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Strategically Challenging Transit Drug Seizures at the WTO: EC vs Netherlands?


Pursuant to our post highlighting a UK decision involving Nokia and its impact on the current controversy involving the seizure of transit drugs from India, Joe Mathew of the Business Standard ran an interesting piece highlighting this issue. Provocatively titled “India Warned on Moving WTO over Drug Seizures”, Joe states as below:

“Even as India considers the European Union (EU) directive that allows seizure of goods-in-transit by its member countries as violative of the World Trade Organization’s TRIPS (trade-related aspects of intellectual property rights) agreement, legal experts caution against the central government’s plans to approach the dispute settlement body of WTO.

What has triggered the change of mind among Indian experts is a recent decision of the UK High Court to refuse Nokia’s plea to seize counterfeit cell phones (bearing Noika name) that had reached London’s Heathrow airport from Hong Kong en route to Colombia.

Nokia wanted UK customs authorities to seize the goods under the EC Customs Regulation (Council Regulation No 1383/2003 of 22 July 2003), the rule which was invoked by EU members such as the Netherlands to seize over 15 consignments of Indian medicines that were on transit to African and South American destinations.

However, unlike Dutch customs authorities, the UK customs officials were not inclined to seize the goods in transit as their interpretation of the rule did not necessitate such an administrative action. Experts feel that any allegation of EU directive being anti-TRIPS can be countered easily by pointing the differing decisions taken by EU members.”

I’ve been quoted as stating:

“The Nokia ruling from the UK suggests that EC border control measures have to draw their substantive content from the laws of the specific EC member country in question. Therefore, while the Dutch authorities may interpret their law to seize Indian ‘in transit’ generics, the UK authorities may not do so. To this extent, the assumption that EC border control measures violate WTO norms “as such” may be misplaced. This is not to suggest that the WTO action will fail, but only to caution that it may not be as foolproof as we originally assumed it to be,” said Shamnad Basheer, an IP expert with the National University of Judicial Sciences, Kolkata.”

WTO Action: EC vs Netherlands

Let me use this space to try and build on this sentiment that I articulated to Joe. In the light of the UK (Nokia) decision, I personally think that any WTO case claiming an “as such” violation by the EU is bound to be a weak one. The very fact that the UK itself prohibited transit seizures through a well reasoned judgment by Mr Justice Kitchin would, at some level, indicate that the EC regulation does not mandate such seizures.

The Dutch however, through the Sisvel decision, interpreted the very same EC regulation to mandate seizures. This indicates that, at best, there is some ambiguity in the EC regulation. And in times of ambiguity, a WTO panel is normally prone to presuming “good faith” etc in favour of the defendant. Besides, under EC jurisprudence itself, I’m given to believe that in case of ambiguity whilst interpreting legal provisions, EC courts tend to interpret in a way consistent with TRIPS/WTO obligations. So if a transit seizure is likely to violate Article V of GATT and Article 41.1 of TRIPS, an EC court will likely find that the regulation in question cannot be interpreted to cover the seizure of transit goods. The upshot of all of this is that any action that targets the EC regulation alone is bound to fail.

Does this mean that India should not file a WTO action at all? Of course not. We have to bear in mind that while the EC represents the interests of its constituent members and is a WTO member, all of the EC members are also, in their independent capacity, members of the WTO. Given that the seizures tool place specifically in the Netherlands, Germany and Spain, India must prepare a case against these individual countries. This will of course take more work than a much easier to file “as such” complaint against the EC. But given that the “as such” claim against the EC is weak, India ought not to risk filing such a case. It must now begin carefully collecting evidence that will individually pinpoint liability on each of the specific European countries that have seized Indian goods. However, it must also continue exerting diplomatic pressure to work out a settlement guaranteeing that transit goods will not be seized.

