Intellectual Property: Better Data Analysis and Integration Could Help U.S. Customs and Border Protection Improve Border Enforcement Efforts
Published: 2007-04-26T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: U.S. government efforts to protect and enforce intellectual property rights are crucial to preventing billions of dollars in economic losses and for mitigating health and safety risks from trade in counterfeit and pirated goods. The Department of Homeland Security's Customs and Border Protection (CBP) leads intellectual property (IP) enforcement activity at the U.S. border. GAO was asked to (1) examine key aspects of CBP's process to carry out border enforcement, (2) analyze CBP's border enforcement outcomes during fiscal years 2001 to 2006, and (3) evaluate CBP's approach for improving border enforcement. GAO examined relevant documents, interviewed agency officials in Washington, D.C. and seven port locations, and analyzed CBP data on trade and IP seizure and penalty activity. This is the public version of a law enforcement sensitive report by the same title (GAO-07-350SU).
section_title: What GAO Found
paragraphs: CBP's Office of International Trade (OT), formed in 2006, and Office of Field Operations (OFO) carry out IP border enforcement processes, including targeting and examining suspicious shipments, seizing infringing goods, and assessing penalties as warranted. CBP uses computer-based and manual targeting to determine which shipments it will examine, and both methods have strengths and limitations. Port practices for recording exam results vary, making it difficult for CBP to fully assess the effectiveness of its IP targeting efforts. Since 2001, CBP's IP enforcement outcomes have been concentrated among particular transport modes, product types, and ports. Rising numbers of low-value seizures from mail facilities have driven growth in seizure actions, but uneven seizures of high-value goods from sea containers have caused the estimated value of seizures to fluctuate. The vast majority of seizure and penalty outcomes in the last 6 years have been concentrated among 10 or fewer of CBP's 300-plus ports. For example, 10 ports account for 98 percent of the $1.1 billion in penalties assessed during fiscal years 2001 to 2006. CBP lacks agencywide performance measures in its strategic plan and an integrated approach across key offices to guide and improve IP enforcement. Narrowly focused initiatives led by offices now under OT have had limited results. CBP has not done a broader analysis to examine variances in port IP enforcement outcomes. For example, GAO found that some of the largest IP-importing ports had very small seizure rates relative to other top IP-importing ports. A lack of integration between OT and OFO impedes using this type of analysis to identify potential IP enforcement improvements.

section_title: Letter
paragraphs: The illegal importation and distribution of counterfeit and pirated goods  poses an increasing cost to the United States economy and threatens the  health and safety of its citizens. The United States dominates the creation  and exportation of intellectual property (IP)—creations of the mind—and  provides broad protection for IP through means such as copyrights,  patents, and trademarks. However, IP protection in many parts of the  world is inadequate, and as a result, U.S. goods are subject to substantial  counterfeiting and piracy in other countries. The Department of Justice  has reported on the growing threat of IP crime in the United States, noting  that IP has become increasingly more critical to our country’s economic  security. Other federal agencies have testified that the economic benefits  of capitalizing on IP goods have drawn the attention of counterfeiters and  pirates, and that the magnitude and complexity of IP rights violations have  increased in recent years. In an effort to protect American public health  and safety and safeguard the U.S. economy, a number of federal agencies  are involved in keeping IP-infringing goods from entering the country and  investigating or prosecuting those responsible for their importation. The  Department of Homeland Security’s (DHS) U.S. Customs and Border  Protection (CBP) leads enforcement activity at the U.S. border by  detecting and seizing counterfeit or pirated goods that enter the United  States through its 300-plus ports of entry and assessing penalties against IP  rights offenders.
In response to your request to review federal enforcement efforts of IP at  the borders, this report (1) examines key aspects of CBP’s process to carry  out border enforcement, (2) analyzes CBP’s border enforcement outcomes  during fiscal years 2001 through 2006, and (3) evaluates CBP’s approach  for improving border enforcement. We plan to report on CBP and other  federal agencies’ activities and resources devoted to IP enforcement later  in 2007.
To address these issues, we met with CBP officials in Washington, D.C.,  and at seven port locations and reviewed relevant agency documents to  understand CBP policies and practices related to IP border enforcement.  At the ports, we examined port organizational structures and practices for  enforcing IP rights, and we spoke with various CBP personnel who are  responsible for identifying, examining, seizing, and assessing penalties on  goods that involve IP violations. We analyzed CBP data on the volume and  value of trade entering U.S. ports and on its IP seizure and penalty activity.  Most of this analysis was based on data covering fiscal years 2001 through  2006, but some data were only available for fiscal years 2003 through 2006.  We identified certain limitations in the seizure and penalty data but found  them sufficiently reliable to indicate broad trends in enforcement  outcomes. We discussed CBP’s efforts with knowledgeable agency  officials and obtained information on certain steps CBP has taken to  improve its efforts. Our work focused on tangible goods that cross U.S.  borders, rather than goods that are pirated over the Internet. We  conducted our work from November 2005 through January 2007 in  accordance with generally accepted government auditing standards. The  original version of this report was issued on March 20, 2007, as a restricted  report, copies of which are available for official use only. This public  version of the original report does not contain certain information that  DHS regarded as law enforcement sensitive and requested that we remove.
subsections: section_title: Background
subsections: section_title: Counterfeit Goods Pose a Cost to U.S. Economy and a Threat to Health and Safety
paragraphs: Intellectual property is the result of human innovation and creation to  develop products that people consume every day, whether it is the music  we listen to, the books we read, the cars we drive, or the medicine we  take. The protection of IP is recognized as important to continuing that  innovation and creativity, and the United States has several laws aimed at  protecting IP rights. Copyrights, patents, and trademarks are the most  common forms of protective rights for IP. Protection is granted by  guaranteeing owners limited exclusive rights to whatever economic  reward the market may provide for their creations and products.  According to the U.S. Intellectual Property Rights Coordinator, industries  that relied on IP protection were estimated to account for over half of all  U.S. exports, represented 40 percent of U.S. economic growth, and  employed about 18 million Americans in 2006, making IP protection  important to protecting our nation’s economy. It is difficult to reliably  measure criminal activity, but industry groups suggest that counterfeiting  and piracy are on the rise and that a broader range of products, from auto  parts to razor blades, and from medicines to infant formula, are subject to  counterfeit production. The threat to America’s health and safety from the  theft of IP and counterfeiting of products is an increasing concern for  many reasons—counterfeit batteries can explode, counterfeit car parts  can fail to perform, and counterfeit pharmaceuticals can lack the  ingredients necessary to cure deadly diseases. In addition to public health  and safety concerns, the annual losses that companies face from IP  violations are substantial.
section_title: CBP Leads IP Enforcement at the Border
paragraphs: Multiple federal agencies play a role in combating counterfeiting and  piracy, and their efforts were wrapped into the administration’s Strategy  Targeting Organized Piracy, launched in October 2004. One objective of  this effort is to improve border enforcement, and CBP is the agency  primarily responsible for such enforcement, given its authority to detain  and examine shipments and seize goods that violate U.S. law. CBP’s  current mission has two goals: preventing terrorists and terrorist weapons  from entering the United States while facilitating the flow of legitimate  trade and travel; and its priority mission is to ensure homeland security.
CBP is responsible for enforcing antiterrorism, trade, immigration, and  agricultural policy, laws, and regulations at more than 300 ports of entry.  Two CBP offices play a role in carrying out policies and procedures  related to IP enforcement:    Office of International Trade (OT) – Established in October 2006, this  office consolidates the trade policy, program development, and  compliance measurement functions of CBP into one office. This office is  responsible for providing uniformity and clarity for the development of  CBP’s national strategy to facilitate legitimate trade and managing the  design and implementation of strategic initiatives related to trade  compliance and enforcement, including IP rights.
Office of Field Operations (OFO) – This office houses CBP’s border  operations and is comprised of 20 field offices under which are CBP’s 325  ports of entry. Overseeing more than 25,000 employees, including more  than 20,000 CBP officers, OFO is responsible for carrying out CBP’s cargo  and passenger-processing activities related to security, trade, immigration,  and agricultural inspection.
Daily management of port operations is highly decentralized, with field  offices overseeing but not directly managing port operations. CBP’s port  operations oversee an array of cargo- and passenger-processing  environments, and port management structures are not uniform. For  example, some ports’ management oversees a single port of entry while  others oversee multiple ports of entry (e.g., a seaport and nearby airport).
Seaports – CBP operations in the sea environment primarily consist of  cargo container processing, but may include passenger processing for  cruise ships. Cargo containers arriving at seaports may be transported to  interior ports for processing via an import mechanism called the in-bond  system. CBP receives manifest information 24 hours before lading at  foreign ports so that it may screen cargo container data to identify high- risk shipments.
Airports – CBP processes passengers and cargo at U.S. airports with  international flights. CBP’s air environment includes air cargo, express  consignment carriers, such as Federal Express, and international mail. Air  cargo shipments are generally larger in size than express consignment or  international mail shipments. CBP receives manifest information in the air  environment 4 hours prior to arrival.
Land Border Crossings – CBP processes passengers, commercial truck  and rail, and personal vehicles at land border crossings. CBP receives  manifest information for commercial truck and rail shipments 30 minutes  to 2 hours prior to arrival, depending on the transport mode.
The volume of goods and people that CBP processes for entry into the  United States every year is substantial and has been steadily increasing.  For example, the number of “entries summaries” filed with CBP rose from  nearly 24 million in fiscal year 2001 to nearly 30 million in fiscal year  2005. In fiscal year 2005, CBP processed approximately 20 million sea,  truck, and rail containers and about 450 million passengers and  pedestrians. At the same time, the value of import trade has been  growing, rising from about $1.2 trillion in fiscal year 2001 to about $1.7  trillion in fiscal year 2005, according to CBP statistics. The largest share  of imports by value arrives at the United States via ocean-going cargo  containers, followed by air transport, as illustrated in figure 1. According  to CBP, the proportion of import value by transport mode has remained  relatively static since fiscal year 1999.
