856.4bn  pharmaceutical  market.  Holding  40%  of  the  world  market,  the  United  States  is  the  first  pharmaceutical  consumer.  Europe  is  a  close  second  with  $245.3bn  and  other  regions  account  for  the  remaining  share.97      In   2009   the   United   States   Food   and   Drug   Administration   estimated   that   less   than   1%   of  the   United   States   pharmaceutical   market   was   made   up   of   counterfeits.   Even   though  comparisons   with   certain   African   regions,   where   the   World   Health   Organization   reports  that  counterfeit  pharmaceuticals  can  account  for  up  to  30%  of  the  entire  pharmaceutical  market98,  may  lead  to  underestimating  the  significance  of  this  1%,  we  have  to  consider  that   3.99   billion   prescription   medications   were   issued   in   the   United   States   in   2010.  Accordingly,   one   percent   equals   a   staggering   39.9   million   counterfeit   pharmaceuticals  on  the  United  States  market99.                                                                                                                    97  IMS  Health  Market  Prognosis,  March  2011  available  here  :  http://www.imshealth.com/deployedfiles/imshealth/Global/Content/StaticFile/Top_Line_Data/Total_Regional_Market_Size.pdf    98  WHO-­‐IMPACT,  Counterfeit  Medicines:  an  update  on  estimates,  page  1.  99  IMS  Health  Market  Prognosis,  March  2011  available  here:  http://www.imshealth.com/deployedfiles/imshealth/Global/Content/StaticFile/Top_Line_Data/Total_Regional_Market_Size.pdf  Copyright-­‐  This  confidential  report  is  the  Intellectual  property  of  the  WAITO  Foundation  all  rights  reserved.  No  part  of  this  publication  may  be  reproduced  or  diffused  under  any  form  or  by  any  means,  including  photocopies  and  recordings,  or  by  any  information  storage  or  recovery  system.    
  • 108.   108      The   increase   of   counterfeit   drugs   has   urged   the   Federal   government   to   establish   task  forces   dedicated   to   aggressively   protecting   citizens   from   infiltrating   the   legal   supply  chain.   The   task   forces   in   the   United   States   report   to   the   Federal   Food   and   Drug  Administration   (FDA).   The   purpose   of   the   team   is   to   develop   recommendations   that   the  FDA,  the  federal,  state  and  local  agencies,  and  the  private  sector  partners  can  implement  to   minimize   the   risks   for   the   public.   Even   in   the   case   of   medicines,   fines   are   the   most  frequent  penalty  for  counterfeiters,   although  prison  terms  are  applied  to  higher  volume  cases.    The  box  below  provides  an  example  of  the  legal  consequences  of  trafficking  counterfeit  drugs.       A  Jordanian  national  was  sentenced  to  48  months  in  prison  for  trafficking  more  than  38  000   counterfeit   Viagra   tablets.   The   counterfeit   pills   replicated   the   size,   shape   and   colour   of   legitimate  Viagra  pills.  Testing  revealed  that  the  counterfeit  Viagra  pills  contained  none  of  the   active   pharmaceutical   ingredient   sildenafil   citrate;   the   tablets   did   contain   metronidazole.   Metronidazole   is   an   antibiotic,   which   if   consumed   with   alcoholic   beverages   can   cause   abdominal   cramps,   nausea,   vomiting,   headaches   and   flushing.   Consequences   for   the   patient   may  be  deadly.  The  foreign  national  was  not  fined,  however  he  will  be  undergoing  immediate   deportation  once  his  sentence  is  completed.       Source:   «  US   court   sentences   fake   Viagra   dealer  »   by   the   pharmaletter.com,   28   July   2008.   Available   here:   http://www.thepharmaletter.com/file/36538/us-­‐court-­‐sentences-­‐fake-­‐ viagra-­‐dealer.html        Canada   and   the   United   States   share   a   unique   relationship.   As   a   free   market   economy,  prices  in  the  U.S.  are  decided  by  industrial  standards.  In  Canada,  prices  are  fixed  below  those   found   in   the   free   market   economy   by   government   regulations.   The   price  difference   allows   criminals   to   establish   an   illicit   trade   linking   Canada   and   the   United  States,   often   exploiting   the   Internet   to   establish   a   sophisticated   and   illegal   post   and  courier   system   relying   on   false   documentation100.   This   is   the   case,   for   instance,   of   illegal  online   pharmacies.   They   typically   sell   a   range   of   medicines   that   may   constitute   health  and   safety   risks.   These   businesses   operate   without   any   authorized   doctor/patient  relationship.   Consumers   receive   medicines   from   unidentified   origins,   without   medical  supervision  and  with  no  guarantee  of  authenticity.  As  with  other  websites  that  operate  illegally,  it  is  difficult  to  track  and  examine  the  activities  and  the  goods  of  illegal  Internet  pharmacies.   These   sites   are   constantly   appearing   and   disappearing   and   frequently  change   their   names.   Law   enforcement   authorities   in   both   the   U.S.A.   and   Canada   have  found  that  some  illegal  internet  pharmacies  imitate  the  format  of  licensed  sites  stating  that   their   products   come   from   Canada   to   take   advantage   of   U.S.   consumers   seeking  cheap   alternatives   to   pharmaceuticals   sold   through   the   regular   channels   or   simply  trusting  the  online  pharmacy  they  purchase  from.      Counterfeit  spare  parts  and  electronics      The   United   States   possess   one   of   the   world’s   most   diverse   and   exclusive   automotive  markets.   The   number   of   cars   on   the   road   creates   an   extremely   lucrative   market   for                                                                                                                  100IMS  Health  Market  Prognosis,  March  2011  available  here:  http://www.imshealth.com/deployedfiles/imshealth/Global/Content/StaticFile/Top_Line_Data/Total_Regional_Market_Size.pdf  Copyright-­‐  This  confidential  report  is  the  Intellectual  property  of  the  WAITO  Foundation  all  rights  reserved.  No  part  of  this  publication  may  be  reproduced  or  diffused  under  any  form  or  by  any  means,  including  photocopies  and  recordings,  or  by  any  information  storage  or  recovery  system.    
