By Mike Candore
On January 24th, the U.S. Department of Homeland Security issued a report to the president in response to the White House’s April 2019 Memorandum on Combating Trafficking in Counterfeit and Pirated Goods, which we discussed in an earlier post.
While largely critical of e-commerce platforms and third-party marketplaces, DHS calls for strong government action to combat counterfeiting activity, outlining 11 immediate actions and recommendations to be taken by the United States Government. DHS also puts forward the elements of recommended private sector best practices.
This post overviews the immediate government actions and recommendations proposed by DHS. A discussion of DHS’s proposed private sector best practices will follow in a subsequent post.
Ensure Entities with Financial Interests in Imports Bear Responsibility
The Idea in Brief:
Calling attention to the need for a modern enforcement framework that adapts to the reality of the modern e-commerce landscape, DHS aims to increase the accountability of stakeholders in the e-commerce value chain. This includes by increasing the accountability of domestic warehouses and fulfillment centers frequently used by merchants operating on online marketplaces.
Under the DHS recommendations, CBP would treat domestic warehouses as the consignee for imports not sold directly to a consumer. Such treatment may allow CBP to identify and claw back counterfeits from bad actors that were not inspected or were missed during customs clearance. Operators of fulfillment centers will further be encouraged to coordinate with rightowners on the inspection and destruction of infringing goods discovered through this channel.
High-risk shipments, as determined by the declared contents and port of origin, will also be subject to additional scrutiny, extending even to shipments that would have otherwise qualified for duty-free or informal entry. In order to mitigate against the likely resultant surge of falsified manifests, CBP will pursue and make public information regarding customs violations of the False Claims Act.
Increase Scrutiny of Section 321 Environment
The Idea in Brief:
Section 321 offers tax and duty exempt importation of goods valued at less than $800. Given the lower declared value of Section 321 shipments, it follows that these shipments are more likely to be direct order fulfillment and thus only one step removed from the infringing seller.
To improve transparency in the Section 321 environment, DHS proposes the clarification of statutes and administrative practices related to Section 321 eligibility. DHS would see all Section 321 shipments require data sufficient to identify the transacting merchant and the nature of the good.
CBP is also currently piloting programs with private sector e-commerce platforms to provide advance data on Section 321 shipments before arrival. CBP is using this data to improve its planning and inspection capacity in an effort to more efficiently target high-risk shipments.
Suspend and Debar Repeat Offenders; Act Against Non-Compliant International Posts
The Idea in Brief:
DHS recommends amending the executive order governing the federal suspension and debarment list to prevent suspended and debarred entities from participating in the Importer of Record Program. The burden to police compliance will fall to consignment operators, carriers, and hub facilities, as access to trusted trader programs will become contingent on their abilities to prevent suspended and debarred entities from utilizing their services to move counterfeit goods into the U.S. market.
DHS also seeks to measure and enforce for non-compliance among international postal operators, though no specific plan of action is outlined.
Apply Civil Fines, Penalties and Injunctive Actions for Violative Imported Products
The Idea in Brief:
DHS has directed CBP and ICE to begin identifying instances where third-party intermediaries have aided in the importation and distribution of counterfeit goods. Along with the Department of Justice, they are to pursue civil fines against such entities.
In the same vein, DHS advocates for greater liability to be imposed on third-party intermediaries that support the distribution of counterfeit goods. Most notably, DHS recommends a regulatory change to allow the government to pursue injunctive relief against third-party marketplaces and other intermediaries.
In the interim and absent such legislation, ICE and CBP will continue to pursue IP related crimes and support rightsowners by sharing information and evidence related to the seizure of counterfeit goods.