Although all goods imported into the United States are subject to  examination, CBP examines only a small portion of them. Most exams  are conducted for security reasons, and these have been increasing each  year, while the number of trade-specific exams has not grown since 2001,  as shown in figure 2. In addition, CBP conducts a small portion of exams  under its Compliance Measurement Program, which has components to  address both security and trade compliance.
After the formation of DHS and in light of homeland security priorities,  CBP determined that it needed to focus its trade enforcement resources  and activities on the most pressing trade issues. CBP has six Priority Trade  Issues, one of which involves IP. According to CBP’s Intellectual Property  Rights Trade Strategy, the agency’s goal is to improve the effectiveness of  its IP enforcement activities; ensure a uniform enforcement approach  across its multiple port locations; and focus on making seizures with high  aggregate values, that threaten health and safety or economic security, or  that have possible ties to terrorist activity. CBP is also responsible for  enforcing International Trade Commission exclusion orders that arise  from an administrative process in which the commission determines that  certain products constitute infringement of a relevant U.S. law and should  be excluded entry to the United States. CBP coordinates its efforts with  DHS’s U.S. Immigration and Customs Enforcement (ICE), which  investigates IP violations and builds cases for prosecution.
section_title: CBP Undertakes a Series of Steps, Amid Challenges, to Enforce IP Rights at the Border
paragraphs: CBP takes a series of steps to enforce IP rights at the border and faces a  number of challenges throughout this process. Two key offices, OT and  OFO, are responsible for carrying out these steps, which include (1)  targeting suspicious shipments; (2) examining detained shipments to  determine if they carry infringing or excluded goods; and (3) enforcing IP  laws by seizing goods and, if warranted, assessing penalties against  importers. CBP uses two primary methods to target IP violations:  computer-based and manual targeting. Their use varies, depending on the  individual port approaches and the transportation mode being targeted,  and both methods have certain strengths and limitations. OT and OFO  both use computer-based methods to target vast numbers of commercial  shipments, but the primary computer method used for IP purposes has led  to a relatively small percent of IP seizures. Manual targeting by port  employees is more ad hoc and flexible than computer-based targeting,  given its reliance on employee skill and availability, but determining its  effect on IP enforcement is difficult. Ports conduct exams on targeted  shipments, and determining whether infringement has occurred during an  exam can be a challenging process that requires training and input from  experts. Because of differing port practices, information on IP exams has  been unevenly recorded across ports, according to officials, making it  difficult for CBP to fully analyze the effect of its targeting efforts in this  area. CBP’s process for enforcing IP concludes with ports seizing  infringing goods and, if warranted, referring cases to ICE and assessing  penalties. According to CBP officials, storing and destroying infringing  goods has been costly, and the penalty process has resulted in few  collections. Agency IP enforcement efforts have primarily been focused on  goods for which the trademark or copyright has been recorded with CBP.
subsections: section_title: CBP Operates in a Challenging Environment to Combat the Entry of Counterfeit Goods
paragraphs: Because importing counterfeit goods is an inherently deceptive activity, it  presents challenges to CBP’s ability to process large volumes of goods and  determine those that are legitimate. CBP regularly confronts nefarious  importers who attempt to smuggle IP-infringing goods into the country  through various means. For example, according to a CBP press release, in  August 2006, the Norfolk seaport found fake Nike shoes concealed inside a  refrigerated container behind the jellyfish and salt kelp declared on the  manifest. In addition, CBP contends with counterfeiter practices that  make it difficult to detect shipments containing IP-infringing goods or  distinguish legitimate from unauthorized goods. The law enforcement  sensitive report described some of these practices in greater detail.
Amid these challenges, however, OT and OFO both have responsibility for  executing a series of actions to (1) target potential IP infringing goods as  they enter the United States, (2) examine suspicious goods, and (3)  enforce IP laws through seizures and penalties, if warranted. Figure 3  depicts an overview of CBP’s process.
section_title: CBP Uses Various Targeting Methods, Depending on Port Practices and Transport Modes, Each Having Strengths and Limitations
paragraphs: CBP uses both computer-based and manual targeting approaches to target  counterfeit goods either before or as they enter the United States—both  methods have strengths and limitations related to scope, data accuracy  and overall sophistication, and resource requirements. CBP ports vary in  the degree to which they use these methods, depending on their overall  approach to IP enforcement and the modes of transport that they oversee.  The primary computer-based targeting method used for IP purposes has  uncovered a relatively small share of IP seizures. The effect of manual  targeting is more difficult to determine. In addition, CBP undertakes other  targeting and compliance measurement actions that, while not intended  for IP enforcement, have uncovered IP violations.
subsections: section_title: Computer-Based Targeting
paragraphs: CBP’s computer-based targeting for IP violations is handled primarily  through its Cargo Selectivity program, a system that targets commercial  shipments, which are typically transported to the United States by sea, air,  and truck. Commercial shipments may arrive to the United States via  various modes of transport, but the largest shipments arrive via ocean- going cargo containers. When data about a particular shipment match the  targeting criteria entered into the system, the port of entry is electronically  notified, and the shipment is flagged for examination. Cargo Selectivity is  not used to target noncommercial shipments, which typically enter the  United States via express consignment, international mail, passengers, or  private vehicle.
Cargo Selectivity criteria can be developed to target on a nationwide basis  or on a local, port-specific basis. National criteria for targeting suspected  IP violations are developed and overseen by the Strategic Trade Center in  Los Angeles (formerly in the Office of Strategic Trade and now under OT),  where International Trade Specialists with expertise in particular  industries develop criteria based on their analysis of recent seizure activity  and information from industry representatives. CBP officials said that  Cargo Selectivity criteria are designed to target known or suspected  violators and that criteria can be written to target on all or some of a  limited number of data elements. Ports develop local criteria in a similar  fashion; however, they differ in the degree to which they use national or  local criteria.
CBP’s Automated Targeting System (ATS) is another computer-based  targeting tool, but it is not used to systematically target for IP violations.  ATS is a primary component of CBP’s approach for security targeting. As  we note later in this report, CBP has conducted one pilot test of an ATS  module for targeting IP violations.
section_title: Manual Targeting
paragraphs: Manual targeting describes a range of activities in which individual  employees at the ports or the Los Angeles Strategic Trade Center—based  on their own knowledge, analysis, and experience—identify certain  shipments for examination. According to CBP officials and based on our  observations at select ports, manual targeting may involve CBP staff  flagging shipments by:    conducting queries (such as in ATS) or executing analysis of  electronically-filed manifest or entry data;  reviewing entry paperwork (including paper and electronic entries), which  may be generated as a computer-based targeting;   visually observing packages in a processing or storage environment; and  receiving information from other CBP employees within their own port or  at other ports regarding a given shipment, perhaps based on information  obtained from law enforcement agencies or rights holders.
section_title: Both Targeting Methods Have Strengths and Limitations
paragraphs: Both Cargo Selectivity and manual targeting methods have certain  strengths and limitations relating to their scope, usefulness, and feasibility:    Cargo Selectivity allows CBP to quickly screen vast volumes of  commercial shipments on a nationwide basis, but it doesn’t work for all  types of shipments, and it has uncovered a relatively small share of IP  violations since fiscal year 2003. Cargo Selectivity can use only a limited  number of elements to target potentially infringing shipments, and getting  criteria into the system takes time. According to CBP officials, the lack of  sophistication and cumbersome process limits the system’s overall  usefulness for performing IP targeting. Also, CBP must use caution when  developing its Cargo Selectivity targeting criteria in order to minimize the  number of suspect shipments that are false positives, which can create  unmanageable workloads for the ports, delay the movement of legitimate  goods, and burden importers with exam costs. CBP data shows that IP  targeting using Cargo Selectivity accounted for only about 3 percent of  seizure actions made by CBP during fiscal years 2003 through 2006 and  about 10 percent of the total estimated value of goods seized. More  information on CBP’s seizure outcomes is provided later in this report.
Ports use manual targeting to overcome some of the limitations of Cargo  Selectivity. CBP officials at several ports we visited expressed the view  that there is no substitute for the skills and experience of a well-trained  CBP officer, but other officials noted that CBP can’t rely on manual  targeting to process vast volumes of trade. According to CBP officials,  manual targeting is heavily dependent on employee availability and  expertise; therefore, its use for IP targeting at some ports may be limited,  particularly as CBP increasingly focuses its staff resources on security  matters. CBP lacks data to fully determine the extent to which its seizure  outcomes have resulted from manual targeting, but the portion could be  large, given the relatively small portion that stems from Cargo Selectivity.
section_title: Other Targeting or Compliance Measurement Actions May Uncover IP Violations
paragraphs: CBP undertakes other actions that, while not intended for IP enforcement,  have uncovered IP violations, such as targeting for other trade violations  or security reasons or actions that measure compliance with laws and  regulations. For example, CBP’s Compliance Measure Program, a  statistical sampling program, is designed to examine randomly selected  shipments for their compliance with a range of laws and regulations,  including IP laws. According to CBP, IP violations have been found in a  very small percent—less than one-tenth of 1 percent—of such exams. In  addition, Cargo Selectivity, when used to target for reasons such as  terrorism or other trade issues, has revealed IP violations. Specifically, an  additional 3 percent of seizure actions and 10 percent of estimated seizure  value was uncovered from non-IP related criteria during fiscal years 2003  to 2005. Finally, any shipment that ATS identifies as high risk is  automatically subjected to nonintrusive examinations using radiation  detection and gamma-ray or X-ray scanning technologies. Such  examinations may reveal unexpected results, such as contents that appear  to differ from what is described in the manifest or entry data. When IP  violations are suspected, the container is referred for further review to  port personnel who handle trade enforcement. CBP could not provide data  to show how often IP violations were found in this way.
section_title: Targeted Shipments Are Subject to Examination, but Determining Infringement Can Be Difficult, and Exam Results Are Unevenly Recorded
paragraphs: Once shipments have been targeted for examination, CBP personnel at the  ports are to examine shipments and record the results of their exams in  CBP’s data systems. Because of high counterfeit quality and complex U.S.  IP laws, determining whether IP infringement has occurred can be  difficult. CBP provides some training to assist ports in this endeavor.  Because of variations in port practices for recording IP exam results,  CBP’s exam data are uneven, according to CBP officials, and limits the  agency’s ability to assess CBP’s targeting effectiveness.
subsections: section_title: Physical Exams Are Performed to Determine IP Violations
paragraphs: CBP uses the term “exam” to refer to a range of actions, including  paperwork reviews, nonintrusive exams, and physical exams in which  CBP examines all or a portion of the targeted goods. According to CBP  officials, physical exams are the best means for assessing potential IP  infringement. The procedures for conducting physical examinations differ  according to the mode of transport and the movement of goods for  examination.
