England and Wales High Court (Chancery Division) Decisions

IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
INTELLECTUAL PROPERTY

		Royal Courts of Justice Strand, London, WC2A 2LL
		27/07/2009

MR. JUSTICE KITCHIN :

Introduction

1. This is an application by the claimant ("Nokia") for judicial review of

i) the decision by the defendant, Her Majesty's Commissioners of Revenue & Customs ("HMRC"), not to continue to detain or suspend the release of a consignment of mobile phones and accessories which Nokia says are counterfeit;

ii) HMRC's policy whereby goods travelling through the EU from one non-member country to another are not considered to be capable of being counterfeit goods when they do not enter into free circulation in the EU.

2. It raises a point of considerable importance because of its potential impact on the transhipment of fake goods. In a communication from the Commission to the Council, the European Parliament and the European Economic and Social Committee (COM(2005) 479 final) dated 11 October 2005 it was reported that over 100 million fake articles were being seized annually by EU customs. Most of these were household items and many were dangerous. It was also noted that EU customs legislation was reckoned to be amongst the strongest in the world and that with controls on all movements of goods, especially during transhipment, customs protect not only the EU but also other parts of the world and, in particular, the least developed countries which are often targeted by fraudsters.

Background

3. Nokia is a company incorporated under the laws of Finland and is the largest producer of mobile telephones in the world. It owns trade mark registrations for marks consisting of or comprising the word NOKIA in many territories worldwide.
4. In July 2008, HMRC stopped and inspected at Heathrow Airport a consignment of goods being shipped from Hong Kong to Colombia. It comprised approximately four hundred mobile telephone handsets, batteries, manuals, boxes and hand free kits, each of which bore NOKIA trade marks.
5. Under cover of a letter dated 30 July 2008, HMRC sent samples of these goods to Nokia. After inspecting the samples, Nokia notified HMRC that they were counterfeit and, on the same day, asked HMRC by telephone whether it would be prepared to seize the goods pursuant to its powers under Council Regulation 1383/03 ("the Counterfeit Goods Regulation").
6. On 6 August 2008, HMRC responded by email stating that, having received legal advice, it had difficulty in understanding how goods could be counterfeit within the meaning of the Counterfeit Goods Regulation unless there was evidence that they might be diverted onto the EU market. In the absence of such evidence HMRC indicated that it did not believe it would be lawful to deprive the owner of its goods. Nokia was given 10 working days to notify HMRC that proceedings had been initiated to determine whether an intellectual property right had been infringed under national law.
7. On 20 August 2008, Nokia issued an application against HMRC for Norwich Pharmacal relief seeking, inter alia, the names and addresses of the consignor and the consignee and all documents in the possession of HMRC relating to the consignment so that it could bring proceedings for infringement of its intellectual property rights.
8. On 27 August 2008, Warren J ordered by consent that HMRC should provide the disclosure sought and that it should not, without the consent of Nokia, release the consignment to any third party. Accordingly the consignment is currently in one of the Queen's Warehouses.
9. Despite extensive investigations Nokia has not been able to identify the consignor and the consignee and believes that they have both taken steps to hide their true identity.
10. On 24 September 2008, Nokia sent a letter before action to HMRC and put it on notice of Nokia's intention to file an application for judicial review of HMRC's decision not to seize the consignment absent evidence that the goods it comprised would be released onto the market in the EU.
11. On 10 October 2008, HMRC responded accepting that it had a policy that its staff should cease to target or detain goods suspected of infringing intellectual property rights in cases such as the present and absent evidence of a likely diversion onto the UK or wider EU market. On 30 October 2008, Nokia indicated to HMRC that it regarded the goods as counterfeit and on 31 October 2008, it filed its application for judicial review.
12. By order of Deputy Master Knapman dated 29 January 2009, the matter was transferred from the Queen's Bench Division Administrative Court to the Chancery Division. Permission for judicial review was granted by Arnold J on 1 May 2009.
13. There is no dispute that the goods comprised in the consignment are indeed fake.

The issue

14. The issue between the parties is essentially as to the correct interpretation of the definition of "counterfeit goods" in the Counterfeit Goods Regulation and whether it encompasses goods which are in transit and subject to special customs procedures and in circumstances where there is no real prospect of them being released onto the market in the Community.

The relevant legislation

The Counterfeit Goods Regulation

15. The Counterfeit Goods Regulation was adopted on 22 July 2003 and, as its title makes clear, concerns customs action against goods suspected of infringing certain intellectual property rights and the measures to be taken against goods found to have infringed such rights. It replaced Regulation (EC) No 3295/94 which itself provided a system concerning the entry into the Community and export and re-export from the Community of goods infringing certain intellectual property rights. The Counterfeit Goods Regulation was incorporated into national law by The Goods Infringing Intellectual Property Rights (Customs) Regulations 2004 (SI 2004/1473).
16. The relevant recitals of the Counterfeit Goods Regulation read:

(2) The marketing of counterfeit and pirated goods, and indeed all goods infringing intellectual property rights, does considerable damage to law-abiding manufacturers and traders and to right-holders, as well as deceiving and in some cases endangering the health and safety of consumers. Such goods should, in so far as is possible, be kept off the market and measures adopted to deal effectively with this unlawful activity without impeding the freedom of legitimate trade. This objective is consistent with efforts under way at international level.

