Role of property owners and governments in mitigating trade in counterfeits

By Sophie Peresson, BASCAP, International Chamber of Commerce

The 2015 edition of Anti-counterfeiting: A Global Guide featured a chapter announcing the publication of the International Chamber of Commerce’s Business Action to Stop Counterfeiting and Piracy’s (BASCAP) ground-breaking report, “Roles and Responsibilities of Intermediaries: Fighting Counterfeiting and Piracy in the Supply Chain”. The report looked at the intermediaries operating in both the physical and online world that are particularly susceptible to counterfeiting and piracy.

Since the publication of that report, BASCAP has worked with many of the intermediaries identified in the report in order to implement its recommendations and jointly identify additional best practices and voluntary actions that can be taken in partnership.

One part of this work has focused on the maritime shipping industry and what can be done to stop the shipment of counterfeits. The historic Declaration of Intent to Prevent the Maritime Transportation of Counterfeit Goods was signed in November 2016 by brand owners, major shipping companies, freight forwarders and trade associations, including BASCAP and the International Federation of Freight Forwarders Associations. The declaration was made possible thanks to brand owners and vessel companies working cooperatively to discuss broad categories in which they could collectively find solutions to the shipment of illicit goods. This cooperation has now been extended through the establishment of joint cross-industry working groups to brainstorm and pursue concrete action steps relating to information sharing, know-your-customer and know-your-supplier best practices, awareness building and risk profiling. All of this effort has the goal of turning the declaration of intent into a set of mutually acceptable solutions.

Most recently, BASCAP has targeted another category of intermediary channel. As noted in the report, landlords can play a role in counterfeiting and piracy when they knowingly or unknowingly provide a place to manufacture, store or sell illicit products.

Physical marketplaces are being exploited by criminal actors to trade in counterfeit goods on a massive scale, using properties that are easily accessible to consumers – whether large malls, shopping complexes or flea markets. Criminal actors in the counterfeiting supply chain generally do not own the property where these sales take place. The property owners are vulnerable because they may be unaware of the illegal activity or that they could be liable for the same. As landlords are not typically involved in inspecting goods on their premises, they allow this activity to continue unchecked until they receive notice from rights holders or the property gets raided by law enforcement. While landlords may oversee multiple properties or dozens of tenants, and may be more concerned with collecting rent from business owners than monitoring tenant activities, they are nonetheless important intermediaries in the supply of goods.

At the same time, responsible landlords and property owners want their buildings to be used for lawful purposes, and most of them see the value of offering a safe and clean place to do business for legitimate tenants. BASCAP believes that there are opportunities to make landlords more aware of the risk of their premises getting infiltrated by criminal networks, as well as the benefits of maintaining premises that are free of illicit goods. Likewise, local and national governments do not want local markets and neighbourhoods to be used for criminal activities, and many are looking for ways to resolve the problem.

As a first step in working with landlords and governments to find solutions, BASCAP recently launched a new paper, “BASCAP Measures to Engage Landlords in the Fight against Counterfeit and Pirated Goods: Best Practices for Landlords, Governments and Enforcement Agencies”. This chapter summarises some of the case studies and best practices contained in the paper and recent updates.

Holding the landlord liable – recent trends in the fight against counterfeits

In the last few years, landlords have become more vulnerable as law enforcement officials, supported by new laws and regulations in some areas, have started to target owners and landlords that support counterfeiting operations. This can be witnessed in the following examples.

China

The Beijing Higher People’s Court has issued decisions that clarify the duty of care of the Silk Street Market and other landlords. It found that failure to take reasonable measures in dealing with infringers could make the landlord jointly liable. The rulings appear to have raised the duty of care for Chinese landlords and required them to take “positive measures” against specific vendors to stop infringements and avoid their repetition.

