The ubiquity of counterfeit goods in global commerce is not a new phenomenon, but in recent years the urgency with which the U.S. government has sought to tackle this issue has accelerated dramatically. Recently, as the U.S. healthcare system scrambled to respond to the COVID-19 pandemic and economic growth stalled, the seriousness of the commercial and physical injury that imported counterfeit goods can inflict on Americans became more obvious. The U.S. government's fight against counterfeits has recently included ramping up pressure on China and introducing legislation to expand U.S. Customs and Border Protection's (CBP) intellectual property rights (IPR) enforcement program.
The Counterfeit Goods Seizure Act of 2019 (CGSA), which a bipartisan group of senators introduced at the end of 2019, is a significant legislative effort to attack the problem of imported counterfeit goods. The CGSA would add design patents to CBP's current IPR enforcement mechanism for trademarks and copyrights. Based on what we know about CBP's current IPR enforcement program, the CGSA would give U.S. design patent owners relatively faster relief and protection from counterfeit goods, with the same effect as an International Trade Commission (ITC) exclusion order.
Prevalence of Counterfeits
Reports by multilateral global institutions and U.S. agencies alike have noted the global scale of the trade in counterfeit goods and highlighted where IP rights violations are most rampant. An OECD report published in March 2019 found that, by value, trade in fake goods constitutes 3.3% of all world trade, a figure, it says, continues to rise. According to the OECD, the majority of counterfeit or pirated goods come from China and Hong Kong, but other major sources include the UAE, Turkey, Singapore, Thailand, and India.1 Looking at the countries most impacted, OECD notes that U.S. companies' intellectual property was involved in 24% of the counterfeit goods seized worldwide, making the U.S. the country most acutely affected by counterfeiting.2
Status Quo Enforcement of IP Rights
Currently, U.S. companies have two primary options to stop imports of infringing goods at the border: an ITC investigation or CBP's IPR enforcement program. The CGSA represents a major potential solution for reducing the impact of counterfeit goods by expanding the IPR enforcement program to cover design patents.
Until the CGSA becomes law and regulations are implemented, design patent owners' primary means for excluding infringing imports from entry is an ITC investigation under section 337 of the Tariff Act of 1930 (19 U.S.C. § 1337). The principal ITC remedy is an exclusion order. CBP enforces those orders to seize infringing goods at U.S. borders and ports of entry. Other than its ITC exclusion order-related efforts, CBP focuses its enforcement on recorded trademarks and copyrights. Companies may participate in the current IPR enforcement program by completing CBP's application to record registered trademarks and copyrights for import protection. Before companies apply, though, trademarks must appear in the U.S Patent & Trademark Office's Principal Register, not the Supplemental Register, and copyrights must be registered with the U.S. Copyright Office. Each mark or work to be recorded requires a separate application and fee. IP owners may use CBP's e-Recordation system to file their applications. Once CBP approves an application, CBP offices throughout the country have access to a non-public version3 of the approved application and use that information to assist with evaluating and seizing imports for infringement. In connection with approved applications, rights owners may meet with CBP officers and import specialists and provide them with information and training on how to identify goods that infringe their recorded IP. Companies also provide similar training to assist CBP with enforcing ITC exclusion orders.
Still, even with CBP working to stop fakes by enforcing exclusion orders and recorded trademarks and copyrights, there are numerous ways that counterfeiters can avoid detection or seizure of their infringing goods. One way they evade seizure is by shipping goods that do not display infringing trademarks, which are applied or revealed only after entry. Counterfeiters can evade seizure in that way because the existing IPR enforcement program does not cover design patents. Another way that counterfeiters evade seizure involves shipping counterfeit goods in small parcels. Those small parcels generally have a lower risk of seizure and create inspection challenges for CBP because international mailers do not need to disclose the parcels' contents.
Enforcement of IP Rights under the CGSA
The CGSA would help to close the gap in enforcement created by generic goods that are allowed to enter (i.e., designs without infringing trademarks). On December 5, 2019, Senators Cassidy (R-LA), Tillis (R-NC), Coons (D-DE), and Hirono (D-HI) introduced the CGSA (S. 2987), which has been referred to the Senate Finance Committee. Section 2 of the bill amends section 596(c)(2)(C) of the Tariff Act of 1930 (19 U.S.C. § 1595a(c)(2)(C)) to provide that merchandise for import may be seized and forfeited for violating U.S. design patent rights. That amendment would simply expand the umbrella of the existing recordation program to cover U.S. design patents. Like it does now for recorded trademarks and copyrights, CBP would have discretion to analyze and seize imports for infringement of recorded U.S. design patents.
Given CBP officers' experience with enforcing exclusion orders, they already have much of the knowledge and skills needed to evaluate goods for design patent infringement. Critics, however, argue that the CGSA may prove difficult to implement. They argue that one of the most significant hurdles may be training customs officials to use the ordinary-observer test to determine whether particular goods infringe a design patent. The ordinary-observer test for design patent infringement is a visual test similar to the substantial-similarity test for copyright infringement, which the CBP uses today.
Design patents protect ornamental designs of products, not functional components, so critics also argue that problems may arise when functional parts of a design make inspected goods look similar to a patented design, resulting in false positives for infringement. Supporters note that CBP officers already properly use the substantial-similarity test to identify products that infringe recorded copyrights. The substantial-similarity test also runs the risk of finding infringement based on some unprotectable idea or standard feature of a copyrighted work and is a subjective evaluation of the similarity of two creative works. Supporters argue that given CBP's familiarity and experience with identifying "substantially similar" products, with the appropriate training, customs officers most likely will also properly apply the ordinary-observer test to identify imports that infringe recorded design patents.
Congress has not made significant progress on advancing the CGSA since its introduction in December 2019. We will continue to monitor the CGSA as it moves through the legislative process. For a summary of other pending bills related to counterfeit goods, please read this article: Congress Acknowledges Dramatic Shift Toward E-commerce with Bipartisan Bills Aimed at Reducing Counterfeits. And please contact the authors or others in Venable's Intellectual Property Group or International Trade Group with any questions.
[1] OECD, Trends in Trade in Counterfeit and Pirated Goods (Mar. 18, 2019), https://www.oecd-ilibrary.org/docserver/g2g9f533-en.pdf?expires=1591144515&id=id&accname=guest&checksum=401062E16D5B6E85E48147215097ED09.
[2] Id. at 33.
[3] Public versions are available on the IPRS database at https://iprs.cbp.gov.