  • 109.   109      vehicle   parts.   Every   major   car   manufacturer   has   its   own   commercial   network   to  distribute   spare   parts   to   customers.   This   network   is   comprised   of   subsidiaries,  showrooms,  dealers  and  agents  under  contract  with  the  manufacturer,  who  shares  the  market   with   them   in   return   for   the   quality   service   they   are   expected   to   provide   for  customers.  Counterfeiters  infiltrate  the  market  by  producing  copies  of  industrial  parts.  Some   produce   their   own   parts   and   add   the   manufacturer’s   service   marks.   Counterfeit  vehicle   parts   threaten   consumers’   safety   as   they   are   produced   using   low-­‐quality  materials,   omitting   certain   security   procedures,   without   undergoing   component-­‐type  approval  testing  or  “test  drives”.  For  distribution  purposes,  counterfeiters  may  also  use  a   parallel   distribution   network   involving   companies   outside   the   manufacturers’  networks.   The   customers   at   the   end   of   this   parallel   network   are   mechanics   or   private  individuals   who   are   unaware   of   what   they   are   buying   or   are   trying   to   cut   corners   and  are  not  concerned  about  the  quality  or  safety  aspects  of  the  part.      Counterfeit   batteries   are   a   good   example   in   the   electronics   sector.   They   are  manufactured   with   inadequate   vent   mechanisms   to   discharge   any   excess   internal  pressure.  This  makes  counterfeit  batteries  inclined  to  violent  explosions  that  can  harm  people   or   break   external   devices.   For   a   variety   of   reasons,   counterfeiters   usually   also  add   high   levels   of   mercury   to   batteries.   Overexposure   to   mercury   can   cause   learning  difficulties,   kidney   damage,   it   can   immune   functions   and,   in   extreme   cases,   lead   to   the  loss  of  sight  and  hearing,  particularly  in  children,  infants  and  unborn  babies.    Below   is   a   case   involving   a   legal   commercial   company   engaged   in   the   distribution   of  counterfeit  electronics.        Shannon   Wren   and   Stephanie   McCloskey   -­‐   respectively   the   owner   and   administrator   of   a  company   called   VisionTech,   based   in   Clearwater,   Florida   ran   an   integrated   circuits  counterfeiting   operation.   An   integrated   circuit   is   a   high-­‐tech   device   that   controls   the   flow   of  electricity;  counterfeit  integrated  circuits  can  result  in  product  or  system  failure  or  malfunction  and  can  cause  costly  system  repairs,  property  damage  and  serious  body  injury,  including  death.  Between  December  6,  2006  and  August  18,  2010  Wren  and  McClosky  imported  from  China  and  Hong   Kong   59,540   integrated   circuits   bearing   counterfeit   marks,   including   military-­‐grade  markings,  valued  approximately  $425,293.  The  indictment  said  defective  parts  were  discovered  in   chips   intended   to   be   used   by   Navy   ships,   by   a   Raytheon   classified   missile   program,   by   an  antiballistic   missile   antenna   system,   as   well   as   a   "life-­‐critical"   control   system   for   a   high-­‐speed  trains.  A  federal  grand  jury  in  the  U.S.  District  Court  of  the  District  of  Columbia  charged  Shannon  Wren  and  Stephanie  McCloskey  with  conspiracy,  trafficking  in  counterfeit  goods  and  mail  fraud.  They   were   arrested   on   September   2010   and   Wren   was   held   at   the   Pinellas   County   Jail   on  Tuesday  night  at  the  request  of  U.S.  marshals,  while  McCloskey  was  released  on  $25,000  bail  and  restricted  from  travel.  A  sentencing  date  has  not  yet  been  set.        Source:   press   release   “Administrator  of  Florida-­‐based  VisionTech  Components,  LLC  Pleads  Guilty  in  Connection  With  Sales  of  Counterfeit  High  Tech  Devices  Destined  to  the  U.S.  Military  and  Other  Industries”,  The  United  States  Department  of  Justice,  19  November,  2010.  Available  here:  http://www.docstoc.com/docs/72021415/NWMiller-­‐McCloskey-­‐Stephanie-­‐wpd          Copyright-­‐  This  confidential  report  is  the  Intellectual  property  of  the  WAITO  Foundation  all  rights  reserved.  No  part  of  this  publication  may  be  reproduced  or  diffused  under  any  form  or  by  any  means,  including  photocopies  and  recordings,  or  by  any  information  storage  or  recovery  system.    
  • 110.   110      Organized  crime  involvement    Domestic  and  international  framework    Combating   organized   crime   is   a   multilateral   federal   operation.   The   Department   of  Justice,   more   specifically   the   U.S.   Attorney   General’s   Organized   Crime   Council,   is  responsible  for  developing  policy  on  domestic  organized  crime.  The  council  is  chaired  by  the   Deputy   Attorney   General   and   has   representatives   from   the   Federal   Bureau   of  Investigation   (FBI);   the   U.S.   Drug   Enforcement   Agency   (DEA);   the   Bureau   of   Alcohol,  Tobacco,   Firearms   and   Explosives   (ATF);   the   U.S.   Immigration   and   Customs  Enforcement  (ICE);  the  U.S.  Secret  Service;  the  Internal  Revenue  Service  (IRS);  the  U.S.  Postal  Inspection  Service;  Diplomatic  Security;  and  the  U.S.  Department  of  Labor,  Office  of  the  Inspector  General101.  Although  many  federal  and  state  departments  and  agencies  are   engaged   in   fighting   organized   crime,   the   primary   agency   is   the   FBI.   The  Transnational   Criminal   Enterprise   Section   in   the   Criminal   Enterprise   Branch   is  responsible  for  investigating  organized  crime.      International  framework    In   March   2004,   the   Department   of   Justice   created   an   Intellectual   Property   Task   Force   to  combat  the  increase  in  counterfeiting  and  piracy  by  organized  crime  groups.  In  addition,  an  Anti-­‐Counterfeiting  Trade  Agreement  (ACTA)  is  being  drawn  up  with  other  countries,  including   Australia,   Canada,   EU,   Japan,   Jordan,   Korea,   Mexico,   Morocco,   New   Zealand,  Singapore,   Switzerland,   and   the   United   Arab   Emirates.   According   to   the   USTR,   one  benefit   of   ACTA   is   that   it   will   help   combat   the   piracy   and   counterfeiting,   which   is   an  “easy  source  of  revenue  for  organized  crime.”  102    In  2005,  the  U.S.  Congress  took  a  step  towards  working  with  foreign  governments  and  law   enforcement   agencies   to   combat   organized   crime,   by   ratifying   the   United   Nations  Convention   Against   Transnational   Organized   Crime.   In   particular,   this   Convention  provides  a  framework  for  international  cooperation  by  requiring  mutual  legal  assistance  between   countries   in   fighting   organized   crime,   and   extradition   for   certain   organized  crime  offenses  specified  in  the  Convention103.    Organized  Crime  Networks  in  the  United  States      Organized   crime   in   the   United   States   goes   far   beyond   the   Italian   mafia,   to   include  Russian,  Asian,  Balkan,  Middle  Eastern,  and  African  groups.      Federal   law   enforcement   agencies   in   the   United   States   and   in   Italy   participate   in   the  Italian  American  Working  Group,  which  first  met  in  1984.  This  working  group  addresses  problems   common   to   both   countries,   including   organized   crime,   counterfeiting   and  extradition   issues.   The   Pantheon   Project   furthers   the   law   enforcement   relationship  between   the   United   States   and   Italy.   The   project   places   two   FBI   agents   at   the   Italian  National  Police  headquarters  and  two  Italian  officers  at  the  FBI.  Russian  organized  crime                                                                                                                  101 Organized   crime   and   racketeering   section,   The   United   States   Department   of   Justice.   Available   here:    http://www.justice.gov/criminal/about/ocrs.html    102K.   M.   Finklea,     Organized   Crime   in   the   United   States:  Trends   and   Issues   for   Congress   -­‐   Analyst   in   Domestic   Security,  Congressional  Research  Service,  pag.  23,  available  here:  http://www.fas.org/sgp/crs/misc/R40525.pdf  103  K.  M.  Finklea,  Organized  Crime  cit,  pag.  9  Copyright-­‐  This  confidential  report  is  the  Intellectual  property  of  the  WAITO  Foundation  all  rights  reserved.  No  part  of  this  publication  may  be  reproduced  or  diffused  under  any  form  or  by  any  means,  including  photocopies  and  recordings,  or  by  any  information  storage  or  recovery  system.    
