Combating Counterfeiting in the Nutraceutical Industry
According to a recent report released by Authentication Solution Providers’ Association (ASPA) and the Credit Rating Information Services of India Limited (CRISIL) in 2023, about 25-30% of the products sold in India are counterfeit. Further, around 60-70% of dietary supplements in the market are fake as per 2015 study by Assocham-RNCOS. Counterfeiting not only causes customer confusion but also deeply injures a brand’s reputation. The article focuses on counterfeit nutraceuticals being sold in India on a large scale which are putting the consumers’ health at risk and causing damage to the economy in general and the burgeoning health industry.
The various options and remedies available to business faced with counterfeit products are set out below.
- Ex-parte injunction and seizure of counterfeits: To keep a check on counterfeit nutraceuticals, it is recommended that regular market surveys are conducted to trace its origin and its stock. Once these are identified, the trademark owner can file a suit for trademark infringement to obtain an ex-parte interim injunction to restrain the counterfeiters from further manufacture and sale of counterfeit goods. The trademark owners can request for a court appointed commissioner to seize the fake/counterfeit products and identify source of supplies, packaging etc. John-doe orders can also be obtained in cases where it is difficult to identify the counterfeiter, or where several parties are involved with a common link or where it is operating out of temporary premises that is not identifiable by a street address.
- Trademark registration: Nutraceutical companies are advised to have their trademarks registered for better enforcement of their rights against infringers in terms of establishing proprietary rights over their mark. While the trademarks law recognizes common law rights in unregistered trademarks and allows the trademark owner to file lawsuits for passing off, registered trademarks are easier to enforce as they have the benefit of a legal presumption of ownership. The Trademarks Act, 1999 also provides criminal remedies against counterfeiting to the right holders. In such cases, the police seek the opinion of the registrar of trademarks before initiating a criminal raid, which at times delays the process. However, for having police to act against a counterfeiter, registration of a mark is practically necessary.
- Copyright registrations: The labels/logos/trade dress of a product can also be protected as artistic works under the Copyright Act. Section 64(1) of the Act allows police authorities to seize goods bearing the infringing logos/labels/trade dress, etc. without a warrant for further proceedings before the Magistrate. This provision enables faster relief to the owners against counterfeiting. A copyright registration of such artistic works is a proof of ownership and facilitates smoother enforcement.
- Customs recordal: Trademark registrations help diminish import of counterfeit products. To prevent import of counterfeits in India, the IP owners can record their registered trademark with the Customs Authority of India under the Intellectual Property Rights (Imported Goods) Enforcement Rules, 2007 and the Customs Act, 1962 for inspection and seizure of counterfeit goods at the border itself.
- Complaint under FSS Act: Complaints against adulterated, unsafe, substandard products, labelling defects in products can be registered with Food Safety and Standards Authority of India (FSSAI) under the Food Safety and Standards Act (FSS Act). Food Safety Officers have the power to search and seize impugned goods, which is then intimated to the Designated officer for further proceedings.
Recently, FSSAI has taken an active approach in curbing spurious nutraceuticals by directing its regional office in Himachal Pradesh to inspect suspecting companies and take immediate action against them if found in breach. FSSAI also issued warning against non-compliance of nutraceutical regulations being in violation of the FSS Act, which may result in cancellation/ suspension of license and punishable with minimum 7 years imprisonment and a fine of Rupees 10 lakhs or above.
- QR coding of drugs: To combat the sale of fake drugs, the Drugs (Eighth Amendment) Rules, 2022 effective from August 1, 2023, mandates mentioning a QR code on the product packaging for the top 300 drug formulations. The QR code will confirm the genuineness of the drug, and will contain information including the seller and manufacturer details, expiry date, and brand name, generic name of the drug, etc. Similar provisions are required for nutraceuticals to curb counterfeiting. Extra caution is recommended while mandating the QR coding of products, for e.g., using encrypted QR codes or hiding QR codes with a scratch-off film before scanning it to avoid duplication.
- Counterfeiting on e-marketplaces: The e-marketplaces are infested with counterfeits as these platforms are not physically inspected and can maintain anonymity. A survey conducted by LocalCircles in 2018 indicates that 38% of consumers complained of getting counterfeit products purchased from an e-commerce platform. Upon discovery of listings of counterfeit nutraceuticals on these platforms, the trademark owners are advised to immediately send a take-down notice to such platforms. The e-marketplaces are deemed ‘intermediaries’ under Section 2(1)(w) of the Information Technology Act, 2000. The Act obligates them to exercise due diligence while discharging its duties, such as intimating the sellers to not display, upload, or share any information that infringes any proprietary rights of IP holders.
Consumer Protection (E-Commerce) Rules, 2020 further sets out the duties and liabilities of e-commerce entities which includes establishing an efficient grievance redressal mechanism, obtaining undertakings from the sellers on the authenticity of the products, displaying seller contact details, customer reviews/ratings on their platforms and any other information necessary for effective dispute resolution.
As part of their due diligence, some e-marketplaces have issued anti-counterfeiting guidelines and mechanisms allowing IP holders to report and remove the listings of counterfeits on the platform. For e.g., Amazon offers a brand registry program where trademark owners can enrol their marks with the brand registry to remove trademark violations on its platform. Such enrolled brands must be registered or applied for registration with the Trademarks Registry.
- Fraudulent websites: There has been an increase in fraudulent websites having similar domain name, layout, and look-and-feel of the website of a legitimate nutraceutical brand/company and selling counterfeit products, which dupes the customers into paying for such counterfeits or products that they never receive while also stealing their credit card and bank information. Besides a civil lawsuit, a domain name complaint is also an effective remedy to have such fraudulent domains transferred to the complainant. Such complaints can be filed under the Uniform Domain Name Dispute Resolution Policy (UDRP) for generic top-level domains such as .com, .org, etc.), and local regulations for national country-code top-level domains. In India, .in domains are governed under .IN Dispute Resolution Policy (INDRP). Complaints under UDRP and INDRP are resolved through arbitration and are preferred by complainants who do not wish to engage in litigation.
To prevent counterfeits and fraudulent websites, brand owners can release caution notices on their websites and on leading newspapers or news websites educating the public of their brand and the authentic platforms on which their products are available for sale to prevent confusion. A financial budget set aside for trademark protection and enforcement including regular market surveys, investigations and legal consultations from an early stage mitigates such impediments in future. Investment in an effective IP protection and enforcement is pertinent not only to the company’s growth but also as a social responsibility towards the public and their safety especially in the healthcare sector.
In a nutshell, these are some of the practices that nutraceutical businesses can integrate with their business strategy to maintain their brand sanctity and protect their market share.