(3) In cases where counterfeit goods, pirated goods and, more generally, goods infringing an intellectual property right originate in or come from third countries, their introduction into the Community customs territory, including their transhipment, release for free circulation in the Community, placing under a suspensive procedure and placing in a free zone or warehouse, should be prohibited and a procedure set up to enable the customs authorities to enforce this prohibition as effectively as possible.

(4) Customs authorities should also be able to take action against counterfeit goods, pirated goods and goods infringing certain intellectual property rights which are in the process of being exported, re-exported or leaving the Community customs territory.

….

(8) Proceedings initiated to determine whether an intellectual property right has been infringed under national law will be conducted with reference to the criteria used to establish whether goods produced in that Member Sate infringe intellectual property rights. This Regulation does not affect the Member States' provisions on the competence of the courts or judicial procedures.

….

(10) It is necessary to lay down the measures applicable to goods which have been found to be counterfeit, pirated or generally to infringe certain intellectual property rights. Those measures should not only deprive those responsible for trading in such goods of the economic benefits of the transaction and penalise them but should also constitute an effective deterrent to further transactions of the same kind.

17. Article 1 identifies the situations with which the Regulation is concerned:

Article 1

1. This Regulation sets out the conditions for action by the customs authorities when goods are suspected of infringing an intellectual property right in the following situations:

(a) when they are entered for release for free circulation, export or re-export in accordance with Article 61 of Council Regulation (EC) No 2913/92 of 12 October 1992 establishing the Community Customs Code;

(b) when they are found during checks on goods entering or leaving the Community customs territory in accordance with Articles 37 and 183 of Regulation (EEC) No 2913/92, placed under a suspensive procedure within the meaning of Article 84(1)(a) of that Regulation, in the process of being re-exported subject to notification under Article 182(2) of that Regulation or placed in a free zone or free warehouse within the meaning of Article 166 of that Regulation.

2. This Regulation also fixes the measures to be taken by the competent authorities when the goods referred to in paragraph 1 are found to infringe intellectual property rights.

18. In simple terms, goods may be entered for release for free circulation on the one hand or export or re-export on the other. Alternatively, and where they have not been so entered, they may be placed under some form of suspensive procedure until the holder of the goods makes such an election.
19. The definition of "goods infringing an intellectual property right" is central to the issues arising on this application and is set out in Article 2 which reads, so far as relevant:

Article 2

1. For the purposes of this Regulation, 'goods infringing an intellectual property right' means:

(a) 'counterfeit goods', namely:

(i) goods, including packaging, bearing without authorisation a trademark identical to the trademark validly registered in respect of the same type of goods, or which cannot be distinguished in its essential aspects from such a trademark, and which thereby infringes the trademark-holder's rights under Community law, as provided for by Council Regulation (EC) No 40/94 of 20 December 1993 on the Community trademark or the law of the Member Sate in which the application for action by the customs authorities is made;

(ii) any trademark symbol (including a logo, label, sticker, brochure, instructions for use or guarantee document bearing such a symbol), even if presented separately, on the same conditions as the goods referred to in point (i);

(iii) packaging materials bearing the trademarks of counterfeit goods, presented separately, on the same conditions as the goods referred to in point (i);

(b) 'pirated goods', namely goods which are or contain copies made without the consent of the holder of a copyright or related right or design right, regardless of whether it is registered in national law, or of a person authorised by the right-holder in the country of production in cases where the making of those copies would constitute an infringement of that right under Council Regulation (EC) No 6/2002 of 12 December 2001 on Community designs or the law of the Member State in which the application for customs action is made;

(c) goods which, in the Member State in which the application for customs action is made, infringe:

(i) a patent under that Member State's law;

(ii) a supplementary protection certificate of the kind provided for in Council Regulation (EEC) No 1768/92 or Regulation (EC) No 1610/96 of the European Parliament and of the Council.

…..

20. It can be seen that the Regulation is concerned with three categories of infringing goods, namely "counterfeit goods" which infringe a registered trade mark; "pirated goods" the making of which would have infringed a copyright or design right; and goods which infringe a patent or other miscellaneous rights.
21. As for "counterfeit goods", these must bear a mark which is the same or essentially the same as the registered mark and it must be used on goods which are of the same type as those the subject of the registration. It is apparent that this definition includes but is not limited to fakes. It also encompasses the use of the registered mark on goods which are of the same type as those the subject of the registration even if the trade mark holder is not using the mark on those goods himself. It is, however, limited to goods which, by virtue of the fact they bear the offending mark, infringe the trade mark holder's rights.
22. The same point may be made in relation to "pirated goods" and those which infringe a patent. They include but are not limited to fakes.
23. Article 3 excludes certain "grey goods":

Article 3

1. This Regulation shall not apply to goods bearing a trademark with the consent of the holder of that trademark or to goods bearing a protected designation of origin or a protected geographical indication or which are protected by a patent or a supplementary protection certificate, by a copyright or related right or by a design right or a plant variety right and which have been manufactured with the consent of the right-holder but are placed in one of the situations referred to in Article 1(1) without the latter's consent.

It shall similarly not apply to goods referred to in the first subparagraph and which have been manufactured or are protected by another intellectual property right referred to in Article 2(1) under conditions other than those agreed with the right-holder.

