First Customs seizure in Indonesia

Indonesia’s customs system is working for domestic companies only so far. It is understood that the obligation to have a fully operating subsidiary is the main reason most foreign companies cannot submit recordal applications. 

The first seizure took place recently for Indonesian stationary brand STANDARD. A container containing 858,240 ballpoint pens branded STANDARD and also model names AE7 Alfa Tip 0.5 and marked ‘Made in Indonesia’ and estimated to be worth Rp 1,019,160,000 (USD75,000) were imported into Tanjung Perak port in Surabaya on 6 December 2019.  The Indonesian owner PT Standard Pen  had recorded their marks with Customs after the Customs recordal system began operation in 2018. The company has a substantial international trade for its products, exporting worldwide. 

PT SI provided confirmation and approval for the temporary suspension of the goods by submitting a bank guarantee to Customs in Tanjung Perak, after which the goods could be inspected. The joint inspection was conducted by a Judge of the Surabaya Commercial Court, clerk of a court, Customs and Excise officers, expert witness and applicant representatives (PT Standard Pen), and the importer. The goods were determined as counterfeits. The next step is the legal process. This is an area of uncertainty since it is not clear if all cases must got to the Commercial Court or whether they can be dealt with out of court.

Singapore/Battam case transhipment concludes

The case of Burberry Ltd v Megastar Shipping Pte Ltd has reached the Singapore High Court. The case arose because counterfeit Burberry, Louis Vuitton and other luxury goods were shipped from China to Singapore, in two containers,  for onward shipment to Batam, Indonesia.  The crux of the Singapore litigation was about how the goods were transhipped through Singapore. 

The Singapore Court of Appeal has held that “goods in transit” are still imported so illegal under the Trademarks Act. However, the freight forwarder importer the goods, but it did not 'use' trade mark. Instead as a commercial freight forwarder it was unfair to impose liability for trade mark infringement as they are a mere conduit.  

The first thing to say about this is that transhipment is increasingly now viewed as something customs authorities must deal with from an IP perspective. The Singapore EU FTA ought to have covered it, but it did not include goods in transit. Singapore likes to defend its position as a transhipment hub, so not be obliged to check all shipments (despite earning money from each container that passes through its port). So it is positive that the court did find the goods imported in principle. In this case there were facts that showed the shipments passed through Singapore’s Portnet IT system. 

However the other issue is the use of the nearby Indonesian port, Batam. The problem there is that Indonesia has no effective border protection system, despite one being introduced last year. See here. So there remains a major issue whether Indonesian customs could stop the goods. Secondly Batam is a Free Trade Zone. It is often used for export processing, and illicit goods pass through it frequently. The region of Riau was historically known for smuggling - see here.  Indonesian customs generally do not interfere and it is not clear if the new IP border protection system could intervene at all. The IP owners suspect that such a huge volume of fakes cannot actually have been bound for Batam itself, that port being relatively remote from the major markets in Indonesia. 

So although important, the case probably doesn’t help in deterrence. Freight forwarders are not liable, and Indonesia’s Batam is still going to be used to handle illicit goods freely. The loss of the fake goods was the only deterrent to whomever the ultimate owners were, a fact which will never be known along with their ultimate destination.

Indonesia's customs system - the final stage of setting up its IP border protection system

After Government Regulation No. 20 of 2017 on Controls of Import and Export Goods under 2006 Customs Law came into effect on 2 August 2017, the Ministry of Finance has finally passed Implementing Regulation No. 40 of 2018 which sets out the procedures for customs recordal and seizures. The Implementing Regulation takes effect on 16 June 2018.
 
Recordal for trade marks and copyrights

Trade mark and copyright owners with a local business entity domiciled in Indonesia can now file customs recordal applications. In addition to the usual proof of trade mark certificates or copyright and information on genuine goods, the application must include documents relating to the local business entity, importer/exporter information and a statement of liability from the IPR owner. The IPR owner must also appoint an Examiner who can verify genuine products as well as understand the distribution and marketing of the products.

