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

Background  KAM is Kenya ’ s leading representative for Manufacturing Value Add industry  Formed in 1959 to act as a common voice for manufacturers in East Africa  Creates an essential link for cooperation, dialogue and understanding with the Government by promoting investment, upholding standards, and representing members ’ views and concerns

Background  Represents major players in MVA – 50% Growth rate is 15% annually  Vision is to drive the Industrialization Process in Kenya (and the region)  Mission is to promote competitive local manufacturing in liberalized markets.

The challenge of counterfeits  Leads to loss of sales revenue by firms – Ksh 20b –Companies shrinking or relocating from kenya  Brand erosion – loss of brand reputation and regard as contents below brand standards  Loss of market share

The challenge of counterfeits  Harmful to consumers  Loss of revenue by Govts in region: $500mln  Reduced investment by firms – job loss  Unfair competition  Increased investment in beating the counterfeiters – improved security of product e.g through holograms –Investment in surveillance and fighting (wasteful) –frequent change of packaging

Most Affected Products  Soap and Detergent  Food products  Alcoholic beverages  Dry Cell batteries  Cosmetics  Electrical and electronics equipment  Medicine  Shoe polish  Apparel

SOURCES OF COUNTERFEIT GOODS  Direct imports  Transit goods  Operations set up within the country

HOW COUNTERFEITERS OPERATE  Manufacture products from abroad.  Adulteration of products.  Own manufacturing facilities – backyard operations  Using genuine packaging materials stolen from suppliers.

HOW COUNTERFEITERS OPERATE  Using rejected packaging from suppliers or stolen from firm premises  Using recycled containers  Printing of fake labels

DISTRIBUTION CHANNELS  Retail outlets - mainly shops and kiosk  Wholesales  Mini-super markets  Direct to consumers  Hawkers – most firms have known distributors  Exports to neighbouring countries

Response by Industry  Constant changes to packaging material  Destruction of reject packaging/labels from the factory  Market surveillance  Employing private investigators

Response by Industry  Public education  Collaboration with regulatory agencies  Networking and information sharing with other affected companies  Carrying out raids with enforcement agencies

Confronting the Vice  The fight against counterfeit started in year  Both Government and Private sector consolidated their effort towards the fight against counterfeit.

Confronting the Vice  Thereafter, Anti-Counterfeit Committee was formed comprises of representatives from both Private and Public sector.  Later, Anti-Counterfeit goods Bill was drafted.

EXPERIENCE AND CHALLENGES  Difficult coping with the fast changing technology.  Disjointed manner of dealing with counterfeit by Government agencies  Diversion of transit counterfeit goods into the local market

EXPERIENCE AND CHALLENGES  Public is still ignorant of counterfeit goods – or don’t care  Difficult to fight in corrupt environment  Law enforcement agencies not able to identify counterfeits – fear of mistakes  Counterfeiters armed and dangerous

EXPERIENCE AND CHALLENGES  Penalties are not punitive enough  Judicial process takes long  Counterfeit activities are spread all over the region creating a additional problems of tracking them.  Hard to get all parties in the region to view problem the same way  “small” Vs Big debates in region

RECOMMENDATIONS  Strengthening the legal framework –Expedite the enactment of Anti- Counterfeit Goods Bill and enhance penalties  Joint border operations and enforcement on counterfeit.  Special courts for IP

RECOMMENDATIONS  Joint border operations and enforcement on counterfeit.  Risk profiling of the importers  Public awareness & consumer education on the risk of counterfeit.

RECOMMENDATIONS  Sensitize law enforcement agencies on the counterfeit issues  Empower enforcers towards deterrence  Information pooling and use  Surveillance of both imported and locally produced goods  Government should encourage ethical behavior at all level

RECOMMENDATIONS  Develop strategy in dealing with counterfeit in the EAC region –EACMA –Harmonization of standards –EA Anti counterfeit law  Sharing of intelligence information about the actors, the sources etc  Explore the possibility of using Inspection partners to provide intelligence information for tracking imported counterfeit goods.

