Slovenian Supreme Court Rules on Destruction and Storage Costs in Customs Matters

In June 2014, the Supreme Court of Slovenia issued an important decision in a customs infringement case, which ensued following the detention 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.

As much as this may be an obvious matter for many IP practitioners, this decision addressed the question of whether it was possible to claim storage and destruction costs from infringers.

The Supreme Court’s decision partially reversed the controversial decision of the Higher Court in Ljubljana, which in spite of establishing infringement, refused the IP rights holder’s claims to:

Order the infringer to destroy the infringing goods at the infringer’s expense, and
Order the infringer to cover storage costs.

The Higher Court based its decision on Articles 75 and 76 of the Slovenian 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, fully ignoring the provisions on the destruction of infringing goods provided by Article 121 of the Slovenian Industrial Property Act, concluded that the above-mentioned provisions of the Customs Act clearly defined who was to bear the costs of storage and destruction. As a consequence, the Higher Court considered the courts incompetent to rule on storage and destruction costs in infringement proceedings originating from customs cases.

A benign interpretation of the Higher Court’s decision could be that IP right holders would always have to pay storage and destruction costs and then try to recover them through a separate claim for damages.

The Supreme Court clearly overruled the findings of the Higher Court, emphasizing that the Customs Act cannot be lex specialis in relation to the IP Act and that the Customs Act only regulates the procedures before the customs, whereas the IP Act governs the relations between IP right owners and infringers.

The Supreme Court also pointed out that, if the IP Act was not applied to border detention cases, IP right holders in such cases would be at a disadvantage compared to IP rights holders in other infringement cases, as they would be deprived from the possibility to claim destruction of counterfeits at the infringer’s expense, as afforded by Article 121 of the IP Act.

With this decision, the Supreme Court made it very clear that the IP Act is the only substantive law applicable when ruling on destruction costs associated with the IP rights infringement, and that this also applies to infringement cases that develop as a result of customs detentions.

Storage Costs

The Supreme Court however clarified that there was no provision in the Slovenian IP Act that would allow the courts to order infringers to cover storage costs before such costs were actually settled by the IP right owner upon the customs request. The Supreme Court explained that, while a claim for destruction of infringing goods is clearly mentioned in Article 121 of the IP Act, the same article does not mention storage costs at all, and they cannot be simply inferred from any of the claims under Article 121 of the IP Act.

The Supreme Court seemingly concluded that, if storage costs have not been paid by the time the infringement claim is filed, which is usually the case, such costs can only be recovered later on, once they are settled, through a separate damages claim.

Although the Supreme Court’s decision provides clear guidance as to when and how to claim storage costs, the practical implications of this decision could be important, as it may still enable IP right holders to avoid paying storage costs in advance. Namely, it would be very difficult for infringers to execute a court order to destroy the goods at their expense without settling storage costs at the same time, and it is also unlikely that the customs will accept to hand out the goods for destruction if storage costs have not been previously settled.

The most important aspect of this ruling is that it clarifies that the legal basis for claiming storage costs lies in the civil legislation on damages, and not within the Customs regulations.

In practice, if storage and destruction costs are expected to be high and the IP right owners wish to avoid or recover them, an infringement claim should be lodged in court asking the court to order the destruction of the goods at the expense of the infringer. As for the storage costs, a good cooperation with the Customs may compel infringers to pay these costs before the goods are released for destruction. Otherwise, IP right owners may need to claim storage costs through a separate damage action once the Customs receive the payment.

And lastly, the problems would be completely resolved if the IP Act was amended to clearly include storage costs as the costs that IP right holders can claim against infringers.

By: Andrej Bukovnik

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