Detention of ‘Non-Union Goods in Transit’ at the EU borders and the right to freedom of transit: a new battle between IP and international trade?

Detention of ‘Non-Union Goods in Transit’ at the EU borders and the right to freedom of... Abstract The author Hesham Abdelgawad is a Judge at the Egyptian State Council. He also gives practical legal seminars in several universities in Egypt. In addition, he holds three Master of Laws degrees (LL.Ms) from universities in the UK, USA and Egypt. The article This article addresses one of the problematic dilemmas of the nexus between intellectual property and international trade, namely determining the consistency of the recent developments in the EU trade mark Directive and Regulation in relation to goods in transit in one of the EU Member States with the right to freedom of transit foreseen in Article V of the GATT. One of the most intricate challenges for intellectual property lawmakers is the question of how to adopt laws that are consistent with principles governing international trade between countries. The new EU trade mark Reforms generate serious concerns as to their compatibility with GATT Article V, especially the provisions related to the seizure of goods placed under transit in the EU that are not destined for the EU internal market, known as ‘Non-Union goods’. This article brings valuable clarification to IP policy and law makers, to lawyers involved in international trade and IP litigation, as well as issues of border measures for the enforcement of IPRs, since it provides explanation and overview of the relevant CJEU case law and the academic debate related to the topic in question. The article also provides a useful source for academics interested in the interaction between IP and international trade. I. Introduction New provisions of EU trade mark law generally entered into force on 23 March 2016. Major amendments have been introduced into the legal framework of EU trade mark law: the EU trade mark Directive 2015/24361 and the EU trade mark Directive 2015/2436 (EUTMD) and the EU trade mark Regulation 2015/2424 (EUTMR).2 One of the considerable changes is relevant to the seizure of non-Union goods which are placed under a transit procedure within the territory of the EU. Those amendments have reopened an old debate as to the legality of the detention of such goods at EU borders and the consistency of the relevant legal texts with the general principles governing international trade. One of such fundamental principles is the right of freedom of transit laid down in Article V of the GATT.3 This is the subject matter of this article, which is aimed at examining the consistency of the new amendments with the right of freedom of transit, and considering whether the amended provisions can be justified as one of the GATT general exceptions under Article XX(d). Above all, essential definitions and an explanation of the new amendments and their relation to the relevant case law will be scrutinized. II. Definition of ‘goods in transit’ A definition of the term ‘goods in transit’ does not exist in EU law. In practice, however, pursuant to the definition laid down in Article V:1 of the GATT, it is commonly understood that ‘in transit’ refers to the situation where the goods are not intended for release into free circulation in the market of the country in which they are being checked by the customs authorities: the movement of the goods begins and ends outside that country.4 In contrast, the term ‘Non-Union goods’ could be inferred from Article 5(23) and 5(24) of the Union Customs Code Regulation (EC) No 952/20135 as meaning goods that have not been wholly obtained or produced in the EU territory, in addition to goods which are not released for free circulation in the EU market.6 III. Seizure of goods in transit and the situation before the amendments Seizure of ‘goods in transit’ at the customs office on grounds of protecting intellectual property rights (IPRs) has been subject to intense debate. The proponents of having such procedure describe it as an inevitable measure to fight IPR infringements, while the opponents classify the procedure as a plain barrier to trade that should be prohibited in order to facilitate the free movement of goods between countries. EU laws outweigh the argument for IPR protection, especially when the alleged infringed goods are brought into the EU internal market from third countries for release in free-circulation regime in the EU. In this case, the justification of having such goods detained at one of the EU customs offices has its merit in view of the broad definition of the EU internal market. The rationale of the detention can be thus well understood: these goods are destined for another EU country whose market constitutes part of the EU-wide internal market. Therefore, the European Union Trade mark (EUTM) regulations justified the detention of goods in transit on the basis that such counterfeit goods infringe EU trade mark right, since they will be put into the EU market and cause likelihood of confusion. Hence, measures should be taken to protect registered EU trade marks. In contrast, due to the fact that ‘Non-Union goods’ have neither been manufactured in the EU nor are intended to be brought into the EU market, such logic to justify the detention of ‘Non-Union goods’ may lose its credence. Such goods are not destined for the EU market and thus will not infringe EU trade mark rights. Their seizure in the EU falls beyond the scope of the EU trade mark legislative framework. The Court of Justice of the European Union (CJEU) has articulated two strands of reasoning to justify the detention of the mentioned goods. More precisely, the court has emphasized that ‘Non-Union goods’ should actually be seen as Union goods under the assumption that they have been produced in the EU, or because there is an indication that they will find their way back to the EU market. The first reasoning is academically known as ‘the manufacturing fiction doctrine’ and has been implemented by the CJEU in Polo Lauren Company7 and Motres Rolex.8 According to this doctrine, non-Union goods will be seized on grounds that they were initially manufactured in the country of transit. Thus it is not necessary to prove that they were destined for the EU internal market for them to be infringing. The doctrine has been heavily criticized9 and has been subsequently superseded by a more concrete reasoning in Class International BV,10Montex Holding Ltd11 and Philips and Nokia.12 The CJEU adopted ‘a suspicion of infringement’ in lieu of ‘a fiction’ to decide whether the goods are infringing EU trade mark rights.13 The CJEU held that, in order for non-Union goods to be detained, there should be clear evidence of a substantial risk—a suspicion of infringement—that these goods will be directed for free circulation into the EU internal market and, as a result, may infringe a registered EU trade mark. However, the court lowered the standard of proof by emphasizing that the ‘suspicion’ would be satisfied if the destination of the goods is not declared or if there is a lack of reliable information as to the identity or address of the manufacturer or consignor of the goods.14 IV. Explanation of the new provisions In accordance with Recitals 15, 16 and 17 and Article 9(4) of the new Regulation (EU) 2015/2424 (EUTMR),15 an EU trade mark owner is able to detain non-Union goods which come from third countries and are placed under a transit procedure in the EU territory, without being brought into the internal market of the EU, by proving that they bear a sign, without authorization, that is ‘identical or essentially identical’ to their registered trade mark. The holder of the goods, in contrast, pursuant to Recital 17 will not be able to release their goods unless they have proven, before the competent European Union trade mark court,16 that the trade mark owner has no legal grounds ‘to prohibit the placing of the goods on the market in the country of final destination’. At first sight, one can notice that the current position of the CJEU has been overruled by the new provisions: there is no need to show any likelihood of diversion into the EU market. Non-Union goods can be detained based solely on one factor, namely the level of identity of the alleged counterfeit sign compared to the registered EU trade mark. Therefore, if the trade mark owner shows that the sign is ‘identical or essentially identical’ to their registered TM, a rebuttable presumption of infringement will be triggered and the goods will be detained.17 In effect, the provisions raise concerns as to the consistency with one of the fundamental GATT principles, namely freedom of transit laid as down in Article V.18 V. The right to freedom of transit and the protection of IPRs Freedom of goods in transit is one of the core GATT principles that govern international trade in general, and international transit procedures in particular. According to Article V:2, the right to freedom of transit should be guaranteed to the passage of the goods in one of the Member States when their movement in that country ‘is only a portion of a complete journey beginning and terminating beyond its frontier’. This general obligation aims at facilitating the movement of goods in transit which are under the control or supervision of the customs authorities,19 in order to enhance the ultimate goal of the GATT: the promotion of trade liberty. Thus, any governmental regulation that negatively interferes with that aim, without a legitimate reason, should be prohibited.20 The first WTO dispute that was settled by a panel ruling, with regard to the free movement of goods in transit, was Colombia-Ports of Entry.21 In the context of the nexus between IPRs and international trade, the first complaints before the WTO were filed by India and Brazil against the border measures imposed in the Netherlands, in a case related to the seizure of non-Union generic medicines under a transit procedure at the Dutch borders.22 Both countries requested consultations over the consistency of applying the mentioned manufacturing fiction doctrine as a basis to seize the non-Union generic medicines that were not destined for the EU internal market. In their complaints, India and Brazil claimed that such measures would be inconsistent with GATT Article V. Although the arguments were not examined by the panel (neither India nor Brazil further requested the establishment of a WTO dispute