Counterfeit Fashion - good news and bad news

Further changes to the Customs procedure in relation to seizure of counterfeit goods came into effect on 10 March 2010.

In a difficult economic climate, the problem of counterfeit goods inevitably becomes more acute, as shoppers seek the best bargain, particularly for things like fashion items which are not necessities.

The Counterfeit Goods Regulation (European Regulation 1383/2003) aims to provide rights' holders and national Customs authorities with powers to take action against goods suspected of infringing certain intellectual property rights. Until recently however, the procedure adopted in the UK by HMRC, in dealing with the detaining and seizure of counterfeit goods which infringe trade marks or copyright, did not comply with Article 11 of the Counterfeit Goods Regulation.

In June 2009 HMRC introduced a change to their procedure. Under that changed procedure, trade mark and copyright owners had to issue legal proceedings to determine whether there was an infringement and it was only after the rights' holder had obtained a successful judgment and the Court had directed seizure (or the declarant, holder or owner of the goods had consented) that Customs would seize goods for destruction.

Before June 2009 Customs would seize goods simply on the strength of a witness statement from rights' holders confirming that the goods were counterfeit. The change put a significant additional burden on rights' holders to issue legal proceedings, particularly since they were only given a maximum of 20 days to do so (reduced to 3 days for perishable goods).

Opposition to this over burdensome process has led to the relevant legislation being amended to give effect to a "simplified procedure" which will enable detained goods to be deemed to have been abandoned for destruction if the declarant, holder or owner of the goods fails to provide any response when offered the opportunity to agree or object to the abandonment of the goods.

The change will be welcomed by rights' holders who will no longer have to go to the expense of issuing proceedings if the declarant, holder or owner of goods fails to respond to a request for consent to destruction. It will also bring the UK into line with other EU countries. The change was introduced by Statutory Instrument SI No. 324/2010 The Goods Infringing Intellectual Property Rights (Customs) (Amendment) Regulations 2010 and came into force on 10 March 2010.

Whilst further guidance is awaited as to how the Statutory Instrument will be applied in practice, the change is likely to mean a more cost effective way for rights' holders to use the relevant procedures to stop counterfeit products getting onto the market as it puts the "ball back in the court" of the alleged infringing party, the assumption being that counterfeiters are unlikely to respond to the request for consent or destruction. Whilst there will be a significant cost saving in not having to issue formal legal proceedings rights' holders will still have to carry the cost and responsibility for destruction of the counterfeit goods.

Whilst the above clarification of procedure is welcome, uncertainty in relation to other sections of the Counterfeit Goods Regulation remains. On 9 November 2009 the Court of Appeal (CA), hearing the case of Nokia Corporation v HMRC, referred a question to the ECJ in relation to the interpretation of the Counterfeit Goods Regulation concerning goods in transit. At first instance, Kitchin J had found that HMRC were right not to continue to detain or suspend “counterfeit goods” in transit through UK (from Hong Kong to Colombia) on the basis that those goods were not "counterfeit goods" within the meaning of the Regulation. HMRC argued that the goods could not be "counterfeit" within the meaning of the Regulation unless there was evidence that they might be diverted onto the EU market. This effectively means that the UK Customs authorities have no power to act in relation to goods which are counterfeit in circumstances where the goods are simply 'in transit' via the UK. Nokia appealed to the Court of Appeal who have found it necessary to make a referral to the ECJ.

The question referred is essentially whether such goods can constitute "counterfeit goods" within the meaning of the Regulation even if there is no evidence to suggest they will be put on the market in the EC.

Although the CA found Kitchin J's judgment persuasive, they felt obliged to refer the question to the ECJ because there is another pending reference in a similar Belgian case. In addition a Dutch Court has taken a contrary view on the interpretation of the Counterfeit Goods Regulation. It is anticipated that the ECJ will direct that the Belgian case and the Nokia referral be heard together.

The ECJ's ruling is eagerly anticipated in order to clarify HMRC's remit in relation to counterfeit goods that 'transit' through UK borders in a difficult economic climate.