Part V: Addressing Concerns About Piracy and Counterfeiting
Part V responds to concerns raised in submissions about the presence of pirated material in New Zealand. This section outlines:
- existing anti-piracy and anti-counterfeiting measures and border protection measures (including changes to the current regime that are to be included in a new Trade Marks Bill);
- new initiatives aimed at addressing concerns about attitudes to piracy and perceived difficulties in taking action against copyright infringement.
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5.1 The Main Concerns
227. The March/April 2000 consultation revealed that the main concern of music and software distributors - and a secondary concern of motion picture video and DVD distributors - is the presence of pirated product in New Zealand.
228. Parallel-importing bans are one measure that has been suggested by some stakeholders for addressing concerns about piracy and counterfeiting. There is, however, some doubt whether such bans are an effective means of combating concerns about the presence of pirated and related counterfeit goods. As stated in Part II in relation to the concerns of each industry about levels of piracy, the Ministry has not been presented with evidence that links the presence of pirated product in flea markets or elsewhere to the absence of a parallel-importing ban. Accordingly, the Ministry is not convinced that parallel-importing bans will address these concerns.
229. The Ministry is of the view that the concerns of creative-industries stakeholders about levels of piracy and counterfeiting are best addressed through specific measures that target activities involving the theft of intellectual property.
230. Measures in current legislation, including the anti-piracy provisions in the Copyright Act, are designed to:
- define illegal activities;
- allow right holders to effectively enforce their rights;
- provide border protection measures; and
- provide a general deterrence for commercial activities that involve deliberate infringement of copyright, including criminal offences.
231. There are also a number of new initiatives designed to address concerns that right holders have expressed about piracy and the adequacy of existing enforcement measures. These initiatives are in various stages of development.
5.2 Theft of Intellectual Property Rights: Definitions
232. The theft of intellectual property occurs when goods that are subject to intellectual property rights are reproduced for commercial purposes without the permission of the right holder. The making of counterfeit and pirated goods is the most obvious form of intellectual property theft. Related commercial activities - such as facilitating their production and distributing them through importation, wholesaling, and retailing - will usually also amount to infringing activities and will sometimes involve criminal liability.
233. The key terms can be given the following definitions:
- Piracy - the unauthorised copying of goods subject to copyright protection outside the exceptions or "permitted uses" provided in the Copyright Act. An example is the unauthorised copying of music recordings for sale.48
- Counterfeiting - the unauthorised manufacture of goods bearing a trade mark, label, or brand identity that can be passed off as genuine goods. Counterfeiting is often undertaken in relation to particularly famous labels, branded goods, popular recordings, and software titles.
234. In relation to "copies", the terms "pirate" and "counterfeit" have meanings derived from the illicit activities themselves. A pirate copy is an unauthorised copy of a recording. The fact that it is not a legitimately made copy will be evident from the absence of the original packaging and labelling. A counterfeit is a copy made to look like the original, in an attempt to pass it off as a legitimately made item. The terms will, however, often overlap and can apply to the same unauthorised item. For example, a pirated copy of a music compact disk will also be a counterfeit if the packaging and labelling has also been copied without permission.
235. The theft of intellectual property is most likely to occur in respect of easily replicable goods such as clothing (where the making and affixing of counterfeit labels is relatively easy to achieve) and recordings such as music, software and, increasingly, motion pictures (where replication is fast and low cost).
236. Piracy can also occur through activities other than producing and dealing in consumer goods. Examples include the interception and piracy of broadcasts and cable programme services, the unauthorised digital copying and transmission of copyright works over the Internet, and the use of copyright works such as software beyond the terms of a licence.
237. Piracy and counterfeiting can have serious effects on the revenue streams of the copyright and trade mark holders. Free-riding on the investment of intellectual property holders allows pirate and counterfeit copies of goods to be sold at lower prices than legitimate goods. The right holder's resulting loss of revenue can affect their ability to invest in new products and innovations, and can ultimately restrict the availability of goods to consumers. Some consumers might knowingly purchase pirate or counterfeit goods on the basis of lower cost. But others are sometimes misled into buying counterfeit goods; and the counterfeits can adversely affect the reputation and goodwill associated with the legitimate goods. The brand itself can also be adversely affected.