settlement panel), the claims have stirred up quite a lot of interest and discussions as to the legitimacy of imposing such measures and their compatibility with the main principles governing international trade in general, and the right of freedom of transit in particular. The debate has been not only among scholars,23 but also between countries and the judiciary. In effect, several countries requested to join the consultations, including China, Canada, Japan, Ecuador and Turkey. At the judicial stage, the CJEU has overruled the fiction doctrine in Philips and Nokia.24 In his Opinion Advocate General Cruz Villalón highlighted that the doctrine would be inconsistent with relevant EU laws, since ‘Non-Union goods’ are not used in the course of trade in the EU and thus do not infringe EU trade mark rights.25 VI. Academic debate as to the legality of The detention of non-Union goods at EU borders From an academic perspective, the detention of non-Union goods at EU borders based on the protection of IPRs is heavily supported, amongst others, by Olivier Vrins and Marius Schneider.26 They argue that customs authorities should be empowered to impose detention against non-Union goods destined for a market outside the EU to enhance the protection of the EU trade marks worldwide.27 In addition, seizure should take place, in their view, even in cases of parallel trade.28 They further claim that those actions do not contradict the principle of freedom of transit as laid down in GATT Article V. This would be because the principle was not adopted to protect illegal trade. This opinion has been welcomed by other commentators. Carl De Meyer and Carina Gommers, for instance, suggest that the owner of the goods should bear the burden of proving, before a court, that their goods are not intended to be placed on the EU market, and thus there should be a rebuttable presumption that the non-Union goods are destined for the EU internal market.29 On the other hand, Frederick M. Abbott concludes that widening the power of customs authorities to detain non-Union goods in general, and generic medicines in particular, will violate Article V of the GATT as the relevant customs measures thereof will be rendered unreasonable and will present a barrier to international transit protected under Article V.30 This view is supported by other scholars. For instance, Ruse Khan reaches the same conclusion and further stresses that it is not adequate to require from the owner of the goods to have a trade mark that can be distinguished from all other registered trade marks in all markets of transit around the globe, as such necessity adds another barrier to international trade.31 VII. Elements of the obligation under GATT Article V Pursuant to the text of Article V of the GATT, Member States can adopt regulations and impose measures affecting the passage of goods in transit in their territories, providing that those measures and regulations are not: (1) discriminating as to the origin of the goods, ownership or the country of departure or destination;32 (2) imposing unnecessary delays or restrictions;33 (3) unreasonable;34 or (4) inconsistent with the Most Favored Nation Principle (MFNP).35 In light of the foregoing criteria, an analysis of the new provisions will be undertaken. The first and last elements are related and thus will be combined together, followed by evaluation of the second and third points, respectively. A. Non-discrimination criteria In accordance with Articles V:2 and V:5, there should be no discrimination in the treatment with respect to transiting goods in one Member State based on the origin or ownership. Discrimination can occur in two scenarios. First, if the country in question is accorded less favourable treatment to the goods in transit in its territory than the one provided to other goods in transit coming from or to any third country, including non-signatory to the GATT (MFN). Thus the ambit of the MFNP obligation with reference to transit is wider than the general MFNP obligation provided in Article I of the GATT; the latter limits the scope of the obligation as to the goods of the WTO signatories. The second case of discrimination can be envisaged if the treatment of non-Union goods is different or less favourable than that accorded to the national goods, namely the Union goods (National Treatment), since the matter is related to discrimination based on the origin of the goods. (1) Most favoured nation (MFN) A comparison between the treatment stipulated in the amendments in question and any relevant provisions in multilateral or bilateral EU agreements with regard to the legal treatment of goods in transit should be drawn in order to conclude whether the amended non-Union goods provisions are consistent with the non-discrimination obligation and the MFN of Articles V:2 and V:5, respectively. According to Article 20.44(1) of the Comprehensive Economic and Trade Agreement (CETA) and Article 18.76(2) of the Trans-Pacific Partnership (TPP),36 in order for the goods of the signatories to be detained in transit, the trade mark owner should provide adequate evidence of a prima facie infringement under the law of the Party providing the procedures (the country in which the transit takes place), whereas the only criterion for detention provided in the concerned amendments is, as previously mentioned, the level of identity (similarity) between the sign of the goods and the registered trade mark: a request from the trade mark owner and the existence of an essential level of identity, according to Recital 15 and Article 9(4) of the new EUTMR, will suffice to detain the goods, since this will create a rebuttable presumption of the unauthorized use of the trade mark. Therefore, it is reasonable to conclude that the goods of the parties to CETA and TPP placed under an external transit procedure in one of the EU countries will have a more favourable treatment than the one accorded to the goods of the WTO Member States transiting in the EU. In other words, pursuant to the CETA, the Canadian holder of goods which are travelling to a third country but transiting in the EU would have a more favourable treatment of that given to, for instance, the Indian holder of goods which are in transit in the EU territory but destined for a country outside that territory. The goods of the Canadian holder would not be in fact subject for detention in the EU except if the owner of the IP proves adequate evidence of a prima facie infringement of his IP right according to the EU law. The goods of the Indian holder can be instead easily detained if the sign of the goods are similar or essentially similar to the registered EU trade mark without the necessity of proving any act of infringement, such as the diversion into the EU internal market, or at least a suspicion of infringement when the destination of the goods is unknown.37. Thus the new provisions of the EUTMR are more likely to be rendered inconsistent with the non-discrimination obligation and the MFNP of the GATT, enshrined in Articles V:2 and V:5. (2) National treatment (NT) NT principle is stated in Article II of the GATT and is part of the non-discrimination obligation under Article V:2. Comparing Union and non-Union goods in this regard would elucidate whether the new amendments in the EUTMR are consistent with the NT principle. The current treatment of Union goods coming from third countries, and subject to a transit procedure in the EU for the purpose of competing in the EU market,38 can be examined at two different stages: (i) the detention of the goods before the customs authorities; and (ii) the release of the goods. On the one hand, the detention of the Union goods will occur if the trade mark owner proves a reasonable indication of infringement (Recital 15 of the Customs Enforcement Regulation 608/2013)39 or suspicion of infringement (Article 17 therein).40 In contrast, there is no need to show such indication, within the context of the new provisions, in order to detain the non-Union goods, as the decisive criterion in the latter case is the level of identity between the alleged counterfeit sign and the EU trade mark (in accordance with Recital 15 and Article 9(4) of the new EUTMR). As a result, it is easy to envisage the detention of non-Union goods in transit in the EU even if their use does not constitute any infringement in their market of destination, if the TM owner proves the similarity per se. In any case it is required to prove an indication of infringement so as to detain Union goods that are coming from third countries and are subject to a transit procedure in the EU. This requires proving that they are identical goods with those for which the EUTM is registered,41 as well as that they will be put into the EU market. All this suggests that Union goods have more guarantees against detention at EU borders. This is different from the situation with non-Union goods which can be detained (according to the new amendments in the EUTMR) without committing any infringement based solely on the level of similarity between the mark of the goods and a trade mark that is irrelevant to their channels of distribution, namely the EU trade mark. However, according to Article 23(5) of the Customs Enforcement Regulation 608/2013,42 the release of the suspected Union goods will be based upon whether the trade mark owner can initiate proceedings before the competent customs department within ten working days of the detention, and later their ability to prove the alleged infringement.43 Conversely, in accordance with Recital 17 and Article 9.4 of the EUTMR, the holder of the detained non-Union goods bears the burden of filing a claim before the competent court in the country of transit, and not the customs authority, to provide sufficient proof that the trade mark owner is not entitled to prohibit the placing of the goods in the market of the destination country, since their placing is legal in that country. Comparing the two positions of the holder of Union goods and the holder of non-Union goods in transit therein, it is plausible to conclude that the holder of the Union goods has a more favourable position than that given to the holder of the non-Union goods, as the latter bears the burden of proving the legality of placing their goods on the market of destination before the competent court in the EU. This is unlike the position of the former, whose goods would be released if the TM owner fails to initiate proceedings