PHILIPPINES
By
Rico V. Domingo, Esq.
Sales of Counterfeits Online: Who is Liable and What Remedies
Legal and Administrative are Available Against Them?
Brief Introduction
A market may be considered an interaction mechanism where the
participants establish deals (trades) to exchange goods and services for
monetary payments (i.e., quantities of standard currency). 1 With the advent of
interconnection and increased data transfer capability, the digitalization of the
marketplace is hardly unexpected.
Online trading activities are carried out in places such as the following:
1.
2.
3.
4.
5.
Business-to-business (B2B) trade boards and exchanges2
Auction sites3
E-commerce websites4
Pay-per-click and paid placement advertisements5
E-mail solicitation6
The online environment is particularly conducive to auctions due to at
least two important properties of the electronic medium:
1.
2.
The network supports inexpensive, wide-area,
communication7;
Auction-mediated negotiation is automated8.
dynamic
Wellman, Chapter 1: “Online Marketplaces”, in Practical Handbook of Internet Computing, M.P. Singh,
ed. (CRC Press LLC: 2004) p. 5, available at http://ai.eecs.umich.edu/people/wellman/pubs/phic04.pdf
2
“Gain Control Over the Vast Unknown: Curtailing Distribution of Counterfeit and Gray Market Goods”,
Market Monitor White Paper (September 2007), p.3, at http://www.markmonitor.com/download/wp/wpgaincontrol.pdf.
3
Ibid.
4
Ibid.
5
Ibid.
6
Ibid.
7
Online Marketplaces, id, at p. 7.
8
Id.
1
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Anti-Counterfeiting Committee
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Unfortunately, the rise of the digital marketplace has also provided
counterfeiters with non-traditional and more far-reaching channels within which to
peddle their wares.
Music, video and software pirates used to be the counterfeiting big shots
in the heyday of file-sharing networks such as Audiogalaxy, Napster and
Grokster. Nowadays, however, the faking of goods is no longer limited to luxury
goods and apparel related products.9
The Fraudster10 Effect
The International Anti-Counterfeiting Coalition (IACC) stated in a white
paper it released in 2005 that “On a more sophisticated and organized level,
counterfeiters and pirates are also trading on names and logos often associated
with products like razor blades, shampoos, pharmaceuticals, foods, hand tools,
auto parts, airline parts, light bulbs, film, skin lotions, laundry detergent, bandaids, insecticides, batteries, cigarettes and practically anything else that bears a
name that consumers recognize.”11
According to Gieschen Consultancy’s 2006 Counterfeit and Piracy
Intelligence Report, global online sales account for fourteen percent (14%) of the
total counterfeit trade for the period covered by the report.12
The listings on eBay and other online auction sites are as varied as the
persons who transact on the site. On eBay, for example, product categories
include “Antiques”, “Art”, “Books”, “Business & Industrial”, “Cameras & Photos”,
“Cars, Boats, Vehicles & Parts”, “Computers & Networking”, “Consumer
Electronics”, “DVDs & Movies”, “Jewelry & Watches”, “Music”, “Video Games”,
“Real Estate” and even “Everything Else”.
Philippines-based and Philippine Securities and Exchange Commission
(SEC)- registered Auction.ph provides the following “tags” for the items that are
International Anti-Counterfeiting Coalition (IACC) White Paper: “The Negative Consequences of
Intellectual Property Theft: Economic Harm, Threats to the Public Health and Safety, and Links to
Organized Crime and Terrorist Organizations”, p. 2 [January 2005]. http://www.iacc.org
10
Term used in “Gain Control Over the Vast Unknown: Curtailing Distribution of Counterfeit and Gray
Market Goods”, Market Monitor White Paper (September 2007), supra.
11
Ibid, pp. 2-3.
12
“Gain Control Over the Vast Unknown”, supra note 2 at p. 2.
9
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---------------------------------------------------------put up for auction or sale in its site: “Appliances”, “Books/Music/Instruments”,
“Car Equipment”, “CellPhones”, “Computers/Accessories”, “Furniture”, “Sports &
Leisure”, “Infants/Babies”.
