Too black-and-white for ægrayÆ market?
IPR enforcement proposal goes too far, trade attorney says.
The U.S. government’s expressed desire to better identify counterfeit goods by sharing trade data with original product makers, and assisted in some way by freight intermediaries, doesn’t sit well with Gilbert Lee Sandler.
Sandler’s law firm, Miami-based Sandler, Travis & Rosenberg, represents companies that buy brand-name products in the so-called ‘gray’ market, and import them into the United States to sell at a discount. Regulators’ attempts to change the rules governing the confidentiality of data managed by U.S. Customs and Border Protection could unfairly harm those legitimate importers, he said.
| Sandler |
‘I oppose counterfeiting, and my clients do too. On the other hand, when the government gets aggressive, sometimes it makes mistakes. So you need safeguards there to make sure you’re not disrupting legitimate trade,’ Sandler said.
Under the Privacy and Trade Secrets acts, information about any transaction disclosed to Customs is required to be kept confidential. The White House Intellectual Property Enforcement Coordinator (IPEC) recently recommended that Congress give CBP authority to share detailed transactional information and un-redacted samples with trademark rights holders when officers suspect shipments entering the country include counterfeit or unlicensed products. The purpose is to get help from the party that can best tell a fake from an original.
CBP, which has placed greater priority on anti-counterfeit and piracy efforts in the past couple of years, has embraced the new power. Commissioner Alan Bersin said in speeches that customs brokers are in a position to help identify companies or people who are stealing intellectual property. As part of an effort to overhaul regulations governing the broker industry, CBP has vaguely suggested that brokers should do more to vet their clients, certify shipments and be the trusted conduit for sharing certain types of importer information.
But officials so far have not provided any concrete proposals about how CBP would actually exercise its new authority or how brokers would be asked to contribute to the enforcement effort.
Many manufacturers will vary the price of goods depending on the country or region of the world where they are sold. ‘Gray’ or ‘secondary’ market transactions typically occur when a company buys genuine, brand-name products from a reseller in a foreign country and then imports them to the United States instead of buying the items directly from the manufacturer for domestic sale.
The transactions make sense because the overseas price may be so much less that the importer can still cover its international transportation costs, sell the products at a discount and make a profit.
Sandler, who has served in private practice for more than 30 years after a stint as a Justice Department attorney specializing in customs matters, said the danger of sharing a sample or shipment data is that inspectors may not understand the difference between a counterfeit good and an unauthorized, legal import of that particular brand. That may expose the distributor to retaliation by the rights holder, who can cut off contracts to authorized buyers that resell the product.
Manufacturers and marketers, he argued, have an unlimited right to control the sale of genuine products, but only have limited rights with respect to their distribution. Copyright protection doesn’t apply after the first sale, he said.
Under the first-sale doctrine, those who buy copyrighted works can do what they want with it. Copyright law, according to many legal analysts, is to protect creative work, not to control the price of manufactured products.
In December, the Supreme Court split 4-4 in a case involving Costco Wholesale, the popular warehouse club store, and Swiss watchmaker Omega. The decision let stand a lower court ruling that Costco violated U.S. copyright law by selling Omega watches in the United States without Omega’s permission. The rule essentially said that copyright protection applies to products made overseas. The watches are not copyrighted, but a small logo of a globe on the watches is.
The Seamaster watch in question has a suggested retail price of $1,995. Costco sold the watch for $1,299.
‘Costco should be given the opportunity to demonstrate those goods are genuine before that data about the transaction is given to Omega,’ Sandler said.
‘I think the IPEC recommendation misses the mark because they don’t have a means for keeping information confidential when there’s a mere suspicion the goods are counterfeit.’
To the extent that Costco can’t prove the goods are legal, the government should have a means of determining a product’s validity without disclosing confidential information, he added.
The American Free Trade Association, comprising companies that operate in the secondary market and represented by ST&R, filed an amicus brief supporting Costco’s position. Also supporting Costco were Target Corp., eBay, Amazon.com and the Retail Industry Leaders Association.
The Supreme Court ruled six years ago against a shampoo maker in the United States, saying its products were not protected simply because it had a copyright label on the bottle. In that case, the products were made domestically for sale in Europe, but bought by distributor Quality King and imported back to the United States. Representatives for RILA argued last year that upholding the lower court ruling against Costco ‘ and applying copyright law to foreign, but not U.S.-made goods ‘ would simply allow copyright owners to move production overseas to prevent the lawful resale of merchandise at discounted prices.
Aligned against Costco were the Motion Picture Association of America, electronics manufacturers and publishers. Opponents claim that the gray market collectively costs them billions of dollars per year in lost sales.
Brokers should not be given responsibility for product validation information because ‘that’s out of their area of expertise and creates exposure for them,’ Sandler said.
‘The challenge to CBP and the trade,’ he said, ‘is how to stop the counterfeit goods but facilitate the release of the genuine ones.’
Sandler complained that Omega, which is owned by Swatch, and other producers aren’t being consistent in their approach to trade facilitation.
‘My message to the trademark owners is, every one of you is an importer. And every one of you, when the government announced new security or customs compliance programs, food safety or Lacey Act provisions were the first to say we’ve got to support legitimate trade, not just enforce the law.
‘You need to be saying that on intellectual property rights too,’ he said.
The veteran trade attorney said there is a simple solution if brand owners don’t like their products legally coming through the international backdoor: have a uniform pricing structure.
‘If you didn’t want stuff coming back to the United States then you shouldn’t have sold it overseas at a different price. Obviously, they made a decision they could still make a profit selling to places like China at one-third of the price. It’s just a way to segment the market and limit competition,’ Sandler said.
‘The only reason to do that is because you want to maintain high prices in the United States and sell at much lower prices outside the United States. That’s not good economic policy and it’s not what’s contemplated by the Copyright Act and trademark laws,’ he said.
The Business Software Alliance said in a pro-Omega brief to the court that pricing differentiation is very important to the software industry.
‘With cross-border collaboration and communication ever more frequent ‘ the software platforms that enable this interaction must be available throughout the world ‘ and at prices that reflect each country’s market realities,’ it said.