The CJEU confirms that the ’Manufacturing Fiction’ doctrine was just Science-Fiction. In-transit goods should not be treated differently under Regulation (EC) 1383/2003 from goods to which the Regulation does not apply. However, Customs may detain or suspend the release of in-transit goods whenever they have suspicions that such goods might in fact be destined for the EU market. Such suspicions may, for instance, be grounded on the fact that the consignor cannot be identified, or that the shipper is disguising commercial intentions.
Pursuant to Regulation (EC) No 1383/2003 (“the Border Measures Regulation”), Customs in the EU Member States are entitled to take action when coming across goods crossing the EU’s external borders which are suspected of infringing an intellectual property right. Provided that such suspicions of an infringement exist, Customs may detain or suspend the release of the goods, irrespective of whether the consignment is only in transit or in transhipment through the EU customs territory (Article 1(1)). When determining whether goods can reasonably be suspected of infringing intellectual property rights (IPRs), the law of the Member State where the goods are found, is to apply. This includes the EU Regulations containing substantive provisions dealing with intellectual property rights, as well as the national laws of the Member States, which must in turn be in line with the EU harmonization Directives, where those exist.
The Court of Justice of the European Union (‘CJEU’) held on several occasions that the mere transit of goods through the EU is not capable of constituting a trade mark or design infringement under the Community trade mark Regulation, the trade mark Directive, the Community design Regulation, and the Design Directive. The Court considers that transit does not interfere with the subject matter of trade mark and design rights, because it only consists of the mere transportation of goods, and does not involve any use of the appearance of the protected design or any marketing of the trade marked goods.
Only where the trade mark or design owner can establish that the goods have been subject to an act which necessarily entails their putting on the market in the EU, will his exclusive rights be adversely affected. The onus of proving interference must lie with the rights-holder who alleges it.
However, some have taken the view that “the Border Measures Regulation” contained a “manufacturing fiction”, whereby, for the determination of their infringing character, goods stopped by Customs at the EU’s external borders had, in all cases, to be considered as having been produced in the Member State of the customs action. Therefore, in cases where the Regulation applied, it was thought that the above case law of the CJEU, according to which the mere placing of goods in transit should not be regarded as a trade mark or a design infringement, unless in those cases where the rights-holder could demonstrate that the goods would eventually be sold in the EU, was irrelevant: all goods falling under the scope of the Regulation simply had to be regarded, by way of a legal fiction, as goods produced in the Member State where the customs action took place. This has long been the position defended by the Dutch courts, for example; however, the fiction was also applied, for a while, in other Member States, such as Germany and – recently again – Denmark.
The “manufacturing fiction” theory essentially developed under Article 6(2)(b) of Regulation 3295/94. This provision has now been transferred into the eighth Recital of Regulation 1383/2003, which provides that:
“Proceedings initiated to determine whether an intellectual property right has been infringed under national law will be conducted with reference to the criteria used to establish whether goods produced in that Member State infringe intellectual property rights […].”
The CJEU itself may, at some point, have given some credit to the “manufacturing fiction” doctrine.
In its judgment in joined cases C-446/09 and C-495/09, the CJEU finally rebutted the “manufacturing fiction” theory.
The questions referred to the CJEU
In Philips, the Belgian customs authorities had detained a shipment of Chinese shavers, which had been declared under a temporary importation arrangement without stating a country of destination, and were suspected of infringing Philips’ copyrights and registered design rights. Philips sought a ruling from the Antwerp Court of First Instance that its intellectual property rights had been infringed, based on the “manufacturing fiction” which, in Philips’ opinion, circumvented the burden of proving that the goods concerned would be traded in the Union – a condition which is, in principle, unavoidable for the purpose of enforcing design rights in the EU. The Antwerp Court referred a question for preliminary ruling to the Court of Justice.
In Nokia, the UK Customs had detained a shipment of mobile phones in transit from China to Columbia. Nokia notified Customs that they were counterfeit. UK Customs responded that, in the light of the CJEU’s case law on transit, it had difficulty in understanding how goods could be counterfeit within the meaning of the Border Measures Regulation, unless there was evidence that they might be diverted onto the EU market. Lacking such evidence, Customs said it did not believe that it would be lawful to deprive the owner of its goods. As Nokia could not provide evidence that the goods would be diverted onto the EU market, Customs decided to release the goods. Nokia applied for judicial review of that decision. At first instance Kitchin J held that the Regulation neither entitled nor required customs authorities to detain fake goods in transit where there was no evidence that the goods would be diverted onto the market in Member States: such goods were not ‘counterfeit goods’ in the sense of the Regulation. On appeal, the Court of Appeal, in the light of Philips and of the divergent views adopted by different courts of the Member States, sought clarification of whether it was necessary to have evidence that the goods were going to be diverted onto the EU market for Customs to be able to detain the goods.
In Nokia, the CJEU was asked whether, for the purposes of detaining ‘suspect goods’ under Regulation 1383/2003, the customs authorities must have some proof that the goods are to be marketed in the EU in one way or another, whereas, in Philips, it was asked whether that consideration was essential, in those cases where the Regulation applied, in order for a ruling to be made by the courts on whether or not an intellectual property right has been infringed.
Advocate General Cruz Villalón rendered his opinion in these cases on 3 February 2011, which was followed, to a large extent, by the CJEU.
