New Articles

TRADE POLICY’S NAUGHTY AND NOTORIOUS LIST FOR IP DEFICIENCIES

IP DEFICIENCIES

TRADE POLICY’S NAUGHTY AND NOTORIOUS LIST FOR IP DEFICIENCIES

Making a List

The Office of the US Trade Representative (USTR) published its 2020 “Special 301” and “Notorious Markets Review” annual reports on April 29. The Special 301 report identifies trading partners that do not adequately or effectively protect and enforce intellectual property (IP) or otherwise deny market access to U.S. innovators. Thirty-three countries were cited this year as presenting the most significant concerns.

The Special 301 report categorizes countries based upon the severity of the IP deficiencies as assessed by various U.S. government agencies and the private sector. The ten countries USTR placed on its “Priority Watch List” will be subject to an action plan to resolve the issues that caused this designation. The remaining 23 countries have been placed on the “Watch List” because of IP deficiencies, but deficiencies that are not as detrimental to U.S. economic interests as those on the Priority Watch List.

2020 PWL Countries on Map (1)

The Special 301 report also indicates countries that will be subject to an “out-of-cycle” review. Generally, this means that rather than waiting until the annual review occurs, USTR will conduct interim reviews of specific IP deficiencies at various times during the year to assess a country’s progress in remedying the concern. This year, USTR designated Saudi Arabia as a Priority Watch List country and also indicated it would be subject to an out-of-cycle review in 2020. Malaysia is not on either the Priority Watch List or the Watch List, but is identified as being subject to an out-of-cycle review because of concerns lingering from 2019 about its enforcement regime.

Checking it Twice

The 2020 Special 301 report also identifies “significant cross-cutting IP issues” deserving of special attention. These include: IP protections, enforcement and market access for pharmaceutical and medical devices; restrictive patentability criteria; inadequate border measures or lack of customs enforcement authority, inability to stop in-transit shipments and to destroy infringing goods; online and broadcast piracy affecting the copyright industries, government use of unlicensed software, inadequate protection of trade secrets, and market access barriers due to EU-type geographical indications implementation.

Tech Transfer and Online Infringement Top the List

In addition to these persistent cross-cutting issues, technology transfer and online IP infringement have become a key focus of U.S. concerns.

Technology transfer requirements triggered the investigation and imposition of tariffs on China-origin goods after the United States concluded that China used joint venture requirements, foreign investment restrictions, and administrative review and licensing processes to require or pressure technology transfer from U.S. companies. But China is not alone in this regard. The Special 301 report notes that U.S. IP owners operating in foreign markets find “an increasing variety of government measures, policies, and practices that require or pressure technology transfer from U.S. companies. These measures are sometimes styled as means to incentivize domestic ‘indigenous innovation.’ In practice, they disadvantage U.S. companies, requiring them to give up their IP as the price of market entry.”

The technology transfer issue may be exacerbated during a time of economic downturns and hardships as they are being experienced globally today. Thus, U.S. companies may need to be more willing to openly challenge governments that impose these requirements in the future.

The issue of IP enforcement is a mainstay in the report year after year. The report heading, Border, Criminal and Online Enforcement, now refers to traditional enforcement shortcomings (border and criminal) as well as more recent challenges posed by online infringement.

The Internet’s impact on IP infringement is significant. Consumer demand supports massive production of counterfeit goods. The volume of counterfeits, in turn, spurs increased criminal conduct in producing and distributing the counterfeit goods. The Internet provides a vehicle for ordering goods and conducting financial transactions that feed the illegal activity.

Underscoring the enforcement challenge, U.S. Customs and Border Protection (CBP) reported that in fiscal year 2019 it processed approximately 1.8 million express consignment and international mail shipments every day (over 600 million in a year). CBP also reported that in fiscal year 2019, over 90 percent of the 27,599 IP seizures occurred in the express carrier and international mail environments.

IP seizures of international mail

Gaining Notoriety

USTR’s Notorious Markets List identifies online and physical markets that “reportedly engage in, facilitate, turn a blind eye to, or benefit from substantial copyright piracy and trademark counterfeiting.” Produced as the result of an annual Review of Notorious Markets for Counterfeiting and Piracy, this year’s report cited 38 online markets and 34 physical markets as rife with pirated and counterfeit goods. The report also explored the nexus between online piracy and malware.

