Worldwide: Free Trade Zones & Their Role In Counterfeiting & Piracy In China, The UAE And Singapore

This webinar considers free trade zones in Singapore, China and the UAE and in particular; their impact on counterfeit and pirate goods; the challenges and benefits that they present to brand owners; and practical ways in which those challenges can be addressed.

Transcript

Kate Swaine: Hello everyone on behalf of Gowling WLG's Unauthorised Goods and Brand Enforcement Group I would like to welcome you to the second webinar in our Autumn anti-counterfeiting webinar series.

My name is Kate Swaine and I lead Gowling WLG's Brand and Design team in the UK. I will be moderating this session which will cover the issue of free trade zones in the United Arab Emirates, Singapore and China and we'll consider their impact on the issue of counterfeit and pirate goods.

This is the second of three webinars which will be available this Autumn all of which address some of the specific jurisdictional issues that are faced in the battle against counterfeit goods.

Today I'm joined by colleagues from some of our international offices. All of them are experts in anti-counterfeiting and work in areas of the world that have free trade zones.

First with me is Jon Parker who is the Head of IP at Gowling WLG's Dubai office in the UAE and who has practised IP law in the Middle East for over a decade.

Next we have Sheena Jacob who leads the team at JurisAsia, a Singapore firm specialising in IP and corporate law and with an exclusive association with Gowling WLG.

Finally, we have Jamie Rowlands who is head of the Gowling WLG China office in Guangzhou and an experience IP litigator.

Welcome to all of our speakers who will be providing you with valuable insights on the functioning of free trade zones and in particular their impact on counterfeit and pirate goods, the challenges and benefits that they present to brand owners and practical ways in which those challenges can be addressed.

But Jon before we delve into the issues perhaps you could start us off by explaining to our audience what a free trade zone is and how it works in the UAE.

Jon Parker: Thank you Kate.

I think the first thing to say is that the free trade zone has a number of names, so from free zone as shown on the screen to free trade zones and in some countries they are known as special economic areas and these are areas that are exempt from Custom duties. It doesn't mean that they exempt from national laws that take effect in that country, normally it's merely the Customs duty that they are exempt from, although there are some differences particularly here in the UAE that I will touch on later in my part of this presentation.

So the free zone is an area where goods are landed, handled, stored, manufactured or reconfigured with little to no Customs intervention and again what you often find is that they are in close proximity to ports. So goods may come off the ship or off an aeroplane, into storage for onwards transportation and for distribution around the country. But what you do see is that these free zones are a growing issue for brand owners. So there are some figures on screen from a BASCAP report in 2013 which show that in 1975 there were 79 free zones globally around the world, whereas by 2013 this had increased to 30,000 free zones in over 130 countries. But these are important, you know most of the free zones you will find in developing countries and as you will see they account for 68,000,000 jobs and over $500 billion for direct trade value. In a little while...I will show the impact of just one free zone for the UAE.

So turning now to the UAE itself, just a very brief overview. The UAE is the Federation of Seven Emirates and each of those Emirates has its own enforcement authority. So for example Dubai Police is separate from Abu Dhabi Police, which is separate from Abu Dhabi Customs, which is separate from Sharjah Customs. So this can complicate things for brand owners when you're looking to take action because you need to work out who actually has responsibility in the relevant Emirate. Again, which poses a number of problems for rights holders. There are over 20 seaports, we have three large international airports in quite close proximity and of course we have these wonderful beasts called free trade zones and currently we have over 40 but there are many more due to come on track over the coming years.

So looking at the UAE and the free zones here that I just touched on, there are over 40 of them here in the country and over half of those are in Dubai, so the Emirate of Dubai which has been very much the main area of commerce through the country alongside Abu Dhabi. As you will see from the map on the screen those free zones are very much found on the one side of the country hugging the coast. So you know at the moment I'm sitting in one of those free zones, I'm in the Dubai International Finance Centre. Many companies enjoy setting up here because it means you will have that 100% control and ownership of your company, which you may not necessarily have with an onshore business. I think the other thing which perhaps may be unusual for the UAE compared to some of the other countries is that not all of the free zones here will have a suitable border. So Jebel Ali free zone which is a port, there is a physical border there because the officials want to make sure that any product coming onshore over the port has the relevant Custom duties paid before they reach onshore. However the free zone I'm sitting in we have no physical border, you can cross the road and you're outside the free zone. The free zones here are focussed on commercial areas from media companies to research and development areas to commodity.

So as I've touched on...some of these are purely service driven so the DIFC where I'm sitting you won't necessarily find warehousing or product manufacturing here it's purely service driven and again it's because of surety over 100% ownership of the company which brings people to these zones. So what you often find in these purely service driven zones, the infringement or the IP issues are more likely to be around trade name issues rather than say products coming through and so it may well be that you find a company that's trading off your trade name or your trademark and so you're looking to take action to try and make them change their name and to stop them continuing to mislead and perhaps cause confusion in the marketplace.

So I just thought I would finish this section on the UAE highlighting perhaps the most well-known free zone here which is the Jebel Ali free zone, often known as JAFZA. So JAFZA is the eighth largest port in the world covering over 57,000,000 square metres. As you will see from the screen there are 17,000 business properties in that area, with over 7,000 companies from 138 different countries. I mentioned earlier that these are important from the growth of developing countries such as the UAE and as you will see here JAFZA itself accounts for over 20% of Dubai's GDP each year.

One of the issues we often find for brand owners and clients is that the fact that there are 17,000,000 containers coming through JAFZA Customs each year, where unfortunately it is only possible to check about 3% of those shipments which of course means that there are 97% that are coming through without being checked. But what is important for brand owners to do, which we'll touch on later, is try and record their registered rights with Customs and train Customs so that that increases the possibility of suspect shipments being stopped.

So one of the complications around JAFZA is that there are two authorities you have to deal with potentially for IP issues. So for example the Free Zone Authority itself will deal with any issues regarding the licensing of the company. So for example if you find a company which is misusing your trademark in their trade name you would have to complain to the Free Zone Authority. However if you become aware of a suspect of shipment coming into the port, you will have to complain to Dubai Customs or hope that Dubai Customs pick up on this in order to try and stop those products coming into the market.

