Procedures and strategies for anti-counterfeiting: Panama

Legal framework

The following laws govern intellectual property in Panama:

• the Industrial Property Law (Law 35/1996);
• the Copyright Law (Law 64/2012);
• the Penal Code;
• the IP Customs Regulations (Executive Decree 123/1996, modified by Executive Order 466/2015);
• the IP Colon Fee Zone Regulations (Executive Decree 79/1997);
• the Paris Convention for the Protection of Industrial Property;
• the Agreement on Trade-Related Aspects of Intellectual Property Rights; and
• the Berne Convention for the Protection of Literary and Artistic Works.

Border measures

To control and pursue the traffic of counterfeit products into and from the Colon Free Zone (CFZ) and at other points of introduction and distribution of merchandise within the country (eg, ports), the Panamanian government instituted, by means of special statutes, border control measures empowering CFZ and customs authorities to inspect and seize suspected counterfeit goods, either ex officio or on request by an interested party.

Customs authorities are empowered to inspect and seize merchandise that is subject to customs procedures and which may violate Panama’s IP laws, regardless of its final destination. This means that even in-transit goods can be inspected and seized.

CFZ authorities have the same powers in respect of merchandise located or stored within the duty-free territory.

Both entities can proceed with the inspection and seizure of suspected infringing goods through the following mechanisms:

• ex officio procedures;
• on denunciation from an interested party (ie, the rights holder); or
• on an order issued by a competent authority.

Ex officio procedure

The authorities may proceed on their own motion whenever they learn from any source about possible counterfeit or infringing merchandise, or if they have reasons to believe that the goods violate Panama’s IP laws. Under this procedure, both the trademark owner and the merchandise consignee must be notified of the seizure.

Once the rights holder is notified, it may request samples of the products to examine them and confirm whether they are counterfeit or infringing. If so, the rights holder may file an opposition brief against the traffic and release of the merchandise. The opposition must be submitted within five business days after receipt of the samples. If the rights holder fails to do so within this period, the authorities will release the goods.

Pursuant to the CFZ and customs statutes, the rights holder must file a bond to guarantee potential damages that could be sustained by the owner or consignee of the merchandise as a result of the detention. The authorities must commission an appraisal of the seized goods to determine the bond amount, which can be up to 50% of the appraisal of the seized goods (ie, the dollar value assigned to the products); however, the authorities usually set a smaller percentage in order to avoid an onerous bond. The resolution setting the amount of the bond is served on the rights holder’s counsel by posting a notice at the customs/CFZ office for one day. The rights holder then has three business days to post the bond.

Denunciation from rights holder

This procedure requires the filing of a formal denunciation before Customs or the CFZ providing as much information as possible to allow the authorities to locate the suspected counterfeit merchandise. Along with the denunciation, the rights holder must submit certified copies of the local registrations for the trademarks that are being infringed, as well as a bond to guarantee potential damages.

This bond is initially set at $2,000 and must be increased if the percentage of the value assigned to the detained goods as the bond amount is higher than the initial bond. Thus, if the definitive bond is set at more than $2,000, the rights holder must deposit an additional bond to cover the difference. Once the rights holder is notified of the appraisal and the amount of the bond, it has three business days to post it.

In the case of the CFZ, in addition to the abovementioned documentation, it is necessary to pay an inspection fee of $300 per case before the search and seizure is conducted.

The two abovementioned administrative procedures conclude with the appraisal of the seized goods and the filing of the damages bond. The case is then transferred to the Intellectual Property District Attorney’s Office (IPDA) for the initiation of the corresponding criminal proceeding.

After assessing the merits of the case presented by the IPDA, the criminal court will order the forfeiture and destruction of the seized goods. As an expert witness will examine the seized products and confirm whether they are counterfeits or imitations during the investigative stage at the IPDA, customs and CFZ authorities are not empowered to dispose of the merchandise. The powers of these authorities are limited to conducting inspections and provisionally seizing the suspected goods. Following this, a criminal proceeding to determine IP rights crime will commence.

Order issued by a competent authority

An order requesting customs or CFZ authorities to inspect and detain suspected counterfeit merchandise may be issued by a civil court, as a result of a civil action initiated by the rights holder, or by the IPDA with approval from the criminal court.

Under this procedure, a bond will need to be posted to guarantee potential damages only when the order is issued by a civil court. The method for calculating the bond is the same as that mentioned above (ie, the application of a percentage of up to 50% of the appraised dollar value assigned to the seized goods).

Once Customs or the CFZ inspects and detains the merchandise, it will hand over the corresponding file and the seized products to the civil court or the IPDA.

