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Freight forwarders and counterfeit goods

Court of Appeal revises notion of strict liability for trade mark infringement

21 June 2019

The Singapore Court of Appeal recently considered an appeal brought by the trade mark proprietors of luxury brands Burberry and Louis Vuitton, who alleged that a freight forwarder was liable for trade mark infringement under Singapore's Trade Marks Act (Cap 332, 2005 Rev Ed) (the TMA) by way of importing and/or exporting counterfeit goods.

The circumstances presented to the Court of Appeal were not unique and may commonly arise in the transshipment industry.  Whilst the alleged infringer (the freight forwarder) had imported counterfeit goods by sea, it was not disputed that the freight forwarder did not know that the cargo contained counterfeit goods or even that the goods had any sign on them.  Its only involvement in the transaction was to receive the cargo from one country (China) and to forward it to another country (Indonesia).

In considering the issue of trade mark infringement, it is notable that the Court of Appeal introduced the element of intention into an area that has been traditionally described as being one of strict liability. The Court held that for infringement to take place under section 27 of the TMA, the alleged infringing importer / exporter must have intended to do the act constituting the infringing use with knowledge or reason to believe that there was a sign present on the things in issue.  

Background

In Burberry Ltd v Megastar Shipping Pte Ltd [2019] SGCA 1, the respondent, a freight forwarder which provided transshipment services in Singapore, was engaged by an Indonesian company to arrange for transshipment of two sealed containers to Batam. These goods had been shipped by Chinese companies from China to Singapore and were intended for onward shipment to Batam in Indonesia. 

The cargo was described in generic terms and included references to "household goods". It was not disputed that, as part of the transshipment service, the freight forwarder would not ordinarily need to see or to take physical possession of the containers. Indeed, in this case, at no point did the respondent see or interact physically with the cargo.  

However, upon the cargo's arrival in Singapore, the Singapore Customs inspected the containers and, upon finding them to include counterfeit products totaling more than 15,000 items, seized the goods.

It transpired that the foreign shippers in China had provided false addresses and could not be traced. The appellants then commenced an action against the respondent for infringement of trade mark use. Whilst the Indonesian company was brought in as a third party in the proceedings, it chose not to participate in any of the proceedings before the Singapore Court. 

Legal Issues

Under section 27 of Singapore's TMA, a person infringes a registered trade mark if he uses in the course of trade a sign which is identical with the trade mark in relation to goods or services identical with those for which the trade mark is registered, without the consent of the trade mark proprietor. 

The key question before the Court of Appeal was whether the respondent could be said to have "used" the sign here. Under section 27(4) of the TMA, a person is deemed to use a sign if, inter alia, he "imports or exports goods under the sign". Whether the respondent constituted an importer or exporter within this section depended on:

  • whether goods in transit in Singapore are considered to be "imported" under the TMA; and
  • whether an intention to export (without any actual act of export) is sufficient to constitute infringement. 

Apart from considering whether the respondent was responsible for the physical act of importing or exporting the infringing goods, the Court of Appeal took the further additional step of considering whether the respondent intended to import or export goods under the signs in question and in particular, whether the respondent knew or had reason to believe that the signs were used on the goods. 

Meaning of "import" and "export" under the TMA

In relation to the first question, the Court found that goods in transit, once brought into Singapore, would be taken as imported even if they were not intended for the Singapore market. The Court agreed with the Judge below that the context and structure of the TMA are consistent with "import" covering goods brought into Singapore only for the purpose of transit. 

In relation to the meaning of "export" under the TMA, the Court found that a mere intention to export was insufficient to constitute infringement; and that "accompanying actions which are clearly directed at fulfilling the said intention to export or … clear evidence that export would definitely take place" was also required.

Having found that the respondent's actions would have fallen within the ambit of import / export under the TMA, the Court of Appeal reasoned that it was not enough that the alleged infringer was responsible for the physical act of importing or exporting the infringing goods. The Court explained that the alleged infringer must have "intended to import or export goods under the signs and in particular that [the alleged infringer] knew or had reason to believe that the signs were used on the goods".  

Revisiting strict liability in trade mark infringement

In finding that the respondent was not liable for trade mark infringement, the Court of Appeal focused on the significance of the requirement of "use" and considered whether one could fairly be said to use a sign if he has no knowledge at all that the sign exists on the goods. 

In its reasoning, the Court addressed the traditional understanding that trade mark infringement is one of strict liability and that the mental state of the alleged infringer is entirely irrelevant, as argued by the appellants and the amicus curiae. The Court rejected those arguments and noted that the concept of strict liability was "indeterminate because different degrees of strictness may exist", and clarified that "the only thing that can be said confidently of strict liability is that liability is not dependent on fault".

In its analysis, the Court examined a number of cases which concerned defendants who had intended to use the sign in issue and in their defence maintained that they did not know that the sign was infringing. In the Court's view, these cases did not establish conclusively that a defendant who did not even know that a sign was applied or present on the goods would be liable for trade mark infringement. 

Accordingly, the Court of Appeal introduced a new mental element for trade mark infringement – in order for infringement to take place under section 27 of the TMA, the alleged infringing importer must have intended to do the act constituting the infringing use with knowledge or reason to believe that there was a sign present on the things in issue. If those conditions were satisfied then it would not matter whether he knew that the sign or its use was infringing.  

The Court found that there was no evidence that the respondent knew or had reason to believe that there were signs on the goods, and that the respondent was merely providing a commercial service as freight forwarders in its ordinary course of business. Therefore, the respondent was found not to be liable for trade mark infringement.

Implications 

With this decision, the Court of Appeal has revised the traditional understanding of strict liability in trade mark infringement cases, and has made clear that the hallmark for liability for infringement in these transshipment cases is intention – that is, the intention to import or export the goods under the signs in issue. This will doubtless be welcomed by those within the freight forwarding industry who play only a transitory and facilitative role in the shipment and who lack actual knowledge of what is inside the shipment beyond what is declared to them.

The Court highlighted the need to balance effective enforcement of IP rights with the over-extension of liability to "honest commercial persons who happen to be tangentially involved in the movement of counterfeit goods".  Parties who legitimately have a complete lack of knowledge that the infringing signs are on the goods that it is transshipping will not be held liable under the TMA. 

This article was written in conjunction with Priscilla Lua and Sandra Chong from Cavenagh Law LLP.