U.S. GOVERNMENT PUBLISHING OFFICE

35–965—PDF WASHINGTON : 2019

S. HRG. 115–577 

PROTECTING E-COMMERCE CONSUMERS 

FROM COUNTERFEITS 

HEARING 

BEFORE THE

COMMITTEE ON FINANCE 

UNITED STATES SENATE 

ONE HUNDRED FIFTEENTH CONGRESS 

SECOND SESSION 

MARCH 6, 2018 

( 

Printed for the use of the Committee on Finance 

COMMITTEE ON FINANCE 

ORRIN G. HATCH, Utah, Chairman 

CHUCK GRASSLEY, Iowa 

MIKE CRAPO, Idaho 

PAT ROBERTS, Kansas 

MICHAEL B. ENZI, Wyoming 

JOHN CORNYN, Texas 

JOHN THUNE, South Dakota 

RICHARD BURR, North Carolina 

JOHNNY ISAKSON, Georgia 

ROB PORTMAN, Ohio 

PATRICK J. TOOMEY, Pennsylvania 

DEAN HELLER, Nevada 

TIM SCOTT, South Carolina 

BILL CASSIDY, Louisiana 

RON WYDEN, Oregon 

DEBBIE STABENOW, Michigan 

MARIA CANTWELL, Washington 

BILL NELSON, Florida 

ROBERT MENENDEZ, New Jersey 

THOMAS R. CARPER, Delaware 

BENJAMIN L. CARDIN, Maryland 

SHERROD BROWN, Ohio 

MICHAEL F. BENNET, Colorado 

ROBERT P. CASEY, JR., Pennsylvania 

MARK R. WARNER, Virginia 

CLAIRE MCCASKILL, Missouri 

SHELDON WHITEHOUSE, Rhode Island 

A. JAY KHOSLA, Staff Director 

JOSHUA SHEINKMAN, Democratic Staff Director 

(II) 

C O N T E N T S 

OPENING STATEMENTS 

Page 

Hatch, Hon. Orrin G., a U.S. Senator from Utah, chairman, Committee on 

Finance .................................................................................................................. 1 

Wyden, Hon. Ron, a U.S. Senator from Oregon .................................................... 4 

WITNESSES 

Gianopoulos, Kimberly, Director, International Affairs and Trade, Government Accountability Office, Washington, DC .................................................... 7 

Smith, Brenda, Executive Assistant Commissioner, Office of Trade, Customs 

and Border Protection, Washington, DC ............................................................ 9 

Joholske, Jim, Director, Office of Import Surveillance, Consumer Product 

Safety Commission, Washington, DC ................................................................. 11 

Brady, Terrence R., president, Underwriters Laboratories, Inc., Northbrook, 

IL ........................................................................................................................... 12 

ALPHABETICAL LISTING AND APPENDIX MATERIAL 

Brady, Terrence R.: 

Testimony .......................................................................................................... 12 

Prepared statement .......................................................................................... 25 

Gianopoulos, Kimberly: 

Testimony .......................................................................................................... 7 

Prepared statement .......................................................................................... 27 

Responses to questions from committee members ......................................... 32 

Hatch, Hon. Orrin G.: 

Opening statement ........................................................................................... 1 

Prepared statement with attachments ........................................................... 37 

Joholske, Jim: 

Testimony .......................................................................................................... 11 

Prepared statement .......................................................................................... 47 

Responses to questions from committee members ......................................... 48 

Smith, Brenda: 

Testimony .......................................................................................................... 9 

Prepared statement .......................................................................................... 52 

Responses to questions from committee members ......................................... 58 

Wyden, Hon. Ron: 

Opening statement ........................................................................................... 4 

Prepared statement .......................................................................................... 75 

COMMUNICATIONS

Alliance for Safe Online Pharmacies ..................................................................... 77 

Asmodee North America, Inc. ................................................................................. 79 

Coalition to Combat Counterfeiting (CCC) ............................................................ 88 

The Counterfeit Report ........................................................................................... 90 

Precious Metals Association of North America ..................................................... 93 

(III) 

(1) 

PROTECTING E-COMMERCE CONSUMERS 

FROM COUNTERFEITS 

TUESDAY, MARCH 6, 2018 

U.S. SENATE, 

COMMITTEE ON FINANCE, 

Washington, DC. 

The hearing was convened, pursuant to notice, at 10:03 a.m., in 

room SD–215, Dirksen Senate Office Building, Hon. Orrin G. Hatch 

(chairman of the committee) presiding. 

Present: Senators Thune, Isakson, Portman, Heller, Cassidy, 

Wyden, Stabenow, Cantwell, Menendez, Carper, Cardin, Bennet, 

Casey, Warner, and McCaskill. 

Also present: Republican staff: Christopher Armstrong, Chief 

Oversight Counsel; Joshua Blume, Professional Staff Member; and 

Queena Fan, Detailee. Democratic staff: Elissa Alben, International 

Trade Counsel; David Berick, Chief Investigator; Daniel Goshorn, 

Investigative Counsel; Greta Peisch, International Trade Counsel; 

and Jayme White, Chief Advisor for International Competitiveness 

and Innovation. 

OPENING STATEMENT OF HON. ORRIN G. HATCH, A U.S. 

SENATOR FROM UTAH, CHAIRMAN, COMMITTEE ON FINANCE 

The CHAIRMAN. This hearing will come to order. 

I would like to welcome everyone here today. During this hearing, we will discuss counterfeiting and e-commerce and what steps 

we can take to protect consumers. 

Before we get to that, though, I would like to make an important 

point about the President’s proposed tariffs on steel and aluminum. 

Let us set aside just for a moment all of the legitimate concerns 

about trade wars, the failure to target the source of steel and aluminum overcapacity, and the disproportionate effects on our major 

trading partners and allies. 

In the end, these tariffs are not a tax on foreign steel and aluminum producers, but rather a tax on American citizens and businesses who, if this action is finalized, will be forced to pay an additional 25 percent on steel and 10 percent on aluminum. 

Those effects would blunt the benefits of tax reform for all Americans, including the reduced impact of billions of dollars that many 

companies recently pledged to invest here in America. And those 

billions will not be as valuable. Truly, there is a better way to address China’s actions than to impose a new, across-the-board tax 

on U.S. consumers and businesses just 3 short months after we 

passed comprehensive tax reform. 

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We can and we should do better. And I will be sending the President a letter later today emphasizing just that. 

Now, I would like to turn to the important issues we want to address in this hearing. It is no secret that I have long felt, and I 

think others feel the same way, that strong protections for intellectual property rights protect consumers. A properly enforced trademark, for example, lets a customer know who made a product and 

where to go for information about it. 

We were all encouraged by the new authorities the Trade Facilitation and Trade Enforcement Act of 2015 granted the U.S. Customs and Border Protection as well as Immigration and Customs 

Enforcement. Those authorities along with a new National Intellectual Property Center were designed to help agencies collaborate, coordinate, and take down perpetrators. 

And because there are frequently hiccups with the implementation of new laws, the committee asked the Government Accountability Office to conduct a broad investigation about how the Trade 

Facilitation and Trade Enforcement Act was being implemented. 

As they started their investigation, GAO quickly began to realize 

that e-commerce generally was causing major issues for CBP and 

ICE. Due to advancements in online purchasing, the agencies were 

being forced to adopt new tactics, work more closely together, and 

build up their public/private partnerships. Those have all been 

changes for the good. 

However, we asked GAO to continue their investigation and to 

look specifically at the problem of counterfeits on some of the most 

prominent e-commerce platforms. As part of this process, GAO 

made purchases from five major e-commerce platforms, and, after 

using relatively narrow criteria, GAO received at least one counterfeit and one legitimate good from each of the platforms. 

In the end, 20 of the 47 individual items they purchased were 

counterfeit. While the sample size was small, the results are still 

telling. 

On the whole, this investigation started us down a path of discovery. And on that path, we noticed that there are far more issues 

than we had initially anticipated. 

Today’s hearing represents a combination of those initial findings. And while we are not going to be able to fix this all at once, 

I am hoping to at least discuss some of the meaningful steps that 

we could take in the near term. But before we get to that, I want 

to talk a little bit more about what we found as part of this research. 

As part of its research, GAO found that many counterfeit products create a hazard to consumers, children, and our economy. 

Through seizures and later investigations, CBP, ICE, and CPSC 

have found numerous instances of counterfeit products with major 

health and safety issues. These issues have included contact lenses 

that contain dangerous bacteria, cosmetics that have chemicals 

that can cause harmful health effects when applied, phone chargers 

with faulty wiring, batteries with thermal runoff issues, and even 

defective airbags. 

GAO has found that with the rise of popular online marketplaces, counterfeiters have greater access to the market and can 

easily sell their phony products directly to consumers. 

3 

Because the counterfeiters frequently use stock photos or simply 

join in on a prelisted product, the goods are sold as genuine. And 

so long as counterfeiters can make the products indistinguishable 

on the outside, most consumers have never noticed a difference. 

This is because typical red flags for consumers are difficult to notice. 

This is even true when the counterfeiters create new colors or designs of more famous products. In one recent instance, the U.S. Attorneys Office in the Northern District of Mississippi successfully 

prosecuted a case against Bobby Rodgers, Jr. 

Mr. Rodgers had a fairly elaborate scheme in place. First, he 

would order counterfeit merchandise from China and facilitate delivery by using alternate addresses. Then he would powder-coat the 

counterfeit items he received and sell them as a third-party retailer 

online. As he did this, he would represent the goods as authentic, 

sometimes even with licensed modifications. 

The sheer volume of his scams was staggering. On just one of the 

two major platforms that he used, Mr. Rodgers had sold over 

$300,000 in counterfeit goods. 

When his complex was raided, authorities seized another 2,200 

pieces of counterfeit drinkware. But it does not end there. 

Later, as the CPSC lab reports came back, several of the colors 

tested positively for lead, exceeding the amount legally allowed by 

more than 20 times. For all we know, there are currently children 

around the country sipping water with dangerously high levels of 

lead because of Mr. Rodgers. 

Sadly, he is just one among many, many perpetrators buying 

counterfeits and facilitating sales of them through e-commerce platforms. 

We have heard from some rights holders, like YETI, whose products have been counterfeited in these schemes, who have responded 

strongly to address these problems. YETI issued a statement making it clear that they were expending, quote, ‘‘significant resources 

to protect [their] consumers,’’ unquote. 

I ask unanimous consent that the full YETI statement, as well 

similar statements submitted by other rights holders, be entered 

into the appropriate place in this hearing record. 

[The statements appear in the appendix beginning on p. 39.] 

The CHAIRMAN. Now, I do not want to steal too much of their 

thunder, but one of the reasons we have invited Underwriters Laboratories, or UL, here today is to let them give us a broader perspective on the seriousness of these issues. 

As just one example, in a public report, UL recently tested 400 

counterfeit Apple phone adapters. Out of those 400, they found that 

only three out of the 400 chargers passed electricity strength tests. 

And that is just one of the many studies UL has performed. 

I think everyone here, both members and the audience, will be 

stunned by not only the breadth of products being counterfeited, 

but also by the incredible volume. This goes beyond the dollars and 

cents these companies have invested to develop and market their 

products, which, let us be clear, are enormously important for our 

economy, not to mention the well-being of American consumers. 

But we are not just talking about devalued investments. We are 

talking about lead on children’s drinkware, phones catching fire, 

4 

homes burning down, consumers being injured from hygiene and 

cosmetic products, airbags not inflating properly, and who knows 

what else. 

It is my hope that we all can agree today that counterfeit products pose an immediate and significant risk to Americans’ health 

and safety. And I hope that we can take GAO’s recommendations 

seriously to improve information sharing and better track CBP’s intellectual property enforcement methods. 

Personally, I am interested in talking specifically about sharing 

e-commerce platform data contained in invoices and on packages 

with rights holders, as well as learning from and improving CBP’s 

voluntary abandonment program. 

American consumers are relying on us to get this right, and we 

need to work together and with the appropriate officers at CBP, 

ICE, and other agencies to make sure we do. 

With that, I am very happy to turn to my colleague and partner, 

Senator Wyden, for his opening remarks. 

[The prepared statement of Chairman Hatch appears in the appendix.] 

OPENING STATEMENT OF HON. RON WYDEN, 

A U.S. SENATOR FROM OREGON 

Senator WYDEN. Thank you very much, Mr. Chairman. 

Mr. Chairman, you commented on the steel and aluminum issue, 

and I would like to start with some brief comments on that as well. 

The fact is, on the steel and aluminum issue, the President has 

inflicted a punishing year of uncertainty on the American economy. 

And this uncertainty has harmed our workers, American workers 

who need and deserve good-paying jobs. 

Moreover, even as of this morning, it is still not clear that the 

President understands the central problem, which is dealing with 

Chinese overcapacity of steel. 

So he has had practically one salvo a day with respect to trade. 

One day he is looking at tariffs, the next day he is looking at in 

some way intertwining his steel policy with the North American 

Free Trade Agreement. 

I just want it understood that this year of uncertainty, which already caused an import surge when the President basically dawdled right out of the gate, has real consequences for American 

workers and American families, and they deserve better. 

Now, with respect to this hearing, the committee will be discussing the challenge of protecting consumers from counterfeit 

goods. And I am glad that this discussion is taking place. It is long 

overdue. 

I also hope this committee will soon hold hearings on the Trump 

administration’s varied and sundry trade activities, including the 

steel and aluminum investigations and potential tariffs, the North 

America Free Trade Act renegotiations, and the investigation of 

China under section 301. 

On counterfeit imports, any discussion of this issue has to begin 

by recognizing that over the last few decades, the Internet has 

transformed virtually every corner of the American economy. 

5 

I stated some time ago in this room that the Internet is now the 

shipping lane of the 21st century. And that is a far cry from the 

kind of trade discussions that took place for decades in this room. 

People now take it for granted, but it is, in effect, a miracle of 

modern commerce that a small business in my home State of Oregon, 3,000 miles from Washington, DC, can reach consumers almost anywhere at any time. No longer does expanding your customer base mean investing solely in bricks and mortar. 

Wildfang is a socially conscious Portland clothing company that 

was founded by women and run by women. They have two stores 

in Portland, but what is really driving sales is online opportunities, 

online sales. A full 70 percent of their business happens online, and 

that is where we are seeing the growth. This is a company that has 

seized the opportunity to sell around the world via the Internet, 

and it now has 25 employees. 

But the fact is, anytime there is significant economic change, let 

alone the kind of transformative activity that the Internet has 

brought, you get some new challenges along with the upside. That 

includes the chance that when you buy something online, there is 

a chance it could be a fake. 

It is up to the Federal Government to make sure our approach 

to combating counterfeits is not stuck in the 20th century. 

These days, when you talk about cracking down on counterfeit 

goods, you are no longer talking about stopping the person selling 

fake purses out of their trunk. You are talking about illegitimate 

products passed off on even the most savvy, streetwise consumers, 

and often they are mixed right in with the genuine products that 

our people want. 

Many of those fakes pose serious dangers. Makeup and food and 

beverage containers can be made with dangerous chemicals. Electronics can pose a fire hazard. There can be toys that are unsafe 

for kids. 

The number of small packages coming into America has surged, 

and the fact is that Customs and Border Protection has to step up 

and play a major role in identifying counterfeits and stopping them 

before they enter the marketplace. Unfortunately, so far, we get a 

sense that Customs and Border Protection is just too often playing 

catch-up ball tracking these fake products down. 

After conducting a recent study of this exact issue, the Government Accountability Office recommended a set of policy updates to 

have Customs and Border Protection work more closely with the 

private sector. Those recommendations include expanding Customs 

and Border Protection authority to notify online sales platforms 

when they have products on their hands that might be fake. 

Now, you may hope that that would set the wheels in motion and 

this would result in the policies being in place. But Customs and 

Border Protection has responded to this audit by claiming it would 

take until this upcoming September to determine if additional authority was actually necessary. 

Over the last few years, the committee has put a lot of sweat equity into the policies that have strengthened the enforcement of our 

trade laws and have done more to protect the American consumer 

and the American worker. 

6 

The chairman and I authored the Trade Facilitation and Trade 

Enforcement Act of 2015 that put in place important new tools for 

Customs and Border Protection to detect and prevent counterfeits, 

including sharing information about counterfeit imports with rights 

holders. 

So in preparation for the hearing, committee staff from both 

sides sat down with Customs to dig into the issue. 

My staff asked, and I quote here, ‘‘Does Customs and Border Protection need more authority to crack down on the rip-off artists and 

the counterfeiters?’’ The agency said they do not know. 

When asked when they would know, they said they did not know 

when they might know. 

So as we begin this hearing, it certainly is unsettling that it has 

not been possible for the Finance Committee on a bipartisan basis 

to get a straight answer on a matter like this from the agency that 

is central to America’s effort to protect our consumers from counterfeit goods. 

So this morning, I am going to give the agency one more try to 

answer those questions. 

Let me close by saying, getting this right is not going to be as 

simple as just putting a few more policy tools in the agency’s kit. 

Year after year, administrations have fallen short in hiring 

enough officers—blue uniforms—to fulfill the critical need of protecting our consumers and businesses from illegal and unfairly 

traded goods. 

This agency has a tough job working with other law enforcement 

agencies and foreign governments to go after the source of the 

problems. If the administration is focused solely on hiring an army 

of Border Patrol agents, I do not see how that is going to help them 

build their capacity to deal with the counterfeit challenges. 

So the Congress and the administration need to ensure that the 

agency has the resources it needs to combat counterfeiters and that 

there is actual follow-up. 

This is simply a matter of protecting American families from 

harmful products and making sure that we are fully mobilized to 

stop these rip-off artists from undercutting the American brand. 

That is really their objective, to undercut the American brand. So 

getting this right to reflect the realities of the modern economy is, 

in my view, what this hearing is all about. 

And, Mr. Chairman, as usual, I look forward to working with 

you. 

The CHAIRMAN. Well, thank you, Senator. 

[The prepared statement of Senator Wyden appears in the appendix.] 

The CHAIRMAN. I would like to extend, both of us would like to 

extend a warm welcome to each of our four witnesses today. I want 

to thank you all for coming. 

First, we will hear from Ms. Kimberly Gianopoulos, Director for 

International Trade Issues in the International Affairs and Trade 

team at the Government Accountability Office. 

Ms. Gianopoulos has received a number of awards, including the 

Meritorious Service Award, a Client Service Award, an Assistant 

Comptroller General’s Award, and several Results Through Teamwork Awards. She is also a certified government financial manager. 

7 

Ms. Gianopoulos earned a bachelor’s degree in mathematics and 

a master’s degree in public analysis and administration from the 

State University of New York at Binghamton. 

The second witness on our panel is Ms. Brenda Smith, Executive 

Assistant Commissioner, Office of Trade, U.S. Customs and Border 

Protection. Ms. Smith has overseen her office since 2014 and has 

been with CBP since 1994. 

Prior to joining Customs, Ms. Smith worked at the Department 

of the Treasury and on Capitol Hill. She was honored in 2017 with 

the Distinguished Executive Presidential Rank Award, the highest 

award in civil service. 

Ms. Smith holds bachelor’s and master’s degrees in economics 

from Rutgers University and is also a graduate of the Customs 

Leadership Institute and the Federal Executive Institute. 

Next to speak will be Mr. Jim Joholske, Director for the Office 

of Import Surveillance at the U.S. Consumer Product Safety Commission. 

Mr. Joholske started his career at CPSC in July 2000 with the 

agency’s Office of Compliance and Field Operations. At that time, 

he focused primarily on enforcement of regulations regarding fireworks and cigarette lighters. 

Jim later joined Import Surveillance in 2008 and served as Deputy Director prior to assuming the role of Director in March 2017. 

Finally, Mr. Terrence R. Brady, the president of Underwriters 

Laboratories, Inc., will testify. Mr. Brady was appointed to his new 

position just last week, but was just recently serving UL as a vice 

president and chief commercial and legal officer. 

Prior to joining UL, Mr. Brady was an associate and partner for 

27 years in the Chicago office of Winston and Strawn, LLP. 

Mr. Brady graduated from Dartmouth College with his undergraduate degree and then received his law degree from Notre 

Dame Law School. 

I want to thank you all for coming and being here with us today 

and for testifying today. 

So, Ms. Gianopoulos, we will turn to you first, and we will begin 

with your opening remarks. 

STATEMENT OF KIMBERLY GIANOPOULOS, DIRECTOR, INTERNATIONAL AFFAIRS AND TRADE, GOVERNMENT ACCOUNTABILITY OFFICE, WASHINGTON, DC 

Ms. GIANOPOULOS. Thank you, Mr. Chairman. 

Chairman Hatch, Ranking Member Wyden, and members of the 

committee, thank you for the opportunity to be here today to discuss our recent work on intellectual property rights. 

The United States is a global leader in the creation of intellectual property. Companies that illegally import and distribute counterfeit goods can cause a number of harmful effects on the U.S. 

economy, such as slowing economic growth and threatening American jobs. What is more, the counterfeit goods could threaten the 

health and safety of the American people. 

My testimony today summarizes the findings from our recent report and covers three main areas. First, I will talk about some of 

the difficulties that are presented by counterfeit goods in e-commerce, using information from our investigation to illustrate just 

8 

how challenging that problem is. Second, I will discuss the nature 

of efforts that Customs and Border Protection and Immigration and 

Customs Enforcement have undertaken to enhance IPR enforcement. And finally, I will cover some of the ways in which CBP and 

ICE coordinate with the private sector in enforcing IPR. 

The rise of e-commerce has contributed to a fundamental change 

in the market for counterfeit goods. In the past, you may have expected to find counterfeit purses or watches on a street corner or 

in a flea market. These goods may have been shipped to the United 

States on a cargo ship in bulk and were priced significantly below 

retail. 

Now many people shop online, where sellers of counterfeit goods 

engage in a number of practices to make their goods look authentic. 

Numerous, everyday items can be counterfeit. This practice is no 

longer limited to high-end goods. 

These online purchases are sent to buyers in individual express 

packages rather than shipped in bulk to U.S.-based distributors. 

This makes it very challenging for consumers as well as CBP to 

identify counterfeit goods. 

As part of our review, we purchased 47 items covering four different types of consumer goods, including Nike Air Jordan shoes, 

YETI travel mugs, Urban Decay cosmetics, and UL-certified phone 

chargers, from five different popular e-commerce websites. 

We looked for items that were advertised as new, brand-name 

items and were sold by highly rated third-party sellers. Of the 47 

items, 20 were counterfeit as determined by the rights holders 

themselves. 

It can be difficult to tell if an item is counterfeit. For example, 

these are three of the YETI mugs that we purchased online. These 

two silver mugs look identical, they feel the same, same weight. 

But if you look at the bottom, you will see that one of them has 

misspellings on the words. For example, Austin, TX as the source 

is spelled A-U-S-I-N and it says ‘‘mede’’ in China instead of made 

in China. 

And then this hot-pink mug also seems to be authentic, except, 

well, YETI does not make hot-pink mugs. So you would not know 

that unless you were aware of that issue with regard to YETI. 

In our full report, we include a one-page appendix that lists a 

number of ways consumers can take steps to avoid purchasing 

counterfeits online. 

To enhance IPR enforcement, we found that CBP and ICE engage in a number of activities. They conduct special operations at 

U.S. ports, engage with international partners, and undertake localized programs or port-led initiatives. 

However, CBP has conducted a limited amount of evaluation of 

its efforts and may, therefore, not have the information it needs to 

be as effective and as efficient as possible given our current 

resource-constrained environment. 

We recommended that CBP take steps to evaluate the effectiveness of its IPR enforcement efforts. And the agency agreed with our 

recommendation. 

With regard to the private sector, we found that CBP is restricted in the amount and type of information about seized items 

9 

that it can share. This restriction limits the ability of rights holders 

and e-commerce websites to protect IPR. 

In the Trade Facilitation and Trade Enforcement Act of 2015, 

Congress gave CBP authority to share certain information with 

trademark and copyright owners before completing a seizure. However, CBP officials told us that there are legal limitations to this 

sharing. For example, CBP cannot share information from the exterior of seized packages. This could help websites identify groups of 

counterfeit merchandise from the same seller. 

We recommended that CBP assess what information would be 

helpful to share with the private sector and take appropriate action 

to enhance information sharing where possible. And CBP agreed 

with this recommendation. 

This concludes my opening remarks. Thank you for your time, 

and I am happy to answer any questions you might have. 

The CHAIRMAN. Thank you very much. 

[The prepared statement of Ms. Gianopoulos appears in the appendix.] 

The CHAIRMAN. Ms. Smith, we will turn to you. 

STATEMENT OF BRENDA SMITH, EXECUTIVE ASSISTANT COMMISSIONER, OFFICE OF TRADE, CUSTOMS AND BORDER 

PROTECTION, WASHINGTON, DC 

Ms. SMITH. Chairman Hatch, Ranking Member Wyden, and distinguished members of the committee, it is an honor to appear 

today to discuss CBP’s enforcement of intellectual property rights 

and our efforts to keep counterfeit goods that pose a threat to the 

health and safety of American consumers from entering U.S. commerce. 

As America’s unified border agency, CBP enforces nearly 500 

U.S. trade laws and regulations on behalf of 48 Federal agencies. 

This morning, I would like to give you my perspective of the opportunities and challenges we see in the current trade environment. 

Thanks to this committee’s support and commitment, the Trade 

Facilitation and Trade Enforcement Act of 2015 strengthened and 

expanded CBP’s authority to enforce our Nation’s trade laws, while 

facilitating lawful international trade. 

Among its many provisions, the Trade Facilitation and Trade Enforcement Act, also known as TFTEA, provided significant costsavings opportunities for U.S. businesses and consumers by raising 

the de minimis threshold from $200 to $800, which allows relatively low-value goods to be brought into the United States free 

of duty and with reduced information requirements. 

The combination of growing online purchases and the higher 

threshold has resulted in increasing U.S. imports of small, just-intime packages, many arriving via international mail and express 

consignment carriers. 

Over the past 5 years, the volume of international air-express 

shipments has increased nearly 50 percent, and in the postal environment, small packages have increased by over 200 percent. This 

rise in small packages has altered the dynamic of the trade environment and CBP’s ability to enforce intellectual property rights. 

CBP targets for a variety of risks and takes action when it finds 

a problem. In fiscal year 2017, CBP seized over 34,000 shipments 

10 

of counterfeit goods, an 8-percent increase over the previous year 

and very consistent with the trend that we have seen over the last 

10 years. 

Approximately 16 percent of these seized goods, such as cosmetics, electronics, and toys, contain serious potential threats to 

consumer health and safety. 

We are currently enforcing more than 18,000 copyright and 

trademark records. Rights holder collaboration through recordation, training, and the information sharing strengthened by TFTEA 

is essential to identifying counterfeit products. 

CBP also regularly discloses information to the rights holders to 

verify a product’s validity if we suspect that imported merchandise 

bears a counterfeit mark. 

This private-sector partnership, as envisioned by TFTEA, is continuing to expand with the recent announcement of the first partnership arrangement under the IPR Enforcement Donations Acceptance Program in which Procter and Gamble has donated testing devices to help CBP quickly determine the authenticity of its 

product. 

Interagency partnership is supported through the Commercial 

Targeting and Analysis Center, or CTAC, which combines the trade 

enforcement and intelligence capabilities of CBP and 12 other Federal agencies to protect the American public from unsafe imported 

products. 

CTAC’s joint targeting and enforcement efforts led to 243 seizures of unsafe products in 2017. Two months ago, CBP and CPSC 

targeting resulted in officers at the Port of Los Angeles seizing a 

large incoming shipment of toy building blocks for trademark infringement. These counterfeit toys were also found to violate the 

Federal Hazardous Substance Act for excessive lead and small 

parts. 

We are concerned about the risks we find in rising volumes of 

small shipments, where 90 percent of our IPR seizures were made 

last year, and have been working with interagency and privatesector partners to address those risks. 

Building on our experience in the CTAC and the clear mandate 

provided by Congress in TFTEA to develop an interagency approach to this critical type of enforcement, we have developed a 

draft joint import safety, rapid response plan. We will use this plan 

and follow-on interagency exercises to coordinate the management 

of incidents that present a safety risk to U.S. consumers and businesses. 

In anticipation of future e-commerce growth and to manage 

threats in this environment, CBP is releasing a comprehensive ecommerce strategy which is critical for guiding our approach to enforcing intellectual property rights and enforcing import safety 

while supporting a vibrant and competitive sector of U.S. international trade. 

We will work closely with all segments of the e-commerce community and our partner government agencies to identify information-sharing and other opportunities and pursue any necessary policy, regulatory, or statutory changes. 

Chairman Hatch, Ranking Member Wyden, and distinguished 

members of the committee, I look forward to working with you to 

11 

build on these efforts, and thank you for the opportunity to testify 

today. I am happy to take any questions that you might have. 

The CHAIRMAN. Well, thank you so much. 

[The prepared statement of Ms. Smith appears in the appendix.] 

The CHAIRMAN. Mr. Joholske, we will turn to you. 

STATEMENT OF JIM JOHOLSKE, DIRECTOR, OFFICE OF IMPORT SURVEILLANCE, CONSUMER PRODUCT SAFETY COMMISSION, WASHINGTON, DC 

Mr. JOHOLSKE. Thank you. Good morning, Chairman Hatch, 

Ranking Member Wyden, and distinguished members of the committee. Thank you for inviting me to discuss the U.S. Consumer 

Product Safety Commission’s important role in protecting consumers from the health and safety hazards involving imports and 

counterfeit goods. 

Before I begin, I should note that these comments are those of 

CPSC staff and they have not been reviewed or approved by and 

may not necessarily reflect the views of the Commission. I especially appreciate the opportunity to appear before you today, as this 

year marks the 10th anniversary of the creation of CPSC’s Import 

Surveillance Program. 

The CPSC was established by Congress in 1972 and is the Federal regulatory body charged with protecting the public from the 

unreasonable risk of injuries or death associated with consumer 

products. We are a relatively small agency with 545 full-time 

equivalents and a $125-million annual budget. However, we have 

jurisdiction over thousands of consumer products, a vast majority 

of which are imported into the United States. 

Since the passage of the Consumer Product Safety Improvement 

Act of 2008, CPSC has strengthened its relationship with U.S. Customs and Border Protection and closely coordinates with CBP to 

interdict potentially noncompliant, unsafe imported products. 

As part of our efforts, CPSC has placed investigators at the largest ports of entry to work side-by-side with CBP staff. Currently, 

we have 30 investigators stationed at 20 of the largest ports in the 

country. Despite our relatively small size, in fiscal year 2017 CPSC 

investigators at the ports screened more than 38,000 distinct products arriving in the United States and stopped approximately 4 

million noncompliant or hazardous units from reaching consumers. 

To prioritize and target high-risk shipments, CPSC has developed our own targeting system called RAM, or Risk Assessment 

Methodology. RAM leverages a feed of entry data received from 

CBP, which is combined with CPSC data to risk-score shipments 

under CPSC’s jurisdiction. 

We also have CPSC staff stationed at CBP’s Commercial Targeting and Analysis Center to coordinate with CBP and other government agencies to address import safety hazards. CPSC also has 

a part-time presence at the National Intellectual Property Rights 

Coordination Center, where we exchange information with 22 partner agencies that may help us target potentially noncomplying and 

hazardous products. 

As an agency with limited resources, we would not be able to do 

the critical work of intercepting high-risk products before they 

12 

reach consumers without the assistance and support of DHS and 

CBP. 

Although CPSC’s primary focus is targeting products that violate 

CPSC requirements, we do encounter intellectual property rights 

violations. Many of CPSC’s investigators are former CBP officers 

and import specialists, and they have been trained to identify IPR 

issues. As a result, CPSC staff are often able to identify possible 

IPR violations in the course of their normal duties. 

When CPSC identifies a potential IPR issue, we refer the shipment to CBP because they have the authority to efficiently seize 

the products. On a case-by-case basis, we will also test those IPRviolative products for compliance with CPSC mandatory standards 

or to determine whether they are otherwise hazardous. 

CPSC and CBP have collaborated on many shipments where a 

potential IPR violation and a safety violation were found. Examples 

include holiday lights; cell phone wall chargers; lithium ion batteries used in hoverboards, laptops, and cell phones; children’s 

backpacks; and numerous toys. 

Although CPSC’s import surveillance activities have prioritized 

large ports of entry, like many agencies we are facing challenges 

in regulating products imported through direct-to-consumer sales 

over e-commerce platforms. The volume of these shipments and the 

limited amount of data required when the shipment arrives in the 

United States make targeting difficult. 

With CPSC’s small size and limited resources, we currently do 

not have investigators stationed at locations where these small 

packages arrive, other than JFK Airport. However, CPSC will continue to evaluate its staffing model to identify efficient ways to target and examine potentially unsafe products shipped directly to ecommerce consumers. 

Thank you for the opportunity to share my remarks. I am happy 

to answer any questions you may have. 

The CHAIRMAN. Well, thank you so much. 

[The prepared statement of Mr. Joholske appears in the appendix.] 

The CHAIRMAN. Mr. Brady, we will conclude with you. 

STATEMENT OF TERRENCE R. BRADY, PRESIDENT, 

UNDERWRITERS LABORATORIES, INC., NORTHBROOK, IL 

Mr. BRADY. Good morning, Chairman Hatch, Ranking Member 

Wyden, distinguished members of the committee. 

My name is Terrence Brady, and as the newly appointed president of Underwriters Laboratories, I am honored to appear before 

you today to share UL’s experience combating the rise of counterfeit goods in e-commerce and to offer our perspectives on the challenges facing IP rights holders in this evolving global market. 

UL is a global independent safety science company that has 

championed safety for nearly 125 years. Our 14,000 professionals 

around the globe are guided by our mission to promote safe living 

and working environments for people everywhere. 

We use research, standards, and conformity assessment to meet 

ever-evolving safety challenges. We partner with manufacturers, 

retailers, trade associations, and regulatory authorities internationVerDate Sep 11 2014 20:34 Apr 12, 2019 Jkt 000000 PO 00000 Frm 00016 Fmt 6633 Sfmt 6633 R:\DOCS\35965.000 TIM
13 

ally to provide solutions to address the risks of increasingly complex global supply chains. 

UL takes counterfeiting very seriously, and we devote significant 

resources to fight it. We do this because we do not make or sell 

goods. Our product is our brand, our mark, which is built on a 

foundation of trust. When U.S. consumers see our UL mark, they 

know that an independent third party has determined that the 

manufacturer has demonstrated compliance with safety, performance, or other standards. 

Unfortunately, the counterfeiters also recognize the value that 

UL brings, and they misappropriate our name and marks to try to 

legitimize the goods they sell. 

Too often, consumers are unwitting victims of counterfeiting. 

They may suspect that the cheap handbag or watch they are buying is a knockoff, but many are entirely unaware that important 

other product categories are frequently counterfeited. 

As the chairman noted, in 2016, we partnered with Apple to 

evaluate the dangers of counterfeit iPhone chargers like this small 

device. In a controlled test program, as the chairman stated, our 

engineers tested 400 counterfeit adapters bearing our UL marks, 

and the results were literally shocking. The overall failure rate exceeded 99 percent. And all but three adapters presented fire and 

shock risks. Twelve were so poorly made that they posed a direct 

risk of electrocution. 

In 2017, we conducted over 1,200 investigations around the 

globe, resulting in the seizure of 1.5 million individual products. 

Let me give you a couple of highlights. 

In terms of e-commerce, the focus of this hearing, we collected intelligence on more than 5,000 online listings across multiple platforms. We were able to identify more than 130 unique sellers with 

over 500 listings of counterfeit products. 

We worked with the online platforms to remove the infringing 

listings and take appropriate actions against the sellers. As a result, law enforcement seized an estimated $660,000 worth of counterfeit smartphones, hard drives, flashlights, headlamps, and 

hoverboards. 

Based on information UL provided, the DHS seized approximately 3,200 counterfeit UL safety labels and power adapters valued in excess of $200,000. And we partnered with the Los Angeles 

County Sheriff’s Department to seize 2,500 counterfeit hoverboards 

and an additional 2,300 loose labels that the counterfeiters could 

stick on other fake goods. 

These hoverboards, I should note, were shipped into the United 

States marked as wheelbarrows. The total seizure was valued at 

over $1.5 million. 

Finally, UL cooperated with authorities on many other investigations, resulting in seizure of lithium ion batteries, fire sprinklers 

in buildings in India, household fans for use in Panama, and fake 

lifejackets for use in Peru, including those used for children. 

My written testimony contains many more statistics and numbers than time permits here, but they underscore that the issue of 

counterfeiting extends to many product categories and countries. 

In our 22-year history in this fight, we have deployed a comprehensive, multidimensional strategy based on three essential teVerDate Sep 11 2014 20:34 Apr 12, 2019 Jkt 000000 PO 00000 Frm 00017 Fmt 6633 Sfmt 6633 R:\DOCS\35965.000 TIM
14 

nets: education, enforcement, and public/private partnerships. We 

work with our clients, with law enforcement, Customs officials, and 

others to stem the proliferation of counterfeits. 

The issues we see in the traditional marketplaces are amplified 

in this borderless world of e-commerce. It was noted that online 

shipping and online direct-to-consumer sales have made it much 

harder for brands, law enforcement, and Customs officials to fight 

back, because the counterfeit penalties for a million dollars of counterfeit goods are far less than a million dollars’ worth of drugs. 

And as shippers go direct to consumers rather than risking an 

entire cargo container, this becomes very, very difficult. This is a 

challenge that legitimate platforms and IP rights holders have to 

work on together. 

Thank you for the opportunity to testify today. UL welcomes the 

opportunity to work with you in the fight against counterfeits. And 

I welcome any questions the committee may have. Thank you. 

The CHAIRMAN. Well, thanks to all four of you. 

[The prepared statement of Mr. Brady appears in the appendix.] 

The CHAIRMAN. Your testimony is really riveting. And it has to 

concern every American citizen, so we appreciate you taking the 

time to be here with us today, and we appreciate the work that you 

are doing and hope that you will step it up even more. 

Ms. Gianopoulos, in your report you discuss two recommendations to CBP. Can you explain what factors make it difficult for 

CBP, ICE, and private-sector actors, such as websites and rights 

holders, to address the problem of counterfeits, and then reiterate 

why you feel the suggested changes will help address those concerns? 

Ms. GIANOPOULOS. Thank you, Mr. Chairman. There are a number of things that are changing the e-commerce environment today. 

You could probably boil it down into three ‘‘v’’s. There is the volume of goods, which each of us has talked about to some degree, 

where the number of shipments has just tremendously exploded 

over the past several years. So it is very difficult to focus in and 

find counterfeit goods on an individual-by-individual shipment 

basis. 

There is also the value of those goods. The value has tremendously increased. I believe Ms. Smith talked a little bit about the 

seizure rate that has taken place, and that is just one factor that 

you can look at to determine how well seizures or how well enforcement is taking place. 

And then finally, there is the variety. The variety of goods that 

are being counterfeited these days has just tremendously exploded. 

It is everything from YETI tumblers to duck decoys to kitchen 

sinks. So it is not something that a consumer or CBP or anyone 

for that matter can target as easily as they could in the past. 

So our recommendations focus in on two of the things that the 

agencies can do to try to improve their processes. 

First of all, in working with the private sector, while TFTEA did 

allow CBP to share more information, there are some restrictions 

on that sharing. And when we spoke with folks from the private 

sector, they expressed some concerns about their efforts to try to 

shut down these counterfeiters and the amount of information that 

15 

they needed in order to target their efforts as well. And they 

thought that that could be improved. 

And then secondly, looking at the evaluation that could be done 

for CBP’s and ICE’s activities. Certainly, in a limited budget environment, as Federal agencies, we all want to put our money in the 

right places where it can do the most good. And we encouraged 

CBP to take additional steps to evaluate the activities it has underway in order to address some of these counterfeiting activities so 

that they can put their money in the best places. 

The CHAIRMAN. Well, thank you. 

Ms. Smith, as we have heard from GAO, CBP is really on the 

front lines of this quickly evolving problem or set of problems. 

