As a single market composed of 28 member states with 500 million consumers, the European Union is a highly attractive business market – and a prime target for counterfeiters. The EU Customs Regulation is the most cost-efficient and strongest tool to fight counterfeiting, given the investigative powers of customs authorities throughout the European Union.
Extent of problem
In 2015 European customs authorities detained more than 40 million infringing goods – a 5 million increase compared to 2014, with an overall domestic retail value of nearly €650 million. Cigarettes were the most commonly detained goods, amounting to 27% of all seized goods, followed by toys, food and tables, all with less than 10%. Compared to 2014, the categories of foodstuffs, handbags, sunglasses and vehicle accessories increased by more than 50%. The vast majority of goods (more than 90%) were detained on the basis of suspected trademark infringement, followed by design rights infringement (around 3% – specifically, for toys, shoes and medicines).
Counterfeit goods arriving in the European Union via postal and courier traffic accounted for 77% of all EU-wide detentions in 2015. However, detentions in postal traffic decreased by more than 20%. In terms of the number of articles seized in postal traffic, other electronic equipment topped the list (32%), followed by medicines (16%). The leading country of provenance of detained counterfeit goods was still China (41% – although this was a decrease on the previous year – with watches as the number one product in terms of value, as well as mobile phones, computer equipment and 99% of sporting articles detained), followed by Montenegro (17%, mainly due to large-scale detentions of cigarettes), Hong Kong (9%), Malaysia (9%, with a focus on fake body care products) and Benin (8%, mainly for foodstuffs).
Applications for customs action are also increasing; approximately 33,000 applications were filed in 2015 (a 300% increase since 2007). German Customs had the highest number of detentions EU-wide (however, this figure was down almost 50% from last year), followed by Belgium and the United Kingdom. Greek customs authorities detained the largest number of counterfeits (6.4 million, over 700% more than 2014), followed by France (6.3 million, a 40% increase) and the Netherlands (5.1 million, a 110% increase).
Most national IP laws have been harmonised to a large extent, and there are also unitary rights at an EU level that exist in parallel to the respective national instruments (eg, the Community trademark and the Community design). Measures based on criminal law are subject to the domestic law of each member state.
As regards the enforcement of IP rights, the national procedural law of each member state still prevails. However, important progress towards harmonisation was made by the EU IP Rights Enforcement Directive (2004/48/EC), which introduced mandatory minimum standards regarding, for example, provisional measures, preservation of evidence, calculation of damages, information disclosure and recall.
EU border measures against counterfeit products are mainly harmonised in the form of the EU Customs Regulation, leaving only some facets of customs practice to the discretion of national legislatures. The regulation sets out procedural rules for customs authorities, but includes no criteria for ascertaining the existence of infringement.
New basis for border measures
After 10 years of fighting counterfeiting in the European Union on the basis of the EU Customs Regulation (1383/2003), the EU legislature decided to put customs enforcement of IP rights on a new legal footing. Despite an overall success story, it wanted to strengthen the enforcement of IP rights by Customs and to increase legal certainty in light of economic, commercial and legal developments.
The new EU Customs Regulation (608/2013) came into force on January 1 2014. In a careful and evolutionary approach, the new regime aims to:
- establish a mandatory procedure for the destruction of infringing goods without the need for a court order;
- stem the rising flood of postal and courier traffic of counterfeit goods which has resulted from the increase in online sales; and
- expand the range of IP rights which rights holders can invoke in customs enforcement procedures.
In order to strengthen the enforcement of IP rights, customs intervention has been extended to other types of infringement. The regulation now also covers trade names, utility models, plant varieties, topographies of semiconductor products and circumvention devices.
The definition of ‘counterfeit products’ has also been extended to include packaging, labels, stickers and brochures as such (even where presented separately from trademark protected goods). On the other hand, contrary to the initial draft proposal, the new regulation now explicitly excludes from its scope parallel imports and overruns, as they have been manufactured as genuine goods. Moreover, the scope of the regulation continues to exclude goods carried by passengers in their personal luggage, provided that these are for their own personal use. The new regulation no longer refers to the ‘duty-free allowance’ (a value of up to €300 per person for land travellers and €430 for air and sea travellers). This indicates that a quantity below this threshold might still be considered to have a commercial character, leading to the applicability of the regulation.
As an important improvement for a more effective fight against counterfeits in the context of customs procedure, the special simplified procedure for the destruction of goods – which was optional under the previous regulation – has become the standard compulsory procedure throughout all member states. It allows for the destruction of goods that are suspected of infringing IP rights without the need for a court order if the declarant or holder of the goods agrees to their destruction or does not explicitly oppose destruction within 10 working days of notification (implied consent).
