Practical Overview of Detention and Seizure Process of Counterfeit Goods

Detention of Goods by Customs and Excise

All goods imported from abroad through any South African harbour, airport or border post can be inspected by officials of the South African Revenue Services, department Customs and Excise ("Customs"). These officials are designated inspectors in terms of the Counterfeit Goods Act.

Ordinarily the goods are detained in terms of the Customs and Excise Act, which relates mostly to duties issues and does not deal with the counterfeit nature of the goods.

Once the goods have been detained Customs has an opportunity to inspect the goods. If Customs is of the opinion that any of the goods are counterfeit they will then contact us as to further actions to be taken in the matter.

Samples and Inspection:

We will make arrangements for a sample of the goods to be uplifted from Customs and couriered through to our offices. Once we are in receipt of the sample, we take digital photos of the sample and e-mail these images to the brand holder for verification as to whether the product is counterfeit or whether it could be a parallel import.

If a brand holder finds that the goods are counterfeit, we will require an e-mail or facsimile from the brand holder setting out the reasons as to why the goods have been found to be counterfeit. If the brand holder has security measures present in the product, for instance a distinctive wash care label in clothing, the absence of this measure can be cited as a ground for the goods being counterfeit.

If the counterfeit nature is merely that the trade mark has been applied to the goods without a brand holder’s authority, this ground must be cited in the brand holder’s e-mail and will suffice for purposes of the Counterfeit Goods Act.

We will, however, be more than happy to furnish suggestions as to the content of this e-mail or facsimile.

Affidavit of Complaint:

Customs will require an affidavit of complaint before they will seize the goods in terms of the Counterfeit Goods Act. The affidavit will set out a brand holder’s locus standi, ie: that the Intellectual Property rights vest in the brand holder; grounds for the goods being found counterfeit; and necessary allegations as to the importer’s conduct required in terms of the Act.

It is important to note that this affidavit must be lodged within 3 days of receipt of the sample by our offices. Extensions of this period can, however, be requested but are not always granted.

Failure to timeously lodge this affidavit will result in the goods being released to the importer. Due to the distances and time periods involved, we will, where requested, depose to the affidavit on a brand holder’s behalf and attach the e-mail or facsimile referred to above as confirmation of the counterfeit nature of the goods.

Once the affidavit has been lodged, Customs will issue a seizure notice and formally detain the goods in terms of the Counterfeit Goods Act. The goods are then transported to a Counterfeit Goods Depot for storage pending finalisation of the matter.

Procedure Post Seizure Notice - Settlement:

Once the seizure notice is issued, Customs ordinarily furnish us with the importer’s details. We will then deliver a letter of demand to the importer advising him of the counterfeit nature of the goods, and setting out the illegality of his actions and the consequences of these actions. We generally also offer the importer the option to settle the matter amicably.

The settlement referred to above entails the importer or his agent signing an undertaking not to deal in these or similar goods in the future, forwarding us details of the manufacturer of the goods, voluntarily delivering up the goods for destruction and contributing an amount to the brand holder´s costs, including storage and destruction costs.

We find that the majority of importers elect to settle on this basis, which leads to a cost effective and expedient finalisation of the matter. An advantage of obtaining the settlement agreement is that if the importer is again caught importing counterfeit goods, criminal liability will ascribe without having to lead the onerous evidence necessary in a matter instituted against a first time offender.

Procedure Post Seizure Notice - Section 5(4) Application:

This procedure is only adopted in the event of the importer not electing to settle the matter as set out above and usually results in either a civil or criminal trial (or both) having to be pursued by a brand holder.

As Customs detain and then seize the goods without firstly having obtained a search and seizure warrant, application has to be made to a court having jurisdiction for condonation of Custom’s actions in seizing the goods.

This application is launched in terms of Section 5(4) of the Counterfeit Goods Act. We will ensure that all necessary allegations are included in the application. However, an expert affidavit will have to be obtained and must be lodged together with the application. This application must be launched within 10 days from issuance of the seizure notice.

The expert affidavit briefly sets out the deponent’s grounds of expertise and findings as to the counterfeit nature of the goods. The application can be opposed by the importer but is rarely successfully opposed, and then is only successfully opposed in the event of technical irregularities being present in the seizure process.

Trial Procedure

Once a Section 5(4) application has been successfully moved, an onus rests upon the brand holder to institute either civil or criminal proceedings.

The remedies available in both actions are essentially the same, namely, delivery up for destruction of the goods and a punitive fine/costs order against the importer.

Criminal Proceedings

Criminal trials are prosecuted by the State, which bears the costs of the trial. Our further involvement will be of an advisory nature to the relevant prosecutor alone, except in circumstances where the prosecutor is inexperienced in Intellectual Property matters, where we suggest that the brand holder mandates us to apply to the State to conduct the matter on the State’s behalf to ensure a positive conviction.

