Counterfeit goods: have frontier defences been breached?

The illicit flow of counterfeit goods costs rights holders billions of pounds each year. It is prevalent across a wide range of industries. According to the European Commission more than 1.6 million counterfeit cosmetics and personal care products were seized at EU borders in 2006 and, with improvements in technology and an increase in customer demand, the problem is getting worse. This, together with the established link between the proceeds of counterfeit sales and the funding of organised crime makes the recent decision in the case of Her Majesty’s Revenue and Customs v Penbrook Enterprises Ltd particularly worrying.

Penbrook has effectively reversed the burden of proof in cases where goods suspected of being counterfeit are detained by Her Majesty’s Revenue and Customs (HMRC) at the frontier. This shift in burden means rights holders must now go to court every time they want to stop counterfeit goods entering the UK market.

Historically, HMRC was prepared to seize items detained at the frontier after simply receiving a witness statement from the rights holder confirming that the goods in question were indeed counterfeit. If the importer objected to their destruction, HMRC would launch condemnation proceedings in the local Magistrates Court to determine the counterfeit nature of the goods. This provided rights holders with an effective and cost efficient anti-counterfeiting tool.

Following Penbrook it has been decided that existing HMRC practices did not comply with the EU Customs Regulation. Specifically, the burden of proof should be on the rights holder to confirm the goods are counterfeit by taking legal proceedings which must be initiated within ten or, with leave of HMRC, within 20 days of being notified of the goods being detained at the border.

These changes have the potential to prejudice rights holders, considerably increasing the burden associated with enforcing IP rights at the frontier. Recognising that this situation is wholly unsatisfactory HMRC is currently pushing for legislation that will provide a simplified procedure. Exactly what this procedure will entail is still under review.

Until it is implemented, which will not be before October 2009 at the earliest, rights holders and their legal advisors will need to work together to minimise the adverse consequences of the Penbrook judgment.

Given the tight timescales for taking action post notification of detained goods, rights holders should ensure that suitable protocols are in place so that their legal advisers can respond swiftly and efficiently at the relevant time. Browne Jacobson LLP has been in consultation with HMRC and the Anti Counterfeiting Group to develop one such protocol. The first case to be operated under this protocol was successfully resolved at the beginning of August resulting in the destruction of the counterfeit goods and recovery of legal costs.

rroberts@brownejacobson.com