Brazil is the largest consumer market in South America and is a natural destination for counterfeit products exported from countries such as India, Russia and Paraguay. The growth in domestic production of counterfeit products has further contributed to an increase in the volume of illegal products available on the market.
The full extent of this problem was recently revealed by a survey on counterfeit trading in the consumer sector conducted by IBOPE, the country’s largest research institute. The survey was commissioned in 2008 by the National Association for the Guarantee of Intellectual Rights (ANGARDI), in partnership with the US Chamber of Commerce and the Brazil-US Business Council. It was conducted simultaneously across 13 retail sectors in four cities: São Paulo, Rio de Janeiro, Belo Horizonte and Recife. It also focused on the clothing, trainers and toy sectors.
The survey was designed to:
provide statistics on counterfeit goods and unregistered copies consumed directly by the Brazilian population;
appraise general attitudes towards the consumption of pirated products and related subjects;
assess the intentional consumption of counterfeit goods and unregistered copies by the populations of São Paulo, Rio de Janeiro and Belo Horizonte; and
estimate the size of the market for counterfeit products in terms of volume, average price and total expenditure.
A total of 1,715 interviews were conducted with individuals over the age of 16.
The study revealed that pirated products in three sectors alone – clothing, trainers and toys – cause at least R18.6 billion a year in tax revenue to be lost. The survey also found that 74% of the people surveyed had knowingly bought pirated products.
The survey noted a slight improvement in public awareness of the harmful effects of piracy (eg, in terms of tax evasion and reduced investment in sectors such as education and health, and sectors in which jobs might be generated). Nevertheless, 50% of those interviewed continued to buy counterfeit CDs.
Another important perception was that 90% of interviewees considered pirated products to be worth half the value or less of the genuine product. Nationwide results indicated that 12% of Brazilians knowingly participate in the counterfeit toy market, 23% in the counterfeit clothes market and 12% in the counterfeit trainer market.
The prices of counterfeit products sold across Brazil as a whole are higher than those for products sold in São Paulo, Rio de Janeiro and Belo Horizonte. This may reflect higher distribution costs for other cities in the country.
Declared illegal trading for the three sectors surveyed across Brazil was R23.2 billion, an increase of 45% on the 2005 figure.
The financial impact of the trade in counterfeit goods is estimated at R1.6 billion in São Paulo, R1 billion in Rio de Janeiro and R450 million in Belo Horizonte. The estimated impact on industry in the four cities surveyed is thus approximately R2.8 billion. The estimated impact of the trade in counterfeit goods on the official Brazilian market for toys, clothing and trainers amounts to approximately R46.4 billion.
Tax revenues lost as a result of the proliferation of the counterfeit market are estimated at R1.18 billion for the cities of São Paulo, Rio de Janeiro and Belo Horizonte, and R18.6 billion across Brazil in the three sectors surveyed.
Intelligence
Brazil is a very large country, and thus anticounterfeiting intelligence operations must cover a large and varied geographical territory. Investigators are engaged to make trap purchases and to pinpoint the locations where counterfeit goods are manufactured and distributed. Some counsel in Brazil have their own in-house investigation teams. The benefit of this arrangement is that the investigators conduct their activities under the supervision of lawyers who are regulated by the Brazilian bars and who have ethical and fiduciary obligations to the client.
Civil remedies
Most anti-counterfeiting actions taken in Brazil are criminal. Civil action is worth considering only if it is thought that the defendant may have substantial assets available for payment of damages. Even then, however, the civil system is slow, cumbersome and subject to several levels of appeal, making its use unattractive.
In the civil sphere, a rights holder can file injunction actions and indemnification actions to obtain search and seizure orders, restraining orders, recovery of damages, destruction of infringing products and reimbursement of court expenses.
Criminal remedies
The police may carry out a police inquiry independently and may use search and seizure measures to seize counterfeit products and interrogate suspects and all those involved. Any instruments or objects may be seized.
