South American countries have the political will to fight counterfeiting and have, to that end, adopted adequate laws, but the region is still plagued by it – mainly because of enforcement problems, which are in turn due to inadequate structural control and administrative inefficiency.
MERCOSUL
The problem of trademark counterfeiting is most acute in Argentina and Brazil, the two biggest economies of the region, and in Paraguay. This has led the US Trade Representative to keep Argentina and Brazil on its Priority Watch List, and Paraguay under the more restrictive Section 306 of its 2003 Special 301 Report, which examined the adequacy and effectiveness of intellectual property (IP) protection in several countries.
The area where the boundaries of Argentina, Brazil and Paraguay converge, known as the Triple Frontier, is particularly sensitive. The main cities of this area – Ciudad del Este (Paraguay) and Foz do Iguaçú (Brazil) – have seen a constant influx of counterfeit goods in recent years, most of which come from Asia.
The creation of the Southern Cone Common Market (MERCOSUR in Spanish and MERCOSUL in Portuguese) in 1991, and the adoption in 1999 of a Regional Protection Plan (MERCOSUL Decision 13/99 and MERCOSUL Decision 22/99) laid down the basis for reciprocal cooperation and coordination between Argentina, Brazil, Paraguay and Uruguay to combat drug trafficking, terrorism, baby trafficking, smuggling, theft of vehicles, organized crime, illegal immigration and crimes against the environment.
Increasing illegal activities, especially those across the Triple Frontier, however, led the member countries to amend the Regional Protection Plan in June 2003 (MERCOSUL Decision 5/03 to include specific provisions for combating piracy. According to these provisions, ‘piracy’ is defined as the unauthorized reproduction of products in violation of copyrights or industrial property rights protected by legislation within the member countries. The agreement recommends the following actions to combat piracy:
- The creation, by each of the member states, in the framework of their own security/policy structures, of a special department exclusively focused on the repression of acts of piracy.
- The improvement of the intelligence agencies and the interchange of information with the objective of creating a specific database to deal with piracy, especially focused on illegal cross-border activities. The database is called SISME (MERCOSUL Information Interchange Security System).
- The development of better links between the security/police forces of the member countries and the various companies, organizations and IP associations engaged in the battle against piracy in the region.
- The coordination, with the assistance of IP associations, of lectures and courses with the purpose of improving the efficiency/capacity of the authorities (eg, judges, customs and police) involved in the fight against piracy.
Significant results are yet to be seen, but some advances are noticeable. At the beginning of September 2003, the Brazilian police authorities arrested the supposed head of the main local criminal organization responsible for the distribution of counterfeit cigarettes in Brazil. According to the ongoing investigations, the cigarettes were manufactured in Paraguay and Uruguay, and then smuggled into Brazil. There is evidence that the man arrested is linked to an influential Paraguayan businessman and the owner of the main tobacco industries in Paraguay. The Brazilian authorities have already passed the information to their Paraguayan and Uruguayan counterparts, who are also investigating.
In another attack against the cigarette counterfeiting industry, police from the Brazilian Anti-Piracy Special Precinct (based on investigations carried out in Brazil and Paraguay) tracked down and seized in October 2003 approximately 150,000 packages of counterfeit cigarettes produced in Paraguay.
Besides cross-border measures, MERCOSUL countries have been endeavouring to improve their laws and policies with respect to stamping out counterfeiting and piracy. Some of these improvements are highlighted below.
Brazil
Fighting trademark counterfeiting is difficult enough under normal circumstances, but it becomes a daunting task in a country as big and complex as Brazil. However, despite a bad track record in dealing with counterfeiting, the Brazilian government’s attitude towards counterfeiting is changing.
This change began with an anti-counterfeiting campaign at the end of 2002 and the realization that counterfeiting is part of a sophisticated and lucrative scheme, often related to organized crime, which (i) harms the national economy through lost tax revenues (estimated at $3 billion a year) and the reduction in employment opportunities (estimated at 1.5 million lost jobs), and (ii) endangers consumers because the counterfeits are of inferior quality and often fail to comply with health regulations. In response, the government and judiciary have now presented some initiatives to help solve the problem.
Moral damages
The Brazilian judiciary is particularly attentive to infringement cases that affect luxury trademarks. The leading case in this regard is a decision of the Superior Court of Justice regarding counterfeit copies of LOUIS VUITTON merchandise (Appeal 466761) (see Louis Vuitton bags economic and moral damages award).
