[Senate Hearing 115-577]
[From the U.S. Government Publishing Office]


                                                       S. Hrg. 115-577

                    PROTECTING E-COMMERCE CONSUMERS 
                           FROM COUNTERFEITS

=======================================================================

                                HEARING

                               BEFORE THE

                          COMMITTEE ON FINANCE
                          UNITED STATES SENATE

                     ONE HUNDRED FIFTEENTH CONGRESS

                             SECOND SESSION

                               __________

                             MARCH 6, 2018

                               __________

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                          COMMITTEE ON FINANCE

                     ORRIN G. HATCH, Utah, Chairman

CHUCK GRASSLEY, Iowa                 RON WYDEN, Oregon
MIKE CRAPO, Idaho                    DEBBIE STABENOW, Michigan
PAT ROBERTS, Kansas                  MARIA CANTWELL, Washington
MICHAEL B. ENZI, Wyoming             BILL NELSON, Florida
JOHN CORNYN, Texas                   ROBERT MENENDEZ, New Jersey
JOHN THUNE, South Dakota             THOMAS R. CARPER, Delaware
RICHARD BURR, North Carolina         BENJAMIN L. CARDIN, Maryland
JOHNNY ISAKSON, Georgia              SHERROD BROWN, Ohio
ROB PORTMAN, Ohio                    MICHAEL F. BENNET, Colorado
PATRICK J. TOOMEY, Pennsylvania      ROBERT P. CASEY, Jr., Pennsylvania
DEAN HELLER, Nevada                  MARK R. WARNER, Virginia
TIM SCOTT, South Carolina            CLAIRE McCASKILL, Missouri
BILL CASSIDY, Louisiana              SHELDON WHITEHOUSE, Rhode Island

                     A. Jay Khosla, Staff Director

              Joshua Sheinkman, Democratic Staff Director

                                  (ii)


                            C O N T E N T S

                              ----------                              

                           OPENING STATEMENTS

                                                                   Page
Hatch, Hon. Orrin G., a U.S. Senator from Utah, chairman, 
  Committee on Finance...........................................     1
Wyden, Hon. Ron, a U.S. Senator from Oregon......................     4

                               WITNESSES

Gianopoulos, Kimberly, Director, International Affairs and Trade, 
  Government Accountability Office, Washington, DC...............     7
Smith, Brenda, Executive Assistant Commissioner, Office of Trade, 
  Customs and Border Protection, Washington, DC..................     9
Joholske, Jim, Director, Office of Import Surveillance, Consumer 
  Product Safety Commission, Washington, DC......................    11
Brady, Terrence R., president, Underwriters Laboratories, Inc., 
  Northbrook, IL.................................................    12

               ALPHABETICAL LISTING AND APPENDIX MATERIAL

Brady, Terrence R.:
    Testimony....................................................    12
    Prepared statement...........................................    25
Gianopoulos, Kimberly:
    Testimony....................................................     7
    Prepared statement...........................................    27
    Responses to questions from committee members................    32
Hatch, Hon. Orrin G.:
    Opening statement............................................     1
    Prepared statement with attachments..........................    37
Joholske, Jim:
    Testimony....................................................    11
    Prepared statement...........................................    47
    Responses to questions from committee members................    48
Smith, Brenda:
    Testimony....................................................     9
    Prepared statement...........................................    52
    Responses to questions from committee members................    58
Wyden, Hon. Ron:
    Opening statement............................................     4
    Prepared statement...........................................    75

                             Communications

Alliance for Safe Online Pharmacies..............................    77
Asmodee North America, Inc.......................................    79
Coalition to Combat Counterfeiting (CCC).........................    88
The Counterfeit Report...........................................    90
Precious Metals Association of North America.....................    93

                                 (iii)

 
           PROTECTING E-COMMERCE CONSUMERS FROM COUNTERFEITS

                              ----------                              


                         TUESDAY, MARCH 6, 2018

                                       U.S. Senate,
                                      Committee on Finance,
                                                    Washington, DC.
    The hearing was convened, pursuant to notice, at 10:03 
a.m., in room SD-215, Dirksen Senate Office Building, Hon. 
Orrin G. Hatch (chairman of the committee) presiding.
    Present: Senators Thune, Isakson, Portman, Heller, Cassidy, 
Wyden, Stabenow, Cantwell, Menendez, Carper, Cardin, Bennet, 
Casey, Warner, and McCaskill.
    Also present: Republican staff: Christopher Armstrong, 
Chief Oversight Counsel; Joshua Blume, Professional Staff 
Member; and Queena Fan, Detailee. Democratic staff: Elissa 
Alben, International Trade Counsel; David Berick, Chief 
Investigator; Daniel Goshorn, Investigative Counsel; Greta 
Peisch, International Trade Counsel; and Jayme White, Chief 
Advisor for International Competitiveness and Innovation.

 OPENING STATEMENT OF HON. ORRIN G. HATCH, A U.S. SENATOR FROM 
              UTAH, CHAIRMAN, COMMITTEE ON FINANCE

    The Chairman. This hearing will come to order.
    I would like to welcome everyone here today. During this 
hearing, we will discuss counterfeiting and e-commerce and what 
steps we can take to protect consumers.
    Before we get to that, though, I would like to make an 
important point about the President's proposed tariffs on steel 
and aluminum.
    Let us set aside just for a moment all of the legitimate 
concerns about trade wars, the failure to target the source of 
steel and aluminum overcapacity, and the disproportionate 
effects on our major trading partners and allies.
    In the end, these tariffs are not a tax on foreign steel 
and aluminum producers, but rather a tax on American citizens 
and businesses who, if this action is finalized, will be forced 
to pay an additional 25 percent on steel and 10 percent on 
aluminum.
    Those effects would blunt the benefits of tax reform for 
all Americans, including the reduced impact of billions of 
dollars that many companies recently pledged to invest here in 
America. And those billions will not be as valuable. Truly, 
there is a better way to address China's actions than to impose 
a new, across-the-board tax on U.S. consumers and businesses 
just 3 short months after we passed comprehensive tax reform.
    We can and we should do better. And I will be sending the 
President a letter later today emphasizing just that.
    Now, I would like to turn to the important issues we want 
to address in this hearing. It is no secret that I have long 
felt, and I think others feel the same way, that strong 
protections for intellectual property rights protect consumers. 
A properly enforced trademark, for example, lets a customer 
know who made a product and where to go for information about 
it.
    We were all encouraged by the new authorities the Trade 
Facilitation and Trade Enforcement Act of 2015 granted the U.S. 
Customs and Border Protection as well as Immigration and 
Customs Enforcement. Those authorities along with a new 
National Intellectual Property Center were designed to help 
agencies collaborate, coordinate, and take down perpetrators.
    And because there are frequently hiccups with the 
implementation of new laws, the committee asked the Government 
Accountability Office to conduct a broad investigation about 
how the Trade Facilitation and Trade Enforcement Act was being 
implemented.
    As they started their investigation, GAO quickly began to 
realize that e-commerce generally was causing major issues for 
CBP and ICE. Due to advancements in online purchasing, the 
agencies were being forced to adopt new tactics, work more 
closely together, and build up their public/private 
partnerships. Those have all been changes for the good.
    However, we asked GAO to continue their investigation and 
to look specifically at the problem of counterfeits on some of 
the most prominent e-commerce platforms. As part of this 
process, GAO made purchases from five major e-commerce 
platforms, and, after using relatively narrow criteria, GAO 
received at least one counterfeit and one legitimate good from 
each of the platforms.
    In the end, 20 of the 47 individual items they purchased 
were counterfeit. While the sample size was small, the results 
are still telling.
    On the whole, this investigation started us down a path of 
discovery. And on that path, we noticed that there are far more 
issues than we had initially anticipated.
    Today's hearing represents a combination of those initial 
findings. And while we are not going to be able to fix this all 
at once, I am hoping to at least discuss some of the meaningful 
steps that we could take in the near term. But before we get to 
that, I want to talk a little bit more about what we found as 
part of this research.
    As part of its research, GAO found that many counterfeit 
products create a hazard to consumers, children, and our 
economy. Through seizures and later investigations, CBP, ICE, 
and CPSC have found numerous instances of counterfeit products 
with major health and safety issues. These issues have included 
contact lenses that contain dangerous bacteria, cosmetics that 
have chemicals that can cause harmful health effects when 
applied, phone chargers with faulty wiring, batteries with 
thermal runoff issues, and even defective airbags.
    GAO has found that with the rise of popular online 
marketplaces, counterfeiters have greater access to the market 
and can easily sell their phony products directly to consumers.
    Because the counterfeiters frequently use stock photos or 
simply join in on a prelisted product, the goods are sold as 
genuine. And so long as counterfeiters can make the products 
indistinguishable on the outside, most consumers have never 
noticed a difference. This is because typical red flags for 
consumers are difficult to notice.
    This is even true when the counterfeiters create new colors 
or designs of more famous products. In one recent instance, the 
U.S. Attorneys Office in the Northern District of Mississippi 
successfully prosecuted a case against Bobby Rodgers, Jr.
    Mr. Rodgers had a fairly elaborate scheme in place. First, 
he would order counterfeit merchandise from China and 
facilitate delivery by using alternate addresses. Then he would 
powder-coat the counterfeit items he received and sell them as 
a third-party retailer online. As he did this, he would 
represent the goods as authentic, sometimes even with licensed 
modifications.
    The sheer volume of his scams was staggering. On just one 
of the two major platforms that he used, Mr. Rodgers had sold 
over $300,000 in counterfeit goods.
    When his complex was raided, authorities seized another 
2,200 pieces of counterfeit drinkware. But it does not end 
there.
    Later, as the CPSC lab reports came back, several of the 
colors tested positively for lead, exceeding the amount legally 
allowed by more than 20 times. For all we know, there are 
currently children around the country sipping water with 
dangerously high levels of lead because of Mr. Rodgers.
    Sadly, he is just one among many, many perpetrators buying 
counterfeits and facilitating sales of them through e-commerce 
platforms.
    We have heard from some rights holders, like YETI, whose 
products have been counterfeited in these schemes, who have 
responded strongly to address these problems. YETI issued a 
statement making it clear that they were expending, quote, 
``significant resources to protect [their] consumers,'' 
unquote.
    I ask unanimous consent that the full YETI statement, as 
well similar statements submitted by other rights holders, be 
entered into the appropriate place in this hearing record.
    [The statements appear in the appendix beginning on p. 39.]
    The Chairman. Now, I do not want to steal too much of their 
thunder, but one of the reasons we have invited Underwriters 
Laboratories, or UL, here today is to let them give us a 
broader perspective on the seriousness of these issues.
    As just one example, in a public report, UL recently tested 
400 counterfeit Apple phone adapters. Out of those 400, they 
found that only three out of the 400 chargers passed 
electricity strength tests. And that is just one of the many 
studies UL has performed.
    I think everyone here, both members and the audience, will 
be stunned by not only the breadth of products being 
counterfeited, but also by the incredible volume. This goes 
beyond the dollars and cents these companies have invested to 
develop and market their products, which, let us be clear, are 
enormously important for our economy, not to mention the well-
being of American consumers.
    But we are not just talking about devalued investments. We 
are talking about lead on children's drinkware, phones catching 
fire, homes burning down, consumers being injured from hygiene 
and cosmetic products, airbags not inflating properly, and who 
knows what else.
    It is my hope that we all can agree today that counterfeit 
products pose an immediate and significant risk to Americans' 
health and safety. And I hope that we can take GAO's 
recommendations seriously to improve information sharing and 
better track CBP's intellectual property enforcement methods.
    Personally, I am interested in talking specifically about 
sharing e-commerce platform data contained in invoices and on 
packages with rights holders, as well as learning from and 
improving CBP's voluntary abandonment program.
    American consumers are relying on us to get this right, and 
we need to work together and with the appropriate officers at 
CBP, ICE, and other agencies to make sure we do.
    With that, I am very happy to turn to my colleague and 
partner, Senator Wyden, for his opening remarks.
    [The prepared statement of Chairman Hatch appears in the 
appendix.]

             OPENING STATEMENT OF HON. RON WYDEN, 
                   A U.S. SENATOR FROM OREGON

    Senator Wyden. Thank you very much, Mr. Chairman.
    Mr. Chairman, you commented on the steel and aluminum 
issue, and I would like to start with some brief comments on 
that as well.
    The fact is, on the steel and aluminum issue, the President 
has inflicted a punishing year of uncertainty on the American 
economy. And this uncertainty has harmed our workers, American 
workers who need and deserve good-paying jobs.
    Moreover, even as of this morning, it is still not clear 
that the President understands the central problem, which is 
dealing with Chinese overcapacity of steel.
    So he has had practically one salvo a day with respect to 
trade. One day he is looking at tariffs, the next day he is 
looking at in some way intertwining his steel policy with the 
North American Free Trade Agreement.
    I just want it understood that this year of uncertainty, 
which already caused an import surge when the President 
basically dawdled right out of the gate, has real consequences 
for American workers and American families, and they deserve 
better.
    Now, with respect to this hearing, the committee will be 
discussing the challenge of protecting consumers from 
counterfeit goods. And I am glad that this discussion is taking 
place. It is long overdue.
    I also hope this committee will soon hold hearings on the 
Trump administration's varied and sundry trade activities, 
including the steel and aluminum investigations and potential 
tariffs, the North America Free Trade Act renegotiations, and 
the investigation of China under section 301.
    On counterfeit imports, any discussion of this issue has to 
begin by recognizing that over the last few decades, the 
Internet has transformed virtually every corner of the American 
economy.
    I stated some time ago in this room that the Internet is 
now the shipping lane of the 21st century. And that is a far 
cry from the kind of trade discussions that took place for 
decades in this room.
    People now take it for granted, but it is, in effect, a 
miracle of modern commerce that a small business in my home 
State of Oregon, 3,000 miles from Washington, DC, can reach 
consumers almost anywhere at any time. No longer does expanding 
your customer base mean investing solely in bricks and mortar.
    Wildfang is a socially conscious Portland clothing company 
that was founded by women and run by women. They have two 
stores in Portland, but what is really driving sales is online 
opportunities, online sales. A full 70 percent of their 
business happens online, and that is where we are seeing the 
growth. This is a company that has seized the opportunity to 
sell around the world via the Internet, and it now has 25 
employees.
    But the fact is, anytime there is significant economic 
change, let alone the kind of transformative activity that the 
Internet has brought, you get some new challenges along with 
the upside. That includes the chance that when you buy 
something online, there is a chance it could be a fake.
    It is up to the Federal Government to make sure our 
approach to combating counterfeits is not stuck in the 20th 
century.
    These days, when you talk about cracking down on 
counterfeit goods, you are no longer talking about stopping the 
person selling fake purses out of their trunk. You are talking 
about illegitimate products passed off on even the most savvy, 
streetwise consumers, and often they are mixed right in with 
the genuine products that our people want.
    Many of those fakes pose serious dangers. Makeup and food 
and beverage containers can be made with dangerous chemicals. 
Electronics can pose a fire hazard. There can be toys that are 
unsafe for kids.
    The number of small packages coming into America has 
surged, and the fact is that Customs and Border Protection has 
to step up and play a major role in identifying counterfeits 
and stopping them before they enter the marketplace. 
Unfortunately, so far, we get a sense that Customs and Border 
Protection is just too often playing catch-up ball tracking 
these fake products down.
    After conducting a recent study of this exact issue, the 
Government Accountability Office recommended a set of policy 
updates to have Customs and Border Protection work more closely 
with the private sector. Those recommendations include 
expanding Customs and Border Protection authority to notify 
online sales platforms when they have products on their hands 
that might be fake.
    Now, you may hope that that would set the wheels in motion 
and this would result in the policies being in place. But 
Customs and Border Protection has responded to this audit by 
claiming it would take until this upcoming September to 
determine if additional authority was actually necessary.
    Over the last few years, the committee has put a lot of 
sweat equity into the policies that have strengthened the 
enforcement of our trade laws and have done more to protect the 
American consumer and the American worker.
    The chairman and I authored the Trade Facilitation and 
Trade Enforcement Act of 2015 that put in place important new 
tools for Customs and Border Protection to detect and prevent 
counterfeits, including sharing information about counterfeit 
imports with rights holders.
    So in preparation for the hearing, committee staff from 
both sides sat down with Customs to dig into the issue.
    My staff asked, and I quote here, ``Does Customs and Border 
Protection need more authority to crack down on the rip-off 
artists and the counterfeiters?'' The agency said they do not 
know.
    When asked when they would know, they said they did not 
know when they might know.
    So as we begin this hearing, it certainly is unsettling 
that it has not been possible for the Finance Committee on a 
bipartisan basis to get a straight answer on a matter like this 
from the agency that is central to America's effort to protect 
our consumers from counterfeit goods.
    So this morning, I am going to give the agency one more try 
to answer those questions.
    Let me close by saying, getting this right is not going to 
be as simple as just putting a few more policy tools in the 
agency's kit.
    Year after year, administrations have fallen short in 
hiring enough officers--blue uniforms--to fulfill the critical 
need of protecting our consumers and businesses from illegal 
and unfairly traded goods.
    This agency has a tough job working with other law 
enforcement agencies and foreign governments to go after the 
source of the problems. If the administration is focused solely 
on hiring an army of Border Patrol agents, I do not see how 
that is going to help them build their capacity to deal with 
the counterfeit challenges.
    So the Congress and the administration need to ensure that 
the agency has the resources it needs to combat counterfeiters 
and that there is actual follow-up.
    This is simply a matter of protecting American families 
from harmful products and making sure that we are fully 
mobilized to stop these rip-off artists from undercutting the 
American brand. That is really their objective, to undercut the 
American brand. So getting this right to reflect the realities 
of the modern economy is, in my view, what this hearing is all 
about.
    And, Mr. Chairman, as usual, I look forward to working with 
you.
    The Chairman. Well, thank you, Senator.
    [The prepared statement of Senator Wyden appears in the 
appendix.]
    The Chairman. I would like to extend, both of us would like 
to extend a warm welcome to each of our four witnesses today. I 
want to thank you all for coming.
    First, we will hear from Ms. Kimberly Gianopoulos, Director 
for International Trade Issues in the International Affairs and 
Trade team at the Government Accountability Office.
    Ms. Gianopoulos has received a number of awards, including 
the Meritorious Service Award, a Client Service Award, an 
Assistant Comptroller General's Award, and several Results 
Through Teamwork Awards. She is also a certified government 
financial manager.
    Ms. Gianopoulos earned a bachelor's degree in mathematics 
and a master's degree in public analysis and administration 
from the State University of New York at Binghamton.
    The second witness on our panel is Ms. Brenda Smith, 
Executive Assistant Commissioner, Office of Trade, U.S. Customs 
and Border Protection. Ms. Smith has overseen her office since 
2014 and has been with CBP since 1994.
    Prior to joining Customs, Ms. Smith worked at the 
Department of the Treasury and on Capitol Hill. She was honored 
in 2017 with the Distinguished Executive Presidential Rank 
Award, the highest award in civil service.
    Ms. Smith holds bachelor's and master's degrees in 
economics from Rutgers University and is also a graduate of the 
Customs Leadership Institute and the Federal Executive 
Institute.
    Next to speak will be Mr. Jim Joholske, Director for the 
Office of Import Surveillance at the U.S. Consumer Product 
Safety Commission.
    Mr. Joholske started his career at CPSC in July 2000 with 
the agency's Office of Compliance and Field Operations. At that 
time, he focused primarily on enforcement of regulations 
regarding fireworks and cigarette lighters.
    Jim later joined Import Surveillance in 2008 and served as 
Deputy Director prior to assuming the role of Director in March 
2017.
    Finally, Mr. Terrence R. Brady, the president of 
Underwriters Laboratories, Inc., will testify. Mr. Brady was 
appointed to his new position just last week, but was just 
recently serving UL as a vice president and chief commercial 
and legal officer.
    Prior to joining UL, Mr. Brady was an associate and partner 
for 27 years in the Chicago office of Winston and Strawn, LLP.
    Mr. Brady graduated from Dartmouth College with his 
undergraduate degree and then received his law degree from 
Notre Dame Law School.
    I want to thank you all for coming and being here with us 
today and for testifying today.
    So, Ms. Gianopoulos, we will turn to you first, and we will 
begin with your opening remarks.

  STATEMENT OF KIMBERLY GIANOPOULOS, DIRECTOR, INTERNATIONAL 
     AFFAIRS AND TRADE, GOVERNMENT ACCOUNTABILITY OFFICE, 
                         WASHINGTON, DC

    Ms. Gianopoulos. Thank you, Mr. Chairman.
    Chairman Hatch, Ranking Member Wyden, and members of the 
committee, thank you for the opportunity to be here today to 
discuss our recent work on intellectual property rights.
    The United States is a global leader in the creation of 
intellectual property. Companies that illegally import and 
distribute counterfeit goods can cause a number of harmful 
effects on the U.S. economy, such as slowing economic growth 
and threatening American jobs. What is more, the counterfeit 
goods could threaten the health and safety of the American 
people.
    My testimony today summarizes the findings from our recent 
report and covers three main areas. First, I will talk about 
some of the difficulties that are presented by counterfeit 
goods in e-commerce, using information from our investigation 
to illustrate just how challenging that problem is. Second, I 
will discuss the nature of efforts that Customs and Border 
Protection and Immigration and Customs Enforcement have 
undertaken to enhance IPR enforcement. And finally, I will 
cover some of the ways in which CBP and ICE coordinate with the 
private sector in enforcing IPR.
    The rise of e-commerce has contributed to a fundamental 
change in the market for counterfeit goods. In the past, you 
may have expected to find counterfeit purses or watches on a 
street corner or in a flea market. These goods may have been 
shipped to the United States on a cargo ship in bulk and were 
priced significantly below retail.
    Now many people shop online, where sellers of counterfeit 
goods engage in a number of practices to make their goods look 
authentic. Numerous, everyday items can be counterfeit. This 
practice is no longer limited to high-end goods.
    These online purchases are sent to buyers in individual 
express packages rather than shipped in bulk to U.S.-based 
distributors. This makes it very challenging for consumers as 
well as CBP to identify counterfeit goods.
    As part of our review, we purchased 47 items covering four 
different types of consumer goods, including Nike Air Jordan 
shoes, YETI travel mugs, Urban Decay cosmetics, and UL-
certified phone chargers, from five different popular e-
commerce websites.
    We looked for items that were advertised as new, brand-name 
items and were sold by highly rated third-party sellers. Of the 
47 items, 20 were counterfeit as determined by the rights 
holders themselves.
    It can be difficult to tell if an item is counterfeit. For 
example, these are three of the YETI mugs that we purchased 
online. These two silver mugs look identical, they feel the 
same, same weight. But if you look at the bottom, you will see 
that one of them has misspellings on the words. For example, 
Austin, TX as the source is spelled A-U-S-I-N and it says 
``mede'' in China instead of made in China.
    And then this hot-pink mug also seems to be authentic, 
except, well, YETI does not make hot-pink mugs. So you would 
not know that unless you were aware of that issue with regard 
to YETI.
    In our full report, we include a one-page appendix that 
lists a number of ways consumers can take steps to avoid 
purchasing counterfeits online.
    To enhance IPR enforcement, we found that CBP and ICE 
engage in a number of activities. They conduct special 
operations at U.S. ports, engage with international partners, 
and undertake localized programs or port-led initiatives.
    However, CBP has conducted a limited amount of evaluation 
of its efforts and may, therefore, not have the information it 
needs to be as effective and as efficient as possible given our 
current 
resource-constrained environment.
    We recommended that CBP take steps to evaluate the 
effectiveness of its IPR enforcement efforts. And the agency 
agreed with our recommendation.
    With regard to the private sector, we found that CBP is 
restricted in the amount and type of information about seized 
items that it can share. This restriction limits the ability of 
rights holders and e-commerce websites to protect IPR.
    In the Trade Facilitation and Trade Enforcement Act of 
2015, Congress gave CBP authority to share certain information 
with trademark and copyright owners before completing a 
seizure. However, CBP officials told us that there are legal 
limitations to this sharing. For example, CBP cannot share 
information from the exterior of seized packages. This could 
help websites identify groups of counterfeit merchandise from 
the same seller.
    We recommended that CBP assess what information would be 
helpful to share with the private sector and take appropriate 
action to enhance information sharing where possible. And CBP 
agreed with this recommendation.
    This concludes my opening remarks. Thank you for your time, 
and I am happy to answer any questions you might have.
    The Chairman. Thank you very much.
    [The prepared statement of Ms. Gianopoulos appears in the 
appendix.]
    The Chairman. Ms. Smith, we will turn to you.

 STATEMENT OF BRENDA SMITH, EXECUTIVE ASSISTANT COMMISSIONER, 
 OFFICE OF TRADE, CUSTOMS AND BORDER PROTECTION, WASHINGTON, DC

    Ms. Smith. Chairman Hatch, Ranking Member Wyden, and 
distinguished members of the committee, it is an honor to 
appear today to discuss CBP's enforcement of intellectual 
property rights and our efforts to keep counterfeit goods that 
pose a threat to the health and safety of American consumers 
from entering U.S. commerce.
    As America's unified border agency, CBP enforces nearly 500 
U.S. trade laws and regulations on behalf of 48 Federal 
agencies. This morning, I would like to give you my perspective 
of the opportunities and challenges we see in the current trade 
environment.
    Thanks to this committee's support and commitment, the 
Trade Facilitation and Trade Enforcement Act of 2015 
strengthened and expanded CBP's authority to enforce our 
Nation's trade laws, while facilitating lawful international 
trade.
    Among its many provisions, the Trade Facilitation and Trade 
Enforcement Act, also known as TFTEA, provided significant 
cost-
savings opportunities for U.S. businesses and consumers by 
raising the de minimis threshold from $200 to $800, which 
allows relatively low-value goods to be brought into the United 
States free of duty and with reduced information requirements.
    The combination of growing online purchases and the higher 
threshold has resulted in increasing U.S. imports of small, 
just-in-time packages, many arriving via international mail and 
express consignment carriers.
    Over the past 5 years, the volume of international air-
express shipments has increased nearly 50 percent, and in the 
postal environment, small packages have increased by over 200 
percent. This rise in small packages has altered the dynamic of 
the trade environment and CBP's ability to enforce intellectual 
property rights.
    CBP targets for a variety of risks and takes action when it 
finds a problem. In fiscal year 2017, CBP seized over 34,000 
shipments of counterfeit goods, an 8-percent increase over the 
previous year and very consistent with the trend that we have 
seen over the last 10 years.
    Approximately 16 percent of these seized goods, such as 
cosmetics, electronics, and toys, contain serious potential 
threats to consumer health and safety.
    We are currently enforcing more than 18,000 copyright and 
trademark records. Rights holder collaboration through 
recordation, training, and the information sharing strengthened 
by TFTEA is essential to identifying counterfeit products.
    CBP also regularly discloses information to the rights 
holders to verify a product's validity if we suspect that 
imported merchandise bears a counterfeit mark.
    This private-sector partnership, as envisioned by TFTEA, is 
continuing to expand with the recent announcement of the first 
partnership arrangement under the IPR Enforcement Donations 
Acceptance Program in which Procter and Gamble has donated 
testing devices to help CBP quickly determine the authenticity 
of its product.
    Interagency partnership is supported through the Commercial 
Targeting and Analysis Center, or CTAC, which combines the 
trade enforcement and intelligence capabilities of CBP and 12 
other Federal agencies to protect the American public from 
unsafe imported products.
    CTAC's joint targeting and enforcement efforts led to 243 
seizures of unsafe products in 2017. Two months ago, CBP and 
CPSC targeting resulted in officers at the Port of Los Angeles 
seizing a large incoming shipment of toy building blocks for 
trademark infringement. These counterfeit toys were also found 
to violate the Federal Hazardous Substance Act for excessive 
lead and small parts.
    We are concerned about the risks we find in rising volumes 
of small shipments, where 90 percent of our IPR seizures were 
made last year, and have been working with interagency and 
private-
sector partners to address those risks.
    Building on our experience in the CTAC and the clear 
mandate provided by Congress in TFTEA to develop an interagency 
approach to this critical type of enforcement, we have 
developed a draft joint import safety, rapid response plan. We 
will use this plan and follow-on interagency exercises to 
coordinate the management of incidents that present a safety 
risk to U.S. consumers and businesses.
    In anticipation of future e-commerce growth and to manage 
threats in this environment, CBP is releasing a comprehensive 
e-commerce strategy which is critical for guiding our approach 
to enforcing intellectual property rights and enforcing import 
safety while supporting a vibrant and competitive sector of 
U.S. international trade.
    We will work closely with all segments of the e-commerce 
community and our partner government agencies to identify 
information-sharing and other opportunities and pursue any 
necessary policy, regulatory, or statutory changes.
    Chairman Hatch, Ranking Member Wyden, and distinguished 
members of the committee, I look forward to working with you to 
build on these efforts, and thank you for the opportunity to 
testify today. I am happy to take any questions that you might 
have.
    The Chairman. Well, thank you so much.
    [The prepared statement of Ms. Smith appears in the 
appendix.]
    The Chairman. Mr. Joholske, we will turn to you.

     STATEMENT OF JIM JOHOLSKE, DIRECTOR, OFFICE OF IMPORT 
 SURVEILLANCE, CONSUMER PRODUCT SAFETY COMMISSION, WASHINGTON, 
                               DC

    Mr. Joholske. Thank you. Good morning, Chairman Hatch, 
Ranking Member Wyden, and distinguished members of the 
committee. Thank you for inviting me to discuss the U.S. 
Consumer Product Safety Commission's important role in 
protecting consumers from the health and safety hazards 
involving imports and counterfeit goods.
    Before I begin, I should note that these comments are those 
of CPSC staff and they have not been reviewed or approved by 
and may not necessarily reflect the views of the Commission. I 
especially appreciate the opportunity to appear before you 
today, as this year marks the 10th anniversary of the creation 
of CPSC's Import Surveillance Program.
    The CPSC was established by Congress in 1972 and is the 
Federal regulatory body charged with protecting the public from 
the unreasonable risk of injuries or death associated with 
consumer products. We are a relatively small agency with 545 
full-time equivalents and a $125-million annual budget. 
However, we have jurisdiction over thousands of consumer 
products, a vast majority of which are imported into the United 
States.
    Since the passage of the Consumer Product Safety 
Improvement Act of 2008, CPSC has strengthened its relationship 
with U.S. Customs and Border Protection and closely coordinates 
with CBP to interdict potentially noncompliant, unsafe imported 
products.
    As part of our efforts, CPSC has placed investigators at 
the largest ports of entry to work side-by-side with CBP staff. 
Currently, we have 30 investigators stationed at 20 of the 
largest ports in the country. Despite our relatively small 
size, in fiscal year 2017 CPSC investigators at the ports 
screened more than 38,000 distinct products arriving in the 
United States and stopped approximately 4 million noncompliant 
or hazardous units from reaching consumers.
    To prioritize and target high-risk shipments, CPSC has 
developed our own targeting system called RAM, or Risk 
Assessment Methodology. RAM leverages a feed of entry data 
received from CBP, which is combined with CPSC data to risk-
score shipments under CPSC's jurisdiction.
    We also have CPSC staff stationed at CBP's Commercial 
Targeting and Analysis Center to coordinate with CBP and other 
government agencies to address import safety hazards. CPSC also 
has a part-time presence at the National Intellectual Property 
Rights Coordination Center, where we exchange information with 
22 partner agencies that may help us target potentially 
noncomplying and hazardous products.
    As an agency with limited resources, we would not be able 
to do the critical work of intercepting high-risk products 
before they reach consumers without the assistance and support 
of DHS and CBP.
    Although CPSC's primary focus is targeting products that 
violate CPSC requirements, we do encounter intellectual 
property rights violations. Many of CPSC's investigators are 
former CBP officers and import specialists, and they have been 
trained to identify IPR issues. As a result, CPSC staff are 
often able to identify possible IPR violations in the course of 
their normal duties.
    When CPSC identifies a potential IPR issue, we refer the 
shipment to CBP because they have the authority to efficiently 
seize the products. On a case-by-case basis, we will also test 
those IPR-violative products for compliance with CPSC mandatory 
standards or to determine whether they are otherwise hazardous.
    CPSC and CBP have collaborated on many shipments where a 
potential IPR violation and a safety violation were found. 
Examples include holiday lights; cell phone wall chargers; 
lithium ion batteries used in hoverboards, laptops, and cell 
phones; children's backpacks; and numerous toys.
    Although CPSC's import surveillance activities have 
prioritized large ports of entry, like many agencies we are 
facing challenges in regulating products imported through 
direct-to-consumer sales over e-commerce platforms. The volume 
of these shipments and the limited amount of data required when 
the shipment arrives in the United States make targeting 
difficult.
    With CPSC's small size and limited resources, we currently 
do not have investigators stationed at locations where these 
small packages arrive, other than JFK Airport. However, CPSC 
will continue to evaluate its staffing model to identify 
efficient ways to target and examine potentially unsafe 
products shipped directly to e-commerce consumers.
    Thank you for the opportunity to share my remarks. I am 
happy to answer any questions you may have.
    The Chairman. Well, thank you so much.
    [The prepared statement of Mr. Joholske appears in the 
appendix.]
    The Chairman. Mr. Brady, we will conclude with you.

