The dispute regarding goods in transit has been highlighted in recent months due to several seizures of generic drugs in transit by the Dutch customs authorities. The seizures taken by the Dutch customs authorities, the latest involving a consignment of Indian-made medicines destined for distribution to clinics in Nigeria, are in particular reflecting the ‘friction’ between the European Union ("EU") legislation to counterfeit fake medicines and the World Trade Organization ("WTO") rules providing for freedom of transit of goods. The seizures have raised a growing concern among the developing countries that the continuous EU seizures of generic drugs in transit could have an indirect impact on trade flows and also impede developing countries’ access to essential medicines.

Intervention by Brazil

In that regard, Brazil is already considering a WTO disputes suit after the Dutch customs authorities detained, in December 2008, a consignment of Losartam Potassum, an active pharmaceutical ingredient used in the production of medicines for arterial hypertension. The consignment of these generic drugs against high blood pressure was being traded between the Indian company DR. REDDY’s and the Brazilian importer EMS. At the time it was seized, the consignment was officially in transit. Apparently, the seizure was initialised due to the contact between the Dutch customs authorities and Merck & Co, Dupont Co and Merck Sharp & Dohme, which jointly hold the patent for Losartan’s trade-name equivalent Cozaar. The particular ingredient is not patented in India or Brazil. In the end, the consignment was released back to the Indian owner, who decided at that point to return the shipment to India.

As a consequence of the action taken by the Dutch customs authorities, Brazil has intervened at the WTO General Council stating that the measure taken by the Dutch customs authorities clearly violated the freedom of transit, which is a right enshrined in Article V of the General Agreement on Tariffs and Trade ("GATT"). Article V of the GATT provides among others that "traffic coming from or going to the territory of other contracting parties shall not be subject to any unnecessary delays or restrictions and shall be exempt from customs duties and from all transit duties or other charges imposed in respect of transit".

Moreover, Brazil takes the view that under the existing intellectual property legal structure, which includes the WTO’s Agreement on Trade-Related Aspects of Intellectual Property Rights ("TRIPS Agreement"), patents are territorial and protected according to each country’s national law and system. Therefore, the medicines seized are generic under the law of the market in which they were meant to be commercialised, namely Brazil, and not the country of transit, such as the Netherlands. In that regard, Brazil is mostly concerned that the Dutch seizures will set a precedent for extraterritorial enforcement of intellectual property ("IP") rights which would affront the fundaments of the multilateral trade system, in particular the established principle of territoriality which is one of the pillars of the international IP regime. Brazil stated that the Doha Declaration on TRIPS and Public Health, adopted on 14 November 2001, stipulates that the TRIPS Agreement "can and should be interpreted and implemented in a manner supportive of WTO Members’ right to protect public health and (…) to promote access to medicines for all". With that regard, Brazil recalled that the protection of public health and the promotion of public interest are still part of the TRIPS fundamental principles.

Brazil also raised its concerns about growing trade in counterfeit medicines and pledged its full commitment, in the light of the TRIPS Agreement, to IP protection. However, Brazil argued that IP protection should only be enforced to goods destined for a Member’s own market and should not affect goods in transit. In that regard, Brazil requested for conformity of the legislation of the Netherlands and/or the European Community ("EC") with the WTO rules and disciplines in order to ascertain safe transit of generic intellectual property-free medicines.

EC intervention

In reaction to Brazil’s intervention, the EC took the stage at the WTO General Council in order to clarify the issue at stake, recalling in the first place that none of the WTO’s Members would wish the EC to allow the flow of counterfeit goods to their populations.

In this connection, the EC clarified that the current provisions of the TRIPS Agreement neither mandate nor forbid the seizure of goods in transit. However, in the matter at hand, the EC clarified that, following the request of the company having patent rights over the generic medicines in the Netherlands, the Dutch customs authorities temporarily detained (which does not mean seize, confiscate or destroy) the consignment in order to control it. The EC further stipulated that the action taken by Dutch customs authorities was in accordance with both the EU legislation and WTO rules, in particular Article V of GATT and Article 51 of TRIPS.

a) TRIPS Agreement

The TRIPS Agreement requires in Article 51 that Members shall adopt procedures to enable a right holder, who has valid grounds for suspecting that the importation of counterfeit trade mark or pirated copyright goods may take place, to lodge an application in writing with competent authorities, administrative or judicial, for the suspension by the customs authorities of the release into free circulation of such goods. However, there is no obligation to apply such procedures to imports of goods put on the market in another country by or with the consent of the right holder, or to goods in transit. In that case, Members are free to determine whether or not to apply such procedures to goods in transit. In the case that a Member does apply such procedures, Article 41 of the TRIPS Agreement states that these procedures shall be fair and equitable. Moreover, the procedures shall not be unnecessarily complicated or costly, or entail unreasonable time-limits or unwarranted delays.

Therefore, the EC justified the action taken by the Dutch customs authorities as having detained the consignment of generic medicines temporarily on the basis of valid suspicious grounds of the right holder that the generic medicines in transit infringed an intellectual property right. In addition, the EC recalled that compensation will be entitled if the detention has been done on the basis of an unsubstantiated complaint.

b) The Anti Piracy Regulation

Taking into account the above stated, it should be noted that, in July 2008, the Court of The Hague in preliminary relief proceedings ruled in the case of Sosecal v. Sisvel that the "fiction of the deemed place of manufacturing" is still to be applied under the new Anti Piracy Regulation ("APR") . The APR contains this so-called legal fiction which entails that counterfeit goods which originate from outside the European Union ("EU") and are in transit in a Member State, should be considered as if they had been manufactured in the Member State where the goods are in transit. This means that if such goods are counterfeit under the laws of the transit Member State, their transit can be prohibited. Thus, it is legally justified to assess, on the basis of the law of the transit Member State, whether the goods in transit infringe an IP right of the patent holder.

Conclusion

It can be concluded that the detentions and seizures reflect ‘friction’ between the EU legislation and WTO rules. The difficulty lies in, among others, drawing a clear line between counterfeit medicines and approved generic drugs. The temporary detentions or seizures by the customs authorities in the EU could impede quick access to essential medicines destined for developing countries without sufficient or no manufacturing capacities in the pharmaceutical sector. The application of enforcement procedures to medicines in transit will remain for now an issue to be dealt with by the World Customs Organization, World Health Organization and WTO.