New small consignment procedure: first practical experiences
In order to cope with the dramatic rise in postal and courier shipments of counterfeits resulting from internet sales and reduce the administrative burden and costs, the new specific procedure for small consignments of counterfeit and pirated goods was introduced. ‘Postal or express courier consignments’ are defined as those which either contain three items or fewer or have a gross weight of less than 2 kilograms. Such goods may be destroyed without the explicit agreement of the applicant, provided that it has made a general request in the application for customs action for that procedure to be applied. Customs will notify the declarant or holder of the goods of its intention to destroy the goods without the rights holder’s consent or involvement. Some national customs authorities – despite the binding EU law – apparently continue to request explicit consent for destruction from the importer of small consignments.
Whether to opt for the small consignment procedure is a strategic decision for the rights holder. One disadvantage is that the rights holder receives no information about the importer; nor does it receive samples or photos of the goods in question. Upon request, it will simply obtain information about the actual or the estimated quantity of destroyed goods and their nature on a regular basis (eg, monthly in Germany). Budget considerations might be a further downside, as the number of detentions under the new procedure and their standard cost (eg, €15 for each case in Germany) are unpredictable. On the other hand, the special procedure ensures that small counterfeit shipments are destroyed solely on the initiative of Customs, with minimum input and at a reasonable cost for the rights holder. Three years after its introduction, only 30% of applicants for customs action ticked the box for this small consignment procedure in 2015. Moreover, detentions through the new procedure decreased by more than 20% in 2015. One can only speculate on the reasons for this hardly overwhelming acceptance of the new procedure by rights holders, which may be due to the withholding of detailed information on the detention or the difficultly of foreseeing the procedural costs incurred by the new procedure.
Customs seizure proceedings
Application for customs action
In case of suspected counterfeits, the Customs Regulation offers two types of customs action:
- ex officio action (3% of EU-wide customs actions in 2013); and
- an action based on:
- an earlier filed EU-wide application for action based on EU-wide registered IP rights such as Community trademarks or registered Community designs; or
- one or multiple parallel national applications.
The EU rules coexist with member states’ national provisions on customs intervention, which are usually contained in the relevant national substantive IP law offering subsidiary protection in relation to parallel or grey imports and intra-EU trade.
Applications should be filed with the central customs authority of the relevant member state. If that authority has provided the technical means to do so, the application should be filed electronically using a standardised application form. Moreover, under the new regulation – and given the electronic communication between national customs authorities via the new EU-wide central electronic database COPIS, which also facilitates broader information exchange between national customs offices – hard copies with attachments for each relevant member state need no longer be provided for an EU application. An essential simplification of the Community customs seizure proceedings is that an EU application need be submitted only to the central customs authority of one member state, which may then grant the application before immediately forwarding it to the customs authorities of the other member states indicated in the application.
The application must contain information on the IP rights to be enforced, as well as listing the technical and administrative contact person(s). The essential mandatory information comprises specific data on the genuine goods as well as on potential counterfeits, such as the identities of previously known counterfeiters, pictures of genuine and counterfeit goods, typical packaging, accompanying papers, style guides, usual shipping routes and licensees. The applicant must also assume liability for all costs resulting from the detention (eg, storage, destruction), and in case the alleged infringement proves to be unfounded. The applicant must make an explicit undertaking to forward and update any information that is relevant to Customs’ risk analysis; if it fails to do so – or otherwise to comply with its obligations under the regulation – Customs might impose proportionate and dissuasive penalties, including suspension of the decision granting the application.
From a practical point of view, and for an effective risk analysis, this data should be continually updated and sufficiently detailed to allow for the quick identification of suspicious consignments by customs officers, while avoiding information overload. It should also be presented as simply as possible – mainly in the form of photos, with limited written explanations – particularly because the applicant is obliged to pay the costs of any translation requested by national customs authorities.
The application for customs action is free of charge and can be renewed annually.
National customs authorities will detain goods that are suspected of infringing an IP right as noted in a granted border seizure application and will notify the rights holder accordingly, which must confirm the likeliness of infringement. Customs will suspend the release of suspicious goods if they have not yet been placed under a customs procedure. If Customs acts ex officio, it will identify and inform the rights holder, which must submit a national application for customs action within three working days in order for Customs to uphold the detention.
Thereafter, Customs will notify the declarant or holder of the goods and the rights holder of the detention. If requested by the rights holder in its general application for customs action, Customs can:
- provide information on the persons involved in the suspicious consignment and on the origin, provenance and destination of the goods; and
- send samples for the purposes of analysis.
Unfortunately, national customs offices throughout the European Union have not yet sufficiently harmonised their practices, especially as regards the provision of information; not all national customs authorities seem to use COPIS for risk analysis. German Customs provides information to the holder of the decision and pragmatically (and to the benefit of rights holders) emails pictures of the detained goods before receiving confirmation of the counterfeit nature of the goods. In contrast, other member states withhold any information after the holder of the decision has confirmed the counterfeit quality. Some customs authorities only allow on-site inspections of the goods.
If the rights holder confirms the infringement (“in his conviction”) in writing to Customs and agrees to destruction within 10 working days of notification, and the declarant or holder does not explicitly object to the destruction (implied consent), Customs will destroy the goods. Under the new regulation, this new compulsory standard procedure allows for the destruction of detained goods without the need for court proceedings.
