In very short words: no, you cannot assert trademark rights against innocent freight forwarders in Singapore in transshipment border seizure cases.
This little article sits in my drafts folder since last year May. What triggered it to be published was this decision of the Singapore Court of Appeal  SCA 01 – Burberry Ltd. vs. Megastar Shipping Pte Ltd, in the following “Megastar Court of Appeal decision”), available online here:
The Court of Appeal dismissed the plaintiffs’ appeals against a decision of the High Court of Singapore, issued by the Honorable Judge George Wei,  SGHC 305 – Louis Vuitton Malletier v Megastar Shipping Pte Ltd, in the following “Megastar High Court decision”), available online here:
The official case summary can be found here:
Now you have most of the documents that are relevant to this case. I further have three Expert Witness AEICs (one is my own AEIC), plus the transcripts of the trials and the Appeal Court hearings, but they are not really necessary to understand the case. In a sideline only, the Singapore Court of Appeal sought Prof. David Llewellyn, author of numerous books and articles in the area of Intellectual Property, and member of the faculty of law of several universities to supply an amicus curiae brief on this case.
Long Version of the Case
My own role in the Megastar case began in the year of 2013. My firm Schweiger & Partners received a phone call from Jacopo Liguori, lawyer at Withersworldwide. Singapore customs has notified Jacopo’s client of a potential counterfeit case, involving the trademarks of his client. Paolo Beconcini, lawyer at Squire Patton Boggs, has recommended our Singapore firm to him, as we two have been working together in IP legal enforcement for a very long time.
To cut this part of the story short, we have initiated trademark infringement court proceedings, instructing lawyer Xhuanelado Owen of Kalco Law, and we have detained more than 15,000 counterfeit handbags, which is a lot! After doing so, we have immediately started negotiations with the freight forwarder Megastar and its lawyer Leonard Chia of the local law firm Asia Ascent, in order to settle the case. After doing so, the 15,000 handbags have been released to our firm and we have destroyed them in a nearby waste incineration plant. Mission accomplished. Costs: 5-digit.
If you are working in the area of IP enforcement then you would ask how this has been done. There is no simplified administrative procedure for destroying counterfeit goods after they have been seized in customs border control. This is why trademark owners are required to initiate trademark infringement court proceedings for ultimately enforcing their trademark rights. As the shippers (= senders) and the consignees (= recipients) of counterfeit goods in transit are never easy to reach for serving a writ on them, and as the Trademarks Marks act is silent on that detail, it is only logical to sue anyone else in the logistic handling chain, just to get any court proceedings going. And in the Megastar case, it just happened to be the innocent freight forwarder who was named as a defendant. Given that such cases can be settled long before the court proceedings could even marginally advance, all parties can live well with that way of handling border seizure cases in Singapore.
Not all parties involved in the Megastar case have settled the case as I did, as you can see in the Megastar Highcourt and Court of Appeal decisions above.
Some months after having settled the case between Megastar and our client, I was approached by Asia Ascent to come on board as an Expert Witness on behalf of Megastar. Which I did. I was soon struck out from the case because the court did not see the relevance of my contribution to the case. Point 12 of the Megastar High Court decision would tell you more about that aspect of the case.
Despite being struck out of the case, I have continued to support Leonard Chia and his local law firm Asia Ascent in the ongoing court case, through first and second instance. This is how we foreign legal experts usually work in Singapore, similar to studio musicians in professional music productions.
And Leonard Chia and his local law firm Asia Ascent have done an excellent job, I must say.
And then came INTA Seattle 2018
I have traveled more than 12,000 miles from Singapore to last year’s INTA Convention in Seattle in order to attend one of the most appalling presentations that I have ever heard in Intellectual Property law. That was during a talk on 20 May 2018.
A representative of the US Patent Office (USPTO) gave a presentation about Intermediaries and Free Trade Zones.
How the USPTO presentation helps to Better understand the Situation of an Innocent Freight Forwarder in an Anti-Counterfeit Enforcement Action
The USPTO representative was talking about the above first instance decision of the High Court of Singapore. I do not agree with how the USPTO representative has interpreted this decision at INTA 2018. I have publicly voiced this during the presentation in Seattle, and in the following are the details why this is so.
