New Jersey Law Journal Volume 200, No. 9, Index 525 May 31, 2010

PROTECTING DOMESTIC E-COMMERCE

ACTIONS BY FEDERAL AGENCIES HAVE POTENTIAL TO SHUT OUT FOREIGN COMPETITORS

By Jonathan Bick Bick is of counsel to Brach Eichler of Roseland and is an adjunct professor of Internet law at Pace Law School and Rutgers Law School-Newark. He is also the author of 101 Things You Need To Know About Internet Law (Random House 2000).

E-commerce has created an unprecedented level of foreign counterfeit good transactions resulting in many millions of dollars of economic damage to America. The United States International Trade Commission (‘ITC‘) and the Custom and Border Protection agency (‘CBP‘) are increasingly popular venues for American intellectual property holders to assert their legal rights. Actions by these agencies have the potential to shut foreign e-commerce competitors out of the U.S. market.

Authorized by 19 U.S.C. Section 1337 , the Smoot-Hawley Tariff Act of 1930 allows certain entities to block importation of goods that infringe valid United States intellectual property. Under Section 337 of the act, the ITC conducts investigations into allegations of certain unfair practices in the import trade. Such unlawful practices include the infringement of intellectual property rights and other forms of unfair competition in the import trade. The investigations typically involve an allegation of patent or registered trademark infringement, misappropriation of trade secrets, passing off counterfeit goods or false advertising.

The ITC is a federal agency than can stop the importation of goods ordered via the Internet from foreign vendors following the receipt of a Section 337 complaint. Historically, nearly all complaints alleging that a United States intellectual property is violated by imported goods via traditional or Internet means have been investigated and an action favorable to the complainant has resulted.

In fiscal year 2000, the organization handled a dozen cases. Ten years later, the agency annual case load has increased by nearly tenfold. The reason for this increase was an opportunity for a resolution which is typically years quicker than the standard litigation process and much less expensive. After an investigation is instituted, the entire process, including a hearing, typically takes less than 18 months.

A Section 337 complaint consists of four elements. First is a cover sheet which lists what is included in the complaint and specifies documents. Second is a request for confidential treatment letter which identifies information. Third is a cover sheet for public documents and confidential documents. Fourth, a complaint must be filed which has been executed under oath by a duly authorized officer, attorney or agent. The four elements must be submitted to the ITC directly.

Once a complaint has been filed, the public version of the complaint and any other public document filed in the matter can be accessed via the ITC's Electronic Document Information System.

After a complaint is filed with the ITC, it is examined to determine if the complaint complies with the applicable rules. The ITC will normally determine whether to institute a Section 337 investigation within 30 calendar days after the filing of a complaint. If a complaint is accompanied by a motion for temporary relief, the commission will normally make its determination regarding institution of an investigation and provisional acceptance of the motion for temporary relief within 35 calendar days after the filing of the complaint and motion.

In the event that the commission determines to institute a Section 337 investigation, a notice of investigation defining the scope of the investigation is published in the federal register. These notices typically appear in the federal register the week following the last day of the 30-or 35-day period for determining whether to institute an investigation. In addition to publishing a notice in the Federal Register, the commission serves a copy of the complaint and notice of investigation on all of the respondents named in the investigation as well as on the U.S. Embassy for the country in which they are located.

In the event that the commission determines not to institute an investigation based upon a complaint, the complainant and all the entities named as proposed respondents in the complaint will receive written notice of the commission's action. Decisions not to institute an investigation are rare.

Section 337 investigations are administrative hearings, thus they are conducted in accordance with a set of rules issued by the presiding administrative law judge, normally the adjudicative provisions of the Administrative Procedure Act (5 U.S.C. §§551 et seq. ).

Following a hearing, the presiding administrative law judge issues an Initial Determination (‘ID‘) that is certified to the ITC along with the evidentiary record. The ITC may review and adopt, modify or reverse the ID or it may decide not to review the ID. If the ITC declines to review an ID, the ID becomes the final determination of the commission.

