Gaming the System: Money Laundering through Microtransactions and In-Game Currencies

Alexandra Norton

 

With what seems like new technological advances developing daily, cybercrimes are becoming more and more common, with little to no policing in place. As of December 2018, there were more than 4.1 billion internet users in the world.[1] It is estimated that cybercrime has inflicted global losses of over one billion dollars.[2] While there are currently laws and policies in place for certain online transactions, specifically online gambling, there are no laws or regulations in place in the United States when it comes to laundering money through microtransactions or in-game currency transactions. Currently, videogames do not have any governmental regulation when it comes to monitoring currency transactions. Instead, it is up to the company itself to regulate and monitor its own transactions and to punish individuals who act immorally in the game. These punishments usually involve a ban from the game but have no legal consequences.

There are many issues faced when it comes to these new methods to commit cybercrime. With the influx of new technology, these issues will create new and possibly more efficient means to launder money. One example of these new technologies is cryptocurrency, which is a type of virtual currency that functions as a real currency but is not issued or backed by central governments.[3] The traditional methods for money laundering, such as the use of shell companies, offshore accounts, or fraudulent record keeping, are not always going to be the most effective and inconspicuous ways to launder money. Prosecutors and policy makers are currently focused on the traditional money laundering methods and not on the ones involving new technologies because the usual methods are what have been used for an extensive period of time, while the new methods are appearing as technology continues to advance. Because of these advancements, cybercriminals are beginning to turn to new ideas such as laundering money through in-game currencies and microtransactions.

Money laundering involves three steps: placement, layering, and integration.[4] Once the dirty money has been obtained, criminals place it into things such as shell corporations, companies that exist only on paper but do not have any employees or physical offices.[5] This is when most criminals are caught because placing large amounts of money into accounts without a verifiable source looks suspicious if not done carefully.[6] After the placement, the money needs to be layered or exchanged through multiple transactions so that the original source cannot be traced.[7] Finally, the laundered money is integrated back into the legitimate financial world.[8] This is usually done through bank notes, loans, or any number of recognizable financial instruments.[9]

The United States has several pieces of legislation in place to help battle this growing problem, but none of this legislation is aimed specifically at money laundering through microtransactions and in-game currencies. Congress passed the Bank Secrecy Act (“BSA”) in 1970 as the first law to fight money laundering in the United States.[10] The IRS discusses the Bank Secrecy Act, stating that it“…requires businesses to keep records and file reports that are determined to have a high degree of usefulness in criminal, tax, and regulatory matters. The documents filed by businesses under the BSA requirements are heavily used by law enforcement agencies, both domestic and international to identify, detect and deter money laundering whether it is in furtherance of a criminal enterprise, terrorism, tax evasion, or other unlawful activity.”[11] The Money Laundering and Financial Crimes Strategy Act of 1998 amended the BSA in part by requiring the U.S. Treasury and Justice Departments and Executive Bank to submit an annual National Money Laundering Strategy.[12] The U.S. government is partnered with a number of participating federal agencies to create the document that lays out objectives each year and reviews the objectives from the previous year.[13] The United States enacted the Computer Fraud and Abuse Act (“CFAA”) in 1984.[14] Unfortunately, the CFAA seems to struggle to keep up with new technologies and is almost always in a constant state of needing to be amended. Additionally, the CFAA deals more with unauthorized access or exceeding authorized access of a computer or network rather than the crimes that take place on a computer or the internet.[15] The CFAA does little, if anything, to address the new and emerging criminal activities that are taking place in cyberspace and it does not reach beyond the boundaries of the United States.

Microtransactions are just one of the many ways that criminals are laundering money as technology continues to develop. Microtransactions are systems that allows players to purchase virtual currencies, digital assets, and additional gaming content.[16] In a featured article on GameSpot, author Eddie Makuch discusses microtransactions, stating“[t]he name derives from the fact that, oftentimes, a microtransaction purchase is small in price and function, typically no more than $10. Lower-priced microtransactions in the range of 99 cents to $10 may make up the bulk of sales, but it’s not the only option. Many games, on console, PC, and mobile, offer ‘micro’ transactions that cost up to $100 or in some cases even more.”[17] Microtransactions are present in mobile apps and free-to-play model games such as League of Legends or Fortnite. Microtransactions are also present in games in which players have to initially purchase a base game, usually in the form of loot boxes; an example of these games is Overwatch. Base game purchasing occurs when an individual pays a base price for access to a game, and then the individual will pay for access to extra things within the game through microtransactions. Videogame publisher Activision is well known for using microtransactions as a source for a constant revenue stream. In 2017, Activision Blizzard reported more than $4 billion in revenue from microtransactions alone.[18]

Microtransactions are frequently used in free-to-play and mobile game markets in the form of in-app purchases.[19] Free-to-play and mobile games use microtransactions to attract players who can play the base game for free but have the option to purchase additional content through in-app purchases.[20] The free-to-play model can be attractive to some because they think that they aren’t paying anything, but, through clever scheming, game developers can lure players into spending extra money on purchases through microtransactions. An example of this would be Fortnite. Fortnite is a free-to-play game that offers cosmetics and battle passes to earn more cosmetic items.[21] In a survey conducted in 2018, 68.8% of Fortnite players said they spent money on the game and, of those who spent money, they spent an average of $84.67.[22] With over 125 million players, Fortnite is earning several hundred million dollars a month off of a free-to-play microtransactional model.[23]

Another way that criminals are laundering money is through in-game currencies. In-game currencies are exactly what they sound like: some form of currency in a virtual world. Depending on the game, in-game currency can be obtained in a variety of ways, but they all involve time and effort. Massively multiplayer online role-playing games (“MMORPGs”), such as World of Warcraft, Final Fantasy XIV, and Star Wars, all have in-game currencies and even their own in-game economies. For example, in World of Warcraft, characters can receive gold in numerous ways. Characters can loot gold off of a dead enemy or sell items in the in-game auction house and receive gold from another player, paying a fee for using the auction house that gets put back into the game economy. In MDY Industries, LLC v. Blizzard Entertainment, Inc., the United States Court of Appeals for the Ninth Circuit discusses the same idea stating that “[a]s a player advances, the character collects rewards such as in-game currency, weapons, and armor. WoW’s virtual world has its own economy, in which characters use their virtual currency to buy and sell items directly from each other, through vendors, or using auction houses.”[24]

Most games ban in-game currency transactions, but this has not stopped the market for this activity. There are websites that offer individuals the opportunity to buy and sell in-game currencies for real money. Because this act alone is not considered a crime, there is no government regulation or monitoring. It is up to the game companies themselves to try and police and monitor players who break the rules of the game. If a player is caught buying gold on World of Warcraft, Blizzard can ban that player’s account or take that gold away; the player spent their money for nothing. As mentioned previously, Blizzard monitors these types of transactions through its game and takes the gold away or bans the accounts, but there is no government monitoring or regulation, making it a perfect way for criminals to launder money.

It is not uncommon for criminals to invest into legitimate businesses to cover up a money laundering operation. Free-to-play games that rely on microtransactions could continue to develop a way for criminals to launder their money. This would require criminals to invest into the creation of a semi-successful game in order to launder the money through it. Criminals invest into real businesses to launder their money, so why not one that sells virtual, useless items?[25] Laundering money through microtransactions would be harder to track because the transactions would not draw a lot of attention or suspicion. Microtransactions, by their nature, are small transactions. Because the transactions are smaller, criminals would have a lot of small transactions being recorded multiple times. Through a free-to-play game or mobile game, microtransactions are common, and the money would not look suspicious coming through in the small increments.

Another way that criminals could launder money with microtransactions is through selling accounts on games such as Fortnite. A criminal could create an account, buy cosmetics through microtransactions with illegal money on that account, and then sell the account online for real, clean cash. Fortnite accounts can sell anywhere from $5 to $3,500.[26] Usually, in cases like this, the laundered money comes in the form of stolen credit cards. By the time the crime has been reported, the account is already sold, and the money that the criminal has received is “clean” money. If this method of laundering money was applied to the three steps of money laundering, the placement step would occur when the criminal buys cosmetics through microtransactions with the illegal money. The layering step would be also be fulfilled by the criminal using microtransactions to buy cosmetics, as there are multiple transactions that hide the original source of the money. Finally, the integration step would take place when the criminal sells the account for clean money.

