On January 24, 2020, the Department of Homeland Security (DHS) released its report on fighting trafficking of counterfeit/pirated goods. This report was released a week before President Donald Trump signed an executive order that aims to prevent online sale of foreign counterfeit products to American citizens.

Recommendations by the DHS

1. Make entities with financial interest in imports bear responsibility. American Customs and Border Protection (CBP) will adjust its processes:

  1. Adjust entry processes and requirements so that all appropriate parties are held responsible for exercising a duty of reasonable care.
  2. Treat domestic warehouses and fulfillment centres as the ones responsible for any goods that haven’t been sold to a specific customer at the time of importing. This will allow CBP to identify Section 321 abuses.
  3. Require formal entry for high-risk shipments irrespective of whether they qualify for duty-free or informal entry. High-risk shipments will be determined by their vulnerability to counterfeiting and source of origin.
  4. Provide guidance about customs violations that are actionable under the False Claims Act (FCA), and make information about successful FCA claims publicly available. To be done in consultation with the Department of Justice.

The Department of Homeland Security (DHS) will encourage platforms and third-party intermediaries to abandon in bulk and destroy contraband goods that were not interdicted by CBP and may now be in their warehouses/fulfillment centres. Such goods would be notified by the CBP and failure to comply would be a factor in the subsequent counterfeit case.

2. Increase the scrutiny of Section 321 environment. Section 321 of the Tariff Act says that a foreign good worth $800 or less that is imported by one person on one that is not subject to the same formal customs entry procedure as a higher-value package entering the US. CBP needs data to identify the third-party seller and the nature and value of the imported merchandise, and to ascertain the responsible party for Section 321 eligibility. To do that, CBP must:

  1. Gather information through Section 321 Data Pilot for two years to better target counterfeits.
  2. Enhance data collection data requirements from the results of the pilot programme. By July 2020, CBP has to institute a new data collection process that includes information from domestic warehouses/fulfillment centres, and data that identifies the third-party seller, and the nature and value of the imported merchandise.
  3. Issue guidance about how to best enforce Section 321 eligibility requirements.

3. Suspend and debar repeat offenders, act against non-compliant international postal operators. Currently, defaulting individuals and entities are added to the federal suspension and debarment list by CBP and ICE. This prohibits them from government procurement and certain other non-procurement activities, but they can still import goods into the US. They recommend amending Executive Order 12549 to explicitly bar suspended and debarred persons from participating in the Importer of Record Program. Post that, CBP would require consignment operators, carriers and hub facilities to verify that their customers are not on the debarred/suspended list. CBP will also develop an International Mail Non-Compliance metric to enforce actions on non-compliant international postal operators.

4. Apply civil fines, penalties and injunctive actions for violative imported products. Along with the Department of Justice, CBP and ICE will use existing statutes to pursue civil fines and other penalties against third-party marketplaces and other marketplaces where there is evidence that they assisted in the import of counterfeit/pirated goods.

  • DHS has recommended that the law be amended to allow the government to seek injunctive relief against third-party marketplaces and other intermediaries that deal in counterfeit goods.
  • DHS will give registered brand owners information and support to seeks injunctive relief against people dealing in counterfeit merchandise, both via direct sales or facilitation of sales.

5. Utilise advanced electronic data collected via post. United States Postal Service (USPS) has to provide advanced electronic data (AED) to CBP for arriving international parcels. This AED will be leveraged to identify offending merchandise.

  • USPS will work with CBP on special operations to target counterfeit products.
  • After the completion and publication of regulations under STOP (Synthetics Trafficking and Overdose Prevention) Act, DHS will use information from Section 321 Data Pilot to make recommendations to USPS to address gaps in data collection.

6. Formation of Anti-Counterfeiting Consortium to Identify Online Nefarious Actors (ACTION). DHS has recommended this to share information on sellers, shippers and other third-party intermediaries that are involved in trafficking counterfeit/pirated goods, and to share risk automation techniques that will allow ACTION members to create/improve proactive targeting systems to monitor counterfeit goods online.

7. CBP will analyse enforcement resources by analysing if the fees it collects are sufficient to reimburse the costs associated with processing, inspecting, and collecting duties, taxes, and fees for parcels. If not, it would make recommendations to the Department of Treasury to revise them.

8. DHS will create a a modernised enforcement framework that could include benefits by CBP to e-commerce entities in exchange for additional data and more internal controls to identify and manage risk within their respective supply chains. The framework could require amendments to existing statutes such as treating IPR infringing goods as summarily forfeited upon discovery by CBP/ICE.

9. Department of Commerce should assess the state of liability for trademark infringement on the basis of recent litigation as online platforms have avoided civil liability for this in several cases.

10. DHS should re-examine legal framework around non-resident importers as they can currently enter goods into the US if they have a “resident agent” because of which it is difficult to compel non-resident importers to pay civil penalties.

11. Establish a national consumer awareness campaign using technology and online education. Platforms, IPR holders and applicable government agencies should be involved.

Recommended best practices for the private sector

1. Comprehensive ‘Terms of Service’ Agreements that platforms should require all third-party sellers to sign. Such agreements, with explicit prohibition on selling counterfeit/pirated goods, provide the legal means to platforms to combat counterfeit trafficking. ToS should also include the repercussions (such as suspension/termination of account, destruction of counterfeit goods, etc.) that sellers could face for violations.

  • ToS should allow platforms to impose limitations on products listed, country of origin disclosures, impose American banking and indemnity requirements, and improve pre-sale identification of third-party sellers.

2. Significantly enhance vetting of third-party sellers by having a uniform and articulable vetting regime. This process should include sufficient identification of the seller, certification about whether it has been banned or removed from any e-commerce platforms for selling counterfeit/pirated goods, and acknowledgement that it is selling goods with trademarks it doesn’t own. Technological tools and audit programs should be used to vet sellers.

3. Limitations on high-risk products that are more vulnerable to being counterfeited/pirated, or pose a higher risk to public health and safety. Sale of such products could either be completely banned, or severely restricted with need for prior approvals.

4. Platforms should be responsible for efficient notice and takedown procedures instead of IPR holders given the asymmetry in resources available to platforms and IPR holders. Platforms should create and maintain clear, precise and objective criteria for a more efficient notice and takedown system.

5. Improve post-discovery actions to include notification to buyers, implicated IPR holders. They should also include removal of the counterfeit/pirated goods from the platform in a manner that prevents their re-entry in the US, or diversion to other markets. Immediate engagement with law enforcement is also necessary.

6. Indemnification requirements for foreign sellers in the form of security when a foreign product is sold to an American consumer. This is because when sellers are located outside the US, they may not be subjected to jurisdiction of American civil courts or government enforcement actions. Also, e-commerce platforms, despite being based in the US, are not found to be liable for the harm caused by the products they sell/distribute under American law.

7. Clear transactions through banks that comply with US enforcement requests as currently, many foreign sellers don’t have a financial nexus to the US.

8. Pre-sale identification of third-party sellers to improve transparency. Platforms should implement additional measures to inform customers, before completion of transaction, of the identity of the storefront owners.

9. Establish marketplace seller IDs by requiring sellers to provide names of their underlying business(es). This will enable greater transparency with the consumer, linking related sellers together will allow greater oversight to IPR holders, and this linking will allow platforms to carry out better internal risk assessments.

10. Clearly identifiable country of origin disclosures just as they have them in brick-and-mortar stores. This will assist platforms and consumers in evaluating whether a product might be counterfeit or not.