Seizure of Goods in Transit: Where Shall the (Border-)line be Drawn?

Alain Strowel

Of Counsel, Covington & Burling LLP, Professor, Facultés Saint-Louis, Brussels and University of Liège

5 October 2010 – AIPPI Conference, Paris

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Outline• The controversy:

– The national cases– The political reactions and legal actions

• The international provisions and WTO cases– GATT 1994, TRIPS, Paris Convention– India & Brazil v. EU & NL: state of the WTO disputes

• The EU customs rules and the view of the ECJ:– The Customs Regulation 1383/2003– The ECJ view : Montex and previous cases– Nokia and Philips: what to expect from the ECJ?

• Conclusions - Goods in transit: where shall the (border)line be drawn?

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The controversy:• The triggering cases: pharmaceutical products not

infringing in country of destination (but in country of transit):– NL: several cases (>19 in 2008 & 2009), including the seizure /

detention of shipment of generic drugs (losartan) produced in India and destined to Brazil; officially in transit (Schiphol airport); suspected of infringing patents (or SPCs)

• Germany: similar detention (at Frankfurt airport) of pills from India on the suspicion of infringement of a brand-name antibiotic

• The political reactions and legal actions: – NGOs: “access to medicines back on international stage”– Brazil and India raise the issues and challenge the EU (+ NL)

customs rules at WTO (Disputes 408 and 409)• extraterritorial enforcement of national patent rights• >< 2001 Doha Declaration on access to essential medicines

– EU replies: the objective = to avoid counterfeit drugs being sold + border detention in conformity with WTO GATT and TRIPS

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The international provisions: GATT, TRIPS & Paris Convention• GATT: Art. V (3) on the principle of freedom of

transit for goods: transiting goods shall not be subject to any unnecessary delays or restrictions “except in cases of failure to comply with applicable customs law and regulations”– Thus restrictions based on customs rules are allowed,

but the restrictions on traffic in transit “shall be reasonable”

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TRIPS• Art. 51: “Members shall (…) adopt procedures (13) to

enable a right holder, who has valid grounds for suspecting that the importation of counterfeit trademark or pirated copyright goods may take place, to lodge an application (…), for the suspension by the customs authorities of the release into free circulation of such goods. Members may enable such an application to be made in respect of goods which involve other infringements of intellectual property rights”– Footnote 13: “It is understood that there shall be no obligation to apply

such procedures to imports of goods put on the market in another country by or with the consent of the right holder, or to goods in transit“

• Thus art. 51 also covers “goods in transit” (But: value of footnote?)– TRIPS neither prohibits nor mandates the seizure of goods in transit

• Art. 51 (2d sentence) leaves Members free to provide for the detention of the goods in case of patent infringement

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Draft ACTA (25 Aug. 2010 text)• Section 2 of Chapter 2 confirms the possibility of border

measures when goods are in transit:– This chapter defines the border measures available “when goods

are suspected of infringing intellectual property rights within the meaning of this agreement, when they are imported, exported, in-transit or in other situations where the goods are under customs supervision.”

• Possibility to exclude patents:– ”For the purpose of this section, “goods infringing an IPR” means

goods infringing any of the IPRs covered by TRIPS. However, Parties might decide to exclude (…) certain rights other than trademarks, copyrights and GIs (…)”

• Possible additional requirement (one option): the right holder must “provide adequate evidence (…) that under the laws of the Party providing the procedures, there is prima facie an infringement “ of its IPRs

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Paris Convention jointly with TRIPS and 2003 Doha Decision

• Art. 4bis Paris (“Independence of Patents Obtained for the Same Invention in Different Countries”) with Art. 2 TRIPS (reference to Paris Convention)– Territoriality principle: thus a patent infringement can only be

assessed with regard to the applicable patent law• Art. 28 TRIPS (rights conferred: >< “making, using,

offering for sale, selling, or importing ») read together with:– Art. 41 & 42: general obligations for IPR enforcement ;

requirement of a fair and equitable procedure• Art. 31 TRIPS: other use without authorization