  • 111.   111      initiatives  are  handled  by  the  FBI  in  partnership  with  international  working  groups.  This  includes  the  Eurasian  Organized  Crime  Working  Group,  the  Central  European  Working  Group,   and   the   Southern   European   Cooperative   Initiative.   In   addition,   the   FBI   set   up   a  joint   FBI/Hungarian   National   Police   task   force   in   Budapest,   Hungary,   to   combat   Russian  organized   crime.   This   task   force   was   established   in   2000   to   counter   the   increasing  threat  of  Russian  organized  crime  and  is  the  only  international  task  force  in  which  the  FBI  is  currently  involved.  The  FBI  requested  additional  funding  for  this  task  force  in  its  2011-­‐2015  budget.      Transnational   counterfeiting   operations   in   the   United   States   seem   to   be   spearheaded   by  Asian  syndicates.  Research  indicates  that  there  is  no  one  unified  Asian  organized  crime  group;   instead,   there   are   numerous   crime   syndicates.   Traditional   groups   include   the  Chinese   triads   from   Hong   Kong,   Taiwan,   and   Macau,   and   the   Japanese   Yakuza.   Less  traditional  groups  include  tongs,  triads,  and  Asian  street  gangs  such  as  the  Big  Circle  and  the   Fuk   Ching.   An   emerging   trend   among   Asian   crime   syndicates   is   a   willingness   to  cooperate   across   ethnic   and   racial   lines   if   it   benefits   their   business.   The   application   of  U.S.   law   draws   heavily   on   RICO,   money   laundering,   and   asset   forfeiture   statutes   to  prosecute   Asian   crime   syndicates.   U.S.   law   enforcement   participates   in   domestic   and  international  working  groups  aimed  at  combating  Asian  organized  crime.  Nationally,  the  FBI   is   also   involved   in   international   working   groups   concerned   with   Asian   organized  crime,   including   the   FBI/National   Police   Agency   of   Japan   Working   Group,   Interpol’s  Project   Bridge,   the   International   Asian   Organized   Crime   Conference,   the  Canadian/United   States   Cross-­‐Border   Crime   Forum,   and   the   International   Law  Enforcement  Academy  in  Bangkok,  Thailand104.    Balkan  and  Albanian  organized  crime  groups  are  also  among  the  most  thriving  criminal  businesses  today  and  are  active  in  the  United  States.    Final  remarks    The   United   States   legislative   structure   has   taken   extensive   measures   to   tackle   the  introduction   of   counterfeit   goods   into   the   economic   market.   Developing   communication  technology   and   globalization   have   altered   the   dynamics   of   counterfeit   trade.   The  Department  of  Justice  Task  Force  on  Intellectual  Property  (IP  Task  Force)  has  pioneered  the  fight  against  counterfeit  goods.    This   proactive   approach   to   combating   entry   of   counterfeits   into   the   market   is   a   reaction  to  the  rapid  growth  in  the  phenomenon.  Unfortunately,  consumer  health  is  dangerously  at   risk.  The   trafficking   of   counterfeit   goods   involves   a   sophisticated   network   of   criminal  businesses.   Active   organized   crime   syndicates   within   the   United   States   include   the  Italian,  Russian,  Asian,  Balkan,  Middle  Eastern,  and  African  syndicates.      A   recommendation   made   by   the   Organized   Crime   Council   indicates   that   laws   and  regulations   should   be   expanded,   updated,   or   amended   to   enable   the   government   to  investigate   and   prosecute   organized   crime   members   affecting   American   society   from  outside  U.S.   borders.   This   suggests   that  federal  law   enforcement   may   not  currently  have                                                                                                                  104  K.  M.  Finklea,  previously  cited  work,  pag.  18  Copyright-­‐  This  confidential  report  is  the  Intellectual  property  of  the  WAITO  Foundation  all  rights  reserved.  No  part  of  this  publication  may  be  reproduced  or  diffused  under  any  form  or  by  any  means,  including  photocopies  and  recordings,  or  by  any  information  storage  or  recovery  system.    
  • 112.   112      the  interstate  jurisdiction  or  the  most  effective  tools  for  combating  the  growing  danger  of  organized  crime  in  the  United  States.      e) Canada    The  legal  framework    Combating  counterfeiting  in  Canada  involves  the  use  of  the  Trademarks  Act  (RSC  1985,  c  T-­‐13),  the  Copyright  Act  (RSC  1985,  c  C-­‐42)  and  the  Criminal  Code  (RSC  1985,  c  C-­‐46).    In   2007,   following   Parliament’s   call   for   government   action   against   counterfeiting   and  piracy,   two   standing   committees   met   with   experts   and   representatives   of   several  departments  and  agencies  involved  in  the  fight  against  counterfeiting.      The   Report   published   on   June   2007   by   the   Committee   on   Public   Safety   stated:   “It   seems  undeniable   that   the   counterfeiting   of   goods   is   a   growing   phenomenon   in   Canada,   and  one   that   increasingly   involves   goods   that   present   health   and   safety   hazards   for  consumers.   The   representatives   of   industry   and   of   law   enforcement   who   testified   to   the  Committee  painted  a  rather  alarming  portrait  of  the  situation  in  Canada.  It  is  not  only  a  disturbing  phenomenon,  but  one  that  calls  for  solutions  with  some  urgency”.  This  report  presented   fourteen   specific   recommendations   for   reforms.   Moreover,   the   report  elaborated   by   the   Committee   on   Industry,   Science   and   Technology   presented   nineteen  other  specific  recommendations.        The   main   recommendations   included   new   criminal   provisions   relating   to   counterfeit  goods,   the   express   authorization   of   border   agents   to   target,   detain   and   destroy  counterfeit  goods  on  their  own  initiative,  and  the  creation  of  an  IP  crime  taskforce.    Criminal  prosecution      In   Canada,   existing   criminal   laws   and   remedies   do   not   specifically   address   the   theft   of  intellectual  property,  with  the  sole  exception  of  amendments  to  the  Criminal  Code  (sec.  431.2)  concerning  the  illegal  cam  cording  of  movies.      Canada’s   criminal   provisions   on   the   manufacture,   distribution   and   sale   of   products  displaying   counterfeit   trademarks   are   still   not   adequate   and   they   are   seldom   used   by  law  enforcers  or  prosecutors.    While   the   Copyright   Act   includes   criminal   provisions   for   copyright   infringement,   the  Trademarks  Act  lacks  provisions  on  criminal  offences  and  penalties.    For   this   reason,   criminal   prosecutions   for   counterfeit   trademark   goods   must   often  proceed   using   the   provisions   contained   in   the   Criminal   Code   that   refer   to   fraud   or  deception.      Copyright-­‐  This  confidential  report  is  the  Intellectual  property  of  the  WAITO  Foundation  all  rights  reserved.  No  part  of  this  publication  may  be  reproduced  or  diffused  under  any  form  or  by  any  means,  including  photocopies  and  recordings,  or  by  any  information  storage  or  recovery  system.    
