Commercial Aspects of Counterfeit Products in E.A Betty Maina Chief Executive, Kenya Association of...

Commercial Aspects of Commercial Aspects of Counterfeit Products in E.ACounterfeit Products in E.A

Betty MainaBetty Maina

Chief Executive,Chief Executive,

Kenya Association of Kenya Association of ManufacturersManufacturers

BackgroundBackground

KAM is Kenya’s leading representative for KAM is Kenya’s leading representative for Manufacturing Value Add industryManufacturing Value Add industry

Formed in 1959Formed in 1959 to act as a common voice for to act as a common voice for manufacturers in East Africamanufacturers in East Africa

Creates an essential link for cooperation, Creates an essential link for cooperation, dialogue and understanding with the dialogue and understanding with the Government by promoting investment, Government by promoting investment, upholding standards, and representing upholding standards, and representing members’ views and concernsmembers’ views and concerns

BackgroundBackground

Represents major players in MVA – 50% Represents major players in MVA – 50% Growth rate is 15% annuallyGrowth rate is 15% annually

Vision is to drive the Industrialization Vision is to drive the Industrialization Process in Kenya (and the region)Process in Kenya (and the region)

Mission is to promote Mission is to promote competitivecompetitive local local manufacturing in manufacturing in liberalizedliberalized markets. markets.

The challenge of counterfeitsThe challenge of counterfeits

Leads to loss of sales revenue by firms Leads to loss of sales revenue by firms – Ksh 20b – Ksh 20b – Companies shrinking or relocating from Companies shrinking or relocating from

kenyakenya Brand erosion – loss of brand Brand erosion – loss of brand

reputation and regard as contents reputation and regard as contents below brand standardsbelow brand standards

Loss of market shareLoss of market share

The challenge of counterfeitsThe challenge of counterfeits

Harmful to consumersHarmful to consumers Loss of revenue by Govts in region: $500mlnLoss of revenue by Govts in region: $500mln Reduced investment by firms – job lossReduced investment by firms – job loss Unfair competitionUnfair competition Increased investment in beating the counterfeitersIncreased investment in beating the counterfeiters

– improved security of product e.g through hologramsimproved security of product e.g through holograms– Investment in surveillance and fighting (wasteful)Investment in surveillance and fighting (wasteful)– frequent change of packagingfrequent change of packaging

Most Affected ProductsMost Affected Products

Soap and DetergentSoap and Detergent Food products Food products Alcoholic beverages Alcoholic beverages Dry Cell batteries Dry Cell batteries CosmeticsCosmetics Electrical and electronics equipmentElectrical and electronics equipment Medicine Medicine Shoe polishShoe polish ApparelApparel

SOURCES OF COUNTERFEIT SOURCES OF COUNTERFEIT GOODSGOODS

Direct imports Direct imports Transit goods Transit goods Operations set up within the Operations set up within the

country country

HOW COUNTERFEITERS HOW COUNTERFEITERS OPERATE OPERATE

Manufacture products from abroad. Manufacture products from abroad. Adulteration of products.Adulteration of products. Own manufacturing facilities – Own manufacturing facilities –

backyard operationsbackyard operations Using genuine packaging materials Using genuine packaging materials

stolen from suppliers. stolen from suppliers.

HOW COUNTERFEITERS HOW COUNTERFEITERS OPERATE OPERATE

Using rejected packaging from Using rejected packaging from suppliers or stolen from firm suppliers or stolen from firm premisespremises

Using recycled containers Using recycled containers Printing of fake labelsPrinting of fake labels

DISTRIBUTION CHANNELS DISTRIBUTION CHANNELS

Retail outlets - mainly shops and kioskRetail outlets - mainly shops and kiosk Wholesales Wholesales Mini-super marketsMini-super markets Direct to consumers Direct to consumers Hawkers – most firms have known Hawkers – most firms have known

distributorsdistributors Exports to neighbouring countriesExports to neighbouring countries

Response by Industry Response by Industry

Constant changes to packaging materialConstant changes to packaging material Destruction of reject packaging/labels from Destruction of reject packaging/labels from

the factorythe factory Market surveillance Market surveillance Employing private investigatorsEmploying private investigators

Response by Industry Response by Industry

Public educationPublic education Collaboration with regulatory agenciesCollaboration with regulatory agencies Networking and information sharing with Networking and information sharing with

other affected companiesother affected companies Carrying out raids with enforcement Carrying out raids with enforcement

agenciesagencies

Confronting the ViceConfronting the Vice

The fight against counterfeit started The fight against counterfeit started in year 2002.in year 2002.

