1. Introduction: What is a Custom Recordal and what purpose does it serve?
Counterfeiting is a large and often successful business in India. Statistics have shown that billions of dollars’ worth of losses are caused due to counterfeiting and infringement of Intellectual Property Rights (IPRs) in India.To prevent third parties from infringing IPRs of Right Holders, a straightforward solution lies in filing lawsuits that spell out the illegal actions of the Defendant (infringer) and thereafter obtain an order of injunction in favour of the Plaintiff (the IP Holder) restraining the Defendant from continuing his infringing activities. If satisfied, the Court may grant permission to the Plaintiff to conduct a civil raid at the location of the Defendant and seize and seal the infringing products to be used as evidence when the matter progresses to the stage of trial. (to know more about these raids read Utkarsh’s article on IP Civil Raids here)
Such tactics have been regularly utilized by Right Holders and have thus managed to considerably stem the flow and sales of infringing and counterfeit products in the markets. Although the volume of such products is daunting and it appears that infringement cannot be completely done away with as the demand for cheap counterfeits remains high in developing countries such as India, it does provide IP holders with a way to deal with the threat.
The above has led to a competitive environment where Right Holders try and clamp down on infringers while the infringers try and avoid the measures being undertaken by the IP holders. One of the easier ways to avoid any adverse legal implication is to import infringing products and thereafter distributing the same in the market. This avoids serious repercussions on the importer. Firstly, it does not require a manufacturing unit which employs a large number of people to manufacture the infringing products. Secondly, the importer can remain relatively anonymous by simply selling the goods to local distributors and ensuring that the chain becomes more remote to him and therefore makes it difficult for the Right Holder to track down the major players as only the lowest rung in the chain is accessible. Lastly, the products can be procured at cheaper rates from countries such as China and allow for greater margins.
To prevent such imports, the Central Government was pleased to promulgate the Intellectual Property Rights (Imported Goods) Enforcement Rules, 2007 (“IPR Rules”). These Rules along with later notifications sought to regulate the import of infringing goods into India. The procedure was simple: Register your IPR with Customs through an online portal and submit some documents in physical form with the relevant officer. This Registration is called a ‘Custom Recordal’ and once such Recordal was made the Customs would alert the Right Holder in the event of any unauthorised import of products using IPR’s of the Right Holder.
2. Legal Framework for preventing import of infringing goods
Section 11(1) of the Customs Act, 1962 (“the Act”) empowers the Central Government to prohibit import and export of goods under certain conditions. Section 11(2) is an exhaustive list of grounds on which the Central Government can prohibit imports or exports. Section 11(2)(n) allows for the said prohibition on the grounds of protection of patents, trademarks, copyrights, designs and geographical indications. It is interesting to note that initially the Act envisaged protection to ‘patents, trademarks and copyrights’ and not to ‘designs and geographical indications’ which were inserted into the provision via a later amendment. However, vide a notification dated June 22, 2018 the Government has removed patents from Rule 2 that sets out the scope of action for infringement of IPR. This was done because unlike trademark or copyright cases, there is almost no easy way to determine patent infringement which could cover medicines or complex electronic gadgets. The background to this is best explained by Prof. Shamnad Basheer in his blogpost.
3. Procedure for registering a Custom Recordal
There are two stages of ensuring the registration of the IPR. In the first stage, one submits certain information and some documents on the portal www.ipr.icegate.gov.in. Once this information is submitted, a unique code is provided to the Application called a Unique Temporary Registration Number (UTRN). A UTRN at this stage is merely a reference number and no protection is granted to the IPR.
In the second stage of the process, the Right Holder must submit requisite documents in the physical form with the relevant Customs Officer. The relevant officer is required to scrutinise the documents and verify the claims made by the Right Holder regarding the IPR. If satisfied, the Relevant Officer can allow the said application and a new registration number called a Unique Permanent Registration Number (UPRN) is generated. At this stage the registration is final and the Customs will begin enforcing the Right Holder’s rights at the borders.
3.1 Registering a UTRN
As described above, registering a UTRN requires one to access the Customs website and select the relevant IPR that one seeks to record. You will get an account number as well as a password to enter it on your registered e-mail ID. The account number will be the same as the UTRN number to be accorded to your application. The following information is to be provided at the stage of registration of a UTRN:
- The date of registration of the trademark.
- The date of the validity of the trademark.
- The trademark office at which the trademark is registered.
- The details of the right holder.
- Confirm whether the application is moved by the IP Holders or the attorney and provide the registered address of the attorney’s office.
- Provide details regarding the class of registration and for the products for which it is registered.
