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Today I read a paper in the latest IP Forum Magazine on ‘Trade Mark Counterfeiting – the Australian Problem’, by Corrs partner Stephen Stern. I read it in part because just recently, Australia decided to join the negotiations on the Anti-Counterfeiting Trade Agreement (ACTA) (which I’ve discussed here and here). Stern’s article is an interesting read; some of the discussion of ‘counterfeiter techniques’ in particular was interesting. As you can imagine, given that Stephen acts for brand owners, and given the title, the article was in part a plea for movement from the government – a plea, in short, for law reform.

What struck me, however, was the vagueness of the call for reform. And in the general spray of bullets that are the kinds of reforms he discusses, I think there’s some danger of collateral damage.

Let’s look more closely at those arguments.

First, on the basis that actual loss or damage is hard to prove against counterfeiters who do not keep detailed financial records of their sales, Stern argues that

Clearly, Australia needs legislative change to entitle brand owners to statutory, punitive or additional damages against counterfeiters, and a system that makes such damages high enough to serve as a real deterrent.

That’s all very well. But let’s think about it a bit more:

1. There is a significant difference between statutory damages and punitive or additional damages. Statutory damages ‘pre-set’ the amount of damages payable. Statutory damages (in US copyright law) is why Jammie Thomas was fined US$220,000 dollars on the basis of proof that she had made available 24 songs online (although note, the Industry said she didn’t just share 24, but 1709 songs). Punitive or additional damages are much more ‘at large’ – they allow a court to reach some kind of judgment as to the level of damages that should be awarded owing to the flagrancy of the damages awarded. Additional damages cannot presently be ordered under the Trade Marks Act. They can be ordered for copyright infringement under Australian law, and sometimes these orders are quite significant.¹ So should we have statutory damages, or additional damages? I would have said, in keeping with other areas of Australian law, additional damages would be the way to go, for reasons outlined in the next point.
2. Stern’s quote suggests that the statutory or additional damages should be against counterfeiters. But earlier in the article he specifically notes that the term ‘counterfeiting’ is not defined in any legislation. Is he proposing a counterfeit-specific regime, or a general one? If counterfeit-specific, how would he propose to define the scope of the regime?^{2 3} If general, I really hope he is thinking additional damages, because I’d hate to see trade mark owners able to simply elect for some pre-determined amount of damages in lieu of proving damage. I mean, imagine it. Cadbury gets its ‘purple’ trade mark, and sues some poor unfortunate chocolate maker for using the wrong purple. We’ve established a statutory damages system for trade mark. Cadbury rather than proving the minuscule amount of damage from the 3 people who thought they were buying Cadbury’s chocolate, elects for statutory damages for the 1,000 chocolates sold with the wrong colour. Ick.
3. Just what kind of ‘system’ for making sure the damages are sufficient to be a deterrent is Stern suggesting? Limiting the discretion of the court in determining awards? Guideline judgments perhaps? (remember, they were rejected a few years ago in the government’s response to the copycats report). Are we going to send nasty notes to the judges if the awards are not deemed ‘high enough’? Are we going to make the courts report the level of damages awards…? The mind boggles.

Don’t get me wrong – I don’t necessarily disagree with Stern that better remedies provisions are required here: trade mark law has languished in copyright’s shadow to a significant extent (we even have additional damages in patent now). However, vague calls like this don’t help: it is actually harder to put these principles into law than Stern acknowledges in his paper.

And the danger here is one I’ve complained about in copyright: overbroad laws designed to get the ‘guys at the market’ but which end up covering many much less malign behaviour. Overbroad laws enable selective enforcement. Selective enforcement is bad. So it’s not enough to make broad calls for tougher laws. It is incumbent on people reasonably discussing such laws to identify their prospective scope – and outline how we can ensure the laws are appropriately targeted.

A second claim that Stern makes is that:

…the costs of obtaining an Anton Piller Order, including the need to have an independent solicitor supervise the execution of the Order and to prepare a report for the court, become prohibitive and make the process useless apart from actions in respect of the biggest and most serious of cases.

