May counterfeit and pirated goods in transit through the EU be seized and destroyed?


The European Court of Justice has clarified its holdings on the issue of transit of infringing goods through EU territory.

On 1 December 2011, the ECJ issued a judgment responding to references for apreliminary ruling in two joined cases concerning goods suspected of infringing intellectual property rights placed under a “suspensive” customs procedure in EU territory—Koninklijke Philips Electronics NV v Lucheng Meijing Industrial Co. (Case C 446/09) and Nokia Corp. v Her Majesty’s Commissioners of Revenue and Customs (Case (C 495/09).

Under the Community Customs Code, a “suspensive” customs procedure applies to goods from outside the EU that are not destined for a member state, but are subject to such operations as external transit or customs warehousing within the EU. Although such goods are physically present in an EU member state, under ECJ precedent they are subject to a legal fiction that they never entered EU territory, but have been in that member state since production. Thus they are not subject to customs duties, for example.

Against this background, doubts arose in national case law and in the case law of the ECJ whether goods undergoing a suspensive procedure could be found to be counterfeit or pirated, and if so whether the measures provided for in Regulation 1383/2003 could be imposed, upon application of the right holder, such as seizure, forfeit and destruction of the infringing goods.

These issues came up again in these two joined cases, from Belgium and the UK.

National proceedings

In the Philips case (C-466/09), the customs authorities at the port of Antwerp seized a shipment from China of electric shavers under Regulation 1383/2003 that were suspected of being pirated Philips shavers. Philips was notified and brought an action in the Belgian court against the manufacturer, shipper and forwarding agent, seeking an order to destroy the pirated goods. Only the shipper appeared, and it was impossible to determine the ultimate destination of the goods.

In the Nokia case (C-495/09), customs officials at Heathrow Airport stopped a consignment of mobile phones and accessories, labelled as Nokia products, on route from Hong Kong to Colombia. After notifying Nokia, it was determined that they were fake Nokia products. However, under Regulation 1383/2003 the customs officials refused to detain the fake items because they could not be regarded as counterfeit for purposes of the regulation, as there was no evidence that the goods might be diverted and offered for sale in EU territory and thus violate Nokia’s trademark in the EU.

Regulations and existing ECJ case law

Art. 1 of Regulation 1383/2003 permits actions to be taken against counterfeit and pirated goods when they are placed under a suspensive procedure. The doubt comes in interpreting the definition of counterfeit or pirated goods, in Art. 2 of this regulation, which refers to goods violating Community intellectual property law or the law of the member state where the holder applies for action under the regulation.

Under established ECJ precedent, the mere physical presence of infringing goods in EU territory is not sufficient to treat the goods as counterfeit or pirated. Thus the question arose whether such goods could be detained under Regulation 1383/2003 if there were no indications that the goods might be offered for sale in the EU.

The earlier cases did not clear up these doubts entirely.

Supporters of the broadest possible application of the Regulation 1383/2003 to goods in a suspensive procedure cited Polo/Lauren Co. (Case C-383/98) and Rolex (Case C-60/02), under which the regulation applies to goods in transit to a third country, because transit through EU countries creates a potential risk that the goods will be illegally introduced onto the EU market.

Opponents of interpreting the regulation to allow unconditional seizure of goods in transit cited primarily the ruling in Rioglass (Case C-115/02), in which the ECJ held that goods lawfully produced in a member state and in transit to a non-member state, not intended for sale in the EU, may not be seized. Other rulings relied on in support of this position addressed the issue of infringement, not interpretation of Regulation 1383/2003 as such, including Class International (Case C-405/03) and Montex Holdings (Case C-281/05), where the ECJ held that there is no infringement where the goods are not going to be put into free circulation. The right holder could prohibit transit of the goods through a member state only if the goods were the subject of an act by a third party which would necessarily entail their being put on the market (a mere theoretical risk was insufficient).

ECJ ruling

In the recent joined cases, the ECJ clearly distinguished two issues, which had previously been intertwined, involving infringing goods in a suspensive procedure, namely infringement of the rights of the holder and the ability to take actions against the goods as provided in Regulation 1383/2003.

Infringement

On the issue of infringement, the ECJ held that goods coming from a non-member state cannot be classified as counterfeit or pirated “merely on the basis of the fact that they are brought into the customs territory of the European Union under a suspensive procedure”, but such goods may be classified as counterfeit or pirated “where it is proven that they are intended to be put on sale in the European Union”, for example where there is evidence that:

  • the goods have been sold to a customer in the EU,
  • the goods have been offered for sale or advertised to consumers in the EU, or
  • it is apparent from documents or correspondence concerning the goods that their diversion to EU consumers is envisaged.

Seizure of infringing goods

On the issue of taking actions against the infringing goods under Regulation 1383/2003, the ECJ held that “the customs authority to which an application for action is made must, as soon as there are indications before it giving grounds for suspecting that such an infringement exists, suspend the release of or detain those goods.” Such indications may include:

  • the fact that the destination of the goods is not declared, but the suspensive procedure requested requires such a declaration,
  • the lack of precise or reliable information as to the identity or address of the manufacturer or consignor of the goods,
  • a lack of cooperation with the customs authorities, or
  • the discovery of documents or correspondence concerning the goods in question suggesting that there is liable to be a diversion of the goods to EU consumers.

Under these circumstances, application of such measures is intended to enable the competent authority (the court) to conduct a proper examination of whether there is sufficient evidence of infringement of an intellectual property right.

Assessment of the ruling

The judgment in these joined cases does clarify issues that have been debated for a long time surrounding the operation of Regulation 1383/2003. The practice will demonstrate how this impacts the work of customs officials dealing with goods undergoing a suspensive procedure.

It should be stressed that the ECJ indicated only examples of the type of evidence that could demonstrate infringement, thus enabling the customs service to seize goods undergoing a suspensive procedure.

The ECJ also clearly recognised that Regulation 1383/2003 is an auxiliary means of promoting protection of intellectual property rights. Seizure of counterfeit or pirated goods by the customs service is intended only to enable the court to make an ultimate determination of infringement.

It may be hoped that in this respect the practice of the customs service will not in effect prejudge the case, but goods undergoing the suspensive procedure will be detained if any of the indications identified by the ECJ arise, or other evidence from which it may be suspected that there was an infringement.

Norbert Walasek, Intellectual Property practice, Wardyński & Partners