RECOMMENDATIONS  There is need for well co- coordinated action, with clear mechanism, responsibilities by relevant key stakeholders and periodic updates on action been taken if this war has to succeed.  Business intends to be a core partner in the battle

THANK YOU Next slides on Anti Counterfeit Bill 2008

PROPOSED LEGAL FRAMEWORK IN FIGHT AGAINST COUNTERFEIT  Anti-counterfeits Bill was drafted in 2007, published and lapsed  The Bill was re-published this year.  This is clear indication that the war against counterfeit products is gaining momentum.

PROPOSED LEGAL FRAMEWORK IN FIGHT AGAINST COUNTERFEIT  The Bill was read for the first time in Parliament and it is now at committee stage  KAM members re-examined the Bill  Although the Bill covers most of the issues, there are few areas of concern that have been raised

PROPOSED LEGAL FRAMEWORK IN FIGHT AGAINST COUNTERFEITS These areas include:  Definition of counterfeit  The Board Composition of the Agency  Categories of inspectors and powers  How to handle seized counterfeit goods

Cont …  Criminalising aiding activities and possession of counterfeit goods.  Fines/ Penalties  Inclusion of a Tribunal in the Bill.  Consumer education

PROPOSED SPECIFIC AMENDMENTS TO THE BILL

Section 2 : Interpretations Issue:  Complainant :The section only refers to persons as complainants. Justification: The word “Person” is very restrictive. The definition should be expanded to cover Government institutions such as Pharmacy & Poisons Board, Kenya Bureau of Standards and consumer protection board among others being omitted as complainants

Section 2 : Interpretations Recommendation:  Add immediately after the word “person” the following: “institutions, government agencies and state corporations”

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

Section 2 : Interpretations Recommendation:  The WHO definition should be incorporated into the definition of counterfeits by expanding the present definition to include (I) subparagraph (d) as follows:

Section 2 : Interpretations  “In relation to medicines, the deliberate and fraudulent mislabelling of medicines with respect to identity and/or source whether or not such products have correct ingredients, wrong ingredients, are without active ingredients, have insufficient active ingredient or have fake packaging.”

Section 6:Composition of the Board Issue  The current composition of 28 members is too large Justification: To have an effective board, small number is required and representation should be a high level operation Recommendation:  The Boards should have members comprising of: Permanent Secretaries Representatives from the private sector

Section 22(3): Appointment of Inspectors Issue :  There is a need to expand the list agencies whose official may be seconded to act as inspectors under the Act Justification:  List of inspectors can be expanded to include persons from other institutions

Section 22(3): Appointment of Inspectors Recommendation:  Section 23 should be amended to include officials under Kenya Pharmacy & Poisons Board (Cap 244, laws of Kenya) who have been omitted.

Section 23(1)a: Powers of inspectors Issue:  The Act allows inspectors to search premises suspected to be housing counterfeit goods. It is unclear whether the inspectors will have the power to search those premises with or without a search warrant. It also permits inspectors to search premises without reasonable grounds for doing so.

Section 23(1)a:Powers of inspectors  Justification: The section should be amended to allow for an inspector make search with or without warrant.  Recommendation: The section should be amended to read: “An inspector may if he reasonably suspects that an act of dealing in counterfeit goods or an offense contemplated in this Act, has been or is being committed or is likely to be committed at any reasonable time and without a search warrant.”

Section 26(1): Evidence & presumptions Issues:  This section allows a complainant access to the seized information on the applications Justification: Wording connotes discretion by the person considering the request by the use of the word “may.” The information should be made freely available upon application and perhaps payment of a fee

Recommendation:  The section should be amended by deleting the word ‘may’ and replacing it with ‘shall’ Section 26(1): Evidence & presumptions

Section 26(5): Powers of Inspectors Issue:  The is specific to the issue of intellectual property rights generally but subsequently diverts and becomes only specific to copyrights ( which is already an intellectual property right) and ‘related rights’ (which has not been defined).

