While the EU customs regime is a cost-efficient tool for combating counterfeiting, its scope is threatened by changes in how counterfeiters operate and the fallout from Brexit
Counterfeit goods are an increasingly serious problem in the European Union and across the world. A recent joint study by the Organisation for Economic Cooperation and Development (OECD) and the EU Intellectual Property Office (EUIPO) found that in 2013, counterfeit and pirated products accounted for up to 5% of all imports into the European Union and were worth €85 billion. Globally, the scope of the phenomenon appears to be greater than it was a decade ago. A previous OECD study from 2008 estimated that counterfeit and pirated goods accounted for just 1.9% of global imports, compared to 2.5% in 2013.
Counterfeiters and pirates maximise their profits by targeting all potential market sectors. These include markets in which consumers willingly purchase infringing products from counterfeiters and those where they are deceived into believing that they are purchasing legitimate items.
Production and distribution
In 2015 the European Observatory on Infringements of IP Rights published a situation report on counterfeit goods in the European Union, the result of a joint project by EU agencies Europol and the EU Intellectual Property Office (EUIPO). The report was designed to inform the public, industry, policy makers and practitioners at both the EU and national level about the involvement of organised criminal groups in the production and distribution of counterfeit goods within the European Union. It showed, among other things, that although most of the counterfeits in circulation in Europe are manufactured outside the European Union, domestic EU production is on the rise, with instances having been discovered in Belgium, the Czech Republic, Italy, Poland, Portugal, Spain and the United Kingdom. Notably, counterfeit goods manufactured within the European Union cannot be detected at the region’s external borders. The report also found that the most significant enabler for distributing these counterfeit goods is the Internet. Consumers are drawn to e-commerce sites due to their prices, 24/7 availability and direct delivery.
Economic cost of infringement
Further recent reports published by the EUIPO have considered the economic cost of IP infringement in the European Union. These clearly show the amount of money and number of jobs that are lost in the European Union due to counterfeiting in various sectors. For example, nearly €5 billion and 50,000 jobs are lost every year in the cosmetics and personal care sector; whereas over €26 billion and 363,000 jobs are lost every year due to the counterfeiting of clothes, shoes and accessories in the European Union.
The European Commission recently published its annual report on EU customs enforcement of IP rights for 2015. This has been issued annually since 2000 and is based on data transmitted by member states’ customs administrations to the commission, pursuant to the EU Customs Regulation.
The report shows that in 2015 customs authorities across the European Union seized an estimated 40 million articles with a domestic retail value of over €640 million. This was an increase of 14% compared to 2014.
As in previous years, most articles (ie, over 90% by both number and value) detained by Customs in 2015 were suspected of infringing trademark rights.
China was once again the main country from which goods suspected of infringing an IP right entered the European Union. Other countries were the main source for specific product categories, such as Mexico for alcoholic beverages, Morocco for other beverages, Turkey for clothing, Hong Kong for certain consumer electronics, Montenegro for cigarettes and India for medicines.
The top categories of detained articles were cigarettes (27% of the total), followed by other goods (10%), toys (9%), labels, tags and stickers (8%) and foodstuffs (7%).
Products for daily use which would be potentially dangerous to the health and safety of consumers amounted to 25.8% of the total amount of detained articles.
In 91% of customs detentions, either the goods were destroyed or the rights holder launched a court case to establish infringement. With regard to the goods seized, 75% were destroyed or were subject to proceedings, while 25% were released because either the rights holder did not react to the notification by Customs (11%) or they were in fact genuine (14%).
Given that most counterfeit goods circulating in the European Union are manufactured outside the region, the strongest, most cost-efficient tool for fighting counterfeiting is the EU Customs Regulation (608/2013), which came into effect on January 1 2014 and repealed EU Regulation 1383/2003. The new regulation:
- extended the existing system to rights in trade names;
- removed the requirement to commence IP infringement proceedings before suspected counterfeit goods can be destroyed (provided that the declarant or holder of the goods agrees to the destruction); and
- introduced a procedure that allows small consignments of counterfeit or pirated goods to be destroyed without the need for the explicit agreement of the rights holder in each case, provided that it has made a general request for destruction.
