A hotly debated topic in several European jurisdictions has now been decided. Can infringing goods be stopped in transit (e.g. on their way to parts of the world where no IP rights are infringed) or only if these are destined for European markets, where they infringe? And if these goods are stopped in transit, can these be considered an infringement in accordance with the laws of the country where the goods were detained?
The Court of Justice of the European Union (CJEU) handed down its judgment in the joint cases C 446/09 Koninklijke Philips Electronics NV vs Lucheng Meijing Industrial Company e.a. and C 495/09 Nokia Corporation vs Her Majesty's Commissioners of Revenue.
In short: customs may stop the fishy stuff, but national Courts cannot find infringement merely on the basis of suspicions that the goods will enter the relevant market in the EU. The so-called "manufacturing fiction" as adopted by some Courts in the EU, is rejected. On the basis of the manufacturing fiction, some Dutch Courts (until recently) held that detained goods infringe national intellectual property rights in the place where they were detained, if the manufacturing of those goods in that country would be an infringement.
In one of the cases, Philips' found infringing electric shavers in the port of Antwerp and after customs intervened, sought a court order to have these destroyed. In the second case, fake Nokia phones were stopped by customs at London Heathrow Airport.
In the first case the defendant argued that even though the final destination of the goods were not specified, there was also no evidence that the goods were destined for the European market. In the second case it was established that the fake Nokia phones were shipped form Hong Kong and were on their way to Colombia.
These two cases primarily concern the interpretation of the European Anti-Piracy Regulations (Regulation 1383/2003 and Regulation 3295/94, which was replaced by the former). More specifically, the CJEU was asked whether goods coming from a non-EU member state which are in transit or stored in a customs warehouse in the EU, can be classified as 'counterfeit goods' or 'pirated goods' for the purposes of EU law, merely on the basis of the fact that they are brought into the customs territory of the EU, without being marketed or sold there.
This debate highlights the weak spots in counterfeit combat at Europe's borders, as the destination of goods in transit may be changed continuously. There is potential for infringers to try their luck and only change the destination of goods to non-EU markets if the goods are found. Rights owners therefore face serious enforcement challenges.
In its judgment, the CJEU clearly distinguished two different situations. First the CJEU examines under which circumstances customs may detain goods which are suspected to be infringing goods. Secondly, it examines under which circumstance the national courts may or may not find that these detained goods are infringing goods.
The CJEU stresses that goods from non-EU member states placed under a suspensive customs procedure cannot, merely by the fact of being so placed, infringe intellectual property rights applicable in the EU. The opposite view could create a barrier to legitimate trade in the view of the CJEU.
In this phase, goods may be detained if there is a suspicion that these will enter the market in the EU and will thereby infringe intellectual property rights. This suspicion may not only arise if there is "a" commercial act already directed to consumers in the EU, but also on the basis of other circumstances, which could mean that the operators involved have the intention to bring the goods into EU circulation or are disguising such intentions. Such other circumstances that may give rise to a sufficient suspicion are:
- the fact that the destination of the goods is not declared whereas the suspensive procedure requested requires such a declaration;
- the lack of precise or reliable information as to the identity or address of the manufacturer or consignor of the goods;
- a lack of cooperation with the customs authorities; or
- the discovery of documents or correspondence concerning the goods in question suggesting that there is liable to be a diversion of those goods to EU consumers.
Phase II: before the national courts
Where in the first phase certain suspicions may be sufficient to justify detaining the goods in transit, the mere suspicion may not lead to a finding of infringement by the national courts in subsequent proceedings.
The CJEU clearly rejects the "manufacturing fiction" for determining infringement before the national courts:
On the other hand the CJEU realises the difficulties for the rights owners in proving that certain goods are actually intended to be circulated in the EU rather than being mere transit goods. It gives some guidance on the standard of proof. Evidence that the operators are "bad actors" may include:
- the existence of a sale of goods to a customer in the EU;
- of an offer for sale or advertising addressed to consumers in the EU; or
- of documents or correspondence concerning the goods in question showing that diversion of those goods to EU consumers is envisaged.
Note that the first two criteria are worded rather generically ("a sale of goods", "an offer" or "advertising"). A direct connection with the actual shipment of goods does not seem to be required, so linking the "operator" to infringing activities rather than the specific goods may be enough.
This judgement recognizes and highlights the difficulties custom authorities and IP right owners face when combating infringements at the EU borders. But that's no consolation.
The manufacturing fiction was a blunt instrument but according to some nevertheless necessary and proportionate to combat the "transit route", often Europe's back door for pirated goods.
The CJEU does appear to leave the national courts some leeway to determine whether there are sufficient reasons to assume the goods were intended for the market in the EU. Particularly it could be sufficient to link an operator to infringing activities, without a clear link with the particular shipment being required. Or perhaps in that case the burden of proof should at least be reversed. But even in that case the daily reality is that rights owners face a serious challenge.
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