Some are surprised that counterfeit goods law can be incredibly harsh when compared to other offenses. Importing, trafficking, dealing, or otherwise doing business in counterfeit goods can carry fines up to $2,000,000 and up to ten (10) years in prison. In extreme circumstances, repeat violations can carry 15 million to 30 million dollars in fines and up to 20-30 years in prison.
Without criminal prosecution, the civil penalty exposure will also be severe; ranging from 5% – 20% of dutiable value to upwards of 50 – 80% of dutiable value.
If you or your company has received either a (1) notice of seizure, (2) a notice of detention, (3) grand jury subpoena, (4) Form 28 [“Request for Information”], (5) Form 29 [“Notice of Action”], or (6) Notice of Penalty, you may want to contact our office immediately to see if we can assist.
Most in the trade community would agree that the reasons some importers choose to violate Custom’s laws with counterfeits is either to commit outright commercial fraud or at best, simply to evade duties (which are among the highest in the US tariffs). Regardless of the motives, the Customs & Border Protection agency hold intellectual property rights as a priority trade issue. For example, textile and apparel imports account for a very large stake in the US market and are a tied in with countless trade partners and multinational human rights interests. Thus, the Customs agency and it’s various intelligence partners have a very large incentive to investigate and enforce counterfeit goods laws.
Something important to note about counterfeit goods laws is that there is a broad and complicated spectrum that spans civil penalties all the way over to criminal prosecutions. To determine where a particular import violation falls involves many levels. For example, there is a range of counterfeit goods whereby the trademark involved can be a blatantly piratical copy or a confusingly similar mark. In addition to these differences, there is an entirely different analysis for goods in the gray market—than also carry their own assessments and penalties.
Customs routinely must made determinations as to what goods qualify for entry and which must be detained, seized, or forfeited. These determinations begin with the custom’s actions that result from the type of marks associated with the goods at the point of entry. For instance, goods that are registered with the Patent and Trademark Office (PTO) and recorded with Customs will very often trigger seizure as counterfeit goods and proceed to forfeiture against the importers of record and whichever third parties are also responsible. What tends to delineate detentions from seizures invariable falls on the trademark holders consent.
Counterfeit Marks: Merchandise that is identified by a spurious mark or designation that is identical or substantially indistinguishable from the genuine trademark in question (a registered mark with the US Patent and Trademark Office).
Confusingly Similar Goods: Merchandise that is identified by a mark that is not identical or indistinguishable from the genuine mark in question but is likely to cause confusion or mistake by the average consumer.
Gray Market Goods: This is merchandise that is identical to the genuine mark (even possibly because it is genuine) but not intended for the US market. For example, the sale of new, used, or refurbished merchandise that the original holder of the intellectual property considers unauthorized for overseas transactions or reseller licenses. While not necessary a violation of counterfeit goods laws, the investigation process is nearly identical with counterfeit merchandise cases with varying degrees.
As stated above, the varying degrees of registration and absence or presence of the intellectual property holders consent will determine different actions by Customs at the point of entry.
For counterfeit mark determinations, especially those with registrations in PTO and Customs, many will be seized with fines and proceedings will be initiated to forfeiture. At this point, Customs may also forward the case for criminal investigation through the US Attorneys office or other related Department of Justice agency for consideration. It’s also important to note that this step may be initiated with regard to any combination of counterfeit good law violations depending on the degree of knowledge involved and/or level of cooperation in the initial stages of the entry.
For counterfeit goods that are not registered with Customs however, fines may be evaded but the goods will invariably be seized.
In some cases, the registered intellectual property holder will issue consent after seizure of the merchandise or even at the time of importation. The reasons for this can be complex. Yet, in such instances, Customs may choose to seize or not depending on the facts of each case. For non-seizures, mitigation costs can be imposed prior to forfeiture or a hold harmless agreement can settle some of the harsher penalties.
