5-year imprisonment for trade mark infringement disproportionate and contrary to EU law, says CJEU

This week, the Court of Justice of the European Union (CJEU) issued a preliminary ruling on enforcement of IP rights (case C-655/21). In its request to the CJEU, the referring Bulgarian court had asked whether Bulgarian criminal penalties for trade mark infringement comply with Directive 2004/48/EC and the Charter of Fundamental Rights of the European Union (Charter).

Background

In 2016, a Bulgarian entrepreneur was accused of trade mark infringement by ways of offering for sale counterfeit clothing. The goods in question were valued at approx. EUR 41 000, if estimated by their value as imitations, or at approx. EUR 718 000, if estimated at the retail price of the originals.

Under Art. 172b of the Bulgarian Criminal Code, this act is punishable by (1) a term of imprisonment not exceeding five years and a fine not exceeding approx. EUR 2550; or (2) where the act is repeated or causes significant harmful effects, it shall be punishable by a term of imprisonment of five to eight years and a fine of approx. EUR 2550 to 4000. Moreover, the goods shall be confiscated and destroyed.

Following the Bulgarian’s settled case-law to estimate harm based on the retail price of the originals, the defendant was charged under Art. 172b(2). Prosecution sought a five years’ imprisonment and a fine, the minimum allowed under Art. 172b(2).

Apparently uncomfortable with the severity of this punishment, the district court of Nesebar decided to stay the proceedings and refer four questions to the CJEU. The relevant issues may be summarised as follows:

1) The referring court considered Art. 172b of the Bulgarian Criminal Code and other relevant national provisions as an implementation of Directive 2004/48/EC on enforcement of IP rights into Bulgarian law (though the Directive does not include provisions on criminal penalties). The referring court asked whether the Bulgarian system of deciding about the severity of the crime based on the harm suffered by the rightholder (and the ensuing calculation that is based on the retail price of originals) would be compatible with Art. 13 “Damages” of the Directive (Questions 1 and 2).

2) The referring court asked whether the Bulgarian system, where the same conduct may be qualified as either administrative, or criminal offence is compatible with the principle of legality under Art. 49(1) of the Charter (Question 3).

3) It also asked whether the Bulgarian system of imposing both a long-term imprisonment and a heavy fine (in the words of the Bulgarian court itself), together with confiscation and destruction of counterfeit goods would be compatible with the principle of proportionality under Art. 49(3) of the Charter (Question 4).

Directive 2004/48/EC

The competence to legislate on criminal law lies mostly with EU Member States, and not with the EU. Thus, the primary issue behind this request was the extent to which criminal enforcement of trade mark infringement may be considered a matter of EU law (and, consequently, be admissible for interpretation by the CJEU).

The CJEU started its ruling by reminding that Directive 2004/48/EC only covers matters of civil enforcement of IP rights, not criminal enforcement. Hence Questions 1 and 2 on the computability of Bulgarian criminal law with Directive 2004/48/EC were held inadmissible.

Criminal enforcement of wilful trade mark infringement on commercial scale as a matter of EU law

At the same time, the CJEU found that it did have jurisdiction to decide whether Bulgarian criminal penalties for trade mark infringement are compatible with the Charter.

This is because the EU is party to the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS Agreement). Notably, the TRIPS Agreement contains Art. 61 that obliges TRIPS’ signatories to

provide for criminal procedures and penalties to be applied at least in cases of wilful trademark counterfeiting or copyright piracy on a commercial scale. Remedies available shall include imprisonment and/or monetary fines sufficient to provide a deterrent, consistently with the level of penalties applied for crimes of a corresponding gravity.

In implementing their obligations under the Art. 61 of the TRIPS Agreement, EU Member States need to comply with EU law. The CJEU thus had jurisdiction to reply to the third and fourth questions.

Compatibility of Bulgarian legislation with Art. 49(1) of the Charter

By its third question, the Bulgarian court had asked whether a system, where the same conduct may be qualified as either administrative or criminal offence, is compatible with the principle of the legality of criminal offences and penalties under Art. 49(1) of the Charter.

The CJEU reminded that under Art. 49(1) criminal offences and penalties must be accessible and predictable, for individuals to understand which acts will make them criminally liable. In the opinion of the CJEU, these requirements are fulfilled even when the same conduct may be qualified as a criminal offence and as an administrative offence. It is thus compatible with Art. 49(1) of the Charter.

Compatibility of Bulgarian legislation with Art. 49(3) of the Charter

By its fourth question, the Bulgarian court asked whether imposing both a long term imprisonment and a heavy fine, together with confiscation and destruction of counterfeit goods would be compatible with the principle of proportionality under Art. 49(3) of the Charter.

The CJEU first reminded that, under the principle of proportionality, the severity of penalties must not be disproportionate to the offence. At the same time, in the absence of EU law in the matter, Member States are free to determine the nature and the level of the penalties.

The CJEU then addressed the main elements of Art. 61 TRIPS.

Art. 61 does allow criminal remedies that include both imprisonment and fines, as is the case in Bulgaria. Art. 61 also requires criminal remedies to be sufficiently deterrent, an objective that is achieved by a national legislation that provides for five to eight years of imprisonment and a monetary fine.

At the same time, the CJEU found that criminal penalties under Bulgarian law go beyond what is necessary to attain objectives pursued. In its reasoning, the CJEU relied on the wording used by the referring court that speaks of an “extremely long” imprisonment, a “high” fine and an additional punishment by ways of confiscation and destruction of goods.

Hence, concluded the CJEU, Art. 49(3) of the Charter precludes a national legal provision that provides for an imprisonment of a minimum of five years for trade mark infringement, where such act is repeated or causes significant harmful effects.

And a post scriptum

As some of our readers might know, the European Commission did try to introduce criminal enforcement measures for IP, first by including (then deleting) them in what became Directive 2004/48/EC, then by presenting a separate Proposal in 2005. It was ultimately withdrawn in 2010, amidst significant criticisms. Yet, this Kat notes with curiosity how Advocate General Pitruzzella relied on the imprisonment length from the failed Proposal, when considering whether Bulgarian provisions would be proportionate.