Introduction
Counterfeit trademark goods and pirated copyright goods (counterfeits) are a menace to society, drastically growing with the advancement of technology and coming in many different forms. Sri Lanka is no exception to this, and there have been numerous counterfeit cases reported within the judicial system, making it necessary to probe into the available legal avenues to combat counterfeits. According to the latest OECD figures, global trade in counterfeit goods has reached US$467 billion in 2021. Well-known fashion, cosmetics, electronic, pharmaceutical and automotive brands are often targeted by counterfeiters.
Legal framework
The Intellectual Property Act, No. 36 of 2003 (the IP Act) governs all aspects of intellectual property (IP) in Sri Lanka and is the main piece of legislation in relation to anti-counterfeiting measures through judicial intervention. According to the IP Act, enforcement against counterfeiting could be through filing civil action or criminal action, or both. Sri Lanka is a signatory to many key international instruments in relation to intellectual property rights (IPR), including the TRIPS Agreement. However, all IP rights are territorial in nature.
Civil action: injunctions, damages and other ancillary orders
The IP Act specifically recognises the rights of a registered owner of a mark and, accordingly, the exclusive right to use the mark, assign or transmit the registration of a mark and conclude licence contracts in relation to a registered mark vests with the registered owner of a mark. In this context, without the consent of the registered owner of the mark, third parties are precluded from any form of use of the mark in such a way as to be likely to mislead the public, for identical goods or services in respect of which the mark is registered or for similar goods or services in connection with which the use of the mark or sign is likely to mislead the public. Further, any other use of the mark, or of a sign or trade name resembling it, without just cause and in a manner likely to be prejudicial to the interests of the registered owner of the mark is also precluded.Therefore, counterfeits are expressly prohibited and against the interest of a registered owner of a mark.
The High Court of the Western Province sitting in Colombo, Sri Lanka, in exercising its civil jurisdiction commonly referred to as the Commercial High Court, has exclusive jurisdiction to hear and determine all proceedings required to be taken under the provisions of the IP Act, which is generally read with the provisions of the High Court of the Provinces (special provisions) Act No. 10 of 1996.
The IP Act clearly recognises infringement and provides for remedies against infringement as well as imminent infringement. Section 170 (1) of the IP Act states that where the owner of any IPR proves to the satisfaction of the court that a person is threatening to infringe, or has infringed, any of his or her rights, or is performing an act that makes it likely that infringement will occur, that the court may grant an injunction restraining any such person from commencing or continuing such infringement. The court also has the power to order damages and such other relief as the court may deem just and equitable. It is notable that the injunction may be granted along with an award of damages and shall not be denied only because the applicant is entitled to damages.
In summary, the IP Act provides for injunctive relief as well as damages for loss resulting from acts of infringement. In the process, the court is vested with power to order the infringer to pay the IP rights holder damages in a sum adequate to compensate the loss by reason of such infringement. Also, the court may order for recovery of any loss of profits. Disposal of infringing goods outside the channels of commerce or destruction without payment of compensation are also possible relief. One could see that the power vested with the court is wide enough that it may grant any such other relief the court deems just and equitable.
The court shall have the power to order interim measures relating to protection, ex parte, where appropriate. In particular, where any delay is likely to cause irreparable harm to the rights holder or where there is a demonstrable risk of evidence being destroyed (ie, enjoining orders effective for 14 days and orders similar to Anton Piller orders).
Mere defacing or removal of the trademark unlawfully affixed to counterfeit trademark goods will not be sufficient to permit the release of the goods into the channels of commerce. However, in exceptional cases this may be permitted. Therefore, it is apparent that the legal framework provides the highest protection against counterfeiting. The IP Act interestingly provides that in making such orders, the need for maintaining a balance between the seriousness of the infringement and the remedies ordered, as well as the interests of third parties, should be considered.
In addition, in the process the court may order the infringer to inform the rights holder of the identity of the persons involved in the production and distribution of the infringing goods or services and of channels of distribution used by them, which is a very useful.
In a recent case, Under Armour Inc filed action against a local fashion giant, House of Fashions Mega Mall Ltd, for allegedly selling ‘Under Armour’ counterfeit garments, and the Commercial High Court issued an interim injunction against House of Fashions restraining it from manufacturing, importing, distributing, marketing, promoting, offering for sale, selling, storing for sale, and otherwise dealing in goods bearing names, marks, signs, logos, or devices identical to and/or confusingly similar to Under Armour’s registered trademarks. In this case, the court also initially granted an enjoining order and a search order similar to an Anton Piller order, directing the registrar to search, seize samples and make an inventory of all counterfeit goods found under the brand Under Armour at the two House of Fashions outlets.
Criminal action: imprisonment and fines
Chapter XXXVII of the IP Act deals with offences and penalties. Criminal action can be instituted by way of a complaint made to the Police or Criminal Investigations Department (CID) or by way of a private plaint in the respective Magistrates’ Court with jurisdiction, depending on the facts and circumstances of each particular matter. Under section 197 of the IP Act, search warrants could be obtained.
Wilful infringement of marks shall be deemed to be an offence, and the accused shall be, on conviction after trial before a magistrate, liable to a fine or imprisonment, or both. In the case of a second or subsequent conviction, the accused shall be liable to double the amount of such fine or term of imprisonment, or both. Also, false presentations of marks are deemed to be an offence. In relation to counterfeits, the IP Act specifically provides that forging a mark or use of a mark so nearly resembling a registered mark as to be likely to mislead will be an offence unless proved that there was no intention to defraud. The sale or possession of counterfeits in the nature of goods or things to which any forged mark or false trade description is applied, or to which any mark so closely resembling a registered mark that it could be misleading is falsely applied, is an offence. The accused may have to prove that he or she had no reason to suspect the genuineness of the article and his or her innocence. In any prosecution for falsely applying a mark to goods, the burden of proving permission of the owner is on the accused.
