New draft anti-counterfeiting law is endorsed

United Arab Emirates

Brand owners are welcoming a new draft law aimed at combating commercial fraud in the United Arab Emirates (UAE), including dealing in counterfeit goods and false advertising. The proposed law is still in draft form but was endorsed on January 13 2013 at a Cabinet meeting chaired by His Highness Sheikh Mohammed bin Rashid Al Maktoum, the UAE vice president and prime minister and the ruler of Dubai. 

Sheikh Mohammed posted a series of tweets after the meeting, in which he described the proposed law's intention to protect local markets and safeguard the rights of consumers and traders, declaring that "transparency is crucial to support our national economy".

Although the draft law is yet to come into force, it marks a positive step by the UAE to address the issues faced by brand owners in relation to counterfeit products and a drive towards aligning UAE domestic legislation with international standards and obligations under international treaties. As expected with any proposed new legislation, there are some areas of concern and, in the case of the draft law, there are some serious issues which will hopefully be addressed before it is implemented.  

Currently brand owners have various options for taking action against counterfeit goods, including under:

  • the UAE Trademarks Law (Federal Law No 37 of 1992 in relation to trademarks);
  • the UAE Commercial Fraud Law (Federal Law No 4 of 1979 preventing fraud and deceit in commercial dealings) and its Executive Regulations (set out in Ministerial Decision No 26 of 1984); and
  • the UAE Civil Code (Federal Law No 5 of 1985 Civil Code of the UAE as amended by Federal Law No 1 of 1987).

The focus of many brand owners is to rely on the Commercial Fraud Law and its Executive Regulations as these enable action to be taken quickly and cost effectively through administrative authorities. 

The proposed law will repeal the Commercial Fraud Law, and it will impose tougher sanctions for dealing in counterfeit goods by way of increased penalties and by providing the administrative authorities with additional powers to combat infringing activity. It is not yet clear how the provisions of the draft law will interrelate with the provisions of the Executive Regulations, which may remain in force (to the extent that they do not conflict with the draft law) until new regulations and resolutions are issued.  

The draft law contains several provisions which brand owners will be pleased to see introduced into the UAE legal framework, including the implementation of provisions which would: 

  • establish a single body with the role of combating dealings in counterfeit goods across all emirates in the UAE - under the current regime, each emirate within the UAE has its own administrative authority which operates independently from the corresponding authorities in other emirates. As a result, in order to take an administrative enforcement action in relation to infringing goods located in the emirates of Abu Dhabi, Dubai and Sharjah, separate complaints must be filed with the authorities in each of these three emirates.

    Under the proposed law, a Higher Committee will be formed at a national level, with Sub-Committees operating at an emirate level. It is hoped that this will result in a more 'joined up' approach in dealing with counterfeit goods across the UAE than the current regime in which each emirate operates its own independent enforcement authority.

  • impose criminal penalties of imprisonment for up to two years and fines of up to Dh250,000 (approximately $68,000) for those caught dealing in counterfeit goods, with this figure increasing to Dh1,000,000 (approximately $272,000) in relation to pharmaceutical and food products - currently, the Commercial Fraud Law provides for imprisonment for up to three years and fines of between Dh500 and Dh20,000 (approximately $135 to $5,500) and the Trademarks Law provides for imprisonment for up to one year and minimum a fine of Dh5,000 (approximately $1,350). As a result, fines imposed against counterfeiters in the UAE are often very low and do not act as any form of deterrent.

    The higher level of fines set out in the draft law should result in a substantial increase in the level of fines being imposed against those dealing in counterfeit goods in the UAE. This change is good news for brand owners as it is likely to act as a real deterrent.

  • require importers of counterfeit goods to pay the cost of destroying and disposing of the goods - currently, depending on whether counterfeit goods are seized by an administrative authority under the Commercial Fraud Law or by another authority (such as the Police or Customs) under other legislation, destruction costs are borne by either the authorities or the brand owner. It is therefore a positive step for these costs to be borne by importers, although this may be of little value in practice if the importer cannot be identified or traced.

    It would also be helpful to extend this provision to other categories of infringer (not just importers) and to cover storage costs (which in some cases can be substantial).

