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CBP Can Improve Exclusion of IPR Infringing Goods at U.S. Borders, GAO Says

Monday, November 24, 2014
Sandler, Travis & Rosenberg Trade Report

In a November report to the Senate Finance Committee, the Government Accountability Office concluded that U.S. Customs and Border Protection could better manage its process of enforcing orders that exclude intellectual property rights-infringing goods from entry into the U.S. The GAO notes that it found similar weaknesses in 2008.

Under Section 337 of the Tariff Act of 1930, the International Trade Commission investigates allegations of unfair import practices, including unlicensed use of intellectual property rights such as patents, copyrights and trademarks. If the ITC finds a violation it generally issues an exclusion order that directs CBP to deny the entry of infringing products into U.S. commerce.

CBP uses two processes to enforce exclusion orders. The first is a four-phase process to detect and deny entry to or seize infringing products at U.S. ports: (1) issuing a trade alert that provides enforcement instructions to CBP national targeting groups and local officials at all ports of entry to identify shipments for examination, (2) developing targeting strategies to detect shipments with potentially infringing products for examination, (3) examining targeted shipments to determine whether the products are covered by exclusion orders, and (4) excluding or seizing infringing shipments, notifying importers and the ITC of exclusions, and documenting exclusions in a CBP tracking system. Under the second process, a company interested in importing a certain product may first request that CBP determine through an administrative ruling process whether that product is covered by a particular exclusion order.

The report finds that CBP’s management of its exclusion order enforcement process at the ports contains weaknesses that result in inefficiencies and an increased risk of infringing products entering U.S. commerce. First, CBP does not routinely review the ITC’s list of exclusion orders (CBP officials said no such review had been done in five years) or take other action to ensure that a trade alert has been posted to its intranet for each order. Second, CBP does not routinely review the ITC list to identify orders that may be candidates for rescission, which could enable it to focus its enforcement efforts more effectively and efficiently. Third, CBP’s guidance lacks time frames for issuing trade alerts, which prevents the agency from monitoring timeliness. While CBP officials said they generally try to post trade alerts within five working days of receiving an exclusion order, GAO found that for 33 exclusion orders issued from Oct. 1, 2009, through April 30, 2014, this goal was only met 27 percent of the time and that the process could take as long as three months.

CBP said it concurs with and is taking actions to respond to GAO recommendations that it update its internal guidance with requirements to routinely ensure that trade alerts are posted for each exclusion order and to monitor the timeliness of trade alert issuance. However, CBP disagreed with the GAO’s suggestion that it routinely identify any exclusion orders whose changed conditions merit a request that the ITC rescind them, stating that there is no statutory or regulatory authority mandating such action. The GAO nevertheless said such a review would be “good management practice,” noting that in response to this investigation CBP identified six exclusion orders it believed were candidates for rescission.

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