In your written testimony, you agreed with GAO’s recommendations to better evaluate your IPR enforcement efforts and explore 

opportunities for better information sharing with the private sector. 

What steps do you plan to take to implement these recommendations? 

Ms. SMITH. Senator, we think both of the recommendations were 

very productive ways for us to focus our efforts. The scope of the 

challenges, as the other witnesses have laid out, is tremendous. 

And one of the things that we have done to address GAO’s recommendations is to charge our COAC E-Commerce Working Group 

to work with us to work through which information would be valuable to share and whom it should be shared with. 

As you pointed out, TFTEA provides us good authority to share 

through properly promulgated regulations. And our intent is to address the issue of information sharing through additional regulatory framework. 

The other thing that we have done to address some of the challenges that GAO identified is to develop and release today an ecommerce strategy to help us focus our efforts. 

And we look forward to working with you and our colleagues 

here at the table to understand exactly where we can make the 

greatest impact. 

The CHAIRMAN. Well, thank you so much. 

Mr. Brady, UL has a vested interest in billions of individual 

products that are bought and sold each year. And as such, you 

have an important and valuable perspective, as I see it, in all of 

this. What steps do you as a company take to protect your intellectual property rights? And what can U.S. agencies do better to assist you in your efforts? 

Mr. BRADY. Thank you, Mr. Chairman. As I noted earlier and as 

I think most of the people in the room know, our only product is 

trust. It is the trust that consumers place in us when they see our 

mark. And so we fight very hard to protect that trust because it 

is consistent with our 125-year-old mission of helping to create safe 

living and working environments for people everywhere. 

Our team is small, but mighty; and therefore, we depend heavily 

on private/public partnerships to help us continue this fight against 

counterfeits. 

What we need is real-time and transparent intelligence, because 

we rely on civil and criminal enforcement procedures beyond seizure and destruction. We pursue civil and criminal cases against 

the counterfeiters. If we bring stale data to the FBI or to the L.A. 

16 

County Sheriff, then they cannot do anything with it. So we need 

real-time intelligence sharing. 

We are happy to and always share transparently with law enforcement and with government agencies what we find. We would 

like to reciprocate in that transparency and to keep the data fresh, 

because intelligence goes stale very quickly and these criminals 

quickly change their websites, their email addresses, their physical 

locations, their methods of shipment. They move fast. And we, together with government, need to move faster. 

Thank you. 

The CHAIRMAN. Well, thank you. 

Senator Wyden? 

Senator WYDEN. Thank you very much, Mr. Chairman. 

I want to thank the panel. 

And let me start with you, Ms. Smith. As I indicated, to me, 

what is going on is the rip-off artists, the counterfeiters, are trying 

to undercut the American brand. So this is really high-stakes stuff. 

And I want to ask you the two questions that our staff asked 

your staff. And the first one is a ‘‘yes’’ or ‘‘no’’ answer so that we 

are clear on this. Does the agency need more authorities to crack 

down on the counterfeiters, the rip-off artists? That is just ‘‘yes’’ or 

‘‘no,’’ do you need more authority? 

Because the staff asked it, and you all would not give a direct 

answer, so I want to give you the chance. ‘‘Yes’’ or ‘‘no,’’ do you 

need more authority? 

Ms. SMITH. Yes, Senator. 

Senator WYDEN. Thank you. So that is good to finally have that 

on the record. 

When will you be able to give us the details with respect to exactly what it is you need? Because as you know, the staff asked 

you, do you need more authority, and could not get an answer then. 

You have now given us an answer, to your credit. 

And then they asked, can you tell us when we will get the details 

of what you need in this area and how you would like to proceed 

so we can up our game to be tougher on these counterfeiters? When 

will we get that? 

Ms. SMITH. Senator, I think we should start the conversation 

now. But what I would recommend is that we gather the information about what data is available and whom it should come from 

and whom it should be provided to from our private-sector participants in the COAC E-Commerce Working Group. 

I think it is important to have the private-sector perspective reflected. As you know, COAC is a very important intermediary provided for in TFTEA. And I would like to suggest that they work 

for several months so that we can come back to you as they are 

working and walk through what the recommendations are from the 

private sector. 

Senator WYDEN. Now, you said we need time to have this conversation. We have been having this conversation for what feels 

like a longer-running battle than the Trojan War. It has gone on 

a long, long time. We know who the people are, the platforms, we 

know about the rights holders. I would like a date. 

And I think you moved, again, in an encouraging way. Can we 

say within 60 days? As you said, you want to have this discussion 

17 

with the relevant private-sector parties; I am all for it. Can we 

have a commitment today that you will lay out for us what it is 

you are prepared to do in terms of this authority and that you will 

talk with the private parties within 60 days from today? 

Ms. SMITH. Sir, I will do my best to meet that 60-day benchmark. 

Senator WYDEN. Okay, good. 

Let me turn now to the question of priorities and get your 

thoughts on this. I understand that the agency is moving to hire 

5,000 Border Patrol agents here in the next 5 years and 2,000 officers. Now, I have supported billions of dollars in terms of security 

at the borders, and I am prepared to do what it is going to take 

to ensure that we protect the American people. 

As you know, illegal crossings are now at a historic low. So how 

are we going to do it if we are putting twice as many people on 

this question of yet more agents at the border as we are in terms 

of getting the people we need to up our game in terms of the counterfeiters? How are we going to do it when that balance seems so 

out of whack? 

Ms. SMITH. Senator, I think, as you have worked with us over 

many years to look at the very diverse portfolio of CBP’s mission, 

to make sure that we have the right people on the border, whether 

they are wearing green uniforms, blue uniforms, or tan uniforms, 

you have also been very supportive of us in terms of making sure 

we have the expertise on the trade side. 

As you know, the President’s budget in fiscal year 2018 asked for 

140 new positions to implement TFTEA. And I think that the combination of hiring those with trade expertise as well as those with 

border security responsibilities is a big challenge for CBP. 

Senator WYDEN. You are being very diplomatic. And I am going 

to let you off the hook. 

Ms. SMITH. Thank you, sir. 

Senator WYDEN. I think you get my sense. I think the priorities 

are way out of whack when you have twice as many people in this 

area where the evidence shows that illegal activity is going down 

as opposed to what we are dealing with here. 

And you are going to have a real—you described it as a challenge. I think the priorities are out of whack, and we need to get 

them straightened out. 

One last question for—I believe this will be for Mr. Brady. 

Mr. Brady, what I think you basically said—and I am going to 

direct the staff to look into it—you basically said that the rip-off 

artists, given the penalties, may, in effect, just say, hey, this is just 

the cost of doing business. Let us rip people off; the penalties are 

not that meaningful compared to the amount of business that we 

can rack up by doing all this counterfeiting and just moving online 

quickly and ripping people off. 

That is pretty much what you are saying, right? 

Mr. BRADY. That is exactly correct, Senator. 

Senator WYDEN. Would you recommend to the chairman and me 

that, as part of this effort, we beef up the penalties, given what you 

have said, that they may, in effect, just be being treated as part 

of the cost of doing business? 

Mr. BRADY. Yes, Senator. We would recommend that as a very 

fertile and important area to look into. We see evidence from, for 

18 

example the L.A. prosecutors, that counterfeiters get out very 

quickly and go right back to business the same day. They are actually trying civil suits against these people because they do not 

know how to manage a civil suit, but their jailhouse lawyers, they 

can get them out with a slap on the wrist today. 

Senator WYDEN. I am way over my time. Could you furnish in 

writing to the chairman and me your thoughts of what might be 

a set of penalties that would ensure that this was not just, in effect, the cost of doing business? Could you furnish that to us? 

Mr. BRADY. It will be our pleasure. 

Senator WYDEN. Great. 

Thank you, Mr. Chairman. 

The CHAIRMAN. Thank you. 

Senator Isakson? 

Senator ISAKSON. Thank you, Mr. Chairman. 

Ms. Gianopoulos, I was in the real estate business for a long time 

before I came to Congress and did a lot of retail shopping centers, 

and I have watched over the years the increase of sales over the 

Internet at Christmastime. 

I think now, about 20 to 22 percent of sales at Christmas are 

made via the Internet and not by people going in the store and 

shopping and buying, which has exponentially grown retail sales 

over the Internet. Is it growing in a comparable way in other product lines, other times of the year? 

Ms. GIANOPOULOS. You know, Senator, we did not take a look at 

the growth of e-commerce, per se. We were focused in on the challenges that were associated with e-commerce as it relates to counterfeits. 

And as I said in my statement, it is very difficult when you are 

going online and just looking at a photo of an item to determine 

whether or not it is real. You may go into a store and be able to 

pick it up and see if it is a different weight or a different color or 

something like that. 

But what some counterfeiters do is, they take the photo of the 

actual item and they put it online, even though they are giving you 

something that is counterfeit and it may not resemble that photo 

that you have seen online. 

Senator ISAKSON. And then they produce a knockoff and sell it 

to you. 

Ms. GIANOPOULOS. Absolutely. 

Senator ISAKSON. Yes. 

Ms. GIANOPOULOS. Or what they sometimes do is, they import 

the counterfeit items without the labels on them and then they import the labels separately and put the labels on in the United 

States. 

Senator ISAKSON. Both ways are a problem for us, that is for 

sure. 

Ms. GIANOPOULOS. Absolutely. 

Senator ISAKSON. Ms. Smith, I have a habit of reading the resumes of people who come before us to just find out a little bit 

about them. I noticed you may be the person we really need to answer this question. I think Chairman Hatch asked it, and I think 

Senator Wyden did too. 

19 

But it says that you received the 2017 Distinguished Executive 

Presidential Rank Award. Is that correct? 

Ms. SMITH. Yes, sir, it is. 

Senator ISAKSON. And less than 1 percent of the executives in 

the Federal Government receive that award, and it is to recognize 

your achievement in enhancing CBP’s enforcement to protect the 

American consumers. 

Ms. SMITH. Yes, sir. 

Senator ISAKSON. You ought to write the blueprint for this program then so you can cut through all the chaff that we have talked 

about and write that blueprint. 

Ms. SMITH. We are working on it, sir. 

Senator ISAKSON. In that particular situation, you did respond to 

the question asked by the ranking member about whether you need 

more authority. What authority specifically do you need more of to 

do your job? 

Ms. SMITH. Sir, I believe that the authority request will touch on 

several things: the data that we can share and who we can share 

it with. I think, as Mr. Brady noted, that the penalties and the 

other civil enforcement actions that we can take in this area are 

also an important thing for us to consider and talk about. 

The specifics—I would like to consult with both our other government agency partners and with the private sector to make sure 

that we are hitting the mark with it. But we will do that fairly 

quickly. 

Senator ISAKSON. Is part of the problem the antitrust rules and 

regulations? Just out of curiosity. 

Ms. SMITH. That has not been raised to us as an issue. 

Senator ISAKSON. But it is a big enough problem, I think, in our 

country that we ought to weigh various barriers that we can for enforcement, not allow people to abuse it, but allow us to be able to 

enforce it. 

Ms. SMITH. We will do that. 

Senator ISAKSON. We appreciate all of you being here today and 

thank you for the good work that you do. 

The CHAIRMAN. Well, thank you. 

The Senator from Louisiana. 

Senator CASSIDY. Ms. Smith, when a vendor is flagged as a possible seller of counterfeit goods, does that trigger an examination 

of their entire business, for example with other possible offenses 

like trade-based money laundering? 

Ms. SMITH. Senator, it does. Once we have identified a particular 

business entity as a risk, we do try to take a broad-based approach 

to looking at all of their business activity. 

We have some challenges, because oftentimes they will disappear 

and we need to find them through either corporate officers or other 

targeting information. 

We are also looking to make sure that when we see a pattern of 

conduct from one business entity, that we look for that same pattern of conduct with similar types of businesses. 

Senator CASSIDY. Now, that leads to my next question. Data analytics are being used by many in an attempt to winnow out and 

find that needle. And it sounds like you would start off with, is it 

20 

from China or is it from Hong Kong? But then you could pare it 

down, I presume. Is that being done? 

Ms. SMITH. Yes, Senator, it is, but I think we can do more. There 

are some amazing developments in the technology space around 

predictive analytics. 

CBP has used a number of tools over the years to target risk, but 

I think sort of the next frontier for us is around applying some of 

these innovative technologies to find that needle in a haystack. 

Senator CASSIDY. Our office has been trying to figure out how 

well our agencies work together on trade-based money laundering. 

And I always point out, it is estimated cartels move $110 billion 

a year from the United States to Mexico, but we only confiscate, 

best as we can tell, about $7 billion. 

Now, Senator Wyden spoke of the cost of doing business—we are 

only getting 5 percent of $110 billion. What would you say is the 

state of cooperation between the different agencies tasked with 

tracking trade-based money laundering and the other issues related to that and this panel? 

Ms. SMITH. Senator, I think it is good. The cooperation—— 

Senator CASSIDY. Now, I have heard from others off the record 

that it is very bad, that it is siloed and that there is not the cooperation between agencies required for it to be effective. And I am 

not accusing, but if they are moving $110 billion a year and we are 

only getting $7 billion, it begs the question. 

Ms. SMITH. I think this area, it is a very complex area. Tradebased money laundering is a fairly sophisticated version of trade 

violation. 

I think it behooves us to take a whole-of-government approach, 

both from a criminal perspective and a civil perspective, and to 

apply the information that we can get from our intelligence agencies to both recognize and share that information to ensure that we 

are going after what is happening in real time. 

Senator CASSIDY. I accept all of that conceptually. I guess what 

I am probing for is—if what I am hearing off the record is that it 

is not occurring now, how do we make that occur? 

Ms. SMITH. I think by your message today, your question today 

to identify that as a high-risk area that the Congress is interested 

in. And then I think what we do is pull together those key agencies, whether it be ICE, whether it be the Department of Treasury, 

to focus on trade-based money laundering with a mandate to share 

information and take aggressive action. 

Senator CASSIDY. Does anybody else on the panel have anything 

to offer on this particular topic? 

Okay. I think I saw Mr. Brady nodding, so even though he is 

from UL, I thought maybe he had a thought on it. 

Mr. BRADY. Senator, no, I have nothing to offer at this time. 

Senator CASSIDY. Okay. Thank you, sir. 

Let us see what else my interests lie in. 

Using your current data analytics, are you able to identify both 

small shipments occurring through the mail, through the United 

States Postal Service, as well as larger shipments or shipments 

going through FedEx or DHL, UPS, et cetera? 

Ms. SMITH. Yes, sir, we are. We get very good advanced electronic data in the express courier environment. 

21 

Senator CASSIDY. What about USPS? 

Ms. SMITH. We are getting better. I think the advanced electronic 

data that we are seeing is not what we would like. 

Senator CASSIDY. So when you say ‘‘better,’’ that is a very elastic 

term. It could be from 1 percent to 2 percent, which would be a 

100-percent improvement, but in absolute percentage it is pretty 

lousy. 

So USPS, what percent of illicit or illegal or counterfeit goods do 

you feel that you are detecting when they come through USPS? 

Ms. SMITH. We are getting advanced electronic data on approximately 50 percent of small packages in the postal environment 

now, which is significantly up. It represents data from 30 countries, 

which is significantly up from what we got 5 years ago, which was 

data from—— 

Senator Cassidy. Now, it sounds like Hong Kong and China are 

the ones that really matter. 

Ms. SMITH. Yes. 

Senator CASSIDY. So to what degree are you getting that from 

Hong Kong and China? 

Ms. SMITH. We are getting all of the advanced electronic data 

from China. And Hong Kong, if you will give me just a moment— 

yes, Hong Kong as well. So we are getting that. 

Senator CASSIDY. And so are we seizing illegal, illicit counterfeit 

goods from those areas? 

Ms. SMITH. Yes, we are seizing counterfeit goods. We are also focused on things like fentanyl. 

Senator CASSIDY. So what percent—this will be my last question. 

Thank you, Mr. Chairman. 

What percent of the counterfeit illegal, illicit goods coming 

through the USPS do you feel you are confiscating—5 percent, 10 

percent, 100 percent? 

Ms. SMITH. Sir, I do not have an answer to that. And I think that 

is what GAO has asked us to look at. We will look at that going 

forward and try to get that estimate. 

Senator CASSIDY. Okay, thank you. I yield back. 

The CHAIRMAN. Okay. 

The Senator from New Jersey. 

Senator MENENDEZ. Thank you, Mr. Chairman, for holding today’s hearing. 

The United States is the world’s leader in trusted and recognized 

brands, the ones most in demand, the ones that can command the 

best prices and, therefore, are the most vulnerable to knockoffs. 

That is why protecting our reputation and the investments we have 

put into it is so important. 

Four years ago, families and businesses in New Jersey began 

contacting me about the increasing prevalence of counterfeit goods 

available for purchase online, particularly fake prom and wedding 

dresses. And it is a significant industry in New Jersey, but it is 

also significant to the people who end up at their wedding with 

something they totally did not expect. 

This recent GAO report confirms what I have been hearing from 

so many of my constituents. 

Now, the Trade Facilitation and Trade Enforcement Act that 

Congress passed in 2016 contained report language that I authored 

22 

with the chairman to raise the enforcement priority for fake products, specifically those shipped as gifts to avoid Customs duties and 

detection. 

So, Ms. Smith, I know there has been a line of questioning on 

this, and I know that CBP has been working on this issue, but I 

am still unclear as to how the agency has implemented that language. Does a package marked as a gift that originates from a 

business address in a country like China, which is one of the worst 

offenders, which is documented by CBP and other sources as being 

a major source of counterfeits, trigger any red flags for our agents? 

Has the screening process changed since the passage of the Trade 

Enforcement and Facilitation Act? 

Ms. SMITH. Senator, I think what we have done is to focus our 

targeting efforts in this area with specific targeting rules around 

gifts, as you note, which are identified as small packages, or other 

areas like household goods. That can be a generic description but 

may contain counterfeit goods, as we have seen in the past. 

I think the other important area in this instance is to ensure 

that the representatives of the fashion industry and the folks 

whom your constituents are looking to buy safe, legitimate goods 

from, work with Customs and Border Protection to record their 

marks, to ensure that we know exactly what a legitimate product 

looks like and that we are working with that company to provide 

training to our officers and product information. 

And we would be happy to work with you and your staff to do 

that. 

Senator MENENDEZ. And my question is, do you have, are you 

using an algorithm? What are you using to actually flag something 

that is, quote unquote, ‘‘a gift’’ and is the preferred vehicle by 

which these counterfeit goods come to the United States? 

Ms. SMITH. So we do have targeting algorithms, we call them 

rules, which knit together a variety of risk factors, both the description of the goods as gifts along with the high-risk countries 

that they may come from—China, Hong Kong—and then any additional information that we have about specific business entities— 

manufacturers, shippers, carriers—that previously may have 

brought counterfeit goods into the country will also be reflected in 

that targeting algorithm. 

Senator MENENDEZ. Ms. Gianopoulos, did the GAO examine the 

CBP’s efforts to screen these types of small, direct-to-consumer 

packages for counterfeit goods as opposed to larger shipments? And 

if you did, what did you find? 

Ms. GIANOPOULOS. Well, in our work, while we did purchase 47 

items and found 20 of them counterfeit, we did talk with CBP and 

ICE about their enforcement efforts. 

We also put out a report last year where we looked at international mail facilities and looked at some of the differences between the information that CBP receives from those USPS facilities 

as opposed to express mail and found that the amount of information that CBP received from USPS was significantly less, because 

they are not required to put as much information that would be 

sent ahead of time to CBP. So CBP is limited in its ability to respond as opposed to, say, the express mail carriers where they are 

required to submit more information to CBP ahead of time. 

23 

Senator MENENDEZ. Is there a suggestion by the GAO on how to 

meet that challenge? 

Ms. GIANOPOULOS. Well, one of the things we recommended in 

this report was for CBP and ICE to work more closely with the private sector to see what information would be most helpful for the 

private sector and CBP to share in order to address some of these 

counterfeit shipments, because some of the shipments are coming 

from within the United States. In fact, all 47 of the items that we 

purchased were shipped from U.S. addresses, so they would not 

have been able to use that Chinese or Hong Kong address as a flag 

because that is not where it was sent from to the consumer. 

Senator MENENDEZ. One last question. 

The CHAIRMAN. Senator, if I could interrupt. I am going to go 

vote, and so you will be the last questioner. 

And I just want to thank everybody for being here. It has been 

a very informative hearing, and we will see what we can do to back 

you up and help you. 

Ms. GIANOPOULOS. Thank you. 

Senator MENENDEZ [presiding]. Thank you, Mr. Chairman. 

One last question. On search engines, it seems to me that some 

online search engines and other websites aid and abet these counterfeiters by failing to police the use of copyrighted product imagery in online ads, that they may bear some responsibility. 

It seems that the companies that sell online advertising have 

some capacity to prescreen advertisements and reject those that 

are found to be promoting an illegal or immoral product. 

In fact, I have even heard that some search engines will remove 

counterfeit websites from their organic search results but continue 

to display those same companies’ advertisements. In other words, 

some sellers of online ads may be continuing to receive advertising 

fees from companies they know to be breaking the law. 

So if search engines like Google and social networks and other 

sellers of online ads are unwilling to filter these types of illegal advertisements, I hope and I look forward to working with the committee to explore policy options to address this threat to American 

businesses. 

I wrote Google a letter last year asking them to address this 

issue and explain their policies on cracking down on advertisers of 

counterfeit goods, but I still have not had a response. 

So the question for any of our witnesses is, in what ways should 

we look to cooperate with search engines and those who sell online 

advertising to make it more difficult for counterfeiters to reach 

their target audience? Are there ways to share additional information with these companies to make it easier to crack down on counterfeit ads? Does anybody have any insights into that? 

Mr. BRADY. Senator, from UL’s perspective and particularly 

given this shift to individual shipments from overseas directly to a 

U.S. home, we think the most important thing is to prevent that 

shipment and purchase in the first place. 

Therefore, we think it is critical to work with the platforms and 

the search engines to shut down these people offering fake goods 

so the purchase never happens in the beginning. Once that little 

envelope leaves and heads to a constituent in your State, it is very, 

very hard for the authorities to intercept it. 

24 

So I think stopping the purchase in the first place by shutting 

down these bad websites is very important. 

Senator MENENDEZ. Well, we look forward to it. 

Ms. Smith, you have an idea? 

Ms. SMITH. I just wanted to support what Mr. Brady said and 

also reiterate that we think that the platforms, the marketplaces, 

have to be part of the solution. They are sort of a new business entity for us that has popped up over the last couple of years. And 

I think we as a government community need to consider what their 

role, what their information is and what the expectations for them 

should be. 

Senator MENENDEZ. Well, we look forward to following up on 

those. 

Yes, Ms. Gianopoulos? 

Ms. GIANOPOULOS. And I will address it from the other end of the 

spectrum as far as the consumers. If a consumer receives a product 

that is counterfeit, the websites that we spoke with were very anxious for those consumers to report it back to the website so they 

can take some action. If they do not know that the consumers are 

purchasing counterfeit items on their websites, it is difficult for 

them to do something about it. 

So, as part of our recommendations in the appendix for consumers, suggestions we received from CPSC and others, we suggest 

that consumers report those counterfeit items promptly. 

Senator MENENDEZ. Yes. And I appreciate doing that, and then 

they take it out of the organic search, which is a good thing, but 

they keep the advertisements on. So they are drawing revenue 

from the advertisements that they know are from counterfeit sites 

in the first place. So it seems to me if they take out the organic 

search, they should take out the advertisement as well. 

So, on behalf of the chairman, we thank you all for being here 

and answering questions today. 

Colleagues who have written questions are asked to submit them 

by the close of business next Friday, March the 16th. 

And with that, this hearing is adjourned. Thank you very much. 

[Whereupon, at 11:20 a.m., the hearing was concluded.] 

(25) 

A P P E N D I X 

ADDITIONAL MATERIAL SUBMITTED FOR THE RECORD

PREPARED STATEMENT OF TERRENCE R. BRADY, PRESIDENT, UNDERWRITERS LABORATORIES, INC. 

Good morning. Chairman Hatch, Ranking Member Wyden, distinguished members of the committee, my name is Terrence Brady. I am president of Underwriters 

Laboratories and formerly served as chief commercial and legal officer. I’m honored 

to appear before you today to share UL’s experience combating the rise of counterfeit goods in e-commerce and to offer our perspective on the challenges facing intellectual property rights’ holders in the evolving global market. 

UL is a global, independent safety-science company that has championed safety 

for nearly 125 years. UL’s 14,000 professionals are guided by our mission to promote 

safe working and living environments for people everywhere. We use research, 

standards, and conformity assessment to meet ever-evolving safety challenges. We 

partner with manufacturers, retailers, trade associations, and international regulatory authorities to provide solutions to address the risks of increasingly complex 

global supply chains. 

UL takes counterfeiting very seriously and devotes significant resources to fight 

it. UL doesn’t make or sell goods. Our product is our brand which is built on a foundation of trust. When consumers see the UL mark, they know that an independent 

third-party has determined that the manufacturer has demonstrated compliance 

with safety, performance, or other standards. Unfortunately, counterfeiters also recognize the value UL brings and they misappropriate our name and marks to try to 

‘‘legitimize’’ the goods they sell. 

Too often, consumers are unwitting victims of counterfeiting. They may suspect 

the inexpensive handbags or watches they’re buying are knockoffs, but many are 

unaware that other product categories are frequently counterfeited. UL has investigated instances of counterfeit smoke alarms, fire extinguishers, sprinklers, circuit 

breakers, extension cords, life preservers, and—as the Government Accountability 

Office (GAO) report demonstrates—phone chargers. 

In 2016, UL partnered with Apple to evaluate the dangers of counterfeit iPhone 

chargers. In a controlled test program, our engineers tested 400 counterfeit adapters 

bearing UL marks and the results were literally shocking: the overall failure rate 

exceeded 99 percent. All but three adapters presented fire and shock hazards. 

Twelve were so poorly made that they posed a risk of electrocution. 

In 2017, our Global Security and Brand Protection team conducted over 1,200 investigations of suspected counterfeit UL marked products resulting in the seizure 

of 1.5 million units. The top four cases by product type included power supplies, batteries, surface-mounted lights and cord sets. Let me offer a few highlights. 

• Approaching the holiday season, we began a global 2-month investigation of 

counterfeit operations in southern California involving UL marks. We surveyed 290 locations across the United States and Mexico, observing products 

from approximately 14,000 separate entities including brick and mortar 

stores and flea markets. We made over 230 test purchases, uncovering 150 

vendors distributing products with illicit UL marks. In addition, we collected 

intelligence on more than 5,000 online listings across multiple platforms. We 

were able to identify more than 130 unique sellers with over 500 listings of 

counterfeit products. UL worked with the online platforms to remove the infringing listings and take appropriate actions against the sellers. We deterVerDate Sep 11 2014 20:34 Apr 12, 2019 Jkt 000000 PO 00000 Frm 00029 Fmt 6601 Sfmt 6621 R:\DOCS\35965.000 TIM
26 

mined that 27 sellers needed further investigation, and we made a series of 

test purchases. These purchases led to the successful raid of two warehouses 

in California where officials seized an estimated $660,000 of potentially dangerous products bearing counterfeit UL marks. The products seized included 

counterfeit iPhones and iPhone batteries, Microsoft360 hard drives, Cree 

flash lights and headlamps, clapper devices, and hoverboards. 

• In February, UL helped the Department of Homeland Security execute a 

search warrant in a case arising from a 2-year investigation of an online distributor of power adapters. Based on the information UL provided, DHS 

seized approximately 3,227 counterfeit UL labels and adapters valued in excess of $200,000. 

• Last September, UL partnered with the Los Angeles County Sheriff’s Department Counterfeit and Piracy Enforcement team to execute a search warrant 

at a warehouse in Santa Fe Springs, CA. During the search warrant, a total 

of 2,510 hoverboards bearing counterfeit holographic UL labels were seized. 

These hoverboards were shipped into the United States as ‘‘wheelbarrows’’ according to the shipping label. While assisting the Sheriff’s team with the 

search and inspection of the location, UL also recovered 2,325 counterfeit holographic UL labels. The total seizure amount for the hoverboards and labels 

is estimated at $1.5 million dollars. 

• Finally, UL cooperated with law enforcement and Customs authorities on 

other investigations, resulting in the seizure of: 

» 77,972 lithium ion batteries bearing a counterfeit UL mark—10,000 of 

which also bore a counterfeit Apple trademark; 

» 5,143 counterfeit sprinklers in India; 

» 42,000 counterfeit household fans in Panama; and 

» 200 counterfeit life jackets in Peru—particularly troubling given that 

suspect company made and sold children’s life jackets. 

These few examples illustrate the pervasiveness of the problem and underscore 

that counterfeiting is not limited to any one category of products or a problem in 

the United States alone. Counterfeit goods directly threaten human lives. 

In our 22 years of experience combating counterfeiting, UL has deployed a comprehensive, multi-dimensional strategy based on three essential tenets: education, 

enforcement, and partnerships. We work with our clients, law enforcement officers, 

Customs officials, and others to stem the proliferation of counterfeits. I have already 

illustrated some of our investigations and collaboration with government. Additionally, under our strategy we have: 

• Partnered with INTERPOL to establish the International Intellectual Property Crime Investigators College to educate law enforcement officials and 

Customs agents to recognize and identify legitimate safety certification 

marks; 

• Processed approximately 25,000 product authentication requests to identify 

counterfeit UL Marked products as part of our Border Protection Program; 

and 

• Worked extensively with the International Anti-Counterfeiting Coalition and 

Michigan State University’s A–CAPP Center to support research on counterfeiting and to develop programs to reduce its impact. 

The counterfeiting issues we see in traditional marketplaces are amplified in the 

borderless world of e-commerce. The growth in recent years of counterfeit products 

has been facilitated in part by shifting consumer preferences for shopping online 

and the proliferation of online merchants. And in recent years, this scourge has become much harder for brands, law enforcement, and Customs to fight as the counterfeiters realized the criminal penalties for $1 million worth of counterfeit consumer goods are far less severe than an equivalent amount of drugs, and as they 

increasingly shift to air-shipping orders directly to consumers rather than smuggling an entire cargo container. 

Selling counterfeits online with individual shipments makes it easier to fly under 

the radar of law enforcement and IP rights’ holders. Most major online retailers 

have clear anti-counterfeiting policies and actively respond to reports of counterfeit 

products marketed through their retail platforms; that said, the sheer volume of 

goods offered for direct-to-consumer purchase make it extremely difficult to discover 

counterfeiters who regularly change identities to avoid detection. Some lesser-known 

sellers and platforms openly market fake products. This is a challenge that legitiVerDate Sep 11 2014 20:34 Apr 12, 2019 Jkt 000000 PO 00000 Frm 00030 Fmt 6601 Sfmt 6621 R:\DOCS\35965.000 TIM
27 

1 In this statement, ‘‘counterfeit goods’’ refers to any physical goods that are found to be in 

violation of trademark or copyright law. 

mate e-commerce platforms and IP rights’ holders must navigate together, working 

with all law enforcement including Customs authorities, regulators, lawmakers, and 

other parties. 

UL’s commitment to fight counterfeiting is unwavering and we welcome opportunities to work with like-minded stakeholders to address known and emerging problems. UL commends this committee for your leadership on this issue and for recognizing that more must be done to combat the proliferation of counterfeit goods. UL 

recommends: 

• Continued collaboration between the public and private sectors: As 

UL’s experience illustrates, this complex problem requires IP rights’ holders, 

e-commerce platforms, brick and mortar retailers, government, and others to 

work together to fight counterfeits and educate consumers about the dangers 

they pose. Robust information-sharing amongst all parties is critical to bring 

counterfeiters to justice and fully maximize the potential of public-private 

partnerships to address IP violations. 

• Strong IP protections and enforcement mechanisms in trade agreements: Strong and effective protection and enforcement of intellectual property rights is critical to U.S. economic growth and American jobs. Trade 

agreements—whether bilateral or multilateral—should build on the foundations established in existing international IP agreements and establish strong 

protections for patents, trademarks, copyrights, and trade secrets. In any 

trade agreement, it is important to secure strong and fair enforcement rules 

to protect against trademark counterfeiting and copyright piracy, including 

rules allowing increased penalties in cases where counterfeit or pirated goods 

threaten consumer safety or health. Congress should encourage the administration to include such provisions in any trade agreements it negotiates. 

• Tougher penalties and dedicated resources for enforcement and education: The United States has enacted some of the strongest intellectual 

property protections in the world, a critical need for rights’ holders. To ensure 

their enforcement, Congress and the administration should prioritize funding 

for agencies such as U.S. Customs and Border Protection to combat counterfeiting and close loopholes that allow counterfeits to flow across borders. In 

addition, Congress should ensure that the U.S. Consumer Product Safety 

Commission continues to have the resources it needs to conduct its work and 

to educate manufacturers, importers, consumers, and others about product 

safety issues, including the dangers posed by counterfeit goods. 

Chairman Hatch, Ranking Member Wyden, members of the committee, thank you 

for the opportunity to testify today. UL welcomes the opportunity to work with you 

in the fight against counterfeits. I welcome any questions you may have. 

PREPARED STATEMENT OF KIMBERLY GIANOPOULOS, DIRECTOR, 

INTERNATIONAL AFFAIRS AND TRADE, GOVERNMENT ACCOUNTABILITY OFFICE

Chairman Hatch, Ranking Member Wyden, and members of the committee, I am 

pleased to be here to discuss the results of our review of U.S. agencies’ efforts to 

address changes in the market for counterfeit goods and their work with the private 

sector. Intellectual property is an important component of the U.S. economy, and the 

United States is an acknowledged global leader in its creation. Infringement of intellectual property rights (IPR) through the illegal importation and distribution of 

counterfeit goods harms the U.S. economy by stifling innovation, slowing economic 

growth, weakening the competitiveness of U.S. employers, and threatening American jobs.1 IPR infringement can also threaten the health and safety of American 

consumers. The Department of Homeland Security’s U.S. Customs and Border Protection (CBP) and U.S. Immigration and Customs Enforcement (ICE)—two of the 

many agencies involved in IPR enforcement—are responsible for IPR enforcement 

at U.S. borders. CBP leads enforcement activity at the border by detecting and seizing counterfeit goods that enter the United States through its more than 300 ports 

of entry and by assessing penalties against IPR infringers. CBP coordinates its efforts with ICE, which investigates IPR violations for Federal prosecution. 

28 

2GAO, ‘‘Intellectual Property: Agencies Can Improve Efforts to Address Risks Posed by 

Changing Counterfeits Market,’’ GAO–18–216 (Washington, DC: January 30, 2018). 

My testimony today summarizes the findings from our January 2018 report,2

which was released on February 27, 2018, on CBP’s and ICE’s IPR enforcement at 

U.S. borders. This testimony addresses (1) what is known about counterfeit goods 

entering the United States and the challenges they present, (2) efforts CBP and ICE 

have undertaken to enhance IPR enforcement and the extent to which they have 

assessed the results of these efforts, and (3) the extent to which CBP and ICE collaborate on IPR enforcement as well as ways in which they coordinate with the private sector in enforcing IPR. 

For our report, we analyzed CBP seizure data for fiscal years 2012 through 2016 

and reviewed documents and reports from CBP, ICE, other U.S. Government entities, and international organizations. We interviewed CBP and ICE officials in 

Washington, DC, and at selected port locations in Chicago, IL; Los Angeles, CA; 

Miami, FL; and New York, NY. We also interviewed representatives of IPR-holding 

companies (rights holders) and popular consumer websites that offer platforms for 

third-party sellers. We used undercover identities to purchase selected products 

from third-party sellers on popular consumer websites and subsequently asked the 

rights holders for the selected products to test their authenticity. More detailed information on our objectives, scope, and methodology for this work can be found in 

the issued report. We conducted the work on which this statement is based in accordance with generally accepted government auditing standards. Those standards 

require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our 

audit objectives. We believe that the evidence obtained provides a reasonable basis 

for our findings and conclusions based on our audit objectives. We conducted our 

related investigative work in accordance with investigation standards prescribed by 

the Council of the Inspectors General on Integrity and Efficiency. 

ACCELERATED BY E-COMMERCE, CHANGES IN THE COUNTERFEITS MARKET PRESENT

CHALLENGES TO U.S. AGENCIES, CONSUMERS, AND THE PRIVATE SECTOR

E-Commerce Has Contributed to a Shift in the Market for Counterfeit Goods 

The rise of e-commerce has contributed to a fundamental change in the market 

for counterfeit goods, according to our analysis of documents from CBP, ICE, and 

international organizations and our interviews with CBP and ICE officials. U.S. 

agencies and international organizations have observed a shift in the sale of counterfeit goods from ‘‘underground’’ or secondary markets, such as flea markets or 

sidewalk vendors, to primary markets, including e-commerce websites, corporate 

and government supply chains, and traditional retail stores. Whereas secondary 

markets are often characterized by consumers who are knowingly purchasing counterfeits, primary markets involve counterfeiters who try to deceive consumers into 

purchasing goods they believe are authentic. 

This shift has been accompanied by changes in the ways in which counterfeit 

goods are sold. In the past, consumers could often rely on indicators such as the 

location of sale or the goods’ appearance or price to identify counterfeit goods in the 

marketplace. However, counterfeiters have now adopted new ways to deceive consumers. For example, as consumers increasingly purchase goods online, counterfeiters may exploit third-party online marketplaces to gain an appearance of legitimacy and access to consumers. When selling online, counterfeiters may post pictures of authentic goods on the websites where they are selling counterfeits and may 

post pseudonymous reviews of their products or businesses in order to appear legitimate. Additionally, by setting the price of a counterfeit at, or close to, the retail 

price of a genuine good, counterfeiters may deceive consumers, who will pay the 

higher price because they believe the goods are real or who believe that they are 

getting a slight bargain on genuine goods. 

CBP Data Indicate Changes in Several Key Characteristics of Counterfeit Goods 

Seized 

According to CBP seizure data and CBP officials, the volume, variety, and methods of shipment of counterfeit goods seized by CBP and ICE have changed in recent 

years. CBP reports indicate that the number of IPR seizures increased by 38 percent 

in fiscal years 2012 through 2016. According to CBP data, approximately 88 percent 

of IPR seizures made during this period were shipped from China and Hong Kong. 

The variety of products being counterfeited has also increased, according to CBP officials. CBP and ICE officials noted that, while many consumers may think of luxVerDate Sep 11 2014 20:34 Apr 12, 2019 Jkt 000000 PO 00000 Frm 00032 Fmt 6601 Sfmt 6621 R:\DOCS\35965.000 TIM
29 

3 All 47 items we purchased were shipped from U.S. addresses, signifying that any items manufactured outside the United States were imported before being sent to us. Rights holders confirmed that at least a portion of the authentic versions of the products purchased are manufactured abroad. Additionally, according to a 2011 IPR Center report, most physical counterfeit 

goods are manufactured abroad. Final production of some counterfeit items, such as applying 

labels and packaging items, may take place after items are imported into the United States. 

ury handbags or watches as the most commonly counterfeited goods, counterfeiting 

occurs in nearly every industry and across a broad range of products. In addition, 

according to CBP data we reviewed and officials we spoke to, the methods of importing counterfeit goods into the United States have changed in recent years. Specifically, express carriers and international mail have become the predominant form of 

transportation for IPR-infringing goods entering the United States, constituting approximately 90 percent of all IPR seizures in fiscal years 2015 and 2016, according 

to CBP data. 

Twenty of 47 Items Purchased From Third-Party Sellers on Popular E-Commerce 

Websites Were Counterfeits, Highlighting Potential Risks to Consumers 

In an attempt to illustrate the risk that consumers may unknowingly encounter 

counterfeit products online, we purchased a nongeneralizable sample of four types 

of consumer products—shoes, travel mugs, cosmetics, and phone chargers—from 

third-party sellers on five popular e-commerce websites.3 According to CBP data we 

reviewed and officials we spoke to, CBP often seizes IPR-infringing counterfeits of 

these types of products. As table 1 shows, the rights holders for the four selected 

products we purchased determined that 20 of the 47 items were counterfeit. 

