New Border Control of Intellectual Property Rights Infringement: Toward the creation of a fairer and more equitable system

KAWASE Tsuyoshi
Faculty Fellow, RIETI

The government has begun considering improvement of the current border measures for controlling the trade of products infringing upon intellectual property rights (IPR), launching discussions at the Export and Import Transaction Council (EITC) of the Ministry of Economy, Trade and Industry (METI) on April 28, 2006. Following the adoption of the Intellectual Property Policy Outline in 2002, the government has been reforming border control measures on an ongoing basis as needed since 2003. With this in mind, it is presumed that border control is being defined as an important policy tool for realizing Japan's goal to become an "Intellectual Property-based Nation," i.e., a nation that actively promotes and protects intellectual property.

History of border control measures

Inventions and copyrighted works, which are the result of strenuous dedication by originators and inventors to research, development and creative activities, are protected by various IPR-related laws and regulations. As evidenced by the recent spread of counterfeit brand-name items, however, globalization of the economy has brought a sharp rise in the inflow of infringing products from countries outside the jurisdiction of infringed rights holders' home countries. Thus greater importance is being attached to border control measures.

In the international context, border control of IPR infringement is nothing new; a legal basis for implementing such control can be found in Article XX (d) of the General Agreement on Tariffs and Trade (GATT) of 1947. In the United States, Section 337 of the Tariff Act of 1930 calls for barring the import of products allegedly infringing upon U.S. IPR. The U.S. began to invoke the provision frequently in the mid-1980s as it was defined as an aggressive tool to counter unfair trade practices at that time under the Reagan administration. Since 1995, under the World Trade Organization (WTO) system, the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS Agreement) provides for border control measures under Article 51 and thereafter, which mandates the introduction of such measures specifically for the protection of trademarks and copyrights.

In Japan, IPR-infringing products are defined as part of contraband items, along with narcotics, under Article 21 of the Customs Tariff Law (in Japanese), whereby the director-general of each regional customhouse is authorized to seize and dispose of prohibited items. The current system was established in as early as 1954 with its roots dating back to 1897.

Intellectual Property Policy Outline and the reinforcement of border control

The Intellectual Property Policy Outline , drawn up by the Strategic Council on Intellectual Property under the Koizumi administration, calls for exercising rights under the TRIPS Agreement as a means of containing damage caused by the increasing spread of counterfeits and pirated copies. As a result, the Customs Tariff Law and its subordinate regulations have been revised every year since 2003 in order to secure more effective implementation of border control. In the process, the law has expanded the scope of IP rights subject to right holders' applications for suspension of release to include patents, introduced a new system to give rights holders the opportunity to perform a teardown inspection on allegedly infringing products, and expanded the scope of goods subject to suspension to include those violating the Unfair Competition Prevention Law.

These amendments have made suspension procedures more accessible to rights holders. Thus, in 2004, the customs authorities suspended the import of plasma panel displays manufactured by Samsung SDI of South Korea based on a petition by Fujitsu Ltd. and liquid crystal display (LCD) TVs manufactured by TECO Electric & Machinery Co., Ltd. of Taiwan based on a petition by Sharp Corporation, both of which turned into high-profile cases attracting substantial public attention. In particular, still fresh in our memories is that the Samsung incident sparked such tension between Japan and South Korea it seemed the incident may evolve into yet another WTO dispute.

The subsequently adopted Intellectual Property Strategic Program 2005 inherited policy calling for strengthening border control measures. In 2005, the number of confiscations at the border of IPR-infringing shipments hit a record high. Though this is primarily attributable to the increased inflow of counterfeits and pirated copies, the abovementioned implementation of stricter control surely contributed to the rise in the number of confiscations.

