Judge refuses to charge Levis for cost of counterfeit jeans seizure

In Levi Strauss & Co v Algamal (Tel Aviv 3261-03/10) Judge Abraham Yaakov recently ruled that Israel Customs was wrong to attempt to charge Levi Strauss & Co for the cost of storing and eventually destroying counterfeit jeans confiscated, according to Customs, on behalf of Levi Strauss.

Customs attempted to argue that Section 200a of the Customs Ordinance provides that Customs can impound goods believed to infringe copyright or registered trademarks for three days, but further action requires the rights holder to post a deposit. Customs argued that the deposit was not only to compensate the importer if it later prevailed in court, but also to cover Customs' expenses should the importer prove untraceable, go into bankruptcy or liquidation, or otherwise default.

The judge’s ruling included the following reasoning: 

• Customs itself acknowledged that the primary party responsible for paying for the destruction of infringing goods is the importer. Since the rights holder had done nothing wrong, why should it have to pay costs? 
• Although Customs claimed that rights holders are proactive in the legal proceedings, this is not necessarily the case: Customs can seize and hold goods without the rights holder being an active party. 
• Even if the rights holder informs Customs of its rights and about an infringing shipment, Customs must act as a law enforcement agency, not merely to protect the financial interest of the rights owner. 
• Although Section 53(1) of the World Trade Organisation Agreement on Trade-Related Aspects of IP Rights (TRIPs) includes such a provision, the judge ruled that Section 200b of the Customs Ordinance, instituted in the wake of the TRIPs Agreement, rejected billing the rights holder for the actions performed by Customs and established that the deposit paid by the rights holder to cover the seizure of goods should be refunded in full if the courts rule that the goods were indeed infringing.

The court pointed out that the interpretation of Customs was equivalent to arguing that the rights holder should serve as a guarantor for the infringing importer.

As to Customs' claim that the only party that benefited from destruction of the infringing goods was the rights holder, the judge succinctly stated that it would have been better had this never been claimed, and went on to rule that it is in the national interest to uphold IP rights and to enforce criminal law. Indeed, having signed the TRIPs Agreement, the state had accepted the obligation to enforce IP rights.

In summary, the court ruled that the only reason for posting bond was to prevent frivolous actions and to protect the rights of wrongfully charged importers.

Levi Strauss was awarded NIS100,000 for statutory damages and NIS10,000 in costs from the first defendant, who did not attend the hearing; while the second defendant, who did appear, had to pay just NIS2,500 in costs. The court also ordered the goods to be destroyed. The Customs and Value Added Tax Department of the State of Israel was ordered to pay NIS10,000 in legal fees to Levi Strauss.

Customs seizures have increased over the past 12 years. The following graph, taken from a report published by the Israel Customs Authority, summarises customs seizures from 1998 to 2010 (excluding fake cigarettes).

The graph clearly shows increased Customs activity over the period. Counterfeit goods are a global problem. It appears that in 2010, 35% of Israel customs seizures were for textiles and footwear; 21% were for CDs and DVDs with copyright-infringing music and software; 27% of seizures related to watches and children’s toys; 7% related to schoolbags, wallets and cases; and the remaining 10% covered other items, such as bed linen with football team logos.

Customs does proactively hold goods that are suspected of infringing copyrights and trademarks (as in the Levi Strauss case). However, a number of counterfeit goods and products bearing trademark-protected logos and symbols do find their way to the market.