Today (1 December 2011), the Court of Justice of the European Union (CJEU) delivered an important judgment on the Anti-Piracy Regulation (APR) and goods in transit. The CJEU outlined the circumstances in which goods sent from a non-EU Member State that infringe intellectual property rights in the EU may be detained by the customs authorities of Member States. The CJEU also provided guidance as to when these goods actually infringe intellectual property rights in the EU, whether in transit or in a customs authority warehouse. The CJEU also elaborated on the possible grounds to act against ‘counterfeit’ goods other than the APR.
In 2002 Belgian customs detained (under the old APR (EU Reg. 3295/94)) a shipment of electronic shavers which was sent from China and stored in a customs warehouse. These shavers resembled the designs of shavers developed by Philips. These designs are protected by design rights in several Member States including Belgium. Philips started proceedings against the manufacturer, the shipper and the forwarding agent arguing that the goods infringed its rights based on the so-called “manufacturing fiction”. This means that a court should treat goods as being manufactured in the Member State where they are detained in order to establish whether they are infringing or not.
The referring court asked the CJEU whether Art. 6(2)(b) of the old APR is a uniform rule of Community law and whether it implies that the Court should disregard the temporary status/transit status and must instead apply the “manufacturing fiction”.
In 2008 UK customs checked a shipment sent from Hong Kong and destined for Columbia. The shipment contained mobile phones and accessories which depicted a sign that was identical to one of Nokia’s Community trade marks. Nokia confirmed that the goods were counterfeit and asked the customs authority to detain these goods. UK customs refused to detain the goods because it was not established that there was a likelihood of diversion of the goods onto the EU market. Based on the information provided by customs Nokia was unable to identify the consignor or consignee of the goods.
The referring court found that the goods were counterfeits and that there was no indication that they would be put on sale in the EU. Therefore, the court asked the CJEU whether goods which are subject to customs supervision and in transit from one non-Member State to another should be considered to infringe intellectual property rights in the EU in circumstances where there is no evidence to suggest that those goods will be put on the market in the EU, either in conformity with a customs procedure or by means of an illicit diversion.
In summary the referring courts sought guidance on the following:
Whether goods coming from a non-Member State which are imitations of goods protected in the EU by intellectual property rights can be classified as ‘counterfeit goods’ or ‘pirated goods’ within the meaning of the old APR (3295/94) and the new APR (1383/2003) merely on the basis that they are brought into the customs territory of the EU, without being released for free circulation there.
The temporary detention of goods placed under a suspensive customs procedure
Firstly, the CJEU considered the temporary detention of suspected goods by customs authorities as infringing intellectual property rights.
According to the CJEU, the transportation of goods under customs supervision or the storage in a customs warehouse cannot be considered as the putting of goods on sale in the EU and therefore could not be considered to infringe intellectual property rights in the EU. The CJEU also considered that as to fraudulent diversions of goods onto the EU market, circumstances other than a commercial act could be sufficient for customs to detain the goods. It is not necessary to prove that the goods will be diverted onto the EU market because that would reduce the effectiveness of the old and new APR. Customs are entitled to act if there are indications that one of the parties involved in the manufacturing, consignment or distribution of the goods is about to divert them to EU customers, even if this has not actually started.
The CJEU provided examples of such indications as follows: the fact that the destination of the goods is not declared where it is a requirement, the lack of accurate and reliable information regarding the identity or address of manufacturer or forwarding agent, the lack of sufficient cooperation with customs authorities or new documentation regarding the risk of diversion of goods onto the EU market. The CJEU agreed with the Advocate General that these indications should be based on the specific facts of the case.
The CJEU also referred to the importance of the protection of legitimate trade from one non-EU Member State to another, for example in a case where no intellectual property rights are infringed in either jurisdiction. If there is a suspicion that the goods infringe intellectual property rights in the destination state, customs could cooperate with customs in that state based on Art. 69 TRIPs.
The substantive decision following the temporary detention of goods placed under a suspensive customs procedure
Secondly, the CJEU considered the issue of determining whether there is infringement of intellectual property rights in proceedings following the temporary detention of goods by customs.
The CJEU concluded that if goods were to be found infringe the only possible outcomes would be the destruction of the goods or their delivery up to the rights holder. Such a sanction could not be imposed upon a party based on the risk of fraud or the so-called “manufacturing fiction”.
If there is no substantive proof that the goods are to be made available for sale on the EU market, then they cannot be considered infringing goods. The burden of proof lies with the rights holder. Examples of such proof could be: the actual sale of the goods to an EU customer, the offer (by advertising) of the goods to EU customers or documents showing that the goods are intended for sale on the EU market.
According to the CJEU, the fact that customs authorities are obliged to release a shipment from detention following a ruling that there is not sufficient proof of intention to sell on the EU market does not imply that the APRs are ineffective in the fight against counterfeit and pirated goods.
Interestingly, the CJEU considers that there are other ways to detain goods under the Community Customs Code (CCC). For example, if reliable information as to the identities or addresses of the parties involved remains missing, the goods could be forfeited according to Article 75 CCC.
Additionally, if counterfeited and pirated goods pose a risk to the health and/or safety of consumers – a problem recognised by the EU legislator – they could be seized immediately. Whether the goods are destined for EU Member States or not is irrelevant in that scenario.
We can conclude that the ongoing question in Europe about whether the “manufacturing fiction” exists or not is closed definitively, since the CJEU decided that such a fiction could never be the grounds for the destruction or surrender of counterfeit goods.
The CJEU gave more guidance to customs for detaining goods placed in transit or under customs supervision. The threshold for detention is not as high as was expected based on the AG’s Opinion. The CJEU seems to have considered the questionable reputation and methods of counterfeiters in providing examples of indications which can support customs’ suspicions that goods will be diverted onto the EU market.
However, the question remains whether in practice this is sufficient guidance for customs. The CJEU judgment places a burden upon customs to look for indications that the goods will be diverted into the EU. Therefore it is difficult to predict how customs will handle transit shipments in the future. Some customs authorities will look for the indications themselves, some will immediately place the burden of proof onto the rights holder and it is possible that some authorities will not detain shipments in transit at all.
Although, the CJEU places a heavy burden on rights holders to provide proof that goods will be diverted onto the EU market, the CJEU also recognises other grounds to remove dangerous and fraudulent goods from international trade. The detention under the APR still could be a good starting point to act against counterfeit (and dangerous goods) from various perspectives.
We believe that the judgment reflects the CJEU’s struggle between keeping strong borders and protecting consumers against potentially dangerous counterfeit goods whilst not frustrating international trade. In this light the CJEU gave guidance on how these kinds of goods might be prevented from entering the EU market or even from continuing to the intended destination state and endangering non-EU consumers.