Sea Cargo Examinations. In the sea cargo environment, sea containers  are generally transported and examined away from their point of arrival at  CBP exam facilities located at some distance from the port itself. When  multiple shipments are contained in a single cargo container, these are  first moved to a container freight station for debundling and then targeted  shipments within the container are moved to the examination warehouse.
Air Cargo Examinations. In the air environment, the examination  location may vary. For example, air cargo shipments may be examined at  their arrival location or moved to a CBP exam facility while international  mail and express consignment shipments may be examined at their arrival  location.
Land Border Crossing Examinations. At land border crossings,  vehicles and packages are moved to examination areas while still under  CBP’s control.
CBP personnel who perform physical exams at the ports have discretion  over how intensive an exam will be. For example, according to CBP and  ICE officials, decisions are made about how many boxes will be opened  from a single ocean-going cargo container; which boxes will be opened;  and whether the container will be partly or fully unloaded.
CBP personnel are to follow a common set of procedures grounded in law  and regulation once shipments are opened for examination. When CBP  decides to examine goods, it has a 5-day period, following the date on  which the goods were presented for examination, to decide whether it will  detain or release them. If examining personnel can immediately identify  goods as counterfeit, perhaps because they have recently seized similar  goods or the violations are obvious, CBP initiates procedures to detain the  goods. However, because this is often not the case, samples of the  merchandise may be provided to commodity experts at the ports called  Import Specialists who evaluate the goods for IP infringement. As a result  of their evaluation, Import Specialists will either order the goods to be  detained for further review or released.
When CBP decides to detain goods, it must notify the importer of the  detention within 5 days after the decision was made, and may also notify  the affected rights holder. The notice to the importer advises, among  other things, the reason for the detention and the nature of any  information or tests that CBP requires in order to process the matter. The  importer and rights holder can take various actions, and communication  with CBP may ensue for a period of 30 days. According to CBP officials,  some rights holders are willing to negotiate with importers, which may  involve financial compensation for the rights holder. If the importer’s  actions fail to secure release of the goods within 30 days or CBP finds  them to be infringing, the agency proceeds with seizure and forfeiture  actions.
section_title: Identifying IP Violations Can Be Difficult
paragraphs: Because of high counterfeit quality and the complexity of U.S. laws,  making a determination of IP infringement in some instances is difficult.  To help ports assess whether goods are authentic, CBP’s agency  regulations provide rights holders the option to record trademarks, trade  names, or copyrights with CBP. CBP currently charges $190 for its  recordation application. Through the fee-based recordation process, CBP  collects information from an IP owner about specific registered  trademarks, copyrights, or trade names, and then enters that information  into an electronic database accessible by CBP officers at ports across the  country. However, CBP officials said that some IP owners do not record  their rights with CBP, meaning that CBP lacks information about their  products and access to individuals within the company who can address  potential infringement. Moreover, when counterfeit quality is quite good,  even the rights holder may have to conduct research to distinguish real  from fake.
In addition, the complexity of U.S. IP laws and CBP’s array of seizure  authorities present challenges to port staff, according to CBP officials.  CBP has an array of detention and seizure authorities for IP violations;  port personnel must be aware of these authorities and ensure their actions  are in accord with them. CBP advises the ports that the most appropriate  seizure authority will depend on the type of IP right infringed, whether the  right is federally registered, whether the right is recorded with CBP, and  the type of alleged infringement. CBP is authorized, in some instances, to  seize goods for which the right is registered with appropriate rights- granting authorities but not recorded with CBP; however, OT’s lead IP  attorney stated that because the statutory bases for such enforcement are  established by criminal statutes that invoke certain limitations and  evidentiary requirements, such seizures would be available only in cases  involving clear instances of counterfeiting or piracy and would require  CBP to establish more elements of the infringement than is required for  recorded rights. Therefore, CBP directs ports to focus their IP  enforcement on recorded goods. For certain other types of violations, CBP  does not commence seizure actions either because of agency policy or the  lack of proper authority.
CBP and rights holders offer training to port personnel to assist them in  evaluations. For example, OT’s IP attorneys train port personnel, including  CBP Officers, Import Specialists, and others, on the legal and regulatory  authorities in this area. Between 35 and 40 ports received training in each  of fiscal years 2005 and 2006. In addition, private sector training is  periodically arranged for CBP ports. Rights holder representatives give  CBP staff advice about how to determine whether goods are counterfeit.  For example, rights holders may tell CBP about security features they  embed in their products or other methods they use to protect their IP.
section_title: Uneven Quality of Exam Data Limits CBP’s Ability to Analyze IP Enforcement Efforts
paragraphs: CBP maintains data systems in which port staff are required to record the  results of exams they conduct, but the uneven quality of exam data has  made it difficult for the agency to accurately analyze the results of IP  targeting and to fully track all incidents of IP violations, according to CBP  officials. CBP requires port staff to document exam results, whether or not  violations were found, in order to contribute to the agency’s repository of  enforcement knowledge and for future targeting purposes. Officials in OT  and its legacy offices familiar with the agency’s data for IP-related exams  told us the data are not uniform or timely and contains inaccuracies. For  example, these officials said they have found instances where goods were  seized for IP violations, but exam records did not indicate that any  discrepancies were found. Also, officials said that staff at some ports  quickly record exam results, but staff at other ports do not record exam  results until several months after the goods have been detained or seized,  if ever. Among ports that quickly record results, sometimes port staff must  later revise the exam results if further investigation determines that the  goods are legitimate. In addition, although port staff are directed to  indicate in CBP’s data systems whether IP violations were found and can  add additional information about laws that were violated or a narrative  description of the goods, officials in OT and its legacy offices that are  familiar with the data said that whether and how they record this  information varies. These officials were not sure what accounted for  variations in the quality of exam results across ports, and we did not  independently assess CBP’s policies or port practices for recording exam  results.
section_title: CBP’s Key IP Enforcement Actions Entail Seizing Goods and Issuing Penalties
paragraphs: CBP’s process for enforcing IP rights concludes with the seizure of  counterfeit goods and, if warranted, the assessment of penalties against  the IP infringer. A seizure action, as defined by CBP, entails CBP taking  control and/or possession of articles imported contrary to law. Penalties  result in monetary fines imposed on the violator.
Once CBP officers have examined goods and determined that they are  counterfeit, the legal process to seize goods is initiated. This process,  carried out by Fines, Penalties, and Forfeiture offices at the ports, entails  (1) resolving or deciding CBP compliance actions; (2) providing advice to  other CBP officers on the various trade violations; (3) securing or  maintaining seized property; and (4) making sure CBP’s automated system  accurately reflects description, location, value, and forfeiture status of  seized goods. CBP calculates the domestic value of seizures to track the  value of goods it intercepts. For penalties it issues under 19 U.S.C.  1526(f), CBP calculates the Manufacturer’s Suggested Retail Price  (MSRP)—which would have been the value of the merchandise if it were  genuine. CBP determines whether additional enforcement in the form of  civil penalties should be assessed. It is CBP’s policy not to assess a  penalty, however, until all forfeiture proceedings have been completed,  and the property, except for representative samples, has been destroyed.  When assessing 19 U.S.C. 1526(f) penalties against a first-time violator, the  amount of the penalty may be equal to or less than the MSRP. In the event  of a second or subsequent seizure, the amount of the penalty is assessed at  twice the value of the merchandise, based on the MSRP at the time of  seizure. For seizures valued over $100,000 in domestic value, OFO  maintains responsibility for reviewing the case before any legal action is  taken. For penalties that are assessed, CBP officials said that substantial  resources are dedicated to processing penalty cases, but they also said  that penalty amounts are seldom fully collected. CBP’s collection issues  are discussed later in this report.
Depending on the size and value of a seizure, CBP officers coordinate with  ICE agents who then consult the Department of Justice’s U.S. Attorneys  Offices to determine if criminal investigation and prosecution is  warranted. For example, a repeat violator may warrant criminal action if  ICE has enough information to initiate a criminal investigation and build a  case.
Seized goods have to be secured, as they have potential value but cannot  be allowed to enter U.S. commerce. Storage may be prolonged by law  enforcement actions, but the goods are generally destroyed or otherwise  disposed of according to law when determined to be illegal and are no  longer needed. According to CBP officials, as seizures have increased, the  agency’s storage and destruction costs have grown and become  increasingly burdensome. CBP reports that it spent over $9.1 million to  destroy seized property between fiscal years 2001 and 2006. CBP officials  said that the environmental regulations for disposing of goods, particularly  in states like California, prevent CBP from disposing of certain counterfeit  goods in landfills. Often the goods are destroyed through incineration.
section_title: IP Enforcement Outcomes Have Been Concentrated in Certain Areas and Reflect Pockets of Activity
paragraphs: The bulk of CBP’s enforcement outcomes have been concentrated within  certain modes of transport and product types and reflect pockets of  activity among a limited number of ports. Although the total number of  seizure actions has grown since fiscal year 2001, nearly doubling between  fiscal years 2005 and 2006, most of these actions involved small-value  seizures made from air-based modes of transport and may reflect a shift in  smuggling techniques toward larger numbers of smaller-sized shipments.  The total estimated domestic value of goods seized since fiscal year 2001,  however, has fluctuated due to variations in seizure activity involving  large, ocean-going containers in which the highest-value seizures tend to  be made. While the types of goods seized have varied over time, wearing  apparel, cigarettes, footwear, and handbags have accounted for the  majority of estimated seizure value in the past 6 years. Ten or fewer ports,  including some of the nation’s largest ports and others that are  significantly smaller, have accounted for the bulk of seizure and penalty  outcomes since 2001. Of these ports, six have made consistent  contributions each year to IP enforcement outcomes.
