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WIPOIIPRIMCTI99111.C

ORIGINAL: English

DATE: February 1999

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SULTANATE OF OMAN WORLD INTELLECTUALPROPERTY ORGANIZATION

Under the Patronage ofHis Highness Sayyid Faisal bin Ali AI SaidMinister for National Heritage and Culture

WIPO ARAB REGIONAL SYMPOSIUM ON THE ECONOMICIMPORTANCE OF INTELLECTUAL PROPERTY RIGHTS

organized bythe World Intellectual Property Organization (WIPO)

in cooperation withthe Ministry of Commerce and Industry

Muscat, February 22 to 24, 1999

PIRACY AND COUNTERFEITING: THE WAYS AND MEANS TO FIGHT IT- AN INDUSTRY POINT OF VIEW

Lecture prepared by Mr. Nasser Ali Khasawneh,Legal Counsel, Procter & Gamble, Geneva, Switzerland

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Facts about Procter & Gamble.

Over 160 years of excellence in the manufacturer of household products;

The world's largest manufacturer of household products;

Annual Volume of Sales: US$ 36 billion.

Procter & Gamble's presence in the region.

Saudi Arabia: Joint Venture Companies with local partners, and plants in Dammam andJeddah. A business generating annual sales of US$ 400 million;

Yemen: A joint venture with local partners, and a plant in Taiz.

Lebanon: A Procter & Gamble Company with a detergent plant.

Egypt: 3 Procter & Gamble Companies with 2 plants.

Morocco: 3 Procter & Gamble Companies with 2 plants.

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Examples ofProcter & Gamble's products:

PAMPERS baby diapers;

PERT PLUS Shampoos;

HEAD & SHOULDERS Shampoos;

PANTENE Shampoos;

TIDE Detergent Products;

ALWAYS Sanitary Napkins.

A surge ofcounterfeits ofProcter & Gambleproducts.

In the past few years;

Throughout the Arab world;

This causes great harm to the local consumer, the national economy and Procter &Gamble;

The spread of counterfeit products in the region has been so significant that, at times,sales of counterfeit products accounted for 20% of the overall sales of the originalproducts.

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Examples ofP&G's Struggle Against Counterfeits.Lebanon:Case: Pantene counterfeit»

Facts: Flood of Pantene counterfeits in April 1998 taking 30% of the overall originalPantene business.

Administrative Action:=>Through local lawyer, we filed criminal complaints with the concerned PublicAttorney offices in all districts of Lebanon.

=>Raids were conducted against all stores df''llinl! with counterfeit products, andCounterfeit products were seized and destroyed.

=>Traders were asked to give the name 0 the seller of the product.

Lebanon:Case: Pantene counterfeits.

Court Action: Criminal actions ongoing against sellers in several districts. No verdictsyet.

In April 1998, the authority's actions were a great success. Within one month, we re­gained our lost 30% business.

However, in Autumn 1998, the problem re-surfaced and PANTENE counterfeits floodedthe market again ...A new cycle of actions started.

Source of Counterfeits: Unknown.

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UAE:Case: Pert and Head & Shoulders counterfeits

Facts:Over the past two years, Procter & Gamble has been the victim of a proliferation ofcounterfeits of PERT and HEAD & SHOULDERS shampoos and of our cold-reliefproducts VICKS.

Administrative Actions:

a) March 1998 - Raid on Shariah warehouse stocking PERT and HEAD & SHOULDERScounterfeits

A warehouse stocking 32,000 bottles of counterfeit PERT and 90 bottles of HEAD &SHOULDERS counterfeits was seized.

The raid and seizure of the products in the warehouse were conducted with extremeefficiency by the Sharjah Municipality.

UAE:Case: Pert and Head & Shoulders counterfeits

The investigation into this matter lead to the owner of the warehouse, the lease-holderthereof and an Indian national who supposedly made use of the warehouse. Theinvestigation of the owner of the warehouse was not followed through as the ownerconvinced the Authorities that he did not make use whatsoever of the warehouse. As forthe lease-holder, he promised upon interrogation to produce to the Authorities a certainMr. X whom he claimed made use of the warehouse.

