Department of Homeland Security and White House Take Aim at Online Sales of Counterfeits

March 3, 2020

By David Posteraro

“. . . 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.”
Combating Trafficking in Counterfeit and Pirated Goods”
Department of Homeland Security

counterfeitIn late January, the Department of Homeland Security (DHS) released a report titled “Combating Trafficking in Counterfeit and Pirated Goods,” which outlined a series of recommended actions to address what DHS called an “illicit trade epidemic.” Less than a week later, President Trump signed an executive order directing executive agencies to take new steps to curtail the importation of counterfeit goods into the United States. Titled “Ensuring Safe & Lawful E-Commerce for US Consumers, Businesses, Government Supply Chains, and Intellectual Property Rights,” the order represents the latest action in a policy initiative set forth in an April 3, 2019, White House memorandum.

The 2019 memorandum announced the US government’s policy “to protect American businesses, intellectual property rights holders, consumers, national and economic security, and the American public from the dangers and negative effects of counterfeit and pirated goods, including those that are imported through online third-party marketplaces and other third-party intermediaries.”

Building on the 2019 memorandum, DHS’s report noted that “[d]espite public and private efforts to-date, the online availability of counterfeit and pirated goods continues to increase” and warned that “[s]trong government action is necessary to fundamentally realign incentive structures and thereby encourage the private sector to increase self-policing efforts and focus more innovation and expertise on this vital problem.” The following DHS actions and recommendations for other departments and agencies to combat the trafficking of counterfeit and pirated goods were also announced:

  1. Ensure Entities with Financial Interests in Imports Bear Responsibility
  2. Increase Scrutiny of Section 321 Environment
  3. Suspend and Debar Repeat Offenders; Act Against Non-Compliant International Posts
  4. Apply Civil Fines, Penalties and Injunctive Actions for Violative Imported Products
  5. Leverage Advance Electronic Data (AED) for Mail Mode
  6. Anti-Counterfeiting Consortium to Identify Online Nefarious Actors (ACTION) Plan
  7. Analyze Enforcement Resources
  8. Create Modernized E-Commerce Enforcement Framework
  9. Assess Contributory Trademark Infringement Liability for Platforms
  10. Re-Examine the Legal Framework Surrounding Non-Resident Importers
  11. Establish a National Consumer Awareness Campaign

Significantly for an administration adverse to government regulations, the DHS report places first-response initiatives and “best practices” on the private-sector, stating:

Government action alone is not enough to bring about the needed paradigm shift and ultimately stem the tide of counterfeit and pirated goods. All relevant private-sector stakeholders have critical roles to play and must adopt identified best practices, while redoubling efforts to police their own businesses and supply chains.

While the U.S. brick-and-mortar retail store economy has a well-developed regime for licensing, monitoring and otherwise ensuring the protections of intellectual property rights (IPR), a comparable regime is largely non-existent for international e-commerce sellers. The following table catalogs a set of high priority “best practices” that shall be communicated to all relevant private sector stakeholders by the National Intellectual Property Rights Coordination Center. It shall be the Center’s duty to monitor and report on the adoption of these best practices within the scope of the legal authority of DHS and the Federal government. Foremost among these best practices 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.

Ten specific “best practices” for private-sector action were listed:

  1. Comprehensive “Terms of Service” Agreements
  2. Significantly Enhanced Vetting of Third-Party Sellers
  3. Limitations on High Risk Products
  4. Rapid Notice and Takedown Procedures
  5. Enhanced Post-Discovery Actions
  6. Indemnity Requirements for Foreign Sellers
  7. Clear Transactions Through Banks That Comply With U.S. Enforcement Requests for Information (RFI)
  8. Pre-Sale Identification of Third-Party Sellers
  9. Establish Marketplace Seller ID
  10. Clearly Identifiable Country of Origin Disclosures

The resulting White House order builds upon the DHS recommendations stating, “E-commerce, including transactions involving smaller express-carrier or international mail packages, is being exploited by traffickers to introduce contraband into the United States, and by foreign exporters and United States importers to avoid applicable customs duties, taxes, and fees.”

Restating its 2019 policy, the order announces that it is the policy of the U.S. government to protect consumers, IP rights holders, businesses and workers from counterfeit goods and other contraband entering the country through e-commerce. It further states that government policy is to refer persons involved in the importation of unlawful merchandise to U.S. Customs and Border Protection (CBP) of the Department of Homeland Security for a determination whether they are sufficiently “responsible” to participate in transactions with the federal government. In furtherance of these policy goals, the government is directed to consider all appropriate actions to ensure that persons who are suspended or debarred by CBP are excluded from participating in the importation of merchandise into the United States.

Specifically, the order directs the Secretary of Homeland Security to issue a notice of proposed rulemaking to establish criteria importers must meet in order to obtain an “importer of record” number (a unique identifier assigned to entities without U.S. presence that are permitted to import goods into the U.S.). These criteria are to include a provision that any person debarred or suspended by CBP for lack of present responsibility for reasons related to importation or trade shall be ineligible to obtain an importer of record number for the duration of such person’s suspension or debarment by CBP.

In addition, the Secretary of Homeland Security, is to take steps to ensure that—within 60 days of the publication in the System for Award Management by CBP of the name of any debarred or suspended person—express consignment operators, carriers, hub facilities and licensed customs brokers notify CBP of any attempt by unauthorized persons to reestablish business activity through a different name or address. The order also directs several other agencies to coordinate to develop a ratings system for international postal services and to “protect” the United States from shipments from international posts that fail to comply with U.S. policies for a given amount of time.

Government action is appropriate. However, the burden of detection and preventive action falls squarely on the private-sector. KJK’s Brand Enforcement team can assist in implementing the “best-practices” called for by DHS including comprehensive “Terms of Service” agreements, establishing and implementing rapid takedown procedures, identifying indemnity requirements for foreign sellers and others.

If you have questions or would like to discuss further, please reach out to David Posteraro at drp@kjk.com or 216.736.7218.


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