Table 1: Results From Rights-Holder Testing of GAO Covert Purchases of Four Frequently 

Counterfeited Consumer Products 

Nike Air 

Jordan shoes 

Yeti travel 

mugs 

Urban Decay 

cosmetics 

UL-certified 

phone 

chargers 

Total 

Authentic 15 3 0 9 27 

Counterfeit 0 6 13 1 20 

Total 15 9 13 10 47 

Source: GAO–18–383T. 

Note: We asked the rights holders for the four products to test a total of 47 items that we purchased from 

third-party sellers on five popular e-commerce websites. These results do not include one charger that we excluded from testing. Despite being advertised as UL-certified, the product arrived without a certification seal 

and therefore could not be tested for authenticity. 

We did not identify any clear reasons for the variation among the counterfeit and 

authentic items that we purchased based on the products that they represented, the 

e-commerce websites where we bought the items, or the third-party sellers from 

whom we bought them. For three of the four product types, at least one item we 

purchased was determined to be counterfeit, with results varying considerably by 

product. Representatives of the rights holders also could not provide a specific explanation for the variation among authentic and counterfeit goods that we received. 

They noted that the results of covert test purchases can fluctuate depending on enforcement activities and the variety of goods and sellers on a particular website on 

a given day. Rights-holder testing also showed that we purchased at least one counterfeit item and one authentic item from each of the five e-commerce websites. In 

addition, our analysis of the customer ratings of third-party sellers from whom we 

bought the items did not provide any clear indications that could warn consumers 

that a product marketed online may be counterfeit. For example, we received both 

counterfeit and authentic items from third-party sellers with ratings that were less 

than 70 percent positive as well as sellers with ratings that were up to 100 percent 

positive. 

Rights holders were able to determine that items we purchased were not authentic on the basis of inferior quality, incorrect markings or construction, and incorrect 

labeling. Some counterfeit items we purchased were easily identifiable as likely 

counterfeit once we received them. For example, one item contained misspellings of 

‘‘Austin, TX’’ and ‘‘Made in China.’’ Other items could be more difficult for a typical 

consumer to identify as counterfeit. For example, the rights holder for a cosmetic 

product we purchased identified one counterfeit item on the basis of discrepancies 

30 

4 UL, ‘‘Counterfeit iPhone Adapters: A UL Technical Investigation Shows a 99 Percent Failure 

Rate’’ (2016). 

in the color, composition, and design of the authentic and counterfeit items’ packaging. Counterfeit goods may also lack key elements of certification markings and 

other identifiers. For example, on a counterfeit phone charger we purchased, the UL 

certification mark did not include all components of the authentic mark. Figure 1 

shows examples of these counterfeit items. 

The risks associated with the types of counterfeit goods we purchased can extend 

beyond the infringement of a company’s IPR. For example, a UL investigation of 

counterfeit iPhone adapters found a 99 percent failure rate in 400 counterfeit adapters tested for safety, fire, and shock hazards and found that 12 of the adapters tested posed a risk of lethal electrocution to the user.4 Similarly, according to a rights 

holder representative, counterfeits of common consumer goods, such as Yeti travel 

mugs, may contain higher-than-approved concentrations of dangerous chemicals 

such as lead, posing health risks to consumers. According to ICE, seized counterfeit 

cosmetics have been found to contain hazardous substances, including cyanide, arsenic, mercury, lead, urine, and rat droppings. 

Representatives of rights holders and e-commerce websites whom we interviewed 

reported taking independent action to try to protect IPR within their areas of responsibility. For example, both rights holders and e-commerce websites maintain 

IPR protection teams that work with one another and with law enforcement to address infringement issues. E-commerce websites may also take a variety of steps to 

block and remove counterfeit items listed by third-party sellers. These efforts rely 

on data collected through a variety of means, including consumer reporting of counterfeits, rights-holder notifications of IPR infringement, and corporate efforts to vet 

potential third-party sellers, according to private sector representatives. 

Our January 2018 report includes information on steps that consumer protection 

organizations and government agencies recommend consumers take to limit the risk 

of purchasing counterfeits online. These steps include, for example, buying only from 

authorized retailers online, avoiding prices that look ‘‘too good to be true,’’ and reporting counterfeit purchases. 

Changes in the Marketplace Can Pose Challenges to U.S. Agencies and the Private 

Sector 

We identified a number of key challenges that the changes in the market for counterfeit goods can pose to CBP and ICE as well as to the private sector. First, the 

increasing sophistication of counterfeits can make it difficult for law enforcement officers to distinguish between legitimate and counterfeit goods. Second, as the range 

of counterfeit goods expands, CBP has a wider variety of goods to screen, which requires CBP officials to have in-depth knowledge of a broad range of products and 


30618.001
31 

5GAO, ‘‘Results-Oriented Government: Practices That Can Help Enhance and Sustain Collaboration Among Federal Agencies,’’ GAO–06–15 (Washington, DC: October 21, 2005). Our October 2015 report listed eight practices that can enhance and sustain interagency collaboration. 

Our January 2018 report evaluated CBP’s and ICE’s collaboration on IPR enforcement against 

five of these practices, which we selected because we determined they were most relevant to 

that review. 6This authority applies only with respect to goods suspected of infringing a trademark or 

copyright that is recorded with CBP. Pub. L. No. 114–125, § 302(a), 130 Stat. 122, 149 (2016). 

of how to identify counterfeits. Third, counterfeiters may break up large shipments 

into multiple smaller express carrier or mail packages to decrease the risk of losing 

significant quantities of merchandise to a single seizure. This shift toward smaller 

express shipments of counterfeit goods to the United States poses challenges to CBP 

and ICE because, according to CBP officials, seizure processing requires roughly the 

same amount of time and resources regardless of shipment size or value. 

The changing marketplace also presents challenges to the private sector, according to representatives from rights holders and e-commerce websites. For example, 

it is more difficult for rights holders and e-commerce websites to identify and investigate individual counterfeit cases, because e-commerce websites face a growing inventory from a larger registry of sellers. Tracking goods from known counterfeiters 

through various website fulfillment and delivery mechanisms is also a significant 

challenge for the private sector. Furthermore, the growth of e-commerce has accelerated the pace at which counterfeiters can gain access to consumers or reinvent 

themselves if shut down. 

CBP AND ICE ENGAGE IN ACTIVITIES TO ENHANCE IPR ENFORCEMENT, BUT CBP HAS NOT

FULLY EVALUATED THE RESULTS OF ITS ACTIVITIES

CBP and ICE engage in a number of activities to enhance IPR enforcement; however, while ICE has assessed some of its efforts, CBP has taken limited steps to do 

so. CBP’s and ICE’s IPR enforcement activities broadly include detecting imports of 

potentially IPR-infringing goods, conducting special operations at U.S. ports, engaging with international partners, and undertaking localized pilot programs or portled initiatives. CBP and ICE have collected some performance data on activities we 

reviewed, and ICE has taken some steps to better understand the impact of its efforts, such as creating a process to track cases it deems significant. However, we 

found that CBP has conducted limited evaluation of its efforts to enhance IPR enforcement. Consequently, we concluded that CBP may lack information needed to 

ensure it is investing its resources in the most efficient and effective activities. We 

recommended in our report that CBP take steps to evaluate the effectiveness of its 

IPR enforcement efforts; CBP concurred with this recommendation. 

CBP AND ICE GENERALLY COLLABORATE ON IPR ENFORCEMENT, BUT CBP IS RESTRICTED

IN SHARING INFORMATION WITH THE PRIVATE SECTOR

Our analysis showed that CBP and ICE interagency collaboration on IPR enforcement is generally consistent with the following selected key practices for effective 

interagency collaboration: (1) define and articulate a common outcome; (2) establish 

mutually reinforcing or joint strategies; (3) identify and address needs by leveraging 

resources; (4) agree on roles and responsibilities; and (5) establish compatible policies, procedures, and other means to operate across agency boundaries.5 For example, the agencies may leverage resources by collocating staff or sharing their expertise. CBP and ICE have also issued guidance and developed standard operating procedures to clarify roles and responsibilities. CBP and ICE also coordinate with the 

private sector in a variety of ways, such as obtaining private sector assistance to 

determine whether detained goods are authentic and to conduct training. 

Representatives of rights holders and e-commerce websites noted that information 

shared by law enforcement entities is critical to private-sector IPR enforcement, 

such as pursuing civil action against a counterfeiter or removing counterfeit items 

from websites. In the Trade Facilitation and Trade Enforcement Act of 2015, Congress provided CBP with explicit authority to share certain information with trademark and copyright owners before completing a seizure.6 CBP officials stated that 

they share information about identified counterfeits with e-commerce websites and 

rights holders to the extent possible under current regulations. However, according 

to private sector representatives we spoke to, restrictions on the amount and type 

of information about seized items shared by CBP limit the ability of rights holders 

and e-commerce websites to protect IPR. CBP officials noted that there are legal 

32 

limitations to the amount and type of information they can share, particularly if the 

e-commerce website is not listed as the importer on forms submitted to CBP. 

Several private sector representatives stated that receiving additional information 

from CBP would enhance their ability to protect IPR. Representatives of one website 

noted that information on the exterior of seized packages, such as business identifiers on packages destined for distribution centers, would be helpful for identifying 

groups of counterfeit merchandise from the same seller. However, according to CBP 

officials, CBP cannot provide such information to e-commerce websites. Representatives of one e-commerce website noted that ICE sometimes shares information related to an investigation, but that ICE’s involvement in the enforcement process begins only after CBP has identified and seized counterfeit items. Representatives of 

two e-commerce websites stated that, because of the limited information shared by 

CBP, they may not be aware of IPR-infringing goods offered for sale on their 

websites, even if CBP has seized related items from the same seller. 

According to CBP officials, CBP is reviewing options for sharing additional information with rights holders and e-commerce websites and is assessing what, if any, 

additional information would be beneficial to share with private-sector entities. CBP 

officials stated that they have not yet determined whether changes to the amount 

and types of information provided to e-commerce websites would require regulatory 

changes or additional legal authorities. These officials also said that they have discussed differences in CBP’s and ICE’s information sharing with ICE officials. In our 

report, we recommended that CBP, in consultation with ICE, assess what, if any, 

additional information would be beneficial to share with the private sector and, as 

appropriate, take action to enhance information sharing where possible. CBP concurred with this recommendation. 

Chairman Hatch, Ranking Member Wyden, and members of the committee, this 

concludes my prepared statement. I would be pleased to answer any questions that 

you may have at this time. 

QUESTIONS SUBMITTED FOR THE RECORD TO KIMBERLY GIANOPOULOS

QUESTIONS SUBMITTED BY HON. ORRIN G. HATCH

Question. Why should consumers be concerned about the findings in your report 

related to the prevalence of counterfeit products? And how can consumers best protect themselves from the risks of purchasing counterfeit goods online? 

Answer. Counterfeit goods may pose numerous risks to the health and safety of 

consumers. For example, counterfeit personal care products may pose risks including damage to skin or eyes caused by dangerous chemicals and bacteria. Additionally, counterfeit electronic devices can pose a safety hazard. For example, counterfeit 

hair removal devices, hair curlers and straighteners, and skin cleansing devices run 

the risk of burning or electrocution due to nonstandardized wiring. U.S. Immigration and Customs Enforcement (ICE) has also investigated intellectual property (IP) 

crimes involving counterfeit airbags, steering, braking, and seatbelt components, 

bearings, and diagnostic equipment. 

The sale of counterfeit goods can also pose a threat to national security and to 

the U.S. economy. For example, U.S. Customs and Border Protection (CBP) and ICE 

have seized and investigated counterfeit goods, such as integrated circuits, destined 

for Department of Defense supply chains. Additionally, counterfeiting has been 

linked to transnational organized crime and terrorist organizations. According to the 

United Nations Office of Drugs and Crime, the illicit trafficking of counterfeit goods 

is an increasingly attractive avenue for criminal organizations to diversify their 

product range. In 2010, we reported that counterfeiting also posed a wide range of 

economic risks to consumers, industry, government, and the economy as a whole. 

Counterfeiting’s economic effects on consumers include, for example, financial losses 

resulting from counterfeit products that fail due to inferior quality. In addition, 

counterfeiting may pose risks to industry and government by increasing intellectual 

property rights (IPR) protection and enforcement costs, by affecting sales and brand 

value for the businesses whose products are counterfeited, and by potentially reducing tax revenue collected by the government. 

Our January 2018 report includes an appendix outlining tips from consumer protection organizations and government agencies on ways in which consumers can 

33 

1GAO, ‘‘Intellectual Property: Agencies Can Improve Efforts to Address Risks Posed by 

Changing Counterfeits Market,’’ GAO–18–216 (Washington, DC: January 30, 2018). 

limit the risk of purchasing counterfeits online.1 This appendix includes recommendations such as reviewing the seller listed on the product page to determine 

whether it is a third party. For example, if an item’s listing says it is ‘‘fulfilled by’’ 

a website, that does not necessarily mean it is ‘‘sold by’’ that website. Additionally, 

consumers can look for external trust-building features associated with third-party 

sellers, such as a mail address or telephone number, real-time customer service, or 

verifiable external accreditation. According to rights holders we interviewed, the 

safest option is to buy directly from them or their authorized retailers. 

Question. When you were making your purchases, did you find any details such 

as consumer reviews or prices that indicated whether a product was counterfeit or 

authentic? 

Answer. For the items we purchased, we did not find customer reviews to be a 

reliable indicator of product legitimacy. Specifically, our analysis of the customer 

ratings of third-party sellers from whom we made purchases did not provide any 

clear indications that could warn consumers that a product marketed online may 

be counterfeit. For example, we received both counterfeit and authentic items from 

third-party sellers with ratings that were less than 70 percent positive as well as 

sellers with ratings that were up to 100 percent positive. Counterfeiters may take 

steps to artificially inflate their reviews, such as by posting pseudonymous reviews 

of their products or businesses. 

We did not find a clear link between price and the authenticity of the products 

we purchased. For example, for two of the four product types we purchased, the 

highest-priced item we ordered was counterfeit, while for the other two product 

types, the highest-priced item we ordered was authentic. Similarly, for two of the 

four product types we purchased, the lowest- priced item we ordered was counterfeit, while for the other two product types, the lowest-priced item we ordered was 

authentic. U.S. agencies have reported that counterfeiters may set prices close to 

the retail price of a genuine good as a method of deceiving consumers into believing 

the goods are real. However, consumer protection organizations note that pricing 

significantly lower than MSRP can still be an indicator that a good may not be genuine. 

Question. What factors make it difficult for CBP, ICE, and private-sector actors, 

such as websites, to address the problem of counterfeits? 

Answer. We identified a number of key challenges that the changes in the market 

for counterfeit goods can pose to CBP and ICE as well as to the private sector. First, 

the increasing sophistication of counterfeits can make it difficult for law enforcement officers to distinguish between legitimate and counterfeit goods. Second, the 

increased variety and volume of counterfeit goods crossing the border complicate enforcement efforts because CBP officers must screen a wider variety of goods and 

have in-depth knowledge of a broad range of products. Third, shifts in the mode of 

transportation of counterfeit goods to the United States pose additional challenges 

to CBP and ICE. For example, seizures have become less of a deterrent for counterfeiters who break up large shipments into multiple smaller express carrier or mail 

packages. Each of these smaller packages includes fewer goods than a single large 

shipment, decreasing the counterfeiter’s risk of losing significant quantities of merchandise to a single seizure. Fourth, counterfeiters may attempt to deceive law enforcement or evade detection, such as by separating IPR-infringing labels from counterfeit goods during the transportation process and then completing the labeling and 

packaging of the goods in the United States. Finally, CBP and ICE officials noted 

that targeting the root causes of IPR infringement requires international cooperation to disrupt the networks that produce, sell, and ship counterfeit goods and some 

countries are more receptive to working with U.S. agencies than others. 

Private-sector entities, such as rights holders and e-commerce websites, also face 

challenges in protecting IPR, including managing a large inventory and growing registry of sellers on individual e-commerce websites and overall growth in the number 

of such websites. This makes it difficult for both websites and rights holders to identify and investigate individual counterfeit cases, as well as track possible counterfeit 

goods and sellers. Representatives from rights holders and e-commerce websites 

noted that limited information sharing from CBP following a seizure complicates 

their efforts to protect IPR. We recommended that CBP, in consultation with ICE, 

assess what, if any, additional information would be beneficial to share with the priVerDate Sep 11 2014 20:34 Apr 12, 2019 Jkt 000000 PO 00000 Frm 00037 Fmt 6601 Sfmt 6621 R:\DOCS\35965.000 TIM
34 

vate sector and, as appropriate, take action to enhance information sharing such as 

by proposing regulatory changes or requesting additional legal authorities. 

QUESTION SUBMITTED BY HON. RON WYDEN

Question. In one way or another, you all touched on the shift from containerized 

shipping to small packages. You have also highlighted the challenges in enforcement 

against counterfeit goods. 

Given that we seem to be in a new era of trade, wouldn’t you agree that the Federal Government’s enforcement strategy to go after counterfeit goods needs to adapt 

to the changing market? If so, what changes would you recommend in current CBP 

and ICE enforcement priorities and approaches? 

Answer. We did not review the government’s overall strategy to countering IPR 

infringement. However, we noted in our report that changes in the marketplace, including the shift toward smaller packages, have presented challenges to CBP. While 

CBP has undertaken some efforts to enhance enforcement given the changing environment, such as by developing a targeting model for express carrier shipments and 

piloting alternative approaches to seizures for small packages, we found that it has 

not evaluated the effectiveness of its efforts. We recommended that CBP take steps 

to evaluate the effectiveness of its IPR enforcement efforts in order to focus its resources on the most efficient or effective efforts. 

Given the changes in the marketplace, including the fact that counterfeiters may 

try to use popular e-commerce websites to gain an appearance of legitimacy and 

reach consumers, it is important for CBP to ensure it is coordinating effectively with 

the private sector. Private-sector representatives told us that receiving additional 

information from CBP, such as business identifiers on the exterior of seized packages destined for distribution centers, could enhance their ability to protect IPR. Accordingly, we recommended that CBP, in consultation with ICE, assess what, if any, 

additional information would be beneficial to share with the private sector and, as 

appropriate, take action to enhance information sharing such as by proposing regulatory changes or requesting additional legal authorities. 

QUESTION SUBMITTED BY HON. JOHN THUNE

BEST PRACTICES OF FOREIGN CUSTOMS AGENCIES; 

CBP INTERACTION WITH FOREIGN CUSTOMS AGENCIES

Question. The GAO report notes that some European customs agencies are able 

to share more information than CBP. 

Ms. Gianopoulos, during your investigation, did you look at any best practices 

used by other foreign customs agencies? If so, can you comment on any best practices that CBP should take into account or that should be implemented but would 

require statutory authority? 

Answer. We did not explore or evaluate best practices used by other foreign customs agencies. Representatives of one of the rights holders we interviewed noted 

that European customs agencies provide more information following a seizure than 

CBP, which enhances the rights holder’s ability to take action following a seizure. 

While we did not evaluate differences in statutory authority between the United 

States and other countries, we did recommend that CBP assess what additional information it can share with the private sector and, as appropriate, take action to 

enhance information sharing, where possible, such as by proposing regulatory revisions or requesting additional legal authorities. 

QUESTIONS SUBMITTED BY HON. MARIA CANTWELL

Question. As the GAO report identifies, CBP does not proactively communicate 

with online marketplaces that have teams that work closely with the intellectual 

property rights center, brands, and law enforcement to keep counterfeit items off 

their sites. However, information sharing is critical. 

What are the specific legal parameters for sharing information with e-commerce 

websites about counterfeit goods CBP seizes? 

35 

2 19 CFR § 133.21. 

Answer. According to CBP officials, with regard to an IPR seizure, CBP is legally 

allowed to share (1) the date of importation, (2) the port of entry, (3) the description 

of the merchandise, (4) the quantity involved, (5) the name and address of the manufacturer, (6) the country of origin, (7) the name and address of the exporter, and 

(8) the name and address of the importer.2 CBP officials also stated that CBP is 

only able to provide such information to specific entities, such as the rights holder 

and the importer of record. CBP officials noted that, if an e-commerce website is 

not listed as the importer on forms submitted to CBP, CBP cannot share information with that website. The officials were unable to specify whether these existing 

limitations are statutory or regulatory in nature. 

Question. CBP is currently reviewing options for sharing additional information 

with rights holders and e-commerce websites. What is the timetable for this review? 

Answer. In its official response to our report, CBP stated that it intended to complete its review by September 30, 2018. In responding to a question from Senator 

Wyden during the committee’s March 6th hearing on this topic, a CBP official stated 

that CBP would attempt to accelerate this review, if possible. 

Question. What are the differences between the information sharing rules for the 

CBP and ICE? 

Answer. We did not evaluate the differences in information sharing rules between 

CBP and ICE. In the report, we noted that representatives of one e-commerce 

website stated that ICE sometimes shares information that is not shared by CBP, 

but ICE’s involvement in the enforcement process begins only after CBP has identified and seized counterfeit items. CBP officials told us they have discussed differences in CBP’s and ICE’s information sharing practices with ICE officials to determine what information collection and sharing best practices could be used by 

CBP. 

Question. How is the relationship with the Intellectual Property Center working? 

In your view, is CBP getting sufficient information to properly do the job? 

Answer. We did not specifically evaluate the IPR Center’s operations or its provision of information to CBP. However, we noted that collaboration between CBP and 

ICE—including at the IPR Center—is generally consistent with selected key practices for interagency collaboration. Additionally, some private sector representatives 

we spoke with praised the work of the IPR Center. 

Question. CBP and ICE coordinate with several other Federal agencies in their 

efforts to interdict the flow of counterfeit goods into the United States. As a part 

of this effort, CBP and ICE also work with rights holders to ensure that their trademarks and copyrights are recorded in the CBP online system. Also, CBP puts a priority on enforcing IP registered with the U.S. Patent and Trademark Office and the 

U.S. Copyright Office. 

According to the GAO report, increasing the number of patents, trademarks, and 

copyrights with the CBP was an important way that a rights holders can help CBP’s 

enforcement efforts. 

Given the benefits of registering patents, trademarks, and copyrights with CBP, 

does the U.S. Patent and Trademark Office or the U.S. Copyright Office share information with the CBP? 

If so, what steps could be taken to improve the sharing of registrant information 

for new patents, trademarks and copyrights? 

Could the U.S. Patent and Trademark Office or the U.S. Copyright Office forms 

be adapted to provide simultaneous registration with the CBP? 

Answer. We did not review information sharing between CBP and the U.S. Patent 

and Trademark Office or the U.S. Copyright Office or ways to improve the process 

for recording IP with CBP. CBP officials noted that rights holders are often unaware 

of CBP’s recordation process and that rights holders may not recognize that IP that 

is registered with the U.S. Patent and Trademark Office or the U.S. Copyright Office is not automatically recorded with CBP. We noted in our report that CBP 

prioritizes enforcement of IP that has been recorded with CBP after it has been registered with the U.S. Patent and Trademark Office or the U.S. Copyright Office. 

CBP engages in efforts to enhance awareness of this process, such as meeting with 

industry groups, according to CBP officials. Representatives of one rights holder told 

36 

3This authority applies only with respect to goods suspected of infringing a trademark or 

copyright that is recorded with CBP. Pub. L. No. 114–125, § 302(a). 

us that increasing the number of trademarks recorded with CBP was an important 

component of the company’s enhanced IPR enforcement efforts. 

Question. Shopping online has changed immensely over the past couple decades. 

Consumers can buy almost anything online without having to leave their homes and 

receive it within a couple of days or quicker. Because the United States has changed 

the way it purchases its products, the chances of consumers unintentionally and unknowingly purchasing counterfeit products have increased. With worldwide e-commerce sales expected to reach nearly $4 trillion by 2020, this is an extremely pressing issue. 

What were GAO’s findings on how CBP is sharing information with e-commerce 

companies on seizures of counterfeits made at the U.S. border and ports of entry? 

Was there specific information that you found that CBP could be sharing with ecommerce companies to help them locate and remove counterfeit items? 

Do you think that consumers would benefit from CBP sharing this information 

with e-commerce companies to help stem the flow of counterfeits into the United 

States? 

Answer. We found that CBP information sharing with e-commerce companies on 

counterfeit seizures is limited. According to CBP officials, CBP can only share information about seizures with specific parties, including the rights holder and the importer. CBP officials noted they are not permitted to share information with ecommerce websites if they are not listed as the importer on forms submitted to CBP. 

Representatives of two e-commerce websites stated that, because CBP does not inform them when seizures occur, they may not be aware of IPR-infringing goods offered for sale on their website even if CBP has seized related items from the same 

seller. Additionally, representatives of one website noted that information on the exterior of seized packages, such as business identifiers on packages destined for distribution centers, would be helpful for identifying groups of counterfeit merchandise 

from the same seller that may be housed in the distribution center and could be 

removed from commerce. As we noted in the report, the changing market for counterfeit goods poses a number of threats to consumers. Consequently, taking action 

to limit counterfeit sales and better protect IPR could benefit consumers. We recommended that CBP assess what, if any, additional information would be beneficial 

to share with the private sector and, as appropriate, take action to enhance information sharing such as by proposing regulatory changes or requesting additional legal 

authorities. 

QUESTION SUBMITTED BY HON. BILL NELSON

Question. In GAO’s report on counterfeit goods, it says ‘‘according to private-sector 

representatives we spoke to, restrictions on CBP’s information sharing limit the 

ability of rights holders and e-commerce websites to protect IPR.’’ The 2015 Customs 

bill (Pub. L. 114–125) was supposed to take care of the red tape on this, authorizing 

CBP to share information with intellectual property owners. Please explain why this 

problem still exists. 

Answer. We note in the report that, in the Trade Facilitation and Trade Enforcement Act of 2015, Congress provided CBP with explicit authority to share certain 

information with rights holders prior to completing a seizure.3 However, the privatesector entities we spoke with highlighted restrictions on CBP’s information sharing 

after a seizure has been completed. Representatives of e-commerce websites noted 

they do not receive much information about completed seizures from CBP. According 

to CBP officials, CBP can only share information about seizures with specific parties, including the rights holder and the importer. CBP officials noted they are not 

permitted to share information with e-commerce websites if they are not listed as 

the importer on forms submitted to CBP. Representatives of two e-commerce websites stated that, because they do not regularly receive information from CBP, they 

may not be aware of IPR-infringing goods offered for sale on their website even if 

CBP has seized related items from the same seller. 

Representatives from both rights holders and e-commerce websites noted that limitations on the specific pieces of information provided by CBP impede their ability 

to protect IPR. For example, one rights holder representative stated that the inforVerDate Sep 11 2014 20:34 Apr 12, 2019 Jkt 000000 PO 00000 Frm 00040 Fmt 6601 Sfmt 6621 R:\DOCS\35965.000 TIM
37 

4 CBP officials noted that, with regard to an IPR seizure, CBP is legally allowed to share (1) 

the date of importation, (2) the port of entry, (3) the description of the merchandise, (4) the 

quantity involved, (5) the name and address of the manufacturer, (6) the country of origin, (7) 

the name and address of the exporter, and (8) the name and address of the importer. 19 CFR 

§ 133.21. 

mation CBP provides, such as importer names from bills of lading, is sometimes not 

useful, because counterfeiters use fake identities or otherwise mask their identities. 

Another rights holder said that some European customs agencies are able to share 

more information than CBP, better enabling rights holders to take action following 

a seizure.4 Additionally, representatives of one website noted that information not 

currently provided by CBP, such as business identifiers that are clearly visible on 

the exterior of seized packages destined for distribution centers, would be helpful 

for identifying groups of counterfeit merchandise from the same seller that may be 

housed in the distribution center and could be removed from commerce. However, 

as we noted in the report, CBP has not yet completed an assessment of additional 

information that would be beneficial to share with the private sector or determined 

whether it can share such information under current regulations and statutes. Consequently, we recommended that CBP conduct such an assessment and, as appropriate, take action to enhance information sharing such as by proposing regulatory 

changes or requesting additional legal authorities. 

PREPARED STATEMENT OF HON. ORRIN G. HATCH, A U.S. SENATOR FROM UTAH

WASHINGTON—Finance Committee Chairman Orrin Hatch (R–Utah) delivered the 

following opening statement at a Finance Committee hearing entitled, ‘‘Protecting 

E-commerce Consumers From Counterfeits.’’ 

I’d like to welcome everyone here today. During this hearing, we will discuss 

counterfeiting in e-commerce and what steps we can take to protect consumers. 

Before we get to that though, I’d like to make an important point about the President’s proposed tariffs on steel and aluminum. 

Let’s set aside, just for a moment, all of the legitimate concerns about trade wars, 

the failure to target the source of steel and aluminum overcapacity, and the disproportionate effects on our major trading partners and allies. In the end, these tariffs are not a tax on foreign steel and aluminum producers, but rather a tax on 

American citizens and businesses, who, if this action is finalized, will be forced to 

pay an additional 25 percent on steel and 10 percent on aluminum. 

Those effects would blunt the benefits of tax reform for all Americans—including 

the reduced impact of the billions of dollars that many companies recently pledged 

to invest here in America. 

And those billions would not be as valuable. Truly, there is a better way to address China’s actions than to impose a new, across-the-board tax on U.S. consumers 

and businesses just 3 short months after we passed comprehensive tax reform. We 

can and should do better. And I will be sending the President a letter later today 

emphasizing just that. 

Now, I’d like to turn to the important issues we want to address in this hearing. 

It’s no secret that I have long felt that strong protections for intellectual property 

rights protect consumers. A properly enforced trademark, for example, lets a customer know who made a product and where to go for information about it. 

We were all encouraged by the new authorities the Trade Facilitation and Trade 

Enforcement Act of 2015, granted the U.S. Customs and Border Protection as well 

as Immigration and Customs Enforcement. Those authorities, along with the new 

National Intellectual Property Center, were designed help agencies collaborate, coordinate, and take down perpetrators. 

Because there are frequently hiccups with the implementation of new laws, the 

committee asked the Government Accountability Office to conduct a broad investigation about how the Trade Facilitation and Trade Enforcement Act was being implemented. 

As they started their investigation, GAO quickly began to realize that e-commerce, generally, was causing major issues for CBP and ICE. Due to advancements 

38 

in online purchasing, the agencies were being forced to adopt new tactics, work 

more closely together, and build up their public-private partnerships. 

Those have all been changes for the good. However, we asked GAO to continue 

their investigation and to look specifically at the problem of counterfeits on some 

of the most prominent e-commerce platforms. 

As part of this process, GAO made purchases from five major e-commerce platforms. And, after using relatively narrow criteria, GAO received at least one counterfeit and one legitimate good from each of the platforms. In the end, 20 of the 47 

individual items they purchased were counterfeit. 

While the sample size was small, the results are still telling. On the whole, this 

investigation started us down a path of discovery, and on that path we noticed there 

are far more issues than we had initially anticipated. 

Today’s hearing represents a culmination of those initial findings. And while we 

are not going to be able to fix this all at once, I am hoping to at least discuss some 

meaningful steps that we could take in the near term. 

But, before we get to that, I want to talk a little bit more about what we found. 

As part of its research, GAO found that many counterfeit products create a hazard 

to consumers, children, and our economy. Through seizures and later investigations, 

CBP, ICE, and CPSC have found numerous instances of counterfeit products with 

major health and safety issues. These issues have included contact lenses that contain dangerous bacteria, cosmetics that have chemicals that can cause harmful 

health effects when applied, phone chargers with faulty wiring, batteries with thermal runoff issues, and even defective airbags. 

GAO has found that with the rise of popular online marketplaces, counterfeiters 

have greater access to the market and can easily sell their phony products directly 

to consumers. 

Because the counterfeiters frequently use stock photos, or simply join in on a prelisted product, the goods are sold as genuine, and so long as counterfeiters can make 

the products indistinguishable on the outside, most consumers never notice a difference. This is because typical red flags for consumers are difficult to notice. This 

is even true when the counterfeiters create new colors or designs of more famous 

products. 

In one recent instance, the U.S. Attorney’s office in the Northern District of Mississippi successfully prosecuted a case against Bobby Rodgers, Jr. 

Mr. Rodgers had a fairly elaborate scheme in place. First, he would order counterfeit merchandise from China and facilitate delivery by using alternate addresses. 

Then, he would powder-coat the counterfeit items he received and sell them as a 

third-party retailer online. As he did this, he would represent the goods as authentic, sometimes even with licensed modifications. 

The sheer volume of his scams was staggering. On just one of the two major platforms he used, Mr. Rodgers had sold over $300,000 in counterfeit goods. When his 

complex was raided authorities seized another 2,200 pieces of counterfeit drinkware. 

But it doesn’t end there. 

Later, as the CPSC lab reports came back, several of the colors tested positively 

for lead, exceeding the amount legally allowed by more than 20 times. For all we 

know, there are currently children around the country sipping water with dangerously high levels of lead because of Mr. Rodgers. 

Sadly, he is just one among many, many perpetrators buying counterfeits and facilitating sales of them through e-commerce platforms. 

We’ve heard from some rights holders, like YETI, whose products have been counterfeited in these schemes, who have responded strongly to address these problems. 

YETI issued a statement making it clear that they were expending ‘‘significant 

resources to protect [their] consumers.’’ I ask unanimous consent that the full YETI 

statement, as well similar statements submitted by other rights holders, be entered 

into the appropriate place in the hearing record. 

Now, I don’t want to steal too much of their thunder, but one of the reasons we’ve 

invited Underwriters Laboratories, or UL, here today is to let them give us a broader perspective on the seriousness of these issues. 

39 

As just one example, in a public report, UL recently tested 400 counterfeit Apple 

Phone Adapters, out of those 400 they found that only 3 out of the 400 chargers 

passed electricity strength tests. And that is just one of the many studies UL has 

performed. 

I think everyone here—both members and the audience—will be stunned by not 

only the breadth of products being counterfeited, but also by the incredible volume. 

This goes beyond the dollars and cents these companies have invested to develop 

and market their products, which, let’s be clear, are enormously important for our 

economy, not to mention the well-being of American consumers. 

But we’re not just talking about devalued investments. We’re talking about lead 

on children’s drinkware, phones catching fire, homes burning down, consumers 

being injured from hygiene and cosmetic products, airbags not inflating properly, 

and who knows what else. 

It is my hope that we all can all agree today that counterfeit products pose an 

immediate and significant risk to Americans’ health and safety. And I hope that we 

can take GAO’s recommendations seriously to improve information sharing and better track CBP’s intellectual property enforcement methods. 

Personally, I am interested in talking specifically about sharing e-commerce platform data contained in invoices and on packages with rights holders, as well as 

learning from and improving CBP’s voluntary abandonment program. 

American consumers are relying on us to get this right, and we need to work together and with the appropriate officers at CBP, ICE, and other agencies to make 

sure we do. 

YETI 

7601 Southwest Parkway 

Austin, TX 78735 

512–394–9384 

March 2, 2018 

U.S. Senate 

Committee on Finance 

Dirksen Senate Office Building 

Washington, DC 20510–6200 

Re: Senate Finance Committee Hearing, ‘‘Protecting E-commerce Consumers From 

Counterfeits,’’ March 6, 2018 at 10:00 AM 

Dear Chairman Hatch, Ranking Member Wyden, and all Members of the Committee: 

The increasing prevalence of counterfeit goods in the U.S. economy is both alarming 

and concerning. Counterfeiting is a growing, global craft of well-funded criminals 

that threatens consumer safety, undermines consumer confidence and erodes the 

reputation of innovative companies. 

As a target of counterfeit activity, YETI has expended significant resources to protect our consumers, our intellectual property rights and our brand from the actions 

of both counterfeiters and those who facilitate the importation and sale of counterfeits, including E commerce marketplaces based in the United States and abroad. 

The recent report issued by the Government Accountability Office, ‘‘Intellectual 

Property: Agencies Can Improve Efforts to Address Risks Posed by Changing Counterfeits Market,’’ helps shine a light on the role that online marketplace platforms 

play in the trafficking of counterfeit goods. 

We commend the GAO for investigating this critically important issue and thank 

Chairman Hatch, Ranking Member Wyden and the Senate Finance Committee for 

hosting this hearing. 

Thank you for your consideration of this submission for inclusion into the hearing 

record. If you or your staff have any questions regarding this letter, please feel free 

to contact me. 

Matthew J. Reintjes 

Chief Executive Officer 

40 

BELKIN INTERNATIONAL

12045 East Waterfront Drive 

Playa Vista, CA 90094 

Office: +1 310–751–5100 

Fax: +1 310–751–5969 

March 6, 2018 

Hon. Orrin Hatch, Chairman 

U.S. Senate 

Committee on Finance 

219 Dirksen Senate Office Building 

Washington, DC 20510 

Hon. Ron Wyden, Ranking Member 

U.S. Senate 

Committee on Finance 

219 Dirksen Senate Office Building 

Washington, DC 20510 

Re: Statement for the Record, ‘‘Protecting E-commerce Consumers From Counterfeits’’ 

Dear Chairman Hatch and Ranking Member Wyden: 

As the chief legal officer and general counsel of Belkin International and previous 

Finance Committee witness on the challenges to U.S. businesses in the digital age, 

I am pleased to see the committee’s continued focus on the need to protect consumers from counterfeit products. Today, Belkin has over 1,300 employees in over 

25 countries, with more than 750 in the United States. As I noted in my testimony 

before the committee in June 2016, the digital age has ushered in a new era of previously unimaginable opportunities, as well as significant challenges for both companies and consumers. I welcome the opportunity to update the committee on Belkin’s 

progress and ongoing challenges since our 2016 testimony. 

Belkin celebrates the digital age. Since its inception, Belkin has sought to give consumers peace of mind and make their lives better, easier, and more fulfilling. The 

Belkin mission is to create people inspired products, and the first step in doing so 

is understanding what consumer needs are and predicting what they will be. Belkin 

is committed to creating the highest quality authentic products and actively works 

to educate our consumers and identify and dismantle counterfeit operations using 

a multi-pronged approach. Our extensive brand protection program leverages the 

strong relationships that we have established with governments, regulators, distribution networks and anti-counterfeiting organizations worldwide. 

Belkin believes in the digital marketplace, the value of global e-commerce, and its 

importance to Belkin and American job growth. Like our peer companies, we advocate for a level playing field, and believe that, with fair competition, we and other 

American companies will succeed in that competition by working harder and with 

more innovation than our competitors abroad. This committee’s continued work to 

address counterfeiting draws needed attention to intellectual property rights enforcement that is key to the success of both American companies, of all sizes, and 

the American economy. 

The Belkin brand protection team (BPT) is an efficient and effective team. In addition to monitoring physical marketplaces and supply chains, Belkin continually 

sweeps key online marketplaces to find and remove brand-infringing listings. Since 

2016, we have removed 2.7M brand infringing products worldwide. When we find 

evidence of extensive counterfeiting activity by a distributor or manufacturer 

abroad, we conduct private investigations and then work with local law enforcement 

authorities to take action. In addition, the BPT organizes training to customs authorities across the globe, including in Asia, Europe, the Middle East, and the Americas, to help customs agents identify potential counterfeit products at their borders. 

Belkin has also taken private legal action in numerous countries across the globe 

against entities that violate our intellectual property rights, all in an effort to 

thwart the sale of unlawful and potentially unsafe products. 

As detailed in my 2016 testimony, Belkin encountered copycat products in China 

marketed under the brand name ‘‘Melkin.’’ Melkin products replicated Belkin’s trade 

dress, and were branded with the express purpose of confusing consumers into 

thinking that they were purchasing Belkin products. This company, and the individuals and entities behind it, benefited unfairly from the Belkin name and reputation 

while causing significant harm to our business and to consumers. As of February 

41 

2017, we successfully opposed registration of the Melkin trademark in more than 

20 countries, including China, removed Melkin products from major e-commerce 

sites, and got an injunction to prevent Melkin-branded products to be sold in Hong 

Kong. 

While Belkin has the tools and resources to engage in these global efforts to defend 

our products and brand, many small businesses do not. The livelihoods and reputations of U.S. small businesses and startups are similarly threatened by counterfeit 

products, so it is imperative that the Federal Government continues its intellectual 

property enforcement efforts to bolster private-sector resources. 