That's the initial introduction from me to free zones and the UAE.

Kate: Thank you Jon. That really demonstrates, 17,000,000 containers per annum shows the scale and importance of trade in these areas.

Jamie does the free trade zone in China work in the same way and where are the free trade zones located?

Jamie Rowlands: Well yes Kate, in China the free trade zones work in very much a similar way to that which Jon's just explained. Broadly speaking the zones were set up to encourage global trade and promote economic growth and that's both internally and externally and there are a number of ways that the zones demonstrate that.

Firstly there is a real benefit to companies to register in the free trade zone and particularly foreign companies and the reason for that is there is a far less stringent regulatory framework. That can be seen in a number of ways so for example that I have mentioned on the slides a company set up process in the free trade zone is very much streamlined and that is quite a big deal in China because setting up a business as a foreign entity requires an awful lot of red tape, it takes a long time. One has to go to a number of different authorities and it can really be a painstaking process. To set up in a free trade zone gets rid of much of that problematic red tape and can be seen as a very attractive force. In addition to that there is also attractive tax breaks particularly around issues such as corporation tax. Over and above that there are special trade regulations for free trade zones in China so for example one can establish virtual offices in many of the free trade zones and again that is not something that is committed in much of mainland China particularly for foreign companies. As Jon touched on the zones, certainly the financial and business free trade zones, are very much set up to encourage specific selective industries. This is really to help domestic growth and it is a very similar situation to one that Jon described.

So those are three real benefits from a business perspective and probably less of what we are going to touch on today, and again the second reason that free trade zones work so well in China as in other jurisdictions is really the encouragement around the import and export of trade as a result of the reductions of Custom intervention and in China as in other jurisdictions the fact that import duties for goods coming into port areas is vastly reduced and in some circumstances reduced or extinguished entirely is a real benefit and something that is very relevant for China itself with such a boom in e-commerce sector growth. The fact that bonded warehousing is so available makes such commercial sense and difference that that ability to store goods in bonded warehouses at very cheap prices and to be able to export again very easily is a real benefit so in many ways it really is a similar situation to that described by Jon.

In terms of where the free trade zones are located, there are a number now in China. There are 11 free trade zones. They started back in 2014. The pilot zone was in Shanghai, and what is interesting about free trade zones in China is that there is a real cross between how the set up works for business districts as opposed to the port areas. So Shanghai, Wang Dong, Fujian, Changi. Those were the first four free trade zones to be set up. They are all coastal regions and whilst they have business districts, the critical point is that they all have free trade zones in some of the largest ports, seafaring ports in China, and of course that is very significant from a brand owner's perspective when talking about counterfeiting and we will discuss that in a bit more detail in due course.

The other point to note is that the free trade zones have recently expanded to include seven new ones. They are focusing very much on tier 2 cities and regions. They are not direct ports giving access to the sea but they are important and up and coming financial areas so they were started in April this year. It will be very interesting to watch and see how those develop.

Kate: Thank you Jamie. Sheena when it comes to Singapore, I understand there are nine free trade zones. How do they operate?

Sheena Jacob: Hi Kate. In Singapore the free trade zones operate I think slightly differently from China and the UAE in that the free trade zones in Singapore are really primarily to facilitate the transhipment of goods to support the importance of Singapore's ports. Singapore is really a large player in the global cargo market and it is only second to Shanghai in terms of the volume of cargo ships, and that port is extremely important to the economy of Singapore contributing about 7% of the duty to Singapore, and because of Singapore's strategic location most of the cargo that is in fact shipped to Singapore and often stored in the free trade zone is not meant for the domestic market and it is almost always transhipped to a second destination, and so the free trade zones is in the main very important transhipment of goods that makes use of the Singapore port and it is a highly efficient operation.

Of course like the UAE and China it is possible for companies to also set up business within the free trade zones but typically they would only do so to take advantage of storage of goods in the free trade zone without payment of duty to benefit from the streamline procedures of importing goods into the free trade zone, and the region for this is because it is just also very easy to set up a company outside the free trade zone so there is no real benefit there accept in relation to the absence of duties and the goods and services tax because these are suspended within the free trade zone and only kick in at the point when the goods enter the Singapore market, unlike the UAE dimension in Singapore the free trade zones are actually physically enclosed and it is very difficult to get access to the free trade zones primarily because of the concerns that the payment of duty has not been made in relation to those goods and the [unclear] of that is that the limited access means that it is really mainly the Customs department that monitored and regulates activities in this free trade zone.

There are in place controls to regulate the activity and permits are required. However the Police and other authorities typically are not active within the free trade zone and so essentially one has to rely largely on Customs in terms of monitoring of goods within the free trade zones.

In Singapore, the free trade zones are located primarily in the areas of shipping, aviation such as Changi Airport  as well as [unclear] and a number of other locations which are essentially used for the storage of goods and so these free trade zones are based, the location is essentially determined by their access to shipping or aviation points.

Kate: Thanks Sheena. I mean obviously it is an important aspect of business in Singapore, the free trade zone, but is it viewed as a positive or is it a negative thing for brand owners.

Sheena: I think in terms of really the free trade zones are very important as I mentioned to the economy because the volume of cargo that is being transhipped and the importance of the port to the economy from the brand owner's perspective however it can be quite challenging to monitor goods that are passing through and one consequence of this is a criticism that Singapore does not make enough effort to prevent the transhipment of all forms of illicit goods which do not enter the Singapore market and so what we see is that the Singapore Government has to tread a fine line between maintaining the efficiency of the port operations which is key to the economy and at the same time ensuring that the country is not used as a transhipment base for illicit goods, which includes counterfeit goods and I think the main difficulty in this area in dealing with the free trade zone as I mentioned is the limited access.

It can be difficult for the brand owner to conduct the investigation because they are unable to send investigators into the area and most goods are kept in a bonded warehouse. Therefore it is not possible to have access to determine whether or not they are counterfeits and brand owners therefore have to rely almost entirely on documentation to determine if there are suspected counterfeit goods that might be important, and because again some of these goods are only being transhipped there is that time pressure and therefore it can be quite difficult for the brand owners to take any action.

