Counterfeit products in Latvia: problems and prospects

/Tikai angļu valodā/

Latvia became an independent state in 1991. A new, post-Soviet, trade mark law appeared soon after, in 1993. Quite recently, on June 16, 1999, a revised trade mark law was passed.

This new law contains various amendments, which were added in order to harmonize Latvia’s legislation with the existing EC norms. The new law specifies that anyone using a trade mark must specify the exact scope and nature of its use (Articles 23 and 32). Thus nominal use of a trade mark becomes much more difficult.

The situation regarding the protection of intellectual property, including the fight against counterfeit product has improved on both the legal and practical fronts. Besides the new law, a set of regulations on measures of customs control for the protection of intellectual property has come into force. The regulations were passed by the Cabinet of Ministers. They increased the role of the state in the fight against counterfeit products.

The struggle against counterfeiting
Most counterfeit products circulating in the Latvian market are manufactured outside of Latvia. However, there are some counterfeit products that have been produced in Latvia. Usually those are products destined for mass consumption to be sold at small retail outlets and markets. For example, the Latvian authorities succeeded in discovering and liquidating the production sites of counterfeit Lipton tea and Jacobs coffee.

Such occurrences are, however, exceptional, as most of the counterfeit products found in Latvia are of foreign origin. Offshore companies are often used to import counterfeit products into the country, of which a great proportion are destined for shipment further eastward – to CIS countries. Latvia’s well-developed infrastructure (convenient ports, railways, automobile and air transport) and advanced service industry make it a favored transit point for such illegal activities.

In Latvia, foreign sports and food items designated for mass consumption are the counterfeit products most frequently seen on the market. These are usually copies of original products that have become popular due to their high quality or as a result of successful marketing campaigns. Such counterfeit products can be sold quickly at a market places and small retail outlets, and usually stand out by their low price – approximately half that of the original.

Initially, the sale of counterfeit products at market places and small retail outlets in Latvia was of little concern for the distributors of the original products. However, the decrease in consumer purchasing power and the increase in advertising costs during the early 1990’s placed the sale of counterfeit products at the forefront of legitimate manufacturers’ concerns.

There are two principal reasons for this. First, those consumers who purchase a counterfeit product will rarely then return to the original, particularly if it is twice as expensive as its counterfeit copy. Secondly, the widespread sale of poor quality counterfeit products eventually begins to hurt the reputation of the original product and its retailers.

How to combat the counterfeits?
Both local and foreign entrepreneurs must face this question sooner or later. Latvian entrepreneurs themselves have made sporadic and loosely organized attempt to solve this problem but with no success. Attempts to emulate anti-counterfeiting activities in other countries did not give satisfactory results either.

The fight against counterfeiting products requires the active participation of local specialists in the protection of intellectual property, who must work together with official authorities. A strategy must also be worked out to deal with each individual case, as the conditions and client interests vary for each product. In this regard, it is important to acquire the basic facts concerning each case. Along with purely criminal importation and distribution of counterfeit products, the problem of so-called grey markets and parallel import has arisen. The situation becomes more complicated as counterfeit products are often sold together with the original, legally documented, products.

There are usually several strategic directions in the struggle against counterfeiting products.

First, measures against the producers of counterfeit products. This is a very effective strategy if the producer can be found, as evidenced by the Lipton, Dilmah and Jacobs cases in Latvia. There are two buts, however. First, this particular strategy requires considerable expense in the acquisition of operational information, as the production facilities in question operate clandestinely. And even if such clandestine operations are successfully liquidated, it is not always possible to arrest the principal organizers. Secondly, the production units of counterfeit products are usually located outside of Latvia.

Second, the struggle against the importers of counterfeit products at the Latvian border is currently a favored strategy. In this way, the influx of counterfeit products into Latvia is curtailed at a relatively low cost. This strategy still requires special training of customs officials, as smuggled goods are nor found frequently. Most often counterfeit products are brought in under a different registration code, or are designated as transit goods. A negative consequence of such measures is that the importers of counterfeit products then seek other border crossing through which to conduct their illegal business, or else curb their operations, but only temporarily.

Third, the struggle against wholesale and retail distributors of counterfeit products. Although, this strategy requires a long-term investment, it also provides long-term benefits.

The use of customs officials
In accordance with the Cabinet of Ministers’ Directives and instructions of the head of the Principal Customs Directorate, customs offices have shed their passive stance and become active state tools in the struggle against pirate and counterfeiting products.

Customs offices have the right to investigate independently the nature of an imported shipment in order to determine whether or not it is counterfeit. If a customs office has reasonable doubts about the legal origin of a particular shipment, then the shipment is detained until its origin is firmly established or until a court decision is passed.

The trade mark owner must be informed of the detention of a suspected shipment within two days and may request its continued detention within 10 days. During this time, the trade mark owner has the right to request product samples from the suspected shipment in order to determine whether they are genuine or counterfeit. If the trade mark owner is not known, or if he does not request further detention of the suspected shipment, then the Latvian customs authorities must decide its further course. For this reason, it is essential for the Latvian customs authorities to know the co-ordinates of the trade mark owner’s contact person in order to carry out the required formalities as quickly as possible.

Within three days after being informed in writing about the detention of a suspected counterfeit shipment by the Latvian customs authorities, the trade mark owner or his representative must provide relevant customs officials with documents attesting that the trade mark owner has made a request to the Latvian court authorities extend the detention period.

If this request has been properly formulated, then customs officials may detain the suspected shipment for up to 10 days in accordance with a court decision to this effect. The court must assign a person responsible for overseeing the storage of the shipment. In such cases, it is prudent to keep the shipment in Latvian customs storage facilities, as the detained products remain to be cleared by customs authorities. During this time the trade mark owner must cover the detained shipment’s storage costs, which will then be reimbursed by the guilty party should be shipment’s contents prove to be counterfeit.

The Cabinet of Ministers’ Directive also permit trade mark owners or their representatives to request that Latvian customs authorities pay particular attention to the possible influx of counterfeit products at a given border crossing, or simultaneously at all customs posts. This request must be accompanied by relevant documentation of legitimate trade mark ownership and descriptions of both the original product and its counterfeit copy. If a product shipment is detained in accordance with the Cabinet of Ministers directives following a proper request of a trade mark owner, and this detailed shipment is found not containing counterfeit or pirate products, then the trade mark owner must cover the following expenses:
1. Damages occurring to other parties as a result of the detention.
2. The cost of storage of the detained shipment by the Latvian customs authorities.

As is evident from above, new laws and new administrative structures are being involved in the fight against counterfeiting and pirating goods in Latvia. And we hope that this anti-counterfeiting activity will force out the money circulating in underground businesses into legal production of genuine goods of a European quality, the goods with which Latvia would enter Europe.