Protecting Domestic e-Commerce

As anyone, whether an attorney or not, might guess, the Internet has created in e-commerce more opportunity than ever for counterfeit goods to be displayed, bartered and sold. Human nature being what it is, an unprecedented number of individuals who feel that they are beyond the reach of U.S. law have fueled an historically high level of foreign counterfeit-goods transactions, resulting in many millions of dollars of economic damage to America.

U.S. Extends Reach

Even though laws are in place domestically and overseas, remedies under these laws can be difficult to win because of a range of circumstances, such as the difficulty in locating the counterfeit-sales perpetrators, the (often) non-likelihood of seizing compensating assets, and the all-too-common reluctance of some foreign countries' policing systems from acting on infringed-IP holders' behalf.

But the broad shoulders, long arms and muscle of U.S. jurisprudence is offering some aggrieved IP holders relief. The United States International Trade Commission (“ITC”) (www.usitc.gov) and an agency called U.S. Customs and Border Protection (“CBP”) (www.cbp.gov), a division of the Department of Homeland Security, are increasingly popular venues for American intellectual-property holders to assert their legal rights. Indeed, actions by these agencies have the potential to shut foreign e-commerce competitors out of the U.S. market.

Authorized by 19 U.S.C. '337, the Smoot-Hawley Tariff Act of 1930 allows certain entities to block importation of goods that infringe valid United States intellectual property. Under '337 of the Act, the ITC conducts investigations into allegations of certain unfair practices in import trade (for information on '337 investigations, see, www.usitc.gov/intellectual_property/documents/337_faqs.pdf). Such unlawful practices include the infringement of intellectual-property rights and other forms of unfair competition in import trade. The investigations typically involve an allegation of:

• Patent or registered-trademark infringement;
• Misappropriation of trade secrets;
• Passing off counterfeit goods; or
• False advertising.

The ITC is a federal agency that can stop the importation of goods ordered over the Internet from foreign vendors, after the agency receives a '337 complaint. Historically, nearly all complaints alleging that a U.S. intellectual property is violated by imported goods via traditional means or via the Internet have been investigated and an action favorable to the complainant has resulted.

In fiscal year 2000, the organization handled a dozen cases. Ten years later, the agency's annual caseload has increased nearly tenfold. The reason for this increase was an opportunity for a resolution that is typically years faster than the standard litigation process, and much less expensive. After an investigation is instituted, the entire process, including a hearing, typically takes less than 18 months.

The Trail of a Complaint

A '337 complaint consists of four elements:

1. A cover sheet that lists what is included in the complaint and specifies documents.
2. A request-for-confidential-treatment letter that identifies information.
3. Cover sheets for public documents and confidential documents.
4. A complaint must be filed that has been executed under oath by a duly authorized officer, attorney or agent.

The four elements must be submitted directly to the ITC.

Once a complaint has been filed, the public version of the complaint, and any other public document filed in the matter, can be accessed via the ITC's Electronic Document Information System.

After a complaint is filed with the ITC, it is examined to determine whether the complaint complies with the applicable rules. The ITC will normally determine whether to institute a '337 investigation within 30 calendar days after a complaint is filed. If a complaint is accompanied by a motion for temporary relief, the commission will normally make its determination regarding institution of an investigation and provisional acceptance of the motion for temporary relief within 35 calendar days after the complaint and motion are filed.

In the event that the commission makes a determination to institute a '337 investigation, a notice defining the scope of the investigation is published in the Federal Register. These notices typically appear in the Register the week following the last day of the 30- or 35-day period for determining whether an investigation should be opened. In addition to publishing a notice in the Federal Register, the commission serves a copy of the complaint and notice of investigation on all the respondents named in the investigation, as well as on the U.S. embassy for the country in which respondents are located.

If the commission determines not to institute an investigation based on a complaint, the complainant and all the entities named as proposed respondents in the complaint will receive written notice of the commission's action. Decisions not to institute an investigation are rare.

Section 337 investigations are administrative hearings, and as such are conducted in accordance with a set of rules issued by the presiding administrative law judge, normally the adjudicative provisions of the Administrative Procedure Act (5 U.S.C. ”551 et seq.).

