Nissan’s lessons from the Middle East

May 30 2012

Riki Kishimoto gives his recommendations for trade mark enforcement in Dubai and Saudi Arabia, including working with Customs, police and local investigation agencies

One-minute read

A large volume of the world’s counterfeit products come from China through Dubai or other markets in the Middle East. Although free trade zones make enforcement difficult, effective cooperation with the police and Customs officials can make a big difference. Trade mark awareness programmes in Saudi Arabia, for example, can lead to very effective enforcement despite the country’s scattered Customs offices. This article contains details on the enforcement procedures in Saudi and Dubai, as well as the author’s personal experiences of working in both countries while attempting to crack down on trade mark-infringing products on behalf of Nissan.

Dubai is unique among its neighbours in constructing an economy that does not depend on oil. In fact, more than 95% of its GDP comes from the non-oil sector. This is the result of the pioneering economic policies of the Dubai government that has constructed a land, sea, and air infrastructure including free trade zones.

The Jebel Ali Free Trade Zone is now one of the world's biggest. Here, products are quickly exported and imported without being subject to Customs law. Cargo is not strictly regulated and products can also be easily produced and stored in warehouses. In such an environment, counterfeit products from China can be easily brought in, where they can be reworked and repackaged before being loaded onto other vessels and sent to countries around the world. Twenty-three per cent of the value of goods imported into Dubai are from China.

Importantly, out of the three largest countries in the MENA region, Egypt, Turkey, and Iran, with a combined population of 70 million, the only one that is a major export destination for Dubai is Iran. Rather than ranging from the countries west of the Red Sea to the Mediterranean, exports from Dubai form large trade routes in the directions of the Persian Gulf region and India.

According to Dubai Customs, several thousand containers are transported into Dubai each day, and counterfeit products that escape inspection circulate widely in the UAE market. This holds true for the six other emirates in the UAE. There are generally no inspections at the borders between the emirates, ensuring a free flow of goods. As a result, products imported from the Free Zone tend to be stored in warehouses built in areas that are closer to active markets and where land prices are lower. In particular, many counterfeit products have been found in the markets and warehouses of the emirate of Sharjah, where there is a large industrial zone.

I have spent several years working to combat counterfeit products in the region while working at Nissan Motor Company. Below are my, strictly personal, recommendations.

Target the UAE and Saudi Arabia

Possible measures to combat counterfeit products in the Middle East include enforcement by Customs agencies at the borders and enforcement by the police and other agencies in the markets. Measures could be particularly effective given that the six oil-producing nations that are members of the Gulf Cooperation Council (GCC) – the UAE, Saudi Arabia, Kuwait, Bahrain, Qatar, and Oman – are signatories to the TRIPs Agreement.

Among those, the best prospects are the very internationalised UAE, where there is a high awareness of IP protection and consumer protection, and Saudi Arabia, where religious declarations (fatwa) have been issued in heavily Islamic areas declaring activities involving counterfeit products to be illegal. Agencies in Saudi are actively cracking down on counterfeit products both at the borders and in the markets. As a result, these countries are the most likely for an effective crackdown on counterfeit products in the Middle East.

Best practice with Customs

Comparatively effective seizures of counterfeit products can be expected in the UAE and Saudi Arabia.

The UAE is a non-binding federation of seven emirates. In addition to the most well-known emirate, Dubai, the other emirates are Abu Dhabi, which functions as the UAE capital, the Dubai commuter city of Sharjah, Fujairah, Ajman, Ras Al-Khaimah and Umm Al-Quwain. Each emirate has its own port that handles the large volume of cargo that passes through the UAE, and independent Customs agencies have been established to oversee each port. Border enforcement procedures at each emirate are carried out based on the unified Customs regulations of the Gulf Cooperation Council.

