ECJ ruling makes snatching counterfeits in transit less straightforward

In Philips and Nokia (Joined CasesC-446/09 and C-495/09, December 1 2011), the Court of Justice of the European Union (ECJ) has ruled that Customs may seize goods that are "in transit" through the European Union from non-member state to non-member state (under procedures that suspend normal Customs measures) only where there has been a "commercial act" (sale or offer for sale in a member state) in relation to the goods. It turned down the invitation to find that the "manufacturing fiction" could be applied to secure such seizure. However, temporary detainment of such goods may be allowed where there is evidence that they will get onto the EU market or there are indications that the goods are not genuinely in transit.

The ECJ also gave details of the indications that would suggest that suspicions that the goods will be released onto the EU market are valid (for background details please see “Advocate general issues opinion on seizure of goods in transit by Customs”).

The main aspects of the decision are as follows:

Whilst making the seizure of goods in transit more complex in some member states, the decision will at least provide some uniformity across the European Union in the interpretation of the EU Customs Regulation (1383/2003). In the past, certain member states' authorities had been quicker to seize counterfeit goods in transit than others.
The “manufacturing/production fiction” - the pretence that counterfeit goods could be treated as manufactured in the state in which they were located while in transit and thereby qualified as ‘counterfeit’ and infringing - is not part of the current Customs regime (it had been claimed that the old Customs Regulation (3295/94) allowed this and that the new one also implied it, and some member states' customs authorities had applied this “fiction” to seize counterfeit goods in transit).
IP rights owners will need “proof” that the goods are intended for the EU market - evidence of a sale, offer for sale or advertising or another "commercial act", even acts done in respect of the goods before their arrival in the European Union - before the goods can be treated as counterfeit or infringing.
In order to make the assessment, if not initially clear whether goods are infringing, the authorities can take into account all the circumstances to temporarily detain the goods whilst a decision is made or further proof is provided (eg, where there are indications that one or more of the operators involved in the manufacture, consignment or distribution of the goods, while not having yet begun to direct the goods towards EU consumers, are about to do so or are disguising their commercial intentions). Such indications may include the fact that:
- the destination of the goods is not declared (the transit regime requires such a declaration in order for the normal Customs rules not to apply);
- 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 likely to be a diversion of those goods to EU consumers.
  
  However, it is stressed that such suspicion must, in all instances, be based on the circumstances of each particular case.
The Customs Code (Regulation 450/2008), which lays down the basic EU rules on Customs matters, may be used to assist in maintaining detentions that would otherwise fail due to lack of firm evidence of diversion onto the EU market. Invoking "health and safety" concerns, or using technical requirements under the code (eg, satisfactory details of consignor or manufacturer), the presence or lack of which respectively could lead to a release of the suspensive procedures, could be a way to have the goods detained. It could mean that the goods would no longer be treated as "in transit" and might therefore be detainable in the normal course.
It remains to be seen whether the proposed Regulation on Enforcement of IP Rights by Customs will improve the remedies available to IP rights owners via Customs. Unfortunately, current drafts do not look promising in that regard.

The ECJ felt that, to detain goods which, if placed on the market in the European Union would infringe IP rights, but which might not infringe any IP rights in the country of destination (or origin), would be an interference with legitimate free trade and might also inhibit the transport of goods through the European Union. However, the ECJ also suggested that, where goods are in external transit and are known to be infringing in the countries of destination, the EU customs authorities are able to cooperate, pursuant to Article 69 of the Agreement on Trade-Related Aspects of Intellectual Property Rights, with customs authorities in the non-member destination state in order to remove the goods from international trade where appropriate.

This is a disappointing decision for IP rights owners, given that some member states had continued to apply the "manufacturing/production fiction" to find transiting goods to infringe local IP rights, and hence seizable as "counterfeit". From now on, notification that counterfeit goods are in transit will not be sufficient for seizure without:

evidence that they are intended for the EU market; or
being able to point to evidence which suggest that the goods may not actually be in transit.

However, this will depend on Customs' interpretation of the circumstances surrounding a suspicious "in transit" consignment and their readiness to respond to the concerns of IP rights owners, or conclude that omissions or a lack of clarity on the paperwork accompanying a consignment is sufficiently suspicious. Breaches of the Customs Code (which was not in force at the time of the events in the cases referred to the ECJ here) may prove to be useful to IP rights owners in these circumstances.

David Wilson and Rachel Montagnon, Herbert Smith LLP, London

ECJ ruling makes snatching counterfeits in transit less straightforward

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