    STATEMENT OF TERRENCE R. BRADY, PRESIDENT, UNDERWRITERS 
               LABORATORIES, INC., NORTHBROOK, IL

    Mr. Brady. Good morning, Chairman Hatch, Ranking Member 
Wyden, distinguished members of the committee.
    My name is Terrence Brady, and as the newly appointed 
president of Underwriters Laboratories, I am honored to appear 
before you today to share UL's experience combating the rise of 
counterfeit goods in e-commerce and to offer our perspectives 
on the challenges facing IP rights holders in this evolving 
global market.
    UL is a global independent safety science company that has 
championed safety for nearly 125 years. Our 14,000 
professionals around the globe are guided by our mission to 
promote safe living and working environments for people 
everywhere.
    We use research, standards, and conformity assessment to 
meet ever-evolving safety challenges. We partner with 
manufacturers, retailers, trade associations, and regulatory 
authorities internationally to provide solutions to address the 
risks of increasingly complex global supply chains.
    UL takes counterfeiting very seriously, and we devote 
significant resources to fight it. We do this because we do not 
make or sell goods. Our product is our brand, our mark, which 
is built on a foundation of trust. When U.S. consumers see our 
UL mark, they know that an independent third party has 
determined that the manufacturer has demonstrated compliance 
with safety, performance, or other standards.
    Unfortunately, the counterfeiters also recognize the value 
that UL brings, and they misappropriate our name and marks to 
try to legitimize the goods they sell.
    Too often, consumers are unwitting victims of 
counterfeiting. They may suspect that the cheap handbag or 
watch they are buying is a knockoff, but many are entirely 
unaware that important other product categories are frequently 
counterfeited.
    As the chairman noted, in 2016, we partnered with Apple to 
evaluate the dangers of counterfeit iPhone chargers like this 
small device. In a controlled test program, as the chairman 
stated, our engineers tested 400 counterfeit adapters bearing 
our UL marks, and the results were literally shocking. The 
overall failure rate exceeded 99 percent. And all but three 
adapters presented fire and shock risks. Twelve were so poorly 
made that they posed a direct risk of electrocution.
    In 2017, we conducted over 1,200 investigations around the 
globe, resulting in the seizure of 1.5 million individual 
products. Let me give you a couple of highlights.
    In terms of e-commerce, the focus of this hearing, we 
collected intelligence on more than 5,000 online listings 
across multiple platforms. We were able to identify more than 
130 unique sellers with over 500 listings of counterfeit 
products.
    We worked with the online platforms to remove the 
infringing listings and take appropriate actions against the 
sellers. As a result, law enforcement seized an estimated 
$660,000 worth of counterfeit smartphones, hard drives, 
flashlights, headlamps, and hoverboards.
    Based on information UL provided, the DHS seized 
approximately 3,200 counterfeit UL safety labels and power 
adapters valued in excess of $200,000. And we partnered with 
the Los Angeles County Sheriff's Department to seize 2,500 
counterfeit hoverboards and an additional 2,300 loose labels 
that the counterfeiters could stick on other fake goods.
    These hoverboards, I should note, were shipped into the 
United States marked as wheelbarrows. The total seizure was 
valued at over $1.5 million.
    Finally, UL cooperated with authorities on many other 
investigations, resulting in seizure of lithium ion batteries, 
fire sprinklers in buildings in India, household fans for use 
in Panama, and fake lifejackets for use in Peru, including 
those used for children.
    My written testimony contains many more statistics and 
numbers than time permits here, but they underscore that the 
issue of counterfeiting extends to many product categories and 
countries.
    In our 22-year history in this fight, we have deployed a 
comprehensive, multidimensional strategy based on three 
essential tenets: education, enforcement, and public/private 
partnerships. We work with our clients, with law enforcement, 
Customs officials, and others to stem the proliferation of 
counterfeits.
    The issues we see in the traditional marketplaces are 
amplified in this borderless world of e-commerce. It was noted 
that online shipping and online direct-to-consumer sales have 
made it much harder for brands, law enforcement, and Customs 
officials to fight back, because the counterfeit penalties for 
a million dollars of counterfeit goods are far less than a 
million dollars' worth of drugs.
    And as shippers go direct to consumers rather than risking 
an entire cargo container, this becomes very, very difficult. 
This is a challenge that legitimate platforms and IP rights 
holders have to work on together.
    Thank you for the opportunity to testify today. UL welcomes 
the opportunity to work with you in the fight against 
counterfeits. And I welcome any questions the committee may 
have. Thank you.
    The Chairman. Well, thanks to all four of you.
    [The prepared statement of Mr. Brady appears in the 
appendix.]
    The Chairman. Your testimony is really riveting. And it has 
to concern every American citizen, so we appreciate you taking 
the time to be here with us today, and we appreciate the work 
that you are doing and hope that you will step it up even more.
    Ms. Gianopoulos, in your report you discuss two 
recommendations to CBP. Can you explain what factors make it 
difficult for CBP, ICE, and private-sector actors, such as 
websites and rights holders, to address the problem of 
counterfeits, and then reiterate why you feel the suggested 
changes will help address those concerns?
    Ms. Gianopoulos. Thank you, Mr. Chairman. There are a 
number of things that are changing the e-commerce environment 
today. You could probably boil it down into three ``v''s. There 
is the volume of goods, which each of us has talked about to 
some degree, where the number of shipments has just 
tremendously exploded over the past several years. So it is 
very difficult to focus in and find counterfeit goods on an 
individual-by-individual shipment basis.
    There is also the value of those goods. The value has 
tremendously increased. I believe Ms. Smith talked a little bit 
about the seizure rate that has taken place, and that is just 
one factor that you can look at to determine how well seizures 
or how well enforcement is taking place.
    And then finally, there is the variety. The variety of 
goods that are being counterfeited these days has just 
tremendously exploded. It is everything from YETI tumblers to 
duck decoys to kitchen sinks. So it is not something that a 
consumer or CBP or anyone for that matter can target as easily 
as they could in the past.
    So our recommendations focus in on two of the things that 
the agencies can do to try to improve their processes.
    First of all, in working with the private sector, while 
TFTEA did allow CBP to share more information, there are some 
restrictions on that sharing. And when we spoke with folks from 
the private sector, they expressed some concerns about their 
efforts to try to shut down these counterfeiters and the amount 
of information that they needed in order to target their 
efforts as well. And they thought that that could be improved.
    And then secondly, looking at the evaluation that could be 
done for CBP's and ICE's activities. Certainly, in a limited 
budget environment, as Federal agencies, we all want to put our 
money in the right places where it can do the most good. And we 
encouraged CBP to take additional steps to evaluate the 
activities it has underway in order to address some of these 
counterfeiting activities so that they can put their money in 
the best places.
    The Chairman. Well, thank you.
    Ms. Smith, as we have heard from GAO, CBP is really on the 
front lines of this quickly evolving problem or set of 
problems.
    In your written testimony, you agreed with GAO's 
recommendations to better evaluate your IPR enforcement efforts 
and explore opportunities for better information sharing with 
the private sector. What steps do you plan to take to implement 
these recommendations?
    Ms. Smith. Senator, we think both of the recommendations 
were very productive ways for us to focus our efforts. The 
scope of the challenges, as the other witnesses have laid out, 
is tremendous. And one of the things that we have done to 
address GAO's recommendations is to charge our COAC E-Commerce 
Working Group to work with us to work through which information 
would be valuable to share and whom it should be shared with.
    As you pointed out, TFTEA provides us good authority to 
share through properly promulgated regulations. And our intent 
is to address the issue of information sharing through 
additional regulatory framework.
    The other thing that we have done to address some of the 
challenges that GAO identified is to develop and release today 
an e-commerce strategy to help us focus our efforts.
    And we look forward to working with you and our colleagues 
here at the table to understand exactly where we can make the 
greatest impact.
    The Chairman. Well, thank you so much.
    Mr. Brady, UL has a vested interest in billions of 
individual products that are bought and sold each year. And as 
such, you have an important and valuable perspective, as I see 
it, in all of this. What steps do you as a company take to 
protect your intellectual property rights? And what can U.S. 
agencies do better to assist you in your efforts?
    Mr. Brady. Thank you, Mr. Chairman. As I noted earlier and 
as I think most of the people in the room know, our only 
product is trust. It is the trust that consumers place in us 
when they see our mark. And so we fight very hard to protect 
that trust because it is consistent with our 125-year-old 
mission of helping to create safe living and working 
environments for people everywhere.
    Our team is small, but mighty; and therefore, we depend 
heavily on private/public partnerships to help us continue this 
fight against counterfeits.
    What we need is real-time and transparent intelligence, 
because we rely on civil and criminal enforcement procedures 
beyond seizure and destruction. We pursue civil and criminal 
cases against the counterfeiters. If we bring stale data to the 
FBI or to the L.A. County Sheriff, then they cannot do anything 
with it. So we need real-time intelligence sharing.
    We are happy to and always share transparently with law 
enforcement and with government agencies what we find. We would 
like to reciprocate in that transparency and to keep the data 
fresh, because intelligence goes stale very quickly and these 
criminals quickly change their websites, their email addresses, 
their physical locations, their methods of shipment. They move 
fast. And we, together with government, need to move faster.
    Thank you.
    The Chairman. Well, thank you.
    Senator Wyden?
    Senator Wyden. Thank you very much, Mr. Chairman.
    I want to thank the panel.
    And let me start with you, Ms. Smith. As I indicated, to 
me, what is going on is the rip-off artists, the 
counterfeiters, are trying to undercut the American brand. So 
this is really high-stakes stuff.
    And I want to ask you the two questions that our staff 
asked your staff. And the first one is a ``yes'' or ``no'' 
answer so that we are clear on this. Does the agency need more 
authorities to crack down on the counterfeiters, the rip-off 
artists? That is just ``yes'' or ``no,'' do you need more 
authority?
    Because the staff asked it, and you all would not give a 
direct answer, so I want to give you the chance. ``Yes'' or 
``no,'' do you need more authority?
    Ms. Smith. Yes, Senator.
    Senator Wyden. Thank you. So that is good to finally have 
that on the record.
    When will you be able to give us the details with respect 
to exactly what it is you need? Because as you know, the staff 
asked you, do you need more authority, and could not get an 
answer then. You have now given us an answer, to your credit.
    And then they asked, can you tell us when we will get the 
details of what you need in this area and how you would like to 
proceed so we can up our game to be tougher on these 
counterfeiters? When will we get that?
    Ms. Smith. Senator, I think we should start the 
conversation now. But what I would recommend is that we gather 
the information about what data is available and whom it should 
come from and whom it should be provided to from our private-
sector participants in the COAC E-Commerce Working Group.
    I think it is important to have the private-sector 
perspective reflected. As you know, COAC is a very important 
intermediary provided for in TFTEA. And I would like to suggest 
that they work for several months so that we can come back to 
you as they are working and walk through what the 
recommendations are from the private sector.
    Senator Wyden. Now, you said we need time to have this 
conversation. We have been having this conversation for what 
feels like a longer-running battle than the Trojan War. It has 
gone on a long, long time. We know who the people are, the 
platforms, we know about the rights holders. I would like a 
date.
    And I think you moved, again, in an encouraging way. Can we 
say within 60 days? As you said, you want to have this 
discussion with the relevant private-sector parties; I am all 
for it. Can we have a commitment today that you will lay out 
for us what it is you are prepared to do in terms of this 
authority and that you will talk with the private parties 
within 60 days from today?
    Ms. Smith. Sir, I will do my best to meet that 60-day 
benchmark.
    Senator Wyden. Okay, good.
    Let me turn now to the question of priorities and get your 
thoughts on this. I understand that the agency is moving to 
hire 5,000 Border Patrol agents here in the next 5 years and 
2,000 officers. Now, I have supported billions of dollars in 
terms of security at the borders, and I am prepared to do what 
it is going to take to ensure that we protect the American 
people.
    As you know, illegal crossings are now at a historic low. 
So how are we going to do it if we are putting twice as many 
people on this question of yet more agents at the border as we 
are in terms of getting the people we need to up our game in 
terms of the counterfeiters? How are we going to do it when 
that balance seems so out of whack?
    Ms. Smith. Senator, I think, as you have worked with us 
over many years to look at the very diverse portfolio of CBP's 
mission, to make sure that we have the right people on the 
border, whether they are wearing green uniforms, blue uniforms, 
or tan uniforms, you have also been very supportive of us in 
terms of making sure we have the expertise on the trade side.
    As you know, the President's budget in fiscal year 2018 
asked for 140 new positions to implement TFTEA. And I think 
that the combination of hiring those with trade expertise as 
well as those with border security responsibilities is a big 
challenge for CBP.
    Senator Wyden. You are being very diplomatic. And I am 
going to let you off the hook.
    Ms. Smith. Thank you, sir.
    Senator Wyden. I think you get my sense. I think the 
priorities are way out of whack when you have twice as many 
people in this area where the evidence shows that illegal 
activity is going down as opposed to what we are dealing with 
here.
    And you are going to have a real--you described it as a 
challenge. I think the priorities are out of whack, and we need 
to get them straightened out.
    One last question for--I believe this will be for Mr. 
Brady.
    Mr. Brady, what I think you basically said--and I am going 
to direct the staff to look into it--you basically said that 
the rip-off artists, given the penalties, may, in effect, just 
say, hey, this is just the cost of doing business. Let us rip 
people off; the penalties are not that meaningful compared to 
the amount of business that we can rack up by doing all this 
counterfeiting and just moving online quickly and ripping 
people off.
    That is pretty much what you are saying, right?
    Mr. Brady. That is exactly correct, Senator.
    Senator Wyden. Would you recommend to the chairman and me 
that, as part of this effort, we beef up the penalties, given 
what you have said, that they may, in effect, just be being 
treated as part of the cost of doing business?
    Mr. Brady. Yes, Senator. We would recommend that as a very 
fertile and important area to look into. We see evidence from, 
for example the L.A. prosecutors, that counterfeiters get out 
very quickly and go right back to business the same day. They 
are actually trying civil suits against these people because 
they do not know how to manage a civil suit, but their 
jailhouse lawyers, they can get them out with a slap on the 
wrist today.
    Senator Wyden. I am way over my time. Could you furnish in 
writing to the chairman and me your thoughts of what might be a 
set of penalties that would ensure that this was not just, in 
effect, the cost of doing business? Could you furnish that to 
us?
    Mr. Brady. It will be our pleasure.
    Senator Wyden. Great.
    Thank you, Mr. Chairman.
    The Chairman. Thank you.
    Senator Isakson?
    Senator Isakson. Thank you, Mr. Chairman.
    Ms. Gianopoulos, I was in the real estate business for a 
long time before I came to Congress and did a lot of retail 
shopping centers, and I have watched over the years the 
increase of sales over the Internet at Christmastime.
    I think now, about 20 to 22 percent of sales at Christmas 
are made via the Internet and not by people going in the store 
and shopping and buying, which has exponentially grown retail 
sales over the Internet. Is it growing in a comparable way in 
other product lines, other times of the year?
    Ms. Gianopoulos. You know, Senator, we did not take a look 
at the growth of e-commerce, per se. We were focused in on the 
challenges that were associated with e-commerce as it relates 
to counterfeits.
    And as I said in my statement, it is very difficult when 
you are going online and just looking at a photo of an item to 
determine whether or not it is real. You may go into a store 
and be able to pick it up and see if it is a different weight 
or a different color or something like that.
    But what some counterfeiters do is, they take the photo of 
the actual item and they put it online, even though they are 
giving you something that is counterfeit and it may not 
resemble that photo that you have seen online.
    Senator Isakson. And then they produce a knockoff and sell 
it to you.
    Ms. Gianopoulos. Absolutely.
    Senator Isakson. Yes.
    Ms. Gianopoulos. Or what they sometimes do is, they import 
the counterfeit items without the labels on them and then they 
import the labels separately and put the labels on in the 
United States.
    Senator Isakson. Both ways are a problem for us, that is 
for sure.
    Ms. Gianopoulos. Absolutely.
    Senator Isakson. Ms. Smith, I have a habit of reading the 
resumes of people who come before us to just find out a little 
bit about them. I noticed you may be the person we really need 
to answer this question. I think Chairman Hatch asked it, and I 
think Senator Wyden did too.
    But it says that you received the 2017 Distinguished 
Executive Presidential Rank Award. Is that correct?
    Ms. Smith. Yes, sir, it is.
    Senator Isakson. And less than 1 percent of the executives 
in the Federal Government receive that award, and it is to 
recognize your achievement in enhancing CBP's enforcement to 
protect the American consumers.
    Ms. Smith. Yes, sir.
    Senator Isakson. You ought to write the blueprint for this 
program then so you can cut through all the chaff that we have 
talked about and write that blueprint.
    Ms. Smith. We are working on it, sir.
    Senator Isakson. In that particular situation, you did 
respond to the question asked by the ranking member about 
whether you need more authority. What authority specifically do 
you need more of to do your job?
    Ms. Smith. Sir, I believe that the authority request will 
touch on several things: the data that we can share and who we 
can share it with. I think, as Mr. Brady noted, that the 
penalties and the other civil enforcement actions that we can 
take in this area are also an important thing for us to 
consider and talk about.
    The specifics--I would like to consult with both our other 
government agency partners and with the private sector to make 
sure that we are hitting the mark with it. But we will do that 
fairly quickly.
    Senator Isakson. Is part of the problem the antitrust rules 
and regulations? Just out of curiosity.
    Ms. Smith. That has not been raised to us as an issue.
    Senator Isakson. But it is a big enough problem, I think, 
in our country that we ought to weigh various barriers that we 
can for enforcement, not allow people to abuse it, but allow us 
to be able to enforce it.
    Ms. Smith. We will do that.
    Senator Isakson. We appreciate all of you being here today 
and thank you for the good work that you do.
    The Chairman. Well, thank you.
    The Senator from Louisiana.
    Senator Cassidy. Ms. Smith, when a vendor is flagged as a 
possible seller of counterfeit goods, does that trigger an 
examination of their entire business, for example with other 
possible offenses like trade-based money laundering?
    Ms. Smith. Senator, it does. Once we have identified a 
particular business entity as a risk, we do try to take a 
broad-based approach to looking at all of their business 
activity.
    We have some challenges, because oftentimes they will 
disappear and we need to find them through either corporate 
officers or other targeting information.
    We are also looking to make sure that when we see a pattern 
of conduct from one business entity, that we look for that same 
pattern of conduct with similar types of businesses.
    Senator Cassidy. Now, that leads to my next question. Data 
analytics are being used by many in an attempt to winnow out 
and find that needle. And it sounds like you would start off 
with, is it from China or is it from Hong Kong? But then you 
could pare it down, I presume. Is that being done?
    Ms. Smith. Yes, Senator, it is, but I think we can do more. 
There are some amazing developments in the technology space 
around predictive analytics.
    CBP has used a number of tools over the years to target 
risk, but I think sort of the next frontier for us is around 
applying some of these innovative technologies to find that 
needle in a haystack.
    Senator Cassidy. Our office has been trying to figure out 
how well our agencies work together on trade-based money 
laundering. And I always point out, it is estimated cartels 
move $110 billion a year from the United States to Mexico, but 
we only confiscate, best as we can tell, about $7 billion.
    Now, Senator Wyden spoke of the cost of doing business--we 
are only getting 5 percent of $110 billion. What would you say 
is the state of cooperation between the different agencies 
tasked with tracking trade-based money laundering and the other 
issues related to that and this panel?
    Ms. Smith. Senator, I think it is good. The cooperation----
    Senator Cassidy. Now, I have heard from others off the 
record that it is very bad, that it is siloed and that there is 
not the cooperation between agencies required for it to be 
effective. And I am not accusing, but if they are moving $110 
billion a year and we are only getting $7 billion, it begs the 
question.
    Ms. Smith. I think this area, it is a very complex area. 
Trade-based money laundering is a fairly sophisticated version 
of trade violation.
    I think it behooves us to take a whole-of-government 
approach, both from a criminal perspective and a civil 
perspective, and to apply the information that we can get from 
our intelligence agencies to both recognize and share that 
information to ensure that we are going after what is happening 
in real time.
    Senator Cassidy. I accept all of that conceptually. I guess 
what I am probing for is--if what I am hearing off the record 
is that it is not occurring now, how do we make that occur?
    Ms. Smith. I think by your message today, your question 
today to identify that as a high-risk area that the Congress is 
interested in. And then I think what we do is pull together 
those key agencies, whether it be ICE, whether it be the 
Department of Treasury, to focus on trade-based money 
laundering with a mandate to share information and take 
aggressive action.
    Senator Cassidy. Does anybody else on the panel have 
anything to offer on this particular topic?
    Okay. I think I saw Mr. Brady nodding, so even though he is 
from UL, I thought maybe he had a thought on it.
    Mr. Brady. Senator, no, I have nothing to offer at this 
time.
    Senator Cassidy. Okay. Thank you, sir.
    Let us see what else my interests lie in.
    Using your current data analytics, are you able to identify 
both small shipments occurring through the mail, through the 
United States Postal Service, as well as larger shipments or 
shipments going through FedEx or DHL, UPS, et cetera?
    Ms. Smith. Yes, sir, we are. We get very good advanced 
electronic data in the express courier environment.
    Senator Cassidy. What about USPS?
    Ms. Smith. We are getting better. I think the advanced 
electronic data that we are seeing is not what we would like.
    Senator Cassidy. So when you say ``better,'' that is a very 
elastic term. It could be from 1 percent to 2 percent, which 
would be a 100-percent improvement, but in absolute percentage 
it is pretty lousy.
    So USPS, what percent of illicit or illegal or counterfeit 
goods do you feel that you are detecting when they come through 
USPS?
    Ms. Smith. We are getting advanced electronic data on 
approximately 50 percent of small packages in the postal 
environment now, which is significantly up. It represents data 
from 30 countries, which is significantly up from what we got 5 
years ago, which was data from----
    Senator Cassidy. Now, it sounds like Hong Kong and China 
are the ones that really matter.
    Ms. Smith. Yes.
    Senator Cassidy. So to what degree are you getting that 
from Hong Kong and China?
    Ms. Smith. We are getting all of the advanced electronic 
data from China. And Hong Kong, if you will give me just a 
moment--yes, Hong Kong as well. So we are getting that.
    Senator Cassidy. And so are we seizing illegal, illicit 
counterfeit goods from those areas?
    Ms. Smith. Yes, we are seizing counterfeit goods. We are 
also focused on things like fentanyl.
    Senator Cassidy. So what percent--this will be my last 
question. Thank you, Mr. Chairman.
    What percent of the counterfeit illegal, illicit goods 
coming through the USPS do you feel you are confiscating--5 
percent, 10 percent, 100 percent?
    Ms. Smith. Sir, I do not have an answer to that. And I 
think that is what GAO has asked us to look at. We will look at 
that going forward and try to get that estimate.
    Senator Cassidy. Okay, thank you. I yield back.
    The Chairman. Okay.
    The Senator from New Jersey.
    Senator Menendez. Thank you, Mr. Chairman, for holding 
today's hearing.
    The United States is the world's leader in trusted and 
recognized brands, the ones most in demand, the ones that can 
command the best prices and, therefore, are the most vulnerable 
to knockoffs. That is why protecting our reputation and the 
investments we have put into it is so important.
    Four years ago, families and businesses in New Jersey began 
contacting me about the increasing prevalence of counterfeit 
goods available for purchase online, particularly fake prom and 
wedding dresses. And it is a significant industry in New 
Jersey, but it is also significant to the people who end up at 
their wedding with something they totally did not expect.
    This recent GAO report confirms what I have been hearing 
from so many of my constituents.
    Now, the Trade Facilitation and Trade Enforcement Act that 
Congress passed in 2016 contained report language that I 
authored with the chairman to raise the enforcement priority 
for fake products, specifically those shipped as gifts to avoid 
Customs duties and detection.
    So, Ms. Smith, I know there has been a line of questioning 
on this, and I know that CBP has been working on this issue, 
but I am still unclear as to how the agency has implemented 
that language. Does a package marked as a gift that originates 
from a business address in a country like China, which is one 
of the worst offenders, which is documented by CBP and other 
sources as being a major source of counterfeits, trigger any 
red flags for our agents? Has the screening process changed 
since the passage of the Trade Enforcement and Facilitation 
Act?
    Ms. Smith. Senator, I think what we have done is to focus 
our targeting efforts in this area with specific targeting 
rules around gifts, as you note, which are identified as small 
packages, or other areas like household goods. That can be a 
generic description but may contain counterfeit goods, as we 
have seen in the past.
    I think the other important area in this instance is to 
ensure that the representatives of the fashion industry and the 
folks whom your constituents are looking to buy safe, 
legitimate goods from, work with Customs and Border Protection 
to record their marks, to ensure that we know exactly what a 
legitimate product looks like and that we are working with that 
company to provide training to our officers and product 
information.
    And we would be happy to work with you and your staff to do 
that.
    Senator Menendez. And my question is, do you have, are you 
using an algorithm? What are you using to actually flag 
something that is, quote unquote, ``a gift'' and is the 
preferred vehicle by which these counterfeit goods come to the 
United States?
    Ms. Smith. So we do have targeting algorithms, we call them 
rules, which knit together a variety of risk factors, both the 
description of the goods as gifts along with the high-risk 
countries that they may come from--China, Hong Kong--and then 
any additional information that we have about specific business 
entities--manufacturers, shippers, carriers--that previously 
may have brought counterfeit goods into the country will also 
be reflected in that targeting algorithm.
    Senator Menendez. Ms. Gianopoulos, did the GAO examine the 
CBP's efforts to screen these types of small, direct-to-
consumer packages for counterfeit goods as opposed to larger 
shipments? And if you did, what did you find?
    Ms. Gianopoulos. Well, in our work, while we did purchase 
47 items and found 20 of them counterfeit, we did talk with CBP 
and ICE about their enforcement efforts.
    We also put out a report last year where we looked at 
international mail facilities and looked at some of the 
differences between the information that CBP receives from 
those USPS facilities as opposed to express mail and found that 
the amount of information that CBP received from USPS was 
significantly less, because they are not required to put as 
much information that would be sent ahead of time to CBP. So 
CBP is limited in its ability to respond as opposed to, say, 
the express mail carriers where they are required to submit 
more information to CBP ahead of time.
    Senator Menendez. Is there a suggestion by the GAO on how 
to meet that challenge?
    Ms. Gianopoulos. Well, one of the things we recommended in 
this report was for CBP and ICE to work more closely with the 
private sector to see what information would be most helpful 
for the private sector and CBP to share in order to address 
some of these counterfeit shipments, because some of the 
shipments are coming from within the United States. In fact, 
all 47 of the items that we purchased were shipped from U.S. 
addresses, so they would not have been able to use that Chinese 
or Hong Kong address as a flag because that is not where it was 
sent from to the consumer.
    Senator Menendez. One last question.
    The Chairman. Senator, if I could interrupt. I am going to 
go vote, and so you will be the last questioner.
    And I just want to thank everybody for being here. It has 
been a very informative hearing, and we will see what we can do 
to back you up and help you.
    Ms. Gianopoulos. Thank you.
    Senator Menendez [presiding]. Thank you, Mr. Chairman.
    One last question. On search engines, it seems to me that 
some online search engines and other websites aid and abet 
these counterfeiters by failing to police the use of 
copyrighted product imagery in online ads, that they may bear 
some responsibility.
    It seems that the companies that sell online advertising 
have some capacity to prescreen advertisements and reject those 
that are found to be promoting an illegal or immoral product.
    In fact, I have even heard that some search engines will 
remove counterfeit websites from their organic search results 
but continue to display those same companies' advertisements. 
In other words, some sellers of online ads may be continuing to 
receive advertising fees from companies they know to be 
breaking the law.
    So if search engines like Google and social networks and 
other sellers of online ads are unwilling to filter these types 
of illegal advertisements, I hope and I look forward to working 
with the committee to explore policy options to address this 
threat to American businesses.
    I wrote Google a letter last year asking them to address 
this issue and explain their policies on cracking down on 
advertisers of counterfeit goods, but I still have not had a 
response.
    So the question for any of our witnesses is, in what ways 
should we look to cooperate with search engines and those who 
sell online advertising to make it more difficult for 
counterfeiters to reach their target audience? Are there ways 
to share additional information with these companies to make it 
easier to crack down on counterfeit ads? Does anybody have any 
insights into that?
    Mr. Brady. Senator, from UL's perspective and particularly 
given this shift to individual shipments from overseas directly 
to a U.S. home, we think the most important thing is to prevent 
that shipment and purchase in the first place.
    Therefore, we think it is critical to work with the 
platforms and the search engines to shut down these people 
offering fake goods so the purchase never happens in the 
beginning. Once that little envelope leaves and heads to a 
constituent in your State, it is very, very hard for the 
authorities to intercept it.
    So I think stopping the purchase in the first place by 
shutting down these bad websites is very important.
    Senator Menendez. Well, we look forward to it.
    Ms. Smith, you have an idea?
    Ms. Smith. I just wanted to support what Mr. Brady said and 
also reiterate that we think that the platforms, the 
marketplaces, have to be part of the solution. They are sort of 
a new business entity for us that has popped up over the last 
couple of years. And I think we as a government community need 
to consider what their role, what their information is and what 
the expectations for them should be.
    Senator Menendez. Well, we look forward to following up on 
those.
    Yes, Ms. Gianopoulos?
    Ms. Gianopoulos. And I will address it from the other end 
of the spectrum as far as the consumers. If a consumer receives 
a product that is counterfeit, the websites that we spoke with 
were very anxious for those consumers to report it back to the 
website so they can take some action. If they do not know that 
the consumers are purchasing counterfeit items on their 
websites, it is difficult for them to do something about it.
    So, as part of our recommendations in the appendix for 
consumers, suggestions we received from CPSC and others, we 
suggest that consumers report those counterfeit items promptly.
    Senator Menendez. Yes. And I appreciate doing that, and 
then they take it out of the organic search, which is a good 
thing, but they keep the advertisements on. So they are drawing 
revenue from the advertisements that they know are from 
counterfeit sites in the first place. So it seems to me if they 
take out the organic search, they should take out the 
advertisement as well.
    So, on behalf of the chairman, we thank you all for being 
here and answering questions today.
    Colleagues who have written questions are asked to submit 
them by the close of business next Friday, March the 16th.
    And with that, this hearing is adjourned. Thank you very 
much.
    [Whereupon, at 11:20 a.m., the hearing was concluded.]