before the competent customs department within a specific period to prove the claimed infringement. This shows the better legal treatment given to Union goods in transit compared to non-Union goods transiting in the EU, thus further clarifying the potential conflict with the NT principle set forth in Article II of the GATT and the non-discrimination obligation under Article V:2. In effect, proving the required legality of placing the non-Union goods in the market of the country of destination by their holder is not an easy task. The examination of such claim of legitimacy by the competent court in the country of transit in the EU is even more complex, since the matter may relate to examining more intricate questions of trade mark limitations, parallel imports, exhaustion and exceeding the trade mark licensing scope, so as to determine whether placing the goods in the market of destination could be satisfied under one of the limitations or exceptions in that country. This in turn requires the examination of foreign laws written in foreign languages (particularly the law of the country of destination), along with its practical difficulties of ensuring the validity of the provided translated documents. This may give rise to other inconsistencies with the principle of territoriality of IPRs and the relevant principles governing conflicts of laws. However, such practical complexities could be averted by establishing an effective international system of cooperation between the competent authorities and courts to better fight counterfeit goods at the international level. B. Lack of necessity and unreasonableness In accordance with Article V:3, in order for the measures to satisfy the freedom of transit obligation, their application should not impose unnecessary delays or restrictions, and should be reasonable. Neither the word ‘unnecessary’ nor the word ‘reasonable’ are defined in the relevant provision. However, it can be mentioned in this regard the common dictionary definition of ‘reasonable’ as ‘not extreme or excessive, fair and moderate’.44 While one can conclude the meaning of ‘unnecessary’ to be the opposite of the interpretation of the word ‘necessary’ under GATT Article XX (d) provided by the WTO Panel in Colombia. That is, a measure should be viewed as unnecessary if there is an available alternative. In light of all this, one could assume that the relevant trade mark provisions do not satisfy the necessity and reasonableness criteria for several reasons. First, the reading of the relevant provisions, namely Recital 21 of the Directive and Recital 15 of the Regulation, suggests that the aim of the new amendments is to ‘combat counterfeiting more effectively’. This presents an initial finding of the lack of necessity, since the opposite meaning of ‘more effectively’ is that the previous regulation was ‘effective’ in combating counterfeit goods. Thus, in terms of balancing the protection of IPRs and the principles of freedom of trade pursuant to Article V:3, providing more protection to the trade mark owner cannot be seen as ‘necessary’: there was no urgent necessity to adopt such provisions to protect the EU internal market as the previous legal treatment was effective in fighting counterfeit goods in the EU. This is evidenced by the interpretation of the purpose of introducing the new provisions in Recital 15 of the EUTMR. In effect, it is instructive to observe that the new amendments tend to repress IP infringements at the international level, rather protecting the EU internal market. In other words, before the amendments, a trade mark owner was able to detain effectively goods at EU borders if there was any suspicion that these goods might enter the EU market, for example, when their destination was not known, based on the principles stipulated in Philips and Nokia.45 Secondly, EU trade mark laws aim to protect the internal market from potential infringements. Hence the logic and objective reason behind the detention of non-Union goods in the EU territory—which are not destined for the EU market nor is there any indication of likelihood of diversion into it46—are not compatible with the function and the goal of the EU trade mark regulations. As such, they could be seen as an excessive way of protecting the IPRs. Thirdly, one should not lose sight of the fact that the CJEU decisions in the recent cases, namely Class International, Montex and Philips and Nokia, along with the opinion of the Advocate General in the latter case, stressed the importance of the requirement of showing a risk of diversion into the EU market in order for the goods to be detained in the EU. These recent developments support the argument against alleging a necessity of adopting such provisions. The principles of these decisions present an available and more reasonable alternative which entail the right to detain goods in case of any suspicion of infringing EUTM, for example, when the destination is not confirmed. This presented a reasonable and effective alternative to safeguard the EU internal market in case of any doubt as to occurrence of a potential infringement, and was ideally consistent with other international principles, such as GATT Article V. It could be claimed that the new provisions are aimed at protecting the internal market from non-Union counterfeit goods. This would be so on the premise that they may be reimported to the EU after their delivery to the destined country at later stages. The fact that the release of the goods will depend on the legality of their placement in the destined market47 may contradict the other fundamental principle of the territoriality of IPR protection. In other words, the legality of using the mark in other markets around the world, according to which the detained non-Union goods in the EU will be released even if their mark is identical to a registered EU trade mark, does not rule out the possibility of infringing a registered EU trade mark in the EU internal market, given that when the holder of the goods bearing the mark benefits from one of the TM exceptions in the market of final destination while using the mark in the EU market constitutes infringement. Therefore, the decisive criterion should be whether the mark infringes EU trade mark rights, or whether the mark is used, or there is an adequate indication that it will be used, in the course of trade in the EU market, thus causing a likelihood of confusion as to the source of the relevant goods. Finally, one can assume that there are other plausible alternatives to fight counterfeiting more effectively in these cases. That is, ensuring a more effective system of cooperation between WTO members to exchange information about counterfeit goods and to have mutual enforcement regime, or to impose stringent rules to fight the counterfeit goods in case of importation into the EU market, rather than third countries. For instance, the adoption of a rule that requires the consignee to invoke detailed information for each consignment as to the destined market in order to permit the transit in the EU, and further impose sanctions in case of fraud. VIII. Conclusion While combating counterfeiting at the international level is a mutual objective of most countries, achieving this objective should not be such as to give rise to potential conflicts with other international principles protecting free trade between countries. In this regard, one can conclude that the detention of non-Union goods at EU borders, in view of the amended provisions, is more likely to contravene one of the fundamental GATT principles, namely freedom of transit as set down in Article V. As a result, justifying the measures taken in light of the amended texts as a GATT exception based on Article XX (d) does not offer a plausible argument: the first condition that has to be satisfied in order to invoke such exception, namely the requirement that the laws should be consistent with the GATT provisions, is not likely fulfilled. That is, the amended TM provisions generate serious concerns as to their consistency with GATT Article V, and thus applying any border measures on grounds of those new provisions must be always viewed in light of their compatibility with the obligation foreseen in Article V. This suggests resorting to other alternative tools that can strengthen the IP protection at the international level without raising the mentioned concerns. Developing an effective system of cooperation between countries in a form of a comprehensive international agreement dedicated exclusively to fighting counterfeit goods in transit is the most effective and appropriate tool for achieving this objective. The author would like to give special thanks to Professor Gail E. Evans, Professor in International Trade and Intellectual Property Law, Queen Mary University of London, for her invaluable support and incisive guidance. Footnotes 1 Directive (EU) 2015/2436 of the European Parliament and of the Council of 16 December 2015 to approximate the laws of the Member States relating to trade marks [2015] OJ L 336/1 [hereinafter referred to as EUTMD]. 2 Regulation (EU) 2015/2424 of the European Parliament and of the Council of 16 December 2015 amending Council Regulation (EC) No 207/2009 on the Community trade mark and Commission Regulation (EC) No 2868/95 implementing Council Regulation (EC) No 40/94 on the Community trade mark, and repealing Commission Regulation (EC) No 2869/95 on the fees payable to the Office for Harmonization in the Internal Market (Trade Marks and Designs) [2015] OJ L 341/21 [hereinafter referred to as EUTMR].     One of the key changes related to the terminology; any reference to the word ‘Community’ is named ‘European Union’. Although the term ‘Non-Community goods’ is commonly used in the literature as it was the official used term in the amended Community Customs Code Regulation No 450/2008, it is replaced with ‘Non-Union goods’ according to Article 5(24) of Regulation (EU) No 952/2013 of the European Parliament and of the Council of 9 October 2013 laying down the Union Customs Code [2013] OJ L 269/1, which came into force on 1 May 2016 (the Union Customs Code Regulation 952/2013). 