The opinion of the Advocate General ("AG") of the Court of Justice of the European Union ("ECJ") is that goods in transit or temporary storage cannot automatically be considered to be "counterfeit" and therefore seized by Customs, without sufficient grounds for suspecting (i.e. some reasonable evidence) that the goods are to be put on the market in the EU. However "suspicions" based on circumstantial evidence and lack of detail in customs declarations may be sufficient to trigger seizure.

Joined cases Koninklijke Philips Electronics NV v Lucheung Meijing Industrial Company Ltd (C-446/09) and Nokia Corporation v Her Majesty's Commissioners of Revenue and Customs (C-495/09) – AG's Opinion, 3 February 2011.

Business Impact

If the AG's Opinion is followed by the ECJ:

  • The seizure of counterfeit goods in transit through the EU will not be achieved simply by identifying the goods to Customs as counterfeit or pirated, as would be the case if the "manufacturing" or "production" fiction applied.
  • It may be difficult for brand owners to persuade customs officials to seize allegedly counterfeit goods without evidence (i.e. "sufficient grounds for suspecting"), that the goods are likely to enter the EU market if no further action is taken. However, the AG gave some guidance on the kinds of evidence that could trigger a legitimate "suspicion" much of which is circumstantial in nature (see below) and some may see this as a positive opportunity for rights-holders to have goods in transit seized.
  • The "fiction" that goods in transit are to be treated as manufactured in that state (often applied in order to circumvent the need for evidence that they have been or are likely to be put "on the market" in the EU) will no longer be applied. The AG's opinion was that it was not supported by the legislation and was just that - a fiction. Further, the temporary nature of the transit or storage could and should be taken into account by a court assessing whether the goods are "counterfeit" (in terms of whether they are on the market in the EU, infringe intellectual property rights, and whether Customs can seize the goods).
  • Brand owners should consider providing evidence of the following, suggested by the AG as suitable indicators of "sufficient grounds for suspecting":
    • the excessive duration of the transit
    • the kind and number of means of transport used
    • the greater or lesser difficulty of identifying the consignor of the goods
    • the lack of information on their physical destination or consignee

Such evidence may be able to "lend substance to a well founded suspicion that goods appearing in themselves to be 'counterfeit' or 'pirated' are to be placed on the market of the European Union", which evidence the AG considers to be a requirement for action by the customs authorities.

We must await the ECJ decision for the definitive guidance on what evidence should trigger sufficient grounds for suspicion and the interpretation of the two Customs Regulations involved in these references (see details below).

Background

The cases - Philips Electronics (C-446/09, referred by the Belgian court) and Nokia (C-495/09, referred by the English Court of Appeal) - were joined by the ECJ as both courts' references posed questions concerning the interpretation of the EU legislation governing action by Customs authorities against possible infringements of intellectual property rights where goods were in the "external transit" procedure.

External Transit Procedures: The external transit procedures allow the movement of non-Community goods from one point to another within the customs territory of the Community without such goods being subject to import duties and other charges or to commercial policy measures (in accordance with Article 91(1)(a) of the Community Customs Code established by Council Regulation (EEC) 2913/92 of 12 October 1992).

The Customs Regulations: The Nokia case involved Council Regulation (EC) No 1383/2003 of 22 July 2003 concerning customs action against goods suspected of infringing certain intellectual property rights and the measures to be taken against goods found to have infringed such rights ("the 2003 Customs Regulation"). The Philips case was referred in relation to the previous Regulation, Council Regulation (EC) No 3295/94 (22 December 1994) laying down measures concerning the entry into the Community and the export and re-export from the Community of goods infringing certain intellectual property rights ("the 1994 Customs Regulation"). Both Regulations provide for initial action by Customs to detain the products followed by an opportunity for the right-holder to lodge an application for action and the commencement of proceedings in relation to "counterfeit" or "pirated" goods (see ourIP newsflash of 29 March 2010 for more on the current UK procedures).

The AG set out the stages of seizure of infringing goods:

  • The first "preparatory" stage begins when, in light of "sufficient grounds for suspecting" an infringement of intellectual property rights ("IPR"), the Customs authorities adopt "prior measures" consisting of suspending the release of the goods or detaining them (for 3 working days).
  • The second stage starts when, on application by the holder of the right which has allegedly been infringed and where those suspicions persist, the Customs authorities confirm that they have suspended release of the goods or detained them.
  • The third and final stage – (a) owner of the goods seized relinquishes them – they may be destroyed under customs control; or (b) within 10 days of notification of the action in the second stage, the holder of the IPR allegedly infringed applies to the "competent authority" (normally a court) or (c) the right-holder does not take action within that 10 day period (if neither (a) or (b) takes place) in which case release of the goods takes place.

Types of IPR involved: The two cases involved different types of IP right – copyright and registered designs in Philips (counterfeit shavers) and trade marks in Nokia (counterfeit phones).

Differences between cases: The Nokia case was based on the lawfulness or otherwise of the actions of the HMRC in suspending the detention of the goods on the grounds that there was no actual or real infringement of the trade mark (because the goods would not be put on the market in the EU). Philips involved an application for a ruling that infringement had occurred in relation to goods in transit.

Nokia was a case at the second stage (above), said the AG, and the question referred must be answered in that context: whether, at this stage, the Customs authorities must have some proof that those goods are to be traded on the EU market in one way or another in order to have the right to detain them. Philips involved the third stage: whether or not the proof goods are to be traded in the EU is essential to a finding that the IPR have been infringed.