Following a hearing, the presiding administrative law judge issues an initial determination (“ID”) that is certified to the ITC, along with the evidentiary record. The ITC may review and adopt, modify or reverse the ID, or it may decide not to review the ID. If the ITC declines to review an ID, then the ID becomes the commission's final determination.

When the ITC determines that '337 has been violated, it usually grants one of two remedies:

1. Issuing an exclusion order, which is the right to have customs exclude infringing products at the border; or
2. Issuing a cease-and-desist order, which limits sales of infringing products already imported.

The commission's exclusion orders are enforced by CBP. ITC orders become effective 60 days after being issued. Appeals of ITC orders are heard by the U.S. Court of Appeals for the Federal Circuit.

European Provisions

Meanwhile, in Europe, the European Union has a process similar to '337 that allows IP owners to have customs exclude infringing imports. However, unlike '337, the European Union regulation does not merely protect members of the European Union; indeed, the European Union regulation allows any IP owner to institute the proceeding (see, Council Regulation 1383/2003, art. 14.1 (EC); http://eurlex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:2003:196:0007:0014:EN:PDF).

Back on this side of the Atlantic, an even less-expensive and faster option is available to American entities that have been harmed by e-commerce transactions facilitating foreign counterfeit-goods transactions. They may file their IP-rights violation claim directly with CBP, which also enforces immigration and drug laws.

CBP acts on information provided by IP holders whose economic interests are harmed due to the shipment of counterfeit goods across American borders. CBP seizes imports of counterfeit goods and enforces exclusion orders on patent infringement. It also implements ITC rulings.

Levying Internet Control

Since implementation of the Stop Counterfeiting in Manufactured Goods Act in 2006, CBP has been better able to combat the counterfeiting of goods via the Internet. Specifically, the bill is designed to strengthen implementation of enforcement procedures.

Even though prior to 2006 it was illegal to manufacture, ship or sell counterfeit products, this legislation closed a loophole allowing the shipment of falsified labels or packaging, which counterfeiters could then attach to fake products in order to cheat consumers by passing off poorly made items as brand-name goods.

Additionally, this statute requires courts to order the destruction of all counterfeit products seized as part of a criminal investigation, and requires convicted counterfeiters to turn over their profits and any equipment that was used in their illegal operations. This statute also requires people convicted of counterfeiting to reimburse the legitimate businesses they exploited.

Counsel should advise IP holders that once the holders are aware of, or suspect, an entity of infringing trademark or copyright, a complaint should be filed with CBP. The complaint should consist of the following:

• The name and business address of the importer and/or consignee of the allegedly infringing articles;
• A sufficiently detailed description of the suspect goods to make them readily recognizable by CBP;
• A sample of the infringing article, or a photographic or other likeness reproduced on paper;
• The country of origin of the shipment and any countries through which the suspect goods are transshipped;
• The country or countries of manufacture of the allegedly infringing merchandise;
• The name and principal business address of each foreign person or business entity involved in the manufacture and/or distribution of suspect article;
• The mode of transportation;
• The identity of the transporters of the allegedly infringing goods;
• The ports where the infringed parties anticipate the suspect articles will be presented to CBP;
• The anticipated date of presentation to CBP;
• The harmonized tariff schedule designation of the suspect goods; and
• Any additional evidence relating to the importation of the suspect goods.

CBP Enforcement

CBP examines cargo entering the country to ensure that it is in compliance with a variety of laws. The examination includes a check to determine whether or not an importation infringes on someone else's intellectual-property rights, by, in part, checking a database of trademarks, trade names and copyrights that CBP has compiled.

Trademarks and copyrights that have been registered with the U.S. Patent and Trademark Office, or the U.S. Copyright Office may be recorded with CBP for a fee of $190.

Once the offending goods are found, they will be seized. A seizure notice will be issued to the importer, who may petition for administrative relief, or elect to bring suit in federal district court to recover the merchandise.

Goods that are seized and forfeited as bearing a mark that is a counterfeit of a registered trademark, piratical of a registered copyright, or imported in violation of distribution-rights agreements, are routinely destroyed, unless the owner gives permission for other disposition, such as charitable donation. Significant monetary penalties may also be assessed for violations involving the importation of goods bearing counterfeit marks.