Among the seven emirates, only Dubai, Sharjah and Ras Al-Khaimah accept requests from companies for seizure of trade mark-infringing products in the form of recordation. The recordation procedures at Customs are relatively simple, and with a copy of the trade mark registration certificate issued by the UAE Trademark Office, the registration procedure can be completed in several weeks by a local representative without having to submit separate materials to demonstrate authenticity. After registration, if a Customs inspection discovers an infringement of the trade mark, the owner may request seizure of the infringing products. The owner does this by submitting an official seizure request together with the designated fee to Customs. No recordation system exists in the other emirates. However they seem prepared to carry out seizure as appropriate when provided with information about infringing products by the trade mark owner.

Saudi Arabia has approximately 30 Customs offices. The Saudi Arabia Department of Customs in the capital of Riyadh controls the Customs offices throughout the country. Unlike the UAE, Saudi Arabia does not have a recordation system for comprehensive import seizure. As such, all seizures are carried out by the official authorities ex-officio. For this reason, it is necessary to conduct regular activities to raise the profiles of companies and their trade marks. This can be accomplished through several methods such as authenticity-check training via local representatives at the Customs agency, and urging careful monitoring for suspicious trade mark products by Customs officials.

Because of Saudi Arabia's large size and because the important Customs offices are located across the country, training and other activities in general must be carried out individually at each office. However, when a large quantity of counterfeit products from overseas is found in the Saudi Arabian market, effort to increase awareness of trade marks among Customs officials located close to that market will result in a large possibility of relatively effective border enforcement. One advantage of seizure at the Saudi Arabian border is that, unlike Customs in the UAE, the trade mark owner is not required to pay a security deposit for seizures.

Effective seizure in the markets

Compared with the borders, enforcement in the markets is somewhat more complicated due to the wide range of offices and complex procedures. Despite these difficulties, a net should be spread over the widest area possible to effectively and efficiently seize infringing products that have slipped through the borders.

Counterfeit products can be found in several areas of the UAE market. Industrial products are found in the warehouses in the industrial zone of Sharjah and many shops surrounding them. Electronics and clothing sellers tend to be in areas where there are rows of shops run by individual operators, such as in the Deira and Satwa districts. Although there are many large shopping malls in Dubai, it is unusual to see counterfeit products in these. They contain shops selling well-known brands, and it is thought that there is effective lookout for counterfeits. The same can be said for the Dragon Mart in Dubai, the largest shopping mall in the Middle East specialising in products from China. When I visited this mall in January 2010, I found almost no counterfeit products that infringed on the trade marks of Japanese products.

When counterfeit products are found in a UAE market, the first option is to file a complaint with the police of that emirate for criminal prosecution. The police will complete the initial investigation and refer the case to the prosecutor's office within 48 hours. After investigating the case, and within 14 days after it was received, the prosecutor will decide whether to institute prosecution with the courts or not due to insufficient evidence. An official from the Dubai police interviewed in January of 2010 emphasised that because they have an economic crimes section prioritising cases of trade mark infringement, the Dubai police are capable of responding to such cases relatively quickly.

In particular, for cases of IP infringement that are judged to affect the safety and health of consumers, punishment including fines and imprisonment of the infringing party, or deportation of foreigners, can be imposed through the criminal courts. In most cases, first offenders are subject to a fine only; repeat offenders can have their sales licences revoked. In cases of particularly malevolent infringement, deportation or other harsh punishment may be applied even for first offences. When seizure is carried out by the Dubai police, the trade mark owner must bear the costs of storage until the counterfeit products are destroyed and also the costs involved with destroying them. To the extent of my knowledge, the same measures are required by the Sharjah and Ajman police.

In a recent case the Sharjah police, thanks to the good offices of the Sharjah Economic Development Department, did not require the trade mark owner to bear the costs of storing the infringing products during the time until criminal judgment was made. This might be due to the fact that the strong desire by the trade mark owner to be relieved from the burden of storage costs was well known by local representatives and by the Brand Protection Group, a non-profit organisation for combating counterfeit products. However, it seemed to be a temporary measure. Following this case, the police are taking the regular procedure of charging the trade mark owner for these costs.

