Border seizure measures in the European Union
The European Union is a highly attractive business market – and a prime target for counterfeiters. The EU Customs Regulation is the most cost-efficient and strongest tool to fight counterfeiting, given the investigative powers of customs authorities throughout the European Union.
As a single market composed of 28 member states with 500 million consumers, the European Union is a highly attractive business market – and a prime target for counterfeiters. The EU Customs Regulation is the most cost-efficient and strongest tool to fight counterfeiting, given the investigative powers of customs authorities throughout the European Union.
Extent of problem
According to a series of studies on IP infringement published in December 2016 by the EU Intellectual Property Office, the presence of fake goods in the marketplace causes the EU economy to lose over €83 billion and 790,000 jobs every year, as well as €14.3 billion in government revenue (eg, income tax and value added tax).
To combat this black market, in 2016 EU customs authorities carried out over 63,000 detentions and detained more than 40 million infringing goods – that is 1 million more than in 2015, with an overall domestic retail value of more than €650 million. As in previous years, cigarettes were the most commonly detained goods (amounting to 24% of all seized goods), followed by toys and foodstuffs. Products for daily use, such as medicines, household goods or body-care articles – all of which are potentially dangerous to consumers – formed a large part of the haul, with more than 30% of the detained articles (10% more than in 2015). The highest number of detention cases (26%) concerned sports shoes.
The vast majority of goods (more than 90%) were detained on the basis of suspected trademark infringement. The second most popular basis for detention was design rights infringement, at around 5%, an increase on 2015’s figure. Specifically, the goods detained for design infringement included toys, office stationery, shoes, mobile phone accessories and body-care articles. Over 80% of the detention procedures (including the small consignment procedure) resulted in the destruction of the goods.
The leading country of provenance of detained counterfeit goods by detained articles was still China, with 80% of the total (not including Hong Kong, which accounted for a further 8%). Vietnam, Turkey and India were in top positions, as in former years. Pakistan and Cambodia were highly ranked due to large detentions of cigarettes.
Counterfeit goods arriving in the European Union specifically via postal and courier traffic accounted for 73% of all EU-wide detentions in 2016. However, detentions in postal traffic decreased by more than 28% compared to 2015. In terms of the number of articles seized in postal traffic, medicine was in the top ranks (17%), along with mobile phone accessories (8%) and toys and clothing (around 4% each) – of which 80% originated from China or Hong Kong.
Applications for customs action are again increasing; approximately 36,000 applications were filed in 2016 (a 300% increase since 2007). German and Belgian Customs had the highest number of detentions EU-wide (however, this figure was down almost 50% from last year), followed by Italy, Spain, Denmark, Austria and the United Kingdom. Greek customs authorities detained the largest number of counterfeits (6.4 million, over 700% more than in 2014), followed by France (6.3 million, a 40% increase) and the Netherlands (5.1 million, a 110% increase).
Most national IP laws have been harmonised to a large extent, and there are also unitary rights at an EU level that exist in parallel to the respective national instruments (eg, the EU trademark and the registered and unregistered Community design).
Measures based on criminal law are subject to the domestic law of each member state. Concerning the civil law enforcement of IP rights, the national procedural law of each member state likewise still prevails. However, important progress towards harmonisation was made by the EU IP Rights Enforcement Directive (2004/48/EC), which introduced mandatory minimum standards regarding, for example, provisional measures, preservation of evidence, calculation of damages, information disclosure and recall.
EU border measures against counterfeit products are mainly harmonised in the form of the EU Customs Regulation, leaving only some facets of customs practice to the discretion of national legislatures. The regulation merely sets out procedural rules for customs authorities, and includes no substantive law for ascertaining the existence of infringement.
Basis for border measures
After 10 years of fighting counterfeiting in the European Union on the basis of the EU Customs Regulation (1383/2003), and despite its overall success, the new EU Customs Regulation (608/2013) came into force on January 1 2014. The new regulation should strengthen customs enforcement of IP rights and increase legal certainty in light of economic, commercial and legal developments. In a careful, more evolutionary than revolutionary approach, the new regime aims to:
- establish a mandatory procedure for the destruction of infringing goods without the need for a court order;
- stem the rising flood of postal and courier traffic of counterfeit goods which has resulted from the increase in online sales; and
- expand the range of IP rights which rights holders can invoke in customs enforcement procedures.
Customs detention proceedings
Application for customs action (AFA)
In case of suspected counterfeits, the EU Customs Regulation offers two types of customs action:
- ex officio action (accounting for 2% of EU-wide customs actions in 2016); and
- an action based on:
- an earlier filed EU-wide AFA based on EU-wide registered IP rights such as EU trademarks or registered Community designs; or
- one or multiple parallel national AFAs.
The EU rules coexist with member states’ national provisions on customs intervention, which are usually contained in the relevant national substantive IP law offering subsidiary protection in relation to parallel or grey imports and intra-EU trade.