Dove, Olay, L’Oreal, Neutrogena and other personal care items are sold in
individual pieces or in multi-piece lots. Mobile phones and accessories share
pride of place with computer games, software, and other electronic wonders
while bags, shoes and clothing bearing exclusive marks are suddenly available at
prices as low as a tenth of what the genuine items would cost.
Legal 500 points out that the top five (5) most counterfeited brands in the
world are Nike, Microsoft, Louis Vuitton, Adidas and Prada, and that the internet
now accounts for around thirteen percent (13%) of incidents when counterfeit
and pirated goods are sold. 13 Pharmaceutical products have also alarmingly
jumped up the must-have-stocks list of counterfeiters.
The internet's anonymity and global nature make it an ideal medium for
dealing in counterfeit goods.14 However, it is exactly these characteristics which
make it so hard to protect against internet counterfeiting and enforce trade mark
and other rights against those who choose to infringe in this way. 15
The same Legal 500 report that enumerated the top five (5) counterfeiters’
delights also points out the features that attract infringers to online marketplaces
like bees to honey:
1.
2.
3.
Counterfeiters can sell fake products by using retail websites with
domain names that mimic or incorporate third-party trade marks or
branding, or by making false claims of association or affiliation;16
Established auction sites such as eBay provide instant 24-hour
access so that their large consumer base can shop regardless of
their geographical location;17
The prospect of “bargain” purchases18; and
“Faking it: Internet Counterfeiting Knows no Bounds”, Field Fisher Waterhouse (March 2007) at
http://www.legal500.com/index.php?option=com_content&task=view&id=2874&Itemid=93
14
Ibid.
15
Ibid.
16
Ibid.
17
Ibid.
18
Ibid.
13
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4.
Counterfeiters can share information and conclude deals within
relatively unregulated arenas, such as chat rooms and message
boards.19
Significant threats posed by thriving counterfeit markets to stakeholders
include the following:
1.
2.
3.
4.
Unemployment;20
Price/margin erosion leading to reduced values for distributors and
retailers, as well as warranty issues for products they did not place
in the channels of commerce;21
Unrealized duties and tax revenues22; and
Health and safety risks.23
Searching for a Remedy
Counterfeiting is a very lucrative trade for the infringers of intellectual
property, and online profits alone reportedly nearly reached $100 billion in
2006.24
Since the counterfeiters’ gain is the right holders’ loss, it is no wonder that
legitimate manufacturers and distributors, not to mention intellectual property
owners, are becoming quite vocal in condemning the growing online trade of
fakes and gray market products.
Tiffany & Co., Inc. sued online auction giant eBay in 2004, alleging that it
had failed to control the trade of counterfeits in its forums. Other companies such
as Louis Vuitton and Christian Dior have joined Tiffany’s call to hold the site liable
for infringing activity in the past three years, but no ruling has been handed down
to determine if eBay is liable for the sale of counterfeit goods on its site.
The auction site continuously denies liability for counterfeiters’ trade, but in
2006 it reportedly unveiled its Verified Rights Owner (VeRO) programme that
touts the following safeguards:
19
Ibid.
“Gain Control Over the Vast Unknown”, supra note 2 at p. 4.
21
Ibid.
22
Ibid.
23
Ibid.
24
Ibid.
20
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Anti-Counterfeiting Committee
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1. Sellers who list items falling under eBay’s anti-counterfeiting list must
become PayPal verified.25
2. eBay will conduct manual “seller reviews” for sellers who list items
covered by the said anti-counterfeiting list.26
3. eBay will ban 1-day and 3-day auctions of all items on its anticounterfeiting list to allow eBay members and rights-holders enough time
to review items.27
4. eBay will restrict cross-border trade on items on its anti-counterfeiting
list.28
Only the intellectual property rights owner can report potentially infringing
items or listings through eBay's VeRO Programme. 29 The auction giant’s
Philippines-specific sub-site eBay.ph says, however, that “If you are not the
intellectual property rights owner, you can still help by getting in touch with the
rights owner and encouraging them to contact us.”30
eBay.ph also expressly restricts or prohibits the sale on the site of the
following items:
1. Replica, counterfeit items and unauthorised copies
2. Celebrity material including faces, names and signatures, and autographs
3. Media - movie prints (35 mm, 70 mm), bootleg recordings, recordable
media, promotional copies and digitally delivered goods.