Once the application is submitted, Customs will review the application and approve/reject the application within 30 days.

Recordals are valid for one year and are renewable.
 
Restraint – confirmation by IPR owner in 2 days

Once Customs notifies the IPR owner of the restraint of a shipment, the IPR owner will need to send confirmation of its decision to either apply for Court detention order or otherwise to Customs within two days.
 
Detention order

The IPR owner or its proxy must then apply to Court within four working days and provide to Customs a bank or insurance guarantee of IDR100M (USD7,200) which is valid for 60 days. The application is to the Commercial Court in the jurisdiction of the port where the goods were seized.

Customs then holds the goods and provides the IPR Owner with a detailed summary of the shipment.  The Court must deliver its detention order decision within two business days from the filing of Court application and send its decision to Customs within one business day.
 
Examination of detained goods

Upon receipt of the Court detention order, Customs will detain the goods for ten business days. Within two business days of Customs’ receipt of the Court detention order, the IPR owner will need to send its request to Customs who will arrange a time for all parties including the appointed Examiner to examine the detained goods.

If more time is required, the IPR owner can apply to Court for an extension of ten business days but there will be an additional security.
 
Legal action/settlement
 
After the ten-day detention period, if the goods are confirmed as infringing and if there is no settlement, the IPR owner can take legal action. The 2017 Regulation provides that this means civil or criminal action or settlement. This is problematic, as it is not clear how it is possible to file legal cases in such a short period, and of course, lawsuits are expensive.
 
Comments

While it is positive that Indonesian Customs has introduced a system to record IP rights, this recordal system is currently limited to IPR owners with a local subsidiary. We believe the Indonesian government’s desire to encourage foreign investment is its rationale behind this requirement, as it hopes that many more foreign IPR owners will set up local presences in Indonesia. The process for the Court detention order and examination looks relatively clear, but this needs to be tried to see how it works, and the timelines are very short. Finally, there remains uncertainties if parties are unable to settle following the expiry of the detention order, they may have to choose to proceed with either civil or criminal action, which will be expensive.
 
 

Indonesia's new IPR Customs Regulation

Indonesia has taken its first steps towards a Customs IP border protection system.The Indonesian Government has issued Regulation No. 20 of 2017 on Controls of Import and Export Goods Constituting or Deriving from Intellectual Property Rights Infringement (“Regulation”). The Government Regulations was stipulated on 30 May 2017, enacted on 2 June 2017 and takes effect from 2 August 2017. It implements provisions in Law No. 17 of 2006 on Amendments to Law No. 10 of 1995 on Customs.

The Regulation provides for an IPR recordal system for trademarks and copyrights only. Recordals are valid for a year, but renewable. Applications can only be made by Rights Holders with a business entity domiciled in Indonesia. Applications must attach evidence of ownership, product authentication, distribution routes and marketing information of products. Customs will approve or reject an application within 30 days. Specific procedures will be set out in a government regulation from the Ministry of Finance.

 

Preliminary Restraint of goods occurs first for trademarks and copyrights that have been recorded. Customs can detain suspected infringing goods as follows:

• Customs will send a Notification of Restraint to Right Holders
• Rights holders must confirm the notice within 2 days; and
• Right holders must then file a Suspension Request to Commercial Court within 4 days of their confirmation of the notice.

For other IPR infringements like patents and industrial designs, the Customs have no power of preliminary Restraint and Right Holders have to file a Suspension Request to Commercial Court.

Next step is a Suspension Request to Court. Right Holders must do three things

• pay operational costs security to Customs of Rp100,000,000 (about USD 7,500) in the form of bank or insurance guarantee.
• submit sufficient evidence of the IPR ownership and infringement
• apply to Court for physical examination over the goods for which Suspension is being requested.