Underlying the provisions of the Customs Regulation is the Community Customs Code (2913/1992, EEC), although on May 1 2016 this was replaced by the EU Customs Code (952/2013).
Pursuant to the Customs Regulation, rights holders may file an application for action requesting that Customs act in cases where they suspect that an IP right is being infringed. Applications for action are free, can be requested on a national or an EU basis and are valid for 12 months. The application can be extended for further 12-month periods on written request. The application must contain sufficient information to allow Customs to differentiate between legitimate and counterfeit goods, such as:
- a detailed description of the genuine goods, including any distinctive features, and pictures, if available;
- information about where genuine goods are produced;
- details of authorised importers, suppliers and manufacturers; and
- any available information about existing counterfeits and seizures.
The rights holder must also provide proof of ownership in its rights. Over the last decade the number of applications for action in EU member states has tripled.
Customs authorities in EU member states also have the power to act ex officio if officials suspect that an IP infringement is taking place. In such cases, Customs must identify the rights holder and ensure that it submits a national application within four working days in order for detention of the goods to continue.
As a direct result of the recent overhaul of the EU trademark regime, the EU Trademark Regulation was revised to provide enhanced protection to rights holders. In particular, the EU Amending Regulation (2015/2424) expanded the list of activities precluded by a registered trademark to include preparatory acts of infringement. These include:
- affixing a sign that is identical or similar to the EU trademark on packaging, labels, tags, security or authenticating features or devices or any other means to which the mark may be affixed (Article 9a(a)); and
- offering or placing on the market, or stocking for those purposes, or importing or exporting packaging, labels, tags, security or authenticating features or devices or any other means to which the mark is affixed (Article 9a(b)).
Accordingly, from March 23 2016 (the date on which the Amending Regulation entered into force) Customs has been authorised to seize packaging, labels, tags, security or authenticating features or devices to which a trademark is affixed which may not previously have fallen under the definition of ‘counterfeit goods’ or constituted ‘reasonable indications’ for suspected infringement of an IP right.
On July 5 2016 the European Commission published a notice on customs enforcement of IP rights concerning goods brought into the customs territory of the European Union without being released for free circulation, including goods in transit. In particular, this reflected the adoption of the new Customs Regulation and the Amending Regulation.
In particular, the notice clarifies the following:
- The Customs Regulation contains enforcement procedures to permit action by customs authorities against goods suspected of infringing IP rights, but it does not set out any criteria for ascertaining the existence of infringement (Recital 10). The question of whether an IP right has been infringed is a matter of substantive IP law, as interpreted by the competent national courts and the European Court of Justice (ECJ).
- Goods coming from a third country without being released for free circulation which are suspected of violating an IP right protected in the European Union by, for example, a trademark, copyright or a related right or a design or a patent may be classified as “goods suspected of infringing an intellectual property right” where there is evidence that they are intended to be put on sale in the European Union. This evidence can include proof that the goods have been sold to a customer in the European Union or offered for sale or advertised to consumers in the European Union (joined Cases C-446/09 and C-495/09 (Philips/Nokia), paragraph 57, in which the ECJ gives guidance on obtaining detention and destruction of infringing goods held under suspensive customs procedures) or where it is apparent from documents (eg, instruction manuals) or correspondence concerning the goods that their diversion to the EU market without the rights holder’s authorisation is envisaged.
The EU customs regime has proven a highly effective tool for rights holders in reducing the negative impact of counterfeiting on their business. However, there are signs that counterfeiters are altering their strategies in order to evade detection at the European Union’s external borders, in particular by manufacturing counterfeit goods within the European Union itself. Rights holders may therefore need to consider alternative ways of fighting counterfeiters in the European Union, in addition to relying on the Customs Regulation.
Moreover, rights holders and trademark practitioners – particularly in the United Kingdom – are keenly aware that Brexit may have a drastic effect on the current EU customs regime, particularly given that the United Kingdom is positioned at one of the European Union’s geographic borders.
Paolo Andreottola is an associate in the firm’s IP department and is based in the London office. His practice focuses on a wide range of trademark matters, including oppositions, revocations and invalidity actions, the negotiation of settlements, brand clearance and the prosecution of trademark portfolios worldwide. Mr Andreottola has advised major international corporations on trademark enforcement, trademark prosecution and brand protection worldwide.