  • 113.   113      In  Canada,  the  Royal  Canadian  Mounted  Police  (RCMP)  investigate  many  counterfeiting  activities,  although  local  police  may  also  be  involved  in  certain  criminal  investigations.      However,  the  “RCMP  has  quite  limited  resources  available  to  pursue  counterfeiting  and,  accordingly,   will   usually   only   investigate   counterfeiting   on   a   larger   commercial   scale,  where  the  target  is  a  manufacturer,  wholesaler  or  importer”.105    Moreover,   there   may   be   cultural   and   historical   impediments   to   prosecuting  counterfeiters  for  their  criminal  activities.  For  many  years,  the  authorities  have  viewed  intellectual  property  enforcement  as  a  private  civil  matter  and  there  were  few  criminal  proceedings.  As  a  result,  there  are  relatively  few  members  of  the  police  with  sufficient  specific  experience  in  investigating  and  prosecuting  intellectual  property  crimes.      Intellectual  property  right  holders  can  assist  the  authorities  in  pursuing  counterfeiters.  First  of  all  an  effort  should  be  made  to  report  all  counterfeiting;  secondly,  right  holders  should  file  civil  proceedings  because  the  development  of  the  civil  case  will  often  lead  to  a  criminal   investigation,   particularly   where   the   civil   case   is   well   developed;   thirdly,  considering  that  criminal  proceedings  may  follow  the  civil  case,  proper  care  should  be  taken  in  handling  evidence  used  in  any  civil  investigation  or  related  proceedings.      Criminal   prosecution   requires,   as   a   necessary   element   of   conviction,   the   proof   of  subjective  knowledge  (mens  rea),  which  can  be  proved  by  circumstantial  evidence.        Sections   406-­‐412   of   the   Criminal   Code,   which   specifically   address   trademark  counterfeiting,   hider   enforcement,   including   the   mens  rea   requirement   under   the   only  section   specifically   addressing   the   distribution   of   counterfeit   products.   The   other  difficulty  is  the  lack  of  provisions  against  importing  such  products.    As   far   as   punishments   are   concerned,   the   penalties   for   infringement   provided   by   the  Copyright  Act  include:     • fines  of  up  to  1  million  of  CAD  and  /  or   • imprisonment  for  up  to  five  years.    Criminal  Code  provisions  for  fraud  and  deception  include:     • fines  of  up  to  10,000  CAD  and  /  or   • imprisonment  for  up  to  two  years.    Although   prison   terms   can   be   applied,   courts   and   prosecutors   tend   to   avoid   imposing  prison  sentences.      In   the   following   box   a   recent   court   decision   in   the   R   v   Borge   case   illustrates   the   existing  sentencing  rationale.                                                                                                                      105  Baker  and  McKenzie,  Canadian  Anti-­‐Counterfeiting  Law  and  Practice:  A  Case  for  Change,    April  2005,  p.12  Copyright-­‐  This  confidential  report  is  the  Intellectual  property  of  the  WAITO  Foundation  all  rights  reserved.  No  part  of  this  publication  may  be  reproduced  or  diffused  under  any  form  or  by  any  means,  including  photocopies  and  recordings,  or  by  any  information  storage  or  recovery  system.    
  • 114.   114       Borge  involved  a  corporate  retailer  and  its  principal,  who  were  selling  counterfeit  computer   software.   They   were   charged   with   14   counts   of   contravening   Section   42   of   the   Copyright   Act.   The   Crown   decided   to   proceed   summarily,   which   meant   that   if   convicted,   the   maximum   penalties   per   count   were   a   fine   not   exceeding   CAD   25,000   or   imprisonment   for   a   term   not   exceeding  six  months,  or  both.  The  trial  proceeded  on  two  counts  against  the  individual  and   five   counts   against   the   corporation.   After   trial,   the   individual   was   convicted   on   both   counts   and  sentenced  to  a  fine  of  CAD  30,000  (CAD  15,000  on  each  count)  and  60  days  custody  to  be   served  intermittently.  The  corporation  was  convicted  to  a  total  of  five  counts  and  was  fined   for  CAD  75,000  (CAD  15,000  per  count).     The   defendants   appealed.   The   conviction   was   maintained,   but   the   sentencing   appeal   was   allowed.  The  Court  of  Appeal  held:  I   am   satisfied…   that   the   sentences   imposed   do   warrant   this   Court’s   intervention…   [I]mposing   a   term   of   imprisonment,   as   well   as   fines   in   the   amounts   indicated  are  harsh  and  excessive  in  the  circumstances.  This  excessiveness  resulted  from  an  over   emphasis   on   the   principles   of   general   deterrence   and   denunciation,   rather   than   a   consideration   of   the   individual   circumstances   of   the   Appellant…Nowhere   in   the   reasons   for   sentence   did   the   trial   judge   give   effect   or   make   reference   to   the   Appellant’s   lack   of   criminal   record,   the   [individual’s]   personal   circumstances,   or   the   lack   of   evidence   establishing   the   volume   of   commerce  or  profit  involved  in  the  offences.     The   Court   of   Appeal   observed   that   the   trial   judge   considered   evidence   of   prior   civil   proceeding   involving   companies   in   which   the   individual   defendant   was   involved   as   a   significant  aggravating  factor.  It  held  that  by  doing  so,  “the  trial  judgment  effectively  treated   past  civil  proceedings  as  tantamount  to  prior  criminal  conduct  and  sentence,”  which  was  an   error  in  principle.  The  sentences  were  reduced  to  fines  only  –  CAD  10,000  per  count.  Many  in   the   IP   community   question   whether   such   penalties   deter   the   offender   or   others   from   engaging  in  counterfeiting.     Source:  The  World  Trademark  Review,  Anti-­‐Counterfeiting  2010  –  A  global  guide, Lipkus L.M., Slatha T.M., Canada, 2010    Border  Intellectual  Property  Enforcement    The   Canadian   Border   Service   Agency   (CBSA)   is   responsible   for   processing   the  importation  of  goods  into  Canada.  The  Customs  Act  lacks  express  provisions  authorizing  the  ex  officio  detention  by  CBSA  officers  of  suspected  counterfeit  goods.    In   order   to   stop   counterfeit   goods   at   the   border,   IP   right   holders   must   obtain   a   court  order  for  the  CBSA  to  detain  the  goods  in  question.      Obtaining  and  implementing  the  detention  order  depends  on  the  quality  of  information  provided   by   IP   right   holders.   Gathering   the   evidence   for   an   application   requires   great  effort,  time  and  expense.      To  increase  the  likelihood  of  obtaining  a  detention  order  the  court  application  needs  to  be   supported   by   the   following   elements:   a   complete   description   of   the   goods,   the  quantity  and  value  of  the  goods,  the  identity  of  the  importer,  the  identity  of  the  exporter  and   vendor,   the   country   of   export,   the   country   of   origin,   the   place   of   import   and   release,  Copyright-­‐  This  confidential  report  is  the  Intellectual  property  of  the  WAITO  Foundation  all  rights  reserved.  No  part  of  this  publication  may  be  reproduced  or  diffused  under  any  form  or  by  any  means,  including  photocopies  and  recordings,  or  by  any  information  storage  or  recovery  system.    
