1 December 2011CopyrightPeter O'Byrne and Karen Roberts

Better borders? The proposed new EU customs regulation

Counterfeiting and piracy is an important business challenge for IP rights holders worldwide. It remains a high priority at business, industry and government levels in the European Union, where the border protection regime is one of the world’s most powerful. In May this year, the European Commission proposed a new draft Customs Regulation for the EU to strengthen IP enforcement at EU borders, to replace Council Regulation (EC) No. 1383/2003.

The proposed regulation is the result of an action plan prepared by the commission to tackle the significant increase in counterfeit activity in recent years. The action plan comprised collaborations with EU member states and a public consultation in 2010.

It is a timely (or perhaps long awaited) review as there have been a number of concerns relating to the scope and operation of the current regulation. Also, the nature of counterfeit activity has changed, with more and more counterfeit goods couriered in small consignments and sold on-line and then sent by mail.

On the whole, the proposed regulation is a very positive step forward for rights holders, and should also clarify the scope of customs officials’ responsibilities. However, in a couple of areas there is disappointment with the commission’s approach.

Extension of coverage

The proposed regulation extends the scope of IP rights covered by the customs procedures to include trade names (in so far as they are protected as exclusive property rights under national law), topographies of semiconductor products (silicon or microchips) and utility models. The proposed regulation also now expressly covers parallel imports, which is a very welcome development for brand owners looking to prevent such trade.

The broadening of the scope of IP rights provides, in theory at least, better and broader protection for IP holders and should be welcomed. There will, however, be a corresponding increase in demand on the resources and time of customs in processing such applications and seeking to prevent infringing items relating to these rights from entering the EU.

Customs will need to be careful how they allocate resources and some rights holders are concerned that customs’ attention may be diverted from trade in the most worrying counterfeit and pirate goods.

Simplified procedure

The ‘simplified procedure’ is a process whereby goods can be destroyed without there being any need to determine whether an IP right has been infringed under the law of the member state where the rights holder and declarant/holder of the goods agree (or at least do not object) to such destruction. Under the current regulation, the simplified procedure is optional but the proposed regulation makes it mandatory for all member states.

This is a good development as it harmonises procedures across the EU and assists the prompt destruction of infringing goods without the need for costly and lengthy proceedings. Indeed, for rights holders the simplified procedure is often the single most attractive aspect of the EU customs regime, enabling cost-effective and timely disposal of counterfeit and pirated products.

Small consignments

New provisions are proposed for the destruction of counterfeit or pirated non-perishable goods which are transported in ‘small consignments’. The proposed procedure involves customs contacting the declarant or holder of the goods of a decision to destroy or detain the goods.

If the declarant or holder of the goods fails to respond or agree to the destruction, customs will accordingly destroy the goods at customs’ expense. In this circumstance there is no involvement of the rights holder. The rights holder will only be informed if the declarant or holder of the goods opposes the destruction of the goods in question so that the rights holder can decide if proceedings need to be commenced.

The motives for such a provision are to establish quick and easy destruction procedures for small consignments of counterfeit/pirated goods without onerous administration for customs and without needing to contact the rights holder every time a small number of counterfeit products arrives at a port/airport.

As yet, the proposed regulation does not contain a definition of ‘small consignments’ so the exact impact this will have is difficult to assess.

The proposed regulation does not apply to goods carried by passengers in their personal luggage as long as these goods are for their own personal use and there are no indications that commercial traffic is involved, although in the view of many this derogation cuts against the widely acknowledged need to make the public more aware that buying counterfeits is far from being a victimless crime.

Rights holders are concerned that they will not be informed of the number of counterfeit goods seized and not provided with infringers’ details. This information assists in identifying other consignments and patterns, and helps in evaluating the effectiveness of anti-counterfeiting programmes. It is hoped that this proposal is altered prior to enactment.

Information use

Organisations responsible for counterfeiting and piracy activities are undoubtedly becoming more sophisticated. In turn, the need for rights holders to do likewise is paramount if they are going to confidently and successfully tackle this problem. One of the main criticisms of the current regulation is the limited use the rights holder can make of the information relating to the counterfeit/pirate activity.

But the proposed regulation adopts a similar approach, namely allowing the disclosure of information provided by customs (which could be the name and address of the consignee, consignor, the declarant or holder of the goods and the origin and provenance of the suspected goods) only for determining whether the goods are counterfeit/ pirate and for commencing proceedings in relation to that consignment.

Neither regulation allows sharing this information with other rights holders for the purpose of tracking routes or establishing patterns used by counterfeiters. This ability would be incredibly valuable to rights holders and industry groups and could lead to successfully prosecuting organisations further up the supply chain. It should be that when goods are confirmed to be counterfeit, restrictions on use of the information are lifted.

Transit and costs

Two of the hottest issues regarding customs enforcement are whether IP rights holders should bear customs’ destruction and storage costs if the infringer cannot be found, and whether customs can detain counterfeit/pirated goods being transported through the EU on their way to a non-EU country.

The views either way cannot be addressed fully in the space available for this article, but at the time of writing the transit issue is on reference to the Court of Justice of the European Union in Nokia v HMRC.

The proposed regulation in various ways indicates that the commission wishes to make it clear that customs will transfer costs to rights holders and cannot stop goods transiting the EU, including removing the express reference to the prohibition of transhipment of counterfeit goods in the current regulation. Following the Nokia judgment there may be further movement on the drafting of the proposed regulation on the transit issue.

Conclusion

Overall, the proposed regulation is a positive step forward in the extent and quality of border enforcement available in the EU for rights holders. The less welcome aspects may yet change prior to enactment as the proposed regulation is sent to the European Council and European Parliament for further debate. Border enforcement by customs is an essential tool in the fight against counterfeit trade and its continued strength and effectiveness are vital for all stakeholders.

Peter O’Byrne is a senior associate at Baker & McKenzie LLP in London. He can be contacted at: peter.obyrne@bakermckenzie.com

Karen Roberts is a professional support lawyer at Baker & McKenzie LLP in London. She can be contacted at: karen.roberts@bakernet.com

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