The draft Revenue Amendment Bill, 2007 (“the draft bill”) which has recently been circulated for comment, deals with certain issues relating to intellectual property, including inter alia intellectual property arbitrage, cross-border intellectual property transfer pricing and the control over counterfeit goods. This paper will focus on the proposed amendments relating to the latter, which appears as Chapter XB, sections 78A- 78H in the draft bill.

A strong statement has been made in the draft explanatory memoranda to the draft bill (the explanatory memoranda) that the current legislation “does not provide the authorities with sufficient teeth to act against illegal trade in counterfeit goods”. It is clear from the explanatory memoranda that the proposed amendments are intended “to provide legal certainty and address the confusion relating to conflicting provisions in the Counterfeit Goods Act and Customs and Excise Act.”  The obvious question then, is whether proposed amendments fulfil this purpose. There is one word that comes to mind when reviewing Chapter XB, and that is “problematic”!! 

South Africa has, over time, developed its anti-counterfeiting laws and procedures. Counterfeiting of trade marks has, historically and imperfectly, been dealt with by different Merchandise Marks Acts.  Piracy, which concerns copyright infringement committed knowingly, was criminalized by the Copyright Act and still is.  International concern about counterfeiting and piracy lead to certain provisions of the Agreement on Trade Related Aspects of Intellectual Property Rights (TRIPS), the preamble of which speaks of the desire of member States “to reduce the distortions and impediments to international trade, and taking into account the need to promote effective and adequate protection of intellectual property rights, and to ensure that measures and procedures to enforce intellectual property rights do not themselves become barriers to legitimate trade”. 

The Counterfeit Goods Act 37 of 1997 (“the CGA”) was enacted to ensure compliance with South Africa’s obligation to TRIPS, and enables certain rights owners to take action against perpetrators engaged in various forms counterfeiting activities. Notwithstanding certain pitfalls, the CGA is effective and empowers the authorities to expeditiously and effectively enforce inter alia the importation and trade of counterfeit goods.

At the time when the CGA was enacted, substantive amendments were made to the Merchandise Marks Act, 1941 (MMA) resulting in all provisions relating to counterfeit goods being removed from the MMA. According, the CGA is the legislation dealing substantively with South Africa’s anti-counterfeiting law and procedure. 

Against this background, I submit that the legislature must take cognisance of the history and development of South Africa’s anti-counterfeiting laws and procedures and must reconsider Chapter XB of the draft bill, ensuring that it is consistent with the CGA and South Africa’s obligations under TRIPS. The draft bill in its current form does is not consistent with the legislature’s intention of creating legal certainly. On the contrary, if enacted, it will result in the undesirable consequence of creating a conflict of laws and legal uncertainly. This is to be avoided.

Although the Chapter XB of the draft bill, as a whole is problematic, attention will be focused on a few core draft amendments and its implications. However, to fully appreciate the effect of Chapter XB, it is necessary to compare it with the relevant provisions of the CGA, primarily focusing on the role of the Commissioner for Customs and Excise and his officials.

Under the provisions of the CGA, a complainant is required to file a complaint with an Inspector, which is the case of imported goods, will usually be a Customs official contemplated in Section 15(9) of the CGA. The inspector would then, if reasonably satisfied that the compliant complies with the requirements of Section 3(3) of the CGA, apply for a search and seizure warrant in terms of Section 6 of the CGA. The application of the warrant is considered by a judicial officer and will issue the warrant if reasonably satisfied that an act of dealing in counterfeit goods has taken place, is taking place or is likely to take place. .The said warrant will thereafter be executed by the Inspector following the provisions of the CGA, which includes inter alia the formal seizure of the goods under Section 7(1)(d) of the CGA.

When goods are formally seized, the complainant is required to take certain action within specified time periods.

The complainant has an option to lay a criminal charge with the South African Police Service, within 3 days of the date of the formal seizure, against the person from whom the goods were seized. In the event that such a criminal charge is not laid by the complainant, Section 9(1) of the CGA provides that the seized goods must be released to the suspect, who will usually be the person from whom the goods were seized. Importantly however, this sub-section is subject to the provisions of Section 9(2), which provides for the release of the seized goods to the suspect, if inter alia:,

·         The State fails to inform the suspect by written notice, within 10 working days of the date of the formal seizure, of its intention to institute criminal proceedings against him/her; and

·         The complainant fails to inform the suspect by written notice, within 10 working days of the date of the formal seizure, of its intention to institute civil criminal proceedings against the suspect.