3 It is worth mentioning that Article 51 of the Agreement on Trade-Related Aspects of Intellectual Property Rights, 15 April 1994 (hereinafter TRIPS Agreement) mandates Member States to adopt specific minimum standards of intellectual property protection related to border measures so as to fight ‘counterfeit trade mark or pirated copyright goods’. However, footnote 13 of the same article excludes the necessity to adopt the minimum standards of border measures in relation to goods in transit by stating that ‘[i]t 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’: see Art. 51, n. 13 of the TRIPS agreement. 4 For detailed scholarly explanation of the definition, see Ronald Charles Wolf, ‘In Transit—A Definition’ (1963) 29 Brook. L. Rev. 218, 220–35. 5 The Union Customs Code Regulation 952/2013 (n 2). Article 5(23) and 5(24) read as follows: ‘(23) “Union goods” means goods which fall into any of the following categories: (a) goods wholly obtained in the customs territory of the Union and not incorporating goods imported from countries or territories outside the customs territory of the Union; (b) goods brought into the customs territory of the Union from countries or territories outside that territory and released for free circulation; (c) goods obtained or produced in the customs territory of the Union, either solely from goods referred to in point (b) or from goods referred to in points (a) and (b); (24) “non-Union goods” means goods other than those referred to in point 23 or which have lost their customs status as Union goods.’ For the meaning of goods that shall be considered as ‘wholly obtained’ in a single country or territory within the framework of the mentioned Union Customs Code Regulation (EC) No 952/2013 (ibid), see Supplementing Regulation (EU) No 952/2013 of the European Parliament and of the Council as regards detailed rules concerning certain provisions of the Union Customs Code [2015] OJ L 343/20, art 31. With regard to the meaning of ‘produced in the EU territory’ when the production process involves more than one country or territory, the goods ‘shall be deemed to originate in the country or territory where they underwent their last, substantial, economically-justified processing or working’ according to Article 60(2) of the Union Customs Code Regulation (EC) No 952/2013 (ibid). See Also Article 32 of the supplementing Regulation (EU) No 952/2013 (ibid). 6 For the purpose of comparison between Union and non-Union goods later in this article, the focus of the analysis is limited to the case in which the goods are brought into the EU customs territory from third countries and are transiting in one of the EU countries for the purpose of either: (i) being released into free circulation in the market of the EU territory ‘Union goods according to point (b) of the mentioned Article 5(23)’; or (ii) leaving the EU customs territory so as to be released for free circulation in markets outside the EU territory ‘non-Union goods pursuant to Article 5(24)’. Therefore, trading in ‘Union goods’ between the EU countries falls outside the scope of the present analysis. 7 Judgment of 6 April 2000, Polo Lauren, C-383/98, EU:C:2000:193. 8 Judgment of 7 January 2004, Montres Rolex, C-60/02, EU:C:2004:10. 9 Richard Steppe, ‘The Current EU Framework Regarding Border Measures against Goods in Transit: a Viable and Balanced Set of Instruments?’ [2015] 1 Jura Falconis 2015–2016, 77, 89–91. 10 Judgment of 18 October 2005, Class International, C-405/03, EU:C:2005:616. 11 Judgment of 9 November 2006, Montex Holdings Ltd, C-281/05, EU:C:2006:709. 12 Judgment of 1 December 2011, Philips and Nokia, joined Cases C-446/09 and C-495/09, EU:C:2011:796. 13 Steppe (n 9), 90–2. 14 Philips and Nokia (n 12), §61 15 EUTMR (n 2). 16 In accordance with Recital 17 of the EUTMR (ibid), the competent ‘European Union trade mark court’ is the court which has the competence ‘to take a substantive decision on whether the EU trade mark has been infringed’. 17 It is worth mentioning that, according to Recital 15 of the EUTMR, the alleged infringing goods should ‘bear without authorisation a trade mark which is identical or essentially identical’. In this regard, the ‘unauthorisation’ is evidenced by the TM owner’s request to detain the goods. This suggests that the only criterion for detaining the goods is the level of identity between their sign and the registered EU trade mark, as mentioned. 18 The new provisions may raise concerns as to their compatibility with several TRIPS provisions, particularly Article 41(1) which prohibits, when enforcing IPRs, the creation of any barrier to legitimate trade. However, the present analysis will be confined to Article V of the GATT. 19 Zhang Naigen, ‘Goods in Transit: Enforcement of IP Rights by Customs Officers’ (2012) 20 Asia Pac. L. Rev., 257, 260. 20 Kevin C. Kennedy, ‘The GATT-WTO System at Fifty’ (1998) 16 Wis. Int’l L.J., 421, 425. 21 Panel Report, Colombia – Indicative Prices and Restrictions on Ports of Entry, WT/DS366 (27 April 2009). 22 Request for Consultations By India and Brazil: European Union and a Member State — Seizure of Generic Drugs in Transit, WT/DS408 (11 May 2010) and WT/DS409 (12 May 2010). 23 See Section VI of this article for more details about the academic debate in this regard. 24 Philips and Nokia (n 12). 25 Opinion of Mr Advocate General Cruz Villalón in Philips and Nokia (n 12), paras 48-65-70. 26 Olivier Vrins and Marius Schneider, Enforcement of Intellectual Property Rights through Border Measures: Law and Practice in the EU (Oxford, OUP, 2012). 27 Ibid, 238–9. 28 Ibid, 242–3. 29 Carl De Meyer and Carina Gommers, ‘The Transit Dilemma Revisited: the New Customs Regulation and the Legislative Package on Trade Marks’ (2013) 8 JIPLP, 771, 772. 30 Frederick M. Abbott, ‘Worst Fears Realised: The Dutch Confiscation of Medicines Bound from India to Brazil’ (2009) 13 ICTSD Bridges, 1; and Abbott, ‘Seizure of Generic Pharmaceuticals in Transit Based on Allegations of Patent Infringement: A Threat to International Trade, Development and Public Welfare’ (2009) 1 W.I.P.O.J., 43, 49–50. 31 Henning Ruse Khan, ‘A Trade Agreement Creating Barriers to International Trade?: ACTA Border Measures and Goods in Transit’ (2011) 26 Am. U. Int’l L. Rev., 645, 675–6. 32 GATT Article V:2. 33 GATT Article V:3. 34 GATT Article V:4. 35 GATT Article V:5. 36 Article 20.44(1) of the CETA states that ‘[e]ach Party shall provide that its competent authorities require a right holder who requests the procedures described in Article 20.43 to provide adequate evidence to satisfy the competent authorities that, under the law of the Party providing the procedures, there is prima facie an infringement of the right holder's intellectual property right …’ (emphasis added). Similarly, Article 18.76(2) of the TPP stipulates that ‘[e]ach Party shall provide that any right holder initiating procedures for its competent authorities117 to suspend release of suspected counterfeit or confusingly similar trade mark or pirated copyright goods into free circulation is required to provide adequate evidence to satisfy the competent authorities that, under the law of the Party providing the procedures, there is prima facie an infringement of the right holder's intellectual property right …’ (emphasis added). 37 According to Article 1(7) of Regulation (EU) No 608/2013 of the European Parliament and of the Council of 12 June 2013 concerning customs enforcement of intellectual property rights and repealing Council Regulation (EC) No 1383/2003 [2013] OJ L 181/15 (the Customs Enforcement Regulation 608/2013), prima facie can be evidenced if the goods are ‘the subject of an act infringing an Intellectual Property Right’ in the EU. In this regard, the infringement necessitates that the goods to be classified under the same category as that registered for the EUTM, in addition to proving that there is adequate evidence of competing in the EU market, hence the potential of causing a likelihood of confusion in the EU. 38 These goods are ‘Union goods’ pursuant to Article 5(23)(b) of the Union Customs Regulation No 952/2013 and they are subject to customs control in the EU in accordance with Article 1(1)(a) and 1(1)(b) of the EU Customs Regulation No 608/2013 as they are entering the customs territory from third countries and are declared to be released for free circulation in the EU. 39 The Customs Enforcement Regulation 608/2013 (n 37). 40 Ibid 181/26. 41 This requirement can be inferred from Article 9(2)(a) of the EUTMR. 42 Article 23(5) of the Customs Enforcement Regulation 608/2013 reads as follows: ‘The customs authorities shall grant the release of the goods or put an end to their detention, immediately after completion of all customs formalities, where, within the periods referred to in paragraphs 3 and 4 (ten working days), they have not been duly informed, in accordance with paragraph 3, on the initiation of proceedings to determine whether an intellectual property right has been infringed’. 43 For more details about initiation of proceedings and release of the goods, see the full text of Article 3, 5 and 23 of the Customs Enforcement Regulation 608/2013 (n 37) 181/21, 181/22, 181/28. 44 <http://www.merriam-webster.com/dictionary/reasonable>, accessed 20 November 2017. 45 Philips and Nokia (n 12). 46 As in the case of clearly declaring the destination of the transiting goods to be a market outside the EU. If there is any suspicion that the goods could be placed in the EU market, such as when the destination of the goods is not declared or if there is a lack of reliable information as to the identity or address of the manufacturer or consignor of the goods, the detention will take place following the established principles in Philips and Nokia (n 12). This further demonstrates that the previous legal treatment before the new amendments was effective in protecting the internal market from any potential infringement. 47 According to Recital 17 and Article 9.4 of the EUTMR, non-Union goods will be released, even if their mark is identical to the registered EUTM, if their holder proves that he has legal grounds to place them in the market of final destination, eg, based on a TM limitation, exception or licensing. © The Author(s) 2017. Published by Oxford University Press. All rights reserved. This article is published and distributed under the terms of the Oxford University Press, Standard Journals Publication Model (https://academic.oup.com/journals/pages/about_us/legal/notices) http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Journal of Intellectual Property Law & Practice Oxford University Press

Detention of ‘Non-Union Goods in Transit’ at the EU borders and the right to freedom of transit: a new battle between IP and international trade?