                            A P P E N D I X

              Additional Material Submitted for the Record

                              ----------                              


          Prepared Statement of Terrence R. Brady, President, 
                    Underwriters Laboratories, Inc.
    Good morning. Chairman Hatch, Ranking Member Wyden, distinguished 
members of the committee, my name is Terrence Brady. I am president of 
Underwriters Laboratories and formerly served as chief commercial and 
legal officer. I'm honored to appear before you today to share UL's 
experience combating the rise of counterfeit goods in e-commerce and to 
offer our perspective on the challenges facing intellectual property 
rights' holders in the evolving global market.

    UL is a global, independent safety-science company that has 
championed safety for nearly 125 years. UL's 14,000 professionals are 
guided by our mission to promote safe working and living environments 
for people everywhere. We use research, standards, and conformity 
assessment to meet ever-evolving safety challenges. We partner with 
manufacturers, retailers, trade associations, and international 
regulatory authorities to provide solutions to address the risks of 
increasingly complex global supply chains.

    UL takes counterfeiting very seriously and devotes significant 
resources to fight it. UL doesn't make or sell goods. Our product is 
our brand which is built on a foundation of trust. When consumers see 
the UL mark, they know that an independent third-party has determined 
that the manufacturer has demonstrated compliance with safety, 
performance, or other standards. Unfortunately, counterfeiters also 
recognize the value UL brings and they misappropriate our name and 
marks to try to ``legitimize'' the goods they sell.

    Too often, consumers are unwitting victims of counterfeiting. They 
may suspect the inexpensive handbags or watches they're buying are 
knockoffs, but many are unaware that other product categories are 
frequently counterfeited. UL has investigated instances of counterfeit 
smoke alarms, fire extinguishers, sprinklers, circuit breakers, 
extension cords, life preservers, and--as the Government Accountability 
Office (GAO) report demonstrates--phone chargers.

    In 2016, UL partnered with Apple to evaluate the dangers of 
counterfeit iPhone chargers. In a controlled test program, our 
engineers tested 400 counterfeit adapters bearing UL marks and the 
results were literally shocking: the overall failure rate exceeded 99 
percent. All but three adapters presented fire and shock hazards. 
Twelve were so poorly made that they posed a risk of electrocution.

    In 2017, our Global Security and Brand Protection team conducted 
over 1,200 investigations of suspected counterfeit UL marked products 
resulting in the seizure of 1.5 million units. The top four cases by 
product type included power supplies, batteries, surface-mounted lights 
and cord sets. Let me offer a few highlights.

        Approaching the holiday season, we began a global 2-month 
investigation of counterfeit operations in southern California 
involving UL marks. We surveyed 290 locations across the United States 
and Mexico, observing products from approximately 14,000 separate 
entities including brick and mortar stores and flea markets. We made 
over 230 test purchases, uncovering 150 vendors distributing products 
with illicit UL marks. In addition, we collected intelligence on more 
than 5,000 online listings across multiple platforms. We were able to 
identify more than 130 unique sellers with over 500 listings of 
counterfeit products. UL worked with the online platforms to remove the 
infringing listings and take appropriate actions against the sellers. 
We determined that 27 sellers needed further investigation, and we made 
a series of test purchases. These purchases led to the successful raid 
of two warehouses in California where officials seized an estimated 
$660,000 of potentially dangerous products bearing counterfeit UL 
marks. The products seized included counterfeit iPhones and iPhone 
batteries, Microsoft360 hard drives, Cree flash lights and headlamps, 
clapper devices, and hoverboards.

        In February, UL helped the Department of Homeland Security 
execute a search warrant in a case arising from a 2-year investigation 
of an online distributor of power adapters. Based on the information UL 
provided, DHS seized approximately 3,227 counterfeit UL labels and 
adapters valued in excess of $200,000.

        Last September, UL partnered with the Los Angeles County 
Sheriff's Department Counterfeit and Piracy Enforcement team to execute 
a search warrant at a warehouse in Santa Fe Springs, CA. During the 
search warrant, a total of 2,510 hoverboards bearing counterfeit 
holographic UL labels were seized. These hoverboards were shipped into 
the United States as ``wheelbarrows'' according to the shipping label. 
While assisting the Sheriff's team with the search and inspection of 
the location, UL also recovered 2,325 counterfeit holographic UL 
labels. The total seizure amount for the hoverboards and labels is 
estimated at $1.5 million dollars.

        Finally, UL cooperated with law enforcement and Customs 
authorities on other investigations, resulting in the seizure of:

            77,972 lithium ion batteries bearing a 
counterfeit UL mark--10,000 of which also bore a counterfeit Apple 
trademark;
            5,143 counterfeit sprinklers in India;
            42,000 counterfeit household fans in Panama; 
and
            200 counterfeit life jackets in Peru--
particularly troubling given that suspect company made and sold 
children's life jackets.

    These few examples illustrate the pervasiveness of the problem and 
underscore that counterfeiting is not limited to any one category of 
products or a problem in the United States alone. Counterfeit goods 
directly threaten human lives.

    In our 22 years of experience combating counterfeiting, UL has 
deployed a comprehensive, multi-dimensional strategy based on three 
essential tenets: education, enforcement, and partnerships. We work 
with our clients, law enforcement officers, Customs officials, and 
others to stem the proliferation of counterfeits. I have already 
illustrated some of our investigations and collaboration with 
government. Additionally, under our strategy we have:

        Partnered with INTERPOL to establish the International 
Intellectual Property Crime Investigators College to educate law 
enforcement officials and Customs agents to recognize and identify 
legitimate safety certification marks;
        Processed approximately 25,000 product authentication requests 
to identify counterfeit UL Marked products as part of our Border 
Protection Program; and
        Worked extensively with the International Anti-Counterfeiting 
Coalition and Michigan State University's A-CAPP Center to support 
research on counterfeiting and to develop programs to reduce its 
impact.

    The counterfeiting issues we see in traditional marketplaces are 
amplified in the borderless world of e-commerce. The growth in recent 
years of counterfeit products has been facilitated in part by shifting 
consumer preferences for shopping online and the proliferation of 
online merchants. And in recent years, this scourge has become much 
harder for brands, law enforcement, and Customs to fight as the 
counterfeiters realized the criminal penalties for $1 million worth of 
counterfeit consumer goods are far less severe than an equivalent 
amount of drugs, and as they increasingly shift to air-shipping orders 
directly to consumers rather than smuggling an entire cargo container.

    Selling counterfeits online with individual shipments makes it 
easier to fly under the radar of law enforcement and IP rights' 
holders. Most major online retailers have clear anti-counterfeiting 
policies and actively respond to reports of counterfeit products 
marketed through their retail platforms; that said, the sheer volume of 
goods offered for direct-to-consumer purchase make it extremely 
difficult to discover counterfeiters who regularly change identities to 
avoid detection. Some lesser-known sellers and platforms openly market 
fake products. This is a challenge that legitimate e-commerce platforms 
and IP rights' holders must navigate together, working with all law 
enforcement including Customs authorities, regulators, lawmakers, and 
other parties.

    UL's commitment to fight counterfeiting is unwavering and we 
welcome opportunities to work with like-minded stakeholders to address 
known and emerging problems. UL commends this committee for your 
leadership on this issue and for recognizing that more must be done to 
combat the proliferation of counterfeit goods. UL recommends:

        Continued collaboration between the public and private 
sectors: As UL's experience illustrates, this complex problem requires 
IP rights' holders, e-commerce platforms, brick and mortar retailers, 
government, and others to work together to fight counterfeits and 
educate consumers about the dangers they pose. Robust information-
sharing amongst all parties is critical to bring counterfeiters to 
justice and fully maximize the potential of public-private partnerships 
to address IP violations.

        Strong IP protections and enforcement mechanisms in trade 
agreements: Strong and effective protection and enforcement of 
intellectual property rights is critical to U.S. economic growth and 
American jobs. Trade agreements--whether bilateral or multilateral--
should build on the foundations established in existing international 
IP agreements and establish strong protections for patents, trademarks, 
copyrights, and trade secrets. In any trade agreement, it is important 
to secure strong and fair enforcement rules to protect against 
trademark counterfeiting and copyright piracy, including rules allowing 
increased penalties in cases where counterfeit or pirated goods 
threaten consumer safety or health. Congress should encourage the 
administration to include such provisions in any trade agreements it 
negotiates.

        Tougher penalties and dedicated resources for enforcement and 
education: The United States has enacted some of the strongest 
intellectual property protections in the world, a critical need for 
rights' holders. To ensure their enforcement, Congress and the 
administration should prioritize funding for agencies such as U.S. 
Customs and Border Protection to combat counterfeiting and close 
loopholes that allow counterfeits to flow across borders. In addition, 
Congress should ensure that the U.S. Consumer Product Safety Commission 
continues to have the resources it needs to conduct its work and to 
educate manufacturers, importers, consumers, and others about product 
safety issues, including the dangers posed by counterfeit goods.

    Chairman Hatch, Ranking Member Wyden, members of the committee, 
thank you for the opportunity to testify today. UL welcomes the 
opportunity to work with you in the fight against counterfeits. I 
welcome any questions you may have.

                                 ______
                                 
         Prepared Statement of Kimberly Gianopoulos, Director, 
   International Affairs and Trade, Government Accountability Office
    Chairman Hatch, Ranking Member Wyden, and members of the committee, 
I am pleased to be here to discuss the results of our review of U.S. 
agencies' efforts to address changes in the market for counterfeit 
goods and their work with the private sector. Intellectual property is 
an important component of the U.S. economy, and the United States is an 
acknowledged global leader in its creation. Infringement of 
intellectual property rights (IPR) through the illegal importation and 
distribution of counterfeit goods harms the U.S. economy by stifling 
innovation, slowing economic growth, weakening the competitiveness of 
U.S. employers, and threatening American jobs.\1\ IPR infringement can 
also threaten the health and safety of American consumers. The 
Department of Homeland Security's U.S. Customs and Border Protection 
(CBP) and U.S. Immigration and Customs Enforcement (ICE)--two of the 
many agencies involved in IPR enforcement--are responsible for IPR 
enforcement at U.S. borders. CBP leads enforcement activity at the 
border by detecting and seizing counterfeit goods that enter the United 
States through its more than 300 ports of entry and by assessing 
penalties against IPR infringers. CBP coordinates its efforts with ICE, 
which investigates IPR violations for Federal prosecution.
---------------------------------------------------------------------------
    \1\ In this statement, ``counterfeit goods'' refers to any physical 
goods that are found to be in violation of trademark or copyright law.

    My testimony today summarizes the findings from our January 2018 
report,\2\ which was released on February 27, 2018, on CBP's and ICE's 
IPR enforcement at U.S. borders. This testimony addresses (1) what is 
known about counterfeit goods entering the United States and the 
challenges they present, (2) efforts CBP and ICE have undertaken to 
enhance IPR enforcement and the extent to which they have assessed the 
results of these efforts, and (3) the extent to which CBP and ICE 
collaborate on IPR enforcement as well as ways in which they coordinate 
with the private sector in enforcing IPR.
---------------------------------------------------------------------------
    \2\ GAO, ``Intellectual Property: Agencies Can Improve Efforts to 
Address Risks Posed by Changing Counterfeits Market,'' GAO-18-216 
(Washington, DC: January 30, 2018).

    For our report, we analyzed CBP seizure data for fiscal years 2012 
through 2016 and reviewed documents and reports from CBP, ICE, other 
U.S. Government entities, and international organizations. We 
interviewed CBP and ICE officials in Washington, DC, and at selected 
port locations in Chicago, IL; Los Angeles, CA; Miami, FL; and New 
York, NY. We also interviewed representatives of IPR-holding companies 
(rights holders) and popular consumer websites that offer platforms for 
third-party sellers. We used undercover identities to purchase selected 
products from third-party sellers on popular consumer websites and 
subsequently asked the rights holders for the selected products to test 
their authenticity. More detailed information on our objectives, scope, 
and methodology for this work can be found in the issued report. We 
conducted the work on which this statement is based in accordance with 
generally accepted government auditing standards. Those standards 
require that we plan and perform the audit to obtain sufficient, 
appropriate evidence to provide a reasonable basis for our findings and 
conclusions based on our audit objectives. We believe that the evidence 
obtained provides a reasonable basis for our findings and conclusions 
based on our audit objectives. We conducted our related investigative 
work in accordance with investigation standards prescribed by the 
Council of the Inspectors General on Integrity and Efficiency.
 accelerated by e-commerce, changes in the counterfeits market present 
     challenges to u.s. agencies, consumers, and the private sector
E-Commerce Has Contributed to a Shift in the Market for Counterfeit 
        Goods
    The rise of e-commerce has contributed to a fundamental change in 
the market for counterfeit goods, according to our analysis of 
documents from CBP, ICE, and international organizations and our 
interviews with CBP and ICE officials. U.S. agencies and international 
organizations have observed a shift in the sale of counterfeit goods 
from ``underground'' or secondary markets, such as flea markets or 
sidewalk vendors, to primary markets, including e-commerce websites, 
corporate and government supply chains, and traditional retail stores. 
Whereas secondary markets are often characterized by consumers who are 
knowingly purchasing counterfeits, primary markets involve 
counterfeiters who try to deceive consumers into purchasing goods they 
believe are authentic.

    This shift has been accompanied by changes in the ways in which 
counterfeit goods are sold. In the past, consumers could often rely on 
indicators such as the location of sale or the goods' appearance or 
price to identify counterfeit goods in the marketplace. However, 
counterfeiters have now adopted new ways to deceive consumers. For 
example, as consumers increasingly purchase goods online, 
counterfeiters may exploit third-party online marketplaces to gain an 
appearance of legitimacy and access to consumers. When selling online, 
counterfeiters may post pictures of authentic goods on the websites 
where they are selling counterfeits and may post pseudonymous reviews 
of their products or businesses in order to appear legitimate. 
Additionally, by setting the price of a counterfeit at, or close to, 
the retail price of a genuine good, counterfeiters may deceive 
consumers, who will pay the higher price because they believe the goods 
are real or who believe that they are getting a slight bargain on 
genuine goods.
CBP Data Indicate Changes in Several Key Characteristics of Counterfeit 
        Goods Seized
    According to CBP seizure data and CBP officials, the volume, 
variety, and methods of shipment of counterfeit goods seized by CBP and 
ICE have changed in recent years. CBP reports indicate that the number 
of IPR seizures increased by 38 percent in fiscal years 2012 through 
2016. According to CBP data, approximately 88 percent of IPR seizures 
made during this period were shipped from China and Hong Kong. The 
variety of products being counterfeited has also increased, according 
to CBP officials. CBP and ICE officials noted that, while many 
consumers may think of luxury handbags or watches as the most commonly 
counterfeited goods, counterfeiting occurs in nearly every industry and 
across a broad range of products. In addition, according to CBP data we 
reviewed and officials we spoke to, the methods of importing 
counterfeit goods into the United States have changed in recent years. 
Specifically, express carriers and international mail have become the 
predominant form of transportation for IPR-infringing goods entering 
the United States, constituting approximately 90 percent of all IPR 
seizures in fiscal years 2015 and 2016, according to CBP data.
Twenty of 47 Items Purchased From Third-Party Sellers on Popular E-
        Commerce Websites Were Counterfeits, Highlighting Potential 
        Risks to Consumers
    In an attempt to illustrate the risk that consumers may unknowingly 
encounter counterfeit products online, we purchased a nongeneralizable 
sample of four types of consumer products--shoes, travel mugs, 
cosmetics, and phone chargers--from third-party sellers on five popular 
e-commerce websites.\3\ According to CBP data we reviewed and officials 
we spoke to, CBP often seizes IPR-infringing counterfeits of these 
types of products. As table 1 shows, the rights holders for the four 
selected products we purchased determined that 20 of the 47 items were 
counterfeit.
---------------------------------------------------------------------------
    \3\ All 47 items we purchased were shipped from U.S. addresses, 
signifying that any items manufactured outside the United States were 
imported before being sent to us. Rights holders confirmed that at 
least a portion of the authentic versions of the products purchased are 
manufactured abroad. Additionally, according to a 2011 IPR Center 
report, most physical counterfeit goods are manufactured abroad. Final 
production of some counterfeit items, such as applying labels and 
packaging items, may take place after items are imported into the 
United States.


  Table 1: Results From Rights-Holder Testing of GAO Covert Purchases of Four Frequently Counterfeited Consumer
                                                    Products
----------------------------------------------------------------------------------------------------------------
                                                                                   UL-certified
                                     Nike Air       Yeti travel     Urban Decay        phone           Total
                                   Jordan shoes        mugs          cosmetics       chargers
----------------------------------------------------------------------------------------------------------------
Authentic                                     15               3               0               9              27
----------------------------------------------------------------------------------------------------------------
Counterfeit                                    0               6              13               1              20
----------------------------------------------------------------------------------------------------------------
    Total                                     15               9              13              10             47
----------------------------------------------------------------------------------------------------------------
Source: GAO-18-383T.
 
Note: We asked the rights holders for the four products to test a total of 47 items that we purchased from third-
  party sellers on five popular e-commerce websites. These results do not include one charger that we excluded
  from testing. Despite being advertised as UL-certified, the product arrived without a certification seal and
  therefore could not be tested for authenticity.

    We did not identify any clear reasons for the variation among the 
counterfeit and authentic items that we purchased based on the products 
that they represented, the e-commerce websites where we bought the 
items, or the third-party sellers from whom we bought them. For three 
of the four product types, at least one item we purchased was 
determined to be counterfeit, with results varying considerably by 
product. Representatives of the rights holders also could not provide a 
specific explanation for the variation among authentic and counterfeit 
goods that we received. They noted that the results of covert test 
purchases can fluctuate depending on enforcement activities and the 
variety of goods and sellers on a particular website on a given day. 
Rights-holder testing also showed that we purchased at least one 
counterfeit item and one authentic item from each of the five e-
commerce websites. In addition, our analysis of the customer ratings of 
third-party sellers from whom we bought the items did not provide any 
clear indications that could warn consumers that a product marketed 
online may be counterfeit. For example, we received both counterfeit 
and authentic items from third-party sellers with ratings that were 
less than 70 percent positive as well as sellers with ratings that were 
up to 100 percent positive.

    Rights holders were able to determine that items we purchased were 
not authentic on the basis of inferior quality, incorrect markings or 
construction, and incorrect labeling. Some counterfeit items we 
purchased were easily identifiable as likely counterfeit once we 
received them. For example, one item contained misspellings of 
``Austin, TX'' and ``Made in China.'' Other items could be more 
difficult for a typical consumer to identify as counterfeit. For 
example, the rights holder for a cosmetic product we purchased 
identified one counterfeit item on the basis of discrepancies in the 
color, composition, and design of the authentic and counterfeit items' 
packaging. Counterfeit goods may also lack key elements of 
certification markings and other identifiers. For example, on a 
counterfeit phone charger we purchased, the UL certification mark did 
not include all components of the authentic mark. Figure 1 shows 
examples of these counterfeit items.

[GRAPHIC] [TIFF OMITTED] T0618.001


    The risks associated with the types of counterfeit goods we 
purchased can extend beyond the infringement of a company's IPR. For 
example, a UL investigation of counterfeit iPhone adapters found a 99 
percent failure rate in 400 counterfeit adapters tested for safety, 
fire, and shock hazards and found that 12 of the adapters tested posed 
a risk of lethal electrocution to the user.\4\ Similarly, according to 
a rights holder representative, counterfeits of common consumer goods, 
such as Yeti travel mugs, may contain higher-than-approved 
concentrations of dangerous chemicals such as lead, posing health risks 
to consumers. According to ICE, seized counterfeit cosmetics have been 
found to contain hazardous substances, including cyanide, arsenic, 
mercury, lead, urine, and rat droppings.
---------------------------------------------------------------------------
    \4\ UL, ``Counterfeit iPhone Adapters: A UL Technical Investigation 
Shows a 99 Percent Failure Rate'' (2016).

    Representatives of rights holders and e-commerce websites whom we 
interviewed reported taking independent action to try to protect IPR 
within their areas of responsibility. For example, both rights holders 
and e-commerce websites maintain IPR protection teams that work with 
one another and with law enforcement to address infringement issues. E-
commerce websites may also take a variety of steps to block and remove 
counterfeit items listed by third-party sellers. These efforts rely on 
data collected through a variety of means, including consumer reporting 
of counterfeits, rights-holder notifications of IPR infringement, and 
corporate efforts to vet potential third-party sellers, according to 
---------------------------------------------------------------------------
private sector representatives.

    Our January 2018 report includes information on steps that consumer 
protection organizations and government agencies recommend consumers 
take to limit the risk of purchasing counterfeits online. These steps 
include, for example, buying only from authorized retailers online, 
avoiding prices that look ``too good to be true,'' and reporting 
counterfeit purchases.
Changes in the Marketplace Can Pose Challenges to U.S. Agencies and the 
        Private Sector
    We identified a number of key challenges that the changes in the 
market for counterfeit goods can pose to CBP and ICE as well as to the 
private sector. First, the increasing sophistication of counterfeits 
can make it difficult for law enforcement officers to distinguish 
between legitimate and counterfeit goods. Second, as the range of 
counterfeit goods expands, CBP has a wider variety of goods to screen, 
which requires CBP officials to have in-depth knowledge of a broad 
range of products and of how to identify counterfeits. Third, 
counterfeiters may break up large shipments into multiple smaller 
express carrier or mail packages to decrease the risk of losing 
significant quantities of merchandise to a single seizure. This shift 
toward smaller express shipments of counterfeit goods to the United 
States poses challenges to CBP and ICE because, according to CBP 
officials, seizure processing requires roughly the same amount of time 
and resources regardless of shipment size or value.

    The changing marketplace also presents challenges to the private 
sector, according to representatives from rights holders and e-commerce 
websites. For example, it is more difficult for rights holders and e-
commerce websites to identify and investigate individual counterfeit 
cases, because e-commerce websites face a growing inventory from a 
larger registry of sellers. Tracking goods from known counterfeiters 
through various website fulfillment and delivery mechanisms is also a 
significant challenge for the private sector. Furthermore, the growth 
of e-commerce has accelerated the pace at which counterfeiters can gain 
access to consumers or reinvent themselves if shut down.
 cbp and ice engage in activities to enhance ipr enforcement, but cbp 
         has not fully evaluated the results of its activities
    CBP and ICE engage in a number of activities to enhance IPR 
enforcement; however, while ICE has assessed some of its efforts, CBP 
has taken limited steps to do so. CBP's and ICE's IPR enforcement 
activities broadly include detecting imports of potentially IPR-
infringing goods, conducting special operations at U.S. ports, engaging 
with international partners, and undertaking localized pilot programs 
or port-led initiatives. CBP and ICE have collected some performance 
data on activities we reviewed, and ICE has taken some steps to better 
understand the impact of its efforts, such as creating a process to 
track cases it deems significant. However, we found that CBP has 
conducted limited evaluation of its efforts to enhance IPR enforcement. 
Consequently, we concluded that CBP may lack information needed to 
ensure it is investing its resources in the most efficient and 
effective activities. We recommended in our report that CBP take steps 
to evaluate the effectiveness of its IPR enforcement efforts; CBP 
concurred with this recommendation.
   cbp and ice generally collaborate on ipr enforcement, but cbp is 
       restricted in sharing information with the private sector
    Our analysis showed that CBP and ICE interagency collaboration on 
IPR enforcement is generally consistent with the following selected key 
practices for effective interagency collaboration: (1) define and 
articulate a common outcome; (2) establish mutually reinforcing or 
joint strategies; (3) identify and address needs by leveraging 
resources; (4) agree on roles and responsibilities; and (5) establish 
compatible policies, procedures, and other means to operate across 
agency boundaries.\5\ For example, the agencies may leverage resources 
by collocating staff or sharing their expertise. CBP and ICE have also 
issued guidance and developed standard operating procedures to clarify 
roles and responsibilities. CBP and ICE also coordinate with the 
private sector in a variety of ways, such as obtaining private sector 
assistance to determine whether detained goods are authentic and to 
conduct training.
---------------------------------------------------------------------------
    \5\ GAO, ``Results-Oriented Government: Practices That Can Help 
Enhance and Sustain Collaboration Among Federal Agencies,'' GAO-06-15 
(Washington, DC: October 21, 2005). Our October 2015 report listed 
eight practices that can enhance and sustain interagency collaboration. 
Our January 2018 report evaluated CBP's and ICE's collaboration on IPR 
enforcement against five of these practices, which we selected because 
we determined they were most relevant to that review.

    Representatives of rights holders and e-commerce websites noted 
that information shared by law enforcement entities is critical to 
private-sector IPR enforcement, such as pursuing civil action against a 
counterfeiter or removing counterfeit items from websites. In the Trade 
Facilitation and Trade Enforcement Act of 2015, Congress provided CBP 
with explicit authority to share certain information with trademark and 
copyright owners before completing a seizure.\6\ CBP officials stated 
that they share information about identified counterfeits with e-
commerce websites and rights holders to the extent possible under 
current regulations. However, according to private sector 
representatives we spoke to, restrictions on the amount and type of 
information about seized items shared by CBP limit the ability of 
rights holders and e-commerce websites to protect IPR. CBP officials 
noted that there are legal limitations to the amount and type of 
information they can share, particularly if the e-commerce website is 
not listed as the importer on forms submitted to CBP.
---------------------------------------------------------------------------
    \6\ This authority applies only with respect to goods suspected of 
infringing a trademark or copyright that is recorded with CBP. Pub. L. 
No. 114-125, Sec. 302(a), 130 Stat. 122, 149 (2016).

    Several private sector representatives stated that receiving 
additional information from CBP would enhance their ability to protect 
IPR. Representatives of one website noted that information on the 
exterior of seized packages, such as business identifiers on packages 
destined for distribution centers, would be helpful for identifying 
groups of counterfeit merchandise from the same seller. However, 
according to CBP officials, CBP cannot provide such information to e-
commerce websites. Representatives of one e-commerce website noted that 
ICE sometimes shares information related to an investigation, but that 
ICE's involvement in the enforcement process begins only after CBP has 
identified and seized counterfeit items. Representatives of two e-
commerce websites stated that, because of the limited information 
shared by CBP, they may not be aware of IPR-infringing goods offered 
for sale on their websites, even if CBP has seized related items from 
---------------------------------------------------------------------------
the same seller.

    According to CBP officials, CBP is reviewing options for sharing 
additional information with rights holders and e-commerce websites and 
is assessing what, if any, additional information would be beneficial 
to share with private-sector entities. CBP officials stated that they 
have not yet determined whether changes to the amount and types of 
information provided to e-commerce websites would require regulatory 
changes or additional legal authorities. These officials also said that 
they have discussed differences in CBP's and ICE's information sharing 
with ICE officials. In our report, we recommended that CBP, in 
consultation with ICE, assess what, if any, additional information 
would be beneficial to share with the private sector and, as 
appropriate, take action to enhance information sharing where possible. 
CBP concurred with this recommendation.

    Chairman Hatch, Ranking Member Wyden, and members of the committee, 
this concludes my prepared statement. I would be pleased to answer any 
questions that you may have at this time.

                                 ______
                                 
       Questions Submitted for the Record to Kimberly Gianopoulos
               Questions Submitted by Hon. Orrin G. Hatch
    Question. Why should consumers be concerned about the findings in 
your report related to the prevalence of counterfeit products? And how 
can consumers best protect themselves from the risks of purchasing 
counterfeit goods online?

    Answer. Counterfeit goods may pose numerous risks to the health and 
safety of consumers. For example, counterfeit personal care products 
may pose risks including damage to skin or eyes caused by dangerous 
chemicals and bacteria. Additionally, counterfeit electronic devices 
can pose a safety hazard. For example, counterfeit hair removal 
devices, hair curlers and straighteners, and skin cleansing devices run 
the risk of burning or electrocution due to nonstandardized wiring. 
U.S. Immigration and Customs Enforcement (ICE) has also investigated 
intellectual property (IP) crimes involving counterfeit airbags, 
steering, braking, and seatbelt components, bearings, and diagnostic 
equipment.

    The sale of counterfeit goods can also pose a threat to national 
security and to the U.S. economy. For example, U.S. Customs and Border 
Protection (CBP) and ICE have seized and investigated counterfeit 
goods, such as integrated circuits, destined for Department of Defense 
supply chains. Additionally, counterfeiting has been linked to 
transnational organized crime and terrorist organizations. According to 
the United Nations Office of Drugs and Crime, the illicit trafficking 
of counterfeit goods is an increasingly attractive avenue for criminal 
organizations to diversify their product range. In 2010, we reported 
that counterfeiting also posed a wide range of economic risks to 
consumers, industry, government, and the economy as a whole. 
Counterfeiting's economic effects on consumers include, for example, 
financial losses resulting from counterfeit products that fail due to 
inferior quality. In addition, counterfeiting may pose risks to 
industry and government by increasing intellectual property rights 
(IPR) protection and enforcement costs, by affecting sales and brand 
value for the businesses whose products are counterfeited, and by 
potentially reducing tax revenue collected by the government.

    Our January 2018 report includes an appendix outlining tips from 
consumer protection organizations and government agencies on ways in 
which consumers can limit the risk of purchasing counterfeits 
online.\1\ This appendix includes recommendations such as reviewing the 
seller listed on the product page to determine whether it is a third 
party. For example, if an item's listing says it is ``fulfilled by'' a 
website, that does not necessarily mean it is ``sold by'' that website. 
Additionally, consumers can look for external trust-building features 
associated with third-party sellers, such as a mail address or 
telephone number, real-time customer service, or verifiable external 
accreditation. According to rights holders we interviewed, the safest 
option is to buy directly from them or their authorized retailers.
---------------------------------------------------------------------------
    \1\ GAO, ``Intellectual Property: Agencies Can Improve Efforts to 
Address Risks Posed by Changing Counterfeits Market,'' GAO-18-216 
(Washington, DC: January 30, 2018).

    Question. When you were making your purchases, did you find any 
details such as consumer reviews or prices that indicated whether a 
---------------------------------------------------------------------------
product was counterfeit or authentic?

    Answer. For the items we purchased, we did not find customer 
reviews to be a reliable indicator of product legitimacy. Specifically, 
our analysis of the customer ratings of third-party sellers from whom 
we made purchases did not provide any clear indications that could warn 
consumers that a product marketed online may be counterfeit. For 
example, we received both counterfeit and authentic items from third-
party sellers with ratings that were less than 70 percent positive as 
well as sellers with ratings that were up to 100 percent positive. 
Counterfeiters may take steps to artificially inflate their reviews, 
such as by posting pseudonymous reviews of their products or 
businesses.