United States

Several sources have reported on seizures in markets or flea markets selling fake goods in the United States. In 2008 police in New York seized over $1 million in counterfeit merchandise during the city’s largest counterfeit bust, which shuttered 32 stores, closed three whole buildings on Canal Street and resulted in indictments being issued against the landlords. In 2011 a $3 million bust shut down a farmers market in Washington DC, and in April 2012 US customs authorities broke a record for their largest counterfeit seizure at the Patapsco Flea Market in Baltimore, recovering almost 220,000 counterfeit luxury items worth $47.3 million, including clothing, shoes, jewellery, handbags, DVDs, CDs, perfume, make-up and other personal care items.

Worldwide

The Singapore police seized $1 million worth of goods that were being sold from makeshift stalls in Choa Chu Kang and Bedok, totalling 176,000 pieces of counterfeit toys and stationery. In 2013 the Bangkok Post reported that police conducted a raid to seize $167,000 in counterfeit goods from a Thailand market that had just been listed on the Office of the US Trade Representative’s notorious markets list. Although counterfeiting through landlord intermediaries happens primarily through flea markets and malls, a January 2013 raid on an apartment building in Dubai revealed a hidden assembly workshop and 17,000 fake Swiss watches, according to local media reports.

The recent increase in the number of prosecutions confirms that landlords that are not vigilant about the activities taking place in their premises are becoming victims of counterfeiters, and incurring a dramatic increase in costs in the form of penalties and legal fees. Most landlords are responsible partners that do not want to do business with criminals engaging with illegal counterfeiting and piracy; they are increasingly implementing practices to deter this activity.

Ending the use of properties for trade in counterfeits

If rights holders, landlords, governments and enforcement agencies worked together to identify and address risks and then implement clear policies, they could effectively deny physical premises to counterfeiters. This would have a substantial negative impact on the ability of counterfeiters to continue their operations.

BASCAP’s “Best Practices for Landlords, Governments and Enforcement Agencies” provides a blueprint for all parties to remove fakes from physical markets. The paper addresses a wide range of challenges faced by landlords and presents measures designed to assist them in keeping fakes out of their facilities. Consistent and enduring application of these practices in markets is the best defence for disrupting trade in counterfeit and pirated goods and the best protection from fraud for customers.

Landlord deterrence programmes and know your customers

The focus of efforts thus far to deal with landlords as an intermediary has been on the landlords renting to retail sellers. As these efforts prove successful, more attention needs to be paid to the landlords of manufacturing spaces, storage spaces and office spaces used by counterfeiters and criminal networks. Some groups have established voluntary programmes and memoranda of understanding for better cooperation and to ensure that laws and regulations are being applied successfully to deter counterfeiters. However, measures to date have been no match for the enormous global use of malls and flea markets for the distribution of counterfeit goods.

Landlords are encouraged to take additional steps, such as sustained due diligence checks, implementation of strict policies in physical markets to ensure tenants are not engaging in illegal activities and increased cooperation with brand owners to facilitate the detection of infringing goods. One shining example of a voluntary best practice programme among landlords is the Real Deal Campaign, started by the National Markets Group for IP Protection in 2009 in the United Kingdom. The programme is based on the premise that buying at a market is synonymous with legitimate and enjoyable experiences. Landlords, retailers, law enforcement and market organisers need to support these shopping benefits while managing the sale of fakes. A unique feature of the programme is the template code of practice given to law enforcement, which is based on the charter’s core principles but can be customised to match local practices or protocol.

Model provisions for lease deeds

The paper also suggests six key model provisions for landlords to include in their lease agreements as an additional measure to deter tenants from engaging in any form of trade in counterfeit and pirated goods. The provisions provide landlords with authority to evict tenants and forfeit their initial tenancy deposit if they are found to undertake any activity on the leased premises that amounts to the manufacture, storage, assembly, repackaging, offer for sale, sale or trade in counterfeit or pirated goods. The provisions also empower landlords to enter and inspect the leased premises for illegal undertakings. These provisions also equip landlords with indemnity against any loss, damage or liability that they may incur from any act resulting from the tenant’s engagement with counterfeit or pirated goods. The Office of the United States Trade Representative’s “2017 Out-of-Cycle Review of Notorious Markets” recognises these model lease provisions as a useful tool for property owners to prohibit counterfeit and piracy activities.