The USPTO representative said:
“I have to say that I’m disappointed with a recent case from last November. Singapore high court in a case involving, brought by Louis Vuitton and others, against Megastar shipping, attempted to establish under Singaporean law, liability for the shipper of both coming in and going out.”
This is an inaccurate assessment of the Megastar High Court decision. The plaintiffs did not want “to establish … liability for the shipper of both coming in and going out”. Instead, the Plaintiffs sought to establish liability against the freight forwarders who had no idea that the containers being transhipped through Singapore contained infringing goods.
Plaintiffs’ claims arise out of two shipments by which two containers loaded with counterfeit goods were shipped from two ports in China to Singapore, with the intention that they were to be sent on to a Third Party in Batam. The containers were intercepted by Singapore Customs and detained, inspected and seized. Upon examination, the containers were discovered to contain counterfeit goods. The Plaintiffs then commenced proceedings for trademark infringement against the defendant Megastar, alleging that Megastar had imported the counterfeit goods into Singapore. Megastar denies importing the counterfeit goods into Singapore and asserts that even if the counterfeit goods had been imported into Singapore, Megastar is, in any case, not the importer (c.f. point 2 of the Megastar High Court decision).
The USPTO tries to Pick on Megastar
The talk continues:
“And in this case it was Megastar coming in and going out, so it wasn’t just a random shipping line.“
Again, this is an inaccurate statement. Megastar was in fact “randomly” involved, and it was not “Megastar coming in and going out”. Megastar was never physically shipping the containers. Megastar is a local freight forwarder in Singapore.
The Megastar High Court decision states (point 17):
“It is unclear who the actual manufacturer of the Counterfeit Goods is, but the identity of the actual manufacturer is immaterial. What is clear is that the counterfeit goods came into Singapore in two shipments from ports in China. The first shipment involved a container marked TRLU 5945619 (“the First Container”) which was shipped on board the vessel APL LATVIA belonging to American President Lines (“APL”). The second shipment concerned a container marked GESU 5635375 (“the Second Container”) which was shipped on board the vessel COSCO Napoli owned by Orient Overseas Container Line Limited (“OOCL”).”
Then the following happened (point 18 of the Megastar High Court decision):
“On or around 28 March 2013, the Defendant received letters from the Third Party,[note: 12] and emails from a Ms Susie Xu (“Ms Xu”),[note: 13] who appears to have been acting as an “agent” for the Third Party.[note: 14] The letters requested the Defendant to arrange transshipment of the two containers to Batam, setting out brief details of the incoming shipments and identifying the name of the carrier and the vessel to be used for carriage to Batam.”
This means nothing else than Megastar having knowledge only a few days prior to the containers having reached Singapore. At that time, these containers were in the belly of a cargo ship. Nobody in Singapore could possibly inspect them.
And no, Megastar did not know what was in the two containers. The shipping documents stated “household goods” for the first container and “car accessories, computer accessories, fashion items, household goods and tools and hardware” for the second container. As far as fashion items are concerned, the shipping documents stated: “belts, handbags, “bag shopping”, school bags and wallets.” (cf. points 19 – 24 of the Megastar decision).
And no, Megastar never had possession of the two containers, they were seized before Megastar could check what is inside of the two containers (cf. point 178 of the Megastar High Court decision).
And I asked myself: “Could one possibly expect the USPTO to know that internationally accepted principles of shipping law – in particular the law governing carriage of goods by sea – does not allow a forwarder to open a freight container packed and sealed by the foreign shippers that is merely being transhipped through an intermediate port like Singapore?”
How a Security Seal works for Freight Containers
In order to better understand what makes a freight-forwarder an intermediary, one needs to know about the role of security seals when shipping freight containers.
This is how the security seal system works.
A container is sealed immediately after being loaded with the goods to be transported, usually at the factory. That seal is never broken before the container reaches the final recipient, because this would result in a liability for the freight forwarders that are handling the respective container, if later it turns out that goods from the container are missing. Only customs can easily break that seal.
Such a container seal is a short metal bolt that comes with a one-way sealing cap. Once the sealing cap is clicked on the thinner end of the bolt, you can no longer remove it from there. The only way to separate the cap from the bolt is cutting the bolt in two. A big red bolt-cutter is used for that purpose.
