Opinion of the Economic and Social Committee on the 'Proposal for a Council Regulation (EC) amending Regulation (EC) No 3295/94 laying down measures to prohibit the release for free circulation, export, re-export or entry for a suspensive procedure of counterfeit and pirated goods` () (98/C 284/02)

On 11 May 1998 the Council decided to consult the Economic and Social Committee, under Article 198 of the Treaty establishing the European Community, on the above-mentioned proposal.

The Section for Industry, Commerce, Crafts and Services, which was responsible for preparing the Committee's work on the subject, adopted its opinion on 3 June 1998. The rapporteur was Mr Giesecke.

At its 356th plenary session on 1 and 2 July 1998 (meeting of 1 July), the Economic and Social Committee adopted the following opinion by 136 votes to two.

1. Introduction

1.1. In the industrialized countries, there is a growing demand for quality in the manufacturing industry, farming and the burgeoning service sector. Branded and innovative products - which are often protected by industrial property rights - meet this need, but at a price. This price reflects not only better quality, but also innovation and advertising.

1.2. Those engaged in product piracy take advantage of cheaper manufacturing conditions, for the most part abroad. They have no development costs, licensing fees or advertising outlay. They evade the costs of the normally mandatory safety tests. Their customers are people prepared to forgo these marks of quality for the sake of a perceived bargain, or those to whom brand names are all-important (even when they are forged).

1.3. Counterfeit and pirated goods are now found in many manufacturing fields, ranging from clothing, leisure articles, watches, jewellery, cosmetics and pharmaceutics to technical products such as tools and car spares. Product piracy is on the increase in these last-named areas, posing a clear threat to buyers who are more than ever dependent on product safety. Not only that, the manufacturers of genuine goods often face unwarranted product liability claims.

1.4. The economic impact of product piracy is, of course, felt in the first instance by the manufacturers of genuine products, followed by specialist retailers and exporters. The government loses significant revenue from various different sources. Unfortunately, the number of skilled jobs lost can only be roughly estimated, but the German figure, to take an example, is put at some 70 000. The same is true for the costs of legal proceedings (lawyers' fees, court costs, detective agencies) which hit innovative small and medium-sized businesses particularly hard. Between 5 and 8 % of world trade is now estimated to be in counterfeit goods.

1.5. In a continent whose competitiveness increasingly depends on its innovative strength and the quality of its products, this trend must be halted as a matter of urgency. The draft regulation under review is a crucial element in helping do just that.

2. The Commission proposal

2.1. The Commission paper comprises (i) the report on the implementation of the present regulation and (ii) a proposal to amend this regulation.

2.2. The Commission report looks at the experience of Community customs authorities since 1 July 1995 in suspending customs operations on articles presented for import clearance which are suspected of being counterfeit or pirated goods covered by an intellectual property right in respect of which the right holder has requested 'customs protection` under the terms of the regulation.

2.3. From July 1995 to June 1997, the customs authorities in the Member States took action in a total of 4 133 freight, postal and passenger cases.

2.4. On the basis of the experience to date, the Commission amendment now proposes to extend the scope of the regulation and align it on the development of Community legislation on intellectual property rights. The proposals include:

- extension of the scope of the regulation to cover patented inventions, restricted to patents on products;

- extension of the customs authorities' scope for action to cover free zones and free warehouses, and all suspect goods under customs supervision;

- simplifying and updating the regulation to take account of the Community trade mark (fully operational since 1 April 1996) by making it possible for holders of such marks to apply for 'customs protection` valid in a number of Member States.

3. General comments

3.1. The Commission appears pleased with developments in its first report on the implementation of Regulation (EC) No 3295/94. Given the figure for imported counterfeit goods, however, this is but the tip of the iceberg. In the Committee's view, there is a clear need for improvement, given that some Member States carry out very few operations in this field and others none at all.

3.2. Nevertheless, now that the learning process of the first few years is over, it would seem expedient to extend the scope of the regulation to cover patented inventions and all customs statuses, and to update the regulation to take account of the Community trade mark.

3.2.1. The Committee feels, however, that transposition may be limited by the fact that, particularly where the various different kinds of patents are concerned, the customs authorities may experience difficulties in spotting violations. One should not, therefore, overestimate the impact of extending the scope of the regulation.

3.3. In the Committee's view, experience to date indicates that information on this relatively new mechanism needs to be considerably enhanced in both directions. The parties holding the rights (companies) should be kept abreast of the options open to them, but they should also help facilitate customs officers' practical work by improving the information they provide to the customs authorities. A two-way flow of information of this kind, coupled with improved training for customs officers in this area, is the only way to ensure success in the fight against forgery.

3.3.1. The Committee is concerned that staffing cuts in Member States' customs administrations make it more difficult for them to handle their changing tasks. The progression from duty-collection agencies working to government instructions to service administrations promoting economic development becomes particularly clear in activities undertaken on behalf of private and public holders of protection rights.