·         In the case where the State or the complainant has informed the suspect of the intention to institute or the civil proceedings (as the case may be) and such proceedings is/are not instituted within 10 court days of respective dates of the notices of intention referred to above.

·         The complainant may, in terms of Section 9(2)( c) , instruct the inspector in writing to release the seized goods, however, such an instruction may not be given and the goods may not be released at any time after a criminal prosecution involving those goods has been instituted against the suspect.

Section 78D of the draft bill which deals with the action required by the right-holder and the commissioner is not consistent with the provisions of the CGA referred to above and in fact, creates new procedures which are not welcomed.

·         When goods are detained by an officer, in terms of section 78D(1), the right-holder has an option to lay a charge with the South African Police Service and request that a criminal investigation to undertaken for an offence contemplated in section 2(2) of the CGA. Unlike the CGA however, the charge is laid pursuant to the detention of the goods and not pursuant to formal seizure. This of course raises confusion as to which procedures the South African Police Service must follow bearing in mind the provisions of section 7(1)(d) of the CGA and the issuance of the notice in terms of that subsection.
Furthermore, there is no specified time period in the draft bill within which the criminal charge must be laid.

·         Section 78D(2), provides that notwithstanding the provisions of subsection (1), if the right holder wishes to institute civil proceedings, he/she must:

i.         Within 10 days of the date of detention of goods, inform the Commissioner and the affected party, by written notice, of its intention to “apply to court” for the determination that the detained goods are counterfeit goods or of its intention not to so apply.

ii.       Hereafter, if the aforementioned intention exists, the right holder must, within 10 days of the said written notice, apply to court for a determination that the goods are counterfeit goods,

iii.      In the event that the right-holder does not deliver the intention notice referred above or delivers a notice that the application to court will not be made, the goods must be released to the affected party provided that the goods otherwise comply with the requirements of the Act.

When comparing these draft amendments with the provisions of the CGA, as discussed above, the following conflicts cannot be ignored:

Although the right-older under the draft bill may decide to lay a criminal charge against the affected party, the right–holder must also institute civil proceedings, failing which the goods will be released. Section 78D(5) specifically provides that “notwithstanding anything contained in any other law”  where the right-holder fails to apply to court within the specified period, the person in charge of the counterfeit goods depot, which will be the storage facility of the detained goods, must, at the request of the commissioner release the detained goods to the affected party.  

As the CGA is the only other legislation substantively dealing with counterfeit goods, the use of the words “notwithstanding anything contained in any other law” indicates that the legislature intends for divorce the draft bill from the CGA, which is surprising considering the intention for these amendments as expressed in the explanatory memoranda.

The implications to the right-owner is simply that if it decides to lay a criminal charge with the South African Police Service and the State does institute criminal proceedings against affected party, the goods must be released in the event that the right holder does not to launch an application to court. As discussed earlier, the CGA specifically prohibits the release of goods after a criminal prosecution has been instituted. The practical and legal effect of this draft amendment is simply that the criminal prosecution cannot proceed if the goods, which will form part of the evidence in the case, are released. This is certainly undesirable and must be revisited by the legislature.

Furthermore, the requirement that the right-holder must apply to court is nonsensical. In my experience, the majority of matters relating to the importation of counterfeit goods are resolved with the importer capitulating and agree to certain, which will include inter alia the delivery-up of the counterfeit goods for purposes of destruction. This is essential the resolution of the matter. The draft bill does not take this into account, and in its current form, the rights holder is required to proceed with an application notwithstanding the fact that the matter has been resolved. This, with respect, must be re-considered by the legislature.

On the issue of the civil proceedings, it is surprising that the draft bill requires the right-holder to bring application proceedings against the affected party. When one considers the short time period within which the application must be instituted and the nature of application proceedings, in particular that a notice of motion must be supported by founding evidence, this requirement is unrealistic. Furthermore, it is not unusual for there to be matters of factual dispute that will require action proceedings to be instituted.

