Fighting counterfeits: goods in transit in the EU

There has been considerable comment in the intellectual property press about the reform of the Community trademark (CTM) system and the imminent changes at the Office for Harmonization in the Internal Market. These include the office’s change of name to the European Union Intellectual Property Office, reductions in fees, removal of the requirement for graphical representation of a mark and the introduction of certification trademarks.

There has been rather less focus on what are potentially very positive changes to the provisions on goods in transit. Readers will probably be familiar with the Nokia case (cases C446/09 and C495/09) and the December 2011 judgment of the Court of Justice of the European Union (CJEU). This judgment held, in essence, that it was not permissible to seize potentially infringing goods in transit which were destined for sale outside the EU unless there was a clear intention to divert the goods to consumers in the EU.

Regulation (EU) No. 2015/2424, which amends Regulation (EC) No. 207/2009 on the CTM, contains a new clause, article 9(4), relating specifically to goods in transit. The relevant part reads as follows:

“The entitlement of the proprietor of an EU trademark pursuant to the first subparagraph shall lapse if, during the proceedings to determine whether the EU trademark has been infringed, initiated in accordance with Regulation (EU) No 608/2013 of the European Parliament and of the Council concerning customs enforcement of intellectual property rights, evidence is provided by the declarant or the holder of the goods that the proprietor of the EU trademark is not entitled to prohibit the placing of the goods on the market in the country of final destination.”

This is a significant shift, in favour of brand owners, from the position under Nokia. As Business Action to Stop Counterfeiting and Piracy ( BASCAP) has stated: “Not only does this better protect EU citizens, it also provides the means to reduce the flow of potentially very dangerous goods to people in third countries.”

It is worth considering in detail how the new provisions will operate in practice. To take an example scenario, if a company owns a (valid) CTM registration covering pharmaceutical products, and counterfeit pharmaceutical products bearing the mark enter the EU, the owner of the CTM registration will be able to prevent those goods from entering the EU even if they are not intended to be released for circulation in the EU.

Potential defence

There will be a potential defence available to the holder of the goods. If the goods are genuinely in transit and the holder can provide evidence that the owner of the CTM registration would be unable to prevent the holder from placing the goods on the market in the “country of final destination”, the CTM owner will be unable to prevent the goods entering the EU.

From a practical perspective, what does this mean? To extend the practical example, let us imagine the goods which infringe the CTM registration are ultimately destined for a country in South America, for example Chile. If the CTM owner does not have a trademark registration, or perhaps other enforceable rights in the mark in Chile, the holder of the goods can bring them into the EU. As BASCAP has stated, the onus will be on the holder of the goods to provide evidence of this and the relevant court will have to assess the evidence.

“The owner of the CTM registration will be able to prevent those goods from entering the EU even if they are not intended to be released for circulation in the EU.”

This raises two issues. First, the EU trademark owner should ensure that it has sufficient registered trademark protection. It would not be practical from a financial or logistical perspective, assuming budgetary and resource constraints, for the EU trademark owner to have all its trademarks registered globally. However, for important marks, it would be advisable to consider a pre-emptive strategy in this regard.

Second, it appears that the holder of the infringing goods will be obliged to prove a negative, namely that the EU trademark owner has no rights in the country of final destination. The most obvious course of action would be to conduct a search of the trademark register, but not all trademark registers are online, so there could be delays, and where national use-based rights in trademarks exist, it would at least in theory be necessary to obtain an expert report confirming whether any such rights would be sufficient to prevent marketing of the infringing goods.

As a related issue, what if the EU trademark owner and another group or more distantly affiliated company is the owner of any rights in the country of final destination? This has the unfortunate feel of probable material for the CJEU.

Guidance needed

BASCAP has called for the European Commission to issue guidelines on how EU customs officials should implement the new provisions. This is clearly a very sensible proposal. However, despite the imminence of the new regulation coming into force, the section of the commission’s website in relation to “Counterfeit, piracy and other IP rights violations” is silent on the changes. The relevant section of the UK government’s website is equally silent on this.

As these changes are substantive and substantial, with the new regulation coming into force on March 23, 2016 it would clearly be very beneficial to have some guidance from the commission. In the abstract, owners of trademarks in the EU can interpret the revisions to goods in transit positively. However, the bare wording of article 9(4) is open to interpretation, particularly concerning what evidence the holder of the goods should have to provide in order to have a sustainable or at least arguable case that customs should not detain the goods.

On a positive note, it should nonetheless be a relief to brand owners and trademark practitioners alike that the negative ramifications of the Nokia case will soon cease to have any limiting effect on the ability to fight counterfeits entering the EU. It is therefore to be hoped that the new regulation will indeed strengthen trademark owners’ rights, considering that, according to a commission press release in October 2015, customs authorities detained 35.5 million individual items of fake or counterfeit goods in 2014 with an overall total value of more than €617 million ($690 million).

Chris McLeod is president of the Institute of Trade Mark Attorneys and a partner at  Elkington and Fife. He can be contacted at: chris.mcleod@elkfife.com