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Intellectual Property Rights Continues To Be a CBP Priority Trade Issue
Ever since enactment of a 1996 law aimed at cracking down on importers of counterfeit goods, enforcement of intellectual property rights has been a focus of Customs and Border Protection.
At the time the new law was enacted, officials from Customs Strategic Trade Center told importers to expect “more emphasis” on intellectual property rights (IPR) seizures and penalties. The intervening years have shown that Customs meant what they said.
According to seizure statistics put out by CBP in January of 2009:
- the domestic value of goods seized for IPR violations in 2008 increased by 38.6% from the previous year; and
- the actual number of IPR seizures increased by 9.7%.
Of the total IPR seizures, China was the top trading partner involved, accounting for 81% of the total value seized, with India holding a distant second place with 6%. IPR seizures of goods from China rose 40% by value in fiscal year 2008.
Types of commodities ranking high on the seizure lists include footwear, the top commodity seized, along with handbags, wallets and backpacks, pharmaceuticals, wearing apparel, and consumer electronics.
Trade in counterfeit goods threatens the economy and national security.
Customs has frequently stated that trade in counterfeit and pirated goods threatens America’s economy, its innovation, the competitiveness of its businesses, the health and safety of its consumers, and even its national security.
CBP points out that trade in illegitimate goods is highly associated with smuggling and other criminal activities, and is often used to fund criminal enterprises. In terms of safety and security threats, CBP has enforced the law to target and seize an increasing number of counterfeit products it believes threaten America, such as:
- electrical articles like power cords and lights that can catch fire or shock consumers;
- batteries that may explode or leak mercury;
- pharmaceuticals;
- personal care items like perfumes, colognes, toothpaste and shampoo that may contain harmful bacteria;
- computer network components and semiconductors that can cripple infrastructure vital for national security.
Customs has a strategic approach to IPR enforcement.
The importance that Customs attaches to its IPR enforcement is evidenced in the level of priority it has been assigned. CBP has designed IPR enforcement as a Priority Trade Issue (PTI), and has provided considerable resources, personnel and focused training to its officers to respond to IPR issues.
CBP has developed a multi-layered strategic approach which includes seizing fake goods at US borders, “pushing the border outward” through audits of infringing importers, cooperation with international trading partners, and partnering with industry and other government agencies to enhance CBP efforts.
Today IPR enforcement is integrated into several offices throughout CBP, including:
- the Office of International Trade which develops national IPR enforcement policy and initiatives, directs foreign diplomacy, targets shipments of IPR infringing goods, audits infringing importers, and provides training and legal guidance on IPR seizures and penalties;
- CBP officers and Import Specialists from the Office of Field Operations who inspect and seize IPR infringing shipments at the ports of entry; and
- Other CBP offices, including the Office of Information and Technology and the Office of International Affairs and Trade Relations, which provide expertise in laboratory analysis and assistance with foreign diplomacy to further CBP’s IPR enforcement mission.
And, showing the importance that IPR enforcement has with the current administration, on September 25, 2009 President Obama announced his intent to nominate Victoria A. Espinel as U.S. Intellectual Property Enforcement Coordinator, Office of Management and Budget.
A Look at the Law: The Anticounterfeiting Consumer Protection Act of 1996
The Anticounterfeiting Consumer Protection Act of 1996 (ACPA) was passed by Congress in response to a finding that counterfeit products cost American businesses at that time an estimated $200 billion each year worldwide. Sections 9 and 10 of the ACPA dealt 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 were 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 U.S.C. 1127.) A more user-friendly way of defining the term than use of the word “spurious” was provided in dicta from a 1983 U. S. Court of Appeals case.
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 the above 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 rides 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.
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. The monetary penalties under the law only apply to counterfeit marks.
Heavy fines can be imposed for importing goods with counterfeit trademarks.
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. Customs’ views on that discretion are revealed in 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.
Depending on the circumstances, consignees, buyers, shippers, agents and others with knowledge could face penalties under this law.
Great care and vigilance are required.
Since the penalties are so severe and the statute’s aim so broad, all involved in import transactions are 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. |
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