As a new law aimed at combating counterfeit goods and other forms of commercial fraud passes through the UAE’s Federal National Council (FNC), it is arousing a good deal of interest – as indeed its high-profile subject matter would suggest. Rob Deans, Partner, Clyde & Co, and Harriet Balloch, Senior Associate, Clyde & Co, review the progress so far…

The draft Anti-Commercial Fraud Law was first introduced in early 2013 and, although it contains a number of positive new measures, there are a number of provisions which have given rise to cause for concern. The passage of the draft Law through the FNC (which is an elected form of Parliamentary advisory body) is a key stage in the legislative process and it brings the draft Law one step closer to being enacted.

Some positive news for brand owners

There is currently limited information as to the extent to which the draft Anti-Commercial Fraud Law has been amended during its passage through the FNC. However, it appears that the draft Law, as approved by the FNC, is likely to include the following positive provisions for brand owners:

• The establishment of a single body with the role of combating trade in counterfeit goods across all emirates in the UAE. Under the current regime, brand owners must deal with counterfeit goods by working through independent authorities in each of the country’s seven emirates. This requires brand owners to deal with multiple authorities in cases where infringing goods are being sold in more than one emirate. A structure which enables brand owners to deal with a single cross-emirate enforcement body is likely to be much more efficient and effective than the current structure.

• Increased penalties for dealing in counterfeit goods. The draft Anti-Commercial Fraud Law includes a significant increase in the penalties which may be imposed on those dealing in counterfeit goods. In certain limited cases, such as dealing in pharmaceutical and food products, a fine of up to AED 1 million (approximately USD 270,000) may be imposed together with a two year imprisonment sentence. However, as indicated below, concerns do remain as to the level of penalties which may be imposed in the majority of infringement cases.

• The cost of the destruction of counterfeit goods being paid by the importer of counterfeit goods. This is positive news for brand owners, in cases where the importer can be identified.

• An obligation on infringers to disclose to the authorities all information and documents relating to their dealings in counterfeit goods. The inclusion of this obligation in the draft Anti-Commercial Fraud Law may encourage the authorities not only to seize stocks of counterfeit goods, but also to obtain copies of information as to the source of the goods and the scale of the infringing activity.

• A prohibition on the possession of counterfeit goods. This provision should be a useful tool where counterfeit goods are held by traders, but where there is no clear evidence of an intention to sell. However, it remains to be seen whether this provision would also be used to seize counterfeit goods held by private individuals.

• Confirmation that the draft Law applies to infringers operating within the UAE’s free zones. Such a provision would appear unnecessary given that UAE laws already apply automatically to the entirety of the country’s jurisdiction including its free zones (with the exception of the DIFC free zone). However, the enforcement of intellectual property rights within the UAE’s many free zones can prove problematic. Accordingly, many brand owners will welcome the clarity that this provision brings.

Areas of concern

However, there are also areas of concern for brand owners arising from an early draft of the Anti-Commercial Fraud Law which may not have been addressed by the FNC. These include:

• Legitimising the practice of re-exporting counterfeit goods, rather than seizing and destroying them. The single biggest concern for brand owners with the draft Anti-Commercial Fraud Law is a provision which empowers the authorities to require importers to return counterfeit goods to their country of origin. This provision appears to have been untouched as the draft Law passed through the FNC, and it remains a major concern for brand owners, in that counterfeit goods may be re-exported from the UAE and then find their way back onto the market in the UAE or elsewhere. There are also further concerns with this provision in that if it is interpreted by the UAE Courts as a general right to allow counterfeit goods to be re-exported then this would appear to conflict with the UAE’s obligations under the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPs) which restricts the re-exportation of counterfeit goods in an unaltered state, other than in exceptional circumstances.

• The extent to which the draft Anti-Commercial Fraud Law covers lookalike goods, in addition to those bearing a trade mark which is identical to a registered mark. An early draft of the Law restricted many of its key provisions to the unauthorised use of identical trade marks, but not goods bearing confusingly similar marks and other forms of lookalikes. It is unclear at this stage the extent to which the draft Law may have been amended to extend its scope to lookalikes.

• Low penalties for dealing in counterfeit goods. Although in some limited cases a penalty of a USD 270,000 fine plus two years imprisonment may be imposed, in many cases involving counterfeit goods, the maximum punishment appears to be limited to a maximum of a tenth of this amount, USD 27,000 plus one year imprisonment, regardless of the quantities of counterfeit goods involved. This was the position in an early draft of the Anti-Commercial Fraud Law, and it remains to be seen whether this provision has been amended to allow for penalties with a higher deterrent value to be imposed.

• Allowing seized counterfeit goods to be released unless a court order has been issued within 30 days confirming the seizure. This provision, which was included in an early draft of the Anti-Commercial Fraud Law, could potentially require brand owners to make expensive applications to Court in cases which previously would have been handled quickly and efficiently through an administrative action. The extent to which this provision may have been amended during the draft Law’s passage through the FNC is currently unclear.

Next steps: finalisation and enactment of the draft Law

In order to be enacted, the draft Anti-Commercial Fraud Law has to be signed into law by the UAE President His Highness Sheikh Khalifa Bin Zayed Al Nahyan and published in the UAE Official Gazette. Before this, the draft Law should pass back to Ministerial level where further amendments may be introduced. Accordingly, although current reports indicate that the draft Law will come into force within the next six months, it is possible that this process may be delayed, particularly if further changes are made to the draft Law. This has been the case with other UAE laws, such as the draft Companies Law, which passed through the FNC in May 2013 but which has not yet been enacted.

Further information

If you would like further information on any issue raised in this update please contact:

Rob Deans, Partner
E: rob.deans@clydeco.com

Harriet Balloch, Senior Associate
E: harriet.balloch@clydeco.com

Clyde & Co LLP
PO Box 7001
Level 15, Rolex Tower
Sheikh Zayed Road
Dubai, United Arab Emirates
T: +971 4 384 4000
F: +971 4 384 4004

Clyde & Co accepts no responsibility for loss occasioned to any person acting or refraining from acting as a result of material contained in this summary.

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