Customs will release the goods only if the rights holder has not confirmed the infringement and agreed to destruction, or if the declarant or holder has explicitly opposed it and the rights holder has not initiated court proceedings.
The rights holder must bear the costs of storage, handling and destruction of the detained products. It may be able to recover those costs from the infringer or even from intermediaries (eg, the freight forwarder). However, this must be done through separate proceedings in accordance with national law.
Transit and unresolved issues
The new Customs Regulation does not clarify the situation of goods in transit to a market outside the European Union. However, as a question of substantive law and a matter of fact, transit is a topic of utmost importance to the daily work of customs authorities dealing with counterfeits. The EU legislature crucially modified the concept of ‘transit’ during the reform of trademark law under the amended Trademark Regulation (2015/2424) and the new Trademarks Directive (2015/2436). A widely discussed issue during the reform procedure – and a surprise in its rights holder-friendly outcome – the new regime follows a much less restrictive line than previously taken by the European Court of Justice (Philips and Nokia, C-446 and 495/09). According to Article 9(4) of the Trademark Regulation, the rights holder to an EU trademark may take direct measures against counterfeit goods in transit even if the goods are not intended to be placed on the market in the European Union. As an exception to this, the declarant or holder of the goods may prove during infringement proceedings that the rights holder is not entitled to prohibit the placing of the goods on the market in the country of final destination. As this provision came into force on March 23 2016 and EU member states have until January 15 2019 to implement the respective provision on transit concerning their national trademarks into their domestic legislation, at present there is an incoherent approach to the transit of goods affecting EU and national trademarks. Moreover, only practice will tell what Customs will make of its extended power to detain goods in transit. Some national customs authorities already tend not to stop all goods in transit due to their limited resources or – contrary to the clear wording of Article 9(4) of the Trademark Regulation – request from the rights holder a list of registered trademarks in the country or countries of final destination.
However, there is growing concern that the EU border seizure regime may be an excessively strong weapon which rights holders might abuse against honest competitors, including for the following reasons:
- It covers not only identical trademarks, but also cases where a sign cannot be distinguished in its essential aspect from the recorded trademark;
- Customs officers often lack the expertise to assess the relevant IP rights (eg, in case of alleged patent infringement) and must deal with detentions on an ad hoc basis under time pressure;
- No effective preventive measures exist to protect alleged infringers against imminent detentions (eg, a protective writ with Customs); and
- The rights holder might avoid release by initiating court proceedings once Customs has detained the goods, causing considerable economic damage to the competitor.
For others, the new regulation is still too restrictive regarding:
- the exclusion of parallel imports; and
- the imposition of costs for storage and destruction of seized goods on the rights holder, which is a victim of IP rights infringement and which would not have to bear costs in the context of a detention under criminal procedural law.
This article first appeared in World Trademark Review. For further information please visit www.worldtrademarkreview.com.
Boehmert & Boehmert Anwaltspartnerschaft mbB
Patent- und Rechtsanwälte
Tel +49 89 55 96 80
Fax +49 89 34 70 10
Florian Schwab is a partner with Boehmert & Boehmert. He has practised in the field of IP rights since 1998, focusing on both the prosecution and litigation of trademarks and designs. Mr Schwab has extensive experience in anti-counterfeiting matters and is a member of the Anti-counterfeiting Committee of the European Communities Trademark Association. He obtained his law degree from the University of Munich, his LLM from Durham University and a licence en droit from Tours University. Dr Schwab regularly contributes to law journals, including regular contributions for World Trademark Review; is co-author of commentaries on unfair competition; and wrote the anti-counterfeiting chapter in the Manual on Business Criminal Law (Achenbach/Ransiek, 2015).
Rudolf Böckenholt has been a partner with Boehmert & Boehmert since 2011, and is based in the Bremen office. He has practised intellectual property since 2005, with an emphasis on contentious matters including anti-counterfeiting, and became a certified IP lawyer in 2008. He obtained his law degree from the University of Munster and his LLM from the Universities of Exeter and Dresden. He was awarded his doctorate from the University of Munster for a thesis on the delimitation between trademarks and copyrights. As well as trademark matters, Dr Böckenholt is active in food and pharma matters. He is a regular contributor to German law journals and to treatises and commentaries, including on the EU Trademark Regulation.
Volker Schmitz-Fohrmann is a partner with Boehmert & Boehmert. He studied law at the University of Munich, the European Institute of the University of Geneva and St John’s College, Oxford. He has practised in the field of IP rights since 1998, advising clients from a wide range of industries on all matters relating to trademark, copyright and design law and frequently litigating in these areas. Dr Schmitz-Fohrmann has always had a strong focus on anti-piracy work. He is co-author of the standard commentary Copyright Law (Fromm/Nordemann, 2014), covering the EU and German customs border regimes.