Recent decision in United Kingdom High Court highlights the inadequacies of the Counterfeit Goods Regulation in protecting brand owners against fake goods being shipped in transit through Member States.

The European Commission recently reported that custom authorities across 27 member states seized 178 million fake items in 2008, which is up from 79 million in 2007. This increase of 125 per cent indicates that the international trade on counterfeit goods is on the rise.

However a recent decision from the High Court in the United Kingdom provided a set back to seizure of such goods. In Nokia v Her Majesty’s Revenue & Customs [2009] EWHC 1903 Ch, Mr Justice Kitchin ruled on a point of considerable importance on seizure of goods in transit from one non-European Union country to another.

The Background

A consignment of fake Nokia phones and accessories were being shipped from Hong Kong to Columbia. At a transit stop at London Heathrow Airport, the goods were inspected. Despite Nokia’s request to have the goods seized (in accordance with Council Regulation 1383/03, the Counterfeit Goods Regulation), Her Majesty’s Revenue & Customs (HMRC) did not do so. HMRC did not consider the goods to be deemed counterfeit within the meaning of the Counterfeit Goods Regulation unless there was evidence that they might be diverted onto the European Union markets.

Nokia applied for a judicial review of HMRC’s decision.

The Decision

It was held that allegedly counterfeit goods which are in transit through the European Union (EU) could not be seized as long as the goods were not destined for the EU market. These goods did not infringe UK trade mark rights as they were not intended for sale in the domestic market. Therefore the goods do not fall within the definition of “counterfeit”

He found that:

  • Infringement of a registered trade mark required goods to be placed on the market and that goods in transit and subject to suspensive customs procedures do not, without more, satisfy this requirement
  • The “Montex” exception where if the goods in transit are subject to acts of third parties which necessarily entails their being put on the market, did not apply in this instance
  • The mere risk that the goods may be diverted is not sufficient to justify a conclusion that the goods have been or will be put on the market
  • The Counterfeit Goods Regulation has not introduced a new criterion for the purposes of ascertaining the existence of an infringement of a registered trade mark or to determine whether there is a use of the mark which is liable to be prohibited

Unsatisfactory Conclusion

Mr Justice Kitchin in reaching his conclusion expressed his regret:

“I recognise that this result is not satisfactory. I can only hope it provokes a review of the adequacy of the measures available to combat the international trade in fake goods by preventing their transhipment through Member States”

This disappointing conclusion for brand owners shows that the limitations in the Regulations need to be addressed. We await effective legislative changes or an appeal decision which will hopefully deal with this limitation but for now, fake goods in transit may not be considered counterfeits.