24. Chapter II of the Regulation then sets out a framework in which an application may be made by a rights holder for action by the customs authorities. Even before such an application has been lodged, Article 4 gives customs authorities a power to suspend the release of goods pending such an application if, in one of the situations referred to in Article 1(1), it has sufficient grounds for suspecting that goods infringe an intellectual property right. Articles 5 through 8 then set out the procedures for lodging and processing such applications.
25. Chapter III of the Regulation sets out conditions governing action by the customs authorities. They are of considerable importance and begin with an obligation on a customs office to suspend release or detain any goods in one of the situations referred to in Article 1(1) which are suspected of infringing an intellectual property right:

Article 9

1. Where a customs office to which the decision granting an application by the right-holder has been forwarded pursuant to Article 8 is satisfied, after consulting the applicant where necessary, that goods in one of the situations referred to in Article 1(1) are suspected of infringing an intellectual property right covered by that decision, it shall suspend release of the goods or detain them.

The customs office shall immediately inform the competent customs department which processed the application.

26. The competent customs body must then inform the rights holder of its action so as to permit the rights holder to establish whether an intellectual property right has been infringed under national law.
27. The law to be applied in determining that question is addressed by Article 10:

Article 10

The law in force in the Member State within the territory of which the goods are placed in one of the situations referred to in Article 1(1) shall apply when deciding whether an intellectual property right has been infringed under national law.

28. If the holder or owner of the goods does not abandon the goods for destruction then the Regulation contemplates that the rights holder must initiate proceedings to determine whether an intellectual property right has been infringed under national law:

Article 13

1. If, within 10 working days of receipt of the notification of suspension of release or of detention, the customs office referred to in Article 9(1) has not been notified that proceedings have been initiated to determine whether an intellectual property right has been infringed under national law in accordance with Article 10 or has not received the right-holder's agreement provided for in Article 11(1) where applicable, release of the goods shall be granted, or their detention shall be ended, as appropriate, subject to completion of all customs formalities…..

29. Goods found to infringe an intellectual property right under national law must be dealt with in accordance with Chapter IV of the Regulation. Most importantly:

Article 16

Goods found to infringe an intellectual property right at the end of the procedure provided for in Article 9 shall not be:

- allowed to enter into the Community customs territory,

- released for free circulation,

- removed from the Community customs territory,

- exported,

- re-exported,

- placed under a suspensive procedure or

- placed in a free zone or free warehouse.

30. Finally, Chapter V, Article 18 requires each Member State to introduce penalties to apply in cases of violation of the Regulation, such penalties to be effective, proportionate and dissuasive.

Community Customs Code

31. It is accepted that at the relevant time customs operations were governed by Council Regulation (EEC) No 2913/92 which established the Community Customs Code. Broadly, goods not produced in the Community are non-Community goods. When these goods are presented to customs they are assigned a customs-approved treatment or use (Article 48); and from that moment they are subject to customs supervision until they are released into free circulation (at which point they become Community goods), enter a free warehouse or free zone or are re-exported or destroyed (Article 37). The holder of the goods may commit himself as to how his non-Community goods should be treated by making a formal declaration and entering them for that procedure (Article 61). Alternatively they may be made subject to a suspensive procedure (Article 84). Goods leaving the Community customs territory are subject to checks (Article 183).

Trade Marks Directive and Community Trade Mark Regulation

32. Council Directive 89/104 of 21 December 1988 ("the Trade Marks Directive") was adopted with a view to approximating the laws of Member States relating to trade marks. It was implemented in the UK by the Trade Marks Act 1994.
33. Article 5 provides for the rights conferred by a trade mark:

1. The registered trade mark shall confer on the proprietor exclusive rights therein. The proprietor shall be entitled to prevent all third parties not having his consent from using in the course of trade:

(a) any sign which is identical with the trade mark in relation to goods or services which are identical with those for which the trade mark is registered;

(b) any sign where, because of its identity with, or similarity to, the trade mark and the identity or similarity of the goods or services covered by the trade mark and the sign, there exists a likelihood of confusion on the part of the public, which includes the likelihood of association between the sign and the trade mark.

2. Any Member State may also provide that the proprietor shall be entitled to prevent all third parties not having his consent from using in the course of trade any sign which is identical with, or similar to, the trade mark in relation to goods or services which are not similar to those for which the trade mark is registered, where the latter has a reputation in the Member State and where use of that sign without due cause takes unfair advantage of, or is detrimental to, the distinctive character or the repute of the trade mark.

3. The following, inter alia, may be prohibited under paragraphs 1 and 2:

(a) affixing the sign to the goods or to the packaging thereof;

(b) offering the goods, or putting them on the market or stocking them for these purposes under that sign, or offering or supplying services thereunder;

(c) importing or exporting the goods under the sign;

(d) using the sign on business papers and in advertising.

34. There are two points of particular relevance to the present application. The first is that the rights conferred are more extensive than those identified in Article 2.1 of the Counterfeit Goods Regulation. The second is that the rights conferred are in all case limited to the use of an offending sign in the course of trade.
35. Council Regulation 40/94 of 20 December 1993 ("the Community Trade Mark Regulation") provided for Community Trade Marks. It was in force at the relevant time but has since been repealed by Council Regulation 207/2009 of 26 February 2009. So far as relevant, Article 9 of both the old and the new Regulations mirrors Article 5 of the Trade Marks Directive.