  • 115.   115      confirmation  of  arrival,  the  mode  of  transport  and  the  notification  of  the  applicant  in  the  event  of  the  goods  being  detected.106      Therefore,   the   conditions   for   detention   at   customs   require   that   the   IPR   holder   collect  sufficient   information   to   anticipate   the   importation   of   illegal   goods,   well   enough   in  advance  to  initiate  court  proceedings,  obtain  an  order  and  have  the  order  implemented  when  the  goods  arrive  at  the  border  or  before  they  are  released  on  the  Canadian  market.  In   addition   to   these   obstacles,   the   scope   of   IP   protection   is   limited.   In   fact,   detention  orders   only   apply   to   imports   that   violate   copyright   and   trademark   rights.   It   does   not  apply  to  industrial  designs,  patents  or  any  other  intellectual  property  right.      The  slowness  of  the  system,  combined  with  Canada’s  extensive  borders,  which  provide  many  entry  points  for  infringing  products,  render  this  system  largely  ineffective.        In   order   to   address   the   problem,   the   RCMP,   the   CBSA   and   private   right   holders   have  begun   to   apply   Criminal   Code   provisions   to   stop   infringing   goods.107  Moreover,   RCMP  and   CBSA   have   established   joint   taskforces   in   various   Canadian   ports   and   have   taken  steps   to   establish   a   working   protocol   to   conduct   joint   investigations   on   criminal  activities   involving   counterfeit   goods   and   to   seize   and   dispose   of   counterfeit  merchandise.      Civil  measures      Counterfeiting   issues   are   mostly   addressed   through   civil   proceedings.   The   relevant  statutes   of   the   Trademarks   Act   and   the   Copyright   Act   provide   the   following   remedies:  injunctions,   payment   of   damages,   valuation   of   gains;   destruction   of   infringing   goods;  punitive  damages  and  the  recovery  of  a  percentage  of  legal  costs.      In   civil   proceedings   for   IPR   infringement   two   provisional   measures   can   be   applied:   a  provisional  preservation  order  and  the  John  Doe  /Jane  Doe  Anton  Piller  order.    An  Anton  Piller   order,   issued   ex   parte,   enables   right   holders   to   gather   evidence   of   suspected  infringement   in   cases   where   there   is   a   high   likelihood   that   the   evidence   will   be  destroyed.   This   order   is   often   applied   with   a   provisional   preservation   order   authorizing  the  defendant’s  premises  to  be  searched  and  the  seizure  of  any  relevant  evidence.  The  prompt   application   of   a   preservation   order   or   an   Anton   Piller   order,   can   ensure   that  counterfeit  goods  are  removed  from  the  market.      The  context    In   Canada,   as   well   as   in   several   other   countries,   IP   crimes   constitute   a   threat   to  “economic  integrity”.      According  to  the  results  of  the  STRIDER  project,  the  Canadian  economy  “is  mainly  based  on  knowledge,  and  innovation  is  the  main  engine  of  economic  growth,  productivity  and  competitiveness.   The   creative   industry   represents   7.4%   of   GDP   in   Canada,   and   it                                                                                                                  106  The   World   Trademark   Review,   Anti-­‐Counterfeiting  2010  –  A  global  guide,   Lipkus   L.M.,   Slatha   T.M.,   Canada,   2010,  p.76    107  Baker  and  McCanzie,  Intellectual  Property  Enforcement  at  the  Canadian  Border,  April  2005,  p.  6  Copyright-­‐  This  confidential  report  is  the  Intellectual  property  of  the  WAITO  Foundation  all  rights  reserved.  No  part  of  this  publication  may  be  reproduced  or  diffused  under  any  form  or  by  any  means,  including  photocopies  and  recordings,  or  by  any  information  storage  or  recovery  system.    