    We did not find a clear link between price and the authenticity of 
the products we purchased. For example, for two of the four product 
types we purchased, the highest-priced item we ordered was counterfeit, 
while for the other two product types, the highest-priced item we 
ordered was authentic. Similarly, for two of the four product types we 
purchased, the lowest- priced item we ordered was counterfeit, while 
for the other two product types, the lowest-priced item we ordered was 
authentic. U.S. agencies have reported that counterfeiters may set 
prices close to the retail price of a genuine good as a method of 
deceiving consumers into believing the goods are real. However, 
consumer protection organizations note that pricing significantly lower 
than MSRP can still be an indicator that a good may not be genuine.

    Question. What factors make it difficult for CBP, ICE, and private-
sector actors, such as websites, to address the problem of 
counterfeits?

    Answer. We identified a number of key challenges that the changes 
in the market for counterfeit goods can pose to CBP and ICE as well as 
to the private sector. First, the increasing sophistication of 
counterfeits can make it difficult for law enforcement officers to 
distinguish between legitimate and counterfeit goods. Second, the 
increased variety and volume of counterfeit goods crossing the border 
complicate enforcement efforts because CBP officers must screen a wider 
variety of goods and have in-depth knowledge of a broad range of 
products. Third, shifts in the mode of transportation of counterfeit 
goods to the United States pose additional challenges to CBP and ICE. 
For example, seizures have become less of a deterrent for 
counterfeiters who break up large shipments into multiple smaller 
express carrier or mail packages. Each of these smaller packages 
includes fewer goods than a single large shipment, decreasing the 
counterfeiter's risk of losing significant quantities of merchandise to 
a single seizure. Fourth, counterfeiters may attempt to deceive law 
enforcement or evade detection, such as by separating IPR-infringing 
labels from counterfeit goods during the transportation process and 
then completing the labeling and packaging of the goods in the United 
States. Finally, CBP and ICE officials noted that targeting the root 
causes of IPR infringement requires international cooperation to 
disrupt the networks that produce, sell, and ship counterfeit goods and 
some countries are more receptive to working with U.S. agencies than 
others.

    Private-sector entities, such as rights holders and e-commerce 
websites, also face challenges in protecting IPR, including managing a 
large inventory and growing registry of sellers on individual e-
commerce websites and overall growth in the number of such websites. 
This makes it difficult for both websites and rights holders to 
identify and investigate individual counterfeit cases, as well as track 
possible counterfeit goods and sellers. Representatives from rights 
holders and e-commerce websites noted that limited information sharing 
from CBP following a seizure complicates their efforts to protect IPR. 
We recommended that CBP, in consultation with ICE, assess what, if any, 
additional information would be beneficial to share with the private 
sector and, as appropriate, take action to enhance information sharing 
such as by proposing regulatory changes or requesting additional legal 
authorities.

                                 ______
                                 
                  Question Submitted by Hon. Ron Wyden
    Question. In one way or another, you all touched on the shift from 
containerized shipping to small packages. You have also highlighted the 
challenges in enforcement against counterfeit goods.

    Given that we seem to be in a new era of trade, wouldn't you agree 
that the Federal Government's enforcement strategy to go after 
counterfeit goods needs to adapt to the changing market? If so, what 
changes would you recommend in current CBP and ICE enforcement 
priorities and approaches?

    Answer. We did not review the government's overall strategy to 
countering IPR infringement. However, we noted in our report that 
changes in the marketplace, including the shift toward smaller 
packages, have presented challenges to CBP. While CBP has undertaken 
some efforts to enhance enforcement given the changing environment, 
such as by developing a targeting model for express carrier shipments 
and piloting alternative approaches to seizures for small packages, we 
found that it has not evaluated the effectiveness of its efforts. We 
recommended that CBP take steps to evaluate the effectiveness of its 
IPR enforcement efforts in order to focus its resources on the most 
efficient or effective efforts.

    Given the changes in the marketplace, including the fact that 
counterfeiters may try to use popular e-commerce websites to gain an 
appearance of legitimacy and reach consumers, it is important for CBP 
to ensure it is coordinating effectively with the private sector. 
Private-sector representatives told us that receiving additional 
information from CBP, such as business identifiers on the exterior of 
seized packages destined for distribution centers, could enhance their 
ability to protect IPR. Accordingly, we recommended that CBP, in 
consultation with ICE, assess what, if any, additional information 
would be beneficial to share with the private sector and, as 
appropriate, take action to enhance information sharing such as by 
proposing regulatory changes or requesting additional legal 
authorities.

                                 ______
                                 
                 Question Submitted by Hon. John Thune
              best practices of foreign customs agencies; 
             cbp interaction with foreign customs agencies
    Question. The GAO report notes that some European customs agencies 
are able to share more information than CBP.

    Ms. Gianopoulos, during your investigation, did you look at any 
best practices used by other foreign customs agencies? If so, can you 
comment on any best practices that CBP should take into account or that 
should be implemented but would require statutory authority?

    Answer. We did not explore or evaluate best practices used by other 
foreign customs agencies. Representatives of one of the rights holders 
we interviewed noted that European customs agencies provide more 
information following a seizure than CBP, which enhances the rights 
holder's ability to take action following a seizure. While we did not 
evaluate differences in statutory authority between the United States 
and other countries, we did recommend that CBP assess what additional 
information it can share with the private sector and, as appropriate, 
take action to enhance information sharing, where possible, such as by 
proposing regulatory revisions or requesting additional legal 
authorities.

                                 ______
                                 
               Questions Submitted by Hon. Maria Cantwell
    Question. As the GAO report identifies, CBP does not proactively 
communicate with online marketplaces that have teams that work closely 
with the intellectual property rights center, brands, and law 
enforcement to keep counterfeit items off their sites. However, 
information sharing is critical.

    What are the specific legal parameters for sharing information with 
e-commerce websites about counterfeit goods CBP seizes?

    Answer. According to CBP officials, with regard to an IPR seizure, 
CBP is legally allowed to share (1) the date of importation, (2) the 
port of entry, (3) the description of the merchandise, (4) the quantity 
involved, (5) the name and address of the manufacturer, (6) the country 
of origin, (7) the name and address of the exporter, and (8) the name 
and address of the importer.\2\ CBP officials also stated that CBP is 
only able to provide such information to specific entities, such as the 
rights holder and the importer of record. CBP officials noted that, if 
an e-commerce website is not listed as the importer on forms submitted 
to CBP, CBP cannot share information with that website. The officials 
were unable to specify whether these existing limitations are statutory 
or regulatory in nature.
---------------------------------------------------------------------------
    \2\ 19 CFR Sec. 133.21.

    Question. CBP is currently reviewing options for sharing additional 
information with rights holders and e-commerce websites. What is the 
---------------------------------------------------------------------------
timetable for this review?

    Answer. In its official response to our report, CBP stated that it 
intended to complete its review by September 30, 2018. In responding to 
a question from Senator Wyden during the committee's March 6th hearing 
on this topic, a CBP official stated that CBP would attempt to 
accelerate this review, if possible.

    Question. What are the differences between the information sharing 
rules for the CBP and ICE?

    Answer. We did not evaluate the differences in information sharing 
rules between CBP and ICE. In the report, we noted that representatives 
of one e-commerce website stated that ICE sometimes shares information 
that is not shared by CBP, but ICE's involvement in the enforcement 
process begins only after CBP has identified and seized counterfeit 
items. CBP officials told us they have discussed differences in CBP's 
and ICE's information sharing practices with ICE officials to determine 
what information collection and sharing best practices could be used by 
CBP.

    Question. How is the relationship with the Intellectual Property 
Center working? In your view, is CBP getting sufficient information to 
properly do the job?

    Answer. We did not specifically evaluate the IPR Center's 
operations or its provision of information to CBP. However, we noted 
that collaboration between CBP and ICE--including at the IPR Center--is 
generally consistent with selected key practices for interagency 
collaboration. Additionally, some private sector representatives we 
spoke with praised the work of the IPR Center.

    Question. CBP and ICE coordinate with several other Federal 
agencies in their efforts to interdict the flow of counterfeit goods 
into the United States. As a part of this effort, CBP and ICE also work 
with rights holders to ensure that their trademarks and copyrights are 
recorded in the CBP online system. Also, CBP puts a priority on 
enforcing IP registered with the U.S. Patent and Trademark Office and 
the U.S. Copyright Office.

    According to the GAO report, increasing the number of patents, 
trademarks, and copyrights with the CBP was an important way that a 
rights holders can help CBP's enforcement efforts.

    Given the benefits of registering patents, trademarks, and 
copyrights with CBP, does the U.S. Patent and Trademark Office or the 
U.S. Copyright Office share information with the CBP?

    If so, what steps could be taken to improve the sharing of 
registrant information for new patents, trademarks and copyrights?

    Could the U.S. Patent and Trademark Office or the U.S. Copyright 
Office forms be adapted to provide simultaneous registration with the 
CBP?

    Answer. We did not review information sharing between CBP and the 
U.S. Patent and Trademark Office or the U.S. Copyright Office or ways 
to improve the process for recording IP with CBP. CBP officials noted 
that rights holders are often unaware of CBP's recordation process and 
that rights holders may not recognize that IP that is registered with 
the U.S. Patent and Trademark Office or the U.S. Copyright Office is 
not automatically recorded with CBP. We noted in our report that CBP 
prioritizes enforcement of IP that has been recorded with CBP after it 
has been registered with the U.S. Patent and Trademark Office or the 
U.S. Copyright Office. CBP engages in efforts to enhance awareness of 
this process, such as meeting with industry groups, according to CBP 
officials. Representatives of one rights holder told us that increasing 
the number of trademarks recorded with CBP was an important component 
of the company's enhanced IPR enforcement efforts.

    Question. Shopping online has changed immensely over the past 
couple decades. Consumers can buy almost anything online without having 
to leave their homes and receive it within a couple of days or quicker. 
Because the United States has changed the way it purchases its 
products, the chances of consumers unintentionally and unknowingly 
purchasing counterfeit products have increased. With worldwide e-
commerce sales expected to reach nearly $4 trillion by 2020, this is an 
extremely pressing issue.

    What were GAO's findings on how CBP is sharing information with e-
commerce companies on seizures of counterfeits made at the U.S. border 
and ports of entry?

    Was there specific information that you found that CBP could be 
sharing with e-commerce companies to help them locate and remove 
counterfeit items?

    Do you think that consumers would benefit from CBP sharing this 
information with e-commerce companies to help stem the flow of 
counterfeits into the United States?

    Answer. We found that CBP information sharing with e-commerce 
companies on counterfeit seizures is limited. According to CBP 
officials, CBP can only share information about seizures with specific 
parties, including the rights holder and the importer. CBP officials 
noted they are not permitted to share information with e-
commerce websites if they are not listed as the importer on forms 
submitted to CBP. Representatives of two e-commerce websites stated 
that, because CBP does not inform them when seizures occur, they may 
not be aware of IPR-infringing goods offered for sale on their website 
even if CBP has seized related items from the same seller. 
Additionally, representatives of one website noted that information on 
the exterior of seized packages, such as business identifiers on 
packages destined for distribution centers, would be helpful for 
identifying groups of counterfeit merchandise from the same seller that 
may be housed in the distribution center and could be removed from 
commerce. As we noted in the report, the changing market for 
counterfeit goods poses a number of threats to consumers. Consequently, 
taking action to limit counterfeit sales and better protect IPR could 
benefit consumers. We recommended that CBP assess what, if any, 
additional information would be beneficial to share with the private 
sector and, as appropriate, take action to enhance information sharing 
such as by proposing regulatory changes or requesting additional legal 
authorities.

                                 ______
                                 
                 Question Submitted by Hon. Bill Nelson
    Question. In GAO's report on counterfeit goods, it says ``according 
to private-sector representatives we spoke to, restrictions on CBP's 
information sharing limit the ability of rights holders and e-commerce 
websites to protect IPR.'' The 2015 Customs bill (Pub. L. 114-125) was 
supposed to take care of the red tape on this, authorizing CBP to share 
information with intellectual property owners. Please explain why this 
problem still exists.

    Answer. We note in the report that, in the Trade Facilitation and 
Trade Enforcement Act of 2015, Congress provided CBP with explicit 
authority to share certain information with rights holders prior to 
completing a seizure.\3\ However, the private-sector entities we spoke 
with highlighted restrictions on CBP's information sharing after a 
seizure has been completed. Representatives of e-commerce websites 
noted they do not receive much information about completed seizures 
from CBP. According to CBP officials, CBP can only share information 
about seizures with specific parties, including the rights holder and 
the importer. CBP officials noted they are not permitted to share 
information with e-commerce websites if they are not listed as the 
importer on forms submitted to CBP. Representatives of two e-commerce 
websites stated that, because they do not regularly receive information 
from CBP, they may not be aware of IPR-infringing goods offered for 
sale on their website even if CBP has seized related items from the 
same seller.
---------------------------------------------------------------------------
    \3\ This authority applies only with respect to goods suspected of 
infringing a trademark or copyright that is recorded with CBP. Pub. L. 
No. 114-125, Sec. 302(a).

    Representatives from both rights holders and e-commerce websites 
noted that limitations on the specific pieces of information provided 
by CBP impede their ability to protect IPR. For example, one rights 
holder representative stated that the information CBP provides, such as 
importer names from bills of lading, is sometimes not useful, because 
counterfeiters use fake identities or otherwise mask their identities. 
Another rights holder said that some European customs agencies are able 
to share more information than CBP, better enabling rights holders to 
take action following a seizure.\4\ Additionally, representatives of 
one website noted that information not currently provided by CBP, such 
as business identifiers that are clearly visible on the exterior of 
seized packages destined for distribution centers, would be helpful for 
identifying groups of counterfeit merchandise from the same seller that 
may be housed in the distribution center and could be removed from 
commerce. However, as we noted in the report, CBP has not yet completed 
an assessment of additional information that would be beneficial to 
share with the private sector or determined whether it can share such 
information under current regulations and statutes. Consequently, we 
recommended that CBP conduct such an assessment and, as appropriate, 
take action to enhance information sharing such as by proposing 
regulatory changes or requesting additional legal authorities.
---------------------------------------------------------------------------
    \4\ CBP officials noted that, with regard to an IPR seizure, CBP is 
legally allowed to share (1) the date of importation, (2) the port of 
entry, (3) the description of the merchandise, (4) the quantity 
involved, (5) the name and address of the manufacturer, (6) the country 
of origin, (7) the name and address of the exporter, and (8) the name 
and address of the importer. 19 CFR Sec. 133.21.

                                 ______
                                 
              Prepared Statement of Hon. Orrin G. Hatch, 
                        a U.S. Senator From Utah
WASHINGTON--Finance Committee Chairman Orrin Hatch (R-Utah) delivered 
the following opening statement at a Finance Committee hearing 
entitled, ``Protecting E-commerce Consumers From Counterfeits.''

    I'd like to welcome everyone here today. During this hearing, we 
will discuss counterfeiting in e-commerce and what steps we can take to 
protect consumers.

    Before we get to that though, I'd like to make an important point 
about the President's proposed tariffs on steel and aluminum.

    Let's set aside, just for a moment, all of the legitimate concerns 
about trade wars, the failure to target the source of steel and 
aluminum overcapacity, and the disproportionate effects on our major 
trading partners and allies. In the end, these tariffs are not a tax on 
foreign steel and aluminum producers, but rather a tax on American 
citizens and businesses, who, if this action is finalized, will be 
forced to pay an additional 25 percent on steel and 10 percent on 
aluminum.

    Those effects would blunt the benefits of tax reform for all 
Americans--including the reduced impact of the billions of dollars that 
many companies recently pledged to invest here in America.

    And those billions would not be as valuable. Truly, there is a 
better way to address China's actions than to impose a new, across-the-
board tax on U.S. consumers and businesses just 3 short months after we 
passed comprehensive tax reform. We can and should do better. And I 
will be sending the President a letter later today emphasizing just 
that.

    Now, I'd like to turn to the important issues we want to address in 
this hearing.

    It's no secret that I have long felt that strong protections for 
intellectual property rights protect consumers. A properly enforced 
trademark, for example, lets a customer know who made a product and 
where to go for information about it.

    We were all encouraged by the new authorities the Trade 
Facilitation and Trade Enforcement Act of 2015, granted the U.S. 
Customs and Border Protection as well as Immigration and Customs 
Enforcement. Those authorities, along with the new National 
Intellectual Property Center, were designed help agencies collaborate, 
coordinate, and take down perpetrators.

    Because there are frequently hiccups with the implementation of new 
laws, the committee asked the Government Accountability Office to 
conduct a broad investigation about how the Trade Facilitation and 
Trade Enforcement Act was being implemented.

    As they started their investigation, GAO quickly began to realize 
that e-commerce, generally, was causing major issues for CBP and ICE. 
Due to advancements in online purchasing, the agencies were being 
forced to adopt new tactics, work more closely together, and build up 
their public-private partnerships.

    Those have all been changes for the good. However, we asked GAO to 
continue their investigation and to look specifically at the problem of 
counterfeits on some of the most prominent e-commerce platforms.

    As part of this process, GAO made purchases from five major e-
commerce platforms. And, after using relatively narrow criteria, GAO 
received at least one counterfeit and one legitimate good from each of 
the platforms. In the end, 20 of the 47 individual items they purchased 
were counterfeit.

    While the sample size was small, the results are still telling. On 
the whole, this investigation started us down a path of discovery, and 
on that path we noticed there are far more issues than we had initially 
anticipated.

    Today's hearing represents a culmination of those initial findings. 
And while we are not going to be able to fix this all at once, I am 
hoping to at least discuss some meaningful steps that we could take in 
the near term.

    But, before we get to that, I want to talk a little bit more about 
what we found. As part of its research, GAO found that many counterfeit 
products create a hazard to consumers, children, and our economy. 
Through seizures and later investigations, CBP, ICE, and CPSC have 
found numerous instances of counterfeit products with major health and 
safety issues. These issues have included contact lenses that contain 
dangerous bacteria, cosmetics that have chemicals that can cause 
harmful health effects when applied, phone chargers with faulty wiring, 
batteries with thermal runoff issues, and even defective airbags.

    GAO has found that with the rise of popular online marketplaces, 
counterfeiters have greater access to the market and can easily sell 
their phony products directly to consumers.

    Because the counterfeiters frequently use stock photos, or simply 
join in on a pre-listed product, the goods are sold as genuine, and so 
long as counterfeiters can make the products indistinguishable on the 
outside, most consumers never notice a difference. This is because 
typical red flags for consumers are difficult to notice. This is even 
true when the counterfeiters create new colors or designs of more 
famous products.

    In one recent instance, the U.S. Attorney's office in the Northern 
District of Mississippi successfully prosecuted a case against Bobby 
Rodgers, Jr.

    Mr. Rodgers had a fairly elaborate scheme in place. First, he would 
order counterfeit merchandise from China and facilitate delivery by 
using alternate addresses. Then, he would powder-coat the counterfeit 
items he received and sell them as a third-party retailer online. As he 
did this, he would represent the goods as authentic, sometimes even 
with licensed modifications.

    The sheer volume of his scams was staggering. On just one of the 
two major platforms he used, Mr. Rodgers had sold over $300,000 in 
counterfeit goods. When his complex was raided authorities seized 
another 2,200 pieces of counterfeit drinkware.

    But it doesn't end there.

    Later, as the CPSC lab reports came back, several of the colors 
tested positively for lead, exceeding the amount legally allowed by 
more than 20 times. For all we know, there are currently children 
around the country sipping water with dangerously high levels of lead 
because of Mr. Rodgers.

    Sadly, he is just one among many, many perpetrators buying 
counterfeits and facilitating sales of them through e-commerce 
platforms.

    We've heard from some rights holders, like YETI, whose products 
have been counterfeited in these schemes, who have responded strongly 
to address these problems.

    YETI issued a statement making it clear that they were expending 
``significant resources to protect [their] consumers.'' I ask unanimous 
consent that the full YETI statement, as well similar statements 
submitted by other rights holders, be entered into the appropriate 
place in the hearing record.

    Now, I don't want to steal too much of their thunder, but one of 
the reasons we've invited Underwriters Laboratories, or UL, here today 
is to let them give us a broader perspective on the seriousness of 
these issues.

    As just one example, in a public report, UL recently tested 400 
counterfeit Apple Phone Adapters, out of those 400 they found that only 
3 out of the 400 chargers passed electricity strength tests. And that 
is just one of the many studies UL has performed.

    I think everyone here--both members and the audience--will be 
stunned by not only the breadth of products being counterfeited, but 
also by the incredible volume. This goes beyond the dollars and cents 
these companies have invested to develop and market their products, 
which, let's be clear, are enormously important for our economy, not to 
mention the well-being of American consumers.

    But we're not just talking about devalued investments. We're 
talking about lead on children's drinkware, phones catching fire, homes 
burning down, consumers being injured from hygiene and cosmetic 
products, airbags not inflating properly, and who knows what else.

    It is my hope that we all can all agree today that counterfeit 
products pose an immediate and significant risk to Americans' health 
and safety. And I hope that we can take GAO's recommendations seriously 
to improve information sharing and better track CBP's intellectual 
property enforcement methods.

    Personally, I am interested in talking specifically about sharing 
e-commerce platform data contained in invoices and on packages with 
rights holders, as well as learning from and improving CBP's voluntary 
abandonment program.

    American consumers are relying on us to get this right, and we need 
to work together and with the appropriate officers at CBP, ICE, and 
other agencies to make sure we do.

                                 ______
                                 
                                  YETI

                         7601 Southwest Parkway

                            Austin, TX 78735

                              512-394-9384

March 2, 2018

U.S. Senate
Committee on Finance
Dirksen Senate Office Building
Washington, DC 20510-6200

Re: Senate Finance Committee Hearing, ``Protecting E-commerce Consumers 
From Counterfeits,'' March 6, 2018 at 10:00 AM

Dear Chairman Hatch, Ranking Member Wyden, and all Members of the 
Committee:

The increasing prevalence of counterfeit goods in the U.S. economy is 
both alarming and concerning. Counterfeiting is a growing, global craft 
of well-funded criminals that threatens consumer safety, undermines 
consumer confidence and erodes the reputation of innovative companies.

As a target of counterfeit activity, YETI has expended significant 
resources to protect our consumers, our intellectual property rights 
and our brand from the actions of both counterfeiters and those who 
facilitate the importation and sale of counterfeits, including E 
commerce marketplaces based in the United States and abroad. The recent 
report issued by the Government Accountability Office, ``Intellectual 
Property: Agencies Can Improve Efforts to Address Risks Posed by 
Changing Counterfeits Market,'' helps shine a light on the role that 
online marketplace platforms play in the trafficking of counterfeit 
goods.

We commend the GAO for investigating this critically important issue 
and thank Chairman Hatch, Ranking Member Wyden and the Senate Finance 
Committee for hosting this hearing.

Thank you for your consideration of this submission for inclusion into 
the hearing record. If you or your staff have any questions regarding 
this letter, please feel free to contact me.

Matthew J. Reintjes
Chief Executive Officer

                                 ______
                                 
                          Belkin International

                      12045 East Waterfront Drive

                         Playa Vista, CA 90094

                        Office: +1 310-751-5100

                          Fax: +1 310-751-5969

March 6, 2018

Hon. Orrin Hatch, Chairman
U.S. Senate
Committee on Finance
219 Dirksen Senate Office Building
Washington, DC 20510

Hon. Ron Wyden, Ranking Member
U.S. Senate
Committee on Finance
219 Dirksen Senate Office Building
Washington, DC 20510

Re: Statement for the Record, ``Protecting E-commerce Consumers From 
Counterfeits''

Dear Chairman Hatch and Ranking Member Wyden:

As the chief legal officer and general counsel of Belkin International 
and previous Finance Committee witness on the challenges to U.S. 
businesses in the digital age, I am pleased to see the committee's 
continued focus on the need to protect consumers from counterfeit 
products. Today, Belkin has over 1,300 employees in over 25 countries, 
with more than 750 in the United States. As I noted in my testimony 
before the committee in June 2016, the digital age has ushered in a new 
era of previously unimaginable opportunities, as well as significant 
challenges for both companies and consumers. I welcome the opportunity 
to update the committee on Belkin's progress and ongoing challenges 
since our 2016 testimony.

Belkin celebrates the digital age. Since its inception, Belkin has 
sought to give consumers peace of mind and make their lives better, 
easier, and more fulfilling. The Belkin mission is to create people 
inspired products, and the first step in doing so is understanding what 
consumer needs are and predicting what they will be. Belkin is 
committed to creating the highest quality authentic products and 
actively works to educate our consumers and identify and dismantle 
counterfeit operations using a multi-pronged approach. Our extensive 
brand protection program leverages the strong relationships that we 
have established with governments, regulators, distribution networks 
and anti-counterfeiting organizations worldwide.

Belkin believes in the digital marketplace, the value of global e-
commerce, and its importance to Belkin and American job growth. Like 
our peer companies, we advocate for a level playing field, and believe 
that, with fair competition, we and other American companies will 
succeed in that competition by working harder and with more innovation 
than our competitors abroad. This committee's continued work to address 
counterfeiting draws needed attention to intellectual property rights 
enforcement that is key to the success of both American companies, of 
all sizes, and the American economy.

The Belkin brand protection team (BPT) is an efficient and effective 
team. In addition to monitoring physical marketplaces and supply 
chains, Belkin continually sweeps key online marketplaces to find and 
remove brand-infringing listings. Since 2016, we have removed 2.7M 
brand infringing products worldwide. When we find evidence of extensive 
counterfeiting activity by a distributor or manufacturer abroad, we 
conduct private investigations and then work with local law enforcement 
authorities to take action. In addition, the BPT organizes training to 
customs authorities across the globe, including in Asia, Europe, the 
Middle East, and the Americas, to help customs agents identify 
potential counterfeit products at their borders. Belkin has also taken 
private legal action in numerous countries across the globe against 
entities that violate our intellectual property rights, all in an 
effort to thwart the sale of unlawful and potentially unsafe products.

As detailed in my 2016 testimony, Belkin encountered copycat products 
in China marketed under the brand name ``Melkin.'' Melkin products 
replicated Belkin's trade dress, and were branded with the express 
purpose of confusing consumers into thinking that they were purchasing 
Belkin products. This company, and the individuals and entities behind 
it, benefited unfairly from the Belkin name and reputation while 
causing significant harm to our business and to consumers. As of 
February 2017, we successfully opposed registration of the Melkin 
trademark in more than 20 countries, including China, removed Melkin 
products from major e-commerce sites, and got an injunction to prevent 
Melkin-branded products to be sold in Hong Kong.

While Belkin has the tools and resources to engage in these global 
efforts to defend our products and brand, many small businesses do not. 
The livelihoods and reputations of U.S. small businesses and startups 
are similarly threatened by counterfeit products, so it is imperative 
that the Federal Government continues its intellectual property 
enforcement efforts to bolster private-sector resources.

Counterfeits also threaten the security of our supply chain. Whether 
contributing to Federal IT systems, military equipment, or consumer 
products and services, many companies supply the components to a final 
product. This complexity creates multiple entry points for counterfeit 
materials to enter the U.S. supply chain, creating security challenges 
for the military, government, and consumers, as they create and use 
innovative products and services to protect critical infrastructure, 
national security, and personal identities.

Public safety is another important issue that is raised by 
proliferation of illegal counterfeit products. Genuine Belkin products 
have undergone rigorous safety certifications, testing, and protocols. 
Counterfeiters and copycats simply have no concern for quality and 
safety. At Belkin, we are dedicated to our consumers' safety and 
enjoyment while using our products, and so design and quality informs 
everything that we do, from our user testing and prototyping process, 
to strict adherence to regulatory compliance, manufacturing, and 
warranty programs. Rigorous enforcement of counterfeiting laws and 
aggressive work with our international partners is necessary to stem 
the flow of unsafe counterfeit products.

Thank you for the opportunity to submit Belkin's views on protecting 
consumers and the Federal Government from illegal counterfeiting 
activities. We look forward to continued engagement with the Finance 
Committee on this issue. Please let me know how Belkin may be of 
further assistance in your efforts.

Sincerely,

D. Thomas Triggs
Chief Legal Officer and General Counsel
Belkin International, Inc.

                                 ______
                                 
          The International AntiCounterfeiting Coalition, Inc.

                     727 15th Street, NW, 9th Floor

                          Washington, DC 20005

                           +1 (202) 223-6667

                             [email protected]

                              www.iacc.org

Chairman Hatch, Ranking Member Wyden, and Members of the Committee:

The International AntiCounterfeiting Coalition (``IACC'') is pleased to 
offer this written statement for the record in connection with your 
March 6, 2018, hearing concerning, ``Protecting E-Commerce Consumers 
From Counterfeits,'' and we thank you for examining this important 
topic. We are available at your convenience to discuss any questions 
you might have regarding these comments or to otherwise provide 
clarification of our submission.

With a membership composed of approximately 250 corporations, trade 
associations, and professional firms, and founded nearly 40 years ago, 
the International AntiCounterfeiting Coalition (``IACC'') is the 
world's oldest and largest organization devoted solely to combating 
product counterfeiting and piracy. The members of the IACC represent a 
broad cross-section of industries and include many of the world's best-
known companies in the apparel and luxury goods, automotive, software, 
personal care, electronics, consumer goods, entertainment, 
pharmaceutical, and other product sectors. The IACC is committed to 
working with government and industry partners in the United States and 
abroad to strengthen IP protection and enforcement, and to raise 
awareness regarding the range of harms caused by counterfeiting and 
piracy.

The comments provided herein highlight the challenges faced by both 
rights holders and our government partners in the enforcement of 
intellectual property rights, in the current e-commerce landscape. We 
are also pleased to share information regarding our ongoing 
collaborative efforts that seek to address these concerns, and to offer 
our thoughts on additional steps which could help to safeguard 
consumers and legitimate businesses in the online ecosystem. We look 
forward to working with the Committee on these issues.

Evolving Distribution Models

Historically, the distribution chains for counterfeit goods have 
largely mirrored those of legitimate commerce. It should come as no 
surprise then that China, the largest source of consumer goods imported 
into the United States, has also been the greatest source of 
counterfeit goods arriving at our borders for a number of years. In 
Fiscal Year 2017, the People's Republic of China was cited as the 
country of origin for 48 percent of all seizures effected by U.S. 
Customs and Border Protection (``CBP'') (16.5K out of more than 34.1K 
total seizures), and 46 percent by value ($554.63 million out of a 
total of $1.2 billion).\1\ It is worth noting, however, that Chinese 
imports actually account for a much larger percentage of CBP's seizures 
than the raw figures would indicate. The second position on CBP's list 
is occupied by Hong Kong, identified as the source country of 39 
percent of seizures (32 percent by value). Hong Kong though is not 
widely viewed as a manufacturing hub for counterfeit goods, but rather 
as a major transshipment point for counterfeits produced by mainland 
China.
---------------------------------------------------------------------------
    \1\ ``Intellectual Property Rights Seizure Statistics--Fiscal Year 
2017,'' https://www.cbp.gov/sites/default/files/assets/documents/2018-
Feb/trade-fy2017-ipr-seizures.pdf.