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Shamnad Basheer

Shamnad Basheer

Prof (Dr) Shamnad Basheer founded SpicyIP in 2005. He is currently the Honorary Research Chair of IP Law at Nirma University and a visiting professor of law at the National Law School (NLS), Bangalore. He is also the Founder of IDIA, a project to train underprivileged students for admissions to the leading law schools. He served for two years as an expert on the IP global advisory council (GAC) of the World Economic Forum (WEF). In 2015, he received the Infosys Prize in Humanities in 2015 for his work on legal education and on democratising the discourse around intellectual property law and policy. The jury was headed by Nobel laureate, Prof Amartya Sen. Professional History: After graduating from the NLS, Bangalore Professor Basheer joinedAnand and Anand, one of India’s leading IP firms. He went on to head their telecommunication and technology practice and was rated by the IFLR as a leading technology lawyer. He left for the University of Oxford to pursue post-graduate studies, completing the BCL, MPhil and DPhil as a Wellcome Trust scholar. His first academic appointment was at the George Washington University Law School, where he served as the Frank H Marks Visiting Associate Professor of IP Law. He then relocated to India in 2008 to take up the MHRD Chaired Professorship in IP Law at WB NUJS, a leading Indian law school. Prof Basheer has published widely and his articles have won awards, including those instituted by ATRIP and the Stanford Technology Law Review. He is consulted widely by the government, industry, international organisations and civil society on a variety of IP issues. He also serves on several government committees.

7 comments.

  1. AvatarShamnad Basheer

    Pursuant to this post, I’ve been having a very interesting debate with Dr Henning Ruse-Khan, an EU IP and trade scholar at the Max Planck Institute. Henning is no stranger to this blog and has made some of the most insightful interventions previously-and we’ve even carried a guest post from him. I will post our email exchanges in parts.

    Henning’s first email:

    “Dear Shamnad,

    just a quick personal comment on your statement in the Business Standard
    article, copied below:

    India warned on moving WTO over drug seizures (Business Standard)

    (…) “The Nokia ruling from the UK suggests that EC border control
    measures have to draw their substantive content from the laws of the
    specific EC member country in question. Therefore, while the Dutch
    authorities may interpret their law to seize Indian ‘in transit’
    generics, the UK authorities may not do so. To this extent, the
    assumption that EC border control measures violate WTO norms “as such”
    may be misplaced. This is not to suggest that the WTO action will fail,
    but only to caution that it may not be as foolproof as we originally
    assumed it to be,” said Shamnad Basheer, an IP expert with the National
    University of Judicial Sciences, Kolkata.

    In principle I am with your argument – but on the issue of TRIPS
    consistency I think that the mere fact that the EC relies on the law of
    the transit country (which it does in any case – even if evidence of an
    infringement of the domestic (ie.e transit countries’) IP laws are
    required for imposing border measures – as by the UK court decision)
    might in itself be inconsistent with TRIPS, Art.52.
    As argued in your blog (and as just published in the new IIC), the
    question is whether a transit country is a country of importation under
    Art.52 TRIPS. While this can be argued both ways, I think there are good
    reasons for a restrictive understanding of this term which hence would
    not allow the EC to apply its domestic IP laws (as transit countries) to
    goods merely passing through…

    Or am I missing something?”

    Reply
  2. AvatarShamnad Basheer

    MY RESPONSE TO HENNING’S FIRST EMAIL:

    “Dear Henning,

    Thanks for raising this interesting issue. I think both of us agree that TRIPS does not mandate border control measures (BCM) for transit goods, but leaves this to member countries. And assuming that our distinction between imports and transit goods (at least as the terms are used in TRIPS) is a sound one, we may argue that transit goods can be seized only when such goods would also violate IPR norms of the final “importing” country.

    To this extent, you may be right that one has to look to the law of the importing country. But one cannot ignore the fact that the EC member states are also independent members of the WTO. So if the EC can somehow show that it has left this to EC member countries, then its regulation (as such) will not contravene TRIPS.

    The key debate then is: has the EC really left this to member states or is there an independent substantive BCM content in the EC regulation itself. And this I think is really at the heart of the issue raised by Sisvel and more recently the Nokia judgments.

    As you will appreciate, the Dutch Sisvel was a preliminary trial court ruling. It effectively ruled that even absent the language of the 94 regulations, one could still apply the local “manufacturing fiction”.

    Without this fiction, it may have been difficult to catch transiting goods. Since (as per my limited understanding of Dutch law), in order to seize a good at the border, one might have to demonstrate that an “import” of some sort has taken place. Or that the re-exportation violates Dutch patent law in some way. And unlike India, the term “import” in the Dutch context may be fairly limited and likely to exclude transiting goods.

    Kitchin effectively read down Article 8 arguing that this only meant that the local law was to be applied and not that a manufacturing/production fiction had to be applied. He also holds (though very perfunctorily) that Sisvel’s logic really stemmed from the particular wordings of the ’94 Directive–which was not applicable anymore.

