“The Counterfeit Goods Seizure Act would give CBP officers discretionary authority to seize imported goods which infringe upon a U.S. design patent registered with the agency. Supporters of the bill have argued that the more robust enforcement mechanism would better address certain practices used by counterfeiters to evade CBP seizures, such as obscuring infringing trademarks in shipments.”
In late July, water bottle maker Hydro Flask and parent company Helen of Troy Limited filed a complaint with the U.S. International Trade Commission (ITC) asking the agency to institute a Section 337 investigation against a series of 25 respondents, most of which are located in China, over their alleged infringement of Hydro Flask’s trademarks and design patents. The legal action highlights the difficulties being faced by many American brand owners during the COVID-19 pandemic and how Congressional action could help to ensure that these small businesses are able to effectively enforce their IP to prevent counterfeit imports.
Current CBP Enforcement Mechanisms Achieve Limited Success for U.S. Brand Owners
As Hydro Flask’s complaint with the ITC states, the company got its start by first selling its unique vacuum-insulated flask product about a decade ago at farmers markets in Bend, OR. Since that time, Hydro Flask has built a brand around its water bottle based on both its design and the environmental consciousness of the BPA-free product as is detailed in a major profile published in February by The Los Angeles Times. As Hydro Flask’s complaint notes, this popularity, while beneficial to the company leading to its 2016 acquisition by Helen of Troy, has encouraged a spate of counterfeits:
Outfits ranging from upstart trading companies in China to sophisticated international brands have rushed into the market that Hydro Flask helped create, with imports violating Hydro Flask’s well-earned intellectual property, often cloaked as ‘ghost sellers’ on internet sites branded ‘notorious markets’ by the U.S. Trade Representative.
Filing a complaint for a Section 337 investigation at the ITC can offer several advantages to domestic firms trying to push back against counterfeiters by asserting trademarks and design patents, two complementary forms of IP which are often part of the larger IP portfolio for luxury brands in many sectors. The ITC may offer a limited exclusion order (LEO) against named respondents, or a complainant may be able to secure a general exclusion order (GEO) if the ITC is convinced that such a remedy is needed to address counterfeits being imported outside of those named respondents. Hydro Flask’s complaint, as is the case with many Section 337 complaints, seeks both forms of remedy.
However, even when such remedies are offered by the ITC, the enforcement mechanisms for those orders currently in place at U.S. Customs and Border Protection (CBP) aren’t always robust enough to provide effective surveillance of counterfeit shipments imported into the U.S. Hydro Flask’s ITC filing discusses this issue, noting that the CBP’s efforts are only successful in finding and excluding a small percentage of the tens of thousands of counterfeit Hydro Flask products entering the country. In the four months between September 2019 and January 2020, Hydro Flask received 14 detention notices from the CBP detailing the seizure of more than 800 products. While the shipments had information identifying the counterfeits’ importer, identifying information for manufacturers could not be found, increasing the risk that those manufacturers could circumvent an LEO even if the CBP was able to identify every infringing shipment subject to the order.
CBP Design Patent Enforcement Could Address Increased COVID-Era Counterfeit Concerns
One way in which Congress could act so as to improve the prospects of brand owners trying to police against cheap and often dangerous knockoffs would be to pass S. 2987, the Counterfeit Goods Seizure Act (CGSA), into law. Introduced last December into the U.S. Senate, the bill would amend statutory language within 19 U.S.C. § 1595a, which governs CBP enforcement mechanisms against unlawful importation, so that the CBP would be given discretionary authority to seize imported goods which infringe upon a U.S. design patent registered with the agency. Supporters of the bill have argued that the more robust enforcement mechanism available through the CGSA would better address certain practices used by counterfeiters to evade CBP seizures, such as obscuring infringing trademarks in shipments. Under the CGSA, such counterfeits could still be seized for infringing U.S. design patents.
