Are traders allowed to turn a blind eye to counterfeits?
In a case involving counterfeit contact lenses, a trader was able to rely on the defence under Section 49(i) of the Trademarks Act as there was no reason for him to suspect that the products were counterfeit. The decision may allow traders to more easily avoid criminal liability for dealing in counterfeits
Singapore has made important strides to establish itself as a global IP hub within Asia. However, the country is a prime target for infringers, which often use Singapore as a central port through which to channel their counterfeit products for transshipment to other markets.
In order to deter would-be infringers, the Singapore legislature has criminalised the import, sale and possession (for the purpose of trade or manufacture) of counterfeit products. Under the Trademarks Act (Cap 332), engaging in such activities constitutes an offence which attracts heavy penalties: a fine of up to $100,000, imprisonment for up to five years or both, together with the possibility of forfeiture of the counterfeit goods. The Singapore courts have generally taken a firm stance on enforcing these legislative offences.
Section 49 of the act (which makes it an offence to import, sell or possess counterfeit goods) was recently considered in PP v Koh Peng Kiat (2014, SGHC 174). The High Court considered the application of Section 49 in the context of an appeal by the accused against a conviction for, among other things, abetting by intentionally aiding his associates to possess counterfeit contact lenses.
The High Court also considered whether the accused had raised a valid defence under Section 49(i) – although it concluded that the prosecution had failed to prove the requirements of the relevant statutory offence – and decided that such a defence was made out on the facts.
This article examines the High Court’s approach in this case to the application of the statutory defence under Section 49(i) against the backdrop of established case law on trademark infringement, and evaluates the court’s comments on the application of Section 49(i) and the apparent departure from the traditional interpretation of this defence.
Koh Peng Kiat operated an optical shop in Singapore, selling glasses and contact lenses. He introduced two friends, Neo Teck Soon and Andy Wong Chow Fatt, to an acquaintance, Ah Seng, from whom they could get cheap contact lenses. Both Neo and Wong purchased these contact lenses. In the case of Wong, Koh allowed one of his shops to be used to store the contact lenses until they were collected. It was subsequently discovered that the contact lenses were counterfeit. Both Neo and Wong, in separate criminal proceedings, pleaded guilty to the charge of possession of the counterfeit contact lenses for the purpose of trade.
At trial, Koh was charged with, among other things, two charges under Section 49(c) of the Trademarks Act, read with Section 109 of the Penal Code, for abetting by intentionally helping Neo and Wong to possess the counterfeit contact lenses.
The district court convicted Koh of these charges. However, the conviction was subsequently overturned by the High Court, which held that the prosecution had failed to prove the requirements of the offence of abetment by intentionally aiding and, in any event, that Koh had raised a valid defence under Section 49(i).
Section 49 of the Trademarks Act provides, in material part, as follows:
Importing or selling, etc., goods with falsely applied trade mark
49. Any person who —
(c) has in his possession for the purpose of trade or manufacture, any goods to which a registered trade mark is falsely applied shall, unless he proves that —
(i) having taken all reasonable precautions against committing an offence under this section, he had, at the time of the commission of the alleged offence, no reason to suspect the genuineness of the mark and on demand made by or on behalf of the prosecution, he gave all the information in his power with respect to the persons from whom he obtained the goods; or
(ii) he had acted innocently, be guilty of an offence and shall be liable on conviction to a fine not exceeding $10,000 for each goods or thing to which the trade mark is falsely applied (but not exceeding in the aggregate $100,000) or to imprisonment for a term not exceeding 5 years or to both. [Emphasis added]
In Singapore, it is settled law that the statutory offences under Section 49 involve strict liability. It is therefore unnecessary for the prosecution to prove that the accused had reason to suspect that the mark might not be genuine in order to be convicted. It need prove only that the accused carried out the acts necessary for commission of the offence.
Section 49(i) provides a defence to this. In considering Section 73(a) of the act (the predecessor of Section 49(i)), then-Chief Justice Yong Pung How, in Trade Facilities Pte Ltd v PP ( 2 SLR(R) 7), established that there are three elements to the defence:
- The accused took all reasonable precautions against committing an offence under Section 49;
- At the time of the alleged offence, the accused had no reason to suspect that the mark might not be genuine; and
- On demand by or on behalf of the prosecution, the accused gave all the information in his or her power with respect to the person from whom he or she obtained the goods or things.