This last administrative procedure is rarely used because it entails more time between the moment that the competent authority learns about the possible introduction, existence or exportation of infringing merchandise and the actual detention of the merchandise.

Criminal prosecution

Public prosecutors are empowered to initiate ex officio criminal actions for trademark counterfeiting or imitation where they learn from any source about the possible commission of such crime. Criminal actions do not require the filing of a damages bond.

Criminal actions may be initiated as a result of any information received by the District Attorney’s Office from the trademark owner or any third party, or a formal complaint or accusation filed by the trademark owner.

The IPDA was created in 2003 and handles all IP criminal cases in the country.

The criminal procedure system in Panama is an adversarial system. Therefore, almost all actions to be carried out by the prosecutors as part of the investigation (eg, test purchases, surveillance, search and seizure warrants, and provisional remedies) must be authorised by the criminal court or subject to subsequent approval of the criminal court.

In spite of the ex officio nature of the criminal action for trademark counterfeiting or imitation, the procedure rules in Panama allow for the termination of criminal proceedings through settlement agreements executed between the trademark owner and the defendant, provided that the trademark owner declares before the criminal court that it has been redressed.

Provisional remedies

The following provisional remedies are available:

• seizure of the infringing products and the equipment or machinery used in their manufacture or assembly;
• seizure of assets or moneys derived from the commission of the crime;
• an injunction forbidding the defendant to leave the country without judicial approval;
• an injunction ordering the defendant to appear before the IPDA or the criminal court periodically to verify his or her domicile or stay in the country; and
• preventive arrest of the defendant. This is the most serious provisional remedy that can be executed against a defendant in a criminal proceeding as it entails the arrest of the defendant while the criminal process is pending. The defendant is incarcerated while the case is decided. However, this remedy is rarely ordered for this type of crime. The arrest can be lifted by posting bail.

Criminal penalties

The following criminal penalties may be imposed:

• imprisonment from four to six years;
• impoundment and destruction of the infringing products and the equipment used in their manufacture;
• a fine equivalent to twice the damages or patrimonial benefit;
• suspension of the right to do business or exploit industries; and
• regarding the legal entity used to commit the crime and which benefits from it:
  • suspension of its commercial licence or registration for up to five years;
  • a fine of at least $5,000 and no more than twice the damages or patrimonial benefit;
  • total or partial loss of tax benefits;
  • a prohibition against contracting with the state, directly or indirectly, for up to five years, which may be imposed together with any of the above; and
  • dissolution of the company.

Civil enforcement

Panamanian IP laws entitle rights holders to seek monetary compensation through a civil action for damages sustained as a result of trademark counterfeiting or infringement.

Although the Trademark Law does not establish the type of damages for which the trademark owner should be redressed, it should be understood that they include economic as well as moral damages (ie, damages to reputation or goodwill) based on civil law.

The statute of limitations for civil actions for trademark counterfeiting or infringement is six years as of the last time the violation occurred.

Notably, a civil action can be brought not only in order to obtain a damages award. It can also be aimed at obtaining:

• a court ruling recognising the trademark counterfeiting or infringement;
• an order directing the defendant to cease all infringing acts and enjoining it from engaging in those illegal activities in the future; and
• the imposition of fines against the defendant.

Ex parte provisional remedies

The plaintiff can request the following provisional remedies, which are all processed as ex parte motions:

• immediate cessation of the infringing acts;
• seizure of the counterfeit or infringing products and the means exclusively used in the commission of the violation;
• immediate suspension of the import or export of the counterfeit or infringing products;
• suspension of the CFZ operation permit for companies doing business in that duty-free area;
• the posting of a bond by the defendant to guarantee payment of damages;
• seizure of bank accounts or other assets of the defendant to guarantee payment of damages (this remedy is contemplated in the Civil Procedure Code for all types of civil action where monetary damages are claimed); and
• examination of the defendant’s business records to obtain evidence of the suspected trademark infringement in support of the future civil action.

To obtain the first five of these provisional remedies, the plaintiff must post a bond, which may be up to 50% of the appraised value of the seized merchandise. The bond must be deposited with the court within three business days of the date of seizure of the infringing products.

In the case of suspension of the operation permit of companies located in the CFZ, the calculation of the bond is left to the judge’s discretion.

Finally, in the case of seizure of bank accounts or other property of the defendant, the bond must be posted before the seizure and will correspond to a percentage of the sum indicated in the petition as the amount intended to be attached.

The ex parte examination of business records is also subject to the prior filing of a bond to guarantee potential damages. The civil procedure rules set the maximum amount of the bond required for this purpose at $1,000, which is usually the bond required by the courts in order to conduct the inspection.