In addition, there is no recordal system in Singapore by which there must be ten requests that Customs monitor and notify them if there are suspected infringing goods and so this makes it difficult to brand owners. However I should point out that Customs can conduct surprise operations and they can do random inspections and obviously that is one means by which the issue of free trade zones can be managed.

An example of this of some of the issues that are faced by brand owners is that in May of this year the Singapore Government proposed some amendments to the Customs Act which were published for public consultation so these amendments have not actually been made but they have been put forward for comments and one of these amendments concerned the provision of manifest data typically for vessels of any kind that are carrying goods such as planes or ships. The requirement is that [unclear] manifest where you have to identify what is the cargo on board and this amendment was intended to allow the Director General Customs to exempt parties from making the submission and of course the intention of this amendment was to better manage, compliance requirements on freight companies and essentially to ensure that Singapore remains attractive as a global transhipment hub, but as you can imagine this would not be good news for brand owners and so the International Trade Mark Association as well as the Business Action to stop counterfeiting and piracy.

Both these organisations have filed responses to the public consultation and essentially both of them put forward proposals but they wanted the manifest requirements to be maintained. The reason for this is obvious because they would be able to have access, Customs would be able to know what goods were being imported but they were also pushing for Customs to implement a recordal system and this is still being considered by the Government and we will have to see where go with this proposed amendment.

Kate: Thank you Sheena, so Jamie given the nature of the free trade zone and the issues that Sheena has referred to in Singapore, does the existence of a free trade zone contribute to the counterfeit and pirate goods market in China?

Jamie: Well I think the simple answer to that Kate is in a way. I do not think free trade zones are the only problem in China and in some ways we are in a slightly unique position when we talk about China in relation to counterfeit goods and of course the reason for that, as I think we have all got to face up to is that China is such a huge market in relation to the manufacture and supply globally of counterfeit products, so whereas in other jurisdictions of course you know the real problem around free trade zones is trying to keep products out of the jurisdiction but the problem in China in some ways is when there are counterfeit products is trying to contain them within China before flooding the rest of the global market and so one has to look at it in that way and just in relation to the size of the problem for rights holders in China.

I have put up a couple of points on the slides to represent the issues so the first bullet point is 85% to 90% it is estimated that the world's counterfeit goods originate in China. A pretty staggering figure and made even more staggering in some ways when you look and consider the next point which is there is an indication of the global industry around counterfeit products at $460 billion or around 2.5% of the global trade and of course China has a very large slice of that.

Further on, I have picked out a figure from Europol suggesting that 12.5% of China's total exports are counterfeit and that is about 1.5% of its GDP. So all big figures and of course very worrying and concerning for brand owners so as I say in many jurisdictions really the problem is trying to keep products and the influence of free trade zones in relation to that.

I think what we have to look at when we talk about China is whether in fact free trade zones exacerbate the problem of goods leaving China to go elsewhere in the world and of course free trade zones in the ports in China are not the only route out of China. There are other routes by port which are not in free trade zones. There is air travel, again which are not covered by free trade zones and actually one of the biggest problems in China is the amount of counterfeit products that are going by land given the enormous borders it has with other jurisdictions.

So counterfeit products in China, is a problem in itself but to go back to the question how do free trade zones contribute in China? I think the answer is they do exacerbate the problem to a degree and I have listed out a couple of issues that we routinely see, that being the manufacturing within the free trade zone itself and problem here is the fact that with reduced oversight and relaxed Customs comes the ability of manufacturers in the counterfeit business to operate in a somewhat more free domain and that of course increases the risk of being able to manufacture in the zone and then to export.

Sheena has rightly already touched on the issue of transhipment and that again is a problem from China's perspective because one of the issues with transhipment is the issue around origin laundering and what we see quite a lot of are shipments being made from China including big large ports within the free trade zones, and being shipped to other free trade zones where again Customs are relaxed and there is this reduced oversight and it allows the counterfeiters effectively to change manifests, to effectively hide the origins of where the counterfeit goods are coming from making it much more difficult then for rights holders in other jurisdictions outside of China to actually track down the goods, liaise with the relevant authorities in those jurisdictions and actually then seize the goods before they flood the market.

I think the third issue that we routinely see is the tampering with cargo that may not be marked on the existing goods as they come in China but within the free trade zone itself there are organisations that will then add the infringing marks to those goods again in this reduced oversight and relaxed Customs environment so that when the goods then leave the free trade zone they are marked with the right holder's brand to flood other jurisdictions and that of course is a real problem for rights holders and I think is exacerbated in the free trade zones of China.

Kate: Thanks Jamie. Jon, do you see similar issues in the UAE?

Jon: Yes it is very similar to Jamie has just explained to you in China. First before I go into that in too much detail, I think what I would say that it is complicated here insofar as freedom is both good news and bad news for brand owners, and I think like most things it probably depends which day of the week it is and which position you find yourself in as a brand owner.

So perhaps just starting with the good news, as I touched on earlier, one thing big free zones in the UAE offer particularly to international companies or non-Emirati expats doing business here in the UAE, is a vehicle that they can have 100% control of and so for example in our day to day work here in the UAE advising non-Emirati business people. What we often look at is if you are setting up a company to earn IP rights, do you really want that held by an on-shore company in which you only have 49% of its control or are you better off looking to set up a free zone company or something outside the UAE where you have 100% control of that company and therefore 100% control of your IP rights if that entity is to own your rights. So from that point of view it is very good news for certain brand owners because it means that they can keep full control of their rights but they may not necessarily have onshore, but it is generally very complicated for brand owners insofar as unfortunately you have so many free zones through the country, over 43 zones each of which will have their own separate regulations so you almost have to work out OK where is the offence being committed and what are the regulations in that free zone for me to be able to take action.

The free zones themselves also generally have separate licencing requirements so for companies being established in the free zone there may be certain requirements that they must meet and adhere to in order to carry on trading, so for example at a recent presentation here in the UAE, that INTA had set up from in-house counsel at JAFZA the free zone authority who said that from the BASCAP report which Sheena touched on earlier as well one of the Jebel Ali free zone has done is to try and take due diligence into companies looking to set up in the free zone so that if it comes up from the due diligence that that company has been involved in say counterfeiting or infringement elsewhere JAFZA then has the ability to refuse to grant a licence and so I think the UAE and some of the free zone authorities here have looked at some of the recommendations from BASCAP and tried to take them on board in order to improve the free trade zone and the international protection of free trade zones here in the country.

