The ubiquity of counterfeit goods in global commerce is not a new phenomenon, but in recent years the urgency with which the government has sought to tackle this issue has accelerated dramatically. Recently, as the 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 US citizens became more obvious. The government's fight against counterfeits has recently included ramping up pressure on China and introducing legislation to expand US Customs and Border Protection's (CBP's) IP rights enforcement programme.
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 tackle the problem of imported counterfeit goods. The CGSA would add design patents to the CBP's current IP rights enforcement mechanism for trademarks and copyrights. Based on what is known about the CBP's current IP rights enforcement programme, the CGSA would give US design patent owners relatively faster relief and protection from counterfeit goods, with the same effect as an International Trade Commission (ITC) exclusion order.
Reports by multilateral global institutions and US agencies alike have noted the global scale of the trade in counterfeit goods and highlighted where IP rights violations are most rampant. An Organisation for Economic Cooperation and Development (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, that 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 United Arab Emirates, Turkey, Singapore, Thailand and India.(1) Looking at the most affected countries, the OECD notes that US companies' intellectual property was involved in 24% of the counterfeit goods seized worldwide, making the United States the country most acutely affected by counterfeiting.(2)
Status quo enforcement of IP rights
US companies currently have two primary options to stop imports of infringing goods at the border: an ITC investigation or the CBP's IP rights enforcement programme. The CGSA represents a major potential solution for reducing the impact of counterfeit goods by expanding the IP rights enforcement programme 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 (Section 1337 of Title 19 of the US Code). The principal ITC remedy is an exclusion order. The CBP enforces those orders to seize infringing goods at US. borders and ports of entry. Other than its ITC exclusion order-related efforts, the CBP focuses its enforcement on recorded trademarks and copyrights. Companies may participate in the current IP rights enforcement programme by completing the CBP's application to record registered trademarks and copyrights for import protection. However, before companies apply, trademarks must appear in the US Patent and Trademark Office's Principal Register, not the Supplemental Register, and copyrights must be registered with the US Copyright Office. Each mark or work to be recorded requires a separate application and fee. IP owners may use the CBP's e-Recordation system to file their applications. Once the CBP approves an application, CBP offices throughout the country have access to a non-public version(3) 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 intellectual property. Companies also provide similar training to assist the CBP with enforcing ITC exclusion orders.
Still, even with the 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 IP rights enforcement programme does not cover design patents. Another way that counterfeiters can evade seizure involves shipping counterfeit goods in small parcels which generally have a lower risk of seizure and create inspection challenges for the CBP because international mailers do not need to disclose a parcels' contents.
Enforcement of IP rights under CGSA
The CGSA would help to close the gap in enforcement created by generic goods that are allowed to enter (ie, designs without infringing trademarks). On 5 December 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 (Section 1595a(c)(2)(C) of Title 19 of the US Code) to provide that merchandise for import may be seized and forfeited for violating US design patent rights. That amendment would simply expand the umbrella of the existing recordation programme to cover US design patents. Like it does now for recorded trademarks and copyrights, the CBP would have discretion to analyse and seize imports for infringement of recorded US 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. However, critics argue that the CGSA may prove difficult to implement and one of the most significant hurdles may be training customs officials to use the so-called '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 so-called 'substantial similarity' test for copyright infringement currently used by the CBP.
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 the CBP's familiarity and experience with identifying 'substantially similar' products, with the appropriate training, customs officers will most likely properly apply the ordinary observer test to identify imports that infringe recorded design patents.
Congress has not made significant progress with advancing the CGSA since its introduction in December 2019.(4)
Endnotes
(1) OECD, Trends in Trade in Counterfeit and Pirated Goods (18 March 2019). Available here.
(3) Public versions are available on the CBP Intellectual Property Rights Search database here.
(4) For a summary of other pending bills relating to counterfeit goods please see "Congress Acknowledges Dramatic Shift Toward E-commerce with Bipartisan Bills Aimed at Reducing Counterfeits".