Nokia

In Nokia, the English case, the UK Customs authorities had refused Nokia's application for seizure of some apparently counterfeit goods (mobile phones bearing Nokia marks coming from Hong Kong) arguing that their destination was Columbia and there was no evidence that they were going to be diverted on to the EU market. The Court of Appeal asked the ECJ in its reference whether this likelihood of diversion was a matter which it is essential to establish in order to classify goods as "counterfeit" for the purposes of the customs legislation and, therefore, in order for Customs authorities to be able to detain those goods.

In his judgment in July 2009, Kitchin J had held that the 2003 Customs Regulation did not entitle or require Customs authorities to detain or seize counterfeit goods in transit where there was no evidence that the goods would be diverted on to the market in the Member States because such goods were not "counterfeit goods" (under Article 2(1)(a)(i) of Regulation 1383/2003), without such evidence.

The conclusion of the AG in response to the English Court of Appeal's reference was that there can only be seizure of goods in transit (i.e. goods with a CTM or local TM in transit from one non-Member State to another non-Member State) if there are "sufficient grounds for suspecting they are counterfeit goods and in particular that they are to be put on the market in the EU, either in conformity with a customs procedure or by means of an illicit diversion."

It is not for the Customs authorities to decide definitively whether or not any intellectual property rights have been infringed, said the AG. Their actions are a preventative measure and as such are provisional in nature and not dependant on a finding of infringement.

Excessive evidential requirements could render these customs procedures unworkable. Suspicions should be sufficient, as long as they are genuine, in order to set in motion preventative action by the Customs authorities. To require more would not meet the breadth of ambit of the regulations defined by Article 1 of the 2003 Customs Regulations. The existence of "suspicion" is enough to satisfy the requirements of Article 2 (that the goods are "counterfeit" or "pirated").

But what does "suspicion" entail? The AG's opinion was that "for the Customs authorities to be able lawfully to seize goods in transit subject to their control, they must at the very least have 'the beginnings of proof', that is to say some evidence that those goods may in fact infringe an intellectual property right".

One of the most difficult things for Customs authorities to assess is the destination of the goods. To that end, said the AG, in the assessment of whether there are sufficient suspicions, particular account should be taken of the danger of fraudulent entry of goods into the EU.

In assessing this danger and whether it so great as to make it possible to classify the goods as "suspected" of infringing an intellectual property right, the AG gave some guidance as to the circumstances that might create a legitimate suspicion (as set out in the Business Impact section above).

Evidence of such circumstances could in particular cases "lend substance to a well founded suspicion that goods appearing in themselves to be 'counterfeit' or 'pirated' are to be placed on the market of the European Union" said the AG, and therefore provide a legitimate basis upon which to found any seizure of the goods by the Customs authorities.

The ECJ may or may not agree with the AG's suggestions. It is hoped that it will give further guidance on the circumstances that could indicate sufficient suspicion of entry onto the EU market.

Philips

In the Philips case, Belgian Customs authorities discovered shavers from Shanghai, in Antwerp, which had been declared under the temporary import arrangements without declaring the country of destination of the goods. Philips claimed that its intellectual property rights had been infringed (under Article 6(2)(b) of the 1994 Customs Regulation). It claimed that there was a type of "legal fiction" that applied – that the goods are treated as if they had been manufactured in the Member State in which they were being held by Customs – an elegant circumvention of the evidential burden of demonstrating that the products would be traded in the EU (without which they could not be held to be "counterfeit"). The AG referred to this as the "production fiction". The referring Belgian court asked the ECJ whether this "production fiction" should be applied and the temporary storage or transit status of the goods ignored.

Did Article 6(2)(b) of the 1994 Customs Regulation constitute a uniform rule of Community law, which meant that the court could take into account the temporary storage/transit status of the goods in making its assessment or was bound to apply the fiction that the goods were manufactured in the same Member State (and must then decide by applying the law of that Member State, whether the goods infringe the intellectual property right)?

The AG's Opinion was that:

  • the temporary storage/transit status could be taken into account and that this does not in itself involve any marketing of the goods in question and does not therefore infringe the rights involved.
  • the "production fiction" could not be constructed from Article 6(2)(b) of the 1994 Customs Regulation.
  • the interpretation by Philips went beyond the objectives pursued by the 1994 Customs Regulation. Their interpretation (the production fiction) would mean that it was not possible to use any sort of temporary storage or transit procedure regardless of the intended destination of the goods.

The preamble to the 1994 Customs Regulation talks about counterfeit/pirated goods being prevented from being placed on the market and measures adopted to that end to deal effectively with this unlawful activity without impeding the freedom of legitimate trade. This, said the AG, reflected the Community legislature's wish to render the content of the customs rules compatible with the ordinary rules for the protection of intellectual property rights based on "use in the course of trade".

The earlier law did not support the "production fiction" either, said the AG. The AG sought to distinguish the Polo/Lauren and Rolex cases (where the 1994 Customs Regulations were held applicable to non-Community goods in transit to a non-Member State country without particular reference to any need to prove that they were destined for the Community market; which cases where heavily relied upon by the applicants) from the Class International and Montex cases (where the ECJ emphasised the need for actual entry onto the market in relation to a finding of trade mark infringement under either the Trade Marks Directive 89/104 or the Community Trade Marks Regulation 40/94) and to confirm that these latter two cases were those that "most accurately reflect this Court's position".