AFAs should be filed with the central customs authority of the relevant member state. If that authority has provided the technical means to do so, the application should be filed electronically using a standard application form. Under the new regulation, hard copies with attachments for each relevant member state need no longer be provided for an EU application; this is made possible thanks to the new EU-wide central electronic database COPIS, which facilitates broader information exchange between national customs offices. In a simplification of the Community customs seizure proceedings, an EU-wide AFA needs to be submitted only to the central customs authority of one member state, which may then grant the application before immediately forwarding it to the customs authorities of the other member states indicated in the AFA.
The application must contain information on the IP rights to be enforced and list the technical and administrative contact persons. The essential mandatory information includes specific data on the genuine goods and potential counterfeits, such as:
- the identities of previously known counterfeiters;
- pictures of genuine and counterfeit goods;
- typical packaging;
- accompanying papers;
- style guides;
- usual shipping routes; and
The applicant must also assume liability for all costs resulting from the detention (eg, storage and destruction). The applicant must make an explicit undertaking to forward and update any information that is relevant to Customs’ risk analysis; if it fails to do so – or otherwise to comply with its obligations under the regulation – Customs might impose proportionate and dissuasive penalties, including suspension of the AFA.
For effective risk analysis and seizure, this data should be continually updated and sufficiently detailed to allow for the quick identification of suspicious consignments by customs officers, while avoiding information overload. It should also be presented as simply as possible (ie, in the form of photos, with limited written explanations), particularly because the applicant must pay the costs of any translation requested by national customs authorities.
The AFA is free of charge and can be renewed annually.
National customs authorities will detain goods that are suspected of infringing an IP right as noted in a granted border seizure application and will notify the rights holder accordingly; the rights holder must then confirm the likelihood of infringement. Customs will suspend the release of suspicious goods if they have not yet been placed under a customs procedure. If Customs acts ex officio, it will identify and inform the rights holder, which must submit a national AFA within three working days in order for Customs to uphold the detention.
Customs will notify the declarant or holder of the goods and the rights holder of the detention. If requested by the rights holder in its general application for customs action, Customs can:
- provide information on the persons involved in the suspicious consignment and on the origin, provenance and destination of the goods; and
- send samples for analysis.
Unfortunately, national customs offices throughout the European Union have not yet harmonised their practices, especially regarding the provision of information; not all national customs authorities seem to use COPIS for risk analysis. German Customs provides information to the holder of the decision and emails pictures of the detained goods before receiving confirmation of the counterfeit nature of the goods. In contrast, other member states withhold any information after the holder of the decision has confirmed the counterfeit quality. Some customs authorities allow only on-site inspections of the goods.
If the rights holder confirms the infringement in writing to Customs and agrees to destruction within 10 working days of notification, and the declarant or holder does not explicitly object to the destruction (ie, implied consent), Customs will destroy the goods.
Customs will release the goods only if the rights holder has not confirmed the infringement and agreed to destruction, or if the declarant or holder has explicitly opposed it and the rights holder has not initiated court proceedings.
The rights holder must bear the costs of storage, handling and destruction of the detained products. It may be able to recover those costs from the infringer or even from intermediaries (eg, the freight forwarder). However, this must be done through separate proceedings in accordance with national law.
To strengthen the enforcement of IP rights, customs intervention has been extended to other types of infringement. The regulation now also covers trade names, utility models, plant varieties, topographies of semiconductor products and circumvention devices.
The definition of ‘counterfeit products’ has also been extended to include packaging, labels, stickers and brochures as such (even where presented separately from trademark protected goods). On the other hand, contrary to the initial draft proposal, the new regulation now explicitly excludes from its scope parallel imports and overruns, as they have been manufactured as genuine goods. Moreover, the scope of the regulation continues to exclude goods carried by passengers in their personal luggage, provided that these are for their own personal use. The new regulation no longer refers to the ‘duty-free allowance’ (a value of up to €300 per person for land travellers and €430 for air and sea travellers). This indicates that a quantity below this threshold might still be considered to have a commercial character, leading to the applicability of the regulation.
As an important improvement for a more effective fight against counterfeits in the context of customs procedure, the special simplified procedure for the destruction of goods – which was optional under the previous regulation – has become the standard compulsory procedure throughout all member states (Article 23). It allows for the quick and cost-effective destruction of goods that are suspected of infringing IP rights without the need for a court order if the declarant or holder of the goods agrees to their destruction or does not explicitly oppose destruction within 10 working days of notification (ie, implied consent or deemed agreement).
In order to cope with the dramatic rise in postal and courier shipments of counterfeits resulting from internet sales and reduce the administrative burden and costs, the new specific procedure for small consignments of counterfeit and pirated goods was introduced (Article 26). ‘Postal or express courier consignments’ are defined as those which either contain three items or fewer or have a gross weight of less than 2 kilograms. Such goods may be destroyed without the explicit agreement of the applicant, provided that it has made a general request in the application for customs action for that procedure to be applied. Customs will notify the declarant or holder of the goods of its intention to destroy the goods without the rights holder’s consent or involvement. Some national customs authorities – despite the binding EU law – apparently continue to request explicit consent for destruction from the importer of small consignments.