Both Government and Private Both Government and Private sector consolidated their effort sector consolidated their effort towards the fight against towards the fight against counterfeit.counterfeit.

Confronting the ViceConfronting the Vice

Thereafter, Anti-Counterfeit Thereafter, Anti-Counterfeit Committee was formed comprises Committee was formed comprises of representatives from both of representatives from both Private and Public sector. Private and Public sector.

Later, Anti-Counterfeit goods Bill Later, Anti-Counterfeit goods Bill was drafted. was drafted.

EXPERIENCE AND EXPERIENCE AND CHALLENGES CHALLENGES

Difficult coping with the fast changing Difficult coping with the fast changing technology. technology.

Disjointed manner of dealing with Disjointed manner of dealing with counterfeit by Government agencies counterfeit by Government agencies

Diversion of transit counterfeit goods Diversion of transit counterfeit goods into the local market into the local market


Public is still ignorant of counterfeit Public is still ignorant of counterfeit goods – or don’t caregoods – or don’t care

Difficult to fight in corrupt environmentDifficult to fight in corrupt environment Law enforcement agencies not able to Law enforcement agencies not able to

identify counterfeits – fear of mistakesidentify counterfeits – fear of mistakes Counterfeiters armed and dangerousCounterfeiters armed and dangerous


Penalties are not punitive enough Penalties are not punitive enough Judicial process takes longJudicial process takes long Counterfeit activities are spread all Counterfeit activities are spread all

over the region creating a additional over the region creating a additional problems of tracking them. problems of tracking them.

Hard to get all parties in the region to Hard to get all parties in the region to view problem the same wayview problem the same way

““small” Vs Big debates in regionsmall” Vs Big debates in region

RECOMMENDATIONS RECOMMENDATIONS

Strengthening the legal framework Strengthening the legal framework –Expedite the enactment of Anti-–Expedite the enactment of Anti-Counterfeit Goods Bill and enhance Counterfeit Goods Bill and enhance penaltiespenalties

Joint border operations and Joint border operations and enforcement on counterfeit.enforcement on counterfeit.

Special courts for IPSpecial courts for IP


Joint border operations and Joint border operations and enforcement on counterfeit.enforcement on counterfeit.

Risk profiling of the importersRisk profiling of the importers Public awareness & consumer Public awareness & consumer

education on the risk of counterfeit. education on the risk of counterfeit.


Sensitize law enforcement agencies on the Sensitize law enforcement agencies on the counterfeit issuescounterfeit issues

Empower enforcers towards deterrenceEmpower enforcers towards deterrence Information pooling and useInformation pooling and use Surveillance of both imported and locally Surveillance of both imported and locally

produced goodsproduced goods Government should encourage ethical Government should encourage ethical

behavior at all levelbehavior at all level


Develop strategy in dealing with counterfeit in the Develop strategy in dealing with counterfeit in the EAC regionEAC region– EACMAEACMA– Harmonization of standardsHarmonization of standards– EA Anti counterfeit lawEA Anti counterfeit law

Sharing of intelligence information about the Sharing of intelligence information about the actors, the sources etcactors, the sources etc

Explore the possibility of using Inspection partners Explore the possibility of using Inspection partners to provide intelligence information for tracking to provide intelligence information for tracking imported counterfeit goods. imported counterfeit goods.


There is need for well co-There is need for well co-coordinated action, with clear coordinated action, with clear mechanism, responsibilities by mechanism, responsibilities by relevant key stakeholders and relevant key stakeholders and periodic updates on action been periodic updates on action been taken if this war has to succeed.taken if this war has to succeed.

Business intends to be a core Business intends to be a core partner in the battlepartner in the battle

THANK YOUTHANK YOU

Next slides on Anti Counterfeit Bill Next slides on Anti Counterfeit Bill 20082008

PROPOSED LEGAL FRAMEWORK IN PROPOSED LEGAL FRAMEWORK IN FIGHT AGAINST COUNTERFEITFIGHT AGAINST COUNTERFEIT

Anti-counterfeits Bill was drafted in 2007, Anti-counterfeits Bill was drafted in 2007, published and lapsedpublished and lapsed

The Bill was re-published this year.The Bill was re-published this year. This is clear indication that the war against This is clear indication that the war against

counterfeit products is gaining momentum.counterfeit products is gaining momentum.