According to Symantec, credit cards are the number one item being sold on underground servers, making up 28% of sales followed by bank accounts at 24%.[27] In a joint investigation with British newspaper the Independent and cybersecurity firm Sixgill, it was uncovered that Fortnite money laundering operations around the globe were being conducted in more than 5 countries.[28] Sixgill also found that Fortnite items made more than $250,000 on eBay over a 60-day period, but it is unclear how much criminals are profiting from the money laundering scheme.[29]

Because there are no government regulations in place to monitor or police money laundering through microtransactions and in-game currencies, it is currently up to the developers and companies to keep track of transactions and implement their own punishment systems. As discussed previously, Blizzard Entertainment monitors in-game transactions and flags suspicious in-game currency transactions. If the transaction proves to be illegitimate, Blizzard punishes the account by either confiscating the gold or banning it. No legal consequences occur because buying in-game currency online is not illegal, it’s just against the rules. This system applies to all individuals, not just ones who are laundering money. Blizzard’s system is not fool proof, as in-game currency transactions and buying gold online does not mean an account will automatically be flagged. Plenty of illicit transactions still slip through the cracks. Blizzard is just one example of a game publisher that does monitor its game transactions, However, there are many companies that do not, making these companies perfect targets for money launderers to clean their money.

To illustrate how a lack of laws and regulations allows criminals to launder money through microtransactions and in-game currencies, here is an example for each. If a criminal were to launder money through microtransactions, he or she could use stolen cards that he acquired through the Dark Web and use them to create an account on a free-to-play game such as Overwatch. From there, the criminal can buy loot boxes through a series of microtransactions and acquire valuable cosmetic appearances. The criminal could go as far as paying to have the account ranked up to increase the value before selling it for “clean money.” Because there are no laws or regulations about buying accounts from other people, only peer and company disapproval, this is an easy way for criminals to launder their money without government interference; there is no government involvement at all. If there was an algorithm that was able to track microtransactional purchases, in this instance for the loot boxes, it would flag and notify the company, which would then notify the government when a suspicious amount of loot boxes were being purchased.

If criminals were to launder money through in-game currencies, they could again use stolen cards and use these cards to create an account on a game such as World of Warcraft. From there, the criminals would go onto a currency selling website and buy the game currency. In World of Warcraft, the gold would be traded from the gold selling account to the buying account. Then, the account that purchased the gold would turn around and sell the gold or the account all together effectively making the money “clean money.” By having an algorithm that could identify and flag large gold transactions, Blizzard is already one step ahead of most other game companies, but there is no requirement for reporting to the government. It should be required that all game companies have to monitor in-game transactions and report any potentially illegal activity to the government for further investigation.

The United States should create a policy that makes it mandatory for companies to implement an anti-laundering algorithm or protocol to monitor and track microtransactions and in-game transactions that would be able to flag and notify the companies of potential criminal activity. After investigation, companies should then be required to report any potential criminal activity to the government for further investigation. In addition, criminal punishments must be decided for individuals who launder money through in-game currencies or microtransactions, or individuals who knew about the crime taking place rather than, at worst, simple account bans.

With new technological advances coming out daily, crimes will continue to advance as criminals look for new ways to commit their crimes. Money laundering through microtransactions and in-game currencies is still a relatively new idea that will only become a more popular method to launder money the longer that legislators’ heads are turned away. Implementation of regulations and policies as well as cooperation with international governments are necessary for any hope of battling money laundering through microtransactions and in-game currencies.

[1] Ann Mulligan & Sonal Dashani, Countering Cybercrime through Money Laundering Regimes (2016), https://www.iap-association.org/getattachment/Conferences/Regional-Conferences/North-America-and-Caribbean/4th-North-American-and-Caribbean-Conference/Conference-Documentation/4NACC_Jamaica_WS1_PPT_Sonal_Dashani.pdf.aspx.

[2] Id.

[3] Omari Marian, Are Cryptocurrencies Super Tax Havens, 112 Mich. L. Rev. First Impressions 38 (2013).

[4] Kevin Horridge, How Money Laundering Really Works (Sept. 26, 2019), https://www.casino.org/blog/how-money-laundering-really-works/.

[5] Id.

[6] Id.

[7] Id.

[8] Kevin Scura, Money Laundering, 50 AM. Crim. L. Rev. 1271, 1272 (2013).

[9] Id.

[10] Bank Secrecy Act, IRS, (Jun. 26, 2019), https://www.irs.gov/businesses/small-businesses-self-employed/bank-secrecy-act.

[11] Id.

[12] See generally, National Money Laundering Strategy, https://sanctionsalert.com/glossary/national-money-laundering-strategy/ (last visited Feb. 21, 2020).

[13] Id.

[14] 18 U.S.C. § 1030.

[15] Id.

[16] Kishan Mistry, P(l)aying to Win: Loot Boxes, Microtransaction Monetization, and A Proposal for Self-Regulation in the Video Game Industry, 71 Rutgers U. L. Rev. 537, 539 (2018).

[17] Eddie Makuch, Microtransactions, Explained: Here’s What You Need to Know (2018), https://www.gamespot.com/articles/microtransactions-explained-heres-what-you-need-to/1100-6456995/.

[18] Mistry, supra note 16, at 547.

[19] Erik Allison, Comment, The High Cost of Free-to-Play Games: Consumer Protection in the New Digital Playground, 70 SMU L. Rev. 449, 450-54 & n.1 (2017).

[20] Chelsea King, Note, Forcing Players to Walk the Plank: Why End User License Agreements Improperly Control Players’ Rights Regarding Microtransactions in Video Games, 58 WM. & Mary L. Rev. 1365, 1367 (2017); Yen-Shyang Tseng, Note, Governing Virtual Worlds: Interaction 2.0, 35 Wash. U. J. L. & Pol’y 547, 554 (2011).

[21] Paul Tassi, Study Says 69% of ‘Fortnite’ Players Spend Money on the Game, $85 Spent on Average (Jun. 26, 2018, 8:34 AM), https://www.forbes.com/sites/insertcoin/2018/06/26/study-says-69-of-fortnite-players-spend-money-on-the-game-85-spent-on-average/#4c8aef762060.

[22] Id.

[23] Id.

[24] See MDY Industries, LLC v. Blizzard Entertainment, Inc. 629 F.3d 928, 935 (2010).

[25] Steve Messner, How microtransactions and in-game currencies can be used to launder money (April 13, 2018), https://www.pcgamer.com/how-microtransactions-and-in-game-currencies-can-be-used-to-launder-money/.

[26] See generally, https://www.playerauctions.com/fortnite-account/?SortField=highest-price-act&PageIndex=1 (last visited Feb. 21, 2020).

[27] § 9:1. Council of Europe MONEYVAL Report: Criminal Money Flows on the Internet: Methods, Trends and Multi-Stakeholder Counteraction (March 9, 2012); See also, G Data Whitepaper (2009): Underground Economy, http://www.gdatasoftware.com/uploads/media/Whitepaper_Underground_Economy_8_2009_GB.pdf.

[28] Tamara Evdokimova, Criminals are using Fortnite to Launder Money (Jan. 24, 2019), https://slate.com/technology/2019/01/fortnite-video-games-money-laundering-scams.html.

[29] Id.

Free Hong Kong: A Case for Independence

Erich Greiner

            I. A History of the Current Protests

 

            It has now been two years since a Hong Kong teenager brutally murdered Poon Hiu-Wing while travelling in Taiwan, strangling her before stuffing her body in a suitcase and disposing of the corpse near a Taipei subway station before returning to Hong Kong.[1] So doing, Chan Tong-Kai inadvertently launched a massive grassroots movement and generated a monumental debate about the role of the international community in enforcing and ensuring the human rights of others.[2]

The Hong Kong authorities eventually arrested Chan, and he confessed to the grisly murder of his then-pregnant girlfriend while vacationing in Taiwan.[3] The Taiwanese government requested that Chan be extradited to face trial and punishment.[4] But, Hong Kong could not do so because it was not party to an extradition treaty with Taiwan, despite being party to such agreements with twenty other countries including the United Kingdom and the United States.[5] Hong Kong authorities, led by their chief executive Carrie Lam and her Chinese superiors capitalized on the moment. They proposed a bill to amend Hong Kong’s extradition law, which would abandon the current language preventing extradition to “the Central People’s Government or the government of any other part of the People’s Republic of China,” in favor of allowing extradition to mainland China, Taiwan, and Macau.[6]

