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HMRC can't corral non-EU counterfeits

High Court regretfully rules

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Customs authorities do not have the power to seize goods that enter the UK in transit from a non-European Union country to another non-EU country even if they know they are counterfeit, the High Court has said.

The Court backed the view of HM Revenue and Customs (HMRC) that it cannot hold the goods because they will never go on the market in the UK or elsewhere in the EU.

Goods can only be held if they are counterfeit, the Court and HMRC said, and they can only be counterfeit if they violate a company's trade marks. But trade mark rights can only be violated 'in the course of trade', so goods never intended for UK sale cannot be in violation of UK trade mark rights.

A consignment of 400 Nokia mobile phones was inspected and seized by HMRC at Heathrow Airport last year as they were transported from Hong Kong to Colombia. Nokia confirmed that the phones were fakes and asked HMRC to impound them under The Counterfeit Goods Regulation.

HMRC took legal advice and told Nokia that it could not keep the goods because they could only be counterfeits under UK law if they infringed trade marks, which could only happen if trading took place.

Nokia took the case to the High Court where Mr Justice Kitchin agreed with the HMRC that it did not have the power to keep hold of the phones.

"Clearly any power of arrest or detention of goods by HMRC must be exercised in accordance with law," he said in his ruling. "It must have a clear basis for interfering with the property of a third party."

The judge looked at previous rulings and said that they backed HMRC's case. "Infringement of registered trade mark requires goods to be placed on the market and that goods in transit and subject to suspensive customs procedures do not, without more, satisfy this requirement," he said. "A mere risk that the goods may be diverted is not sufficient to justify a conclusion that the goods have been or will be put on the market."

Nokia had argued that the Counterfeit Goods Regulation gave customs authorities the power to seize goods in transit. The Court agreed, but said that the phones did not qualify for that kind of seizure.

"It is clear that the situations set out in Article 1 [of the Regulation] for action by customs authorities include goods in transit and goods the subject of suspensive procedures," said Mr Justice Kitchin. "The same appears from the recitals. They too contemplate customs authorities taking action against goods in all those situations. But it is important to note that Article 1 and the recitals are all qualified by the requirement that the goods must be counterfeit goods, pirate goods or otherwise infringe an intellectual property right."

"They provide no support for the notion that the Regulation is intended to empower customs authorities to take action against goods which do not infringe an intellectual property right and, more specifically in the case of counterfeit goods, to take action against goods which do not infringe a trade mark," he said.

The Court recognized that if there is a risk that the goods will be sold in the EU then authorities can impound them, but said that that was not the case here. "I have no evidence before me to suggest that there is any real prospect of the illicit diversion onto the market in the Community of goods which are in transit through the UK," he said.

Mr Justice Kitchin concluded that HMRC had no right to keep the phones, but regretted that this was the case.

"I must refuse Nokia's application for judicial review, based as it is upon the proper interpretation of the Counterfeit Goods Regulation," he said. "I recognise that this result is not satisfactory. I can only hope it provokes a review of the adequacy of the measures available to combat the international trade in fake goods by preventing their transhipment through Member States."

See: The ruling

Copyright © 2009, OUT-LAW.com

OUT-LAW.COM is part of international law firm Pinsent Masons.

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