Counterfeiting has been a growing problem in South Africa, and many brand owners are constantly engaged in hit-and-run skirmishes with proponents of counterfeit goods. The sellers of counterfeit goods often have no permanent place of business and essentially engage in an itinerant trade. Counterfeit goods are frequently sold in the informal sector and, in particular, by street vendors and at flea markets and the like.

Virtually any product can be falsified or counterfeited, from all types of motor vehicle components like batteries and windscreens, to watches, clothing, electronic equipment, compact discs, computers and computer software, films, computer programs, shoes and even aircraft parts.

Conventional court proceedings, and more especially those concerned with the enforcement of Intellectual Property rights, have, generally speaking, been ineffective against this manner of trading. Trading in counterfeit goods is a practice in the nature of fraud and criminal measures remain the most effective means for combating this form of unlawful activity.

Implications and Losses as a Result of Counterfeiting

Counterfeiting may cause considerable damage to the manufacturers or producers of the genuine goods and is also prejudicial to consumers. Both the consumer and the brand owner of the genuine product suffer losses when counterfeit goods are absorbed in the trade. A trend, which has been manifesting itself recently, is the continued improvement in the quality of counterfeit goods. This obviously makes it even more difficult for consumers to spot and avoid fake articles, and also strengthens the incentives for some consumers to purchase counterfeit items. On the other hand, imitations of genuine articles of products are often of a far poorer quality than the genuine goods. Consumers are therefore prejudiced when they purchase goods that are unsafe or of inferior quality and will most often also find that the seller of counterfeit goods is incapable of replacing, maintaining or repairing the goods. The manufacturers or producers of the genuine goods therefore suffer directly through loss of sales and indirectly through harm to or loss of their reputation of quality products.

Simplicity of Countefeiting

Counterfeiting is easy - manufacture a product and package it or label it with the name of a well known brand. The difficult part of successful counterfeiting is often the distribution of the counterfeit goods. It is not unusual for the counterfeiter to start in a small and modest way, at first testing the reaction to establish how vigorously the brand owner will defend his brands. When there is little or no reaction the counterfeiter may start to attack the brand more aggressively and rapidly expand his domain in the specific market. Counterfeiters are even importing generic brands that are blank and less likely to be seized. Labels and logos are affixed later in clandestine factories.

The Counterfeit Goods Act, 37 of 1997

The South African Parliament enacted a Counterfeit Goods Act in 1997 ("the Act"), aimed specifically at combating the trade in counterfeit goods. The Act came into operation on 1 January 1998. Enactment of the Act was done in conjunction with the enactment of amendments to the Merchandise Marks Act, No 17 of 1941, which had hitherto been the principal weapon used to deal with the problem of counterfeit goods. All provisions of the Merchandise Marks Act dealing with essentially counterfeiting of goods have been stripped out of that Act. They now find the counterparts in the Counterfeit Goods Act. It has become the manual for dealing with the problem of counterfeit goods.

Until the enactment of the Act, the only legislation in South Africa which had provided any measure of relief against trades in counterfeit goods (apart from the Patents Act 57 of 1978 and the Designs Act 195 of 1993), has thus far been the Merchandise Marks Act, 1941, the Copyright Act, 1978 and the Trade Marks Act, 1993. On the whole the provisions of those Acts have been found wanting inasmuch as they create offences only in respect of some forms of trading in counterfeit goods. Those Acts also lack appropriate and effective mechanisms, procedures, and sanctions appropriate for combating trading in counterfeit goods.

Purpose of the Act

The Act is a measure intended to enable owners of certain forms of intellectual property, including copyright, to take action against the counterfeiting of their products, i.e. the cloning or impersonation of their products, and to provide for streamlined and effective enforcement measures in achieving this end. It is also designed to bring South Africa into compliance with certain of the provisions of the Agreement on Trade Related Aspects of Intellectual Property Rights (TRIPS) to which South Africa is a party. In compliance with the TRIPS Agreement, the Act is aimed at providing adequate and practicable protection against trading in counterfeit goods not only for the benefit of those lawfully engaged as manufacturers and producers of goods but also for the benefit of consumers. It is in many respects complementary to the Copyright Act in particular to the criminal provisions of that Act and to those provisions dealing with the seizure of goods by the customs authorities.

Brief Summary of the Functioning of the Act

The Act makes provision for inspectors powers of searching and entering of premises with a view to seizing counterfeit goods and also the means used for counterfeiting the goods. In terms of the Act it is an offence for a person to have counterfeit goods in his possession or under his control or to exhibit such goods in public for purposes of trade. On conviction of such an offence the person convicted may be fined to an amount not exceeding R5 000 per article, or to imprisonment for a period not exceeding three years (or both such fine and such imprisonment). On subsequent convictions the fine rises to R10 000 per item and the maximum period of imprisonment to that of five years.

Proceedings in terms of the Act are subject to strict technical requirements and deadlines. Once a complaint has been laid by the owner or licensee of an intellectual property right with a designated inspector, the inspector may obtain a warrant to enter and inspect any premises or vehicle and seize and confiscate any suspected counterfeit goods located there. If a prosecution is not proceeded with, the seized goods will be released to the accused.

Suspected counterfeit goods that have been seized must be properly recorded in an inventory and should be removed to a counterfeit goods depot for safe storage. A counterfeit goods depot essentially means a place designated by notice in the Gazette by the Minister of Trade and Industry in terms of section 23 of the Act.

Practical Definition of Counterfeit Goods

In practical terms, counterfeit goods are defined to be goods unlawfully bearing
or embodying a prohibited trade mark or the trade mark of another without his
authorisation or having the appearance of the goods of another. To constitute
an act of dealing in counterfeit goods, an act must infringe or give rise to the
infringement of a trademark right, or of copyright, or of both.

Counterfeit Goods in Practice

Procedure for Initiating Seizure of Counterfeit Goods

Provision is made for the appointment of "inspectors". These inspectors include any Police official as defined in Section 1(1) of the Criminal Procedure Act having the rank of Sergeant or higher, certain Customs and Excise officials and any person designated as an inspector by the Minister of Trade and Industry in a notice published in the Government Gazette. In other words, the Minister is free to designate whosoever, or whatever categories of persons, he considers fit as inspectors under the Act. Inspectors have wide ranging powers to search for, seize and detain goods suspected to be counterfeit goods.

Furthermore, the Act confers certain powers on inspectors, either acting on their own initiative or after having received a complaint by a person who has an interest in the goods that are the target of counterfeiting. Provided there are reasonable grounds to believe that an act of dealing in counterfeit goods is taking place, these officers have the power to enter any premises or vehicle and to search for counterfeit goods, and to seize and remove goods being or reasonably suspected of being counterfeit goods.