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• Intellectual Property Policy

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• Theft of Intellectual Property

• Consultant's Report

• HA. Criminal Law Copyright Act
• HB. Criminal Law - Trade Marks and Fair Trading Act
• HC. Prosecution Practice
• HD. Customs
• HE. Civil Remedies

HA.Criminal Law Copyright Act

H1.- H2. Section 131 of the New Zealand Copyright Act 1994 provides as follows:

H3. An "infringing copy" is defined in Section 12, and following the May 1998 amendments so far as is relevant comprises the following:

1. An object the making of which constituted an infringement of the copyright in a work. (Section 12(2))
2. An object imported if its making constituted an infringement of copyright in the country where it was made. (Section 12(3)(a))
3. In certain circumstances, where the making of an imported object would have been an infringement if the object had been made in New Zealand. (Section 12(3)(b))

H4. The third form of infringing copy is subject to Section 12(5A) which is the 1998 amendment intended to exclude from the definition of "infringing copy" so called parallel imports.

H5. Section 12(4) provides that if it is proved that the alleged infringing copy is a copy, and that copyright existed, then it is presumed that the work was made at a time when copyright existed unless the contrary is proved.

H6. Unlike civil proceedings, there is no presumption of authorship simply by reason of the identity of the author appearing on copies of the work, nor that there is copyright simply because the normal copyright © notice appeared on the goods, as provided in Sections 126 to 129 (Section 131(7)).

H7. Accordingly, it appears necessary to prove the existence and ownership of copyright in any prosecution. Since New Zealand does not have a system of registration of copyright, as does for example the United States, this certainly adds to the burden of a prosecution, in a manner not directly relevant to the issue as to whether or not the defendant actually unlawfully copied the work. It is not yet established what evidence might be necessary.

H8. Clearly it is undesirable to have witnesses travel from overseas in every prosecution to formally prove the authorship of the work, the existence of copyright and its ownership, and the absence of a licence in respect of the alleged counterfeit copies. Given that copyright exists it is not strictly relevant to conviction precisely who is the actual owner of copyright if it is clear that the copy was unauthorised. It should be made clear that affidavit evidence should be sufficient.

H9. A criminal conviction requires proof that the activity is in the course of business, or is in some way for sale or hire. Mere possession of counterfeit goods is not a criminal offence, unless there is proof of some kind of business activity.

H10. It must also be established that the defendant knows that the object is an infringing copy. This is in contrast with the law in Australia and the United Kingdom, where tests of "ought to know" or "has reason to believe" are available.

H11. The penalties for conviction are imprisonment for a term not exceeding 3 months, and a fine (as amended in 1998) not exceeding $10,000 for every infringing copy (but not exceeding $150,000 in respect of the same transaction). (Section 131(5))

H12. There is provision for the court to order reparation for the infringement (Section 131(6)). Theoretically the copyright owner could claim its losses as a result of the activity which leads to the conviction, but so far the courts have been reluctant to order this.

H13. Section 132 provides for delivery up of infringing copies, and objects for making infringing copies, and Section 134 provides for forfeiture to the copyright owner, or destruction, of infringing copies.

H14. Section 198 provides that it is an offence to make, import, or possess or deal within the course of business, an illicit recording, with the penalty being 3 months imprisonment and a fine up to $50,000. There is also a provision for delivery up and destruction of illicit recordings.

H15. Search warrants are obtainable under Section 198 of the Summary Proceedings Act, in respect of offences under the Copyright Act.

HB. Criminal Law - Trade Marks and Fair Trading Act

H16. There is no provision for criminal liability for piracy or counterfeiting under the Trade Marks Act 1953, which provides for the statutory protection of trade marks by registration.

H17. Section 16 of the Fair Trading Act 1986 provides criminal liability for forging a trade mark (or falsifying any genuine trade mark) or for falsely applying to any goods any trade mark or sign so nearly resembling a trade mark as to be likely to mislead or deceive.

H18. There is however no offence of importing, dealing with or selling pirated or counterfeited goods which carry a falsely applied or forged trade mark, unless the trade mark is a copyright work and therefore subject to the Copyright Act.

H19. The Fair Trading Act includes provisions relating to misleading and deceptive conduct as to the nature, manufacturing process, characteristics, and suitability for a purpose, of goods (Section 10) and for various false representations in relation to goods (Section 13).

H20. The only penalty for an offence under the Fair Trading Act is a fine not exceeding $30,000 (or in a case of body corporate, a fine not exceeding $100,000) under Section 40.

HC. Prosecution Practice

H21. There have been very few convictions under the Copyright Act or Fair Trading Act for offences relating to pirate copies or counterfeit goods. Penalties so far imposed have been relatively small fines, of an amount said to be far below the actual value of the goods which have been counterfeited.

H22. In view of the low penalties available and imposed, Police have in the past also prosecuted counterfeiting under the Crimes Act. Sections 266A and 266B provide for penalties of 10 years imprisonment for reproducing a "document", or causing others to deal in a "document", with intent or defraud. To what extent genuine and counterfeit goods are "documents" is not yet settled.

