A reluctance by the police to enforce criminal laws against counterfeiters is fuelling their illicit trade. Harsh Aggarwal and Roma Arora report

Counterfeiting is one of the biggest challenges facing brand owners, as it threatens their profits, reputations and, potentially, the lives, safety and loyalty of their customers. Sub-standard raw materials are generally used to make counterfeit goods for cheap imitations of reputed brands that customers trust. Counterfeit goods affect multiple industries such as apparel, fashion accessories, medicine, cigarettes, automotive parts, consumer goods, toys, electrical and electronic goods.

Trades in counterfeits can be broadly divided into two categories:

  1. Consumers knowingly purchase counterfeit products and there is no element of deception.
  2. Consumers intend to buy original products but are deceived into buying counterfeits and, certainly, there is deception.

Trades in the first scenario involve products like clothing, footwear and fashion accessories. Such transactions infringe the copyrights and trademarks of the brand owners, but they do not represent any form of cheating. The second scenario involves products such as printer cartridges, auto parts, mobile phones and related accessories. Given the nature of these products, they will not affect the health and safety of the user.

However, when it comes to food and beverages, medicines, cosmetics and life-saving electrical devices, such as miniature circuit breakers (MCBs) and wires (special products in short), a customer chooses brands only because of their high quality and the trust they have in the name. No end-customer knowingly buys fake medicine or a life-saving device. Such products, due to their very nature and usage, strongly affect human health and safety.

There is a huge difference between counterfeiting a luxury item and medicine or a cosmetic product that can cause serious ailments. Likewise, fake wires made of flammable plastic or fake MCBs, which fail to trip during electrical overloads, pose a danger of electrocution or fire resulting from short circuits. The sale of such counterfeits is intended to deceive consumers for the rogue sellers’ unlawful financial gains. As such, these actions are more than simple copyright or trademark infringements.

Existing legal framework

In India, there is no legislation to impose strict punishment and/or imprisonment for counterfeiting and piracy. Procedurally, section 115(4) of the Trade Marks Act, 1999, provides for search and seizure by the police in case of offences under section 103 (applying false trademarks, trade descriptions, etc.) and section 104 (selling of goods or providing services to which false trademarks or false descriptions are applied). However, a proviso to section 115(4) also mandates obtaining a prior opinion from the Registrar of Trademarks on the facts of the offence.

Obtaining such an opinion is a time-consuming process, which generally delays the action to be taken, giving counterfeiters ample time to evade the law. Although a brand owner has the option of filing a complaint before a magistrate to investigate under section 156(3) of the Criminal Procedure Code, 1973, alongside the issuance of warrants for search and seizure under sections 93 and 94, this too is cumbersome and prevents speedy anti-counterfeiting action.

Accordingly, all brand owners across industries adopt a simpler route in invoking section 64 of the Copyright Act, 1957, for search and seizure, as well as getting a first information report (FIR) registered against the wrongdoers.

Special laws, such as the Drugs and Cosmetics Act, and the Food Safety and Standards Act, have criminal provisions to deal with spurious products, but only the police and authorized officers, who have been empowered under these respective acts, can carry out searches and seizures. Because of an acute shortage of officers empowered under these statutes, brand owners of such products have no option but to seek recourse from the police force, which books the offenders only under the Copyright Act and Trade Marks Act.

Judicial view on counterfeiting

Until recently, the police treated offences under the Copyright Act as non-bailable acts, which was an ample deterrent for many counterfeiters. However, there was uncertainty due to the conflicting judgments of different high courts as to whether offences under section 63 of the Copyright Act are bailable. In India, a bailable offence is one for which an accused person is automatically entitled to be released after furnishing the required surety or bond. For non-bailable offences, the grant of bail is at the discretion of the court.

For example, while Gauhati High Court in Jitendra Prasad Singh v State of Assam (2003) and Kerala High Court in Suresh Kumar v the Sub Inspector of Police (2007) held the offences under section 63 of the Copyright Act to be non-bailable, Andhra Pradesh High Court in Amarnath Vyas v State of Andra Pradesh (2007) took the view that these offences were bailable. In relying on a judgment of the Supreme Court in the matter of Avinash Bhosale v Union of India, where an offence punishable under section 135 (1)(ii) of the Customs Act, 1962, was held to be bailable, Delhi High Court in State Government of NCT of Delhi v Naresh Kumar Garg (2013) also concluded that the offences under section 63 of the Copyright Act were bailable.

Now, with the ease of securing bail without approaching a court and with no fear of being detained, trading in counterfeit goods has become rampant. The police do not interrogate offenders about their sources of financial support and chain of command. The trouble of facing a trial, which is likely to lead to an acquittal, is neither a deterrent nor any kind of encumbrance, compared to the high-profit margins from selling counterfeit food and beverages, medicines, cosmetics and life-saving electrical devices, such as MCBs and wires.

The invocation of penal provisions from intellectual property (IP) laws do not deter these culprits, who are privy to police bail, from remaining hooked on trading in counterfeits, even while earlier prosecutions against them are still pending. Such people often become habitual offenders. Section 63A of Copyright Act, which deals with enhanced penalties for second and subsequent convictions, also falls short as it does not increase the maximum jail term but merely raises the fine and minimum term of imprisonment.