As anyone, whether an attorney or not, might guess, the Internet has created in e-commerce more opportunity than ever for counterfeit goods to be displayed, bartered and sold. Human nature being what it is, an unprecedented number of individuals who feel that they are beyond the reach of U.S. law have fueled an historically high level of foreign counterfeit-goods transactions, resulting in many millions of dollars of economic damage to America.

U.S. Extends Reach

Even though laws are in place domestically and overseas, remedies under these laws can be difficult to win because of a range of circumstances, such as the difficulty in locating the counterfeit-sales perpetrators, the (often) non-likelihood of seizing compensating assets, and the all-too-common reluctance of some foreign countries' policing systems from acting on infringed-IP holders' behalf.

But the broad shoulders, long arms and muscle of U.S. jurisprudence is offering some aggrieved IP holders relief. The United States International Trade Commission (“ITC”) (www.usitc.gov) and an agency called U.S. Customs and Border Protection (“CBP”) (www.cbp.gov), a division of the Department of Homeland Security, are increasingly popular venues for American intellectual-property holders to assert their legal rights. Indeed, actions by these agencies have the potential to shut foreign e-commerce competitors out of the U.S. market.

Authorized by 19 U.S.C. '337, the Smoot-Hawley Tariff Act of 1930 allows certain entities to block importation of goods that infringe valid United States intellectual property. Under '337 of the Act, the ITC conducts investigations into allegations of certain unfair practices in import trade (for information on '337 investigations, see, www.usitc.gov/intellectual_property/documents/337_faqs.pdf). Such unlawful practices include the infringement of intellectual-property rights and other forms of unfair competition in import trade. The investigations typically involve an allegation of:

• Patent or registered-trademark infringement;
• Misappropriation of trade secrets;
• Passing off counterfeit goods; or
• False advertising.

The ITC is a federal agency that can stop the importation of goods ordered over the Internet from foreign vendors, after the agency receives a '337 complaint. Historically, nearly all complaints alleging that a U.S. intellectual property is violated by imported goods via traditional means or via the Internet have been investigated and an action favorable to the complainant has resulted.

In fiscal year 2000, the organization handled a dozen cases. Ten years later, the agency's annual caseload has increased nearly tenfold. The reason for this increase was an opportunity for a resolution that is typically years faster than the standard litigation process, and much less expensive. After an investigation is instituted, the entire process, including a hearing, typically takes less than 18 months.

The Trail of a Complaint

A '337 complaint consists of four elements:

1. A cover sheet that lists what is included in the complaint and specifies documents.
2. A request-for-confidential-treatment letter that identifies information.
3. Cover sheets for public documents and confidential documents.
4. A complaint must be filed that has been executed under oath by a duly authorized officer, attorney or agent.

The four elements must be submitted directly to the ITC.

Once a complaint has been filed, the public version of the complaint, and any other public document filed in the matter, can be accessed via the ITC's Electronic Document Information System.

After a complaint is filed with the ITC, it is examined to determine whether the complaint complies with the applicable rules. The ITC will normally determine whether to institute a '337 investigation within 30 calendar days after a complaint is filed. If a complaint is accompanied by a motion for temporary relief, the commission will normally make its determination regarding institution of an investigation and provisional acceptance of the motion for temporary relief within 35 calendar days after the complaint and motion are filed.

In the event that the commission makes a determination to institute a '337 investigation, a notice defining the scope of the investigation is published in the Federal Register. These notices typically appear in the Register the week following the last day of the 30- or 35-day period for determining whether an investigation should be opened. In addition to publishing a notice in the Federal Register, the commission serves a copy of the complaint and notice of investigation on all the respondents named in the investigation, as well as on the U.S. embassy for the country in which respondents are located.

If the commission determines not to institute an investigation based on a complaint, the complainant and all the entities named as proposed respondents in the complaint will receive written notice of the commission's action. Decisions not to institute an investigation are rare.

Section 337 investigations are administrative hearings, and as such are conducted in accordance with a set of rules issued by the presiding administrative law judge, normally the adjudicative provisions of the Administrative Procedure Act (5 U.S.C. ”551 et seq.).