Counterfeits also threaten the security of our supply chain. Whether contributing 

to Federal IT systems, military equipment, or consumer products and services, 

many companies supply the components to a final product. This complexity creates 

multiple entry points for counterfeit materials to enter the U.S. supply chain, creating security challenges for the military, government, and consumers, as they create and use innovative products and services to protect critical infrastructure, national security, and personal identities. 

Public safety is another important issue that is raised by proliferation of illegal 

counterfeit products. Genuine Belkin products have undergone rigorous safety certifications, testing, and protocols. Counterfeiters and copycats simply have no concern for quality and safety. At Belkin, we are dedicated to our consumers’ safety 

and enjoyment while using our products, and so design and quality informs everything that we do, from our user testing and prototyping process, to strict adherence 

to regulatory compliance, manufacturing, and warranty programs. Rigorous enforcement of counterfeiting laws and aggressive work with our international partners is 

necessary to stem the flow of unsafe counterfeit products. 

Thank you for the opportunity to submit Belkin’s views on protecting consumers 

and the Federal Government from illegal counterfeiting activities. We look forward 

to continued engagement with the Finance Committee on this issue. Please let me 

know how Belkin may be of further assistance in your efforts. 

Sincerely, 

D. Thomas Triggs 

Chief Legal Officer and General Counsel 

Belkin International, Inc. 

THE INTERNATIONAL ANTICOUNTERFEITING COALITION, INC. 727 15th Street, NW, 9th Floor 

Washington, DC 20005 

+1 (202) 223–6667 

iacc@iacc.org 

www.iacc.org 

Chairman Hatch, Ranking Member Wyden, and Members of the Committee: 

The International AntiCounterfeiting Coalition (‘‘IACC’’) is pleased to offer this written statement for the record in connection with your March 6, 2018, hearing concerning, ‘‘Protecting E-Commerce Consumers From Counterfeits,’’ and we thank you 

for examining this important topic. We are available at your convenience to discuss 

any questions you might have regarding these comments or to otherwise provide 

clarification of our submission. 

With a membership composed of approximately 250 corporations, trade associations, 

and professional firms, and founded nearly 40 years ago, the International AntiCounterfeiting Coalition (‘‘IACC’’) is the world’s oldest and largest organization devoted solely to combating product counterfeiting and piracy. The members of the 

IACC represent a broad cross-section of industries and include many of the world’s 

best-known companies in the apparel and luxury goods, automotive, software, personal care, electronics, consumer goods, entertainment, pharmaceutical, and other 

product sectors. The IACC is committed to working with government and industry 

partners in the United States and abroad to strengthen IP protection and enforcement, and to raise awareness regarding the range of harms caused by counterfeiting 

and piracy. 

The comments provided herein highlight the challenges faced by both rights holders 

and our government partners in the enforcement of intellectual property rights, in 

the current e-commerce landscape. We are also pleased to share information regarding our ongoing collaborative efforts that seek to address these concerns, and to 

42 

1 ‘‘Intellectual Property Rights Seizure Statistics—Fiscal Year 2017,’’ https://www.cbp.gov/ 

sites/default/files/assets/documents/2018-Feb/trade-fy2017-ipr-seizures.pdf. 2http://www.iacc.org/online-initiatives/rogueblock. 

offer our thoughts on additional steps which could help to safeguard consumers and 

legitimate businesses in the online ecosystem. We look forward to working with the 

Committee on these issues. 

Evolving Distribution Models 

Historically, the distribution chains for counterfeit goods have largely mirrored 

those of legitimate commerce. It should come as no surprise then that China, the 

largest source of consumer goods imported into the United States, has also been the 

greatest source of counterfeit goods arriving at our borders for a number of years. 

In Fiscal Year 2017, the People’s Republic of China was cited as the country of origin for 48 percent of all seizures effected by U.S. Customs and Border Protection 

(‘‘CBP’’) (16.5K out of more than 34.1K total seizures), and 46 percent by value 

($554.63 million out of a total of $1.2 billion).1 It is worth noting, however, that Chinese imports actually account for a much larger percentage of CBP’s seizures than 

the raw figures would indicate. The second position on CBP’s list is occupied by 

Hong Kong, identified as the source country of 39 percent of seizures (32 percent 

by value). Hong Kong though is not widely viewed as a manufacturing hub for counterfeit goods, but rather as a major transshipment point for counterfeits produced 

by mainland China. 

Until relatively recently, ocean-going container vessels have played the most significant role in facilitating these illicit imports. Counterfeiters have exploited cheap 

labor and lax enforcement regimes abroad to manufacture low-cost knock-offs to 

supply domestic wholesale and distributor networks in the United States, which in 

turn have fed the retail market for counterfeits. This so-called ‘‘brick-and-mortar 

supply chain’’ centered largely around flea markets, swap meets, and small storefronts in well-established hot-spots in major metropolitan areas such as New York’s 

Canal Street area and Santee Alley in Los Angeles. In more recent years however, 

we’ve seen a drastic shift in the ways counterfeit goods travel from the point of 

manufacture to the end consumers. Concurrent with the rise of online shopping and 

the development of e-commerce platforms, we’ve seen a steady increase in the volume of counterfeit seizures by CBP in the express consignment and postal shipping 

environments. As detailed in CBP’s above-referenced report, these small consignments accounted for 89 percent of seized shipments, and 47 percent of total seizures 

by value. 

This shift is no doubt partly due to the concerted efforts of both law enforcement 

and rights holders in investigating and prosecuting sales and distribution networks 

throughout the United States. Further, it is indicative of the increasing sophistication of counterfeiters’ operations, including their exploitation of e-commerce services 

and other providers to directly target and sell to consumers. This evolving distribution model bypasses a number of the traditional opportunities for enforcement available to rights holders and law enforcement personnel, while both are necessitating 

the application for ever greater enforcement resources for ever-diminishing returns. 

While the border enforcement of IP rights was often characterized in the past as 

searching for a needle in a haystack, the explosion in small parcel shipments has 

served to shrink the proverbial needle while exponentially increasing the number 

of haystacks. And while in the past, a single seizure of one or more containers might 

substantially decrease the availability of counterfeits in the market and significantly 

impact a counterfeiter’s bottom line, achieving that same impact requires the seizure of thousands of small parcels. Understanding how the trafficking of counterfeit 

goods has evolved and developing new strategies to attack this illicit trade is vital 

to protecting U.S. consumers and businesses in the current environment. 

Existing Efforts to Combat the Trafficking of Counterfeit Goods in E-Commerce 

As rights holders and others have sought to address the trafficking of counterfeit 

goods online, a great deal of attention has been placed on the so-called ‘‘choke 

points’’ in the e-commerce ecosystem. We must take into account how counterfeiters 

are reaching their customers, how the goods are purchased and sold, and how the 

goods are getting from the seller to the buyer. Each step in the distribution chain 

presents an opportunity for rights holders, enforcement personnel, and other responsible parties to disrupt the counterfeiters’ illegal businesses; the IACC has been a 

leader in the development of voluntary collaborative agreements with stakeholders 

from a variety of industry sectors to achieve that goal. Our RogueBlock® 2 and IACC 

43 

3http://www.iacc.org/online-initiatives/marketsafe. 

4 ‘‘Agencies Can Improve Efforts to Address Risks Posed by Changing Counterfeits Market,’’ 

GAO–18–216, January 2018. https://www.gao.gov/assets/690/689713.pdf. 

MarketSafe® 3 programs offer examples of the positive impact that such collaboration can have in targeting two of the above-mentioned choke points in the modern 

distribution chain—the online storefront where items are displayed to potential buyers, and the payment mechanism. 

The IACC launched its RogueBlock® program in January 2012 as a means to providing a streamlined, simplified procedure by which rights holders could report online sellers of counterfeit or pirated goods directly to participating credit card and 

payment processing network partners. This effectively facilitated action against the 

merchant accounts associated with those websites and diminished the ability of individuals to profit from their illicit sales. The program has seen great success, and 

significant expansion over the past 3 years, and has been viewed as a ‘‘win-win’’ for 

all of the parties involved. Rights holders are able to provide timely, relevant intelligence, and in the process aid financial service providers in policing bad actors who 

seek to misuse legitimate commercial tools for illegitimate purposes. 

Our goals upon commencing the RogueBlock program were: (1) to increase the cost 

of doing business for, and decrease profits to, the counterfeiters; (2) to shrink the 

universe of third-party acquiring banks willing to do business with rogue merchants; (3) to facilitate an efficient use of resources by both IP owners and our partners by sharing relevant data and avoiding the duplication of efforts; and (4) to disrupt and dismantle counterfeit networks. By any measure, we are achieving those 

goals. Equally important, the strong partnerships we’ve developed in the financial 

sector are enabling us to continue enhancing, expanding, and evolving to face new 

challenges in the online space. To date, our collaborative efforts with the payment 

sector have resulted in the termination of over 5,300 merchant accounts in connection with the illegal sale of counterfeit goods online. By conservative estimates, upwards of 200,000 websites have been deprived of the means to accept payment for 

their illegal products. 

As was made clear by the recently published report by the Government Accountability Office,4 counterfeit sellers are increasingly seeking to exploit legitimate ecommerce services to reach unwitting consumers. Online marketplaces are attractive targets for counterfeiters—consumers’ familiarity with the platforms, and the 

goodwill and trust imbued by that familiarity, typically extends to the individual 

sellers on the platform. As a result, counterfeiters need not seek out and attract consumers themselves; by infiltrating a well-known marketplace, the consumers will 

come to them. 

Recognizing this concern, the IACC has worked closely with partners in that sector 

to identify and target those counterfeiters seeking to exploit the consumer markets 

represented by platform sites. Beginning in 2014, our IACC MarketSafe program, 

developed in cooperation with the Alibaba Group, has succeeded in removing over 

300,000 listings, and has resulted in more than 7,000 sellers of counterfeits being 

permanently banned from the Alibaba platforms. In 2017, that program was expanded to enable greater participation by rights holders—including non-IACC members. Importantly, the expanded program has been offered to rights holders at no 

cost, facilitating participation by SMEs that may lack the resources available to 

larger companies. More recently, the IACC and its members have been working with 

Amazon on voluntary efforts to fight counterfeits; later this year, we’ll launch a new 

pilot initiative to strengthen our collaboration with Amazon, with the aim of enhancing cooperative industry efforts to stop IPR infringement. Similarly, we are 

seeking to engage more closely with other major platforms including eBay, and 

other potential partners, to ensure the safety of consumers online. 

In addition to such private-sector collaborations, the IACC has long-recognized that 

our partners at U.S. Customs and Border Protection are our nation’s front-line defense against illicit counterfeit goods. Throughout 2017, the IACC hosted 23 training 

seminars for Customs personnel, as well as Federal, State, and local law enforcement officials around the United States, including at some of the highest priority 

ports of entry for intellectual property enforcement. Those programs will remain a 

cornerstone of our engagement with enforcement personnel in the coming year, 

along with our continuing work with the National IPR Coordination Center, and the 

Department of Justice’s Computer-Crime and Intellectual Property Section (CCIPS). 

We are cognizant of the fact however that the challenges faced by rights holders and 

law enforcement do not stop at our own borders. Accordingly, we are actively workVerDate Sep 11 2014 20:34 Apr 12, 2019 Jkt 000000 PO 00000 Frm 00047 Fmt 6601 Sfmt 6621 R:\DOCS\35965.000 TIM
44 

5Section 818(g)(1) reads, ‘‘If United States Customs and Border Protection suspects a product 

of being imported in violation of section 42 of the Lanham Act, and subject to any applicable 

bonding requirements, the Secretary of the Treasury may share information appearing on, and 

unredacted samples of, products and their packaging and labels, or photographs of such products, packaging, and labels, with the rights holder of the trademarks suspected of being copied 

or simulated for purposes of determining whether the products are prohibited from importation 

pursuant to such section.’’ 

ing to aid in the development of truly global partnerships among relevant stakeholders. To that end, the IACC, in collaboration with UL, co-hosted major international conferences last year with EUROPOL in Antwerp, and with INTERPOL in 

New York. In 2018, we will build on the success of those events with conferences 

in Budapest and Dubai, drawing rights holders, law enforcement, and intermediaries from around the globe. In addition, the IACC hosted training seminars 

last year in Colombia, Mexico, and the Dominican Republic, and will host our second Latin America Regional Brand Protection Summit this October, bringing together representatives from over a dozen trading partners in the region. We also 

continue to work closely with the National IPR Coordination Center here at home, 

and to support the work of the U.S. Patent and Trademark Office’s international 

IP attaches, as well as USPTO’s Global IP Academy. 

Our member companies invest heavily to keep dangerous counterfeits out of consumers’ hands. They spend countless hours and millions of dollars each year to develop and incorporate new technologies into their products and packaging to thwart 

counterfeiters’ attempts to defraud consumers, to investigate violations of their 

rights and seek civil and criminal enforcement, and to offer investigative and prosecution support to our colleagues in the public sector. But they also understand that 

counterfeiting is a problem far larger than any of them can handle alone. The IACC 

recognizes that collaboration both within the private sector and between the public 

and private sectors is essential to protect consumers from often dangerous counterfeit goods, and to further protect legitimate businesses and the U.S. economy from 

the unfair competition represented by the trade in counterfeits. 

Opportunities for Increased Collaboration to Combat Counterfeits 

Our success or failure in the fight against counterfeiting online ultimately relies on 

the ability and willingness of all responsible stakeholders in the e-commerce landscape to identify and weed out bad actors within the system. To do so will require 

robust collaboration among all of the relevant parties to develop and share intelligence about illegal activity when it has been identified, and a commitment to acting upon that intelligence. This model has served as the basis for rights holders’ 

interactions with CBP and other law enforcement agencies for countless years and 

has been underscored by recent Congressional action. Included below are recommendations to enhance such collaboration, which we believe are essential to more 

effectively combat the trafficking of counterfeits online. 

Historically, intellectual property owners, including IACC members such as L’Ore ́al 

and UL, among others, have provided invaluable assistance such as technical support and expertise to those CBP personnel tasked with the enforcement of IPR at 

our Nation’s borders. This assistance has been necessitated by a number of factors, 

including the overall volume of imports passing through U.S. ports, the variety of 

goods presented to CBP for inspection, and more recently, the increasing ability of 

counterfeiters to manufacture more convincing fakes. Legitimate manufacturers 

have traditionally aided CBP with product authentication through the examination 

of suspect items, and by providing a range of information related to the sourcing 

and distribution chains for their legitimate goods. In turn, the owners of trademarks 

and copyrights recorded with CBP are provided a variety of information gleaned 

from Customs’ detentions and seizures of shipments in violation of those rights. The 

mutual exchange of information drives CBP’s targeting of shipments, the government’s criminal investigations, and rights holders’ private investigations and civil 

actions to enforce their rights. 

In more recent years, however, such sharing of information has been constrained 

because of concerns raised by CBP regarding its legal authority to share certain information, or to seek rights holders’ assistance, particularly in advance of a formal 

detention or seizure action. Congress appeared to have addressed those concerns 

with its inclusion of provisions in the National Defense Authorization Act for Fiscal 

Year 2012,5 and provided further clarification of its intent as set forth in section 

302 of the Trade Facilitation and Trade Enforcement Act. Prompt implementation 

45 

of that authority would be welcomed to encourage a more free-flowing exchange of 

intelligence between CBP and its private-sector partners. 

Similarly relevant, in the context of e-commerce, is the implementation of CBP’s 

Voluntary Abandonment procedures. Initially developed as a pilot program to facilitate the efficient processing of small consignments of suspected counterfeit goods, 

CBP has expressed reluctance to share information with stakeholders concerning 

the shipments interdicted under those procedures, noting that such disclosures are 

authorized by regulation only where goods have been detained or seized. We have 

recently learned that this pilot program has been concluded, and that direction to 

the ports will be forthcoming regarding broad implementation. While we recognize 

that such procedures could be a valuable enforcement tool, given the fact that 89 

percent of FY2017 seizures involved express consignments or international mail 

shipments, it is vital that CBP both captures and shares relevant data from those 

shipments whether they’re interdicted via the abandonment or seizure processes. 

Such intelligence is vital to rights holders’ own investigations and efforts at selfhelp, and to their ability to provide further support for targeting and criminal enforcement actions by their law enforcement partners. To that end, we ask that the 

Committee provide any requisite clarification of CBP’s authority to share relevant 

data with their partners in the private sector, and if necessary, to enact legislation 

clearly authorizing such disclosures. 

We commend CBP for its efforts at engaging the express consignment sector on this 

initiative, and its recognition that shipping intermediaries—whether in the private 

sector or in the public mail service—have a role to play in protecting consumers 

from counterfeits. Accordingly, we are also supportive of ongoing initiatives to facilitate the provision to CBP of advance electronic data for international mail shipments, akin to the data provided by private carriers. Such disclosures would no 

doubt aid in CBP’s dual mission of facilitating legitimate imports and enforcing 

against illicit imports. 

Consumer safety must be a priority for every responsible participant in the e-commerce marketplace. We welcome the Committee’s leadership in highlighting these 

important issues, in recognizing the work currently being done, and for underscoring the importance of meaningful collaboration among stakeholders across all of 

the relevant sectors and our partners in enforcement. The IACC looks forward to 

working with you to ensure that the online marketplace continues to grow as a 

trusted and reliable outlet for consumers and legitimate businesses. 

I thank you for your consideration of these comments, and I would welcome the opportunity to discuss these matters further with the committee. 

Respectfully submitted, 

Travis D. Johnson 

Vice President–Legislative Affairs, Senior Counsel 

FOOTWEAR DISTRIBUTORS AND RETAILERS OF AMERICA (FDRA) 

On behalf of the Footwear Distributors and Retailers of America (FDRA), we appreciate the opportunity to provide written testimony to the Senate Finance Committee 

for its recent hearing on protecting e-commerce consumers from counterfeits. 

Founded in 1944, FDRA is governed and directed by U.S. footwear executives and 

remains the only U.S. trade association dedicated solely to footwear. FDRA serves 

the full footwear supply chain, from design and development to manufacturing to 

distribution and retail. Members range from small, family-owned businesses to global brands that sell to consumers around the world. Today, FDRA supports nearly 

500 companies and brands, including the majority of U.S. footwear manufacturers. 

FDRA greatly appreciates the work the Committee has done to address the troubling and rapidly expanding problem of counterfeiting in markets around the world. 

The Trade Facilitation and Trade Enforcement Act (TFTE Act), in particular, sharpens the tools and processes we have for addressing intellectual property rights (IPR) 

challenges. In addition, we applaud the Committee for initiating the Government 

Accountability Office (GAO) review of current IPR enforcement at U.S. borders, 

which is the focus of this hearing. 

Strengthening IPR enforcement has become one of the top priorities for the U.S. 

footwear industry. FDRA member companies work hard to design, produce, and deliver over 2.3 billion pairs of shoes to U.S. consumers each year, and many of our 

46 

1See World Customs Organization ‘‘Illicit Trade Report 2016’’ at page 140 (report found here: 

http://www.wcoomd.org/-/media/wco/public/global/pdf/topics/enforcement-and-compliance/ 

activities-and-programmes/illicit-trade-report/itr_2016_en.pdf?db=web). 2See World Customs Organization ‘‘Illicit Trade Report 2015’’ at page 78 (report found here: 

http://www.wcoomd.org/-/media/wco/public/global/pdf/topics/enforcement-and-compliance/ 

activities-and-programmes/illicit-trade-report/itr_2015_en.pdf?db=web). 

members also sell brands that reach consumers in markets all over the world. These 

companies manage supply chains that span the globe, providing them with handson familiarity of the significance of intellectual property (IP) and innovation. Attention to these issues supports U.S. footwear jobs and communities nationwide. Protecting IP remains vitally important to our industry, as our members continue to 

incorporate cutting-edge designs and technology into their products. 

The findings of the GAO report are extremely concerning for the U.S. footwear industry. Of the 47 items GAO purchased from third-party sellers on popular e-commerce platforms, 20 turned out to be counterfeit products. In fact, every one of these 

platforms selected by GAO yielded at least one counterfeit item in connection with 

this study. This has become such a problem for the footwear industry, that Birkenstock made headlines in 2016 and 2017 when it pulled all of its products from 

Amazon in both the U.S. and Europe, citing concerns about counterfeit sales on the 

platform. 

In fact, the World Customs Organization’s (WCO’s) 2016 Illicit Trade Report found 

that an astounding 35.8 percent of worldwide seizures involved the confiscation of 

clothing, footwear, and textiles other than clothing.1 According to the WCO, many 

of the leading footwear brands are among the most counterfeited brands in the 

world.2

While this unprecedented growth of e-commerce has dramatically increased choice 

for consumers and given U.S. footwear businesses new tools and channels to reach 

those consumers, it has created countless new opportunities for bad actors. To address these issues, we must ensure companies have greater resources to reduce the 

unauthorized sale of IP-protected products and that there is increased cooperation 

and collaboration between government authorities, platforms, and rights holders. 

When Customs and Border Protection (Customs) seizes counterfeit products and 

alerts the rights holders, many cases never go further than the seizure of the product because of a lack of information. Additional information and processes for better 

information sharing could help track the real importer, increase enforcement actions, and reduce repeat counterfeit sellers and shippers. 

FDRA members wish to provide the following list of concerns as you explore more 

effective ways in which to combat counterfeiting activities on e-commerce platforms: 

1. Infringers increasingly ship tags and labels separately and attach them to the 

counterfeit product in the U.S., in order to avoid seizure by Customs. In many 

instances, Customs officials are either not willing or not trained to consider 

trade dress or design patent infringement as a basis for seizure. 

2. Often, penalties are inadequate to deter criminal enterprises from engaging in 

trademark counterfeiting operations. In many countries, the penalties imposed 

for trademark counterfeiting operations are so low that they only add to the 

cost of doing business. 

3. Infringers often use express mail and postal services to deliver counterfeit 

goods in small packages, making it more challenging for enforcement officials 

to confiscate these goods. The sheer volume of small shipments makes it impossible for CBP to adequately screen or x-ray all incoming mail to detect such 

shipments. 

4. In numerous countries, there are legal and procedural obstacles to securing 

and enforcing trademark rights. Judicial systems in developing nations, for example, may lack transparency and independence, making it difficult for rights 

holders to pursue claims. 

5. Counterfeiters now commonly register domains that advertise and sell counterfeit goods. Many of these counterfeiters use a country code top-level domain 

(ccTLD) to avoid detection and to avoid the reach of the U.S. judicial system. 

FDRA member companies face significant trademark infringement and lose 

valuable Internet traffic because of misleading and fraudulent domain names. 

It can be hard for companies to find redress, because a number of foreign regVerDate Sep 11 2014 20:34 Apr 12, 2019 Jkt 000000 PO 00000 Frm 00050 Fmt 6601 Sfmt 6621 R:\DOCS\35965.000 TIM
47 

istries do not make registration information publicly available and do little to 

assist aggrieved rights holders. 

FDRA is an active participant in the annual Special 301 Review conducted by the 

Office of the United States Trade Representative (USTR). We have communicated 

these same concerns with officials across the various agencies entrusted to combat 

and protect U.S. intellectual property. We stand ready and willing to work with the 

Committee and the appropriate Federal agencies working on this vitally important 

issue. 

Respectfully submitted, 

Matt Priest 

President and CEO 

PREPARED STATEMENT OF JIM JOHOLSKE, DIRECTOR, OFFICE OF IMPORT

SURVEILLANCE, CONSUMER PRODUCT SAFETY COMMISSION

Chairman Hatch, Ranking Member Wyden, and distinguished members of the 

committee, thank you for inviting me to discuss the U.S. Consumer Product Safety 

Commission’s (CPSC) important role in protecting consumers from health and safety 

hazards involving imports and counterfeit goods. Before I begin, I should note that 

these comments are those of CPSC staff, and they have not been reviewed or approved by, and may not necessarily reflect the views of, the Commission. I especially 

appreciate the opportunity to appear before you today, as this year marks the 10th 

anniversary of the creation of CPSC’s import surveillance program. 

The CPSC was established by Congress in 1972, and is the Federal regulatory 

body charged with protecting the public from unreasonable risk of injuries or death 

associated with consumer products. We are a relatively small agency, with 545 fulltime equivalents, and a $125 million annual budget. However, we have jurisdiction 

over thousands of consumer products, a vast majority of which are imported into 

the United States. I joined CPSC’s Office of Import Surveillance when it was created 

in 2008, and I became its Director in March 2017. Before that time, I spent 8 years 

in the agency’s Office of Compliance and Field Operations, where I worked on enforcement of mandatory regulations governing products under CPSC’s jurisdiction. 

Our Office of Compliance and Field Operations performs a vital role within the 

agency, by investigating incidents involving consumer products and working with 

importers and manufacturers to implement recalls, if necessary. 

Since passage of the Consumer Product Safety Improvement Act of 2008, CPSC 

has strengthened its relationship with U.S. Customs and Border Protection (CBP) 

and closely coordinates with CBP to interdict potentially noncompliant, unsafe imported products. As part of our efforts, CPSC has placed investigators at the largest 

ports of entry to work side-by-side with CBP staff. Currently, we have 30 investigators stationed at 20 of the largest ports in the country. Despite our relatively small 

size, in fiscal year 2017, CPSC investigators at the ports screened more than 38,000 

distinct products arriving in the United States, and stopped approximately 4 million 

noncompliant or hazardous units from reaching consumers. 

To prioritize and target high-risk shipments, CPSC has developed our own targeting system, called RAM or ‘‘Risk Assessment Methodology.’’ RAM leverages a 

feed of entry data received from CBP, which is combined with CPSC data to riskscore shipments under CPSC’s jurisdiction. We also have CPSC staff stationed at 

CBP’s Commercial Targeting and Analysis Center (CTAC) to coordinate with CBP 

and other government agencies to address import safety issues through commercial 

trade targeting. At CTAC, we implement our national targeting programs using 

CBP’s Automated Targeting System to identify potentially violative shipments. 

CPSC also has a part-time presence at the U.S. Immigration and Customs Enforcement’s (ICE) Homeland Security Investigations (HSI) National Intellectual Property 

Rights Coordination Center (IPR Center). At the IPR Center, we are able to exchange information with 22 partner agencies that may help us target potentially 

non-complying and hazardous products. As an agency with limited resources, we 

would not be able to do the critical work of intercepting high-risk products before 

they reach consumers without the assistance and support of DHS and CBP. 

Although CPSC’s primary focus is targeting products that violate CPSC requirements, we do encounter Intellectual Property Rights (IPR) violations. As part of the 

work done at CTAC, CBP and CPSC staff target entities in the supply chain that 

are known IPR violators for possible health and safety issues. Many of CPSC’s inVerDate Sep 11 2014 20:34 Apr 12, 2019 Jkt 000000 PO 00000 Frm 00051 Fmt 6601 Sfmt 6621 R:\DOCS\35965.000 TIM
48 

vestigators are former CBP officers and import specialists and have been trained to 

identify IPR issues. CPSC investigators have also attended CBP’s IPR InstructorLed and rights-holder training at several ports, which has led to greater interagency 

referrals and collaboration. Consequently, although not our primary focus, CPSC 

staff is often able to identify possible IPR violations in the course of their normal 

duties. 

When CPSC identifies a potential IPR issue, we refer the shipment to CBP because they have authority to efficiently seize the products. On a case-by-case basis, 

we will also test products that are IPR violative for compliance with CPSC mandatory safety standards, or to determine whether they are otherwise hazardous. 

A recent example of our successful partnership is illustrated by a shipment of 

counterfeit toys seized by CBP in January at the Port of Los Angeles. As a result 

of CPSC and CBP’s collaboration, CTAC identified a high-risk shipment from China, 

imported by a manufacturer that previously attempted to import noncompliant 

products. CTAC flagged the shipment, which was then examined by CBP and CPSC, 

and found that it contained toys bearing counterfeit trademarks of popular children’s toys. CPSC determined that the products also contained excessive lead and 

small parts, in violation of CPSC regulations and the Federal Hazardous Substance 

Act. This coordination between our agencies resulted in the confiscation of nearly 

2,800 unsafe and fraudulent toys at the port, keeping them from reaching America’s 

children. 

CPSC and CBP have similarly collaborated on many other shipments where a potential IPR violation and a safety violation were found. Examples include: holiday 

lights, cell phone wall chargers, lithium-ion batteries used in hoverboards, laptops, 

and cellphones, children’s backpacks, and numerous toys. 

Although CPSC’s import surveillance activities have prioritized large ports of 

entry, like many agencies, we are facing challenges in regulating products imported 

through direct-to-consumer sales over e-commerce platforms. The volume of these 

shipments, and the limited amount of data required when the shipment arrives in 

the United States make targeting difficult. With CPSC’s small size and limited resources, we currently do not have investigators stationed at locations where these 

small packages arrive, other than at one location at JFK airport. However, CPSC 

will continue to evaluate its staffing model to identify efficient ways to target and 

examine potentially unsafe products shipped directly to e-commerce consumers. 

Thank you for the opportunity to share my remarks. I am happy to answer any 

questions you may have. 

QUESTIONS SUBMITTED FOR THE RECORD TO JIM JOHOLSKE

QUESTION SUBMITTED BY HON. ORRIN G. HATCH

Question. Can you please explain your work at the National IPR Center, and further explain how can your work with CBP and ICE can be improved? 

Answer. CPSC is one of the 23 partner agencies at the National Intellectual Property Rights Coordination Center. The Center is a valuable avenue for us to share 

leads, deconflict cases, and network with other Federal agencies, foreign governments, and industry stakeholders. CPSC has a part-time presence at the Center, 

and our liaison participates in staff and working group meetings, as well as outreach and training events for government groups and private industry. 

CPSC has a strong partnership with CBP and ICE, including our co-location 

alongside CBP at some of the Nation’s largest ports of entry and coordination on 

a daily basis to target and examine high-risk shipments. Our work with CBP and 

other partner agencies also occurs through our participation at the Commercial Targeting and Analysis Center (CTAC). We will continue to collaborate closely with 

those DHS agencies, particularly to address the challenge of e-commerce and directto-consumer shipments. 

QUESTION SUBMITTED BY HON. RON WYDEN

Question. In one way or another, you all touched on the shift from containerized 

shipping to small packages. You have also highlighted the challenges in enforcement 

against counterfeit goods. 

49 

Given that we seem to be in a new era of trade, wouldn’t you agree that the Federal government’s enforcement strategy to go after counterfeit goods needs to adapt 

to the changing market? If so, what changes would you recommend in current CBP 

and ICE enforcement priorities and approaches? 

Answer. The dramatic increase in e-commerce and direct-to-consumer shipments 

has created challenges for all Federal agencies that work to interdict counterfeit and 

noncomplying products at the border. In CPSC’s experience working with CBP at 

the ports, CBP emphasizes targeting and enforcement of shipments containing counterfeit goods. Although CPSC’s primary focus is targeting products that violate 

CPSC requirements, we do encounter counterfeit goods in our normal course of business and refer those shipments to CBP for appropriate action. CPSC’s import surveillance activities have focused resources on large ports of entry. With CPSC’s 

small size and limited resources, we currently do not have investigators stationed 

at locations where the vast majority of small packages arrive. In addition, the sheer 

volume of these shipments and the limited amount of data required when they arrive in the United States makes targeting difficult. CPSC will continue to evaluate 

its staffing model and attempt to identify efficient ways to target and examine potentially unsafe products shipped directly to e-commerce consumers. 

QUESTION SUBMITTED BY HON. PAT ROBERTS

Question. The GAO study on how agencies can improve efforts to address risks 

posed by changing counterfeit markets found growth in e-commerce has attributed 

to counterfeiters producing a wider variety of goods sold on popular websites alongside authentic goods. The goods are often deceiving to consumers, due to counterfeiters gaining an appearance of legitimacy on third-party online marketplaces. 

What tools are readily available to empower consumers to make educated decisions 

when purchasing from third party sellers on e-commerce platforms? 

Answer. The GAO report provided helpful advice for consumers to follow to try 

and limit the risks of buying counterfeit products online (Appendix II: Consumer Information and Advice for Avoiding Counterfeits Online, p. 47). CPSC would also recommend that consumers research CPSC recalls online at www.cpsc.gov, report unsafe products and research products at www.saferproducts.gov, and read available 

reviews of products and third party vendors. 

QUESTIONS SUBMITTED BY HON. JOHN THUNE

DIRECT-TO-CONSUMER SALES OVER E-COMMERCE PLATFORMS

Question. Mr. Joholske, as chairman of the Senate Commerce Committee, which 

has jurisdiction over the CPSC, I would like to note Acting Chairman Buerkle’s 

strong leadership over the agency and to reiterate my hope that she will be re-confirmed to a full term as chairman. 

While CPSC has had some success interdicting dangerous products that are 

shipped through traditional channels, it appears that a major blind spot exists with 

respect to direct-to-consumer sales over e-commerce platforms. 

What additional data would CPSC need to improve its targeting efforts with respect to these shipments? 

Answer. Most direct-to-consumer sales over e-commerce platforms enter the country as de minimis shipments valued under $800. A de minimis shipment, commonly 

referred to as a section 321, is cleared based on manifest data, meaning it may be 

imported without filing formal entry and with fewer associated data elements. Notably absent are a formal entry number, a 10-digit Harmonized Tariff Schedule (HTS) 

code identifying the commodity, and an official importer of record or responsible 

party—upon which CPSC’s current Risk Assessment Methodology depends. Access 

to manifest data, or a few key data elements, such as a responsible domestic entity, 

foreign manufacturer, and product identifier, would improve CPSC’s targeting efforts for these shipments. 

IMPROVED COORDINATION BETWEEN CBP, ICE, AND CPSC

Question. You noted in your testimony the current interaction between the CPSC 

and CBP and ICE. While each of your agencies has specific responsibilities within 

50 

your areas of jurisdiction, there are overlaps, especially with respect to ensuring 

consumer safety. 

Are there existing statutory barriers that we need to address to improve the coordination among your agencies while continuing to use taxpayer dollars efficiently 

and avoid duplication of efforts? 

Answer. Coordination could be improved if additional data elements were available for de minimis shipments, and if CBP was authorized to share that trade information with CPSC. Without an HTS code, CBP is unable to determine the requirements of partner government agencies, such as CPSC. Therefore, CBP cannot identify which shipments are under CPSC’s jurisdiction or share information with our 

agency. 

CPSC has a strong working relationship with CBP at ports of entry where we are 

co-located. However, with CPSC’s small size and limited resources, we currently do 

not have investigators stationed at locations where the vast majority of small packages arrive. CPSC will continue to evaluate its staffing model and attempt to identify efficient ways to target and examine potentially unsafe products shipped directly to e-commerce consumers and coordinate better with CBP and ICE. 

QUESTIONS SUBMITTED BY HON. MARIA CANTWELL

Question. As the GAO report identifies, CBP does not proactively communicate 

with online marketplaces that have teams that work closely with the intellectual 

property rights center, brands, and law enforcement to keep counterfeit items off 

their sites. However, information sharing is critical. 

What are the specific legal parameters for sharing information with e-commerce 

websites about counterfeit goods CBP seizes? 

CBP is currently reviewing options for sharing additional information with rights 

holders and e-commerce websites. What is the timetable for this review? 

What are the differences between the information sharing rules for the CBP and 

ICE? 

How is the relationship with the Intellectual Property Center working? In your 

view, is CBP getting sufficient information to properly do the job? 

Answer. The questions above are focused on CBP’s legal authorities and relationship with ICE. Therefore, CPSC has no response on this subject. 

Question. CBP and ICE coordinate with several other Federal agencies in their 

efforts to interdict the flow of counterfeit goods into the United States. As a part 

of this effort, CBP and ICE also work with rights holders to ensure that their trademarks and copyrights are recorded in the CBP online system. Also, CBP puts a priority on enforcing IP registered with the U.S. Patent and Trademark Office and the 

U.S. Copyright Office. 

According to the GAO report, increasing the number of patents, trademarks, and 

copyrights with the CBP was an important way that a rights holders can help CBP’s 

enforcement efforts. 

Given the benefits of registering patents, trademarks, and copyrights with CBP, 

does the U.S. Patent and Trademark Office or the U.S. Copyright Office share information with the CBP? 

If so, what steps could be taken to improve the sharing of registrant information 

for new patents, trademarks, and copyrights? 

Could the U.S. Patent and Trademark Office or the U.S. Copyright Office forms 

be adapted to provide simultaneous registration with the CBP? 

Answer. The questions above are focused on CBP’s interaction with the U.S. Patent and Trademark Office and the U.S. Copyright Office. Therefore, CPSC has no 

response on this subject. 

Question. The U.S. Consumer Product Safety Commission (CPSC) plays an important role in protecting consumers from health and safety hazards. Additionally, 

CPSC created their import surveillance program 10 years ago. Under this program 

you combine targeting systems, staffing, and coordination with the CBP and ICE 

to identify non-compliant and hazardous products. 

51 

How often do unsafe, non-compliant, or hazardous seized goods also have intellectual property rights (IPR) violations? 

Answer. CPSC does not have data on the number of seized shipments that were 

both counterfeit and in violation of a CPSC requirement. However, CBP and CPSC 

have collaborated on a number of shipments where a potential IPR violation and 

a safety violation were found. Examples include: holiday lights, cell phone wall chargers, lithium-ion batteries used in hoverboards, laptops, and cell phones, children’s 

backpacks, and numerous toys. 

A recent example of our successful collaboration with CBP in the area of intellectual property rights enforcement is illustrated by a shipment of counterfeit toys 

seized by CBP in January 2018 at the Port of Los Angeles. The Commercial Targeting and Analysis Center (CTAC) identified a high-risk shipment from China, imported by a manufacturer that previously attempted to import noncompliant products. CTAC flagged the shipment, which was then examined by CBP and CPSC, and 

it was found to contain toys bearing counterfeit trademarks of popular children’s 

toys. CPSC determined that the products also contained excessive lead and small 

parts, in violation of CPSC regulations and the Federal Hazardous Substances Act. 

This coordination between our agencies resulted in confiscating nearly 2,800 unsafe 

and fraudulent toys at the port, keeping them from reaching America’s children. 

Question. Does the CPSC have the resources needed to help combat the IPR problem? 

Answer. Although CPSC does not have specific authority to enforce IPR, we do 

serve as a force multiplier to CBP and ICE in this regard and often make interagency referrals. Thus, additional resources would benefit both CPSC and DHS. 

Two examples would be co-locating additional CPSC investigators at ports of entry, 

especially express courier hubs where large quantities of small shipments arrive, as 

well as continuing improvements and upgrades to CPSC’s RAM targeting system. 

Question. Do you have sufficient authority to be able to coordinate with other Federal agencies? 

Answer. CPSC has sufficient authority to coordinate with our partner agencies. 

Since passage of the Consumer Product Safety Improvement Act of 2008, CPSC has 

strengthened its relationship with CBP and closely coordinates with CBP to interdict potentially noncompliant and unsafe imported products. As part of our efforts, 

CPSC has placed investigators at the largest ports of entry to work side-by-side with 

CBP staff. CPSC has also stationed staff at the Commercial Targeting and Analysis 

Center (CTAC) to coordinate with CBP and other government agencies to address 

import safety issues through commercial targeting. 

QUESTION SUBMITTED BY HON. BILL NELSON

Question. What are some examples of counterfeit goods that have caused harm to 

the health and safety of consumers in recent years? 

Answer. Although CPSC’s primary focus is targeting products that violate CPSC 

requirements, we do encounter counterfeit products that also pose a health and safety risk. A recent example of our successful collaboration with CBP in the area of 

intellectual property rights enforcement is illustrated by a shipment of counterfeit 

toys seized by CBP in January at the Port of Los Angeles. The Commercial Targeting and Analysis Center (CTAC) identified a high-risk shipment from China, imported by a manufacturer that previously attempted to import noncompliant products. CTAC flagged the shipment, which was then examined by CBP and CPSC, and 

found to contain toys bearing counterfeit trademarks of popular children’s toys. 

CPSC determined that the products also contained excessive lead and small parts, 

in violation of CPSC regulations and the Federal Hazardous Substances Act. This 

coordination between our agencies resulted in confiscating nearly 2,800 unsafe and 

fraudulent toys at the port, keeping them from reaching America’s children. 

