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the authority to order that infringing goods be 'écartées des circuits commer-
ciaux' in Art 46. The Spanish text of Art 59 refers to authority to order
'eliminación', which, read in its context as an alternative to 'destrucción', is
evidently a reference to the authority to order that infringing goods be
'apartadas de los circuitos comerciales' in Art 46.
The US argued that the possibility that goods donated to social welfare bodies
might later be sold by them did not constitute disposal 'outside the channels of
commerce in such a manner as to avoid any harm caused to the right holder'.
The Panel agreed that if the social welfare bodies sold goods donated to them by
customs for charitable distribution, even to raise money for charitable aims, the
goods were disposed of 'into the channels of commerce'.
74
2.178
The critical issue was whether such disposal would harm the right holder. The
US argued that the donation of 'shoddy counterfeit goods', if they fail to
perform properly and especially if defective or dangerous, would damage the
right holder's reputation or even expose it to claims for compensation.
75
However, the US did not allege that any sub-standard, defective or dangerous
goods had actually been donated by Chinese customs to social welfare bodies
and thus the Panel found that it had not been demonstrated that customs lacked
authority to donate goods to social welfare bodies in such a manner as to avoid
any harm to the right holder caused by defective or dangerous goods.
76
The US
submitted that counterfeit and pirated goods that were usable but of lower
quality could easily harm the right holder's reputation, but again the Panel
indicated that evidence of actual harm caused to the right holder by the manner
of disposal was required.
77
2.179
The Panel noted that although under ordinary circumstances, consumers may
be misled as to the origin of counterfeit and pirated goods, and counterfeit
goods with quality problems may harm right holders' reputations, nothing in
the measures at issue in the determination obliged customs or the social welfare
bodies receiving seized goods to remove counterfeit trademarks.
78
The panel
noted that goods donated by customs to the Red Cross were not distributed in
ordinary circumstances. The distribution of donated goods by the Red Cross,
including in disaster relief projects, was outside the channels of commerce, thus
it could not simply be assumed that the recipients were misled as to the origin of
the goods. The recipients did not choose the goods in the way that ordinary
2.180
74
Ibid, para 7.246.
75
Ibid, para 7.288.
76
Ibid, para 7.291.
77
Ibid, paras 7.294-7.298.
78
Ibid, paras 7.294-7.296.
