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Tackling the importation of counterfeit goods
Fixed cost protocol responding to HM Revenue & Custom's revised policy and practice
24 July 2009
You may already be aware that HM Revenue & Customs (HMRC)
have, with immediate effect, changed the mechanism by which they
deal with suspected counterfeit goods detained at the border. This
new procedure has been introduced following a recent decision in
the case of Her Majesty's Revenue and Customs v Penbrook
Enterprises Ltd [2008] NIMag2). It was held in this case that
existing practice was not compliant with the relevant EU law. As
this change has significant implications for our respective clients
and the way that they monitor and police the illicit flow of
counterfeit goods into the UK, below is a summary of the key
changes, together with our proposals for how we might assist your
clients with their anti-counterfeiting strategies going
forward.
Policy change
As you may be aware, historically, HMRC have been prepared to
seize items in reliance on a short witness statement from the
rights holder confirming that the detained goods were counterfeit.
If the importer objected to their destruction, Customs would launch
condemnation proceedings in the local Magistrates' Court for a
determination on whether the goods were, indeed, counterfeit. This
provided rights holders with an effective and cost efficient
anti-counterfeiting tool. However, having undertaken a detailed
analysis of this policy in Penbrook, the Court has taken
the view that existing Customs practices do not comply with the EU
Customs Regulation: specifically, the burden of proof should be on
the rights holder to confirm the infringing nature of the goods by
taking legal proceedings (which must be initiated within ten
days or, with leave of Customs, within 20 days of being notified of
the goods' detention).
The practical consequence of this is that formal proceedings
must now be issued to prove infringement in every case where rights
holders wish to have counterfeit goods seized and destroyed, unless
the consignee first consents to their destruction. Clearly, this
policy change has the potential to prejudice rights holders,
considerably increasing the financial burden associated with
enforcing intellectual property (IP) rights at the frontier. We are
keen to mitigate the impact of this change. We have reviewed the
relevant legislation together with Customs’ published guidance and
formulated a protocol for how we might best continue to police our
clients’ rights under the new regime. We have discussed our
proposals with a senior member of the IP team at HMRC who has
confirmed that it is compliant with the new approach and we will
also be consulting with the Anti-Counterfeiting Group next
Wednesday to discuss approaches taken by our colleagues in the IP
profession and other brand owners. We will continue to monitor HMRC
practice and tailor our approach accordingly. We understand that
secondary legislation is likely to be introduced in the
short-to-medium term to reduce the impact of the new policy.
Draft protocol for responding to notification that
suspected counterfeit goods have been detained by HMRC at the
frontier:
- Notification by HMRC that suspect goods have been detained. Via
this notification the rights holder will be provided with
information about the consignor and consignee and details of the
suspected counterfeit goods (which may include samples or
photographs). These details should be sufficient to enable us to
assess whether the goods are, indeed, counterfeit.
- Within two working days of receiving the above notification, we
will send a letter to the consignee asserting the client’s
intellectual property rights, notifying it of the infringement and
inviting it to confirm, within seven days, that HMRC may dispose of
the goods. At the same time, we will provide HMRC with a copy of
this correspondence and request an additional ten days by which to
notify Customs of initiated proceedings - we understand that
Custom's practice will be to grant this request, to ensure that
rights holders have sufficient time to take formal action in the
absence of a satisfactory response.
- If the consignee fails to take the steps prescribed in our
letter, we will, within ten - 15 days of the initial notification,
issue proceedings in the Patents County Court for trade mark
infringement seeking, amongst other things, a declaration that the
items are counterfeit and that the HMRC be directed to destroy the
goods detained. We will then send a Witness Statement to Customs
confirming that proceedings have been issued (who will continue to
detain the goods pending determination of the proceedings) and,
once processed, serve a copy of the sealed Claim Form on the
defendant.
- Once served with formal proceedings, the defendant will have 14
days to acknowledge service and (assuming service is acknowledged)
a further 14 days to file a defence. We anticipate that, in the
vast majority of cases, no acknowledgement will be filed and it
will be possible for us to apply to Court for Judgment to be
entered in default (essentially a purely administrative process).
If a defence is filed, we will advise as to how proceedings may be
best (and most economically) resolved, which may include an
application that judgment be entered summarily.
If the claim is defended, which we anticipate will be the
exception rather than the norm as consignees of counterfeit goods
are unlikely to wish to be drawn into court proceedings, it will be
necessary to take those proceedings forward in the usual way
outside the terms of this Protocol.
The above protocol has a number of advantages over historical
practice and procedure. Specifically, it dramatically extends the
relief to which a successful claimant may be entitled, including
recovery of a proportion of legal costs; damages (or an account of
profits); interest; an injunction restraining further infringement
and publication of the judgment (at the consignee’s expense).
Conclusion
Customs accepts that there is a risk that the new policy could
have the unfortunate effect of increasing the number of counterfeit
goods flowing unchecked into the UK. That being the case, HMRC is
lobbying the government to pass secondary legislation permitting a
simplified procedure to be followed. What this procedure will be is
still under review, but it is likely to entail a presumption that
consignees who do not respond to a rights holder's letter of
complaint (step 2 above) consent to the destruction of suspect
goods. It seems unlikely that such legislation will be implemented
before October 2009. Consequently, as an interim measure HMRC are
currently liaising with their legal advisers as to whether such a
presumption might be permissible under the current regime. We may
learn more about this at the ACG meeting next week. In the
meantime, we should assume that policy and practice will be as set
out above.
You will appreciate that the new regime allows very little time
for us to liaise with clients and obtain instructions post
notification the goods’ detention. We are, therefore, seeking to
ensure that the above protocol is in place at this stage so that we
may respond swiftly and efficiently at the relevant time. If you
feel that any of your clients might benefit from having a similar
protocol in place, we would welcome the opportunity to work with
you to ensure that their rights are adequately protected.
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