New Customs and IP enforcement regulation provides major benefits to rights holders

European Union

The proposed text of a new regulation dealing with Customs and intellectual property enforcement, to replace Regulation 1383/2003, has just been published by the European Council and Parliament. It brings in an important new procedure in relation to small consignments, but otherwise makes only relatively minor changes to the existing regime. Most debate is likely to concentrate on aspects of the existing regulation which have not been significantly changed, in particular regarding goods in transit.

The new regulation will be subject to a vote in the Committee on the Internal Market and Consumer Protection of the EU Parliament on January 24, and then a plenary vote in April. It is scheduled to apply from January 1 2014. This update summarises the main provisions.

The new regulation responds to the massive increase in the trade in counterfeits by way of small consignments over the last few years, which has seen the number of Customs detentions rise dramatically, whilst the number of items detained has fallen. Typically, when consumers purchase an item on the internet, it will be delivered directly from its overseas source - usually China. This creates a huge volume of work for Customs at postal hubs, but very often leads to seizures of quantities of product not economically viable for rights holders to pursue.

The new procedure is set out in Article 24. It applies only to counterfeit or pirate goods. A small consignment of such goods can be destroyed by Customs following notification of the detention to the importer and receipt of the importer’s consent to destruction. Customs may treat a lack of response from the importer (within 10 working days) as implied consent. All this will happen without the rights holder being involved at all, although it is required to have opted in to the procedure when filing its Customs Monitoring Application in the first place.

If the importer does not consent to destruction, then Customs will inform the rights holder of the detention so that it may proceed in the same way as it would with any ‘normal’ detention - typically by seeking a determination from the court that the goods infringe its rights and should be delivered up/destroyed.

A ‘small consignment’ is defined (Article 2.17a) as a postal or express courier consignment of three units or less, or which weighs less than 2kg. Importantly, under Article 24.20, the Commission can quickly amend this definition if traders are seen to be deliberately circumventing it - for example, by adding unnecessary material to consignments to increase the weight to just over 2kg.

These new procedures will be broadly welcomed by industry, which has struggled to find ways to cope with the rise in small consignments whilst faced with budget restrictions in tough economic times. It will, however, be very interesting to see how this all works in practice. Will importers regularly agree to destruction? Where they do not, how will rights holders react? And, perhaps most importantly, how will those sending the counterfeits try to get around the definition of a ‘small consignment’ and how quickly will the Commission spot this and react to it?

The other major talking point in the new regulation concerns goods in transit. This became a hot topic when the recent Nokia case (Joined Cases C‑446/09 and C‑495/09) confirmed that, for a detention by Customs to be validly maintained, there must be an act of infringement. Since, in most countries, this would require importation into the territory as a bare minimum, then goods which were merely in transit to another (non EU) country would not be covered. The uncomfortable consequence of this would be Customs allowing consignments known to be ‘counterfeit’ to pass, in transit, to another country.

After careful consideration, and in the face of a huge amount of lobbying by industry, Council, Parliament and the Commission have all agreed that this should remain the position under the new regulation. This reflects concerns at the possible consequences of including goods in transit, not least the detention of life-saving medicines on their way to developing countries, when the products might infringe EU patents, but not infringe patents in either the country of manufacture or the country of intended importation. Also, however, it is felt that the proper way to have goods in transit included in this Customs regime (if at all) would be for ‘transiting’ to be made an infringing act. This is something for substantive law. With discussions commencing on a new Community Trademark Regulation and a new Trademarks Directive, it is expected that this debate will be picked up again very soon.

For now, the best that industry gets on this topic in the new regulation is Article 19a, which sets out information which EU Customs may share with other customs authorities - for example, where EU Customs detects a consignment of counterfeits, but is unable to seize the goods as they are in transit, it is empowered to pass information to the customs authority in the destination country in the hope that they can be seized on arrival. Many counterfeiters are, of course, adept at splitting consignments en route or re-routing to cover their tracks, so there is some doubt that the ability to provide information will have a significant impact.

Under Regulation 1383/2003, there was some doubt as to what rights holders could actually do with information provided by Customs - in particular, details of consignor and consignee, which could have far greater use beyond merely dealing with the consignment at issue. The new regulation brings some welcome clarity, specifically addressing the permitted use of information in Article 19. It is now clear that, amongst other things, rights holders may use information not just to initiate civil infringement proceedings, or seek consent from the importer to destruction of the goods, but also to seek compensation, and to found and support criminal action.

The article is, however, slightly confusing: information can be used in connection with criminal investigations only in the member state where the goods are found, but there is no such restriction on use of the information to initiate criminal proceedings. Nevertheless, the situation is now far clearer than it was and will be welcomed by rights holders.

Other matters worth noting in the new regulation:

  • Scope - the new regulation now covers some rights not included previously, namely rights in relation to trade names, topographies of semi-conductor products, utility models and circumvention devices (devices designed to get around anti-copying technologies). Given these extensions, it is a little surprising to see parallel imports still excluded from the scope of the regulation. Also excluded are ‘overruns’.

    Significantly, the new regulation does not apply to goods in travellers’ personal luggage, provided they are of a non-commercial nature. Therefore, under this regulation, Customs is not empowered to seize a traveller’s counterfeit watch from his wrist, but would be entitled to seize a box of 10 watches carried in his suitcase.

  • Costs - the various actions taken by Customs come at a price, not least of which is the storage cost that will be incurred when a consignment is detained. This can be significant if the consignment is large and the detention contested. In the majority of instances, however, storage costs are relatively minor as most consignments are dealt with quickly; but they still add up. The new regulation continues to place the primary burden for such costs on the rights holder, making this another area where industry lobbying has fallen on deaf ears. Rights holders are not precluded from seeking recompense from others (eg, the importer), but in many cases it will not be cost-effective to seek to do so, not least because it is not always possible to identify the relevant party easily (if at all).

Overall, the new regulation is to be welcomed for the new procedure it introduces in respect of small consignments. This addresses a significant issue and will be of major benefit to rights holders. It is hoped that this procedure will fulfil its objectives when it kicks off in January 2014 and that the Commission will be nimble enough to respond quickly if the counterfeiters adapt their practices to avoid the new regime. The lack of meaningful progress in relation to goods in transit and costs is, however, clearly disappointing.

Stuart Adams and Jeremy Newman, Rouse, London

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