After Delhi High Court’s conclusion that offences under section 63 of the Copyright Act are bailable, the issue relating to the invocation to sections of Indian Penal Code (IPC) has assumed greater significance. Law enforcement agencies, including the police, have tended to invoke merely the provisions of the Copyright Act and Trade Marks Act, completely ignoring the nature of pirated goods, whether these are luxury or special products.

Police apathy

In Sunil Kumar Gupta & Another v State (1998), Delhi High Court held that when a trader or manufacturer imitates another’s copyright, they misrepresent the source or origin of the product to the immediate purchaser and the ultimate consumer. Also, they do so with a view to make a wrongful gain for themselves, and it results in a wrongful loss to the owner and, at the same time, deceives such a purchaser or consumer, amounting to cheating.

However, despite the existence of adequate and strict penal provisions under IPC, the police have tended to adopt a self-restrained approach when booking counterfeiting offences.

At times, either through a concerted effort or without applying the mind, the police register an FIR under sections 63 and 65 of the Copyright Act, ignoring all applicable sections of the IPC. Such an approach is in complete disregard of the extant law, which mandates that, if any information disclosing a cognizable offence is placed before an officer-in-charge, they must register the case, based on such information, without exercising any discretion whatsoever. In India, a cognizable offence is one for which an arrest can be made without a warrant.

Perhaps factors like lack of sensitivity, low priority to IP crimes, the burden of carrying out additional investigations in cases involving non-bailable offences and incomplete understanding of the law also generally result in the police turning a blind eye to IPC sections.

Instead of taking action, the police simply ignore the fact that the accused, when counterfeiting a brand, was intentionally deceiving an innocent consumer about a product’s origin and providing a false assurance that they are buying a safe item made by a well-known and reputable company. The failure of the police to appreciate this basic fact not only harms the brand owner’s interests, but also significantly jeopardizes the larger interests of the public and causes a massive loss of revenue to the state exchequer due to tax evasion.

Recently, Unilever and Indian subsidiary Hindustan Unilever (HUL) filed a suit in Bombay High Court for an injunction against persons manufacturing cosmetic products using HUL’s well-known brand names Lakme and Pond’s.

The court granted injunctive relief to HUL. It also directed the commissioner of police to examine and ascertain if a prima facie case of commission of an offence was made out, even though this was not requested by the plaintiffs.
The court was of the view that, prima facie, there was a big conspiracy with regard to the manufacture of spurious products and that fraud appeared to have been committed on innocent customers since the products the defendants sold pertain to skincare, including kajal, which is used around the eyes and may cause serious problems.

After examining the matter, the police, besides invoking penal sections of Trade Marks Act and the Copyright Act, also registered an FIR under sections 420, 467, 468, 471 read with section 34 of the IPC.

As sections 420 and 468 IPC are cognizable and non-bailable, entailing imprisonment of up to seven years, there is a high degree of severity and seriousness that the court attributed to the counterfeiting activities of the accused in the HUL case. Also, the subsequent arrests and the trial court’s refusal to grant bail to the accused certainly sent strong signals in piracy circles, creating a much-required deterrent in relation to products directly linked to human health and safety.

The need to look beyond IP laws

Most brand owners devise strategies against the sale of counterfeit goods with the sole objective of creating deterrence, culminating in offenders facing criminal actions. However, in the absence of strict and specific laws in India against counterfeiting, retailers continue to flood the market with sub-standard counterfeits of special products with impunity, posing serious public safety issues. Generally, counterfeiters build into the costs of manufacturing the implications of monetary penalties and fines and deterrence can only be achieved through strict legal provisions, severe penalties and imprisonment.

Under such circumstances, there is a need for enforcement agencies to look beyond the IP laws and invoke appropriate provisions from the IPC, which are indisputably applicable to different levels of the supply chain of counterfeit goods. For instance, it may not be appropriate to invoke provisions related to cheating in the case of a retailer selling fakes as the wholesaler may have duped the retailer. However, when it comes to either a manufacturer or a person printing fake packaging, there is no doubt such a person is guilty of counterfeiting.

Accordingly, stricter provisions on cheating, forgery, etc., which are cognizable and non-bailable offences, must be invoked in dealing with such persons. In the counterfeiting of special products, merely applying copyright law would automatically trigger offences under IPC sections 420, 468, among others, which become intertwined and their independent strengths could be used to full force.

In Murlidhar Meghraj Loya v State of Maharashtra (1976) on food adulteration, the Supreme Court observed that any narrow and pedantic lexical construction, likely to leave loopholes for this criminal tribe to evade the law, should be discouraged.

There is an urgent need for the government to frame dedicated legislation to deal with the counterfeiting of critical products, but, as an interim measure, the approach of Bombay High Court in the HUL case is a significant step towards cracking down and cleaning a system that otherwise creates suitable conditions for growing a parallel economy of counterfeit goods.

Harsh Aggarwal is joint general manager of legal and Roma Arora is the deputy general manager of legal at Havells.