Are donations of counterfeit goods to charities socially acceptable? - 

Despite calls for seized counterfeit goods to be donated to charity, a number of conditions should be met in order to protect both IP rights holders and those receiving the goods 

Nobody would dispute that in today’s world, the social and environmental impacts of our actions must be taken into consideration whenever we make a decision. This move towards responsibility explains, for example, why an increasing number of voices are joining the chorus demanding that IP  rights holders and the authorities behave in a more ethically responsible manner when they dispose of counterfeit goods. However, there is much to consider.

It is clear that the simple destruction of fake goods benefits nobody. In fact, when the authorities refuse to pay for it, the cost of destruction is often borne by the victims of counterfeiting: the rights holders themselves. It is no secret that the ‘counterfeiter pays’ rule is largely overlooked in practice. In an attempt to reduce the costs and environmental footprint of destroying counterfeit goods, both public authorities and rights holders are frequently asked to ‘recycle’ such goods, in the widest sense of the term. Some countries even appear to be trying to turn the concept of secondary use into a general legal principle, demonstrated by proposals made by some officials to rights holders to donate counterfeit goods to charities.

However laudable this idea might appear at first sight, we must not lose sight of the fact that the law requires that we strike a balance between environmental and social concerns on the one hand, and the protection of IP rights on the other. Indeed, Article 46 of the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPs) requires that the disposal of counterfeit goods be a “neutral” operation for rights holders. True, it does not oblige enforcement authorities to order the destruction of counterfeit goods in all cases; alternatively, they may “dispose of them outside the channels of commerce” – which could open the door to donations to charities. However, the article goes on to state that the overall objective should be “to avoid any harm caused to the rights holder”.

Experience shows that although secondary use of counterfeit goods should, in principle, mean that rights holders avoid the often high costs associated with incineration, many still prefer this option. As we can exclude the idea that they make this choice to inflict pain on themselves, this must mean that rights holders do not think that secondary use is entirely undisruptive for them either. Indeed, donations of counterfeit goods to charities can lead to several types of risk for rights holders:

• By definition counterfeit goods are manufactured clandestinely, and thus are not tested to ensure they do not pose health and safety risks. Allowing the secondary use of such products is therefore potentially dangerous for consumers, and can cause the rights holder’s liability to be unfairly engaged. The fact that goods have been donated to charities, and thus removed from commercial channels, does not preclude such risks: fake goods are, and remain, intrinsically hazardous. Who would dare to claim that it would be ethically acceptable to expose some people to such a threat simply because they are disadvantaged? In an attempt to minimise such risks, some countries have forbidden their law enforcement authorities from donating counterfeit goods other than clothes or shoes to aid organisations. However, they are forgetting that even clothes or shoes can be potentially dangerous. For example, on several occasions the Red Cross has reportedly refused donations of counterfeit shoes which had proved to be highly inflammable.
• The withdrawal from commercial channels of counterfeit goods does not guarantee that they will not find their way back into commercial circulation or be diverted into the wrong hands (as frequently happens with food aid consignments, for example). In both cases, considerable prejudice would be caused to the rights holders, which negates their efforts in the fight against counterfeiting – as well as those of the authorities.
• The distribution to the public of counterfeit goods, even if they are offered free of charge by charities, retains the risk of damaging the brand: the trademark unlawfully affixed to fake goods ‘lies’ about their origin (if not to those who own the goods, then at least to those who see them). This can potentially affect the communication and advertising functions of the trademark, and can also impair its image of quality. A perceived poor quality will decrease consumer goodwill. In addition, when counterfeit goods proliferate, in certain market segments this may ruin the aura of exclusivity of the trademark.
• Although it is hard to quantify, the adverse effect to the sale of authentic goods of such impairments of the functions of the trademark is inevitable, and can also have a knock-on effect on employment.
• In some cases, the donation of counterfeit goods to charities could ultimately result in a “communication to the public” which could in itself breach copyright. This would be the case, for example, with goods which usurp the rights in strip-cartoon or cartoon-film characters, or the rights in a simple decorative motif showing some originality.

