1 Combating Counterfeit Goods in the European Union Thomas De Meese Crowell & Moring February 18, 2004 Copyright 2004 Crowell & Moring LLP

2 Preliminary Remark Two Layers of IPR’s in Europe National IPR’s, harmonized by EU law -Copyright -National trademarks -National designs and utility models Patents ( European Patent Convention) Also national rights, but possibility of obtaining a bundle of national patents through a uniform European patent application ENFORCEMENT: ALWAYS REGULATED UNDER NATIONAL LAW Uniform, community-wide IPR’s - Community trademarks - Community designs - Community patents (in the future) => FORUM SHOPPING

3 The Infringing “ZBOX” Macrofirm’s new DVD electronic game console –Unique “Z” signature on the top and front panel of the console –Macrofirm has US and EU trademark registrations to the word “ZBOX”, and to the “Z” design –Macrofirm has registered copyrights in certain embedded coding in the controller that acts as an electronic “handshake” to establish the authenticity of DVD games inserted into the controller Macrofirm has a tough OEM manufacturing contract with China Electronics Manufacturing, Ltd.,(CEM) to produce the ZBOX for Macrofirm’s global distribution Asian Imports has begun to export ZBOX consoles to the US and the EU. –The consoles are, in appearance and operation, identical to the genuine consoles. –Macrofirm has confirmed that the consoles are not produced within the scope of the OEM Agreement. CEM most likely is producing the counterfeit ZBOX consoles on the midnight- 6 am shift, using casings and components produced by unauthorized parts manufacturers in China. Macrofirm has determined that the “electronic handshake” technology is used in the infringing ZBOXes. Macrofirm has confirmed that there are “thousands” of consoles in two warehouses in New York, awaiting delivery to metropolitan New York electronics retailers who have significant e-commerce activities. Macrofirm has similarly confirmed that “thousands” more of the consoles are in a warehouse in Antwerp (Belgium), awaiting delivery to electronics retailers in key EU cities, who likewise have significant e-commerce activities.

4 Macrofirm’s Action Plan How to prevent the sale and the further import of infringing consoles into the EU? A.Sale : Legal action under national (Belgian) law against the consoles in the Antwerp warehouse: Saisie-contrefaçon B.Import : Legal action under Community Law to prevent further imports of the consoles : Anti-piracy regulation

5 A.Legal action against the consoles in the Antwerp warehouse National Enforcement Action : Saisie-Contrefaçon Very specific and useful procedure under Belgian law designed to quickly and efficiently collect proof of the existence and scope of an alleged infringement of different IP rights (kind of discovery action) Legal basis : article 1481 of the Belgian Judicial Code: “the owner of a patent or copyright and their beneficiaries can seek a Court order to appoint experts who will review the allegedly counterfeit machines, works, creations, objects, products, work methods in addition to plans, documents, calculations, writings that can serve as evidence of the counterfeit activities, and the materials that have been used to commit such activities.” Controversial whether saisie-contrefaçon is open for trademark owners

6 Descriptive Measures Court order appointing an expert Unannounced visit by the expert to the premises where infringing activities are believed to take place or where documents or other pieces of evidence regarding the alleged infringement, and/or its scope, are likely to be found (warehouses in Belgium) Purpose : gathering of all evidence relevant for the assessment of the existence and scope of the infringement Macrofirm can ask the Court to be entitled to attend the expert’s operations and/or to be represented by a technical counsel and/or an attorney Legal action against the consoles in the Antwerp warehouse

7 Effective seizure (injunctive relief) In certain cases - especially those involving blatant counterfeiting - the Attachment Court may grant interim injunctive relief to the applicant –Prohibition on moving the stock of consoles from the Antwerp warehouse pending a decision on the merits –Deterring (civil) penalties (astreinte) in case of breach of the injunction; –(Possibly) effective seizure of the consoles by a bailiff; Legal action against the consoles in the Antwerp warehouse

8 Procedure Ex parte request to be filed by Macrofirm with the Attachment Court : no notification of Asian imports or the warehouses concerned Prima facie assessment of rights and infringement - can also be ordered on the basis of IP rights valid in another Member State - court order will probably be granted having regard to Macrofirm’s EU trademarks (although controversial) and copyrights (the latter being an unregistered right in Europe) judgement is rendered in a few days time (relatively low) bond might be imposed by the Attachment Court (enabling Asian Imports to enforce a damage award if the ex parte request is ultimately found to have been launched frivolously and without any merits) proceedings on the merits must be initiated by Macrofirm within one month after the expert has submitted his report Legal action against the consoles in the Antwerp warehouse

9 Summary Proceedings Prohibition on moving or otherwise disposing of the consoles pending a decision on the merits Based upon prima facie assessment of rights and infringement Disadvantages: * urgency is required * can take several months given that the proceedings are adversarial (parties exchange extensive written pleadings)

10 B. Action against future imports of the consoles : anti-piracy regulation Future import of the counterfeit consoles by Asian Imports can be prevented on the basis of : –Currently : Regulation 3295/94 laying down measures to prohibit release for free circulation, export or re-export or entry for a suspensive procedure of counterfeit and pirated goods –As from 1 July 2004 : Regulation 1383/2003 concerning action against goods suspected of infringing certain intellectual property rights and the measures to be taken against goods found to have infringed such rights -

11 Action against future imports of the consoles : anti-piracy regulation National customs authorities can suspend the release for free circulation, export or re-export National customs authorities can detain goods placed under a suspensive procedure (transit) -

