Intellectual Property regulatory corrections; border measures and penalization

Intellectual Property regulatory corrections; border measures and penalization - CorralRosales - Lawyers Ecuador

The National Assembly gave way to the partial objection issued by the Executive Branch, thus approving the “Law that Reforms Various Legal Bodies to Reinforce the Prevention and Combat of Illicit Commerce to Strengthen the National Industry and Promote Electronic Commerce.” In addition, the law foresees reforms in the matter of intellectual property.

In particular, this reform includes provisions regarding (i) intellectual property crimes, their punishment and handling, expanding the punishable acts, and (ii) the border measures process.

I. Intellectual Property Crimes

The Executive Branch veto sought to correct certain inconsistencies and drafting errors in the text approved by the Assembly. As a result, it details criminal conduct in a much better way, the conditions that must be taken into account to assess the existence of the crime and how these crimes are to be treated and judged.

The reform of the criminal law, if it refers to the COIP then it should be named. It establishes that, for these behaviors to be considered crimes, they must include several elements that would differentiate it from a “simple” infringement of intellectual property rights since its sanction is conditioned to the knowledge of the violation, a lucrative purpose, and the commercial scale.

These conditions include criminal offense and penalizing whoever manufactures, commercializes, or stores labels, stamps, or containers containing trademarks or denominations registered in the country.

It also sanctions whoever separates, starts, replaces, or uses labels, stamps, or containers that contain registered trademarks in the country to use them in products of different origin, fills containers identified with a foreign brand with spurious products, stores, manufactures, uses, offers for sale, sells, imports or exports products covered by an invention patent, utility model, industrial design, a plant variety (including its material for reproduction, propagation or multiplication) or a layout design.

It also includes possible infractions -which from our experience, will make up the vast majority of intellectual property criminal actions- against whoever stores, manufactures, uses, offers for sale, sells, imports or exports a product or service that uses an unregistered distinctive trademark identical or similar to one registered in the country; the competitive connection between the infringing products or services and those identified by the registered trademarks must be clear.

Additionally, the law eliminates the condition of a minimum amount to constitute a crime, clarifying that to consider the offending conduct a crime (on a commercial scale), the magnitude, economic value, quantity, and impact on the market must be considered. It also specifies that in foreign trade cases, it is regarded as a crime when the goods are valued at more than 50 unified basic salaries (SBU) – US $ 20,000 to date – stipulating that the cost of the original product must be taken into account for this valuation.

Regarding the sanctions, the law establishes an incarceration sentence of 6 months to 1 year, confiscation (of the seized products), and a fine of 8 to 300 SBU (US $ 3,200 to US $ 120,000 to date). In addition, the following are reinstated as an aggravating factor for the criminal offense: (i) having received a warning of the offense; (ii) that health-related objects cause damage to health; and (iii) that the crime is committed concerning unpublished works.

Regarding copyright, the same conditions described before apply. In addition, the following actions are sanctioned with the penalty indicated in the previous paragraph: alteration or mutilation of a piece of work; the registration, publication, distribution, communication, or reproduction of a foreign work as one’s own; unauthorized reproduction or in a number greater than the authorized number of the work, provided that the damage is greater than 50 SBU (US $ 20,000 to date); public communication of works or phonograms; introduction to the country, storage, offering for sale, sale, lease or circulation of illicit reproductions of works, by any means; unauthorized retransmission of radio broadcasting, television and in general any signal that is transmitted through the radioelectric spectrum; manufacture, import, export, sale or lease of devices, systems or software that allow deciphering an encrypted satellite signal carrying programs or telecommunications in general.

The reform makes an essential clarification about certain conditions on the crime, such as the precise meaning of the term “commercial scale” and how to assess the value of the products.

The law also includes provisions on the destination of the seized products, which may be considered free of charge to cover social needs by the State or destroyed. They must have the report of an expert duly accredited by the Judicial Council. He has to clarify whether the products must be destroyed or render useless “the aspects of the same that violate or transgress the intellectual property, as long as this action does not harm the nature or the functionality of the merchandise.”

Finally, the law includes conciliation is as a dispute resolution mechanism.

In conclusion, the reform is positive because it seeks greater agility in processing and prosecuting intellectual property crimes.

II. Border Measures

After almost five years of a legal vacuum in this matter, the Executive Branch veto, accepted by the Assembly, also corrected the inadequate text approved by the Legislature returning the “mixed” system to the country for the execution of measures on the border. It allows the National Customs Service of Ecuador (SENAE) to be the first filter of infringing products entering or exiting the country, suspending the customs process provisionally, which has to be confirmed by the local intellectual property office.

The reform empowers SENAE to: (i) suspend the customs procedure for products that, in any way, violate intellectual property rights, (ii) alert the holders of these rights, and (iii) provide adequate information to act in these cases.

The suspension of the customs process will initially be five days. During these five days, this suspension must be communicated to the importer, the right holder, and the local intellectual property office. After that, it will have three days to decide on a resolution.

The law maintains the obligation to provide sufficient information to the intellectual property authority about the infringing products and the conditions of the infringement, and the possibility of inspecting the products involved.

The authority may sanction the offender with a cash penalty ranging between 1.5 and 142 SBU (US $ 600 to 56,800 to date).

Per the regulations of the Andean Community, the reform provides that the right holder initiates at their discretion an administrative, civil, or criminal action when the adoption of the border measure has been confirmed. Although there is a contradiction with the supranational norm regarding the term to present it (10 days), it prevails. The holders of intellectual property rights will have a predominant performance in these cases since they must participate actively, both in the criminal proceedings and in the cases of border measures, accompanying the authorities through all the steps.

The law maintains the possibility of requiring the person requesting the adoption of a border measure to provide a guarantee or surety that will be proportional to the possible economic and commercial impact generated by the suspension, to protect the importer or exporter from a possible case of abuse of rights.

This reform corrects elements that have caused a notable increase in intellectual property infringements in Ecuador and led to actions against retailers or small merchants. Unfortunately, these elements have left importers or wholesalers who are the primary beneficiaries of the illicit trade unpunished.

The reforms will come into force after its publication in the Official Registry.

Eduardo Ríos
Asocciate at CorralRosales
eduardo@corralrosales.com