The proposed bill would allow individuals accused of crimes to be deported from Hong Kong to face trial in those territories, and it would exempt many commercial offenses such as tax evasion from the extradition law.[7] The government claimed that those accused of crimes would be subject to extradition only if their alleged crime carried a maximum sentence of at least seven years; that extradition would only occur on a case-by-case basis; that Hong Kong courts would render the final determination as to extradition; and that those accused of political or religious crimes would not be extradited.[8] Further, despite prior statements as early as last May that authorities would not seek to extradite Chan under the proposed law, Lam and the leadership argued that the bill was required to ensure Chan was brought to justice in Taiwan.[9]

Opposition to the bill was massive. The response of the people of Hong Kong was swift, severe, and from all members of society. They expressed concern over the bill’s ability to facilitate human rights violations at the hands of China’s ruling Communist Party.[10], [11] Critics labelled it a “Trojan Horse” and one opposing lawmaker described the government’s use of Ms. Poon’s death as “political opportunism at its worst.”[12] Debate led to physical scuffles between the supporting and opposing factions, leading to a lawmaker being carried out in a stretcher.[13] University, secondary school, international students, and church groups started opposing petitions in the hundreds.[14] Lawyers and law students marched in the streets, and a million protestors followed suit in some of the largest demonstrations since the British ceded Hong Kong to Chinese control in 1997.[15], [16]

The international community also expressed concern.[17] A United States congressional commission expressed that the bill made Hong Kong more susceptible to China’s “political coercion”.[18] Both the United Kingdom and Canada expressed concern with the “potential effect” that the new extradition law would have on their countries’ citizens living in Hong Kong, while the European Union expressed its concerns in a diplomatic note to Lam.[19]

Such fears and concerns over the underlying purpose and effects of the extradition bill seem vindicated when viewed in light of several senior Communist Party officials’ endorsements and Chinese propaganda outlets’ broadcasts declaring protestors co-conspirators with China’s enemies.[20] Though the bill was withdrawn in September, protests continued.[21] Even as the Party celebrated 70 years of rule in October, the specter of its past violations loomed in Hong Kong, only five years after the failure of the Umbrella Movement to achieve free elections and full democracy.[22], [23]

Conjuring images of the infamous Tianmen Square, police officers took increasingly violent measures against unarmed citizens. Police beat protestors with batons; they fired tear gas, rubber bullets, and even live ammunition into crowds, striking an 18-year-old demonstrator in the chest.[24], [25], [26] In the face of escalating violence, including a stabbing of a pro-Bejing lawmaker, the petrol bombing of officers, and the shooting death of another protestor by police as protestors attempted to set up road blocks, the government eventually yielded and held local council elections in November.[27] In a landslide vote, 17 out of 18 councils elected pro-democracy councilors.[28] However, the movement is far from satisfied. The people of Hong Kong have five key demands: First, for the ongoing protests not to be characterized by the government; second, that all arrested protestors receive amnesty; third, that an independent inquiry into police brutality be conducted; fourth, universal suffrage for Hong Kongese; and fifth—already met—the withdrawal of the extradition bill.[29]

It is vital that these demands are met, because the Basic Law—guarantees of the freedom of assembly and speech that were made as part of the “one country, two systems” arrangement established when Britain ceded the territory to China in 1997, expires in 2047, leaving the fate of Hong Kong and its people unclear.[30]

 

            II. Potential Statehood

 

Whether these reforms are enough to protect the people of Hong Kong remains questionable at best. Even under the Basic Law, Hong Kongese are at risk of reprisal. For instance, Mr. Lam Wing Kee, a bookseller in Hong Kong, alleges that he was abducted by authorities and charged with “operating a bookstore illegally” by Chinese authorities because he sold books critical of the Chinese leadership.[31] Other violations on the Chinese mainland have been cause for continual concern.

In 2017, China began blocking images of Winnie the Pooh behind its “Great Firewall” because social media sites and bloggers used the character to satirize the physical appearance of President Xi Jingping.[32] Most recently, a Chinese student studying at the University of Minnesota was arrested and sentenced to six months imprisonment after returning to Wuhan for tweets that contained “unflattering portrayals of a ‘national leader’”.[33] The government has rounded up hundreds of thousands of Uighur Muslims and ethnic Kazakhs, forcing them into internment camps for re-education and hard labor so that they may be turned “into a disciplined, Chinese-speaking industrial work force, loyal to the Communist Party and factory bosses.”[34]

The coronavirus outbreak has led to further human rights violations. China has ordered martial law, forcing individuals into quarantine, ended transportation in and out of the city, and made it nearly impossible for necessary food and medical supplies to enter Wuhan province, even as the death toll has reached 636 people with over 31,000 are estimated to be infected (with many experts believing the true statistics to be much higher).[35] This, coming after a Wuhan doctor passed away from coronavirus after being silenced by police despite warning about the virus in December.[36] The outbreak has led to further protests in Hong Kong, where it was announced that hundreds of citizens would be displaced from residences in order to turn those residences in to quarantine centers, and at least fifty-seven cases have been reported in the city.[37]

Article I of the United Nations Charter states in part that the purpose of the United Nations is to “develop friendly relations among nations based on respect for the principle of equal rights and self-determination of peoples.”[38]  Article 73, dealing with “non-self-governing territories”, holds that:

 

[m]embers of the United Nations which have or assume responsibilities for the administration of territories whose peoples have not yet attained a full measure of self-government recognize the principle that the interests of the inhabitants of  these territories are paramount, and . . . ensure, with due respect for the culture of the peoples concerned, their political, economic, social and educational advancement, their just treatment, and their protection against abuses.[39]

 

These principles are central to international relations, and, if violated, give cause for peoples who are denied access to redress from their government to seek secession and recognition as a state.[40], [41] Moreover, the right of secession has historically applied to states emerging from prior colonial rule, or to putative states seeking refuge from egregious human rights violations.[42] Applying international custom, it is likely that the Hong Kongese may forward a successful case for statehood if they seek to do so on customary grounds.

Moreover, applying the elements of statehood as put forth in the Montevideo Convention, to obtain statehood status, a putative state must have territory, a permanent population, a working government recognized by its people, and capacity to conduct international relations, normally measured by recognition by other states.[43] Hong Kong has long-established territorial bounds; a permanent population of native Hong Kongese as well as British and Canadian citizens; a newly elected operating council with the support of its people; and, as an economic and political hub, has been backed by major United Nations’ members including the United Kingdom, the United States, France, Canada, and Australia.[44], [45] Hong Kong has also entered into treaties including the aforementioned extradition treaties with 20 states including the United States and the United Kingdom, justifying recognition under both the Declaratory Theory of Recognition—in which a putative state that meets the Montevideo test is a state—or the Constitutive Theory that requires formalized evidence of recognition of the putative state by the international community at large.[46], [47]

Therefore, the people of Hong Kong and the international community would be justified according to international law in taking all steps necessary to ensure the rights of the people of Hong Kong by pursuing statehood and seceding from the control of mainland China and its Communist regime.[48] The Security Council cannot and should not stand idly by as abuses of human rights continue. Failure to impose sanctions, diplomatic pressure, or consider deploying peacekeeping forces will only embolden President Xi Jinping, since he has not been held accountable for his threat to end any separatist movement with “bodies smashed and bones ground to powder.”[49]

[1] Daniel Victor and Tiffany May, The Murder Case That Lit the Fuse in Hong Kong, N.Y. Times, June 15, 2019, https://www.nytimes.com/2019/06/15/world/asia/hong-kong-murder-taiwan-extradition.html.

[2] Id.

[3] Id.

[4] Hong Kong-China Extradition Plans Explained, BBC, Dec. 13, 2019, https://www.bbc.com/news/world-asia-china-47810723.

[5] Id.

[6] Id.

[7] Id.

[8] Id.

[9]  Victor and May, Supra note 1.

[10] Supra note 4.

[11] Victor and May, Supra note 1.

[12] Id.

[13] Id.

[14] Supra note 4.

[15] Id.

[16] Victor and May, Supra note 1.

[17] Supra note 4.

[18] Id.

[19] Id.

[20] Victor and May, Supra note 1.

[21] The Hong Kong Protests Explained in 100 and 500 Words, BBC, Nov. 28, 2019, https://www.bbc.com/news/world-asia-china-49317695.

[22] Id.

[23] Victor and May, Supra note 1.

[24] History.com Editors, Tianmen Square Protests, History, May 31, 2019, https://www.history.com/topics/china/tiananmen-square.

[25] Victor and May, Supra note 1.

[26] Supra note 21.

[27] Id.

[28] Id.

[29] Id.

[30] Id.

[31] Supra note 4.

[32] Stephen McDonnell, Why China Censors Banned Winnie the Pooh, BBC News, July 17, 2017, https://www.bbc.com/news/blogs-china-blog-40627855.

