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Advocate General advises on the Customs Regulation

18/03/2011

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United Kingdom

Advocate General advises on the Customs Regulation

This article was included in the spring 2011 issue of snIPpets - the intellectual property newsletter.

Advocate General Cruz Villalón has handed down an Opinion on the interpretation of the EU Customs Regulation. If this Opinion were followed by the Court of Justice of the EU (CJEU), customs authorities would have the power to seize suspected counterfeit goods which are in transit through the EU between two non-EU member states merely where there is a suspicion that they are counterfeit goods and that they are to be put on the market in the EU by means of an illicit diversion from the "external transit" procedure claimed. (Koninklijke Philips Electronics NV v Lucheng Meijing Industrial Company Ltd & Others (Case C-446/09) and Nokia Corporation v Her Majesty's Commissioners of Revenue and Customs (Case C-495/09)).

The Opinion commented on questions referred to the CJEU by the Court of First Instance in Antwerp in the Philips case and by the Court of Appeal of England and Wales in Nokia on the interpretation of provisions in the Customs Regulation in force at the time of the respective actions. Both cases involved situations where the goods were going though Customs under the "external transit" procedure where goods are in transit through the EU between two non-EU member states.

By way of background, there are three main procedural steps in dealing with counterfeit goods which are passing through Customs. Firstly, customs authorities may suspend the release of goods or detain them for three working days if there are sufficient grounds for suspecting an infringement of an intellectual property right. Next, the right holder may apply for the customs authorities to suspend or detain the goods. The customs authorities will do so where suspicion remains that intellectual property rights have been infringed. In the last stage, there are three alternative situations that may arise:

(i) the owner of the seized goods may relinquish them, in which case they may be destroyed under customs control; or

(ii) within ten days of notification of the action in the second stage, the intellectual property right holder may apply for a determination in substantive proceedings (usually by a court) that an infringement of its rights has occurred; or

(iii) the right holder does not take any action within ten days of notification of the action in the second stage, in which case the goods are released or their detention is ended.

The Court of Appeal in Nokia sought guidance on the circumstances in which customs authorities may suspend or detain goods going through the external transit procedure in the second stage of the process. In contrast, the question raised by the Belgian court in Philips concerned how the external transit procedure affected the determination in substantive proceedings in the third stage of the process.

Nokia - Action by Customs

The Nokia case concerned mobile phones and accessories passing through Heathrow airport which had come from Hong Kong and were destined for Colombia. Although Nokia informed Her Majesty's Revenue and Customs (HMRC) that the goods were counterfeit, HMRC declined to take action in the absence of any evidence that the goods might be diverted onto the EU market. Nokia sought judicial review of HMRC's decision. This application failed at first instance. Nokia appealed to the Court of Appeal, which referred a question to the CJEU seeking clarification of the definition of "counterfeit goods" under the Customs Regulation.

In the Advocate General's view, if there is to be a "counterfeit trade mark" for the purpose of the Customs Regulation, it has to be proved that the goods concerned were destined for the EU market. If not, the goods in transit do not satisfy the condition of "use in the course of trade" laid down by Trade Mark Regulation 40/94 and national laws on trade marks. The Advocate General pointed out that several provisions of the Customs Regulation use the terms "suspected", "suspecting" and "suspicious" as a criterion for action by customs authorities. In the Advocate General’s opinion, the administrative, preventative action taken by customs authorities should be contrasted with the material finding of infringement required in the final stage, which is usually a judicial decision on the substance of the case. The Regulation sets different conditions for these two stages, requiring a lower threshold for action by customs authorities and a stricter test for the substantive decision.

The conclusion of the Advocate General is that customs authorities may lawfully seize goods in transit provided they have at the very least "the beginnings of some proof", i.e. some evidence that those goods may infringe an intellectual property right. In assessing the case of goods in transit, customs authorities should take into account the danger of fraudulent entry of goods into the EU and determine whether that danger is so great as to make it possible to classify certain goods as "suspected" of infringing an intellectual property right. He gave examples of where there may be such suspicion, including the excessive duration of the transit, the kind and number of means of transport used, the greater or lesser difficulty of identifying the consignor of the goods or the lack of information on their physical destination or consignee.

Philips - Substantive decision

As for the Philips case, this arose from the detention by Belgian Customs of a consignment of shavers from Shanghai in 2002. Philips then issued an action in the Belgian courts for a ruling that its intellectual property rights had been infringed. The Belgian court sought clarification from the CJEU on the interpretation of the Customs Regulation when a court decides whether an intellectual property right has been infringed in relation to goods which were in transit.

Philips argued that the court should apply a "production fiction" test by which the court should use as its starting point the fiction that the goods had been manufactured in Belgium. The advantage of this approach for rights holders is that it avoids the need to show that the goods have been or are likely to be put on the market in the EU. The Advocate General disagreed with this approach, noting that the provision on which Philips relied was intended to deal with any conflict of law, and the Customs Regulation has since been amended to clarify this. This means that the courts of the member state involved must apply its own laws as to whether there is an infringement of an intellectual property right. The Advocate General noted case law from the CJEU which has found that "use in the course of trade" is an essential requirement for the activation of intellectual property rights, so that there is no place in the Customs Regulation for the "production fiction".

In practice: Whilst not always followed by the Court of Justice of the EU, this Opinion gives an indication of the final ruling which may be made in these joined cases. If followed, it will give more leeway for Customs to seize and detain suspected counterfeit goods which are going though "external transit", merely requiring suspicion that they are to be put on the market in the EU. However, the ultimate decision of what to do with the goods to be made in substantive proceedings at the final stage of the process remains a high threshold for infringement with proof required that the goods will be put on the market in the EU, with no "production fiction" test applied.

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