The other complication I touched on earlier is the responsibility for enforcement can differ from free zone to free zone so for example if you are looking to take action against infringing product in JAFZA you need to complain to Dubai Customs. However about 50 miles north of Dubai from where I am sitting at the moment, we have another free zone called China Mall which is in the Ajman Emirates and China Mall as its name suggests is a Chinese market selling goods sourced from China but it is actually a free zone so well as retailers in that free zone you also have warehousing which complicates matters, but if you find an infringement taking place in China Mall in Ajman, you do not go to Ajman Customs, you do not go to Ajman Police, it is a matter for the economic department which is the Administrators Authority in Ajman who will look to take action on behalf of the brand owner. So what this often means is when you are first looking at infringement in one of the free zones here you really do have to work our regulations apply and who do I need to complain to. How can we try and take action against this ongoing infringement in this free zone in the region.

Something I touched on earlier that generally speaking free zones are exempt from national laws other than Customs duty but we do have some exceptions so the DIFC and the Abu Dhabi Global Market ADGM both have a hybrid of common law and civil law systems so for example ADGM, its corporate law is effectively a cut and paste of UK corporate law and companies law and both DIFC and ADGM also have their own Court systems and so this also gives rise to issues over jurisdiction so if you are looking to enforce the federal trademark right in DIFC for example, are you able to go straight to DIFC Courts or do you have to go to the onshore Federal Court in order to get a Court order which will allow you to take action then before the DIFC Courts. These are many of the questions that companies have to address and consider down the years and so as I touched on it does make things very complicated.

With regard to the transhipments issues almost everything Jamie mentioned earlier applies here in the UAE so the Customs, I think Customs' general view largely speaking on transhipment, well this is a shipment that is not intended for the UAE, it is intended for Algeria or Nigeria or somewhere else. Therefore this is not for me to stop, this is to be dealt with at the final port so we will let this go and let the final port deal with it. However I think there have now been some cases and I think the GCC trademark law which is slowly coming into force all over the region does provide greater powers to stop transhipment until I think we will see more and more powers to Customs to try and stop transhipments further down the line but the question is whether they will actually use those powers.

I think again touching on what Jamie mentioned earlier, a lot of what we have found in some of the port free zones here is that shipments are being landed and being warehoused and perhaps those products are coming in unbranded and you will find that the infringing brands are then being placed on the product here in the warehousing or before they have been shipped off elsewhere and so I think there are some counterfeiters who are trying to stay one or two steps ahead of the enforcement officials just to make enforcement so much more difficult for the brand owner so it is something that is occurring here very much as Jamie has touched on in China.

Again I think the final point I would say there what we often find is that shipments do land here and those shipments container is broken up and if the goods are processed in some way within the free zone you then find the country of origin changing and I think this is something that you have in particular in European countries have seen where many goods said to be emanating of the UAE which are actually passed from China, Sri Lanka, India but the country of origin has changed due to their processing in the free zones here.

Kate: It is clear from all of you that counterfeit and pirate goods do present a challenge in a free trade zone so Sheena in Singapore, how can brand owners practically address those challenges?

Sheena: Hi Kate. I think in Singapore one of the options that is open to brand owners is actually to activate the border enforcement measures that are provided specifically for enforcement by Customs and including in a free trade zone. Now in order to so the brand owner has to file a written notice with the Customs to inform them of the import of the suspected infringing goods.

What is important to know is that this procedure only applies to goods which infringe registered trademarks or copyrights and this procedure is not available in relation to the patent. This notice has to be accompanied by a fee as well as a copy of the certificate of registration and evidence of the authority but the most important document that has to substantiate the claim is a statutory declaration and in this document the statutory declaration and the notice must provide sufficient information for the Customs to be able to identify the goods and in particular for Customs to be able to determine when in other words the exact date as well as time and where the goods are expected to be imported and also to satisfy Customs that the goods are infringing and as you can imagine this can be quite challenging because often the brand owners may know that the goods are to be imported within a range of a few days sometimes they may actually be aware of the date because that would be the date on which a vessel is due to arrive but often it can be very difficult to know exact date and time which this is going to occur so this is one of the big challenged facing brand owners.

Also a statutory declaration is one document and under Singapore law, there are criminal penalties for making the [unclear] statutory declaration and so the brand owner or the person who is signing the statutory declaration on behalf of the brand owner must have a bases for them to be able to make a statement in the declaration. In other words if they merely have evidence of sufficient that would not be sufficient for them to make a statement that such goods ae going to be imported into Singapore and so what happens in effect is that it is really quite a difficult procedure to use and one that brand owners largely do not use and therefore brand owners continue to lobby Customs to implement a Customs recordal system because this would be much easier for brand owners to take action in Singapore.

So this is an ongoing concern for brand owners under the procedure but assuming they are able to cross that bridge and actually seize the product the next stage is that Customs who has not had powers to enforce the rights under the Trademarks Act and although the Police and the public prosecutor do have such rights they specifically do not enforce them and so when there is a seizure or when Customs stop goods under this procedure it is the brand owner that will commence proceedings so infringement within ten working days from the detention and so as you can imagine the timeline is very tight because often it takes time for the Customs to notify the brand owners and then the brand owner has to conduct the inspection of the goods and determine that they are in fact counterfeit and obtain the necessary authorisation to proceed, determine who the proceedings are going to be amended again and all of this has to be done within the ten working days from detention and so of course in practice this is extremely challenging and so in one instance where the full procedure was used which was in about November 2016 5,000 bags of rice, [unclear] imported for India was seized in Singapore and in that case the brand owner was a Singapore company and they were able to secure the information and because they were based here it was much easier for the brand owner to commence proceedings under the procedure so I think the takeaway from this is that it can be quite difficult for a brand owner to use this notification procedure when they wish to prevent the import or to stop goods from being transhipped when they have arrived in Singapore.