(compulsory licence) read together with the 2003 Decision on TRIPS and Public Health

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India & Brazil v. EU: state of disputes• Disputes 408 & 409: no WTO panel seized yet ; 2d

round of consultations in Sept. 2010– Request of consultations by India & Brazil (11 & 12 May 2010)– 5 countries joined (Canada, China, Ecuador, Japan & Turkey)– The legal position of the EU is quite strong– Likely that an agreement will be found and that no panel will

rule in those two cases• Conciliation and fine-tuning of customs rules:

– EFPIA statement (March 2009): « it is not the policy or practice » of pharma cos « to encourage to use the powers of detention to prevent the flow of legitimate generic products »

– Practical issues: DG Taxud-sponsored joint statement (14 Sept. 2009) of customs and pharma cos on good practices

• In parallel in the EU: revision of the 2003 Customs Regulation to find a solution for the transit of generics

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The EU rules on border control:Customs Regulation 1383/2003

• Definition of infringing goods: Art. 2“1. “For the purposes of this Regulation, goods infringing

an intellectual property right means(a) counterfeit goods, namely:(i) goods, (…) bearing without authorization a trademark

identical to the trademark validity in respect of the same type of goods, or which cannot be distinguished in its essential aspects from such a trademark, and which thereby infringes the trademark holder’s rights under Community law (…)

(ii) any trademark symbol (…)(iii) packaging materials (…)

Keep in mind for the Nokia referral to the ECJ

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Customs Regulation 1383/2003

• Rest of definition of infringing goods: Art. 2:(b) pirated goods, namely goods which are or contain

copies made without the consent of the holder of a copyright or related right or design right, regardless of whether it is registered in national law, or of a person authorized by the right-holder in the country of production in cases where the making of those copies would constitute an infringement of that right (…)

(c) goods which, in the Member State in which the application for customs action is made, infringe:

(i) a patent under that Member State’s law (…);(ii) a SPC (…).”

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Customs Regulation: applicable law• Art. 10: “The law in force in the Member State

within the territory of which the goods are placed in one of the situations referred to in Article 1(1) shall apply when deciding whether an intellectual property right has been infringed under national law. (…)”

– Art. 1(1) covers goods declared in transit (internal or externaltransit and free zone and customs warehousing)

– But does the “law in force” cover only the national IP laws or does it include the international rules (on territoriality…)?

• Recital 8: “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”

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Reference to the “criteria used to establish whether goods produced in that Member State infringe IPRs”• The fiction of “local manufacturing”

– NL: Supreme Court, 19 March 2004 – Philips v. Princo• + later cases: The Hague, 13 July 2005 (Philips v. Furness); 24 March

2006 (BenQ v. Sisvel); 18 July 2008 (Sosecal v. Sisvel)– Is it integrated within EU Customs law?

• A recital (Preamble of the Customs Reg.) is not a strong basis but art. 10 Customs Regulation is clear enough

• Customs Regulation focuses on goods, not on acts (relating to a good)– >< IP infringement rules focus on the infringing acts (manufacturing,

selling, using in the course of trade, etc.)– At the border: no such infringing acts, only goods. The only act

involved is “transshipment”, but it does not constitute an infringing act under standard IP law.

– To require the standard infringing acts would take away the useful effect of border controls

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The view of the ECJ: Montex (2006)

• Production outside EU Germany Ireland• No TM protection in Ireland. German customs detain a

delivery of Diesel™ trousers. The trousers are protected against removal in the course of transit by a customs seal. Judgment against Montex. Appeal before BGH. Questions for ECJ.