Governments must lead by example

Distinction must be made between private and government-owned or supported markets; in doing so, governments must exhibit stronger commitment in ensuring that tenancies in their markets are strictly regulated to prevent the trade in counterfeits and pirated goods and lead as a model for privately owned markets. The establishment of clear and precise landlord liability conditions by governments can further help to improve cooperation between brand owners and landlords in dealing with counterfeit goods on a much more cost-effective basis and without the need to resort to government resources.

Dialogue and sustained partnerships with law enforcement

Successful efforts to engage landlords in the fight against counterfeits and pirated goods also require ongoing coordination with law enforcement. While there are some positive examples of voluntary programmes and the enforcement of laws and regulations, the steps taken to date have not been sufficient to deter or prevent counterfeiters’ exploitation of malls and flea markets for the distribution of their goods. Efforts are most successful when law enforcement coordinates with landlords and rights holders in conducting regular and sustained enforcement actions, and promotes and implements voluntary programmes for landlords that will help them to avoid renting their premises to criminals. This will also allow landlords to understand that not only can they avoid prosecution, penalties and loss of property value by fighting counterfeiting, they can also benefit from marketing their place of business as a “counterfeit-free” marketplace.

Conclusion

The research in the paper clearly indicates that landlords now have an additional responsibility for keeping counterfeiting and piracy out of their premises. If implemented, the overarching best practices can benefit all stakeholders and have significant impact in the global fight against counterfeiting and piracy. Sharing and dialogue among stakeholders will ensure the ability to connect disparate pieces of intelligence across these supply chains, which remains crucial for effective action.

While there are several initiatives in place to assist landlords in fighting counterfeiting, a great deal more can and must be done by landlords, governments, enforcement agencies and rights holders in transforming these efforts into a comprehensive and collective response to this massive problem.

BASCAP will continue to offer support to interested landlords, governments and law enforcement agencies in implementing the best practices outlined in the paper, and more generally to strengthen the enforcement of copyright and trademark laws in order to mitigate the trade in counterfeit and pirated goods.

It is vital to encourage the adoption of responsible practices among intermediaries, rights holders and authorities. Sharing and dialogue among stakeholders in the fight against counterfeiting and piracy will ensure that the best practices for deterring illegal activity in one area can be usefully applied in others.

As intermediaries align themselves with voluntary efforts and raise the bar for keeping counterfeiting and piracy out of genuine commerce, those that are complicit or wilfully negligent become more visible and can become the focus of enforcement efforts where needed. The development of new initiatives built on the lessons learned thus far will deliver a more prosperous future for the businesses that deliver the world’s products and services – and secure for consumers the safety and reliability that they deserve.

BASCAP, International Chamber of Commerce

33-43 Avenue du Président Wilson

Paris 75116

France

Tel +33 1 49 53 28 28

Fax +33 1 49 53 28 59

Web www.iccwbo.org

Sophie Peresson
Director

sophie.peresson@bascap.com

Sophie Peresson joined Business Action to Stop Counterfeiting and Piracy as programme director in October 2017. She previously directed Transparency International’s global health and pharmaceuticals programme, working mainly on counterfeiting, corruption and ethical business practices. At Transparency International, she launched the health and pharmaceuticals programme and spearheaded several publications. Ms Peresson has a track record of managing multi-country projects and programmes, as well as leading research and policy analysis.

Ms Peresson graduated from the Sorbonne Law School and went on to graduate from the Johns Hopkins School of Advanced International Studies. She recently completed an MSc at the London School of Hygiene and Tropical Medicine. She is fluent in English and French, with a good command of Spanish.

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