South Bulletin (Issue 41): 22 September 2009  

Nirmalya Syam

The seizure of medicines produced in developing countries by European countries on the pretext of IP enforcement is a threat to freedom of transit of goods as well as to public health. 

Seizure of goods in transit on the pretext of IP enforcement presents a grave threat to the freedom of transit of goods for developing countries as guaranteed under Article V of the General Agreement on Tariffs and Trade 1994 (GATT 1994) and the WTO Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS).

The most notable recent instances of such measures have been the seizures by national authorities in the European Union (EU) of generic medicines in transit from one developing country to another through a transit port in the EU under EC Regulation 1383/2003. While the EC Regulation has drawn immediate attention in this regard, there are attempts to adopt similar regulations in other countries because of concerted attempts by the developed countries to advance the IP enforcement agenda in multilateral, plurilateral, regional and bilateral levels.

For instance, the East African Community's (EAC) draft policy on Anti-Counterfeiting, Anti-Piracy and other Intellectual Property Rights Violations recommends that customs authorities in EAC States be empowered to seize goods in transit. This can threaten the access of developing countries to the major transit routes and retard South-South trade as well as affordable access to many essential products from developing countries. This article analyzes this issue in the context of the EC Regulation 1383/2003.

EC Regulation 1383/2003

The EC Regulation empowers EU customs authorities to take action in respect of any shipment suspected of infringing any IPR in EU even if the goods are in transit and not intended for sale in the EU markets. The Regulation empowers customs authorities to take an extensive range of measures in respect of such suspected goods like suspension or detention of the goods to inform the right-holder of the possible infringement (article 4.1).

Generally the rights holder has to initiate proceedings for determining whether there has been any IP infringement within a given period Goods that are found to infringe an IPR on the basis of an infringement determination procedure can be confiscated (Article 16), destroyed or disposed outside the channels of commerce (Article 17). However, the EC Regulation also allows Member States to do away with the need to determine whether a suspected consignment of goods infringes an IPR in an EU country.

Article 11.1 states that Member States may provide for a simple procedure to be used with the rights holders' agreement, which will enable customs authorities to have the seized goods abandoned for destruction by customs without any need to determine whether there has been any IP infringement. Under such an arrangement, the right holder may simply request destruction of the seized goods without initiating a process for determining infringement.

The TRIPS Provisions

Is such a regulation consistent with the TRIPS Agreement? The preamble of TRIPS recognizes the need for providing effective and appropriate means for IP enforcement, and also the need to ensure that those measures do not create barriers to legitimate trade. Article 7 of TRIPS states that protection and enforcement of IPRs should be in a manner conducive to social and economic welfare. Hence, IP enforcement provisions of TRIPS must be read in the context of this objective of promoting legitimate trade and promotion of public policy objectives.

Thus, TRIPS not only requires States to make available effective IP enforcement procedures, but also regulates the manner in which those procedures are to be applied.  Article 41.1 states that IP enforcement procedures "... shall be applied in such a manner as to avoid the creation of barriers to legitimate trade and to provide for safeguards against their abuse".

In order to ensure that adequate safeguards are available against the abuse of the IP enforcement procedures, TRIPS requires that enforcement procedures must be fair and equitable (Art.41.2, Art.42), must follow due process, and parties to an IP infringement dispute must be given access to judicial review.

In respect of border measures, TRIPS only requires States to adopt procedures to enable rights holders to apply for seizure by customs authorities if the goods are being imported or exported (Article 51). Footnote 13 to Article 51 of TRIPS states that "It is understood that there shall be no obligation to apply such procedures ... to goods in transit." This footnote clearly obliges WTO Members (including member States of the EU and the European Communities itself) not to apply border measures to goods in transit.

This reading is supported if one looks at the language used in the second sentence in Article 51 which states that Members may apply border measures for other forms of IP infringement besides trademark counterfeiting or copyright piracy. Therefore, it can be concluded that States are not expected to apply border measures to the movement of goods in transit. This interpretation is supported on a harmonious reading of TRIPS Article 51 and its explanatory footnote 13 with the general requirement under Article 41.1 and the preambular intention of TRIPS.

Cross-border movement of generic medicines in transit cannot be suspected of infringing any IPR in the country of transit because they are not intended for that country and do not threaten the interests of rights holders there. However, under the EC Regulation goods in transit can be seized on the basis of suspicion and possibly destroyed without any determination as to whether they are legitimate. This not only contravenes due process requirements but also violates the freedom of transit.

Freedom of Transit under GATT

In the TRIPS Council, the EC has stated that the intention behind the seizure in transit was not to create barriers to legitimate trade, but to prevent the possibility of the suspected goods finding their way into free circulation in the EC, thus infringing the IP rights prevailing in the transit country. This requires close analysis.

TRIPS clearly states the need to safeguard legitimate trade against IP enforcement, and recognizes the applicability of the basic principles of GATT 1994 to the need for protecting and enforcing IPRs without creating barriers to legitimate trade (preamble). It is particularly noteworthy that the preamble does not speak of "unnecessary" barriers, but the creation of barriers to legitimate trade generally. Therefore, TRIPS per se does not admit of any possibility of applying IP enforcement measures to goods in transit in exceptional situations because it defers to the freedom of transit enshrined in GATT.

