When is a fake not a fake? When it's not on sale in Europe ...

"How can they do this to me ...!"

This morning the Court of Justice gave its ruling in Joined Cases C 446/09 Koninklijke Philips Electronics NV v Lucheng Meijing Industrial Company Ltd, Far East Sourcing Ltd, Röhlig Hong Kong Ltd, Röhlig Belgium NV and Nokia Corporation and and C 495/09 Nokia Corporation v Her Majesty’s Commissioners of Revenue and Customs, International Trademark Association intervening. These are a couple of extremely controversial references from, respectively, the Rechtbank van eerste aanleg te Antwerpen and from the Court of Appeal (England and Wales). The Advocate General's Opinion (noted here by the IPKat) was given as long ago as 3 February, which means that the Court of Justice has been agonising over what to do for nearly twice as long as it usually does. Those poor judges must really have had their serenity shattered, says Merpel.

Today's ruling is 8,500 words in length and will take a bit of digesting. Merpel kindly suggested that the IPKat begin reading from the start while she begins reading from the end, so they can meet in the middle. While that's not as silly an idea as it seems, since the basic law and facts are at the beginning and the ruling is at the end, the Kats agreed that the best point from which to start was the excellent Curia media release, which states as follows:

"The Court specifies the conditions under which goods coming from non-member States that are imitations or copies of goods protected in the EU by intellectual property rights  may be detained by the customs authorities of the Member States 

Where those goods are in customs warehousing or in transit in the EU, they can be classified as ‘counterfeit’ or ‘pirated’ goods if it is proven that they are intended to be put  on sale in the EU 

These two cases concern the interpretation of the EU rules on the conduct of customs authorities faced with possible infringements of intellectual property rights by goods coming from non-member States that are placed in external transit or customs warehousing on the customs territory of the EU [From a technical legal perspective this is true. But IP owners aren't concerned about the conduct of customs authorities -- they're concerned about the conduct of people who are shifting fakes and counterfeits around, under their very noses]. Those suspensive procedures enable non-Community goods to avoid being subject to import duties and other taxes or to commercial policy measures. 

The facts in Case C-446/09
In 2002, the Belgian customs authorities inspected a cargo – which lacked a stated destination and was warehoused in the port of Antwerp (Belgium) – of electric shavers from Shanghai (China) resembling designs of shavers developed by Philips. Those designs are protected by registrations granting exclusive intellectual property rights to Philips in a number of States, including Belgium. Suspecting that the goods were ‘pirated goods’, the Belgian customs authorities detained them. 

Philips brought an action against Lucheng Ltd, Far East Sourcing Ltd and Röhlig Hong Kong Ltd, which were involved in the manufacture, marketing and transport of those shavers .... Philips seeks in particular a ruling that those undertakings infringed its exclusive right over those designs. Philips also seeks an order that those undertakings pay it damages and that the detained goods be destroyed. 

The facts in Case C-495/09
In July 2008, the customs authorities of the United Kingdom (HM Revenue & Customs, ‘HMRC’) inspected a consignment of goods – mobile telephones and mobile telephone accessories – at London Heathrow Airport (United Kingdom) which had come from Hong Kong (China) and was destined for Colombia. Those goods bore a sign identical to a Nokia trade mark. Suspecting that the goods were fake, HMRC sent samples to Nokia, which confirmed that the goods were indeed fake and asked HMRC to detain the consignment. 

That request was refused by HMRC on the ground that goods in transit from one non-member State to another cannot be regarded as ‘counterfeit goods’ for the purposes of European Union law and therefore cannot be detained. Nokia challenged that refusal of detention before the courts of the United Kingdom. 

[The referring courts] ask the Court of Justice whether goods coming from a non-member State which are in transit or stored in a customs warehouse in the European Union, can be classified as ‘counterfeit goods’ or ‘pirated goods’ for the purposes of European Union law merely on the basis of the fact that they are brought into the customs territory of the European Union, without being marketed or sold there. 

In its judgment delivered today, the Court first examines the conditions for temporary detention of goods placed under a suspensive procedure. It reiterates that goods from non-member States placed under a suspensive customs procedure cannot, merely by the fact of being so placed, infringe intellectual property rights applicable in the European Union. However, those rights may be infringed where, during their placement under a suspensive procedure in the customs territory of the European Union, or even before their arrival in that territory, goods coming from non-member States are the subject of a commercial act directed at European Union consumers, such as a sale, offer for sale or advertising [The IPKat didn't think that the advertising or offering for sale of infringing goods that were not yet on EU territory was an issue in this case]. 