The Regulation states that the Commercial Court shall approve or reject the Suspension Request within 2 business days and notify Customs 1 day later.  There will be further Regulations on the procedure for the Suspension Request.

Execution of Suspension Order is the third step. If a Suspension Order is issued, Customs will notify the Right Holders, the importer or exporter of the goods and the DGIP. Within 2 days of the court decision, Right Holders shall submit an application to Customs to set a schedule for the physical examination of the suspended goods. Customs will detain the goods for up to 10 days from the date of the receipt of the Suspension Order. Rights holder may apply to renew one time for a maximum 10 days by providing additional operational costs security. Under certain circumstances, for example where the detained goods have short shelf life, the importer/exporter or owner of the goods may apply to Court for a termination of the Suspension Order by providing security.

Once the Suspension Order expires, the detained goods can be dealt with as follows:

• destroyed by Customs in accordance with their procedures
• surrendered to investigators/court pursuant to a legal action;
• handed over to the Court’s bailiff in the event the Right Holder files an action and/or application for security for costs over the suspended goods; or
• by way of private settlement of disputes

The security deposit provided to Customs may be used to cover all operational costs such as transport and storage costs. Any shortfall will be invoiced to the rights holder, and any excess returned. The procedures will be governed by another Ministry of Finance Regulation.

There are several exceptions. The Suspension provisions do not apply to transhipment cases. All Customs will do in these cases is notify the Customs of the next country of destination. There will be further Regulations by the Ministry of Finance to deal with commercial purposes of goods brought by passengers, border crossers, or consignment sent by postal or courier services. There are also Customs offences in other criminal laws which may take precedence, e.g. smuggling.

The Regulation is a step in the right direction and sets out procedures for Suspension Requests. However a lot of questions remain and additional rules are required before any recordals or seizures can be made. For now IP holders need to await further news on the additional regulations, which are being drafted now by the Ministry of Finance and more information on how the present ones will be interpreted.

Batam and the transport of illegal and counterfeit goods

Batam is an island 10 km south east of Singapore, part of the Indonesian Archipelago.  Recent news and industry discussions have begun to highlight Batam's role in counterfeit goods shipment (which appears frequently connected with Singapore). The Indonesian government, based far away in Jakarta, is concerned generally with illicit goods entry into Battam. It recently identified approximately 44 illegal entry points in Batam in 2016 (that is entry points for shipments which don’t pass through Customs). Indonesian Customs are increasing the their security to prevent a huge array of illegal goods entering and exiting Batam. They found 36 examples of a variety of illicit goods in February 2016 via operations at the airport, seaports, and in the local market.

Illicit goods covers a wide array of offences, including counterfeits. Customs officials have observed that imported goods frequently do not pay tarrifs/tax when entering Batam, via Pelabuhan Sekupang on passenger ships. The goods are then transported to Jakarta and other ports in Indonesia, suggesting a large passenger hand carried goods smuggling problem too. Customs officials have a hard time controlling this with limited manpower. They often face physical resistance especially they say from women who bring these goods in, with the help of porters. Newspapers unsurprisingly report widespread bribery to keep this illegal practice under wraps.

Batam and Singapore share a Special Economic Zone with no tariffs or value-added taxes imposed on goods passing between the two.  In one recent case going through Singapore's courts now, a seizure in Singapore of transshipped luxury goods from Shenzhen bound for Batam for processing and re-export suggests Batam is being used by Singapore shippers, as a route for fake goods. Singapore is already widely known as the largest transshipment port in the world, and the general suspicion is that Batam, plays a role in counterfeiting transhipment too. Many Singapore trading and shipping companies are based there, presumably because of the lower risks involved in shipping via Indonesia. 

Indonesia's weak Customs border protection is only part of the problem. Singapore trading companies' involvement makes the problem far worse, along with the relatively easy passenger access. Singapore Customs are under fire for not controlling transhipped fake goods passing through Singapore; Batam's role is a further complication.