This is also why freight forwarders cannot easily be part of anti-counterfeiting enforcement. They have no way to determine whether or not counterfeit products are in the containers that they are shipping unless a shipper is so “honest” to state on the shipping documents that the shipped goods are in fact illegal. That is unlikely to happen.
I do anti-counterfeiting for more than 20 years but I have never seen any bill of lading that stated ´counterfeit goods´.
The USPTO makes a correct Observation!
The talk continues:
“Unfortunately, on the one hand, the court recognized that what was involved was, in fact, counterfeit, it was trade mark infringement, there was no question about that in the court’s mind.”
That is correct.
Yes, there was Importation. But No Exportation.
The following is a gross misinterpretation of the Megastar decision:
“Unfortunately, the court then found that it, under Singapore law, it didn’t constitute importation and it didn’t constitute exportation. So, therefore, no liability.”
I said to myself: “No, this is wrong.” The Singapore High Court found that, under Singapore law, there was importation (points 127 and 189 of the Megastar High Court decision):
“On the present facts, I find that the Containers and the Counterfeit Goods found within were indeed imported into Singapore in the sense that they were “brought into Singapore” by sea.”
“…the Counterfeit Goods in the Containers were imported into Singapore for the purposes of the TMA notwithstanding that there was no intention for the consignments to be released into free circulation in Singapore.”
And the Singapore High Court found correctly that the goods had not been exported. The counterfeit goods in the two seized containers never left Singapore because they were destroyed before that could happen (cf. point 40 of the Megastar High Court decision).
Actually, they were incinerated at the Tuas waste incineration plant in Singapore. I know that because I was there when that happened. The local newspapers in Singapore reported it. The Singapore High Court wrote about that aspect and other aspects of “exportation” under points 179 -188 in the Megastar High Court decision.
The ultimate reason why the Defendant was not found liable for the trademark infringement in Singapore, was that Megastar was acting as a so-called “Intermediary”.
Why an Innocent Freight-Forwarder is only an Intermediary
Anyone who is active in the enforcement of IP rights understands that, because this is part of our day-to-day business: although a freight forwarder can be an “importer” when acting as a local consignee for the purposes of transshipment, that does not mean that the local consignee is the “importer” for the purpose of all of the provisions of the Trademark Act (see point 99 of the Megastar High Court decision).”
The talk continues:
“Well, it’s kind of the whole point, to bring something in, to a free trade zone, you’re transshipping it and it’s going back out. This was not intended, it did not go into the domestic market in Singapore. It was coming from China, through Singapore to Batam, Indonesia. And everyone can see that, yes, it’s infringing, it’s counterfeit goods. What a shame! But unfortunately the court wouldn’t attach liability, the case is on appeal.”
I said to myself: “No, this cannot be seen as ‘a shame’. This is called ´rule of law´, and if one broadens the definition of ´trademark infringer´ such that everyone in the logistic handling chain is made a trademark infringer when he is handling infringing goods (especially sealed containers that he is unaware that they contain infringing goods), this is criminalizing large parts of genuinely innocent individuals. This is why lawmakers established the role of an ´Intermediary´.”
General rule: an Intermediary must support the enforcement authorities but he is not liable for trademark infringement. Points 121 – 178 of the Megastar High Court decision are all about that. The word ´Intermediary´ is not there, but the result is the same.
The Corresponding US Regulations
The USPTO statements during the talk at INTA 2018 are also not in line with the regulations that govern the practice of the US Customs.
I find it surprising that exactly that unit of the USPTO that is in charge of anti-counterfeiting, has no clue about corresponding rules of the US Customs.
Us Customs makes a distinction between the ultimate consignee, i.e. the true importer, as opposed to that of a nominal consignee, i.e. the named consignee in shipping documents.
This distinction between “Ultimate Consignee” and “Nominal Consignee” can be seen from US Customs Directive 3550-079A dated 27 June 2001:
6.3 The Ultimate Consignee at the time of entry or release is defined as the party in the United States, to whom the overseas shipper sold the imported merchandise …
7.1 For formal entries, a Customs Broker may not be listed as the Ultimate Consignee unless they own the merchandise, …
7.2 For formal entries, Nominal Consignees (i.e., carrier, express consignment operators, freight forwarders, or consolidators) may not be identified as the Ultimate Consignee unless they own the merchandise, … Nominal Consignees cannot be identified as the Importer of Record on a formal entry unless they own, or have purchased the imported merchandise.