Until relatively recently, ocean-going container vessels have played 
the most significant role in facilitating these illicit imports. 
Counterfeiters have exploited cheap labor and lax enforcement regimes 
abroad to manufacture low-cost knock-offs to supply domestic wholesale 
and distributor networks in the United States, which in turn have fed 
the retail market for counterfeits. This so-called ``brick-and-mortar 
supply chain'' centered largely around flea markets, swap meets, and 
small storefronts in well-established hot-spots in major metropolitan 
areas such as New York's Canal Street area and Santee Alley in Los 
Angeles. In more recent years however, we've seen a drastic shift in 
the ways counterfeit goods travel from the point of manufacture to the 
end consumers. Concurrent with the rise of online shopping and the 
development of e-commerce platforms, we've seen a steady increase in 
the volume of counterfeit seizures by CBP in the express consignment 
and postal shipping environments. As detailed in CBP's above-referenced 
report, these small consignments accounted for 89 percent of seized 
---------------------------------------------------------------------------
shipments, and 47 percent of total seizures by value.

This shift is no doubt partly due to the concerted efforts of both law 
enforcement and rights holders in investigating and prosecuting sales 
and distribution networks throughout the United States. Further, it is 
indicative of the increasing sophistication of counterfeiters' 
operations, including their exploitation of e-commerce services and 
other providers to directly target and sell to consumers. This evolving 
distribution model bypasses a number of the traditional opportunities 
for enforcement available to rights holders and law enforcement 
personnel, while both are necessitating the application for ever 
greater enforcement resources for ever-diminishing returns. While the 
border enforcement of IP rights was often characterized in the past as 
searching for a needle in a haystack, the explosion in small parcel 
shipments has served to shrink the proverbial needle while 
exponentially increasing the number of haystacks. And while in the 
past, a single seizure of one or more containers might substantially 
decrease the availability of counterfeits in the market and 
significantly impact a counterfeiter's bottom line, achieving that same 
impact requires the seizure of thousands of small parcels. 
Understanding how the trafficking of counterfeit goods has evolved and 
developing new strategies to attack this illicit trade is vital to 
protecting U.S. consumers and businesses in the current environment.

Existing Efforts to Combat the Trafficking of Counterfeit Goods in E-
Commerce

As rights holders and others have sought to address the trafficking of 
counterfeit goods online, a great deal of attention has been placed on 
the so-called ``choke points'' in the e-commerce ecosystem. We must 
take into account how counterfeiters are reaching their customers, how 
the goods are purchased and sold, and how the goods are getting from 
the seller to the buyer. Each step in the distribution chain presents 
an opportunity for rights holders, enforcement personnel, and other 
responsible parties to disrupt the counterfeiters' illegal businesses; 
the IACC has been a leader in the development of voluntary 
collaborative agreements with stakeholders from a variety of industry 
sectors to achieve that goal. Our RogueBlock \2\ and IACC MarketSafe 
\3\ programs offer examples of the positive impact that such 
collaboration can have in targeting two of the above-mentioned choke 
points in the modern distribution chain--the online storefront where 
items are displayed to potential buyers, and the payment mechanism.
---------------------------------------------------------------------------
    \2\ http://www.iacc.org/online-initiatives/rogueblock.
    \3\ http://www.iacc.org/online-initiatives/marketsafe.

The IACC launched its RogueBlock program in January 2012 as a means to 
providing a streamlined, simplified procedure by which rights holders 
could report online sellers of counterfeit or pirated goods directly to 
participating credit card and payment processing network partners. This 
effectively facilitated action against the merchant accounts associated 
with those websites and diminished the ability of individuals to profit 
from their illicit sales. The program has seen great success, and 
significant expansion over the past 3 years, and has been viewed as a 
``win-win'' for all of the parties involved. Rights holders are able to 
provide timely, relevant intelligence, and in the process aid financial 
service providers in policing bad actors who seek to misuse legitimate 
---------------------------------------------------------------------------
commercial tools for illegitimate purposes.

Our goals upon commencing the RogueBlock program were: (1) to increase 
the cost of doing business for, and decrease profits to, the 
counterfeiters; (2) to shrink the universe of third-party acquiring 
banks willing to do business with rogue merchants; (3) to facilitate an 
efficient use of resources by both IP owners and our partners by 
sharing relevant data and avoiding the duplication of efforts; and (4) 
to disrupt and dismantle counterfeit networks. By any measure, we are 
achieving those goals. Equally important, the strong partnerships we've 
developed in the financial sector are enabling us to continue 
enhancing, expanding, and evolving to face new challenges in the online 
space. To date, our collaborative efforts with the payment sector have 
resulted in the termination of over 5,300 merchant accounts in 
connection with the illegal sale of counterfeit goods online. By 
conservative estimates, upwards of 200,000 websites have been deprived 
of the means to accept payment for their illegal products.

As was made clear by the recently published report by the Government 
Accountability Office,\4\ counterfeit sellers are increasingly seeking 
to exploit legitimate e-commerce services to reach unwitting consumers. 
Online marketplaces are attractive targets for counterfeiters--
consumers' familiarity with the platforms, and the goodwill and trust 
imbued by that familiarity, typically extends to the individual sellers 
on the platform. As a result, counterfeiters need not seek out and 
attract consumers themselves; by infiltrating a well-known marketplace, 
the consumers will come to them.
---------------------------------------------------------------------------
    \4\ ``Agencies Can Improve Efforts to Address Risks Posed by 
Changing Counterfeits Market,'' GAO-18-216, January 2018. https://
www.gao.gov/assets/690/689713.pdf.

Recognizing this concern, the IACC has worked closely with partners in 
that sector to identify and target those counterfeiters seeking to 
exploit the consumer markets represented by platform sites. Beginning 
in 2014, our IACC MarketSafe program, developed in cooperation with the 
Alibaba Group, has succeeded in removing over 300,000 listings, and has 
resulted in more than 7,000 sellers of counterfeits being permanently 
banned from the Alibaba platforms. In 2017, that program was expanded 
to enable greater participation by rights holders--including non-IACC 
members. Importantly, the expanded program has been offered to rights 
holders at no cost, facilitating participation by SMEs that may lack 
the resources available to larger companies. More recently, the IACC 
and its members have been working with Amazon on voluntary efforts to 
fight counterfeits; later this year, we'll launch a new pilot 
initiative to strengthen our collaboration with Amazon, with the aim of 
enhancing cooperative industry efforts to stop IPR infringement. 
Similarly, we are seeking to engage more closely with other major 
platforms including eBay, and other potential partners, to ensure the 
---------------------------------------------------------------------------
safety of consumers online.

In addition to such private-sector collaborations, the IACC has long-
recognized that our partners at U.S. Customs and Border Protection are 
our nation's front-line defense against illicit counterfeit goods. 
Throughout 2017, the IACC hosted 23 training seminars for Customs 
personnel, as well as Federal, State, and local law enforcement 
officials around the United States, including at some of the highest 
priority ports of entry for intellectual property enforcement. Those 
programs will remain a cornerstone of our engagement with enforcement 
personnel in the coming year, along with our continuing work with the 
National IPR Coordination Center, and the Department of Justice's 
Computer-Crime and Intellectual Property Section (CCIPS).

We are cognizant of the fact however that the challenges faced by 
rights holders and law enforcement do not stop at our own borders. 
Accordingly, we are actively working to aid in the development of truly 
global partnerships among relevant stakeholders. To that end, the IACC, 
in collaboration with UL, co-hosted major international conferences 
last year with EUROPOL in Antwerp, and with INTERPOL in New York. In 
2018, we will build on the success of those events with conferences in 
Budapest and Dubai, drawing rights holders, law enforcement, and 
intermediaries from around the globe. In addition, the IACC hosted 
training seminars last year in Colombia, Mexico, and the Dominican 
Republic, and will host our second Latin America Regional Brand 
Protection Summit this October, bringing together representatives from 
over a dozen trading partners in the region. We also continue to work 
closely with the National IPR Coordination Center here at home, and to 
support the work of the U.S. Patent and Trademark Office's 
international IP attaches, as well as USPTO's Global IP Academy.

Our member companies invest heavily to keep dangerous counterfeits out 
of consumers' hands. They spend countless hours and millions of dollars 
each year to develop and incorporate new technologies into their 
products and packaging to thwart counterfeiters' attempts to defraud 
consumers, to investigate violations of their rights and seek civil and 
criminal enforcement, and to offer investigative and prosecution 
support to our colleagues in the public sector. But they also 
understand that counterfeiting is a problem far larger than any of them 
can handle alone. The IACC recognizes that collaboration both within 
the private sector and between the public and private sectors is 
essential to protect consumers from often dangerous counterfeit goods, 
and to further protect legitimate businesses and the U.S. economy from 
the unfair competition represented by the trade in counterfeits.

Opportunities for Increased Collaboration to Combat Counterfeits

Our success or failure in the fight against counterfeiting online 
ultimately relies on the ability and willingness of all responsible 
stakeholders in the e-commerce landscape to identify and weed out bad 
actors within the system. To do so will require robust collaboration 
among all of the relevant parties to develop and share intelligence 
about illegal activity when it has been identified, and a commitment to 
acting upon that intelligence. This model has served as the basis for 
rights holders' interactions with CBP and other law enforcement 
agencies for countless years and has been underscored by recent 
Congressional action. Included below are recommendations to enhance 
such collaboration, which we believe are essential to more effectively 
combat the trafficking of counterfeits online.

Historically, intellectual property owners, including IACC members such 
as L'Oreal and UL, among others, have provided invaluable assistance 
such as technical support and expertise to those CBP personnel tasked 
with the enforcement of IPR at our Nation's borders. This assistance 
has been necessitated by a number of factors, including the overall 
volume of imports passing through U.S. ports, the variety of goods 
presented to CBP for inspection, and more recently, the increasing 
ability of counterfeiters to manufacture more convincing fakes. 
Legitimate manufacturers have traditionally aided CBP with product 
authentication through the examination of suspect items, and by 
providing a range of information related to the sourcing and 
distribution chains for their legitimate goods. In turn, the owners of 
trademarks and copyrights recorded with CBP are provided a variety of 
information gleaned from Customs' detentions and seizures of shipments 
in violation of those rights. The mutual exchange of information drives 
CBP's targeting of shipments, the government's criminal investigations, 
and rights holders' private investigations and civil actions to enforce 
their rights.

In more recent years, however, such sharing of information has been 
constrained because of concerns raised by CBP regarding its legal 
authority to share certain information, or to seek rights holders' 
assistance, particularly in advance of a formal detention or seizure 
action. Congress appeared to have addressed those concerns with its 
inclusion of provisions in the National Defense Authorization Act for 
Fiscal Year 2012,\5\ and provided further clarification of its intent 
as set forth in section 302 of the Trade Facilitation and Trade 
Enforcement Act. Prompt implementation of that authority would be 
welcomed to encourage a more free-flowing exchange of intelligence 
between CBP and its private-sector partners.
---------------------------------------------------------------------------
    \5\ Section 818(g)(1) reads, ``If United States Customs and Border 
Protection suspects a product of being imported in violation of section 
42 of the Lanham Act, and subject to any applicable bonding 
requirements, the Secretary of the Treasury may share information 
appearing on, and unredacted samples of, products and their packaging 
and labels, or photographs of such products, packaging, and labels, 
with the rights holder of the trademarks suspected of being copied or 
simulated for purposes of determining whether the products are 
prohibited from importation pursuant to such section.''

Similarly relevant, in the context of e-commerce, is the implementation 
of CBP's Voluntary Abandonment procedures. Initially developed as a 
pilot program to facilitate the efficient processing of small 
consignments of suspected counterfeit goods, CBP has expressed 
reluctance to share information with stakeholders concerning the 
shipments interdicted under those procedures, noting that such 
disclosures are authorized by regulation only where goods have been 
detained or seized. We have recently learned that this pilot program 
has been concluded, and that direction to the ports will be forthcoming 
regarding broad implementation. While we recognize that such procedures 
could be a valuable enforcement tool, given the fact that 89 percent of 
FY2017 seizures involved express consignments or international mail 
shipments, it is vital that CBP both captures and shares relevant data 
from those shipments whether they're interdicted via the abandonment or 
seizure processes. Such intelligence is vital to rights holders' own 
investigations and efforts at self-help, and to their ability to 
provide further support for targeting and criminal enforcement actions 
by their law enforcement partners. To that end, we ask that the 
Committee provide any requisite clarification of CBP's authority to 
share relevant data with their partners in the private sector, and if 
---------------------------------------------------------------------------
necessary, to enact legislation clearly authorizing such disclosures.

We commend CBP for its efforts at engaging the express consignment 
sector on this initiative, and its recognition that shipping 
intermediaries--whether in the private sector or in the public mail 
service--have a role to play in protecting consumers from counterfeits. 
Accordingly, we are also supportive of ongoing initiatives to 
facilitate the provision to CBP of advance electronic data for 
international mail shipments, akin to the data provided by private 
carriers. Such disclosures would no doubt aid in CBP's dual mission of 
facilitating legitimate imports and enforcing against illicit imports.

Consumer safety must be a priority for every responsible participant in 
the e-commerce marketplace. We welcome the Committee's leadership in 
highlighting these important issues, in recognizing the work currently 
being done, and for underscoring the importance of meaningful 
collaboration among stakeholders across all of the relevant sectors and 
our partners in enforcement. The IACC looks forward to working with you 
to ensure that the online marketplace continues to grow as a trusted 
and reliable outlet for consumers and legitimate businesses.

I thank you for your consideration of these comments, and I would 
welcome the opportunity to discuss these matters further with the 
committee.

Respectfully submitted,

Travis D. Johnson
Vice President-Legislative Affairs, Senior Counsel

                                 ______
                                 
         Footwear Distributors and Retailers of America (FDRA)
On behalf of the Footwear Distributors and Retailers of America (FDRA), 
we appreciate the opportunity to provide written testimony to the 
Senate Finance Committee for its recent hearing on protecting e-
commerce consumers from counterfeits.

Founded in 1944, FDRA is governed and directed by U.S. footwear 
executives and remains the only U.S. trade association dedicated solely 
to footwear. FDRA serves the full footwear supply chain, from design 
and development to manufacturing to distribution and retail. Members 
range from small, family-owned businesses to global brands that sell to 
consumers around the world. Today, FDRA supports nearly 500 companies 
and brands, including the majority of U.S. footwear manufacturers.

FDRA greatly appreciates the work the Committee has done to address the 
troubling and rapidly expanding problem of counterfeiting in markets 
around the world. The Trade Facilitation and Trade Enforcement Act 
(TFTE Act), in particular, sharpens the tools and processes we have for 
addressing intellectual property rights (IPR) challenges. In addition, 
we applaud the Committee for initiating the Government Accountability 
Office (GAO) review of current IPR enforcement at U.S. borders, which 
is the focus of this hearing.

Strengthening IPR enforcement has become one of the top priorities for 
the U.S. footwear industry. FDRA member companies work hard to design, 
produce, and deliver over 2.3 billion pairs of shoes to U.S. consumers 
each year, and many of our members also sell brands that reach 
consumers in markets all over the world. These companies manage supply 
chains that span the globe, providing them with hands-on familiarity of 
the significance of intellectual property (IP) and innovation. 
Attention to these issues supports U.S. footwear jobs and communities 
nationwide. Protecting IP remains vitally important to our industry, as 
our members continue to incorporate cutting-edge designs and technology 
into their products.

The findings of the GAO report are extremely concerning for the U.S. 
footwear industry. Of the 47 items GAO purchased from third-party 
sellers on popular e-commerce platforms, 20 turned out to be 
counterfeit products. In fact, every one of these platforms selected by 
GAO yielded at least one counterfeit item in connection with this 
study. This has become such a problem for the footwear industry, that 
Birkenstock made headlines in 2016 and 2017 when it pulled all of its 
products from Amazon in both the U.S. and Europe, citing concerns about 
counterfeit sales on the platform.

In fact, the World Customs Organization's (WCO's) 2016 Illicit Trade 
Report found that an astounding 35.8 percent of worldwide seizures 
involved the confiscation of clothing, footwear, and textiles other 
than clothing.\1\ According to the WCO, many of the leading footwear 
brands are among the most counterfeited brands in the world.\2\
---------------------------------------------------------------------------
    \1\ See World Customs Organization ``Illicit Trade Report 2016'' at 
page 140 (report found here: http://www.wcoomd.org/-/media/wco/public/
global/pdf/topics/enforcement-and-compliance/activities-and-programmes/
illicit-trade-report/itr_2016_en.pdf?db=web).
    \2\ See World Customs Organization ``Illicit Trade Report 2015'' at 
page 78 (report found here: http://www.wcoomd.org/-/media/wco/public/
global/pdf/topics/enforcement-and-compliance/activities-and-programmes/
illicit-trade-report/itr_2015_en.pdf?db=web).

While this unprecedented growth of e-commerce has dramatically 
increased choice for consumers and given U.S. footwear businesses new 
tools and channels to reach those consumers, it has created countless 
new opportunities for bad actors. To address these issues, we must 
ensure companies have greater resources to reduce the unauthorized sale 
of IP-protected products and that there is increased cooperation and 
collaboration between government authorities, platforms, and rights 
---------------------------------------------------------------------------
holders.

When Customs and Border Protection (Customs) seizes counterfeit 
products and alerts the rights holders, many cases never go further 
than the seizure of the product because of a lack of information. 
Additional information and processes for better information sharing 
could help track the real importer, increase enforcement actions, and 
reduce repeat counterfeit sellers and shippers.

FDRA members wish to provide the following list of concerns as you 
explore more effective ways in which to combat counterfeiting 
activities on e-commerce platforms:

    1.  Infringers increasingly ship tags and labels separately and 
attach them to the counterfeit product in the U.S., in order to avoid 
seizure by Customs. In many instances, Customs officials are either not 
willing or not trained to consider trade dress or design patent 
infringement as a basis for seizure.

    2.  Often, penalties are inadequate to deter criminal enterprises 
from engaging in trademark counterfeiting operations. In many 
countries, the penalties imposed for trademark counterfeiting 
operations are so low that they only add to the cost of doing business.

    3.  Infringers often use express mail and postal services to 
deliver counterfeit goods in small packages, making it more challenging 
for enforcement officials to confiscate these goods. The sheer volume 
of small shipments makes it impossible for CBP to adequately screen or 
x-ray all incoming mail to detect such shipments.

    4.  In numerous countries, there are legal and procedural obstacles 
to securing and enforcing trademark rights. Judicial systems in 
developing nations, for example, may lack transparency and 
independence, making it difficult for rights holders to pursue claims.

    5.  Counterfeiters now commonly register domains that advertise and 
sell counterfeit goods. Many of these counterfeiters use a country code 
top-level domain (ccTLD) to avoid detection and to avoid the reach of 
the U.S. judicial system. FDRA member companies face significant 
trademark infringement and lose valuable Internet traffic because of 
misleading and fraudulent domain names. It can be hard for companies to 
find redress, because a number of foreign registries do not make 
registration information publicly available and do little to assist 
aggrieved rights holders.

FDRA is an active participant in the annual Special 301 Review 
conducted by the Office of the United States Trade Representative 
(USTR). We have communicated these same concerns with officials across 
the various agencies entrusted to combat and protect U.S. intellectual 
property. We stand ready and willing to work with the Committee and the 
appropriate Federal agencies working on this vitally important issue.

Respectfully submitted,

Matt Priest
President and CEO

                                 ______
                                 
    Prepared Statement of Jim Joholske, Director, Office of Import 
            Surveillance, Consumer Product Safety Commission
    Chairman Hatch, Ranking Member Wyden, and distinguished members of 
the committee, thank you for inviting me to discuss the U.S. Consumer 
Product Safety Commission's (CPSC) important role in protecting 
consumers from health and safety hazards involving imports and 
counterfeit goods. Before I begin, I should note that these comments 
are those of CPSC staff, and they have not been reviewed or approved 
by, and may not necessarily reflect the views of, the Commission. I 
especially appreciate the opportunity to appear before you today, as 
this year marks the 10th anniversary of the creation of CPSC's import 
surveillance program.

    The CPSC was established by Congress in 1972, and is the Federal 
regulatory body charged with protecting the public from unreasonable 
risk of injuries or death associated with consumer products. We are a 
relatively small agency, with 545 full-time equivalents, and a $125 
million annual budget. However, we have jurisdiction over thousands of 
consumer products, a vast majority of which are imported into the 
United States. I joined CPSC's Office of Import Surveillance when it 
was created in 2008, and I became its Director in March 2017. Before 
that time, I spent 8 years in the agency's Office of Compliance and 
Field Operations, where I worked on enforcement of mandatory 
regulations governing products under CPSC's jurisdiction. Our Office of 
Compliance and Field Operations performs a vital role within the 
agency, by investigating incidents involving consumer products and 
working with importers and manufacturers to implement recalls, if 
necessary.

    Since passage of the Consumer Product Safety Improvement Act of 
2008, CPSC has strengthened its relationship with U.S. Customs and 
Border Protection (CBP) and closely coordinates with CBP to interdict 
potentially noncompliant, unsafe imported products. As part of our 
efforts, CPSC has placed investigators at the largest ports of entry to 
work side-by-side with CBP staff. Currently, we have 30 investigators 
stationed at 20 of the largest ports in the country. Despite our 
relatively small size, in fiscal year 2017, CPSC investigators at the 
ports screened more than 38,000 distinct products arriving in the 
United States, and stopped approximately 4 million noncompliant or 
hazardous units from reaching consumers.

    To prioritize and target high-risk shipments, CPSC has developed 
our own targeting system, called RAM or ``Risk Assessment 
Methodology.'' RAM leverages a feed of entry data received from CBP, 
which is combined with CPSC data to risk-score shipments under CPSC's 
jurisdiction. We also have CPSC staff stationed at CBP's Commercial 
Targeting and Analysis Center (CTAC) to coordinate with CBP and other 
government agencies to address import safety issues through commercial 
trade targeting. At CTAC, we implement our national targeting programs 
using CBP's Automated Targeting System to identify potentially 
violative shipments. CPSC also has a part-time presence at the U.S. 
Immigration and Customs Enforcement's (ICE) Homeland Security 
Investigations (HSI) National Intellectual Property Rights Coordination 
Center (IPR Center). At the IPR Center, we are able to exchange 
information with 22 partner agencies that may help us target 
potentially non-complying and hazardous products. As an agency with 
limited resources, we would not be able to do the critical work of 
intercepting high-risk products before they reach consumers without the 
assistance and support of DHS and CBP.

    Although CPSC's primary focus is targeting products that violate 
CPSC requirements, we do encounter Intellectual Property Rights (IPR) 
violations. As part of the work done at CTAC, CBP and CPSC staff target 
entities in the supply chain that are known IPR violators for possible 
health and safety issues. Many of CPSC's investigators are former CBP 
officers and import specialists and have been trained to identify IPR 
issues. CPSC investigators have also attended CBP's IPR Instructor-Led 
and rights-holder training at several ports, which has led to greater 
interagency referrals and collaboration. Consequently, although not our 
primary focus, CPSC staff is often able to identify possible IPR 
violations in the course of their normal duties.

    When CPSC identifies a potential IPR issue, we refer the shipment 
to CBP because they have authority to efficiently seize the products. 
On a case-by-case basis, we will also test products that are IPR 
violative for compliance with CPSC mandatory safety standards, or to 
determine whether they are otherwise hazardous.

    A recent example of our successful partnership is illustrated by a 
shipment of counterfeit toys seized by CBP in January at the Port of 
Los Angeles. As a result of CPSC and CBP's collaboration, CTAC 
identified a high-risk shipment from China, imported by a manufacturer 
that previously attempted to import noncompliant products. CTAC flagged 
the shipment, which was then examined by CBP and CPSC, and found that 
it contained toys bearing counterfeit trademarks of popular children's 
toys. CPSC determined that the products also contained excessive lead 
and small parts, in violation of CPSC regulations and the Federal 
Hazardous Substance Act. This coordination between our agencies 
resulted in the confiscation of nearly 2,800 unsafe and fraudulent toys 
at the port, keeping them from reaching America's children.

    CPSC and CBP have similarly collaborated on many other shipments 
where a potential IPR violation and a safety violation were found. 
Examples include: holiday lights, cell phone wall chargers, lithium-ion 
batteries used in hoverboards, laptops, and cellphones, children's 
backpacks, and numerous toys.

    Although CPSC's import surveillance activities have prioritized 
large ports of entry, like many agencies, we are facing challenges in 
regulating products imported through direct-to-consumer sales over e-
commerce platforms. The volume of these shipments, and the limited 
amount of data required when the shipment arrives in the United States 
make targeting difficult. With CPSC's small size and limited resources, 
we currently do not have investigators stationed at locations where 
these small packages arrive, other than at one location at JFK airport. 
However, CPSC will continue to evaluate its staffing model to identify 
efficient ways to target and examine potentially unsafe products 
shipped directly to e-commerce consumers.

    Thank you for the opportunity to share my remarks. I am happy to 
answer any questions you may have.

                                 ______
                                 
           Questions Submitted for the Record to Jim Joholske
               Question Submitted by Hon. Orrin G. Hatch
    Question. Can you please explain your work at the National IPR 
Center, and further explain how can your work with CBP and ICE can be 
improved?

    Answer. CPSC is one of the 23 partner agencies at the National 
Intellectual Property Rights Coordination Center. The Center is a 
valuable avenue for us to share leads, deconflict cases, and network 
with other Federal agencies, foreign governments, and industry 
stakeholders. CPSC has a part-time presence at the Center, and our 
liaison participates in staff and working group meetings, as well as 
outreach and training events for government groups and private 
industry.

    CPSC has a strong partnership with CBP and ICE, including our co-
location alongside CBP at some of the Nation's largest ports of entry 
and coordination on a daily basis to target and examine high-risk 
shipments. Our work with CBP and other partner agencies also occurs 
through our participation at the Commercial Targeting and Analysis 
Center (CTAC). We will continue to collaborate closely with those DHS 
agencies, particularly to address the challenge of e-commerce and 
direct-to-consumer shipments.

                                 ______
                                 
                  Question Submitted by Hon. Ron Wyden
    Question. In one way or another, you all touched on the shift from 
containerized shipping to small packages. You have also highlighted the 
challenges in enforcement against counterfeit goods.

    Given that we seem to be in a new era of trade, wouldn't you agree 
that the Federal government's enforcement strategy to go after 
counterfeit goods needs to adapt to the changing market? If so, what 
changes would you recommend in current CBP and ICE enforcement 
priorities and approaches?

    Answer. The dramatic increase in e-commerce and direct-to-consumer 
shipments has created challenges for all Federal agencies that work to 
interdict counterfeit and noncomplying products at the border. In 
CPSC's experience working with CBP at the ports, CBP emphasizes 
targeting and enforcement of shipments containing counterfeit goods. 
Although CPSC's primary focus is targeting products that violate CPSC 
requirements, we do encounter counterfeit goods in our normal course of 
business and refer those shipments to CBP for appropriate action. 
CPSC's import surveillance activities have focused resources on large 
ports of entry. With CPSC's small size and limited resources, we 
currently do not have investigators stationed at locations where the 
vast majority of small packages arrive. In addition, the sheer volume 
of these shipments and the limited amount of data required when they 
arrive in the United States makes targeting difficult. CPSC will 
continue to evaluate its staffing model and attempt to identify 
efficient ways to target and examine potentially unsafe products 
shipped directly to e-commerce consumers.

                                 ______
                                 
                 Question Submitted by Hon. Pat Roberts
    Question. The GAO study on how agencies can improve efforts to 
address risks posed by changing counterfeit markets found growth in e-
commerce has attributed to counterfeiters producing a wider variety of 
goods sold on popular websites alongside authentic goods. The goods are 
often deceiving to consumers, due to counterfeiters gaining an 
appearance of legitimacy on third-party online marketplaces. What tools 
are readily available to empower consumers to make educated decisions 
when purchasing from third party sellers on e-commerce platforms?

    Answer. The GAO report provided helpful advice for consumers to 
follow to try and limit the risks of buying counterfeit products online 
(Appendix II: Consumer Information and Advice for Avoiding Counterfeits 
Online, p. 47). CPSC would also recommend that consumers research CPSC 
recalls online at www.cpsc.gov, report unsafe products and research 
products at www.saferproducts.gov, and read available reviews of 
products and third party vendors.

                                 ______
                                 
                 Questions Submitted by Hon. John Thune
           direct-to-consumer sales over e-commerce platforms
    Question. Mr. Joholske, as chairman of the Senate Commerce 
Committee, which has jurisdiction over the CPSC, I would like to note 
Acting Chairman Buerkle's strong leadership over the agency and to 
reiterate my hope that she will be re-confirmed to a full term as 
chairman.

    While CPSC has had some success interdicting dangerous products 
that are shipped through traditional channels, it appears that a major 
blind spot exists with respect to direct-to-consumer sales over e-
commerce platforms.

    What additional data would CPSC need to improve its targeting 
efforts with respect to these shipments?

    Answer. Most direct-to-consumer sales over e-commerce platforms 
enter the country as de minimis shipments valued under $800. A de 
minimis shipment, commonly referred to as a section 321, is cleared 
based on manifest data, meaning it may be imported without filing 
formal entry and with fewer associated data elements. Notably absent 
are a formal entry number, a 10-digit Harmonized Tariff Schedule (HTS) 
code identifying the commodity, and an official importer of record or 
responsible party--upon which CPSC's current Risk Assessment 
Methodology depends. Access to manifest data, or a few key data 
elements, such as a responsible domestic entity, foreign manufacturer, 
and product identifier, would improve CPSC's targeting efforts for 
these shipments.

            improved coordination between cbp, ice, and cpsc
    Question. You noted in your testimony the current interaction 
between the CPSC and CBP and ICE. While each of your agencies has 
specific responsibilities within your areas of jurisdiction, there are 
overlaps, especially with respect to ensuring consumer safety.

    Are there existing statutory barriers that we need to address to 
improve the coordination among your agencies while continuing to use 
taxpayer dollars efficiently and avoid duplication of efforts?

    Answer. Coordination could be improved if additional data elements 
were available for de minimis shipments, and if CBP was authorized to 
share that trade information with CPSC. Without an HTS code, CBP is 
unable to determine the requirements of partner government agencies, 
such as CPSC. Therefore, CBP cannot identify which shipments are under 
CPSC's jurisdiction or share information with our agency.

    CPSC has a strong working relationship with CBP at ports of entry 
where we are co-located. However, with CPSC's small size and limited 
resources, we currently do not have investigators stationed at 
locations where the vast majority of small packages arrive. CPSC will 
continue to evaluate its staffing model and attempt to identify 
efficient ways to target and examine potentially unsafe products 
shipped directly to e-commerce consumers and coordinate better with CBP 
and ICE.

                                 ______
                                 
               Questions Submitted by Hon. Maria Cantwell
    Question. As the GAO report identifies, CBP does not proactively 
communicate with online marketplaces that have teams that work closely 
with the intellectual property rights center, brands, and law 
enforcement to keep counterfeit items off their sites. However, 
information sharing is critical.

    What are the specific legal parameters for sharing information with 
e-commerce websites about counterfeit goods CBP seizes?

    CBP is currently reviewing options for sharing additional 
information with rights holders and e-commerce websites. What is the 
timetable for this review?

    What are the differences between the information sharing rules for 
the CBP and ICE?

    How is the relationship with the Intellectual Property Center 
working? In your view, is CBP getting sufficient information to 
properly do the job?