[33] Bethany Allen-Ebrahimian, University of Minnesota Student Jailed in China Over Tweets, Axios, Jan. 23, 2020, https://www.axios.com/china-arrests-university-minnesota-twitter-e495cf47-d895-4014-9ac8-8dc76aa6004d.html.

[34] Chris Buckley and Austin Ramzy, China’s Detention Camps for Muslims Turn to Forced Labor, N.Y. Times, Dec. 16, 2018, https://www.nytimes.com/2018/12/16/world/asia/xinjiang-china-forced-labor-camps-uighurs.html.

[35] Amy Qin, Steven Lee Myers, and Elaine Yu, China Tightens Wuhan Lockdown in ‘Wartime’ Battle with Coronavirus, N.Y. Times, Feb. 6, 2020, https://www.nytimes.com/2020/02/06/world/asia/coronavirus-china-wuhan-quarantine.html.

[36] Id.

[37] Jessie Pang, Hong Kong Protestors Rally Against Planned Virus Quarantine Centers, Reuters, Feb. 16, 2020, https://www.reuters.com/article/us-china-health-hongkong-protests/hong-kong-protesters-rally-against-planned-virus-quarantine-centers-idUSKBN20A08N.

[38] U.N. Charter art. I, para. 2 (emphasis added).

[39] U.N. Charter art. 73, para 1(a) (emphasis added).

[40] In re: Secession of Quebec, 2 S.C.R. 217 (1998).

[41] Theodore Christakis, Secession, Oxford Bibliographies, May 25, 2016, https://www.oxfordbibliographies.com/view/document/obo-9780199796953/obo-9780199796953-0044.xml.

[42] Id.

[43] Convention on Rights and Duties of States adopted by the Seventh International Conference of American States, Dec. 26, 1933, 49 Stat. 3097, https://avalon.law.yale.edu/20th_century/intam03.asp.

[44] History, https://www.discoverhongkong.com/us/plan-your-trip/traveller-info/about-hong-kong/history.jsp.

[45] Supra note 21.

[46] Supra note 4.

[47] Leonhardt van Efferink, William Worster: Sovereignty—Two Competing Theories of State Recognition—William Worster, Exploring Geopolitics, Feb. 2010, https://exploringgeopolitics.org/publication_worster_willliam_sovereignty_constitutive_declatory_statehood_recognition_legal_view_international_law_court_justice_montevideo_genocide_convention.

[48] Excerpt of Kofi Annan’s Report on UN Reform, Mar. 21, 2005, https://www.globalpolicy.org/component/content/article/154/26053.html. (In relevant part, “But if national authorities are unable or unwilling to protect their citizens, then the responsibility shifts to the international community to use diplomatic, humanitarian and other methods to help protect the human rights and well-being of civilian populations. When such methods appear insufficient, the Security Council may out of necessity decide to take action under the Charter of the United Nations, including enforcement action, if so required.”).

[49] Supra, note 4.

Day Zero: Blessing the Rains in South Africa

Meagan McNeely

 

In 2018, after years of below-average rainfall[1], the South African government announced the impending arrival of “Day Zero,” the day on which city tap water would be officially turned off.[2] The city of Cape Town, South Africa, had a population of four million residents in 2018.[3] The city prepared “two hundred emergency water stations;” each station was meant to serve twenty thousand residents.[4] In order to avert the impending crisis of Day Zero, the city of Cape Town implemented numerous water restrictions. These restrictions were largely successful; in May 2018, Day Zero was pushed back.[5] Now, in January of 2020, Day Zero serves as both a story of success and a grim reminder of the trials which lie ahead. With rapid climate change, political unrest, and unprecedented population growth, cities across the world should take note of South Africa’s initiatives to prevent future water crises.

After the initial announcement of Day Zero, Cape Town residents were asked to use only fifty liters of water per day.[6] For context, the typical American uses a minimum of three hundred liters per day; twenty-five liters equals roughly four minutes in the shower.[7] Households using more than the allotted fifty liters were fined or, in extreme cases, had a meter installed that automatically shut off their water.[8] It became illegal to fill a swimming pool with city water; instead, citizens often used their pools for emergency bathing and water supply.[9] Cafes began using paper cups and plates to eliminate the need for excessive dishwashing, and city-operated parks and golf courses were functionally abandoned.[10] By the time the reservoirs and dams were at a mere one-third of overall capacity, the fifty-liter restriction was less than the minimum amount recommended by the United Nations “for domestic water needs.”[11] With Day Zero hanging overhead, the permitted daily usage of water was to be reduced to no more than twenty-five liters per day.[12]

With the criminalization of typically simple tasks such as washing a vehicle, Cape Town residents became creative in their conservation efforts.[13] Showering over a bucket in order to catch and reuse water, flushing toilets once a day, and only washing clothing when absolutely necessary became common techniques to conserve water.[14] In spite of these efforts, “water trafficking” became an issue.[15] While illegal to actually charge for well or river water, traffickers could “charge for labor and transport.”[16]  This became a lucrative business, yet it remained in a “legal gray area.”[17]

The city of Cape Town also made concessions. Beginning with the cessation of watering municipal facilities such as public parks, the city also reduced water allocation to fruit farms.[18] While hospitals and other important civic structures maintained their water usage, Day Zero affected all residents, agriculturists, and hospitality workers.[19] The city allowed nighttime irrigation, implemented the reparation of infrastructure, and approved potential desalination construction.[20] City officials also took measures to reduce water pressure to minimize leakage and subsequent water loss.[21]

By August 2019, the dams in Cape Town were over eighty percent capacity.[22] Day Zero came and went.[23] Partially credited to long overdue rains, the conservation efforts of the city of Cape Town and its residents prevented the manifestation of a full crisis. Such efforts should act as a model to other world cities facing water shortages and potential crises.

Cities with large populations, such as Mexico City and Jakarta, are already having structural problems. One-fifth of Mexico City residents only have tap water for a few hours per week.[24] The city of Jakarta is essentially sinking due to the dire need to pull up ground water.[25] Australia voiced concerns, reporting that it may run out of water in approximately ten years.[26] Southern California experienced a five-year drought, causing agricultural issues and widespread fires.[27] These cities are not alone in this risk; many cities with “inadequate infrastructure” and unsanitary conditions could easily find themselves in a water crisis.[28] Further, political stability and the looming threat of rapid climate change make worldwide water famine a practical reality.[29]

Just as Day Zero came and went for South Africa, many large cities are likely to narrowly avoid the catastrophic consequences of simply not having enough water. Citizens of the world should begin making conservation efforts and become more aware of excessive usage. While climate change and political dynamics may play a role, the deciding factor in avoiding any crisis is the action of the people. It might not always rain, and the world must be prepared.

[1] Charlotte Edmond, Cape Town Almost Ran Out of Water. Here’s How it Averted the Crisis., World Economic Forum (Aug. 23, 2019), https://www.weforum.org/agenda/2019/08/cape-town-was-90-days-away-from-running-out-of-water-heres-how-it-averted-the-crisis.

[2] Craig Welch, Why Cape Town is Running Out of Water, and Who’s Next, Nat’l Geographic (Mar. 5, 2018), https://www.nationalgeographic.com/news/2018/02/cape-town-running-out-of-water-drought-taps-shutoff-other-cities/#close.

[3] Christian Alexander, Cape Town’s ‘Day Zero’ Water Crisis, One Year Later, City Lab (Apr. 21, 2019), https://www.citylab.com/environment/2019/04/cape-town-water-conservation-south-africa-drought/587011.

[4] Welch, supra note 2.

[5] Krista Mahr, How Cape Town Was Saved From Running Out of Water, Guardian (May 4, 2018, 8:04 AM), https://www.theguardian.com/world/2018/may/04/back-from-the-brink-how-cape-town-cracked-its-water-crisis.

[6] Welch, supra note 2.

[7] Welch, supra note 2.

[8] Mahr, supra note 5.

[9] Aryn Baker, What It’s Like to Live Through Cape Town’s Massive Water Crisis, Time, https://time.com/cape-town-south-africa-water-crisis (last visited Jan. 21, 2020).

[10] Id.

[11] Baker, supra note 9.

[12] Id.

[13] Edmond, supra note 1.

[14] Mahr, supra note 5.

[15] Baker, supra note 9.

[16] Id.

[17] Id.

[18] Mahr, supra note 5.dian

[19] Baker, supra note 9.

[20] Mahr, supra note 5.rdian

[21] Edmond, supra note 1.