Section 26(5): Powers of Inspectors Justification:  The definition should refer to the substance of the paragraph which is general to intellectual property rights. Recommendation:  Replace ‘copyright or related rights’ with: “intellectual property rights” which has already been defined..

Section 27 (1)(a): Storage & Access to Seized Goods Issues:  The section contains the following wordings “either …or returned to the country of origin if imported” Justification:  Counterfeit good should never be returned to the country of origin if imported rather be destroyed.

Section 27 (1)(a): Storage & Access to Seized Goods Recommendation:  Should be revised to read: “provided that in the case of counterfeit goods, such goods shall be destroyed at the expense of the local manufacturer or importer, as the case may be; or…”

Section 32: Offences Issue :  The Section does not contain provisions for prosecuting those who aid and abet counterfeiting. Justification:  There is need to deter the entire chain of counterfeiting in order to win the fight against counterfeit.

Section 32: Offences Recommendation:  Suggested wordings  Aiding & Abetting h) “Any person who within Kenya produces, counsels, aids, abets or is accessory to the commission outside Kenya of any offence which, if committed within Kenya would be an offence under this Act, is himself guilty of an offence.”

Section 32: Offences Issue :  Possession of any equipment is not an offence. Justification  Possession of equipment for counterfeiting purposes is an offence. It has been recognised in the Act that equipment may be confiscated by an inspector but possession is not an offence.

Section 32: Offences Recommendation  The clause in bold should be added for it to read as follows: “Have in his possession or control in the course of trade, any counterfeit goods or any labels, packaging materials, containers, materials, tools, whether or not such packing materials are genuine, in a manner that they are likely to be used for the manufacture or packing of counterfeits goods”

Section 34(4) & proviso under sec. 34(6)(b)(ii): References to Customs & Management Act, 2004 Issue :  The title of the Act referred to is wrong. The proper title should be used. Recommendation:  The name of the Act should be amended to East Africa Community Customs Management Act, 2004

Civil or Criminal liability under other laws Issues :  The Act does not make any reference to other remedies/penalties that exist in other statutes. It does not also deal with the common law tort of passing off.

Civil or Criminal liability under other laws Justification:  The Act does not make any reference to other remedies/penalties that exist in other statutes. It does not also deal with the common law tort of passing off. The option to bring other lawsuits by the rights holder or republic should be availed including the right to institute civil claim for damages.

Civil or Criminal liability under other laws Recommendation  Include the following section: “Civil or Criminal liability under other laws and institution of civil or criminal proceedings thereunder not affected by this Act”

Civil or Criminal liability under other laws Recommendation (cont…) The provisions of this Act will not detract from a person’s civil or criminal liability, in terms of any other law, on account of his or her infringement of any intellectual property right and from the capacity or competence in terms of any law to institute civil or criminal proceedings in respect of such infringementThe provisions of this Act will not detract from a person’s civil or criminal liability, in terms of any other law, on account of his or her infringement of any intellectual property right and from the capacity or competence in terms of any law to institute civil or criminal proceedings in respect of such infringement

TribunalIssue:  There is no tribunal under the proposed Bill Justification:  A tribunal dealing with legal issues arising out of the application of the Act should be set up. This is to enable quick resolution of cases and a build up of specialised case laws and expertise on the issue of counterfeits.

TribunalRecommendation:  Provision incorporating Tribunal should be inserted in the Bill.

Section 35: Penalties Issue:  The penalties as provided under the section are too lenient. Justification: Penalties should be deterrent to discourage counterfeiting.

Section 35: Penalties Recommendation: “minimum fine of KShs.100,000 or 3 times the value of the goods whichever is higher.”

THANK YOU