12 Action against future imports of the consoles : anti-piracy regulation Counterfeit goods : goods, including packaging, bearing without authorization 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 Pirated goods : goods which are or contain copies made without the consent of the holder of a copyright or related right or design right Parallel Imports are excluded

13 Action against future imports of the consoles : anti-piracy regulation Action : Written application to customs authorities in the country where action is required (In Belgium : Directeur Général de l’administration des douanes et accises); By whom : Macrofirm (the right-holder), its licensee or any other authorized user of its IPR’s; Scope : If the application is based on community rights : possibility the request for action in other Member States in a single application; Conditions : A bond will no longer be required as from 1 st July 2004

14 Action against future imports of the consoles : anti-piracy regulation -Form : the application must contain: -proof that the client’s IPR’s in the ZBOX ; -all information enabling infringing consoles to be readily recognised; -a declaration of Macrofirm accepting liability in the event that the action is discontinued owing to an act or omission by Macrofirm should the consoles in question be found not to infringe the Macrofrim’s IPR’s -any other relevant information, if available (location of the goods, means of transportation, country of production, etc.)

15 Action against future imports of the consoles : anti-piracy regulation Upon grant of an application for action, the competent customs department shall : -specify the period during which the customs authorities will take action (no longer then 1 year - extension is possible); -notify its decision to the customs offices concerned.

16 Action against future imports of the consoles : anti-piracy regulation When discovering counterfeit/pirat consoles, the customs office(s) : -shall suspend release of the consoles or detain them (after consulting Macrofirm were necessary); -shall provide information to Macrofirm regarding the actual or estimated quantity and the actual or supposed nature of the goods

17 Action against future imports of the consoles : anti-piracy regulation With a view to establishing whether an IP right has been infringed under national law and in accordance with secrecy provisions, the competent customs department shall inform Macrofirm, at its request and if known, of the names and addresses of the holder of the goods, as well as of the origin and provenance of the goods. Macrofirm will also have the opportunity to inspect the goods and samples can be provided strictly for the purposes of analysis and to facilitate the subsequent procedure.

18 Action against future imports of the consoles : anti-piracy regulation Macrofirm must immediately initiate subsequent proceedings : -If, within 10 working days (3 in the case of perishable goods) of receipt of the notification of suspension of release or of detention, the customs office has not been notified that proceedings have been initiated to determine whether an IP right has been infringed under national law, release of the goods shall be granted, or their detention shall be ended, as appropriate, subject to completion of all customs formalities. (this period may be extended by a maximum of 10 working day) -The law in force in the Member State within the territory of which the goods are found shall apply when deciding whether the consoles are infringing Macrofirm’s IPR (Belgian law if the consoles are found in e.g. the Antwerp port)

19 Action against future imports of the consoles : anti-piracy regulation Remark : ex officio procedure : Measures can be taken by customs prior to an application for action -When customs have sufficient grounds for suspecting that goods infringe an IP right, they may suspend the release of the goods or detain them for a period of three working days from the moment of receipt of the notification by the right-holder and by the declarant or holder of the goods, if the latter are known, in order to enable the right-holder to submit an application for action -Customs authorities may also, without divulging any information other than the actual or supposed number of items and their nature and before informing the right-holder of the possible infringement, ask the right- holder to provide them with any information they may need to confirm their suspicions.

20 C. Proceedings on the merits Both saisie-contrefaçon and Anti-piracy regulation provide for obligation to initiate proceedings on the merits –Saisie-contrefaçon : civil –Anti-piracy regulation : criminal or civil Proceedings on the merits based upon Macrofirm’s EU trademarks and copyrights. Given the blatant nature of the infringement, Macrofirm will probably prevail;

21 Proceedings on the merits Measures that can be imposed by a Belgian criminal court Copyright infringements -Fines of between 500 euro and euro and/or -Imprisonment of three months to two years in the event of a second conviction -Confiscation of infringing products as well as of all tools and utensils which may have served the infringement and of all proceeds arising out of such infringement -Publication of the judgment Trademark infringements -Fines of 130 euro to euro (up to euro in the event of recidivism within five years) and/or -Imprisonment of eight days to six months (up to one year in the event of second conviction within five years) -Confiscation of infringing products as well as of all tools or utensils which may have served the infringement -Publication of the judgment

22 Proceedings on the merits Measures that can be imposed by a Belgian civil court Prohibition on further import, distribution, sale, etc. Market recall Payment of damages (no punitive damages)

23 Proceedings on the merits Measures that can be imposed by a Belgian civil court Additional relief in the Uniform Benelux Trademark Act: - Publication of judgment - Disclosure all information on the origin of the infringing goods - In case of demonstrated bad faith : –Account of profits : profits generated through the illicit use of the trade mark be allocated to the holder –Allocation of ownership in the infringing goods or destruction of same Additional relief in the Copyright Act: - Publication of judgment - In case of demonstrated bad faith : - Allocation of ownership in the infringing goods or grant of an amount corresponding to the value of same

24 Conclusion Facts & Figures Europe’s fight against counterfeiting OECD/1998 and ICC/1997: counterfeits accounted for 5 to 7% of world trade (i.e. approx. 250 billion euro per year) and were responsible for the loss of 200,000 jobs in Europe; 2000 : counterfeiting was worth the equivalent of more than 1,500 million euro on the legal Community market; 2000 : almost 68 million pirate and counterfeit articles were seized at borders, an increase of 168% compared with 1999 (almost 9 million items of recording media such as CDs, DVDs, Audio cassettes) : 95 million seized goods (40 million items of recording media) 2002 : 85 million seized goods (12 million items of recording media) 2003 (first half) : 50 million pirate and counterfeit articles were seized at borders

25 Thank You