[22] Id.

[23] Id.

[24] Welch, supra note 2.

[25] Id.

[26] Id. (Information accurate as of the date this article was written; subsequent wildfires may affect this number.)

[27] Id.

[28] Id.

[29] Id.

Parallel Imports and the Principle of Exhaustion: The First Sale Rule in International Commerce

Kyle C. Williams

 

The lack of harmony in international trade law regarding parallel imports of goods that are protected by intellectual property (IP) rights has created challenges for IP owners doing business in foreign markets. Many jurisdictions differ with respect to the policies and laws prohibiting or allowing parallel imports of goods protected by intellectual property rights.[1] However, preventing IP owners from using their rights to monopolize the re-sale of protected products from third parties can benefit fair trade and competition policy. Because each jurisdiction differs in policy, IP owners must consider the law of the jurisdiction where a potential licensee/distributor operates for the sale of a protected product to determine whether its products may be re-sold in competition with the IP owner in their domestic market.[2] The principle of exhaustion of intellectual property rights will determine whether an IP owner may prevent a third-party purchaser re-selling a product as a parallel import in the IP owners’ domestic market.

 

International jurisdictions have trade policies that follow the principle of either national exhaustion or international exhaustion regarding the extent of intellectual property rights after a particular product has reached the market.[3] Under a national exhaustion regime, the IP owner loses the right to restrict trade of a product using its protected IP in the country where it was first put into commerce.[4] However, the IP owner reserves the right to restrict the first sale of a product using its protected IP in any other jurisdiction.[5] This form of the principle allows for the IP owner to maintain control over their rights and retain the ability to authorize re-sale in exchange for additional compensation in a licensing agreement with a foreign distributor/manufacturer.

 

Under an international exhaustion regime, the IP owner loses the right to restrict trade of a product using its IP after it has first been put to commerce wherever the product has been sold. This form of the exhaustion principle effectively prohibits the IP owner from preventing third-parties from re-selling their products both abroad and in the IP owners’ domestic market.[6] Intellectual property law in the US provides the IP owner with the exclusive right to benefit from the sale of a protected product in most cases. Once the first sale rule has been met, however, the policies of the jurisdiction where the product was sold dictate whether those rights remain in effect.[7] The adoption of the first sale rule can stimulate growth within the market by supporting competition and a stable price for many protected consumer goods.

 

  1. Intellectual Property Rights and Parallel Importation

 

Despite the attempt to establish uniformity of intellectual property rights internationally, regulation of parallel imports has not been consistent amongst many of the world’s most prominent international partners. Trademark, patent, and copyright law in the US, for example, each address the issue of parallel imports differently. Moreover, Article 6 of the agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) asserts that the issue of exhaustion shall not be addressed by the agreement.[8] The consequence is that each jurisdiction on the international stage will decide whether to have a national exhaustion regime or an international exhaustion regime. The US applies an international exhaustion regime through the use of the first sale rule, requiring IP owners to rely on other mechanisms to address parallel imports.

 

  1. US Trademark Protection against Parallel Imports

 

Trademark Law in the US limits the tools available for IP owners to protect against parallel imports. In Matrix Essentials, Inc., the Fifth Circuit held that liability under trademark infringement is predicated on a finding that the infringers’ activities are likely to cause confusion.[9] In order to find infringement, the consumer must either be misled with respect to defects in the goods or be confused regarding whether the seller is authorized by the manufacturer/IP owner to sell the goods purchased in good faith.[10]

 

Citing Shell Oil Co., the fifth circuit agreed that trademark law does not usually apply to the sale of genuine goods that contain the mark of the legal IP owner even if those sales are conducted without the IP owners’ consent.[11] Thus, if the goods are not counterfeit, were acquired legally, contain the IP owners mark, and fit the quality control standards of the IP owner, there can be no infringement for re-sale.[12]

 

US trademark law does provide protection for IP owners through the Lanham Act. When goods sold through a third-party are protected by the original IP rights, and are materially different from those sold by the IP owner, the Lanham Act provides a remedy for cases of infringement.[13] Section 32(1) creates a remedy for the use of civil actions against infringement of registered trademarks.[14] Section 42 allows the customs and border patrol to prevent imports of goods that infringe both registered and unregistered trademarks.[15] Section 43(b) allows a party to create a civil action to enjoin importation of any goods that are likely to infringe on a registered or unregistered trademark.[16] Courts in the US have found that even subtle differences are enough since the standard is a low bar.[17] However, these protections do not solve for the re-sale of identical goods put into the domestic market.

 

Additional federal statutory protection against parallel imports exist in the 1930 Tariff Act. Section 526 of the Act blocks parallel imports of goods protected under a trademark owned by a US person without written consent, regardless whether the goods are identical or materially different.[18] However, Section 526 only applies to goods manufactured outside the US, and does not apply when the US person who owns the trademark also owns a trademark for the goods in the manufacturing country, or a corporate affiliation with a foreign manufacturer.[19] Thus, Section 526 may protect a US IP owner of a registered trademark from parallel imports sold in their domestic market as a biproduct of a licensing agreement with a foreign distributor, but will not protect against third-party sales if the foreign distributor is a parent or subsidiary corporation of the IP owner.

 

  1. US Copyright Protection against Parallel Imports

 

Under the Copyright Act, the owner or exclusive licensee of a federal copyright maintains the exclusive right to import and distribute materials using that copyrighted material in the United States.[20] However, the first sale rule limits this right of importation and distribution by only providing the IP owner the right to control the first public sale, while granting no rights over subsequent resales of the same copyrighted material.[21] US courts had differing opinions as to whether the Copyright Act protected against the resale of copyrighted products if those products were manufactured abroad until the US Supreme Court addressed this issue in Kirtsaeng.

 

Court in Kirtsaeng held that the first sale rule applies to goods protected by US Copyright Law regardless of whether the goods were manufactured in the US or abroad.[22] The Court found that because the product was brought to sale by the IP owner, and because there are no geographical restrictions on where the first sale rule applies, the IP owner/manufacturer could not prevent Kirtsaeng from creating a parallel import of the copyrighted material.[23] Thus, the rationale of the first sale rule would apply in any jurisdiction after the IP owner put the goods to market anywhere in the world. Therefore, Copyright Law in the US also provides limited protection against parallel imports.

 

  1. US Patent Law Protection against Parallel Imports

 

Under 35 U. S. C. §154(a) a US Patent holder has the right to “exclude others from making, using, offering for sale, or selling [its] invention throughout the United States or importing the invention into the United States.”[24] The Supreme Court, however, has affirmed in Impression Products, Inc. that once the patentee sells one of its protected products the patentee can no longer control the patented item through the patent laws because those rights will have been exhausted.[25] The Court reasoned that because the purpose of patent law is for the patentee to receive his/her reward for the use of his/her invention, that law furnishes “no basis for restraining the use and enjoyment of the thing sold.”[26] Thus, the first sale rule extends to all applicable intellectual property rights provided by US federal law. Protection against parallel imports is therefore limited in the jurisdiction of the United States.

 

  1. International Law and Parallel Imports

 

Most nations around the world utilize an international exhaustion regime. However, many nations include specific variations on the core principle. The United States and Canada, for example, both use an international exhaustion regime based on a standard of whether the parallel import is materially different from the IP owner’s original product.[27] If no material differences are found then the product may be imported into the country subject to national competition law by state or province.[28]

 

Some nations and international blocs have national exhaustion regimes within their borders. For example, the European Union (EU) prohibits IP owners from restricting the trade of parallel imports within its member states, while requiring each member state to block parallel imports from outside the EU.[29] The EU prohibits any individual member state from operating an international exhaustion regime in an effort to promote free trade policies amongst its member states while restricting foreign trade.[30] Similar to the examples set by North America and Western Europe, most nations apply a national or international exhaustion regime under the first sale rule to address parallel imports and IP rights.

 

  1. International Exhaustion Regimes

 

Many prominent players in international trade operate within an international exhaustion regime. Australia, Singapore, China, Hong Kong, and Japan all operate within this type of regime. Although all of these nation states follow the international exhaustion principle, they all approach the policy differently.

 

Under Section 123 of the Australian Trademarks Act 1995, a parallel importer may claim a defense to trademark infringement if the goods have been legally marked by the IP owner, or if the mark was applied with the IP owners’ consent.[31] Under Schedule 2 to the Competition and Consumer Act 2010, IP owners may protect against trademark infringement where the parallel importer makes a false representation regarding a performance characteristic, use, benefit, warranty, guarantee, or country of origin information that is different from the actual IP owners product.[32] This is similar to the “material differences” standard used in North America to prove infringement.

