India: Bolstered anti-counterfeiting regime champions stricter market regulation and enhanced consumer awareness

Introduction

Trade in counterfeit products has represented a menace to commerce and growth since time immemorial. Countries globally have been trying to defend against its proliferation and legislating to plug gaps and loopholes to meet the ultimate goal of achieving zero counterfeits, albeit with little success. Due to counterfeiting’s illegal nature, it is inherently difficult to calculate exact figures for counterfeit goods. However, the available estimates suggest that the international counterfeit market was worth between US$400 billion and US$600 billion in the year 2018, making it larger than the 2018 gross domestic product of over 150 countries, and around 2% of all global trade. Further, employment losses globally due to counterfeits are estimated at between 4.2 to 5.4 million jobs in 2022. India alone has faced losses of over US$7 billion in the year 2019-2020 and it has lost over 3 million jobs due to the precipitative effects of the counterfeits industry.

Legal framework in India

India recognises the perils of counterfeiting and has a considerable reputation for formulating and implementing sound legislative frameworks to combat it. India, as a member of the agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) is primarily bound by TRIPS Article 61, which mandates member nations to provide for criminal proceedings and sanctions in cases of trademark infringement and copyright piracy.

There are important pieces of legislation in India that, directly or indirectly, deal with counterfeiting, and there are civil as well as criminal remedies that are discussed below.

Border measures

To implement stringent border measures, as envisaged by the TRIPS Agreement, India’s central government has notified the Intellectual Property Rights (Imported Goods) Enforcement Rules, 2007, defining the role of the Customs Authorities in preventing counterfeiting.

A major portion of counterfeit goods are manufactured outside India and imported. Customs, the primary line of defence against counterfeits at national borders, have been conferred powers to act against the movement of suspected counterfeit products. Importing of infringing goods is prohibited under the Customs Act, 1962 (the Customs Act), read with the Intellectual Property Rights (Imported Goods) Enforcement Rules 2007. Section 11 of the Customs Act aims to enforce IP rights and enables prohibition of certain goods to prevent patents, trademark or copyright infringement. Customs do not currently consider parallel-imported goods or goods procured in the grey market as prohibited goods, unless they have been smuggled into or have been imported outside of their original packaging.

Protection under Indian Customs Act, 1962

Under Articles 51 to 60 of the TRIPS Agreement, WTO member countries must enact laws to fulfil obligations relating to border measures by incorporating provisions such as suspension of release of goods, notice of suspension, security or equivalent release, right of inspection and information, etc, to enforce IP rights at the border.

Section 11 of the Customs Act enables Customs to prohibit either absolutely or subject to conditions specified in the notification, the import or export of goods of any specified description.

The Customs Act provides for seizure of infringing goods, if there are reasons to believe that the goods are counterfeit. In addition, it also allows trademark, design and copyright owners to register their rights with Customs for the seizure of imported counterfeit goods. Pursuant to registration of the trademark with them, Customs will notify the rights holder of any counterfeit imported goods, which will be destroyed in front of the rights holder if determined to be fake. In some cases, even if the rights holder is not registered with Customs, rights holders will be notified. Counterfeiting and piracy are offences in India, and law enforcement agencies are conferred search and seizure powers.

The detailed procedure to be followed by the right holders or their authorised representatives once counterfeit goods have been seized by Customs either suo moto or based on any IP right registered with them has been stipulated in the Intellectual Property Rights (Imported Goods) Enforcement Rules, 2007 issued vide notification No. 47/2007-Customs (NT), 8 May 2007.

These rules, inter alia, provide for: (i) the filing of a notice by the right holder; (ii) registration of the notice by Customs; (iii) time limit for right holders to join proceedings; (iv) single point for registration of the notice; (v) adequate protection to the rightful importer; (vi) adequate protection to Customs for bona fide acts; (vii) suo moto action by Customs in specified circumstances; (viii) disposal of the confiscated goods; and (ix) no action against goods of non-commercial nature contained in personal baggage or sent in small consignments intended for personal use of the importer.

