Law Offices of
MICHELLE RODENBORN

Heavy Fines Imposed for Importing Goods
with Counterfeit Trademarks
Customs Promises More Emphasis on IPR Seizures and Penalties
by Michelle Rodenborn

Under a new enforcement-minded Commissioner, the U.S. Customs Service is stepping up its efforts to enforce a 1996 law aimed in part at cracking down on importers of counterfeit goods.  According to top officials from Customs Strategic Trade Center who spoke at a recent trade conference, importers can expect "more emphasis" on intellectual property rights (IPR) seizures and penalties.

What is the new law?

The Anticounterfeiting Consumer Protection Act of 1996 (ACPA) was passed by Congress in response to a finding that counterfeit products costs American businesses an estimated $200 billion each year worldwide.

Sections 9 and 10 of the ACPA deal with imports, and were effected by amendments to section 526 of the Tariff Act of 1930 and by revisions to the Customs Regulations.

An amendment to 19 USC 1526(e) and the revised Customs Service regulation in 19 CFR 133.52(c) provide for the routine seizure, forfeiture and destruction of counterfeits of trademarked products.

A new subsection 19 USC 1526(f) and the corresponding new Customs Service regulation, 19 CFR 133.27, provide for heavy civil fines to be imposed "…on any person who directs, assists financially or otherwise, or aids and abets the importation of merchandise bearing a counterfeit mark…."  Significantly these monetary penalties are to be imposed "…in addition to any other civil or criminal penalty or other remedy authorized by law."  (19 USC 1526 (f) (1)-(4).)

What's a "Counterfeit" Mark?

By statutory definition, a counterfeit mark is "…a spurious mark which is identical with, or substantially indistinguishable from, a registered trademark."  (15 USC 1127.)  A more user-friendly way of defining the term than use of the word "spurious" was provided in dicta from a U. S. Court of Appeals case a few years ago.

In that case the appellate justices examined certain watch bracelets at oral argument and declared them to be the "spitting image" of a trademarked Rolex.  (Montres Rolex, S.A. v. Snyder (1983) 718 F.2nd 524, 533).  In other words, if an average purchaser (or average appellate justice) would not be able to tell the real from the fake, you have a counterfeit article.

Not all infringing marks are "counterfeits," however.  There is a second category of marks variously referred to as "merely infringing," or "copying or simulating," or "confusingly similar."  These are marks that fall short of the definition of counterfeit, but which infringe a registered mark by so resembling it as to be likely to cause the public to associate the copying mark with the registered mark.

Customs' determination of "counterfeit" can result in severe monetary penalties in addition to forfeiture of the goods.

As might be expected from the quality of these definitions, it is not always easy to determine whether a particular mark is a counterfeit, merely infringing, or not infringing at all.  In fact, the difficulty of applying these definitions is a source of a good deal of litigation in the federal courts and ruling letters on the part of Customs.

Yet a lot is riding on Customs' interpretation of these marks for it is the "counterfeit" ones that receive the severest treatment.  For "merely infringing" marks, one has some options available under 19 CFR 133.22 to avoid forfeiture including the pre-entry removal of the offending marks.  Also, the monetary penalties under the new law only apply to counterfeit marks.

On the other hand, counterfeit marks are seized and forfeited unless the importer can get written permission from the trademark owner, typically a rare occurrence.  Forfeiture is only the first punishment, as it will now be followed by civil penalty proceedings under the new statute.

Gone are the days when the most an importer had to fear in importing infringing merchandise was the seizure and forfeiture of the goods.  Today, the worst is yet to come.

How bad are the monetary penalties?

Very bad.  Under the statute, the maximum that may be imposed for a first seizure is the value that the merchandise would have had if it were genuine, according to the manufacturer's suggested retail price (MSRP).  For a second seizure and thereafter, the fine may not be more than twice the value that the merchandise would have had if it were genuine.

For example, importing 100 counterfeit Rolexes that might only cost the importer a few hundred or thousand dollars to buy, could cost the importer a half a million dollars or more in penalties.

What mitigation is Customs affording in handling these penalty cases?

Under the statute, Customs has discretion to mitigate the penalties imposed.  At the end of last month, Customs published its final "Guidelines for the Assessment and Mitigation of Civil Fines Under 19 USC 1526 (f)" in T.D. 99-76.

In the course of the administrative review process which involves the filing of a petition and presentation of any factors in mitigation, Customs will follow certain stated parameters in deciding whether to lower the ultimate fine imposed.

The guidelines are detailed and depend on the presence or absence of mitigating and aggravating factors which are well defined.  The ultimate dispositions of these cases will cover a wide range of circumstances.

For example, a first offense with mitigating and no aggravating factors will merit a fine of only 10-30% of the MSRP.  A second offense with aggravating factors, or a third or subsequent offense will earn the violator a fine of 50-80% of twice the MSRP of the genuine good.  A second offense with evidence that the party had knowledge of the counterfeit nature of the goods will receive no mitigation at all.

The statute and penalties have a wide aim.

The statute is specific in holding liable "…any person who directs, assists financially or otherwise, or aids and abets the importation of merchandise…"  (19 USC 1526 (f).)  A rather wide net is thus cast over all parties involved in the importation, who may be named individually or jointly and severally in penalty notices.

As stated by Customs in its comments to the final guidelines, all parties who exercise control over the import transaction are subject to the statute's provisions.  Customs noted Congress' intent to broaden the ability of the government to penalize those involved in all aspects of the importation of merchandise bearing counterfeit trademarks.

Just who will be held to have exercised "control over the import transaction" in addition to the importer of record is yet to be clearly defined.  Depending on the circumstances consignees, buyers, shippers, agents and others with knowledge could face penalties under this law.

Greater care and vigilance are required.

Since the penalties are so severe and the statute's aim so broad, all involved in import transactions would be well served to tighten controls over imports to avoid possible trademark violations.  Clear communications with your buyers, agents and shippers, and a commitment to avoid the possibility of stepping on US trademark owners' rights should help you steer clear of these severe penalties.

For any questions or comments concerning this matter please contact TASC member Michelle Rodenborn at (562) 436-5456 (phone), (562) 437-1967 (fax), or email her at customs@rodenborn.com.