PROPOSED LEGAL FRAMEWORK IN PROPOSED LEGAL FRAMEWORK IN FIGHT AGAINST COUNTERFEITFIGHT AGAINST COUNTERFEIT

The Bill was read for the first time in The Bill was read for the first time in Parliament and it is now at committee stageParliament and it is now at committee stage

KAM members re-examined the Bill KAM members re-examined the Bill Although the Bill covers most of the issues, Although the Bill covers most of the issues,

there are few areas of concern that have there are few areas of concern that have been raisedbeen raised

PROPOSED LEGAL FRAMEWORK IN PROPOSED LEGAL FRAMEWORK IN FIGHT AGAINST COUNTERFEITSFIGHT AGAINST COUNTERFEITS

These areas include: These areas include: Definition of counterfeit Definition of counterfeit The Board Composition of the AgencyThe Board Composition of the Agency Categories of inspectors and powers Categories of inspectors and powers How to handle seized counterfeit goodsHow to handle seized counterfeit goods

Cont…Cont… Criminalising aiding activities and Criminalising aiding activities and

possession of counterfeit goods.possession of counterfeit goods. Fines/ Penalties Fines/ Penalties Inclusion of a Tribunal in the Bill.Inclusion of a Tribunal in the Bill. Consumer educationConsumer education

PROPOSEDPROPOSED

SPECIFIC AMENDMENTS TO SPECIFIC AMENDMENTS TO THE BILLTHE BILL

Section 2 : InterpretationsSection 2 : Interpretations

Issue:Issue: Complainant :The section only refers to Complainant :The section only refers to

persons as complainants.persons as complainants.

Justification:Justification: The word “Person” is very The word “Person” is very restrictive. The definition should be restrictive. The definition should be expanded to cover Government institutions expanded to cover Government institutions such as Pharmacy & Poisons Board, Kenya such as Pharmacy & Poisons Board, Kenya Bureau of Standards and consumer Bureau of Standards and consumer protection board among others being protection board among others being omitted as complainantsomitted as complainants


Recommendation: Recommendation: Add immediately after the word Add immediately after the word

“person” the following: “person” the following:

““institutions, government institutions, government agencies and state corporationsagencies and state corporations””

Section 2 : InterpretationsSection 2 : InterpretationsIssue: Issue: Definition of counterfeits has left out some Definition of counterfeits has left out some

aspects of genericsaspects of generics

Justification:Justification: Definition of counterfeits does Definition of counterfeits does not consider cases of generics and their use not consider cases of generics and their use in provision of health care services. It in provision of health care services. It outlaws Section58 (2), 80(1A), 80(1B), outlaws Section58 (2), 80(1A), 80(1B), 80(1C) of Industrial Property Act, 2001 and 80(1C) of Industrial Property Act, 2001 and criminalises the application of TRIPs criminalises the application of TRIPs flexibilities in as far as access to public flexibilities in as far as access to public health is concerned. health is concerned.


Recommendation:Recommendation: The WHO definition should be The WHO definition should be

incorporated into the definition of incorporated into the definition of counterfeits by expanding the present counterfeits by expanding the present definition to include (I) subparagraph definition to include (I) subparagraph (d) as follows: (d) as follows:


““In relation to medicines, the deliberate In relation to medicines, the deliberate and fraudulent mislabelling of medicines and fraudulent mislabelling of medicines with respect to identity and/or source with respect to identity and/or source whether or not such products have whether or not such products have correct ingredients, wrong ingredients, correct ingredients, wrong ingredients, are without active ingredients, have are without active ingredients, have insufficient active ingredient or have fake insufficient active ingredient or have fake packagingpackaging.”.”

Section 6:Composition of the Section 6:Composition of the BoardBoard

IssueIssue The current composition of 28 members is too The current composition of 28 members is too

largelargeJustification:Justification: To have an effective board, To have an effective board,

small number is required and representation small number is required and representation should be a high level operation should be a high level operation

Recommendation:Recommendation: The Boards should have 10-15 members The Boards should have 10-15 members

comprising of: Permanent Secretaries comprising of: Permanent Secretaries Representatives from the private sectorRepresentatives from the private sector

Section 22(3): Section 22(3): Appointment of Appointment of InspectorsInspectors

Issue :Issue : There is a need to expand the list There is a need to expand the list

agencies whose official may be seconded agencies whose official may be seconded to act as inspectors under the Actto act as inspectors under the Act

Justification:Justification: List of inspectors can be expanded to List of inspectors can be expanded to

include persons from other institutionsinclude persons from other institutions

Section 22(3): Section 22(3): Appointment of Appointment of InspectorsInspectors

Recommendation:Recommendation: Section 23 should be amended to Section 23 should be amended to

include officials under Kenya Pharmacy include officials under Kenya Pharmacy & Poisons Board (Cap 244, laws of & Poisons Board (Cap 244, laws of Kenya) who have been omitted.Kenya) who have been omitted.