While CBP reports enforcement challenges at the U.S. border, USTR’s Notorious Markets report underscores the economic threats posed by online and physical markets abroad that raise concerns because the “scale of infringing activity in these markets can cause significant harm to U.S. intellectual property (IP) owners, consumers, legitimate online platforms, and the economy”.

Notorious markets

The 2020 Notorious Market Review, while maintaining a focus on the distribution of pirated content and counterfeit goods online, dove deeper into challenges related to counterfeit and pirated goods on e-commerce platforms and third-party marketplaces. Emerging piracy models include illicit streaming devices and other portals and apps that harm the digital marketplace for legitimate music, television and movies.

The report identifies specific social media platforms that contribute to the proliferation of infringing goods available on the internet. USTR, in identifying specific platforms, encourages these platforms to begin to address problems of IP infringement by “establishing industry standard IP enforcement policies, increasing transparency and collaboration with right holders to quickly address complaints, and working with law enforcement to identify IP violators”. These recommendations are consistent with recommendations that were issued in the Department of Homeland Security’s January 2020 report, Combating Trafficking in Counterfeit and Pirated Goods.

Seller Beware

USTR’s annual reporting regarding the state of IP in countries around the world is a valuable tool for U.S. enterprises considering commercial activity abroad. Indeed, both reports are the product of U.S. industry engagement with government to provide valuable information about their experiences.

Due to the value of IP assets, the need to assess risk to an IP portfolio is an absolute necessity in today’s global commercial environment. USTR’s annual reports provide enterprises with an opportunity to determine how and whether countries have made progress over the past few decades to improve their IP environment for businesses or whether significant business risks remain.

______________________________________________________________

Tim Trainer was an attorney-advisor at the U.S. Customs Service and U.S. Patent & Trademark Office. He is a past president of the International AntiCounterfeiting Coalition. Tim is now the principal at Global Intellectual Property Strategy Center, P.C., and Galaxy Systems, Inc.

This article originally appeared on TradeVistas.org. Republished with permission.
online

PREVENTING TRADE IN ONLINE FAKES

Online Buyer Beware

U.S. consumers spent over $600 billion dollars with U.S. merchants online in 2019. For consumers, online shopping is enticing for its convenience. With credit card in hand, shoppers can easily compare prices, make a purchase, and have the products shipped directly to their homes. The ability to sell online has transformed the ways in which manufacturers, shippers and retailers conduct business.

The evolution from brick and mortar to online stores has also made it more convenient for illegitimate businesses and criminals to pass off counterfeit products, which has attracted the attention of the U.S. government. Since November 2019, a flurry of government activity has focused on protecting consumers in the e-commerce environment.

Trade in fake goods 3.3 percent of world trade

Political Hue and Cry

The Senate Finance Committee examined online counterfeit goods last November when it issued a bipartisan report highlighting two key fact findings: U.S. businesses have difficulties preventing the sale of counterfeit goods online, and e-commerce platforms have no affirmative obligation to police counterfeit goods listings or to proactively remove suspected counterfeit items.

In January, the Department of Homeland Security (DHS) issued a report titled Combating Trafficking in Counterfeit and Pirated Goods, in which DHS found that e-commerce has contributed to a shift in the sale of counterfeit goods in the United States. As consumers increasingly purchase goods online, counterfeiters are increasingly producing a wider variety of goods that may be sold on websites alongside authentic products. The report adds that American consumers shopping on e-commerce platforms and online third-party marketplaces now face a significant risk of purchasing counterfeit or pirated goods.

A week after the release of the DHS report, the White House issued an Executive Order “Ensuring Safe and Lawful E-Commerce for U.S. Consumers, Businesses, Government Supply Chains, and Intellectual Property Rights Holders”. The Order implicates express carriers and the international postal system as contributing to the problem of imports of contraband and counterfeit goods.

American brands 24 percent of fake products seized

House Bill 6058, the SHOP SAFE Act of 2020, was introduced in early March in the House of Representatives. The bill proposes to impose contributory trademark infringement liability on e-commerce platforms unless they take steps specified in the legislation. The legislation received immediate support from several prominent industry associations.

