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Tackling the importation of counterfeit goods

24 July 2009

Fixed cost protocol responding to HM Revenue & Customs revised policy and practice

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 Majestys 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:

  1. 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.
  2. Within two working days of receiving the above notification, we will send a letter to the consignee asserting the clients 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 Customs 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.
  3. 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.
  4. 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 consignees 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 holders 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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