However, since Customs is enforcing laws while protecting intellectual property rights, right holder participation is required in the Customs proceedings. If the right holder abstains, Customs have no obligation to continue with the detention and the goods shall be released.

Criminal prosecution

The Trade Marks Act, 1999 does not use the term “counterfeiting” in its provisions, instead the phrases “falsifying” and “falsely applying trademarks” are mentioned.

Sections 102 to 105 of the Trademarks Act, 1999 provide criminal remedies for selling counterfeit products. Any person who sells, exhibits or hires the goods for sale that have false trademark, is liable. The burden of proving the assent of the proprietor of the trademark in a situation of falsifying and falsely applying trademarks lies on the accused. The infringer shall be punishable with imprisonment of between six months and three years. The fine shall between 50,000 rupees and 200,000 rupees. Repeat offenders shall face enhanced punishment for second and subsequent offences with imprisonment from one to three years and a fine between 100,000 and 200,000 rupees.

Individuals accused of counterfeiting shall be given the benefit of the doubt if they prove that after taking all reasonable precautions at the time of committing an offence, they had no reason to suspect the trademark wasn’t genuine. They should, however, be willing to give information about the person from whom they obtained the falsely trademarked goods or be able to prove that they acted innocently.

Section 64 of the Copyright Act, 1957 provides for seizure and confiscation of infringing copies of the work, wherever found. Section 63 of the Copyright Act provides for imprisonment up to three years and a fine for infringement activities.

The Indian Penal Code 1860 (IPC) attempts to curb counterfeits (including materials used for counterfeiting) by way of punishments for cheating. The IPC can be invoked during criminal prosecutions, in addition to the specific statute being invoked for the said criminal action.

Section 486 of the IPC deals with selling goods marked with a counterfeit property mark. Selling of counterfeit goods is punished with imprisonment for a term up to one year or a fine, or both.

As per the Standards of Weights and Measures (Enforcement) Act, 1985, whoever possesses, sells or offers or exposes to sell counterfeit seal or stamp, shall be punished with imprisonment for a term between six months and two years, and, for the second or subsequent offence, imprisonment shall extend up to five years.

The Drugs and Cosmetics Act, 1940 prohibits import, export or sale of adulterated, spurious or misbranded drugs. The drug inspector may confiscate the stock, packages, labels or any machinery or implements utilised to manufacture counterfeit medicine. The Act stipulates procedures to counter adulterated, spurious or misbranded drugs and their import to India. The Act defines a spurious drug as a drug that is manufactured under a name that belongs to another drug or is an imitation or substitute of another drug, misrepresenting the source of the product. Offering to sell adulterated drugs is punishable with imprisonment for a term of between seven and 10 years, but which may in circumstances extend to life imprisonment, and also incurs a fine no less than 1 million rupees or three times the value of the drugs confiscated.

It was held by the Supreme Court in Drugs Inspector & Anr v M/s Fizikem Laboratories Pvt Ltd & Anr that Viagra is an allopathic drug and by no stretch of imagination can it be said to be an Ayurvedic drug. The very fact of selling this drug as one of the ingredients in the Ozomen capsule and not displaying the name in the prescribed manner in the drugs, constituted an offence under the Drugs and Cosmetics Act, 1940. It was further held that the inspector appointed by the central or state government by notification in the Official Gazette may inspect any premises wherein any drug or cosmetic is being manufactured. Inspectors may test the drugs or cosmetics and search the premises, and are granted other such powers which may be necessary for enforcement of the provisions of the Act.

The Copyright Act, Trade Marks Act, and Drugs and Cosmetics Act, while providing for criminal liability, do not possess deterring sanctions as part of the punitive measures. Though this legislation states imprisonment as a penalty, the nature of the offence is not cognisable and bailable.

Civil enforcement

The Commercial courts under the Commercial Courts Act, 2015 were set up at the district level and at High Courts with original jurisdiction for dealing with cases of Intellectual Property infringement. The Code of Civil Procedure, 1908 governs civil remedies for infringement of intellectual property rights. The courts have been granting interim injunctions to minimise loss suffered by honest intellectual property rights holders. In cases of anti-counterfeiting, summary judgments are invoked as they help in reducing the time frame of a suit and provide proper remedies to the aggrieved parties.