    The net result of all of this is this:

    1. A Dutch prelim ruling (I think) conflicts with a UK ruling on this count. Were this ruling to be appealed or better still to make its way finally to the ECJ (as a reference etc), I think there’s a very good chance that the ECJ would rule once and for all, that one cannot apply the manufacturing fiction. And with that, there will be no more in transit seizures unless there is a serious risk of diversion to local markets.

    Strategically therefore, India ought to pursue the Dutch and EC courts to get a ruling (through its generic manufacturers that have been at the receiving end) rather than risk an adverse ruling from the ECJ. Of course, it can also file a claim against the Dutch independently, arguing that the Sisvel ruling supports such seizures.

    Of course, my understanding of EC law is very basic. And I look forward to hearing from you and Thomas on this count.

    Warm wishes,

    Shamnad”

    Reply
  3. AvatarShamnad Basheer

    HENNING’S SECOND EMAIL:

    “As far as I see it, the BMR demands some kind of prima facie evidence of an IP infringement – based on the domestic IP law of the Member State where the seizure took place. Insofar, it has left a core requirement for continuous suspension or destruction of the goods in question into the hands of Member States (unfortunately I am just working from home where I do not have the BMR text at hand, but I recall this from my comments made on Spicy IP).

    Hence you are absolutely right that the BMR leaves determination of infringement to the Member States (it must, since apart from EC TM and design rights there is no independent and community wide IP right…). Hence any WTO/TRIPS inconsistency which is linked to this specific issue of finding an infringement of domestic IP law merely on the basis of transit surely is dependant on the approach taken by the local law and its interpretation by local courts (finding infringement in Dutch cases, rejecting it in the recent Nokia case in England). As far as I understand it, this is what you argue and I agree here.

    But here then comes the question which TRIPS provision would be violated? Art.51-60 (especially 52: need for finding a prima facie violation of law of the country of importation)? Maybe so, but even if the local law considers the mere transit as potential infringement, this is only a violation of Art.52 if one adopts my narrow reading of country of importation… and would this violation of Art.52 cease to exist if the local law did not consider the mere transit as IP infringement? Would it not still judge the infringement issue on the law of the transit country? Maybe instead one could argue that finding infringement on the mere basis of transit is rather inconsistent with Art.15, 16, 28 or other TRIPS provisions determining substantive the scope of IP rights…

    My argument is that _regardless_ of this link of the BMR to the domestic law and whether that IP law considers transit a prima facie infringement under its statutes, the BMR ‘as such’ is inconsistent with TRIPS: The mere fact that it provides for measures (initial detention) against goods in transit (see Art.1 or 2 of the BMR) is inconsistent with Art.52 TRIPS, because – in any case and regardless of what local laws demand – I would argue that TRIPS demands for all measures to be based on prima facie infringements of the country of final destination (of course, one could debate this as we did on the IELP blog). This however is something with which the BMR does not comply in any case: Even if applied in line with the UK court judgement, the BMR still links to a potential infringement of the law of the transit country (here: UK). It is only that this law does not find an infringement in case of mere transit and requires a real threat of diversion to the local market (as one might argue to follow from ECJ judgements such as Montex).

    Therefore, linking the availability of border measures to potential IP infringements in the transit country in itself could be inconsistent with TRIPS. And this aspect is inherent in the BMR – regardless how national law views mere transit…

    The main problem in my line of arguments is however:
    1) that it depends on a narrow, debatable reading of Art.52 ‘country of importation’
    2) in effect, it means that WTO Members cannot impose border measures against goods in transit unless they base it on the application of a foreign law – that of the country of final destination. And if they would do so, this might again raise concerns of overreaching…
    3) that India might be hard pressed to show that its domestic industry is actually hurt merely by the fact that the BMR allows temporary suspension until the law of the transit country has found infringement or rejected it. Under Art.3:8 DSU, a WTO inconsistency is prima facie evidence of such injury, but the EC might try to rebut this. I would argue that the temporary detention (until infringement is assessed) actually in itself is sufficient to hurt traders.”

    Reply
  4. AvatarShamnad Basheer

    MY RESPONSE TO HENNING’S SECOND EMAIL

    “A very quick response Henning,

    The EC would simply argue that: we don’t require transit goods to be seized unless, there is threat of serious diversion (in which case the country of seizure would not merely be a “transit country”). If the member country opts to do this, then the member country is the one flouting TRIPS norms. And I think this is why the action against the EU itself is weak. The action against the Dutch may be a plausible one. Unless one argues that Dutch seizures themselves are based on an incorrect reading of the EC directive.

