Storage and destruction of counterfeit goods: the safety and environmental challenges
Interview with Ms Louise van Greunen, Director, Building Respect for IP Division, World Intellectual Property Organization (WIPO), and Dr Martin Guard, Chartered Environmentalist and Hazardous Waste Specialist
The storage of goods suspected of infringing intellectual property (IP) rights, and their sound disposal, once the infringement has been confirmed, involves costs and represents major logistical challenges. Goods may remain in storage during the entire litigation process, and even longer, if there is a need to analyse them in order to determine their composition or hazard.
As for the disposal or destruction of these goods, it must be done in an appropriate, environmentally safe manner in line with applicable environmental and public health legislation. Depending on the nature of the goods involved, this can be a costly and technically complex undertaking, and minimizing the environmental impact of the disposal requires specialized facilities, expertise, and high levels of stakeholder collaboration.
To shed more light on this contentious and often problematic issue, WCO News interviewed two experts on the storage and destruction of counterfeit goods, which it hopes will provide Customs administrations with more solid information on how to handle such goods or how to improve their current disposal regime, including their legal framework.
What must be taken into account before storing IP-infringing goods, and who is liable for storage costs?
Dr Martin Guard: Storage of IP-infringing goods can be both complex and expensive. Firstly, IP-infringing goods need to be stored in secure Customs or private bonded warehouses, secondly, the litigation process in relation to such goods is often protracted and therefore costly, and thirdly, when large amounts of goods are confiscated, such as during seizure operations, storage space can rapidly become limiting, especially in more remote locations with little storage capacity.
Moreover, in respect of hazardous IP-infringing goods, such as counterfeit chemicals and pesticides, storage must be done in a way that ensures incompatible substances are separated, so as to prevent the potential for fire, explosion or release of toxic fumes. More often than not this is not done effectively, and emergency equipment to help in the event of an incident is often lacking.
In respect of who is responsible for paying the costs for the storage of IP-infringing goods, what is evident is a lack of harmonization both from one country to another, and further across legal proceedings (e.g. Customs, civil, criminal).
While Article 45 of the Agreement on Trade-related Aspects of Intellectual Property Rights (TRIPS agreement) obliges Members of the World Trade Organization (WTO) to make it possible for right holders to be awarded damages and expenses to be covered by the infringer, in reality the infringers or criminal groups either disappear or the importing company is liquidated shortly after the event, ultimately leaving the bill to be paid by right holders or tax payers.
These situations have ultimately led some right holders to request Customs administrations not to seize their products or at least not until a certain threshold of volume has been encountered, and it is an area that needs to be improved.
Ms Louise van Greunen: The complexity and costs associated with the storage of IP-infringing goods, as mentioned by Dr Guard, are important issues to consider in this context. The applicable legal framework in the country where infringing goods are to be stored is another factor that may also have a bearing on the question of liability for costs.
For instance, some countries qualify certain acts of importing IP-infringing goods as administrative violations and right holders may be liable for the costs of storage. In Italy, this is the case in relation to small consignments transported by express courier and postal services. At the same time, other importation acts of IP-infringing goods constitute criminal offences, and the legal liability clearly rests with the infringer.
Have you identified best practices for reducing storage costs, especially in light of the length of time that a litigation process can take?
Ms Louise van Greunen: The question of storage and the possibility of subsequent disposal or destruction of IP-infringing goods derive from the international legal framework for enforcement of IP rights established under the TRIPS Agreement. Potentially infringing goods may be suspended from release by Customs authorities in line with the special provisions on border measures, i.e. Articles 51-60 of the TRIPS Agreement.
Article 59 specifically refers to Article 46, which establishes as a basic civil or administrative remedy the possibility of disposing of or destroying IP-infringing goods in a way that precludes them from entering the channels of commerce. This remedy is also available in criminal procedures following Article 61 of the TRIPS Agreement.
While so-called “simplified procedures” for the disposal of infringing goods are not explicitly mandated by the TRIPS Agreement, they align with the general obligations stipulated under Article 41 thereof that WTO Members shall provide for effective and expeditious enforcement procedures and remedies. Simplified procedures are in place in many WIPO Member States, and act as an effective mechanism for containing storage costs.
In essence, such procedures allow Customs authorities, under certain conditions and with the agreement of the affected right holder, to destroy or dispose of goods that the importer has agreed – or is deemed to have agreed – to abandon even before an infringement of an IP right has been established through court proceedings. As in the case of standard procedures, the right holder may be required to provide security as a means of preventing abuse and protecting the interests of the owner or importer of the goods.