According to Meaghan Kent, Partner at Venable, while the CBP already enables IP owners to register copyrights and trademarks for enforcement outside of ITC exclusion orders, adding design patent enforcement through Congressional passage of the CGSA would serve an important purpose for brand owners. “If there’s a product being imported and it’s a direct counterfeit but the trademark hasn’t been applied yet, they’ve copied the product but they haven’t used the branding, those products aren’t going to be seized by CBP officers,” she said. When brand owners register trademarks with the CBP for enforcement, those firms often offer training for CBP agents to explain what the marks cover and how to recognize counterfeits. “With the CGSA, brand owners could train CBP officers to look for the shape of a product and recognize counterfeits even if they doesn’t have branding on them,” Kent said.
The CGSA is currently stalled in Congress, with no action having been taken on the bill since it was introduced into the Senate and referred to the Senate Finance Committee last December. However, Senators may want to more seriously consider taking action to move the CGSA forward given the COVID-19 pandemic, a global health crisis which has increased concerns about the dangerous nature of counterfeit products. A press release from the CBP in early June indicated that law enforcement officers at that agency had seized a large number of counterfeit COVID-19-related products, including 750,000 counterfeit face masks from a total of 86 seizures. The Organisation for Economic Co-operation and Development (OECD) has also issued material detailing increased concerns regarding counterfeits during the COVID-19 pandemic, including health issues posed by fake medicines and the potential of dangerous vaccine counterfeits once a coronavirus vaccine is developed.
As Kent notes, however, COVID-19-era counterfeit concerns are not limited to the healthcare and pharmaceutical sectors. “The pandemic makes an influx of counterfeits likely for a couple of reasons,” she said, noting that social distancing and quarantine edicts have pushed many consumers to choose online shopping over brick-and-mortar retail, increasing the risk that foreign counterfeiters will be able to sell infringing products directly to U.S. consumers. Further, factory closures during the COVID-19 shutdown have created significant supply chain issues, such as the toilet paper shortage faced across the country during the shutdown’s earliest weeks. “Counterfeiters can take advantage of supply chain issues,” Kent said. “The same issue applies to any product. If there’s a supply chain that can be hurt by shutting down manufacturing facilities, there’s a risk of counterfeiters.”
Critics of the CGSA have questioned whether CBP agents are well-equipped to determine infringement of design patents as well as the subjectivity of the ordinary consumer test used to determine infringement. But as Kent notes, design patents, trademark and copyright as forms of IP often cover overlapping aspects of product design. “CBP officers have already been employing substantial similarity and ordinary consumer tests to enforce copyrights,” Kent said. “If they can do that on the copyright side, they should be able to do that on the design patent side as well.”
Passage of the CGSA would add a very important arrow into the quiver of brand owners who are constantly trying to keep up with the ever-increasingly sophisticated activities of counterfeiters. “Frankly, counterfeiters are always a step ahead, so any additional tool that helps counter the counterfeiters is useful,” Kent added.
Other Consumer Protection/Anticounterfeiting Bills Proposed During the 116th Congress
H.R. 6058, Stopping Harmful Offers on Platforms by Screening Against Fakes in E-commerce (SHOP SAFE) Act – Introduced this March, this bill would amend the Lanham Act to provide for contributory liability for certain e-commerce platforms for use of a counterfeit mark by a third party on those platforms. This bill has been inactive since being referred to the House Judiciary Committee.
3431, the Integrity, Notification, and Fairness in Online Retail Marketplaces (INFORM) for Consumers Act – Also introduced in March, the INFORM Consumers Act would require online marketplaces to disclosed certain verified information regarding high-volume third party sellers of consumer products, including the seller’s name, business address and nature of business (manufacturer, importer, reseller, etc.). This bill has been inactive since being referred to the Senate Commerce, Science, and Transportation Committee.
S. 3073, the Stopping All Nefarious Toys in America (SANTA) Act – Introduced last December, this bill would require online marketplaces to disclose certain verified information regarding sellers of children’s products, with information disclosures similar to those that would be mandated by the INFORM Consumers Act. This bill has been inactive since being referred to the Senate Commerce, Science, and Transportation Committee.
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