Civil penalties

The following civil penalties may be imposed:

• a fine ranging from $10,000 to $200,000. For companies operating in the CFZ, fines equivalent to 25% of the company’s monthly business movement, but no less than $75,000, may be imposed;
• suspension of the right to do business or exploit industries for three months;
• suspension for a minimum period of three months or cancellation of the operation permit granted to operate in the CFZ;
• seizure and destruction of all infringing products and the equipment used in their manufacture;
• monetary compensation for damages suffered by the trademark owner, if claimed; and
• publication of the condemnatory ruling in the Official Gazette.

The Trademark Law sets the following available methods to calculate damages for trademark infringement or counterfeiting:

• the foreseeable benefits that the trademark owner would have obtained had the infringement not occurred;
• the benefits obtained by the infringer as a result of the infringing acts;
• the price or royalty that the infringer would have paid to the trademark owner had a licence been granted, taking into account the commercial value of the infringing products and the licences previously granted;
• the value of the products manufactured without authorisation in the licit market; or
• any other legitimate means of value quantification that the trademark owner may submit.

It is up to the plaintiff to select one of these methods, which would then be followed by the court in assessing damages.

There are no statutory damages for trademark infringement or counterfeiting.

Anti-counterfeiting online

Unauthorised e-commerce

The distribution of counterfeit products through online retailers or platforms can be pursued through criminal or civil actions, but since prosecutors can carry out broader investigations, criminal actions are more effective to stop counterfeiting activities performed through the Internet.

The same civil and criminal penalties mentioned above are applicable to counterfeiting crimes committed through the Internet.

Individuals or entities involved in the distribution or offer for sale of counterfeit products (ie, those performing the actual offer for sale or sale of the goods) are civilly and criminally liable for IP rights violations. Therefore, if the hosting provider or the entity controlling the internet retailer platform is not involved in the commercial transactions of the infringer, it is not civilly or criminally liable for the trademark counterfeiting or infringement.

ISP liability

The liability of internet and hosting service providers in connection with civil or criminal infringement of IP rights has not been regulated in Panama. Thus, no legal action is available against internet or hosting providers to hold them responsible for trademark counterfeiting or infringement.

Notwithstanding the above, if there is clear evidence that the server that is hosting a website selling counterfeit products is physically located in Panama, the IPDA may initiate an investigation. The investigation would entail an inspection of the premises where the server is located. If it is found that the infringing website is hosted by a Panamanian hosting provider, the IPDA may order the provider to take down the website, subject to the court’s approval, regardless of the identity of the individuals or entities responsible for the operation of that site. As part of the investigation, the IPDA may also inspect the server and the hosting provider’s documents pertaining to the infringing website to gather information as to the identity and location of the individuals or entities operating the site.

Accordingly, even though the criminal investigation might not result in the identification of the actual infringers against whom criminal charges could be raised, it would serve as a mechanism to remove the infringing website and to gather information and evidence regarding the entities and individuals running the site.

On the other hand, although Panamanian legislation does not contemplate a simple procedure to force internet and hosting providers to shut down websites through which violations of IP rights are being committed, it is likely that a hosting provider would respond positively to a request from the trademark owner to that effect, if evidence of the illegal activities is shown to the provider.

Preventive measures/strategies

Use of local counsel and investigators

It is wise to retain local investigators or local counsel that provide investigation services, as they know the field and people in the relevant trade areas, and will therefore be able to carry out the investigations faster and cheaper than international investigators.

Local investigators can also provide periodic monitoring services of sensitive trade areas and liaise with customs authorities to help with the tracking and detection of suspected counterfeit goods.

Cooperation with national anti-counterfeiting agencies

It is crucial to maintain contact with local anti-counterfeiting agencies (eg, customs authorities, the police and IPDA officials) and cooperate with them in the fight against counterfeiting.

Regular training sessions for these agencies should be organised and conducted to keep the authorities aware of the registered trademarks that enjoy protection, the licit channels of distribution, the characteristics of genuine products and how to identify counterfeit products. Even if the trademarks are well known and popular, the authorities’ knowledge of those trademarks should not be taken for granted.

Estudio Benedetti

Comosa Building, 19th Floor

Samuel Lewis Avenue

Panama City

Panama

Tel +507 321 5100

Fax +507 263 2726

Web www.estudiobenedetti.com

Audrey Williams
Partner
[email protected]

Audrey Williams is founding partner of leading IP law firm Estudio Benedetti, where she heads the anti-piracy department. She graduated in law and political science from Universidad Santa Maria La Antigua, Panama, and obtained an LLM from Boalt Hall School of Law, University of California at Berkeley. She has practised IP law for 25 years, including trademark prosecution and litigation as well as copyright litigation.