Goods in transit are not 'counterfeit', says court

In Nokia v Her Majesty’s Revenue & Customs ([2009] EWHC 1903 (Ch), July 27 2009), the High Court of England and Wales has ruled on a point of considerable importance on the transhipment of fake goods.

A consignment of fake Nokia phones and accessories were being shipped from Hong Kong to Colombia. At a transit stop at London Heathrow airport, the goods were inspected. Despite Nokia’s request to have the goods seized in accordance with the EU Customs Regulation (1383/2003), Her Majesty’s Revenue & Customs (HMRC) did not do so. HMRC considered that goods could not be deemed to be counterfeit within the meaning of the regulation unless there was evidence that they might be diverted onto the EU markets. Nokia applied for a judicial review of the HMRC’s decision.

The High Court held that allegedly counterfeit goods which are in transit through the European Union could not be seized as long as the goods were not destined for the EU market. These goods do not fall within the definition of 'counterfeit' under the regulation.

In particular, the court found that infringement of a registered trademark required goods to be placed on the market - goods in transit and subject to suspensive customs procedures do not, without more, satisfy this requirement. The court relied on the principles set forth in Eli Lilly v 8PM Chemist Ltd (for further details on this decision please see "Roundabout trade avoids trademark infringement, says court") and L'Oréal SA v eBay International AG (for further details please see "eBay is not liable for trademark infringement by its users, says court").

The court also held that the Montex exception - where the goods in transit are subject to acts of third parties which necessarily entails their being put on the market - did not apply in this instance. In addition, the mere risk that the goods may be diverted was insufficient to justify a conclusion that the goods had been or would be put on the market. Finally, the court held that the regulation had not introduced a new criterion for the purposes of ascertaining the existence of an infringement of a registered trademark or of determining whether there was a use of the mark which was liable to be prohibited.

In reaching this conclusion, Mr Justice Kitchin expressed his regret:

"I recognize that this result is not satisfactory. I can only hope that it provokes a review of the adequacy of the measures available to combat the international trade in fake goods by preventing their transhipment through member states."

This disappointing conclusion for brand owners shows that the limitations of the regulation need to be addressed. The European Commission recently reported that customs authorities across the 27 member states seized 178 million fake items in 2008, which is up from 79 million in 2007. The amount of fakes to be seized from goods in transit would undoubtedly increase this amount significantly, but effective legislative changes are needed to combat the international trade of counterfeit goods.

For an in depth review of the problems posed by inconsistent interpretations of the EU Customs Regulation see "The regs don't work: WTR examines 'unsatisfactory' EU border measures".

Cheng Tan, McDermott Will & Emery UK LLP, London