What might be another solution is to rely on the Customs' powers to inspect goods and prevent them from leaving Singapore and so there have been cases two which I have indicated in the slides in September of last year where the 1,300 [unclear] trademark infringing wallets [unclear] bags were detained by the Customs and in this case they referred the matter to the Singapore Police for further investigation and then previously in May 2015, there was also another seizure of counterfeit goods by the Customs under the Trademarks Act and in this case they did also inform the brand owner.

However I think you can see from this that such actions are in fact few and far between and so they also tend to be limited to goods that are obviously counterfeit and to brands that Customs Officers are more likely to be readily aware of. These checks are also conducted randomly and so brand owners depend on this procedure I think although it is an option it is also one that is not often exercised and so perhaps we could say that brand owners cannot really depend on this although it is certainly an option in terms of one of the options that they can look at. In practice I think brand owners will have to develop a strategy for dealing with the transhipment of the import of counterfeit goods.

One of the benefits of taking action in Singapore is that the legal [unclear] effective and also very efficient and robust once you get the matter into the Court, and so what we do see is that sometimes brand owners do take action in Singapore to stop the goods being transhipped from Singapore to China or to some other destination because they would like to take action in respect of those goods here and so that is certainly one strategy that brand owners can adopt but again this will depend on either having very strong information or essentially relying on Customs to take action and I will talk a little bit later about what can be done to encourage Customs to take action in respect of your counterfeit brand.

Kate: Thanks Sheena. Jamie, it seems that brand owners have an increasing number of options at their disposal when dealing with infringements so what can they do in China?

Jamie: Well Kate I think the most important thing by a long shot for any rights holder in China is to register their rights whether that is their brand of course for counterfeiting or indeed their patents for any design patents or invention patents they may have but it is absolutely critical in China to register your rights. Yes it is in theory possible to enforce unregistered rights but it becomes far more difficult so if there is one takeaway point from my side of the globe it would be brand owners to take that on board and register rights. We have seen a number of successes, regular successes in China where companies have as part of their global strategy registered rights in China. It really puts you in the best possible position.

I think one point to note on that in relation to China is of course we are in a first to file country in China and therefore again it is important from a strategic perspective to file your trademark early. China still has an issue with bad faith trademark applications and because it is a first to file country it means that if a third party does effectively squat on your trademark it is time consuming, costly and without guarantee of success that you will be able to recover your brand. So point 1, upfront register IP rights in China.

I think the second most important thing to do in relation to fighting against anti-counterfeiting and in fact a marked difference from what Sheena has just been talking about is that Customs and recording trademarks at Customs is very effective and efficient in China and highly recommended. The way that Customs works in China both in the free trade zones and outside of the free trade zones is that it will inspect goods on import and export and of course the export issue is crucially important in China given the fact that so many counterfeit goods are manufactured in country so it is highly recommended to record trademark at Customs and how does one go about that? Well I have put a couple of points up on my slides.

The good news is that you can now record centrally at the General Administration of Customs in China. It is an online application currently that is in Chinese so you would require some form of Chinese representation to help you through the process. From filing it takes around 30 days for the rights to be recorded. Now in the meantime it is possible for Customs to take action of their own volition without the recordal being in place in China but the problem as Jon touched on earlier in Dubai and it is very much the same if not worse in China is just the size and quantity of shipments that are going in and out of China and therefore it is real needle in a haystack stuff without your rights being recorded.

Two additional points in relation to Customer recordal and the next one really links to what I have just been saying. If you are going to record your rights and we recommend you do so, there is a huge importance of education and of information gathering and providing to Customs. Even if recorded, there is such a vast flow of goods that the more information the more education that Customs have of a right holder's particular product, what the brand looks like, information about where counterfeit goods may be being shipped from, which port, who the offenders might be are incredibly helpful in the fight against counterfeit goods and that is true whether in the free trade zone itself or in fact outside of it. How does the process work if there is a seizure? Well if the right holder of their attorney gets notified that goods have been seized at Customs there are a number of things the right holder must do.

Firstly it has a three day window in which to inform Customs whether it believes that the goods were infringing. At which point if the rights holder believes that they are infringing a bond would have to be paid in to Customs. Now that bond is deemed to be the value of the goods that are infringing but there is a cap on that amount so the fees in issue are not hugely significant.  Then what happens is that Customs will inspect the goods and there are three outcomes broadly. Firstly if Customs once inspected agree that the goods are infringing then there is a choice. The most common result will that Customs will destroy the goods but there have been circumstances where the rights holder have been offered to buy back the goods effectively for their own purpose, usually destruction of course.

Secondly, if the Customs Authority believes that the goods are not infringing they will effectively let them go and then the third is the halfway house which is where the Customs Authorities cannot make a determinative finding as to whether the goods were infringing. At that point, the rights holder has a time limit in order to start civil proceedings and if within that time limit civil proceedings had started then Customs will hold those goods until the outcome of the civil hearing at the civil trial and if infringement is found at Court then they will of course dispose of the infringing goods. So Customs in China is a really highly recommended method to deal with the problem of counterfeiting and we have seen very, very good result from Customs who tend to be proactive in that regard.

Alternative solutions which I will briefly mention. The administrative authorities in China have the ability to raid premises and impose fines on infringing goods and in the field of counterfeit goods that will be the AIC. They deal with trademarks, the AIC is the Administration of Industry and Commerce. The benefit of producing sufficient evidence to an administrative authority such as the AIC is that it is a relatively quick and inexpensive process so the AIC, if proactive could act on the rights holder's behalf within a few weeks and another positive of an AIC so an administrative action raised is that any goods that are seized could also be used in a civil action in relation to those goods if a rights holder decides to go down that route.

Specific to some free trade zones in China is that they have started what is known as the three in one administrative action and is quite a neat little tool because current in China depending in the right in question will depend on which administrative authority once has to seek assistance from so for trademarks it is the AIC, for patents, it is the Intellectual Property Office, for copyrights, it is Copyright Bureau and that is difficult logistically to get these administrative authorities to talk to each other, to proceed in the manner that the rights holder would ideally want. In certain free trade zones however, these have been bought together and therefore if there are multiple rights that are in issue, one only now needs to go to one administrative authority that will deal with all rights in one go. It is early days in China with free trade zones so it is difficult to really give an assessment of how powerful this tool is, but the signs are initially relatively positive.