The CJEU’s judgment
The CJEU considers that goods coming from non-member States (“non-Community goods”) in transit through the EU cannot be considered as infringing copyrights and design and trade mark rights in the same way as if they were goods which had been unlawfully manufactured in the Member State in which they were in transit. It reiterates that non-Community goods in transit through the EU cannot, merely by the fact of being so placed, infringe intellectual property rights applicable in the EU. However, those rights may be infringed where, during their placement under the transit procedure in the EU customs territory, or even before their arrival in that territory, non-Community goods are the subject of a commercial act directed at European Union consumers, such as a sale, offer for sale or advertising.
Certain evidence enables such an infringement to be proved, including, in particular, the existence of a sale of goods to a customer in the EU, of an offer for sale or advertising addressed to consumers in the EU, or of documents or correspondence concerning the goods in question showing that diversion of those goods to EU consumers is envisaged.
Therefore, the CJEU’s judgment does not have as a consequence to oblige the national courts to dismiss an intellectual property right infringement action in any case of transit, but makes it clear that they need to decide on a case-by-case basis with reference to the concrete indications that may suggest that the goods are actually bound for the country of transit, or for the EU market. The merely abstract risk that the goods may ‘leak out’ before reaching the country of destination, simply because they are physically on EU territory, where they may be freely marketed is not sufficient for those goods to be regarded as infringing.
Similarly, in the Nokia case, the Court considered that the concept of ‘counterfeit goods’ under the Regulation supposes that the goods concerned are destined for sale in the EU. Goods in transit which are not destined for the EU market cannot be considered ‘counterfeit goods’ for the purposes of the Regulation; therefore, such goods fall outside its scope.
However, the Court emphasized that action by the customs authorities under the Regulation should not be made conditional upon a conclusive, irrefutable finding of an infringement, but rather on ‘suspicions’, i.e. a ‘beginning of proof’ that the goods in question may in fact infringe an intellectual property right.
Customs can legitimately act when there are indications before them 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.
Finally, the Court states that, in the absence of proof of infringement of an intellectual property right, goods placed under a suspensive procedure (which includes, inter alia, external transit) in the EU can, as appropriate, be seized in other situations covered by the EU Customs Code, such as where the goods in question pose a risk to health and safety.
According to the Court, the Border Measures Regulation only relates to the conditions under which the customs authorities from the EU Member States may take action with respect to goods which can be suspected of infringing an intellectual property right, but does not provide for any requirement for such an infringement. In other words:
• The CJEU’s ruling in the Philips and Nokia cases confirms that the customs authorities from the Member States are entitled under the Border Measures Regulation to carry out checks on goods suspected of infringing certain intellectual property rights and to detain them, irrespective of the customs status of the goods, i.e. including in those cases where the goods have been placed in transit, provided that they have reasonable grounds to believe that these goods will eventually be released for free circulation in the EU.
• However, the Regulation does not provide for any criterion for the purpose of ascertaining the existence of an infringement of an intellectual property right, and, for example, for the purpose of determining whether there is a use of a trade mark, design or copyrighted work liable to be prohibited because it infringes intellectual property rights. Once Customs have taken action under the Regulation, it belongs to the national courts to decide, on the basis of substantive national law or EU legislation (other than the Border Measures Regulation) whether the goods, considering the customs procedure under which they circulate, do infringe an intellectual property right.
Counterfeiting is known to involve a specific risk of a delivery being declared to be transit goods only to be able to sell the counterfeits within the ‘transit’ country at a later stage. Now that the “manufacturing fiction” doctrine has been finally rejected by the CJEU, it will be very important for rights-holders in future cases to gather as much evidence as possible for a planned distribution of the goods in the country where the goods are placed under a suspensive customs arrangement. In the meantime, the CJEU’s judgment confers relatively large powers to Customs to continue to detain or to suspend the release of in-transit goods.
One may regret that the CJEU’s judgment in Philips and Nokia fails to (clearly) address the question whether intellectual property rights owners can claim infringement in the country of transit, or at least seek an injunction in that country in order to prevent the occurrence of an infringement in the country of destination, where the distribution of the goods would be unlawful in the country of destination.
The CJEU’s judgment in Philips and Nokia – and the fact that the Proposal for a new Regulation concerning customs enforcement of intellectual property rights released by the European Commission on 24 May 2011 does not intend to include any “manufacturing fiction” into the new Regulation – pleads, in our view, for a substantial reform of the current intellectual property law system, which would be more lenient to intellectual property rights-holders and properly balance their rights against those of legitimate traders and shipping companies. It should be noted in this regard that the review of the EU’s trade mark system which is currently in progress aims to focus, inter alia, on ‘clarifying the scope of trade mark rights […] as regards goods in various situations throughout the EU customs territory’. The Study on the Overall Functioning of the European Trade Mark System presented on 15 February 2011 by the Max Planck Institute for Intellectual Property and Competition Law considers that the placing in transit of ‘counterfeit goods’, as defined in footnote 14(a) to Article 51 of TRIPS, should be treated as an infringement under the new EU trade mark system. For that purpose, however, the goods would have to be infringing in the territory of transit as well as in the country of destination. Apart from that, the principle would remain valid that infringement would also be found if it can be established that the goods will be brought into free circulation in the EU or its Member States.