When it comes to confusingly similar merchandise, Customs may impose initial detentions with the right to seize the goods based on numerous factors. Trademark holders who withhold consent will typically trigger seizures of the goods especially when it comes to marks that are recorded with the respective enforcement agencies. And for mark holders who provide consent at the time of importation, seizure may be avoided entirely. How an importer navigates this period could be the difference between facing steep regulatory fines and possible criminal investigation or find a more appealing solution between contracting parties without expensive legal consequences.
A very common occurrence at the time of entry involves confusingly similar marks that are lacking in intellectual property holder consent at the time of importation but obtained during the detention period. Under counterfeit goods law, this starts as a red flag and triggers inquiry. The Customs and Border Protection agency (typically through Special Enforcement Officers) will restrict entry via detention for up to 30 days where the importer of record is sent Requests for Information. This period is critical and can trigger what direction the investigation will be heading depending on the level of information provided to authorities. Customs brokers and manufacturers often are placed in positions where they cannot meet the procedures in time to determine if the goods will be released or seized.
For cases where penalties are assessed and where investigations turn to whether or not there are more serious violations of counterfeit goods law involved, Customs will investigate the degree of culpability. This degree generally falls on whether the acts were the result of negligence, gross negligence, or fraud.
Negligent violations will of course result in much lower penalties. Accordingly, a negligent type of violation is often one that results from a failure to exercise the degree of reasonable care and competence expected from someone that would be in the same circumstances to ensure any statements made or information provided with importing merchandise are complete and accurate or perform any material act that is required by statute or regulation.
Gross negligent violation occurs from an act that is done with actual knowledge or wanton disregard for relevant facts and with the indifference or disregard for that person’s obligations under statute.
Fraudulent violations, the most severe of the three degrees of culpability, requires a material false statement or omission or act in connection with the transaction that was committed knowingly, done voluntarily and intentionally, as established through clear and convincing evidence.
If a Customs field officer has reasonable cause to believe that a counterfeit goods law violation has occurred and that they determine that further proceedings are warranted, that officer will typically issue a claim for monetary penalty. This is ordinarily referred to as a prepenalty notice. The field officer will make a tentative determination on the degree of culpability and the proposed amount for the claim sought. An appropriate assessment or disposition will include both penalties as well as duty used for assessing that penalty. The officer will also have the discretion to assess both duty loss and non-duty loss penalties. This includes any incidental or nominal duty loss that resulted from the violation. The degree of culpability will be based on the evidence at the time of the issuance.
For both negligence and gross negligence cases, the Customs field officer will always take into account the gravity of the violation involved, as well as the mount of duty loss, mitigating or aggravating factors, the extent of the wrongdoing, as well as any other factors that bear on the seriousness of the violation in question. Even though there are penalty ceiling for both negligence and gross negligence violations, the Customs field officer will not ordinarily meet those ceilings unless there is evidence of significant evasion of import restrictions or where there was a serious loss of duty. Serious violations can be that that affect the adminissibility of merchandise or enforcement of ancillary laws, or making false statements intended to hide dumping merchandise, as well as violations of ITC exclusionary orders.
As for fraud-based cases, the proposed claim will usually be assessed in an amount that is equal to the domestic value of the merchandise. Penalty dispositions for violations calculated under fraud will analyzed by the duty loss violations incurred as well as the non-duty loss. For duty loss violations, a penalty disposition greater than eight times the total loss of duty can be imposed for egregious violations or presence of aggravating factors. For non-duty violations, amounts ranging from fifty percent of the dutiable value and up to a maximum of eighty percent. Penalties exceeding eighty percent can be imposed upon a determination of egregious violations and aggravating factors.
Whether or not the goods you or your company is dealing with have intellectual property issues, the most import way to handle a detention or seizure is to be responsive to the agencies requests and to not be evasive during the investigation process. Evasion of duties does not need to be motivating factor in the big picture of counterfeit goods law. Many parties in the supply chain who act with legitimate intention can find themselves in the midst of an investigation regardless of any illicit intent.
For assistance in any Customs related processes, you may also call our offices for further information. We will be more than happy to help.
Bart Kaspero, Esq.
Direct: (949) 209-9477
Schuchert, Krieger, Truong, Spagnola & Klausner, LLP
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