    Answer. The questions above are focused on CBP's legal authorities 
and relationship with ICE. Therefore, CPSC has no response on this 
subject.

    Question. CBP and ICE coordinate with several other Federal 
agencies in their efforts to interdict the flow of counterfeit goods 
into the United States. As a part of this effort, CBP and ICE also work 
with rights holders to ensure that their trademarks and copyrights are 
recorded in the CBP online system. Also, CBP puts a priority on 
enforcing IP registered with the U.S. Patent and Trademark Office and 
the U.S. Copyright Office.

    According to the GAO report, increasing the number of patents, 
trademarks, and copyrights with the CBP was an important way that a 
rights holders can help CBP's enforcement efforts.

    Given the benefits of registering patents, trademarks, and 
copyrights with CBP, does the U.S. Patent and Trademark Office or the 
U.S. Copyright Office share information with the CBP?

    If so, what steps could be taken to improve the sharing of 
registrant information for new patents, trademarks, and copyrights?

    Could the U.S. Patent and Trademark Office or the U.S. Copyright 
Office forms be adapted to provide simultaneous registration with the 
CBP?

    Answer. The questions above are focused on CBP's interaction with 
the U.S. Patent and Trademark Office and the U.S. Copyright Office. 
Therefore, CPSC has no response on this subject.

    Question. The U.S. Consumer Product Safety Commission (CPSC) plays 
an important role in protecting consumers from health and safety 
hazards. Additionally, CPSC created their import surveillance program 
10 years ago. Under this program you combine targeting systems, 
staffing, and coordination with the CBP and ICE to identify non-
compliant and hazardous products.

    How often do unsafe, non-compliant, or hazardous seized goods also 
have intellectual property rights (IPR) violations?

    Answer. CPSC does not have data on the number of seized shipments 
that were both counterfeit and in violation of a CPSC requirement. 
However, CBP and CPSC have collaborated on a number of shipments where 
a potential IPR violation and a safety violation were found. Examples 
include: holiday lights, cell phone wall chargers, lithium-ion 
batteries used in hoverboards, laptops, and cell phones, children's 
backpacks, and numerous toys.

    A recent example of our successful collaboration with CBP in the 
area of intellectual property rights enforcement is illustrated by a 
shipment of counterfeit toys seized by CBP in January 2018 at the Port 
of Los Angeles. The Commercial Targeting and Analysis Center (CTAC) 
identified a high-risk shipment from China, imported by a manufacturer 
that previously attempted to import noncompliant products. CTAC flagged 
the shipment, which was then examined by CBP and CPSC, and it was found 
to contain toys bearing counterfeit trademarks of popular children's 
toys. CPSC determined that the products also contained excessive lead 
and small parts, in violation of CPSC regulations and the Federal 
Hazardous Substances Act. This coordination between our agencies 
resulted in confiscating nearly 2,800 unsafe and fraudulent toys at the 
port, keeping them from reaching America's children.

    Question. Does the CPSC have the resources needed to help combat 
the IPR problem?

    Answer. Although CPSC does not have specific authority to enforce 
IPR, we do serve as a force multiplier to CBP and ICE in this regard 
and often make interagency referrals. Thus, additional resources would 
benefit both CPSC and DHS. Two examples would be co-locating additional 
CPSC investigators at ports of entry, especially express courier hubs 
where large quantities of small shipments arrive, as well as continuing 
improvements and upgrades to CPSC's RAM targeting system.

    Question. Do you have sufficient authority to be able to coordinate 
with other Federal agencies?

    Answer. CPSC has sufficient authority to coordinate with our 
partner agencies. Since passage of the Consumer Product Safety 
Improvement Act of 2008, CPSC has strengthened its relationship with 
CBP and closely coordinates with CBP to interdict potentially 
noncompliant and unsafe imported products. As part of our efforts, CPSC 
has placed investigators at the largest ports of entry to work side-by-
side with CBP staff. CPSC has also stationed staff at the Commercial 
Targeting and Analysis Center (CTAC) to coordinate with CBP and other 
government agencies to address import safety issues through commercial 
targeting.

                                 ______
                                 
                 Question Submitted by Hon. Bill Nelson
    Question. What are some examples of counterfeit goods that have 
caused harm to the health and safety of consumers in recent years?

    Answer. Although CPSC's primary focus is targeting products that 
violate CPSC requirements, we do encounter counterfeit products that 
also pose a health and safety risk. A recent example of our successful 
collaboration with CBP in the area of intellectual property rights 
enforcement is illustrated by a shipment of counterfeit toys seized by 
CBP in January at the Port of Los Angeles. The Commercial Targeting and 
Analysis Center (CTAC) identified a high-risk shipment from China, 
imported by a manufacturer that previously attempted to import 
noncompliant products. CTAC flagged the shipment, which was then 
examined by CBP and CPSC, and found to contain toys bearing counterfeit 
trademarks of popular children's toys. CPSC determined that the 
products also contained excessive lead and small parts, in violation of 
CPSC regulations and the Federal Hazardous Substances Act. This 
coordination between our agencies resulted in confiscating nearly 2,800 
unsafe and fraudulent toys at the port, keeping them from reaching 
America's children.

    CPSC and CBP have similarly collaborated on many other shipments 
where a potential IPR violation and a safety violation were found. 
Examples include: holiday lights, cell phone chargers, lithium-ion 
batteries used in hoverboards, laptops, and cellphones, children's 
backpacks, and numerous toys.

                                 ______
                                 
              Questions Submitted by Hon. Claire McCaskill
    Question. How many times did CBP Import Specialists encounter 
fentanyl or fentanyl analogues when inspecting goods for trade 
violations in 2017? How much fentanyl was seized?

    Answer. CPSC does not have jurisdiction over these products and is 
not involved in the interdiction of fentanyl.

    Question. Are Import Specialists trained on safety protocols for 
encountering dangerous substances like fentanyl?

    Answer. CPSC does not have jurisdiction over these products and is 
not involved in the interdiction of fentanyl.

    Question. When an Import Specialist encounters fentanyl, what steps 
are taken to ensure that other related shipments are searched or 
flagged for detention before they can enter the United States?

    Answer. CPSC does not have jurisdiction over these products and is 
not involved in the interdiction of fentanyl.

                                 ______
                                 
 Prepared Statement of Brenda Smith, Executive Assistant Commissioner, 
             Office of Trade, Customs and Border Protection
                              introduction
    Chairman Hatch, Ranking Member Wyden, and distinguished members of 
the committee, thank you for the opportunity to appear today to discuss 
the enforcement of Intellectual Property Rights (IPR). Trade in 
counterfeit and pirated goods threatens the health and safety of 
American consumers, national security, and America's innovation 
economy. As America's unified border security agency, U.S. Customs and 
Border Protection (CBP) is responsible for enforcing nearly 500 U.S. 
trade laws and regulations on behalf of 49 other Federal agencies, and 
plays a critical role in the Nation's efforts to keep unsafe 
counterfeit and pirated goods from harming the American public.

    In 2016 Congress passed the Trade Facilitation and Trade 
Enforcement Act of 2015 (TFTEA), which expanded CBP's authority to 
enforce trade laws that affect national security, U.S. business 
competitiveness, and the collection of revenue--including IPR 
violations and import safety, two of the seven Priority Trade Issues 
(PTI) identified by TFTEA--while facilitating lawful international 
trade.

    In fiscal year (FY) 2017, CBP processed $2.39 trillion in imports, 
33.2 million entries and more than 28.5 million imported cargo 
containers at U.S. Ports of Entry (POE). In addition, CBP processes 
approximately 1.5 trillion in export of goods excluding services. CBP 
also seized more counterfeit and pirated goods than ever before. 
Seizures of shipments with violations of IPR increased by 8 percent in 
FY 2017 over FY 2016. If the seized products had been genuine, the 
total estimated manufacturer's suggested retail price (MSRP) of the 
items would have been more than $1.2 billion. CBP's Office of Trade is 
a critical participant in CBP's multi-layered and multi-faceted 
approach to identify violations and enforce IPR. Economic benefit 
modeling shows that the Office of Trade alone provides a $2.1 billion 
benefit to the American economy through our IPR efforts.
                               e-commerce
    CBP has seen a nearly 50-percent increase in express consignment 
shipments over the past 5 years. At the end of FY 2017, the average 
express consignment courier facility in the United States received an 
estimated 25 million shipments. This same facility received an averaged 
2.4 million shipments in 1997, an increase of over 1,000 percent in 20 
years. In FY 2013, CBP processed over 76 million express bills and, in 
FY 2017, CBP processed approximately 110 million bills. In FY 2013, CBP 
and the U.S. Postal Service (USPS) processed approximately 150 million 
international mail shipments. By FY 2017, the number of international 
mail shipments had swelled to over 400 million shipments.

    Under TFTEA the de minimis value exemption--the value of a shipment 
imported by one person on one day that generally may be imported free 
of duties and taxes--increased from $200 to $800. This change has 
resulted in cost-saving opportunities for importers and consumers that 
are driving a significant sector of the U.S. economy. Evolving business 
models, with increasing volumes of imports of small, just-in-time 
packages, have significantly altered the dynamic of the international 
trade environment and CBP's enforcement of IPR and import safety laws. 
CBP is working with our partners to improve our ability to target 
illicit shipments in the e-commerce environment while facilitating 
legitimate trade.

    In FY 2017, CBP and ICE-HSI made 34,000 seizures of counterfeit and 
pirated goods, worth an estimated MSRP of $1.35 billion. Over 90 
percent of the seizures were in the express carrier and international 
mail environments. In FY 2017, during a ``small package'' blitz at the 
international mail facility in New York, 43 percent of the packages 
inspected were non-compliant. During this single event, CBP seized over 
5 pounds of fentanyl along with almost 1,300 other non-compliant 
imports, including 800 counterfeit goods, as well as additional 
controlled substances. E-commerce shipments pose the same health, 
safety, and economic security risks as containerized shipments, but the 
volume is higher and growing. Transnational Criminal Organizations 
(TCOs) are shipping illicit goods to the United States via small 
packages due to a perceived lower interdiction risk and less severe 
consequences if the package is interdicted.

    CBP is aggressively working to enhance our enforcement reporting, 
tracking, strategy, and metrics. For example, in 2016 CBP established 
the e-commerce and Small Business Branch to manage trade policy and 
better address various complexities that have emerged as a result from 
the growth of e-commerce. CBP has been actively engaging with 
stakeholders, consumers, partner government agencies, and in 
international forums to better address these challenges in innovative 
ways. This Branch demonstrates CBP's commitment to support small and 
microbusinesses while addressing the challenges posed by today's 
dynamic trading environment.

    One of the initial goals of the Branch was to gain a full 
understanding of the challenges faced at the border related to small 
shipments. As a result of the Branch's efforts, CBP has finalized an e-
commerce strategy that will assist in adapting to a more agile 
enforcement of e-commerce shipments, create better compliance through 
new incentives and measures, and educate and engage international trade 
in order to support the U.S. economy. The strategy will strengthen 
CBP's ability to protect U.S. consumers, improve managing threats in 
the e-commerce environment, maximize trade revenue collection, 
strengthen international mail enforcement, and create stronger, longer-
term partnerships here and abroad.

    Internationally, the United States is a leader on e-commerce 
through the World Customs Organization (WCO). In September 2016, the 
WCO created an e-commerce working group, comprised of customs 
administrations from WCO member governments, private-sector 
representatives, international organizations, e-commerce operators/
intermediaries and academia, in order to develop solutions supporting 
needs and expectations of all stakeholders in the e-commerce supply 
chain. The WCO also created sub-working groups focusing on issues of 
revenue collection; safety and security; trade facilitation; and data 
analytics and analysis. CBP co-leads the sub-working group on safety 
and security.

    Finally, in December 2016 and pursuant to title III of the PRO IP 
Act of 2008, the Office of the Intellectual Property Enforcement 
Coordinator, within the Executive Office of the President, released a 
3-year Joint Strategic Plan for FYs 2017-2019, titled ``Supporting 
Innovation, Creativity and Enterprise: Charting a Path Ahead.'' CBP is 
supporting the carryout of the four primary objectives included in the 
strategy. These objectives are: to enhance national understanding of 
the economic and social impacts flowing from the misappropriation and 
unlawful exploitation of intellectual property; to promote a safe and 
secure Internet by minimizing cyber-enabled, illicit intellectual 
property-based activities; to secure and facilitate legitimate cross-
border trade; and to enhance domestic strategies and global 
collaboration in support of the effective intellectual property 
enforcement.
                       targeting and enforcement
    In FY 2017, more than 11 million maritime containers arrived at our 
seaports. At our land borders, another 10 million arrived by truck, and 
3 million arrived by rail. An additional quarter billion cargo, postal, 
and express consignment packages arrived through air travel. Among 
these are the 110 million express consignment carrier (ECC) shipments 
and 400 million international mail shipments that arrived in the United 
States in FY 2017.

    CBP uses a multi-layered, risk-based approach to target those 
shipments deemed to be of highest risk. One of the resources CBP uses 
in this multi-layered approach is the knowledge and expertise of our 
regulatory auditors. Strike unit audits begin when significant or 
sensitive issues arise, such as increases in health and safety 
violations, or large volume of counterfeit products are seized. In FY 
2017, 16 strike units were assembled and included CBP regulatory 
auditors, CBP targeting specialists from the National Targeting and 
Analysis Group (NTAG), and ICE-HSI personnel. CBP and ICE-HSI work 
closely to complete follow-up enforcement actions resulting from 
information gathered during these audits.
National IPR Coordination Center
    One of the ways TFTEA enhanced IPR enforcement was through the 
formal establishment of the National Intellectual Property Rights 
Coordination Center (IPR Center) with joint leadership from ICE and 
CBP, and permanent CBP staffing. The IPR Center is the lead office 
within the U.S. Government for coordinating with other Federal agencies 
on IPR infringement investigations, law enforcement training, and 
private sector and public outreach.

    CBP plays an integral role in the IPR Center, collaborating with 
ICE-HSI and 23 additional partners at the IPR Center to ensure that 
border seizures representing criminal activities lead to 
investigations, arrests and convictions. CBP holds one of the three 
deputy director positions on the management team at the IPR Center, and 
is the leading source of referrals to ICE-HSI for criminal 
investigations. Additionally, staff from CBP's IPR Division (IPRD) 
attend the weekly Director's staff meeting and all other relevant 
meetings at the IPR Center. IPRD also coordinates with the IPR Center 
and the National Cyber-Forensics and Training Alliance (NCFTA) by 
providing IPR monthly seizure data for de-confliction purposes and 
potential IPR leads.

    The IPR Center has been a key facilitator of INTERPOL's Operation 
Pangea, an international effort to shut down online pharmacy websites 
used to sell counterfeit medicine and illicit medical devices. During 
the most recent operation, Operation Pangea X (September 12-19, 2017), 
CBP, in coordination with ICE-HSI and the U.S. Food and Drug 
Administration, effected 1,294 seizures of counterfeit medical devices 
and illicit medicines. Overall, the operation resulted in the launch of 
1,058 investigations, 3,584 websites taken offline, 400 arrests 
worldwide and the seizure of more than $51 million worth of potentially 
dangerous medicines.

    Trade in illegitimate goods is associated with smuggling and other 
criminal activities, and often funds criminal enterprises. With the 
help of CBP and other partners in FY 2016, ICE-HSI arrested 451 
individuals, obtained 304 indictments, and received 272 convictions 
related to intellectual property crimes.
The Commercial Targeting and Analysis Center (CTAC)
    Originally established in 2010 as the Import Safety CTAC in support 
of the July 18, 2007, Executive Order 13439: Establishing An 
Interagency Working Group on Import Safety, the Commercial Targeting 
and Analysis Center (CTAC) is a 12-
member multi-agency, national trade enforcement coordination center. 
The CTAC combines the resources and intelligence capabilities of CBP 
and other government agencies to advance interagency information-
sharing and operational collaboration in better protecting the American 
public from harm caused by unsafe imported products.

    The CTAC, led by CBP, is the primary coordination center for 
operational implementation of title II of TFTEA, titled ``Import Health 
and Safety,'' including execution of the Joint Importation Safety Rapid 
Response Plan (JISRRP). The JISRRP is currently within the review and 
clearance process, but the goal of the JISRRP is to leverage member 
tools, mechanisms and authorities to identify import safety threats and 
communicate exigent threat awareness, as well as prescribe mitigating 
response and recovery actions to agency field operations. Once 
published, the JISRRP will also provide CTAC members an opportunity to 
identify and close any current gaps in the joint efforts to address the 
growing threat of unsafe products imported into the United States.

    CTAC's joint targeting and enforcement efforts initiated 243 
seizures of unsafe imported products in FY 2017 with an appraised MSRP 
of more than $3.8 million. Whether it be for counterfeit automotive 
parts (such as grills, bumpers and brake lines), counterfeit home 
products, or counterfeit toys--CTAC's rigorous repeat targeting 
campaigns have resulted in the successful interception of serious 
threats to consumer safety.

    For example, every year in the run-up to the holiday season, CBP 
seizes thousands of shipments of decorative holiday string lights that 
have the potential to cause fires or electric shock. These dangerous 
products are identified through a CTAC nationwide targeting operation 
and in close partnership with the U.S. Consumer Product Safety 
Commission (CPSC).

    On January 28, 2018, in another recent example of CTAC joint 
targeting, CBP officers at the Port of Los Angeles seized a large 
incoming shipment of toy building blocks for trademark infringement. 
These counterfeit toys were also found to violate the Federal Hazardous 
Substance Act for excessive lead and small parts. The shipment was 
identified through the efforts of CBP and CPSC to target shipments of 
high-risk consumer products for possible import safety violations.

    CBP also established an Interagency Collaboration Division within 
the Office of Trade. Our Import Safety Division has been closely 
collaborating and coordinating across Federal agencies to streamline 
the import process by reducing the redundancy of inspection activities, 
targeting high-risk trade, ensuring compliance with U.S. trade laws 
among agencies with overlapping authorities, and deploying risk-based 
management strategies.
National Targeting Center (NTC)
    At CBP's National Targeting Center (NTC), advance data and access 
to law enforcement and intelligence records converge to facilitate the 
targeting of travelers and items of cargo that pose the highest risk to 
our security in all modes of inbound transportation. The NTC processes 
large amounts of data and uses sophisticated targeting tools and 
subject matter expertise to analyze, assess, and segment risk at every 
stage in the cargo/shipment and travel life cycles. As the focal point 
of that strategy, the NTC leverages classified, law enforcement, 
commercial, and open-source information in unique, proactive ways to 
identify high-risk travelers and shipments at the earliest possible 
point prior to arrival in the United States.

    The NTC also works to detect anomalies, trends, and violations in 
the global supply chain to target high-risk shipments. This high-level 
analysis helps CBP identify emerging threats, including those posed by 
TCOs, and to take action to counter these threats. The NTC-Cargo is 
also leading efforts to de-conflict and coordinate IPR targeting 
throughout CBP, as well as to ensure timely targeting support for ICE-
HSI investigations. There are currently two full-time ICE-HSI Special 
Agents and two United States Postal Inspection Service (USPIS) 
employees embedded within the NTC, who serve as liaisons between the 
NTC and ICE-HSI and USPIS personnel in both domestic and international 
posts. The NTC also collaborates daily with critical partners from the 
Drug Enforcement Agency, the Federal Bureau of Investigation, the Food 
and Drug Administration Office of Criminal Investigations (FDA/OCI), 
and other members of the Intelligence Community. CBP is sharing 
information with these agencies and conducting joint enforcement 
initiatives.

    For example, in a single week in June of 2017 approximately 115 
seizures where made of counterfeit products by CBP in Puerto Rico, 
valued at more than $6.5 million. All of these products were illegally 
imported into Puerto Rico via international mail. This was a record 
value of counterfeits seized by CBP in Puerto Rico during a single 
week. A wide range of counterfeited products were seized during the 
week-long enforcement effort, called Operation Silver Snake, to include 
pharmaceuticals, electronics, jewelry, apparel, and footwear.\1\
---------------------------------------------------------------------------
    \1\ https://www.cbp.gov/newsroom/local-media-release/cbp-san-juan-
stops-millions-counterfeits.
---------------------------------------------------------------------------
Integrated Trade Targeting Network (ITTN)
    Components of CBP's Integrated Trade Targeting Network (ITTN) 
conducted 12 national-level IPR-mitigating trade operations in FY 2017. 
The ITTN coordinates all national targeting assets of CBP, including 
the Centers of Excellence and Expertise, the Tactical Trade Targeting 
Unit (T3U), CTAC, and the National Targeting and Analysis Groups 
(NTAGs).

    These operations targeted high-risk shipments at seaports, 
airports, international mail facilities, and express carrier hubs 
across the United States and resulted in 1,845 seizures of IPR-
infringing goods that, if genuine, would have had an estimated MSRP of 
$44 million. Eight of these operations were conducted by Mobile 
Intellectual Property Enforcement Teams (MIPETs), teams of CBP IPR 
experts deployed to assist enforcement operations. MIPET operations in 
FY 2017 resulted in 1,687 seizures of IPR-infringing goods valued at 
$34.6 million MSRP and 67 voluntary abandonments.
Centers of Excellence and Expertise
    CBP's 10 Centers of Excellence and Expertise (Centers) focus CBP's 
trade expertise on industry-specific issues through account-based 
processing on a national scale. The Centers, managed from strategic 
locations around the country, have national authority to make trade 
determinations at all POEs in an effort to meet the goals of 
strengthening America's economic competitiveness, enhancing industry 
knowledge and expertise, developing innovative trade processing 
procedure, applying strategic and impactful trade enforcement actions, 
and leveraging available trade intelligence. The Centers serve as 
resources to the broader trade community and to CBP's U.S. Government 
partners. By redirecting work to the centralized, industry-specific 
Centers, the POEs are able to more effectively focus their resources on 
high-risk shipments and importers that may pose a danger to border 
security, harm the health and safety of consumers, or violate U.S. 
trade laws and IPR.
                    collaboration with our partners
    TFTEA empowered CBP to collaborate with our partners in new ways, 
and CBP remains committed to enforcing IPR in accordance to the 
mandates of TFTEA and in close collaboration with our partners across 
government and the private sector to ensure that IPR are enforced while 
facilitating legitimate trade.

    TFTEA created the Commercial Customs Operations Advisory Committee 
(COAC) to advise the Secretaries of the Treasury and DHS on all matters 
involving the commercial operations of CBP, including advising on 
significant proposed changes to regulations, policies, or practices. 
The IPR working group, which falls under the Trade Enforcement and 
Revenue Collection COAC Subcommittee, is made up of CBP's Federal 
partners and 19 representatives from multiple industries including 
express carriers, Customs brokers, and marketplace providers. The group 
has identified a series of challenges for the consumer, the trade 
community, and government. One of the main challenges identified was 
the need for better data collection, automation, and a legal framework 
for sharing data. The working group also identified education and 
outreach as a need. As new e-commerce participants may not know they 
are importers, or understand the responsibilities of being an importer, 
a mechanism is needed to educate the public. As a follow-up to recent 
meetings, the working group developed recommendations that CBP is 
working to implement. The recommendations focused primarily on 
challenges on section 321/de minimis filings. Topics mentioned included 
data sharing, Partner Government Agency coordination and clarification, 
and the adoption of policies that would encourage section 321/de 
minimis filings without impeding the flow of commerce.

    CBP continues to assess and improve its ability to enforce the laws 
governing trade in products that are protected by U.S. trademarks and 
copyrights, and exclusion orders issued by the United States 
International Trade Commission (ITC). TFTEA provided CBP with new 
authority to disclose information to the owners of recorded trademarks 
and copyrights and to persons injured by Digital Millennium Copyright 
Act (DMCA) violations. CBP concentrates its IPR border enforcement on 
federally registered trademarks and copyrights that have been 
``recorded'' with CBP by their owners using the Intellectual Property 
Rights e-Recordation (IPRR) system. CBP administers these 
``recordations'' using a secure proprietary database that CBP can 
access to make IPR border enforcement determinations. Product ID 
manuals that are prepared by right holders are also linked to the 
database and used by CBP in making IPR border enforcement 
determinations.

    Additionally, CBP is able to access information contained in the 
USPTO trademark registration database.

    If CBP suspects that imported merchandise bears a counterfeit mark; 
constitutes a piratical copy; or violates the DMCA, and CBP determines 
that the right owner's assistance would help CBP in its ongoing IPR 
enforcement efforts, CBP is authorized by TFTEA to disclose information 
appearing on the imported merchandise and its packing or labels to the 
right owner. IPR owners also assist CBP in identifying authentic and 
low-risk shipments. As of January 31, 2018, CBP was enforcing 18,302 
active recordations, of which 4,477 were copyrights and 13,725 were 
trademarks.

    For example, on March 14, 2017, at Charleston seaport, CBP seized 
an estimated $1.1 million in counterfeit mobile phone accessories, 
including phone cases, chargers, cables, and headphones. The 
merchandise arrived into the port from China and was destined for 
upstate South Carolina. Examination and appraisal revealed 85,000 
individual accessories bearing images and markings from Apple, USB, 
Bluetooth, Blu-Ray, LG, Marvel, DC Comics, Hello Kitty, and Dr. Dre. 
CBP reached out to representatives from these companies, who confirmed 
their images and markings were being used without their permission, 
enabling CBP to seize these counterfeit goods. Approximately 38,000 
power adapters seized bore the Federal Communications Commission (FCC) 
mark, signifying they had been tested in an accredited FCC laboratory 
and met certain operating standards. These were found to be 
unauthorized markings, a potentially significant safety risk to 
consumers.\2\
---------------------------------------------------------------------------
    \2\ https://www.cbp.gov/newsroom/local-media-release/charleston-
cbp-seizes-11-million-cell-phone-accessories.

    To expand private-sector collaboration and enable CBP to more 
quickly determine the authenticity of suspected counterfeit goods, CBP 
published a final rule to allow donations of certain equipment, 
training, and other support services from the private sector for 
enforcing IPR. The Donations Acceptance Program, created by section 
308(d) of TFTEA, enables CBP to collaboratively explore and implement 
solutions to trade and travel facilitation and enforcement challenges. 
On February 15, 2018, CBP announced a new formal partnership 
arrangement with Procter and Gamble (P&G), as part of the Donations 
Acceptance Program, to prevent counterfeit P&G products from entering 
the United States. As the first formal partnership under the Donations 
Acceptance Program for IPR enforcement, P&G will donate testing devices 
to verify the authenticity of various P&G products. The devices will 
help CBP officers and trade specialists quickly determine the 
legitimacy of the product, reducing the possibility of counterfeit 
---------------------------------------------------------------------------
goods entering the U.S. stream of commerce.

    CBP will continue to collaborate with private industry through the 
COAC E-Commerce Working Group. The working group will focus on 
identifying operational best practices and challenges presented by 
changing business models and supply chains; the increased volume of e-
commerce packages; new complexities presented by e-commerce for 
businesses of various sizes and industry-type; and evolving compliance 
and enforcement issues. The group is further identifying workable 
solutions to e-commerce challenges to create a streamlined path forward 
for CBP, business, consumers, and the public.
                            public outreach
    TFTEA also called for the development and execution of an 
educational awareness campaign to inform international travelers of the 
legal, economic, and public health and safety effects of importing IPR-
infringing merchandise. During the months of June and July of 2017, as 
well as November and December of 2017, CBP ran a public awareness 
campaign entitled ``Fake Goods, Real Dangers: The Truth Behind 
Counterfeits'' in eleven airports around the country.\3\ All 
information from the campaign is also prominently displayed on the CBP 
website as part of CBP's ongoing efforts to keep the public informed 
about the health and safety dangers to consumers presented by 
counterfeit and pirated goods. CBP has also revised Form 6059B, the 
Customs Declaration Form completed by passengers entering the United 
States, to include a warning to international travelers of the 
penalties associated with transporting IPR-infringing goods.
---------------------------------------------------------------------------
    \3\ These airports were Baltimore, Washington International 
Airport, Dulles International Airport, John F. Kennedy International 
Airport, Dallas/Fort Worth International Airport, O'Hare International 
Airport, Los Angeles International Airport, Miami International 
Airport, Atlanta Hartsfield Airport, Newark International Airport, 
George Bush Intercontinental Airport, and San Francisco International 
Airport.

    CBP constantly seeks to refine and update its outreach to rights 
owners. To this end, CBP recently prepared a tri-fold brochure titled 
``How CBP Can Protect Your Intellectual Property Rights,'' a 
publication that is geared especially to rights owners who are 
unfamiliar with what the agency can do to enforce their IPR. The 
brochure provides a quick snapshot of the enforcement process, calls 
the reader's attention to the relevant CBP regulations, provides links 
to more detailed border enforcement guidance available via the cbp.gov 
website, and stresses that IPR border enforcement is a shared 
responsibility. The brochure then highlights opportunities for right 
owners to engage CBP and the National IPR Coordination Center. CBP 
looks forward to making the brochure available at outreach events such 
as the East and West Coast Trade Symposiums.
                               conclusion
    CBP continues to look to the future of IPR enforcement. Our well-
established training program includes rights-holder-conducted webinars, 
port trainings, and roundtables. In FY 2017, CBP facilitated 18 
instructor-led IPR training sessions where over 227 CBP Officers, 
Import Specialists, and other trade specialists were trained in IPR 
enforcement. As a result of the hard work of the dedicated men and 
women of CBP and our partnerships across government and private 
industry, the combined total number of all IPR border enforcement 
actions in FY 2017 increased 8 percent over FY 2016.

    With the support of Congress, CBP remains committed to protecting 
businesses and consumers every day through an aggressive IPR 
enforcement program. We will continue to work in collaboration with our 
public and private stakeholders and partners to better understand 
emerging challenges, and to better enforce IPR to protect the health 
and safety of American consumers and our economy, while facilitating 
legitimate trade.

    Chairman Hatch, Ranking Member Wyden, and distinguished members of 
the committee, thank you again for the opportunity to testify today. I 
look forward to your questions.

                                 ______
                                 
           Questions Submitted for the Record to Brenda Smith
               Questions Submitted by Hon. Orrin G. Hatch
    Question. Given the volume of goods entering the country, what 
steps do you take to identify and interdict counterfeits?

    Answer. U.S. Customs and Border Protection (CBP) employs a layered, 
risk-based approach to identify and interdict counterfeit goods and 
other goods imported contrary to U.S. law. The extensive training and 
technical expertise of CBP Officers, Import Specialists, and other 
trade professionals are our most reliable assets in interdicting 
intellectual property rights (IPR) infringing goods. The National 
Targeting Center (NTC) and the National Intellectual Property Rights 
Coordination Center (IPR Center) have dedicated staff with national 
oversight for targeting shipments and for providing field personnel 
intelligence on suspect shipments entering the United States. CBP also 
collaborates with U.S. Immigration and Customs Enforcement, Homeland 
Security Investigations (ICE/HSI) to deter and disrupt the efforts of 
individuals and organizations whose aim is to exploit U.S. trade and 
consumers.

    CBP works with private industry, 47 partner government agencies, 
and foreign customs counterparts and other foreign government agencies, 
to identify trends, anomalies, and high-risk shipments. Foreign customs 
agencies share information on relevant enforcement actions which can be 
used for risk assessment.

