UK: Customs Seizures - An Important Weapon In The Patent Holders Armoury

The use of Customs controls to intercept counterfeit and pirated goods is fairly well-known and widely used. However, many patentees may not be aware that goods suspected of infringing a patent or supplementary protection certificate (SPC) may be detained by Customs authorities on entry into the EU. The scheme provides a potentially potent addition to the patent holder’s armoury when it comes to enforcement, and could prove especially valuable in the Bio/Pharma sector where many products and their precursors are imported from outside the EU. The scheme is well suited to patents where, from the description of goods on importation documents, from tariff codes, or from the identity of the parties involved, the goods are readily identifiable as falling within the claims of the patent, which is often the case with pharmaceutical products.

Equally, importers of goods, particularly those in industries such as biotechnology and pharmaceuticals where patent protection is keenly asserted, should be aware of the scope of the Customs regime, and be prepared to take action insofar as possible to minimise disruption to their businesses in the event that legitimate goods are wrongly detained by the Customs authorities. It is probably fair to say that, in reality, there are relatively few safeguards in the legislation for importers of legitimate goods.

This article provides an overview of the Customs regime as it applies to goods suspected of infringing a patent or SPC. Readers should be aware that there are significant differences between the Customs regime applicable to goods suspected of infringing a patent and the regime applicable to goods suspected of infringing certain other intellectual property rights, for example trade marks and copyright.

European Council Regulation (EC) No. 1383/2003¹ (the "Council Regulation") came into force on 1 July 2004. Under the scheme of that Regulation, a patent holder can lodge an application with Customs authorities to prohibit the entry into the Community and export or re-export from the Community of relevant goods. Although the Council Regulation has direct effect across the EU, it is complemented by national legislation on Customs controls in the various Member States. In the UK, the Customs and Excise Management Act 1979 (the "1979 Act") governs the movement of goods into and out of the UK. In order to up-date the UK Customs regime in light of the changes introduced by the Council Regulation, the UK Goods Infringing Intellectual Property Rights (Customs) Regulations² were implemented.

The scheme of the Council Regulation applies to goods on their entry into the EU. It does not apply to:

• goods in free circulation in the EU (pursuant to the principle of free movement of goods), so goods moving from another EU Member State into the UK will not be seized;

• goods which bear a trade mark or were manufactured with the consent of the right holder, but which enter the EU without the consent of the right holder, e.g. parallel imports and overruns; and/or

• goods of a non-commercial nature carried in travellers’ personal luggage which fall within the limits of Customs duty relief.

Goods manufactured in the EU and placed directly on the market in the EU will be in free circulation and therefore cannot be the subject of the Customs regime. The scheme may, however, be of use in relation to goods that originate outside the EU, as is the case for example for many generic pharmaceutical products with major sites for the production of their bulk active ingredients being located in countries such as India and China.

In order to make use of the Customs regime, the patent holder must identify the country or countries in which the goods are, or are likely to be, imported into the EU and file an application with the Customs authority or authorities in question. It is important to take a comprehensive approach because, once the goods have been imported into the EU (for example, into a country in respect of which Customs action has not been sought), they will be in free circulation and, although national patent laws may still be enforced against infringing goods, the opportunity to use the Customs regime to prevent them being placed on the market will have been lost.

Patent owners are therefore advised to obtain as much intelligence as possible on the likely supply routes and companies involved, and to ensure that applications are made in the Member States which are the likely points of entry into the EU, and if necessary in all Member States. In the case of medicinal products for human use, it may be possible to obtain some information from the regulatory authorities, since companies wishing to sell such products will have to apply for the relevant marketing authorisation(s).

The following information is usually required when making an application to HM Customs for the detention of goods suspected of infringing a UK or European (UK) patent:

• details of the applicant (and if the application is made by the patent owner’s agent, authority to act on the patent owner’s behalf);

• details of the patent(s) in question (including proof of ownership);

• accurate descriptions of both the infringing goods and the patent owner’s authentic goods, including enough information to allow them to be distinguished. (This will often be the most difficult aspect of the application, but it is important that adequate information is provided both to satisfy Customs and to ensure that Customs officials on the ground are in a position to identify infringing goods once the patent has been registered);

• any specific information the patent holder may have concerning the type or pattern of the likely infringement, with likely supply routes and intelligence on the would-be infringers’ activities;

• the name and address of a contact person appointed by the patent holder who will liaise with Customs about the application and about any seizures once the right has been registered; and

• an undertaking from the patent holder assuming liability in various circumstances described in more detail below.

Customs should notify the applicant of its decision within 30 working days of receiving the application. In practice, Customs can process applications far quicker and they may be expedited on an informal basis. If this may be necessary, it is advisable to inform Customs of all relevant facts and seek advice on any outstanding points as early as possible, to ensure smooth progress of the application once it is made. If the application is rejected, the applicant will be advised of the reasons, and given an opportunity to rectify any aspects that were insufficient and have the decision reconsidered. If the application is accepted, Customs will disseminate the information provided internally and use it to identify and check consignments that it suspects could contain infringing goods for the following 12 months (registrations are renewable annually)³.