CPSC and CBP have similarly collaborated on many other shipments where a potential IPR violation and a safety violation were found. Examples include: holiday 

lights, cell phone chargers, lithium-ion batteries used in hoverboards, laptops, and 

cellphones, children’s backpacks, and numerous toys. 

52 

QUESTIONS SUBMITTED BY HON. CLAIRE MCCASKILL

Question. How many times did CBP Import Specialists encounter fentanyl or 

fentanyl analogues when inspecting goods for trade violations in 2017? How much 

fentanyl was seized? 

Answer. CPSC does not have jurisdiction over these products and is not involved 

in the interdiction of fentanyl. 

Question. Are Import Specialists trained on safety protocols for encountering dangerous substances like fentanyl? 

Answer. CPSC does not have jurisdiction over these products and is not involved 

in the interdiction of fentanyl. 

Question. When an Import Specialist encounters fentanyl, what steps are taken 

to ensure that other related shipments are searched or flagged for detention before 

they can enter the United States? 

Answer. CPSC does not have jurisdiction over these products and is not involved 

in the interdiction of fentanyl. 

PREPARED STATEMENT OF BRENDA SMITH, EXECUTIVE ASSISTANT COMMISSIONER, OFFICE OF TRADE, CUSTOMS AND BORDER PROTECTION

INTRODUCTION

Chairman Hatch, Ranking Member Wyden, and distinguished members of the 

committee, thank you for the opportunity to appear today to discuss the enforcement of Intellectual Property Rights (IPR). Trade in counterfeit and pirated goods 

threatens the health and safety of American consumers, national security, and 

America’s innovation economy. As America’s unified border security agency, U.S. 

Customs and Border Protection (CBP) is responsible for enforcing nearly 500 U.S. 

trade laws and regulations on behalf of 49 other Federal agencies, and plays a critical role in the Nation’s efforts to keep unsafe counterfeit and pirated goods from 

harming the American public. 

In 2016 Congress passed the Trade Facilitation and Trade Enforcement Act of 

2015 (TFTEA), which expanded CBP’s authority to enforce trade laws that affect national security, U.S. business competitiveness, and the collection of revenue—including IPR violations and import safety, two of the seven Priority Trade Issues (PTI) 

identified by TFTEA—while facilitating lawful international trade. 

In fiscal year (FY) 2017, CBP processed $2.39 trillion in imports, 33.2 million entries and more than 28.5 million imported cargo containers at U.S. Ports of Entry 

(POE). In addition, CBP processes approximately 1.5 trillion in export of goods excluding services. CBP also seized more counterfeit and pirated goods than ever before. Seizures of shipments with violations of IPR increased by 8 percent in FY 2017 

over FY 2016. If the seized products had been genuine, the total estimated manufacturer’s suggested retail price (MSRP) of the items would have been more than $1.2 

billion. CBP’s Office of Trade is a critical participant in CBP’s multi-layered and 

multi-faceted approach to identify violations and enforce IPR. Economic benefit modeling shows that the Office of Trade alone provides a $2.1 billion benefit to the 

American economy through our IPR efforts. 

E-COMMERCE

CBP has seen a nearly 50-percent increase in express consignment shipments 

over the past 5 years. At the end of FY 2017, the average express consignment courier facility in the United States received an estimated 25 million shipments. This 

same facility received an averaged 2.4 million shipments in 1997, an increase of 

over 1,000 percent in 20 years. In FY 2013, CBP processed over 76 million express 

bills and, in FY 2017, CBP processed approximately 110 million bills. In FY 2013, 

CBP and the U.S. Postal Service (USPS) processed approximately 150 million international mail shipments. By FY 2017, the number of international mail shipments 

had swelled to over 400 million shipments. 

Under TFTEA the de minimis value exemption—the value of a shipment imported 

by one person on one day that generally may be imported free of duties and taxes— 

increased from $200 to $800. This change has resulted in cost-saving opportunities 

for importers and consumers that are driving a significant sector of the U.S. economy. Evolving business models, with increasing volumes of imports of small, justVerDate Sep 11 2014 20:34 Apr 12, 2019 Jkt 000000 PO 00000 Frm 00056 Fmt 6601 Sfmt 6621 R:\DOCS\35965.000 TIM
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in-time packages, have significantly altered the dynamic of the international trade 

environment and CBP’s enforcement of IPR and import safety laws. CBP is working 

with our partners to improve our ability to target illicit shipments in the e-commerce environment while facilitating legitimate trade. 

In FY 2017, CBP and ICE–HSI made 34,000 seizures of counterfeit and pirated 

goods, worth an estimated MSRP of $1.35 billion. Over 90 percent of the seizures 

were in the express carrier and international mail environments. In FY 2017, during a ‘‘small package’’ blitz at the international mail facility in New York, 43 percent 

of the packages inspected were non-compliant. During this single event, CBP seized 

over 5 pounds of fentanyl along with almost 1,300 other non-compliant imports, including 800 counterfeit goods, as well as additional controlled substances. E-commerce shipments pose the same health, safety, and economic security risks as containerized shipments, but the volume is higher and growing. Transnational Criminal Organizations (TCOs) are shipping illicit goods to the United States via small 

packages due to a perceived lower interdiction risk and less severe consequences if 

the package is interdicted. 

CBP is aggressively working to enhance our enforcement reporting, tracking, 

strategy, and metrics. For example, in 2016 CBP established the e-commerce and 

Small Business Branch to manage trade policy and better address various complexities that have emerged as a result from the growth of e-commerce. CBP has been 

actively engaging with stakeholders, consumers, partner government agencies, and 

in international forums to better address these challenges in innovative ways. This 

Branch demonstrates CBP’s commitment to support small and microbusinesses 

while addressing the challenges posed by today’s dynamic trading environment. 

One of the initial goals of the Branch was to gain a full understanding of the challenges faced at the border related to small shipments. As a result of the Branch’s 

efforts, CBP has finalized an e-commerce strategy that will assist in adapting to a 

more agile enforcement of e-commerce shipments, create better compliance through 

new incentives and measures, and educate and engage international trade in order 

to support the U.S. economy. The strategy will strengthen CBP’s ability to protect 

U.S. consumers, improve managing threats in the e-commerce environment, maximize trade revenue collection, strengthen international mail enforcement, and create 

stronger, longer-term partnerships here and abroad. 

Internationally, the United States is a leader on e-commerce through the World 

Customs Organization (WCO). In September 2016, the WCO created an e-commerce 

working group, comprised of customs administrations from WCO member governments, private-sector representatives, international organizations, e-commerce 

operators/intermediaries and academia, in order to develop solutions supporting 

needs and expectations of all stakeholders in the e-commerce supply chain. The 

WCO also created sub-working groups focusing on issues of revenue collection; safety and security; trade facilitation; and data analytics and analysis. CBP co-leads the 

sub-working group on safety and security. 

Finally, in December 2016 and pursuant to title III of the PRO IP Act of 2008, 

the Office of the Intellectual Property Enforcement Coordinator, within the Executive Office of the President, released a 3-year Joint Strategic Plan for FYs 2017– 

2019, titled ‘‘Supporting Innovation, Creativity and Enterprise: Charting a Path 

Ahead.’’ CBP is supporting the carryout of the four primary objectives included in 

the strategy. These objectives are: to enhance national understanding of the economic and social impacts flowing from the misappropriation and unlawful exploitation of intellectual property; to promote a safe and secure Internet by minimizing 

cyber-enabled, illicit intellectual property-based activities; to secure and facilitate legitimate cross-border trade; and to enhance domestic strategies and global collaboration in support of the effective intellectual property enforcement. 

TARGETING AND ENFORCEMENT

In FY 2017, more than 11 million maritime containers arrived at our seaports. 

At our land borders, another 10 million arrived by truck, and 3 million arrived by 

rail. An additional quarter billion cargo, postal, and express consignment packages 

arrived through air travel. Among these are the 110 million express consignment 

carrier (ECC) shipments and 400 million international mail shipments that arrived 

in the United States in FY 2017. 

CBP uses a multi-layered, risk-based approach to target those shipments deemed 

to be of highest risk. One of the resources CBP uses in this multi-layered approach 

is the knowledge and expertise of our regulatory auditors. Strike unit audits begin 

54 

when significant or sensitive issues arise, such as increases in health and safety violations, or large volume of counterfeit products are seized. In FY 2017, 16 strike 

units were assembled and included CBP regulatory auditors, CBP targeting specialists from the National Targeting and Analysis Group (NTAG), and ICE–HSI personnel. CBP and ICE–HSI work closely to complete follow-up enforcement actions 

resulting from information gathered during these audits. 

National IPR Coordination Center 

One of the ways TFTEA enhanced IPR enforcement was through the formal establishment of the National Intellectual Property Rights Coordination Center (IPR Center) with joint leadership from ICE and CBP, and permanent CBP staffing. The IPR 

Center is the lead office within the U.S. Government for coordinating with other 

Federal agencies on IPR infringement investigations, law enforcement training, and 

private sector and public outreach. 

CBP plays an integral role in the IPR Center, collaborating with ICE–HSI and 

23 additional partners at the IPR Center to ensure that border seizures representing criminal activities lead to investigations, arrests and convictions. CBP 

holds one of the three deputy director positions on the management team at the IPR 

Center, and is the leading source of referrals to ICE–HSI for criminal investigations. 

Additionally, staff from CBP’s IPR Division (IPRD) attend the weekly Director’s 

staff meeting and all other relevant meetings at the IPR Center. IPRD also coordinates with the IPR Center and the National Cyber-Forensics and Training Alliance 

(NCFTA) by providing IPR monthly seizure data for de-confliction purposes and potential IPR leads. 

The IPR Center has been a key facilitator of INTERPOL’s Operation Pangea, an 

international effort to shut down online pharmacy websites used to sell counterfeit 

medicine and illicit medical devices. During the most recent operation, Operation 

Pangea X (September 12–19, 2017), CBP, in coordination with ICE–HSI and the 

U.S. Food and Drug Administration, effected 1,294 seizures of counterfeit medical 

devices and illicit medicines. Overall, the operation resulted in the launch of 1,058 

investigations, 3,584 websites taken offline, 400 arrests worldwide and the seizure 

of more than $51 million worth of potentially dangerous medicines. 

Trade in illegitimate goods is associated with smuggling and other criminal activities, and often funds criminal enterprises. With the help of CBP and other partners 

in FY 2016, ICE–HSI arrested 451 individuals, obtained 304 indictments, and received 272 convictions related to intellectual property crimes. 

The Commercial Targeting and Analysis Center (CTAC) 

Originally established in 2010 as the Import Safety CTAC in support of the July 

18, 2007, Executive Order 13439: Establishing An Interagency Working Group on 

Import Safety, the Commercial Targeting and Analysis Center (CTAC) is a 12- 

member multi-agency, national trade enforcement coordination center. The CTAC 

combines the resources and intelligence capabilities of CBP and other government 

agencies to advance interagency information-sharing and operational collaboration 

in better protecting the American public from harm caused by unsafe imported products. 

The CTAC, led by CBP, is the primary coordination center for operational implementation of title II of TFTEA, titled ‘‘Import Health and Safety,’’ including execution of the Joint Importation Safety Rapid Response Plan (JISRRP). The JISRRP 

is currently within the review and clearance process, but the goal of the JISRRP 

is to leverage member tools, mechanisms and authorities to identify import safety 

threats and communicate exigent threat awareness, as well as prescribe mitigating 

response and recovery actions to agency field operations. Once published, the 

JISRRP will also provide CTAC members an opportunity to identify and close any 

current gaps in the joint efforts to address the growing threat of unsafe products 

imported into the United States. 

CTAC’s joint targeting and enforcement efforts initiated 243 seizures of unsafe 

imported products in FY 2017 with an appraised MSRP of more than $3.8 million. 

Whether it be for counterfeit automotive parts (such as grills, bumpers and brake 

lines), counterfeit home products, or counterfeit toys—CTAC’s rigorous repeat targeting campaigns have resulted in the successful interception of serious threats to 

consumer safety. 

For example, every year in the run-up to the holiday season, CBP seizes thousands of shipments of decorative holiday string lights that have the potential to 

cause fires or electric shock. These dangerous products are identified through a 

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1https://www.cbp.gov/newsroom/local-media-release/cbp-san-juan-stops-millions-counterfeits. 

CTAC nationwide targeting operation and in close partnership with the U.S. Consumer Product Safety Commission (CPSC). 

On January 28, 2018, in another recent example of CTAC joint targeting, CBP 

officers at the Port of Los Angeles seized a large incoming shipment of toy building 

blocks for trademark infringement. These counterfeit toys were also found to violate 

the Federal Hazardous Substance Act for excessive lead and small parts. The shipment was identified through the efforts of CBP and CPSC to target shipments of 

high-risk consumer products for possible import safety violations. 

CBP also established an Interagency Collaboration Division within the Office of 

Trade. Our Import Safety Division has been closely collaborating and coordinating 

across Federal agencies to streamline the import process by reducing the redundancy of inspection activities, targeting high-risk trade, ensuring compliance with 

U.S. trade laws among agencies with overlapping authorities, and deploying riskbased management strategies. 

National Targeting Center (NTC) 

At CBP’s National Targeting Center (NTC), advance data and access to law enforcement and intelligence records converge to facilitate the targeting of travelers 

and items of cargo that pose the highest risk to our security in all modes of inbound 

transportation. The NTC processes large amounts of data and uses sophisticated 

targeting tools and subject matter expertise to analyze, assess, and segment risk at 

every stage in the cargo/shipment and travel life cycles. As the focal point of that 

strategy, the NTC leverages classified, law enforcement, commercial, and opensource information in unique, proactive ways to identify high-risk travelers and 

shipments at the earliest possible point prior to arrival in the United States. 

The NTC also works to detect anomalies, trends, and violations in the global supply chain to target high-risk shipments. This high-level analysis helps CBP identify 

emerging threats, including those posed by TCOs, and to take action to counter 

these threats. The NTC-Cargo is also leading efforts to de-conflict and coordinate 

IPR targeting throughout CBP, as well as to ensure timely targeting support for 

ICE-HSI investigations. There are currently two full-time ICE-HSI Special Agents 

and two United States Postal Inspection Service (USPIS) employees embedded within the NTC, who serve as liaisons between the NTC and ICE-HSI and USPIS personnel in both domestic and international posts. The NTC also collaborates daily 

with critical partners from the Drug Enforcement Agency, the Federal Bureau of Investigation, the Food and Drug Administration Office of Criminal Investigations 

(FDA/OCI), and other members of the Intelligence Community. CBP is sharing information with these agencies and conducting joint enforcement initiatives. 

For example, in a single week in June of 2017 approximately 115 seizures where made of counterfeit products by CBP in Puerto Rico, valued at more than $6.5 million. All of these products were illegally imported into Puerto Rico via international 

mail. This was a record value of counterfeits seized by CBP in Puerto Rico during 

a single week. A wide range of counterfeited products were seized during the weeklong enforcement effort, called Operation Silver Snake, to include pharmaceuticals, 

electronics, jewelry, apparel, and footwear.1

Integrated Trade Targeting Network (ITTN) 

Components of CBP’s Integrated Trade Targeting Network (ITTN) conducted 12 

national-level IPR-mitigating trade operations in FY 2017. The ITTN coordinates all 

national targeting assets of CBP, including the Centers of Excellence and Expertise, 

the Tactical Trade Targeting Unit (T3U), CTAC, and the National Targeting and 

Analysis Groups (NTAGs). 

These operations targeted high-risk shipments at seaports, airports, international 

mail facilities, and express carrier hubs across the United States and resulted in 

1,845 seizures of IPR-infringing goods that, if genuine, would have had an estimated 

MSRP of $44 million. Eight of these operations were conducted by Mobile Intellectual Property Enforcement Teams (MIPETs), teams of CBP IPR experts deployed to 

assist enforcement operations. MIPET operations in FY 2017 resulted in 1,687 seizures of IPR-infringing goods valued at $34.6 million MSRP and 67 voluntary abandonments. 

Centers of Excellence and Expertise 

CBP’s 10 Centers of Excellence and Expertise (Centers) focus CBP’s trade expertise on industry-specific issues through account-based processing on a national scale. 

56 

The Centers, managed from strategic locations around the country, have national 

authority to make trade determinations at all POEs in an effort to meet the goals 

of strengthening America’s economic competitiveness, enhancing industry knowledge 

and expertise, developing innovative trade processing procedure, applying strategic 

and impactful trade enforcement actions, and leveraging available trade intelligence. The Centers serve as resources to the broader trade community and to 

CBP’s U.S. Government partners. By redirecting work to the centralized, industryspecific Centers, the POEs are able to more effectively focus their resources on highrisk shipments and importers that may pose a danger to border security, harm the 

health and safety of consumers, or violate U.S. trade laws and IPR. 

COLLABORATION WITH OUR PARTNERS

TFTEA empowered CBP to collaborate with our partners in new ways, and CBP 

remains committed to enforcing IPR in accordance to the mandates of TFTEA and 

in close collaboration with our partners across government and the private sector 

to ensure that IPR are enforced while facilitating legitimate trade. 

TFTEA created the Commercial Customs Operations Advisory Committee (COAC) 

to advise the Secretaries of the Treasury and DHS on all matters involving the commercial operations of CBP, including advising on significant proposed changes to 

regulations, policies, or practices. The IPR working group, which falls under the 

Trade Enforcement and Revenue Collection COAC Subcommittee, is made up of 

CBP’s Federal partners and 19 representatives from multiple industries including 

express carriers, Customs brokers, and marketplace providers. The group has identified a series of challenges for the consumer, the trade community, and government. 

One of the main challenges identified was the need for better data collection, automation, and a legal framework for sharing data. The working group also identified 

education and outreach as a need. As new e-commerce participants may not know 

they are importers, or understand the responsibilities of being an importer, a mechanism is needed to educate the public. As a follow-up to recent meetings, the working group developed recommendations that CBP is working to implement. The recommendations focused primarily on challenges on section 321/de minimis filings. 

Topics mentioned included data sharing, Partner Government Agency coordination 

and clarification, and the adoption of policies that would encourage section 321/de 

minimis filings without impeding the flow of commerce. 

CBP continues to assess and improve its ability to enforce the laws governing 

trade in products that are protected by U.S. trademarks and copyrights, and exclusion orders issued by the United States International Trade Commission (ITC). 

TFTEA provided CBP with new authority to disclose information to the owners of 

recorded trademarks and copyrights and to persons injured by Digital Millennium 

Copyright Act (DMCA) violations. CBP concentrates its IPR border enforcement on 

federally registered trademarks and copyrights that have been ‘‘recorded’’ with CBP 

by their owners using the Intellectual Property Rights e-Recordation (IPRR) system. 

CBP administers these ‘‘recordations’’ using a secure proprietary database that CBP 

can access to make IPR border enforcement determinations. Product ID manuals 

that are prepared by right holders are also linked to the database and used by CBP 

in making IPR border enforcement determinations. 

Additionally, CBP is able to access information contained in the USPTO trademark registration database. 

If CBP suspects that imported merchandise bears a counterfeit mark; constitutes 

a piratical copy; or violates the DMCA, and CBP determines that the right owner’s 

assistance would help CBP in its ongoing IPR enforcement efforts, CBP is authorized by TFTEA to disclose information appearing on the imported merchandise and 

its packing or labels to the right owner. IPR owners also assist CBP in identifying 

authentic and low-risk shipments. As of January 31, 2018, CBP was enforcing 

18,302 active recordations, of which 4,477 were copyrights and 13,725 were trademarks. 

For example, on March 14, 2017, at Charleston seaport, CBP seized an estimated 

$1.1 million in counterfeit mobile phone accessories, including phone cases, chargers, cables, and headphones. The merchandise arrived into the port from China 

and was destined for upstate South Carolina. Examination and appraisal revealed 

85,000 individual accessories bearing images and markings from Apple, USB, 

Bluetooth, Blu-Ray, LG, Marvel, DC Comics, Hello Kitty, and Dr. Dre. CBP reached 

out to representatives from these companies, who confirmed their images and markings were being used without their permission, enabling CBP to seize these counterfeit goods. Approximately 38,000 power adapters seized bore the Federal CommuVerDate Sep 11 2014 20:34 Apr 12, 2019 Jkt 000000 PO 00000 Frm 00060 Fmt 6601 Sfmt 6621 R:\DOCS\35965.000 TIM
57 

2https://www.cbp.gov/newsroom/local-media-release/charleston-cbp-seizes-11-million-cellphone-accessories. 3These airports were Baltimore, Washington International Airport, Dulles International Airport, John F. Kennedy International Airport, Dallas/Fort Worth International Airport, O’Hare 

International Airport, Los Angeles International Airport, Miami International Airport, Atlanta 

Hartsfield Airport, Newark International Airport, George Bush Intercontinental Airport, and 

San Francisco International Airport. 

nications Commission (FCC) mark, signifying they had been tested in an accredited 

FCC laboratory and met certain operating standards. These were found to be unauthorized markings, a potentially significant safety risk to consumers.2

To expand private-sector collaboration and enable CBP to more quickly determine 

the authenticity of suspected counterfeit goods, CBP published a final rule to allow 

donations of certain equipment, training, and other support services from the private sector for enforcing IPR. The Donations Acceptance Program, created by section 

308(d) of TFTEA, enables CBP to collaboratively explore and implement solutions 

to trade and travel facilitation and enforcement challenges. On February 15, 2018, 

CBP announced a new formal partnership arrangement with Procter and Gamble 

(P&G), as part of the Donations Acceptance Program, to prevent counterfeit P&G 

products from entering the United States. As the first formal partnership under the 

Donations Acceptance Program for IPR enforcement, P&G will donate testing devices to verify the authenticity of various P&G products. The devices will help CBP 

officers and trade specialists quickly determine the legitimacy of the product, reducing the possibility of counterfeit goods entering the U.S. stream of commerce. 

CBP will continue to collaborate with private industry through the COAC E-Commerce Working Group. The working group will focus on identifying operational best 

practices and challenges presented by changing business models and supply chains; 

the increased volume of e-commerce packages; new complexities presented by e-commerce for businesses of various sizes and industry-type; and evolving compliance 

and enforcement issues. The group is further identifying workable solutions to ecommerce challenges to create a streamlined path forward for CBP, business, consumers, and the public. 

PUBLIC OUTREACH

TFTEA also called for the development and execution of an educational awareness 

campaign to inform international travelers of the legal, economic, and public health 

and safety effects of importing IPR-infringing merchandise. During the months of 

June and July of 2017, as well as November and December of 2017, CBP ran a public awareness campaign entitled ‘‘Fake Goods, Real Dangers: The Truth Behind 

Counterfeits’’ in eleven airports around the country.3 All information from the campaign is also prominently displayed on the CBP website as part of CBP’s ongoing 

efforts to keep the public informed about the health and safety dangers to consumers presented by counterfeit and pirated goods. CBP has also revised Form 

6059B, the Customs Declaration Form completed by passengers entering the United 

States, to include a warning to international travelers of the penalties associated 

with transporting IPR-infringing goods. 

CBP constantly seeks to refine and update its outreach to rights owners. To this 

end, CBP recently prepared a tri-fold brochure titled ‘‘How CBP Can Protect Your 

Intellectual Property Rights,’’ a publication that is geared especially to rights owners who are unfamiliar with what the agency can do to enforce their IPR. The brochure provides a quick snapshot of the enforcement process, calls the reader’s attention to the relevant CBP regulations, provides links to more detailed border enforcement guidance available via the cbp.gov website, and stresses that IPR border enforcement is a shared responsibility. The brochure then highlights opportunities for 

right owners to engage CBP and the National IPR Coordination Center. CBP looks 

forward to making the brochure available at outreach events such as the East and 

West Coast Trade Symposiums. 

CONCLUSION

CBP continues to look to the future of IPR enforcement. Our well-established 

training program includes rights-holder-conducted webinars, port trainings, and 

roundtables. In FY 2017, CBP facilitated 18 instructor-led IPR training sessions 

where over 227 CBP Officers, Import Specialists, and other trade specialists were 

trained in IPR enforcement. As a result of the hard work of the dedicated men and 

women of CBP and our partnerships across government and private industry, the 

58 

combined total number of all IPR border enforcement actions in FY 2017 increased 

8 percent over FY 2016. 

With the support of Congress, CBP remains committed to protecting businesses 

and consumers every day through an aggressive IPR enforcement program. We will 

continue to work in collaboration with our public and private stakeholders and partners to better understand emerging challenges, and to better enforce IPR to protect 

the health and safety of American consumers and our economy, while facilitating 

legitimate trade. 

Chairman Hatch, Ranking Member Wyden, and distinguished members of the 

committee, thank you again for the opportunity to testify today. I look forward to 

your questions. 

QUESTIONS SUBMITTED FOR THE RECORD TO BRENDA SMITH

QUESTIONS SUBMITTED BY HON. ORRIN G. HATCH

Question. Given the volume of goods entering the country, what steps do you take 

to identify and interdict counterfeits? 

Answer. U.S. Customs and Border Protection (CBP) employs a layered, risk-based 

approach to identify and interdict counterfeit goods and other goods imported contrary to U.S. law. The extensive training and technical expertise of CBP Officers, 

Import Specialists, and other trade professionals are our most reliable assets in 

interdicting intellectual property rights (IPR) infringing goods. The National Targeting Center (NTC) and the National Intellectual Property Rights Coordination 

Center (IPR Center) have dedicated staff with national oversight for targeting shipments and for providing field personnel intelligence on suspect shipments entering 

the United States. CBP also collaborates with U.S. Immigration and Customs Enforcement, Homeland Security Investigations (ICE/HSI) to deter and disrupt the efforts of individuals and organizations whose aim is to exploit U.S. trade and consumers. 

CBP works with private industry, 47 partner government agencies, and foreign 

customs counterparts and other foreign government agencies, to identify trends, 

anomalies, and high-risk shipments. Foreign customs agencies share information on 

relevant enforcement actions which can be used for risk assessment. 

CBP has many tools at its disposal to identify and interdict shipments of counterfeit goods. Shipment data is transmitted to CBP before cargo arrives in the U.S., 

and it is used for assessing overall trade compliance and targeting for smuggling 

and counterfeiting. High-risk shipments are identified for examination via both nonintrusive and physical inspection methods. During examinations, CBP personnel 

work collaboratively with CBP industry experts, and in some cases consult with the 

rights holder, to determine whether suspect shipments are counterfeit or legitimate 

goods. The Centers of Excellence and Expertise are working with CBP headquarters 

personnel to provide round tables where right holders and CBP personnel can share 

information and develop best practices on IPR enforcement. CBP also works with 

the private sector to provide webinars, product identification guides, and in-person 

training to CBP personnel. 

Question. Can you please describe the specific reasons why e-commerce platform 

data located on the package or within it on an invoice is not being shared with 

rights holders? 

Answer. Section 302 of the Trade Facilitation and Trade Enforcement Act 

(TFTEA), codified at 19 U.S.C. § 1628a, authorizes CBP, when merchandise is detained, to disclose to rights holders information that appears on merchandise and 

its packaging and labels. The definition of ‘‘packaging,’’ for Customs purposes, 

means materials and containers in which merchandise is packaged for retail sale. 

See, e.g., 19 CFR part 181, appendix, part 1, section 2. Thus, CBP may disclose ecommerce platform data, but only if the data appears on retail packaging. Pursuant 

to CBP’s regulations, at 19 CFR part 133.21, CBP may disclose additional information to a right holder following seizure of merchandise bearing a counterfeit mark, 

including (1) the date of importation; (2) the port of entry; (3) the description of the 

merchandise from the notice of seizure; (4) the quantity as set forth in the notice 

of seizure; (5) the country of origin of the merchandise; (6) the name and address 

of the manufacturer; (7) the name and address of the exporter; and (8) the name 

and address of the importer. 

59 

In Executive Order 13785 (‘‘Establishing Enhanced Collection and Enforcement of 

Antidumping and Countervailing Duties and Violations of Trade and Customs 

Laws’’), the President included—in section 4(b)—the following direction to the Secretaries of the Treasury and Homeland Security: 

To ensure the timely and efficient enforcement of laws protecting Intellectual 

Property Rights (IPR) holders from the importation of counterfeit goods, the 

Secretary of the Treasury and the Secretary of Homeland Security shall take 

all appropriate steps, including rulemaking if necessary, to ensure that CBP 

can, consistent with law, share with rights holders: (i) any information necessary to determine whether there has been an IPR infringement or violation; 

and (ii) any information regarding merchandise voluntarily abandoned, as defined in section 127.12 of title 19, Code of Federal Regulations, before seizure, 

if the Commissioner of CBP reasonably believes that the successful importation 

of the merchandise would have violated United States trade laws. 

As discussed elsewhere, in accordance with the President’s direction, DHS has 

been taking ‘‘all appropriate steps, including rulemaking if necessary, to ensure that 

CBP can, consistent with law, share with rights holders’’ the two categories of information that the President specified in Executive Order 13785. This has included an 

ongoing evaluation of the extent to which CBP’s disclosure of additional information 

to rights holders would involve any information that is of the type that is generally 

covered by the Trade Secrets Act (18 U.S.C. § 1905) and, with respect to any such 

information, whether Congress—in section 302 of TFTEA, 19 U.S.C. § 1628a, or otherwise—has granted CBP sufficient authority to disclose such information to rights 

holders. In this regard, section 302 authorizes CBP to provide to a rights holder, 

for the purpose specified in section 302, ‘‘information that appears on the merchandise and its packaging and labels, including unredacted images of the merchandise 

and its packaging and labels’’ as well as ‘‘unredacted samples of the merchandise’’ 

(subject to any applicable bonding requirements). CBP has determined that information located on an invoice located on or within a package is protected by the Trade 

Secrets Act and that TFTEA section 302 does not provide sufficient authority for 

CBP to disclose that information to rights holders. This analysis is based on the 

longstanding definition of ‘‘packing’’ in the Customs valuation laws and international agreements. Specifically, the term ‘‘packaging materials and containers’’ is 

defined for Customs purposes in numerous provisions of CBP Regulations as meaning the ‘‘materials and containers in which a good is packaged for retail sale’’ (emphasis added). However, the term ‘‘packing materials and containers’’ is defined as 

‘‘materials and containers that are used to protect a good during transportation, but 

[do] not include packaging materials and containers’’ (emphasis added). CBP regulations matching this meaning for ‘‘packing’’ also comport with the United States– 

Korea Free Trade Agreement, the United States–Panama Trade Promotion Agreement, and the United States–Columbia Trade Promotion Agreement, all of which 

explicitly do not include the materials and containers in which merchandise is packaged for retail sale. We glean nothing in TFTEA or its legislative history to suggest 

disregarding the differentiation between ‘‘packaging’’ and ‘‘packing’’ consistently 

made in existing statutes and trade agreements. Consequentially, section 302 of 

TFTEA does not provide CBP with the authority to disclose to the right holders ecommerce platform data located on the package or within the package on an invoice. 

[Note: As discussed below, CBP has drafted a Notice of Proposed Rulemaking 

(NPRM) to implement sections 302 and 303 of TFTEA with respect to the seizure 

of circumvention devices and other copyright-infringing goods. The draft NPRM is 

currently within the interdepartmental review process.] 

However, CBP has statutory authority beyond section 302 of TFTEA, including 

that provided by 15 U.S.C. § 1124 and 19 U.S.C. §§ 1526 and 1595a, that may provide authority for CBP to promulgate regulations to share e-commerce platform data 

located on the package or within it on an invoice with rights holders. 

CBP has drafted an NPRM to amend its regulations to disclose to trademark owners, when merchandise has been voluntarily abandoned, the same comprehensive 

importation information that is disclosed when merchandise bearing a suspected 

counterfeit mark has been seized. The draft NPRM is currently in the interdepartmental review process. 

Question. The Voluntary Abandonment Program recently concluded the pilot 

phase. We have heard from several stakeholders expressing concerns about the lack 

of information sharing in an otherwise relatively cost-effective program. Can you 

please describe that program and explain why you have been unable to share information with the rights owners or platforms? 

60 

Answer. The IPR Voluntary Abandonment Pilot was developed in partnership 

with the private sector and was supported through a May 22, 2014 formal recommendation by the Commercial Customs Operations Advisory Committee (COAC). 

The primary goal of the program was to explore alternative methods to seizure for 

small packages containing IPR-infringing goods in the express environment in an 

effort to develop processing efficiencies. 

On November 1, 2014, CBP initiated the IPR Voluntary Abandonment Pilot at the 

UPS Express Consignment Facility (ECCF) in Louisville, KY. The IPR Voluntary 

Abandonment Pilot consisted of an expedited enforcement process whereby the participating carriers worked with CBP to notify the consignee that the shipment contained goods suspected to be counterfeit and offer the consignee an opportunity to 

cede interest in the merchandise through the execution of an abandonment form. 

The program grew to include the following locations: DHL ECCF in Cincinnati, OH; 

the DHL ECCF in Los Angeles, CA; DHL ECCF in Miami, FL; and DHL ECCF New 

York, NY. 

More than 12,000 shipments were abandoned through the IPR Voluntary Abandonment Pilot, representing a significant cost savings to CBP and the removal from 

commerce of a significant volume of suspected counterfeit goods. Additionally, 

through the efforts of the participating ports, CBP gained a significant amount of 

knowledge and experience, which will inform and enhance future IPR enforcement 

and efficiency efforts. In this regard, the IPR Voluntary Abandonment Pilot presented alternatives that could increase the efficiency of counterfeit interdictions, reduce the amount of resources dedicated to administrative actions, and create overall 

cost savings for CBP. As this program was instituted as a pilot, the decision was 

made that current efforts must shift from operating in a pilot status to focusing on 

addressing operational challenges identified during the pilot phase, developing the 

necessary legal framework to support IPR abandonment procedures, and specifically 

creating regulations that will allow CBP to share information with right holders 

when a suspected IPR shipment is abandoned. 

In February 2018, formal guidance was issued to impacted CBP ports that the 

IPR Voluntary Abandonment Pilot was ending. Based on lessons learned from the 

pilot, CBP has issued additional guidance to field on the use of alternatives to seizures for IPR enforcement purposes. Additionally, as mentioned above, CBP is developing regulatory changes that will allow CBP to share information with right 

holders when a suspected IPR shipment is abandoned. 

Question. Do you believe that § 302 of the Trade Facilitation and Trade Enforcement Act (TFTEA) provides you broad authority to share information with rights 

holders and trademark owners? 

Answer. Section 302 of TFTEA provides CBP with authority to disclose, at detention, in cases of merchandise suspected of (1) bearing a counterfeit mark, (2) constituting a piratical copy of a protected work and/or (3) circumventing a technological 

protection measure in violation of the Digital Millennium Copyright Act (DMCA), 

information that appears on imported merchandise, its retail packaging and labels. 

As such, section 302 provides additional statutory authority for the disclosure regime that CBP has previously promulgated by regulation in respect of suspected 

counterfeit marks, and extends it to matters involving suspected copyright and 

DMCA violations. 

CBP appreciates the broader statutory authority to disclose information that otherwise might be protected by the Trade Secrets Act (18 U.S.C. § 1905). 

Question. If so, does that breadth also allow you the ability to share information 

before a seizure has been effectuated? If not, please provide counter-citations to 

other applicable statute or regulations that preclude you from being able to share 

that information. 

Answer. As discussed elsewhere, DHS has been taking ‘‘all appropriate steps, including rulemaking if necessary, to ensure that CBP can, consistent with law, share 

with rights holders’’ the two categories of information that the President specified 

in Executive Order 13785. This has included an ongoing evaluation of the extent 

to which CBP’s disclosure of additional information to rights holders would involve 

any information that is of the type that is generally covered by the Trade Secrets 

Act (TSA), 18 U.S.C. § 1905, and, with respect to any such information, whether 

Congress—in section 302 of TFTEA, 19 U.S.C. § 1628a, or otherwise—has granted 

CBP sufficient authority to disclose such information to rights holders. 

61 

The Trade Secrets Act bars the unauthorized disclosure by government employees 

of any confidential business information received in the course of their employment. 

Case law interpreting the statute, which includes Supreme Court decisions and the 

Act’s legislative history, demonstrates that it covers most commercial or financial 

data collected by any Federal employee from any source. 

While section 302 of TFTEA provides for the disclosure of certain information, i.e., 

information that ‘‘appears on the merchandise and its packaging and labels,’’ at detention, i.e., pre-seizure or pre-abandonment, section 302 does not provide sufficient 

authority to disclose information appearing on packing, which CBP defines as ‘‘all 

containers, exclusive of instruments of international traffic, and coverings of whatever nature, used in placing the merchandise packed ready for shipment to the 

United States’’ (19 CFR § 152.102(e)). Moreover, the phrase ‘‘appears on the merchandise and its packaging’’ further limits the disclosure. For example, it does not 

include the disclosure of information that is contained on or within the packing, e.g., 

a ‘‘fulfilled by Amazon’’ (FBA) number, or an invoice or packing slip enclosed with 

the packing. Such information would be considered packing as opposed to packaging, and that distinction is salient in CBP regulations reflecting U.S. trade agreements. Specifically, the term ‘‘packaging materials and containers’’ is defined for 

Customs purposes in numerous provisions of CBP Regulations as meaning the ‘‘materials and containers in which a good is packaged for retail sale’’ (19 CFR part 181, 

appendix, part I, section II (the NAFTA Rules of Origin Regulations), emphasis 

added). However, the term ‘‘packing materials and containers’’ are defined as ‘‘materials and containers that are used to protect a good during transportation, but [do] 

not include packaging materials and containers’’ (Id., emphasis added). CBP regulations matching this meaning for ‘‘packing’’ also comport with the United States– 

Korea Free Trade Agreement, the United States–Panama Trade Promotion Agreement, and the United States–Columbia Trade Promotion Agreement, all of which 

explicitly do not include the materials and containers in which merchandise is packaged for retail sale. We glean nothing in TFTEA or its legislative history to suggest 

disregarding the differentiation between ‘‘packaging’’ and ‘‘packing’’ consistently 

made in existing statutes and trade agreements. Consequentially, section 302 of 

TFTEA does not provide CBP with the authority to disclose to the right holders ecommerce platform data located on the package or within the package on an invoice, 

such as a ‘‘fulfilled by Amazon’’ (FBA) number. [Note: As discussed below, CBP has 

drafted a Notice of Proposed Rulemaking (NPRM) to implement sections 302 and 

303 of TFTEA with respect to the seizure of circumvention devices and other copyright-infringing goods. The draft NPRM is currently within the interdepartmental 

review process.] 

However, as noted above, CBP has statutory authority beyond section 302 of 

TFTEA, including that provided by 15 U.S.C. § 1124 and 19 U.S.C. §§ 1526 and 

1595a, that may provide authority for CBP to promulgate regulations to share ecommerce platform data located on the package or within it on an invoice with 

rights holders. 

CBP has drafted an NPRM to amend its regulations to disclose to trademark owners, when merchandise has been voluntarily abandoned, the same comprehensive 

importation information that is disclosed when merchandise bearing a suspected 

counterfeit mark has been seized. The draft NPRM is currently in the interdepartmental review process. 

Question. Do you agree that § 303 of TFTEA provides CBP with broad authority 

to seize circumvention devices? 

Answer. As it related to circumvention devices, CBP believes that it has authority 

to enforce the DMCA; however, CBP appreciates the additional clarity that section 

303 affords in this regard. 

Question. If so, when do you anticipate release regulations to significantly expand 

enforcement of this provision in the law? 

Answer. CBP has drafted a Notice of Proposed Rulemaking (NPRM) to implement 

sections 302 and 303 of TFTEA. The draft NPRM is currently within the interdepartmental review process. 

In addition, as noted in the prior responses to questions 2 and 4, CBP has also 

drafted an NPRM to amend its regulations to disclose to trademark owners, when 

merchandise has been voluntarily abandoned, the same comprehensive importation 

information that is disclosed when merchandise bearing a suspected counterfeit 

mark has been seized. The draft NPRM is currently in the interdepartmental review 

process. 