To avoid any confusion and unnecessary legal implications, reference in the draft bill to “apply to court” or “application to court” should be amended to “civil proceedings”. 

Section 78C of Chapter XB of the draft bill deals with the examination and detention of goods. In terms of Section 78C(1), an officer may stop and examine any goods under customs control to determine for purposes of the procedures contemplated in section 78 whether the goods are counterfeit goods.

Where, upon the examination, the officer has “reasonable cause to believe” that the goods are “prima facie” counterfeit goods, the officer must in terms of Section 78C(1)(b):

·         Detain the goods provided that the commissioner has granted an application by the right-holder in terms of Section 78B, which is an application my the right holder for the commissioner to detain goods “suspected of infringing the holder’s intellectual property right”; and

·         Must inform the right-holder and any of the affected parties of the detention of the goods.

It is interesting that the draft bill requires the officer to have “reasonable cause to believe” that the goods are “prima facie” counterfeit goods. I respectfully submit that a customs officer, can only satisfy this requirement if he/she is in possession of all relevant information relating to the authenticity of the goods from the right owner and having considered this information, he/she makes a decision to detain or not to detain.

Unfortunately, unlike the CGA,  the draft bill does not make any provision for the filing of any affidavits to confirm the counterfeit nature of the detained goods, which, I submit will assist and enable the officer to possess the required reasonable cause. All that the draft bill requires, is for the right-holder to inform the commissioner and affected party of an intention to apply to court for a determination that the detained goods are counterfeit.

·         The implications of the draft bill, in its current form, is simply that, the detention process is subject to scrutiny as the officer will be required to justify and lead evidence to prove on that he/she possessed the required reasonable cause to believe that the goods are prima facie counterfeit goods at the time of detention, In the absence of any confirmation from the right-holder, this may be a difficult hurdle for the customs officer to overcome. Moreover and notwithstanding these implications, the commissioner requires an indemnity for the right holder, indemnifying the commissioner against any liability from all actions, proceedings, claims and demands whatsoever which may be taken against the commissioner. The effect of this requirement is simply that the right-holder will be signing a blank cheque. Is this a risk that right-holders will easily take?  I think not.
 Although Section 78C(3) provides for the officer to furnish samples to the right-holder, there is no indication as to when the samples are to be furnished. This is an important issue as the stringent time periods within which the right holder must act in terms of Section 78D, become operative from the date of notification my the officer of the detention and not the date on which the right holder receives the sample. Furthermore, the draft bill does not make provision for any extensions of time relating to the steps to be taken by the right-holder. When one considers the line borders, it is not unusual for samples to take a few days or even a week to reach the right-holder. In addition, by the very nature of certain products, for example electronic equipment, it may be necessary for the sample to be forwarded to an expert in a foreign country for examination and that process may take more than 10 days. In the absence of amending the draft bill to cater for these types of scenarios, which often occur in practice, the draft bill, if enacted, will create the undesirable result of counterfeit goods being released into the marketplace and fault in this regard, cannot be placed at the door of the right-holder.

In terms of Section 78B, a right-holder may apply to the commissioner, which application must be accompanied by an indemnity referred to earlier, to detain goods under customs control suspected of infringing the holder’s intellectual property right. Customs officers will only detain goods when this application has been granted by the commissioner. This section is in essence a simplified version of Section 15 of the CGA.

The wording of this section in itself is problematic. Our courts have already held that counterfeiting is more than mere trade mark infringement (see the unreported judgment of  LA Group Limited v B&J Meltz (Pty) Limited and others (TPD)  ).

What I have discussed above are only a few issues of concern with the draft bill. There are certainly other issues of concern, which will be discussed in a separate paper.

Conclusion:

Although the explanatory memoranda indicates that these proposals are in line with the World Customs Organisation’s model provisions for national legislation to implement effective border measures by Customs authorities, regard must be had to the fact that South Africa has a model legislation in the form of the CGA.

If there is a need for legislative change to South Africa’s anti-counterfeiting law and procedures, the first statute to be considered is the CGA. It is with  respect that I submit that Chapter XB of the draft bill is an attempt to re-invent the wheel, which is not necessary.

Mohamed Khader
Spoor & Fishe