The Judicial Picture

Courts are having to grapple with the changing world of how counterfeits are transported around the globe, with the Singaporean decision in Burberry Limited & Anr v. Megastar Shipping Pte. Ltd. (2019) being a prime example.

In January 2019, Burberry and Louis Vuitton lost their trademark appeal before the Court of Appeal, the upper division of the Supreme Court of Singapore, in a decision that has far-reaching implications.

The brands had sued freight forwarding company Megastar Shipping over goods imported from China, which were meant for trans-shipment to Indonesia.

Singapore Customs had found more than 15,000 counterfeit items inside two sealed containers, but Megastar had not physically handled the goods (since they were inside the containers) and did not know that the shipment contained the fakes.

To establish liability, according to the court, the plaintiffs had to prove that the defendant had knowingly intended to import or export goods which it knew or had reason to believe bore a sign. But, because Megastar had no reason to suspect that the cargo contained fake goods bearing a trademark, in this case the brands in question, there was no evidence that they had infringed the trademarks.

Francine Tan, Managing Director of Francine Tan Law Corporation (Singapore), said: “The Court of Appeal decision has important implications for Singapore’s trans-shipment industry and the parties that may be involved in such trans-shipment, such as the shippers, carriers, truckers, and, in this case, freight forwarders, even if they have no interest in the goods.”

While the decision has clarified that goods in transit can be the subject of a trademark infringement action even if they are not meant for distribution in Singapore, the law now requires the plaintiff to show the defendant had reason to believe or actual knowledge that there was a sign or signs on the goods.

“The decision appears at first glance to have introduced a difficult evidential threshold to be met, which involves showing the necessary mental element,” said Ms. Tan.

She sees the decision as presenting opportunities for trademark owners to find ways to put freight forwarders on notice that the goods may be counterfeit or that they bear trademarks.

As Singapore is the busiest trans-shipment hub in the world, moving 37.2 million containers in 2019 alone, the implications could be far-ranging, said Ravi Ravindran, Partner at Ravindran Associates LLP (Singapore).

He believes that brands have stopped taking action on trans-shipment issues, as they are awaiting clarity following this landmark decision.

“I suggest that Singapore instead follows the UK system, which is quite administrative. Customs informs the owner of the goods and, if the owner does not come forward, then the goods can be destroyed,” Mr. Ravindran explained.

More Power Needed

Singapore is not the only country in Asia facing challenges on the trans-shipment front. The Hong Kong judiciary came to a similar conclusion on the issue more than a dozen years ago.

Amita Haylock, Partner at Mayer Brown (Hong Kong SAR, China), said: “In HKSAR v Kong Hing Agency Ltd. (2007) it was held that a freight forwarder could not be held liable if it did not suspect, with reasonable diligence, that the goods bore a forged trademark or false trade description. Only the importer and exporter of the fake goods would be liable.”

She added that Hong Kong Customs is often less vigorous in enforcing actions related to trans-shipped goods, particularly goods passing through free trade zones and freeports.

“Counterfeiters aware of this will therefore often try to trans-ship their counterfeit goods through these ports to their final destination and seek to hide the country of origin of the goods,” Ms. Haylock warned.

Jack Chang, Co-founder and a Vice Chairman of the Quality Brands Protection Committee of China (QBPC) (China), said that, based on the committee’s recommendation, the Supreme People’s Procuratorate in China initiated a one-year pilot program in November 2019 in Beijing, Fujian, Guangdong Province, Jiangsu, Shanghai, and Zhejiang to “promote and experiment with the practice that IP owners shall be notified by the local procuratorates which prosecute crime cases infringing their IP to exercise the rights available under PRC Criminal Procedural Law as the victims of the IP crimes prosecuted.”

Mr. Chang said: “Take Shanghai People’s Procuratorate as an example. In 2018, it sent out notices to IP owners of 410 cases prosecuted. In 2019, the number increased to 922 cases.”

Customs and COVID-19

Customs officers in Hong Kong are facing a mountain of counterfeits, but the deployment of an artificial intelligence (AI) system which screens various online platforms 24 hours a day is helping. In the first half of 2018, Customs reportedly increased its seizure of online counterfeit goods by more than 30 percent, since deploying its AI system in December 2017.