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Oxford University Press
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© The Author(s) 2017. Published by Oxford University Press. All rights reserved.
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1747-1532
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Abstract

Abstract The author Hesham Abdelgawad is a Judge at the Egyptian State Council. He also gives practical legal seminars in several universities in Egypt. In addition, he holds three Master of Laws degrees (LL.Ms) from universities in the UK, USA and Egypt. The article This article addresses one of the problematic dilemmas of the nexus between intellectual property and international trade, namely determining the consistency of the recent developments in the EU trade mark Directive and Regulation in relation to goods in transit in one of the EU Member States with the right to freedom of transit foreseen in Article V of the GATT. One of the most intricate challenges for intellectual property lawmakers is the question of how to adopt laws that are consistent with principles governing international trade between countries. The new EU trade mark Reforms generate serious concerns as to their compatibility with GATT Article V, especially the provisions related to the seizure of goods placed under transit in the EU that are not destined for the EU internal market, known as ‘Non-Union goods’. This article brings valuable clarification to IP policy and law makers, to lawyers involved in international trade and IP litigation, as well as issues of border measures for the enforcement of IPRs, since it provides explanation and overview of the relevant CJEU case law and the academic debate related to the topic in question. The article also provides a useful source for academics interested in the interaction between IP and international trade. I. Introduction New provisions of EU trade mark law generally entered into force on 23 March 2016. Major amendments have been introduced into the legal framework of EU trade mark law: the EU trade mark Directive 2015/24361 and the EU trade mark Directive 2015/2436 (EUTMD) and the EU trade mark Regulation 2015/2424 (EUTMR).2 One of the considerable changes is relevant to the seizure of non-Union goods which are placed under a transit procedure within the territory of the EU. Those amendments have reopened an old debate as to the legality of the detention of such goods at EU borders and the consistency of the relevant legal texts with the general principles governing international trade. One of such fundamental principles is the right of freedom of transit laid down in Article V of the GATT.3 This is the subject matter of this article, which is aimed at examining the consistency of the new amendments with the right of freedom of transit, and considering whether the amended provisions can be justified as one of the GATT general exceptions under Article XX(d). Above all, essential definitions and an explanation of the new amendments and their relation to the relevant case law will be scrutinized. II. Definition of ‘goods in transit’ A definition of the term ‘goods in transit’ does not exist in EU law. In practice, however, pursuant to the definition laid down in Article V:1 of the GATT, it is commonly understood that ‘in transit’ refers to the situation where the goods are not intended for release into free circulation in the market of the country in which they are being checked by the customs authorities: the movement of the goods begins and ends outside that country.4 In contrast, the term ‘Non-Union goods’ could be inferred from Article 5(23) and 5(24) of the Union Customs Code Regulation (EC) No 952/20135 as meaning goods that have not been wholly obtained or produced in the EU territory, in addition to goods which are not released for free circulation in the EU market.6 III. Seizure of goods in transit and the situation before the amendments Seizure of ‘goods in transit’ at the customs office on grounds of protecting intellectual property rights (IPRs) has been subject to intense debate. The proponents of having such procedure describe it as an inevitable measure to fight IPR infringements, while the opponents classify the procedure as a plain barrier to trade that should be prohibited in order to facilitate the free movement of goods between countries. EU laws outweigh the argument for IPR protection, especially when the alleged infringed goods are brought into the EU internal market from third countries for release in free-circulation regime in the EU. In this case, the justification of having such goods detained at one of the EU customs offices has its merit in view of the broad definition of the EU internal market. The rationale of the detention can be thus well understood: these goods are destined for another EU country whose market constitutes part of the EU-wide internal market. Therefore, the European Union Trade mark (EUTM) regulations justified the detention of goods in transit on the basis that such counterfeit goods infringe EU trade mark right, since they will be put into the EU market and cause likelihood of confusion. Hence, measures should be taken to protect registered EU trade marks. In contrast, due to the fact that ‘Non-Union goods’ have neither been manufactured in the EU nor are intended to be brought into the EU market, such logic to justify the detention of ‘Non-Union goods’ may lose its credence. Such goods are not destined for the EU market and thus will not infringe EU trade mark rights. Their seizure in the EU falls beyond the scope of the EU trade mark legislative framework. The Court of Justice of the European Union (CJEU) has articulated two strands of reasoning to justify the detention of the mentioned goods. More precisely, the court has emphasized that ‘Non-Union goods’ should actually be seen as Union goods under the assumption that they have been produced in the EU, or because there is an indication that they will find their way back to the EU market. The first reasoning is academically known as ‘the manufacturing fiction doctrine’ and has been implemented by the CJEU in Polo Lauren Company7 and Motres Rolex.8 According to this doctrine, non-Union goods will be seized on grounds that they were initially manufactured in the country of transit. Thus it is not necessary to prove that they were destined for the EU internal market for them to be infringing. The doctrine has been heavily criticized9 and has been subsequently superseded by a more concrete reasoning in Class International BV,10Montex Holding Ltd11 and Philips and Nokia.12 The CJEU adopted ‘a suspicion of infringement’ in lieu of ‘a fiction’ to decide whether the goods are infringing EU trade mark rights.13 The CJEU held that, in order for non-Union goods to be detained, there should be clear evidence of a substantial risk—a suspicion of infringement—that these goods will be directed for free circulation into the EU internal market and, as a result, may infringe a registered EU trade mark. However, the court lowered the standard of proof by emphasizing that the ‘suspicion’ would be satisfied if the destination of the goods is not declared or if there is a lack of reliable information as to the identity or address of the manufacturer or consignor of the goods.14 IV. Explanation of the new provisions In accordance with Recitals 15, 16 and 17 and Article 9(4) of the new Regulation (EU) 2015/2424 (EUTMR),15 an EU trade mark owner is able to detain non-Union goods which come from third countries and are placed under a transit procedure in the EU territory, without being brought into the internal market of the EU, by proving that they bear a sign, without authorization, that is ‘identical or essentially identical’ to their registered trade mark. The holder of the goods, in contrast, pursuant to Recital 17 will not be able to release their goods unless they have proven, before the competent European Union trade mark court,16 that the trade mark owner has no legal grounds ‘to prohibit the placing of the goods on the market in the country of final destination’. At first sight, one can notice that the current position of the CJEU has been overruled by the new provisions: there is no need to show any likelihood of diversion into the EU market. Non-Union goods can be detained based solely on one factor, namely the level of identity of the alleged counterfeit sign compared to the registered EU trade mark. Therefore, if the trade mark owner shows that the sign is ‘identical or essentially identical’ to their registered TM, a rebuttable presumption of infringement will be triggered and the goods will be detained.17 In effect, the provisions raise concerns as to the consistency with one of the fundamental GATT principles, namely freedom of transit laid as down in Article V.18 V. The right to freedom of transit and the protection of IPRs Freedom of goods in transit is one of the core GATT principles that govern international trade in general, and international transit procedures in particular. According to Article V:2, the right to freedom of transit should be guaranteed to the passage of the goods in one of the Member States when their movement in that country ‘is only a portion of a complete journey beginning and terminating beyond its frontier’. This general obligation aims at facilitating the movement of goods in transit which are under the control or supervision of the customs authorities,19 in order to enhance the ultimate goal of the GATT: the promotion of trade liberty. Thus, any governmental regulation that negatively interferes with that aim, without a legitimate reason, should be prohibited.20 The first WTO dispute that was settled by a panel ruling, with regard to the free movement of goods in transit, was Colombia-Ports of Entry.21 In the context of the nexus between IPRs and international trade, the first complaints before the WTO were filed by India and Brazil against the border measures imposed in the Netherlands, in a case related to the seizure of non-Union generic medicines under a transit procedure at the Dutch borders.22 Both countries requested consultations over the consistency of applying the mentioned manufacturing fiction doctrine as a basis to seize the non-Union generic medicines that were not destined for the EU internal market. In their complaints, India and Brazil claimed that such measures would be inconsistent with GATT Article V. Although the arguments were not examined