USTR Cites Customs IPR Enforcement Challenges, Growing FTZ Issues in Special 301 Report
The Office of the U.S. Trade Representative on Dec. 17 released the results of its 2015 Special 301 out-of-cycle review on intellectual property infringement (here). This year’s out of cycle review focused on the sale of counterfeit goods online, listing 14 online markets alongside physical markets in China, Nigeria, Paraguay, Brazil, Indonesia, Argentina, India, Mexico and Thailand. USTR cited the difficulties customs authorities face attempting to stop shipments of counterfeit goods sold online, as well as the growing problem of free trade zones enabling counterfeit activities.
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Major Chinese online shopping website Taobao again escaped inclusion, after last being listed in 2012. According to USTR’s report, Taobao’s owner Alibaba Group has taken a number of enforcement measures over the past year, including “a good-faith product takedown procedure, a three and four strikes penalty system, and an English-language version of the TaoProtect portal to register IPR and submit takedown requests,” it said. Nonetheless, USTR said it is “increasingly concerned” by reports that Alibaba’s enforcement program is “too slow, difficult to use, and lacks transparency.”
The report applauded China for efforts it has taken over the past year to examine the problem of counterfeit sales online. According to USTR, a study released by China in November 2015 found less than 59 percent of articles sold online were genuine last year.
USTR cautioned that large free trade zones have “become enablers for counterfeit activities and are being used as a staging ground to disguise the illicit nature of counterfeit goods, to add infringing trademarks, logos and packaging to products, as well as to conceal the origin of counterfeit goods.” The European Union has found counterfeiters as the “main abuser” of the 3,000 FTZs found in over 135 countries worldwide, said the report. The issue would be partially addressed by the Trans-Pacific Partnership agreement, which includes provisions that make criminal procedures and penalties for counterfeiting and importation of counterfeit goods and packaging applicable in member country FTZs, it said.
Distribution of counterfeit goods purchased online are a major enforcement challenge for customs authorities, said USTR. Instead of shipping containers of counterfeit merchandise, internet sellers can ship infringing goods one at a time, “decreasing the risk of customs detection and minimizing their losses if the shipment is seized,” it said. Small consignment shipments have surged, according to CBP and EU customs authorities. Counterfeiters are “also attempting to evade enforcement by shipping trademarked packaging, holograms, and labels separately from the products for later downstream assembly,” said the report.