The Copyright Act, 1957 has laid strict provisions against copyright infringement. Section 55 of the Copyright Act, 2000 provides various civil remedies such as injunctions, damages and account of profits.

Interim injunction

The court in an ex parte hearing orders the infringer to stop dealing with counterfeit products immediately. In such cases, the court must be convinced that a delay in granting an injunction might lead to an irreparable loss of reputation and profit to the rightful owner.

Permanent injunction

The court in most cases directs infringers to destroy all subsisting stock of infringing products by granting a permanent injunction.

Appointment of local commissioner

The court under this order empowers the local commissioner to enter an unnamed defendant’s premises to seize infringing material when there is an element of suspicion of the presence of such material in and around those premises.

Damages

In one of the first cases, Time Incorporated v Lokesh Srivastava and Anr, the court granted the plaintiff punitive damages of 500,000 rupees, after it was established that the defendant was guilty of passing off its Hindi news magazine as the famous Time magazine by adopting a similar name, a similar front page with a distinctive red border, and an identical typescript and font.

In Cartier International AG v Gaurav Bhatia, the Delhi High Court granted damages totalling 10 million rupees, for the infringement of trademarks and the selling of counterfeit luxury brands online, which remains the highest punitive damages awarded by the court in a case of trademark infringement in India.

However, India recognises the doctrine of international exhaustion, which allows parallel import of its products in India. The Division Bench in Kapil Wadhwa v Samsung Electronics stated that denial of parallel imports will restrict consumers’ access to a wider range of products at better prices and further clarified that trademark laws are not intended to regulate the sale and purchase of goods but to protect trademark rights. The Court permitted parallel imports to India, on the condition that the appellants would provide certain disclaimers in their shops.

Section 30(3)(b) of the Trade Marks Act, 1999 provides that where the goods bearing a registered trademark are lawfully acquired, further sale or other dealing in such goods by purchaser or by a person claiming to represent the purchaser is not considered an infringement. It is not unlawful to offer for sale genuine goods in the market under the registered trademark, even if it is without the consent of the lawful proprietor of the trademark. However, such goods should not have been materially altered or impaired after they were put on the market.

Counterfeiting in the virtual world

The Information Technology Act, 2000 (the IT Act) seeks to curb illegal infringing activities conducted through the use of computers and other technology. The IT Act has stringent provisions and provides for both civil and criminal remedies. Online counterfeiting by way of illegal domain registrations can be tackled through arbitrations proceeding under ‘.in’ Domain Name Dispute Resolution Policy (INDRP) or the Uniform Domain Name Dispute Resolution Policy (UDRP), by establishing bad faith on the part of the registrant. In cases where the registered domain name comprises an identical or confusingly similar trademark, the aggrieved party can also seek an interim injunction or a permanent removal or transfer of the domain name through a civil lawsuit by adding the domain registrar as a co-defendant.

Information Technology Act, 2000 and Information Technology (Intermediaries Guidelines) Rules, 2011

The IT Act is enforceable if illegal activities take place through a computer system and supporting technology. Sections 79 and 87(2) of the IT Act lay down rules, liabilities and exemptions of intermediaries offering third-party products for online sale. Rule 3 of the Information Technology (Intermediaries guidelines) Rules, 2011 (the Intermediaries Rules) specifically deals with due diligence to be observed by the intermediary to curb display and sale of counterfeit products through e-commerce. As per the Intermediary Rules, the intermediary shall publish the rules and regulations, privacy policy and user agreement for access and usage of the intermediary’s computer resource by any person. The information should be such that any buyer visiting the site should be able to identify the source of the products and/or services; transparency is paramount for e-commerce platforms. Pursuant to the 2022 amendments to the Intermediary Rules, intermediaries are expected to respect the rights guaranteed to users under the Indian Constitution, including a reasonable expectation of due diligence, privacy and transparency.