Section 23(1)a: Powers of Section 23(1)a: Powers of inspectorsinspectors

Issue:Issue: The Act allows inspectors to search premises The Act allows inspectors to search premises

suspected to be housing counterfeit goods. It suspected to be housing counterfeit goods. It is unclear whether the inspectors will have the is unclear whether the inspectors will have the power to search those premises with or power to search those premises with or without a search warrant. It also permits without a search warrant. It also permits inspectors to search premises without inspectors to search premises without reasonable grounds for doing so.reasonable grounds for doing so.

Section 23(1)a:Powers of inspectorsSection 23(1)a:Powers of inspectors Justification:Justification: The section should be The section should be

amended to allow for an inspector make amended to allow for an inspector make search with or without warrant.search with or without warrant.

Recommendation:Recommendation:The section should be amended to read:The section should be amended to read:““An inspector may ifAn inspector may if he reasonably suspects he reasonably suspects that an act of dealing in counterfeit goods or that an act of dealing in counterfeit goods or an offense contemplated in this Act, has been an offense contemplated in this Act, has been or is being committed or is likely to be or is being committed or is likely to be committedcommitted at any reasonable time and without at any reasonable time and without a search warrant.”a search warrant.”

Section 26(1): Evidence & Section 26(1): Evidence & presumptionspresumptions

Issues:Issues: This section allows a complainant access to This section allows a complainant access to

the seized information on the applicationsthe seized information on the applications

Justification:Justification:

Wording connotes discretion by the person Wording connotes discretion by the person considering the request by the use of the considering the request by the use of the word “may.” The information should be word “may.” The information should be made freely available upon application and made freely available upon application and perhaps payment of a feeperhaps payment of a fee

Recommendation:Recommendation: The section should be amended by The section should be amended by

deleting the word ‘may’ and replacing deleting the word ‘may’ and replacing it with ‘it with ‘shall’shall’

Section 26(1): Evidence & Section 26(1): Evidence & presumptionspresumptions

Section 26(5): Powers of Section 26(5): Powers of InspectorsInspectors

Issue:Issue: The is specific to the issue of intellectual The is specific to the issue of intellectual

property rights generally but subsequently property rights generally but subsequently diverts and becomes only specific to diverts and becomes only specific to copyrights ( which is already an copyrights ( which is already an intellectual property right) and ‘related intellectual property right) and ‘related rights’ (which has not been defined).rights’ (which has not been defined).

Section 26(5): Powers of Section 26(5): Powers of InspectorsInspectors

Justification:Justification: The definition should refer to the The definition should refer to the

substance of the paragraph which is substance of the paragraph which is general to intellectual property rights.general to intellectual property rights.

Recommendation:Recommendation: Replace ‘copyright or related rights’ with:Replace ‘copyright or related rights’ with:““intellectual property rightsintellectual property rights” which has ” which has

already been defined.already been defined...

Section 27 (1)(a): Storage & Section 27 (1)(a): Storage & Access to Seized GoodsAccess to Seized Goods

Issues:Issues: The section contains the following The section contains the following

wordings wordings

““either …or returned to the country of either …or returned to the country of origin if imported”origin if imported”

Justification:Justification: Counterfeit good should never be returned Counterfeit good should never be returned

to the country of origin if imported rather be to the country of origin if imported rather be destroyed. destroyed.

Section 27 (1)(a): Storage & Section 27 (1)(a): Storage & Access to Seized GoodsAccess to Seized Goods

Recommendation:Recommendation: Should be revised to read:Should be revised to read:

““provided that in the case of counterfeit provided that in the case of counterfeit goods, such goods shall be destroyed goods, such goods shall be destroyed at the expense of the local at the expense of the local manufacturer or importer, as the case manufacturer or importer, as the case may be; or…”may be; or…”

Section 32: OffencesSection 32: Offences

Issue :Issue : The Section does not contain provisions The Section does not contain provisions

for prosecuting those who aid and abet for prosecuting those who aid and abet counterfeiting.counterfeiting.

Justification:Justification: There is need to deter the entire chain of There is need to deter the entire chain of

counterfeiting in order to win the fight counterfeiting in order to win the fight against counterfeit.against counterfeit.


Recommendation:Recommendation: Suggested wordingsSuggested wordings AidingAiding & Abetting & Abetting h) “Any person who h) “Any person who

within Kenya produces, counsels, aids, within Kenya produces, counsels, aids, abets or is accessory to the commission abets or is accessory to the commission outside Kenya of any offence which, if outside Kenya of any offence which, if committed within Kenya would be an committed within Kenya would be an offence under this Act, is himself guilty offence under this Act, is himself guilty of an offence.”of an offence.”


