Customs seizures of fake goods in transit can be based on suspicions of EU sales, ECJ rules

The ECJ said that such seizures can only happen if there has been an investigation that has uncovered grounds to suspect that the goods will later be sold in the EU.

An intellectual property law expert said that the ruling could create practical problems for customs authorities which try to follow it.

The Court was ruling on whether counterfeit goods that were in the EU but would begin and end their journey outside of it and would not be released "for free circulation" in the EU can be legitimately seized by customs authorities.

"A customs authority which has established the presence in warehousing or in transit of goods which are an imitation or a copy of a product protected in the European Union by an intellectual property right can legitimately act when there are indications before it that one or more of the operators involved in the manufacture, consignment or distribution of the goods, while not having yet begun to direct the goods towards European Union consumers, are about to do so or are disguising their commercial intentions," the ECJ said in its ruling.

"It is sufficient ... that there be material such as to give rise to suspicion. That material may include the fact that the destination of the goods is not declared whereas the suspensive procedure requested requires such a declaration, the lack of precise or reliable information as to the identity or address of the manufacturer or consignor of the goods, a lack of cooperation with the customs authorities or the discovery of documents or correspondence concerning the goods in question suggesting that there is liable to be a diversion of those goods to European Union consumers," the ECJ said.

"Such a suspicion must, in all cases, be based on the facts of the case. If that suspicion and the resulting action were capable of being based merely on the abstract consideration that fraudulent diversion to European Union consumers cannot necessarily be ruled out, all goods in external transit or customs warehousing could be detained without the slightest concrete indication of an irregularity. Such a situation would give rise to a risk that actions of the Member States’ customs authorities would be random and excessive," it said.

Under EU customs regulations customs authorities can temporarily hold onto goods travelling between non-EU countries in order to establish their status. Fake goods in general can be seized and destroyed providing they violate EU laws on either copyright, trade marks or designs. The ECJ said that only fake goods that were to be sold, or suspected of being sold, within the EU, could be impounded and destroyed.

Under the Treaty on the Functioning of the European Union (TFEU) EU countries are obliged to ensure that EU customs rules contribute to the "progressive abolition of restrictions on international trade".

The ECJ made its ruling based on questions referred to it from two legal disputes, including a case that will be ruled on by the UK's Court of Appeal.

The Court of Appeal asked the ECJ whether a customs authority can seize fakes if there is no evidence that the goods will end up on the market in the EU, either legally or illegally.

The UK's High Court had previously backed a decision by HM Revenue and Customs (HMRC) not to continue to impound counterfeit telephones which were only in the UK as part of their journey from Hong Kong to Colombia. The Court said that the fake phones could not be 'counterfeit' as defined by the EU's Counterfeit Goods Regulation and the Trade Marks Directive unless they were placed on the market in the EU. Nokia had taken legal action against HMRC for not detaining the phones and appealed against the High Court's ruling.

The ECJ said that customs authorities must destroy or abandon fake goods if a court or other competent authority has determined that the goods are to be sold within the EU and that there is evidence to support this view.

"Such evidence may include the existence of a sale of goods to a customer in the European Union, of an offer for sale or advertising addressed to consumers in the European Union, or of documents or correspondence concerning the goods in question showing that diversion of those goods to European Union consumers is envisaged," the ECJ said.

The ECJ said that customs authorities must suspend the release of or detain goods if there are grounds for suspicion that the goods are fake.

Grounds for suspicion could include "the fact that the destination of the goods is not declared whereas the suspensive procedure requested requires such a declaration, the lack of precise or reliable information as to the identity or address of the manufacturer or consignor of the goods, a lack of cooperation with the customs authorities or the discovery of documents or correspondence concerning the goods in question suggesting that there is liable to be a diversion of those goods to European Union consumers," the ECJ said.

Gillian Anderson, intellectual property law expert at Pinsent Masons, the law firm behind Out-Law.com, said that the ECJ ruling could create practical problems for customs authorities.

"The decision is likely to receive a mixed reception because while it broadens the powers of seizure for customs authorities in member states it also necessarily creates uncertainty as to how those powers will operate in practice," Anderson said.

"The Court has indicated that every case must be assessed on its own facts and has provided a broad outline of what factors could be taken into consideration," she said. "However to ensure a consistent and fair approach throughout the EU it will be necessary for clear guidance to be given to the customs authorities in each member state to ensure that the practices adopted in each member state does not advantage or disadvantage the intellectual property rights holder in those states."