CBP measures IP seizure activity two ways: number of seizure actions and  estimated domestic value of goods seized. The number of goods in one  seizure action can range from a few items shipped via international mail to  hundreds of boxes of goods in a ocean-going cargo container. CBP  maintains the official seizure statistics for DHS, including those made by  CBP, ICE, or jointly by the two agencies. CBP captures data on the  transport mode or processing environment in which goods were seized,  but in compiling seizure data, neither OT nor its legacy offices routinely  verify this data field. In addition, there are certain limitations in CBP’s  seizure data, such as the precision of the estimates. However, we found  CBP’s data to be sufficiently reliable to indicate broad trends.
subsections: section_title: Majority of IP Seizure Actions Occurred in Air Transportation Environment While Value of Seized Goods Was Concentrated in Sea Environment
paragraphs: For fiscal years 2003 through 2006, most IP seizure actions have been  concentrated in the air transportation environment, while most seizure  value has been concentrated in ocean-going cargo containers. As shown  in figure 4, about 78 percent of total seizure actions during fiscal years  2003 through 2006 occurred in air transportation processing  environments. Significantly fewer seizure actions were made from ocean- going cargo containers or land-based transport modes, such as truck, train,  or auto. Conversely, ocean-going cargo container seizures represented  about 60 percent of total estimated seizure value during those years, with  significantly smaller portions of value generated by air- and land-based  seizures. Even though about one-fourth of U.S. imports enter by land- based modes of transport, seizure actions and values in this mode were  less than 5 percent of total seizures, as measured by either indicator.
CBP seizure data show that the number of seizure actions has grown  steadily from fiscal years 2001 to 2006, while domestic values have  fluctuated. As shown in figure 5, there were over 3,500 seizure actions in  fiscal year 2001, increasing to over 14,000 in 2006. Also shown in figure 5,  the domestic value of goods seized in these years has fluctuated, reaching  a high in 2006 of more than $155 million. Although the overall trend for  both measurements is upward, these outcomes represent a small fraction  of overall imports. For instance, in fiscal year 2005, the domestic value of  IP seizures represented less than one-tenth of 1 percent (0.02 percent) of  the total value of imports of goods in product categories that are likely to  involve IP protection. It is impossible to know whether these seizure  outcome trends reflect improved enforcement actions or an increase in the  share of counterfeit trade entering the United States during those years.
According to our analysis, growth in the number of seizure actions was  fueled by increases in small-value seizures made in express consignment  and international mail facilities. CBP publicly cites an 83 percent increase  in the number of seizure actions from fiscal year 2005 to 2006 as an  indicator of its growing IP enforcement success. However, our analysis  shows that this growth was driven primarily by smaller-value seizures. For  example, to date, the largest number of seizures for international mail  occurred in fiscal year 2006, with the number of seizure actions and their  domestic value more than doubling from the previous year. CBP officials  said they believed that while some of these seizures are personal  shipments ordered from Internet sites that sell counterfeit merchandise,  others have contained quantities of goods too large for personal use. Some  officials also speculated that counterfeiters may be breaking commercial  shipments into smaller components to avoid detection and face more  limited losses in the event of a seizure. However, CBP has not conducted  any systematic analysis to support these observations.
Our analysis also shows that several factors influence trends in seizure  value. Spikes in seizure value in fiscal years 2004 and 2006, accounting for  approximately 30 percent of seizure value in each of those years, were  largely due to shipments moving through the in-bond system. Also, CBP  data show that about 15 percent of seizure value during fiscal years 2003  through 2006 stemmed from seizures made by ICE during its  investigations, and OT and ICE officials said that ICE may have played a  role in some of the seizures attributed to CBP. Of note in fiscal year 2006, a  combined CBP and ICE initiative resulted in the seizure of 77 cargo  containers of fake Nike Air Jordan shoes and 1 container of fake  Abercrombie & Fitch clothing that were transported in part using the in- bond system (they entered the Los Angeles seaport, transited through  Arizona, and were supposedly destined for export to Mexico). The  estimated domestic value of these goods was about $19 million,  representing about 12 percent of total domestic seizure value in fiscal year  2006.
section_title: Seizures Have Been Concentrated among Certain Types of Products
paragraphs: Although the types and quantities of seized goods vary over time, seizures  over the past 6 years have been highly concentrated among certain types  of products. For example, seizures of footwear, wearing apparel,  handbags/wallets/backpacks, and cigarettes accounted for over 60 percent  of the aggregate value of goods seized over the past 6 years. Table 1  shows that footwear and wearing apparel accounted for 57 percent of  domestic value of goods seized in fiscal year 2006, with the high percent of  footwear seized partially resulting from the large CBP/ICE seizure  described earlier. Health care products and pharmaceuticals accounted for  only 3 percent of such value. When asked why commodity seizures vary  from year to year, CBP officials stated that counterfeiters produce fake  goods depending on marketplace demand at any given time. However, it is  difficult to determine whether CBP and ICE seizures are representative of  the types of counterfeit products entering the United States in any given  year or merely reflect counterfeit products that CBP detected.
CBP reports that seizures are also concentrated in one trading partner— for fiscal years 2001 through 2006 combined, exports from China account  for 65 percent of total seized IP domestic value. Hong Kong and Taiwan  are distant seconds to China, accounting for 6 and 5 percent of seizures in  that period, respectively. The combined share of goods seized that were  exported from China and Hong Kong grew about 40 percent per year  during this period. Also listed among trading partners for which goods  were seized for IP violations in fiscal years 2001 through 2006 are Korea,  Pakistan, Russia, South Africa, and Singapore.
section_title: Ten or Fewer Ports Have Accounted for the Bulk of IP Enforcement Outcomes
paragraphs: CBP’s IP enforcement outcomes, including seizures and penalties, have  been highly concentrated among a limited number of ports across the  country. We analyzed CBP’s seizure and penalty data for fiscal years 2001  through 2006 and found that the bulk of enforcement activity was carried  out by 10 or fewer ports in each of four enforcement categories we  reviewed: (1) total number of seizures, (2) total seizures by domestic  value, (3) total penalty cases opened, and (4) total amount of penalties  assessed. The top 10 ports for each category differ, but there is  considerable overlap among the ports so ranked in each category. Table 2  also shows that during fiscal years 2001 through 2006, the top 10 ports  ranked by total seizure actions accounted for nearly two-thirds of those  actions, and the top 10 ports ranked by total domestic seizure values  accounted for nearly three-fourths of those values. Table 2 shows even  greater concentration among the top 10 ports for penalty cases opened  and penalty amounts assessed. Our analysis indicates that, while seizure  actions have been more broadly disbursed among CBP’s ports, fewer of  them have accounted for seizure values, and even fewer ports have  assessed penalties for the seizures they make. The mix of ports in these  rankings is surprising because they include some of the nation’s largest  ports as well as several that are significantly smaller. Moreover, as we  discuss later, some of the ports among which seizures are concentrated  are not among the top ports in terms of IP import value; and conversely,  some high IP-importing ports have shown more limited seizure outcomes.
Because of inconsistencies in the way CBP records seizures by port, it can  be difficult to determine precisely which processing environments  accounted for seizure outcomes. We were able to determine the seizure  reporting practices of the seven ports that we visited. For example, at one  port, CBP uses one port “code” to record IP seizures made at the seaport  and the nearby airport. Seizure data for another port includes seizures  made at the seaport and from the international mail processing  environment but does not include other air-based seizures made at the  nearby airport, which are reported separately. Neither OT nor its legacy  OFO office at the headquarters level could provide us information to  understand the seizure reporting practices of CBP’s ports.
Among these top 10 ports, there is further concentration of activity. For  example, we found that four ports ranked in the top 10 for all four  categories and two ports ranked in the top 10 for three of the four  categories. This indicates that the majority of enforcement outcomes were  produced by a handful of ports over the 6-year time period. Appendix II  contains additional analysis of these six ports’ enforcement outcomes.
Outside of the most active seizing ports, seizure outcomes have been more  disbursed and prone to fluctuation. CBP’s seizure data showed that around  243 ports of entry made seizures at least once during the past 6 years.  About 190 of those ports reported fewer than 100 aggregate seizure actions  since 2001, and over 100 reported less than $100,000 in 6 years’ aggregate  domestic value of seizures. Some of these ports had very little activity for  2001 through 2006, while others had occasional spikes in their seizure  actions or domestic seizure values.
section_title: CBP’s Approach to Improving IP Enforcement Lacks Integration and Has Produced Limited Results
paragraphs: CBP lacks an integrated approach across key offices for improving border  enforcement outcomes, having focused on certain efforts that have  produced limited results while not taking the initiative to understand and  address the variations among ports’ enforcement outcomes. While CBP’s  strategic plan notes the importance of IP enforcement under two of CBP’s  strategic goals, the plan lacks performance measures to guide CBP’s IP  border enforcement efforts and assess its agencywide progress. CBP  efforts to improve its IP border enforcement process, led by OT or its  legacy offices, have produced mixed results: (1) poor data collection  during port-based pilots limits OT’s ability to evaluate the effectiveness of  a new risk model for IP targeting; (2) audits conducted to assess certain  importers’ IP-related controls have resulted in some penalties, but many  audits are not yet complete; and (3) actual collections on IP penalties  remain far below the assessed amounts. Meanwhile, CBP has not  attempted to understand variations within or among ports’ enforcement  outcomes. Using CBP’s own import and seizure data, we identified some  factors that may have influenced enforcement outcomes and some  enforcement anomalies among key ports that bear further investigation.  We also performed a simple analysis that could help CBP identify ports  with higher or lower than average seizure outcomes. For example, of 25  ports that accounted for over 75 percent of the value of total IP-type  imports in fiscal year 2005, just 8 of them had higher than average shares  of IP seizures (by value) compared with their IP imports (by value). Such  analysis could be further refined by incorporating information about ports’  import composition or by making comparisons across similar processing  environments. Lacking an integrated approach, such analysis would likely  be conducted by OT, but the responsibility for overseeing and influencing  port operations lies with OFO.
subsections: section_title: CBP’s Strategic Plan Lacks Performance Measures for IP Enforcement
paragraphs: In its agency strategic plan, CBP notes the importance of IP enforcement  under two strategic goals, however it has not included any performance  measures to guide its IP border enforcement efforts and assess progress  on its agencywide efforts. Leading organizations use strategic plans and  performance measures to communicate their vision and priorities on an  agency-wide basis and establish accountability. Under its strategic goal to  facilitate legitimate trade and travel, CBP identifies the enforcement of  relevant U.S. laws under its jurisdiction, including IP, as one of its strategic  objectives. Although IP is included as a strategic objective, there are no  specific IP performance measures under this goal. CBP also addresses IP  enforcement under its goal to protect America and its citizens by  prohibiting the introduction of illicit contraband, counterfeit goods, and  other harmful materials. However, performance measures for this goal  relate to prohibited agricultural items and narcotics. For example, there  are three separate measures that address narcotics seizures, but none  specific to IP.
