Combining trademark infringement action and fraud prosecution: a new approach to combat piracy?

In September 2012 a Swedish district court found a person guilty of both trademark infringement and fraud after having sold counterfeit goods from Thailand to Sweden. With help from several accomplices in Sweden (four of whom were tried and convicted), and through aggressive online marketing, the convicted man had sold counterfeit clothes to a great number of customers, both individuals and companies. Through the use of, among other things, value added tax numbers, invoices and email marketing that were perceived as genuine, and by setting prices fairly close to the prices of genuine goods and using quality pictures on the website, the seller gave customers the impression that the goods were authentic products, although cheaper than usual. As customers were thus misled to believe that the products were authentic, the prosecutor referred not only to the Trademark Act, but also to the Penal Code provisions on fraud, leading to stricter sentences than those usually handed down for "pure" Trademark Act violations.

As far as the authors are aware, this the first case in Sweden where a person has been convicted of both trademark infringement and fraud. In this regard, it should be noted that prison sentences for violations of the Trademark Act are extremely rare in Sweden; thus, prosecution for fraudulent acts gives prosecutors and rights holders another and perhaps more effective tool for combating counterfeits. 

The judgment identified a new approach when combating sales of counterfeit goods. This may be of significance in relation to all types of product and for all types of IP right. 

IP infringement and fraud – an effective approach?
The practical implications of the district court’s ruling may be relatively far reaching. The case could indicate a change in how trademark infringements are seen and assessed in the legal system. Traditionally, the rights holder has been considered the primary subject worthy of protection. However, in this case the court's reasoning clearly identifies buyers of counterfeit goods as subjects in need of protection under the legal system.

Furthermore, viewing sales of counterfeit products as both fraudulent crimes and trademark infringements may prove to be an effective approach, considering that the maximum penalty for a violation of the Trademark Act (and other Swedish IP legislation) is far lower than that for fraud – a maximum of two years for most IP rights violations, compared to six years for gross fraud - which could have a deterrent effect on sellers of counterfeit products. In adddition, the most common penalty for trademark infringement is a fine; cases where trademark infringement has led to imprisonment are hard to find in Swedish case law.

In the case at hand, the main defendant was sentenced to imprisonment for two years and eight months (this included customs violations, which made the sentence slightly longer than would otherwise have been the case). In other words, the sentence was stricter than what is possible within the scale of punishment for Trademark Act vilations. In this regard, it should also be noted that the court ordered the payment of damages to both buyers of the counterfeit products and the rights holders, in addition to the prison sentence.

Public prosecutors specialised in IP-related crimes
In Sweden, public prosecutors specialised in investigating IP-related crimes were appointed a couple of years ago. In the case described above, the prosecutor in charge was one of these specialised IP prosecutors. 

The appointment of specialised IP prosecutors indicates a willingness on the part of the government to put money and effort into seriously combating IP-related crimes. The newly established specialised prosecutors are also likely to be able to keep pace with the technical developments and online tools used by sellers of counterfeit products, which is crucial in order to investigate and prosecute IP related crimes effectively. 

The case at hand is a good example of an alternative approach to combating IP infringements. One possible approach to combating IP infringements, which will have a deterrent effect against other sellers of counterfeit products, is to identify the fraudulent conduct and take action against both the fraudulent activity and the trademark infringement. Further, the appointment of public prosecutors specialised in IP-related crimes indicates that the legislature is striving to develop new approaches to counteract IP rights infringements. 

All but one of the defendants have appealed and the case will now be heard by the Court of Appeals. Since the judgment has not gained legal force, it will be interesting to see whether the judgment will stand and, if so, become more established Swedish case law.

This is an Insight article, written by a selected partner as part of IAM's co-published content. Read more on Insight

Unlock unlimited access to all IAM content