Border Measures Concerning the Infringement of Intellectual Property Rights:
The Point of View of Rightsholders
Janet L. Hoffman
Partner, Fross Zelnick Lehrman & Zissu, P.C.
New York, New York (USA)
On Behalf of The Coalition for Intellectual Property Rights
WIPO-Kazakhstan National Seminar,
December 1, 1999 — Almaty, Kazakhstan
Threemajor events make the opportunity to speak to you today even more meaningfuland never more timely. In America, thethird ministerial meeting of the World Trade Organization is underway inSeattle, Washington. January 1, 2000,marks the fifth anniversary of the signing of the Agreement on Trade-RelatedAspects of Intellectual Property Rights or TRIPS. And, this Friday here in Almaty, President Nazarbayev is holdingthe third meeting of his Foreign Investors Council – a meeting designed toidentify and implement further initiatives to attract and secure increasedforeign investment in Kazakhstan.
Whether on theglobal stage – such as the WTO meeting – or at the local level – such asPresident Nazarbayev’s meeting with Kazakhstan’s largest foreign investorslater this week – the quest for an improved business climate, including greaterprotection of intellectual property rights, is at center stage.
Andwith good reason. For a trademarkowner, there are few things more fundamental and more important than theprotection of one’s brands, one’s products and one’s reputation in the world ofbusiness. And, if you strip away all ofthe complex legalese and fancy trade talk, that’s essentially what intellectualproperty rights are all about – protecting a trademark owner’s reputation andthe quality and integrity of its goods and services from third-rateimitations. I have learned this firsthand, as a practicing intellectual property attorney representing some of theworld’s largest corporations such as Anheuser-Busch (the largest beer companyin the world), Pepsi-Cola, Reebok and many other large and small rightsholders.
Onbehalf of my colleagues at the newly formed Coalition for Intellectual PropertyRights, “CIPR,” I want to thank you for inviting me to be here with you. WIPO,the Kazakhstan Ministry of Tax Revenues and Kazpatent have kindly asked me toprovide you some of the private sector’s perspectives on the importanceof border and customs enforcement in the larger realm of intellectual propertyrights.
Istarted my presentation by pointing out three events that are taking placeliterally simultaneously with our meeting here today … the WTO meeting in Seattle,the fifth anniversary of the signing of TRIPS and the upcoming KazakhstanForeign Investors Council meeting. Whyare these important to us and why are they relevant to our discussions today?
Eachevent is based on the understanding that developing economies – such as theeconomy of Kazakhstan – must rely on three fundamental approaches to advancetheir role in the global marketplace. 1) A strict commitment andadherence to the rule of law...2) Compliance with international standards and agreements... and, 3) A fundamental determination to protect theintellectual property of both international and domestic businesses andentrepreneurs.
Thefact of the matter is that intellectual property protection representsimportant interests not just of companies, but of governments too. And, of course, there is the ultimateinterested party – the consumer, who is stuck with paying for inferior productsor, worse, is put at risk by dangerous products, when intellectual propertyrights are not effectively enforced. 'color:black;'>
The World Intellectual Property Organization conservatively estimatesthat businesses lost $2.1 billion in sales to trademark pirates lastyear alone. And that may be a veryconservative estimate. U.S. Customs,perhaps the most aggressive authority in the world, seized more 11,600shipments of illegal merchandise representing more than 296 million U.S.dollars from 1995 through the first half of 1999. This estimate was based on examining just two percent of thetotal shipments entering the United States. Extrapolating these figures, that means that as much as $14 billion ininfringed goods entered the U.S. market in a four-and-one-half yearperiod. That is a striking figure.
Inthe countries of the former Soviet Union, intellectual property violations arethought to occur on an even larger scale. For example, one international cosmetics and health care productscompany estimates that up to 90 percent of its products in retail outlets inthe various countries of the former Soviet Union are fake.
But trademark owners are not the only oneswho suffer when countries lack strong protection of intellectual propertyrights. As has been properly noted atthis seminar, governments, including the Government of Kazakhstan, suffertoo. In the first place, they loseduties, fees and taxes.