- Provide photographs of genuine products and sample infringing products (if available).
- Provide a list of countries from which the original product is manufactured and exported and a list of countries from which import of infringing products are suspected.
- Thereafter one must select whether one will be paying the fee via Demand Draft or via online payment mechanisms.
- And finally, one must select whether the Holder will be filing a centralised bond or a general bond. (This will be explained later in the article)
3.2 Generating a UPRN
Generating a UPRN can be a time-consuming task. One must submit all of the documents that have been uploaded online in the physical format. Additionally, one must submit the requisite bonds in the correct format after due notarisation. A list of documents to be submitted in hard copy are as follows:
- Copy of the UTRN.
- Copy of the Registration Certificate – in practise, we generally file a copy of the Certificate for Legal Proceedings.
- A copy of Power of Attorney authorising the advocate along with a chain of authority showing that the person who has authorised the advocate had the authority to do so.
- An indemnity bond indemnifying the Customs in case of any losses caused to an importer.
- A General Bond affirming that the Right Holder shall provide a consignment specific bond or the relevant BRN in the event of an interdiction (this concept s discussed later in this article).
- A Demand Draft of Rs. 2000/- in case that option is chosen for payment.
- Copy of Statement of Exclusivity;
- Copy of photographs of genuine and sample counterfeit goods;
- Statement of grounds for suspension of infringing goods;
- Any other documents that may be required by the Customs Authorities
4. How to select the correct bond?
Whenever the Customs suspends the clearance of a consignment that appears to be in violation of the IPR Rules, an alert is issued to the Right Holder or its authorised attorney. The alert must mention the date of the suspension of clearance of the product, the bill of entry number and the value of the consignment. The value of the consignment is of utmost importance as it tells us the value of the bond that is to be furnished.
A bond is required to be furnished along with a security so as to cover any liabilities that arise in case it is determined that the suspension was vexatious. The value of the security is calculated at 25% of 110% of the value of the suspended consignment.
5. Which Bond?
When the Rules were first promulgated, the provision was only for a Consignment Specific Bond. Later, vide Circular No. 10/2011 the Central Government, in the interests of logistical convenience allowed for the filing of a Centralised Bond. What’s the difference between the two?
5.1 Consignment Specific Bond
With the ‘suspension’ of each consignment, the Customs will issue an alert to the Right Holder. Once it is prima facie determined that the imported goods are indeed infringing, the Right Holder must file this bond within three days of the said interdiction.
This can be problematic as the Right Holder may be alerted to imports of multiple consignments of infringing products in seaports, airports and Inland Container Depots (ICD’s). Filing such bonds within three days of suspension of clearance of the said products are bound to be a logistical hurdle for the Right Holder.
5.2 Centralised Bond
To deal with the logistical hurdles that could be created by the Consignment Specific Bond, the Government introduced a Centralised Bond. This bond could be of any value as desired by the Right Holder. The Right Holder has to furnish a security of the value of 25% of this bond to Customs. This bond will then be registered with customs whereby the Right Holder will receive a Bond Registration Number (BRN).
Now each time there is an interdiction, the Right Holder merely needs to provide the BRN to the concerned officer and the requisite surety will be deducted from this amount. If the surety value runs low, the Right Holder is always free to ‘top up’ the surety.
As per Rule 4(1) of Circular No. 10/2011, the Rules give the option to select either a Centralised Bond or a Consignment Specific Bond. As per Rule 4(3) of the said circular, the BRN will be in the name of a single Right Holder who is free to associate as many UPRN’s under his name with the same BRN.
Although the Rules have been in existence for quite some time, the implementation of the same is yet to pick up full steam. Over the past 2 – 3 years, clients and lawyers have both understood the deterrent value of the IPR Rules and the manner in which their brands can be protected by canny infringers planning to import infringing goods rather than manufacturing them.
Right Holders must keep in mind that the implementation of IPR Rules is merely one of the weapons in their armoury against infringers and the same should be used as part of a wider strategy to protect their brand and their business and ensure that the actions undertaken are complementary to their commercial goals.
Tnn. “Counterfeit & Smuggling Invisible Threat to Economy, Caused over Rs 39,000 Crore Loss – Times of India.” The Times of India, Business, 13 June 2018, timesofindia.indiatimes.com/city/hyderabad/counterfeit-smuggling-invisible-threat-to-economy-caused-over-rs-39000-crore-loss/articleshow/64565123.cms
Promulgated via Notification No. 47/2007 dated May 8, 2007.
Section 54, Finance Act, 2013.
 Rule 2, Intellectual Property Rights (Imported Goods) Enforcement Amendment Rules, 2018.