In addition, samples of the goods are collected and retained by the Customs authorities prior to the destruction. In the absence of litigation, simplified procedures allow for the swift destruction and disposal of goods, and thereby reduce storage costs. Examples of the effective operation of such measures can be observed, inter alia, in the Philippines and in the European Union (EU) where simplified procedures were established through a regulation concerning Customs enforcement of IP rights.
Dr Martin Guard: Beside the wider use of simplified administrative procedures and administrative remedies to reduce complex legal litigation in dealing with some IP-infringing goods, some potential areas where the burden for the cost of storage may be reduced or covered include:
- the introduction of a mechanism similar to the United States’ Treasury Forfeiture Fund, whereby confiscated proceeds of crime and specifically those related to counterfeiting could provide funding support for national enforcement activities in relation to IP-infringing goods. Such a mechanism would send a clear message to criminal gangs that all assets will be seized following a proven IP crime;
- the possible introduction of a requirement, at the earliest stage of proceedings, that the infringer shall pay a financial warranty based on prima facie evidence of infringement to cover storage and destruction costs;
- the availability of specialized judiciary to be used in cases specifically relating to IP-infringing goods;
- the increased use and acceptance of admissibility of representative samples and photographic evidence as an alternative to physical goods needing to be stored over long periods;
- the introduction of prescribed timeframes for litigation concerning IP-infringing goods, so as to limit the storage period and the costs related thereto.
With regard to destruction or disposal, which practices have you seen that are not appropriate?
Dr Martin Guard: Probably the most inappropriate destruction method, ironically often used for “showcase events” after seizure operations, is open burning. These IP-infringing goods, often burnt with their plastic packaging at low temperatures, release large volumes of toxic fumes and smoke composed primarily of dioxans and furans that are persistent organic pollutants (POPs) resistant to environmental degradation, and which can lead to extensive pollution of adjacent soils.
Exposure to the smoke can cause a wide range of respiratory ailments in humans, and the pollutants are also considered carcinogenic. Furthermore, plants or crops that are grown in these polluted areas can uptake the pollutants and when harvested or are grazed by domestic animals can result in their bioaccumulation and bio-magnification further up the food chain.
Disposal into non-sanitary landfills can also result in environmental and potential health impacts through the escape of toxic leachates, potentially polluting waterways and groundwater. When such landfills are heavily scavenged, individuals can be exposed to potentially harmful material, and if not fully destroyed prior to disposal some goods may re-enter channels of commerce.
Can you give some examples of best practices in the area of destruction or disposal?
Dr Martin Guard: Improved methods for disposal or destruction of IP-infringing goods include proper incineration in “fit for purpose” commercial incinerators, shredding or crushing of the goods, or encapsulation, which entails encasing the infringing goods (e.g. pharmaceuticals) in a sand, gravel, cement mix to form solid inert blocks that can then be dumped into a landfill site.
Obviously, some goods such as counterfeit electronics could be recycled as they often contain valuable metals. However, it is important that any recycling is conducted in a formal regulated system to prevent pollution and worker health impacts, and that the first step should be to remove the goods’ functionality to ensure that they cannot re-enter the marketplace.
What about the financial responsibility of the infringer, can you shed some light on this issue?
Ms Louise van Greunen: The ultimate liability for the storage and disposal of IP-infringing goods rests with the infringer. Civil, criminal and administrative measures should, therefore, provide relief for the associated costs where the infringer can be identified. In this respect, efficient litigation processes can contribute towards ensuring that right holders and governments are compensated for their costs. In practice, however, this is still a challenge.
Dr Martin Guard: Many of the same issues apply for the cost of storage and the cost of final destruction. While, as Ms Van Greunen explained, the infringer is ultimately liable, they often remove themselves quickly from the process such that the burden again falls on the right holder and/or the government.
Although some methods of disposal as mentioned above can be relatively low cost, it will also depend on the amount of IP-infringing goods to be disposed of and whether they are hazardous or not. For counterfeit pesticides where the true composition of the infringing good is unknown, expensive testing will be required to determine the best method for disposal, which may also require an expensive disposal treatment to be used.
What are the options for countries that do not have the proper facilities to safely destroy or recycle goods?
Dr Martin Guard: Often in financially constrained countries with poor waste management infrastructure, ideal disposal solutions may be difficult to implement. Under these circumstances, encapsulation, crushing with plant machinery or broken with sledge hammers may offer a cheaper alternative disposal solution for infringing goods.
