Health and Product Integrity

Counterfeiting, tampering and contraband of goods are a major global predicament. These illegal activities fall under IPR infringement, consumer protection and consumer health and safety for a large number of products: from ingestible products (e.g., medicines and liquors) to chemicals (e.g., cosmetics, pesticides), equipment and spare parts (e.g., medical devices, surgical masks and auto spare parts). The advancement in virtual technology and physical transport, such as the presence of e-commerce and dark web as well as the filling of the logistical last miles, have spread the issues to all corners of society while allowing counterfeiters to fly under the radar.

However, technology can also work in assisting stakeholders to withstand the trend and uphold product integrity. Through brand protection programs, brand owners can collaborate with other stakeholders and law enforcement authorities in keeping products within safe and sanitary standards.

Illegal products and their impact on health

Counterfeiting, according to WTO, is an unauthorized representation of a registered trademark carried on goods identical or similar to goods for which the trademark is registered, with a view to deceiving the purchaser into believing that they are buying the original goods. As counterfeits are generally not controlled, they do not follow standards such as pharmaceutical products might not have active ingredients or the right dosage of them.

Among the counterfeits that endanger consumers’ lives are liquor products. While original brands of liquor are produced using safe edible grades of ethanol, the counterfeit ones are produced with cheaper types of alcohol sometimes leading to methanol poisoning. In Indonesia, statistics vary from hundreds to thousands of deaths per year. The case of the deaths of three students from a university in Salatiga in March 2021 adds to the long list of victims who died from consumption of counterfeit liquor. Most counterfeit liquor in Indonesia is homemade, sold and distributed illegally.

As ugly as counterfeiting, product tampering refers to intentional modification of products after they have been manufactured. The case of tampering products is a constant issue for the pharmaceutical industry in Indonesia. The discovery of 197 types of tampered medicines in Semarang in 2019 is one of the many cases. The bad actor repackaged generic drugs into non generic patent drugs, which were more expensive. In addition, he also faked expiration dates, drug packaging, and drug capsules. The suspect had a company license for the procurement, storage, distribution of drugs and / or drug ingredients in large quantities in accordance with the provisions of the statutory regulations. He used his company to distribute tampered drugs.

Another issue is contraband of products that might not be counterfeit but could be substandard products according to regulators. For instance, some cosmetics contain mercury, causing high risks on consumers' health.

While contrabands are brought by importers, some counterfeits and tampered products are homemade or produced by local manufacturers. Take the selling of fake auto spare parts as an example. Most of these illegal products in Indonesia are made by local manufacturers with poor technology that ignore safety and security standards. Spare parts that are often faked are oil filters, air filters and brake pads. These counterfeits are found in marketplaces and sold in brick-and-mortar shops, including legitimate shops, sometimes packed together with original ones.

The increasing trend of counterfeiting

With the pandemic, the already fast-growing trend of online shopping exploded. The imposition of global-scale social distancing, travel ban and closure of brick-and-mortar have forced businesses to fully distribute their products directly to their consumers, mostly using online platforms like e-commerce.

The ease of online markets has made it the preferred channels for fraudsters to distribute illegal goods, increasing health and safety issues. Setting up a low-cost attractive store in e-commerce is much easier compared to a conventional store. Not only do counterfeiters benefit from e-commerce, but they also take advantage of the dark web to sell their illegal products. Covid-19 vaccines, vaccine passports and fake negative test results are reportedly being sold on the dark web.

As more stakeholders fight them back and watch their every move, the counterfeiters start to adapt by working in organized counterfeiter rings. This has enabled them to identify and make use of any weakness by scrutinising legal systems to infiltrate legal supply chains, conducting surveillance on law enforcement personnel, and engaging professional facilitators to move the illegal products.

The challenge in fighting counterfeits

The fundamentals of fighting counterfeits are to protect brands’ assets and consumers’ safety. This should be done comprehensively through anti-counterfeiting programs, which include prevention, detection and investigation. And this requires the involvement of all stakeholders from brands, consumers, marketplaces, and government, as well as Law Enforcement Agencies (LEA).

