March 5, 2019

Beating the knock-off merchants

Global trade in counterfeit products is not a new problem. We’ve all heard of fake designer handbags, watches and sneakers. What is new, is the scale of the problem.

By 2020, worldwide illicit trade in counterfeit goods is expected to increase 50% from current levels to US$1.8 trillion[1]. Unfortunately, New Zealand consumers and businesses are not immune to this trend. The vast majority of counterfeit goods that reach our shores are manufactured overseas and imported, so New Zealand Customs play a major role in policing the problem at our borders.

In 2017, Customs officials intercepted almost 90,000 counterfeit items – from fashion and jewellery, to exercise machines and electronic goods.

One of the ways that Customs help protect against the importation of unlawful and pirated goods, is by administering measures set out in the Trade Marks Act 2002 and the Copyright Act 1994. If you are the owner of a registered trade mark, or a copyright work, then under New Zealand law you can lodge a Customs Notice authorising the Customs department to detain any unauthorised goods bearing your registered trade mark or that reproduce or incorporate your copyright work. Customs use these notices to help track and identify potentially infringing items, providing intellectual property rights (IPR) holders with a cost-effective means of stopping such goods from being imported and released into the market. Customs notices can also act as a deterrent to would-be importers as they are published online and publically available. It’s important to note however, that unless notices are lodged by IPR holders, Customs cannot detain goods discovered during routine operations, even if the goods are obviously counterfeit.

Currently, NZ Customs are enforcing IPR notices for approximately 330 rights holders, including those for several well-known brands such as Apple, Nike, Samsung, Comvita, Icebreaker and Karen Walker. Once notified by Customs that potential counterfeits have been detained at the border, IPR holders have 10 working days to initiate Court proceedings against the importer. The importer will either concede that the goods infringe the notice holder’s IPR and surrender them to the Crown, or they may choose to fight the proceedings which is what happened in a recent case involving the importation of five container loads of knock-off furniture.

James & Wells client, PGT Reclaimed, designs and produces high-quality furniture products in Vietnam (the source of something like 70% of the world’s wooden furniture). Owner Ian Burden has invested many years into getting his products right, including their design, sourcing wood (all reclaimed and repurposed), preparing it, and kiln drying and finishing it.  His efforts won him a sustainability award and the furniture is exported to markets all over the world – up to 100 containers a month.

PGT had lodged a customs notice relating to the company’s product lines and underlying copyright works. Spotting the reasonably large shipment of what appeared to be counterfeit furniture items, Customs alerted lawyers for PGT, and upon verification that the goods did indeed appear to be knock-offs, the company immediately initiated Court action. The goods were impounded by Customs pending an outcome. PGT has pursued a number of these cases and had great success.  Large shipments of knock-off furniture have been destroyed while other cases are still working their way through the system.  In the interim the importation of counterfeit goods has apparently stopped (as it would appear importers have been deterred in dealing with such goods).

Court action in this area is often split into two parts: first a trial on the issue of liability, and later the determination of ‘quantum’ i.e. how much should be paid as damages or an account of profit. In the first of these cases PGT Reclaimed was successful – the High Court found after a trial on liability that the furniture in question did infringe PGT’s copyright. The High Court ruled destruction of the counterfeit product. But the matter didn’t end there. The importer appealed the High Court decision and the case went to the Court of Appeal, which supported the first decision. The Supreme Court declined an application for another appeal.

Some may question why the counterfeit goods were destroyed rather than being donated, say. The reason is that while they looked the same or at least deceptively similar to authentic PGT Reclaimed products they were of poor quality. Releasing them into the market would put at risk PGT Reclaimed’s hard-earned reputation for manufacturing a high quality product and diminish the value of genuine product.

The lesson for businesses making products that may be at risk of being copied by others, is to get good advice and assistance around protection for your intellectual property including copyright, designs and trade marks, and for extra insurance, use inexpensive and powerful tools like customs notices to help stop the knock-offs in their tracks.

Global Brand Counterfeiting Report 2018-2020 ~

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