Due process and consistency with the WTO principles must be ensured for the effective use of border control

The enhanced border control, however, is not yet sufficient as there remain aspects that require greater efficiency and reinforcement. For instance, infringing goods brought into Japan by those not engaged in the import business are currently outside the scope of regulatory control. However, there has been a substantial increase in personal imports. Meanwhile, importers of infringing goods are becoming cleverer, bringing goods in smaller lots and in a more discreet manner. Thus, need is arising to consider and take appropriate measures to cope with this reality. As indicated in the case of the U.S., however, stricter regulatory control may result in protectionist measures that run counter to the basic principles of the WTO Agreement. Rather than blindly seeking to strengthen border control, Japan needs to carefully consider how such decisions can be implemented properly and in a way consistent with its obligations under international agreements.

As pointed out by the South Korean government at the time of the Samsung dispute, Japan's border control measures in force are not entirely consistent with the WTO rules. For instance, the current system allows the customs authorities to determine whether or not a certain product infringes upon rights in a period as short as one month. If the same alleged infringement case is filed for trial through ordinary court proceedings for injunctive relief, the first instance (district) court alone would take nearly one year before reaching adjudication. Not only that, the court must follow due process as guaranteed by the Civil Procedure Code and judgment is to be made in an adversarial proceeding in which the parties present their arguments and evidence. Such asymmetry between the border procedure and the court procedure would obviously accord less favorable treatment to imported goods than to domestic products. There is room to reexamine the current border control measures for their consistency with the principle of national treatment provided for under Article III of GATT that prohibits favorable treatment for domestic products.

IPR infringement cases, by nature, require highly specialized and technical knowledge. Moreover, Japan's border control laws and regulations cover patents and rights to semiconductor chip layout designs, which are not required to be covered by border measures under the TRIPS Agreement. Even with continuous training of customs officials and successive personnel increase, some people would be still skeptical about the advisability of putting the customs authorities in the role of judging IPR infringement in an extremely short period of time. The TRIPS Agreement is predicated on the premise that the agency deciding on IPR infringement is separate from the customs authorities as an enforcing agency. A system such as the one in Japan, in which the customs authorities act as a sole agency having both decision-making and enforcement authorities, is not assumed under the agreement.

These problems go beyond the question of WTO consistency as they are also important from the viewpoint of guaranteeing due process for all parties concerned - Japanese importers and right holders that are subject to Japan's border control system, as well as overseas exporters and producers that would suffer economic damage from control measures imposed by Japan. Inappropriate use of border control measures, whether abuse or insufficient application, would result in serious damage to the property rights of parties concerned. To avoid this, a better balance must be found between ensuring agility and effectiveness and committing to prudent and sufficient examination. If we are to exterminate infringing products as an unfair practice, we must do so in the spirit of procedural fair play, which is how Japan is supposed to act as an "Intellectual Property-based Nation." Driven by such concerns and interests, discussions will be held at the EITC or elsewhere within the government on various issues. For instance, on what sort of adjudicatory body would be desirable for identifying IPR infringement at the border, and the possibility of setting up an independent administrative committee for this purpose. Other topics would include the level of due process guaranteed administrative procedure, and the interface between both customs and judicial procedures.

An issue paper for institutional changes, compiled by EITC based on the aforementioned concerns and interests is now available on METI's website. Those who are interested in this issue are urged to access the document.

*RIETI is not responsible for any contents published on any site to which a link is provided in the above article.

May 9, 2006

Saito, Kazuhisa, "Chiteki zaisanken shingai buppin no mizugiwa torishimari ni tsuite" [Border control of IPR infringing products], IIPPF column, 2005

Customs Intellectual Property Information Center, "Shin chiteki zaisanken shingai buppin no mizugiwa torishimari seido no kaisetsu" [Explanation on the border control of IPR infringing products: new edition], 2004

Japan Patent Office / Institute of Intellectual Property, "Chiteki zaisanken shingai buppin ni taisuru mizugiwa seido no arikata ni kansuru chosa kenkyu hokokusho" [Study report on the border control of IPR infringing products] Vol. 1 & 2, 2006

May 9, 2006