H23. Also as a practical matter it is often easier to establish offences under various taxation laws, and use these laws as an indirect way of taking appropriate action against professional counterfeiters. In a recent case a professional counterfeiter of clothing was convicted and sentenced to 12 months imprisonment, but suspended for 12 months, for offences relating to taxation as a result of the counterfeit activity.

H24. Some Police Officers approached in the course of this study, from various parts of the country, regard counterfeiting as a serious and increasing offence and see the need for a specialised unit within the Police properly resourced to deal with it, as well as a need for more substantial penalties. Some Police are of the view that custodial penalties are more effective in that a fine is merely a contingent cost of doing business in the counterfeit arena, whereas others believe that increased monetary penalties (obviously only if sufficient to make counterfeiting uneconomic) are best if of course enforced by the courts.

H25. Because the penalty for infringement of copyright is imprisonment for a maximum of 3 months, these offences are classified as summary and not indictable. Accordingly these offences tend to be handled as minor offences by less skilled Police prosecutors rather than Crown Prosecutors yet evidence required to convict needs to be quite sophisticated.

H26. Police and prosecutors believe that if there were indictable offences then they would be taken more seriously and prosecutors would be better resourced, leading to more significant penalties, which in turn would make piracy and counterfeiting less attractive.

H27. In one successful case in January 1995, an Auckland counterfeit software dealer was convicted of offences under Sections 131(1)(c) and (e) of the Copyright Act in respect of software worth $1.28 million. The penalty was $18,000 and reparation was declined. In that case it was the Business Software Alliance who obtained the necessary evidence, sufficient for the Police to obtain a search warrant which led to the conviction.

HD. Customs

H28. Both the Copyright Act 1994 and the Trade Marks Act 1953 (as amended in 1994) provide for Customs in certain circumstances to detain "pirated copies" (Copyright Act) and goods to which have been applied "infringing signs" (Trade Marks Act).

H29. A "pirated copy" is defined in Section 135 of the Copyright Act as follows:

H30. Section 135 of the Copyright Act expressly excludes from the definition of "pirated copy" works sold in an overseas country by or with the licence of the copyright owner in that country.

H31. Section 54B(5) of the Trade Marks Act also excludes goods where the infringing sign has been applied by with the licence of the proprietor of the trade mark, and this is understood to mean the registered proprietor in New Zealand.

H32. Thus parallel imports are not affected by the provisions.

H33. Customs are not able to detain such goods unless Customs have previously received and accepted a Notice giving particulars of the copyright work (Copyright Act) or of the registered trade mark (Trade Marks Act). In the case of trade marks these are registered for specific goods, and Customs may only detain goods the same as or similar to those specified in the Notice.

H34. There is no official fee on lodging such Notice, but Customs requires lodging of a bond of $5,000, generally in respect of each proprietor. A single bond of $5,000 may be regarded as sufficient to cover a large number of Notices of the same copyright or trade mark owner.

H35. The experience is that the Customs provisions are working well, even though to date only about 26 different proprietors have lodged Notices, and most of these are in respect only of registered trade marks.

H36. If during an examination Customs discover goods that appear to them to be pirated copies or counterfeit, they will make an investigation, and will usually contact a local representative of the owner for advice. Once Customs makes a Determination that the goods are pirated copies or counterfeit, the owner then has a period of 10 working days to commence High Court proceedings in relation to those goods. If High Court proceedings are not by then commenced the goods must be released to the importer.

H37. This is a tight time frame, but it is accepted that it is necessary to strike a balance between the interests of the owner of the intellectual property rights on the one hand, and the importer of what could well be legitimate goods, on the other hand.

H38. In fact in almost all cases the importer admits that the goods are pirated copies or counterfeit, and agrees not to import them. As far as it is known, High Court proceedings have been commenced in only one case under the Trade Marks Act and in one case under the Copyright Act. Section 54H of the Trade Marks Act provides for forfeiture of the goods by the consent of the proprietor and this is the provision which in effect resolves almost all of the cases.

H39. There is no corresponding provision of forfeiture of pirated copies by consent under the Copyright Act, and this appears to be an inadvertent omission which could easily be corrected.

H40. Customs are well aware of a large quantity of other apparent counterfeit goods being imported where no such Notice has been lodged and where they are unable to take action.

H41. Obviously Customs cannot inspect every item imported. Such goods are detected during routine examination of imports. To date Customs have acquired considerable experience in assessing the likely sources and destinations of counterfeit goods.

H42. It is acknowledged that in the case of counterfeit music and computer software on CDs, detection is far more difficult. It is feared by owners of copyright in such music and computer software that freeing up of parallel importation will make it much more difficult to detect such pirated copies. This is because there is no restriction on who may import genuine copies, and thus it is much more difficult to detect from the destination of the imported goods whether or not they are likely to be counterfeit. It could well be the case that a reputable importer has been duped into purchasing counterfeit product, whether by way of a misleading sample, or by way of lacing.