Acountry’s economic growth and prosperity are seriously and directly affected inother ways if companies – either foreign or domestic – fear their intellectualproperty assets will not be protected. Such violations reduce tradingactivity. They reduce directinvestment. And, as we know, such fearscan be a major impediment to WTO accession – a key priority for Kazakhstan andother countries in the region.
Moreover,and equally important, public health and safety are put at risk whencounterfeiters focus their efforts on such products as baby formula,pharmaceuticals, foods and airplane and automobile parts. Would you want to bein an airplane whose wings are attached with inferior, counterfeit bolts?
Similarlydepleting to a nation’s economy are the time, money and resources of lawenforcement authorities diverted from other important law enforcement endeavorswhen police and customs officials are sent on undercover raids for counterfeitproducts and contraband.
Onthe other hand, strong, effective and efficient customs and border enforcementpolicies and actions directly translate into increased revenues for governments– through improved collection of import duties and customs fees – and foreigninvestment. By tracking and monitoringthe flow of goods into the country, customs authorities working with taxauthorities can ensure the maximum collection of taxes, duties and tariffs inthe economy at large.
Noone is underestimating the challenge that you and other governments face inprotecting the rights of intellectual property owners. As noted yesterday by Sergei Zotin, thegrowth of trademarks, service marks, trade dress and other intellectualproperty is astounding. According to the World Intellectual Property Organization,in recent years the number of registered trademarks exceeded 9 million, morethan double the number in 1974. Andeven though 64 % of all customs authorities surveyed by the World CustomsOrganization have modernized their enforcement strategies and working methods,the resources devoted to trademark protection has lagged behind the growth ofintellectual property. I want tocongratulate all of you in this room who are working to improve this situationhere in Kazakhstan and around the world.
At the same time,businesses and business opportunities have become truly global. The creation of free trade areas, and the internationalliberalization of trade policies, have resulted in booming trade volumes. The WTO estimates that world trade grew by 8percent in 1995 — four times the growth of world Gross Domestic Product. In fact, during the 1990s trade grew farfaster than world output. Billions – ifnot trillions – of dollars worth of goods are being imported and exported eachand every year. National economies aremore closely linked to each other than ever before.
In such an economicenvironment, your challenge is indeed daunting. But it is not a challenge that you must undertake alone as amplydemonstrated by our colleagues speaking at this seminar yesterday andtoday. You already receive a great dealof support from organization such as WIPO, WCO and many others who share acommon belief in the importance of the protection of intellectual propertyrights and the growth of the Kazakh economy. My colleagues and I at the Coalition for Intellectual PropertyRights also believe that only close cooperation and coordination betweenprivate industry and customs officials will help to stem the tide ofcounterfeiting, contraband and other such illegal acts.
And, private companies must take the first step. They must follow the laws and theregulations you already have in place to protect their assets. This means registering their marks and otherintellectual property in as many forms and in as many countries as economicallyfeasible. For some companies this, onthe surface, may appear to be a very costly proposition. But, in the long run, it is far lessexpensive than the cost of infringement, counterfeits and litigation.
But, once registered and protected, the rights of trademarkowners must be enforced.And, again, this is where businesses and governmentsmust work together.
What distinguishes TRIPS from any other internationalagreement is that it devotes substantial attention to trademark holders’ability to enforce their rights. TRIPSprovides not merely a random series of ideas and suggestions onenforcement, but instead outlines a comprehensive “system” forenforcement. TRIPS requiresgovernments to establish a system that guarantees intellectual property ownersaccess to civil, criminal and border enforcement measures. All three remedies are essential toeffective protection of intellectual property rights – all three are essentialto ensuring that companies feel they have a level of protection and availableremedies to invest and to import their goods into a given country.
From the private sector’s point of view, effectiveenforcement should emphasize flexible, risk-based and targeted operations. It should accentuate intelligence and informationas the principal weapons to identify fraud and smuggling. It should involve theeffective deployment of limited resources. It should deliver appropriate penalties and punishments to deter otherpotential smugglers and counterfeiters—and discourage repeat offenders. And, most importantly, it should provide aneffective legal and administrative framework on the one hand, and the correctenforcement mechanisms on the other hand.