62 

Question. You have recently mentioned difficulties with passing new regulations 

in a timely fashion due to required reviews of all regulations by the Department 

of Treasury. Can you please describe, in detail, the process now in place at CBP 

for promulgating new regulations? 

Answer. Since the enactment of the Homeland Security Act of 2002 and the 

issuance of Treasury Department Order No. 100–16, CBP is in the position of having some of the regulations it drafts approved by the Department of the Treasury 

and some regulations approved by the Department of Homeland Security (DHS). 

Under the Homeland Security Act, Treasury retained its traditional authority over 

Customs revenue functions. Although Treasury delegated much of its retained authority to CBP, if a regulation involves a Treasury-retained Customs revenue function, the Department of the Treasury has sole authority to approve the regulation. 

Treasury-retained Customs revenue regulatory topics include certain of the subjects 

on which implementing regulations are necessary under TFTEA. For example, regulations for which the Department of the Treasury retains authority include those 

relating to copyright and trademark enforcement and those relating to the completion of entry or substance of entry summary including duty assessment and collection. While the Department of the Treasury has the sole authority to approve these 

Treasury-retained Customs revenue function regulations, DHS has an interest in reviewing these regulations prepared by CBP, as a component agency, before the regulations are sent to Treasury. 

Accordingly, the process at CBP for promulgating new regulations under TFTEA 

involves CBP drafting a regulation, putting it into CBP component review for all 

interested offices within CBP to review, comment, and approve, including its Office 

of Chief Counsel, before the Commissioner signs the document. After the Commissioner signs the document, it is sent to DHS, including its Office of General Counsel, 

for review and clearance. After DHS clears the regulatory document, the document 

is sent to the Department of the Treasury for approval. The Department of Treasury, including its Office of General Counsel, reviews the package. The Department 

of Treasury then interacts with the Office of Management and Budget (OMB) to determine whether OMB needs to review the draft regulation under Executive Order 

12866. If OMB does not need to review the Treasury-retained Customs revenue 

function regulation, the regulation can then be finalized and signed by the Deputy 

Assistant Secretary of the Treasury and sent to the Federal Register for publication. 

If OMB determines that OMB review is required (and OMB review generally includes routing the packages through interagency and interdepartmental review), the 

review will take place and the regulation will be finalized after OMB review has 

been concluded. 

Question. What ways can that process be streamlined while still ensuring competent, effective, and legally sound regulations? 

Answer. CBP understands the policy and legal interests that both DHS and 

Treasury have in Treasury-retained Customs revenue function regulations, and 

their review helps to ensure the issuance of competent, effective, and legally sound 

regulations. While there is limited opportunity to streamline this process, all involved parties maintain close coordination, and matters that have been determined 

by CBP leadership to warrant prioritization are drafted and moved to publication 

as expeditiously as possible. 

Question. TFTEA created the national IPR center to help coordinate the work of 

more than a dozen agencies for intercepting and enforcing intellectual property 

rights. Because the program is so new, we are interested in learning what has been 

effective and what could be improved. What do you think the National IPR Center 

does well, and what do you think it could improve on? 

Answer. The Trade Facilitation and Trade Enforcement Act of 2015 (TFTEA) formally codified the National Intellectual Property Rights Coordination Center (IPR 

Center), which was administratively established in 2000. The IPR Center is led by 

ICE/HSI, and CBP provides substantial support for it, by establishing permanent 

staff at the IPR Center in excess of the number of staff mandated in TFTEA. The 

IPR Center currently has 23 partner agencies, including four foreign partners. The 

IPR Center is highly effective at case de-confliction, the deliberative process of presenting all possible investigative leads and intelligence products to all partner agencies in order to bring forth all relevant information. This ensures that agencies are 

all aware of interest in any particular suspect entity. More importantly, agencies 

are able to determine if another agency has an open case or strong interest in pursuing a new case. This prevents conflicting investigations that could damage an investigation or even put investigators in jeopardy. It also incentivizes cooperation 

63 

and partnerships during investigations and cases that preserve agency resources 

and maximize positive outcomes. To that end, CBP is working toward better operational coordination and sharing of information about risks and results with partner 

agencies, particularly ICE/HSI and the FBI, two principal agencies at the IPR Center. 

Question. As the FY 2016 GAO seizure statistics noted, CBP processed over 32 

million shipments and seized 31,560 shipments of IPR-infringing goods worth an estimated $1.38 billion. As a parallel, the Postal Service, through the substantial 

growth of its international small parcel business saw significant increases of shipments processed as well. International small parcels within the U.S. Postal Service 

increased 232 percent from 2013 to 2017, when it received nearly half a billion packages. With so many packages processed through both U.S. Ports of Entry and International Mail Facilities, how does the CBP focus on the targeting of unlawful shippers who traffic in counterfeit goods? 

Answer. The targeting of entities for trade enforcement purposes, including shippers who traffic in counterfeit goods, is primarily (outside of certain pilot programs 

described below) a manual process in mail unlike that of express consignment where 

automated systems and advance electronic data are employed in the risk assessment. Utilizing risk management principles and techniques, mail parcels are selected for inspection based on criteria that fluctuates with the trends and threats 

identified by CBP personnel. Various factors and risk indicators are evaluated in the 

selection of mail parcels for examination. Factors may include physical features of 

the packaging or textual information such as the description of the goods on the 

Customs declaration. Examples of risk indicators are the use of a fictitious company 

name or address as well as the situation where a shipment originates from a country where genuine goods are not made. CBP personnel also utilize internal systems 

to determine past seizure history and review intelligence in order to enhance the 

focus of targeting efforts. 

Question. If USPS were to provide electronic advance data to CBP, could that be 

used to target counterfeit goods? 

Answer. Based on the preliminary results from an advance electronic data (AED) 

pilot between CBP and the USPS, there are promising opportunities with AED for 

enhanced trade enforcement targeting, trade facilitation of low risk shipments, and 

capability for big data analytics. The AED from the USPS and/or foreign postal 

agencies could result in improved and effective targeting of counterfeit goods provided the data from all countries is mandatory, timely, abundant, and accurate. 

CBP completed a Memorandum of Understanding with the USPS on September 

1, 2017 that enhances targeting capabilities. The MOU solidifies the interagency 

partnership between CBP, USPS and the Inspection Service at all IMFs. The partnership is in place at New York, the largest International Mail Facility (IMF), and 

has expanded to a total of five IMFs. The current pilots began in 2014 and 2015 

and target certain mail for inspection using some of the AED obtained under datasharing agreements with postal operators. Under the pilots, CBP uses AED to target a small number of pieces of mail each day. Since the pilots began, USPS has 

made efforts to locate and provide CBP with the targeted mail and CBP has collected performance data on the percentage of targeted mail USPS has provided for 

inspection. The USPS currently provides CBP with AED from Australia, Canada, 

China, Hong Kong, France, Germany, S. Korea, Spain, Singapore, and the UK. 

CBP’s AED pilot program with the USPS has proven useful for CBP to make informed targeting and enforcement decisions regarding international mail shipments. 

With respect to counterfeit goods, we have demonstrated some success through 

the use of AED. For example, the CBP Office of Trade, Los Angeles National Threat 

Analysis Center used AED incorporated into CBP’s Automated Targeting System 

(ATS) for inbound international mail that enabled the successful targeting and seizure of six shipments of counterfeit networking equipment affixed with counterfeit 

U.S. trademarks. Those six shipments were seized in January through March 2018 

at four different CBP IMFs and had a total MSRP value of $674,000. In early 2017, 

CBP officers successfully targeted and intercepted a shipment of fentanyl. Through 

further research of the AED, CBP collected additional information that implicated 

a transnational criminal organization using the ‘‘dark web’’ to distribute the illegal 

substance. CBP, in collaboration with the United States Postal Inspection Service 

and other Federal Law Enforcement agencies, was able to develop actionable intelligence that identified additional high-risk targets. This also allowed CBP to affect 

seizure of subsequent fentanyl shipments in the postal stream. 

64 

Question. Would it be feasible to institute a U.S. Postal Service known shipper 

program so that criminals who ship counterfeits could be identified at an earlier 

stage? 

Answer. CBP defers to the U.S. Postal Service on this question. 

QUESTIONS SUBMITTED BY HON. RON WYDEN

Question. In one way or another, you all touched on the shift from containerized 

shipping to small packages. You have also highlighted the challenges in enforcement 

against counterfeit goods. 

Given that we seem to be in a new era of trade, wouldn’t you agree that the Federal Government’s enforcement strategy to go after counterfeit goods needs to adapt 

to the changing market? If so, what changes would you recommend in current CBP 

and ICE enforcement priorities and approaches? 

Answer. Yes. CBP is adjusting its enforcement strategy to address the unique 

challenges posed by the small package environment. On March 6, 2018, CBP released its E-Commerce Strategy, which details objectives for adapting CBP’s enforcement posture to address the challenges associated with the rapid increase in 

volume in small packages. This includes enhancing legal and regulatory authorities, 

enhancing CBP operations to respond to emerging supply chain dynamics, driving 

private sector compliance, and facilitating international trade standards for e-commerce. In conjunction with the E-Commerce Strategy, CBP has planned initiatives 

to enhance its IPR enforcement posture in the small package environment that includes improving training, developing processing efficiencies, and improving operational coordination and collaboration on policy development. CBP supports efforts 

to increase shipping data in the international mail environment and will continue 

to partner with ICE on a daily basis on IPR issues through its permanent staff located at the IPR Center. Additionally, CBP works both bilaterally and through multilateral fora such as the Border Five and the World Customs Organization to set 

international standards and develop best practices. 

Question. Ms. Smith, in the Trade Facilitation and Trade Enforcement Act authored by Senator Hatch and myself, we created new information sharing authorities for CBP to work with rights holders and others to identify and prevent the importation of counterfeit products. And yet, that is an area where GAO, and many 

U.S. companies, find that CBP is not sharing enough information with e-commerce 

platforms and other market participants to most effectively combat illegal imports. 

You stated at the hearing that CBP does need additional legislative authority to 

share information more effectively, but that it had not identified what authority is 

needed. You confirmed that you would seek to meet a 60-day deadline for identifying the authority you need. I encourage you to take a comprehensive view of 

CBP’s information sharing to help trademark holders and platforms participate in 

identifying the source or manufacturer of counterfeit products. 

Will you commit to working with my staff to also identify what information is currently being shared, whether it is being done consistently across ports, and where 

CBP currently has the authority to share additional information? 

Answer. CBP absolutely believes in partnership with you and your staff, and looks 

forward to working with Senate Finance Committee staff to construct a robust disclosure regime that will further our shared goal of interdicting IPR-violative merchandise at the border while providing rights holders with increased disclosure. 

CBP will work with the committee to build upon CBP’s ongoing efforts to expand 

its ability to share information in efficient and consistent manners. These efforts include work conducted as part of the Voluntary Abandonment Pilot that concluded 

in February 2018 and CBP’s work to identify any needs for additional legal authorities for information sharing with the private sector under Executive Order 13785 

titled ‘‘Establishing Enhanced Collection and Enforcement of Antidumping and 

Countervailing Duties and Violations of Trade and Customs Laws.’’ 

As discussed elsewhere, DHS has been taking ‘‘all appropriate steps, including 

rulemaking if necessary, to ensure that CBP can, consistent with law, share with 

rights holders’’ the two categories of information that the President specified in Executive Order 13785. To this end, CBP has drafted a Notice of Proposed Rulemaking 

(NPRM) to implement sections 302 and 303 of TFTEA with respect to the seizure 

of circumvention devices and other copyright-infringing goods. The draft NPRM is 

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currently within the interdepartmental review process. CBP has also drafted an 

NPRM to amend its regulations to disclose to trademark owners, when merchandise 

has been voluntarily abandoned, the same comprehensive importation information 

that is disclosed when merchandise bearing a suspected counterfeit mark has been 

seized. The draft NPRM is currently in the interdepartmental review process. CBP’s 

initiatives have also included an ongoing evaluation of the extent to which CBP’s 

disclosure of additional information to rights holders would involve any information 

that is of the type that is generally covered by the Trade Secrets Act (18 U.S.C. 

§ 1905) and, with respect to any such information, whether Congress—in section 302 

of TFTEA, 19 U.S.C. § 1628a, or otherwise—has granted CBP sufficient authority 

to disclose such information to rights holders. 

Question. Ms. Smith, year after year, CBP puts out information on the total number of counterfeit goods seized by CBP, but we don’t really have a sense of what 

impact this is having on the number of counterfeit imports coming into the country. 

What we really need is intelligent effective enforcement that reduces the flow of 

counterfeits into our country. 

Do you agree with me that this means not only targeting and inspecting packages, 

but also gathering information to go after foreign manufacturers, and individuals in 

the United States who knowingly import and re-sell counterfeit goods? 

Answer. Thank you for recognizing the significant increase in seizures, to over 

30,000 in each of the last two fiscal years, which we believe is a result of continuing 

to improve upon sophisticated targeting and enforcement mechanisms. We are 

proud of these accomplishments, but we agree that CBP’s enforcement in this area 

needs to be constantly evolving. In a recent study on illicit trade, the OECD estimated that 2.5 percent of global trade involved trade in counterfeit goods. Our strategy is to educate first time importers and online shoppers and consumers who simply do not know the rules, while focusing targeting and enforcement resources on 

identifying and stopping the bad actors who are deliberately dealing in counterfeit 

goods and committing a host of other trade-related crimes. CBP desires to gain more 

information on international mail packages via advanced electronic data. We continue to work with our domestic law enforcement partners and in international forums to identify the most problematic bad actors. CBP continuously works to improve how we use information and advanced targeting to identify the worst violators. CBP utilizes systems such as Automated Targeting System (ATS) to assign 

risk scores for potentially suspect shipments. Shipments that are targeted for exam 

and found to be violative are seized and all inspection and seizure information is 

entered into ATS. CBP is able analyze historical violator data in ATS and link inbound shipment data to these bad actors. CBP is looking at various predictive analysis systems for risk identification to determine, in advance, when violative goods 

might enter the U.S. This capability would allow CBP to more efficiently target for 

violations. 

CBP also partners with ICE–HSI to enforce both civil and criminal trade laws. 

CBP staffs the National Intellectual Property Rights Center and works with all of 

the Federal partners to investigate IPR infringement. In FY 2017, ICE–HSI arrested 457 individuals, obtained 288 indictments, and received 242 convictions related to intellectual property crimes. 

Question. Do you commit to making that a priority in CBP’s strategy for combating counterfeits and to cooperate with foreign authorities as mandated by section 

309 of the Trade Facilitation and Trade Enforcement Act of 2015? 

Answer. CBP Attache ́s or CBP Advisors are posted in over 25 countries. CBP offices will coordinate with in-country CBP Attache ́s and other CBP Office of International Affairs personnel to work with foreign customs counterparts, both bilaterally and multilaterally, with the goal of attaining more and better data for improving risk assessment, targeting, detection, and interdiction of IPR-infringing 

products arriving at the U.S. border. Such cooperation may include information and 

data exchange, coordinated operational work, sharing of best practices and trend 

analysis, and participating in bilateral and multilateral working groups (including 

the World Customs Organization Counterfeiting and Piracy Group and the APEC 

Subcommittee on Customs Procedures (SCCP)). CBP and representatives of partner 

governments that are posted at the National Intellectual Property Rights Coordination Center (IPR Center) and National Targeting Center work closely with CBP and 

work together with targeters and intelligence staff to detect violators and to advance 

anti-counterfeiting policies, programs and operations of mutual interest. 

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Additionally, the 80 Customs Mutual Assistance Agreements (CMAAs) facilitate 

the exchange of information, evidence, and other mutual assistance between Customs administrations to prevent, detect, and investigate Customs and other trade 

law offenses. As legally binding executive-level agreements, CMAAs establish the 

legal framework and the obligation for the parties to share information with each 

other. CBP is able to utilize these agreements to work with partner countries to exchange information on Customs-related matters, including exports, imports, and 

transshipments that may contain counterfeit, grey market, prohibited, or unsafe 

goods. CBP can make requests for information on such shipments to facilitate its 

trade enforcement activities. CMAAs also serve as foundational documents for subsequent information sharing, including the sharing of Customs administration best 

practices, embedding of personnel internationally, training and capacity building, 

and mutual recognition arrangements on authorized economic operator programs. 

Question. Ms. Smith, in your testimony, you stated that CBP has seen a nearly 

50-percent increase in express consignment shipping, such as through UPS or 

FedEx, over the past 5 years, and 1,000 percent in the last 20 years. As I said in 

my opening statement, I think that is a good thing, and represents an opportunity 

for small businesses in Oregon and across the country. But, as trade flows are 

transforming, CBP needs to transform too. To date, that has not happened. In fact, 

CBP continues to fall behind in the basics, such as hiring enough officers to ensure 

that all of our trade laws are being enforced. 

I understand that CBP has concluded a multi-million dollar contract with a private company to recruit and hire 5,000 Border Patrol Agents and 2,000 CBP Officers in the next 5 years. I am deeply skeptical that we need to assemble a small 

army of Border Patrol Agents when illegal crossings are at historic lows. Meanwhile 

the 2,000 hires will likely barely meet the trade enforcement needs of CBP (much 

less the travel and trade facilitation functions), according to CBP’s own ‘‘resource 

optimization model.’’ I am disappointed in the apparent prioritization of Border Patrol Agent hiring. Could you tell me what other efforts you are making to onboard 

personnel with trade enforcement functions? 

Answer. The Consolidated Appropriations Act of 2018 H.R. 244 included an addi- tional $8.9 million dedicated to hiring trade enforcement staffing. The Office of 

Trade (OT) was authorized to hire 140 TFTEA positions, and we are steadily hiring 

to fulfill this mandate through recruitment, using various hiring authorities, and 

participating in hiring events. In fiscal year 2018, OT has completed hiring of 60 

persons (25 internal and 35 external candidates) who will support trade enforcement 

initiatives and programs. We will continue to hire in earnest throughout the rest 

of the year and use fiscal year 2019 funds, if appropriated. 

We have also utilized unique staffing solutions to begin fulfilling the TFTEA mandates: 

• To develop new regulations, legal staff and economists had to be assigned 

from the existing pool of staff to draft new regulations and notices of proposed 

rulemaking. Additionally, operators, financial analysts, and system developers 

had to be included in the process to ensure approaches met the expectations 

of TFTEA, but were also feasible from an operations and automation perspective for OT, OFO, and OF. 

• For EAPA, OT stood-up the division via temporary assignments and requests 

for mutual support from various offices in CBP including OFO, OF and INA. 

Fully staffing the EAPA division will be a priority going forward with fiscal 

year 18 funding. 

• Standing up TRLED and the Trade Enforcement Task Force to address 

Forced Labor were accomplished through a realignment of existing staffing 

into the newly designed directorate, and an aggressive recruiting plan to staff 

the Task Force through temporary assignments with staff from OT and OFO. 

The Forced Labor workload still remains, and will shift to permanent hiring 

for TRLED under TFTEA with FY18 funding. 

• Positions specified by TFTEA to support the IPR Center were accomplished 

with longer term temporary assignments. Permanently staffing these positions will be accomplished using FY18 TFTEA funding. 

• Audit staff to support Forced Labor, EAPA, AD/CVD and IPR as a focus of 

TFTEA was stretched to accommodate immediate operational needs, and fiscal year 18 staffing funding will bring new auditors on-board to help balance 

this new workload with planned audits. 

Question. At the same time that the United States must re-examine enforcement 

as trade flows change, it must also ensure that U.S. businesses are in position to 

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reap the benefits of modern commerce. That is why Congress raised the de minimis 

threshold in the Trade Facilitation and Trade Enforcement Act of 2015. And it is 

why I support the administration’s participation in work on electronic commerce 

issues at the WTO. 

What is CBP doing at the World Customs Organization and other fora to ensure 

that the United States is a leader on cooperation and initiatives around electronic 

commerce facilitation, as well as enforcement? 

Answer. The United States leads at the World Customs Organization (WCO) and 

in other international forums on the development of best practices and the creation 

of advisory documents relating to the management of Customs and other trade enforcement. This includes recent work relating to the significant changes to international trade flows brought on by the phenomenon of e-commerce. For example, in 

2016, the WCO created an e-commerce working group to develop best-practices in 

the context to address Customs enforcement of e-commerce shipments and unique 

challenges these shipments present for overall Customs management (i.e., the movement from large containers with consolidated goods via ocean and land shipping to 

small individually-entered packages via express consignment and postal mail). Multiple challenges were identified regarding e-commerce shipments, including: ensuring connectivity via Customs (revenue collection, trade facilitation, and risk management), lack of or poor quality information associated with these shipments for 

risk-assessment and other enforcement efforts, varying authorities, and other legal 

abilities Customs agencies to develop global standards of Customs treatment, and 

the entrance of new players to international trade, including growing on-line sales 

platforms, transaction facilitators, medium to small vendors, and one-time buyers/ 

sellers. In particular, the working group strives to determine best practices for how 

to incorporate small businesses into Customs administrations’ present programs and 

relationships formed with traditional larger importers/exporters, and how to best 

ensure these smaller actors are aware of their obligations as importers/exporters 

under Customs and related trade enforcement laws. The working group currently 

drafts an e-commerce framework of standards seeking to address the changing trade 

landscape. This includes heightened security concerns and the needs/challenges of 

both the private sector and Customs administrations to comprehensively manage. 

There are multiple topics in the CBP E-Commerce Strategy that complement the 

framework such as education, and outreach of the public, and private sector. In addition, both documents agree that a known shipper/trusted trader type program 

should be created to mitigate high risk shipments. The United States continues to 

work through the interagency process, and with the WCO to improve the framework. The growing and changing risk presented by the phenomenon of e-commerce. 

The WCO and its member administrations met on April 9th–13th to discuss and 

edit the document, and will likely be extending the deadline for the framework until 

spring 2019, given the significant volume of work still to be completed and the establishment of consensus on the approach. The United States was actively engaged 

in this process, including delegates from CBP and other U.S. Government agencies. 

The WCO is a legally non-binding organization unlike the World Trade Organization and the best practices established in the non-binding framework will be influential in subsequent establishment of national legislation of Customs administrations’. 

The United States’ engagement in this and all international forums will be consistent with our WTO legal obligations and with the Trade Facilitation and Trade 

Enforcement Act of 2015. 

The United States is also leading efforts with Border Five countries (Australia, 

New Zealand, Canada, the United Kingdom, and the United States) and at the Asia 

Pacific Economic Cooperation (APEC). The United States has proposed the development of APEC e-commerce operation. The United States has also met several times 

with the Border Five on e-commerce, most recently meeting in Seattle, WA. Both 

groups have shared best practices and case studies. The United States has also 

shared the CBP E-Commerce Strategy with the WCO, Border Five, and APEC as 

a best practice on how to manage the increasing challenges of e-commerce low value 

shipments. 

QUESTIONS SUBMITTED BY HON. PAT ROBERTS

Question. The GAO study on how agencies can improve efforts to address risks 

posed by changing counterfeit markets found growth in e-commerce has attributed 

to counterfeiters producing a wider variety of goods sold on popular websites alongside authentic goods. The goods are often deceiving to consumers, due to counterVerDate Sep 11 2014 20:34 Apr 12, 2019 Jkt 000000 PO 00000 Frm 00071 Fmt 6601 Sfmt 6621 R:\DOCS\35965.000 TIM
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feiters gaining an appearance of legitimacy on third-party online marketplaces. 

What tools are readily available to empower consumers to make educated decisions 

when purchasing from third party sellers on e-commerce platforms? 

Answer. In 2017, CBP developed and ran the ‘‘Truth Behind Counterfeits’’ public 

awareness campaign, targeting travelers in the major airports. The goal of the campaign was to educate travelers and influence their consumer behavior. With messages such as ‘‘Fake Goods, Real Dangers,’’ CBP’s goal is to empower the public 

with the knowledge that counterfeit products have harmful and dangerous consequences; therefore, it is important to shop from reputable sources. So far, CBP has 

conducted two phases of the campaign during the high travel periods of summer 

2017 and December 2017. By placing large advertisements in various airports and 

through digital ads, CBP has reached and estimated 202 million people. CBP is currently implementing the third phase of the campaign, which is running this summer. 

In addition, CBP created public awareness ‘‘road shows’’ which are made up of 

IPR personnel setting up an exhibit of seized items at various airports throughout 

the country. The road shows provide a more focused and direct way to educate the 

public about the harms associated with IP infringing goods and ways to determine 

the validity of products by showing examples of a variety of counterfeit products. 

CBP personnel provide these individuals with knowledge to protect themselves and 

their families and alert them to be cognizant about goods they may purchase in person and through online platforms. To date CBP has spoken with approximately 

5,000 people through these events. 

CBP created a dedicated website for the campaign with more information for the consumer: https://www.cbp.gov/FakeGoodsRealDangers. 

Additionally, CBP allows the public to report suspected counterfeits through the 

online E-Allegations portal: https://eallegations.cbp.gov/Home/Index2. 

Question. The U.S. Customs and Border Protection (CBP) has over 75 Customs 

Mutual Assistance Agreements (CMAA) with foreign governments allowing for the 

exchange of information and intelligence that help investigate and prevent Customs 

offenses. CMAAs are vital in the United States efforts to fight terrorism and other 

trafficking offenses. How can CBP leverage these agreements to combat counterfeit 

goods? 

Answer. Customs Mutual Assistance Agreements (CMAA) are binding bi-lateral 

executive-level international agreements, negotiated and enforced by their respective Customs administrations. CMAAs are negotiated by CBP and U.S. Immigration 

and Customs Enforcement—Homeland Security Investigations (ICE–HSI), and 

signed on behalf of the United States. 

CMAAs provide a legal framework for the exchange of information and evidence 

to assist countries in enforcement against Customs offenses. CMAAs aid in the prevention, detection, and investigation of crimes associated with goods crossing international borders, counterfeit and other IPR violative items. CMAAs also are used 

to assist in judicial and quasi-judicial proceedings involving suspected violations of 

Customs laws, by ensuring evidence and supporting information is usable under 

chain of evidence standards in the United States and in foreign jurisdictions. 

CMAAs also serve as foundational documents for subsequent information sharing 

arrangements for deeper engagement on IPR enforcement, including the sharing of 

Customs administration best practices, embedding of personnel internationally, 

training and capacity building, and mutual recognition arrangements on authorized 

economic operator programs (pre-vetted exporter/importers, freight forwarders, and 

Customs brokers). CMAAs are also excellent means of establishing greater bilateral 

cooperation by law enforcement officials. CMAAs work to facilitate trade by enabling 

greater information flows in regard to searches, seizures, detentions, audits, and 

other enforcement actions, allowing trade to flow more freely. 

QUESTIONS SUBMITTED BY HON. JOHN THUNE

CBP AUTHORITY TO SHARE INFORMATION ON COUNTERFEITS

Question. The Trade Facilitation and Trade Enforcement Act requires CBP to consult with the private sector on areas for collaboration and training. 

What can CBP do to accelerate the agency’s efforts to engage with the private sector and meet full commitments to TFTEA implementation to reduce further the 

69 

amount of counterfeit products that end up in our domestic economy and potentially 

threaten the safety of American consumers? 

Answer. CBP has made significant progress in meeting TFTEA requirements related to private-sector engagement, collaboration, and training. Continued collaboration in these IPR initiatives and training will build upon CBP’s success. 

Section 308(d) of the Trade Facilitation and Trade Enforcement Act of 2015 (Pub. 

L. 114–125) mandates that the Commissioner prescribe regulations enabling CBP 

to receive donations of hardware, software, equipment, and technologies for Intellectual Property Rights (IPR) enforcement purposes, 19 CFR § 133.61—Donations of Intellectual Property Rights Technology and Support Services, was published on December 15, 2017, and became effective on January 16, 2018. To support this requirement, the Intellectual Property Rights Donation Acceptance Program (IPR DAP) 

was developed with the intent of establishing partnerships with private sector donors to provide IPR testing equipment and technologies that can be used at the 

ports of entry, labs or otherwise to support IPR enforcement. 

The IPR DAP is a mechanism for government and industry partnership and is 

a way to develop mutually beneficial programmatic and operational improvements 

for IPR enforcement. On February 15, 2018, CBP entered into first formal partnership under the IPR Enforcement Donation Program with Procter and Gamble 

(P&G). P&G donated, and will resupply as needed, testing devices and kits to help 

CBP officers and trade specialists quickly determine the legitimacy of various P&G 

products, reducing the possibility of counterfeit goods from entering the U.S. stream 

of commerce. 

The IPR DAP is a mechanism by which to collaboratively explore and implement 

tangible solutions to trade and travel facilitation and enforcement challenges. The 

opportunities for collaboration under this program are very exciting and CBP encourages interested parties to consider participation in the program. 

Section 308 of TFTEA mandates that CBP provide IPR-specific training and consult with the private sector on the use of new technologies for IPR enforcement. 

CBP has a well-established training program, which includes right holder conducted 

webinars, port trainings, and industry specific roundtables. In fiscal year 2016, CBP 

facilitated 36 instructor-led IPR training sessions where over 600 CBP Officers, Imports Specialists, and other trade specialists were trained in IPR enforcement. So 

far, in fiscal year 2018, CBP has conducted four instructor-led IPR training sessions 

and nine right holder hosted webinars. CBP will continue to expand right holder 

webinar trainings. Additionally, CBP is in the early stages of developing an advanced IPR training course with the goal of incorporating hands-on, right holder 

training, in a live or simulated environment. 

Question. Ms. Smith, the GAO’s second recommendation called on CBP to share 

information with the private sector, either through new regulations or requesting 

additional authority from Congress if necessary. 

What is CBP’s view as to whether the agency has sufficient regulatory authority 

to share information on seized counterfeits with e-commerce companies, both the direct vendor and the Internet platform companies through which so many e-commerce transactions occur? In particular, I’d like to understand CBP’s position on 

sharing information on seized shipments of counterfeits with Internet platform companies—like EBay or Amazon—since these companies seem to be well positioned, 

and I believe willing, to help anti-counterfeit efforts as well as assist in public safety 

efforts when counterfeit goods pose such threats. Please help us understand the 

scope of authority CBP needs to share information with appropriate third parties 

when counterfeit goods are identified and seized? 

Answer. As discussed elsewhere, DHS has been taking ‘‘all appropriate steps, including rulemaking if necessary, to ensure that CBP can, consistent with law, share 

with rights holders’’ the two categories of information that the President specified 

in Executive Order 13785. This has included an ongoing evaluation of the extent 

to which CBP’s disclosure of additional information to rights holders would involve 

any information that is of the type that is generally covered by the Trade Secrets 

Act (18 U.S.C. § 1905) and, with respect to any such information, whether Congress—in section 302 of TFTEA, 19 U.S.C. § 1628a, or otherwise—has granted CBP 

sufficient authority to disclose such information to rights holders. 

While section 302 of TFTEA provides for the disclosure of certain information to 

rights holders, CBP has determined that it does not authorize CBP to disclose information to third parties such as e-commerce platform owners. However, once inforVerDate Sep 11 2014 20:34 Apr 12, 2019 Jkt 000000 PO 00000 Frm 00073 Fmt 6601 Sfmt 6621 R:\DOCS\35965.000 TIM
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mation is disclosed to rights holders, including information that ‘‘appears on the 

merchandise and its packaging and labels’’ as described in section 302, CBP is not 

aware of any prohibition that would prevent the rights holders from sharing the information with platform e-commerce companies or other third parties. 

In addition, CBP has determined that section 302 does not provide authority to 

disclose information appearing on packing, which CBP defines as ‘‘all containers, exclusive of instruments of international traffic, and coverings of whatever nature, 

used in placing the merchandise packed ready for shipment to the United States’’ 

(19 CFR § 152.102(e)). Consequently, it does not authorize the disclosure of information to rights holders that is contained on or within the packing, e.g., a ‘‘fulfilled 

by Amazon’’ (FBA) number, or an invoice or packing slip enclosed with the packing. 

Such information would be considered packing as opposed to packaging, and that 

distinction is salient in CBP regulations reflecting U.S. trade agreements. Specifically, the term ‘‘packaging materials and containers’’ is defined for Customs purposes in numerous provisions of CBP Regulations as meaning the ‘‘materials and 

containers in which a good is packaged for retail sale’’ (19 CFR part 181, appendix, 

part I, section II (the NAFTA Rules of Origin Regulations), emphasis added). However, the term ‘‘packing materials and containers’’ are defined as ‘‘materials and 

containers that are used to protect a good during transportation, but [do] not include packaging materials and containers’’ (Id., emphasis added). CBP regulations 

matching this meaning for ‘‘packing’’ also comport with the United States–Korea 

Free Trade Agreement, the United States–Panama Trade Promotion Agreement, 

and the United States–Columbia Trade Promotion Agreement, all of which explicitly 

do not include the materials and containers in which merchandise is packaged for 

retail sale. We glean nothing in TFTEA or its legislative history to suggest disregarding the differentiation between ‘‘packaging’’ and ‘‘packing’’ consistently made 

in existing statutes and trade agreements. Consequentially, CBP does not have the 

authority in TFTEA or elsewhere to disclose to the right holders e-commerce platform data located on the package or within the package on an invoice, such as a 

‘‘fulfilled by Amazon’’ (FBA) number. 

Further section 302 does not provide explicit authority to disclose information appearing on packing, which CBP defines as ‘‘all containers, exclusive of instruments 

of international traffic, and coverings of whatever nature, used in placing the merchandise packed ready for shipment to the United States’’ (19 CFR § 152.102(e)). It 

does not explicitly allow for the disclosure of information to rights holders that is 

contained on or within the packing, e.g., a ‘‘fulfilled by Amazon’’ (FBA) number, or 

an invoice or packing slip enclosed with the packing. [Note: As discussed above in 

the response to question 5, CBP has drafted a Notice of Proposed Rulemaking 

(NPRM) to implement sections 302 and 303 of TFTEA with respect to the seizure 

of circumvention devices and other copyright-infringing goods. The draft NPRM is 

currently within the interdepartmental review process.] 

However, as noted above in our answers to questions 2 and 4, CBP has statutory 

authority beyond section 302 of TFTEA, including that provided by 15 U.S.C. § 1124 

and 19 U.S.C. §§ 1526 and 1595a, that may provide authority for CBP to promulgate 

regulations to share e-commerce platform data located on the package or within it 

on an invoice with rights holders. 

CBP has drafted an NPRM to amend its regulations to disclose to trademark owners, when merchandise has been voluntarily abandoned, the same comprehensive 

importation information that is disclosed when merchandise bearing a suspected 

counterfeit mark has been seized. The draft NPRM is currently in the interdepartmental review process. 

CBP EFFORTS TO STOP COUNTERFEITS DIRECTLY SHIPPED TO CONSUMERS

Question. While CBP has a heavy focus on large shipments to identify and confiscate counterfeits, how does the agency deal with foreign-direct shipments of counterfeits to consumers and what is CBP’s longer-term plan to deal with the continued 

growth of e-commerce and direct-to-consumer sales? 

Answer. CBP currently treats small packages in the same way that it treats all 

cargo entering the United States. Advanced cargo screening data is available for 

shipments coming into express consignment facilities such as DHL, FedEx and UPS. 

A combination of automated targeting systems and CBP Officer evaluation leads to 

cargo exams and seizures. 

CBP recently released an E-Commerce Strategy, which outlines a number of highlevel goals that will allow CBP to adapt to the increasing number of small, directVerDate Sep 11 2014 20:34 Apr 12, 2019 Jkt 000000 PO 00000 Frm 00074 Fmt 6601 Sfmt 6621 R:\DOCS\35965.000 TIM
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to-consumer shipments. The goals that are outlined in these strategic plans include 

enhancing legal and regulatory authorities to better posture CBP and interagency 

partners to address emerging threats, enhancing and adapting all affected CBP operations to respond to emerging supply chain dynamics created by the rapid growth 

of e-commerce, driving private sector compliance through enforcement resources and 

incentives, and facilitating international trade standards for e-commerce to support 

economic prosperity. This new direct-to-consumer model includes new entities facilitating the purchase and movement of goods into the United States. 

QUESTIONS SUBMITTED BY HON. ROB PORTMAN

Question. It seems that one new tool that might help facilitate information sharing between Federal agencies and the private sector in this space would be the use 

of Administrative Protective Orders (APOs). The International Trade Commission 

and the Department of Commerce successfully use APOs to facilitate confidential information sharing with interested parties and it seems that there may be opportunities to apply that model here. In the context of duty evasion and the Enforce and 

Protect Act (EAPA), I’ve heard from many stakeholders about how they want an 

APO process at CBP because of how useful it is in fostering the collaboration needed 

to tackle these problems. 

Executive Assistant Commissioner (EAC) Smith, I understand the concerns about 

the lack of legal authority when it comes to APOs in the counterfeit goods space, 

but setting that aside for a moment—do you think that, as a practical matter, an 

APO may be useful to help facilitate information sharing when it comes to counterfeit goods or when it comes to duty evasion, as well? 

Answer. CBP is of the view that an APO-like procedure would not be suitable to 

the border enforcement environment. APOs are used in distinct administrative proceedings of a legal nature, such as at the U.S. International Trade Commission 

(ITC) or at the International Trade Administration (ITA), Department of Commerce, 

to ensure that Confidential Business Information (CBI) that is disclosed to outside 

counsel (and not to interested parties themselves) is used only in the context of an 

administrative proceeding and not divulged to unauthorized persons. The APOs are 

effective because of the threat of sanctions, such as official reprimands, disbarment 

or referral to the U.S. Attorney, against those persons who sign on to the order but 

subsequently violate it. 

Thus, for an APO process to be effective, CBP would also need to have the means 

of enforcing the order through sanctions of the sort described above. Furthermore, 

as distinct from APOs at the ITC or ITA, which are issued in respect of particular, 

clearly defined matters, the contemplated disclosure of information would occur on 

a regular basis. It is also not immediately clear how sanctions, which bind counsel 

in court-like settings, could be adapted to an operational setting. Consequently, it 

is our view that APOs would prove to be a thoroughly unsuitable vehicle for disclosing information. 

QUESTIONS SUBMITTED BY HON. MARIA CANTWELL

Question. As the GAO report identifies, CBP does not proactively communicate 

with online marketplaces that have teams that work closely with the intellectual 

property rights center, brands, and law enforcement to keep counterfeit items off 

their sites. However, information sharing is critical. 

What are the specific legal parameters for sharing information with e-commerce 

websites about counterfeit goods CBP seizes? 

Answer. As discussed elsewhere, CBP’s current IPR information sharing authorities, including section 302 of TFTEA, provide ‘‘authorized by law’’ exceptions to the 

Trade Secrets Act (TSA), permitting disclosures to trademark and copyright owners. 

As such, CBP does not disclose information concerning IPR-violative shipments to 

third parties such as e-commerce platform owners. Once information is disclosed to 

rights holders, CBP is not aware of any prohibition that would prevent the rights 

holders from sharing the information with platform e-commerce companies or other 

third parties. 

Question. CBP is currently reviewing options for sharing additional information 

with rights holders and e-commerce websites. What is the timetable for this review? 

72 

Answer. CBP’s review of options for additional information sharing with rights 

holders and e-commerce websites is ongoing. 

Question. What are the differences between the information sharing rules for the 

CBP and ICE? 

Answer. CBP is bound by the provisions of 6 CFR part 5 and the Trade Secrets 

Act (18 U.S.C. § 1905) and assumes that ICE, as a DHS component and as USG employees, is as well. CBP notes that it has promulgated regulations, set forth in 19 

CFR part 133, governing the disclosure of information for purposes of IPR enforcement and that these regulations constitute a limited exception to the Trade Secrets 

Act. As a general matter, however, we note that if ICE were to obtain confidential 

information from CBP it would require CBP’s consent to disclose the information 

to third parties. 

Question. How is the relationship with the Intellectual Property Center working? 

In your view, is CBP getting sufficient information to properly do the job? 

Answer. The relationship between CBP and the National Intellectual Property 

Rights Coordination Center (IPR Center) is one in which communication collaboration and information sharing continue to yield valuable outcomes. CBP has permanently staffed the IPR Center with a deputy assistant director and five full-time 

international trade specialists. This staffing allows the sharing of trade enforcement 

information among the 23 IPR Center partner agencies regarding IPR enforcement 

actions throughout the various ports of entry. Data is also shared to assist in civil 

and criminal cases. 