Whether to opt for the small consignment procedure is a strategic decision for the rights holder. One disadvantage is that the rights holder receives no information about the importer; nor does it receive samples or photos of the goods in question. Upon request, it will simply obtain information about the actual or the estimated quantity of destroyed goods and their nature on a regular basis (eg, monthly in Germany). Budget considerations might be a further downside, as the number of detentions under the new procedure and their standard cost (eg, €15 for each case in Germany) are unpredictable. On the other hand, the special procedure ensures that small counterfeit shipments are destroyed solely on the initiative of Customs, with minimum input and at a reasonable cost for the rights holder.
First report on implementation of new Customs Regulation
Following the European Commission’s first report on the implementation of the new EU Customs Regulation, published on May 15 2017, no further amendments are planned to the legal text. The regulation is considered to be functioning well overall. According to the report, there was generally positive feedback on its functioning from the private sector, especially with regard to the new standard procedure with the “deemed agreement” option.
No single AFA for the newly included IP right of topographies has been filed, as the inclusion of additional IP rights within the domain of customs control has generally led to few detentions. There is some concern regarding the lack of common EU-wide implementation of certain aspects of the AFAs. Requirements by the various national customs offices are inconsistent regarding the information requested in AFAs (eg, the definition of ‘authorised distributor’). The language regime for union-wide AFAs is incoherent, with some national central customs requesting a translation into the national language or not accepting the English or French version. The acceptance of sending images of the detained goods (ie, instead of the right holders having to examine the goods on site) is also inconsistent.
The small consignment procedure is apparently never applied in two member states. Indeed, only approximately 30% of union-wide AFAs contained a request for the small consignment procedure before September 2016. Moreover, detentions through the new procedure decreased by more than 20% in 2015. One can only speculate on why rights holders have not embraced the new procedure; it may be due to the withholding of detailed information on the detention or the difficultly of foreseeing the procedural costs incurred by the new procedure.
Also in general, physical controls of the goods at customs have apparently decreased from 3% to 1%. Presumably, member states’ limited customs resources might be one reason. This might also explain the important decrease of detention cases in 2016 – for example, 83% in the United Kingdom (with also 30% fewer articles detained) and 44% in the Czech Republic.
Transit and broader perspective
The new Customs Regulation does not clarify the situation of goods in transit to a market outside the European Union. However, as a question of substantive law and a matter of fact, transit is a topic of utmost importance to the daily work of customs authorities dealing with counterfeits. The EU legislature crucially modified the concept of ‘transit’ during the reform of trademark law under the amended Trademark Regulation (2015/2424) and the new Trademarks Directive (2015/2436). A widely discussed issue during the reform procedure – and a surprise in its rights holder-friendly outcome – the new regime follows a much less restrictive line than previously taken by the European Court of Justice (Philips and Nokia, C-446 and 495/09).
Under Article 9(4) of the Trademark Regulation, the rights holder to an EU trademark may take direct measures against counterfeit goods in transit even if the goods are not intended to be sold in the European Union. As an exception to this, the declarant or holder of the goods may prove during infringement proceedings that the rights holder may not prohibit the sale of the goods in the country of final destination. As this provision came into force on March 23 2016 and EU member states have until January 15 2019 to implement the respective provision on transit concerning their national trademarks into domestic legislation, at present there is an incoherent approach to the transit of goods affecting EU and national trademarks. Only practice will tell what Customs will make of its extended power to detain goods in transit.
So far, case law on the new transit provision (as regards EU trademarks) is not yet known. In 2016 in 1% of the detention cases in the European Union, goods were in transit to a third country. Due to transit goods in sea and air traffic mainly being contained in bigger shipments, the percentage of transit shipments to third countries amounts to almost 15% in number of articles.
In the broader perspective, there is growing concern that the EU border seizure regime may be an excessively strong weapon which rights holders might abuse against honest competitors, including for the following reasons:
- It covers not only identical trademarks, but also cases where a sign cannot be distinguished in its essential aspect from the recorded trademark;
- Customs officers often lack the expertise to assess the relevant IP rights (eg, in alleged patent infringement) and must deal with detentions on an ad hoc basis under time pressure;
- No effective preventive measures exist to protect alleged infringers against imminent detentions (eg, a protective writ with Customs); and
- The rights holder might avoid release by initiating court proceedings once Customs has detained the goods, causing considerable economic damage to the competitor.
For others, the new regulation remains too restrictive regarding:
- the exclusion of parallel imports; and
- the imposition of costs for storage and destruction of seized goods on the rights holder, which is a victim of infringement and would not have to bear costs for detention under criminal procedural law.