As Tolesh Kaudyrov, Kazpatent’s Chairman said in his openingremarks yesterday, it is only through an integrated approach that we can “makedeclared rights become real rights in the sphere of intellectual propertyprotection.”
I would like to recognize the work of Kazpatent, theKazakhstan Parliament and the Presidential Administration in establishing astrong legal and administrative framework for intellectual property. You have many of the systems in place toadvance your objectives in protecting the rights of intellectual property owners—andof the state. This is essential forsuccess in growing the economy and attracting foreign investment.
Let me provide you five key specific areas where I believegovernment and private interests have the responsibility … indeed, theimperative for close cooperation and coordination in achieving effective borderenforcement.
Establishing clear authority. TRIPS gives only vague directions as to whatauthority should be responsible for border enforcement. TRIPS’ language refers to “competentauthorities” only, but does not define who that should be. Therefore, it is up to each and everygovernment to identify the authorities that are responsible for borderenforcement.
It is essential that lines of authority and responsibilityare clearly delineated within the government’s structure of customs and borderenforcement. And that those lines ofauthorities and responsible are clearly communicated to the private sector whoare seeking to protect their trademarks and other intellectual property rights.
Ease of coordination. TRIPS requires businesses to provide evidence to the appropriateauthorities to show that there is prima facie infringement of a trademark. This is where common sense comes intoplay. On the one hand, government doesnot want to restrict free flow of trade across borders. But on the other hand, government should notimpose overly burdensome requirements on business to make the entireenforcement process meaningless.
Business should provide as much evidence as possible. But, business should not have the burden ofdefinitive proof at the outset. Prima facie literally means “on its face” or“at first sight,” and we believe this should be the maximum standard to whichtrademark owners should be held to initiate border enforcement action.
Information exchange. Information flows both ways. TRIPS also requires rights holders to provide customs officialssufficiently detailed descriptions of goods to enable authorities to identifythe goods in question. Providing this information and educating customsofficials on the finer and the more subtle points of trademarks will go a longway toward increasing the effectiveness of border measures.
Article 57 of TRIPS specifically allows customs authoritiesto obtain assistance from intellectual property owners in inspecting suspectgoods. There is no better way ofverifying counterfeit goods than to have the companies with the trademarkrights inspect the goods in question.
Customs officials are also becoming much more sophisticatedin gathering information and intelligence. As we heard yesterday, according to the World Customs Organization,Customs administrations are looking at the possibility of further developingelectronic communication between Customs and business. This will have very significant benefits forCustoms, as the customs administrations of the future will rely on accurate andtimely information in order to carry out their functions. Ultimately, we expectthis will lead to the practical implementation of a "seamless dataflow."
Training. Training is acritical issue and one that occupies the attention of many government officialsin the area of customs and border enforcement. As the number of registered marks grows and the sophisticationof counterfeiters increases, so does the burden on custom officials to havetrained and skilled staff. In fact,according to a survey conducted by the World Customs Organization, 82% of thecustoms authorities surveyed said that the increase in the demand for newskills will lead to the increase in the need for training staff to do new jobsand retraining staff to do jobs differently.
Private industry has a role to play in training andeducating customs authorities and staff. Sharing information and participating in inspections, as stated above,is an important step in assisting customs officials in training staff. In addition, the private sector shouldcontinue to support and advocate for intellectual property training programsfor customs officials, such as those already sponsored by the World Intellectual Property Organization, WorldCustoms Organization and governments of the European Union and the UnitedStates. And, organizations representingthe private sector – such as the Coalition for Intellectual Property Rights,the International Trademark Association and IFPI – want to continue activeparticipation in and sharing of information through symposiums and workshops,like the one here today.
Penalties. There’s a saying in the United States that applies here. Punishment should fit the crime. In too many countries, smugglers andcounterfeiters get a slap on the wrist – a nominal fine that is simply the costof doing business in the eye of the illegal operator.
TRIPS only requires criminal penalties in cases of willfulcopyright piracy and trademark counterfeiting. It leaves the decision to apply criminal sanctions for other types ofintellectual property violations up to the individual member government.
Additionally, TRIPS does not require criminal penalties forsevere violations to include both prison and monetary fines. Both are weaknesses within the TRIPSstructure, but they don’t have to be weaknesses within individual government’senforcement regimes.