 

China does not currently have legislation in place to regulate parallel imports, but Chinese customs may prevent physical goods from entering the country that violate Customs protection of intellectual property rights.[33] China has avoided many cases regarding parallel imports in its courts because multinational corporations usually manufacture products in China and export them into other jurisdictions.[34] The low cost of manufacturing goods in China helps to prevent most parallel importers from purchasing goods at a lower price elsewhere and selling them into China.[35] At present, parallel imports freely exist without restriction in the Chinese market, so the nation can be considered to be under an international exhaustion regime by proxy. However, without clear legislation or binding case law precedent, a definitive regime cannot be established.[36]

 

In contrast to the ambiguity for treatment of parallel imports in mainland China, Hong Kong has a relatively clear international exhaustion regime. With respect to trademark law, Hong Kong mirrors the first sale rule of the United States in that it looks to whether the protected goods have been altered from the original standard put to market by the IP owner, and whether the goods will harm the distinctive character of the trademark.[37] Upon the enactment of a revised copyright law in 2007, Hong Kong now includes a far more protectionist standard against parallel imports for goods under copyright than with trademarks.

 

It is an actionable offense in Hong Kong to sell imported parallel copies of goods protected by copyright for any business purpose to the public, unless the good is computer software.[38] Additionally, the importation of genuine goods for educational purposes is allowed as a form of fair use within its borders.[39] Hong Kong also provides a criminal action as a remedy if a party sells, or imports for sale, goods that are protected by copyright (with exceptions for computer software, within the previous 15 months of the import.)[40] A criminal action is also available for the parallel import of protected motion pictures made available to a viewing public.[41] Thus, Hong Kong has a hybrid international exhaustion regime.

 

In Japan, the so-called “Fred Perry” case, heard by the Supreme Court of Japan, established the rule on parallel imports in that jurisdiction. In the Fred Perry case, a party brought suit against a parallel importer after goods associated with a valid international licensing agreement entered into the Japanese market in competition with the IP owner of the marks used for those goods. The Supreme Court of Japan held that if the goods sold in the domestic market are genuine goods produced with the consent of the IP owner, from an identical source and with identical quality, the parallel import cannot violate Japanese trademark rights.[42] Therefore, parallel imports in Japan follow the international exhaustion regime under a version of the first sale rule.

 

  1. National Exhaustion Regimes

 

Although most industrious nations follow some form of international exhaustion for the regulation of parallel imports using IP rights, some follow the national exhaustion model despite the global focus on free trade policy. The Philippines and Russia, both hybrid national exhaustion regimes, maintain protectionist policies regarding the creation of parallel distribution channels for IP protected products.

 

The Philippine system is a hybrid national regime because only copyright and patent IP owners may restrict parallel imports, while trademark IP owners must endure competition from parallel distribution channels.[43] Trademark law in the Philippines permits the importation of genuine products sourced from the IP owner of the mark used on a given product.[44] The law does, however, prohibit the copying or simulation of trademarked goods.[45] In Solid Triangle Sales Corp. v. The Sheriff of RTC Quezon City, the Supreme Court of Manila held that only in cases of fraud or deceit may a parallel importer be found liable of unfair competition based on whether the imported product is passing off as something different.[46]

 

Section 190 of the IP Code authorizes the importation of copyright protected works, where the IP owner is a domestic producer, only when the work is not available in the Philippines and is in the personal luggage of a natural person.[47] Additionally, the amount of copies must not exceed three in total.[48] The law does not, however, address commercial quantities of genuine goods under protection of copyright law.[49] Thus, the courts may have discretion to determine the fate of a parallel importer that has been accused of copyright infringement.

 

Patent law in the Philippines is much more concrete regarding parallel imports of IP protected products. Where the subject matter of the patent is a product, the IP owner maintains the right to restrict an unauthorized person or entity from making, using, offering for sale, selling, or importing that product.[50] Although there are limitations on an IP owners’ rights after the protected product has been put to sale, those rights only effect domestic producers, not foreign distributors.[51] Thus, Philippine patent law maintains a national exhaustion regime with respect to most of its IP rights related to the activity of parallel importation.

 

Maybe insert a more concrete transition into talking about Russia? For many years, parallel imports of IP protected goods into the Russian market were prohibited and considered counterfeit.[52] If parallel goods were caught by customs agents they would be confiscated for a period of 10 days allowing for the Russian IP owner to execute a civil suit to have them destroyed following payment of court ordered damages.[53] In 2018, the Russian Constitutional court held that although there is a conflict of interest between IP trademark owners and parallel importers, Russia maintains a policy of national/regional exhaustion of IP protection, so parallel imports are prohibited.[54]

 

Russian courts have, however, begun the process of liberalizing the policy against parallel importation. The Constitutional Court has also held that IP owners should be barred from abusing their rights by restricting the import of goods that meet unique public interests.[55] The courts have also used their discretion in judgements to lower damages for cases of parallel imports of genuine goods rather than making damages equal to a judgement for the sale of counterfeit goods.[56] As a member of the Eurasian Economic Union, there is international exhaustion between the member states, but like the EU, a practice of national exhaustion applies to all foreign parallel imports.[57]

 

  1. Rationale and Policy Considerations

 

Globalization has sparked a wildfire of free trade policy across the industrial world. Naturally, to promote free trade policy, the sale of goods must be allowed to move between markets with minimal restraint. However, producers must have a means to protect themselves and their work product. Intellectual property rights provide one mechanism to protect those interests. On the other hand, IP rights offer an opportunity to abuse free market principles by promoting activity that restricts healthy competition.[58] Adopting a policy of exhaustion is an attempt to regulate the potential abuse of IP rights while protecting foreign and domestic producers.

 

Parallel importation on the global market does provide a nuisance to IP owners, but there is great benefit in promoting the activity. Owners of IP bring a product to market with set prices and launch dates. This activity allows producers to exert a large amount of control over consumer access and competition in the region where sales are being executed by effectively promoting market segmentation.[59] Thus, the decision to use either an international or national/regional exhaustion regime for IP rights reflects economic competition policy of the country in question. Therefore, the strength of the domestic economy may indicate which regime will evolve in that country.

 

Intellectual property rights confer a monopoly over what amounts to an intangible asset.[60] This asset may be affixed to any number of physical products that enter the market anywhere in the world. The IP monopoly is intended to provide the IP owner the right to profit off of its inventive work product, but under the principle of exhaustion that monopoly does not extend past the sale of an individual product that has been affixed with the protected IP after it has been put into commerce.[61] This restriction on the extension of IP rights to prevent parallel imports preserves an important  channel for commerce that benefits competition and often strengthens the international economy.

[1] Christopher Heath, Parallel Imports and International Trade, WIPO, July 9, 1999, at 3, par. 1 Available at: https://www.wipo.int/edocs/mdocs/sme/en/atrip_gva_99/atrip_gva_99_6.pdf

[2] Michala Meiselles, Hugo Wharton, International Licensing Agreements: IP, Technology Transfer and Competition Law, 32-34, par. 4 (2018) Available at: https://play.google.com/books/reader?id=QI6WDwAAQBAJ&hl=en&pg=GBS.PT38.w.6.0.61

[3] Fabio Giacopello, Parallel import: The Battle Between Safe and Cheap, HFG Law & Intellectual Property, Last updated: 3 Apr. 2019, at 1, par. 5 Available at: http://www.hfgip.com/news/parallel-import-battle-between-safe-and-cheap

[4] Id.

[5] Id.

[6] Id.

[7] Mary LaFrance, Wag the Dog: Using Incidental Intellectual Property Rights to Block Parallel Imports, 20 Mich. Telecomm. & Tech. L. Rev. 45, 51 (2013). Available at: http://repository.law.umich.edu/mttlr/vol20/iss1/2

[8] TRIPS: Agreement on Trade-Related Aspects of Intellectual Property Rights, Apr. 15, 1994, Marrakesh Agreement Establishing the World Trade Organization, Annex 1C, 1869 U.N.T.S. 299, 33 I.L.M. 1197, Art. 6 (1994) Available at: https://www.wto.org/english/docs_e/legal_e/27-trips.pdf

[9] Matrix Essentials, Inc. v. Emporium Drug Mart, Inc., of Lafayette, 988 F.2d 587, 590 (5th Cir. 1993)

[10] Id.

[11] Id.

[12] Id.

