When it comes to running a business, keeping an eye on profits, customer service and leveraging technology are just some of the things that need to be consistently observed. Small to medium-sized enterprises (SMEs) that order their products/stock from wholesalers have another factor they need to consistently observe: the legitimacy of the products sold by the wholesaler.
Illicit trade and counterfeits cost South Africa over R100 billion annually, affecting tax revenue, employment, and economic growth, according to reports from the Consumer Goods Council of South Africa.
For business owners, the growth of these fake goods can lead to loss in revenue, reputational damage, and customers not returning to purchase goods. As SMEs continue to grow and contribute meaningfully to the economy, it’s important that founders know how to verify their wholesalers and the products they buy from them.
In this article, we explore the laws around counterfeit goods, which regulatory bodies help protect businesses and which due diligence steps to follow when verifying a supplier.
What are Counterfeit Goods?
A counterfeit product is an illegal imitation of a legitimate product designed to deceive consumers into thinking they are purchasing an original item. These goods violate many forms of intellectual property rights, such as trademarks, patents, and designs. Altogether, counterfeit goods fall into three types:
- High-Quality: Often called ‘super fakes’ or high-end replicas, these products are meticulously manufactured to mimic genuine luxury items, including brand logos, materials, and craftsmanship
- Low-Quality: These are unauthorised replicas of branded products that are manufactured using inferior materials and shoddy production methods to maximise profit, often sold at a lower price than authentic items
- Knockoffs: Similar products that imitate a style or design without using the original brand’s trademark, focusing on style rather than deception
Legal Frameworks for Anti-Counterfeiting in South Africa
There are several laws in South Africa that help protect businesses from counterfeiting. The key regulatory organisations and laws involved are:
1. Counterfeit Goods Act
The Counterfeit Goods Act provides a structured legal process for businesses to combat counterfeits. Through the legislation, brand owners can:
- Seize counterfeit goods through raids
- Seek civil damages for lost sales and reputational damage
- File criminal charges against the responsible parties
The Department of Trade, Industry and Competition (DTIC) oversees the enforcement of this law; however, brand owners typically work with an IP law firm to initiate and support the enforcement process.
2. Trademark and Patent Law
In South Africa, trademark law is governed by the Trade Marks Act. A trademark acts as the identifier of a brand, and the illegal use of a trademark on counterfeit goods opens the door to lawsuits. Patent laws are outlined in the Patents Act, which also applies in cases where counterfeit goods violate registered patents for innovative products, particularly in the technology and pharmaceutical sectors.
Regulatory Bodies
There are two organisations that play a pivotal role in anti-counterfeiting efforts: the Companies and Intellectual Property Commission (CIPC) and the World Trade Organisation (WTO).
The Role of the CIPC
The CIPC maintains the register of trademarks, patents, and designs. Through collaboration with brand owners and IP law firms, the CIPC can enforce measures to halt counterfeit activity and support criminal prosecutions.
The Role of the WTO
South Africa is a member of the World Trade Organisation and adheres to the Trade-Related Aspects of Intellectual Property Rights (TRIPS Agreement). The TRIPS Agreement sets out the international standard for IP protection and requires member states to provide legal frameworks for IP protection and anti-counterfeiting measures, including both civil and criminal enforcement mechanisms.
Verifying a Wholesaler in South Africa
Verifying a wholesaler is basically the process of checking if a business is operating legally within the required regulations, which can vary from industry to industry. Here are some key factors to verify when choosing a wholesaler for your business.
Company Registration
The most important step is to ensure your wholesaler is a legally registered business. Key steps to check are:
- Check that the wholesaler has a company registration certificate
- Leverage the CIPC BizPortal to verify the company name, registration number, registration date and current status (active or deregistered)
- Verify that the names and ID numbers of the listed directors are on the CIPC records
Tax Compliance
All wholesalers must be registered with the South African Revenue Services (SARS). Key factors to check for are:
- Ensure the wholesaler has a tax clearance certificate (TCC), or you may request a tax compliance status (TCS) pin from the supplier
- Use the SARS eFiling system to verify the validity of the PIN and the supplier’s compliance status
Supplier-Brand Affiliation
Brands that export products to South Africa typically have distributors confirmed. Ensure to check for the following:
- Confirm the status of the wholesaler as an authorised or certified distributor, reseller or partner of the brand
- Check if the supplier can provide a Letter of Authorisation from the brand or invoices from their own supplier to demonstrate the provenance of inventory
- Review invoice documentation for all required information, such as supplier details, buyer details, issue dates, product descriptions and purchase quantities
- Verify the authenticity of various certifications (such as logos and seals) and brand associations on the supplier’s website or marketing materials
Brand Endorsement or Reviews
Brand endorsement signals are vital when picking a supplier. Key factors include:
- Check if the brand has publicly endorsed or recommended the supplier as a trusted partner
- Research any case studies, testimonials or other forms of brand endorsement of the supplier’s products
- Reach out to the brand directly to inquire about their relationship with the supplier and any recommendations they can provide
- Check the supplier’s references and testimonials from their existing clients
- Search for any negative news or complaints about the supplier online
Official Databases
- If the wholesaler deals with the government or large corporate contracts, they will be registered on the National Treasury central supplier database (CSD)
The above should be part of your due diligence when picking a wholesaler/supplier for your business. It’s also recommended that you do a small order test to assess product quality, packaging, delivery speed, and invoicing accuracy before committing to large volumes.
When it comes to running a business, keeping an eye on profits, customer service and leveraging technology are just some of the things that need… Read More