Analysis

Introduction

36. Clearly any power of arrest or detention of goods by HMRC must be exercised in accordance with law. It must have a clear basis for interfering with the property of a third party.
37. HMRC's position is simple. It says:

i) In order for products bearing trade marks to be "counterfeit goods" as defined by the Counterfeit Goods Regulation they must in fact infringe someone's trade marks in the territory in question, here the UK. The Counterfeit Goods Regulation envisages such infringement in one of two situations: either infringement of a registered Community trade mark under the Community Trade Mark Regulation, or infringement of a registered trade mark under national law. Since national trade mark law has been largely harmonised by the Trade Marks Directive, we may look to that Directive for this purpose.

ii) Both the Community Trade Mark Regulation and the Trade Marks Directive make clear that the owner of a registered trade mark is entitled to prevent another from using that mark "in the course of trade". Such use entails the goods being put on the market and this has not happened and will not happen in the case of the consignment in issue.

iii) Accordingly, (i) the goods in the consignment are not counterfeit as defined by the Counterfeit Goods Regulation, even if they are fake and so may sensibly be described as counterfeit by wider common usage; and (ii) as a result, HMRC has no legal power to seize them.

38. Nokia says HMRC has adopted an unduly restrictive interpretation of the Counterfeit Goods Regulation, that it was clearly intended to apply to fake goods in transit and subject to customs procedures, that such has been confirmed by decisions of the European Court of Justice ("ECJ") and that in applying the Regulation one must adopt the "manufacturing fiction" and assume that goods were manufactured in the Member State in question and so have been released into free circulation in that Member State.

Trade mark infringement

39. In assessing these rival positions it is convenient to begin with a consideration of the relevant case law relating to infringement of registered trade marks.
40. The first is Case C-115/02 Rioglass and Transremar [2003] ECR I-12705. It concerned goods lawfully manufactured in Spain and detained in France on suspicion of infringement of trade mark in the course of their transport to Poland. The Cour de Cassation applied for a preliminary ruling as to whether Article 28 EC precluded the implementation of procedures for detention by customs authorities in a Member State of goods lawfully manufactured in Spain which were intended, following their transport through another Member State, to be placed on the market in a non-member country. The ECJ answered the question in the affirmative and, in doing so, observed at paragraphs [25] to [28]:

"25. With respect to trade marks, it is settled case-law that the specific subject-matter of a trade mark is, in particular, to guarantee to the owner that he has the exclusive right to use that mark for the purpose of putting a product on the market for the first time and thus to protect him against competitors wishing to take unfair advantage of the status and reputation of the trade mark by selling products illegally bearing it (see, in particular, Case 16/74 Centrafarm [1974] ECR 1183, paragraph 8, Case 102/77 Hoffmann-La Roche [1978] ECR 1139, paragraph 7, and Case C-349/95 Loendersloot [1997] ECR I-6227, paragraph 22).

26. The implementation of such protection is therefore linked to the marketing of the goods.

27. Transit, such as that in issue in the main proceedings, which consists in transporting goods lawfully manufactured in a Member State to a non-member country by passing through one or more Member States, does not involve any marketing of the goods in question and is therefore not liable to infringe the specific subject-matter of the trade mark.

28. Furthermore, as Advocate General Mischo noted at point 45 of his Opinion, that conclusion holds good regardless of the final destination of the goods in transit. The fact that the goods are subsequently placed on the market in a non-member country and not in another Member State does not alter the nature of the transit operation which, by definition, does not constitute a placing on the market."

41. The issue arose more directly in Case C-405/03 Class International BV v Colgate Palmolive Co and Ors [2005] ECR I-8735 in which Class International shipped into Rotterdam a container load of toothpaste bearing the Aquafresh trade mark from a source in South Africa. The ECJ was asked, in substance, whether Article 5(1) of the Trade Marks Directive and Article 9(1) and (2)(c) of the Community Trade Mark Regulation must be interpreted as meaning that the trade mark proprietor is entitled to oppose the introduction into the Community, under the external transit procedure or the customs warehousing procedure, of original goods bearing that mark which had not previously put on the market in the Community by that proprietor or with his consent.
42. The Court answered that non-Community goods placed under the external transit procedure or the customs warehouse procedure were not to be regarded as "imported" for the purposes of the Trade Marks Directive or the Community Trade Mark Regulation. Use in the course of trade required introduction of the goods into the Community for the purposes of putting them on the market, as appears from paragraphs [33]-[36] and [42]-[47] of the decision:

"33. Article 7(1) of the Directive and Article 13(1) of the Regulation limit exhaustion of the rights conferred on the proprietor of a trade mark to cases where goods are put on the market in the Community. They allow the proprietor to market his products outside the Community without thereby exhausting his rights within it. By making it clear that putting goods on the market outside the Community does not exhaust the proprietor's right to oppose the importation of those goods without his consent, the Community legislature has thus allowed the trade mark proprietor to control the initial marketing in the Community of goods bearing the mark (see, in particular, on the subject of the Directive and with reference to the territory of the EEA, Joined Cases C-414/99 Zino Davidoff and Levi Strauss [2001] ECR I-8691, paragraph 33).

