In the fight against counterfeits, brand owners must play by the rules – but their opponents often do not. It can be hard to ensnare even proven fakes when Customs declarations point away from sale in the EU, but the declarations of shadowy importers may not be all they seem. Fortunately, the ECJ has now highlighted wilier enforcement options against fake goods seized in EU transit (Koninklijke Philips Electronics NV v Lucheng Meijing Industrial Company Ltd. et alia, and Nokia Corporation v HMCRC, Joined Cases C-446/09 and C-495/09).
Dragging the Net The claimants, Philips and Nokia, had separately sought the seizure and destruction of counterfeit goods detected by Customs in Belgium and the UK respectively.
In Belgium, the goods were counterfeit razors imported from China, which would, if sold in certain EU countries, infringe national design registrations owned by Philips. In the UK, the goods were fake mobile phones and accessories imported from Hong Kong, whose sale anywhere in the EU would infringe Nokia’s CTM. The destination of the razors was unknown and the importer was temporarily warehousing the goods under a Customs procedure pending a decision on onward shipment. The destination of the fake phones was said to be Colombia, well outside the EU.
Both Philips and Nokia faced the same hurdle, but in different ways. In Philips’ case, there was no evidence that the shavers were intended or likely to be sold in EU countries where Philips’ design was registered. In Nokia’s case, there was no apparent intention to sell the fake phones within the EU, since the importer had declared the destination as Colombia. Under the ECJ’s decision in Montex Holdings Ltd. v Diesel SpA (Case C-281/05; see Make Your Mark , Spring 2007), Customs authorities could only seize counterfeit or otherwise infringing goods in transit through the EU if the goods were placed on the EU market or there was evidence that they would be, such as to give rise to an actual or threatened infringement of an IP right here.
Philips argued that the Belgian court should proceed based on the fiction that the goods had been manufactured in Belgium, the member state in which they had been stored. This would allow the court to find that an infringing act within the EU had taken place that justified seizure and destruction of the goods.
Nokia, for its part, argued that the Customs documents filed by the fake phone importer appeared to conceal the identity of both consignor and consignee. In the absence of reliable information on the identity of the operators, it could not be concluded with certainty that the goods would not be diverted to the EU market.
Springing the Trap
Had the strict Montex approach been applied, neither Philips nor Nokia would have had any joy. In neither case had the rip-offs been offered for sale in the EU nor was there any clear evidence that they would be.
Fortunately, though, the ECJ seized this as an opportunity to consider when a court might reasonably infer a risk of diversion to the EU market, when the goods were ostensibly in transit only.
The Court affirmed Montex as holding that Customs authorities could not seize goods simply because they could not rule out the possibility that counterfeit goods in transit might find their way onto the EU market. However, there were some circumstances that went beyond this and could justify an inference that a risk of such diversion was truly likely.
Uncertainty as to the final destination of the goods, evidence that the importer’s commercial intentions had been disguised, a lack of clear or reliable information concerning the identity of the importer or consignee, or a failure to co-operate with Customs authorities were all factors, in the Court’s view, that could support an argument that goods were likely to be fraudulently diverted to the EU market.
A Nice TRIPS
Moreover, the Court confirmed that EU law is not the only weapon in the arsenal for brand owners combating fake goods in EU transit.
The Court noted that goods in transit that are clearly destined for a non-EU market and therefore not likely to become an infringement within the EU can still be seized by member states’ Customs authorities under Article 69 of the TRIPS Agreement in co-operation with authorities in the non-member country of destination, before they ever reach it. Brand owners should not lose sight of this where counterfeits or infringing imports are seized but found to be "just passing through".
Moreover, the Court noted that counterfeit goods sometimes posed risks to consumer health and safety, and although such considerations did not affect whether the goods were deemed likely to be diverted to the EU market, other EU laws (and in particular Articles 56, 58 and 75 of the Customs Code) might apply to allow Customs authorities to intervene.
In its submissions, Philips made the keen observation that actual evidence that goods in transit were likely to be diverted to the EU market was hard to compile against shadowy importers whose real identities and intentions were often masked. Requiring such proof could ultimately undermine the effectiveness of anti-counterfeiting provisions to the detriment of brand owners and consumers alike.
The Court bought this argument, to a point. It accepted that actual evidence of intention to fraudulently divert was a practical impossibility in many cases. However, it insisted on proof at least of circumstances that reasonably support an inference of likely EU sales, in basic fidelity to the principles in Montex. This, though, is a breakthrough, for the Court took pains to emphasise that any finding had to be based on the facts of each case, and the factors it identified are probably therefore only illustrative.
In reality, any factors that call into question the credibility of information relating to the import and export of proven fakes may reasonably justify an application for Customs seizure. Given the secretive nature of the counterfeiting underworld, the presence of such factors should not be rare.
This decision creates welcome new opportunities for brand owners in the fight against counterfeits transiting through the EU and helps to close off arguments by untrustworthy importers that fakes are "just passing through." Even where such arguments can be believed, this decision highlights other mechanisms, through TRIPS and the EU Customs Code, which may still be relied upon to stop counterfeits from ever reaching any market.
Leading brand owners must still constantly drag the net against counterfeits and rip-offs, and nothing in Philips and Nokia lightens that load. However, it does help to tighten the net, so that fakes may be less likely to slip through.