Moreover, for particularly hazardous IP-infringing goods (e.g. counterfeit pesticides), they may be destroyed in cement kilns or other industrial furnaces of which there is normally at least one in most countries. Efforts should be made to contact such facilities to discuss their potential to dispose of these goods as long as they are suitable for incineration (e.g. do not contain metals).
What sort of guidance is available to countries, and what kind of assistance do you offer to those that wish to review their current practices?
Dr Martin Guard: Challenges for the environmentally safe storage and destruction or disposal of IP-infringing goods are numerous. Inappropriate destruction and disposal of these goods frequently results from poor technical capacity or environmental awareness, lack of disposal or recycling infrastructure, weak legislation, or a lack of financial resources.
The storage and destruction or disposal of IP-infringing goods are processes authorized, overseen and conducted by many parties (e.g., IP enforcement agencies, environmental agencies, right holders, and private contractors). This increases the difficulty of coordination and cooperation, resulting in a process that may be disorganized and fail to function properly.
To ensure that technical capacity and awareness of the environmentally safe storage and disposal of IP-infringing goods are improved in the future, new training initiatives are required together with the provision of adequate technologies and tools, and appropriate financial support.
New training and awareness modules could be developed by the WCO’s Customs Learning and Knowledge Community (CLiKC) and INTERPOL’s International IP Crime Investigators College, and other technical support and guidance is available from the United Nations Environment Programme (UN Environment) and the Basel Convention’s Regional and Coordinating Centres.
This could be through direct support or using the specific disposal and recycling guidelines that have been developed, and which particularly emphasize ways to achieve environmentally sound management (ESM) for storage and disposal activities.
Ms Louise van Greunen: At WIPO, we have long recognized the importance of raising awareness and building capacities in relation to the environmentally safe disposal and destruction of IP-infringing goods. We introduced this topic at the highest policy level almost 10 years ago by placing it on the agenda of the WIPO Advisory Committee on Enforcement (ACE), which considers IP enforcement in the context of broader societal interests and development-oriented concerns.
Since then, the topic has remained of interest and importance to our Member States. WIPO has also commissioned two comprehensive studies – one on methods of disposal and destruction of counterfeit and pirated goods within the Asia Pacific region prepared by David Blakemore, IPR Business Partnership’s Executive Director for Asia Pacific, and another by Dr Guard, on the environmentally safe disposal and destruction of IP-infringing goods, which he presented at last year’s session of the ACE.
Some WIPO Member States have also come forward to share their experiences with issues surrounding disposal and destruction operations. Ronald Brohm, the Managing Director of REACT, the association fighting the trade in counterfeit goods, has also presented information on environmentally friendly recycling facilities, and on REACT’s efforts to reduce the costs of enforcement.
Recognizing the importance of coordinating action and expertise on these issues, WIPO has also collaborated with UN Environment in organizing several dedicated workshops for enforcement authorities and other relevant actors in the Asia Pacific Region that addressed the disposal of IP-infringing goods from both the IP and environmental perspective.
At WIPO, the topic of environmentally friendly disposal and destruction forms an integral part of our capacity building activities with enforcement authorities, in particular with judges and prosecutors, in WIPO Member States. We also highly valued the opportunity to introduce this topic to the WCO Enforcement Committee earlier this year, and look forward to future collaboration between WIPO and the WCO in this area.
Finally, at WIPO, we also seek to draw attention to the importance of environmental considerations in the disposal and destruction of IP-infringing goods through a spotlight item on this issue on the WIPO “Building Respect for IP” webpage as well as through a dedicated publication on the challenges associated with the disposal of counterfeit goods that appeared in the WIPO Magazine in November 2012.
How can right holders provide assistance with respect to the disposal or destruction process?
Ms Louise van Greunen: Right holders play an important role at all stages of IP enforcement operations, including with respect to the disposal and destruction process. Their cooperation and input is necessary in identifying IP-infringing goods, in initiating enforcement proceedings, and in using simplified procedures for the disposal and destruction of goods, if such procedures are in place. Right holders also have the potential to contribute towards environmentally friendly disposal and destruction operations through knowledge-sharing, assistance, and cooperation with enforcement authorities.
Dr Martin Guard: Rights holders can indeed provide assistance in two ways. Firstly, these companies are often developing effective and innovative techniques for improved recycling and waste disposal as part of their extended producer responsibility schemes, and it would be beneficial if such knowledge, techniques and lessons learned could be shared with the relevant parties involved with the destruction of IP-infringing goods to better guide these activities. Secondly, where necessary to provide both financial and logistical support to ensure the safe disposal of infringing goods contravening their brand.