20 March 2024 | Marten Männis
IP Rights
European Commission publishes recommendations to combat online and offline counterfeiting
On 19 March 2024, the European Commission published a Recommendation on how to increasingly combat counterfeiting and enhance the enforcement of intellectual property rights. The Commission estimates that industries that “make intensive use of IP” contribute 47% of total EU GDP and nearly 40% of total employment within the Union. It further emphasises the intrinsic value that IP holds, pointing to a 2021 firm-level analysis report by EUIPO, which found that companies with IP rights pay on average 19% higher wages and that IP rights convey increased revenue regardless of company size, pointing out that European SMEs that rely on IP rights “appear to generate 68% higher revenues per employee.”
The value of IP-protected products has enabled a vast illegal market flourish, ranging from counterfeit goods to both digital and product piracy. The OECD/EUIPO joint 2022 report on Dangerous Fakes highlights the dangers that products that do not follow rigorous safety standards or processes can impose. Though there are some industries where public acknowledgement of the risk is higher, such as adverse health risks when consuming counterfeit pharmaceutical products, cosmetics, or alcohol, there are other areas, such as electrical and electronic equipment or even children’s toys where, due to a lack of adequate safety standards, the risks the products pose can be significant to the average consumer.
Chapter 2 of the Commission Recommendation encourages all relevant actors, from Member States to rightsholders, economic operators, and national authorities, to actively combat activities that infringe on IP-rights, both in online and offline environments. It encourages both rightsholders and providers of intermediary services to actively participate in supranational and national voluntary cooperation instruments, such as the Memorandum of Understanding on counterfeiting and on advertising. Logistics services providers are encouraged to have processes in place that enable them to inspect and inform whenever their services are used for infringing IP rights. Similarly, payment service providers are encouraged to have processes in place that enable them to terminate contractual relationships with parties that infringe on IP rights and to have notification mechanisms that allow them to be notified of any potential infringements.
Interestingly, social media providers are encouraged to provide trademark holders with verified accounts. This indicates that the verification of an account and the display thereof by the platform has attained a level of public trustworthiness that is acceptable by both the broader public and by rightsholders. This can be exemplified by X, formerly Twitter, changing the purpose of their blue checkmarks, which enabled users to impersonate and make seemingly official statements on behalf of public companies, which had a significant impact on the stock price.
Chapter 3 focuses on enforcement – both national IP offices and registries that offer Top-level domain services should prioritise alternative dispute resolution options for IP-related disputes. Similarly, dynamic injunctions are recommended, which retain the flexibility to extend them to infringements not yet identified. When calculating damages, Member States should try to ensure that when enforcing IP infringements, the calculation takes also into account, in addition to the true economic loss, moral damage, investigatory costs to identify infringements, and any interest incurred.
Chapter 4 focuses on a how to appropriately adapt IP investigatory and enforcement practices to AI and virtual worlds. Both rightsholders and providers of intermediary services are encouraged to make use of advanced methodologies to detect counterfeit and design-infringing goods sold online. This can be accomplished by, for example, using data-analysis methods, content recognition systems and advanced algorithms. Similarly, Member States should implement advanced solutions to simplify and improve their application processes and should encourage their national authorities to implement AI systems for identification purposes.
The Commission Recommendation also points to the EUIPO Anti-Counterfeiting and Anti-Piracy Technology Guide, which should be widely distributed to companies of all sizes, in order to raise public awareness on applicable technologies that can simplify fighting against piracy. The Guide has a multitude of solutions presented to combat counterfeiting both online and offline, ranging from RFID tags and marking technologies such as light-sensitive inks, to online solutions such as DRM systems, hashing or fingerprinting.
The Commission Recommendation specifically emphasises the importance that SMEs have appropriate awareness of both the dangers and solutions and have procedures in place to combat it. Given the significant economic impact that IP rights can bring to businesses, SMEs typically do not have adequate safeguards in place to combat targeted infringements, in particular when the complexity of infringements has significantly increased with the advancement of globalised trade and AI. Chapter 5 emphasises the need to raise awareness for SMEs to participate in support services such as the EUIPO SME Fund, a grant scheme that aims to enable SMEs to protect their IP rights. The SME Fund will run until 6 December 2024.
Chapter 6 focuses on broader awareness activities, such as introducing IP rights into higher education curriculums, whenever relevant. Similarly, training courses for law enforcement agents should appropriately address IP protection and enforcement.
The recommendation and its non-binding nature highlights a very interesting aspect of the modern economy – awareness on all levels is key. Given that addressing infringements is an inherently reactionary measure, as there needs to be an infringement for IP rights to be violated, rights owners must always be acutely aware of how their products and services can be pirated and counterfeited, in particular in a sharply changing economic environment. The violations that companies faced a decade ago contrast to those happening today. Fortunately, the potential to identify and address violations has become more accessible and complex as well. This can enable even small legal teams of SMEs, or even those businesses without a dedicated legal department, to mount strong campaigns against infringements and to consistently monitor the market, whether using third-party services or through tailor-made monitoring solutions. As infringing IP rights is a highly lucrative business, it will remain to be a cat-and-mouse game, which is why the Commission has correctly identified that a comprehensive awareness campaign, coupled with a streamlined complaint and enforcement procedure, that addresses both logistics and payments, is key.