We must not forget, in this context, that the right to (intellectual) property is a fundamental right enshrined in Article 17 of the Charter of Fundamental Rights of the European Union and Article 1 of the First Protocol of the European Convention on Human Rights (*Anheuser-Bush Inc v Portugal*, European Court of Human Rights, application number 73049/01), which must be balanced against other human rights.

It would be inappropriate to give one of these rights precedence over the others. In principle, unauthorised copying of objects protected by IP rights, at least when it occurs outside the private circle, should be regarded as theft; therefore, the decision by some countries to create a general principle of law allowing, in certain conditions, the giving out of counterfeit goods can be hard to defend. In the same way, the ethics of the idea of allowing counterfeit goods to be released only to the poor and needy, simply because they are impecunious, may be questionable.

Given the above, it seems to me that three non-negotiable conditions should be applied to any decision to donate counterfeit goods:

• The rights holder’s consent should be obtained and the goods should be meticulously checked for potential safety or health problems (memorandum of understandings could be created to regulate these issues, in particular the issue of the liability and interests of the public authorities, excluding that of the holders of the stolen IP rights);
• All infringing signs or features should be removed from the goods; and
• The goods must be marked as charitable donations in such a way that third parties are not tempted to subsequently re-affix counterfeit brands, logos or trademarks to them.

The application of these conditions would, in my opinion, be consistent with the decision of the World Trade Organisation panels of January 26 2009 in the dispute between China and the United States (WT/DS362/R).

Legislation in many countries imposes similar conditions, for example in Austria, the Czech Republic, Estonia, Latvia, Hungary, Poland, Portugal, Spain, Slovenia, Slovakia and the Philippines. In the United Kingdom, it would appear that charitable donations have boomed in recent years thanks to cooperation between Trading Standards, rights holders and a charity, His Church, which de-brands and re-labels counterfeit goods before distributing them to the poor and needy.

In Italy, in October 2010 the Genoa Court of Appeal ordered almost 7,000 pairs of counterfeit shoes to be donated to Caritas, after the forged trademarks had been removed and the goods re-branded. The court appeared to express no concerns about the potential risks associated with these goods, which is obviously to be regretted. It also remains to be seen if any checks were made that these goods were eventually delivered to “entitled beneficiaries”.

In Estonia, it appears that rights holders who have been victims of counterfeiting are usually asked to bear the cost of the destruction of the counterfeit goods unless they agree to donate them to charities, in which case Customs removes any counterfeit signs and logos from the goods and re-brands them. This solution is not balanced enough to be truly equitable and, more importantly, it continues to avoid the basic question which many authorities are deliberately avoiding: will they assume a duty of care when donating counterfeit goods to charities, and will they accordingly accept liability for damages arising from accidents involving such goods?

At the end of the day, is it not better to leave it to the rights holders to help the needy, be it by making financial donations to charities or by supplying them with their choice of genuine goods?  An increasing number of rights holders seem to be adopting this approach, the social and marketing benefits of which are indisputable.

The reduction of the costs borne by rights holders for the storage and destruction of counterfeit goods could, potentially, encourage them to be even more generous. When you consider that it costs between €500 and €1,000 each month to store a container of seized goods in some ports, that infringement proceedings in some countries can take several years, and that it often proves to be difficult to recover such costs from the counterfeiter, it becomes easier to imagine the sort of amounts that rights holders could be prepared to donate to charities to help the needy – and this without having to shoulder any prejudice whatsoever. Excessive storage periods also often prevent perishable goods from being recycled, and often engender heavy environmental costs (eg, in regard to pesticides). Some countries (including Belgium) seem to have understood this problem, and allow counterfeit goods to be destroyed even before the start of the court proceedings, providing samples are taken first, if health, safety or environmental reasons justify it.

Olivier Vrins is a partner at ALTIUS in Brussels

June/July issue 2011 (page 98-99) of the World Trademarke Review