How customs fights the fakes

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Pravin Anand and Manish Biala explain how India’s customs authorities enforce IP protection

The growth of luxury goods in India has led to a symbiotic relationship between counterfeiters and India’s grey market. China and Hong Kong-based suppliers, with the help of Indian importers have made cheap counterfeits easily available, thereby reducing the brand value of the original goods. The effects on brand owner reputation and the Indian economy were drastic, resulting in calls for a serious response from the government.

The Customs Act, 1962, prohibits the import and export of any goods in India which violate Indian laws. The Indian customs authorities are the first line of defence against all counterfeits and fakes entering the Indian market. To ensure vigilance against intellectual property (IP) infringement, the Indian government enacted the Intellectual Property Rights (Imported Goods) Enforcement Rules, 2007, (referred to below as the Customs Rules).

Pravin Anand
Pravin Anand
Managing partner
Anand and Anand

CUSTOMS RULES

The Customs Rules were implemented to strengthen executive, administrative and statutory compliances and protect the rights of brand owners in India. The rules actively prevent entry into India of all counterfeit and infringing goods originating overseas unless inspected by brand owners, provided the brand owners’ IP rights are recorded with the Indian customs authorities.

Brand owners can register their IP rights by filing a simple application with the commissioner of customs at any customs port in India. These registration details form part of the centralized system of all customs ports, borders and Inland Container Depots (ICDs). The registration details include information such as the IP right being registered, the type of goods, complete contact details of a person to be notified on behalf of the brand owner, details of the authorized importer, origin of the goods, etc.

After collecting this data, the Customs Rules require all customs ports in India to suspend the suspected infringing goods at Indian borders, ports and ICDs. All goods infringing the registered IP rights are subject to suspension by customs and further inspection by brand owners. The inspection of the suspended goods by brand owners determines the authenticity of the goods.

Brand owners are asked to submit a bond and bank guarantee on the basis of the value declared in order to protect customs from any loss caused due to suspension of consignment. The security is returned to the brand owner after completion of proceedings.

Once brand owners declare that the suspended goods are counterfeit and infringing of their IP rights, customs will seize them and issue a show cause notice to the importer as an opportunity to prove that the seized goods are genuine and not counterfeit. Similarly, customs will also ask the brand owner to prove that the seized goods are counterfeit and not genuine. Thereafter, the brand owner and the importer can file replies to the show cause notice and the matter will be referred to the adjudication branch of customs for proper and fair adjudication.

The adjudication branch will pass a final order based on the facts and documents on record, which usually means a direction to confiscate and destroy the seized goods, and the imposition of a penalty on the importer payable to customs. Brand owners are not entitled to recover any damages from the importer under the Customs Rules and must instead bear the costs of destroying the infringing goods.

Manish Biala
Manish Biala
Partner
Anand and Anand

PARALLEL IMPORT

As per a decision of the division bench of Delhi High Court, parallel import is permissible in India. In a circular on 8 May 2012, the Indian customs authorities specified that parallel import is permissible under the provisions of the Trade Marks Act, 1999.

To benefit from the provisions of the circular, Indian importers began to import original goods from the UAE and Singapore, as the market value of these original products is cheaper than that in India. Parallel imports thus benefit Indian importers in two ways. Firstly, the importers declare the lower price of the original goods, and so they pay less duty on those goods. Secondly, the importer can sell parallel imported goods in India at a cheaper price as compared to the actual price of the original goods originating in India. Therefore, the parallel import disturbs the local markets of brand owners in India.

Since parallel imports are not intended for Indian markets, neither they nor their suppliers comply with applicable Indian laws. Yet if parallel imports do not comply with applicable laws in India, brand owners would be held liable for non-compliance.

India’s customs authorities have successfully countered the issue of parallel imports by putting reasonable conditions on importers to furnish an indemnity bond or an undertaking that they will comply with all applicable laws in India pertaining to such goods, prior to the release of those goods. Further, the importers must also agree to indemnify brand owners for all liabilities arising out of future parallel imports in India.

PRAVIN ANAND is the managing partner of Anand and Anand. MANISH BIALA is a partner at the firm.