In Koh Peng Kiat the High Court observed that the first two elements of the defence are distinct, yet inextricably connected, and must be read together. Whether these elements have been proved is a question of fact to be decided having regard to all circumstances of the case.
Defence in PP v Koh Peng Kiat
The district court held at first instance that there was evidence that the accused had committed the acts necessary to establish the offence of abetment by intentionally aiding. Further, in considering whether the accused had raised a valid defence under Section 49(i) of the Trademarks Act, the district court concluded that the accused had failed to satisfy the requirements of Section 49(i).
According to the court, the following circumstances gave rise to reasons to suspect the genuineness of the counterfeit contact lenses and the accused had failed to take all reasonable precautions or exercise due diligence against committing offences under Section 49:
- The accused did not know Ah Seng well – Ah Seng had dropped into the accused’s shop one day and introduced himself as a friend of a friend. According to the district court, “the absence of any information from Ah Seng on the source of the contact lenses would have put the accused on enquiry as an optometrist to ascertain the reliability of such products”.
- The accused knew or ought to have known that the prices offered were well below retail market prices. This should have aroused his suspicion as to the authenticity of the products and it would then have been incumbent upon him to ascertain their source.
- The accused clearly knew that the authorised company from which the lenses originated was Ciba Vision Singapore, but did not check with it as to the authenticity of the lenses sourced from Ah Seng.
Maximum fine for import, sale and possession of counterfeits
On appeal, the High Court first considered the trademark offence under Section 49 of the Trademarks Act and reiterated the position that the offence involves strict liability and that it is for the accused to satisfy either of the defences stated in the provisos to Section 49.
However, the High Court overturned the district court’s decision to convict the accused of the charge of abetment, on the basis that the requirements for the offence of abetment by intentionally aiding were not satisfied on the facts of the case. It found that there was no evidence that the accused knew that the contact lenses in question were counterfeit. In reaching its decision, the High Court agreed with the principle that the offence of abetment, in all cases, should require proof of intention or knowledge on the part of the abettor that the offence will be committed, even if the main offence itself does not require it.
Given that the charges against the accused were premised on his abetment of the trademark offences to which Neo and Wong pleaded guilty, this would have been sufficient to determine the case. Nevertheless, the High Court went on to consider the requirements of the defence under Section 49(i).
In this regard, the High Court observed that only the first two elements of the defence established in Trade Facilities were directly relevant – that the accused had taken all reasonable precautions against committing an offence under Section 49 and that at the time of the alleged offence, the accused had no reason to suspect that the mark might not be genuine.
The High Court disagreed with the district court’s application of the defence under Section 49(i) and was of the view that it was “unsafe” to convict the accused on the evidence before the court. In this regard, the High Court disagreed with the district court’s analysis of the facts and held that, while the accused may have known Ah Seng for only a short period and knew little of his background, there was no reason for him to suspect that the contact lenses were counterfeit. Further, the court found that the price of contact lenses can vary and large discounts are given for bulk purchases. Consequently, in the absence of any market practice, the accused could not be expected to check all purchases of contact lenses with the registered proprietors. As such, it was found that he could rely on the defence under Section 49(i).
The High Court’s statements on the application of the defence under Section 49(i) were obiter dictum (ie, not intended to set binding precedent). This is because, as mentioned above, it had already decided that the offence of abetment was not made out because of the accused’s lack of knowledge.
Nevertheless, the High Court’s application of the defence under Section 49(i) of the Trademarks Act raises some potential concerns.
While the High Court agreed that the offences under Section 49 should be construed as involving strict liability, it also held that the accused could rely on the defence under Section 49(i) merely because he had no reason to suspect that the contact lenses were counterfeit and because the prosecution had not proved any market practice which would have obliged him to check all purchases of contact lenses with the registered rights holder. The practical effect of such a finding is that the burden of proving the elements of the defence appears to have shifted from the accused to the prosecution.
Such an analysis is arguably inconsistent with the express wording of Section 49 and detracts from the law’s intended purpose of combating piracy.
Section 49 provides: “Any person who (a) imports into Singapore for the purpose of trade or manufacture… any goods to which a registered trade mark is falsely applied shall, unless he proves [that he falls under the provisos]” (emphasis added). Hence, this clearly places the burden of proving the defence under Section 49(i) on the accused.