Applying the Industrial Property Law, the court awarded Louis Vuitton both economic and moral damages. The economic damages, which have yet to be determined by the lower court, were awarded because, by selling counterfeit products at a fraction of the price of legitimate goods, the defendant, Caliente Comércio de Modas, had detrimentally affected the number of legitimate goods sold.
The court awarded moral damages because it found that the value of the LOUIS VUITTON mark had been damaged. The court reasoned that consumers of luxury goods rely on the exclusivity of the product and the widespread presence of counterfeit goods destroys this image of exclusivity.
Legislative commission on counterfeiting
In July 2003 the House of Representatives set up a legislative commission to investigate counterfeiting and piracy with two objectives: (i) identifying, with the help of the federal police and a public prosecutor, existing counterfeiting and piracy operations; and (ii) collecting information to help draft laws that provide deterrents to counterfeiters and pirates (see Brazil intensifies its efforts against counterfeiting).
Public hearings have already helped to establish that the main wholesalers of counterfeit goods are members of criminal organizations with operations in the states of Amazonas, Paraná, Pernambuco, Rio de Janeiro and São Paulo. Another result of the investigation was the arrest of a number of federal judges and members of the federal police force who will go on trial to face various corruption charges.
Specialized police precincts and courts
Following the efforts of private companies and organizations, the State of Rio de Janeiro has created a special police taskforce dedicated to the fight against IP crime. Pursuant to Decree 33.535, the special police unit has powers to investigate:
- trademark counterfeiting;
- software violations as defined by Software Law 9609/98; and
- other IP-related crimes as defined by IP Law 9279/96, which encompasses patent infringement and unfair competition.
The declared aim of the special unit is to fight the producers and wholesalers rather than the street vendors of counterfeit and pirated goods.
Further, the State of Rio de Janeiro has concentrated all the cases involving industrial property (ie, patents, industrial designs, trademarks and unfair competition) in specialized courts that also deal with bankruptcy-related claims.
Changes to customs regulations
Following pressure from the industries most affected by piracy(*), the Brazilian government enacted in 2002 Normative Act 555 regulating the destruction of counterfeit cigarettes and other tobacco products, toys, CDs, magnetic tapes and cartridges containing works infringing the Copyright Act, as well as any goods infringing other IP rights.
In 2003 the government enacted Decree 4765 authorizing customs to retain goods that infringe IP rights, without any court order. Customs must notify the IP rights owner of the seizure. The rights owner takes the legal measures that it deems fit before the end of the 10-day period during which customs may detain the goods (this period can be extended by another 10 days). Customs protection of IP rights is particularly important in a country where 80% of the infringing products come from abroad (especially China and Paraguay). It is also worth noting that this act complies with the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPs) regarding border enforcement rules.
Proposed changes to criminal legislation related to trademark infringement
- The penalties for all crimes related to IP and unfair competition, including trademark violations, will consist of fines, and a minimum of two years and a maximum of four years imprisonment.
- The police authorities will be able to (i) request from the courts orders for the seizure and destruction of goods and equipment relating to an infringement, and (ii) conduct investigations under their own initiative.
- The possibility of seizing and destroying infringing goods will be extended to all types of IP rights violations and not only trademark infringements.
- The destruction of infringing goods will be allowed at any time during the criminal process and not only after a final decision has been issued, provided that certain conditions are met and samples are secured to serve as evidence.
The bill is expected to receive final approval during the first semester of 2004.
Argentina
Argentina seems close to adopting a presidential decree to improve customs enforcement. This decree will create a central database system that will enable (i) trademark owners to register their trademarks, and (ii) customs to inform trademark owners of suspicious shipments. The decree also gives more room for customs to act ex officio.
In addition, Argentina has passed Law 24.425, which incorporates the TRIPs Agreement. Argentinean Federal Courts are also quick in granting injunction orders to seize suspicious cargos pursuant to Trademark Law 22.362 of 1980.
Paraguay
New trademark and copyright laws became effective in 1998 (Laws 1294/98 and 1328/98). The Trademark Law, among other improvements, increased the penalties for trademark infringements. It also laid down provisions (i) allowing for the recording of trademark rights with the customs authorities, and (ii) enabling customs to seize infringing goods, including those in transit, at the request of a legitimate party (Articles 100 to 111).
