In today’s economy, the trade in counterfeit and pirated goods provides a big challenge to legitimate traders. An increasing number of IP right holders (e.g., trademark owners, patent holders) is enlisting the assistance of the customs authorities in the EU Member States to protect its rights. Regulation (EC) 1383/2003 provides these right holders with an opportunity to have the Customs Authorities act in cases where goods that are suspected to infringe the IP rights of the right holder. Under this Regulation, goods can be seized by Customs and the release of the goods for the free circulation of the EU can be suspended and/or prohibited.

Over the years, the possibility to apply Regulation (EC) 1383/2003 and its predecessor Regulation (EC) 3295/94 to goods that are in transit has been subject to serious discussions.

Advocates of the possibility to seize “in transit” goods under the said Regulations apply the so-called “production fiction” and claim the goods to be seized must be assumed to be produced in the Member State in which the goods are seized. Under this assumption, all goods that transit a Member State where an IP right would be infringed if the goods were in free circulation of that Member State could in principle be seized. Opponents argue that no IP rights are infringed for as long as the goods in question are in transit and destined for a country where no IP rights are infringed by the specific goods.

In its judgments in cases C-405/03 (Class International) and C-281/05 (Montex/Diesel), the European Court of Justice ruled that (in sum) the transit of through a Member State can be prohibited by the right holder if the right holder can prove a third party will take action with regard to these goods while they are placed under the external transit procedure, and if this action necessarily implies that the goods will be brought into free circulation of the EU in the Member State of transit.

On February 3, Advocate General Cruz Villalón of the European Court of Justice provided his opinion in two new cases regarding the conditions governing action by customs authorities where goods in transit are counterfeit or pirated.

In Koninklijke Philips Electronics NV - Lucheng Meijing Industrial Company Ltd and others, the A-G concluded (with respect to the old Regulation) that:

“Article 6(2)(b) of Council Regulation (EC) No 3295/94 of 22 December 1994 laying down measures concerning the entry into the Community and the exports and re-export from the Community of goods infringing certain intellectual property rights is not to be interpreted as meaning that the judicial authority of the Member State called on, in accordance with Article 7 of that regulation, by the holder of an intellectual property right, may take no account of the status of temporary entry or of transit of the goods in question, or, therefore, as meaning that that authority may apply the fiction that those goods were produced in that same Member State for the purpose of ruling, in accordance with the law of that State, whether or not they infringe the intellectual property right at issue

In Nokia Corporation - Her Majesty’s Commissioners of Revenue and Customs, the A-G concluded (under the new Regulation) that:

“Non-Community goods bearing a Community trade mark which are subject to customs supervision in a Member State and are in transit from one non-member country to another non-member country may be seized by the customs authorities provided that there are sufficient grounds for suspecting that they are counterfeit goods and, in particular, that they are to be put on the market in the European Union, either in conformity with a customs procedure or by means of an illicit diversion.”

Although the two cases were joined, it is important to realize that there were a number of essential differences as well. Nevertheless, in both cases, the goods at issue were under the customs procedure external transit. In both cases, the A-G expressed the opinion that transit as such cannot be considered to mean that the goods are “used in the course of trade.” Therefore, a right holder can only prohibit the transit of goods allegedly infringing intellectual property rights if the goods are subject to an act that necessarily entails the goods being put on the market in that Member State. As a result, it will become crucial to be able to prove that there are sufficient grounds for suspecting the goods that are requested to be seized are counterfeit and are to be put on the market in the EU.