5.3 Civil Enforcement and Existing Criminal Offences and Penalties
238. The Copyright Act and the Trade Marks Act both contain provisions imposing civil liability for unauthorised activities that constitute copyright and trade mark infringement. Copyright and trade mark owners can enforce their rights by taking Court action in relation to suspected infringing activity. The Courts have a wide range of civil remedies available to them (under the respective Acts and under common law) to compensate aggrieved proprietors of copyright and registered trade marks. These include damages, injunctions, orders to account for profits, and orders to deliver up infringing goods to right holders.
239. The Copyright Act also contains provisions that impose criminal liability for making or commercially dealing with infringing objects. The penalties for breach of these sections are three months' imprisonment or fines of up to $10,000 per infringing item up to a maximum total fine of $150,000. 49
There are currently no corresponding provisions creating criminal liability for counterfeiting and piracy within the Trade Marks Act.
240. The Fair Trading Act is also relevant to commercial activities relating to goods that infringe a registered trade mark owner's rights. The Act imposes criminal liability for forging a trade mark, falsifying any genuine trade mark, or falsely applying a trade mark or sign so nearly resembling an existing trade mark as to be likely to mislead or deceive. 50
It is also an offence to import and trade in products bearing misleading and deceptive trade descriptions. 51
The applicability of this section to commercial activities involving counterfeit goods will depend on the facts of the particular case.
5.4 Border Enforcement Measures
241. Border enforcement measures commensurate with those of our trading partners are in place in accordance with obligations under the TRIPs 52 agreement. These measures allow trade mark and copyright right owners and licensees to request the detention of suspected pirated and counterfeit goods while they are subject to the control of the New Zealand Customs Service. Border enforcement measures do not, however, apply to goods imported by a person for their private and domestic use.
242. Right holders can request Customs' assistance by lodging notices of their New Zealand registered trade marks and goods subject to copyright protection, along with security and indemnity. 53
The New Zealand Customs Service can detain goods subject to a notice for a period of 10 working days. Notices are valid for either 5 years, after which they are renewable, or until the period of copyright protection or trade mark registration expires. If Customs becomes aware that suspected infringing goods have been imported and an applicable notice is not in place, it will advise the right holder 54 of the importation (and will also advise them to lodge notices).
243. Where goods are detained, Customs notifies the right holder so that they can determine whether the goods are pirate or counterfeit products. During this detention period, the right holder must also decide whether they will pursue proceedings to prove that the goods infringe their rights - though a further 10-day period is available in some circumstances, by application with supporting reasons. Suspected goods will be detained by Customs pending the decision of the Court. If proceedings are not commenced by a right holder within the 10-day period, Customs is required to release the goods to the importer.
244. Goods detained pursuant to a trade mark notice can be forfeited by the importer to the Crown. Presently, there is no similar provision for importers to do so in relation to suspected pirated copyright goods.
5.5 Anti-Piracy and Anti-Counterfeiting Initiatives Currently Being Drafted
245. In August 1999, the previous Government agreed to a number of changes to copyright and trade mark law aimed at deterring pirate and counterfeit activity in New Zealand. These measures were adopted following the recommendations of a report for the Ministry of Commerce undertaken by a patent attorney firm, A J Park & Son, on piracy and counterfeiting in relation to New Zealand. 55
These agreed measures are to be included in a new Trade Marks Bill currently being drafted, and are likely to be introduced to Parliament in the first half of 2001.
246. The new measures designed to combat copyright piracy and trade mark counterfeiting include the following:
- an increase in the maximum period of imprisonment for copyright piracy from 3 months to 5 years, making criminal piracy offences indictable;
- criminal provisions, penalties and remedies in trade marks legislation that correspond to those in the Copyright Act, including a new trade mark counterfeiting offence with maximum penalties of 5 years' imprisonment or $150,000;
- giving the New Zealand Customs Service the power to detain goods in transit (where the goods are subject to copyright and trade mark notices);
- allowing forfeiture of goods subject to a notice by consent of the importer under the Copyright Act; and
- allowing affidavit evidence in cases of criminal copyright infringement.
247. Some of the recommendations made in the A J Park Report that were not adopted by the previous Government are being reconsidered by the current Government - for example, reversing the onus of proof in cases of civil copyright-infringement proceedings. Progress on these initiatives is discussed below in relation to the concerns of creative-industries stakeholders.