  • 116.   116      employs  more  than  one  million  people.  Protecting  intellectual  property  rights  is  vital  for  innovation   and   creativity,   and   consequently   it   is   crucial   in   guaranteeing   the   country’s  long-­‐term  prosperity”.108          Canadian   copyright   and   trademark   law   has   been   criticized   by   several   commercial  stakeholders   who   claim   that   it   neglects   intellectual   property.   These   criticisms   mainly  relate   to   the   lack   of   official   mandate   for   border   services   to   target,   seize,   and   destroy  counterfeit   goods.   Moreover,   Canada   has   not   yet   implemented   the   WIPO   Copyright  Treaty  and  the  WIPO  Performances  and  Phonograms  Treaty.        In   Canada,   the   Royal   Canadian   Mounted   Police   is   responsible   for   the   investigation   of  alleged   IP   crimes.   IP   law   enforcement   concerns   primarily   inland   rather   than   border  measures   as   the   Canada   Border   Services   Agency   (CBSA)   does   not   currently   have   a  mandate   to   actively   search   for   IP-­‐infringing   goods.109  As   the   CBSA   does   not   have   the  legislative   authority   to   take   appropriate   enforcement   measures   by   targeting,   seizing,  and   destroying   counterfeit   goods,   it   must   rely   on   the   Royal   Canadian   Mounted   Police  (RCMP),  or  other  government  departments,  such  as  Health  Canada,  when  counterfeit  or  pirated  products  are  identified  through  the  course  of  regular  border  controls.      The   Canadian   government   has   recently   committed   itself   to   implementing   reform  strategies  in  the  area  of  IP  crime,  including  possible  legislative  measures  to  supplement  copyright  and  trademark  laws.    According  to  the  RCMP,  the  “retail  value”  of  seizures  carried  out  between  2005  and  2008  exceeded   63.6   millions   CAD   (about   67   millions   USD) 110  highlighting   the   financial  incentive  of  intellectual  property  crime.    Improvement   in   counterfeiting   and   piracy   techniques   means   that   it   is   increasingly  difficult   for   police   officers,   customs   officers   and   right   holders   to   distinguish   between  original  and  fake  products.      As  highlighted  by  the  results  of  the  STRIDER  project,  evaluating  the  danger  of  IP  crime  in  Canada,   “the   difficulty   of   detecting   crime   linked   to   intellectual   property,   the   lack   of  police   resources   allocated   to   this   area   and   light   penalties   make   IP   crime   more   and   more  attractive  for  criminal  organizations,  especially  when  compared  to  other  serious  crimes  such  as  drug  trafficking”.111      The  Joint  Border  Threat  and  Risk  Assessment  elaborated  by  the  United  States  of  America  and  Canada  states  that  transnational  organized  criminal  groups  are  actively  involved  in  intellectual   property   infringement.   As   the   RCMP   also   points   out,   these   organizations   are  aware  that  profit  margins  for  counterfeiting  can  be  higher  than  for  narcotics,  while  the  penalties   are   less   severe.   “Chinese   criminal   organizations   lead   the   production   and                                                                                                                  108  Projet  STRIDER,  Évaluation  nationale  des  menaces  concernant  la  criminalité  liée  à  la  proprieté  intellectuelle  2005  à  2008,  August  2010,  p.5  109  US  Customs  and  Border  Protection,  Canada  Border  Service  Agency,  Royal  Canadian  mounted  Police,  United  States-­‐Canada  Joint  Border  Threat  and  Risk  Assessment,  July  2010,  p.10  110  Projet  STRIDER,  Évaluation  nationale  des  menaces  concernant  la  criminalité  liée  à  la  proprieté  intellectuelle  2005  à  2008,  August  2010,  p.4  111  Ibid,  p.4  Copyright-­‐  This  confidential  report  is  the  Intellectual  property  of  the  WAITO  Foundation  all  rights  reserved.  No  part  of  this  publication  may  be  reproduced  or  diffused  under  any  form  or  by  any  means,  including  photocopies  and  recordings,  or  by  any  information  storage  or  recovery  system.    
  • 117.   117      distribution   of   counterfeit   goods,   although   many   other   groups   and   operators   are   also  involved  worldwide”.112      An  overview  of  the  main  characteristics  of  IPR  infringement  in  Canada  is  outlined  below.        Consumers  and  counterfeiting      In  2008  the  Canadian  Council  on  Intellectual  Property  carried  out  a  public  opinion  poll  for  the  private  firm  Environics  Research  Groups.  The  results  showed  that  two  thirds  of  Canadians  think  that  purchasing  counterfeit  goods  prejudices  right  holders  and  retailers  as   well   as   their   employees.   Moreover,   consumers   support   the   measures   taken   by   the  Government  against  counterfeit  products,  especially  when  organized  crime  is  involved.    Nevertheless,   even   if   consumers   are   aware   of   the   negative   consequences   of  counterfeiting   and   of   the   risks   for   their   health   and   safety,   a   quarter   of   the   persons  interviewed   admitted   to   having   purchased   fake   products.   This   result   suggests   that  people   have   developed   a   certain   degree   of   tolerance   regarding   the   purchase   of   cheap  counterfeit  goods.    The  box  below  gives  an  example  of  products  detected  by  the  RCMP  and  Health  Canada  that  are  a  consumer  health  hazard:         In 2007, 500,000 counterfeit toothpaste products, falsely labelled as Colgate Fluoride Toothpaste Herbal and Colgate Fluoride Toothpaste Maximum Cavity Protection, were found to contain high levels of harmful bacteria. These products were found on the Canadian market and posed a significant risk to health, especially to children and individuals with compromised immune systems. The merchandise was seized by Health Canada. Health Canada also assisted in the criminal investigation conducted by the Royal Canadian Mounted Police. Source: Health Canada, http://www.hc-sc.gc.ca/ahc-asc/media/advisories- avis/_2007/2007_79-eng.php    Counterfeit  Medicines 113    The   Canadian   Health   Products   and   Food   Branch   Inspectorate   focused   part   of   its   anti-­‐counterfeit  policy  on  the  potential  infiltration  of  counterfeit  medicines  into  the  country’s  supply  chain.    The  threat  of  infiltration  is  generally  distributed  among  different  sections  of  the  supply  chain,   including   the   manufacture,   packaging,   labelling,   importation,   distribution   and  purchase  of  health  products.                                                                                                                        112  US  Customs  and  Border  Protection,  Canada  Border  Service  Agency,  Royal  Canadian  mounted  Police,  United  States-­‐Canada  Joint  Border  Threat  and  Risk  Assessment,  July  2010,  p.10  113  Health  Canada,  Health  Products  and  Food  Branch  Inspectorate.  Policy  on  Counterfeit  Health  Products,  May  2010,  p.3    Copyright-­‐  This  confidential  report  is  the  Intellectual  property  of  the  WAITO  Foundation  all  rights  reserved.  No  part  of  this  publication  may  be  reproduced  or  diffused  under  any  form  or  by  any  means,  including  photocopies  and  recordings,  or  by  any  information  storage  or  recovery  system.    