CBP does measure and report internally on the number of IP seizure  actions and estimated seizure value and has other indicators related to IP  enforcement, but these measures and indicators are not included as  performance measures in its strategic plan. These measures and indicators  are found in CBP’s IP Rights Trade Strategy, an internal document  classified as “For Official Use Only” with limited distribution across CBP.  In our discussions with CBP, agency officials responsible for developing  and overseeing the IP Rights Trade Strategy referred to it as an internal  planning document on IP enforcement. The internal nature of this  document, unlike an agency’s strategic plan with performance measures,  limits its usefulness in holding CBP accountable to Congress for its  performance on IP enforcement.
section_title: Legacy OT Offices Have Led Certain IP Improvement Efforts, but These Have Produced Mixed Results
paragraphs: Offices that are now part of OT have taken the lead in carrying out certain  efforts to improve IP border enforcement, but these efforts have produced  limited results. In its IP Rights Trade Strategy, CBP states that its goal is to  support the administration’s Strategy Targeting Organized Piracy (STOP)  and to focus on high value seizures and seizures related to public health  and safety issues. Among the initiatives outlined in the document, key IP  border enforcement efforts include (1) improving computer-based IP  targeting, primarily by developing a statistical risk-assessment model to  complement Cargo Selectivity; (2) using audits to assess certain importers’  controls for preventing IP infringing imports; and (3) issuing guidance to  give ports more discretion on when to assess IP penalties. Although  computer-based targeting and audits are considered STOP priorities, none  of these efforts have thus far significantly impacted CBP’s efforts to focus  on high value seizures or seizures related to public health and safety.
subsections: section_title: Effectiveness of New Targeting Model Cannot Be Determined
paragraphs: A key component of CBP’s IP enforcement improvement efforts has been  the development of a statistically driven risk assessment model. However,  problems with implementation in the first field-based pilot test, and poor  data collection in a second pilot test prevents OT from fully evaluating the  model’s results. CBP developed this model to improve its ability to target  unknown IP violators. The model figures prominently in CBP’s strategic  plan and has been continually highlighted as one of CBP’s main  contributions to STOP.
CBP’s risk model differs from Cargo Selectivity in two key ways: first, it  uses statistical analysis of past seizures and certain other information to  target future shipments, whereas Cargo Selectivity relies on human  analysis to develop criteria. Second, CBP officials told us the model is  designed to identify unknown violators based on its analysis of past  seizure patterns, whereas Cargo Selectivity primarily targets known or  suspected violators. However, pilot tests conducted in 2005 and 2006  revealed problems and produced limited results:  In the first pilot, run for 1 month by the Los Angeles Strategic Trade  Center, the model was more efficient at targeting IP violations than Cargo  Selectivity, according to CBP. However, CBP’s implementation  methodology resulted in certain targeted shipments being released before  they could be examined, affecting CBP’s ability to fully evaluate the  model’s accuracy. Also, the model sometimes targeted the shipments of  actual rights holders, forcing CBP analysts to intervene to prevent exams  of authentic goods. The pilot helped CBP refine the risk threshold at which  it should conduct examinations based on the model’s targeting.
The second pilot was run for about 3 months at one seaport and two land  border crossings, but OT is unable to determine how the model worked  because of weaknesses and inconsistencies in the data that participating  ports collected for the pilot, according to OT officials. For example, for  some targeted shipments, the data does not contain any exam results, even  though goods were ultimately seized from those shipments. In other  instances, the data contains exam results for shipments that were too low  risk to have been targeted by the model.
Although CBP has already cited the model as an accomplishment, it does  not know how well the model works. OT officials said they plan to develop  and carry out a third pilot by having the Los Angeles Strategic Trade  Center keep track of what the model has targeted and what the exams  revealed. However, this may be difficult because the center will have to  communicate directly with ports involved in the pilot to determine what  exams were conducted and what results were found. It is not clear  whether further revisions will improve the model or what role the model  will play in CBP’s overall IP targeting strategy.
After the first pilot of the risk model, OFO officials said they began  developing a set of rules to target IP violations using ATS. These rules  were developed with input from the former Office of Strategic Trade (now  part of OT) and were tested concurrently with the risk model during the  second pilot. However, data collection weaknesses also limit CBP’s ability  to assess the effectiveness of these rules, and their role in future targeting  is unclear.
section_title: Audits Have Resulted in Some Seizures and Penalties, but Their Efficacy Is Limited
paragraphs: Another prominent undertaking that is discussed in CBP’s strategic plan  and represents a second CBP contribution to STOP is the use of audits to  uncover IP violations among select importers. These audits, initiated by  the former Office of Strategic Trade (now part of OT), are referred to as  “post-entry” audits because they examine records of goods that have been  imported and released into commerce. This single-issue audit is designed  to evaluate the adequacy of an importer’s internal controls over IP  imports, test whether the internal controls provide reasonable assurance  that the company is compliant with CBP laws and regulations, and  potentially find previously undetected IP violations made by the importer.  These audits are most likely to be effective when dealing with compliance  problems of established importers and less so when dealing with  importers that purposely evade federal scrutiny, as is the case for  importers involved in counterfeit trade.
The audits began in 2005 and have produced some enforcement outcomes,  but they and the post-audit decision process have been time consuming.  OT’s Regulatory Audit Division, in consultation with the Los Angeles  Strategic Trade Center, selected approximately 20 importers as audit  candidates in each of fiscal years 2005 and 2006, some of which had a  history of IP violations. Of these 41 audits, 23 have been completed, 12  are in progress, 4 were suspended because they involved companies that  ICE was investigating, and 2 have not yet started. CBP has selected about  half of the next 20 companies to be audited for fiscal year 2007. The  completed audits found evidence that some companies had imported IP  infringing goods, some counterfeit goods had been released into  commerce, and other infringing goods remained in company warehouses.  According to agency officials, based on these violations, CBP decided to  assess penalties against certain companies, but the intra-agency review  process for the penalties took about 1 year because of intra-agency  discussions about the legal basis for assessing penalties on goods that had  already entered commerce. Although CBP has moved forward with  penalties in certain cases—four companies were assessed penalties  totaling over $5.7 million—future penalty decisions must be deliberated on  the facts in each case, according to CBP officials. CBP officials said they  periodically monitor the import performance of these audited companies  and found one additional instance of IP infringement. When audit findings  are significant, CBP works with the importer to develop a Compliance  Improvement Plan to help prevent further IP violations.
At CBP’s December 2006 Trade Symposium, the Assistant Commissioner  for Trade discussed CBP’s plan to conduct a greater share of its trade  enforcement using these post-entry audits rather than cargo exams. The  time consuming nature of these audits and their greater efficacy with  established importers than with smugglers indicates the difficulties that  the agency will face in making this kind of enforcement shift.
section_title: New Penalty Guidance Reduces the Number of Uncollectible Penalties, but Actual Collections Remain Low
paragraphs: A third undertaking has been the development of new guidance to reduce  the number of uncollectible penalties that CBP assesses, thereby freeing  up port resources for other activities. CBP officials reported that  significant resources are dedicated to processing penalty cases; however,  they noted that few penalties are collected and such enforcement has little  deterrent effect. We reviewed CBP penalty data and found that less than 1  percent of penalty amounts assessed for IP violations were collected  annually during fiscal years 2001 through 2006 (see table 3).
Various factors contribute to CBP’s limited collection rates on IP  penalties, including petitions for mitigation or dismissal by the violator,  dismissal due to criminal prosecutions, and the nature of counterfeit  importation. CBP officials said that many violators petition to have a  penalty mitigated or dismissed, and these actions often reduce the amount  of the penalty that CBP collects. One agency official explained that some  penalties are dismissed as a result of the case going to criminal  prosecution, in which the U.S. Attorney negotiates to have a penalty  dropped in exchange for information or other evidence that will support  the criminal case. Also, the deceptive nature of counterfeit importation  makes it difficult for CBP to track violators and enforce penalties.