34. 'Importing' within the meaning of Article 5(3)(c) of the Directive and Article 9(2)(c ) of the Regulation, which the trade mark proprietor may oppose in so far as it entails 'using [the mark] in the course of trade' within the meaning of Article 5(1) of the Directive and Article 9(1) of the Regulation, therefore requires introduction of those goods into the Community for the purposes of putting them on the market therein.

35. The putting on the market in the Community of goods coming from a third country is subject to their release for free circulation within the meaning of Article 24 EC.

36. Entry of non-Community goods for customs procedures such as external transit or customs warehousing is distinguishable from placing them under the customs procedure of release for free circulation, which, pursuant to the first paragraph of Article 79 of the Customs Code, confers on non-Community goods the customs status of Community goods."

43. And then a little later:

"42. It is therefore apparent that non-Community goods placed under the external transit procedure or the customs warehousing procedure may at any time be assigned another customs-approved treatment or use. They may, in particular, be placed under another customs procedure, where appropriate that of release for free circulation, or else be re-exported outside the territory of the Community.

43. Release for free circulation, a requirement for putting goods on the market in the Community, is therefore only one of the options open to the trader who brings goods into the Community customs territory.

44. As long as that option is not chosen and the requirements of the customs-approved treatment or use, other than release for free circulation, under which the goods have been placed are satisfied, the mere physical introduction of those goods into the territory of the Community is not 'importing' within the meaning of Article 5(3)(c) of the Directive and Article 9(2)(c) of the Regulation and does not entail 'using [the mark] in the course of trade' within the meaning of Article 5(1) and Article 9(1) respectively.

45. The trade mark proprietor cannot therefore oppose that introduction pursuant to those provisions or make it conditional on the existence of a final destination already specified in a third country, possibly pursuant to a sale agreement.

46. That conclusion is not called into question by Article 58(2) of the Customs Code, under which the choice by the trader concerned of customs-approved treatment of use is not to preclude the imposition of prohibitions or restrictions on grounds of, inter alia, the protection of industrial and commercial property.

47. The saving provision in question is only for cases in which the customs-approved treatment or use would adversely affect industrial and commercial property rights. Placing non-Community goods under a suspensive customs procedure does not make it possible for them to be put on the market in the Community in the absence of release for free circulation. In the field of trade marks, such placing of original goods bearing a mark is not therefore, per se, interference with the right of its proprietor to control the initial marketing in the Community."

44. Goods may, however, be put on the market by offering them for sale or selling them while they are under the external transit or customs warehouse procedure, as paragraph [61] of the decision makes clear:

" 61. The answer to the second part of the first question and the fourth and the fifth questions must therefore be that 'offering' and 'putting on the market', within the meaning of Article 5(3)(b) of the Directive and Article 9(2)(b) of the Regulation, may include, respectively, the offering and sale of original goods bearing a trade mark and having the customs status of non-Community goods, when the offering is done and/or the sale is effected while the goods are placed under the external transit procedure or the customs warehousing procedure. The trade mark proprietor may oppose the offering or the sale of such goods when it necessarily entails the putting of those goods on the market in the Community."

45. In Case C-281/05 Montex Holdings v Diesel [2006] ECR I-10881, the ECJ had to consider the issue once again, but in the context of goods which were not the original goods of the proprietor. Of particular importance for the present case, it also had to consider whether the analysis held good in light of the Counterfeit Goods Regulation (or, more accurately, its predecessor, Regulation (EC) No 3295/94).
46. Montex manufactured garments by exporting their various different pieces to Poland, having them sewn together on Polish territory and bringing the completed garments bearing the trade mark DIESEL back to Ireland. In the course of transit across Germany, they were detained by the German customs authorities. Diesel argued that the garments infringed its trade marks because of the danger that they could find their way onto the German market.
47. The Court rejected the argument, observing first, that the external transit of non-Community goods is based on a legal fiction that goods placed under this procedure are treated as if they have not entered the Community and so are subject neither to import duties nor other measures of commercial policy in accordance with its decision in the earlier Case C-383/98 Polo/Lauren [2000] ECR I-2519. Second, the Court had already held in Rioglass and Class International that transit as such does not involve any marketing of the goods in question and is therefore not liable to infringe the specific subject matter of a trade mark. The position is different, however, if the goods are subject to the act of a third party whilst placed under the transit procedure which necessarily entails their being put on the market. But the burden of establishing this rests on the trade mark proprietor, as the Court elaborated at paragraphs [23]-[26]:

"23. It follows that a trade mark proprietor can prohibit the transit through a Member State in which that mark is protected (the Federal Republic of Germany in the present case) of goods bearing the trade mark and placed under the external transit procedure having another Member State as their destination where the mark is not so protected (Ireland in the present case), only if those goods are subject to the act of a third party while they are placed under the external transit procedure which necessarily entails their being put on the market in the Member State of transit.

24. In that regard, the argument put forward by Diesel that the mere risk that the goods could fail to reach their destination, namely Ireland, a Member State in which the mark is not protected, and that they could theoretically be marketed fraudulently in Germany is sufficient to allow the conclusion that the transit infringes the essential functions of the trade mark in Germany cannot be accepted.

25. As the Advocate General also stated at point 29 of his Opinion, according to that argument every external transit of goods bearing the sign would have to be regarded as use of the mark in the course of trade within the meaning of Article 5(1) of Directive 89/104. However, as was stated in paragraphs 17 to 22 above, under the Court's case-law, by contrast, such external transit does not constitute use of the mark liable to infringe the right of the mark's proprietor to control the putting of the goods in question on the Community market, because it does not imply any marketing of those goods.