Issue :Issue : Possession of any equipment is not an offence.Possession of any equipment is not an offence.

JustificationJustification Possession of equipment for counterfeiting Possession of equipment for counterfeiting

purposes is an offence. It has been recognised purposes is an offence. It has been recognised in the Act that equipment may be confiscated by in the Act that equipment may be confiscated by an inspector but possession is not an offence.an inspector but possession is not an offence.

Section 32: OffencesSection 32: OffencesRecommendationRecommendation The clause in bold should be added for it to The clause in bold should be added for it to

read as follows:read as follows:““Have in his possession or control in the Have in his possession or control in the course of trade, any counterfeit goods course of trade, any counterfeit goods or any or any labels, packaging materials, containers, labels, packaging materials, containers, materials, tools, whether or not such materials, tools, whether or not such packing materials are genuine, in a packing materials are genuine, in a manner that they are likely to be used for manner that they are likely to be used for the manufacture or packing of the manufacture or packing of counterfeits goods”counterfeits goods”

Section 34(4) & proviso under Section 34(4) & proviso under sec. 34(6)(b)(ii): References to sec. 34(6)(b)(ii): References to Customs & Management Act, Customs & Management Act,

20042004Issue :Issue : The title of the Act referred to is wrong. The The title of the Act referred to is wrong. The

proper title should be used.proper title should be used.

Recommendation:Recommendation: The name of the Act should be amended to The name of the Act should be amended to East East

Africa Community Customs Management Africa Community Customs Management Act, 2004Act, 2004

Civil or Criminal liability under Civil or Criminal liability under

other lawsother laws Issues :Issues : The Act does not make any reference The Act does not make any reference

to other remedies/penalties that exist to other remedies/penalties that exist in other statutes. It does not also deal in other statutes. It does not also deal with the common law tort of passing with the common law tort of passing off. off.

Civil or Criminal liability under Civil or Criminal liability under

other lawsother laws Justification:Justification: The Act does not make any reference The Act does not make any reference

to other remedies/penalties that exist to other remedies/penalties that exist in other statutes. It does not also deal in other statutes. It does not also deal with the common law tort of passing with the common law tort of passing off. The option to bring other lawsuits off. The option to bring other lawsuits by the rights holder or republic should by the rights holder or republic should be availed including the right to be availed including the right to institute civil claim for damages.institute civil claim for damages.

Civil or Criminal liability under Civil or Criminal liability under other lawsother laws

RecommendationRecommendation Include the following section:Include the following section:

““Civil or Criminal liability under Civil or Criminal liability under other laws and institution of civil or other laws and institution of civil or criminal proceedings thereunder criminal proceedings thereunder not affected by this Actnot affected by this Act””

Civil or Criminal liability under Civil or Criminal liability under other lawsother laws

Recommendation (cont…)Recommendation (cont…)• The provisions of this Act will not detract The provisions of this Act will not detract

from a person’s civil or criminal liability, from a person’s civil or criminal liability, in terms of any other law, on account of in terms of any other law, on account of his or her infringement of any intellectual his or her infringement of any intellectual property right and from the capacity or property right and from the capacity or competence in terms of any law to competence in terms of any law to institute civil or criminal proceedings in institute civil or criminal proceedings in respect of such infringementrespect of such infringement

TribunalTribunal

Issue:Issue: There is no tribunal under the proposed Bill There is no tribunal under the proposed Bill

Justification:Justification: A tribunal dealing with legal issues arising A tribunal dealing with legal issues arising

out of the application of the Act should be out of the application of the Act should be set up. This is to enable quick resolution of set up. This is to enable quick resolution of cases and a build up of specialised case cases and a build up of specialised case laws and expertise on the issue of laws and expertise on the issue of counterfeits.counterfeits.

TribunalTribunal

Recommendation:Recommendation: Provision incorporating Tribunal should Provision incorporating Tribunal should

be inserted in the Bill.be inserted in the Bill.

Section 35: PenaltiesSection 35: Penalties

Issue:Issue: The penalties as provided under the The penalties as provided under the

section are too lenient. section are too lenient.

Justification:Justification:

Penalties should be deterrent to Penalties should be deterrent to discourage discourage counterfeiting. counterfeiting.

Section 35: PenaltiesSection 35: Penalties

Recommendation:Recommendation:

““minimum fine of KShs.100,000 or 3 times minimum fine of KShs.100,000 or 3 times the value of the goods whichever is the value of the goods whichever is higher.”higher.”

THANK YOUTHANK YOU

Commercial Aspects of Counterfeit Products in E.A Betty Maina Chief Executive, Kenya Association of...

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