The US Customs is following this distinction between “Ultimate Consignee” and “Nominal Consignee” in enforcement. This is described in detail in US Customs Directive No. 2310-008A, dated April 7, 2000. Check out this directive, it is a very practical manual on how to work with US Customs when it comes to Anti-Counterfeiting. Worth reading it!
Anyone who is into international border enforcement is aware of this practical distinction between the trademark infringer and the intermediary who innocently contributes to the trademark infringement without knowing about it.
The Appeal against the Megastar High Court Decision
The USPTO talk continues:
“So we’ll see the final word is not yet been given by the Singapore court of appeal. Keep your fingers crossed, I guess. That will actually, I think, be a significant decision to be able to be decided, obviously will be very significant, because a fair amount of trade goes through Singapore and this would be a great decision to establish the type of liability on that intervener in this case of shipping.”
And as I could not take his talk anymore, I stood up publicly and highlighted that what was said was wrong.
And I said to myself: “Yes, I agree that the Singapore Court of Appeal’s decision will be very significant. And I can guarantee you that it will be a good one.” and I felt that this guy should be charged because of contempt of court. I would not dare to comment in such a way on any court case, being ongoing or not.
And the Megastar Court of Appeal decision is here, I have received it yesterday, on the same day when it was issued. It can be assessed from the Singapore Supreme Court website at https://www.supremecourt.gov.sg/news/supreme-court-judgments
The Megastar Court of Appeal decision confirms the result of the Megastar High Court decision. Extensive references are made, and the Court of Appeal endorsed the novel argument made by the Megastar lawyers, Asia Ascent Law Corporation, that the Trademarks Act should recognize of lack of knowledge or true innocence. This defence has never before been recognised in Singapore Trademarks Law, but there is collateral support for this in ECJ decisions concerning transshipment through member states that do not involve entry of infringing goods into the EU market, thereby taking a very “European” position (point 26 of the Megastar Court of Appeal decision):
… there ought to be some limiting principle that distinguishes those who were truly using the sign for their economic benefit and those who were unknowingly facilitating these acts by merely being the conduit in the movement of the goods in question, for instance cross-border courier services.
This is exactly what characterizes an Intermediary according to Art 9(1)(a) EU Enforcement Directive. Being a German and European Patent and Trademark Attorney with a background in Civil Law, the Singapore Court of Appeal statements under point 27 of the Megastar Court of Appeal decision are heart-warming:
The need for effective enforcement of intellectual property rights has to be balanced against the over-extension of liability to honest commercial persons who happen to be tangentially involved in the movement or handling of counterfeit goods and who are wholly unaware of the existence of any infringing sign. We think it is fair and accords with the statutory intent of the TMA (Trade Marks Act) that an alleged infringer should at least be be aware of the existence of the sign on the goods in question even if he did not know that the sign is an infringing trade mark.
Without going into further detail, the Megastar Court of Appeal decision has many aspects that need further discussion, after comparison with IP enforcement in other countries. I will also invite Asia Ascent Law Corporation to share their views on the case in future articles on this subject.
I would also not be surprised if the Singapore Trademarks Act, following the Megastar Court of Appeal decision, undergoes changes with respect to border seizure proceedings.
The two Megastar Decisions are Worth Reading
I believe that both the Megastar High Court decision and the Megastar Court of Appeal decision are worth reading, especially the topics “Events leading to the dispute” (under points 13 – 40 of the Megastar High Court decision).
Common Law court decisions – different from Civil Law court decisions – often breathe a sober spirit of common sense, and they are healthy food for thoughts, if well-written.
One thing is sure, one cannot possibly discuss the Megastar case without knowing the facts of the case. This is why one must actually read at least the Megastar High Court decision in full.
The Megastar case is an excellent means for explaining the situation and needs of intermediaries in infringements of Intellectual Property.
It is difficult to understand how the USPTO reached at its misleading remarks in the presentation at INTA 2018 in Seattle.
Be it as it is, the USPTO’s statements serve at least as an excellent example of common misunderstandings when it comes to enforcement of IP rights against those who innocently are exploited by using the legal system, when they unintentionally deal with counterfeit products without knowing so.