4. Software including academic software, beta software, OEM software
5. Equipment that would support unauthorised copies including mod chips,
game enhancers, and boot discs and hardware or software that would
enable members to duplicate copy-protected material.
“eBay Rolls Out Initiatives to Fight Counterfeits” by Ina Steiner, AuctionBytes News Flash Number
1421, 29 November 2006 at http://www.auctionbytes.com/cab/abn/y06/m11/i29/s01
26
Ibid.
27
Ibid.
28
Ibid.
29
http://pages.ebay.ph/help/policies/intellectual-property-ov.html
30
Ibid.
25
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Anti-Counterfeiting Committee
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The biggest stumbling block for the quest to remedy this online malady is
the nature of the internet. Decentralization is a defining characteristic of the
Internet, and no State or any single entity is capable of playing its overseer.31
Jurisdiction is also an issue that must be contended with in deciding who
can hold whom liable for what act in internet-based transactions. Legislative
jurisdiction refers to a State’s power to regulate or control, through laws, interests
of persons in things, events or situations. 32 Judicial jurisdiction, on the other
hand, refers to a State’s courts’ authority to hear and adjudicate cases.33
A State’s jurisdiction is traditionally tied to its territory, and its laws have
no operation outside said territory. 34 But the lines tend to blur where transactions
are cross-border, multi-jurisdictional and possibly multi-party.
In the Philippines, online sales transactions may, depending on the details
of the transaction, be covered by the following laws:
1.
2.
3.
4.
Republic Act No. 8792 (E-Commerce Act of 2000)
Republic Act No. 8293 (Intellectual Property Code)
Republic Act No. 7394 (Consumer Welfare Act)
Civil Code Provisions on sales, torts and damages
For example, Section 33 of the E-Commerce Act of 2000 penalizes the
following acts with fine and/or imprisonment:
(a) Hacking or cracking which refers to unauthorized access into or
interference in a computer system/server or information and
communication system; or any access in order to corrupt, alter,
steal, or destroy using a computer or other similar information and
communication devices, without the knowledge and consent of the
owner of the computer or information and communications system,
including the introduction of computer viruses and the like, resulting
in the corruption, destruction, alteration, theft or loss of electronic
data messages or electronic document shall be punished by a
OSCAR FRANKLIN B. TAN, “THE INTERNATIONAL SHOE STILL FITS THE VIRTUAL FOOT:
A DUE PROCESS FRAMEWORK FOR PHILIPPINE INTERNET PERSONAL JURISDICTION
PROBLEMS”, 79 Phil. L. J. 1036 [2005].
32
Tan, ibid at 1043.
33
Tan, Ibid, citing JOVITO SALONGA, PRIVATE INTERNATIONAL LAW 46 (1995).
34
Pennoyer v. Neff, 95 U.S. 714 (1877)
31
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minimum fine of one hundred thousand pesos (P100,000.00) and a
maximum commensurate to the damage incurred and a mandatory
imprisonment of six (6) months to three (3) years;
(b) Piracy or the unauthorized copying, reproduction, dissemination,
distribution, importation, use, removal, alteration, substitution,
modification, storage, uploading, downloading, communication,
making available to the public, or broadcasting of protected
material, electronic signature or copyrighted works including legally
protected sound recordings or phonograms or information material
on protected works, through the use of telecommunication
networks, such as, but not limited to, the internet, in a manner that
infringes intellectual property rights shall be punished by a
minimum fine of one hundred thousand pesos (P100,000.00) and a
maximum commensurate to the damage incurred and a mandatory
imprisonment of six (6) months to three (3) years;
(c) Violations of the Consumer Act or Republic Act No. 7394 and
other relevant or pertinent laws through transactions covered by or
using electronic data messages or electronic documents, shall be
penalized with the same penalties as provided in those laws;
(d) Other violations of the provisions of this Act, shall be penalized
with a maximum penalty of one million pesos (P1,000,000.00) or six
(6) years imprisonment.
The Consumer Act of the Philippines aims to protect the interests of the
consumer, promote his general welfare and establish standards of conduct for
business and industry. 35 In line with this, the law has the following objectives:
(a) protection against hazards to health and safety;36
(b) protection against deceptive, unfair and unconscionable sales acts and
practices; 37
(c) provision of information and education to facilitate sound choice and
35
Republic Act No. 7394, as amended, Art. 2.