  • 118.   118      Since  counterfeit  medicines  and  their  related  activities  infringe  the  Food  and  Drugs  Act  (FDA),  the  Inspectorate  has  the  power  to  adopt  specific  enforcement  measures  against  the   production,   distribution   and   purchase   of   counterfeit   drugs.   However,   the  responsibility   of   consumer   protection   is   shared   with   other   government   institutions,  healthcare   professionals   and   industries.   One   of   these   bodies   is   the   Royal   Canadian  Mounted  Police.      Internet  piracy  and  combating  counterfeiting  on  line    Luxury   goods,   electrical,   electronic,   high-­‐tech   and   pharmaceutical   products   are   among  the  preferred  targets  of  counterfeiting  sales  through  third  party  or  unregulated  websites.  There   are   certain   loopholes   in   Canadian   legislation   preventing   it   from   properly  addressing  the  problem.  This  situation,  coupled  with  inadequate  allocation  of  resources  to  anti-­‐counterfeiting,  encourages  counterfeiters  to  import  imitation  goods  into  Canada  to  be  sold  online  and  shipped  across  North  America.  Right  holders  maintain  that  the  first  step  towards  addressing  the  problems  of  the  virtual  marketplace  is  for  Canada  to  ratify  the   World   Intellectual   Property   Organization   internet   treaties,   which   Canada   signed  more  than  a  decade  ago.      f) Latin  America    Latin   America   is   a   vast   area   including   South   America,   Central   America,   parts   of   North  America   and   the   Caribbean.   It   is   made   up   of   more   than   30   countries   and   territories.  Anti-­‐counterfeiting   measures   in   Latin   America   come   up   against   obstacles   that   are  unique  to  this  region.  In  2010,  almost  200  million  USD  of  counterfeit  goods  were  seized  and   1000   people   arrested   in   operations   coordinated   by   Interpol   and   the   WCO.   This  points  to  the  importance  of  this  continent  in  the  fight  against  counterfeiting,  especially  in  respect  of  consumer  goods.    Legal  framework    In   general,   Latin   American   countries   have   domestic   regulations   against   counterfeiting.  In   addition,   many   of   them   are   also   party   to   various   international   conventions   and  agreements   on   trademark   and   IP   rights.   The   Paris   Convention   for   the   Protection   of  Industrial  Property114;  and  the  WTO  Agreement  on  Trade-­‐Related  Aspects  of  Intellectual  Property  Rights  (TRIPS)115  are  the  two  most  ratified  agreements.        The  table  below  indicates  the  international  and  regional  treaties  on  industrial  property  rights  ratified  by  Latin  American  and  Caribbean  countries.                                                                                                                    114  For  more  information  on  the  text  of  the  document  and  contracting  parties:  http://www.wipo.int/treaties/en/ip/paris/    115  For  more  information  on  the  text  of  the  document  and  contracting  parties:  http://www.wto.org/english/docs_e/legal_e/27-­‐trips_01_e.htm    Copyright-­‐  This  confidential  report  is  the  Intellectual  property  of  the  WAITO  Foundation  all  rights  reserved.  No  part  of  this  publication  may  be  reproduced  or  diffused  under  any  form  or  by  any  means,  including  photocopies  and  recordings,  or  by  any  information  storage  or  recovery  system.    
  • 119.   119       TABLE  OF  TREATIES  ON  INDUSTRIAL  PROPERTY  RIGHTS  RATIFIED  BY  LATIN  AMERICAN  AND   CARIBBEAN  COUNTRIES116       INTERNATIONAL  TREATIES   REGIONAL  TREATY   COUNTRY   PARIS   TRIPS   MERCOSUR   CONVENTION   Antigua  and  Barbuda   MS   MS     Argentina   MS   MS   MS   Bahamas   MS       Barbados   MS   MS     Belize   MS   MS     Bolivia   MS   MS   AM   Brazil   MS   MS   MS   Chile   MS   MS   AM   Colombia   MS   MS   AM   Costa  Rica   MS   MS     Cuba   MS   MS     Dominica   MS   MS     Dominican  Republic   MS   MS     Ecuador   MS   MS   AM   El  Salvador   MS   MS     Grenada   MS   MS     Guatemala   MS   MS     Guyana   MS   MS     Haiti   MS   MS     Honduras   MS   MS     Jamaica   MS   MS     Mexico   MS   MS   OM   Nicaragua   MS   MS     Panama   MS   MS     Paraguay   MS   MS   MS   Peru   MS   MS   AM   Puerto  Rico   MS   MS     Saint  Kitts  and  Nevis   MS   MS     Saint  Lucia   MS   MS     Saint   Vincent   and   the   MS   MS     Grenadines   Suriname   MS   MS     Trinidad  and  Tobago   MS   MS     Uruguay   MS   MS   MS   Venezuela   MS   MS   AM       MS  =  Member  State        AM  =  Associate  Member   OM  =  Observer  Member      At   a   regional   level,   it   is   worth   mentioning   the   Protocol   for   the   Harmonization   of  Intellectual   Property   Norms   in   MERCOSUR   (Common   Southern   Market)   in   respect   of  Trademarks   and   Indications   and   Denominations   of   Origin   117 .   The   protocol   was  approved  by  the  Governments  of  Argentina,  Brazil,  Paraguay  and  Uruguay,  recognizing  the  need  to  promote  an  adequate  protection  of  intellectual  property  rights  and  to  ensure  that  the  exercise  of  these  rights  does  not  create  a  barrier  for  legitimate  trade.  Mercosur  Member   States   recognized   the   need   to   establish   rules   to   guide   the   administrative,                                                                                                                  116  International   Trademark   Association,   Latin   America   and   Caribbean   Subcommittee,   Report:   Legislative   trends  regarding  trademarks  in  Latin  America  and  the  Caribbean:  an  outline  of  current  bills  and  on  the  legislative  process,  p.  5    117  Argentina,   Brazil,   Paraguay   and   Uruguay   are   the   contracting   parties   of   the   Protocol.   The   text   of   the   document   is  available:  http://untreaty.un.org/unts/144078_158780/12/10/5009.pdf    Copyright-­‐  This  confidential  report  is  the  Intellectual  property  of  the  WAITO  Foundation  all  rights  reserved.  No  part  of  this  publication  may  be  reproduced  or  diffused  under  any  form  or  by  any  means,  including  photocopies  and  recordings,  or  by  any  information  storage  or  recovery  system.    
  • 120.   120      legislative   and   judicial   actions   of   each   State   Party   regarding   the   recognition   and  application  of  intellectual  property  rights.            Legal  proceedings    In   Argentina,   Bolivia,   Brazil,   Chile,   Colombia,   Ecuador,   El   Salvador,   Guatemala,   Mexico,  Panama,  Paraguay,  Peru,  Uruguay  and  Venezuela  counterfeiters  can  face  imprisonment.  However   prison   sentences   vary   considerably.   In   addition   to   prison   sentences,   many  countries  also  impose  fines  for  trademark  infringement118.      Destruction  of  infringing  goods    Judges  in  Latin  American  countries  can  usually  order  the  destruction  of  infringing  goods.  Panama,   Uruguay   and   Venezuela   also   allow   for   the   donation   to   charity   of   counterfeit  products,  after  all  the  distinctive  trademarks  have  been  fully  removed.  In  Paraguay,  if  an  expert   opinion   confirms   the   unauthorized   nature   of   products,   goods   can   be   destroyed  even  before  the  final  decision  is  issued119.      Additional  penalties    In   Argentina,   Bolivia,   Brazil,   Chile,   Colombia,   Ecuador,   El   Salvador,   Guatemala,   Mexico,  Panama,   Paraguay   and   Uruguay,   judges   are   also   entitled   to   order   additional   measures,  such   as   searches,   seizures   and   injunctions,   whereas   in   Guatemala,   Peru   and   Venezuela  interim  measures  are  up  to  the  public  prosecutor,  not  the  judiciary120.      Probation  In   various   Latin   American   countries   such   as   Argentina,   Bolivia,   Brazil,   Guatemala,  Paraguay,  Peru  and  Uruguay,  probation  –  which  is  the  suspension  of  prosecution  and/or  the  substitution  of  criminal  sentences  with  fines  or  community  service  -­‐  is  an  alternative  sanction  for  counterfeiting  activities.  In  Ecuador  and  Panama  probation  can  be  applied  if  the   prison   sentence   does   not   exceed   one   year.   In   Venezuela,   probation   is   known   as   a  reparation  agreement  and  only  enters  into  force  once  a  judge  has  approved  it.  In  Chile,  probation   can   only   be   used   if   the   parties   agree   to   it.   “In   Colombia   there   is   a   similar  provision   called   “integral   amends”   that   consists   of   reparation   of   damages   that   the  infringer  caused  to  the  titleholder”121.  In  El  Salvador  equivalent  additional  measures  can  be  applied  by  the  judge  without  appeal,  as  a  temporary  suspension  of  the  case  for  one  to  four   years.   As   a   consequence   the   infringer   must   refrain   from   certain   actions   and   must  pay   damages   to   the   injured   party,   set   by   the   judge.   Failure   to   comply   may   lead   to   the  reopening  of  proceedings.                                                                                                                      118  International  Trademark  Association,  Criminal  Prosecution  for  Counterfeiting  in  Latin  America,  2010  Bulletin,  available  at:  http://www.inta.org/INTABulletin/Pages/CriminalProsecutionforCounterfeitinginLatinAmerica6503.aspx  119  International  Trademark  Association,  Criminal  Prosecution  cit.  120  International  Trademark  Association,  previously  cited  work  121  International  Trademark  Association,  previously  cited  work  Copyright-­‐  This  confidential  report  is  the  Intellectual  property  of  the  WAITO  Foundation  all  rights  reserved.  No  part  of  this  publication  may  be  reproduced  or  diffused  under  any  form  or  by  any  means,  including  photocopies  and  recordings,  or  by  any  information  storage  or  recovery  system.    
