Counterfeit and Pirated Goods

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In the interconnected world we live in, huge volumes of all types of goods flow into and out of the US every day.  Most shipments are legitimate, but – as the last few thousand years of history show – any successful system of trade and commerce eventually attracts pirates and counterfeiters.  Our modern international trade system is no exception.

 The basic motivation for these types of illegal activities is, of course, money. 

Typically, modern pirates and counterfeiters profit from selling a product that costs them significantly less to make (or acquire) than what a legitimate importer would pay for a similar product.  This allows them to:

  • make higher margins (thus greater profit per unit) when the goods are sold, or

  • undercut the legitimate importer’s selling price, to capture market share while maintaining high profit margins, or

  • both

Common ways of reducing product unit costs include:

  • using cheaper (and usually poorer quality) components and materials

  • less careful assembly, often with important steps omitted, or hastily (and carelessly) done

  • adulterating food and beverages with cheap “filler” material

  • using false or misleading brand names

  • mislabeling products with false ingredient lists, origin locations, and certifications

  • labels and instructions may not be in the English language

  • little or no quality control

  • no warranty, or a useless warranty that will not actually protect the eventual purchaser

  • using intellectual property (patented items or processes, trademarks, copyrighted material) without permission, and without paying licensing fees or royalties

In some cases, contract manufacturers of legitimate trademarked goods may also run a “second shift”, producing additional (unauthorized) copies of the same product, that the trademark owner is not told about.  The manufacturer then sells those unauthorized copies of the goods through other channels, at a discounted price which does not include the licensing fee or royalty that a legitimate buyer would pay as part of the price of the goods.

To prevent import of goods into the US in violation of patent, trademark, or copyright restrictions, the owners of those types of intellectual property rights (IPR) can:

  • review how US Customs works with IPR owners to protect their IPR rights

  • record the registration information (for a patent, trademark, or copyright) with US Customs

  • develop training materials that the IPR owner can provide to Customs, to help identify potentially infringing items

  • report any information about suspect shipments, or importers or other parties, to US Customs through the e-allegations system

IPR owners can also petition the US International Trade Commission (ITC) for an “exclusion order” against imports of goods which constitute “unfair methods of competition” or “unfair practices”, or infringe a US patent, registered trademark, copyright, or mask work (for electronic chip production).  “Exclusion orders” issued by the ITC are enforced by US Customs.  Summaries of the “exclusion order” process are available on the Customs and the International Trade Commission websites.

Generally, imported goods which appear to be in violation of IPR restrictions, or subject to an ITC “exclusion order”, will be detained by US Customs.  The importer may present evidence to support a claim that the goods are not violative, and other interested parties such as an IPR owner may argue the opposite.  If goods are found to be violative, the offending goods will generally be seized by Customs, and destroyed. 

If an individual acquires an item abroad, which has a counterfeit trademark, and upon arrival in the US declares it as an item purchased abroad, Customs policy is that the individual will be allowed to retain only one of each such type of item.  Example: a person buys three watches while abroad, which each have a trademark that is found to be counterfeit.  That person may keep only one of the watches; the others will be seized by Customs.

Because counterfeit goods are often materially different from the genuine goods that they are made to resemble, many types of counterfeits fail to meet the requirements of other US regulatory agencies which share jurisdiction over imports of specific types of goods.  A few representative examples include:

  • food and beverage labeling that does not meet Food and Drug Administration (FDA) requirements, such as the very specific provisions governing nutrition statements, ingredient lists, and origin statements

  • children’s toys that do not meet Consumer Products Safety Commission (CPSC) standards for choking hazards, detachable parts, or heavy metals in paint or components

  • CPSC standards for non-flammability of mattresses, clothing, and other household items

  • medications with higher or lower amounts of active ingredients than listed on the label, or marketed for unapproved uses

  • aftermarket vehicle and aircraft parts made of lesser quality materials that do not meet National Highway Traffic Safety Administration (NHTSA) or Federal Aviation Administration (FAA) tensile strength or similar requirements

Interested parties who become aware of non-compliant imports may also contact an agency that has jurisdiction over a particular compliance issue, to bring the matter to the agency’s attention.

Although pirate and counterfeit goods are illegal, “gray market” or “parallel import” goods that bear genuine trademarks may be legal to import if specific conditions are met.  We’ll visit that fascinating topic in a future post . . .

Transmark Customs Brokers is always available to help clients navigate the often unfamiliar – and occasionally perilous – issues involved in distinguishing goods that are legal to import, from similar ones that are illegal.