Cracking down on counterfeiting and piracy in the EU

The paper analyses the Commission’s initiatives to fight counterfeiting and piracy (C&P) in the European Union.

Increased counterfeiting and piracy (C&P) in the European Union, coupled with a lack of resources and inadequate legal means to fight C&P, has prompted the European Commission to adopt new and tougher initiatives to fight both crimes. The new initiatives include:

• Amending existing customs regulations to extend the competence of customs authorities in relation to the seizure and destruction of infringing goods.
• Drafting a Directive aimed at harmonising enforcement and litigation standards within the EU market.
• Adding policy measures, such as training initiatives for enforcement officials.

Despite the increased attention, many companies still have unanswered questions. Will the initiatives prove effective? How will companies seek enforcement of their rights? What practical steps can they take to protect intellectual property and the value of goods?

History of the problem

The faking of branded products (counterfeiting) and products protected by copyrights and related rights (piracy) has increased exponentially in recent years, due in large part to a shift from counterfeiting and pirating luxury goods to all types of consumer goods. In fact, EU statistics show the number of counterfeited goods seized at EU external borders increased by 900 percent between 1999 and 2001. The number of pirated goods increased 15,330 percent for the same time period.

Even more troubling is that these figures are just the tip of the iceberg and reveal only a fraction of total C&P goods because, realistically, customs authorities identify only a small percentage. C&P on this scale has significant adverse effects on intellectual property rights holders, consumers, and EU Member States economies, as well as on public safety and health. Further, counterfeiters and pirates continue to benefit from gaps in the applicable laws and insufficient enforcement of intellectual property rights in several EU Member States.

The existing law and recent amendments

In 1994, the EU adopted Regulation 3295/94, which controls the flow of C&P goods across EU external borders. The regulation has been amended in recent years so that today, it empowers customs administrations, upon the right holders request or upon the customs authorities own initiative, to seize goods under customs supervision which are suspected of infringing certain intellectual property rights (including trademarks, registered designs and models, copyrights and related rights and, more recently, other intellectual property rights, such as patents and supplementary protection certificates).

On 20 January 2003, the European Commission published a new proposal for a Council Regulation aimed at replacing the existing Regulation 3295/94 and improving the current system of possible customs action against C&P goods. If adopted, the Regulation would:

• Extend the scope of the Regulation to additional intellectual property rights such as plant variety rights, geographical indications and designations of origin.
• Improve the quality of information provided to customs by right holders in the application for customs action insofar as the goods in question are readily recognizable.
• Replace fees and lodging of securities with an authorisation from the right holder to cover potential liabilities arising from customs action.
• Extend the scope of procedures which can be conducted at the customs authorities own initiative.
• Provide right holders with more detailed and frequent information from customs about suspect consignments.
• Provide right holders with samples of suspect consignments to verify their authenticity.
• Destroy suspected goods, under certain conditions, without a court action.
• Extend customs competence to control goods included in passengers personal luggage, if the goods are suspected to be a part of la rger scale traffic.
• Synchronize the period of validity and the form of applications for customs action within the EU.

Enforcement and new policy initiatives

On 30 January 2003, the European Commission also proposed a new directive on measures and procedures to ensure more effective enforcement of intellectual property rights. The initiative requires Member States to implement the following measures against infringements of intellectual property rights committed for commercial purposes or which cause significant harm to rights holders:

• Establish the right for authorised representatives of rights holders (e.g., rights management and professional defence bodies) to initiate legal proceedings against infringements of intellectual property rights.
• Establish a presumption of authorship to be vested in the person whose name is featured on the copy of the work.
• Require judicial authorities to order measures to secure evidence of infringements, to request the communication or seizure of banking, financial or commercial documents and, in an ex parte procedure, the detailed description (with or without the taking of samples) or the physical seizure of the infringing goods and related documents. Proceedings on the merits must be initiated within 31 days following such an order.
• Require judicial authorities to order the disclosure of information and permit them to disclose information on the supply and production chain.
• Permit judicial authorities to adopt provisional and precautionary measures, including interlocutory injunctions, and the precautionary seizure of fixed and non-fixed assets of the infringer, including the blocking of bank accounts and other assets. Proceedings on the merits must be initiated within 31 days following such an order.
• Require judicial authorities to adopt measures on the merits, including injunctions, to halt the sale of C&P goods, which is subject to a recurrent fine in case of non-compliance, to order the recall C&P goods at the infringers expense and to order the destruction of C&P goods.
• Require judicial authorities to oblige offenders to compensate the damage due to lost income (whereby the level of compensation may be determined at the double of royalty fees due in case of a proper license of the infringed intellectual property right).
• Require the implementation of other measures including the banning of machinery used to forge security devices and the publication of judgments at the offenders expense.
• Require judicial authorities to subject all intentional infringements of intellectual property rights (including participation in and attempts of such infringements) committed for commercial purposes to criminal sanctions.

What the new laws mean for your business

Although some of the proposed merits of the draft Customs Regulation send the wrong political signal insofar as small-scale infringements by individual travellers are implicitly not to be challenged, it would introduce a number of improvements regarding the cooperation between rights holders and customs authorities.

By contrast, the draft Directive on Enforcement Standards suffers from a number of significant shortcomings, including:

• A failure to provide a sufficiently harmonised system of enforcement standards across the EU, as a number of provisions leave a wide range of discretion for implementation by the Member States and by judicial authorities, hence potentially maintaining disparities in enforcement standards across the EU.
• A failure to include unfair commercial practices, such as look-alikes, not addressed by IP rights harmonized at the EU level.
• Unlike the provisions of the TRIPS Agreement, the provisions of the draft Directive apply only to infringements with severe effects or to those committed for commercial purposes (leaving such terms undefined).
• A limit on presumption of authorship to natural persons, hence leav ing companies, in particular those active in the software industry, with potentially insurmountable difficulties to prove their entitlement to enforce a copyright in the absence of a works for hire doctrine.
• A failure to reflect the practical needs for out-of-court settlements or for the preparation for litigation on the merits, particularly in the case of software piracy, in the mandatory requirement to initiate proceedings on the merits of the case within 31 days following the seizure of evidence or the adoption of provisional measures.

The proposal is still making its way through the legislative process so it is still amenable to change. Companies would be wise to take the opportunity to provide input to all institutions at the EU level involved in the further legislative process (such as the European Economic and Social Committee, the Committee of Regions, the European Parliament and the Council of the European Union) and to national authorities.

More importantly, companies may also take practical measures to better protect themselves against C&P. These include (1) information sharing among industry players and public authorities and enforcement agencies regarding the flow of C&P goods, (2) the implementation of efficient anti-C&P strategies (such as intelligent packaging systems, holograms, optical and electronic security devices, microscopic marks etc.), and (3) a number of management measures in the course of production and distribution in order to identify unauthenticated goods on the market, such measures will remain crucial in the fight against C&P.

For more information see

Squire, Sanders & Dempsey.