In a landmark judgment, Kent RO Systems Ltd v Amit Kotak, the Supreme Court laid down guidelines on how intermediary companies shall take maximum care in drafting their privacy policy and terms of use in compliance with the IT Act and Intermediary Rules. Intermediaries must also immediately take down infringing, counterfeit, and fake products, once they are given notice by the right holder.

In Christian Louboutin SAS v Nakul Bajaj & Ors, the Delhi High Court observed that e-commerce platforms that actively conspire, abet or aid, or induce the commission of unlawful acts on their website cannot escape liability. The protection given to intermediaries is not absolute, and if they are involved in the process of initiating the transmission, selecting the receiver or modifying the information contained in the transmission, they may lose any exemption given under the law.

Protection under the Consumer Protection (E-Commerce) Rules, 2020

The Consumer Protection (E-commerce) Rules 2020 (E-Commerce Rules) attempt to combine the essence of the Consumer Protection Act, 2019 to ensure fair play in technology and data driven e-commerce environments.

The obligations of e-commerce entities are listed in Rule 5(2) and Rule 5(3)(a) of the E-Commerce Rules, which mandates each e-commerce entity must exercise due care. The Rules require that each seller gives an assurance that the descriptions, images and other content pertaining to the goods or services hosted on the e-commerce platforms are accurate and genuine. Every e-commerce platform must give comprehensive information about the vendor in a way that is understandable to all users. In the event of counterfeiting using e-commerce platforms, the harmed party may seek compensation from the e-commerce platforms under the rules.

Preventive measures

Consumer awareness

Consumer awareness must be at the forefront in the fight against counterfeiting. Consumers who purchase counterfeit goods are often unaware of the health and safety concerns they are exposing themselves to, let alone the deeper issues including labour exploitation, economic consequences and environmental issues that are fuelled by the counterfeits industry. Making consumers aware of the risks would go a long way to tackling counterfeiting. Counterfeit products sold online and offline can be curbed by training buyers to identify tell-tale signs and take precautions, such as checking the identity of the seller, examining the quality of goods, checking for reviews from other customers, examining the overall look and feel of the website, reading through the terms and conditions and returns policies, looking out for unusually low prices, and using secured means of payment.

Active enforcement

In curbing counterfeiters it is important that the stakeholders are kept abreast of available preventive and remedial measures. Businesses of all scales must be encouraged to adopt an effective counterfeit monitoring strategy. Counterfeiters flourish best when left unexposed, and no legal action is taken. It is therefore important that the right holders take prompt and persistent action against counterfeiters to send the right message and as a deterrent to targeting the same business repeatedly. Small businesses may be incentivised to take effective anti-counterfeiting measures. Traditional anti-counterfeiting technologies like holograms and QR codes are proving to be easily imitated by counterfeiters and are being replaced by emerging block-chain based technologies. Few of the available options include RFID (radio frequency identification) tags which involves embedding small chips into a product which can be scanned to verify authenticity of a product. The latest technologies also deploy cryptography and digital signatures to authenticate the product by verifying the signature and encryption.

Technological assistance

Thanks to technological advancements, today there are a number of digitally sound, cloud–based anti-counterfeiting solutions available that help to track, trace and verify a product’s authenticity from the beginning to the end of the supply chain. IP holders can be encouraged to inculcate technologies based on artificial intelligence and blockchain in their IP strategy to persistently detect and curb counterfeit of their products. The new technologies provide effective solutions to the counterfeiting problems plaguing the markets and most of these options are workable using a simple smart phone. Depending upon the specific requirements of the business and nature of products, the businesses can adopt the most cost-effective method and implement appropriate packaging and product features to assist in product authentication as well as tracking.

Market surveillance

IP holders may engage the services of specialist firms to conduct regular market surveillance along the supply chain as it helps to detect the place from where the counterfeits originate. They may engage such firms to frequently monitor the key online as well as offline marketplaces that are prime markets for counterfeit products.

Strong contracts

Nurturing strong contractual relationships with stakeholders across the supply chain including distributors, franchisees and licensees help in combating counterfeiting problems. IP holders can lay down stringent contractual terms preventing third parties from registering or using their trademarks, copyrights or other intellectual property.