• Interpreting the former Customs Regulation 3295/94 (replaced by Reg. 1383), the ECJ (Montex v. Diesel, C-281/05, 9 Nov. 2006) considered that none of its provisions– “introduces a new criterion for the purpose of ascertaining the

existence of an infringement of trademark law or to determine whether there is a use of the mark liable to be prohibited because it infringes that law” (§ 40)

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The view of the ECJ: Montex (2006)

• Interpreting Article 5(1) and (3) of the Trademark Harmonization Directive, the ECJ considers that:– “the proprietor of a trade mark can prohibit the transit

through a Member State in which that mark is protected [Germany in this case] of goods bearing the trade mark and placed under the external transit procedure, whose destination is another Member State where the mark is not so protected [Ireland], only if those goods are subject to the act of a third party while they are placed under the external transit procedure which necessarily entails their being put on the market in that Member State of transit.”

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Nokia question for the ECJ (C-495/09)• UK Court of appeal, 9 Nov. 2009 (from High

Court, [2009] EWHC 1903 (Ch)): “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 Regulation 1383/2003/EC if there is no evidence to suggest that those goods will be put on the market in the EC, either in conformity with a customs procedure or by means of an illicit diversion?”

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Philips question for the ECJ (C-446/09)• Antwerp, 4 Nov. 2009 (Philips v. Lucheng):

“Does [Article 6.2 b) of the former Customs Regulation] (…) imply that, in making its decision, the court may not take into account the temporary storage/transit status and must apply the fiction that the goods were manufactured in that same Member State, and must then decide, by applying the law of that Member State, whether those goods infringe the intellectual property right in question? »

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What to expect from the ECJ?• Montex (2006) and the previous decisions:

– C-383/98, Polo Lauren, 6 April 2000– C-115/02, Rioglass, 23 October 2003– C-60/02, X / Austria (Rolex), 7 January 2004– C-405/03, Class International, 18 October 2005

• Class Int. and Rioglass are about (i) authentic goods/parallel trade (consent in country of origin) and (ii) the TM Directive or freedom of goods: they do not interpret the Customs Regulation

• Montex is also about the TM Directive, not the Customs Regulation

• Polo Lauren and Rolex are about the Customs Regulation and its application to in-transit goods

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Result?• Montex (2006) does not contradict Polo Lauren

(and Rolex) and the application of the Customs Regulation to in-transit goods:– Polo Lauren: “the external transit of non-Community

goods is (…) in fact based on a legal fiction. Goods placed under this procedure are subject neither to the corresponding import duties nor to the other measures of commercial policy. It is as if they had not entered Community territory. (…). This operation is all the more liable to have a direct effect on the internal market as there is a risk that counterfeit goods placed under the external transit procedure may be fraudulently brought on to the Community market (…).” (§ 34)

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Result?

• Montex (2006) does not contradict (Polo Lauren and) Rolex and the application of the Customs Regulation to in-transit goods :– Rolex: “If the national court were to find that the

relevant provisions of national law do not prohibit and, thus, do not penalize the mere transit of counterfeit goods through the Member State concerned, contrary none the less to the requirements under Articles 2 and 11 of [the former Customs] Regulation, it would be proper to conclude that those articles preclude the national provisions in question.” (§ 58)

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Conclusions - Goods in transit: where shall the (border-)line be drawn?

“One size does not fit all”

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Conclusions - Goods in transit: where shall the (border-)line be drawn?

• “One-size does not fit all”. Need to:– Take into account the IP right (TM or © ≠ patent) and the goods

involved (counterfeit v. genuine, luxury v. perishable goods)– Balance the risk of illicit goods being leaked with other interests (fight

against trade of illegal medicines v. access to medicines)• Define the standard for proving the risk of diversion of the goods?

– Consider the precise impact of the measure (temporary detention ≠blocking seizure)

• “Tailor-made” rule for transit of (generic) drugs:– Temporary detention should be strictly limited in time (no extension)– Share all necessary information between owner, shipper, recipient– Immediate release if no action is pursued by right owner– Monitoring of use of border detention and customs co-operation

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Thank You

Alain Strowelastrowel@cov.com