November 18, 2015

Just in Time for the Holiday Rush: Is Your Product Competing With Counterfeit Imports? Customs' New Rules Now Provide Additional Data to Thwart Counterfeit Imports

6 min

Owners of legitimate marks had been frustrated by the inability to receive sufficient information to confirm whether an imported article was legitimate or counterfeit, because of constraints of the Trade Secrets Act, 18 U.S.C. §1905 (Act). Now, because of a recent change to the regulations, U.S. Customs and Border Protection (CBP) will allow a more fulsome analysis of imported merchandise bearing suspected counterfeit trademarks or trade names. CBP adopted, as a final rule effective October 19, 2015, certain amendments to its regulations on importations of merchandise bearing suspected counterfeit trademarks or trade names. The interim amendments, published in April 2012, made changes to 19 C.F.R. § 133.21 regarding the detention of suspect merchandise and the disclosure of information to mark owners. As finalized, the new regulations:

  1. Allow CBP to disclose to a trademark or other mark owner information appearing on merchandise or its packaging that may otherwise be protected by the Trade Secrets Act for purposes of obtaining assistance in determining whether the merchandise bears a counterfeit mark;
  2. Require CBP to release to the importer an unredacted sample or image of the suspect merchandise anytime after presentation of the suspect goods for examination, to further enhance information-sharing procedures; and
  3. Require CBP to release limited importation information to the mark owner no later than the time of issuance of the detention notice to the importer, rather than within the formerly prescribed period of 30 business days from the date of detention.

Counterfeiters are developing more advanced techniques all the time. Counterfeit goods pose a safety risk to consumers, and even a national security risk through items like counterfeit computer circuitry. The new rules are not limited to computer products; rather, all importers of branded goods and mark holders, with marks registered with the U.S. Patent and Trademark Office and recorded with CBP, may be affected by these changes.

Historically, CBP had a difficult time confirming the legitimacy of suspected counterfeit goods. Because information contained on products and packaging (including markings, alphanumeric symbols, and codes) was deemed to be protected by the Trade Secrets Act, there were challenges to releasing such information to mark owners and importers. However, as now "authorized by law," the new rules aim to change that process by providing CBP with easier access to the information it needs. Indeed, CBP has only a 5-business-day window in which to make a "reasonable suspicion" determination. Additionally, CBP must notify the importer no later than 5 business days after a decision to detain merchandise; as such, an importer will learn of the detention within 10 business days of the goods being presented for examination.

The "Secret" Part of the Trade Secrets Act. The Trade Secrets Act covers a comprehensive array of business, commercial, and financial information. The Act bars the unauthorized disclosure by government officials of any information received in the course of their employment or official duties when such information concerns trade secrets included within a large range of data. For example, bar-coded data, commonly found on various goods to substantiate product and lot information, were typically considered to be protected by the Act. The Act also protects those required to furnish such information to the government by shielding them from the competitive disadvantage that could result from disclosure of that information by the government. The difficulty, however, was that CBP officers were unwilling to provide certain limited information to the mark owner, such as the date and port of importation, quantity, or country of origin of the goods, as well as any sample or other identification of the suspected items' markings.

Unredacted Samples Now Shared to Substantiate Legitimacy. Under the new rules, which went into effect in October, the mark owner and the importer are going to receive more information regarding the merchandise and related packaging than before. The mark owner will receive information appearing on the merchandise or its packaging that may otherwise be protected by the Trade Secrets Act. The importer will also receive an unredacted sample or image of the suspect merchandise or its packaging anytime after presentation for examination. In addition, the mark holder will receive unredacted samples and photographs, and will be given an opportunity to assist CBP with any unresolved suspicion.

Any Impact on Legitimate Gray Market Imports? Concern has been voiced regarding both releases of information. The mark owner may be receiving information that reveals details of the importer's supply chain. In addition, there are concerns that mark owners might abuse the information provided to them to disrupt or eliminate lawful parallel market competition of "gray market" goods. The CBP believes that it has covered these concerns. First, CBP provides the information to the mark owner with the express notification that some of this information may be covered by the Trade Secrets Act. Second, CBP reiterates that it provides information to mark owners only after an importer has been notified and has had an opportunity to establish that the goods bear genuine marks, so that the rule should not impede the legal importation of gray market goods. The rules do not change the way in which CBP enforces restrictions on gray market imports, as the 7-business-day response period from the interim regulation neither impairs the mark owner's ability to make data available to CBP nor increases the risk of counterfeit goods being admitted.

Likewise, there are concerns about the importer receiving this information. Typically, mark owners do not want the importer to have the principal role in authenticating suspected counterfeit marks. The CBP reiterates that this role is retained by CBP, along with any input received from the mark holder, and that the shared information better enables CBP to determine a good's admissibility, while concurrently safeguarding data under the Act.

The release of confidential company information is a major concern to any brand, whether because it wants to protect its proprietary information or it wants to keep a new product launch secret. The CBP's new rules, just like the interim amendments, may cause some of this proprietary information to be released to outside parties like a mark owner or importer. The Trade Secrets Act provides certain protections, and CBP has stated that sufficient safeguards exist. Nonetheless, a wary brand may want to consider modifying its business practices or implementing other actions to protect its information. As a precaution, a brand may want to contract with its importer to delineate what information is protected, or limit what the importer can do with the information it may receive from CBP.

Take Action! Are your registered marks recorded with CBP? Are you aware of suspect imports that are competing with your goods? If you are a mark holder or importer of goods with protected trademarks and trade names, you should consider whether any change to your business practice is warranted as a result of this new rule. Venable LLP's International Trade Group provides counseling on a wide range of customs and import issues that brands face. Please contact the authors, Lindsay Meyer or Sam Boro, or other Venable International Trade Group attorneys if you believe the CBP's new rules may affect your products and shipments.