by the panel (neither India nor Brazil further requested the establishment of a WTO dispute settlement panel), the claims have stirred up quite a lot of interest and discussions as to the legitimacy of imposing such measures and their compatibility with the main principles governing international trade in general, and the right of freedom of transit in particular. The debate has been not only among scholars,23 but also between countries and the judiciary. In effect, several countries requested to join the consultations, including China, Canada, Japan, Ecuador and Turkey. At the judicial stage, the CJEU has overruled the fiction doctrine in Philips and Nokia.24 In his Opinion Advocate General Cruz Villalón highlighted that the doctrine would be inconsistent with relevant EU laws, since ‘Non-Union goods’ are not used in the course of trade in the EU and thus do not infringe EU trade mark rights.25 VI. Academic debate as to the legality of The detention of non-Union goods at EU borders From an academic perspective, the detention of non-Union goods at EU borders based on the protection of IPRs is heavily supported, amongst others, by Olivier Vrins and Marius Schneider.26 They argue that customs authorities should be empowered to impose detention against non-Union goods destined for a market outside the EU to enhance the protection of the EU trade marks worldwide.27 In addition, seizure should take place, in their view, even in cases of parallel trade.28 They further claim that those actions do not contradict the principle of freedom of transit as laid down in GATT Article V. This would be because the principle was not adopted to protect illegal trade. This opinion has been welcomed by other commentators. Carl De Meyer and Carina Gommers, for instance, suggest that the owner of the goods should bear the burden of proving, before a court, that their goods are not intended to be placed on the EU market, and thus there should be a rebuttable presumption that the non-Union goods are destined for the EU internal market.29 On the other hand, Frederick M. Abbott concludes that widening the power of customs authorities to detain non-Union goods in general, and generic medicines in particular, will violate Article V of the GATT as the relevant customs measures thereof will be rendered unreasonable and will present a barrier to international transit protected under Article V.30 This view is supported by other scholars. For instance, Ruse Khan reaches the same conclusion and further stresses that it is not adequate to require from the owner of the goods to have a trade mark that can be distinguished from all other registered trade marks in all markets of transit around the globe, as such necessity adds another barrier to international trade.31 VII. Elements of the obligation under GATT Article V Pursuant to the text of Article V of the GATT, Member States can adopt regulations and impose measures affecting the passage of goods in transit in their territories, providing that those measures and regulations are not: (1) discriminating as to the origin of the goods, ownership or the country of departure or destination;32 (2) imposing unnecessary delays or restrictions;33 (3) unreasonable;34 or (4) inconsistent with the Most Favored Nation Principle (MFNP).35 In light of the foregoing criteria, an analysis of the new provisions will be undertaken. The first and last elements are related and thus will be combined together, followed by evaluation of the second and third points, respectively. A. Non-discrimination criteria In accordance with Articles V:2 and V:5, there should be no discrimination in the treatment with respect to transiting goods in one Member State based on the origin or ownership. Discrimination can occur in two scenarios. First, if the country in question is accorded less favourable treatment to the goods in transit in its territory than the one provided to other goods in transit coming from or to any third country, including non-signatory to the GATT (MFN). Thus the ambit of the MFNP obligation with reference to transit is wider than the general MFNP obligation provided in Article I of the GATT; the latter limits the scope of the obligation as to the goods of the WTO signatories. The second case of discrimination can be envisaged if the treatment of non-Union goods is different or less favourable than that accorded to the national goods, namely the Union goods (National Treatment), since the matter is related to discrimination based on the origin of the goods. (1) Most favoured nation (MFN) A comparison between the treatment stipulated in the amendments in question and any relevant provisions in multilateral or bilateral EU agreements with regard to the legal treatment of goods in transit should be drawn in order to conclude whether the amended non-Union goods provisions are consistent with the non-discrimination obligation and the MFN of Articles V:2 and V:5, respectively. According to Article 20.44(1) of the Comprehensive Economic and Trade Agreement (CETA) and Article 18.76(2) of the Trans-Pacific Partnership (TPP),36 in order for the goods of the signatories to be detained in transit, the trade mark owner should provide adequate evidence of a prima facie infringement under the law of the Party providing the procedures (the country in which the transit takes place), whereas the only criterion for detention provided in the concerned amendments is, as previously mentioned, the level of identity (similarity) between the sign of the goods and the registered trade mark: a request from the trade mark owner and the existence of an essential level of identity, according to Recital 15 and Article 9(4) of the new EUTMR, will suffice to detain the goods, since this will create a rebuttable presumption of the unauthorized use of the trade mark. Therefore, it is reasonable to conclude that the goods of the parties to CETA and TPP placed under an external transit procedure in one of the EU countries will have a more favourable treatment than the one accorded to the goods of the WTO Member States transiting in the EU. In other words, pursuant to the CETA, the Canadian holder of goods which are travelling to a third country but transiting in the EU would have a more favourable treatment of that given to, for instance, the Indian holder of goods which are in transit in the EU territory but destined for a country outside that territory. The goods of the Canadian holder would not be in fact subject for detention in the EU except if the owner of the IP proves adequate evidence of a prima facie infringement of his IP right according to the EU law. The goods of the Indian holder can be instead easily detained if the sign of the goods are similar or essentially similar to the registered EU trade mark without the necessity of proving any act of infringement, such as the diversion into the EU internal market, or at least a suspicion of infringement when the destination of the goods is unknown.37. Thus the new provisions of the EUTMR are more likely to be rendered inconsistent with the non-discrimination obligation and the MFNP of the GATT, enshrined in Articles V:2 and V:5. (2) National treatment (NT) NT principle is stated in Article II of the GATT and is part of the non-discrimination obligation under Article V:2. Comparing Union and non-Union goods in this regard would elucidate whether the new amendments in the EUTMR are consistent with the NT principle. The current treatment of Union goods coming from third countries, and subject to a transit procedure in the EU for the purpose of competing in the EU market,38 can be examined at two different stages: (i) the detention of the goods before the customs authorities; and (ii) the release of the goods. On the one hand, the detention of the Union goods will occur if the trade mark owner proves a reasonable indication of infringement (Recital 15 of the Customs Enforcement Regulation 608/2013)39 or suspicion of infringement (Article 17 therein).40 In contrast, there is no need to show such indication, within the context of the new provisions, in order to detain the non-Union goods, as the decisive criterion in the latter case is the level of identity between the alleged counterfeit sign and the EU trade mark (in accordance with Recital 15 and Article 9(4) of the new EUTMR). As a result, it is easy to envisage the detention of non-Union goods in transit in the EU even if their use does not constitute any infringement in their market of destination, if the TM owner proves the similarity per se. In any case it is required to prove an indication of infringement so as to detain Union goods that are coming from third countries and are subject to a transit procedure in the EU. This requires proving that they are identical goods with those for which the EUTM is registered,41 as well as that they will be put into the EU market. All this suggests that Union goods have more guarantees against detention at EU borders. This is different from the situation with non-Union goods which can be detained (according to the new amendments in the EUTMR) without committing any infringement based solely on the level of similarity between the mark of the goods and a trade mark that is irrelevant to their channels of distribution, namely the EU trade mark. However, according to Article 23(5) of the Customs Enforcement Regulation 608/2013,42 the release of the suspected Union goods will be based upon whether the trade mark owner can initiate proceedings before the competent customs department within ten working days of the detention, and later their ability to prove the alleged infringement.43 Conversely, in accordance with Recital 17 and Article 9.4 of the EUTMR, the holder of the detained non-Union goods bears the burden of filing a claim before the competent court in the country of transit, and not the customs authority, to provide sufficient proof that the trade mark owner is not entitled to prohibit the placing of the goods in the market of the destination country, since their placing is legal in that country. Comparing the two positions of the holder of Union goods and the holder of non-Union goods in transit therein, it is plausible to conclude that the holder of the Union goods has a more favourable position than that given to the holder of the non-Union goods, as the latter bears the burden of proving the legality of placing their goods on the market of destination before the competent court in the EU. This is unlike the position of