Citing National Security Threat, DHS to Pursue Steps Against Trade in Counterfeits

An “epidemic” of trade in counterfeit and pirated goods is the target of a new set of recommendations and actions announced recently by the Department of Homeland Security.

DHS states that this illicit trade, which has grown into a $500 billion industry due in part to “the rapid growth of e-commerce platforms,” has “an enormous impact on the American economy by eroding the competitiveness of American workers, manufacturers and innovation.” Industries most affected (based on the annual number of seizures by U.S. Customs and Border Protection) include wearing apparel, footwear, watches and jewelry, handbags and wallets, consumer electronics, and pharmaceuticals. Counterfeit and pirated goods not only threaten public health and safety, DHS states, but also represent a national security threat because they may be “introduced into critical supply chains or used to generate revenue for transnational criminal organizations.”

Asserting that private sector actions to counter the importation and sale of “massive amounts of counterfeit and pirated goods” have been insufficient, the report states that DHS will immediately undertake a number of actions, including the following.

Legal Responsibility

– CBP will adjust its entry processes and requirements, as necessary, to ensure that all appropriate parties to import transactions are held responsible for exercising a duty of reasonable care.

– CBP will require formal entry for shipments deemed high-risk for counterfeiting, notwithstanding that such shipments might otherwise qualify for duty-free or informal entry treatment.

– CBP will develop a framework for a new type of bond specifically for counterfeit risk (like bonds required for antidumping and countervailing duties).

– CBP will provide guidance on the types of customs violations that could be actionable under the False Claims Act and will make information regarding successful FCA claims publicly available to enable the public to identify and bring such violations to the attention of the government.

– CBP will treat domestic warehouses and fulfillment centers as the ultimate consignee for any good that has not been sold to a specific consumer at the time of its importation.

– When CBP suspects that imported goods destined for a U.S. fulfillment center are counterfeit and initiates a seizure, it will notify the platform or other third-party intermediary operating the fulfillment center or warehouse and request they pursue with the rights holders abandonment and destruction of any identical offending goods in their possession.

Section 321

– Within six months CBP will take all necessary steps (e.g., a proposed rule) to initiate a new data collection process for Section 321 shipments that will include information about third-party sellers, the nature and value of the imported goods, and other information necessary to determine the responsible party for Section 321 eligibility purposes.

– To prevent abuse of Section 321, CBP will develop administrative guidance that addresses, at a minimum, what value needs to be reported for a Section 321 entry and what information will be necessary to uniquely identify the ultimate consignee.

– DHS should reevaluate the legal framework for allowing non-resident importers in the Section 321 low-value shipment environment.

Importer of Record

– CBP recommends amending Executive Order 12549 to explicitly bar entities and individuals that are debarred due to lack of responsibility from participating in the importer of record program.

– If this change is made, CBP will require express consignment operators, carriers, and hub facilities to verify that their customers have not been suspended or debarred from participating in the importer of record program and refuse to provide import-related services to those that are.

– CBP will condition continued access to its trusted trader programs by express consignment operators, carriers, and hub facilities on compliance with this verification process.

Fines and Penalties

– CBP will immediately begin to identify cases in which third-party intermediaries have demonstrably directed, assisted financially, or aided and abetted the importation of counterfeit goods.

– CBP will seek all available statutory authorities to pursue civil fines and other penalties against these entities, including remedies under 19 USC 1526(f).

– DHS recommends that the White House pursue a statutory change to explicitly permit the government to seek injunctive relief against third-party marketplaces and other intermediaries dealing in counterfeit goods.

– In the interim, DHS will provide information and support to registered brand owners looking to utilize statutory authorities to seek injunctive relief against persons dealing in counterfeit goods, whether through direct sales or facilitation of sales, following seizures of goods imported contrary to law.

– U.S. Immigration and Customs Enforcement will develop a strategy to investigate and prosecute intellectual property violations at all levels of the supply chain at a sufficiently high level to respond to the concerns raised in the DHS report.

Enforcement Framework

– DHS will pursue a modernized enforcement framework that may include (a) the provision of privileges or benefits by CBP to e-commerce entities in exchange for the submission of additional data elements and sufficient internal controls that demonstrate the entities’ ability to identify and manage risk within their respective supply chains, (b) statutory authority to treat IPR infringing goods as summarily forfeited upon discovery by CBP or ICE, (c) statutory and/or regulatory changes allowing CBP to better share information with the private sector, (d) a risk-based bonding regime for e-commerce transactions, and (e) streamlined enforcement processes for seized, abandoned, and forfeited goods.

Industry Best Practices

The report also lists a number of best practices for industry members. Foremost among these, DHS states, is the idea that e-commerce platforms, online third-party marketplaces, and other third-party intermediaries such as customs brokers and express consignment carriers “must take a more active role in monitoring, detecting, and preventing trafficking in counterfeit and pirated goods.”

Source: Sandler, Travis & Rosenberg

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