Prevention

Recycling packages is the utter basic way of prevention. This method is preventing the packaging from being misused by counterfeiters (refilling of perfume and liquor bottles for instance, collection of expired products), which can be done as a CSR program. A more innovative prevention is carried out by utilizing blockchain technology. The ledger can record many details of the product made by brand owners, including information about who owns the product, when the product was made, details of the logo, and others. This way, brand owners and consumers can easily authenticate their products and distinguish them from a fake one.

Deterrence can also come from imposing laws with strong penalties and charges for all counterfeits. In Indonesia, some laws concerning IPR infringement, health and consumer protection are:

• Government Regulation (PP) Number 80 of 2019 concerning Trading through Electronic. The regulation explained the sanction for business actors found to harm consumers. However, the challenging part is to prove the health issue, which is not always easy. The sanctions are administrative, such as a written warning, labeled as under supervision, blacklisted, block on online marketplaces, and more.
• Law Number 20 of 2016 concerning Trademarks and Geographical Indications. Article 100 provides the threat and punishment for a brand counterfeiter with a maximum imprisonment of 5 years. In fact, if the counterfeit goods result in death, a sentence of 10 years in prison can be imposed.
• Law Number 20 of 2016 concerning Trademarks and Geographical Indications. Article 102 provides threat and punishment for any person who trades counterfeit goods with a maximum imprisonment of 1 year or a maximum fine of two hundred million rupiah.
• Law No. 8/1999 regarding Consumer Protection. The law states that a business actor must provide real and honest information about a product offered in order to protect the consumer right. A business actor proven to provide wrong information must take out the offered product from the market and stop its distribution.

Detection

As for efforts to detect illegal products, one way is to set up a whistleblowing system where brands can involve distribution channels and consumers to report when they find fake products.

Detection effort is also carried out by the Indonesian government with the implementation of the IPR border measure system. The system requires IPR and trademarks holders to record their Copyright and Trademarks. The terms and procedures for this are regulated under The Government Regulation Number 20 of 2017. Through the automation system, the Customs can provide direct notification to the owners if there is a suspected IPR infringement. With this notification, the owners can propose a temporary suspension.

In order to comply with the Consumer Protection Law and Trading through Electronic law, the marketplaces provide tools for consumers to report fake products and later to take them down.

Investigation and enforcement

Investigation work is integral in tackling the ever-growing threats related to IPR infringements. Brand owners or right holders with the assistance of professional consultants can conduct investigations both in online and offline streams. The aim is to identify the main sources, which will later be reported to the relevant LEA for further enforcement purposes depending on the cases. LEAs in Indonesia are among others the Directorate General of Intellectual Property, BPOM, Customs, and the Police.

For cases of IPR infringement action against counterfeits as a complaint offense, these should be referred to Article 103 of Law Number 20 of 2016 concerning Trademarks and Geographical Indications. Therefore, brand owners or right holders need to report comprehensively the results of their investigations to DGIP so they can conduct enforcement. In the case of infringements for drugs, foods, and cosmetics, BPOM and the police have the right to conduct enforcement as regulated in Health Law No. 36 of 2009. For products involving excisable goods, such as cigarettes and alcohol, the enforcement can be done by Customs by referring to Law No. 39 concerning Excise. The counterfeits usually use fake excise stamps or do not use excise stamps at all, thereby violating Article 50 of the Law.

Illegal products are not victimless crime. They are the absolute sources of consumer confusion, and they are a threat to the health and safety of consumers. Illegal products can be the ultimate reason for the decrease of consumers’ confidence in brands, not to mention the loss of sales that they will suffer, damage to brand integrity, trademark dilution, and the high costs of enforcing intellectual property rights. It takes a comprehensive anti-counterfeiting program from brand owners and a strong collaboration between stakeholders and LEA for enforcement to uphold both the integrity of the products and the safety of the citizens,

PT Integrity Indonesia

Jakarta, 13 April 2021