The lease-holder failed to produce Mr. X and the latter also failed to respond to a seriesof subpoenas issued by the Sharjah Municipality

No further attempts to ensure that Mr. X is apprehended and no follow-up was madewith the lease-holder or the owner of the warehouse.

No prosecution of any culprit.

In July t998, the said warehouse was broken into and the counterfeits therein werestolen.

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UAE:Case: Pert and Head & Shoulders counterfeits

b) April 1998 - Raid on two Shariah warehouses stocking PERT, HEAD & SHOULDERSand VICKS counterfeits

The Dubai Department of Economic Development and the Dubai Police set up a trap for8 culprits involved in the delivery of the counterfeit products. Upon being arrested bythe Police those 8 culprits led the Authorities to two warehouses in Sharjah stocking16,944 bottles of counterfeit PERT PLUS, 10,476 of counterfeit HEAD &SHOULDERS and 361,871 bottles of VICKS VAPORUB counterfeits.

After leading the investigation, the Dubai Police transferred the investigation to theSharjah Municipality.

The Sharjah Municipality investigated the matter and concluded it with imposition of afine of DHS 120,000 against two of the eight culprits arrested in Dubai, and with thedestruction of all of the counterfeits found in those two warehouses.

UAE:Case: Pert and Head & Shoulders counterfeits

Court Action:The two culprits, arrested as a result of the above specified raids in April 1998, werereferred to the Public Prosecutor's Office in Dubai, who in turn referred the case to theFirst Instance Criminal Court.

The First Instance Criminal Court issued a judgment imposing a jail sentence of onemonth against one of these culprits and the symbolic fine of DHS 1000 against both.

Source of Counterfeits: Unknown.

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Saudi Arabia:Case: Pert Plus Midnight Catch

Facts: In May 1998, a salesman offers counterfeit Pert Plus to a wholesaler in Jeddahwho then alerts P&G. With the help of the Ministry of Commerce in Jeddah, a trap is setup, whereby a midnight delivery of counterfeit Pert Plus is arranged. The chief inspectorof the Ministry of Commerce and a representative of our Company coordinated a trap onthat hour and all Pert Plus counterfeits were confiscated.

The products were shipped from the UAE and the names of 2 UAE companies werewritten on the outside package.

An expatriate representative and a driver are questioned by the Ministry of Commerce.The representative and driver confirmed that the product belong to a certainbusinessman.

Saudi Arabia:Case: Pert Plus Midnight Catch

Administrative Actions:1. A product is sent to the concerned Authority in Saudi to confirm that it is acounterfeit. This confirmation is issued 3 months later.

2. No investigation was conducted with the representative and driver caught on site norwith the businessman whom they alleged was selling these products in the country.

3. No action was possible against the 2 UAE companies because we could not secure anofficial certificate from the Saudi Government linking the counterfeit products with the 2UAE companies.

4. Destruction of the product: Was finally conducted in February 1999.

Court Action: none.

Source: unknown

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Saudi Arabia:Case: Counterfeit VICKS VAPORUB

Facts: Since early 1997, great amounts of VICKS VAPORUB counterfeits reported onthe Saudi market.

Administrative Action: Complaints were submitted to the Ministry of Commerceagainst 10 wholesalers dealing with counterfeit VICKS products.

- 3 wholesalers confirmed that they bought the product from an establishment owned bya certain Ms. Y whose operation is run by Mr. X. Mr. X confessed during theinvestigation that he has bought the product from a Mr. Z.

Court Action: Of the 10 complaints against wholesalers, 4 cases were filed in front ofthe Board of Grievances for decision.

- One case was concluded with a fine of SR 6,000 (US$ 1,600) against a certainwholesaler.

- One case was dismissed

Saudi Arabia:Case: Counterfeit VICKS VAPORUB

- Third case against a wholesaler (who confessed to having bought the product from Ms.Y and Mr. X concluded with a fine of SR 5,000 in addition to confiscation anddestruction of his stock of counterfeit VAPORUB.