[13] Mary LaFrance, Wag the Dog: Using Incidental Intellectual Property Rights to Block Parallel Imports, 20 Mich. Telecomm. & Tech. L. Rev. 45, 52 (2013) Available at: http://repository.law.umich.edu/mttlr/vol20/iss1/2

[14] 15 U.S.C. § 1114(1) (2012)

[15] Id.

[16] Id.

[17] Mary LaFrance, Wag the Dog: Using Incidental Intellectual Property Rights to Block Parallel Imports, 20 Mich. Telecomm. & Tech. L. Rev. 45, 53 (2013) Available at: http://repository.law.umich.edu/mttlr/vol20/iss1/2

[18] 19 U.S.C. § 1526 (2012)

[19] Mary LaFrance, Wag the Dog: Using Incidental Intellectual Property Rights to Block Parallel Imports, 20 Mich. Telecomm. & Tech. L. Rev. 45, 55 (2013) Available at: http://repository.law.umich.edu/mttlr/vol20/iss1/2

[20] 17 U.S.C. § 602(a)(1) (2012)

[21] Mary LaFrance, Wag the Dog: Using Incidental Intellectual Property Rights to Block Parallel Imports, 20 Mich. Telecomm. & Tech. L. Rev. 45, 58 (2013) Available at: http://repository.law.umich.edu/mttlr/vol20/iss1/2

[22] Kirtsaeng v. John Wiley & Sons, Inc., 568 U.S. 519, 553, 133 S. Ct. 1351, 185 L. Ed. 2d 392 (2013)

[23] Id.

[24] 35 U. S. C. §154(a)

[25] Impression Prod., Inc. v. Lexmark Int’l, Inc., 137 S. Ct. 1523, 1531, 198 L. Ed. 2d 1 (2017)

[26] Id. at 1532.

[27] Impression Prod., Inc. v. Lexmark Int’l, Inc., 137 S. Ct. 1523, 1531, 198 L. Ed. 2d 1 (2017); Dupont of Canada Ltd. v. Nomad Trading Co. (1968) 55 CPR 97

[28] Id.

[29] Mary LaFrance, Wag the Dog: Using Incidental Intellectual Property Rights to Block Parallel Imports, 20 Mich. Telecomm. & Tech. L. Rev. 45, 76 (2013). Available at: http://repository.law.umich.edu/mttlr/vol20/iss1/2

[30] Id.

[31] Trade Marks Act 1995, (Cth) s 123 (Austl.)

[32] Competition and Consumer Act 2010 (Cth) sch. 2 (Austl.); Star Micronics Pty Ltd. v. Five Star Computers Pty Ltd. (1991) 22 IPR 473

[33] Article 3, Regulations of the People’s Republic of China on Customs Protection of Intellectual Property Rights (2004) Available at: https://www.wipo.int/edocs/lexdocs/laws/en/cn/cn025en.pdf

[34] Daniel Chow, Exhaustion of Trademarks and Parallel Imports in China, 51 Santa Clara L. Rev. 1283, 1286 (2011). Available at: http://digitalcommons.law.scu.edu/lawreview/vol51/iss4/7

[35] Id.

[36] Id. at 1309.

[37] Section 20, Trade Marks Ordinance (Cap. 559 of the Laws of Hong Kong)

[38] Copyright Ordinance (Cap. 528 of the Laws of Hong Kong)

[39] Angela Wang & Co, Parallel Importation of Goods in Hong Kong and Mainland China (Part I – Hong Kong), MONDAQ, Last updated: 25 Feb. 2008, at 1, par. 11 Available at: http://www.mondaq.com/article.asp?article_id=57560

[40] Id.

[41] Id.

[42] Case H14 (Ju) 1100, Judgment on February 27, 2003 (H15) Available at: https://www.jpaa.or.jp/old/english/court_decisions/69FREDPERRYCase.pdf

[43] Ignacio S Sapalo, PHILIPPINES: PARALLEL PROBLEM, SVBB, 01 October 2007, at 1, par. 2, Available at: https://www.sapalovelez.com/2014/08/27/philippines-parallel-problem/

[44] Section 166 of Republic Act 8293, the Intellectual Property Code (IP Code)

[45] Id.

[46] Solid Triangle Sales Corp. v. The Sheriff of RTC Quezon City, Branch 93, 370 SCRA 509 Available at: http://www.chanrobles.com/scdecisions/jurisprudence2001/nov2001/gr_144309_2001.php

[47] Ignacio S Sapalo, PHILIPPINES: PARALLEL PROBLEM, SVBB, 01 October 2007, at 1, par. 8, Available at: https://www.sapalovelez.com/2014/08/27/philippines-parallel-problem/

[48] Id.

[49] Id.

[50] Section 71(a), Rep. Act No. 8293 (Intellectual Property Code), as amended by Rep. Act No. 9502 Available at: https://PH_Intellectual-Property-Code-of-the-Philippines-Republic-Act-No-8293-2015-Edition.pdf

[51] Ignacio S Sapalo, PHILIPPINES: PARALLEL PROBLEM, SVBB, 01 October 2007, at 1, par. 10, Available at: https://www.sapalovelez.com/2014/08/27/philippines-parallel-problem/

[52] Olga Yashina, Russian Federation: Parallel Imports In Russia: Same Game, Different Rules, MONDAQ, Last updated: 3 December 2018, at 1, par. 1, Available at: http://www.mondaq.com/russianfederation/x/760194/Trademark/Parallel+imports

[53] Id.

[54] Id. at 8.

[55] Id. at 10.

[56] Id at 12.

[57] Id. at 16.

[58] E. Bonadio, Parallel Imports in a Global Market: Should a Generalized International Exhaustion be the Next Step?, European Intellectual Property Review, 33(3), 1 (2011) Available at: https://openaccess.city.ac.uk/id/eprint/4106/1/Parallel Imports in a Global Market.pdf;Exhaustion

[59] Keith E. Maskus, Economic Perspectives on Exhaustion and Parallel Imports, CALBOLI 9781783478705 PRINT (M3966) (G).indd, 106 (2016) Available at: https://www.colorado.edu/faculty/kmaskus/sites/default/files/attached-files/chapter_6.pdf

[60] E. Bonadio, Parallel Imports in a Global Market: Should a Generalized International Exhaustion be the Next Step?, European Intellectual Property Review, 33(3), 1 (2011) Available at: https://openaccess.city.ac.uk/id/eprint/4106/1/Parallel Imports in a Global Market.pdf;Exhaustion

[61] Id.

The Abolishment of the Kafala System, How Qatar’s World Cup Nomination Led to Change in Their Labor System

By: Francis Mulligan

            The announcement that Qatar would host the 2022 FIFA World Cup was met with widespread criticism. How does a country with no historical success in international soccer and a population of fewer than two million people become the host of the world’s most notable sporting event?[1] Claims of corruption within FIFA were widespread at the time and were later substantiated with arrests.[2] FIFA officials were arrested under charges of racketeering, money laundering, and wire fraud a few years after the announcement. Following these arrests, leaked documents showed that Qatar had offered FIFA $400 million weeks before the bidding process had ended in order to host the tournament.[3]

 

Additionally, there were, and still are, numerous practical issues that plague the upcoming tournament. Notably, the average temperature in Qatar makes playing the tournament in the summer nearly impossible. As a result, the tournament, which has always taken place in the summer, has been moved to the winter.[4] This has raised problems for players and their domestic club teams, who compete throughout the winter months. Numerous domestic leagues have come forward and said that they do not want the tournament to take place in the winter.[5] A spokesman for the English Premier League stated, “The prevailing view from the leagues has been that displacing the 2022 World Cup significantly from the original summer dates disproportionately impacts the sporting integrity of our competitions.”[6] Also, there are questions as to whether the infrastructure of Qatar can withstand the increased traffic the tournament would bring. The country’s infrastructure is designed for that of a small nation, as Qatar’s population at the time was under two million; the last World Cup saw over seven million tourists visit Russia.[7] An influx of almost four times Qatar’s population visiting the nation could provide a great strain on hotels, roads, airports, etc.[8] Most importantly, Qatar did not, at the time of the announcement, have any stadiums in which the games could be played. Despite this, the Qatari government assured FIFA that the stadiums would be built and completed by the start of the tournament.[9]

 

The need for new stadiums led to a large influx of migrant workers entering the country. Since the announcement of the World Cup, Qatar’s population has grown from 1.6 million to 2.6 million. Most of that growth is the result of the influx of migratory workers. Many of the workers hail from countries in the south of Asia, such as Nepal, Bangladesh, and India.[10]

 

All of this has shined a light onto Qatar’s labor system. Qatar, along with other nations in the Middle East (Bahrain, Jordan, Kuwait, Lebanon, Oman, Saudi Arabia, and the United Arab Emirates), employs the Kafala labor system.[11] Kafala, meaning sponsorship in Arabic, ties employees to specific employers.[12] The employers sponsor employees’ visas and issue residency permits.[13] The Kafala system is part of immigration law in these countries and is monitored and regulated by each nation’s Ministry of the Interior.[14] Issues arise due to the control the employers then have over the employees. Stories of employers taking their employee’s passports away for years, refusing to allow employees to change jobs, and wages being withheld for months at a time are numerous.[15] Furthermore, the working conditions on construction sites have been dangerous. Employees have claimed that they were being forced to work without water in the desert.[16] Lastly, employees have claimed that they were not allowed to leave the country without employer permission.[17] Any claims of abuse were disregarded by authorities who would meet with the employers of the workers. The employers would claim that nothing wrong had taken place. Then, workers would often be deported or punished for going forward with claims of abuse.[18] A lack of a legitimate system of redress for employees, along with the Kafala system has left migrant employees powerless in dealing with their employers.

