Slovenia Court Issues Surprising Decision in Customs Infringement Case

In a recent customs infringement case handled by our office in Slovenia, the Higher Court in Ljubljana (Appellate Court) issued a decision contrary to the established court practice, which has been to order the defendant to pay the costs for the storage and destruction of the infringing goods.

This unexpected decision could impact all future similar cases in Slovenia.

The court case ensued following the seizure of a large shipment of counterfeit cosmetic products, bearing the mark of a well-known multinational consumer goods company, in transit through Slovenia to another EU member state.

The Higher Court upheld the decision of the first instance court:

• Finding that the goods were counterfeit;
• Prohibiting the defendant from infringing the trademarks in the future; and
• Awarding the plaintiff all litigation costs.

However, the Higher Court reversed certain parts of the lower court decision, namely it reversed the:

• Order that the defendant destroy the infringing goods at the defendantís expense and under customs supervision; and
• Order that the defendant cover storage costs.

The Higher Court based its decision on Articles 75 and 76 of the Act implementing the customs regulations of the European Union (the Customs Act).

Under Article 75 the infringing goods are destroyed under customs supervision and in accordance with customs regulations.

Under Article 76(1) the defendant covers the costs of storage and destruction. However, under Article 76(2) the trademark holder covers the costs if the infringer fails to cover them within the deadline set by the customs.

The Higher Court concluded that the issue of destruction and storage costs is clearly regulated by the above provisions and is the subject matter of customs proceedings. Therefore there is no basis in the legislation for these costs to be awarded in infringement proceedings held before courts. Basically, the Higher Court considered the courts incompetent to rule on storage and destruction costs in customs cases.

The Court did not further explain this view or give any further guidance, so the decision might be interpreted in two ways:

1. The Court considers the provisions of the Customs Act as the substantive law applicable when deciding who should bear the costs of storage and destruction; or

2. The Court is implying that the costs, if not covered by the infringer within the deadline, should be the subject matter of a separate action.

If the Higher Court considered Articles 75 and 76 of the Customs Act as the applicable substantive law to rule on storage and destruction costs, it failed to take into account the provisions of the Industrial Property Act, which stipulate (Article 121) that the rights holder may file a lawsuit against the infringer and request, inter alia, the destruction of infringing goods. The courts have always construed this provision to mean that the infringers are to cover the costs of destruction. If we are to apply the new interpretation proposed by the Higher Court, the IP rights holders in customs infringement cases will be at a clear disadvantage compared to the IP rights holders in cases where the infringing goods are found inside the country and where the before mentioned Article 121 would apply.

Furthermore, this decision could be contrary to Article 17 of the Council Regulation (EC) No 1383/2003 of 22 July 2003 concerning customs action against goods suspected of infringing certain IP rights and the measures to be taken against goods found to have infringed such rights, which stipulates that the EU members are to adopt the measures necessary to allow the competent authorities to destroy the infringing goods or dispose of them outside commercial channels in such a way as to preclude injury to the rights holder.

If the Higher Court believes that Articles 75 and 76 of the Customs Act are not there to merely protect the state budget by ensuring that the IP rights holders cover costs in case infringers fail to do so, but that they are the applicable substantive law, it can be expected that in all cases where the infringers fail to cover storage and destruction costs, the Customs will request that the rights holders cover these costs. Whether such costs would then be recoverable in separate civil proceedings is questionable, because the obligation to cover the costs could be interpreted as a direct obligation for IP rights holders and not as a substitute fulfillment of the infringer’s obligation. The Higher Court is certainly not clear on this question. Needless to say, this would send a wrong signal to infringers.

If, however, the intention of the Higher Court is that the costs are claimed as damages in separate proceedings, it would imply that two separate litigation proceedings would always be required to deal with the same infringement ñ first, an action to obtain a court declaration of infringement following the Customs detention, and second, a civil action to recover damages, i.e. storage and destruction costs. This would breach the principle of procedural economy and would not resolve all issues between the infringer and the IP rights holder within the concentrated procedure. Considering high litigation costs involved, serious court delays in Slovenia and the fact that many customs suspensions involve foreign and/or evasive entities, this solution would very likely discourage or even prevent IP rights holders from recovering storage and destruction costs.

The case is currently being revised by the Supreme Court of Slovenia, which will hopefully annul the controversial Higher Court ruling or at least clarify the issue of storage and destruction costs.

By: Andrej Bukovnik

For more information, please contact Andrej Bukovnik at our Slovenia office.