- Final case against Mr. X was concluded with a fine of SR 10,000 and a prison sentenceof 30 days. No action taken against Ms. Y.

Source of counterfeits: Unknown.

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Saudi Arabia:Case: Counterfeit Pantene shipmentfrom China toSaudi Arabia

Facts: Counterfeit products were shipped from China to Saudi Arabia, with certificateof origin indicating that the product is made in China, while on the product label it wasstated that the product is made in Saudi Arabia.

Ministry of Commerce informed us of the arrival of the product at the port. The releaseof the product was withheld.

- The manufacturer / exporter of the product in China had tried to hide the identity of thecounterfeits by packing the products into 2 cases:

1) An outercase which stated that the products in the case were "shampoo" withoutspecifying the brand;

2) An inner-case on which it was printed that these were Pantene shampoos made inSaudi Arabia by the Modern Industries Company in Dammam, i.e. a replicate of ouroriginal products manufactured in Saudi Arabia.

Saudi Arabia:Case: Counterfeit Pantene shipment from China toSaudi Arabia

- We started our action through the Ministry of Commerce and the Jeddah Port CustomsAuthority.

- We initiated a serious investigation of the Chinese Company through our agents andCompany in China. Unfortunately these investigations in China did not yield anyresults, as it turned out that the address of the Company in China, as given on thecertificate of origin, was fake.

Administrative Action:- The Ministry of Commerce commenced its investigation by questioning the Saudiimporter of the products. The Saudi importer claimed that he had ordered genuineproducts and not fake PANTENE, and he consequently submitted a complaint to theChinese consulate requesting them to investigate with the manufacturing company.

- The Ministry of Commerce in Saudi has recently decided to cross out the statement"made in Saudi Arabia" on the shampoo packs and to re-ship them back to China.

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Saudi Arabia:Case: Counterfeit Pantene shipmentfrom China toSaudi Arabia

- We are currently trying to stop the execution of the Ministry of Commerces decision tore-ship the product. We have submitted a complaint to the Commercial Attache ofChina in Jeddah requesting that the Chinese Government investigates and eradicates thesource of these products in China. This line of action has yielded no results.

Court Action: none.

Yemen:Case: Pert, Head & Shoulders and Pantenecounterfeits.

Facts: In summer of 1998 huge surge of counterfeit shampoos reported in Yemen.

PGY embarked a major fact-finding effort to identify the retailers and wholesalersdealing with the counterfeit brands.

Administrative Action:1) The Ministry of Trade and Supply provided excellent help in ordering all MinistryOffices and the Customs Authorities to confiscate these products and stop them fromentering the country.

2) We are currently conducting, through the Ministry of Supply, raids of retailersstocking these counterfeits. However, our action against retailers has not led to theconfiscation of great quantities of counterfeits. When we started our raids, otherretailers learned of this and started to hide their counterfeit products.

Our investigations confirmed that at least one of the suppliers of the counterfeit productswas in the UAE. We are currently investigating this lead but with little success.

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Yemen:Case: Pert, Head & Shoulders and Pantenecounterfeitse .

Court Action: pending.

Source of counterfeits: Unknown.

Major learnings.

Our extensive experience with counterfeits has led us to the following conclusions

Big business:Counterfeiting is a very lucrative business involving multi-million dollar deals.For example, we once tried to set-up a trap for a supplier of counterfeit products in theUAE. This supplier informed us that the minimum order he would accept isapproximately US$ 300,000.

Catch the Big Fish:The persons who are involved in selling and delivering the counterfeits to customers,whether wholesalers or retailers, are the lowest ranking officials in a chain of commandleading to powerful businessmen. Therefore, any traps we set-up only lead to the arrestof culprits at the bottom of the chain; any real solution to the counterfeiting problemshould involve going up that chain and eradicating the first and lead source of theproblem.

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Major learnings.