26. As regards the burden of proof, it follows from paragraphs 74 and 75 of the judgment in Class International that, in a situation such as that in issue in the main proceedings, it is for the trade mark proprietor to prove the facts which would give grounds for exercising the right of prohibition provided for in Article 5(1) and (3) of Directive 89/104, by establishing either the existence of a release for free circulation of the non-Community goods bearing his mark in a Member State in which the mark is protected, or of another act necessarily entailing their being put on the market in such a Member State."

48. The Court then turned to consider whether, as Diesel asserted, its interpretation of Article 5 of the Trade Marks Directive was affected by the earlier judgment of the Court in Case C-60/02 Rolex [2004] ECR I-651, Regulation (EC) No 3295/94 and the fact that the goods were manufactured unlawfully in the country of origin. It reasoned at paragraphs [36]-[41]:

"36. In that judgment [Rolex], the Court pointed out in paragraph 54, that Article 1 of Regulation No 3295/94 is to be interpreted as being applicable where goods imported from a non-Member State, are, in the course of their transit to another non-Member State, temporarily detained in a Member State by the customs authorities of this latter state on the basis of that regulation and at the request of the company which holds the rights claimed to have been infringed (see also Polo v Lauren, paragraphs 26 and 27).

37. In that regard, the Court notes that Article 1 of Regulation No 3295/94 lays down, first, the conditions under which the customs authorities are to take action where goods suspected of being counterfeit goods are, in particular, found in the course of checks on goods under customs supervision within the meaning of Article 37 of the Customs Code, placed under a suspensive procedure within the meaning of Article 84(1)(a) of that Code, re-exported subject to notification or placed in a free zone or free warehouse under Article 166 thereof.

38. Second, Article 1 of Regulation No 3295/94 lays down the measures which can be taken by the competent customs authorities with regard to those goods.

39. Third, the second and third recitals of that regulation, reproduced in paragraph 4 above, refer expressly to the marketing of counterfeit goods or the placing of such goods on the market, and to the need to prohibit the release of such goods for free circulation in the Community.

40. It follows that none of the provisions of Regulation No 3295/94 introduces a new criterion for the purposes of ascertaining the existence of an infringement of trade mark law or to determine whether there is a use of the mark liable to be prohibited because it infringes that law.

41. Having regard to the foregoing, the reply to the third question must be that, for the purposes of answering the first two questions, it is in principle irrelevant whether goods whose destination is a Member State come from an associated State or a third country, or whether those goods have been manufactured in the country of origin lawfully or in infringement of the existing trade mark rights of the proprietor in that country."

49. I derive the following principles from all these cases. First, 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. This principle has been applied in domestic law by the Court of Appeal in Eli Lilly v 8PM Chemists Ltd [2008] EWCA Civ 24; [2008] FSR 12; and it was recognised more recently by this court in L'Oreal SA v eBay International AG [2009] EWHC Civ 1094.
50. Second, the position is different if the goods in the transit procedure are subject to the act of a third party which necessarily entails their being put on the market ("the Montex exception"). But the burden of establishing this rests on the trade mark proprietor.
51. Third, 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.
52. Fourth, the Counterfeit Goods Regulation has not introduced a new criterion for the purposes of ascertaining the existence of an infringement of a registered trade mark or to determine whether there is a use of the mark which is liable to be prohibited.

The merits of the position adopted by HMRC

53. In my judgment identification of the scope of the rights conferred by a registered trade mark as a matter of national law goes a long way to answering the question which arises on this application.
54. First, there is no clear indication in the Counterfeit Goods Regulation that it has extended the rights conferred by a registered trade mark for any purpose. In fact, the contrary is the position. As can been seen from a comparison of Article 2 of the Counterfeit Goods Regulation with Article 5 of the Trade Marks Directive, the definition of "counterfeit goods" encompasses only a subset of the rights conferred by a trade mark registration. Indeed, it would be very surprising were it otherwise. The Counterfeit Goods Regulation is a measure designed to support intellectual property rights holders and protect manufacturers and the public by providing a system which, in specified circumstances, requires customs authorities to act against certain goods which infringe those rights. It is not on its face a measure intended to create entirely new rights.
55. Second, the scheme of the Counterfeit Goods Regulation is wholly inconsistent with such a suggestion. It provides a system whereby, if certain conditions are satisfied, a customs authority must take action against goods which are suspected of infringing certain intellectual property rights. It must then inform the rights holder and, if the holder or the owner of the goods does not abandon them for destruction, the rights holder must commence proceedings to determine whether one of its intellectual property rights has been infringed under national law. As Article 10 makes clear, national law must be applied in determining that question.
56. Third, as we have seen, Montex establishes that the Counterfeit Goods Regulation has not introduced any new criterion for ascertaining infringement under national law. Hence in any proceedings initiated by the rights holder it seems to me the court must determine the question of infringement in accordance with the principles of trade mark law which I have identified in the immediately preceding section.
57. Fourth, the definition of "counterfeit goods" in Article 2.1(a)(i) is tied firmly to the notion that the goods must infringe a trade mark. Hence it requires the use of a trade mark which is essentially the same as a registered trade mark on goods of the same type as those the subject of the registration and which thereby infringes the trade mark holder's rights under the Community Trade Mark Regulation or under the Trade Marks Directive.