To address the problem of poor collections, OFO communicated new CBP  guidance to ports in 2006 that caused new penalty cases and assessed  amounts to drop, but this has had limited impact on narrowing the gap  between the amounts assessed and collected. CBP’s guidance addresses 10  problem scenarios under which penalties are unlikely to be collected so  that Fines, Penalties, and Forfeiture offices will be able to avoid assessing  penalties in those circumstances. The objective of the guidance is to  reduce resources spent assessing uncollectible penalties as well as to  reduce the gap between penalties assessed and collected. The total  penalties assessed declined by two-thirds between fiscal years 2005 and  2006, from about $424 million to about $137 million, which CBP officials  attribute to the new guidance. Despite an increase in the amount of  penalties collected between fiscal year 2005 to 2006, from about $406,000  to about $614,000, less than 1 percent of the total penalties assessed was  collected for each of the fiscal years we reviewed.
section_title: CBP Has Not Analyzed Variations in Port Enforcement Outcomes
paragraphs: Despite some of its improvement efforts, CBP has not undertaken any  systematic analysis of its seizure and penalty activity to understand  variations in enforcement outcomes within or across ports or to learn  from ports that have been relatively more successful in capturing  fraudulent IP goods. For example, CBP has not analyzed the potential  reasons for fluctuations in seizure outcomes at key ports that have  impacted its overall seizure outcomes, and it has not identified  inconsistencies between seizure and penalty outcomes at certain ports.  Performing this type of analysis raises questions about individual ports’  performance outcomes and may help to inform CBP about potentially  effective port practices for IP enforcement. For example, in our analysis of  25 ports that brought in over 75 percent of the total value of IP-type  imports in fiscal year 2005, we identified 8 whose seizure rate (i.e., the  percent of IP seizures out of IP imports at that port, by value) was higher  than the average for the top 25 IP-importing ports. We also found that  some of the largest IP-importing ports had very small seizure rates relative  to other IP-importing ports. Such analysis can be performed using existing  data and could help CBP focus on identifying the handful of ports with  relatively stronger enforcement records and determining whether their  strategies and practices could be expanded and used at other ports.
subsections: section_title: CBP Has Not Analyzed Yearly Fluctuations in Port Enforcement Outcomes
paragraphs: CBP has not analyzed year-to-year fluctuations in ports’ seizure activity or  other enforcement outcomes that may seem inconsistent with a port’s  overall IP enforcement profile. In some years, fluctuations at key ports  have had a significant impact on the agency’s overall enforcement results.  For example, the number of seizure actions at one port has accounted for  a growing share of all seizure actions since fiscal year 2001, representing  nearly half of all seizure actions in fiscal year 2006, while seizure actions at  another port have gone down over time, representing 18 percent of total  seizure actions in fiscal year 2002 and less than 1 percent in fiscal year  2006. Two ports have been leading contributors to total estimated seizure  values. However, while the value of seizures made by one of these ports  has generally risen from fiscal year 2001 to 2006, the value of seizures  made by the other port has fluctuated significantly, representing about 60  percent of total seizure value in fiscal year 2002 and about 17 percent of  total seizure value in fiscal year 2005. The identities of these ports have not  been included in this report for law enforcement reasons.
In addition, CBP has not analyzed individual ports’ seizure and penalty  outcomes to identify potential inconsistencies in the use of certain  enforcement tools. We identified some ports with high seizure outcomes  that have not had correspondingly high penalty outcomes. While ports may  not necessarily assess penalties on all of their seizure outcomes,  particularly if the seizure value is limited, we identified ports with  relatively high average seizure values but limited penalty outcomes. For  instance, three ports ranked among the top 10 ports for seizure value for  fiscal years 2001 through 2006, with average seizure values ranging from  about $83,000 to about $123,000, but none of these ports ranked among the  top 10 for penalty cases opened, and only one of them ranked among the  top 10 for penalty amounts assessed. The penalty cases these ports opened  during this period ranged between 3 and 7 percent of their seizures. In  comparison, the second highest ranked port for seizure value, with an  average seizure value of about $88,000, was also one of the most active  ports for penalty actions, opening penalty cases for about 37 percent of its  seizures. Moreover, during our audit, we identified a sharp drop in penalty  outcomes for one of the top 10 ports, starting in fiscal year 2004, that  neither OT nor OFO had identified. In investigating the reason for the  drop, OFO determined that the port was not following proper procedures  for assessing and reporting its IP penalties. We asked OT officials to  explain these anomalies between seizure and penalty outcomes, and they  responded that such analysis had not been conducted.
We asked officials in OT and its legacy offices whether they had analyzed  port enforcement outcomes in this way and to what they attributed these  fluctuations and inconsistencies. These officials said that imports vary  among ports, seizures fluctuate according to changes in the nature of  counterfeit trade, and ports have different priorities for performing IP  enforcement. Overall outcomes or fluctuations might also be due to  variations in ports’ enforcement techniques or changes in IP enforcement  resources or the availability of skilled personnel. For example, an official  at one port we visited told us that during fiscal year 2004, the port made an  important change in its methods for performing trade-related targeting, by  disbanding a seven-person team that had focused solely on trade targeting  and shifting these resources to security targeting. During our February  2005 visit to this port, the port official stated that this change had  contributed to significantly lower seizure activity at the port in 2005. When  we discussed seizure outcomes at another port with OT officials—which  have resulted predominantly from the manual targeting skills of port  staff—they compared the workload created by these seizures with their  limited impact given that these are predominantly small value seizures. OT  officials said neither they, nor their legacy offices, have conducted any  analysis of individual ports’ seizure and penalty outcomes. Additional  analysis of selected ports’ enforcement outcomes are contained in  appendix II.
section_title: CBP Has Not Analyzed Relative IP Enforcement Outcomes among Ports
paragraphs: CBP has also not conducted any analysis of ports’ relative enforcement  outcomes. One way to conduct this analysis is to identify ports whose  seizure rate—the share of their IP seizures (by value) out of their total IP  imports (by value)—is relatively higher or lower than other ports. For  example, in fiscal year 2005, we focused on the top 25 ports that account  for over 75 percent of the value of all IP imports into the United States. Of  these 25 ports, we found that 8 had seizure rates higher than the group  average seizure rate of 0.015 percent. Surprisingly, the port with the  highest seizure rate, seizing about 0.123 percent of its fiscal year 2005 IP  import value, was also the port with the smallest value of IP imports  among the ports we examined. This port accounted for only about 1  percent of all IP import value that year, but over 7 percent of total seizure  value. In contrast, the IP seizure rates for several ports with relatively  larger IP import values were well below the group average. Figure 6 shows  the top 25 IP-importing ports by value in fiscal year 2005 and ranks them  by their seizure rate that year. The eight ports in which the seizure rate is  greater than the average (shown by the dotted line on the figure) are  highlighted in grey. The figure also shows that many ports had very low  seizure rates relative to the average. Port names have not been included  for law enforcement reasons.
Figure 6 illustrates the differences across ports in terms of IP seizures  compared with IP imports in fiscal year 2005, the most recent year for  which we had IP import data. We also examined these data over previous  years and found similar results. For example, Port A had the first or  second highest rate of any port in the top 25. Also, the eight ports with  above-average ratios in fiscal year 2005 are consistent with prior years.  Because of the wide range of factors that affect IP seizures (including the  unknown amount of goods actually involved in IP violations transiting a  given port), these data alone are not a complete measure of port  performance. Ports can be compared relative to each other, but port  performance in even those ports that appear relatively more successful  could still be potentially improved. For example, the majority of these top  25 ports had IP seizures that accounted for less than one hundredth of a  percent of their IP import value. Table 4 further illustrates the variability in  seizure actions and the range of seizure rates among the top IP-importing  ports.
section_title: Lack of Integration across Key Offices Impedes Further Improvements in IP Enforcement
paragraphs: CBP lacks an integrated approach across key offices for further improving  border enforcement outcomes. Our analysis of CBP’s data is one  illustration of the kind of work that the agency could do using existing  data to understand differences in IP enforcement outcomes across ports,  potentially identifying areas where improvements could be made, and  more effectively managing its resources to meet the agency’s goals and  objectives. CBP could refine this analysis by comparing across similar  ports and processing environments, such as seaports to seaports and  airports to airports, however inconsistencies in how CBP currently  captures seizure activity across ports, as previously discussed, makes this  refinement more difficult. CBP could use its experience and practical  knowledge of some of the factors affecting trade flows at their ports to  further inform the analysis. When we discussed our analysis with CBP, OT  officials said they have not conducted this type of analysis because they do  not have any responsibility or authority to oversee and influence port  operations, which is under the purview of OFO. However, OT is  responsible for overseeing CBP’s implementation of its Priority Trade  Initiatives, and it has access to data that could inform OFO’s  understanding of port IP enforcement practices and outcomes and inform  CBP’s resource allocation decisions.
section_title: Conclusions
paragraphs: Enforcing IP protection at U.S. borders has become progressively more  challenging for CBP as the volume of trade entering the United States  increases, and as the of types of IP-infringing goods expand. CBP needs to  maximize its IP enforcement efforts in an environment strained by the  need to balance its primary mission to protect homeland security with  trade facilitation and enforcement of U.S. trade laws, among other  objectives. While CBP has publicly cited increases in enforcement  outcomes based on larger numbers and higher values of IP seizures,  indicating its success, it has not fully disclosed the composition of those  seizures or analyzed what has accounted for the increases. However, as  indicated by our review, a limited number of ports have driven overall IP  enforcement activity.
CBP’s strategic plan lacks measures to guide agencywide IP enforcement  efforts, and the efforts of two key offices responsible for carrying out IP  enforcement, OT and OFO, are not well integrated. So far, the agency’s  main efforts to improve IP enforcement have involved initiatives carried  out primarily by OT, and these have produced limited results. However,  neither OT nor OFO has been engaged in trying to assess the effectiveness  of CBP’s core IP border enforcement efforts—namely, the targeting,  examination, seizure, and penalty activities undertaken by CBP’s front-line  port operations. CBP’s ability to fully assess ports’ IP enforcement  activities is hampered by inconsistencies in the way IP enforcement data  are recorded at the ports. In addition, OT does not have responsibility or  authority to oversee or influence port operations.