To strongly deter illegal acts of counterfeiting, the sale, possession for sale or any purpose of trade or manufacture, goods or things to which any forged mark or false trade description is applied, or any mark so nearly resembling a registered mark so as to be likely to mislead, is falsely applied, is made an offence.In such a situation, irrespective whether the alleged offender is convicted or not, the court is vested with power to order every chattel, article, instrument or thing by means of or in relation to which the offence has been committed to be destroyed or declared forfeit to the state or otherwise dealt with as the court may think fit.
In a recent case, the magistrate’s court ordered the destruction of counterfeit bearings under the brand ‘KOYO’ pursuant to the accused being found guilty of charges on trading counterfeits.
Border control: power to act ex officio
Marks registered with the National Intellectual Property Office (NIPO) could be registered and recorded with Sri Lankan Customs.
In 2003, in anticipation of a robust system for enforcement of IPR through Customs, the Customs Ordinance was amended through the IP Act, and two new sections were introduced for prohibition against importation and exportation of counterfeit trademark goods or pirated copyright goods or any other goods in contravention of the provisions of the IP Act. Dealing with counterfeits in violation of these provisions will entitle the customs authorities to forfeit the goods and dispose of them outside the channels of commerce.
‘Counterfeit trademark goods’ has been defined under the IP Act to mean ‘any goods including packaging, bearing without authorization a trademark which is identical to a trademark validly registered in respect of such goods or which cannot be distinguished in its essential aspects from such a trademark, and which thereby infringes the rights of the owner of the trademark recognized by the act’.
‘Pirated copyright goods’ has been defined under the IP Act to mean any goods that are made without the consent of the copyright holder or person duly authorised by the copyright holder in the country of production and that are made directly or indirectly from an article where the making of that copy would have constituted an infringement of a copyright or a related right.
In summary, the importation of counterfeit trademark goods or pirated copyright goods or any other goods in contravention of the provisions of the IP Act is prohibited. Such goods are prohibited under sections 43 and 44 of the Customs Ordinance and are included in Schedule B of the Ordinance as prohibited goods. Such prohibited goods are to be disposed of outside the channels of commerce or, if such disposal damages the interests of the owner of any right protected under the IP Act, be destroyed.
The IP Act also provides for suspension of certain goods by Customs where the registered owner, who has valid grounds to believe that the importation of counterfeit trademark or pirated copyright goods or of any other goods in contravention of the rights holder’s rights under the IP Act is taking place, may make an application in writing to the Director-General of customs, requiring him or her to suspend of the release of such goods into free circulation.
Enforcement of IP through the Customs is very effective as Customs may on its own initiative suspend the clearance of the importation or exportation of goods in respect of which it has acquired prima facie evidence that an intellectual property right has been, or may be, infringed. Customs has established an Intellectual Property Rights Enforcement Unit called the Consumer Protection Unit (CPU), which aims to combat counterfeiting and piracy. Since its inception, the unit has been very active, and counterfeit goods have been intercepted and seized frequently. Such counterfeits have been destroyed in mass destruction events, passing a strong message to the counterfeiters that Customs are vigilant on illicit trade.
Enforcement of IP through consumer affairs authority
Established under the Consumer Affairs Authority Act No. 9 of 2003, the Consumer Affairs Authority (CAA) of Sri Lanka is statutorily empowered to investigate or inquire into anti-competitive practices and abuse of domain position. It is said that the overall objective of the CAA is to provide for the better protection of consumers through the regulation of trade and the prices of goods and services and to protect traders and manufactures against unfair trade practices and restrictive trade practices.
There is no specific provision in the Consumer Affairs Authority Act on IP violation. However, the CAA Act contains provisions against misleading or deceptive conduct by traders in the course of trade or business and false representations that could be explored accordingly. In appropriate cases, the CAA conducts raids, and infringing goods taken into the custody during raids are produced to courts, and offenders are punished according to the provisions of the Act.
Counterfeits on online platforms
Digital platforms offering goods for sale are heavily relied upon by the public in Sri Lanka today, especially with the convenience it offers to consumers with their busy schedules. E-commerce has become popular in Sri Lanka post-pandemic, and there has been a rapid growth in the use of these platforms. Counterfeiters use these platforms to trade their illicit goods, sometimes making enforcement difficult and inviting the introduction of new rules and regulations to regulate trading counterfeit trademark goods and pirated copyright good on these e-commerce platforms.
However, the Consumer Affairs Authority has introduced directions for the protection of the consumer for any e-commerce entity or platform operator engaging in marketing and selling of any goods. The said direction has defined e-commerce to mean the business activities of the sale of goods, services or digital content through the internet or other information network. Accordingly, the stages of a transaction are as follows: the pre-purchase stage, the purchase stage and the post-purchase stage. Accordingly, there are specified activities falling under these three stages, and corresponding conditions specified in relation to such activities that any e-commerce entity (online sellers and sellers operating on platforms or a platform operator (a third party who owns or operates a platform)) should mandatorily comply with.
Preventive measures and strategies
A brand owner should implement a robust action plan to enforce their rights against counterfeiters.
As counterfeiters become more advanced and sophisticated, enforcement too must evolve through advanced authentication technologies, increased public awareness and stronger international cooperation.
Conclusion
Branded products’ counterfeits are a threat to the brand owners as well as the consumers and the public at large. The impact of such illicit trade also affects the legitimate revenue of a government as these counterfeits are mostly smuggled into a country. Sri Lanka has a legal framework for the protection of trademark owners’ rights, and these provisions may be explored and applied in dealing with issues on trademark infringements on online platforms as well.
