New Design Patent Legislation Would Empower U.S. Customs to Seize Infringing Sports and Fitness-Related Products at the U.S. Border
by Elizabeth D. Ferrill and Eric Liu, Finnegan
On December 5, 2019, the Counterfeit Goods Seizure Act of 2019 (“CGSA”) was introduced to the U.S. Senate. If enacted into law, the CGSA would allow U.S. Customs and Border Protection (“CBP”) the discretionary power to enforce recorded U.S. design patents at the U.S. border similar to its current discretionary power for enforcing registered trademarks and copyrights. Counterfeiters and trademark infringers have become more sophisticated in bypassing CBP with new counterfeiting techniques, which emphasizes CBP’s need for additional discretion over design patent enforcement. The CGSA is publicly supported by companies, including Nike Inc., 3M Company, Wolverine Worldwide, Columbia Sportswear, Deckers Brands, and by professional associations, including the Footwear Distributors & Retailers of America, the Intellectual Property Owners Association, the International Trademark Association, and the American Intellectual Property Law Association. The CGSA would provide CBP an additional tool to block the import of counterfeit goods that otherwise would not be caught by current protections.
Because of COVID-19, consumers have been adapting to find ways to stay active while gyms are closed, resulting in a sharp growth in the home and outdoor exercise equipment markets. Major companies, such as Nautilus and Peloton, reported an increase in sales in early 2020 in comparison to early 2019 with Peloton reporting at least a 66% increase in sales and 94% growth in its subscriber base due to COVID-19. Compared to the previous year, indoor fitness equipment sales increased in all categories by at least 130%, such as cardio equipment, stationary bikes, and strength training products. Outdoor sports equipment such as golf equipment, nets, balls, and bicycles also saw similar increases in sales. With more consumers purchasing sports equipment online, the risk for purchasing counterfeit goods has also increased.
While some consumers purchase their sports and fitness equipment directly from companies, others purchase products through e-commerce platforms such as Alibaba and Amazon, where they may face countless listings of counterfeit goods. Third-party sellers account for just over 50% of sales on Amazon, which makes it difficult for consumers to accurately determine whether products are counterfeit or genuine. Amazon recognizes this growing problem and has taken measures such as taking down listings from sellers of counterfeits, taking legal action, and establishing its own “Brand Registry” for trademark and copyright protections on its platform. In 2019, Amazon blocked at least 6 billion suspected harmful listings and over 2.5 million suspected bad actors.
Some industries have formed their own groups to combat counterfeits, such as the U.S. Golf Manufacturers Anti-Counterfeiting Working Group (Golf Group), which includes companies such as the Acushnet Company (Titleist, FootJoy, Scotty Cameron), Callaway-Odyssey, Srixon, Cleveland Golf and XXIO, PING, PXG, and TaylorMade. Since its formation in 2004, the Golf Group has worked with international law enforcement and government agencies to pursue counterfeit sellers, shutting down over 1500 websites selling counterfeit products and seizing over 2 million pieces of counterfeit products. Recently in August 2020, the Golf Group carried out raids with local police against online product sellers in multiple cities in China. In these raids, over 120,000 counterfeit golf products were seized and a total of 15 suspects were detained and arrested.
Counterfeiters use a variety of techniques to cover or obscure infringing trademarks, later removing the cover after the counterfeit goods clear with CBP. Counterfeiters also avoid detection by CBP through shipping infringing marks separately from the goods, relying on in-country assembly and distribution after the separate components have entered the U.S. border. In 2018, five individuals were arrested in connection with importing more than $70 million in counterfeit Nike Air Jordans from China through New Jersey. The counterfeit shoes resembled the Nike Air Jordans but were manufactured without any identifying marks that could be flagged by CBP. The fake logos were added to the shoes after they came through the port and were sold to people throughout the United States. In a separate case involving boots, counterfeiters had glued a shoe insert over a fake Timberland logo on the bottom of the boots. Counterfeiters also have tried to minimize detection by CBP by intentionally mislabeling shipping containers. In Los Angeles and in Long Beach, CBP seized fake Nike shoes that were incorrectly labeled as napkins on the shipping containers in an attempt to disguise the counterfeit goods.
CBP inspectors frequently encounter counterfeit goods that are left in a generic form that cannot be seized, unless there is an exclusion order from the U.S. International Trade Commission (“ITC”). However, the ITC process may still be too complicated, expensive, and time consuming (between fifteen to eighteen months) particularly for smaller companies or those involved in a fast-changing industry. This can cost patent holders millions of dollars in litigation costs and lost profits while unauthorized importers continue to bring infringing products across the U.S. border. If CBP had the discretion to enforce design patents, it could immediately seize infringing goods that use the previously mentioned techniques, rather than allow counterfeiters to continue to import and sell the infringing goods while the patent owners spend time and money obtaining an exclusion order.
The counterfeit market has a significant impact on the U.S. and global economies and also impacts consumer safety. The total estimated value in counterfeit and pirated goods was more than $1 trillion in 2013 and is estimated to reach $2 trillion by 2022, according to the February 2017 Frontier Economics report. The market in fake goods is estimated to be 3.3% of all global commerce. According to a report from the Organisation for Economic Co-operation and Development (“OECD”), footwear and clothing are the top trades in counterfeit goods. In 2019, about 285,000 sports-related items were seized at an estimated amount of $24.2 million. This number increased to $123 million in 2020, which either highlights the rise in counterfeit goods beings imported or that the CBP has become more effective in spotting these counterfeits. Other commonly traded counterfeit goods pose several risks to consumer safety as they tend to include healthcare products, consumer electronics, automotive parts, and other products that could be ineffective or harmful to consumers.
The burden of the proposed amendment of the CGSA is minimal, as CBP officials already train to enforce design patent exclusion orders from the ITC and have already demonstrated the ability to determine design patent infringement. Given the nature of the design patent infringement test, enforcing design patents is well within the capabilities of CBP officials. Where infringement determinations are more difficult, CBP would have the discretion to not seize potentially infringing goods and leave design patent holders with the usual course of relief through the ITC. This framework would be consistent with CBP’s current enforcement of recorded trademarks and copyrights.
The CGSA is bipartisan legislation that is publicly supported by the industry and associations including the Intellectual Property Owners Association. If the CGSA is enacted into law, the U.S. would be joining other countries and governmental entities that already enforce design rights at their borders, such as the European Union, Japan, South Korea, China, India, Mexico, Turkey, Argentina, South Africa, Switzerland, and Panama. At a time when counterfeiters are becoming more sophisticated in bypassing CBP, the CGSA proposes an important amendment that gives CBP a necessary tool to protect American individuals and businesses.
For the full article, please email Alli Schulman, at aschulman@sfia.org.