Question. CBP and ICE coordinate with several other Federal agencies in their 

efforts to interdict the flow of counterfeit goods into the United States. As a part 

of this effort, CBP and ICE also work with rights holders to ensure that their trademarks and copyrights are recorded in the CBP online system. Also, CBP puts a priority on enforcing IP registered with the U.S. Patent and Trademark Office and the 

U.S. Copyright Office. 

According to the GAO report, increasing the number of patents, trademarks and 

copyrights with the CBP was an important way that a rights holders can help CBP’s 

enforcement efforts. 

Given the benefits of registering patents, trademarks and copyrights with CBP, 

does the U.S. Patent and Trademark Office or the U.S. Copyright Office share information with the CBP? 

Answer. Through its recordation process, CBP gives priority to the border enforcement of trademarks registered on the Principal Register of the U.S. Patent and 

Trademark Office and copyrights that are registered with the U.S. Copyright Office 

(or for which an application for registration has been submitted). Information concerning federally registered trademarks and copyrights is publicly available. Information on registered patents is also publicly available; however, it should be noted 

that in contrast with trademarks and copyrights, CBP does not record patents given 

that it has no authority to enforce patents except in the context of an exclusion 

order issued by the U.S. International Trade Commission. 

Question. If so, what steps could be taken to improve the sharing of registrant 

information for new patents, trademarks and copyrights? 

Answer. CBP conducts outreach initiatives to promote the recordation process and 

believes that this is the best and most effective means of increasing the number of 

recordations. 

Question. Could the U.S. Patent and Trademark Office or the U.S. Copyright Office forms be adapted to provide simultaneous registration with the CBP? 

Answer. The Copyright Office, the PTO and CBP previously studied the issue of 

simultaneous registration-recordation and concluded that it was not a viable option. 

There are well in excess of a million trademarks and copyrights registered with the 

PTO and the Copyright Office, most of which are at little or no risk of infringement 

by imported merchandise, e.g., service marks, marks on the Supplemental Register, 

unknown and non-commercial works, etc. If all rights holders were offered the 

chance to record with CBP as part of the Copyright Office and PTO registration 

process, they might well feel compelled to record with CBP, thereby leading to a significant increase in recordations that would never be enforced, but for which CBP 

would nevertheless be responsible for monitoring, thereby diverting resources from 

the enforcement of recorded trademarks and copyrights that are far more susceptible to infringement at the border. 

73 

Question. CBP processed more $2.39 trillion in imports, 33.2 million entries and 

more than 28.5 million imported cargo containers. 250 million cargo, postal, and express consignment packages arrive through air travel. CBP plays a central role in 

coordinating with 23 agencies and ICE–HSI in the IPR Center. Through these efforts, you have helped to shut down counterfeit medicine and medical device websites, seized unsafe products ranging from automotive parts to toys, and prevented 

illegal imports via the mail of many counterfeited products. These efforts take an 

enormous amount of coordination. In your testimony, you discussed the need to collaborate with your partners, and stated that, 

‘‘One of the main challenges identified was the need for better data collection, automation, and a legal framework for sharing data.’’ 

Can you provide more detail regarding what legal framework is needed to improve 

your ability to share and collect data? 

Answer. As discussed elsewhere, DHS has been taking ‘‘all appropriate steps, including rulemaking if necessary, to ensure that CBP can, consistent with law, share 

with rights holders’’ the two categories of information that the President specified 

in Executive Order 13785. This has included an ongoing evaluation of the extent 

to which CBP’s disclosure of additional information to rights holders would involve 

any information that is of the type that is generally covered by the Trade Secrets 

Act (18 U.S.C. § 1905) and, with respect to any such information, whether Congress—in section 302 of TFTEA, 19 U.S.C. § 1628a, or otherwise—has granted CBP 

sufficient authority to disclose such information to rights holders. CBP is preparing 

a list of potential statutory changes that would bolster CBP’s ability to enforce intellectual property rights at the border, to include improving the ability to collect and 

share data on e-commerce shipments. As part of this process, CBP is consulting 

with ICE and with private sector stakeholders both directly and through the Commercial Customs Operations Advisory Committee. 

Question. What are the limitations of increased information sharing and data collection with non-government entities, such as e-commerce sites, rights holders, third 

party providers, etc.? 

What are the concerns or downsides if any? 

Answer. As discussed or referenced in questions 2, 4, 11, 17, 20, and 22, the primary concern presented is the Trade Secrets Act, 18 U.S.C. § 1905, a criminal statute barring the unauthorized disclosure by government employees of any confidential business information received in the course of their employment. Case law interpreting the Trade Secrets Act, which includes Supreme Court decisions and the 

Act’s legislative history, demonstrates that it covers most commercial or financial 

data collected by any Federal employee from any source. 

The current regulations governing disclosure at the detention stage and upon seizure are set forth in 19 CFR part 133, including section 133.21. These regulations 

currently limit CBP’s disclosure ability to cases of suspect trademarks. At the detention stage, CBP can provide limited importation information to the right holder, including: 

(1) The date of importation; 

(2) The port of entry; 

(3) The description of the merchandise; 

(4) The quantity; and 

(5) The country of origin of the merchandise. 

CBP may disclose information ‘‘appearing on’’ the goods and its retail packaging 

in the case of trademark detentions, assuming the importer is unable to establish 

during the 7-day notice period that the suspect mark is not counterfeit. [Note: As 

discussed above in the response to question 5, CBP has also drafted an NPRM to 

implement sections 302 and 303 of TFTEA, so as to enable CBP to make copyright/ 

DMCA detention disclosures; the draft NPRM is currently within the interdepartmental review process.] 

Post-seizure, CBP may also disclose eight data elements to the right holder, which 

includes: 

(1) The date of importation; 

(2) The port of entry; 

(3) The description of the merchandise; 

(4) The quantity; 

(5) The name and address of the manufacturer; 

(6) The country of origin of the merchandise; 

74 

(7) The name and address of the exporter; and 

(8) The name and address of the importer. 

CBP is of the view that it would be beneficial to its enforcement efforts for additional information to be disclosed to trademark and copyright owners post-seizure/ 

abandonment after an infringement determination is made, including the names 

and address of all persons involved in the purchase, sale, shipping and financing— 

to the extent known—of counterfeit and piratical merchandise imported into the 

United States. 

In addition to the above-referenced NPRM, CBP has also drafted an NPRM to 

amend its regulations to disclose to trademark owners, when merchandise has been 

voluntarily abandoned, the same comprehensive importation information that is disclosed when merchandise bearing a suspected counterfeit mark has been seized. The 

draft NPRM is currently in the interdepartmental review process. 

Also as discussed elsewhere, DHS has been taking ‘‘all appropriate steps, including rulemaking if necessary, to ensure that CBP can, consistent with law, share 

with rights holders’’ the two categories of information that the President specified 

in Executive Order 13785. This has included an ongoing evaluation of the extent 

to which CBP’s disclosure of additional information to rights holders would involve 

any information that is of the type that is generally covered by the Trade Secrets 

Act (18 U.S.C. § 1905) and, with respect to any such information, whether Congress—in section 302 of TFTEA, 19 U.S.C. § 1628a, or otherwise—has granted CBP 

sufficient authority to disclose such information to rights holders. CBP is very mindful of the protections and restrictions imposed by the Trade Secrets Act as most of 

the information collected by CBP falls under the category of confidential business 

information protected by that statute, which must remain protected in the trademark and copyright enforcement context until either a violation is found or a disclosure is necessary to get help in proving such a violation exists. 

Question. The U.S. Coast Guard participates alongside CBP, ICE, USDA and several other Federal agencies in multi-agency strike force operations at our ports each 

year. These joint strike force operations require a great deal of planning and coordination and they often yield substantial results. 

As a part of the overall interdiction of counterfeit goods, how could more frequent 

and better targeted joint operations reduce the inflow of counterfeit goods? 

Answer. More frequent and focused joint operations in anti-counterfeiting and intellectual property rights enforcement certainly increases the number of seizures, 

and has a similar deterrent effect to some degree. Moreover, one additional benefit 

of joint operations in anti-counterfeiting is the public educational aspect. Only by 

reducing public demand for counterfeit items in general can we truly see a significant reduction in the problem. Well-publicized joint operations can help in this way. 

Question. These large operations require a great deal of transparency and communication among the agencies involved. Have you looked at these operations to see 

how this cooperation and communication could be better integrated into your standard operating procedure? 

Answer. Often, the same CBP Officers who work on joint operations with partner 

agencies also work in anti-counterfeiting and intellectual property rights protection. 

There is a natural knowledge transfer and experience building process in the operational planning, communications, and transparency of joint operations. 

We agree that analyzing all joint operations with the goal of finding best practices 

and efficiencies to be shared CBP-wide is an activity that CBP continues to undertake. 

Question. The Coast Guard has a presence at every port. In addition to increasing 

information sharing between the CBP and ICE, have you examined the benefits 

from joint trainings with the Coast Guard? 

Answer. Both the Coast Guard and CBP are frontline border security agencies. 

Joint training in the mission areas of anti-smuggling, illegal immigration, secure 

and safe cargo operations, and other border activities occurs frequently and is highly 

beneficial. However, as the Coast Guard has not had a significant role in anticounterfeiting or intellectual property rights enforcement, joint training in those activities has not been a priority for field personnel. 

Question. In the Trade Facilitation and Trade Enforcement Act of 2015 (TFTEA), 

section 303 called for a new regulation regarding the disclosure of information upon 

seizure of circumvention devices to be promulgated within a year of the enactment 

75 

of the legislation. This February marked 2 years since the passage of TFTEA and 

the regulation has yet to be promulgated. Circumvention devices are used to break 

the security of hardware in order to access illegal copyrighted content typically 

downloaded from the Internet. It is important for CBP to share information with 

businesses that are harmed by circumvention devices when they seize those devices. 

Why has the promulgation of this regulation been so significantly delayed? 

Answer. CBP has drafted a Notice of Proposed Rulemaking to implement sections 

302 and 303 of TFTEA. The NPRM is currently within the interdepartmental review 

process. Also, as section 303(b) of TFTEA was the only subsection requiring the prescription of regulations for circumvention device seizure disclosures, CBP had concerns about issuing just that portion of TFTEA without the broader circumvention 

device regulatory context drafted in the NPRM currently in the interdepartmental 

review process. Without such context, the public may have been confused as to how 

such disclosures fit into CBP’s circumvention device enforcement regime as changed 

by TFTEA. As such, the current package provides this context in a way that should 

empower those injured by the circumvention violations that TFTEA prohibits. 

CBP has also drafted an NPRM to amend its regulations to disclose to trademark 

owners, when merchandise has been voluntarily abandoned, the same comprehensive importation information that is disclosed when merchandise bearing a suspected counterfeit mark has been seized. The draft NPRM is currently in the interdepartmental review process. 

Question. Please provide us with an update on the promulgation of the regulation 

required by TFTEA section 303. When will the promulgation of this regulation be 

completed? 

Answer. As noted above, the NPRM is in the interdepartmental review process. 

QUESTIONS SUBMITTED BY HON. BILL NELSON

Question. What sort of products do you see the most come in as counterfeit goods 

and what countries do they normally come from? 

Answer. The most commonly seized items are wearing apparel and accessories 

such as team jerseys and belts. Forty-six percent of all goods seized come from 

China and 32 percent come from Hong Kong. For extensive information on our IPR 

seizures can be found at https://www.cbp.gov/trade/priority-issues/ipr/statistics. 

Question. Have you shared information about problematic countries or types of 

products, as referenced above, with anyone at the White House or in USTR? 

Answer. CBP works closely with the partner government agencies, including 

USTR, to help with the development of the annual Special 301 Report and the Notorious Markets List. Through this interagency collaborative process, CBP shares concerns about counterfeit issues from relevant economies. These concerns are discussed with the interagency at length and addressed in these reports to Congress. 

In addition, CBP recently provided IPR seizure statistics for China and Hong 

Kong to the National Economic Council. 

Question. If so, what was their response? If not, why not? 

Answer. The National Economic Council is currently reviewing the information 

that CBP provided. Additionally, as mentioned above, CBP’s input is included in the 

annual Special 301 Report and the Notorious Markets List. 

PREPARED STATEMENT OF HON. RON WYDEN, A U.S. SENATOR FROM OREGON

This morning, the Finance Committee meets to discuss the challenge of protecting 

consumers from counterfeit goods. And, I am glad that we are having this discussion, which is overdue in my book. In addition, I hope that this committee will soon 

hold hearings on the administration’s many trade activities—including the steel and 

aluminum investigations and potential tariffs, the NAFTA renegotiations, and the 

investigation of China under section 301. 

On counterfeit imports, any discussion of this issue has to begin by recognizing 

that over the last few decades, the Internet has transformed virtually every facet 

of our economy. It is the shipping lane of the 21st century. And people now take 

76 

it for granted, but it’s a miracle of the modern world that a small business in Oregon is able to reach consumers almost anywhere, anytime. No longer does expanding your customer base mean investing in bricks and mortar. 

Wildfang is a socially conscious Portland clothing company that was founded by 

women and run by women. They have two stores in Portland, but what’s really driving sales, according to founder Emma McIlroy, is online sales. A full 70 percent of 

their business happens online, and that’s where their growth is happening. This is 

a company that seized the opportunity to sell around the world via the Internet, and 

now has 25 employees. 

But as with any economic transformation, the upside comes with new challenges. 

That includes the chance that when you buy something online, it could be a fake. 

It’s up to the Federal Government to make sure our approach to combating counterfeits isn’t stuck in the 20th century. These days, when you talk about cracking 

down on counterfeit goods, you’re no longer talking about stopping the guy selling 

fake purses out of his trunk. You’re talking about illegitimate products passed off 

on even the most streetwise consumers, often because they’re mixed right in with 

the genuine products people want. Many of those fakes pose serious dangers. Makeup and food and beverage containers made with dangerous chemicals. Electronics 

that pose a fire hazard. Toys that are unsafe for children. 

The number of small packages coming into our country has surged, and Customs 

and Border Protection has a major role to play in identifying counterfeits and stopping them before they enter our marketplace. But unfortunately, CBP is too often 

playing catch up ball tracking these fake products down. 

After conducting a recent study of this exact issue requested by Chairman Hatch, 

the Government Accountability Office recommended a set of policy updates to have 

CBP work more closely with the private sector. Those recommendations included expanding CBP’s authority to notify online sales platforms when they’ve got products 

on their hands that might be fake. 

You might hope that would set the wheels in motion to get those policies in place. 

But CBP responded to GAO late last year by claiming it would take until this upcoming September to determine if that additional authority was really necessary. 

Over the last few years, this committee has put a lot of sweat equity into policies 

that strengthen the enforcement of our trade laws and protect American consumers 

and workers. Senator Hatch and I authored the Trade Facilitation and Trade Enforcement Act of 2015 that put in place important new tools for CBP to detect and 

prevent counterfeits, including by sharing information about counterfeit imports 

with rights holders. So in preparation for this hearing, committee staff from both 

sides, sat down with CBP to dig into this issue. 

My staff asked, ‘‘Does CBP need more authority to crack down on counterfeits?’’ 

CBP said they didn’t know. When asked when they would know, CBP said they 

didn’t know when they would know. 

It’s concerning to me that we were unable to get a straight answer on a matter 

like this from the agency at the heart of our efforts to protect American consumers 

from counterfeit goods. So I’m going to give CBP another chance to answer these 

questions today. 

But let’s also recognize that getting this right isn’t going to be as simple as putting a few more policy tools in CBP’s kit. 

Year after year, administrations have fallen short in hiring enough officers—blue 

uniforms—to fulfill the critical need of protecting U.S. consumers and businesses 

from illegal and unfairly traded goods. It’s a tough job CBP’s got on its hands, working with other law enforcement agencies and foreign governments to go after the 

source of these problems. If the administration is focused solely on hiring an army 

of Border Patrol agents, I don’t see how that is going to build up CBP’s capacity 

to deal with these counterfeit challenges. So the Congress and the administration 

need to guarantee that CBP has the resources it needs to combat counterfeiters, and 

that it actually follows through. 

This is a matter of protecting families from harmful products and preventing ripoff artists from undercutting the American brand. It’s essential that the Federal 

Government take the right approach with fresh policies that take the realities of 

our modern economy into account. 

I look forward to hearing from our witnesses on these issues today. 

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1https://www.cbp.gov/sites/default/files/assets/documents/2018-Feb/trade-fy2017-ipr-seizures.pdf. 2http://business.financialpost.com/opinion/they-cost-us-billions-and-they-can-kill-counterfeitdrugs-are-invading-canada. 3https://www.hsgac.senate.gov/subcommittees/investigations/hearings/combatting-theopioid-crisis-exploiting-vulnerabilities-in-international-mail. 

COMMUNICATIONS

ALLIANCE FOR SAFE ONLINE PHARMACIES

1050 K Street, NW, Suite 400 

Washington, DC 20001 

Libby.Baney@BuySafeRx.pharmacy 

Direct: (202) 312–7438 

March 20, 2018 

Hon. Orrin Hatch, Chairman Hon. Ron Wyden, Ranking Member 

U.S. Senate U.S. Senate 

Committee on Finance Committee on Finance 

Dirksen Senate Office Building Dirksen Senate Office Building 

Washington, DC 20510–6200 Washington, DC 20510–6200 

RE: Statement for the Record from the Alliance for Safe Online Pharmacies (ASOP 

Global) on the full committee hearing on ‘‘Protecting E-commerce Consumers 

From Counterfeits’’ 

Dear Chairman Hatch and Ranking Member Wyden: 

Thank you for considering the Alliance for Safe Online Pharmacies’ (ASOP Global) 

statement for the record in response to the U.S. Senate Committee on Finance hearing ‘‘Protecting E-commerce Consumers From Counterfeits’’ on Tuesday, March 6, 

2018. 

ASOP Global is a nonprofit organization dedicated to addressing the public health 

threat posed by illegal online prescription drug sellers. Our work focuses on research, consumer awareness, advocacy, and international engagement. With over 85 

member organizations worldwide, ASOP Global is active in the United States, Canada, Europe, India, Latin America and Asia. For more about ASOP Global please 

visit www.BuySafeRx.Pharmacy. 

We would like to thank the Committee for its leadership on addressing the issue 

of counterfeit products entering the United States. Counterfeit drugs, including 

those marketed as controlled substances, have been linked to serious injury and 

even death. As you know, the significant influx in counterfeit, falsified and substandard medicines into the country remains a critical patient safety and public 

health issue. 

According to U.S. Customs and Border Protection,1 counterfeit pharmaceutical products now account for nearly 6% of all counterfeit product seizures in the U.S. and 

totaled nearly $70 million in fiscal year 2017. Globally, the World Health Organization estimates that the costs incurred from counterfeit pharmaceutical products are 

approximately $75 billion per year.2 U.S. seizures and international operations, such 

as INTERPOL’s Operation Pangea, continue to illustrate the need for comprehensive and coordinated efforts to ensure counterfeit medicines do not continue to make 

their way into American households. 

Recently, Members of Congress and several federal agencies have called attention 

to the increase in online sales of prescription medicines and illicit narcotics, such 

as fentanyl and carfentanil, shipped to the U.S. through the Postal Service.3 Senate 

78 

4https://nabp.pharmacy/wp-content/uploads/2018/02/lnternet-Drug-Report-Feb-2018.pdf. 

5https://www.apnews.com/6de59e7d620b4a75b605e60580blc569/FDA-chief-wants-more-mailinspectors-to-stem-opioid-influx. 6https://www.grassley.senate.gov/news/news-releases/grassley-feinstein-colleagues-urge-techcompanies-clamp-down-illegal-online-drug. 7https://www.ncbi.nlm.nih.gov/pubmed/29048960. 

8https://buysaferx.pharmacy/news-release-statement-in-response-to-case/. 

9https://www.gao.gov/assets/690/689713.pdf. 

investigators on the Senate Permanent Subcommittee on Investigations (PSI) have 

identified hundreds of illegal online drug transactions in over 40 states, adding up 

to $230,000 worth of fentanyl—with a street value of over $750 million—from just 

six online seller s. This is not surprising given the size and sophistication of illegal 

online drug sellers often posing as legitimate online pharmacies. ASOP Global 

Board Member LegitScript has found there are roughly 35,000 active online drug 

sellers operating at any one time, and the National Association of Boards of Pharmacy (NABP) reports that 96% of these sites are unsafe and illegal, failing to comply with state and federal laws or pharmacy practice standards. What is more, a 

February 2018 report by NABP found that more half (54%) of the online drug sellers 

they analyzed offered controlled substances, and 40% offered one or more of the 

drugs frequently counterfeited with fentanyl.4 This puts millions of Americans at 

risk of receiving dangerous counterfeit or otherwise illegal and unsafe medications, 

often shipped into the U.S. from foreign sources to patients without requiring a prescription. 

Given the danger posed by counterfeit prescription drugs (including fentanyl) sold 

online, it is crucial the U.S. does more to reinforce international shipping standards. 

The failure to track and stop shipments containing illegal prescription and synthetic 

drugs from rogue online pharmacies, as well as failing to prepare for the increase 

in international shipments due to the lack of advanced electronic data, will only continue to put Americans at risk and worsen the nation’s opioid epidemic. ASOP Global appreciates the Administration’s effort to encourage foreign jurisdictions to provide advance shipment data, but feels more must be done. ASOP Global supports 

enactment of the Synthetics Trafficking and Overdose Prevention (STOP) Act as 

well as additional Administration actions to crack down on illegal shipments of 

counterfeit or otherwise illegal medicines into the U.S. 

Recently FDA Commissioner Scott Gottlieb moved to improve the agency’s ability 

to screen for illegal prescription and illicit drugs at several international mail facilities. He doubled the staff responsible for package inspections and called for further 

expansion this program.5 ASOP Global support this and otherFDA efforts to crack 

down on illegal online sellers and is pleased to see the Administration focus more 

resources on stopping dangerous counterfeit and otherwise illegal medicines at the 

border. 

In addition to the issue of stopping illegal prescription drugs via international mail 

facilities, as Senators Grassley, Feinstein, Klobuchar, Kennedy and Whitehouse recently observed,6 online platforms and marketplaces also have a key role to play in 

stopping the deadly supply of counterfeit and otherwise illegal medicines from 

reaching Americans. A recent study 7 published in the American Journal of Public 

Health found widespread use of Twitter, Facebook and YouTube by illegal online 

pharmacies to market and sell fentanyl, oxycodone and other highly addictive, often 

deadly controlled substances to U.S. consumers, in direct violation of federal law. 

Moreover, online platforms and marketplaces make it easy—even by accident—to 

find illegal sources of prescription and illicit drugs online. For example, an innocuous search for e.g. ‘‘Follistim (an infertility drug) online’’ or ‘‘fentanyl online’’ yields 

dozens of top-page search results for illegal sites offering medicines without a prescription shipped through the USPS. Rather than offering up illegal online drug 

sellers on page one—including Canada Drugs.com—which has been indicted and recently pled guilty to selling counterfeit medicines to Americans 8—is in the public 

interest for online platforms and marketplaces to return results that lead Americans 

to legitimate sources of medicine and information in response to innocuous queries. 

We encourage this Committee to consider ways to further encourage online platforms and marketplaces to promote legitimate sources of medicine and health information as part of your ongoing efforts to protect Americans from counterfeit goods 

sold online. 

Finally, ASOP Global supports the recommendations outlined in the Government 

Accountability Office’s January 2018 Intellectual Property Report,9 including 

strengthening the detection of IPR-infringing goods, engagement with international 

79 

partners, and launching localized pilots and port-specific initiatives. Increased resources focused towards the U.S. agencies responsible for this oversight, such as 

Customs and Border Protection, Homeland Security Investigations, Federal Bureau 

of Investigations, and others, are necessary. 

The Alliance for Safe Online Pharmacies thanks you for considering this statement 

and stands ready to assist the Committee in your continued work on important public health and safety issue. 

Respectfully, 

Libby Baney 

Executive Director 

ASMODEE NORTH AMERICA, INC. 1995 County Road B2 West 

Roseville, MN 55113 

https://www.asmodeena.com/en/ 

June 26, 2018 

U.S. Senate 

Committee on Finance 

Dirksen Senate Office Bldg. 

Washington, DC 20510–6200 

Honorable Committee Members: 

We write today on behalf of our firm, Asmodee North America, Inc. (Asmodee), in 

order to inform the Committee and the American public about Asmodee’s experience 

with online counterfeit sales of our products. Asmodee supports our government in 

finding ways to better inform American consumers of the dangers presented by 

counterfeit goods. Asmodee also seeks to assist the U.S. Government in protecting 

intellectual property rights by curtailing the illegal sale of counterfeit goods through 

e-commerce sites. 

About Asmodee 

Asmodee is a leading global creator, publisher, and distributor of board games, card 

games, family games, hobby games, and digital games. We tell countless stories 

through our games. In fact, our trademarked motto is: ‘‘Great Games . . . Amazing 

Stories.’’ 

A global corporation, the Asmodee Group operates offices in Belgium, Canada, 

China, France, Germany, Italy, the Netherlands, Scandinavia, Spain, the United 

States, and the United Kingdom. Our North American headquarters is situated in 

Roseville, Minnesota, where we also operate 2 major creative studios. We also operate in Texas, Virginia, California, Pennsylvania, and Washington State. Asmodee 

North America, Inc. employs roughly 250 people in the U.S. 

Asmodee either directly, or through affiliates, owns the publishing brands Asmodee 

Games, Catan Studio, Days of Wonder, Fantasy Flight Games, Pearl Games, Plaid 

Hat Games, Rebel, Space Cowboys, and Z-Man Games. Through these publishing 

studios and our third-party partners, Asmodee is the originator of such best-selling 

titles as A Game of Thrones: The Board Game, Carcassonne, Catan, Dixit, Ticket to 

Ride, Pandemic, Rory’s Story Cubes, Seven Wonders, Spot It!, Splendor, Star Wars: 

Destiny, Star Wars: X-Wing, and hundreds more. Many of these products sit at the 

very top of best-selling charts for toys and games globally. 

Asmodee invests a tremendous amount of passion, talent, time and expense in building these products. We spend a significant amount of energy and capital in building 

the reputation and value of our brands, including our corporate identity. Because 

of our solid reputation, Asmodee enjoys strong, long-time licensing partnerships 

with significant intellectual property (IP) holders such as Disney, HBO, George RR 

Martin, NBC Universal, Middle-earth Enterprises, Lucasfilm, and others. 

Our firm has grown to become a cultural force. You frequently see Asmodee games 

in classrooms, the news, and in stories told on television and in film. You find our 

IP in merchandise and other forms of licensing. We are the preeminent gamespecific (as opposed to toy) company in the United States, if not the world. 

80 

Impact of IP Counterfeiting on Asmodee and its Consumers 

With success comes challenges. During the last 2 years in particular, counterfeit 

sales in the e-commerce marketplace have explosively increased. Sales of counterfeit 

Asmodee games have negatively impacted our brands, reputation, relationships, 

business infrastructure, revenue, profit, and value. In a very material way, this recent surge of counterfeit Asmodee products in the U.S. marketplace directly threatens the viability of our company and our industry, as well as the safety and satisfaction of our consumers. 

Counterfeiting activities infringe upon nearly all our intellectual property, whether 

held by copyright, trademark, or common law rights. Naturally, they disproportionally affect our most popular titles. This IP piracy hurts everyone in our supply, 

publishing, and distribution chains. It also impacts consumers. 

While consumers may occasionally purchase a counterfeit product directly from a 

brick-and-mortar game store, encounters with inauthentic goods occur most commonly on e-commerce sites—large, small, and in between. Counterfeit games frequently appear for sale on ‘‘third-party retailer’’ sites inside the largest and most 

prominent of e-commerce platforms. 

Counterfeit goods infect the ‘‘co-mingling’’ warehouse practices of large e-commerce 

platforms, where goods from its vendors, as well as third-party sellers, may be 

stored in the same warehouse SKU location for efficiency and geographic stock balancing. These ‘‘co-mingled’’ counterfeit goods may later be pulled and sold by the 

e-commerce retailer on its own account, or to service a sale on behalf of a legitimate 

third-party seller who originally shipped authentic stock to the e-commerce warehouse. 

This counterfeit trade creates uncertainty about the nature, quality, and safety of 

our products, especially those sold through e-commerce platforms. Few counterfeit 

game components receive positive reviews. Many are unfit for purpose. Many receive 

scathing reviews. Most consumers have no idea that these reviews refer to 

inauthentic goods, and in most instances neither does the reviewer. 

Counterfeit products place the consumer at a safety risk. While it is unlikely that 

counterfeit games get tested for safety, Asmodee spends extensively to test its products in order to meet mandated U.S. and C.E. safety requirements, including testing 

for substances such as phthalates, lead, and other toxic materials. We believe that 

counterfeiters rarely invest in testing their source materials and are likely to use 

toxic materials to lower their cost of manufacturing. In our view, such unsafe manufacturing and distribution activities endanger the public safety. 

Commerce in counterfeit games materially affects price stability, for automated 

‘‘pricing robots’’ calibrate their offers in response to the online availability and listed 

prices of discounted product. Artificial price plunges—unwanted by even the very ecommerce platforms driving the system—result in a distortion of the marketplace, 

crushing profits and undermine a healthy free trade system. This directly impacts 

all retailers, distributors, and publishers. This erodes investment and developmental 

incentivization at every level, threatening to rob the consumer of the potential product options otherwise found in a fertile marketplace. 

Commerce in counterfeit games also tarnishes public confidence in our products and 

brands. As noted, consumers reviewing substandard counterfeits often innocently attack products in the most public and persistent online forums. This powerful ‘‘misinformation’’ creates further confusion for their fellow consumers. 

Evidence of IP Counterfeiting 

Asmodee has collected a very substantial number of physical counterfeit samples. 

We have photographic evidence of the products, receipt dates, transaction information, and shipping labels. U.S. Customs and Border Patrol (USCBP) has provided 

us with documentation of their sporadic seizures of counterfeit games, each depicting an intended e-commerce platform warehouse destination. 

Asmodee has also compiled data on numerous consumer reviews explicitly calling 

out quality issues directly attributable to counterfeit games. These reviews clearly 

depict (e.g., via grading/stars) an alarming deterioration in customer confidence. 

They document the damaging misperception borne out of a marked increase in the 

circulation of counterfeit merchandise. 

Asmodee has also gathered statistical evidence that correlate our sales, pricing, reviews, and our own customer service incidents, evidencing the impact and existence 

of substantial counterfeiting activity by many third-party sellers. Overall, such eviVerDate Sep 11 2014 20:34 Apr 12, 2019 Jkt 000000 PO 00000 Frm 00084 Fmt 6601 Sfmt 6621 R:\DOCS\35965.000 TIM
81 

dence indicates that illegal counterfeit copies of our products fill many e-commerce 

warehouses. 

The e-commerce distribution methods that mask counterfeiting also masks other 

criminal activity in e-commerce, even on the largest platforms. Asmodee has evidence of stolen products, procured from legitimate sellers with stolen credit cards, 

being sold on e-commerce sites. Here, consumers face the prospect of unwittingly 

purchasing stolen goods. 

Re: May 30, 2018 Questions from the Senate Committee on Finance 

Given our experience wrestling with the damage wrought by counterfeit games sold 

through e-commerce channels, Asmodee offers the following thoughts in response to 

the Committee’s questions of May 30, 2018. 

For the avoidance of doubt, Asmodee is not an Internet platform. Asmodee is a content provider and product originator. Asmodee carefully regulates its own product 

development, testing, and manufacturing channels. We sell our own legitimate products directly to trade and to consumers. So here, we only address questions—or portions thereof—relevant to our business model. 

1. What types of remedial measures do you provide to U.S. consumers who 

may have unintentionally purchased a counterfeit good through an e-commerce platform? 

Asmodee only sells its own genuine games to trade and consumer customers. Still, 

we stand by our products and brands. Thus, we are sometimes forced to replace 

counterfeit goods, or parts thereof, purchased by consumers from e-commerce platforms. This is particularly the case when consumers cannot obtain recourse from the 

e-commerce vendor as in the case of counterfeit games purchased as gifts and 

opened after the allowed return period. 

To the point of remediation, one must ask first ‘‘who is accountable’’ before one can 

contemplate the nature or scope of the remediation. 

While Asmodee does its best to help affected consumers, we offer that it is not fair 

for the rights holder to compensate consumers for the counterfeiting of its own 

brands. 

Many e-commerce operators take no accountability, claiming ‘‘Fair Harbor’’ under 

the DMCA. Others may issue refunds to consumers who discover counterfeits. However, we believe this cost is ultimately recharged to the authentic vendors in the 

form of common ‘‘damage assessment co-ops’’ vendor fees, and thus ultimately to the 

consumer. 

Trying to hold third-party sellers accountable has proven near-impossible. Due to 

the ease of becoming a third-party seller on even the largest e-commerce platforms, 

the great majority of bad actors provide false addresses and untraceable email accounts. Our understanding is that many bad actors may not even be based in the 

U.S., but that many are in China. 

Further, third-party sellers may be held falsely accountable for selling counterfeit 

goods whenever the e-commerce operator ‘‘co-mingles’’ goods from different sellers 

and vendors, as the e-commerce operator inadvertently pulls a co mingled counterfeit copy to fulfill the third-party seller’s transaction. 

Following is a consumer review of a counterfeit Catan game on the largest e-commerce site in the country presented on a leading e-commerce platform as a ‘‘Top customer review’’ (on June 19, 2018): 

Customer Review 

21⁄2 ★s I loved the game, but the board was in terrible condition. 

By Joshua Caleb Stephenson on May 29, 2017 

Verified Purchase 

After playing this game with some friends, I absolutely loved it and wanted to buy 

my own game. It arrived yesterday and when I opened it up the quality of the game 

was in terrible condition. The board edges don’t even fit together property making 

the game hard to setup and the hexagons are poorly cut and do not fit inside properly. I have to force the sides and hexagons in to get them to stay together. Some 

of the hexagons are printed poorly as well as you can see in the pictures. The pieces 

that came with it were in terrible condition as well, several roads were chipped and 

looked like they were cut in half and several of the house/cities were chipped and 

don’t even stand up. I also was sent a yellow set of pieces which is supposed to be 

orange, and the yellow set was missing 3 roads as there is supposed to be 15 roads 

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per color. I was looking forward to playing this game, but the board set I was sent 

was in terrible condition and made me feel like I got ripped off. 

I will update this and let you all know if I am able to get a replacement. 

Certainly, Joshua was injured in this case and should be remediated. However, who 

will remediate the 35 people who found this review ‘‘helpful’’ (not to speak of those 

who read the review but did not click the ‘‘helpful’’ button)? These people are now 

more likely to be making a misinformed purchasing decision. 

One must also recognize that, as stated earlier, most consumers are not aware that 

they’ve received and are consuming a counterfeit product, such as in the example 

above. Most counterfeit goods are either unsafe, or of lower quality than authentic 

product. The results create a negative impact on our society, our businesses, our 

safety, and our happiness. In such a case, the consumer cannot be remediated (as 

he/she does not know of the injury). In our view, while remediation is important, 

the solution to the e-commerce counterfeiting problem lies in prevention, starting 

with a clear assignment of accountability. 

The simple answer to the question above is that, clearly, if a consumer has bought 

a counterfeit product, he/she should be able to return that product at no cost to him 

or herself. 

2. What types of remedial measures do you provide to rights holders who 

find that counterfeit goods are being sold through an e-commerce platform? 

Asmodee typically is the aggrieved rights holder whose IP is damaged when consumers purchase a counterfeit Asmodee game through an e-commerce platform. 

3. In what circumstances does your organization come into physical contact 

with counterfeit products sold and delivered to consumers? 

Asmodee receives actual counterfeit goods when consumers or trade customers send 

them to us, sometimes asking for compensation or replacement. When we suspect 

that someone is selling counterfeits online, we will test-purchase the goods as part 

of our investigation and policing process. When USCBP notifies us that they’ve 

seized suspected counterfeit goods at a U.S. port of entry, we might pay the requisite fee to obtain those counterfeit goods as part of our investigation and policing 

program. 

4. What services, tools, protections, and assistance do you provide consumers and rights holders with respect to the sale of counterfeits? 

For select products, Asmodee will provide a guide or guidelines detailing how a customer can determine if a product is a genuine Asmodee game. We show customers 

how they might identify counterfeits by examining the product or, especially relevant to e-commerce, how they might review the product’s depiction or description, 

or the nature and circumstance of the sales offer. 

As a rights holder and licensee of intellectual property, we try to protect ours and 

our licensors’ rights by policing counterfeiting and standing behind our goods. This 

requires enormous investment, for we must police our supply chain from point of 

final consumer sale back through to the point of manufacture. We also find ourselves supplying consumers with genuine products or parts in return for counterfeit 

products or parts. 

We also may, when we find such reviews, comment on online consumer reviews 

where we suspect a consumer may have received a counterfeit game. 

5. Please explain what you feel are some of the biggest risks counterfeit 

goods currently pose e-commerce consumers? 

They damage consumers’ faith in otherwise reputable products and brands. They 

damage legitimate businesses and business infrastructure. They create tremendous 

confusion, anxiety, and wasted time. As in the case of counterfeit gifts, they may 

harm personal relationships. Regarding toxic components, they may provide a direct 

and material threat to consumer safety. 

The rampant undermining of intellectual property rights inherent to counterfeiting 

will do tremendous damage to creative artists, content businesses, and to innovation 

in general. This could have a negative impact for both current and future generations. 

6. What have you done to curtail those risks and what have you done to inform consumers of those same risks, which may not be known to the consumer? 

83 

Besides investing in material and outreach educating consumers about genuine 

Asmodee products, we are investing in manufacturing techniques, packaging, and 

game components that help deter counterfeiting, and help customers more easily 

identify genuine goods. Asmodee also polices the marketplace by searching for counterfeits offered through e-commerce and, wherever possible, works with sellers to 

shut down counterfeit offerings and sites/pages operated by counterfeiters. 

That said, being a content and product originator, not an e-commerce platform, 

Asmodee does not often come into direct contact with the consumer at the point of 

purchase, as most of our products are sold through wholesale channels. 

7. Do you engage with foreign governments to curtail the proliferation of 

counterfeits? If so, what types of activities and coordination have proven 

successful? What efforts have not been successful? 

Asmodee always operates in accordance with the rule of law, regardless of venue. 

We register our copyrights and trademarks domestically and overseas, wherever appropriate and feasible. We occasionally seek recourse against counterfeiters via domestic and foreign courts. Our success directly depends on the strength of the particular foreign nation’s IP laws and judicial system, and the associated costs. 

8. To what extent do you facilitate delivery, storage, processing, and purchases of goods on your platform? 

Asmodee does not operate an Internet platform. 

Asmodee only sells its own genuine game products to trade customers and consumers. We police the development, testing, and manufacturing of all our products. 

This process retards IP theft at the point of manufacture. We then police the shipping, delivery, storage, and commercial sale of all of our products. We carefully examine returns in order to prevent the introduction of counterfeits into our warehouses. 

9. Which inflection points in the e-commerce purchasing/selling process 

have you found most critical to intervene in to prevent and/or curtail the 

distribution of counterfeit goods? 

We work with trustworthy suppliers who respect our IP, as well as all applicable 

quality and safety standards. These suppliers must use tested methods and components, maintaining secure manufacturing facilities and processes. Asmodee will regularly inspect third-party manufacturing facilities, either with our own staff, or by 

hiring third-party auditors. 

We also seek to work with trusted trade customers, distributors, and retailers who 

are respectful of our IP and the needs and interests of our consumers. They must 

operate transparently enough to ensure that counterfeit goods do not inadvertently 

circulate through their warehouses or sales channels. In most cases, this requires 

that our trade customers only order Asmodee products directly from Asmodee. They 

must also police their own ordering, storage, and sales systems to combat the comingling of counterfeit goods or circulation of counterfeit products. With leading ecommerce platforms, on most accounts, this is not the case. 