As demonstrated by our own analysis of CBP data, the agency has  sufficient information available despite the data’s limitations to conduct a  more comprehensive review of IP border enforcement outcomes in ways  that would provide insights about targeting, examination, seizure, and  penalty assessment practices across ports. Certain improvements to  existing data could make this type of review even more powerful. In  addition, such analysis could prove useful as CBP responds to  congressional directives to develop resource allocation models in order to  determine the optimal staffing levels needed to carry out its commercial  operations and other missions. CBP would be able to make more  measurable links between its strategic objectives and enforcement  outcomes, leading to more effective management practices and allocation  of limited resources. Given the challenging environment in which CBP  must process a vast influx of goods into the United States every day, it is  particularly important that the agency consistently collect key data,  perform useful analysis of the data, and use the data to better inform  policies and practices and make decisions to focus its use of limited  resources.
section_title: Recommendations for Executive Action
paragraphs: To develop a more effective approach to IP border enforcement, we  recommended in the law enforcement sensitive report that the CBP  Commissioner direct the Offices of International Trade and Field  Operations to work together to take the following three actions:    Clarify agencywide goals related to IP enforcement activity by working  with the Office of Management and Budget to include in its agency’s  strategic plan measures to guide and assess IP enforcement outcomes; Improve data on IP enforcement activity by:    Determining the completeness and reliability of existing IP  enforcement data and identifying aspects of the data that need to be  improved;   Ensuring uniformity in port practices to overcome any weaknesses in    Use existing data to understand and improve IP border enforcement    Analyzing IP enforcement outcomes across ports and other useful  categories, such as modes of transportation;   Reporting the results of this analysis internally to provide performance  feedback to the ports, better link port performance to performance  measures in CBP’s Strategic Plan, and inform resource allocation  decisions.
section_title: Agency Comments and Our Evaluation
paragraphs: We provided a draft of the law enforcement sensitive report to DHS for  review by CBP and ICE. Through DHS, CBP commented that it generally  agreed with our recommendations and provided certain additional  comments. Specifically, CBP said it would consider developing IP  enforcement measures and include them in the agency’s strategic plan to  clarify agencywide goals. CBP concurred with our second  recommendation to improve its IP enforcement data.
Regarding our third recommendation, CBP generally agreed to use  existing data to understand and improve IP border enforcement activity. It  stated that strong data analysis and targeting are critical to successful IP  enforcement and agreed to improve the linkages between the agency’s IP  enforcement objectives and port performance. However, CBP did not  regard our analysis of ports’ IP seizures relative to IP imports as a useful  tool for addressing the threat of IP infringement and identified a range of  limitations with our analysis. We disagree. This simple presentation can be  a powerful tool to generate discussion among IP policymakers and port  management and staff about IP seizure patterns, risks, and outcomes. CBP  has not yet attempted to complete even this basic analysis or initiate such  discussions. Doing so would invariably lead to potential refinements of the  analysis; we suggest a number of these in the report, some of which CBP  identifies in its comments. We encourage CBP to refine this analysis and  develop and use other types of analysis to ensure that ports are helping the  agency achieve its IP enforcement objectives.
CBP made certain additional comments about the draft law enforcement  sensitive report. For example, CBP said that our report focused on  transaction-level seizures and penalties, while not fully recognizing the  importance of additional elements of its IP enforcement approach. We  focused on seizures and penalties because they are the core IP  enforcement activities for which CBP is responsible, and we found that  CBP had not systematically analyzed its own performance of these  activities. However, we also discuss the risk model, the audits, and the  new penalty guidance; and these elements are reasonable components of a  broader approach, but we believe their effect on overall IP enforcement  has been limited. Moreover, we believe that CBP needs to continue to  ensure the robustness of its core enforcement activities. CBP also stated  that our report failed to note that the formation of OT in October 2006 was  designed in part to address the lack of integration between OT and OFO.  We disagree that the formation of this office has, in itself, addressed the  lack of integration that we identify in the report regarding IP enforcement.  Although OT consolidates CBP’s trade policy and program development  functions, including those related to IP enforcement, front-line  implementation of policies and programs continue to be carried out at the  ports under the leadership of OFO. OT and OFO will need to work closely  together to overcome the historic lack of integration regarding IP policy  and program development and execution. CBP and ICE also provided  technical comments, which we incorporated in the law enforcement  sensitive report as appropriate.
We also provided DHS a draft copy of this public report for a sensitivity  review by CBP and ICE. CBP and ICE agreed that we have appropriately  removed information that they considered law enforcement sensitive.
We are sending copies of this report to appropriate congressional  committees and the Librarian of Congress; the Secretaries of the  Departments of Commerce, Homeland Security, Justice, and State; the  Commissioner of U.S. Customs and Border Protection; the Assistant  Secretary for U.S. Immigration and Customs Enforcement; the Directors of  the U.S. Patent and Trademark Office and the U.S. Food and Drug  Administration; the Chairman of the U.S. International Trade Commission;  and the U.S. Trade Representative. We will make copies available to others  upon request. In addition, the report will be available at no charge on the  GAO Web site at http://www.gao.gov. We provided copies of the law  enforcement sensitive report to the Secretary of the Department of  Homeland Security, the Commissioner of U.S. Customs and Border  Protection, the Assistant Secretary for U.S. Immigration and Customs  Enforcement, and appropriate congressional committees with a need to  know.
If you or your staff have any questions about this report, please contact me  at (202) 512-4347 or yagerl@gao.gov. Contact points for our Office of  Congressional Relations and Public Affairs may be found on the last page  of this report. GAO staff who made major contributions to this report are  listed in appendix IV.
section_title: Appendix I: Scope and Methodology
paragraphs: The Ranking Minority Member of the Senate Subcommittee on Oversight  of Government Management, the Federal Workforce and the District of  Columbia, Committee on Homeland Security and Governmental Affairs  asked us to (1) examine key aspects of the U.S. Customs and Border  Protection’s (CBP) process to carry out enforcement of intellectual  property (IP) at U.S. borders; (2) analyze CBP’s border enforcement  outcomes during fiscal years 2001 through 2006; and (3) evaluate CBP’s  approach for improving border enforcement.
To examine key aspects of CBP’s border enforcement process, we  reviewed documents and interviewed officials at CBP headquarters in  Washington, D.C., and at selected port locations. At headquarters, we met  with officials in the Office of International Trade (OT) and Office of Field  Office Operations (OFO) and obtained documents. We reviewed agency  strategic plans, annual performance accountability reports, laws,  regulations, and policies that addressed agency goals and the roles and  responsibilities of these two key offices and field locations in enforcing IP  rights at the border, including CBP’s internal plan for addressing IP  enforcement as a Priority Trade Issue. We also reviewed documents and  interviewed officials at OT’s Los Angeles Strategic Trade Center, which  has been responsible for developing and implementing CPB’s approach to  IP enforcement since approximately 2002. We analyzed data that the  center provided on the use and outcomes of using Cargo Selectivity  criteria to target for IP violations. In addition, we reviewed documents and  interviewed CBP officials at four field offices and seven ports (the names  of the ports where we conducted field work are not included in this report  for law enforcement reasons). We selected these ports in order to observe  CBP’s IP enforcement practices at ports with high and medium import  levels (measured by value) and across a range of processing environments.  Five of these ports were among the top 25 IP-importing ports in fiscal year  2005, and five of them were among the six most active CBP ports as  measured by selected IP enforcement outcomes. We reviewed documents  on CBP’s organizational structures at these ports and the ports’  approaches for carrying out their overall missions, including IP  enforcement. The CBP officials we interviewed at these ports were  responsible for identifying, examining, seizing, and assessing penalties on  goods that involve IP violations. In addition, we reviewed relevant papers,  studies, and our reports that addressed key aspects of CBP’s mission and  its IP border enforcement responsibilities. We also met with officials from  the Department of Homeland Security’s Immigration and Customs  Enforcement, the Department of Commerce’s Patent and Trademark  Office, the Department of Justice, the U.S. Copyright Office, and the U.S.
International Trade Commission, to discuss their respective roles in  registering IP rights and investigating and prosecuting IP violations.
To analyze CBP’s border enforcement outcomes, we obtained and  reviewed seizure and penalty enforcement data covering fiscal years 2001  through 2006. First, to measure the value of IP-related trade entering U.S.  ports, we identified products, using detailed product codes, that are likely  to embody intellectual properties and obtained CBP data on the  importation of these products by port over fiscal years 2002 to 2005. In  order to identify these products, we reviewed the broad product groups  that CBP uses to categorize seizure actions and domestic value and then  identified all individual products that are covered by these groups within  the U.S. harmonized tariff schedule. We discussed our detailed product list  with CBP, which concurred with our list, and we obtained import data  from them according to the list. We reviewed these data for internal  consistency and any known limitations on its quality. We determined that  these data were sufficiently reliable to provide the value of IP imports by  port over the time period we examined. Second, we assessed CBP’s IP  enforcement efforts on an aggregate, product, and port basis by analyzing  its seizure and penalty data. Specifically, we obtained data from CBP on  seizure and penalty outcomes for individual ports of entry for fiscal years  2001 through 2006. For fiscal years 2003 through 2006, we obtained data  on the mode of transport or processing environments in which seizure  were made. Finally, we obtained data on seizures by product category and  source country from CBP’s external Web site. To assess the reliability of  the seizure and penalty data, we examined them for internal consistency  and discussed with CBP how the data are collected and reviewed. We also  reviewed our prior work that reported on CBP’s seizure data. Based on  this prior work and our discussions with CBP officials, we identified some  limitations in the seizure data related to the precision of the seizure value  estimates and the veracity of the fields that indicate product types and  modes of transport or processing environments. We also found some  inconsistencies in the various data sets we received, which we reported to  CBP. The limitations and inconsistencies we identified, however, did not  indicate large discrepancies in the data, and we found the data to be  sufficiently reliable for the purposes of reporting on broad trends in  seizures and penalties over time and among ports. Based on our  discussions with CBP headquarters and port officials, we selected four  types of enforcement actions by which to analyze port outcomes: (1)  number of seizure actions, (2) domestic value of seizures, (3) number of  penalty cases opened, and (4) penalty amounts assessed. We aggregated  the data on these enforcement actions for fiscal years 2001 through 2006,  ranked ports by each of the enforcement actions, and identified the top 10  ports for each of the categories.