The other two routes one can take in relation to counterfeit goods in a free trade zone as well as out of a free trade zone is civil litigation through the Courts. It depends a little bit like the situation in Dubai, it slightly depends on which free trade zone issues arise as to whether you would go into a Court specifically in that free trade zone that deal with trademark infringement or in fact whether you would have to go into an Intermediate People's Court within the province itself and that is something one needs to look at jurisdictionally as and when a potential infringement arrives, but civil litigation it takes a little bit longer but there is absolutely no prohibition in starting a civil action in China in relation to infringements that takes place within free trade zones.

My final point is in relation to criminal actions. It is possible to start a criminal action in China for counterfeit goods. There are a number of requirements and criteria one has to look at. It is going to be dependent on whether the PSB who deal with these actions get involved on issues such as the quantity of the counterfeit goods in issue and indeed their value as well and also really like some administrative authorities they are going to look at issues such as issues around seriousness of the counterfeit goods and if for example the counterfeit goods are in areas of public health so if it is to do with food, drink, car parts is another good example. If there was a feeling that these counterfeit goods could do serious damage to public health then that is going to raise the issue of seriousness and is going to drive the likelihood of the PSB to get involved in criminal actions. So that is a summary of what can certainly be done in China Kate.

Kate: Thanks Jamie. Jon what kind of options are there in the UAE. Do you have a similar range of tools at your disposal in Singapore and in China?

Jon: Thanks Kate yes. I can safely say it is almost identical to what Jamie has just mentioned so Jamie has managed to cover most of my screen here as well I think the UAE and China are so close in so many ways and something quite early on when I first moved to the region I was saying to clients when you think of the Middle East, think China.

Jamie mentioned I think the key thing over anything is registration. Without those registration, whether it is trademark, patents, designs, it is going to be very difficult for you to take action inside a free zone or even outside a free zone in the country and I think what I would say as has been well publicised in IP magazines and publications, registration fees in the UAE and also in the region have increased significantly over the last two years but I think picking up on a point Jamie mentioned earlier, it is going to be far more expensive for you as a company to try and take action without registration than if you actually have the registrations in place.

Without the registrations you may effectively have given up your mark or your rights in the country because it may be difficult for you to try and stop the infringement that are taking place here. So whilst it costs, in disbursements around $3,500 per class per trademark. I would strongly recommend looking to spend that money now because without doing so it could actually be a false economy for your business in the long term and again coming back to the points we touched on earlier I think in terms of responsibility, in terms of the free zone, work out who is responsible, try and build relations with the relevant official where Arab culture is very much one of building relations, getting to know people so that as and when you actually need them to take action they are willing to do it for you, and I think that cannot be really underestimated here I think it is something that is quite core to the culture that you do find in the region, and again touching on what Sheena said and also what Jamie had said, training is important so work with the enforcement officials, almost make them buy into your brand so it may not be famous trademark but if you can get them to buy into your brand and start getting recognition for your brand then it is more likely than not, they will be willing to take action should they see something suspicious on your behalf.

I think whilst this is an IP talk don't understand estimate or do not overlook that there may be some non IP angles that could bring about a swifter decision or a swifter result for you. So for example I touched on earlier that many of the free zone authorities are absolutely the entities that are granting licences for companies doing business. You may find that warehousing certain goods is a breach of that licence and so it may well be a complaint regarding a breach of licence will bring a much swifter result than looking at an IP route so again it is something, try and look across and step back and look at the whole picture to try and work out what could be cheapest and the most efficient and effective option for you at this time.

With regard to recordals, currently in the UAE it is only possible to record registered trademarks with five of the seven Custom Authorities. There is no central registration system or recordal system nor is there any central database that Customs can check. Unfortunately at this time it is not possible to record patents or designs or copyrights with Customs but if the rights holder has intelligence of infringing products coming in which may infringe for example a patent then by working with Customs and making them aware they are likely to take action.

More often than not they may require you to obtain a Court order in order to seize the shipment that is coming in. One of the challenges we do face here at the moment is re-exportation, so for example Customs in a free zone may do the shipment, you confirm that this is not a legitimate shipment and Customs are happy to take action on your behalf of the rights holder. Unfortunately there are times and it has been happening more often than not in recent years where rather than destroy the product, Customs will simply re-export them back to the port of origin. There have been cases where the shipment that has left the UAE ports, gone out to sea, turned around and come back on a different ship and because of the number of containers coming through it is very difficult for Customs to realise that the same shipment has just actually come back a few days later.

Of course as I touched on earlier, Customs are not responsible for all the free zones but the other recordal systems to look out for are recordal systems that are operated by some of the administrator enforcement authorities. So within the last year the Dubai Economic Department, the onshore enforcement body which also has some responsibility for some of the free zones has set up a recordal system whereby rights holders can upload their registrations for no official costs and the BEB inspectors will monitor the market for potentially infringing products or potential counterfeits of your product.

Again going back to what Jamie said earlier, I think intelligence and information is the key thing in all this and again going back to the inter discussion I mentioned recently that took place in Dubai.  It was apparent through the day from the Customs and Police authorities who attended that they were keen for brand owners to share as much information with them as possible because this will actually help them in their fight against counterfeits and will help them assist the brand owners far more effectively as well.

I think the last thing I would say on this is there have sometimes been cases where the official has been reluctant to destroy products for say ecological reasons or for other reasons and so I think try and work with your local business or your representative on the ground to try and deliver some solutions to the officials when you bring the complaint. Just as an example we had a matter a few years ago where we suspected the onshore officials would not destroy the product and so we keyed up three companies beforehand, all of whom said that they would be happy to recycle the product if the officials gave the destruction order. So by doing this and showing them that look we have these three companies already lined up they are happy to recycle these products, it made the decision much easier and almost cut off the option of looking at re-exportation. So try these solutions when you are dealing with officials as well.

Kate: Thanks Jon.

One concern that many of our audience will have is whether they can really achieve effective remedies against counterfeit and pirate goods in free trade zones through the Courts.

Jamie, China is often referred to as a tricky territory in which to secure a remedy. Do you agree?

