Advocate General Cruz Villalón today delivered his Opinion in joined cases before the Court of Justice ("CJ") concerning whether the national courts, in deciding whether goods seized whilst in an external transit procedure are infringing (i.e. after the rights holder has issued proceedings following a seizure), should apply the so-called 'production fiction' and treat the goods as if they had been manufactured in the Member State of seizure. He secondly considered the basis on which EU customs authorities may seize allegedly counterfeit or pirated goods which are in transit from one non-EU Member State to another.
The first reference to the CJ is from the Court of First Instance, Antwerp, Belgium in Koninklijke Philips Electronics NV v Lucheng Meijing Industrial Company Ltd, Far East Sourcing Ltd, Röhlig Hong Kong Ltd and Röhlig Belgium NV (C-446/09) ("Philips"). The second reference is from the Court of Appeal of England and Wales in Nokia Corporation v Her Majesty's Commissioners of Revenue and Customs (C 495/09) ("Nokia").
Summary of the Advocate-General's Opinion
The Advocate General's opinion was as follows:
- Philips: National courts of each Member State may not disregard the temporary entry status or in transit status of goods, nor may they apply the fiction that those goods were produced in the same Member State for the purpose of ruling whether or not they infringe the intellectual property right at issue.
- Nokia: Non-Community goods bearing a Community trade mark and which are in transit from one non-EU country to another may be seized by EU customs authorities provided that there are sufficient grounds for suspecting that they are counterfeit goods and that they are to be put on the market in the EU, either in conformity with a customs procedure or by means of an illicit diversion.
Both cases involved alleged counterfeit or pirated goods which were in the customs situation of 'external transit' under the Community Customs Code. This allows the movement from one point to another within the EU of goods without them being subject to import duties, other charges or other commercial measures (so-called non-Community goods).
In summary, the Advocate General was of the opinion that whilst customs authorities were allowed to seize non-Community goods suspected of infringing intellectual property rights, before a court, the intellectual property rights holder would have to prove that the defendant's use was 'use in the course of trade'. Since transit does not amount to use in the course of trade, a trade mark proprietor (for example) may only prohibit transit through a Member State where goods are subject to an act which necessarily entails their being put on the market in that Member State.
Belgian customs authorities detained a consignment of shavers on suspicion that they infringed the international design registrations and copyright of Philips. The goods had originated in Shanghai, China and the Belgian customs authorities informed Philips that a number of China/Hong Kong-based companies were involved in the manufacture of or trade in the detained goods. The forwarding agent of the goods in Belgium, acting on the instructions of the declarant or consignee, had declared the goods without stating the country of destination.
Philips subsequently brought an action before the Court of First Instance, Antwerp, seeking a ruling that its intellectual property rights had been infringed and claiming that, in accordance with Article 6(2)(b) of Regulation No 3295/94 (the 'old' Customs Regulation), the Court should use as its starting point the fiction that the shavers seized had been manufactured in Belgium (the so-called 'production fiction') and should then apply Belgian law in order to rule on the question of infringement.
The Court referred to the CJ the question of whether Article 6(2)(b) implies that it is open to national courts to disregard the temporary storage/in transit status of such goods and whether national courts must apply the production fiction.
The Advocate General noted that the most important consequence of the production fiction is the possibility of a national court holding that non-Community goods in transit have infringed an intellectual property right in the same way as if they were goods which had been unlawfully manufactured in the Member State, regardless of whether or not those goods are destined for the EU market. His opinion was as follows:
- Article 6(2)(b) does not mean that national courts may disregard the temporary storage/in transit status of goods, nor does it imply that national courts may apply the production fiction.
- The production fiction cannot be inferred from the wording of Article 6(2)(b), rather this provision lays down a rule of conflict of laws making it possible to establish which substantive rule the competent authority must apply order to rule on the merits of the case and therefore to assess whether or not there is an infringement of intellectual property rights.
- The interpretation proposed by Philips goes beyond the objectives pursued by the old Customs Regulation. It is not possible to argue that the production fiction does not alter substantive law in this regard, and such an alteration would constitute an impediment to the freedom of legitimate trade and would unacceptably extend the usual content of intellectual property rights.
- Reliance on the production fiction would make it possible to disregard the condition of 'use in the course of trade', which is necessary to establish infringement of a Community trade mark, national mark or design right under harmonised EU law. The Advocate General admitted that there was potentially inconsistent case law on this point but considered that the requirement that 'use in the course of trade' be shown, more accurately reflects the CJ's most recent case law (Case C-405/03 Class International and Case C-281/05 and Montex Holdings).
UK Customs at Heathrow Airport stopped and inspected a consignment of fake Nokia goods (bearing the Nokia trade marks) which were in transit through the UK on route from Hong Kong to Columbia. Upon being notified of the detention, Nokia confirmed to Customs that the consignment was counterfeit and requested that Customs seize the consignment pursuant to its powers under Council Regulation 1323/2003 (the 'new' Customs Regulation).
Whilst accepting that the goods in the consignment were fake, UK Customs refused such a request stating that, having taken legal advice, they no longer considered the goods to be 'counterfeit' within the meaning of the new Customs Regulation unless there was evidence that the goods might be diverted onto the EU market.
Nokia commenced legal proceedings against Customs. At first instance the Judge held that the goods in question could not be considered to be counterfeit within the meaning of the new Customs Regulation. Nokia subsequently appealed to the Court of Appeal in London, which referred the following question to the CJ: Are non-Community goods bearing a Community trade mark which are subject to customs supervision in a Member State and in transit from a non-Member State to another non-Member State capable of constituting "counterfeit goods" within the meaning of Article 2(1)(a) of the new Customs Regulation if there is no evidence to suggest that those goods will be put on the market in the EC?
The Advocate General's opinion was as follows:
- Non-Community goods bearing a Community trade mark which are in transit from one non-EU country to another non-EU country may be seized by customs authorities provided that there are sufficient grounds for suspecting (i) that they are counterfeit goods; and (ii) that they are to be put on the market in the EU, either in conformity with a customs procedure or by means of an illicit diversion.
- "Suspicion" in this context is inherently dependent on the particular facts. With regard to (i), 'suspicion' must not be taken to mean irrefutable findings, but customs authorities must at the very least have 'the beginnings of proof', that is to say, some evidence, that the goods may infringe an intellectual property right.
- With regard to (ii), particular account must be taken of the danger of fraudulent entry of goods into the EU. In assessing the level of danger, circumstances such as the excessive duration of the transit, the kind and number of means of transport used, and the ease with which it is possible to establish the identities and locations of the consignor and consignee, could lead customs authorities to a well-founded conclusion that apparently counterfeit goods are to be placed on the market in the EU.
Click here for the Advocate General's Opinion.