Question: When are fake goods not classed as counterfeit?

Answer: When they aren’t intended for sale and don’t infringe registered trademark or intellectual property rights.   

 

This, at least, appears to be the answer given by Justice Kitchin in finding Her Majesty’s Revenue and Customs (HMRC) was correct not to confiscate a shipment of so-called ‘Nokia’ phones – in spite of them being proven fakes. Brand owners and manufacturers around the world could be forgiven for being more than a little concerned by this precedent.

 

The case in question originally arose in July 2008 when HMRC examined a shipment of Nokia phones being shipped from Hong Kong to Columbia via Heathrow. The phones were seized under the EU’s Counterfeit Goods Regulation and were confirmed as fake - but never subsequently confiscated.

 

On legal advice, HMRC declined to commandeer the 400 phones and accessories as there was no evidence they were to be sold in the UK and therefore didn’t infringe a valid trademark. It argued that in order to be defined as counterfeit under UK and EU Law (Trade Mark Act 1994), the goods must infringe someone’s trademark in the area in question and this required the goods being put on the market.

 

Nokia, unsurprisingly, has been challenging the decision arguing that the law applies equally to goods in transit as well as those intended for sale.

 

Following a lengthy appeal, however, the mobile phone giant has failed to overturn the original ruling, with Justice Kitchin ruling that the regulation requires counterfeits to infringe intellectual property right. To do this, they must be put on the market in the area in question. It’s a judgement that sets a dangerous precedent and raises serious questions about the definition of counterfeit goods internationally.

 

The basic problem with this case, and why it’s so unsatisfactory, a fact even acknowledged by Justice Kitchin, is that he was bound by current UK and EU law to define counterfeits purely in relation to intellectual property. In spite of the goods being proven fakes, he ruled that they weren’t counterfeit as they did not infringe intellectual property or trademark rights - simply because they were not intended to be put on the market in the UK or EU. This in effect means that the only measure of a counterfeit is that it infringes IP.

 

This makes no sense whatsoever. Indeed it goes against common sense not to confiscate a shipment of known fakes and allow them to be shipped to their destination in another country. It’s particularly worrying at a time when potential threats to brands are growing - not diminishing - and raises a point of considerable importance because of its potential impact on the transhipment of fake goods.

 

The ruling establishes precedent in UK only at present but given the harmonisation of trademark law across the EU it will also establish precedent across all other member states – of which there are 27 in total. Almost inevitably it will also be followed in other countries around the world.

 

Perhaps more worryingly, there are numerous examples of cases in which seized counterfeit goods would not have been classed as counterfeits under this new ruling – some, at least, presenting threats to human life.

 

Aspirin, in particular, is one of the most counterfeited medicines around the world. In many countries it is protected by the Bayer trademark, but in a number of countries it isn’t protected by trademark registration as it’s a generic medicine. If a counterfeit is only classed as something that infringes IP, then a tablet containing no active ingredients that is sold as an aspirin in one of these countries would not be classed as counterfeit – a far from ideal scenario.

 

The problem is potentially compounded by the fact that the cost of registering a trademark in every country around the world is high, especially if the brand is not being sold there. Again, there are countless examples of inferior products bearing the name of major brands such as Range Rover luxury cars and Oakley sunglasses being sold in countries where the trademark is not registered. 

 

These products may not infringe the trademarks or IP of the brands in question but they certainly ride the coat-tails of the genuine products’ reputation and marketing campaigns. They also pose a range of health and safety questions to customers who believe they are buying a high-quality genuine product. The Nokia verdict and the ruling of Justice Kitchin make this more, and not less, likely in future.

 

The timing of the ruling is also poor. It comes at a moment when the IAA, other trade bodies and Governments around the world are trying to harmonise definitions of counterfeit goods. The purpose is to create an environment for the effective use of authentication and other anti-counterfeiting tools by establishing recognised standards around the world.

 

The International Standards Organisation (ISO) project committee 246 is developing a standard for authentication tools – which includes definitions of counterfeit goods. It’s vitally important we establish a common framework as there is no point in establishing an item is genuine if there is no understanding of why it should be authentic.

 

The role of authentication is to prove that a product is not counterfeit. It will be to the detriment of brand owners, the public and the authentication community if it becomes impossible to determine a product is counterfeit without reference to IP law and registered trademarks.