The merits of the position adopted by Nokia

58. Nokia nevertheless contends that the Counterfeit Goods Regulation does indeed give customs authorities the power to seize fake goods which are in transit through a Member State. I understand its submission has three limbs which I will address in turn.

(i) The recitals and Article 1

59. Nokia begins by referring to recitals (2) to (4) and (10) and Article 1 of the Counterfeit Goods Regulation and submits these clearly show that the purpose of the Regulation was, inter alia, to prohibit counterfeit goods, pirated goods and, more generally, goods which infringe certain intellectual property rights from being introduced into the Community customs territory, to prevent their transhipment and to enable customs authorities to take action against such goods which are in the process of being exported, re-exported or leaving the Community customs territory. Indeed, it says this is expressly the subject of Article 1.1(b).
60. I accept this submission, but only to a point. It is clear that the situations set out in Article 1 for action by customs authorities include goods in transit and goods the subject of suspensive procedures. 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.
61. Nor do I accept that the interpretation contended for by HMRC renders Article 1.1(b) impotent. In the case of goods which bear a registered trade mark and which are in transit or subject to a suspensive procedure, these will become counterfeit goods if and when the Montex exception is satisfied, that is to say as soon as they are subject to the act of a third party which necessarily entails their being put on the market.
62. It must also be remembered that Article 1 is not just concerned with counterfeit goods but also goods which infringe other intellectual property rights. It may well be the case that other substantive national laws apply in relation to these rights and that such laws do catch goods in transit or subject to suspensive procedures in circumstances where trade mark law does not.

(ii) Polo/Lauren and Rolex

63. Nokia also contends that its position finds support in two decisions of the ECJ to which I have already referred. The first is Case C-383/98 Polo/Lauren [2000] ECR I-2519. In summary, a consignment of T shirts in transit from Indonesia to Poland was seized by Austrian customs. On appeal to the Oberster Gerichtshof, the court expressed uncertainty as to whether Regulation (EC) No 3295/94, the predecessor to the Counterfeit Goods Regulation, applied in circumstances where goods imported from a non-member country were temporarily detained by a customs office while they were in transit to another non-member country and where the holder of the right also had its registered office in a non-member country. It took the view that there were good grounds for arguing that the Regulation covered only those situations in which goods might come on to the market in the Community or were, at least, capable of having an effect on that market.
64. The Oberster Gerichtshof therefore decided to stay the proceedings and to refer this question to the ECJ for a preliminary ruling. The Court concluded that the Regulation did indeed apply in the circumstances specified, as is apparent from paragraphs [26] to [29] of its decision:

"26. According to Article 1(1)(a) of the Regulation, the latter applies where counterfeit or pirated goods are found when checks are made on goods placed under a suspensive procedure within the meaning of Article 84(1)(a) of the Community Customs Code. Under this latter provision, the term [suspensive] procedure designates, inter alia, external transit, that is to say, a customs procedure allowing the movement of non-Community goods from one point to another within the customs territory of the Community without those goods being subject to import duties or other charges under the Community Customs Code.

27. The Regulation is thus expressly designed to apply to goods passing through Community territory from a non-member country destined for another non-member country. It does not matter in this regard whether the holder of the right or those entitled under him have their registered office in a Member State or outside the Community.

28. Far from invalidating this interpretation, the adoption of Regulation No 241/1999 in fact corroborates it. Regulation No 241/1999 is in keeping with the logic of the Regulation in making it possible for national authorities to intervene in a greater number of customs procedures.

29. In view of the foregoing considerations, the answer to the national court's questions must be that Article 1 of the Regulation is to be interpreted as being applicable where goods of the type specified in the Regulation, imported from a non-member country, are, in the course of their transit to another non-member country, temporarily detained in a Member State by the customs authorities of that State on the basis of the Regulation and at the request of the company which holds rights in respect of those goods which it claims have been infringed and whose registered office is in a non-member country."

65. The Court then proceeded to consider whether the Regulation, so interpreted, had an adequate basis in the EC Treaty. It held that it did because the Community was empowered under Article 113 of the Treaty to introduce common rules for stopping counterfeit goods under a suspensive customs procedure, as it elaborated at paragraph [34]:

"34. After all, the external transit of non-Community goods is not completely devoid of effect on the internal market. It is, in fact, based on a legal fiction. Goods placed under this procedure are subject neither to the corresponding import duties nor to the other measures of commercial policy; it is as if they had not entered Community territory. In reality, they are imported from a non-member country and pass through one or more Member States before being exported to another non-member country. This operation is all the more liable to have direct effect on the internal market as there is a risk that counterfeit goods placed under the external transit procedure may be fraudulently brought on to the Community market, as several Governments pointed out in their written observations and at the hearing."