5.6 Evaluating the Piracy Concerns of Creative-Industries Stakeholders
248. Consultation undertaken by the Ministry on the proposed parallel-importing bans for creative-industries products confirmed that copyright holders in the music, software and motion picture industries have serious concerns about the effectof pirated and counterfeit goods on the economic viability of their New Zealand operations. A number of other industries, including the sports-apparel and cosmetics industries, also hold concerns about pirated and counterfeit product. These concerns can be grouped into two categories:
- concerns about the observed presence of pirate and counterfeit goods in flea markets and itinerant retailers; and
- concerns about counterfeit goods reputably being sold on some occasions by retailers in the guise of genuine copyright or trade-marked goods.
249. Arguments linking these concerns to the lifting of parallel-importing restrictions on copyright goods were commented on above in Part II of this discussion paper (paras 75-80 , 158- 161 and 168 -171 ). As noted, the Ministry has not been presented with evidence that the first category of concerns is linked to the removal of parallel-importing restrictions on copyright goods, or that the second category of concerns relates to widespread activity. Pirated and counterfeit goods have been observed in markets for years. There is a similar lack of evidence to support assertions that reputable traders are regularly being misled into parallel importing and selling counterfeit goods disguised as legitimate goods.
250. It is difficult to assess suggestions that the volume of imported illicit goods has increased since the removal of the ban on parallel importing of copyright goods. Customs has recorded a small increase in suspected material observed at the border, but attributes this to the fact that more right holders generally have now lodged notices.
251. There is also uncertainty about the levels of domestic production of pirated and (to a lesser extent) counterfeit goods, particularly in relation to material observed in flea markets. The evidence that is available suggests that some pirate and counterfeit activity does occur in New Zealand. While New Zealand does not have a significant problem in this area (certainly not of the magnitude in many Asian and Pacific countries), even low levels of pirating and counterfeiting activity mean that a "problem" exists.
5.7 Perceived Problems with Current Legislation and Enforcement
252. In the Ministry's consultation with creative-industries stakeholders, a number of problems were raised about the ability of right holders to take action in respect of suspected infringing material, including:
- difficulties in taking civil enforcement action in relation to suspected pirated or counterfeit goods;
- the fact that trade in pirate and counterfeit goods is commonly perceived to be a "harmless" crime and not equivalent to other property crimes, such as theft of personal property;
- limited utilisation of and a lack of awareness about the requirement to lodge border protection notices with Customs; and
- difficulties in detecting and preventing infringing activity because of the ease of reproduction of products (made possible by new technologies).
253. A number of current Government initiatives (including the measures in the new Trade Marks Bill outlined above) are designed to address these concerns. These initiatives are outlined below in relation to each of the problems identified by stakeholders in the Ministry's consultations.
Difficulties in Enforcing Rights - Reversing the Onus of Proof
254. Civil copyright-infringement proceedings can be brought against a person importing, possessing or dealing with suspected infringing copies in the course of business. In such proceedings, the onus is on copyright holders to prove that:
- the suspected pirated goods are copies of goods in which the copyright exists and is owned by the plaintiff;
- the suspected pirated goods have been made without the consent of the copyright holder in the country in which they were made; and
- the defendant knew or had reason to believe that the goods in question were pirate copies.
255. The Ministry understands that (a) is usually easily proven by the plaintiff and will sometimes be assumed by a Court on the presentation of the suspected infringing copies. Concerns were, however, expressed by stakeholders about problems they encounter in respect of proving elements (b) and (c), primarily:
- difficulties that they have experienced in tracing lines of supply to the countries in which imported goods were made (in order to prove that they were not made with the consent of the copyright holder); and
- the belief that it is almost impossible for copyright holders to prove that dealers and importers of suspected pirated goods knew or were suspicious that the goods in question were pirate copies.
256. In response to concerns of this nature, the current Government directed the Ministry to report on options for reversing the onus of proof in these proceedings. The Ministry is examining the implications that would arise from reversing the onus of proof so that defendants in civil (but not criminal) copyright infringement proceedings would be required to prove the elements summarised in (b) and (c) above.
257. In Australia, the onus of proof in relation to element (b) was reversed for parallel-imported music recordings when the parallel-importing ban on music was lifted. The Australian Government has stated that it intends to reverse the onus of proof in the same way when parallel-importing restrictions on books and software products are lifted.
258. In relation to element (c), the Ministry also intends to examine an alternative option of changing the knowledge requirement to an objective test. This would mean that copyright holders would only be required to prove that the defendant had reasonable grounds to suspect, or ought reasonably to have known, that the goods in question were infringing copies. For example, in some circumstances a Court might accept, as proof, evidence that the price the defendant paid was substantially lower than the price they would ordinarily expect to pay for legitimate copies.