When, on the basis of a granted application, Customs detect goods entering or leaving the EU at a UK port, they will detain the goods, inform the parties and arrange for the applicant to examine a sample of them. If requested, Customs will also allow the importer or exporter to inspect the goods.

Customs authorities are obliged, at the patent holder’s request, and in accordance with national law, to provide the patent holder with (if known) the names and addresses of the consignee, the consignor, the declarant or holder of the goods and the origin and provenance of the goods suspected of infringing the right. Patent owners are only permitted to use this information to commence proceedings against the infringer, and there are specific sanctions for misuse.

After receiving notice of the detention/suspension of the goods, the patent holder has 10 working days (or 3 working days for perishable goods) in which to commence infringement proceedings in the courts (i.e. to issue and serve a claim form) and give written notice to the Commissioners of Customs and Excise that it has done so. If the patent holder does not do this, Customs are obliged to release the goods. (The 10 (or 3) working day time period may be extended by a maximum of 10 working days.) This forms the key safeguard for importers of legitimate goods under the Customs regime.

If (i) within the relevant time limit, the patent holder does commence proceedings (in the case of goods suspected of infringing a patent, in the Patents Court of the High Court or in the Patents County Court) and informs Customs that it has done so, and (ii) still within the relevant time limit, the court has not given an interim order authorising further detention of the goods, and (iii) all of ‘Customs formalities’ have been completed, then the Council Regulation provides that the declarant/owner/importer/holder or consignee of the goods shall be able to obtain release of them on (iv) provision of ‘a security’. This security ‘must be sufficient to protect the interests of the patent holder’. ⁴

Certain goods, particularly pharmaceutical and biotechnological products, have particular storage requirements. Where the importer of the goods is aware that the goods may be detained under Customs procedures, it may be advisable to ensure that the port through which the goods are to be imported has suitable procedures in place.

If, when goods are detained, Customs do not have suitable storage procedures, it may be possible to arrange for release of the goods to the importer, on payment of a bond in accordance with the 1979 Act. Typically, the agreement of the patentee would be required, but the decision as to whether to release the goods and the level of security required would lie with Customs. This situation could arise with imports of pharmaceutical or biotechnological products that are, for example, sensitive to temperature or humidity if the relevant port did not have adequate facilities for their storage.

The Council Regulation requires applications for Customs action under that legislation to be accompanied by a declaration from the patent holder accepting liability towards persons involved in such action⁵. The liability would arise both in the event that a detention/suspension procedure initiated as a result of the patent holder’s application is discontinued owing to an act or omission by the patent holder (e.g. the patent holder failing to initiate infringement proceedings), and in the event that the goods in question are subsequently found not to infringe an intellectual property right. Since infringement of biotechnology and pharmaceutical patents is often not clear-cut, this means that much thought must be given to the description of the infringing goods submitted to Customs to ensure so far as possible that legitimate, non-infringing goods are not detained.

The Customs regime offers a significant tool for patent holders seeking to prevent goods originating outside the EU from being placed on the market within the EU. For instance, it may assist patent owners to:

• avoid incurring losses from sale of such infringing goods in the UK, which would otherwise need to be recovered through the courts;
• prevent such infringing goods being distributed further, so avoiding the onerous task of pursuing each recipient of the infringing goods (e.g. individual wholesalers and retailers) further down the supply chain;
• strengthen their position, particularly on the balance of convenience, in a claim for an interim injunction by keeping the goods off the market for longer (provided such action is taken sufficiently quickly); and
• demonstrate that the patent owner is serious about protecting its rights.

Use of the Customs regime by patent holders in the Bio/Pharma sector is not, however, without consequent obligations. The patent holder is obliged to inform Customs of any alteration or loss of the owner’s registered right(s). Further, the right-holder is responsible for Customs’ costs of storage and destruction of the goods, in the event that the goods are found to be infringing, and incurs further liability if the goods are found not to infringe or in the event that a detention is discontinued owing to an act or omission on the part of the patent owner.

Importers of pharmaceutical or biotechnological goods originating from outside the EU should be aware of any relevant patent protection, and should ensure that they are fully advised of the Customs procedures that may affect their goods on import into the UK (or other relevant Member States) and be prepared to take appropriate action in the event their goods are detained. Despite the European framework for the legislation, there is scope for variation in application of the procedure at the national level and both patent holders and importers should be aware of such variations.

The Customs regime provides a useful additional means of enforcement for patent holders in the Bio/Pharma industry. However, there remain some areas of uncertainty, and it is hoped that decisions expected later this year from the English High Court and the European Court of Justice⁶ will deal with some of these issues.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.