"Protecting fortress Europe"

Long ago, the descendants of Noah all spoke the same language, until the day their king decided to build a fortified tower reaching up to heaven. Thus, should there be another great flood, people could take refuge. However, God confounded the project by making the builders speak so many different languages they could no longer understand each other, so they abandoned the building and were dispersed across the Earth. Since then, Europeans have managed to create a single market, with the ambition of passing laws that apply to everyone. One, the Customs Regulation (3295/94), erected judicial ramparts to prevent Europe from being submerged beneath a flood of goods infringing IP rights. The regulation proved efficient. The courts in EU member states construed Article 6 as containing a judicial fiction. Goods of non-EU origin, in transit via EU territory, were to be considered (for the purposes of deciding whether they infringed IP rights) as having been manufactured in the member state where they were intercepted. As Article 10 stipulates that the counterfeit nature of any goods discovered under the regulation would be determined in light of that state's national law, it was thought that the European Union had closed any possible loophole allowing breaches of IP rights in force in any member state. This was fine, until the European Court of Justice (ECJ) judgment in Montex Holdings Ltd v Diesel SpA (Case C-281/05, November 9 2006). The ECJ held that Regulation 3295/94 did not affect prior case law, under which non EU-originating branded goods in transit via the European Union could not, in principle, be held to be illegally "using in the course of trade" the trademark in question. The pseudo-fiction in Article 6 of Regulation 3295/94 was reinstated in one of the recitals of the new Customs Regulation (1383/2003), casting doubt on its legally binding value.

Despite the Montex judgment, fortress Europe has not totally collapsed. Some of the parapets still stand in member states (such as the Netherlands) where, unlike in others (eg, the United Kingdom), the national courts continue to argue that the ECJ has not given up the legal fiction created by Regulation 3295/94. As God had done with his people in Babylon, the ECJ managed to divide the national courts. It is time for the question of the status of goods in transit to be debated in depth. Disputes between India, Brazil and the European Union over the implementation of the Customs Regulation suggest that the legal fiction is hard to justify. Does it not go against the territoriality principle that is innate to IP rights? While a fiction which allows Customs to consider goods in transit as having been manufactured in the member state where they are intercepted may simplify their designation as counterfeit, it complicates things when it comes to deciding who the counterfeiters are. Or should anyone, even those transiting products in good faith, be considered to be the fictional manufacturer - and therefore a counterfeiter? The ECJ has stated several times, with reference to goods in internal transit, that the action of placing goods in transit does not, in principle, infringe the subject matter of a trademark or industrial design, and cannot be invoked to impede the free circulation of goods within the European Union. Can external transit be distinguished from internal transit by its very nature, so as to justify a restraint on trade both within and outside the European Union? Unless there is a reversal of basic jurisprudence on internal transit this will remain a thorny problem. The sort of fiction envisaged by some courts, if ever validated, would result in an unusual application of the territoriality principle. On the one hand, it would prevent those whose rights are protected in every country in the world, except one, from preventing transit into that country of goods which would infringe their rights anywhere else. On the other hand, it would allow those who have limited protection in a single country to oppose the transit through this country of goods coming from, or going to, any other country in the world.

Such a system could possibly be seen as equitable as far as well-known marks are concerned, whose protection has, by and large, no territorial limits. However, the scope of the Customs Regulation is not limited to those sort of rights, as the High Court of England and Wales's decision in Nokia Corporation v HMRC ([2009] EWHC 1903, July 27 2009) reminded us. Conversely, Nokia also highlights that a regulation which obliges IP rights holders to sit on the docks, watching shipments going to countries where their rights will be infringed, is not satisfactory. But do we need a fiction to avoid this situation arising? Would it not be enough to repeal Article 10 of the regulation where it stipulates the existence of an infringement of an IP right must be determined under the national law of the state where the goods are detained by Customs? If this were done, rights holders would, in principle, be empowered to prevent the placing in circulation of products whose manufacture in the country of origin and sale in the destination country would infringe their rights. Such a system would compel rights holder to prove the counterfeit nature of the goods under foreign law but it would have the advantage of not challenging the territoriality principle. It would also avoid the problem created by Montex that the counterfeit or non-infringing nature of the goods in their country of origin is not important when assessing the legality of their placing in circulation. Alas, such a regime would not be the cure either. It would offer no convenient solution to rights owners when the destination of seized goods is unknown - an emerging trend since Montex. Counterfeiters now often place their goods under suspensive customs procedures, such as customs warehousing, which do not reveal their destination. Fraudsters also break up transit routes to disguise the genuine origin and destination of goods. The problem is complex. But a solution must be found urgently, if we are to avoid another great flood.

For more information on this article or on this topic, please contact Olivier Vrins.

This text was first published in the December/January 2010 issue of the World Trademark Review