259. In developing and assessing policy options for reversing the onus of proof, the Ministry intends to carefully examine the potential effects of changing the onus of proof, particularly any likely restrictions on legitimate parallel-importing activities. The Ministry will also consider whether any changes should be applied to:
- imported creative-industry copyright goods only;
- all imported copyright goods;
- all imported copyright and trade-marked goods;
- all (imported and locally produced) copyright goods; or
- all (imported and locally produced) copyright and trade-marked goods.
260. The Ministry expects to report to the Minister of Commerce on this issue in 2001.
| Request for Information 5.7.1 The Ministry requests information and preliminary views on whether changes to the onus of proof in civil copyright-infringement cases will assist copyright holders in taking action against the commercial importation and sale of suspected infringing goods. |
Increasing Public Awareness
261. The Ministry is aware that theft of intellectual property is not generally perceived in the public conscience as equivalent to other property crimes, such as the theft of tangible property. The criminal provisions in the Copyright Act are, however, aimed at importers and other traders of infringing goods. This reflects the fact that copyright holders are primarily concerned about the commercial sale of pirated goods. It also acknowledges the practical difficulties that would arise in enforcing criminal offences in relation to personal possession.
262. The seriousness with which the Government views commercial piracy is reflected in the quantum of the criminal penalties (fines of up to $150,000) and in its intention to increase the maximum period of imprisonment from three months to five years. This, and the introduction of a comparable offence in relation to trade mark counterfeiting, will send a strong message to pirates and counterfeiters that New Zealand does not condone the theft of intellectual property.
263. The Ministry is planning a information and education campaign for 2001 to increase public awareness of the effects of piracy and counterfeiting.
Increasing the Utilisation of Border Protection Measures
264. Many creative-industries stakeholders who were concerned about pirated and counterfeit copies of their goods entering New Zealand had not lodged notices of their trade marks or (in cases of copyright) the goods their copyrights apply to.
265. Customs believes that the primary reason for this is that many international copyright holders do not perceive New Zealand as a problem country in terms of piracy and counterfeiting. In combating piracy and counterfeiting activity, international right holders tend to prioritise their resources - and right holders such as software, motion picture and recording companies concentrate their efforts in problem areas such as Asia. Microsoft and one major motion picture distributor have lodged notices with the New Zealand Customs Service, but to date only one record company has lodged notices to give Customs the power to detain suspected infringing product.
266. Customs actively promotes the need for trade mark and copyright holders to lodge notices for protection of their rights at the border. Over the past five years, promotional activity has included presentations to the Recording Industry Association of New Zealand, the Interactive Software Association of New Zealand, the New Zealand Film and Video Security Office, the Motion Picture Distributors' Association, and the Patent Attorneys' Association. The piracy and counterfeiting awareness initiative being prepared by the Ministry is being developed in conjunction with Customs. It will include information on the need for copyright and trade mark holders to utilise border protection measures, and information on how they can do this.
| Request for Information 5.7.2 The Ministry requests information on what benefits or costs right holders perceive in lodging copyright and trade mark notices with the New Zealand Customs Service, and whether there are any impediments to their doing this. |
Detecting and Preventing Infringing Activities in the Digital Age
267. Many stakeholders - particularly the music, software and film industries - expressed concern about the effects of new digital technologies and the Internet on their ability to detect and take action against infringement of their intellectual property rights.
268. The difficulties copyright holders face in attempting to prevent the unauthorised digital copying and distribution of their intellectual property over the Internet have been highlighted by the legal action currently being taken in the United States by the music and motion picture industries in relation to file-sharing services such as Napster and Scour.com. Software producers are particularly concerned about the sale of suspected counterfeit copies of their titles through Internet auction sites.
269. Music and film producers are also particularly concerned about the undermining of technological measures designed to protect and monitor the use of their copyright goods.
270. To this effect, the Ministry is undertaking a limited review of the Copyright Act to address the concerns of copyright holders and copyright users regarding the implications of new technologies. This review includes an assessment of new international standards in the copyright and related rights area, including the WIPO Copyright Treaty and the WIPO Performances and Phonograms Treaty. A separate public discussion document on these issues is currently being prepared and it is hoped that it will be ready for release in early 2001.
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55 A J Park & Son Theft of Intellectual Property: Piracy & Counterfeiting - Report Prepared for the Ministry of Commerce(July 1998) ["the A J Park Report"].
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