2014 (2) TMI 703 - HC - Customs

Customs' Power to Suspend Clearance of Suspected Infringing Goods Upheld

TELEFONAKTIEBOLAGET LM ERICCSON Versus UNION OF INDIA

The court upheld the Intellectual Property Rights (IPR) Rules, affirming customs authorities' power to suspend clearance of goods suspected of infringing ... Suspension of clearance of imported goods - Confiscation of goods - Infringement of Intellectual Property Rights - After the suspension, the Customs Authorities allow a right holder and the importer or their duly authorized representative to examine the goods, supply the information to the right holder as well as the importer and determine as to whether the goods are infringing the Intellectual Property Rights of the right holder - Held that:- in the absence of judicial pronouncement, in the case of patent violation, the determination is to be done by the authority stipulated in Rule 7 though with extreme caution. What can be deduced therefrom that while exercising this extreme caution, the competent authority would in a simple case of violation may determine whether there is a violation or not and pass necessary orders under Rule 7 and other IPR Rules. However, in case the competent authority is of the opinion that the case involves serious complexity and such a determination as to whether there is an infringement or not, is not possible, the competent authority has the discretion to relegate the parties to civil proceedings. This according to us is the interpretation which is to be given to the Rules read with the aforesaid [Circular] dated 29-10-2007. Otherwise, the said Notification cannot be read in the manner which totally annihilates or supplant a particular provision of the Rules. on the facts of this case the learned Single Judge has rightly held that the aforesaid order does not disclose on what basis the Dy. Commissioner had entertained the “reason to believe” that the goods in question infringed the patent claimed by the appellant herein - order of the Dy. Commissioner dated 30-3-2011 does not show any application of mind, we sustain the order of the learned single judge. However, we set aside that portion of the direction contained in the impugned order dated 19-12-2009 whereby the appellant was directed to approach the competent Court to assert its claim to patent and, on that basis, seek injunction against release of the consignment of the Respondent No. 4 herein. Instead, the aforesaid direction is substituted by the direction to the Dy. Commissioner of Customs to pass fresh orders giving ‘reasons to believe’. In case he comes to the conclusion that the imported goods are suspected to be goods infringing patent rights of the appellant herein, before passing such order, the Dy. Commissioner of Customs shall give fresh hearing to both the parties. It would be open to the respondent to argue that the matter is complex and it may not be possible/feasible for the competent authority to come to any such prima facie conclusion for ‘reason to believe’. The competent authority shall deal with such a contention, if raised, and thereafter may either pass an order suspending the clearance of goods giving specific and clear ‘reason to believe’ that goods in question infringed the patents claimed by the appellant or else it would be within its discretion to direct the appellant to approach the competent Court to assert its claim to patent - Decided partly in favour of assessee. Issues Involved:1. Validity and interpretation of Rule 7(1)(a) of the Intellectual Property Rights (Imported Goods) Enforcement Rules, 2007.2. Authority of the Deputy Commissioner of Customs to suspend clearance of imported goods suspected of infringing patent rights.3. Requirement of judicial pronouncement for suspension of clearance of goods.4. Application of 'reason to believe' standard by the Deputy Commissioner of Customs.Detailed Analysis:1. Validity and Interpretation of Rule 7(1)(a) of the IPR Rules, 2007:The court examined the validity and interpretation of Rule 7(1)(a) of the IPR Rules, which empowers customs authorities to suspend the clearance of imported goods suspected of infringing intellectual property rights. The IPR Rules were promulgated under Section 156 of the Customs Act, 1962. The rules allow customs authorities to suspend clearance of goods suspected of infringement and to confiscate and destroy such goods if found to be infringing.2. Authority of the Deputy Commissioner of Customs:The appellant, a registered patent holder, requested the customs authorities to suspend the clearance of goods infringing its patents. The customs authorities acted on this request and suspended the clearance of goods imported by the respondent. The respondent challenged this suspension, arguing that the Deputy Commissioner of Customs was not the appropriate authority to determine patent infringement. The court noted that the IPR Rules include patents in the definition of intellectual property and grant customs authorities the power to suspend clearance based on 'reason to believe' that goods infringe intellectual property rights.3. Requirement of Judicial Pronouncement:The respondents argued that the customs authorities could not suspend clearance without a judicial pronouncement confirming the infringement. They relied on a government circular stating that customs officers should exercise extreme caution in determining patent infringements unless there is a judicial pronouncement. The court, however, held that the IPR Rules do not require a judicial pronouncement for the customs authorities to suspend clearance. The competent authority has the discretion to determine infringement based on the evidence presented.4. Application of 'Reason to Believe' Standard:The court examined whether the Deputy Commissioner of Customs had applied the 'reason to believe' standard correctly when suspending the clearance of goods. The court found that the impugned order did not disclose the basis for the Deputy Commissioner's belief that the goods infringed the appellant's patents. The court emphasized that the order must show application of mind and provide specific reasons for the belief of infringement.Conclusion:The court upheld the IPR Rules, confirming that customs authorities have the power to suspend clearance of goods suspected of infringing intellectual property rights, including patents. However, the court found that the Deputy Commissioner's order lacked specific reasons for the belief of infringement and directed the customs authorities to pass fresh orders with clear reasons. The court also clarified that the customs authorities could exercise discretion in complex cases and direct parties to seek judicial determination if necessary. The appeal was disposed of with directions for a fresh hearing and order by the Deputy Commissioner of Customs.