the former, whose goods would be released if the TM owner fails to initiate proceedings before the competent customs department within a specific period to prove the claimed infringement. This shows the better legal treatment given to Union goods in transit compared to non-Union goods transiting in the EU, thus further clarifying the potential conflict with the NT principle set forth in Article II of the GATT and the non-discrimination obligation under Article V:2. In effect, proving the required legality of placing the non-Union goods in the market of the country of destination by their holder is not an easy task. The examination of such claim of legitimacy by the competent court in the country of transit in the EU is even more complex, since the matter may relate to examining more intricate questions of trade mark limitations, parallel imports, exhaustion and exceeding the trade mark licensing scope, so as to determine whether placing the goods in the market of destination could be satisfied under one of the limitations or exceptions in that country. This in turn requires the examination of foreign laws written in foreign languages (particularly the law of the country of destination), along with its practical difficulties of ensuring the validity of the provided translated documents. This may give rise to other inconsistencies with the principle of territoriality of IPRs and the relevant principles governing conflicts of laws. However, such practical complexities could be averted by establishing an effective international system of cooperation between the competent authorities and courts to better fight counterfeit goods at the international level. B. Lack of necessity and unreasonableness In accordance with Article V:3, in order for the measures to satisfy the freedom of transit obligation, their application should not impose unnecessary delays or restrictions, and should be reasonable. Neither the word ‘unnecessary’ nor the word ‘reasonable’ are defined in the relevant provision. However, it can be mentioned in this regard the common dictionary definition of ‘reasonable’ as ‘not extreme or excessive, fair and moderate’.44 While one can conclude the meaning of ‘unnecessary’ to be the opposite of the interpretation of the word ‘necessary’ under GATT Article XX (d) provided by the WTO Panel in Colombia. That is, a measure should be viewed as unnecessary if there is an available alternative. In light of all this, one could assume that the relevant trade mark provisions do not satisfy the necessity and reasonableness criteria for several reasons. First, the reading of the relevant provisions, namely Recital 21 of the Directive and Recital 15 of the Regulation, suggests that the aim of the new amendments is to ‘combat counterfeiting more effectively’. This presents an initial finding of the lack of necessity, since the opposite meaning of ‘more effectively’ is that the previous regulation was ‘effective’ in combating counterfeit goods. Thus, in terms of balancing the protection of IPRs and the principles of freedom of trade pursuant to Article V:3, providing more protection to the trade mark owner cannot be seen as ‘necessary’: there was no urgent necessity to adopt such provisions to protect the EU internal market as the previous legal treatment was effective in fighting counterfeit goods in the EU. This is evidenced by the interpretation of the purpose of introducing the new provisions in Recital 15 of the EUTMR. In effect, it is instructive to observe that the new amendments tend to repress IP infringements at the international level, rather protecting the EU internal market. In other words, before the amendments, a trade mark owner was able to detain effectively goods at EU borders if there was any suspicion that these goods might enter the EU market, for example, when their destination was not known, based on the principles stipulated in Philips and Nokia.45 Secondly, EU trade mark laws aim to protect the internal market from potential infringements. Hence the logic and objective reason behind the detention of non-Union goods in the EU territory—which are not destined for the EU market nor is there any indication of likelihood of diversion into it46—are not compatible with the function and the goal of the EU trade mark regulations. As such, they could be seen as an excessive way of protecting the IPRs. Thirdly, one should not lose sight of the fact that the CJEU decisions in the recent cases, namely Class International, Montex and Philips and Nokia, along with the opinion of the Advocate General in the latter case, stressed the importance of the requirement of showing a risk of diversion into the EU market in order for the goods to be detained in the EU. These recent developments support the argument against alleging a necessity of adopting such provisions. The principles of these decisions present an available and more reasonable alternative which entail the right to detain goods in case of any suspicion of infringing EUTM, for example, when the destination is not confirmed. This presented a reasonable and effective alternative to safeguard the EU internal market in case of any doubt as to occurrence of a potential infringement, and was ideally consistent with other international principles, such as GATT Article V. It could be claimed that the new provisions are aimed at protecting the internal market from non-Union counterfeit goods. This would be so on the premise that they may be reimported to the EU after their delivery to the destined country at later stages. The fact that the release of the goods will depend on the legality of their placement in the destined market47 may contradict the other fundamental principle of the territoriality of IPR protection. In other words, the legality of using the mark in other markets around the world, according to which the detained non-Union goods in the EU will be released even if their mark is identical to a registered EU trade mark, does not rule out the possibility of infringing a registered EU trade mark in the EU internal market, given that when the holder of the goods bearing the mark benefits from one of the TM exceptions in the market of final destination while using the mark in the EU market constitutes infringement. Therefore, the decisive criterion should be whether the mark infringes EU trade mark rights, or whether the mark is used, or there is an adequate indication that it will be used, in the course of trade in the EU market, thus causing a likelihood of confusion as to the source of the relevant goods. Finally, one can assume that there are other plausible alternatives to fight counterfeiting more effectively in these cases. That is, ensuring a more effective system of cooperation between WTO members to exchange information about counterfeit goods and to have mutual enforcement regime, or to impose stringent rules to fight the counterfeit goods in case of importation into the EU market, rather than third countries. For instance, the adoption of a rule that requires the consignee to invoke detailed information for each consignment as to the destined market in order to permit the transit in the EU, and further impose sanctions in case of fraud. VIII. Conclusion While combating counterfeiting at the international level is a mutual objective of most countries, achieving this objective should not be such as to give rise to potential conflicts with other international principles protecting free trade between countries. In this regard, one can conclude that the detention of non-Union goods at EU borders, in view of the amended provisions, is more likely to contravene one of the fundamental GATT principles, namely freedom of transit as set down in Article V. As a result, justifying the measures taken in light of the amended texts as a GATT exception based on Article XX (d) does not offer a plausible argument: the first condition that has to be satisfied in order to invoke such exception, namely the requirement that the laws should be consistent with the GATT provisions, is not likely fulfilled. That is, the amended TM provisions generate serious concerns as to their consistency with GATT Article V, and thus applying any border measures on grounds of those new provisions must be always viewed in light of their compatibility with the obligation foreseen in Article V. This suggests resorting to other alternative tools that can strengthen the IP protection at the international level without raising the mentioned concerns. Developing an effective system of cooperation between countries in a form of a comprehensive international agreement dedicated exclusively to fighting counterfeit goods in transit is the most effective and appropriate tool for achieving this objective. The author would like to give special thanks to Professor Gail E. Evans, Professor in International Trade and Intellectual Property Law, Queen Mary University of London, for her invaluable support and incisive guidance. Footnotes 1 Directive (EU) 2015/2436 of the European Parliament and of the Council of 16 December 2015 to approximate the laws of the Member States relating to trade marks [2015] OJ L 336/1 [hereinafter referred to as EUTMD]. 2 Regulation (EU) 2015/2424 of the European Parliament and of the Council of 16 December 2015 amending Council Regulation (EC) No 207/2009 on the Community trade mark and Commission Regulation (EC) No 2868/95 implementing Council Regulation (EC) No 40/94 on the Community trade mark, and repealing Commission Regulation (EC) No 2869/95 on the fees payable to the Office for Harmonization in the Internal Market (Trade Marks and Designs) [2015] OJ L 341/21 [hereinafter referred to as EUTMR].     One of the key changes related to the terminology; any reference to the word ‘Community’ is named ‘European Union’. Although the term ‘Non-Community goods’ is commonly used in the literature as it was the official used term in the amended Community Customs Code Regulation No 450/2008, it is replaced with ‘Non-Union goods’ according to Article 5(24) of Regulation (EU) No 952/2013 of the European Parliament and of the Council of 9 October 2013 laying down the Union Customs Code [2013] OJ L 269/1, which came into force on 1 May 2016 (the Union Customs Code Regulation 952/2013). 