  • provide the authorities with the right to compel offending traders to disclose all information and documents relating to counterfeit goods - this proposed new provision has the potential to be helpful to brand owners.  Under the current regime, it is extremely rare for the enforcement authorities in the UAE to seize any books and records relating to infringing activity, with the result being that important information as to the scale of the infringing activity and the network within which the infringer is operating is not revealed. This can have an impact not only on the brand owner's ability to identify the source of the counterfeit products, but it can also result in substantially lower penalties being imposed than may otherwise be the case if the scale of the infringing activity was revealed.

    The inclusion in the draft law of an express power for the authorities to obtain disclosure of this information should encourage the authorities not only to seize stocks of counterfeit goods, but also to obtain copies of information as to the source of the goods and the scale of the infringing activity.

  • prohibit possession of counterfeit goods - an offence is committed under the draft law by displaying or selling counterfeit goods or possessing counterfeit goods for the purpose of sale. However, the draft law also expressly prohibits the possession of counterfeit goods (whether or not there is an intention to trade in the goods). 

    This may provide the authorities with the right to seize counterfeit goods, without having to establish an intention to trade in the goods. This would be a useful tool where counterfeit goods are held by traders, but where there is no clear evidence of an intention to sell. However, it remains to be seen whether this provision would also be used to seize counterfeit goods held by private individuals.

  • provide additional rights to close down outlets where counterfeit goods are sold - the draft law provides the court with the power to close down business premises for a period of up to six months where counterfeit goods have been held for the purpose of trade. This is consistent with the current position set out the Commercial Fraud Law and Trademark Law. 

    However, the draft law also deals with department stores in relation to which the courts may be reluctant to close down the whole store, in cases where counterfeits have been sold in only one section of the store. The draft law also provides the court with the option of granting an order to close down the section of the store where counterfeit goods have been sold, with the remainder of the store remaining. 

    This proposed amendment may result in closing-down orders being granted more regularly as it would allow the court to impose a closing-down order without any concern that the order would be disproportionate to the scale of the infringing activity. 

    However, most cases relating to counterfeit goods are dealt with by the administrative authorities, not the courts. The draft law provides the Higher Committee being set up under the proposed law with the authority to grant the closing-down orders for a maximum of two weeks. It would a helpful further step to extend this power to enable the Higher Committee also to grant partial closing-down orders in relation to department stores.

There are, however, some important concerns, in that the draft law:

  • empowers the authorities to require importers to return counterfeit goods to their country of origin - this approach is a serious concern as it can result in counterfeit goods being moved to another jurisdiction, which would either displace the problem for the brand owner or, in many cases, result in the goods going back on the market if they cannot be traced by the brand owner after re-exportation.

    By providing the authorities with an express power to re-export counterfeit goods, the draft law appears to legitimise a practice which would contravene the UAE's obligations under the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPs). Article 59 of TRIPs prohibits the re-exportation of counterfeit goods in an unaltered state, other than in exceptional circumstances. It is therefore hoped that this provision will be amended before the draft law is implemented so that it is consistent with TRIPs. 

  • restricts the impact of the draft law to identical goods only (not lookalikes) and allows action to be taken on the basis of registered rights only - currently, the rights and restrictions under the draft law apply to 'imitated commodities', which are defined as commodities which "bear without permission a trademark which is identical to the trademark legally registered"

    The current Commercial Fraud Law applies to both identical and lookalike goods, and to registered and unregistered rights. Accordingly, unless this definition is expanded, the proposed new law will significantly restrict the ability of brand owners to protect their rights.

  • requires seized counterfeit goods to be released unless a court has issued an order confirming the seizure within 30 days.

    It is not clear whether the brand owner or the enforcement authorities would be required to apply to court to obtain an order confirming the seizure. However, the requirement to obtain such an order could potentially add substantial costs to administrative enforcement actions which can be conducted under the current regime very efficiently and at minimal cost (as no court order is required).

Despite the potential concerns outlined above, this law represents a positive and welcomed initiative by the UAE government to clamp down on counterfeit goods. 

Brand owners will watch with interest to see whether the law will be amended after consultation and how the implemented version of the law will sit with the draft regulations, which are likely to provide details of how complaints can be made by consumers and/or brand owners to the committee. Brand owners should watch this space, or perhaps more appropriately, Sheikh Mohammed's twitter feed. 

Harriet Balloch and Rob Deans, Clyde & Co, Dubai

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