This route will result in the infringer having to pay a fine to the state and a further conviction of counterfeiting will result in the infringer having to spend time in jail.

An advantage is that where an infringer is convicted, the presiding officer will in certain circumstances sentence a first time offender to imprisonment without the option of paying a fine. This sends out a clear message to other would-be infringers as to the consequences in dealing in counterfeit goods to which a brand holder’s trade marks have been applied.

A drawback of this option is that our criminal justice system is extremely overburdened and it is quite often the case that insufficient attention is given to the matter by the relevant prosecutor and trials are dismissed on technical points alone. This results in the goods being released to the importer.

A further drawback is that only the commercial court prosecutors have sufficient experience in Intellectual Property law to ensure a proper conviction. The prosecutors in regional and district courts often have no experience whatsoever in these types of matters.

Civil Proceedings

We conduct civil trials together with an experienced advocate (barrister) briefed to assist in the trial. This process will lead to an interdict being obtained against the infringer; an order for delivery up for destruction of the goods; damages in certain instances; and a punitive costs order.

This option allows fewer opportunities for the infringer to defeat a brand holder’s claim on technical points, and all monies recovered are paid over to the brand holder, as opposed to a criminal trial where monies recovered are paid to the State.

Drawbacks of this process are that the costs of litigation must be borne by the brand holder. If the matter is successfully prosecuted; the infringer will be ordered to pay the brand holder’s costs. These costs are, however, per the court tariff that was last amended some forty years ago. Accordingly, only approximately one third of a brand holder’s costs will be recovered from the infringer, assuming that the infringer has sufficient funds to honour this obligation.

Recommendation

We suggest that the majority of infringers be prosecuted by means of our criminal justice system. High profile offenders, however, should be prosecuted simultaneously by using both the criminal and civil justice system.

This ensures some form of punishment being meted out and sends the necessary message out into the market place of a brand holder’s attitude on counterfeiting, and will hopefully deter possible future infringers from applying protected marks to counterfeit goods.

Destruction of the Goods

Once the trial procedure set out above has been prosecuted successfully, the goods are removed from the warehouse and can be destroyed. Destruction of the goods is normally accomplished by burning.

Certain of our client’s in the clothing industry prefer to remove all identifying marks from the clothing and donate the unbranded clothing to local charities.

Raids Conducted in Terms of the Counterfeit Goods Act

Should a brand holder elect to retain the services of Spoor & Fisher to enforce its Intellectual Property rights on the "street", our private investigations company (Porcupine Investigations (Pty) Limited) will attend to the following on the brand holder’s behalf:

Attend at various formal "flea markets", retailers and informal markets to ascertain whether counterfeit goods are being sold;

Where goods are found, a warning letter will be issued to the alleged infringer creating the requisite knowledge, which can be used to great advantage in any future criminal trial;

Investigate any complaints received relating to counterfeiting of protected marks; Investigate an alleged infringer for purposes of a raid;

Purchase a test sample without unduly alarming the alleged infringer.

In certain circumstances, we will report an offender in possession of high quantities to a brand holder for the brand holder to determine whether it wishes to take action against the offender.

A raid on the premises of the infringer can be conducted with the assistance of the South African Police Services or officials from the Department of Trade and Industry. The purposes of the raid are to confiscate/seize all counterfeit articles in the infringer’s possession and to obtain any other evidence that could be used in a subsequent trial.

Raid

To instigate a raid a complaint must be lodged with either the Commercial Crime Unit of the South African Police Service or officials from the Department of Trade and Industry.

The complaint takes the form of an affidavit similar to that prepared for a Custom’s seizure. The raid is conducted by the relevant officials and a member of our staff will accompany the officials to identify all counterfeit products.

The identified products are then inventoried and seized in terms of the Counterfeit Goods Act, where, after the products are removed to a counterfeit goods depot.

Thereafter, trial proceedings must be instituted as detailed above.

In circumstances where counterfeit goods are found, but the delay in obtaining a warrant would result in the disappearance of the goods, the counterfeit goods can be seized without a warrant.

In this situation, an application in terms of Section 5(4) must be launched within 10 days of the seizure, failing which the goods must be released.

If a successful conviction/judgment is obtained, the goods will be delivered up for destruction and the infringer will be sentenced to jail, ordered to pay a fine or damages and/or ordered to pay the costs of the proceedings.

Mohamed Khader

SPOOR & FISHER

Date published: 2004/01/01
Author: Mohamed Khader

Tags: counterfeit goods south african revenue customs excise