2010 DHS Appropriations Reveal Focus Upon Increased IPR Enforcement Efforts

A House of Representatives conference report dated October 15, 2009 allocates $42.8 billion for the Department of Homeland Security in fiscal year 2010. However, the report does more than allocate funds: it also demonstrates the government’s commitment to increased intellectual property rights enforcement in the year to come.

It is widely known that there has been an ever-steady rise in Customs seizures and penalties based upon intellectual property rights violations. In continuing this trend, the conference report states that “a greater focus needs to be brought to intellectual property rights (IPR) enforcement. CBP is directed to submit by December 15, 2009, a 5-year enforcement strategy to reduce IPR violations. The strategy shall include: a timeline for developing improved targeting models specifically for IPR, a timeline for implementing expanded training for all enforcement personnel, [and] recommendations for strengthening penalties . . ..” In other words, CBP's increasingly vigorous enforcement efforts can be expected to become even more robust in the years to come as more stringent counterfeit targeting measures and stronger penalty regimes are implemented in the future. Increased targeting could mean that importers from manufacturers that have had multiple IPR violations in the past will find their shipments inspected at a higher-than-normal rate or detained at the slightest suspicion of infringement.

Not all importers that violate, or allegedly violate, U.S. intellectual property rights are counterfeiters and smugglers of knock off goods. Unfortunately, importers of certain foreign goods, particularly from China, are often surprised after receiving a notice of seizure to learn that the manufacturer’s packaging prominently displays an unauthorized U.S. trademark. The importer may have seen only a non-violative sample of the product at issue, without considering that it would be shipped in a package prominently declaring it to be an “Appel iFone” or the like. Whether or not the packaging is truly violative of U.S. intellectual property rights is certainly the most critical issue in such a case, but regardless of the ultimate determination on that count, the transaction is disrupted and the goods are detained or seized for an uncertain length of time while Customs considers the importer’s petition for release. As a result, even if the allegedly-infringing mark or verbiage is “fair use” or if the underlying trademark is unenforceable, the value of the goods may depreciate appreciably while the matter is sorted out.

Of course, all of this leads to animosity between the importer and its supplier, but recovery against a foreign party is often a difficult process, so the innocent importer is forced to bear the burden of the manufacturer’s error. Due diligence by importers is important, but the reality is that the issue of packaging, and even marks contained on products themselves, is one that is not easily resolved when purchasing from a distance. There simply is no guarantee that a foreign manufacturer will ship goods resembling the ones that are ordered. We see far too many instances of foreign manufacturers that appear to believe that “close enough” to genuine is good enough, and that the inclusion of a dubious mark is of no moment – or that it may even be a good thing, as obviously in some markets reference to an “Appel iFone” may actually increase a product’s sales. Although steps can be taken to shift financial responsibility for seizures or penalties incurred due to allegedly-violative merchandise to the foreign supplier by contract, and probing questions and explicit instructions from a buyer may deter some questionable shipments, unfortunately the only firm rule is “buyer beware.”