The American Apparel & Footwear Association’s CEO stated that “more needs to be done to prevent counterfeit products from unknowingly entering the homes of American families.” In support of the bill, the CEO of the Personal Care Products Council stated that “counterfeit personal care products damage businesses, disregard regulatory protection and more importantly threaten consumers’ health and safety,” adding the Council encourages “Congress to establish a system that makes online marketplaces and others responsible for ensuring that products on their platforms comply with U.S. laws and regulations”.

Two days later, House Energy and Commerce Committee Chairman Frank Pallone (D-NJ) stated that the convenience of e-commerce “has come at a devastating price: a proliferation of dangerous counterfeit goods that endanger consumers and property, and an army of counterfeit merchants from overseas that undermine American small businesses with unscrupulous tactics.”

Counterfeit medicines

Hiding on Plain Sites

In general, the owners of intellectual property (copyrights, trademarks, patents) have had a lot to say about the online platforms and marketplaces that host e-commerce. As summarized in the Senate Finance Committee’s report, e-commerce platforms place the burden of policing and enforcing intellectual property (IP) on the IP owners, suggesting they do not have a duty to police counterfeit listings or proactively remove suspected counterfeit goods from platforms.

The proposed SHOP SAFE Act of 2020 would place a greater burden on platforms. By taking steps outlined in the legislation, platforms would be able to avoid liability for IP violations.

During the week the SHOP SAFE Act was introduced and a hearing held to address the issue of e-commerce threats to consumers and the economy, a technology company, PreClear, announced it is using “technology that pushes out the border and prevents infringing goods and potentially harmful goods from being exported to the U.S.” PreClear’s founder is quoted as saying that the technology is in use 24/7 and rejects thousands of non-compliant items daily.

There is no doubt that the sheer volume of infringing and other non-compliant merchandise available to consumers on the internet begs for a solution. The question is whether protection and enforcement begin after the items are in the stream of commerce in the United States or before the items ship to the United States. One of the missing variables in the trade policy equation remains how to prevent infringing items from leaving the country of origin in the first instance.

__________________________________________________________________

Tim Trainer was an attorney-advisor at the U.S. Customs Service and U.S. Patent & Trademark Office. He is a past president of the International AntiCounterfeiting Coalition. Tim is now the principal at Global Intellectual Property Strategy Center, P.C., and Galaxy Systems, Inc.

This article originally appeared on TradeVistas.org. Republished with permission.

special 301

“SPECIAL 301”: HOW THE U.S. MONITORS INTELLECTUAL PROPERTY PROTECTIONS IN INTERNATIONAL TRADE

Protecting the ideas behind international trade

Americans following U.S.-China trade relations during the past three years might be familiar with the reference to intellectual property rights (“IPR”) as the basis of the current Administration’s actions to level the trade playing field with China. In 2017, the Administration initiated an investigation into China’s policies, practices and actions that are detrimental to U.S. commercial interests. One of the major complaints is China’s requirement that U.S. companies provide its technologies to Chinese entities in order to do business. This was viewed as forcing U.S. companies to share trade secrets, a form of intellectual property rights.

While the U.S.-China trade issues have dominated recent headlines, the U.S. Government and U.S. industry have been assessing the commercial environment for IPR (patents, trademarks, copyrights, industrial designs, geographical indications, trade secrets) in our trading partners for decades.

A “special” trade provision

The Omnibus Trade and Competitiveness Act of 1988 was signed and went into effect the same year. The Act included a legal provision commonly known as “Special 301” (19 U.S.C. §2242).

The Special 301 provision focuses specifically on IPR and foreign countries whose acts, practices and policies have a detrimental effect on U.S. entities. The law directs the U.S. Government to identify acts, practices and policies that may, for example, prevent IPR owners from obtaining adequate and effective protection for their IPR assets or may be denied fair and equitable market access for their IPR assets in a foreign country.

More specifically, the Special 301 provision instructs the Office of the U.S. Trade Representative (“USTR”) to issue a report every year (19 U.S.C. §2242(h)) that identifies the foreign countries whose IPR acts, practices or policies are the most onerous or egregious.

In so doing, USTR is instructed to consult with other agencies of the government such as the Copyright Office, U.S. Patent and Trademark Office and other appropriate federal government officials and accept inputs from any interested persons (19 U.S.C. §2242(b)(2)). USTR obtains private sector input for its annual report by publishing a notice in the Federal Register that solicits public comment. For example, as part of the 2020 report, USTR published a notice in the December 23, 2019 Federal Register, “Request for Comments and Notice of a Public Hearing Regarding the 2020 Special 301 Review”.