This illegal activity is run by violent and well organized criminals. For example, when agroup of Indian nationals were caught dealing with counterfeit products in the UAE, oneof the group was heard shouting to his colleagues not to provide the name of the manbehind the operation; he threatened his colleagues that, if they did so, their families inIndia would be hurt.

Excellent action by Authorities in setting up, Traps & Raids:In our experience in all of the above-mentioned countries (Saudi Arabia, Yemen, UAEand Lebanon), we founded that the Authorities act very quickly when we or others tipthem off to the presence of counterfeits in particular stores or at the port, or when wealert them of impending trade transactions involving counterfeits. In such cases, theAuthorities can move speedily towards seizing the counterfeit products on site and wehave benefited from such swift action by the Government in cases involving counterfeitsof our products in the UAE, Saudi Arabia, Lebanon, to mention a few of the countries inwhich we had to face this problem.

We thank the Authorities for all this great effort.

Major learnings.

Investigate the Source:There needs to be greater follow-up after the initial stage of raids and confiscation of theproducts. In order to eradicate the problem of counterfeiting, the Authorities must actagainst the real source of counterfeits in the region. Once the stores are raided and thelow-ranking dealers are arrested, there must be a very serious interrogation of theseculprits, so that they lead us to the businessmen behind this operation and the factoriesmanufacturing these products.

Harsher Punishment:There must be greater punishment, in terms of heavy monetary fines and long prisonsentences, against wrong-doers.

So far, we have only seen fines of maximum US$ 20,000 (sometimes only US$ t ,000)and maximum prison sentences of one month. these sentences are way too light. Thegreatest deterrent for all those dealing in this illegal trade is harsh punishment.

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Major learnings.

Regional Cooperation:We need to fight counterfeits on a regional basis. There needs to be greater coordinationbetween the different countries in the struggle against counterfeits.

In nearly all counterfeit cases we have dealt with so far, we have found links in othercountries in the region. For example, the Yemen shampoo counterfeits lead us to apotential source in the DAE, the counterfeit PERT seized in May in Saudi came from theDAE, etc.

One idea to enhance cooperation: a quarterly letter in which each country's concerned·authority can summarize its actions on counterfeits within the last quarter. This letterwould then be circulated to all concerned Authorities in each country.

The Element of Surprise:The element of secrecy is of paramount importance. We and the Authorities should onlyact after we gather enough information on all retailers and dealers in the counterfeitproducts.

Major learnings.

Companies & Governments Must Work Together:We must intensify joint efforts by companies facing counterfeit problems and theconcerned Government Authorities.

A success model for this has been the recent establishment in Saudi Arabia of the Anti­Counterfeit Awareness Committee (ACAC). This committee includes a total of 16local and multinational companies operating in Saudi Arabia, including P&G, Unilever,Nestle, Johnson & Johnson, and Mohammad AI-Saad, AI-Ajlan.

This committee is working under the patronage of the Jeddah Chamber of Commerceand Industry.

The Committee is committed to act jointly with "local Authorities to safeguard localconsumers against deception caused by counterfeits and to stop counterfeit activities thatparalyze economic growth and reflect negatively on the reputation of the SaudiIndustry".

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Major learnings.

In its first few month ACAC, has achieved the following:

1. Established with the Jeddah Chamber of Commerce a hotline number for people tocall to give information about counterfeiting operations..

2. Agreed with the Head of the Ministry of Commerce in Jeddah to intensify the searchfor and raids on counterfeiters by increasing the number of Ministry of Commerceinspectors (add 3 to 4 more inspectors to the existing team of 9 people).

3. Work with the Saudi Arabia Standards Organization (SASO) to speed up thenecessary tests needed to identify counterfeit products and to issue certificates on thecomparison of counterfeits vs. original products to help the concerned Authorities takethe necessary action against those involved in counterfeit activities.

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Conclusion

Good start by the Authorities in fighting the surge of counterfeits.

Improvement needed in providing greater follow-up and harsher punishment ofoffenders.

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