The injured party can conduct search and seizure measures against many infringers simultaneously, even if they have not previously been identified by the rights holder. Raids may take place anywhere that a criminal act is being committed.
Once the police search and seizure has been carried out and the criminal action has been commenced, the judge will order the destruction of all infringing goods, where possible, together with all instruments and objects that are connected with the criminal act.
Criminal search and seizure is usually carried out before any judicial procedure or during the police inquiry.
In principle, only materials that are strictly necessary to substantiate the crime will be seized. During the seizure, judicial experts will carry out a survey of the seized goods and certify that the goods are counterfeit.
The judicial experts must also prepare an opinion containing all information necessary to ascertain the level of responsibility of the defendant. The experts must answer questions formulated by the rights holder, the public prosecutor and the judge. The defendant has no opportunity to formulate questions or to intervene in any way during this preliminary proceeding.
Crimes against IP rights are punishable by imprisonment or fine. Prison sentences can vary from one month to one year, depending on the severity of the crime. The law also allows for the punitive alternative of payment of a fine. The size of this fine also depends on the severity of the crime.
In the case of copyright violations, a law introduced in 2003 provided for penalties to be increased to up to four years’ imprisonment (with a minimum term of two years).
Bill 333/1999, which is currently before the National Congress, proposes to increase the penalties in counterfeiting cases where certain other criminal activity may be involved. In such cases defendants would face up to four years’ imprisonment. However, the bill has been awaiting approval since 1999 and does not apply at present.
Border enforcement
Customs does not maintain a centralized IP rights database allowing rights holders to record their rights. In addition, there is no standard procedure throughout the country for the seizure of goods at the border.
However, even given these shortcomings in the customs legislation, effective border protection is still possible.
According to the Industrial Property Law and the Customs Regulation (Decree-Law 6.759/2009), Customs, ex officio or at the request of an interested party, may seize any product in violation of IP rights.
Based on this legislation, a rights holder may file a petition with Customs, which should include a list of IP rights and a request to trigger the surveillance of illegal imports. Such requests can also be directed to major Brazilian ports and airports, to overcome any lack of communication with the local customs authorities.
In addition to filing a written request, a meeting with Customs is highly advisable. This will allow the rights holder to explain its concerns and to familiarize the local authorities with the goods that are being infringed. Combined with a specific training programme for customs agents, this strategy will generally give the rights holder the best chance of ensuring that illegal shipments are automatically blocked at Brazilian ports and airports.
As a matter of procedure, if Customs identifies a shipment of counterfeit products, the rights holder is immediately notified so that it can examine existing samples in order to verify their origin (ie, whether they are illegal or otherwise) and to present a formal statement confirming this fact.
If a court action is not filed, the import proceeding is resumed and the goods are released. If a violation is confirmed, the rights holder must file a court action within 10 business days and provide Customs with evidence that the court action has been filed.
Internet issues
Copyright violations, trademark infringements, domain name misappropriations and extensive trade in counterfeit products are the most common illegal activities conducted in Brazil.
Although Brazil does not have a specific internet regulation which clearly defines the new categories of online crime, the Civil Code, Criminal Code, Consumer Protection Code, Copyright Law, Industrial Property Law and other relevant regulations afford rights holders reasonable protection against counterfeiting activities.
Disputes are analyzed on a case-by-case basis, and depending on the type of involvement of each internet player, it will be subject to civil and/or criminal prosecution according to its liability.
Indeed, depending on the specific case, liability can be extended to website administrators and internet service providers (ISPs). In such cases the rights holder must prove an effective connection between the active or inactive behaviour of the website administrator or ISP and the violation, so that a court action can be initiated.
In any event, the rights holder must undertake intelligence work to:
identify counterfeit products being traded online, small players that are trading in illegal products, national and international sources, distributors and buyers;
obtain physical addresses; and
identify and define the liabilities of the website administrator or ISP.