Jamie: Yes Kate, I mean China is certainly a challenging jurisdiction and there are difficulties by any rights holder that wishes to enforce here. But, and I want to make this a large but, the legal landscape in China has changed dramatically in the last ten or so years. It is isn't the wild west anymore and it is perfectly possible to enforce one's registered rights, as I mentioned earlier, in China today and that's whether through Courts or other forums. However, one does have to be careful in China. Any form of litigation whether in a free trade zone or outside does require careful planning and persistence. When it comes to counterfeiters many of them see the enforcement landscape in China as merely a price of doing business. That can be very frustrating for rights holders, particularly those that haven't done business or litigated in the China market previously. As a result of that one does need to liaise with local Counsel to understand the bumps that may happen along the way. But I think there are some important points to note. Firstly if one is going to litigate in China, as I said it is important to get the right local Counsel to guide you through the challenges, to make the way forward as smooth as possible. But also I've put on the slide use of private investigators, and I think this is an important point for China, but the way that the evidence rules work in China means that it is important to get often notarised evidence for a Court and that can be a challenge in itself.

Counterfeiters are obviously particularly sensitive and therefore infiltrating exactly what they're doing, particularly at the sort of manufacturing level, can be very challenging. Using the right team around you, including use of private investigators, is very important to maximise one's chances of obtaining the right evidence and therefore maximising the chances of success in any subsequent Court action. Private investigators in China are in itself a tricky problem.  I mean many people will have read the cases involving private investigators or so-called private investigators in China, that actually turned out not to be private investigators at all but actually were helping the counterfeiters as opposed to the rights holders that actually instructed them. So a word of warning, and again it goes into the bigger piece, one needs to get the right team around one, the rights holder needs to choose the PI carefully and needs to be guided as to the best approaches for litigation in China.

I think another positive thing to consider in China is that the landscape is continuing to change, so for example, damages has always been seen as difficult in China on the basis that damages remedies are usually very low. However there has been a recent trend in cases where damages awards have been pretty significant and certainly far exceeded the statutory amount that is possible in most cases. So for example there is a recent New Balance case in relation to infringing trainers and New Balance was awarded a very significant award of over $1 million. So we're seeing this change in trend in China. I think that's all good news to fight the battle against counterfeiters and to give a little bit more robust enforcement ability for rights holders as well, so I think that's all good news.

Turning to the question in relation to what remedies are out there. Well I've been through what tools one can use in China. In relation to the actual remedies available and are genuinely obtainable, three bullet points on my slides. You can get seizure or obstruction of goods and you can do that two ways, by Customs as I've already mentioned or through the administrative actions, so the AIC in China.

In addition, one can obtain an injunction, damages, delivery up or destruction and that's done via the Civil Court so starting an action in a Court within China whether in the free trade zone or outside it depending on the jurisdictional rules where the infringement takes place.

Finally when it comes to criminal actions you are looking at fines which can be quite significant and indeed there have been cases where those involved in the counterfeiting business have indeed been sent to prison in China and I think that is a positive sign that although there's much room for improvement in this jurisdiction, for China, there are remedies that are fairly strict which may in time lead to a reduction in counterfeiting over all.

Kate: Thanks Jamie. It's good to hear that whilst there are challenges there are also solutions.

Sheena, what kind of remedies can a rights owner obtain in Singapore?

Sheena: Well in Singapore, which is a common law jurisdiction, rights owners can actually take civil action, file civil proceedings for trademark infringement and so in doing so a brand owner can ask for damages or alternatively an account of profits, which can be quite important in situations where it is difficult to prove damages. So essentially what the brand owner does is obtain the profits that the infringer has made from the infringement, so that can be very useful. It is also possible to get injunctive release which would be permanent release at the end of the case but typically it would be possible for the brand owner to apply for interim injunction if it believes for example that the infringer is going to continue its counterfeiting activities in the country.

It is also possible to get an order for destruction, so that would be quite similar to what happens in China although that would be done by Customs. In this case what would happen is that the goods would be delivered to the brand owner who would then have responsibility for destroying it.

Also what is actually quite important is that you can get an order for discovery and this can be quite useful if you are trying to move up the supply chain to determine who the supplier of the counterfeit goods is and so this would enable the brand owner to take action against the supplier at the source whether in Singapore or in another country. So a civil action can give you quite a wide range of remedies and is obviously premised on the fact that you do have a right, as in a trademark registration, that you would be able to commence proceedings in relation to, so that is quite important that you do have the right to sue.

One thing that I think is quite unique in Singapore is a private prosecution and it is quite common for criminal proceedings to be commenced by brand owners as a private prosecution. What happens in these cases is essentially the brand owner's lawyers will apply to the Attorney General for permission to prosecute setting out copies of the charges as well as the facts on which such a prosecution is going to be based. This would be typically based on the seizure by Customs or the brand owner. Then the Attorney General's chambers will provide an authorisation in the form of a [unclear 01:19:59] which is an authorisation, which is actually given to the individual's lawyers to prosecute and then criminal proceedings are filed and the Court will issue a summons against the infringers who have to appear personally in Court. So I think this can be quite effective because the infringer has to personally attend Court and even it is proceedings against the company, then one of the directors of the company will have to appear in Court every time the case is brought up, so that is also quite useful.

Obviously at the conclusion of proceedings if the Defendant, whether it's a company or individual is found guilty then the Court can impose a fine or in some cases they can choose to send the individuals to prison. Typically costs are not awarded to the brand owner and so in some cases, a brand owner could file a civil action at the same time and then reach a settlement with damages separately to the criminal prosecution.

Then of course another option is for the state to prosecute the case, this is quite rare because in general the Police, they do not have sufficient resources, and so they prefer the brand owners to take the private prosecution route. But in some cases where there is a large amount of counterfeit goods or for some reason the nature of the case raises some concerns then the Police will actually investigate and prosecute the offenders. So we have for example some cases in September this year a man was arrested for suspected involvement in importing counterfeit bags and also two years ago three men were arrested also for importing trademark infringement goods. So as you can see again this is not that common, but it is something that the police will do from time to time. In such cases the involvement of the brand owner is to inspect the goods and give evidence and also obviously provide the legal documentation in relation to the brand. So these are the main remedies that you have in Singapore.

Kate: Thanks Sheena.

Jon is the position similar in the UAE?