In addition to the existence of such a commercial act, other circumstances can also lead to temporary detention by the customs authorities of the Member States. Thus, a customs authority which has established the presence in warehousing or in transit of goods which are an imitation or a copy of a product protected in the European Union by an intellectual property right can legitimately act when there are indications before it that one or more of the operators involved in the manufacture, consignment or distribution of the goods, while not having yet begun to direct the goods towards European Union consumers, are about to do so or are disguising their commercial intentions. 

Such indications may include 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 European Union consumers. Such suspicion must, in all instances, be based on the circumstances of each particular case [While the need for each suspensive detention to be considered on its own merits is obviously important when determining whether customs authorities have acted unlawfully, it is helpful for IP owners and customs authorities alike to receive clear guidance in terms of broad principle as to whether a suspensive detention is appropriate or not, if they are to make decisions and carry them out under what can be severe pressure of time and without necessarily having all the information they need in their possession and in a form and language which they can conveniently understand]. 

Secondly, the Court specifies the material which the competent authorities must have before them in order to ascertain that goods already detained infringe European Union intellectual property rights. Thus, the Court considers that goods in respect of which it is not proven, after substantive examination, that they are intended to be put on sale in the European Union cannot be classified as ‘counterfeit goods’ and ‘pirated goods’ [So if it is clear that the fake goods are 100% destined for a non-EU jurisdiction like Colombia, they're not counterfeit or pirate at all.  How fortunate for the consumers in the destination market! And how miserable for the IP rights owners, who may find their prospects of exporting to those markets destroyed, along with their credibility and their goodwill].

Certain evidence enables such an infringement to be proved, including, in particular, the existence of a sale of goods to a customer in the European Union, of an offer for sale or advertising addressed to consumers in the European Union, or of documents or correspondence concerning the goods in question showing that diversion of those goods to European Union consumers is envisaged. 

Finally, the Court states that, in the absence of proof of infringement of an intellectual property right, goods placed under a suspensive procedure in the European Union can, as appropriate, be seized in other situations covered by the European Union Customs Code, such as where the goods in question pose a risk to health and safety [What a crumb of comfort ...]".

The full wording of the active part of today's ruling reads like this:

"Council Regulation ...3295/94 ..., as amended by Council Regulation ... 241/1999 ... concerning customs action against goods suspected of infringing certain intellectual property rights and the measures to be taken against goods found to have infringed such rights must be interpreted as meaning that: 

– goods coming from a non-member State which are imitations of goods protected in the European Union by a trade mark right or copies of goods protected in the European Union by copyright, a related right or a design cannot be classified as ‘counterfeit goods’ or ‘pirated goods’ within the meaning of those regulations merely on the basis of the fact that they are brought into the customs territory of the European Union under a suspensive procedure; 

– those goods may, on the other hand, infringe the right in question and therefore be classified as ‘counterfeit goods’ or ‘pirated goods’ where it is proven that they are intended to be put on sale in the European Union, such proof being provided, inter alia, where it turns that the goods have been sold to a customer in the European Union or offered for sale or advertised to consumers in the European Union, or where it is apparent from documents or correspondence concerning the goods that their diversion to European Union consumers is envisaged; 

– in order that the authority competent to take a substantive decision may profitably examine whether such proof and the other elements constituting an infringement of the intellectual property right relied upon exist, the customs authority to which an application for action is made must, as soon as there are indications before it giving grounds for suspecting that such an infringement exists, suspend the release of or detain those goods; and 

– those indications may include, inter alia, 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 European Union consumers".

Readers may gain the impression that the IPKat is not entirely happy with this ruling. He can't blame the court since it is required to interpret and apply the law before it. He very much hopes that the proposed reforms of the EU's suspensive detention laws, discussed at length in an excellent article by Olivier Vrins (Altius) in the November 2011 issue of the Journal of Intellectual Property Law and Practice (JIPLP), "The European Commission's proposal for a regulation concerning Customs enforcement of IP rights", will correct the deficiencies of policy and functionality which so adversely affect the current system.

The full text is promised here, but at the time of posting this piece only the Advocate General's Opinion was available on the Curia's smart, new and totally unfamiliar InfoCuria website. In the meantime you can read it in full, in English, here.