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The Court of Appeals has asked Europe's highest court to rule on whether UK authorities can seize counterfeit goods passing through the UK and allow brand owners to take legal action against the companies behind the fakes.

A haul of 400 fake Nokia phones was seized by Her Majesty's Revenue and Customs (HMRC) as they passed through Heathrow Airport. Nokia confirmed that they were fakes and asked HMRC to impound them under the Counterfeit Goods Regulations.

The phones, though, were only in transit, travelling from Hong Kong to Colombia, both outside of the EU. HMRC refused to impound the phones because trade mark infringement could only have taken place if trading had taken place, and that was only possible if the goods had been put on the market.

When Nokia sued, the High Court backed HMRC.

"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," said Mr Justice Kitchin in the ruling. "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."

The High Court said that the Regulations did allow the impounding of goods if there was a risk that they would end up on the open market in the EU, but said that this was clearly 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.

The UK Regulations are derived from an EU regulation. Nokia has appealed the High Court ruling and the Court of Appeal has asked the EU's highest court, the Court of Justice, to decide whether or not fake goods in transit through the EU from one non-EU country to another can be seized by customs authorities.

The question that has been referred to the Court of Justice is: "Are non-Community goods bearing a Community trade mark which are subject to customs supervision in a Member State and in transit from a non-Member State to another non-Member State capable of constituting 'counterfeit goods' within the meaning of Article 2(1)(a) of Regulation 1383/2003/EC if there is no evidence to suggest that those goods will be put on the market in the EC, either in conformity with a customs procedure or by means of an illicit diversion?"

Though he ruled against Nokia in the High Court Mr Justicte Kitchin used that ruling to call for a change to the law to allow the impounding of fake goods even if they are never intended for sale within the EU.

"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," he said.

John MacKenzie, an intellectual property law expert at Pinsent Masons, the law firm behind OUT-LAW.COM, said that the case highlighted the growing number of fronts companies faced in their battles against counterfeits.

"The referral illustrates the challenges of operating on a global basis. Brand owners now have to be alive to goods not just landing in their territory but also going through their territory," he said.

HMRC last year changed its policies on the seizure of counterfeits after it was advised that it had not been complying with EU rules on the impounding of goods.

After a court defeat, HMRC said that it would only be able to impound goods for more than 10 days when the brand owner had begun court proceedings against whoever had imported them.

See: The referred question

Copyright © 2010, OUT-LAW.com

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

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