Author: Anna Giulia Micara (Department of International Studies, Università degli Studi of Milan, Italy)
Koninklijke Philips Electronics NV v Lucheng Meijing Industrial Company Ltd, Far East Sourcing Ltd, Röhlig Hong Kong Ltd, Röhlig Belgium NV and Nokia Corporation v Her Majesty's Commissioners of Revenue and Customs, Court of Justice of the European Union (ECJ), Joined Cases C-446/09 and C-495/09, 1 December 2011
Journal of Intellectual Property Law & Practice (2012) doi: 10.1093/jiplp/jps016, first published online: February 20, 2012
The ECJ found that goods can be considered ‘counterfeit’ or ‘pirated’ where it is proved that they are intended to be put on sale in the EU, while goods coming from a non-Member State which are imitations of goods protected in the EU by a trade mark, copyright, or design cannot be classified as ‘counterfeit’ or ‘pirated’ merely on the basis of the fact that they are brought into the EU under a suspensive procedure. The judgment is particularly interesting because the possibility for customs authorities to stop goods which are technically outside the EU territory was an unsettled and much debated issue.
Border measures are a fundamental tool for IP holders. The procedure enables customs to suspend the release of goods suspected of infringing IP rights ex officio or by request of the right holder, therefore immobilizing goods which the holder could not control in the country of production. EU border measures are provided for by Regulation 3295/94 laying down measures concerning the entry into the Community and the export and re-export from the Community of goods infringing certain IP rights as amended by Regulation 1383/2003 concerning customs action against goods suspected of infringing certain IP rights and the measures to be taken against goods found to have infringed such rights. The possibility for customs authorities to stop goods under a customs suspensive procedure was still an unsettled issue. Such suspensive procedures, such as storing goods in a free zone or warehouse or external transit (referring to goods coming from and directed to a third country) imply that goods remain technically outside the EU territory since they are not to be released for free circulation there.
In Case C-383/98, Polo Lauren, the ECJ declared Regulation 3295/94 applicable to non-Community goods in external transit without reference to any need to prove the risk of diversion into the EU market, but stated that ‘after all, the external transit of non-Community goods is not completely devoid of effect on the internal market’. In Case C-281/05 Montex, however, the ECJ held that external transit did not infringe the essential functions of the trade mark in Germany and that, in order for the goods to be stopped by customs, the risk of their possible diversion should be manifest.
The literature is divided. On the one hand, stopping goods not released in the EU market and not presenting risk of fraudulent diversion amounts to a violation of the territoriality principle and hinders legitimate trade; on the other hand, there is the risk that counterfeiters need only to declare a good in external transit in order to sell their goods in the EU. The issue has also been made even more relevant by the case of generic drugs coming from India and directed to Brazil, where they were fully legitimate, but stopped by Dutch authorities because they infringed patent rights in the Netherlands. The nature of the goods, a second-line HIV/AIDS medication for patients awaiting them urgently, made this debate highly relevant and the consistency of EU law with the Trade-related aspects of Intellectual Property Rights (TRIPS) agreement was discussed at the World Trade Organization. Finally, the issue is discussed within the process of revision of Regulation 1383/2003 (proposal COM (2011) 285).
In Case C-446/09, Belgian customs authorities inspected in the port of Antwerp a cargo of electric shavers from China (to an uncertain destination) resembling designs of shavers developed by Philips and protected by Philips in Benelux through an international design registration. Suspecting that the goods inspected were pirated goods, the customs authorities suspended the release of the goods and informed Philips. Afterwards, Philips brought an action against Lucheng, Far East Sourcing, and Röhlig before the Court of First Instance of Antwerp seeking a ruling confirming infringement and an order to pay damages.
In Case C-495/09, Her Majesty's Commissioners of Revenue and Customs (HMRC) inspected at London Heathrow Airport a consignment of mobile phones and accessories, coming from Hong Kong and destined for Colombia, with a sign identical to the Community trade mark registered by Nokia. Suspecting that the goods were fake, HMRC informed Nokia but, when Nokia asked for the seizure of the consignment, HMRC denied the request stating that, in the absence of evidence of diversion into the EU, the goods could not be considered counterfeit, according to case Montex. Consequently, Nokia brought an action against HMRC before the High Court of Justice of England and Wales.