3 It is worth mentioning that Article 51 of the Agreement on Trade-Related Aspects of Intellectual Property Rights, 15 April 1994 (hereinafter TRIPS Agreement) mandates Member States to adopt specific minimum standards of intellectual property protection related to border measures so as to fight ‘counterfeit trade mark or pirated copyright goods’. However, footnote 13 of the same article excludes the necessity to adopt the minimum standards of border measures in relation to goods in transit by stating that ‘[i]t 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’: see Art. 51, n. 13 of the TRIPS agreement. 4 For detailed scholarly explanation of the definition, see Ronald Charles Wolf, ‘In Transit—A Definition’ (1963) 29 Brook. L. Rev. 218, 220–35. 5 The Union Customs Code Regulation 952/2013 (n 2). Article 5(23) and 5(24) read as follows: ‘(23) “Union goods” means goods which fall into any of the following categories: (a) goods wholly obtained in the customs territory of the Union and not incorporating goods imported from countries or territories outside the customs territory of the Union; (b) goods brought into the customs territory of the Union from countries or territories outside that territory and released for free circulation; (c) goods obtained or produced in the customs territory of the Union, either solely from goods referred to in point (b) or from goods referred to in points (a) and (b); (24) “non-Union goods” means goods other than those referred to in point 23 or which have lost their customs status as Union goods.’ For the meaning of goods that shall be considered as ‘wholly obtained’ in a single country or territory within the framework of the mentioned Union Customs Code Regulation (EC) No 952/2013 (ibid), see Supplementing Regulation (EU) No 952/2013 of the European Parliament and of the Council as regards detailed rules concerning certain provisions of the Union Customs Code [2015] OJ L 343/20, art 31. With regard to the meaning of ‘produced in the EU territory’ when the production process involves more than one country or territory, the goods ‘shall be deemed to originate in the country or territory where they underwent their last, substantial, economically-justified processing or working’ according to Article 60(2) of the Union Customs Code Regulation (EC) No 952/2013 (ibid). See Also Article 32 of the supplementing Regulation (EU) No 952/2013 (ibid). 6 For the purpose of comparison between Union and non-Union goods later in this article, the focus of the analysis is limited to the case in which the goods are brought into the EU customs territory from third countries and are transiting in one of the EU countries for the purpose of either: (i) being released into free circulation in the market of the EU territory ‘Union goods according to point (b) of the mentioned Article 5(23)’; or (ii) leaving the EU customs territory so as to be released for free circulation in markets outside the EU territory ‘non-Union goods pursuant to Article 5(24)’. Therefore, trading in ‘Union goods’ between the EU countries falls outside the scope of the present analysis. 7 Judgment of 6 April 2000, Polo Lauren, C-383/98, EU:C:2000:193. 8 Judgment of 7 January 2004, Montres Rolex, C-60/02, EU:C:2004:10. 9 Richard Steppe, ‘The Current EU Framework Regarding Border Measures against Goods in Transit: a Viable and Balanced Set of Instruments?’ [2015] 1 Jura Falconis 2015–2016, 77, 89–91. 10 Judgment of 18 October 2005, Class International, C-405/03, EU:C:2005:616. 11 Judgment of 9 November 2006, Montex Holdings Ltd, C-281/05, EU:C:2006:709. 12 Judgment of 1 December 2011, Philips and Nokia, joined Cases C-446/09 and C-495/09, EU:C:2011:796. 13 Steppe (n 9), 90–2. 14 Philips and Nokia (n 12), §61 15 EUTMR (n 2). 16 In accordance with Recital 17 of the EUTMR (ibid), the competent ‘European Union trade mark court’ is the court which has the competence ‘to take a substantive decision on whether the EU trade mark has been infringed’. 17 It is worth mentioning that, according to Recital 15 of the EUTMR, the alleged infringing goods should ‘bear without authorisation a trade mark which is identical or essentially identical’. In this regard, the ‘unauthorisation’ is evidenced by the TM owner’s request to detain the goods. This suggests that the only criterion for detaining the goods is the level of identity between their sign and the registered EU trade mark, as mentioned. 18 The new provisions may raise concerns as to their compatibility with several TRIPS provisions, particularly Article 41(1) which prohibits, when enforcing IPRs, the creation of any barrier to legitimate trade. However, the present analysis will be confined to Article V of the GATT. 19 Zhang Naigen, ‘Goods in Transit: Enforcement of IP Rights by Customs Officers’ (2012) 20 Asia Pac. L. Rev., 257, 260. 20 Kevin C. Kennedy, ‘The GATT-WTO System at Fifty’ (1998) 16 Wis. Int’l L.J., 421, 425. 21 Panel Report, Colombia – Indicative Prices and Restrictions on Ports of Entry, WT/DS366 (27 April 2009). 22 Request for Consultations By India and Brazil: European Union and a Member State — Seizure of Generic Drugs in Transit, WT/DS408 (11 May 2010) and WT/DS409 (12 May 2010). 23 See Section VI of this article for more details about the academic debate in this regard. 24 Philips and Nokia (n 12). 25 Opinion of Mr Advocate General Cruz Villalón in Philips and Nokia (n 12), paras 48-65-70. 26 Olivier Vrins and Marius Schneider, Enforcement of Intellectual Property Rights through Border Measures: Law and Practice in the EU (Oxford, OUP, 2012). 27 Ibid, 238–9. 28 Ibid, 242–3. 29 Carl De Meyer and Carina Gommers, ‘The Transit Dilemma Revisited: the New Customs Regulation and the Legislative Package on Trade Marks’ (2013) 8 JIPLP, 771, 772. 30 Frederick M. Abbott, ‘Worst Fears Realised: The Dutch Confiscation of Medicines Bound from India to Brazil’ (2009) 13 ICTSD Bridges, 1; and Abbott, ‘Seizure of Generic Pharmaceuticals in Transit Based on Allegations of Patent Infringement: A Threat to International Trade, Development and Public Welfare’ (2009) 1 W.I.P.O.J., 43, 49–50. 31 Henning Ruse Khan, ‘A Trade Agreement Creating Barriers to International Trade?: ACTA Border Measures and Goods in Transit’ (2011) 26 Am. U. Int’l L. Rev., 645, 675–6. 32 GATT Article V:2. 33 GATT Article V:3. 34 GATT Article V:4. 35 GATT Article V:5. 36 Article 20.44(1) of the CETA states that ‘[e]ach Party shall provide that its competent authorities require a right holder who requests the procedures described in Article 20.43 to provide adequate evidence to satisfy the competent authorities that, under the law of the Party providing the procedures, there is prima facie an infringement of the right holder's intellectual property right …’ (emphasis added). Similarly, Article 18.76(2) of the TPP stipulates that ‘[e]ach Party shall provide that any right holder initiating procedures for its competent authorities117 to suspend release of suspected counterfeit or confusingly similar trade mark or pirated copyright goods into free circulation is required to provide adequate evidence to satisfy the competent authorities that, under the law of the Party providing the procedures, there is prima facie an infringement of the right holder's intellectual property right …’ (emphasis added). 37 According to Article 1(7) of Regulation (EU) No 608/2013 of the European Parliament and of the Council of 12 June 2013 concerning customs enforcement of intellectual property rights and repealing Council Regulation (EC) No 1383/2003 [2013] OJ L 181/15 (the Customs Enforcement Regulation 608/2013), prima facie can be evidenced if the goods are ‘the subject of an act infringing an Intellectual Property Right’ in the EU. In this regard, the infringement necessitates that the goods to be classified under the same category as that registered for the EUTM, in addition to proving that there is adequate evidence of competing in the EU market, hence the potential of causing a likelihood of confusion in the EU. 38 These goods are ‘Union goods’ pursuant to Article 5(23)(b) of the Union Customs Regulation No 952/2013 and they are subject to customs control in the EU in accordance with Article 1(1)(a) and 1(1)(b) of the EU Customs Regulation No 608/2013 as they are entering the customs territory from third countries and are declared to be released for free circulation in the EU. 39 The Customs Enforcement Regulation 608/2013 (n 37). 40 Ibid 181/26. 41 This requirement can be inferred from Article 9(2)(a) of the EUTMR. 42 Article 23(5) of the Customs Enforcement Regulation 608/2013 reads as follows: ‘The customs authorities shall grant the release of the goods or put an end to their detention, immediately after completion of all customs formalities, where, within the periods referred to in paragraphs 3 and 4 (ten working days), they have not been duly informed, in accordance with paragraph 3, on the initiation of proceedings to determine whether an intellectual property right has been infringed’. 43 For more details about initiation of proceedings and release of the goods, see the full text of Article 3, 5 and 23 of the Customs Enforcement Regulation 608/2013 (n 37) 181/21, 181/22, 181/28. 44 <http://www.merriam-webster.com/dictionary/reasonable>, accessed 20 November 2017. 45 Philips and Nokia (n 12). 46 As in the case of clearly declaring the destination of the transiting goods to be a market outside the EU. If there is any suspicion that the goods could be placed in the EU market, such as when the destination of the goods is not declared or if there is a lack of reliable information as to the identity or address of the manufacturer or consignor of the goods, the detention will take place following the established principles in Philips and Nokia (n 12). This further demonstrates that the previous legal treatment before the new amendments was effective in protecting the internal market from any potential infringement. 47 According to Recital 17 and Article 9.4 of the EUTMR, non-Union goods will be released, even if their mark is identical to the registered EUTM, if their holder proves that he has legal grounds to place them in the market of final destination, eg, based on a TM limitation, exception or licensing. © The Author(s) 2017. Published by Oxford University Press. All rights reserved. This article is published and distributed under the terms of the Oxford University Press, Standard Journals Publication Model (https://academic.oup.com/journals/pages/about_us/legal/notices)

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Journal of Intellectual Property Law & PracticeOxford University Press

Published: Dec 19, 2017

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