The Department of Economic Development (DED or EDD), an enforcement agency, carries out administrative relief measures for trade mark infringements in the emirates of Abu Dhabi, Dubai, and Sharjah. Because this is in general an administrative agency, it does not have the authority to seize shops and warehouses as the police do, and is generally limited to the level of seizing counterfeit products sold at shops. The DED does not charge the trade mark owner for costs of storage. As a result, in cases when large space is not needed to store the infringing products and when it is not necessary to criminally punish the infringing party, requesting enforcement by the Department of Economic Development is likely to allow fast and cost-effective enforcement. To follow this recourse, a trade mark owner who discovers infringement must provide a written complaint, samples of the authentic and counterfeit product, and an invoice showing that the counterfeit product was purchased from the infringing party, and must also pay the official fee.

Enforcement in the Saudi Arabia market is the responsibility of the Anti-Commercial Fraud Department (ACFD) of the Saudi Arabia Ministry of Commerce and Industry, which protects trade marks registered in Saudi Arabia from infringement. In Saudi Arabia, in the same way as with border seizures, legal action and administrative measures against infringing products in the market can be used free of charge. Ordinarily, administrative measures are the best and fastest means of handling counterfeit products in the market.

To file a complaint with the ACFD, it is necessary to submit a set of documents containing a copy of the Saudi Arabia trade mark registration, samples of the counterfeit product and receipts issued by the infringing party, and photos of the infringing party's shop. When the ACFD receives a complaint, it conducts a raid against the business selling the infringing product, and the counterfeit products are destroyed after the infringing party affirms that the seized products are counterfeits and signs the destruction order. When the products are destroyed, the trade mark owner can obtain a copy of the destruction report, and the owner is not required to bear the costs of destruction. If the infringing party does not affirm that the seized products are counterfeit products, then the appeal review committee can request prosecution, and the prosecutor's office where the related documents were sent can exercise its authority to conduct criminal prosecution.

Lawyer or investigator?

The only parties that may file complaints for seizure of counterfeit products are the trade mark owner or a legal representative with recognised authority granted by the owner. Representatives also carry out trade mark registration and various procedures involved with combating counterfeits, as well as a range of profile-raising activities for brand awareness including authenticity training, on behalf of the trade mark owner. Usually law offices or investigation companies, the majority of these have offices in Dubai.

The main differences between law firms and investigation companies are the extent of the services that they provide and their fee system. International and local law offices provide services for combating counterfeit products on a time-fee basis, as part of a broad range of legal services. While they will explain interpretations of the law, complete various procedures, and create documents without delay, in many cases they outsource the dirty work of market investigations or assign it to other parties. As a result, it is difficult to find a lawyer who is familiar with the local area and can propose strategic measures to combat counterfeits to the trade mark owner.

The time-based fee system often becomes a bottleneck in budget management of the company personnel who are responsible for combating counterfeits. There are other disadvantages to relying on attorneys. In the Middle East in particular, compared with Europe, the United States and Japan, infringement judgments are a gray area for cases such as similar trade marks. When using a law office, caution is required because of the risk of being forced to incur burdens of unexpected cost and management man-hours.

On the other hand some service providers specialise in combating counterfeit products. They provide total services including investigations of counterfeit products in the market, training for authenticity checks on behalf of the trade mark owner, enforcement procedures, and PR strategies. The largest difference between these companies and law offices, in addition to the broad range of services, is the fee system: each service is provided at a more-or-less fixed price. If the amount of counterfeit products that can be seized is known in advance, then it is possible to manage enforcement cases based on calculated returns on investment, making this also a good fit for business management cycles.

However, there are also downsides to relying on these companies. The fixed prices of the service providers in the Middle East are several times the prices in China. Therefore, if a trade mark owner adopts a strategy of increased enforcement and there are several cases that seize only a small number of counterfeit products, the return on investment may be small. It is possible that the activities may not make financial sense. This is why it is essential to determine to some degree the amount of products that can be seized before launching a raid. Even in cases when a raid must be carried out for some reason regardless of the products that can be seized, if trade mark owners can find an service provider that will negotiate flexible prices according to the quantity seized, then the Middle East may provide a return on investment that is no less than such seizures carried out in China.