  • 121.   121      In  Mexico,  the  judge  can  decide  to  reduce  the  counterfeiter’s  sentence  to  probation.        In   general,   criminal   judges   can   award   damages   to   injured   parties.   This   happens   in  Argentina,  Bolivia,  Ecuador,  Guatemala,  Paraguay  and  in  a  number  of  other  jurisdictions.  In   Chile   and   El   Salvador,   damages   can   be   awarded   by   the   judge   only   if   the   criminal  complaint   is   attached   to   civil   proceedings.   Similar   conditions   are   applied   in   Colombia,  where  damages  can  only  be  awarded  to  the  injured  party  in  a  civil  court.      Under  Mexican  law,  damages  can  be  awarded  for  prejudice  suffered  by  the  intellectual  property  right  holder.  Venezuelan  courts  only  award  damages  in  criminal  trials  once  the  court  has  made  its  decision.  The  injured  party  will  receive  damages  after  filing  a  claim  for   damages   with   a   criminal   court.   In   Peru,   the   injured   party   is   awarded   damages  together   with   the   reimbursement   of   legal   fees   and   expenses   incurred,   even   though  damages  are  usually  awarded  through  civil  proceedings.  In  Paraguay  the  Criminal  Code  makes  damages  dependent  on  a  favourable  criminal  court  decision.  Brazil  and  Panama  do   not   award   damages   in   criminal   cases.   This   is   also   the   case   in   Uruguay,   although  courts  can  order  the  seizure  and  destruction  of  goods  for  criminal  complaints122.    Regarding  enforcement,  several  examples  are  presented  below  regarding  the  penalties  imposed  in  certain  Latin  American  countries.          The   Mexican   system   is   pretty   unique   in   that   it   imposes   different   penalties   for  pharmaceutical   intellectual   property   infringement.   “The   legal   system   differentiates  between  trademark  and  copyright  infringement  and  pharmaceutical  counterfeiting.  For  trademark  and  copyright  infringement,  penalties  are  three  to  ten  years  in  jail  and  fines  up   to   $85,000.   Counterfeiting   pharmaceuticals,   on   the   other   hand,   carries   a   prison  sentence  of  one  to  nine  years  and  a  maximum  fine  of  $420,000.”123    In  Brazil,  crimes  against  industrial  property  rights  carry  fines  and  prison  sentences  from  one   month   to   one   year.   The   law   also   provides   the   alternative   of   fines   determined   by   the  nature   of   the   crime.   In   2003   a   law   was   introduced   to   increase   penalties   for   copyright  violations  to  four  years’  imprisonment,  with  a  minimum  term  of  two  years.  In  addition,  a  new   draft   law   (Bill   333/1999),   which   is   currently   being   considered   by   the   Brazilian  National   Congress,   aims   to   increase   penalties   to   four   years’   imprisonment   for  counterfeiting   cases   potentially   involving   other   criminal   activity.   However   the   bill   has  been  under  consideration  by  the  National  Congress  since  1999.124    Under  Colombian  criminal  law,  the  unlawful  use  of  trademarks  is  punishable  by  prison  sentences   of   four   to   eight   years   and   fines   of   26.66   to   1,500   times   the   minimum   wage  (approximately  $6,000  to  $337,000).            In  Panama,  criminal  actions  must  be  brought  before  the  courts.  “Any  person  who  forges,  alters   or   imitates   a   trademark,   trade   name   or   slogan,   or   uses   it   to   commercialize   or  circulate  a  product  or  render  services,  will  face  imprisonment  of  between  two  and  four  years.”125  Penalties   may   be   harsher   where   infringements   endanger   public   health,   in                                                                                                                  122  International  Trademark  Association,  previously  cited  work  123  “International  Trademark  Association,  previously  cited  work  124  J.H.  Vasi  Werner,  N.V.  Montan,  The  World  Trademark  Review,  Anti-­‐Counterfeiting  2010  –  A  global  guide:  Brazil,    pg.  72  125  R.  Candanedo  N,  J.  Atencio  de  Jaén,  The  World  Trademark  Review,  Yearbook  2008  –  A  global  guide:  Panama,    Copyright-­‐  This  confidential  report  is  the  Intellectual  property  of  the  WAITO  Foundation  all  rights  reserved.  No  part  of  this  publication  may  be  reproduced  or  diffused  under  any  form  or  by  any  means,  including  photocopies  and  recordings,  or  by  any  information  storage  or  recovery  system.    
  • 122.   122      which  case,  prison  sentences  may  range  from  30  months  to  six  years.  However,  where  offenders   are   travelling   vendors   or   peddlers,   they   receive   one-­‐sixth   of   the   prison  sentence   established   for   each   crime   and,   if   the   infringement   endangers   public   health,  prison  sentences  range  from  one  to  two  years.  Other  penalties  that  can  be  applied  by  the  criminal  judge  include  the  suspension  of  the  right  to  engage  in  business  or  industry  for  three   months,   or   the   withdrawal   or   cancellation   of   the   permit   to   engage   in   business,  granted  by  the  administration  of  a  free  zone.        Civil  Measures    In   Panama,