Customs IP border protection in Indonesia

The Supreme Court Regulation on Provisional Measures was issued on 30 July 2012. This sets out, after many years waiting the rules on court orders confirming Customs suspensions at borders. The IP provisions of the 1995 Customs law to implement TRIPS were never implemented. The law was amended in 2006 and again not implemented for IP border protection. No recordal system exists and no ex parte seizures can be made.

Applications to detain imports must now be filed at the Commercial District Courts. Procedures for swift hearings and decisions are provided and seem relatively clear. The court can set hearings very quickly and order temporary detention for 10 days to hear the matter more fully. So far so good.

However in order to preserve the temporary detention the IP holder must file a full civil action for infringement. Given legal costs are unrecoverable in Indonesia that will in most cases outweigh the value of the seizure.

Costs relating to the seizure must be borne by the applicant, in cash or bank guarantee. If an order is granted a security deposit equal to the value of goods must be paid.  That will put most IP holders off, if the costs of civil court proceedings don't. 

Then the rules state that detailed clear information on the import consignment must be provided, which of course is impossible in most import cases, by definition. 

These rules go against almost every recommendation made by the World Customs Organisation to simplify IP border protection.  IP Komodo can hardly imagine a set of regulations that would make IP border seizures harder!

Indonesia’s missing Customs regulation

 

Under the TRIPS agreement article 51 et seq, WTO members were to put in place an IP border protection system to seize and detain imported counterfeit goods. Indonesia’s 1996 Customs law did contain provisions relating to seizure of imported fakes, but specified that a government regulation would contain more details. As a result, Customs could not actually make seizures.

Occasional calls would be received from Jakarta Cengkareng airport about small consignments, but these would typically be too small to be of any interest. The World Customs Organization arranged training for Customs in 2001. Still no regulation appeared. Sporadic lobbying, and US Special 301 complaints got nowhere. Meanwhile fake imports of electronics, car parts etc mainly from China grew.

In 2006 the Customs law was revised, and the provisions on IP border protection maintained, still specified to be subject to implementing regulations. IP holders and IP consultants had all but given up hope. After all, around ASEAN, Customs was not exactly a roaring IP success. Malaysia and to a lesser degree Thailand had something going, but Philippines and Vietnam’s IP border protection systems barely operate. And with the China ASEAN free trade agreement starting in 2010 there was talk of customs IP border protection being a barrier to imports from China. Notwithstanding that by now most fakes were imported from China.

IP Komodo was surprised then to hear, 15 years after first announcement that a team would be put together to draft the customs regulation in 2012. He hopes it doesn’t take them another 15 years.

Indonesia - the start of preliminary injunctions?

Happy New Year! Although years tend not to matter when your species is 100 million years old.

Indonesia is one of the last of the more developed ASEAN markets not to have a system for preliminary injunctions in its civil court system. Thailand, Philippines, Malaysia and Singapore all have them and use them.  Indonesia's post TRIPS IP law revisions in 2001 set out a system for preliminary injunctions in civil cases but specified that a further regulation would lay out the details. The Commercial Court was set up to hear IP cases, but it began operation a year or two later and cases in the early years were fewer than today. Somehow a decade passed by without the implementing regulation (although well known marks and Customs IP protection fall into the same category).

But just before Christmas, a draft regulation regulating Provisional Decisions for Intellectual Property Rights matters appeared at the Supreme Court. It aims to set clear and detailed terms for the process of seeking a provisional decision in the Commercial Court. IP Komodo struggled a bit with the draft, because it seems to focus mainly on Anton Pillar issues and not enough on preliminary injunctions/TROs.

It is supposed to apply to all forms of IP cases, especially infringement, where losses are irrepairable. It also covers goods seized by Customs (although Customs don't yet have any seizure system in place) and civil search and seizure orders where evidence is likely to be disposed of (Anton Pillar Orders).

It is still a draft and Indonesia is famous for allowing these regulations to languish. IP Komodo will keep an eye out for implementation.