Counterfeits and cosmetics industry in India

By

Sakshi Shairwal

Metlapalli Spraja

Cosmetic product quality must be taken as seriously as pharmaceutical products and paramedics. They have a significant influence just as extreme and intrinsic as medications have on consumers.

Fake/counterfeit beauty products have been confirmed to become a serious fear among cosmetic brands and approved producers as illegal cosmetics are luring young people to the market due to their low prices compared to the extortionate prices of legitimate products. Cosmetic industry regulators and consumer authorities are becoming highly worried because these fake products are a hazard to consumers' health and safety. Unintentionally, because of the prices and the label of 'imported' goods, buyers are easily persuaded to buy sub-standard goods. Shoppers are often drawn to the 'imported' tag on these inexpensive makeup items.

Convenient production and innovations have made it easier for fraudsters to build small backdoor factories for fake goods manufacture. Although 30% of FMCG goods sold are fraudulent, about 80% of customers are unable to distinguish between legitimate and fake items. Higher costs, lack of knowledge, lack of stringent regulations and their enforcement, cheaper options, and a big disparity between demand and supply are other factors. In common, these products are sold at a few critical areas, such as train stations, flea markets, or weekly markets, where consumers turn a blind eye and vendors are not easy to monitor.

A standard method for acquiring a certificate of registration for such beauty products must be practiced while importing cosmetics into India. The legitimacy of the suppliers, the examinations carried out on the goods and the techniques by which these evaluations are carried out are some of the key aspects of the application for a registration certificate confirmed by the Central Organization for the Regulation of Drugs Standards (CDSCO). Detrimental substances such as lead, arsenic, and mercury are not permitted to be contained in these items beyond the specified specifications. The inclusion of chromium in cosmetics is absolutely prohibited from being an ingredient to be imported into India.

In 2018, the skincare business increased enormously, with the market crediting this to the rise of the 'upper-middle classes' worldwide and, most significantly, in Asia. With this upper-middle-class, several high-end companies are participating in heavy competition for online supremacy. With their social media audience on Twitter and Instagram, MAC Cosmetics leads the charge. Whereas, on Facebook, Eisenberg Paris has the largest social real estate. The danger to regulatory authorities of uncontrolled and unverified cosmetics that do not adhere to the import and/or manufacturing requirements laid down under the Act is now a matter of concern. According to a report published by the DCGI, online retailers were forced to remove unauthorized and counterfeit cosmetics from their websites and were further requested to sign into "seller deals to prohibit the sale of fake cosmetics." The DCGI also asked online retailers to be informed and to accept responsibility for whether the products sold on their websites are legitimate or not.

Regrettably, fraudsters are now immensely effective on social media; infringers have progressed to where customers now make purchasing choices, marketing their fake items on sites such as Facebook and Instagram in paid advertisements and promoted articles. These advertisements give a degree of authenticity to fakes, manipulating many customers into believing that they are authentic products. To evade suspicion by brands, bad actors insert text inside photos and use blurred product pictures and brand imagery. To further throw legal teams off the scent, they gradually quit utilizing trademarks.

The Drugs and Cosmetics Act, of 1940 controls the import, manufacture, and sale of drugs and cosmetics in India as well as the marking and packaging of them. The Act defines ‘cosmetic’ as, “any article intended to be rubbed, poured, sprinkled or sprayed on, or introduced into, or otherwise applied to, the human body or any part thereof for cleansing, beautifying, promoting attractiveness, or altering the appearance, and includes any article intended for use as a component of cosmetic.”Among other issues, the primary purpose of the Act is to guarantee that cosmetics sold in India are safe, productive, and consistent with the specified quality standards. In this context,' misbranded cosmetics' and 'spurious cosmetics' have been described in the following way by the Act. A cosmetic will be considered misbranded when the color or label is not in the prescribed manner or the text on the product has a misleading statement regarding the product whereas cosmetics will be considered ‘spurious’ if the product is manufactured by the mane which belongs to another product; if it is a substitute or an imitation of another cosmetic or if the imitation is in such a manner that very keen observation is required by the consumer to realize the authenticity of the product. Section 8 and 10 of this Act prohibits the import, manufacture, and distribution of misbranded and spurious cosmetics in India.

In particular, the Central Government is empowered by Sections 10A and 26A to ban the importation, manufacture, and sale of cosmetics if this is in the public interest. Finally, the Act ensures strict penalties, ranging from fines to forfeiture and even imprisonment, for violating any clauses laid down in the Act.

Evidently, the above regulatory framework is squarely relevant to counterfeit or fake cosmetics and, in addition to the remedies given under the Trademarks Act, 1999, the remedy specified for misbranded and spurious cosmetics may be used by the brand owners.

Since the proliferation of pirated goods results in the loss of brand owners' credibility and sales, large retailers are now trying to capitalize on increased consumer awareness and the internet to further forewarn their buyers not to be fooled by fakes on the market. Many other cosmetic companies, for instance, run their own e-commerce websites from which they provide online retailing services that fully remove the possibility of buying a counterfeit. Besides this, there are cosmetic brands that frequently post blogs on their website to promote awareness about how to spot fake cosmetics on the web. In fact, brand owners also provide consumers with certificates of authenticity along with their goods or a list of registered retailers so that buyers can stop individual sellers from trading in counterfeits.

In a recent 2018 judgment, nevertheless, the Delhi High Court declined to extend such rights to an online store alleging to be an 'intermediary' under the Information Technology Act, 2000 in a lawsuit brought by the L'Oreal luxury brand against the selling of fraudulent L'Oreal products on the ShopClues e-commerce website of the defendant. Several considerations were addressed by the Hon'ble Court, indicating that the defendant's position was more than that of a mere intermediary and therefore held the defendant liable. As for the Indian market, due to the influx of counterfeit cosmetics in the Indian market, the All India Cosmetics Manufacturers Association (AICMA), which represents small-scale producers in India together with large market players such as L'Oreal and Hindustan Unilever Ltd, has also stepped in on reducing brand shrinkage. Some significant factors which contribute to the threat of counterfeiting in the Indian cosmetic industry have been described, as increased demand for super cheap cosmetic products; Simultaneous imports; Anti-competing rates; Decrease in the domestic development of cosmetics and products for personal care; Lack of regulatory bodies' compliance to curtail breaches of IP.

Brand owners are now considering immediate action, like executing police raids and filing lawsuits against third-party companies that violate their trademark rights in the domestic market, with growing dialogue about IP rights and compliance. Even at the importing level, for surveillance and deportation purposes, brand owners may act swiftly to register their trademarks with the Customs Authority of India. Such records can be carried out under the Compliance Rules for Intellectual Property Rights (Imported Products), 2007, which can serve as a preventive mechanism on the part of brand owners under which illicit drugs can be identified and discarded at the border itself.

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