Approach adopted in previous cases
The High Court’s approach to the application of the statutory defence under Section 49(i) in Koh Peng Kiat stands in contrast to earlier approaches adopted in PP v Tan Lay Heong (1996, SGHC 47) and subsequent cases.
Tan Lay Heong involved an appeal by the complainant in a private prosecution where the two respondents had been acquitted of offences under Section 73 (the predecessor of Section 49) of the Trademarks Act for selling counterfeit products. The High Court dismissed the complainant’s appeal. The main issue on appeal was whether the district court had correctly concluded that the second respondent had satisfied the elements of the defence under Section 73(a) (the predecessor to Section 49(i)). The High Court held that the second respondent had succeeded in establishing the defence.
In the course of its decision, the High Court observed that the accused bore the burden of proving the statutory defence under Section 73(a). According to the High Court, the second respondent had to prove, on the balance of probabilities, that after taking all reasonable precautions, he had no reason to suspect that the complainant’s mark was not genuine. In discharging his burden, the second respondent adduced evidence of the reputation of the source of the goods and the expertise of the agent selling the goods. The court then considered whether the prosecution’s evidence could rebut the defence, which it answered in the negative.
The High Court’s approach in Tan Lay Heong was also adopted in PP v Goh Soo Im Esther (2007, SGMC 14) and PP v Chua Keng Fock (2010, SGDC 134).
PP v Chua Keng Fock
In its analysis of Section 49 of the Trademarks Act, the district court articulated the applicable burden of proof for the prosecution and the accused. According to the court: “The Prosecution has to prove all the elements of the offence. In the event the Prosecution is unable to prove beyond a reasonable doubt any one of the elements of the offence, then the Prosecution has failed to prove beyond a reasonable doubt the guilt of the accused or where the accused discharges his burden of proving a complete section 49(c) defence, then he should be rightfully acquitted from the charge(s) against him” (emphasis added).
Applying Tan Lay Heong, the court concluded that the accused had discharged his burden of proving that he had taken all reasonable precautions against committing an offence under Section 49 and had, at the time of commission of the offence, no control over the offending articles or reason to suspect that the goods might not be genuine. The accused had made enquiries as to the goods’ authenticity from the suppliers and obtained documentation from one supplier and oral assurance from three suppliers. The district court therefore acquitted and discharged the accused.
PP v Goh Soo Im Esther
In considering whether the statutory defences under Section 49 applied, the magistrates court expressly observed that the burden shifted to the accused to prove, on the balance of probabilities, one of the two statutory defences once the boxes of cigars had been proven to be counterfeit.
Applying Tan Lay Heong, the court held that the second respondent (Quek) had failed to adduce evidence showing that he had taken all reasonable precautions given the circumstances such that he had no reason to suspect that his goods might not be genuine. Quek had the expertise to determine the goods’ authenticity, yet he did not carry out proper checks and displayed a cavalier attitude towards their verification. The court was of the view that Quek had every reason to suspect that some of his goods were not genuine and had deliberately turned a blind eye to this.
Therefore, the magistrates court concluded that Quek had not established the defence and ought to be convicted on the charges.
On the facts of the case, the High Court’s decision in Koh Peng Kiat is undoubtedly correct, as the charges against the accused were abetment charges. This clearly required the prosecution to establish intent, which it had been unable to do given the accused’s lack of awareness that the contact lenses in question were counterfeit.
Nevertheless, the High Court’s comments on the application of Section 49(i) suggest that traders are no longer obliged to take any steps to verify the authenticity of the products in which they are trading, as long as there are no clear signs that the products in question may be counterfeit.
It is entirely reasonable that traders be required to take concrete steps to ensure that the products are genuine
Given that traders ultimately have the choice to decide where and from whom they source their products, it is entirely reasonable that they be required to take concrete steps to ensure that the products are genuine.
Arguably the outcome of the High Court’s application of Section 49(i) enables infringers to turn a blind eye and to rely on this provision to absolve them of criminal liability for trading in counterfeit products. It appears to be at odds with the wording of the Trademarks Act and could be detrimental to the ability of rights holders to take action against counterfeit products.
As this is a High Court decision, it remains to be seen whether there will be any appeal to the Court of Appeal (Singapore’s highest appellate court). If such an appeal is filed, it is hoped that there will be further guidance from the Court of Appeal on this issue.