United Arab Emirates' draft law on the Prevention of Fraud in Commercial Dealings Bassel El Turk, Rouse On 3 March 2014 the Federal National Council approved the draft Law on the Prevention of Fraud in Commercial Dealings (the Draft Law). The Draft Law is expected to come into force some time in 2014 after its publication in the Official Gazette. The previous version of the law was enacted in 1979. of products in many articles such as Articles 1, 2, 3, 6, and 16 in a clear emphasis that these are three separate types of illegitimate products. Article 6 for example clearly states that the responsible local department will : “... 4. Supervise the operations of destruction, recycling, or return to the source, depending on the circumstances, of the fraudulent, spoiled or counterfeit products.” The second point of interest is that the Draft Law has also included the storage of products within the acts of commercial fraud as well as explicitly confirming the law applied to free-zones. This does not appear to have been limited to the storage, or possession, for the purpose of sale. This appears to give hope that this will allow action against logistics and freight forwarding companies in the freezones. established that the products need to be targeted not for the local market. Much of the debate has focused on compliance with the UAE's obligations under the TRIPS Agreement. Article 1 of the Draft Law defines the following terms: The destruction and re-exportation of counterfeits There has been serious debate during the last year about whether and how the Draft Law might deal with the difficult issue of the re-export of seized counterfeit products. There have been many examples of seized counterfeit goods being ordered to be exported out of the UAE, often when the rights holder wished to have the goods destroyed. The Draft Law clearly distinguishes between Fraudulent, Spoiled and Counterfeit products. This is further enhanced as the Draft Law consistently used explicit reference to the three types “Without prejudice to criminal liability, the relevant authority may issue a decision ordering the importer to return Fraudulent or Spoiled products to their source during a specific period. If the importer does not return them to the source within this period, the relevant authority may order their destruction, or allow their use for any other eligible purpose, or it may return them to their source, and Counterfeit products will be destroyed, all of which is subject to the rules and regulations set out in the implementing regulation of this law.” Spoiled products: products that are not eligible for use due to factors relating to storage, transportation, or due to their interaction with other natural factors or products that are in violation of the laws, regulations and technical standards. This includes damaged products. Counterfeit products: products that bear, without permission, a trade mark identical or similar to a registered trade mark.” Article 3 of the Draft Law states: “...Fraudulent products: products that do not comply with the regulations, conditions, requirements, specifications, and standards set out in the laws, regulations, and decisions in force in the country, or those products that have been modified in any form or way or by any source or nature without the required approvals, or those products that are advertised or promoted in a manner contrary to their reality. It is interesting that the Draft Law has explicitly included exportation and re-exportation of the counterfeit products within the acts of commercial fraud. This elaborates on the stance of the Court of Cassation decisions in Dubai that have 11 2- Any of the following acts is deemed an act of commercial fraud: • The importation, exportation, reexportation, manufacture, sale, offer or possession for the purpose of sale, storage, rental, promotion, or circulation of the fraudulent, spoiled or counterfeit products. • The use of, or offering or promising to offer commercials, in deceptive promotions and incorrect advertisements or the promotion of, spoiled or counterfeit products • Offer, or promote or advertise fraudulent commercial services” “1- This law applies to anyone who commits an act of commercial fraud, and the free-zones are not exempted from the application of this law What constitutes an act of commercial fraud? Besides the broad definition of “Commercial Fraud” in Article 1 of the Draft Law, it has explicitly set out in Article 2 the acts that are considered acts of commercial fraud. These acts are: There is therefore a clear distinction between the types of products and an acknowledgement that they are subject to different circumstances. Counterfeit products are not subject to the rules applied on Fraudulent and Spoiled products. The provision for ‘returning the products to the source’ clearly applies to Fraudulent and Spoiled products only. The Draft Law clearly excludes Counterfeit products from re-exportation by stating that ‘Counterfeit products will be destroyed’. This amendment, which was not present in earlier drafts, seems to broadly comply with the UAE’s obligations under TRIPS, a major concern for all who made submissions on the earlier drafts of the law. Article 3 is subject to further clarification in the implementing regulations. We wait for those regulations to better understand how Counterfeit products are excluded from re-exportation. Comment: There are many positives with the Draft law, particularly as regards to penalties; many of these had been previously overlooked with the concern surrounding the apparent right to order reexportation in the earlier drafts. However, despite the positive steps forward, brand owners should remember that the law only applies to registered marks that are counterfeited. Well-known but unregistered marks would still need to be enforced under the current Trade Mark Law for instance, and lookalike products dealt with under other general laws. The Draft Law has also penalised the “attempt” to commit an act of commercial fraud. Article 13 clearly sets out the penalty for such attempt to be imprisonment for not more than one year, and/or a fine of not less than AED 10,000 (approx. USD $2,700) and not more than AED 100,000 (approx. USD $27,000). The Draft Law has increased the above penalties when the products of concern are, amongst others, pharmaceutical products. The penalties will then be imprisonment for not more than two years, and/or a fine of not less than AED 250,000 (approx. USD $68,000) and not more than AED 1,000,000 (approx. USD $270,000). These penalties also apply to the attempt to commit this act. According to Article 12 the penalty for committing an act of commercial fraud is imprisonment for not more than two years, and/or a fine of not less than AED 50,000 (approx. USD $13,600) and not more than AED 250,000 (approx. USD $68,000). The Draft Law has imposed more severe penalties in comparison with the previous law or other related laws in force such as the Trade Mark Law. The third point of interest is that the Draft Law touched on advertisements. It is unclear whether this will cover unfair comparative advertisements; however, the implementing regulations of the law may clarify this point further. Penalties are increased for Pharmaceutical products