Following a hearing, the presiding administrative law judge issues an initial determination (“ID”) that is certified to the ITC, along with the evidentiary record. The ITC may review and adopt, modify or reverse the ID, or it may decide not to review the ID. If the ITC declines to review an ID, then the ID becomes the commission's final determination.

When the ITC determines that '337 has been violated, it usually grants one of two remedies:

1. Issuing an exclusion order, which is the right to have customs exclude infringing products at the border; or
2. Issuing a cease-and-desist order, which limits sales of infringing products already imported.

The commission's exclusion orders are enforced by CBP. ITC orders become effective 60 days after being issued. Appeals of ITC orders are heard by the U.S. Court of Appeals for the Federal Circuit.

European Provisions

Meanwhile, in Europe, the European Union has a process similar to '337 that allows IP owners to have customs exclude infringing imports. However, unlike '337, the European Union regulation does not merely protect members of the European Union; indeed, the European Union regulation allows any IP owner to institute the proceeding (see, Council Regulation 1383/2003, art. 14.1 (EC); http://eurlex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:2003:196:0007:0014:EN:PDF).

Back on this side of the Atlantic, an even less-expensive and faster option is available to American entities that have been harmed by e-commerce transactions facilitating foreign counterfeit-goods transactions. They may file their IP-rights violation claim directly with CBP, which also enforces immigration and drug laws.

CBP acts on information provided by IP holders whose economic interests are harmed due to the shipment of counterfeit goods across American borders. CBP seizes imports of counterfeit goods and enforces exclusion orders on patent infringement. It also implements ITC rulings.

Levying Internet Control

Since implementation of the Stop Counterfeiting in Manufactured Goods Act in 2006, CBP has been better able to combat the counterfeiting of goods via the Internet. Specifically, the bill is designed to strengthen implementation of enforcement procedures.

Even though prior to 2006 it was illegal to manufacture, ship or sell counterfeit products, this legislation closed a loophole allowing the shipment of falsified labels or packaging, which counterfeiters could then attach to fake products in order to cheat consumers by passing off poorly made items as brand-name goods.

Additionally, this statute requires courts to order the destruction of all counterfeit products seized as part of a criminal investigation, and requires convicted counterfeiters to turn over their profits and any equipment that was used in their illegal operations. This statute also requires people convicted of counterfeiting to reimburse the legitimate businesses they exploited.

Counsel should advise IP holders that once the holders are aware of, or suspect, an entity of infringing trademark or copyright, a complaint should be filed with CBP. The complaint should consist of the following:

• The name and business address of the importer and/or consignee of the allegedly infringing articles;
• A sufficiently detailed description of the suspect goods to make them readily recognizable by CBP;
• A sample of the infringing article, or a photographic or other likeness reproduced on paper;
• The country of origin of the shipment and any countries through which the suspect goods are transshipped;
• The country or countries of manufacture of the allegedly infringing merchandise;
• The name and principal business address of each foreign person or business entity involved in the manufacture and/or distribution of suspect article;
• The mode of transportation;
• The identity of the transporters of the allegedly infringing goods;
• The ports where the infringed parties anticipate the suspect articles will be presented to CBP;
• The anticipated date of presentation to CBP;
• The harmonized tariff schedule designation of the suspect goods; and
• Any additional evidence relating to the importation of the suspect goods.

CBP Enforcement

CBP examines cargo entering the country to ensure that it is in compliance with a variety of laws. The examination includes a check to determine whether or not an importation infringes on someone else's intellectual-property rights, by, in part, checking a database of trademarks, trade names and copyrights that CBP has compiled.

Trademarks and copyrights that have been registered with the U.S. Patent and Trademark Office, or the U.S. Copyright Office may be recorded with CBP for a fee of $190.

Once the offending goods are found, they will be seized. A seizure notice will be issued to the importer, who may petition for administrative relief, or elect to bring suit in federal district court to recover the merchandise.

Goods that are seized and forfeited as bearing a mark that is a counterfeit of a registered trademark, piratical of a registered copyright, or imported in violation of distribution-rights agreements, are routinely destroyed, unless the owner gives permission for other disposition, such as charitable donation. Significant monetary penalties may also be assessed for violations involving the importation of goods bearing counterfeit marks.