Jon: Yes and no, just to be awkward. As has been the theme I think through my part of the discussion today, it can depend, given the free zone and who is responsible within that free zone and also as you say it depends on which action you take. So more often than not, you are looking potentially at fines which are very low. Some free zone authorities will have the power to suspend licences or even cancel trade licences if the company within the free zone is found to be dealing in infringing products and so that means if their trade licence is cancelled or suspended that they can't operate for whatever that period of time will be.

One thing we have flagged up though is the fines with regard to JAFZA. So JAFZA in 2016 handed down some new rules in which it significantly increased a number of the fines that it was handing down. So more often than not you are looking at fines of a few thousand dollars if you are lucky. Whereas some of the rules handed down by JAFZA where for example the one rule is a company which is fined for dealing in fakes can be fined UAE Dirham 100,000 which is around $28,000. However the same set of rules also say that there is a fine of UAE Dirham 5,000 which is about $1,400 to be a legal sale of transcript, but the one thing that the rules haven't made clear yet is what the difference is between a legal sale of counterfeit and dealing in fakes. So you know I think as and when is the case that's looking to enforce these rules, I think you would be pushing for the dealing in fakes in order to hit the company with a fair greater fine, but I think time will tell over that.

Again as has been touched on by Sheena and Jamie, you're looking a seizures and destructions of infringing products. But again, I've flagged up the fact that you cannot rule out re-exportation, so even though you may win in the UAE, what that may ultimately mean for you, the brand owner, is that if those goods are re-exported it's just moved that problem somewhere else and you have to start the process again. So for example if you win a case in here in the UAE though us and it's shipped back to China then you may then start working with Jamie to try and get the product seized and destroyed there.

The one thing I would say though is looking at say criminal remedies you can, it is possible to get imprisonment and there have been relatively few cases where imprisonment has been handed down. The BASCAP report I've touched on earlier today there is a case study in there, or case report in there of a matter a few years back in JAFZA where a company was found to be dealing in pharmaceutical products and because of the public safety aspects it was decided to hand down a custodial sentence. What this actually means is if the person who is going to prison is a non-Emirate, so if it's an ex-pat living here, whether it's an Arab ex-pat, western ex-pat, Asian ex-pat whatever, once their prison term is over they are normally deported back to their home country. So this can and will have quite a powerful deterrent if only it could be used more by the officials here.

I suppose the final point on this is, yes it is possible to get damages but you would have to bring a separate civil action. So for example if you brought a criminal case and you're looking for damages, you would then have to bring a civil action alongside, so this is increasing the cost of bringing the case. You are then citing two separate cases and you may ultimately find that the damages handed down are relatively low. As with everything, it all turns on the actual evidence you bring forward and so you do need to have cogent evidence showing the damage that has been suffered by you by the infringement that has been taken place in the UAE.

Kate: So if you each had to give one recommendation to rights holders seeking to address counterfeit and pirate goods in your free trade zone, what would that recommendation be?

Sheena let's start with you.

Sheena: In Singapore I think what is really important, as I think will be echoed in the other countries, is to register the trademark because without the mark being registered in Singapore, or the correct mark being registered, or if it's registered in the wrong class then you will find that you are not actually able to take any action at all and everything that we have talked about is really going to be irrelevant. So that I think is absolutely critical to make sure that the mark registration has been updated. What we have found in cases is that the brand owners have either not updated their registration, so they have an old mark and then it becomes much more difficult to take action.

I think what is also important of course is to manage the supply chain and so to ensure that you know that each level of the supply chain is monitored and robust. So that you can see what the source of the goods is. Of course monitoring the origin of the counterfeit goods. I think that becomes quite important to see where they are coming from and the route to their destination because I think it is important, it is a global problem, brand protection and it is important for example to be able to co-ordinate an action that involves China, Singapore and the UAE once you know where the goods are going to and so I think monitoring what the origin is, is quite important because then as lawyers we are able to actually step in and try to solve this multi-jurisdictional problem.

The other aspect I think is quite important is to train Customs officers, as we can see Customs do have powers and they are more likely to exercise it if they are familiar with the product and so I think it is quite important for them to understand what are the signs.

Also in terms of the documentation, what type of documentation in terms of origin of the goods would be likely to be suspect. So I think education and training of Customs and Police is really very important and whilst in Singapore the Police officers were quite sophisticated they really had very little experience of counterfeits and so important for brand owners especially those who have security features, if you a hologram or you have some security features it's really quite important for you inform Customs and the police about these security features.

Kate: Thanks Sheena.

Jamie - what about in China?

Jamie: Well I'm going to stick to my one recommendation although I've got three on my slides, mainly because the first two points of slides have already been said by Sheena and are probably going to be said by Jon as well. So I'm just going to raise the point of private investigators again from a China perspective. As an overall strategic tool the use of reputable private investigators in order to get a case of the ground in China is important and therefore it's something I think rights holders should think about early on and get good information and advice around. So that's it for China.

Kate: Thanks Jamie.

Finally Jon, what about you?

Jon: Well rather than reiterate some of the points that have already been mentioned as Jamie and Sheena have just said. I think ignoring my first three bullet points and being a rebel here in this IP talk I would say consider the non-IP options. I think don't rules these out because you know if your rights aren't as strong as they could be or if it looks as though perhaps the relevant officials you are dealing with are deciding that these IP issues are just too difficult for me to think about or deal with, it may well be that you have a far quicker, easier and more swift options if you look to challenge the actual company on their licensing grounds, if they are in breach of their licence and going down the IP route. So it is something to bear in mind as part of your arsenal in the fight against these counterfeit products. Thank you very much Kate.

Kate: Thank you Jon.

Well look thank you all for your thoughts on this issue and thank you to you our audience for listening.

We have included contact information for each of our speakers in the slide deck so if you have any questions please don't hesitate to reach out to any one of us directly. If you've not already had the chance please do listen to our webinar on the topic of grey goods. Our Gowling WLG Unauthorised Goods and Brand Enforcement Group will also be releasing a webinar addressing counterfeits in the food and beverage industry shortly.

But thank you again for joining us today and if you have any questions about any of these topics do feel free to reach out to anyone of us in the team. Thank you.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.