In the event that the ITC determines that Section 337 has been violated, it usually grants one of two remedies. It may either issue an exclusion order, which is the right to have Customs exclude infringing products at the border, or issue a cease-and-desist order, which limits sales of infringing products already imported.

The commission's exclusion orders are enforced by the CBP. ITC orders become effective within 60 days of issuance. Appeals of ITC orders are heard by the U.S. Court of Appeals for the Federal Circuit.

Meanwhile over in Europe, the European Union has a process similar to Section 337 that allows IP owners to have Customs exclude infringing imports. However, unlike Section 337, the European Union regulation does not merely protect members of the European Union. The European Union regulation allows any IP owner to institute the proceeding (see Council Regulation 1383/2003, art. 14.1 (EC)).

Back on this side of the pond, an even less expensive and more rapid option is available to American entities that have been harmed by E-commerce transactions which have facilitated foreign counterfeit good transactions. They may file their IP rights violation directly with the CBP. CBP is part of the Department of Homeland Security. It is responsible for enforcing importation, immigration and drug laws.

The CBP acts on information provided by IP holders whose economic interests are harmed due to the shipment of counterfeit goods across American borders. The CBP seizes imports of counterfeit goods and enforces exclusion orders on patent-infringing. It also implements ruling by the ITC.

Since the implementation of the Stop Counterfeiting in Manufactured Goods Act H.R. 32 in 2006, the CBP has been better able to combat the counterfeiting of goods via the Internet. Specifically the bill is designed to strengthen implementation enforcement procedures. While prior to 2006 it was already illegal to manufacture, ship or sell counterfeit products, this legislation closes a loophole allowing the shipment of falsified labels or packaging, which counterfeiters could then attach to fake products in order to cheat consumers by passing off poorly made items as brand-name goods. Additionally, this statute requires courts to order the destruction of all counterfeit products seized as part of a criminal investigation and requires convicted counterfeiters to turn over their profits and any equipment used in their operations. This statute also requires those convicted of counterfeiting to reimburse the legitimate businesses they exploited.

Once an IP holder is aware of or suspect an entity of infringing its trademark or copyright, a complaint should be filed with the CBP. The complaint should consist of the following: the name and business address of the importer and/or consignee of the allegedly infringing articles; a sufficiently detailed description of the suspect goods to make them readily recognizable by CBP; a sample of the infringing article or a photographic or other likeness reproduced on paper; the country of origin of the shipment and any countries through which the suspect goods are transshipped; the country or countries of manufacture of the allegedly infringing merchandise; the name and principal business address of each foreign person or business entity involved in the manufacture and/or distribution of suspect article; the mode of transportation and the identity of the transporters of the allegedly infringing good; the ports where it is anticipated the suspect articles will be presented to CBP; the anticipated date of presentation to CBP; the Harmonized Tariff Schedule designation of the suspect goods; and any additional evidence relating to the importation of the suspect goods.

CBP examines cargo entering the country to ensure that it is in compliance with a variety of laws. The examination includes a check to determine whether or not an importation infringes on someone else's intellectual property rights. CBP maintains a database trademarks, trade names and copyrights that have been recorded with CBP.

Trade names must be recorded with CBP in order for it to determine trade name infringements. Trademarks and copyrights that have been registered with the Patent and Trademark Office or the Copyright Office -- respectively -- may be recorded with CBP for a fee of $190.

Once the offending goods are found, a seizure will be made. A seizure notice will be issued to the importer, who may petition for administrative relief or elect to bring suit in federal district court to recover the merchandise.

Goods that are seized and forfeited as bearing a mark that is a counterfeit of a registered trademark, piratical of a registered copyright or imported in violation of distribution rights agreements, are routinely destroyed, unless the owner gives permission for other disposition, such as charitable donations. Significant monetary penalties may also be assessed for violations involving the importation of goods bearing counterfeit marks.