Ibid.
37
Ibid.
36
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---------------------------------------------------------the proper exercise of rights by the consumer;38
(d) provision of adequate rights and means of redress;39 and
(e) involvement of consumer representatives in the formulation of social
and economic policies.40
The Consumer Act also defines counterfeit products as any consumer
product which, or the container or labeling of which, without authorization, bears
the trademark, trade name, or other identifying mark, imprint, or device, or any
likeness thereof, of a consumer product manufacturer, processor, packer,
distributor, other than the person or persons who in fact manufactured,
processed, packed or distributed such product and which thereby falsely purports
or is represented to be the product of, or to have been packed or distributed by
such consumer product manufacturer, processor, packer, or distributor. 41
While the Department of Health, Department of Agriculture and the
Department of Trade and Industry are empowered to establish consumer product
quality and safety standards under such law, the extent of the authority such
agencies have over online markets is not clear, particularly where one or more of
the parties are not within the country’s territorial jurisdiction.
Internal regulation of online marketplaces
Online marketplaces such as eBay and Auction.ph have internal
regulatory mechanisms of their own that may aid in reducing counterfeit sales.
Internal regulatory mechanisms usually take the forms of:
1.
2.
3.
Feedback mechanisms
Take down options
Suspension or cancellation of user accounts
Under the User Agreement for Auction.ph, a member may be suspended
for transacting prohibited items. Article 20 of the User Agreement also
enumerates the items that are considered unsuitable for posting on Auction.ph.
Among the things that may not be posted for auction or sale on the site are those
items which
38
Ibid.
Ibid.
40
Ibid.
41
Consumer Act, Art. 4(v).
39
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1. Are illegal, against public order, moral or public policy, or which tends or
aims to violate any law, public order or morals,
2. Violate other people’s right like patent, trademark right, design right and
utility model patent, etc.
Pursuant to Article 20, paragraph number 7 of the same User Agreement,
Auction.ph also can suspend the auction or sale temporarily with notice to the
seller who registered the item/s, when a person in authority requests to stop the
auction or sale.
Auction.ph cannot investigate the legality, the validity, practical relation,
the subject and any agreement of the rights and shall have no responsibility in
the cancellation, deletion and temporary suspension of auction or sale resulting
from such case. The Company only has the responsibility to investigate the
documents presented by the requesting person in authority as well as his
identity, which should coincide with the Agreement and Policies set forth herein.
Article 30 of the User Agreement also explicitly states the governing laws for
the site. It provides that the User Agreement between Auction.ph and its
members is governed by the E-Commerce Law and other related laws of the
Philippines. The terms in the User Agreement are also to be interpreted in
accordance with the laws of the Philippines.
Online feedback mechanisms, on the other hand, harness the bidirectional communication capabilities of the Internet in order to engineer largescale word-of- mouth networks.42 Perhaps the best-known application of online
feedback mechanisms to date has been their use as a technology for building
trust in electronic markets.43
The eBay feedback mechanism allows members to leave on of three (3)
kinds of feedback for other members: Positive, Negative and Neutral. Auction.ph
also allows feedback. Feedback, according to the Help Section of the site, is
made up of comments and ratings left by other members a member may have
42
Dellarocas, Chrysanthos N., "The Digitization of Word-of-Mouth: Promise and Challenges of
Online Feedback Mechanisms" (March 2003). MIT Sloan Working Paper No. 4296-03. Available
at SSRN: http://ssrn.com/abstract=393042 or DOI: 10.2139/ssrn.393042; also, Dellarocas,
Chrysanthos N. “The digitalization of word-of-mouth: Promises and challenges of online feedback
mechanisms” in Management Science (2003).
43 Ibid.
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---------------------------------------------------------transacted with. 44 These comments and ratings are very important as they
represent the recipient’s reputation as a seller of Auction.ph.45
Once a feedback has been made, it cannot be retracted and members
with higher positive feedback are perceived to be more trustworthy than those
with negative feedback.
Online auction sites and other forms of online marketplaces also usually
provide for the suspension, or even termination of user accounts that violate their
user policies.
44
45
http://www.auction.ph/index.php?module=Help&action=QnA&cid=150&qid=81
Ibid.