To evaluate CBP’s approach for improving border enforcement, we  discussed CBP’s efforts with knowledgeable OT and OFO officials in  Washington, D.C., and the field offices and ports we visited. We reviewed  CBP’s and OFO’s strategic plans, CBP’s annual performance and  accountability reports, and CBP’s internal plan for addressing IP  enforcement as a Priority Trade Issue to identify CBP’s goals, objectives,  and plans for conducting and improving IP enforcement at the border. We  also examined documents related to the administration’s Strategy  Targeting Organized Piracy. From this, we identified key initiatives that  CBP has undertaken to improve the effectiveness of IP border  enforcement and discussed the status of these initiatives with  knowledgeable CBP officials. We also assessed the initiatives to determine  how they relate to CBP’s IP enforcement goals. We analyzed IP  enforcement outcomes across ports, identified fluctuations that have  significantly impacted CBP’s overall IP enforcement outcomes and  inconsistencies in outcomes at certain ports, and discussed these  observations with CBP officials. We compared IP seizures with IP imports  on a value basis for the top 25 IP-importing ports for fiscal years 2002  through 2005, determined the average seizure rate for these ports, and  compared the ports’ individual seizure rates with the average. While  estimated domestic value of seizures and values for IP imports are not  equivalent measurements, we determined that these were sufficiently  reliable proxies for the purpose of seizure to import comparisons. We also  conducted interviews with CBP officials in headquarters and field  locations to obtain information on how OT and OFO carry out their  operations and in final meetings discussed ways in which OT and OFO  could better use their data to improve IP enforcement.
This report is based on a law enforcement sensitive report issued on  March 20, 2007, as a restricted report, copies of which are available for  official use only. This public version does not contain certain information  that DHS regarded as law enforcement sensitive and requested that it not  be included. We provided DHS a draft copy of this public report for a  sensitivity review by CBP and ICE, which agreed that we had  appropriately removed law enforcement sensitive information.
We conducted our work from November 2005 through January 2007 in  accordance with generally accepted government auditing standards.
section_title: Appendix II: Analysis of Top Six Ports’ IP Enforcement Outcomes
paragraphs: To analyze IP enforcement outcomes across ports, we selected four  categories of enforcement outcomes from the data CBP provided: (1)  number of seizure actions, (2) domestic value of seizure, (3) number of  penalty cases opened, and (4) penalty amounts assessed. We analyzed data  by port location for fiscal years 2001 through 2006. For four of these  categories, we found that six ports accounted for the bulk of enforcement  activity (see fig. 7). Four of these ports ranked in the top 10 for all four IP  enforcement categories and 2 ranked in the top 10 for three out of the four  categories. These ports may include multiple processing environments  (e.g., land, sea, air modes), and seizure associated with such ports may  stem from more than one processing environment. Because of  inconsistencies in how CBP records seizures by port, we were unable to  fully determine how many processing environments are reflected in the  enforcement data. We were able to determine the seizure reporting  practices of the seven ports that we visited. For example, at one location,  CBP has one port “code” that includes seizures made at the seaport as well  as the nearby airport. However, seizure data for another location includes  seizures made at the seaport and from the international mail processing  environment, but does not include other air-based seizures made at the  nearby airport, which are reported separately. Neither OFO nor OT  officials at the headquarters level could provide us information to  understand the seizure reporting practices of CBP’s ports.
As figure 7 illustrates, CBP’s data can be used to compare enforcement  outcomes across the ports (left to right) or compare outcomes within a  single port (top to bottom). With the exception of Port D, the scales are  uniform. When analyzing IP enforcement outcomes both across ports and  within a single port, we found wide variability when comparing outcomes  from year to year and among the enforcement categories. For example, the  Port F experienced increases in the number of seizure actions for fiscal  years 2002 and 2004; but in alternating years, the number dropped, in some  cases by as much as 50 percent. Penalty outcomes also fluctuated by port  location. For example, Port G had relatively constant numbers of penalty  cases opened and penalty amounts assessed until fiscal year 2005, when  these outcomes peaked, and then fell off sharply in fiscal year 2006. When  examining outcomes within a single port, we found that the fluctuations in  seizure outcomes did not mirror fluctuations in penalty outcomes. For  example, Port C had a relatively steady number of seizure actions between  fiscal years 2003 and 2006, but the number of penalty cases opened  fluctuated greatly during the same time period. While we did not expect to  find a direct correlation between seizure and penalty outcomes, given that  the seizure data consists of all IP-related activity and penalty data limited  to only those assessed under 19 U.S.C. 1526(f), we did not expect to find  such wide variations within the most active ports during the 6-year time  period we reviewed.
section_title: Appendix III: Comments from the Department of Homeland Security
paragraphs: The following are GAO’s comments on the Department of Homeland  Security’s letter dated March 6, 2007, which commented on GAO’s law  enforcement sensitive report.
subsections: section_title: GAO Comments
paragraphs: 1.  We disagree that OT’s formation has, in itself, addressed the lack of  integration that we identify in the report regarding IP enforcement.  Although OT consolidates its legacy offices’ trade policy and program  development functions—specifically, the Office of Strategic Trade, the  Office of Regulations and Rulings, and a headquarters component of  the Office of Field Operations, front-line implementation of policies  and programs continue to be carried out at the ports under the  leadership of OFO. Because there is still separation between the office  that sets policy and the office that implements policy, there is no  evidence that the creation of OT will address the lack of integration  that initiated congressional action and that we identified in our review.  OT and OFO will need to work closely together to overcome the lack  of integration between policy development and implementation that  we refer to in the report. Regarding CBP’s comment that we  inaccurately refer to OT throughout the report, we modified the report  to clarify references to OT and its legacy offices.   2.  CBP mischaracterizes the purpose and usefulness of our analysis of IP  imports and enforcement activity at its ports. Seizing IP infringing  goods is a core IP enforcement activity for which CBP is responsible,  but CBP has not conducted systematic analysis of its own data to  examine variations in enforcement outcomes over time or among  ports. This simple analysis can be a powerful tool to generate  discussion among IP policymakers and port management and staff  about IP seizure patterns, risks, and outcomes and to improve CBP’s  approach to IP enforcement. We do not suggest using it to target  imports. We clearly state that our analysis is only illustrative of the  types of analysis that CBP could undertake and that CBP should refine  and develop its own approach. We support CBP’s decision to follow  our recommendation to conduct such analysis.  3.  Our measure of IP imports is broader than CBP suggests, but it is not  intended as a measure of risk. CBP does not currently have such a  measure, and we believe our measure, which we reviewed with CBP, is  useful. Our measure is intended to identify the overall relative volume  of potential IP traffic that ports process, which is lower than total  import volume. Doing so enables us to examine IP seizure activity  relative to a meaningful measure of port volume. Our measure is based  not only on tariff classifications where CBP actually found IP  violations but also their related products groups. These classifications  may include both IP and non-IP goods that are not separated out in the  tariff schedule. Doing so is appropriate because CBP cannot easily  distinguish, based on the tariff information, whether goods involve IP  protection, have been purposely misclassified, or are being used to  smuggle infringing products. The draft report explained our selection  process and methodology, but we added clarity to further explain our  measure and how we developed it. We also state that this analysis is  one logical way to examine port performance and do not suggest, as  CBP states in its response to our third recommendation, that the  seizures-to-imports ratio is, in itself, a complete performance measure.  4.  We also agree that CBP should consider the range of factors that affect  IP goods in conducting its analysis. We clearly stated in the report that  our analysis was only one way to examine port performance. Our  analysis was not intended to be used for risk analysis or targeting, but  only to provide a measure of seizure activity relative to port size, and  we did not assume a direct correlation between the volume of IP  imports and risk.   5.  We agree that CBP’s import data does not fully capture IP import  values at express consignment and mail facilities, but even with this  likely underreporting of such imports, several ports at which such  facilities are dominant ranked among the top IP importing ports. As we  state in the report, we agree that CBP should take differences across  port environments into account in developing its own analysis.   6.  We focused on “transaction-level seizures and penalties” because these  are the core IP enforcement activities for which CBP is responsible,  and we found that CBP had not systematically analyzed its own  performance of these core activities. We also address additional  elements of CBP’s approach to improve IP enforcement that fell within  the scope of our audit, including its IP audits. However, we found that  these efforts have had a limited impact on overall IP enforcement,  while perhaps drawing attention away from improvements to its core  activities. For example, CBP acknowledges that its audits, completed  thus far on 41 companies during a 2½-year period, are most effective  for improving IP enforcement among legitimate importers, but these  importers likely do not account for the bulk of IP infringing goods that  enter the United States.  7.  CBP mischaracterizes our analysis by asserting that our report states  across-the-board that CBP lacks performance measures for IP  enforcement. Our draft report stated that the agency’s strategic plan  lacks specific measures for IP enforcement, but noted that CBP does  indeed measure and report internally on the number of IP seizure  actions and estimated seizure value. The draft report also discussed  certain actions that CBP has taken under its “Intellectual Property  Rights Trade Strategy,” an internal planning document that is the same  as what CBP calls the “National IPR Trade Strategy” in its letter.  However, we disagree with CBP’s assertion that this document serves  as an agencywide guide for CBP’s IP enforcement efforts. In our  discussions with CBP about this document, CBP officials said the  document was written for internal planning purposes. We found that  the distribution of this document has been limited. For example, CBP  documents show that revisions to the IP Rights Trade Strategy have  not been distributed to the field since 2003. Moreover, certain CBP  officials told us that the ports are generally not familiar with this  document. Finally, given the document’s classification as “For Official  Use Only,” it is not distributed to Congress or the public, unlike the  agency’s strategic plan, which limits its usefulness for holding CBP  accountable for its performance on IP enforcement. We added  information in our report to clarify the importance of agencywide  strategic plans and performance measures in communicating priorities  on an agencywide basis and establishing accountability. We added  information that the IP Rights Trade Strategy contains other indicators  related to IP enforcement. We also modified our recommendation to  clarify that we recommend that CBP include IP enforcement-related  measures in its strategic plan. Given the Office of Management and  Budget’s role in the strategic planning process, we also clarified that  CBP should work with the Office of Management and Budget to  include IP-enforcement related measures in its strategic plan.  8.  See comment 7.  9.  See comments 2 and 3.
section_title: Appendix IV: GAO Contact and Staff Acknowledgments
subsections: section_title: Staff Acknowledgments
paragraphs: In addition to the individual named above, Christine Broderick, Assistant  Director; Shirley Brothwell; Carmen Donohue; Adrienne Spahr; and  Timothy Wedding made significant contributions to this report. Virginia  Chanley, Jerome Sandau, Ernie Jackson, Karen Deans, Etana Finkler, and  Jena Sinkfield also provided assistance.