Flushing out the fakes

The number of counterfeit goods being seized in the EU is growing at an alarming rate

Customs officers in the European Union are seizing an increasing quantity of goods that they suspect violate intellectual property rights. While a great deal of discussion on intellectual property focuses on digital rights, the trade in counterfeit tangible goods remains big business.  

The European Commission, which published its latest figures on counterfeit goods last summer, reported that in 2011, the last year for which figures are available, more than 91,000 shipments were stopped by customs officers, a 15% increase on 2010. Those shipments contained an estimated 114 million articles worth more that €1.2 billion at genuine market prices. More fake medicines are detained by customs officers than any other product – they account for a quarter of all goods seized. Sizeable quantities of cigarettes, toys, electrical goods, shoes and clothing are also impounded. More counterfeit goods are seized from China than any other country.

In May 2011, the Commission proposed a revised regulation of the customs enforcement of intellectual property rights, as part of a wider IPR strategy. Once formally adopted by the European Parliament and the Council, it will replace the current regulation, which dates from 2003.

The purpose of the revised legislation is to widen the list of possible infringements that can be dealt with by customs officials. The Commission’s proposal would extend the list to include trade names and devices designed to circumvent anti-copying measures. Parallel imports and ‘overruns’ (goods produced in excess of those permitted under a licencing agreement) would still be excluded from the scope of the regulation.

The new law is also designed to tackle the increasing number of counterfeit and pirated goods bought over the internet and delivered in small parcels to customers’ homes rather than as part of large consignments.

But there is concern that the legislation will not close a loophole that has, since 2011, allowed a significant quantity of fake goods to slip through the net.

Before then, EU customs officials would routinely stop counterfeit goods in transit through the EU bound for other destinations. That changed after a European Court of Justice decision in 2011 on a case related to the seizure of counterfeit Nokia and Philips products bound for non-EU countries. The ECJ ruled that fake goods in transit could not be seized because there was no act of infringement taking place in the EU. As a result, customs officials who had for years been seizing counterfeit goods in transit through the EU were no longer able to do so.

The ‘goods in transit’ loophole will not be closed by the new regulation, although it could be covered by a review of the substantive law on trademarks (the community trademark regulation and the trademark directive), which is to be proposed by the Commission this spring.

Stuart Adams, a member of the International Trademark Association’s anti-counterfeiting committee and a lawyer at London-based firm Rouse, said it was disappointing that the transit issue was not included in the revision of the customs enforcement regulation. “It is important because many countries look to the EU’s trademark rules and procedures and use them as best practice,” he said. “Dealing with the problem in the customs regulation was always going to be difficult, as it deals with procedures rather than the underlying law.”

He said he had hoped that legislators would have come up with ways to solve the problem. “We suggested trying to reverse the burden of proof, so that adequate evidence of the final destination would have to be provided by the people dealing in the goods, which is easy to do if it’s a consignment which really is going somewhere beyond the EU,” he said. “Unfortunately we could not convince the legislators.”

Impounded medicines

There is another concern: that any changes to the rules could affect life-saving medicines destined for the developing world. In 2008, after customs officers in the EU seized several shipments of legitimate generic medicines in transit to South America and Africa because they were believed to have infringed European patents, India complained to the World Trade Organization. MEPs and campaign groups have warned of the consequences for the developing world of detaining generic medicines.

The revision of the customs regulation does not change or add to the rules defining what an IPR infringement is, but it does try to offer “further clarification” of the procedures that customs officials will need to apply. However, there is a balance to be struck between being able to stop counterfeit goods in transit and allowing life-saving medicines to get through.

“The EU is trying to steer a path through these two competing ideas,” said Adams, who suggests that counterfeit goods in transit should be considered as infringing EU rules only if they are to be marketed in the Union and in either the country of origin or country of destination.

“That would capture a lot of counterfeit goods, but would not have any effect on the trade in generic medicines – these may infringe patent rights but are not counterfeit – unless, of course, they bear infringing trademarks,” Adams said.

Fighting global counterfeiting and protecting intellectual property is one of the EU’s biggest challenges. Getting it right at the EU’s borders remains as important as ever.