    CBP has many tools at its disposal to identify and interdict 
shipments of counterfeit goods. Shipment data is transmitted to CBP 
before cargo arrives in the U.S., and it is used for assessing overall 
trade compliance and targeting for smuggling and counterfeiting. High-
risk shipments are identified for examination via both non-intrusive 
and physical inspection methods. During examinations, CBP personnel 
work collaboratively with CBP industry experts, and in some cases 
consult with the rights holder, to determine whether suspect shipments 
are counterfeit or legitimate goods. The Centers of Excellence and 
Expertise are working with CBP headquarters personnel to provide round 
tables where right holders and CBP personnel can share information and 
develop best practices on IPR enforcement. CBP also works with the 
private sector to provide webinars, product identification guides, and 
in-person training to CBP personnel.

    Question. Can you please describe the specific reasons why e-
commerce platform data located on the package or within it on an 
invoice is not being shared with rights holders?

    Answer. Section 302 of the Trade Facilitation and Trade Enforcement 
Act (TFTEA), codified at 19 U.S.C. Sec. 1628a, authorizes CBP, when 
merchandise is detained, to disclose to rights holders information that 
appears on merchandise and its packaging and labels. The definition of 
``packaging,'' for Customs purposes, means materials and containers in 
which merchandise is packaged for retail sale. See, e.g., 19 CFR part 
181, appendix, part 1, section 2. Thus, CBP may disclose e-commerce 
platform data, but only if the data appears on retail packaging. 
Pursuant to CBP's regulations, at 19 CFR part 133.21, CBP may disclose 
additional information to a right holder following seizure of 
merchandise bearing a counterfeit mark, including (1) the date of 
importation; (2) the port of entry; (3) the description of the 
merchandise from the notice of seizure; (4) the quantity as set forth 
in the notice of seizure; (5) the country of origin of the merchandise; 
(6) the name and address of the manufacturer; (7) the name and address 
of the exporter; and (8) the name and address of the importer.

    In Executive Order 13785 (``Establishing Enhanced Collection and 
Enforcement of Antidumping and Countervailing Duties and Violations of 
Trade and Customs Laws''), the President included--in section 4(b)--the 
following direction to the Secretaries of the Treasury and Homeland 
Security:

        To ensure the timely and efficient enforcement of laws 
        protecting Intellectual Property Rights (IPR) holders from the 
        importation of counterfeit goods, the Secretary of the Treasury 
        and the Secretary of Homeland Security shall take all 
        appropriate steps, including rulemaking if necessary, to ensure 
        that CBP can, consistent with law, share with rights holders: 
        (i) any information necessary to determine whether there has 
        been an IPR infringement or violation; and (ii) any information 
        regarding merchandise voluntarily abandoned, as defined in 
        section 127.12 of title 19, Code of Federal Regulations, before 
        seizure, if the Commissioner of CBP reasonably believes that 
        the successful importation of the merchandise would have 
        violated United States trade laws.

    As discussed elsewhere, in accordance with the President's 
direction, DHS has been taking ``all appropriate steps, including 
rulemaking if necessary, to ensure that CBP can, consistent with law, 
share with rights holders'' the two categories of information that the 
President specified in Executive Order 13785. This has included an 
ongoing evaluation of the extent to which CBP's disclosure of 
additional information to rights holders would involve any information 
that is of the type that is generally covered by the Trade Secrets Act 
(18 U.S.C. Sec. 1905) and, with respect to any such information, 
whether Congress--in section 302 of TFTEA, 19 U.S.C. Sec. 1628a, or 
otherwise--has granted CBP sufficient authority to disclose such 
information to rights holders. In this regard, section 302 authorizes 
CBP to provide to a rights holder, for the purpose specified in section 
302, ``information that appears on the merchandise and its packaging 
and labels, including unredacted images of the merchandise and its 
packaging and labels'' as well as ``unredacted samples of the 
merchandise'' (subject to any applicable bonding requirements). CBP has 
determined that information located on an invoice located on or within 
a package is protected by the Trade Secrets Act and that TFTEA section 
302 does not provide sufficient authority for CBP to disclose that 
information to rights holders. This analysis is based on the 
longstanding definition of ``packing'' in the Customs valuation laws 
and international agreements. Specifically, the term ``packaging 
materials and containers'' is defined for Customs purposes in numerous 
provisions of CBP Regulations as meaning the ``materials and containers 
in which a good is packaged for retail sale'' (emphasis added). 
However, the term ``packing materials and containers'' is defined as 
``materials and containers that are used to protect a good during 
transportation, but [do] not include packaging materials and 
containers'' (emphasis added). CBP regulations matching this meaning 
for ``packing'' also comport with the United States-Korea Free Trade 
Agreement, the United States-Panama Trade Promotion Agreement, and the 
United States-Columbia Trade Promotion Agreement, all of which 
explicitly do not include the materials and containers in which 
merchandise is packaged for retail sale. We glean nothing in TFTEA or 
its legislative history to suggest disregarding the differentiation 
between ``packaging'' and ``packing'' consistently made in existing 
statutes and trade agreements. Consequentially, section 302 of TFTEA 
does not provide CBP with the authority to disclose to the right 
holders e-commerce platform data located on the package or within the 
package on an invoice. [Note: As discussed below, CBP has drafted a 
Notice of Proposed Rulemaking (NPRM) to implement sections 302 and 303 
of TFTEA with respect to the seizure of circumvention devices and other 
copyright-infringing goods. The draft NPRM is currently within the 
interdepartmental review process.]

    However, CBP has statutory authority beyond section 302 of TFTEA, 
including that provided by 15 U.S.C. Sec. 1124 and 19 U.S.C. 
Sec. Sec. 1526 and 1595a, that may provide authority for CBP to 
promulgate regulations to share e-commerce platform data located on the 
package or within it on an invoice with rights holders.

    CBP has drafted an NPRM to amend its regulations to disclose to 
trademark owners, when merchandise has been voluntarily abandoned, the 
same comprehensive importation information that is disclosed when 
merchandise bearing a suspected counterfeit mark has been seized. The 
draft NPRM is currently in the interdepartmental review process.

    Question. The Voluntary Abandonment Program recently concluded the 
pilot phase. We have heard from several stakeholders expressing 
concerns about the lack of information sharing in an otherwise 
relatively cost-effective program. Can you please describe that program 
and explain why you have been unable to share information with the 
rights owners or platforms?

    Answer. The IPR Voluntary Abandonment Pilot was developed in 
partnership with the private sector and was supported through a May 22, 
2014 formal recommendation by the Commercial Customs Operations 
Advisory Committee (COAC). The primary goal of the program was to 
explore alternative methods to seizure for small packages containing 
IPR-infringing goods in the express environment in an effort to develop 
processing efficiencies.

    On November 1, 2014, CBP initiated the IPR Voluntary Abandonment 
Pilot at the UPS Express Consignment Facility (ECCF) in Louisville, KY. 
The IPR Voluntary Abandonment Pilot consisted of an expedited 
enforcement process whereby the participating carriers worked with CBP 
to notify the consignee that the shipment contained goods suspected to 
be counterfeit and offer the consignee an opportunity to cede interest 
in the merchandise through the execution of an abandonment form. The 
program grew to include the following locations: DHL ECCF in 
Cincinnati, OH; the DHL ECCF in Los Angeles, CA; DHL ECCF in Miami, FL; 
and DHL ECCF New York, NY.

    More than 12,000 shipments were abandoned through the IPR Voluntary 
Abandonment Pilot, representing a significant cost savings to CBP and 
the removal from commerce of a significant volume of suspected 
counterfeit goods. Additionally, through the efforts of the 
participating ports, CBP gained a significant amount of knowledge and 
experience, which will inform and enhance future IPR enforcement and 
efficiency efforts. In this regard, the IPR Voluntary Abandonment Pilot 
presented alternatives that could increase the efficiency of 
counterfeit interdictions, reduce the amount of resources dedicated to 
administrative actions, and create overall cost savings for CBP. As 
this program was instituted as a pilot, the decision was made that 
current efforts must shift from operating in a pilot status to focusing 
on addressing operational challenges identified during the pilot phase, 
developing the necessary legal framework to support IPR abandonment 
procedures, and specifically creating regulations that will allow CBP 
to share information with right holders when a suspected IPR shipment 
is abandoned.

    In February 2018, formal guidance was issued to impacted CBP ports 
that the IPR Voluntary Abandonment Pilot was ending. Based on lessons 
learned from the pilot, CBP has issued additional guidance to field on 
the use of alternatives to seizures for IPR enforcement purposes. 
Additionally, as mentioned above, CBP is developing regulatory changes 
that will allow CBP to share information with right holders when a 
suspected IPR shipment is abandoned.

    Question. Do you believe that Sec. 302 of the Trade Facilitation 
and Trade Enforcement Act (TFTEA) provides you broad authority to share 
information with rights holders and trademark owners?

    Answer. Section 302 of TFTEA provides CBP with authority to 
disclose, at detention, in cases of merchandise suspected of (1) 
bearing a counterfeit mark, (2) constituting a piratical copy of a 
protected work and/or (3) circumventing a technological protection 
measure in violation of the Digital Millennium Copyright Act (DMCA), 
information that appears on imported merchandise, its retail packaging 
and labels. As such, section 302 provides additional statutory 
authority for the disclosure regime that CBP has previously promulgated 
by regulation in respect of suspected counterfeit marks, and extends it 
to matters involving suspected copyright and DMCA violations.

    CBP appreciates the broader statutory authority to disclose 
information that otherwise might be protected by the Trade Secrets Act 
(18 U.S.C. Sec. 1905).

    Question. If so, does that breadth also allow you the ability to 
share information before a seizure has been effectuated? If not, please 
provide counter-citations to other applicable statute or regulations 
that preclude you from being able to share that information.

    Answer. As discussed elsewhere, DHS has been taking ``all 
appropriate steps, including rulemaking if necessary, to ensure that 
CBP can, consistent with law, share with rights holders'' the two 
categories of information that the President specified in Executive 
Order 13785. This has included an ongoing evaluation of the extent to 
which CBP's disclosure of additional information to rights holders 
would involve any information that is of the type that is generally 
covered by the Trade Secrets Act (TSA), 18 U.S.C. Sec. 1905, and, with 
respect to any such information, whether Congress--in section 302 of 
TFTEA, 19 U.S.C. Sec. 1628a, or otherwise--has granted CBP sufficient 
authority to disclose such information to rights holders.

    The Trade Secrets Act bars the unauthorized disclosure by 
government employees of any confidential business information received 
in the course of their employment. Case law interpreting the statute, 
which includes Supreme Court decisions and the Act's legislative 
history, demonstrates that it covers most commercial or financial data 
collected by any Federal employee from any source.

    While section 302 of TFTEA provides for the disclosure of certain 
information, i.e., information that ``appears on the merchandise and 
its packaging and labels,'' at detention, i.e., pre-seizure or pre-
abandonment, section 302 does not provide sufficient authority to 
disclose information appearing on packing, which CBP defines as ``all 
containers, exclusive of instruments of international traffic, and 
coverings of whatever nature, used in placing the merchandise packed 
ready for shipment to the United States'' (19 CFR Sec. 152.102(e)). 
Moreover, the phrase ``appears on the merchandise and its packaging'' 
further limits the disclosure. For example, it does not include the 
disclosure of information that is contained on or within the packing, 
e.g., a ``fulfilled by Amazon'' (FBA) number, or an invoice or packing 
slip enclosed with the packing. Such information would be considered 
packing as opposed to packaging, and that distinction is salient in CBP 
regulations reflecting U.S. trade agreements. Specifically, the term 
``packaging materials and containers'' is defined for Customs purposes 
in numerous provisions of CBP Regulations as meaning the ``materials 
and containers in which a good is packaged for retail sale'' (19 CFR 
part 181, appendix, part I, section II (the NAFTA Rules of Origin 
Regulations), emphasis added). However, the term ``packing materials 
and containers'' are defined as ``materials and containers that are 
used to protect a good during transportation, but [do] not include 
packaging materials and containers'' (Id., emphasis added). CBP 
regulations matching this meaning for ``packing'' also comport with the 
United States-Korea Free Trade Agreement, the United States-Panama 
Trade Promotion Agreement, and the United States-Columbia Trade 
Promotion Agreement, all of which explicitly do not include the 
materials and containers in which merchandise is packaged for retail 
sale. We glean nothing in TFTEA or its legislative history to suggest 
disregarding the differentiation between ``packaging'' and ``packing'' 
consistently made in existing statutes and trade agreements. 
Consequentially, section 302 of TFTEA does not provide CBP with the 
authority to disclose to the right holders e-commerce platform data 
located on the package or within the package on an invoice, such as a 
``fulfilled by Amazon'' (FBA) number. [Note: As discussed below, CBP 
has drafted a Notice of Proposed Rulemaking (NPRM) to implement 
sections 302 and 303 of TFTEA with respect to the seizure of 
circumvention devices and other copyright-infringing goods. The draft 
NPRM is currently within the interdepartmental review process.]

    However, as noted above, CBP has statutory authority beyond section 
302 of TFTEA, including that provided by 15 U.S.C. Sec. 1124 and 19 
U.S.C. Sec. Sec. 1526 and 1595a, that may provide authority for CBP to 
promulgate regulations to share e-commerce platform data located on the 
package or within it on an invoice with rights holders.

    CBP has drafted an NPRM to amend its regulations to disclose to 
trademark owners, when merchandise has been voluntarily abandoned, the 
same comprehensive importation information that is disclosed when 
merchandise bearing a suspected counterfeit mark has been seized. The 
draft NPRM is currently in the interdepartmental review process.

    Question. Do you agree that Sec. 303 of TFTEA provides CBP with 
broad authority to seize circumvention devices?

    Answer. As it related to circumvention devices, CBP believes that 
it has authority to enforce the DMCA; however, CBP appreciates the 
additional clarity that section 303 affords in this regard.

    Question. If so, when do you anticipate release regulations to 
significantly expand enforcement of this provision in the law?

    Answer. CBP has drafted a Notice of Proposed Rulemaking (NPRM) to 
implement sections 302 and 303 of TFTEA. The draft NPRM is currently 
within the interdepartmental review process.

    In addition, as noted in the prior responses to questions 2 and 4, 
CBP has also drafted an NPRM to amend its regulations to disclose to 
trademark owners, when merchandise has been voluntarily abandoned, the 
same comprehensive importation information that is disclosed when 
merchandise bearing a suspected counterfeit mark has been seized. The 
draft NPRM is currently in the interdepartmental review process.

    Question. You have recently mentioned difficulties with passing new 
regulations in a timely fashion due to required reviews of all 
regulations by the Department of Treasury. Can you please describe, in 
detail, the process now in place at CBP for promulgating new 
regulations?

    Answer. Since the enactment of the Homeland Security Act of 2002 
and the issuance of Treasury Department Order No. 100-16, CBP is in the 
position of having some of the regulations it drafts approved by the 
Department of the Treasury and some regulations approved by the 
Department of Homeland Security (DHS). Under the Homeland Security Act, 
Treasury retained its traditional authority over Customs revenue 
functions. Although Treasury delegated much of its retained authority 
to CBP, if a regulation involves a Treasury-retained Customs revenue 
function, the Department of the Treasury has sole authority to approve 
the regulation. Treasury-retained Customs revenue regulatory topics 
include certain of the subjects on which implementing regulations are 
necessary under TFTEA. For example, regulations for which the 
Department of the Treasury retains authority include those relating to 
copyright and trademark enforcement and those relating to the 
completion of entry or substance of entry summary including duty 
assessment and collection. While the Department of the Treasury has the 
sole authority to approve these Treasury-retained Customs revenue 
function regulations, DHS has an interest in reviewing these 
regulations prepared by CBP, as a component agency, before the 
regulations are sent to Treasury.

    Accordingly, the process at CBP for promulgating new regulations 
under TFTEA involves CBP drafting a regulation, putting it into CBP 
component review for all interested offices within CBP to review, 
comment, and approve, including its Office of Chief Counsel, before the 
Commissioner signs the document. After the Commissioner signs the 
document, it is sent to DHS, including its Office of General Counsel, 
for review and clearance. After DHS clears the regulatory document, the 
document is sent to the Department of the Treasury for approval. The 
Department of Treasury, including its Office of General Counsel, 
reviews the package. The Department of Treasury then interacts with the 
Office of Management and Budget (OMB) to determine whether OMB needs to 
review the draft regulation under Executive Order 12866. If OMB does 
not need to review the Treasury-retained Customs revenue function 
regulation, the regulation can then be finalized and signed by the 
Deputy Assistant Secretary of the Treasury and sent to the Federal 
Register for publication. If OMB determines that OMB review is required 
(and OMB review generally includes routing the packages through 
interagency and interdepartmental review), the review will take place 
and the regulation will be finalized after OMB review has been 
concluded.

    Question. What ways can that process be streamlined while still 
ensuring competent, effective, and legally sound regulations?

    Answer. CBP understands the policy and legal interests that both 
DHS and Treasury have in Treasury-retained Customs revenue function 
regulations, and their review helps to ensure the issuance of 
competent, effective, and legally sound regulations. While there is 
limited opportunity to streamline this process, all involved parties 
maintain close coordination, and matters that have been determined by 
CBP leadership to warrant prioritization are drafted and moved to 
publication as expeditiously as possible.

    Question. TFTEA created the national IPR center to help coordinate 
the work of more than a dozen agencies for intercepting and enforcing 
intellectual property rights. Because the program is so new, we are 
interested in learning what has been effective and what could be 
improved. What do you think the National IPR Center does well, and what 
do you think it could improve on?

    Answer. The Trade Facilitation and Trade Enforcement Act of 2015 
(TFTEA) formally codified the National Intellectual Property Rights 
Coordination Center (IPR Center), which was administratively 
established in 2000. The IPR Center is led by ICE/HSI, and CBP provides 
substantial support for it, by establishing permanent staff at the IPR 
Center in excess of the number of staff mandated in TFTEA. The IPR 
Center currently has 23 partner agencies, including four foreign 
partners. The IPR Center is highly effective at case de-confliction, 
the deliberative process of presenting all possible investigative leads 
and intelligence products to all partner agencies in order to bring 
forth all relevant information. This ensures that agencies are all 
aware of interest in any particular suspect entity. More importantly, 
agencies are able to determine if another agency has an open case or 
strong interest in pursuing a new case. This prevents conflicting 
investigations that could damage an investigation or even put 
investigators in jeopardy. It also incentivizes cooperation and 
partnerships during investigations and cases that preserve agency 
resources and maximize positive outcomes. To that end, CBP is working 
toward better operational coordination and sharing of information about 
risks and results with partner agencies, particularly ICE/HSI and the 
FBI, two principal agencies at the IPR Center.

    Question. As the FY 2016 GAO seizure statistics noted, CBP 
processed over 32 million shipments and seized 31,560 shipments of IPR-
infringing goods worth an estimated $1.38 billion. As a parallel, the 
Postal Service, through the substantial growth of its international 
small parcel business saw significant increases of shipments processed 
as well. International small parcels within the U.S. Postal Service 
increased 232 percent from 2013 to 2017, when it received nearly half a 
billion packages. With so many packages processed through both U.S. 
Ports of Entry and International Mail Facilities, how does the CBP 
focus on the targeting of unlawful shippers who traffic in counterfeit 
goods?

    Answer. The targeting of entities for trade enforcement purposes, 
including shippers who traffic in counterfeit goods, is primarily 
(outside of certain pilot programs described below) a manual process in 
mail unlike that of express consignment where automated systems and 
advance electronic data are employed in the risk assessment. Utilizing 
risk management principles and techniques, mail parcels are selected 
for inspection based on criteria that fluctuates with the trends and 
threats identified by CBP personnel. Various factors and risk 
indicators are evaluated in the selection of mail parcels for 
examination. Factors may include physical features of the packaging or 
textual information such as the description of the goods on the Customs 
declaration. Examples of risk indicators are the use of a fictitious 
company name or address as well as the situation where a shipment 
originates from a country where genuine goods are not made. CBP 
personnel also utilize internal systems to determine past seizure 
history and review intelligence in order to enhance the focus of 
targeting efforts.

    Question. If USPS were to provide electronic advance data to CBP, 
could that be used to target counterfeit goods?

    Answer. Based on the preliminary results from an advance electronic 
data (AED) pilot between CBP and the USPS, there are promising 
opportunities with AED for enhanced trade enforcement targeting, trade 
facilitation of low risk shipments, and capability for big data 
analytics. The AED from the USPS and/or foreign postal agencies could 
result in improved and effective targeting of counterfeit goods 
provided the data from all countries is mandatory, timely, abundant, 
and accurate.

    CBP completed a Memorandum of Understanding with the USPS on 
September 1, 2017 that enhances targeting capabilities. The MOU 
solidifies the interagency partnership between CBP, USPS and the 
Inspection Service at all IMFs. The partnership is in place at New 
York, the largest International Mail Facility (IMF), and has expanded 
to a total of five IMFs. The current pilots began in 2014 and 2015 and 
target certain mail for inspection using some of the AED obtained under 
data-sharing agreements with postal operators. Under the pilots, CBP 
uses AED to target a small number of pieces of mail each day. Since the 
pilots began, USPS has made efforts to locate and provide CBP with the 
targeted mail and CBP has collected performance data on the percentage 
of targeted mail USPS has provided for inspection. The USPS currently 
provides CBP with AED from Australia, Canada, China, Hong Kong, France, 
Germany, S. Korea, Spain, Singapore, and the UK. CBP's AED pilot 
program with the USPS has proven useful for CBP to make informed 
targeting and enforcement decisions regarding international mail 
shipments.

    With respect to counterfeit goods, we have demonstrated some 
success through the use of AED. For example, the CBP Office of Trade, 
Los Angeles National Threat Analysis Center used AED incorporated into 
CBP's Automated Targeting System (ATS) for inbound international mail 
that enabled the successful targeting and seizure of six shipments of 
counterfeit networking equipment affixed with counterfeit U.S. 
trademarks. Those six shipments were seized in January through March 
2018 at four different CBP IMFs and had a total MSRP value of $674,000. 
In early 2017, CBP officers successfully targeted and intercepted a 
shipment of fentanyl. Through further research of the AED, CBP 
collected additional information that implicated a transnational 
criminal organization using the ``dark web'' to distribute the illegal 
substance. CBP, in collaboration with the United States Postal 
Inspection Service and other Federal Law Enforcement agencies, was able 
to develop actionable intelligence that identified additional high-risk 
targets. This also allowed CBP to affect seizure of subsequent fentanyl 
shipments in the postal stream.

    Question. Would it be feasible to institute a U.S. Postal Service 
known shipper program so that criminals who ship counterfeits could be 
identified at an earlier stage?

    Answer. CBP defers to the U.S. Postal Service on this question.

                                 ______
                                 
                 Questions Submitted by Hon. Ron Wyden
    Question. In one way or another, you all touched on the shift from 
containerized shipping to small packages. You have also highlighted the 
challenges in enforcement against counterfeit goods.

    Given that we seem to be in a new era of trade, wouldn't you agree 
that the Federal Government's enforcement strategy to go after 
counterfeit goods needs to adapt to the changing market? If so, what 
changes would you recommend in current CBP and ICE enforcement 
priorities and approaches?

    Answer. Yes. CBP is adjusting its enforcement strategy to address 
the unique challenges posed by the small package environment. On March 
6, 2018, CBP released its E-Commerce Strategy, which details objectives 
for adapting CBP's enforcement posture to address the challenges 
associated with the rapid increase in volume in small packages. This 
includes enhancing legal and regulatory authorities, enhancing CBP 
operations to respond to emerging supply chain dynamics, driving 
private sector compliance, and facilitating international trade 
standards for e-commerce. In conjunction with the E-Commerce Strategy, 
CBP has planned initiatives to enhance its IPR enforcement posture in 
the small package environment that includes improving training, 
developing processing efficiencies, and improving operational 
coordination and collaboration on policy development. CBP supports 
efforts to increase shipping data in the international mail environment 
and will continue to partner with ICE on a daily basis on IPR issues 
through its permanent staff located at the IPR Center. Additionally, 
CBP works both bilaterally and through multilateral fora such as the 
Border Five and the World Customs Organization to set international 
standards and develop best practices.

    Question. Ms. Smith, in the Trade Facilitation and Trade 
Enforcement Act authored by Senator Hatch and myself, we created new 
information sharing authorities for CBP to work with rights holders and 
others to identify and prevent the importation of counterfeit products. 
And yet, that is an area where GAO, and many U.S. companies, find that 
CBP is not sharing enough information with e-commerce platforms and 
other market participants to most effectively combat illegal imports.

    You stated at the hearing that CBP does need additional legislative 
authority to share information more effectively, but that it had not 
identified what authority is needed. You confirmed that you would seek 
to meet a 60-day deadline for identifying the authority you need. I 
encourage you to take a comprehensive view of CBP's information sharing 
to help trademark holders and platforms participate in identifying the 
source or manufacturer of counterfeit products.

    Will you commit to working with my staff to also identify what 
information is currently being shared, whether it is being done 
consistently across ports, and where CBP currently has the authority to 
share additional information?

    Answer. CBP absolutely believes in partnership with you and your 
staff, and looks forward to working with Senate Finance Committee staff 
to construct a robust disclosure regime that will further our shared 
goal of interdicting IPR-violative merchandise at the border while 
providing rights holders with increased disclosure.

    CBP will work with the committee to build upon CBP's ongoing 
efforts to expand its ability to share information in efficient and 
consistent manners. These efforts include work conducted as part of the 
Voluntary Abandonment Pilot that concluded in February 2018 and CBP's 
work to identify any needs for additional legal authorities for 
information sharing with the private sector under Executive Order 13785 
titled ``Establishing Enhanced Collection and Enforcement of 
Antidumping and Countervailing Duties and Violations of Trade and 
Customs Laws.''

    As discussed elsewhere, DHS has been taking ``all appropriate 
steps, including rulemaking if necessary, to ensure that CBP can, 
consistent with law, share with rights holders'' the two categories of 
information that the President specified in Executive Order 13785. To 
this end, CBP has drafted a Notice of Proposed Rulemaking (NPRM) to 
implement sections 302 and 303 of TFTEA with respect to the seizure of 
circumvention devices and other copyright-infringing goods. The draft 
NPRM is currently within the interdepartmental review process. CBP has 
also drafted an NPRM to amend its regulations to disclose to trademark 
owners, when merchandise has been voluntarily abandoned, the same 
comprehensive importation information that is disclosed when 
merchandise bearing a suspected counterfeit mark has been seized. The 
draft NPRM is currently in the interdepartmental review process. CBP's 
initiatives have also included an ongoing evaluation of the extent to 
which CBP's disclosure of additional information to rights holders 
would involve any information that is of the type that is generally 
covered by the Trade Secrets Act (18 U.S.C. Sec. 1905) and, with 
respect to any such information, whether Congress--in section 302 of 
TFTEA, 19 U.S.C. Sec. 1628a, or otherwise--has granted CBP sufficient 
authority to disclose such information to rights holders.

    Question. Ms. Smith, year after year, CBP puts out information on 
the total number of counterfeit goods seized by CBP, but we don't 
really have a sense of what impact this is having on the number of 
counterfeit imports coming into the country. What we really need is 
intelligent effective enforcement that reduces the flow of counterfeits 
into our country.

    Do you agree with me that this means not only targeting and 
inspecting packages, but also gathering information to go after foreign 
manufacturers, and individuals in the United States who knowingly 
import and re-sell counterfeit goods?

    Answer. Thank you for recognizing the significant increase in 
seizures, to over 30,000 in each of the last two fiscal years, which we 
believe is a result of continuing to improve upon sophisticated 
targeting and enforcement mechanisms. We are proud of these 
accomplishments, but we agree that CBP's enforcement in this area needs 
to be constantly evolving. In a recent study on illicit trade, the OECD 
estimated that 2.5 percent of global trade involved trade in 
counterfeit goods. Our strategy is to educate first time importers and 
online shoppers and consumers who simply do not know the rules, while 
focusing targeting and enforcement resources on identifying and 
stopping the bad actors who are deliberately dealing in counterfeit 
goods and committing a host of other trade-related crimes. CBP desires 
to gain more information on international mail packages via advanced 
electronic data. We continue to work with our domestic law enforcement 
partners and in international forums to identify the most problematic 
bad actors. CBP continuously works to improve how we use information 
and advanced targeting to identify the worst violators. CBP utilizes 
systems such as Automated Targeting System (ATS) to assign risk scores 
for potentially suspect shipments. Shipments that are targeted for exam 
and found to be violative are seized and all inspection and seizure 
information is entered into ATS. CBP is able analyze historical 
violator data in ATS and link inbound shipment data to these bad 
actors. CBP is looking at various predictive analysis systems for risk 
identification to determine, in advance, when violative goods might 
enter the U.S. This capability would allow CBP to more efficiently 
target for violations.

    CBP also partners with ICE-HSI to enforce both civil and criminal 
trade laws. CBP staffs the National Intellectual Property Rights Center 
and works with all of the Federal partners to investigate IPR 
infringement. In FY 2017, ICE-HSI arrested 457 individuals, obtained 
288 indictments, and received 242 convictions related to intellectual 
property crimes.

    Question. Do you commit to making that a priority in CBP's strategy 
for combating counterfeits and to cooperate with foreign authorities as 
mandated by section 309 of the Trade Facilitation and Trade Enforcement 
Act of 2015?

    Answer. CBP Attaches or CBP Advisors are posted in over 25 
countries. CBP offices will coordinate with in-country CBP Attaches and 
other CBP Office of International Affairs personnel to work with 
foreign customs counterparts, both bilaterally and multilaterally, with 
the goal of attaining more and better data for improving risk 
assessment, targeting, detection, and interdiction of IPR-infringing 
products arriving at the U.S. border. Such cooperation may include 
information and data exchange, coordinated operational work, sharing of 
best practices and trend analysis, and participating in bilateral and 
multilateral working groups (including the World Customs Organization 
Counterfeiting and Piracy Group and the APEC Subcommittee on Customs 
Procedures (SCCP)). CBP and representatives of partner governments that 
are posted at the National Intellectual Property Rights Coordination 
Center (IPR Center) and National Targeting Center work closely with CBP 
and work together with targeters and intelligence staff to detect 
violators and to advance anti-counterfeiting policies, programs and 
operations of mutual interest.

    Additionally, the 80 Customs Mutual Assistance Agreements (CMAAs) 
facilitate the exchange of information, evidence, and other mutual 
assistance between Customs administrations to prevent, detect, and 
investigate Customs and other trade law offenses. As legally binding 
executive-level agreements, CMAAs establish the legal framework and the 
obligation for the parties to share information with each other. CBP is 
able to utilize these agreements to work with partner countries to 
exchange information on Customs-related matters, including exports, 
imports, and transshipments that may contain counterfeit, grey market, 
prohibited, or unsafe goods. CBP can make requests for information on 
such shipments to facilitate its trade enforcement activities. CMAAs 
also serve as foundational documents for subsequent information 
sharing, including the sharing of Customs administration best 
practices, embedding of personnel internationally, training and 
capacity building, and mutual recognition arrangements on authorized 
economic operator programs.

    Question. Ms. Smith, in your testimony, you stated that CBP has 
seen a nearly 50-percent increase in express consignment shipping, such 
as through UPS or FedEx, over the past 5 years, and 1,000 percent in 
the last 20 years. As I said in my opening statement, I think that is a 
good thing, and represents an opportunity for small businesses in 
Oregon and across the country. But, as trade flows are transforming, 
CBP needs to transform too. To date, that has not happened. In fact, 
CBP continues to fall behind in the basics, such as hiring enough 
officers to ensure that all of our trade laws are being enforced.