 

Once the World Cup was been granted to Qatar in 2010, human rights groups across the globe began to scrutinize the Kafala system. Those criticisms fell upon deaf ears until 2013. In 2013, the International Trade Union Confederation warned that the 2022 World Cup in Qatar risked over 4,000 lives.[19] Mortality figures acquired by the organization showed that migrant workers from Nepal and India alone were dying at a rate of over one person per day.[20] This was at a time in which the government of Qatar was making public claims that over 500,000 more workers were needed to finish the World Cup’s construction on time.[21] In 2014, the Human Rights Council of the United Nations stated, “The recruitment process for migrants needs to be further formalized in order to prevent exploitation . . . The kafala system is a source of abuse and exploitation of migrants, and should be abolished.”[22]

 

Once the pressure of international criticism began to mount, Qatar attempted to make changes to the Kafala system, but they were not enough. Following a report by Amnesty International in 2016, the International Labor Organization (ILO) and Qatar entered into a three-year program to carry out extensive labor reformation.[23] The ILO is a UN employment rights agency whose mission is to advance social justice and set international working standards.[24] The focus of this three-year program is to adjust wage payments, to reform the Kafala system, and to provide workers with more power in labor negotiations.[25] This plan operated in a manner through which the ILO would make recommendations to Qatar in order to reach certain goals, but all of the decision-making would still be in the Qatari government’s hands.

 

Despite this three-year plan, migrant workers in Qatar still saw their wages withheld by employers. In 2018, multiple construction companies withheld wages from employees for several months before ceasing operations altogether, leaving thousands without any pay for months of work.[26] Additionally, as part of the reformation process, the ILO set up a complaint system for employees to seek redress against unfair labor practices. The ILO received over 6,000 complaints in a year from workers regarding the harsh working conditions or employer mistreatment.[27] The complaint system was supposed to be quick and efficient, where Qatari officials would issue a ruling on a complaint within six weeks. However, complaints took anywhere from three to eight months to be resolved instead.[28] Due to this elongated and ineffective complaint system, employees who were not paid their wages would forego civil action against employers and instead often elected to leave the country after working for months with nothing to show for it.[29] Many human rights organizations continued to call for the end of the Kafala system due to these continued issues. In August of 2019, over 5,000 workers took to the streets protesting the delay of wages and poor working conditions.[30]

 

Two months later, on October 17, 2019, Qatar pledged to abolish the “Kafala” system altogether and add a minimum wage to the country’s labor laws.[31] A Qatari official stated, “Qatar has made substantial progress on labour reforms and it continues to work with NGOs, including the International Labour Organization (ILO), to ensure that these reforms are far-reaching and effective.”[32]

 

The announcement has been met with acceptance but also hesitance. A spokesman for Amnesty International said that “it would be a major step forward if these measures finally allow workers to return home or change jobs without restriction. We will be closely scrutinizing the details of this announcement and pushing for any positive measures to be quickly and fully implemented.”[33] Due to the recent failed efforts of the Qatari government in reforming its labor system, human rights organizations understandably want to see the abolishment of the Kafala system play out before claiming this as a victory. However, this effort by Qatar is undoubtedly a step in the right direction.

 

In conclusion, a surprising positive emerged from the 2022 FIFA World Cup being given to Qatar. The granting of the World Cup to Qatar was, according to leaked documents, due to FIFA accepting a bribe from the Qatari government. Many issues regarding the tournament’s practicality remain, but the social activism and backlash over Qatar’s labor practices have led to the country abolishing a system that perpetuated inhumane labor practices. Now, Qatar has pledged to be one of the first countries in the Middle East to abolish the Kafala system and establish a working minimum wage. While these reforms are not yet in place, if the country follows through with their promises, then Qatar may be an example for other nations in the region to follow.

[1] Amnesty International, Reality Check: Migrant Workers Rights With Four Years To The Qatar 2022 World Cup, https://www.amnesty.org/en/latest/campaigns/2019/02/reality-check-migrant-workers-rights-with-four-years-to-qatar-2022-world-cup/.

[2] Evan Perez and Shimon Prokupecz, U.S. Charges 16 FIFA Officials in Widening Probe (2015), https://www.cnn.com/2015/12/03/sport/fifa-corruption-charges-justice-department/index.html/.

[3] Qatar’s secret $880m World Cup payments to FIFA (2019), thetimes.co.uk/article/revealed-qatars-secret-880m-world-cup-payments-to-fifa-p3r5rvw9x/.

[4] Steven Mufson, Facing Unbearable Heat, Qatar Has Begun to Air-Condition the Outdoors, https://www.washingtonpost.com/graphics/2019/world/climate-environment/climate-change-qatar-air-conditioning-outdoors/.

[5] Tony Manfred, FIFA moving the 2022 World Cup to winter is a total mess — and the world’s biggest teams are outraged (2015), https://www.businessinsider.com/fifa-will-not-compensate-clubs-for-2022-world-cup-move-2015-2/.

[6] Id.

[7] FIFA, 7.7 million football fans visit FIFA Fan Fest during Russia 2018, https://www.fifa.com/worldcup/news/7-7-million-football-fans-visit-fifa-fan-fest-during-russia-2018/.

[8] Mufson, supra note 3.

[9] Id.

[10] Amnesty International, supra note 1.

[11] International Labor Organization, Reform of the kafala (Sponsorship) System, https://www.ilo.org/dyn/migpractice/docs/132/PB2.pdf/.

[12] Id.

[13] Id.

[14] Priyanka Motaparthy, Understanding Kafala: An archaic law at cross purposes with modern development (2015), https://www.migrant-rights.org/2015/03/understanding-kafala-an-archaic-law-at-cross-purposes-with-modern-development/.

[15] Amnesty International, Qatar World Cup of Shame (2016), https://www.amnesty.org/en/latest/campaigns/2016/03/qatar-world-cup-of-shame/.

[16] Id.

[17] Id.

[18] Id.

[19] International Trade Union Conference, Qatar 2022 World Cup Risks 4000 Lives (2013), https://www.ituc-csi.org/qatar-2022-world-cup-risks-4000/.

[20] Id.

[21] Id.

[22] François Crepéau, Special Rapporteur on the Human Rights of Migrants, Mission to Qatar, ¶ 25-32, 80, U.N. Doc. A/HRC/26/35 (April 23, 2014).

[23] International Labor Organization, Qatar, https://www.ilo.org/beirut/countries/qatar/WCMS_654238/lang–en/index.htm.

[24] Id.

[25] Id.

[26] Amnesty International, Qatar: Despite Reform Promises, Migrant Workers Still Return Home Without Wages or Justice (2019), https://www.amnesty.org/en/latest/news/2019/09/qatar-despite-reform-promises-migrant-workers-still-return-home-without-wages-or-justice/.

[27] Id.

[28] Id.

[29] Id.

[30] Faras Ghani, Qatar Moves to Announce Abolishment of Kafala System (2019), https://www.aljazeera.com/news/2019/10/qatar-moves-announce-abolishment-kafala-system-191017070750729.html.

[31] Id.

[32] Id.

[33] Amnesty International, Qatar: Pledge to End Abusive ‘Kafala’ System Must Truly Transform Workers’ Rights (2019), https://www.amnesty.org/en/latest/news/2019/10/qatar-pledge-to-end-abusive-kafala-system-must-truly-transform-workers-rights/.