IACC: Small parcels, big problems

In fiscal year 2014, the US Customs and Border Protection (CBP) agency made more than 23,000 seizures on the basis of intellectual property violations. Nearly 20,000 of those involved shipments sent via international mail or express consignments, with a total value of more than $380 million.

Those numbers are perhaps more surprising when we look back just nine years. In FY 2007, express and postal imports accounted for fewer than 10,000 seizures in the US, or roughly half of what we see today. While cargo shipments still account for approximately half of customs’ IP-related seizures, in terms of value in any given year there appears to be a clear trend towards a direct-to-consumer distribution model for the trafficking of counterfeit goods. What does this trend mean for rights owners and enforcement personnel?

With the rapid growth of legitimate online commerce, and consumers’ increased comfort doing business at a distance with unknown sellers, the concurrent growth of counterfeit sales online should surprise no-one. But the e-commerce model has also removed the need for counterfeiters to use traditional multi-layered distribution chains.

Why would they want to share revenue with exporters, importers, wholesale distributors, and retailers when a web-based storefront and international delivery services can allow them to reach consumers around the globe?

While counterfeiters may face some lost efficiencies by moving away from large-scale ocean cargo shipments, those losses can be offset by the streamlined distribution and minimisation of risk—both in terms of shipments lost to detection and enforcement by customs officials, and in terms of prosecution.

A needle in a haystack

Customs’ IP enforcement mission is sometimes described as finding the proverbial needle in the haystack—seeking to identify those illicit shipments hidden among the massive volumes of legitimate trade. In 2010, customs agencies processed the equivalent of more than 550 million 20-foot cargo containers at ports around the world. By contrast, just two of the major express delivery services combined process approximately 20 million packages per day on average, or nearly 600 million per month.

This of course fails to take into account the numerous other carriers or shipments transported via international mail service. Without question, express and mail consignments constitute an exponentially larger haystack in which to hide those needles—and all signs point to its continued growth.

However, the benefit to illicit traffickers of this direct-to-consumer model of distribution goes beyond merely decreasing the odds of detection. In some jurisdictions, shipments valued below a certain threshold may be considered non-commercial/personal use quantities and be precluded from detention or seizure even when they are identified en route.

"In recent years, the traditional public-private partnership between the CBP and the rights owner community has been hampered by overly-formalistic interpretations of statutory and regulatory provisions."

Alternatively, where a seizure does take place, a small quantity, low-value shipment of counterfeits is less likely to result in a follow-on investigation, the imposition of administrative fines, or criminal prosecution.

Further, and perhaps most obvious, the pain felt by a counterfeiter whose small consignment has been interdicted can hardly be expected to rival that of a smuggler who has lost a container-sized load of counterfeit products. At worst, the former is left with a single dissatisfied customer, or maybe a refunded sale along with a nominal loss of inventory.

Seizures simply become a cost of doing business, but ultimately provide no real deterrent to the illicit activity so long as sufficient volumes of product escape detection. The question then becomes how to increase not only customs agencies’ overall seizures, but also the efficiency of their efforts. Given the current fiscal environment, significant increases in customs’ manpower or resources remains unlikely, so the latter remains a key consideration.

US developments

In the US, the CBP is devoting extensive resources to modernising its procedures and operations to improve its intelligence gathering, targeting of high-risk shipments (and shippers), while also seeking to decrease the administrative burden on its front-line personnel.

Among those efforts is the continuing transition of Customs’ Automated Commercial Environment to the Single Window system to streamline interactions between the trade and CBP and its partner government agencies.

First mandated under an executive order signed by President Barack Obama in 2014, the completion and implementation of the government-wide International Trade Data System is expected by the end of 2016, and should provide a more efficient means of reporting imports and exports by automating and de-duplicating processes to free up greater resources.

From rights owners’ perspective though, intelligence gathering and information sharing to improve targeting and to help better identify illicit trafficking networks remains paramount. In recent years, the traditional public-private partnership between the CBP and the rights owner community has been hampered by overly-formalistic interpretations of statutory and regulatory provisions that have restricted the free flow of information between the two. In turn, this has precluded rights owners from providing, and the CBP from seeking, assistance with authenticating suspect shipments.

It is hoped that Congress’ recent enactment of the Trade Facilitation and Trade Enforcement Act of 2015, which included clear authorisation for the provision of such assistance, will lead to better cooperation between the public and private sectors, and in turn to more effective anti-counterfeiting efforts.

Conversely, rights owners have been widely critical of a continuing pilot programme in operation since last year that bypasses the traditional seizure process in favour of an expedited abandonment procedure. This is due to the programme’s focus on removing goods from the stream of commerce, but failing to collect detailed data that has traditionally been captured by enforcement operations—and which is mandated by statute to be provided to the IP owners whose rights are implicated in the seizure.

The sheer volume of counterfeit goods being trafficked, particularly via small consignments, is far too great to deal with one package at a time. It demands the concerted effort of all responsible businesses and governments with an interest in ensuring robust, legitimate trade.

Rights owners, including the members of the International AntiCounterfeiting Coalition, continue to seek new ways to partner with others in the private sector in developing voluntary collaborative programmes to collect and share actionable intelligence for improved targeting of illicit shipments and shippers. Only with that sort of cooperation can we hope to shrink the haystack, and have a true impact on the illicit trafficking of counterfeit goods.

Travis Johnson is vice president of legislative affairs and senior counsel to the International AntiCounterfeiting Coalition in Washington, DC. He oversees all aspects of the organisation’s government relations and policy development functions for the Americas and is a member of the Florida Bar. He can be contacted at: tjohnson@iacc.org