In our view, the critical points of inflection lie at (a) the point of procurement of 

products by e-commerce platforms, (b) the vetting and authentication of third party 

sellers on these platforms, and (c) the co-mingling of inventories from multiple 

vendors/sellers in e-commerce companies’ ware houses. 

Asmodee has sought, without luck, to partner with a leading e-commerce platform 

and assist in their vetting of accounts who wish to sell Asmodee’s products on that 

platform. We’ve created unique software to securely identify our known authorized 

sellers, and we’ve offered to visit warehouses to identify counterfeit goods. All such 

suggestions were rejected by the platform. An explanation for these rejections has 

frequently been that our proposed solutions are ‘‘not scalable.’’ We interpret this as 

meaning they are ‘‘too expensive.’’ 

Prior to the enactment of the ‘‘Fair Harbor’’ DMCA rule, retailers were held accountable for what was sold in their stores and responsible for vetting their vendors, 

whether they be brick-and-mortar or online retailers. Both consumer and vendor 

alike assumed that retailers stood by their wares and their desire to sell authentic 

goods. However, with the advent of online anonymity, easy access to consumers via 

e-commerce platforms, and the lack of realistic accountability by e-commerce platforms under ‘‘Safe Harbor,’’ such trust is being materially eroded. 

84 

E-commerce operators take fees and commissions (often between 15–30% of proceeds) of third-party sales channeled through their platform, whether for legitimate 

or illegitimate goods. The enormous volume of counterfeit sales bolsters fixed cost 

absorption, profit, and cash flow of the e-commerce platform. Low online pricing of 

illegitimate goods boosts the e-commerce plat form’s traffic volume, data gathering, 

and ‘‘add on’’ sales. We submit to the committee this happens at the expense of 

those retailers who care about supply vetting, those retailers who are not afforded 

impunity from counterfeit product trafficking by ‘‘Safe Harbors,’’ and the honest creators of authentic products, and IP rights holders. 

Despite their obfuscating public commentary, online e-commerce platforms significantly benefit from illegal counterfeiting activity and their lack of accountability, 

implicitly or not. 

10. Have there been instances where genuine goods sold on your platform 

are intermingled and/or comingled with counterfeit goods: Can you provide 

an example? 

Asmodee does not operate an Internet platform. 

We have no evidence of counterfeit products being mixed with our own manufactured inventories. However, we have many examples and direct evidence of consumers having purchased counterfeit Asmodee products, sourced from so-called ‘‘comingled’’ inventories, facilitated by e-commerce platform operators. 

11. How do you coordinate with rights holders to verify whether goods sold 

over your platform are genuine? 

Asmodee does not operate an Internet platform. 

As an IP holder and licensee, we only sell our own genuine goods. We ask our trade 

customers to order Asmodee products exclusively from Asmodee or through an 

Asmodee-authorized distributor. 

12. In what ways do counterfeiters evade actions you have taken to prevent 

counterfeits on your platform or using your services? 

Asmodee does not operate an Internet platform. 

We sell only our own genuine Asmodee goods to customers, and we ask our trade 

customers to only purchase Asmodee products from Asmodee or an Asmodee-authorized distributor. 

Instead, it is our trade customers’ e-commerce platforms that prove most vulnerable 

to exploitation by counterfeiters. Counterfeiters evade our policing efforts by taking 

advantage of these e-commerce platform’s lack of transparency, unwillingness to 

share data with rights holders, and the lack of accountability afforded to e-commerce platforms by the Fair Harbor DMCA standards. 

When Asmodee does not have full transparency from an e-commerce platform customer on counterfeiting issues, whether due to its stonewalling or declared inability 

to address our concerns, we all suffer. It has been our experience that the largest 

e-commerce platforms refuse to provide effective solutions to the counterfeiting and 

stolen goods sales done on their websites. In our practical experience, extended 

brand management ‘‘tools’’ by e-commerce platforms are largely inadequate and provide solely reactive solutions. 

At the same time (and quite maddeningly), e-commerce platforms continue to collect 

transaction fees from every illegal sale. They enjoy fixed cost mitigation from storage cost fees charged to bad-actor third-party sellers. They derive a substantial advantage from website traffic spurred by the impossibly low prices of counterfeit and 

stolen products. They work with impunity under the DMCA. We submit that the 

lack of collaboration and transparency by the largest e-commerce platform on this 

issue to-date enables and effectively aids and abets illegal behavior. 

13. After a suspected counterfeit distributor has been identified—whether by 

your company or a third party—what steps do you take, if any, to verify 

claims of counterfeit distribution? 

Asmodee checks to see whether the distributor has purchased goods from Asmodee 

or an Asmodee-authorized distributor. We seek photographic evidence of the character of the suspected goods. We may also obtain physical samples. We have considered hiring private investigators, and to submit the case to the proper authorities. 

14. What is the process, if any, for removing a suspected counterfeit distributor from your platform? 

85 

Asmodee does not operate an Internet platform. 

We seek removal of suspected counterfeit distributors from our customers’ platforms 

by providing our customers with swift notice and clear evidence of counterfeiting. 

We employ exhaustive and expensive manual and automated policing assistance to 

take down sites operated by counterfeiters within and outside our distribution network. 

We have exhaustively tried to work with the largest e-commerce platform on preventive measures, but without success. 

15. After removal, what processes does your company have in place, if any, 

to prevent a counterfeit distributor from regaining access to your platform 

and subsequently U.S. consumers? 

Asmodee does not operate an Internet platform. 

We request that our e-commerce platform customers immediately deny the violating 

seller from selling our goods. However, in some instances it is the e-commerce platform itself selling counterfeit goods, due to procurement from illicit vendors, or in 

fulfilling their transaction from co-mingled inventories. 

As it is trivial for anyone to create a new seller account on most e-commerce platforms under assumed/fake names, using fake physical addresses and easily-obtained 

anonymous email accounts, we have found it more or less hopeless to expect bad 

actors not to easily regain access to any marketplace from which they were ejected. 

Payment and banking information would potentially be the best route to find these 

actors. Unfortunately, tracing such information is beyond the current proficiency of 

this games publisher; and e-commerce platforms have thus far been unwilling to 

provide us with much detail on the financial transactions of bad actors. 

After Asmodee proved a large e-commerce platform had procured and sold counterfeit goods on its own account, we did not see a rush to account ability, a willingness 

to enact realistic compensation for the damage wrought, or even a mea culpa, from 

the platform operator. 

Legal routes in pursuing these matters against e-commerce platforms are not attractive due to: (a) the size of these organizations and the proportional cost of legal action; (b) the economic necessity to continue selling our products to these platforms; 

and (c) DMCA-related legal precedents based on a few cases brought by small, poorly funded, plaintiffs. 

We maintain a consistent vigil against counterfeiters. This requires ongoing communication with our trade customers, continuous oversight of consumer reports and reviews, and a never-ending search across active e-commerce offers worldwide. We 

provide our customers with swift notice to share any clear evidence of counterfeiting, in order to seek removal of the suspected counterfeit distributors from their 

platform. We constantly employ exhaustive and expensive manual and automated 

policing assistance to take down sites operated by counterfeiters from within, and 

outside of, our distribution network. This feels like a never-ending battle. 

16. If you become aware of a counterfeit good and/or distributor on your 

platform, what actions including initiating legal action does your company 

have the power to take? 

Asmodee does not operate an Internet platform. 

With regards to our customers’ e-commerce platforms, we seek removal of the offending counterfeit goods and/or counterfeiter. Should a trade customer fail to act 

appropriately, we may curtail or terminate our business with that customer. We 

may even seek recourse through the judicial system, but this faces the issues raised 

in point 15 above. 

17. How have you coordinated with U.S. federal and local authorities to curtail the distribution and manufacture of counterfeit goods within the United 

States? 

Wherever possible, we provide the USCBP with product and brand registration material, guides, and other information to help facilitate the identification and seizure 

of counterfeit products. This is an ongoing process for Asmodee. Where the authorities allow, we do the same in other select countries. 

To date, we have tried to work primarily with our e-commerce platform customers 

by assisting with counterfeit detection and prevention. This engagement has been 

far from mutual and remains very one-sided in favor of the e-commerce platforms. 

86 

We have worked off and on with an e-commerce platform to identify a counterfeit 

distributor and to refer this counterfeiter to the Office of Homeland Security. Even 

in this, however, the e-commerce platform has shared very little data, so Asmodee 

has been a follower rather than a partner in this process. 

As many of the counterfeit sellers are either impossible to track, or originate outside 

of the U.S., we have limited ability to provide federal or local authorities with viable 

targets. 

18. If there are other pieces of information, details, or data you feel would 

be helpful to the committee, we respectfully request that you submit them as 

part of your answers as well. 

E-commerce enabled counterfeiting has become a huge problem for intellectual property holders, brick-and-mortar retailers, and to consumers. To Asmodee and our industry, it is an existential issue. Supported by modern technology, the prevalence 

of online anonymity, and lack of accountability for their chosen e-commerce sales 

platforms, operators who would previously sell their counterfeit goods on the street 

and in dark alleyways, have unprecedented and direct access to their marks. Given 

the sophistication, investment, and scale of the counterfeit operations, one comes to 

suspect these efforts may be managed by well-funded criminal organizations. 

In our view, the facilitating factors in the deluge of counterfeit product on e-commerce platforms are: 

(1) Supply: Countries with low-cost but robust manufacturing sectors, combined 

with weak internal IP enforcement, have economic benefit in overlooking the 

substantiality of their counterfeit exports. China surely is the largest contributor to the problem, but illicit manufacturing will likely change to other countries if China was to remedy its significant shortfalls in this area. 

As this memo is written, the U.S. looks to impose new tariffs on goods originating in China. While such trade measures may be necessary (this being beyond our expertise to determine), we believe a focus on legislation and action 

that forcefully targets online counterfeiting would have a substantial and positive impact on the U.S. trade imbalance with China. We recommend such 

measures be fast-tracked. Further, such action will likely be positively supported by our European allies, who are afflicted by similar (if not as severe) 

counterfeiting problems. 

(2) Legislation: The DMCA Fair Harbor standards for online platforms was intended to protect the nascent Internet. The resulting commercialization of the 

Internet has evolved into handful of dominant Internet business behemoths 

exploiting a vacuum of accountability while profiting from illicit transactions 

and traffic on their platforms. 

New or revised legislation is critically needed to address this issue. Asmodee 

provides a few recommendations for specific solutions at the end of this document. 

(3) E-commerce Platforms: Unlike their public statements, expressions of support, 

P.R. efforts and platitudes to the problem, it is our firsthand experience that 

major e-commerce platform businesses fall far short in taking responsibility 

and action in this area. The practical capabilities of so-called ‘‘sophisticated 

platform software’’ such as ‘‘Brand Registry’’ is poor, its use solely reactionary 

(not preventative), with highly disproportional burdens of proof on the rightsholders. 

It is our opinion that current efforts in counterfeit prevention by e-commerce 

platforms is window-dressing enacted to meet whichever minimum legal and 

P.R. standards are necessary for them to continue business-as-usual. We do 

not see obvious public statements such as ‘‘Zero Tolerance for Counterfeits’’ in 

practice. We come to this opinion from experience 

Asmodee has been continually turned down in data-requests to e-commerce 

platforms related to sales and supply of our own products, information that 

would allow us to assist the platforms with detection of counterfeiting activity. 

Instead, only an extremely limited data-set is ever shared with us, and this 

only after ANA proves a product to be counterfeit—usually after procuring a 

sample ourselves by purchase on the e-commerce platform itself. In many 

cases, once we have gone through with this exercise, substantial damage has 

already been done. 

87 

Most e-commerce platforms refuse to adhere to any form of sales policy or ‘‘authorized reseller’’ program (by which companies like Asmodee could contribute 

to the anti-counterfeiting effort and help guarantee authenticity). We have 

proof that a large e-commerce platform procured counterfeit products to sell 

on its own account, knowingly or unknowingly, by utilizing automated, algorithmic purchasing systems that search for the lowest available price, and 

with little/no human oversight. Some platforms sell counterfeit products on 

their own account from ‘‘co-mingled’’ product assortments—behavior that may 

also incriminate and destroy the reputation of honest sellers on the platform, 

whenever the e-commerce platform operator fulfills such sales with counterfeits tainting ‘‘co-mingled’’ inventories. 

(4) Consumers: Consumers have, for good reason, learned to trust the commercial 

U.S. retail system. Consumers are both trusting and price-sensitive, making 

them ideal targets for low-priced counterfeit products sold under the trusted 

aegis of large U.S. e-commerce platform retailers. 

Despite recent government investigators finding that 20 out of 46 randomly 

purchased items on a sampling of e-commerce platforms being counterfeits, despite hundreds of thousands of dangerous counterfeit solar eclipse glasses sold 

online, despite dangerous counterfeit cosmetics and hygiene products, counterfeit vitamins, counterfeit pet-medicine, despite the myriad stories of honest 

businesses injured by counterfeiting, consumers unfortunately have a convenience and financial incentive to ignore the problem or dismiss such information. 

It clearly is in the e-commerce platform’s best interest to perpetuate the consumer’s false sense of safety. Outside small print, no clear warning regarding 

potential counterfeit products on e-commerce sites exist to our knowledge. Reviews that profess to counterfeits may be struck and obfuscated by the e-commerce platforms by editorial such as ‘‘This item was fulfilled by [Platform], 

and we take responsibility for this fulfillment experience.’’ 

(5) Mail Subsidy: It is our understanding that the United Nations (via the Universal Postal Union), partly with U.S. help, subsidize developing nation’s mail 

and package delivery cost via uneven application of ‘‘Terminal Dues,’’ effectively making it much cheaper to post mail from these developing nations. As 

such, the cost of sending a package from China to the U.S. is very small. This 

greatly facilitates not only counterfeit trade (financially transacted by U.S. ecommerce platforms) into the U.S., but also assists in illegal shipments of 

drugs and other contraband. 

We are happy to offer specific case histories, material, or evidence that might be 

helpful to the committee as it seeks to protect the U.S. consumer in this ongoing 

struggle against the circulation and sale of counterfeits in e-commerce. 

Recommendations 

We believe the following actions would solve many of the current counterfeiting 

problems (as well as perhaps the malign ‘‘fake ads’’ problem) on the Internet. 

(1) No product (or message) should be sold by an Internet platform into the U.S. 

without a U.S. person or entity being accountable for the product or message. 

Those Internet platforms that allow third-party sales of products or messages 

should be responsible to ensure that a real U.S. person or U.S. entity is accountable for the safety, legality, and authenticity of their message or product. 

If it is later found that a selling person or entity was itself ‘‘fake,’’ or if the 

selling entity is non-U.S., the Internet platform would then be held accountable for the sale, with whatever civil or criminal penalties apply. 

(2) Grant IP holders substantially more authority to access data from Internet 

platforms (including e-commerce platforms) related to the commercial exploitation of their IP-related products or services offered on the platform. For example, if a counterfeit product has been proven to be sold by an e-commerce 

platform, the IP-holder should have the right to access comprehensive sales 

and supply information from all vendors and sellers whom have transacted in 

that IP during the last 12 months, so that IP-holders may help prevent future 

abuse and identify potential theretofore unknown abuses. Further, e-commerce platforms should be required to disclose known counterfeiting to rights 

holders and affected consumers. 

(3) Many e-commerce platforms transact business alongside their platform participants (i.e., third-party sellers). This behavior is tantamount to having your 

88 

cake and eating it too, and inherently unfair competition to the other platform 

participants. Any Internet platform that partakes directly in income-generating activity alongside the users of its own platform should be prevented 

from seeking Fair Harbor protection under the DMCA (or whatever will replace the existing DMCA). 

(4) Internet platforms should not be allowed to physically ‘‘co-mingle’’ products 

from different marketplace sellers (and their own goods). If the platform elects 

to do so, it should be accountable for any sale of a counterfeit good from the 

tainted supply source. This accountability should be retroactive to the passage 

of the DMCA (October 12, 1998), and e-commerce platforms should remediate 

vendors, sellers, and consumers for damage done in the intervening years. 

(5) Eliminate all subsidies on posted mail and packages from China immediately 

and as soon as practicable, abolish the program altogether lest the issue be 

transferred to other nations. With today’s email and Internet access this program seems outdated, and subsidies for developing nations are likely better 

granted in alternate ways (such as providing them Internet access). 

In Closing 

Please feel free to contact us directly with any further questions, concerns, or requests. We intend to provide the committee with whatever assistance we can offer. 

This is of the highest priority to us. 

Asmodee wishes the committee good luck in its effort to better inform American consumers of the dangers presented by counterfeit goods, and to better protect American consumers and businesses in the future. Thank you for working on behalf of 

our company, our team, our consumer community, and our nation. 

Respectfully yours, 

Christian T. Petersen Pete Fenlon 

CEO CEO 

Asmodee North America, Inc. Catan Studio (an Asmodee Division) 

COALITION TO COMBAT COUNTERFEITING (CCC) 

10340 Democracy Lane, Suite 204 

Fairfax, VA 22030 

P: (703) 383–1330 

F: (703) 383–1332 

E: MMoonier@mwcapitol.com 

Written Testimony of Mitchell Moonier 

Chairman Hatch and Members of the Committee, 

My name is Mitchell Moonier, and I am submitting testimony on behalf of the Coalition to Combat Counterfeiting (CCC)—a national anti-counterfeiting coalition representing a broad spectrum of industries including apparel and footwear, special occasion dresses, home appliances, jewelry, precious metals, and toys. Our mission is 

to raise public awareness of counterfeiting, and to support public policies, regulations, and innovative solutions for strengthening the ability to identify fake goods 

and enforce intellectual property rights (IPR). 

Background 

The expansion of e-commerce has given domestic manufacturers greater access to 

consumers across the globe and has lowered costs for doing business. Likewise, it 

has also enhanced the ability for fake goods to enter the market and successfully 

compete with their legitimate counterparts. Many of these fakes pose numerous 

health and safety risks to American families, steal domestic jobs, and defraud the 

economy. Before, counterfeit products were confined to small street operations with 

limited reach, but the growth of e-commerce has allowed these hazardous fakes to 

surround our daily lives. Every day, we hear of consumers encountering everything 

from coats stuffed with chicken feces, water filters that filter arsenic into the water 

rather than remove it, and children’s toys that fail to meet even the slightest of 

safety standards. 

Businesses—both large and small—lose out, as well. Instead of researching and developing new innovative products, more funds are redirected to counterfeit deterrence programs. A recent report by the U.S. Chamber of Commerce found companies 

spending as much as $20 million annually to protect intellectual property. For 

smaller ‘‘mom and pop’’ shops unable to afford such protections, it is better to lower 

89 

prices than compete with the inferior goods. The costs add up—recent estimates 

show that the U.S. economy loses anywhere from $225 to $600 billion a year. 

The impact on business, large and small, of consumption of counterfeits is that production shifts from legitimate businesses to shady manufacturers. In addition to operating under inhumane conditions, these operations in many cases are connected 

to terrorism, money laundering, and human trafficking. 

The work of Customs and Border Protection (CBP) and Immigration and Customs 

Enforcement (ICE) is vital for protecting American IPR. Over the past decade, seizures of fake goods have increased 117 percent and the total retail price of seizures 

increased 800 percent. These statistics illustrate the significance of the problem and 

that it is growing worse. The $1.6 billion in seized goods for 2016, based on conservative estimates, represents less than 1 percent of the total estimated amount of fake 

goods that entered our borders. Counterfeiters are targeting higher value products 

and the U.S. economy is losing at a faster pace. Customs agencies are more technologically advanced than ever before, yet counterfeiters, in response, have shifted to 

simpler methods to evade detection by the authorities including using express carriers and international mail. 

We realize that there is not a ‘‘one size fits all’’ solution that fully addresses the 

counterfeiting of goods. The growth of e-commerce has rapidly outpaced innovation 

in protecting intellectual property, and improvements are needed before it becomes 

too late. It goes without saying that such an endeavor will require significant time 

and funding, but we believe both are necessary as this issue is an ongoing threat 

to our national security. 

Recommendations 

The findings from the recent GAO report should be concerning to rights holders and 

consumers alike. In addition to the act of counterfeiting, itself, issues with data collection and information sharing among enforcement agencies threaten the preservation of intellectual property. Moving forward, we share many of GAO’s concerns and 

believe that the following recommendations would significantly improve enforcement 

against counterfeit goods. 

Improve International Cooperation 

Greater cooperation is needed between U.S. and international customs authorities. 

In a report released last week, the Organization for Economic Cooperation and Development (OECD) estimated that 2.5 percent of global trade, or $461 billion, consists of fake goods. Furthermore, 20 percent of global intellectual property infringements are of U.S. rights holders. Our participation in the global economy means 

that U.S. intellectual property must be protected both at home and abroad, alongside our international partners. On the other hand, consequences should be strongly 

considered for trading partners that lack adequate laws or enforcement of U.S. intellectual property. 

Assess Interagency Efforts 

There needs to be a broader assessment of CBP interaction with other domestic 

agencies. Agencies including the United States Patent and Trademark Office 

(USPTO), Department of Commerce, United States Trade Representative (USTR), 

United States Postal Service (USPS), and the Federal Bureau of Investigation (FBI) 

also play an important role in protecting intellectual property. However, each agency employs its own recording methods for seized goods and may share limited information with CBP. This makes it difficult and confusing for rights holders to protect 

their intellectual property, and effectively engage with law enforcement. 

We support further assessments by the GAO that evaluate the sufficiency of current 

laws in protecting intellectual property, the extent in which all IP-related agencies 

coordinate with each other, and each agency’s metrics for evaluating intellectual 

property protection. 

Express Carriers and International Mail 

The use of express carriers and international mail should be a focal point in the 

fight against counterfeits. Since 2012, seizures of express carrier goods have increased 105 percent while cargo seizures have only increase 6 percent. The volume 

of small packages makes it impossible for customs authorities to detect infringing 

goods, and the problem is further complicated with the use of fake labels that often 

assist in evading customs duties. 

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1 ‘‘The Economic Costs of Counterfeiting and Piracy.’’ The report was prepared for The International Chamber of Commerce Business Action to Stop Counterfeiting and Piracy unit (ICC 

BASCAP) and The International Trademark Association (INTA), January 2017, Frontier Economics, Ltd. 

Increase Engagement With the Private Sector 

We support the GAO’s recommendation for CBP to share additional information 

with intellectual property rights holders prior to completing a seizure, as authorized 

under the Trade Facilitation and Trade Enforcement Act (TFTEA). Although CBP 

received authorization almost three years ago, the GAO notes that it has yet to determine which information would be beneficial to share with the private sector. It 

is important that CBP make these determinations immediately, so rights holders 

can act appropriately. Additionally, the government should explore public-private 

partnerships to strengthen detection and enforcement efforts, particularly to address 

the issue of small package shipments through express carriers and international 

mail. 

While we have identified multiple areas of improvement in the national intellectual 

property enforcement framework, we applaud the attention given to these issues by 

Congress and the appropriate agencies. We look forward to continuing to work together to protect U.S. intellectual property rights and consumers from these harmful products. 

The Coalition appreciates the opportunity to submit these comments to the Committee. Should you or your staff have any questions, please feel free to reach out 

to us. We are more than happy to meet with you or your staff to discuss these critical issues impacting our businesses and consumers. 

THE COUNTERFEIT REPORT

P.O. Box 3193 

Camarillo, CA 93010 

(805) 303–5000 

Statement of Craig M. Crosby Publisher/CEO 

Senator Hatch, I would like to thank you for your interest in consumer protection 

from counterfeit products, and inviting statements from those in the industry affected by counterfeits. 

I am the CEO and Publisher of The Counterfeit Report®, a consumer protection 

advocate and industry watchdog reaching over 7.5 million viewers that has removed over 26 million counterfeit products from e-commerce websites including eBay, Amazon, Walmart and Alibaba. 

These websites are the ideal platforms for enabling and facilitating counterfeiters 

and dishonest sellers to distribute an inexhaustible supply counterfeit goods directly 

to unsuspecting consumers with little or no consequence to the seller or e-commerce 

websites. 

Counterfeiters will produce over $1.7 trillion in counterfeit products 1 in 2018, 

90% of which originate in China. An overwhelming majority are distributed through 

e-commerce websites. 

The Counterfeit Report (‘‘TCR’’) research has been cited, and TCR deposed, in the 

federal court RICO lawsuit against eBay (Wimo Labs, LLC v. eBay 8:15–cv–01330), 

which settled and was sealed in 2017, and the pending landmark Amazon (as a direct seller) lawsuit (Daimler AG v. Amazon, U.S. District Court 17–cv–7674). 

Clearly, these goliaths facilitate criminal activity and benefit from the proceeds 

of dishonest actions which impact jobs, consumer safety, and public trust, creating 

a public perception of deception with impunity. 

TCR purchased over 2,500 manufacturer confirmed counterfeit products 

from eBay, Amazon and Walmart sellers, representing over 726,400 fakes sold to 

duped consumers. Each counterfeit purchase is cataloged and retained as evidence, 

identifying the seller, point of origin, and number of items sold, as well as dozens 

of other data points. 

Please note that Alibaba is not specifically addressed here, as Alibaba has been 

publicly condemned by The Office of the United States Trade Representative and 

placed on the U.S. Notorious Markets List—a designation reserved for the world’s 

most notorious markets for counterfeit goods. 

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2 ‘‘Global Online Shopping Survey 2017—Consumer Goods.’’ Prepared by: Clarivate Analytics 

for MarkMonitor® Inc., November 2017. 

Industry research indicates that 80% of consumers do not expect to receive a 

counterfeit when making online purchases, yet over one-third of consumers unwillingly received a fake 2 from online purchases last year. The purchases include 

dangerous and deadly counterfeit products, and inarguably fake items such as FBI 

and police badges, and law enforcement ID. 

For example: Counterfeit Apple® A1265 iPhone chargers are common on eBay 

and Amazon. Counterfeit chargers have caused two deaths, one coma, numerous 

fires, and injuries from explosions and equipment damage. Just two of the many 

eBay sellers selected by The Counterfeit Report for test purchases made over 10,000 

sales of confirmed counterfeit chargers to unsuspecting consumers, yet the listings 

and sellers remained. The buyers were never notified by the websites. Test purchases also include auto suspension parts, OTC drugs, medical devices, toys, electronics, health supplements, and much, much more. 

The Counterfeit Report investigation uncovered that eBay and Amazon deliberately and fraudulently hide the fact from buyers that they have purchased manufacturer confirmed counterfeits and are entitled to refunds. But, buyers are never 

told this—in fact, eBay tells buyers opposite in their eBay purchase history for removed counterfeit listings ‘‘the sale should process as normal and you have nothing 

to worry about.’’ 

You would be shocked to learn that the e-commerce giants solicit, facilitate, and 

encourage the sale of hundreds of millions of Counterfeit Products through their 

self-described ‘‘ecosystems,’’ which provide manufacturers, sellers, and buyers of 

counterfeit goods a marketplace for such goods, and provide online advertising, marketing, credit card processing, financing, and shipping services that effectuate the 

sale of the Counterfeit Products. Of course, they take a transaction fee for each fake 

item sold. 

Amazon and Walmart also act as direct sellers of counterfeits, in addition to allowing unvetted global third-party ‘‘marketplace’’ sellers to list just about anything 

on their websites, including counterfeits, right alongside authentic items, implying 

the websites endorsement. 

I have appeared on ABC, NBC, FOX, 20/20 and other TV network presentations 

featuring counterfeit products. TCR distributes counterfeit information to over 2,000 

news outlets. I have presented for the LAPD, LA City Attorney, and the FBI in a 

fake goods news conferences. 

The Counterfeit Report website provides consumer education, featuring visual 

guides to counterfeit products of over 250 global manufacturers. TCR also acts as 

an authorized agent for right holder’s infringing products, and publishes individual 

Counterfeit Product Alerts® on counterfeited product on its website. The alerts offer 

thousands of comparison photos demonstrating the sophistication of counterfeiters 

in creating deceptive, visually identical counterfeit products that easily fool consumers. Quite simply, most consumers simply can’t identify counterfeit products and 

are unknowing victims who lose billions of dollars and may receive a deadly product. 

What I think may interest you most is the outrageous conduct of the internet giants, eBay, Amazon and Walmart. TCR test purchases identified and documented 

practices, policies and procedures that satisfy the ongoing pattern of criminal conduct; fraud, false advertising, unfair business practices, Racketeering (RICO), and 

conduct that is not consistent with ordinary business conduct and an ordinary business purpose to provide consumers with honest services (18 U.S.C. § 1346). For example: 

• Amazon, eBay, Walmart and Alibaba all have policies prohibiting replicas, 

fakes, counterfeits, or other illegal copies on their websites. However, that 

claim is not true. A TCR Press Release identifying the particularly alarming 

sale of inarguably fake FBI and Police badges and made-to-order photo identification on eBay was emailed to eBay CEO, Devin Wenig. The email was 

viewed 304 times, yet over a year later, the eBay listings remain. Similar results occurred with Amazon, also selling the fake law enforcement items. 

• A consumer would expect to be notified they have purchased a dangerous, 

fraudulent or deadly product on eBay, Amazon or Walmart, and are entitled 

to a refund under the Money Back Guarantee displayed on each website’s listing page. However, in practice, a buyer viewing their eBay purchase history 

92 

after a counterfeit listing is removed is deliberately misled with the message 

‘‘If you’ve already sent payment, the sale should process as normal and you 

don’t have anything to worry about.’’ The opposite may be true, and buyers 

could have a lot to worry about if they received a dangerous product. Amazon 

does not post any warning. 

• Buyers that actually do identify a counterfeit item can request a refund under 

eBay’s Money Back Guarantee, but there is a catch: eBay directs buyers to 

return the item to the seller, a nonsensical solution promoting resale; against 

eBay policy and illegal. If challenged, eBay requires a manufacturer’s written 

counterfeit confirmation, allowing buyers just 2 to 5 days, and arbitrarily requires that ‘‘in order to continue with the investigation of your Money Back 

Guarantee, you must destroy and discard the item.’’ Clever, but without the 

counterfeit item, buyers have no evidence for their unresolved eBay claim, 

credit card refund or counterfeit feedback. 

eBay went as far as to engage two goliath international law firms, Winston and 

Strawn and O’Melveny and Meyers, in an attempt to silence The Counterfeit Report’s findings. Using scorched earth litigation tactics for two arbitrations initiated 

by The Counterfeit Report for refunds of inarguably fake $26 and $116 item purchases, eBay’s attempt to dissuade The Counterfeit Report failed. I am happy to 

share with you all the correspondence and court documents. 

eBay and Amazon ‘‘User Feedback’’ should provide valuable insight to the Buyers 

and Sellers involved in a transaction—allowing each to build reputations that are 

based on ratings and comments left by their trading partners—but it doesn’t. 

• Inexplicably, negative ‘‘counterfeit’’ feedback left to protect eBay and Amazon 

consumers from dishonest seller practices just ‘‘disappeared’’ after many of 

the confirmed counterfeit purchases by The Counterfeit Report. eBay’s leadership team had no explanation why the ‘‘in policy’’ feedback was removed, 

while Senior Director and eBay Counsel, Amber Leavitt, acknowledged, but 

never responded to The Counterfeit Report’s inquiry. 

• Under eBay policy, ‘‘Sellers can leave only positive ratings for buyers. That 

means buyers should feel free to leave honest feedback without fear of retaliation.’’ 

• eBay blocks buyers from placing seller feedback, removes negative seller feedback, and arbitrarily removes links for buyers to provide seller feedback for 

known manufacturer confirmed counterfeit and fake products. In 2015, eBay 

admitted the allegations were true to Business Insider, that eBay altered and 

removed feedback, removed warnings, and allowed counterfeit sellers to remain. Amazon blocks negative counterfeit feedback. 

eBay and Amazon marketing and support practices encourage the sale of counterfeits. 

• Through manipulation of its ‘‘keyword’’ search process, consumers searching 

Amazon, eBay and Walmart for a trademarked item are guided to listings of 

known, manufacturer confirmed counterfeit and fake products. 

• Amazon cancelled all TCR refunds for confirmed counterfeit product purchases, later rescinding the action after a press release. 

• eBay chose to block TCR test purchases, and disclosed to sellers effective 

ways to block TCR test purchases of counterfeit and fake items, identifying 

the multiple accounts used by TCR. This policy is endorsed by eBay’s Director 

of Global Trust Policy, Gary Fullmer, with his written warning to The Counterfeit Report, ‘‘Do not circumvent these blocks, including using your multiple 

accounts to do so.’’ 

• Remarkably, eBay sends direct email solicitations to consumers (over 4,000 

just to TCR) to purchase the fake items—a practice that landed eBay in Federal Court—yet the practice continues and the counterfeit sellers remain. 

eBay claims it’s ‘‘just a venue’’ and has immunity under eBay’s often cited 2008 

Tiffany (NJ) Inc. v. eBay Inc. lawsuit. 

• However, eBay allows staffers to determine if items are accurately described 

in counterfeit purchase dispute cases despite the manufacturer’s written 

counterfeit confirmations—an action that landed eBay in arbitration in which 

The Counterfeit Report prevailed. 

93 

3 In a devastating blow to manufacturers and consumer protection, the U.S. Court of Appeals 

upheld a U.S. District Court decision by Judge Ricardo S. Martinez excusing Amazon (NASDAQ: 

AMZN) from liability in the sale of counterfeit items on its website (Milo & Gabby, LLC. v. Amazon.com, Inc.). 4Wade Shepard, ‘‘As Amazon and eBay Flood With Illegal Goods From China, Beijing Cracks 

Down on Foreign E-Commerce,’’ Forbes (November 22, 2017), available at: https:// 

www.forbes.com/sites/wadeshepard/2017/11/22/as-amazon-and-ebay-flood-with-illegal-goodsfrom-china-beijing-cracks-down-on-foreign-e-commerce/#7223fl604dfd. 

• Despite repeated written notifications to Amazon, eBay and Walmart of the 

sale of the same manufacturer confirmed counterfeit, and fake products— 

products that never existed in the authentic product line but bear a trademark—the items and sellers often remain, and additional purchases have 

been made from over a period of months. 

• While Amazon was publicly initiating lawsuits against two Amazon counterfeit sellers, sharply contrasting activity was occurring in the background. 

Amazon argued and won a U.S. Appeal’s Court decision 3, 4 to disavow itself 

from any responsibility for ‘‘offering to sell’’ counterfeits products. Shortly 

thereafter, a lawsuit named Amazon a direct seller of counterfeits, outside the 

protection of the prior decision. 

I hope you agree that the abundance of evidence is compelling and worthy of a 

continued investigation. 

PRECIOUS METALS ASSOCIATION OF NORTH AMERICA

10340 Democracy Lane, Suite 204 

Fairfax, VA 22030 

P: (703) 383–1330 

F: (703) 383–1332 

E: Mail@mwcapitol.com 

Written Testimony of Scott Smith, President 

Chairman Hatch and Members of the Committee, 

My name is Scott Smith, and I am the CEO of Pyromet, which is a privately owned 

precious metals manufacturer and refiner of silver, gold, and platinum group metals. Since 1969, Pyromet has been a reputable name in precious metals and precious 

metals management. I also serve as President of the Precious Metals Association of 

North America (PMANA) and am submitting this written testimony on behalf of our 

members. It is our traders, distributors, and authorized purchasers of the United 

States Mint that are particularly concerned with counterfeit bullion produced in the 

People’s Republic of China, and subsequently sold on e-commerce platforms. 

Background 

According to the Organization for Economic Cooperation and Development (OECD), 

the trade of fake goods represents 2.5 percent of global trade, or $461 billion every 

year. Among the many counterfeits traded globally each year are fake precious metals bullion coins and bars—most of which are produced in China and easily distributed through e-commerce platforms. Additionally, estimates show over 85 percent 

of U.S. counterfeit goods originate in China. 

Precious metals bullion has been introduced by numerous national governments and 

private mints around the world for nearly fifty years. The U.S. began production of 

its own bullion in 1986 with the introduction of the American Eagle Gold coin. Since 

then, the American Eagle family has since expanded to include silver, platinum, and 

palladium bullion coins. 

U.S. Mint bullion coins are not sold directly to the public. Instead, authorized purchasers that satisfy stringent financial and professional criteria buy bullion coins 

and sell them at a premium to investors. Precious metals bullion can also take the 

form of bars—or ingots—and are usually produced by private mints from around the 

world and are sold by domestic traders and distributors. This network of bullion distributors, many of whom are members of the PMANA, includes some of the most 

trusted names in the precious metals industry. When investors are deceived by 

counterfeit bullion, distributors’ brands, and jobs all along the precious metals supply chain, are significantly affected. 

Whether in coin or bar form, it is relatively easy to pass off counterfeit bullion as 

authentic. Manufacturers will often coat, or ‘‘plate,’’ tungsten in a thin layer of gold. 

Since tungsten and gold have nearly the same weight and density, plated coins can 

94 

pass a novice investor’s basic tests. Even the most experienced precious metals traders require spending as much as $100,000 on innovative technology to detect fake 

bullion. At the time of submission, one-ounce of gold is worth $1,322, but a goldplated one-ounce counterfeit coin or bar can be purchased from a Chinese manufacturer for as low as $250—a potential 427% return on investment for criminals. 

While criminals profit, our traders and distributors are affected with damaged 

brands, falling revenues, and less capital to purchase additional bullion for investors. Furthermore, the decrease in demand for bullion causes refiners and manufacturers along the supply chain to suffer. 

The problem has grown in recent years with the explosion of e-commerce trading 

and its ability to connect consumers to the worldwide market. At the same time, 

it has also given Chinese manufacturers, with the backing of their government, 

greater access for selling fake goods. 

Chinese law requires truth in advertising, which also means that counterfeit bullion 

products be sold as such. However, the law does not require that counterfeits be 

physically marked accordingly. With this legal shortcoming, e-commerce sites such 

as Alibaba are flooded with posts that advertise counterfeit bullion as ‘‘replica,’’ 

‘‘copy,’’ and ‘‘fake.’’ While this is completely legal in the People’s Republic of China, 

it gives government-sanctioned manufacturers the ability to manipulate vulnerable 

American consumers and those looking to defraud consumers in the future. In other 

words, if they are not deceiving American consumers directly, they are providing domestic criminals with the necessary tools to do so in the future. On their web profiles, Chinese manufacturers often tout the ability of their counterfeit bullion to pass 

as the real thing. Answers to ‘‘frequently asked questions’’ make potential buyers 

aware that counterfeit coins are non-magnetic, weigh almost identical to authentic 

coins, and pass most authentication tests. Clearly, their intent is to deceive consumers in one way or another. 

Further complicating customs authorities’ ability to track fake bullion, thieves use 

small packages, fake labels, and ship through express and international mail to 

evade detection and the payment of duties. Over 90% of goods seized by Customs 

and Border Protection (CBP) come through either express or international mail. 

While this statistic is encouraging, we know that far too many small packages successfully pass-through customs to their targeted destination. 

Policy Proposal 

In order to combat the spread of counterfeit coins through e-commerce networks, 

and to lessen the already significant burden placed on law enforcement, the PMANA 

urges Congress to amend 15 U.S. Code § 2101 to expand marking requirements to 

include bullion investment coins and bars. Doing so would require any imitation or 

replica item manufactured or imported into the United States to be plainly and permanently marked ‘‘Copy’’ or ‘‘Replica.’’ This would provide transparency for consumers and weaken the ability for domestic and international criminals to take advantage of them. 

Additionally, the PMANA urges the United States Trade Representative (USTR) to 

include language in future trade agreements that holds all parties to the same 

marking requirements as U.S. citizens under 15 U.S. Code § 2101, as amended with 

language relating to investment bullion. This trade provision would generate jobs 

along the precious metals supply chain, protect consumers, and generate tax revenue in both counterfeit producing countries and in the U.S. 

Thank you for giving the PMANA the opportunity to submit these comments to the 

Committee. If you or your staff have any questions, please do not hesitate to reach 

out to us. We are more than happy to discuss our concerns with you or your staff 

and look forward to working together to protect consumers and businesses from 

counterfeit products. 

Respectfully Submitted, 

Scott Smith 

Æ