H43. Subject to Customs being provided with sufficient resource, and taking into the account the inherent difficulties of detection in the case of for example counterfeit CDs, the lodging of Notices with Customs is a useful tool in combatting import of pirated copies and counterfeit goods.

H44. Customs is at some disadvantage in applying the provisions under the Copyright and Trade Marks Acts, in that these provisions do not refer back to Customs powers under the Customs and Excise Act. It would therefore be more useful if such pirated copies and counterfeit goods could for example be regarded as prohibited goods within the meaning of the Customs and Excise Act.

H45. The Fair Trading Act 1986 in Section 26 provides that any goods to which a false trade description is applied are deemed to be prohibited imports under the Customs Act.

H46. The term "false trade description" means any representation which if made in connection with the supply of goods or their promotion would contravene only Sections 13(a) (generally goods of a particular standard), (d) (newness of goods) or (j) (place of origin) of that Act.

H47. The provisions of Section 13(a) of the Fair Trading Act are reflected in the Customs Import Prohibition (Trade Descriptions) Order 1991, which also prohibits the import of such goods.

H48. If a trade mark is shown to indicate a particular standard or quality, these trade description provisions might be able to be used against counterfeit goods.

H49. Section 26 has been an effective tool for Customs where goods are in fact mislabelled as to their country of origin. That sometimes occurs with clothing bearing counterfeit brands.

H50. Customs has a role in the wider international trade in prate and counterfeit goods, in that some goods arriving in New Zealand are then transshipped, for example to Pacific Island states. However currently copyright notices cannot be used to stop goods in transit.

H51. There is no provision for Customs to control the export of pirate and counterfeit goods. At present there is no evidence of exports of such goods, apart from those which have been in transit.

HE. Civil Remedies

H52. The Copyright Act, the Trade Marks Act, and the Fair Trading Act all provide remedies for infringement of copyright, infringement of registered trade marks, and false representations and misleading and deceptive conduct, which may be pursued by the owner of intellectual property in civil proceedings.

H53. So-called secondary copyright infringement, that is importing and distributing unauthorised copies, does however require proof that the defendant knows, or has reason to believe, that the copy is an infringing copy. This does not apply to civil proceedings for trade mark infringement.

H54. In addition infringements of rights under the Patents Act and the Designs Act are also available to owners of such rights. The common law provides for remedies in passing off, for breach of confidence and unauthorised disclosure of trade secrets. All of these laws may be used in varying ways against the production and distribution of pirated copies and counterfeit goods.

H55. All of these laws, as well as the High Court Rules generally, provide for various remedies, including injunctions, damages, an account of profits, and orders for destruction of pirated and counterfeit goods and of the means for making them.

H56. In addition these laws provide for various forms of interlocutory relief including interim injunctions before trial, ANTON PILLER orders providing for access to premises to secure evidence, and MAREVA orders to seize property and assets. METALLICA orders are available in cases where for example the identity of the actual seller of counterfeit goods is not initially ascertainable.

H57. Under the Copyright Act there are certain presumptions as to ownership of copyright, and generally proof of the existence and ownership of copyright in civil proceedings is readily established under the ordinary rules of evidence.

H58. The chief difficulty with civil action is the cost of proceedings, particularly in view of the detailed evidence necessary both at trial and in order to secure interlocutory orders, and the cost involved implementing orders such as ANTON PILLER orders.

H59. The cost of such civil proceedings will inevitably exceed the value of the counterfeit product the subject of the proceedings. The court does have power to award costs to the proprietor but such costs will barely be a fraction of the actual cost of the proceedings, and in any case such orders for costs are of doubtful value against the kinds of persons involved in counterfeit activity.

H60. For a counterfeiter to be successful in his business he must ensure that his identity, location, and assets, are not in any way readily ascertainable to the authorities or to owners of intellectual property.

H61. It follows from this that a deficiency in the Border Protection Measures in the Copyright Act and Trade Marks Act referred to above is that the cost of even commencing High Court proceedings within the tight time frame is usually far in excess of the value of the counterfeit goods in any particular shipment.

H62. Often an importer will have goods which are counterfeits of a number of intellectual property owners and clearly the cost of commencing civil proceedings in respect of all the owners will always be far in excess of the value of the shipment.

H63. An example which arose this month was a shipment to a single importer who had counterfeits which were covered by Trade Mark Notices of 5 different proprietors, a sixth of all those who have lodged notices.

H64. There is therefore a necessity for Customs to be in a position to prosecute such importers, where a single criminal proceeding for importing or attempting to import counterfeit product (with merely separate counts for each copyright or trade mark owner) can be pursued.

H65. Owners of intellectual property appreciate that Customs and other prosecution authorities require the owners of the property to provide sufficient evidence to establish the existence and ownership of the intellectual property, and perhaps expert evidence that the product is a pirate or counterfeit copy if that is not self evident from the quality of the article. That should not however require an overseas owner to bring personnel to New Zealand to give formal and effectively unchallengeable evidence of the existence and ownership of copyright.