Paraguay also entered into a Memorandum of Understanding (MOU) on the protection of IP with the United States in 1998. The MOU expired in January 2003 but the parties have extended it until it can be renegotiated. The purpose of this MOU is to foster cooperation between Paraguay and the United States by helping the former to improve its IP protection in the fields of enforcement, education and training, cooperation and technical assistance, criminal penalties, government use of software, patent law, civil law, consultation and implementation issues.
In spite of these efforts, severe pitfalls persist, especially with regard to criminal penalties (it is relatively easy to have prison terms commuted to fines). Border enforcement also remains a problem.
Uruguay
The TRIPs Agreement was approved by Law 16.671/94, which was followed by a new Trademark Law (Law 17.011/98), a new Patent Law (Law 17.164/99) and, more recently, by a new Copyright Law (Law 17.616/2003). However, the Patent Law and Trademark Law do not contain any specific provisions concerning seizure of counterfeit goods, border enforcement measures or the retention of goods by the local customs. It is necessary to rely on the country’s General Procedural Code to obtain relief in this regard.
On the other hand, the Copyright Law does include specific provisions on these matters (Article 25), enabling the courts, upon request of the customs authorities or of the legitimate IP owners, to order special control measures, grant preventative seizures or allow precautionary suspension of the particular customs clearance.
It is relevant to note that Uruguay’s Customs Law (Law 13.318/64) predates the TRIPs Agreement. Whether this law enables customs to take administrative seizure measures to deal with counterfeiting products is still under discussion.
Chile
The main development in Chile is the enactment of Law 19.912 of November 4 2003, which regulates border control in accordance with TRIPs Agreement requirements.
Pursuant to the new law, trademark owners have the right to file civil actions to suspend the importation of goods at customs when there is evidence of trademark infringement. Customs authorities are also authorized to suspend, ex officio, the importation of goods every time it becomes evident that the goods are counterfeit. In this case, the trademark owner should be notified to confirm that the products are in fact counterfeit and, if so, should file a request for the definitive seizure of the products.
Andean Community
In cases of trademark infringement, Decision 486 allows for the adoption of provisional measures that can have the effect of:
- stopping an infringing act;
- suspending the import or export of counterfeit products;
- securing the withdrawal of counterfeit products from commerce and permitting the confiscation of any related packaging, labels and printed matter; or
- closing the alleged infringer’s establishment temporarily.
In the case of goods bearing a counterfeit trademark, the elimination or removal of that trademark shall be accompanied by actions to prevent the introduction of these products into commerce. Furthermore, such goods shall not be allowed to be (i) re-exported in an unaltered state, or (ii) subjected to a different customs procedure.
The measures related to border control are regulated by Title XV, Chapter III of Decision 486, which follows the TRIPs Agreement requirements and allows for the suspension of importation in certain circumstances. After a favourable decision in a proceeding instituted by the trademark owner, the relevant authority can order the seizure and destruction of the products.
Free Trade Area of the Americas (FTAA)
The counterfeit/piracy issue has been discussed in the framework of the negotiations to implement the FTAA (ALCA in Portuguese and Spanish). The third and most recent FTAA Draft Agreement of November 21 2003, in the chapter devoted to the IP rights (Subsection B3 – Enforcement/Article 4), determines that each party shall apply Article 51 to 60 of the TRIPs Agreement (Special Requirements Related to Border Measures).
Conclusion
Counterfeiting has caused significant losses to countries in South America in terms of tax revenues, employment opportunities and foreign investments. This scenario has triggered a cascade of legislative improvements and enforcement actions in those countries in the past six years, but the need to concentrate efforts and political will in combating the problem remains pressing.
The ongoing FTAA negotiations, which involve all countries in the Americas, represent an excellent forum for discussion of the problem and the implementation of other cross-border anti-counterfeiting measures.
(*) The tobacco industry loses $1.2 billion a year and the software industry loses $900 million a year. Counterfeit toys make up 12% of the entire toy market sales in Brazil, which means losses for this industry in the amount of $31 million a year. Toy piracy also resulted in the loss of 80,000 jobs in this industry in recent years – a large number in a country with 11 million unemployed.