GATT Article V.2 states that there shall be freedom of transit through the territory of each contracting party. Moreover, no distinction on goods in transit shall be made based on the flag of vessels, place of origin, departure, entry, exit or destination, or on any circumstances relating to the ownership of the goods. This is based on the language in Article 2 of the Statute on Freedom of Transit under the 1921 Barcelona Convention on the Freedom of Transit.

In the only WTO dispute involving interpretation of Article V (Colombia - Indicative Prices and Restrictions on Ports of Entry (27 April 2009)), the WTO panel held that Article V.2 requires that the transit State extend unrestricted access for passage of goods in transit. Seizure of goods in transit on suspicion of IP infringement contravenes this freedom of transit on the basis of a hypothetical possibility of the goods infringing IPRs in the transit country, if they were freely circulated there.
It is interesting to note that under Article 27 of the ICAO Convention no aircraft can be seized in transit if the aircraft or any of its components infringe a patent in the transit country. Thus, the long prevailing sense of the international community has been that IP infringement cannot be a basis for restricting the freedom of transit.

However, GATT Article XX (d) provides the general exception that nothing in the Agreement shall be construed to prevent States from adopting or enforcing measures necessary to secure compliance with laws or regulations which are not inconsistent with the provisions of this Agreement, including those relating to customs enforcement, or the protection of patents, trademarks and copyrights.  This could suggest that the EC Regulation may be justified under the general exception under Article XX (d) of GATT.

A Two-Tier Test

In this regard, it needs to be noted that the WTO decisions on Article XX has consistently followed a two-tier test: first, the measure must be justified and satisfy the requirements of one of the particular exceptions laid down in paragraphs  (a) to (j) of Article XX; and second, if the measure falls under one of the exceptions under Article XX on the basis of the test in the first tier, it must be examined whether the measure satisfies the requirements of the chapeau of Article XX. This means, that the EC Regulation must satisfy the requirements of Article XX (d) and the chapeau.

As held by the Appellate Body in Korea - Various Measures on Beef, to justify a measure provisionally under Article XX (d) two elements must be shown: first, the measure must be designed to secure compliance with laws or regulations that are not inconsistent with the provisions of the Agreement; and secondly, the measure must be necessary to secure such compliance. Under the necessity test the following factors have to be considered: the importance of the common value or interest pursued by the laws with which the challenged measure sought to secure compliance, whether the measure contributed to realizing that objective, and whether a reasonably available alternative measure existed.

Promoting IP Holder's Interests

It is evident from the EC regulation that it seeks to promote the interests of IP rights holders through stringent IP enforcement procedures while relaxing the due process safeguards required under TRIPS. In order to determine the necessity of the regulation, the value of this interest group (rights holders) needs to be weighed against the value of other interest groups who are affected by the seizures taking place under the EC regulation. Hence, it will be pertinent to look at how the interests of patients groups, particularly in developing countries, are affected by the seizures under this regulation.

In this regard, the 2001 WTO Ministerial Declaration on TRIPS and Public Health is of immense significance. This Ministerial Declaration states categorically that the TRIPS Agreement should not be construed in a manner which will impede access to medicines. This clearly shows that the interests of patients in securing access to medicines shall be given equitable consideration vis-à-vis the interests of IP rights holders. Moreover, seizure of goods in transit does not contribute to the objective of making available strong IP enforcement procedures to IP rights holders for protecting their IP rights in EU, because these medicines in transit were not being imported into EU.

It clearly violates the freedom of transit guaranteed under GATT Article V, as well as violates the obligation imposed in TRIPS Article 51 not to impose IPR-related border measures on goods in transit. Recourse to the general exception under GATT Article XX( d) may not be had because the EC Regulation (and the seizures that it authorizes) does not qualify as an exceptional measure under GATT Article XX (d) because it is not necessary to secure compliance with the EC's domestic IPR laws. Therefore, the EC regulation fails to satisfy the first criteria of the two-tier test for invoking a general exception under GATT Article XX..

Conclusion

A harmonious reading of TRIPS and GATT and their deference to the of freedom of transit as a fundamental principle of international trade suggests that the WTO regime does not allow for even an exceptional possibility of applying IP enforcement procedures to impede the freedom of transit. The EC Regulation clearly contravenes this fundamental principle and any other national regime on IP enforcement needs to respect this principle.

However, the agenda of promoting similar IP enforcement standards all over the world implies that there is a possibility that such regulations may be replicated in other countries, especially those countries which have ports of transit in the major trade routes in the world. Moreover, while the incidents have been focused on generic medicines, this can also impede legitimate trade in other fields like agricultural products. Thus, the EC regulation not only present a public health problem, but may also have wider implications. Therefore, it is necessary to repeal this regulation and resist the adoption of such regulations in other countries.