Jobs reliant on IP intensive industries (1)

Priorities and watch lists

The annual Special 301 report has evolved over the past 30 years. If USTR designates a country as a “priority foreign country,” USTR is required to enter into negotiations to obtain commitments from that foreign government toward specific actions to eliminate the detrimental act, practice or policy or subject the government to trade sanctions.

The first report in 1989 identified 25 countries, but did not designate any of these 25 countries as a “priority foreign country”. To provide more flexibility, the 1989 report created two additional categories: “priority watch list” and “watch list”. In 2016, the Special 301 law was amended to require USTR to create an action plan for countries placed on the priority watch list (19 U.S.C. §2242(g)).

Last year, USTR declined to designate any priority foreign countries but included China, India, Chile and Indonesia on its priority watch list. USTR is also monitoring the European Union’s practices regarding whether companies like Facebook, Amazon and Google will be liable for copyright violations by third parties on their platforms. Some U.S. industries will testify that Canada should be placed on the priority foreign country list this year for geographical indications that undermine U.S. trademarks, plain packaging regulations, and lack of adequate drug patent protections.

High Costs of IP Theft2

What’s the government looking for?

IPR owners conducting business in foreign markets and confronting challenges regarding the treatment of their IPR assets can learn about the kinds of IPR issues USTR will address by reviewing past Special 301 reports. In the 2019 report, USTR cited a broad spectrum of IPR issues identified as problematic in foreign markets. The issues cited included:

-enforcement and market access issues regarding pharmaceutical and medical devices,

-online and broadcast piracy,

-lack of ex officio authority for customs officials to seize and destroy infringing goods,

-lack of legal authority for customs officials to stop in-transit movement of infringing goods,

-lack of effective policies and procedures to prevent government agencies from using unlicensed software,

-restrictive patentability criteria,

-inadequate legal protection for trade secrets, and

-negative effects on market access due to the adoption of the European Union approach to the protection of geographical indications.

As the list above demonstrates, the IPR-related issues that are addressed as problematic in foreign countries reflects issues identified by private sector enterprises. Those doing business abroad are in the best position to identify what IPR-related deficiencies hamper the ability to do business in a particular foreign market.

“Notorious Markets”

USTR’s reporting has adapted over the years. In recent years, the annual report has been supplemented by a separate “Notorious Markets” report which is prepared and issued separately. The Notorious Markets report “highlights prominent and illustrative examples of online and physical marketplaces that reportedly engage in and facilitate substantial piracy and counterfeiting.” The 2018 Out-of-Cycle Review of Notorious Markets identifies the proliferation of counterfeit goods availability on online marketplaces as a threat to IPR owners. The report also identified an online “cyberlocker” in Poland, demonstrating how the report reflects the changing IPR environment due to technology.

The latest USTR Notorious Markets report provides an example of how USTR works to keep up with emerging and troublesome developments. The report includes a special section that focuses on free trade zones (FTZs) as especially problematic in facilitating trade in IPR-infringing products. The report notes that FTZs are “major facilitators of illegal and criminal activity, including the illicit trade in pirated and counterfeit goods, smuggling, and money laundering.”

Neighborhood watch

The Special 301 legal process is available to U.S. IPR owners and to any American business that owns IP and conducts commercial activity abroad. Becoming familiar with past reports, the Special 301 legal provision and the U.S. Government agencies involved is a good start to take advantage of this provision. As the Special 301 reports document, no foreign country is excepted from the possibility of being named as having detrimental acts, practices or policies.

To be effective, both the annual Special 301 report and the Notorious Markets report require the active involvement of the private sector community. While U.S. embassies can provide input for these reports, the report depends upon U.S. businesses who are the victims of foreign acts, practices and policies to identify these so that the U.S. Government can assess these issues and raise them with foreign governments.

_______________________________________________________________

Tim-Trainer

Tim Trainer was an attorney-advisor at the U.S. Customs Service and U.S. Patent & Trademark Office. He is a past president of the International AntiCounterfeiting Coalition. Tim is now the principal at Global Intellectual Property Strategy Center, P.C., and Galaxy Systems, Inc.

This article originally appeared on TradeVistas.org. Republished with permission.