3.4. Experience to date has also shown that the effectiveness of the system depends on a minimum level of physical, intelligently placed controls and a high level of training.

3.5. The Committee feels it is important, both in trade circles and among the population at large, to drive home the repercussions of counterfeiting on the various different markets. People must be made more aware that this particular form of economic crime is wrong. The European Commission should act to strengthen and coordinate Member States' information campaigns.

3.5.1. This aspect should be taken into account when assessing non-commercial traffic, mainly tourism. After all, tourism accounts for half of all operations in this field, with the quantities involved, of course, correspondingly modest.

3.5.2. The Committee takes that view that the criterion used should not focus on duty free-allowances alone, but, above all, on what may be considered 'normal` in each individual case.

3.5.3. The European Commission should alert its delegations in the high-risk countries to the scale of counterfeiting, in order to instigate surveillance and alert schemes in conjunction with the authorities of the Member States and the trade circles concerned. Concerted action should be taken to alert the authorities of the countries concerned to the possible adverse consequences, inter alia in the area of commercial policy of an over-permissive attitude.

3.6. One particular difficulty with the system is that EU-level arrangements are necessarily limited in scope since procedures are determined under national law. Industry would like to see harmonization in this field so as to ensure optimum implementation of the most important provisions.

4. Specific comments

4.1. The fact that intervention varies tremendously from one Member States to another may reflect both differences in the scale of protection rights and different ways of handling operations. As part of consultations on the green paper, the Commission is asked to calculate the ratio between the number of applications for protection and the number of violations detected in the Member States.

4.2. The fact that figures for violations vary between Member States may, in the Committee's view, be partly due to the procedural differences after a violation has been detected. For example, customs officials' motivation may be considerably blunted by the less than efficient way in which customs authorities work together with the courts. In this regard, the Committee can but stress the importance of a simple, transparent and speedy procedure.

4.2.1. Although the Commission has no right of initiative in respect of national courts, it should nonetheless convey to national governments the urgent need for a lean procedure as called for in Part III of the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS). The Committee sees a major link between procedural practicalities and the motivation of customs officials on the ground.

4.3. The Committee feels that the current arrangements in Greece are extremely unsatisfactory. Given Greece's importance as a potential gateway to the European single market, the Committee backs Commission efforts to encourage that country to find a practicable solution.

4.4. The regulation only covers operations relating to trade with non-EU countries at the Community's external borders. Once forgeries enter the single market undetected, they are pursued under national arrangements, if at all. The Commission should propose harmonization remedies - as far as possible - in the green paper discussion.

4.5. As things stand, seizure applications may be valid anything from between three months and two years in the various different Member States. Since effective follow-up may be expected to take some time, the Committee feels a period of validity of at least one year should be agreed across the Community.

4.6. The Committee takes the view that the basic idea of a Community trade mark is incompatible with a situation such as this in which frontier seizure applications may be limited to certain EU countries. The Community trade mark is a uniform mark, with a uniform legal basis applicable to the Community as a whole. Taking this concept to its logical conclusion, the only sensible option is to have a uniform frontier seizure application procedure effective in all EC Member States.

4.6.1. Otherwise, the danger is that the counterfeiter, learning that the restriction applies only to certain countries, will naturally seek to launch the goods via 'non-protected` countries.

The Committee feels that those Member States which levy fees should cut them to a level which does not deter medium-sized and small businesses from submitting applications for protection.

4.7. Where, after the operation is completed, the forged goods are ordered to be destroyed, the sometimes considerable costs involved should be borne by the guilty party, generally the manufacturer of the forged goods. If the manufacturer cannot be identified or summoned, the importer should pay the costs, unless he or she acted in good faith. The Committee feels it is unreasonable to expect the party holding the protected rights or the state to pay the costs of destruction in cases where the manufacturer or the importer acting in bad faith can be required to do so.

4.8. The fees set for lodging an application to the customs authorities and the securities to be deposited for administrative costs and liability in the further course of the procedure vary considerably from one Member State to another. In the Committee's view, the main concern is that these fees should not act as a deterrent, i.e. prevent small companies from using the mechanisms in place.

4.8.1. It should be possible for surety to take the form of bank guarantees in all Member States, in accordance with local practices.

4.9. It is essential that there should be direct contact between right holders (i.e. companies) and the customs authorities. In particular, the customs authorities should be kept informed of how the matter is proceeding. This too would enhance motivation on the part of customs officers.

4.10. Penalties too are fixed by national courts. Although harmonization is unlikely to be achieved in the near future, it should be ensured that these penalties are highly deterrent in their effect.

Brussels, 1 July 1998.

The President of the Economic and Social Committee

Tom JENKINS

() OJ C 108, 7.4.1998, p. 63.