In this respect, we get even more vague. Stern makes no proposal for how this issue might be dealt with. I have to confess my gut instinct is that these things should be expensive, because they involve a significant incursion – I mean, we are talking search warrants here: people turning up on your doorstep with the right to search for stuff on your premises and take stuff away. Shouldn’t such things be kept for ‘the biggest and most serious of cases’? If not, just what is proposed? The ability to walk in and immediately seize material without police doing the seizing? Remember that that proposal went down when put to Europe in the context of their IP enforcement directive.

Stern also states that:

Certainly the Trade Marks Act 1995 does not contemplate the large-scale problem of the sale of counterfeits on the Internet, nor the facilitation by landlords (such as market landlords or the landlords of large shopping malls) of the sale of counterfeit products by their tenants.

Do you feel a ‘third party liability’ argument coming on? This sounds like a suggestion that trade mark owners should have extensive rights of ‘notice and takedown’ online, the way copyright owners do, and that market operators should be held liable for the activities of people at markets. As to notice and takedown – all I can say is that I’m starting to feel almost sorry for ISPs – if brand owners get their way, it could be that censorship rules, and copyright rules were just the start. The further we push this, the more ISPs start to look like the general police. As for market operators – well, there’s an argument that in some cases they should be liable, but again – the hinting is so vague here. What I would want to see was a very clear delineation of the scope of the proposed liability, which I would hope would be confined to circumstances where it could be shown that the market operators were operating with something like contumelious disregard of the interests of IP owners.

Don’t get me wrong, I enjoyed reading Stephen’s article. and I’m sure he has answers to some of these questions – answers that you don’t put in IP Forum because it would make the article too long. But these are real issues, and if we are ever going to be serious about law reform here, I’d want to see a lot more information.

I should also say that I’m actually pretty sympathetic to the interests of IP owners against the nasty counterfeiters. Counterfeiters themselves I have no sympathy for.

But I do have sympathy for those caught in the crossfire of this battle: other trade mark infringers who might face laws that suddenly become overbroad and remarkably tough; or ISPs and other third parties on whom the cost of some policing might be placed. In the interests of protecting everyone else, therefore, from becoming collateral damage in this fight, I want to see details. And a serious attempt to target any proposed tougher laws.

Footnote 1: For examples of additional damages awards in copyright, see: Autodesk Australia Pty Ltd v Cheung (1990) 17 IPR 69: compensatory damages $15,000, additional damages $35,000; Namol Pty Ltd v AW Baulderstone Pty Ltd [1993] FCA 486 (affirmed Bailey v Namol Pty Ltd [1994] FCA 1401): compensatory damages $350,000, additional damages $150,000; Milpurrurru v Indofurn Pty Ltd (1994) 54 FCR 240: compensatory damages $120,000, additional damages $70,000 (approx); Microsoft Corporation v Goodview Electronics Pty Ltd (2000) 49 IPR 578: compensatory damages $625,034.80, additional damages $500,000; Microsoft Corporation v Atifo Pty Ltd (1997) 38 IPR 643: compensatory damages $24,000, additional damages $20,000; Microsoft Corporation v Glostar Pty Ltd (2003) 57 IPR 518: compensatory damages $4,375, additional damages $291,625; Microsoft Corporation v Ezy Loans (2004) 63 IPR 54: compensatory damages $240,625, additional damages $350,000; Microsoft Corporation v TYN Electronics Pty Limited (in liq) (2004) 63 IPR 137: compensatory damages of $386,000, and awards of additional damages of $300,000 against the corporate respondent and $400,000 against the individual respondent; Microsoft Corporation v PC Club Australia Pty Ltd [2005] FCA 1522: compensatory damages of US$188,950, additional damages of $780,000 (split between four different respondents).
Footnote 2: Of course, one option for defining the scope of a counterfeit-specific regime would be to simply say it is confined to cases of ‘counterfeiting’. Leave the courts to work out what counts as counterfeiting. Actually, that’s not as strange as it sounds at all. Let’s face it. Counterfeiting kind of is a ‘know it when you see it’ phenomenon…
Footnote 3:Someone shoot me I’ve started to put footnotes in blogposts…