In this area, Kazakhstan is ahead of TRIPS in its provisionof criminal sanctions for copyright violations. However, as noted by the Kazpatent Chairman, Mr. Kaudyrov, thereis still a glaring need to put laws on the books which provide similarlymeaningful penalties for violations of industrial property rights.
The private sector firmly believes that serious acts shouldbe punished by prison sentences and that those sentences should not be able tobe converted to monetary fines. Counterfeiting and infringement can result in significant financiallosses to a company, particularly when a market becomes flooded with counterfeitgoods. For a company with a well-knownbrand, the cost impact can be in the millions of dollars per year. Insufficient penalties harm not only thebrand owner, but the consumer as well and the punishment should reflect themagnitude of the crime.
The private sector is ready to work with you on these andthe many other issues involved in proper enforcement of intellectual propertyrights. A most apparent example of theprivate sector’s commitment to this area is our decision to form “CIPR,” theCoalition for Intellectual Property Rights.
CIPR was formed by a select group of major internationalcompanies — including, Philip Morris, United Distillers and Vintners andAnheuser-Busch — along with major European and American business associationsrepresenting hundreds of companies doing business in the region. All of us are committed and ready to workwith you and other organizations to advance the protection and enforcement ofintellectual property rights in the 15 independent nations that make up thisdynamic region of the world.
CIPR’s mission and major objectives are as follows:
First – and most important – we want to provide mechanismsfor relationship building and two-way communications between business andgovernmental authorities and decision-makers. That is why we participate in and organize meetings, workshops andseminars throughout the Former Soviet Union, such as the recent AnnualRospatent Conference in Moscow and the September meeting in Moldova organizedby WIPO for all Patent and Trademark Office directors from the region.
Secondly, we want to assist in the establishment oftransparent and non-discriminatory intellectual property regimes. In that regard, we view TRIPS as a startingpoint that has brought many positive developments in the field of intellectualproperty rights. But we encourage youand other nations to go beyond the minimum requirements of TRIPS to protecttrademark owners. CIPR, for example, providessupport to efforts in many countries of the region to draft and enact legislationto achieve this goal—as well as to assist Governments in the region to educateintellectual property owners of their rights and obligations.
CIPR is an active facilitator between governmentdecision-makers and members of the local and international business communitiesto implement effective trademark protection, anti-counterfeiting and otherenforcement efforts. We are workingdirectly with customs officials, interior ministries, militsia, tax police andthe patent and trademark offices in Moldova, Russia and other countries onmodel enforcement programs.
The Coalition is working with international financial anddonor organizations, such as the World Bank, Tacis and USAID, to identify andsecure technical assistance in the area of intellectual property training forpractitioners, the judiciary, customs authorities and other specialists.
CIPR is conducting research and analysis of the fiscalimpact of inadequate intellectual property protection on both the governmentsof the region and on the private sector. For example, a major survey research project is currently underway inRussia to measure the IP experience of more than one thousand foreign anddomestic companies operating in this market. Similar studies are planned for Ukraine and other countries in theregion.
And, finally, we will continue to work cooperatively in thissphere with all key international organizations such as WIPO, the UnitedNations Economic Commission for Europe, WCO and INTA—as well as regionalintellectual property groups, business associations, foreign investmentcouncils and international donor and technical assistance providers. We are working, as well, with a number ofthe leading local patent and trademark attorneys’ organizations.
There are many resources dedicated to advancing intellectualproperty rights in the former Soviet Union. Many groups, such as WIPO, INTA and UNECE have undertaken a number ofinnovative initiatives to further the stated goals. Each has a contribution to make. Each has a unique role. I amjust happy to be here today to provide the commitment of time, energy andresources on the part of the Coalition for Intellectual Property Rights to helpyou in your quest to protect the rights of brand owners and the interests ofthe state and of consumers.
The fact is that most governments—including Kazakhstan —arenearly finished with the easy part. Youhave most of the laws and the rules in place. And, in this, Kazakhstan deserves credit and thanks. Now comes the hard part. To enforce and prosecute under theselaws. My message today is that you arenot alone in that endeavor. The private sector stands ready to help you, and todo our part. Thank you for your attention.