While current figures are not yet available, Ms. Haylock estimates, based on data from the Hong Kong Customs’ website, that the total value of counterfeit goods seized by Hong Kong Customs in 2019 is around HK $73 million.

The import of counterfeit face masks has increased significantly during the COVID-19 pandemic. To combat this, Hong Kong Customs began a territory-wide operation in January to combat the sale of counterfeit personal protective equipment.

Then, in April, it rolled out a compliance program for local mask manufacturers and online surgical mask retailers to ensure compliance with local consumer rights and trademark regulations.

As part of its effort, Hong Kong Customs seized more than six million falsely labeled face masks in July. The masks had been procured by the Government Logistics Department (GLD) for distribution to various government departments, according to Ms. Haylock.

In addition, Customs has a separate ongoing investigation into 32 million masks also procured by the GLD and suspected of bearing a false origin claim, mainly from Japan. In late October, it seized 100,000 counterfeit medical-grade masks intended to be trans-shipped overseas via Hong Kong.

So far, Hong Kong Customs has conducted more than 38,000 inspections at chain stores, pharmacies, medicine stores, and shops selling daily necessities, seizing nearly six million surgical masks, 314 bottles of disinfectant alcohol, and 23 bottles of normal saline, relayed Ms. Haylock.

China is also facing a significant increase in counterfeit production of face masks, she said. In April alone, China Customs seized around one million masks declared for export for not having the requisite medical certification, despite the packaging being marked “medical mask.”

In June, the chairman of a Beijing-based pharmacy chain was convicted of buying and reselling around 500,000 counterfeit masks.

“China Customs is paying increasing attention to the rights of domestic, not just foreign, IP rights holders,” Ms. Haylock said, noting that the proportion of seized goods involving domestic IP rights has grown significantly from 2015 to 2018.”

China and Hong Kong continue to be by far the biggest originators of counterfeit goods, but the March 2019 report from the EUIPO’s Observatory and the OECD found that China’s share has been “progressively decreasing” while Hong Kong’s has been rising.

“The illicit cross-border trade of counterfeit goods has been a serious issue to which brand owners, and the governments of China and her trading partners, are trying hard to find a solution,” said Mr. Chang.

Progress is being made: the Shanghai police force has developed software to enhance the effectiveness of big data analysis. According to Mr. Chang, the software searches keywords of critical manufacturing materials and parts, which seem to be “legitimate goods but are purchased by both legitimate buyers and counterfeit goods manufacturers.”

Uniting in Europe

It’s not just customs and courts that are fighting counterfeits. In Europe, the European Anti-Fraud Office (OLAF) is tasked with investigating matters relating to fraud, corruption, and other offenses affecting EU financial interests.

OLAF’s main partners in the fight against counterfeiting are national EU customs authorities. The office provides them with information that can help them detect and seize counterfeit goods, as well as identify the traffickers.

OLAF has signed more than 80 agreements with non-EU partners, enabling it to work with its non-EU partners to identify and counter the sources of illegal goods in their territory, according to Marta Castillo González, Head of Sector at OLAF.

She added: “OLAF’s goal with regard to counterfeiting is to prevent illicit goods entering the EU and to cooperate with the authorities in third countries with the aim of enabling them to disrupt the production of counterfeit goods.”

During the course of its investigations, OLAF provides intelligence to the relevant national authorities and requests that they take action. Recent successes involve counterfeit rum, over-the-counter sanitary products, and counterfeit bearings, for example.

In March, OLAF opened an official inquiry into the illicit trade of face masks, medical devices, disinfectants, sanitizers, medicines, and test kits. So far, the investigation has led to the identification of more than 800 suspicious operators and to the seizure or detention of more than 14 million items.

“During the COVID-19 pandemic we have seen that counterfeiters do not stop. In fact, they have new areas where they can act. We are detecting counterfeit COVID-19-related medical supplies as well as an increase in substandard products related to COVID-19 that might be dangerous for the health of consumers,” said Ms. González.