66. Nokia contends the ECJ made clear in this decision that fake goods in transit are counterfeit goods within the meaning of the Regulation and subject to seizure.
67. I am unable to accept this submission. I believe the Court was addressing a different and more general question as to whether Regulation (EC) No 3295/94 applied to goods in transit from one non-member country to another non-member country and that it concluded that the Regulation did indeed apply. I do not understand the Court to have considered the more specific question as to whether the definition of counterfeit goods encompassed goods in transit or subject to suspensive procedures and in circumstances where there was no threat of them being put on the market in a Member State.
68. The second is Case C-60/02 Rolex [2004] ECR I-651 in which, on a reference by the Austrian Landsgericht Eisenstadt, the ECJ was asked whether a provision of national law which might be interpreted as meaning the mere transit of goods manufactured or distributed in contravention of trade mark law was not punishable under criminal law was contrary to Regulation (EC) No 3295/94.
69. The Court observed at paragraph [54] of its decision:

"54. It should be recalled at the outset that, as the Court stated in paragraph 29 of Polo/Lauren, Article 1 of Regulation No 3295/94 is to be interpreted as being applicable where goods imported from a non-member country, are, in the course of their transit to another non-member country, temporarily detained in a Member State by the customs authorities of that State on the basis of that Regulation and at the request of the company which holds the rights claimed to have been infringed."

70. And it duly held at paragraph [64] that Regulation (EC) No 3295/94 was indeed applicable to situations in which goods in transit between two non-member countries were detained in a Member State by the customs authorities.
71. It declined, however, to rule on the interpretation of national law, as it made clear at paragraph [58]:

"58. It is not for the Court of Justice to rule on the interpretation of national law, which is a matter for the national court alone. If the national court were to find that the relevant provisions of national law do not prohibit and, thus do not penalise the mere transit of counterfeit goods through the Member State concerned, contrary none the less to the requirements under Articles 2 and 11 of Regulation No 3295/94, it would be proper to conclude that those articles preclude the national provisions in question."

72. The finding of the Court in paragraph [64] is simply a reaffirmation of its earlier decision in Polo/Lauren and in my judgment takes the matter no further forward. As for paragraph [58], I believe this must be seen in the context of the question the Court was asked to decide. That question assumed that the goods were manufactured or distributed in contravention of trade mark law and so were counterfeit goods within the meaning of the Regulation. Once again, I do not believe the Court was asked to consider whether goods in transit were capable of being counterfeit goods within the meaning of the Regulation in circumstances where there was no threat of them being released onto the market in a Member State.

(iii) Manufacturing fiction

73. Nokia also contends that goods in transit and subject to suspensive procedures may properly be found to fall within the definition of counterfeit goods in the Counterfeit Goods Regulation by adopting the manufacturing fiction. Here it turns to recital (8) which, as has been seen, states that proceedings initiated to determine whether an intellectual property right has been infringed under national law will be conducted with reference to the criteria used to establish whether goods produced in that Member State infringe intellectual property rights. Nokia also derives some support from a decision of the Court of the Hague in Case 311378 Sisvel v Sosecal of 18 July 2008 in which the manufacturing fiction was apparently applied to a consignment of goods being transhipped from China to Brazil and which were alleged to infringe a patent.
74. I do not believe that recital (8) can possibly bear the weight that Nokia seeks to impose upon it. It finds no echo in any of the Articles of the Counterfeit Goods Regulation and would substantially extend the rights conferred upon the proprietor of a registered trade mark under the Community Trade Mark Regulation and the Trade Marks Directive. The definition of "goods infringing an intellectual property right" in Article 2 of the Counterfeit Goods Regulation is comprehensive and introduces a limited deeming provision in the case of "pirated goods" but not otherwise. In my judgment recital (8) does no more than indicate that the law in force in the relevant Member State is to be applied in determining whether an intellectual property right has been infringed. I also note that the decision in Sisvel is founded upon particular wording in Article 6 of Regulation (EC) No 3295/94 which has not been reproduced in the Counterfeit Goods Regulation.
75. Nokia's submission also seems to me to be irreconcilable with the decision in Montex which, as I have explained, made clear that Regulation (EC) No 3295/94 did not introduce a new criterion for the purposes of ascertaining the existence of an infringement of trade mark law or determining whether a use of the mark was liable to be prohibited because it infringed that law.
76. In this regard it will also be recalled that the definition of "infringing" goods and, more specifically, "counterfeit goods" is not limited to fakes. It extends to the use of the registered mark on any of the goods the subject of the registration. It is not uncommon for the same mark to be owned and used quite legitimately by different proprietors in different territories in respect of the same goods. Yet if the manufacturing fiction applies, goods lawfully made in one territory and intended for lawful use in another but transhipped through a Member State in which that mark is registered in the name of a third party would be subject to seizure. It seems to me most unlikely that the Counterfeit Goods Regulation was ever intended to produce such a result.

Interim conclusion

77. For all these reasons I am satisfied that in order for products bearing trade marks to be counterfeit goods within the meaning of the Counterfeit Goods Regulation they must in fact infringe someone's trade marks in the territory in question. I would emphasise that this is the only basis upon which the application for judicial review has been made.

The Montex exception

78. 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. If a consignor or consignee requests that non-Community goods in transit through the UK are entered for release onto the Community market then HMRC recognises that such goods may fall within the definition of counterfeit goods under the Counterfeit Goods Regulation. If it has reason to suspect that they may be counterfeit then it suspends the release of the goods and the rights holder is contacted under Article 9 of the Regulation.
79. As for the particular consignment of fake goods which led to this application, Nokia made clear at the hearing that it formed no part of its case that the Montex exception applied.

Conclusion

80. It follows that I must refuse Nokia's application for judicial review, based as it is upon the proper interpretation of the Counterfeit Goods Regulation. 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.