The preliminary questions ask, in essence, whether goods coming from a non-Member State which are copies of designs protected in the EU, such as Chinese shavers in Case C-446/09, or imitations of goods protected in the EU by trade marks, such as the mobiles inspected at Heathrow Airport, can be classified as ‘counterfeit’ or ‘pirated’ within the meaning of Regulation 3295/94, as amended by Regulation 1383/2003, considering that they are not released for free circulation in the EU territory but merely on the basis of the fact that they are brought into the customs territory of the EU, under a suspensive procedure referred to in Article 84 of the Customs Code. Indeed, in Case C-446/09, goods were under the customs warehousing procedure, therefore stored in a warehouse under customs supervision, and in Case C-495/09 goods were in external transit. The goods were counterfeit under EU or national law, but they were under customs procedures which did not entail the goods being put into commerce in the EU.
Citing Montex and other cases, the ECJ held that goods placed under a suspensive procedure cannot infringe EU IP rights: they infringe only if they are put on sale in the EU. Concerning the risk of fraudulent diversion, the ECJ noted that customs authorities, in order to detain goods, do not need proof that goods have already been sold, offered for sale, or advertised to EU consumers, it being sufficient that there be material such as to give rise to suspicion. Moreover, it clarified Montex by stating that it is sufficient that, for example, the destination of the goods is not declared or there is no precise or reliable information as to the identity or address of the manufacturer or consignor of the goods, or there is lack of cooperation with customs authorities or documents suggesting the risk of diversion. In Case C-495/09, the ECJ affirmed that national courts should consider relevant that it was impossible to identify the consignor of the goods in question. These examples are broad, so the main argument in favour of the control of goods in external transit (that it is sufficient for counterfeiters to declare a goods under a suspensive procedure, as right holders argued) no longer appears substantiated. The only limit is that a suspicion of risk of fraudulent diversion must be based on facts and not be abstract, so that the ECJ ensures that legitimate international trade is not hindered, even by a temporary detention. Moreover, concerning goods suspected of infringing IP rights in the country of destination, the ECJ noted that customs authorities may cooperate with the customs authorities of third countries under Article 69 TRIPS.
Secondly, dealing with Case C-446/09 where goods were already detained, the ECJ rejected the so-called manufacturing fiction, an approach which appears to have been applied for the first time by a Dutch court in 2004 and which consists in the treatment of non-EU goods in transit as though they had been manufactured in the Member State in which they are situated and are, accordingly, subject to the IP legislation in force in that Member State, regardless of whether those goods are destined for the EU market. Indeed, the court observed that, in the event that the competent authority finds infringement, goods are destroyed or abandoned and therefore operators concerned cannot suffer such dispossession or penalties on the sole basis of a risk of fraud or on the basis of the manufacturing fiction. Consequently, that authority cannot classify as ‘counterfeit’ and ‘pirated’ goods which a customs authority suspects of infringing an IP right applicable in the EU but in respect of which it is not proven that they are intended to be put on sale in the EU. According to the ECJ, the effectiveness of Regulation 1383/2003 is not compromised because the end of detention does not mean that customs have no more control over it since each stage of the suspensive procedure is monitored.
Finally, as Nokia pointed out, the ECJ held that precautionary considerations may militate in favour of an immediate seizure of goods identified as posing health and safety risks, irrespective of the customs procedure under which they are placed, but Regulations 3295/94 and 1383/2003 deal only with IP infringements so these aspects must be assessed on the basis of other EU provisions. Thus a case dealing with, for example, generics could still address elements that have not been fully settled.
The ECJ had the possibility of clarifying an important matter and of establishing a uniform interpretation of EU Regulations 3295/94 and 1383/2003. It is now clear that customs authorities cannot suspend the release or detain goods (in order to immobilize them pending the determination to be made by the authority competent to take a substantive decision) under a suspensive customs procedure, which does not imply goods to be put into the EU market, unless there are indications giving rise to suspicion of fraudulent diversion into the EU market.