United States: around twenty priority measures to combat counterfeiting

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On April 3, 2019, the White House had published a memorandum on the fight against counterfeiting (iptwins.com, 2019-04-05), in which it asked the heads of the federal agencies concerned to submit a report with the following objectives :

(i) Analysis of all the available data that could improve knowledge of the mechanisms that allow or facilitate counterfeiting. The results of the report could be used as a basis for any administrative, regulatory, legislative or policy changes.

ii) The evaluation of existing policies and procedures of intermediaries (Internet platforms, distributors, carriers, etc.) and federal contractors to establish a system to detect and avoid counterfeit electronic parts.

(iii) Recommend changes to the organizations’ data collection practices.

(iv) Identify administrative, legislative or regulatory changes and address the practices of counterfeiters including the shipping, fulfillment and payment logistics, and assess ways to mitigate factors facilitating the trafficking of counterfeit and piracy goods.

(v) Identify appropriate guidance agencies can provide to intermediaries to help prevent the import and sale of counterfeit and piracy goods.

(vi) Identify appropriate administrative, regulatory, legislative, or policy changes that would enable agencies, as appropriate, to more effectively share information regarding counterfeit and pirated goods.

(vii) Evaluate the current and future resource needs of agencies and make appropriate recommendations for more effective detection, interdiction, investigation, and prosecution regarding trafficking in counterfeit and pirated goods, including trafficking through online third-party marketplaces and other third-party intermediaries. These recommendations should include suggestions for increasing the use of effective technologies and expanding collaboration with third-party intermediaries, intellectual property rights holders, and other stakeholders.

(viii) Identify areas of collaboration between the Department of Justice and the United States Department of Homeland Security to counter the trafficking of counterfeit and piracy goods.

On January 24, 2020, the Department of Homeland Security (DHS) released its first report (Department of Homeland Security, Office of Strategy, Policy, and Plans, Combating Trafficking in Counterfeit and Pirated Goods. Report to the President of the United States, January 24, 2020). The latter was prepared with, among other institutions, the U.S. Intellectual Property Enforcement Coordinator (which is a branch of the Office of Management and Budget), Immigration and Customs Enforcement (ICE) and Customs and Border Protection (CBP). This report sets out a series of recommendations and measures that the federal government and stakeholders can take to fight counterfeiting.

• Overview of trafficking in counterfeit and pirated goods

With an obvious educational ambition, the DHS describes the main drivers of counterfeiting and piracy in e-commerce through the role of online marketplaces, with a strong emphasis in particular on the savings made by counterfeiters, namely the costs related to start-up and production, as well as marketing and distribution costs.

• Consumer attitudes and perceptions

In addition, the authors of the report express great concern about the development of the apprehension of consumers who, immersed in the digital environment, are no longer in a position to make the difference between an authentic product and a counterfeit product (p. 4).

• Main products subject to counterfeiting and piracy

Based on statistics from U.S. Customs, the products subject to counterfeiting and piracy are:

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• Health and safety, economic and national risks

Still from an educational perspective, the authors of the report recall that counterfeiting does not only affect luxury bags and sports jerseys. They also concern, and in a dangerously increasing way:

– pharmaceutical products, including medicines available exclusively on prescription, such as opioids (p. 17);

– cosmetic products, which “often contain ingredients such as arsenic, mercury, aluminum or lead and can be produced under unsanitary conditions, which can ultimately lead to eye or skin problems” ( p. 18);

– mobile phone adapters, whose faults sometimes cause fires and the risk of electric shock (p. 18);

– children’s toys, some of which contain deadly metals such as cadmium and lead (p. 18);

– airbags, wheels, seat belts (p. 18); and even

– medical books which may contain errors (p. 18).

Finally, the DHS recalls that counterfeiting and piracy have important economic consequences (p. 18). Furthermore, counterfeiting and piracy are managed by the organized crime, including, in certain cases, terrorist operations (p. 19).

• How e-commerce facilitates counterfeit trafficking

First, adds DHS, because it is profitable and it is all the more so when the counterfeiter is abroad since the legal risk is reduced. In this regard, the authors of the report insist on the savings that counterfeiters can make:

– research and development expenses (p. 21);

– the quality of the products, specifying, quite rightly, that “it costs much less to produce counterfeit versions which do not meet the health and safety requirements which make legitimate products so safe” (p. 21 );

– production costs are minimized by the use of substandard ingredients and components (p. 21);

– savings made on the lack of physical sales space and on the absence of staff (p. 22);

– the use of warehouses of e-commerce platforms (p. 24).

Secondly, because new technologies facilitate the reproduction of products, in particular 3D printers (p. 21).

The authors take good account of the cleverly organized disinformation by the counterfeiters in order to betray the consumer, both on market platforms and on social media. Regarding social media, DHS is concerned about the proliferation of hidden lists (p. 22).

Counterfeiters have also learned to take advantage of new methods of air parcel delivery, knowing that it is impossible to intercept or verify every package (p. 23).

• Private sector awareness and public comments

As part of the preparation of this report, DHS collected the testimonies of victims of counterfeiting who expressed their concerns:

– platforms are not doing enough to guarantee that sellers provide accurate information (p. 24);

– integration, identification and control of sellers must be considerably improved (p. 24);

– the legislation, described as “obsolete”, is not suitable since the sellers of counterfeits escape sanctions (p. 24);

– platforms should act proactively and more diligently (p. 24), while the burden is disproportionately on the holders of intellectual property rights (p. 25). However, intermediaries countered that they had made heavy investments aimed at improving their productivity (p. 25).

• Stakeholders shared their observations:

1. The measures adopted by actors in the supply, distribution and sales chain of e-commerce are critical (p. 25);
2. However, these measures are necessarily insufficient since the traffic in counterfeits continues to grow (p. 25);
3. Rights holders are often hampered by e-commerce platforms which exploit third-party markets;
4.  Government resources alone are insufficient to fight counterfeiting;
5.  The incentive structure tends to reward the traffic of counterfeit goods.

• DHS immediate action and recommendations for the US government

DHS proposes to adopt the following 11 measures (pp. 26 et seq.):

1. Ensure Entities with Financial Interests in Imports Bear Responsibility;
2. Increase Scrutiny of Section 321 Environment (Tariff Act of 1930);
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 for Mail Mode;
6. Set up a consortium for the identification of “infamous operators”, a consortium which would be named “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; and
11. Establish a National Consumer Awareness Campaign.

• Best practices

Finally, the DHS draws up a list of 10 best practices qualified as “high priority”, namely (pp. 34 et seq.):

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

Considering that the White House has defined the fight against counterfeiting as one of its priorities, it would not be surprising to see the recommended measures being implemented during the course of the year. However, some of them will provoke debate, especially the issue of platform responsibility.