    Shamnad”

    Reply
  5. AvatarShamnad Basheer

    MY RESPONSE TO HENNING’S SECOND EMAIL

    “A very quick response Henning,

    The EC would simply argue that: we don’t require transit goods to be seized unless, there is threat of serious diversion (in which case the country of seizure would not merely be a “transit country”). If the member country opts to do this, then the member country is the one flouting TRIPS norms. And I think this is why the action against the EU itself is weak. The action against the Dutch may be a plausible one. Unless one argues that Dutch seizures themselves are based on an incorrect reading of the EC directive.

    Shamnad”

    Reply
  6. AvatarHenning Grosse Ruse - Khan

    Dear Shamnad,

    having read the Nokia judgement at lenght and in full, I find it a really well argued decision which actually would indicate that the BMR can be interpreted in a restricted way as to demand some form of concrete risk of diversion onto the national market. Hence you are right that an ‘as such’ claim against the would not be too likely to suceed. However, I would emphasise the following caveats:

    1) The judgement is limited to trademark (TM) infringement as it principally build on a restictive reading of ‘counterfait goods’ under Art.2 (1) of the BMR: Since this term is defined as requiring a TM infringement (under the EC TM regulation or national TM laws), national law determines when a ‘counterfeit good’ exists and the ECJ has consistently held that TM an infringement requires concrete threat of goods entering domestic markets (Montex and other cases). But this result is based on interpreting the scope of substantive TM laws and may – although I personally think it shouldn’t – be different with patents and other IPRs.
    Justice Kitchin himself makes clear that “it must also be remembered that Art. 2 BMR 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.” [para. 62]
    The question then is whether – by leaving this open in case of patents (as there is no Community patent system yet) – the EC and in particular its BMR can evade WTO responsibility for _allowing_ such an approach under the law of one of its Member States. Given the obligations under Art.V GATT, one may argue that the EC – as a WTO Member – as an obligation to actively prevent Member states law to interfere with the freedom of transit. Especially since the EC has exclusive competence to address custom matters.

    (end of part one)

    Reply
  7. AvatarHenning Grosse Ruse - Khan

    (comment part two)

    2) Recital 8 of the BMR 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. Jusitce Kitchin rejects Nokia’s argument that recital 8 of the BMR establishes a local manufacturing fiction which would require courts to assume that goods in transit have indeed been produced domestically when judging over their infringement of a domestic intellectual property right (manufacturing fiction).
    J Kitchin argues that “Recital 8 finds no echo in any of the Articles of the BMR” and would – contrary to the Montex decision – “substantially extend the rights conferred upon the proprietor of a registered trade mark under the Community Trade Mark Regulation and the Trade Marks Directive.” In effect, it 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.” [see paras. 73-75]
    As you said in an earlier mail, one can probably argue this both ways. I think the strongest argument for J Kitchin is even another one: Under the former 1994 BMR, that recital existed in very similar language as recital 11. Still the ECJ in Montex and its other judgements on that early version of the BMR did require for a concrete threat of trade diversion on the domestic market – a condition that would contrary to a local manufacturing fiction. Unless the AG and the ECJ consistenly overread the (then) recital 11, one must assume that they gave it not the meaning that would establish a local manufacturing fiction!

    3) Finally, more on a policy note: In his conclusions, J Kitchin expressed the dissatisfaction with the result that cleary fake goods could not be detained unless there is a concrete risk of diversion – and urged EC policy makers to address this issue. His suggestion is actually being already implemented: In March this year, the Council of the European Union issued a resolution endorsing a detailed ‘EU Customs Action Plan to combat IPR infringement for the years 2009 to 2012’. A key element is the review of the 2003 Border Measure Regulation “with the aim to clarify and harmonise interpretation” inter alia relating to: external transit and transhipment; a potential extension of the definition of counterfeit goods; and the simplified procedure for the destruction of seized goods. The Commission is asked to prepare a proposal to modify the 2003 Regulation in light of the review’s results.
    Let’s see what the EC Commission comes up with – it is likely between a rock and a hard place with pressure from right holders to strentghen protection on the one hand and from NGOs and India to loosen protection on the other…

    All the best,
    Henning

    Reply

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