    I understand that CBP has concluded a multi-million dollar contract 
with a private company to recruit and hire 5,000 Border Patrol Agents 
and 2,000 CBP Officers in the next 5 years. I am deeply skeptical that 
we need to assemble a small army of Border Patrol Agents when illegal 
crossings are at historic lows. Meanwhile the 2,000 hires will likely 
barely meet the trade enforcement needs of CBP (much less the travel 
and trade facilitation functions), according to CBP's own ``resource 
optimization model.'' I am disappointed in the apparent prioritization 
of Border Patrol Agent hiring. Could you tell me what other efforts you 
are making to onboard personnel with trade enforcement functions?

    Answer. The Consolidated Appropriations Act of 2018 H.R. 244 
included an additional $8.9 million dedicated to hiring trade 
enforcement staffing. The Office of Trade (OT) was authorized to hire 
140 TFTEA positions, and we are steadily hiring to fulfill this mandate 
through recruitment, using various hiring authorities, and 
participating in hiring events. In fiscal year 2018, OT has completed 
hiring of 60 persons (25 internal and 35 external candidates) who will 
support trade enforcement initiatives and programs. We will continue to 
hire in earnest throughout the rest of the year and use fiscal year 
2019 funds, if appropriated.

    We have also utilized unique staffing solutions to begin fulfilling 
the TFTEA mandates:

        To develop new regulations, legal staff and economists had to 
be assigned from the existing pool of staff to draft new regulations 
and notices of proposed rulemaking. Additionally, operators, financial 
analysts, and system developers had to be included in the process to 
ensure approaches met the expectations of TFTEA, but were also feasible 
from an operations and automation perspective for OT, OFO, and OF.
        For EAPA, OT stood-up the division via temporary assignments 
and requests for mutual support from various offices in CBP including 
OFO, OF and INA. Fully staffing the EAPA division will be a priority 
going forward with fiscal year 18 funding.
        Standing up TRLED and the Trade Enforcement Task Force to 
address Forced Labor were accomplished through a realignment of 
existing staffing into the newly designed directorate, and an 
aggressive recruiting plan to staff the Task Force through temporary 
assignments with staff from OT and OFO. The Forced Labor workload still 
remains, and will shift to permanent hiring for TRLED under TFTEA with 
FY18 funding.
        Positions specified by TFTEA to support the IPR Center were 
accomplished with longer term temporary assignments. Permanently 
staffing these positions will be accomplished using FY18 TFTEA funding.
        Audit staff to support Forced Labor, EAPA, AD/CVD and IPR as a 
focus of TFTEA was stretched to accommodate immediate operational 
needs, and fiscal year 18 staffing funding will bring new auditors on-
board to help balance this new workload with planned audits.

    Question. At the same time that the United States must re-examine 
enforcement as trade flows change, it must also ensure that U.S. 
businesses are in position to reap the benefits of modern commerce. 
That is why Congress raised the de minimis threshold in the Trade 
Facilitation and Trade Enforcement Act of 2015. And it is why I support 
the administration's participation in work on electronic commerce 
issues at the WTO.

    What is CBP doing at the World Customs Organization and other fora 
to ensure that the United States is a leader on cooperation and 
initiatives around electronic commerce facilitation, as well as 
enforcement?

    Answer. The United States leads at the World Customs Organization 
(WCO) and in other international forums on the development of best 
practices and the creation of advisory documents relating to the 
management of Customs and other trade enforcement. This includes recent 
work relating to the significant changes to international trade flows 
brought on by the phenomenon of e-commerce. For example, in 2016, the 
WCO created an e-commerce working group to develop best-practices in 
the context to address Customs enforcement of e-commerce shipments and 
unique challenges these shipments present for overall Customs 
management (i.e., the movement from large containers with consolidated 
goods via ocean and land shipping to small individually-entered 
packages via express consignment and postal mail). Multiple challenges 
were identified regarding e-commerce shipments, including: ensuring 
connectivity via Customs (revenue collection, trade facilitation, and 
risk management), lack of or poor quality information associated with 
these shipments for risk-assessment and other enforcement efforts, 
varying authorities, and other legal abilities Customs agencies to 
develop global standards of Customs treatment, and the entrance of new 
players to international trade, including growing on-line sales 
platforms, transaction facilitators, medium to small vendors, and one-
time buyers/sellers. In particular, the working group strives to 
determine best practices for how to incorporate small businesses into 
Customs administrations' present programs and relationships formed with 
traditional larger importers/exporters, and how to best ensure these 
smaller actors are aware of their obligations as importers/exporters 
under Customs and related trade enforcement laws. The working group 
currently drafts an e-commerce framework of standards seeking to 
address the changing trade landscape. This includes heightened security 
concerns and the needs/challenges of both the private sector and 
Customs administrations to comprehensively manage. There are multiple 
topics in the CBP E-Commerce Strategy that complement the framework 
such as education, and outreach of the public, and private sector. In 
addition, both documents agree that a known shipper/trusted trader type 
program should be created to mitigate high risk shipments. The United 
States continues to work through the interagency process, and with the 
WCO to improve the framework. The growing and changing risk presented 
by the phenomenon of e-commerce. The WCO and its member administrations 
met on April 9th-13th to discuss and edit the document, and will likely 
be extending the deadline for the framework until spring 2019, given 
the significant volume of work still to be completed and the 
establishment of consensus on the approach. The United States was 
actively engaged in this process, including delegates from CBP and 
other U.S. Government agencies. The WCO is a legally non-binding 
organization unlike the World Trade Organization and the best practices 
established in the non-binding framework will be influential in 
subsequent establishment of national legislation of Customs 
administrations'. The United States' engagement in this and all 
international forums will be consistent with our WTO legal obligations 
and with the Trade Facilitation and Trade Enforcement Act of 2015.

    The United States is also leading efforts with Border Five 
countries (Australia, New Zealand, Canada, the United Kingdom, and the 
United States) and at the Asia Pacific Economic Cooperation (APEC). The 
United States has proposed the development of APEC e-commerce 
operation. The United States has also met several times with the Border 
Five on e-commerce, most recently meeting in Seattle, WA. Both groups 
have shared best practices and case studies. The United States has also 
shared the CBP E-Commerce Strategy with the WCO, Border Five, and APEC 
as a best practice on how to manage the increasing challenges of e-
commerce low value shipments.

                                 ______
                                 
                Questions Submitted by Hon. Pat Roberts
    Question. The GAO study on how agencies can improve efforts to 
address risks posed by changing counterfeit markets found growth in e-
commerce has attributed to counterfeiters producing a wider variety of 
goods sold on popular websites alongside authentic goods. The goods are 
often deceiving to consumers, due to counterfeiters gaining an 
appearance of legitimacy on third-party online marketplaces. What tools 
are readily available to empower consumers to make educated decisions 
when purchasing from third party sellers on e-commerce platforms?

    Answer. In 2017, CBP developed and ran the ``Truth Behind 
Counterfeits'' public awareness campaign, targeting travelers in the 
major airports. The goal of the campaign was to educate travelers and 
influence their consumer behavior. With messages such as ``Fake Goods, 
Real Dangers,'' CBP's goal is to empower the public with the knowledge 
that counterfeit products have harmful and dangerous consequences; 
therefore, it is important to shop from reputable sources. So far, CBP 
has conducted two phases of the campaign during the high travel periods 
of summer 2017 and December 2017. By placing large advertisements in 
various airports and through digital ads, CBP has reached and estimated 
202 million people. CBP is currently implementing the third phase of 
the campaign, which is running this summer.

    In addition, CBP created public awareness ``road shows'' which are 
made up of IPR personnel setting up an exhibit of seized items at 
various airports throughout the country. The road shows provide a more 
focused and direct way to educate the public about the harms associated 
with IP infringing goods and ways to determine the validity of products 
by showing examples of a variety of counterfeit products. CBP personnel 
provide these individuals with knowledge to protect themselves and 
their families and alert them to be cognizant about goods they may 
purchase in person and through online platforms. To date CBP has spoken 
with approximately 5,000 people through these events.

    CBP created a dedicated website for the campaign with more 
information for the consumer: https://www.cbp.gov/FakeGoodsRealDangers.

    Additionally, CBP allows the public to report suspected 
counterfeits through the online E-Allegations portal: https://
eallegations.cbp.gov/Home/Index2.

    Question. The U.S. Customs and Border Protection (CBP) has over 75 
Customs Mutual Assistance Agreements (CMAA) with foreign governments 
allowing for the exchange of information and intelligence that help 
investigate and prevent Customs offenses. CMAAs are vital in the United 
States efforts to fight terrorism and other trafficking offenses. How 
can CBP leverage these agreements to combat counterfeit goods?

    Answer. Customs Mutual Assistance Agreements (CMAA) are binding bi-
lateral executive-level international agreements, negotiated and 
enforced by their respective Customs administrations. CMAAs are 
negotiated by CBP and U.S. Immigration and Customs Enforcement--
Homeland Security Investigations (ICE-HSI), and signed on behalf of the 
United States.

    CMAAs provide a legal framework for the exchange of information and 
evidence to assist countries in enforcement against Customs offenses. 
CMAAs aid in the prevention, detection, and investigation of crimes 
associated with goods crossing international borders, counterfeit and 
other IPR violative items. CMAAs also are used to assist in judicial 
and quasi-judicial proceedings involving suspected violations of 
Customs laws, by ensuring evidence and supporting information is usable 
under chain of evidence standards in the United States and in foreign 
jurisdictions. CMAAs also serve as foundational documents for 
subsequent information sharing arrangements for deeper engagement on 
IPR enforcement, including the sharing of Customs administration best 
practices, embedding of personnel internationally, training and 
capacity building, and mutual recognition arrangements on authorized 
economic operator programs (pre-vetted exporter/importers, freight 
forwarders, and Customs brokers). CMAAs are also excellent means of 
establishing greater bilateral cooperation by law enforcement 
officials. CMAAs work to facilitate trade by enabling greater 
information flows in regard to searches, seizures, detentions, audits, 
and other enforcement actions, allowing trade to flow more freely.

                                 ______
                                 
                 Questions Submitted by Hon. John Thune
           cbp authority to share information on counterfeits
    Question. The Trade Facilitation and Trade Enforcement Act requires 
CBP to consult with the private sector on areas for collaboration and 
training.

    What can CBP do to accelerate the agency's efforts to engage with 
the private sector and meet full commitments to TFTEA implementation to 
reduce further the amount of counterfeit products that end up in our 
domestic economy and potentially threaten the safety of American 
consumers?

    Answer. CBP has made significant progress in meeting TFTEA 
requirements related to private-sector engagement, collaboration, and 
training. Continued collaboration in these IPR initiatives and training 
will build upon CBP's success.

    Section 308(d) of the Trade Facilitation and Trade Enforcement Act 
of 2015 (Pub. L. 114-125) mandates that the Commissioner prescribe 
regulations enabling CBP to receive donations of hardware, software, 
equipment, and technologies for Intellectual Property Rights (IPR) 
enforcement purposes, 19 CFR Sec. 133.61--Donations of Intellectual 
Property Rights Technology and Support Services, was published on 
December 15, 2017, and became effective on January 16, 2018. To support 
this requirement, the Intellectual Property Rights Donation Acceptance 
Program (IPR DAP) was developed with the intent of establishing 
partnerships with private sector donors to provide IPR testing 
equipment and technologies that can be used at the ports of entry, labs 
or otherwise to support IPR enforcement.

    The IPR DAP is a mechanism for government and industry partnership 
and is a way to develop mutually beneficial programmatic and 
operational improvements for IPR enforcement. On February 15, 2018, CBP 
entered into first formal partnership under the IPR Enforcement 
Donation Program with Procter and Gamble (P&G). P&G donated, and will 
resupply as needed, testing devices and kits to help CBP officers and 
trade specialists quickly determine the legitimacy of various P&G 
products, reducing the possibility of counterfeit goods from entering 
the U.S. stream of commerce.

    The IPR DAP is a mechanism by which to collaboratively explore and 
implement tangible solutions to trade and travel facilitation and 
enforcement challenges. The opportunities for collaboration under this 
program are very exciting and CBP encourages interested parties to 
consider participation in the program.

    Section 308 of TFTEA mandates that CBP provide IPR-specific 
training and consult with the private sector on the use of new 
technologies for IPR enforcement. CBP has a well-established training 
program, which includes right holder conducted webinars, port 
trainings, and industry specific roundtables. In fiscal year 2016, CBP 
facilitated 36 instructor-led IPR training sessions where over 600 CBP 
Officers, Imports Specialists, and other trade specialists were trained 
in IPR enforcement. So far, in fiscal year 2018, CBP has conducted four 
instructor-led IPR training sessions and nine right holder hosted 
webinars. CBP will continue to expand right holder webinar trainings. 
Additionally, CBP is in the early stages of developing an advanced IPR 
training course with the goal of incorporating hands-on, right holder 
training, in a live or simulated environment.

    Question. Ms. Smith, the GAO's second recommendation called on CBP 
to share information with the private sector, either through new 
regulations or requesting additional authority from Congress if 
necessary.

    What is CBP's view as to whether the agency has sufficient 
regulatory authority to share information on seized counterfeits with 
e-commerce companies, both the direct vendor and the Internet platform 
companies through which so many e-commerce transactions occur? In 
particular, I'd like to understand CBP's position on sharing 
information on seized shipments of counterfeits with Internet platform 
companies--like EBay or Amazon--since these companies seem to be well 
positioned, and I believe willing, to help anti-counterfeit efforts as 
well as assist in public safety efforts when counterfeit goods pose 
such threats. Please help us understand the scope of authority CBP 
needs to share information with appropriate third parties when 
counterfeit goods are identified and seized?

    Answer. As discussed elsewhere, DHS has been taking ``all 
appropriate steps, including rulemaking if necessary, to ensure that 
CBP can, consistent with law, share with rights holders'' the two 
categories of information that the President specified in Executive 
Order 13785. This has included an ongoing evaluation of the extent to 
which CBP's disclosure of additional information to rights holders 
would involve any information that is of the type that is generally 
covered by the Trade Secrets Act (18 U.S.C. Sec. 1905) and, with 
respect to any such information, whether Congress--in section 302 of 
TFTEA, 19 U.S.C. Sec. 1628a, or otherwise--has granted CBP sufficient 
authority to disclose such information to rights holders.

    While section 302 of TFTEA provides for the disclosure of certain 
information to rights holders, CBP has determined that it does not 
authorize CBP to disclose information to third parties such as e-
commerce platform owners. However, once information is disclosed to 
rights holders, including information that ``appears on the merchandise 
and its packaging and labels'' as described in section 302, CBP is not 
aware of any prohibition that would prevent the rights holders from 
sharing the information with platform e-commerce companies or other 
third parties.

    In addition, CBP has determined that section 302 does not provide 
authority to disclose information appearing on packing, which CBP 
defines as ``all containers, exclusive of instruments of international 
traffic, and coverings of whatever nature, used in placing the 
merchandise packed ready for shipment to the United States'' (19 CFR 
Sec. 152.102(e)). Consequently, it does not authorize the disclosure of 
information to rights holders that is contained on or within the 
packing, e.g., a ``fulfilled by Amazon'' (FBA) number, or an invoice or 
packing slip enclosed with the packing. Such information would be 
considered packing as opposed to packaging, and that distinction is 
salient in CBP regulations reflecting U.S. trade agreements. 
Specifically, the term ``packaging materials and containers'' is 
defined for Customs purposes in numerous provisions of CBP Regulations 
as meaning the ``materials and containers in which a good is packaged 
for retail sale'' (19 CFR part 181, appendix, part I, section II (the 
NAFTA Rules of Origin Regulations), emphasis added). However, the term 
``packing materials and containers'' are defined as ``materials and 
containers that are used to protect a good during transportation, but 
[do] not include packaging materials and containers'' (Id., emphasis 
added). CBP regulations matching this meaning for ``packing'' also 
comport with the United States-Korea Free Trade Agreement, the United 
States-Panama Trade Promotion Agreement, and the United States-Columbia 
Trade Promotion Agreement, all of which explicitly do not include the 
materials and containers in which merchandise is packaged for retail 
sale. We glean nothing in TFTEA or its legislative history to suggest 
disregarding the differentiation between ``packaging'' and ``packing'' 
consistently made in existing statutes and trade agreements. 
Consequentially, CBP does not have the authority in TFTEA or elsewhere 
to disclose to the right holders e-commerce platform data located on 
the package or within the package on an invoice, such as a ``fulfilled 
by Amazon'' (FBA) number.

    Further section 302 does not provide explicit authority to disclose 
information appearing on packing, which CBP defines as ``all 
containers, exclusive of instruments of international traffic, and 
coverings of whatever nature, used in placing the merchandise packed 
ready for shipment to the United States'' (19 CFR Sec. 152.102(e)). It 
does not explicitly allow for the disclosure of information to rights 
holders that is contained on or within the packing, e.g., a ``fulfilled 
by Amazon'' (FBA) number, or an invoice or packing slip enclosed with 
the packing. [Note: As discussed above in the response to question 5, 
CBP has drafted a Notice of Proposed Rulemaking (NPRM) to implement 
sections 302 and 303 of TFTEA with respect to the seizure of 
circumvention devices and other copyright-infringing goods. The draft 
NPRM is currently within the interdepartmental review process.]

    However, as noted above in our answers to questions 2 and 4, CBP 
has statutory authority beyond section 302 of TFTEA, including that 
provided by 15 U.S.C. Sec. 1124 and 19 U.S.C. Sec. Sec. 1526 and 1595a, 
that may provide authority for CBP to promulgate regulations to share 
e-commerce platform data located on the package or within it on an 
invoice with rights holders.

    CBP has drafted an NPRM to amend its regulations to disclose to 
trademark owners, when merchandise has been voluntarily abandoned, the 
same comprehensive importation information that is disclosed when 
merchandise bearing a suspected counterfeit mark has been seized. The 
draft NPRM is currently in the interdepartmental review process.

     cbp efforts to stop counterfeits directly shipped to consumers
    Question. While CBP has a heavy focus on large shipments to 
identify and confiscate counterfeits, how does the agency deal with 
foreign-direct shipments of counterfeits to consumers and what is CBP's 
longer-term plan to deal with the continued growth of e-commerce and 
direct-to-consumer sales?

    Answer. CBP currently treats small packages in the same way that it 
treats all cargo entering the United States. Advanced cargo screening 
data is available for shipments coming into express consignment 
facilities such as DHL, FedEx and UPS. A combination of automated 
targeting systems and CBP Officer evaluation leads to cargo exams and 
seizures.

    CBP recently released an E-Commerce Strategy, which outlines a 
number of high-level goals that will allow CBP to adapt to the 
increasing number of small, direct-to-consumer shipments. The goals 
that are outlined in these strategic plans include enhancing legal and 
regulatory authorities to better posture CBP and interagency partners 
to address emerging threats, enhancing and adapting all affected CBP 
operations to respond to emerging supply chain dynamics created by the 
rapid growth of e-commerce, driving private sector compliance through 
enforcement resources and incentives, and facilitating international 
trade standards for e-commerce to support economic prosperity. This new 
direct-to-consumer model includes new entities facilitating the 
purchase and movement of goods into the United States.

                                 ______
                                 
                Questions Submitted by Hon. Rob Portman
    Question. It seems that one new tool that might help facilitate 
information sharing between Federal agencies and the private sector in 
this space would be the use of Administrative Protective Orders (APOs). 
The International Trade Commission and the Department of Commerce 
successfully use APOs to facilitate confidential information sharing 
with interested parties and it seems that there may be opportunities to 
apply that model here. In the context of duty evasion and the Enforce 
and Protect Act (EAPA), I've heard from many stakeholders about how 
they want an APO process at CBP because of how useful it is in 
fostering the collaboration needed to tackle these problems.

    Executive Assistant Commissioner (EAC) Smith, I understand the 
concerns about the lack of legal authority when it comes to APOs in the 
counterfeit goods space, but setting that aside for a moment--do you 
think that, as a practical matter, an APO may be useful to help 
facilitate information sharing when it comes to counterfeit goods or 
when it comes to duty evasion, as well?

    Answer. CBP is of the view that an APO-like procedure would not be 
suitable to the border enforcement environment. APOs are used in 
distinct administrative proceedings of a legal nature, such as at the 
U.S. International Trade Commission (ITC) or at the International Trade 
Administration (ITA), Department of Commerce, to ensure that 
Confidential Business Information (CBI) that is disclosed to outside 
counsel (and not to interested parties themselves) is used only in the 
context of an administrative proceeding and not divulged to 
unauthorized persons. The APOs are effective because of the threat of 
sanctions, such as official reprimands, disbarment or referral to the 
U.S. Attorney, against those persons who sign on to the order but 
subsequently violate it.

    Thus, for an APO process to be effective, CBP would also need to 
have the means of enforcing the order through sanctions of the sort 
described above. Furthermore, as distinct from APOs at the ITC or ITA, 
which are issued in respect of particular, clearly defined matters, the 
contemplated disclosure of information would occur on a regular basis. 
It is also not immediately clear how sanctions, which bind counsel in 
court-like settings, could be adapted to an operational setting. 
Consequently, it is our view that APOs would prove to be a thoroughly 
unsuitable vehicle for disclosing information.

                                 ______
                                 
               Questions Submitted by Hon. Maria Cantwell
    Question. As the GAO report identifies, CBP does not proactively 
communicate with online marketplaces that have teams that work closely 
with the intellectual property rights center, brands, and law 
enforcement to keep counterfeit items off their sites. However, 
information sharing is critical.

    What are the specific legal parameters for sharing information with 
e-commerce websites about counterfeit goods CBP seizes?

    Answer. As discussed elsewhere, CBP's current IPR information 
sharing authorities, including section 302 of TFTEA, provide 
``authorized by law'' exceptions to the Trade Secrets Act (TSA), 
permitting disclosures to trademark and copyright owners. As such, CBP 
does not disclose information concerning IPR-violative shipments to 
third parties such as e-commerce platform owners. Once information is 
disclosed to rights holders, CBP is not aware of any prohibition that 
would prevent the rights holders from sharing the information with 
platform e-commerce companies or other third parties.

    Question. CBP is currently reviewing options for sharing additional 
information with rights holders and e-commerce websites. What is the 
timetable for this review?

    Answer. CBP's review of options for additional information sharing 
with rights holders and e-commerce websites is ongoing.

    Question. What are the differences between the information sharing 
rules for the CBP and ICE?

    Answer. CBP is bound by the provisions of 6 CFR part 5 and the 
Trade Secrets Act (18 U.S.C. Sec. 1905) and assumes that ICE, as a DHS 
component and as USG employees, is as well. CBP notes that it has 
promulgated regulations, set forth in 19 CFR part 133, governing the 
disclosure of information for purposes of IPR enforcement and that 
these regulations constitute a limited exception to the Trade Secrets 
Act. As a general matter, however, we note that if ICE were to obtain 
confidential information from CBP it would require CBP's consent to 
disclose the information to third parties.

    Question. How is the relationship with the Intellectual Property 
Center working? In your view, is CBP getting sufficient information to 
properly do the job?

    Answer. The relationship between CBP and the National Intellectual 
Property Rights Coordination Center (IPR Center) is one in which 
communication collaboration and information sharing continue to yield 
valuable outcomes. CBP has permanently staffed the IPR Center with a 
deputy assistant director and five full-time international trade 
specialists. This staffing allows the sharing of trade enforcement 
information among the 23 IPR Center partner agencies regarding IPR 
enforcement actions throughout the various ports of entry. Data is also 
shared to assist in civil and criminal cases.

    Question. CBP and ICE coordinate with several other Federal 
agencies in their efforts to interdict the flow of counterfeit goods 
into the United States. As a part of this effort, CBP and ICE also work 
with rights holders to ensure that their trademarks and copyrights are 
recorded in the CBP online system. Also, CBP puts a priority on 
enforcing IP registered with the U.S. Patent and Trademark Office and 
the U.S. Copyright Office.

    According to the GAO report, increasing the number of patents, 
trademarks and copyrights with the CBP was an important way that a 
rights holders can help CBP's enforcement efforts.

    Given the benefits of registering patents, trademarks and 
copyrights with CBP, does the U.S. Patent and Trademark Office or the 
U.S. Copyright Office share information with the CBP?

    Answer. Through its recordation process, CBP gives priority to the 
border enforcement of trademarks registered on the Principal Register 
of the U.S. Patent and Trademark Office and copyrights that are 
registered with the U.S. Copyright Office (or for which an application 
for registration has been submitted). Information concerning federally 
registered trademarks and copyrights is publicly available. Information 
on registered patents is also publicly available; however, it should be 
noted that in contrast with trademarks and copyrights, CBP does not 
record patents given that it has no authority to enforce patents except 
in the context of an exclusion order issued by the U.S. International 
Trade Commission.

    Question. If so, what steps could be taken to improve the sharing 
of registrant information for new patents, trademarks and copyrights?

    Answer. CBP conducts outreach initiatives to promote the 
recordation process and believes that this is the best and most 
effective means of increasing the number of recordations.

    Question. Could the U.S. Patent and Trademark Office or the U.S. 
Copyright Office forms be adapted to provide simultaneous registration 
with the CBP?

    Answer. The Copyright Office, the PTO and CBP previously studied 
the issue of simultaneous registration-recordation and concluded that 
it was not a viable option. There are well in excess of a million 
trademarks and copyrights registered with the PTO and the Copyright 
Office, most of which are at little or no risk of infringement by 
imported merchandise, e.g., service marks, marks on the Supplemental 
Register, unknown and non-commercial works, etc. If all rights holders 
were offered the chance to record with CBP as part of the Copyright 
Office and PTO registration process, they might well feel compelled to 
record with CBP, thereby leading to a significant increase in 
recordations that would never be enforced, but for which CBP would 
nevertheless be responsible for monitoring, thereby diverting resources 
from the enforcement of recorded trademarks and copyrights that are far 
more susceptible to infringement at the border.

    Question. CBP processed more $2.39 trillion in imports, 33.2 
million entries and more than 28.5 million imported cargo containers. 
250 million cargo, postal, and express consignment packages arrive 
through air travel. CBP plays a central role in coordinating with 23 
agencies and ICE-HSI in the IPR Center. Through these efforts, you have 
helped to shut down counterfeit medicine and medical device websites, 
seized unsafe products ranging from automotive parts to toys, and 
prevented illegal imports via the mail of many counterfeited products. 
These efforts take an enormous amount of coordination. In your 
testimony, you discussed the need to collaborate with your partners, 
and stated that,

    ``One of the main challenges identified was the need for better 
data collection, automation, and a legal framework for sharing data.''

    Can you provide more detail regarding what legal framework is 
needed to improve your ability to share and collect data?

    Answer. As discussed elsewhere, DHS has been taking ``all 
appropriate steps, including rulemaking if necessary, to ensure that 
CBP can, consistent with law, share with rights holders'' the two 
categories of information that the President specified in Executive 
Order 13785. This has included an ongoing evaluation of the extent to 
which CBP's disclosure of additional information to rights holders 
would involve any information that is of the type that is generally 
covered by the Trade Secrets Act (18 U.S.C. Sec. 1905) and, with 
respect to any such information, whether Congress--in section 302 of 
TFTEA, 19 U.S.C. Sec. 1628a, or otherwise--has granted CBP sufficient 
authority to disclose such information to rights holders. CBP is 
preparing a list of potential statutory changes that would bolster 
CBP's ability to enforce intellectual property rights at the border, to 
include improving the ability to collect and share data on e-commerce 
shipments. As part of this process, CBP is consulting with ICE and with 
private sector stakeholders both directly and through the Commercial 
Customs Operations Advisory Committee.

    Question. What are the limitations of increased information sharing 
and data collection with non-government entities, such as e-commerce 
sites, rights holders, third party providers, etc.?

    What are the concerns or downsides if any?

    Answer. As discussed or referenced in questions 2, 4, 11, 17, 20, 
and 22, the primary concern presented is the Trade Secrets Act, 18 
U.S.C. Sec. 1905, a criminal statute barring the unauthorized 
disclosure by government employees of any confidential business 
information received in the course of their employment. Case law 
interpreting the Trade Secrets Act, which includes Supreme Court 
decisions and the Act's legislative history, demonstrates that it 
covers most commercial or financial data collected by any Federal 
employee from any source.

    The current regulations governing disclosure at the detention stage 
and upon seizure are set forth in 19 CFR part 133, including section 
133.21. These regulations currently limit CBP's disclosure ability to 
cases of suspect trademarks. At the detention stage, CBP can provide 
limited importation information to the right holder, including:

        (1) The date of importation;
        (2) The port of entry;
        (3) The description of the merchandise;
        (4) The quantity; and
        (5) The country of origin of the merchandise.

    CBP may disclose information ``appearing on'' the goods and its 
retail packaging in the case of trademark detentions, assuming the 
importer is unable to establish during the 7-day notice period that the 
suspect mark is not counterfeit. [Note: As discussed above in the 
response to question 5, CBP has also drafted an NPRM to implement 
sections 302 and 303 of TFTEA, so as to enable CBP to make copyright/
DMCA detention disclosures; the draft NPRM is currently within the 
interdepartmental review process.]

    Post-seizure, CBP may also disclose eight data elements to the 
right holder, which includes:
        (1) The date of importation;
        (2) The port of entry;
        (3) The description of the merchandise;
        (4) The quantity;
        (5) The name and address of the manufacturer;
        (6) The country of origin of the merchandise;
        (7) The name and address of the exporter; and
        (8) The name and address of the importer.

    CBP is of the view that it would be beneficial to its enforcement 
efforts for additional information to be disclosed to trademark and 
copyright owners post-seizure/abandonment after an infringement 
determination is made, including the names and address of all persons 
involved in the purchase, sale, shipping and financing--to the extent 
known--of counterfeit and piratical merchandise imported into the 
United States.

    In addition to the above-referenced NPRM, CBP has also drafted an 
NPRM to amend its regulations to disclose to trademark owners, when 
merchandise has been voluntarily abandoned, the same comprehensive 
importation information that is disclosed when merchandise bearing a 
suspected counterfeit mark has been seized. The draft NPRM is currently 
in the interdepartmental review process.

    Also as discussed elsewhere, DHS has been taking ``all appropriate 
steps, including rulemaking if necessary, to ensure that CBP can, 
consistent with law, share with rights holders'' the two categories of 
information that the President specified in Executive Order 13785. This 
has included an ongoing evaluation of the extent to which CBP's 
disclosure of additional information to rights holders would involve 
any information that is of the type that is generally covered by the 
Trade Secrets Act (18 U.S.C. Sec. 1905) and, with respect to any such 
information, whether Congress--in section 302 of TFTEA, 19 U.S.C. 
Sec. 1628a, or otherwise--has granted CBP sufficient authority to 
disclose such information to rights holders. CBP is very mindful of the 
protections and restrictions imposed by the Trade Secrets Act as most 
of the information collected by CBP falls under the category of 
confidential business information protected by that statute, which must 
remain protected in the trademark and copyright enforcement context 
until either a violation is found or a disclosure is necessary to get 
help in proving such a violation exists.

    Question. The U.S. Coast Guard participates alongside CBP, ICE, 
USDA and several other Federal agencies in multi-agency strike force 
operations at our ports each year. These joint strike force operations 
require a great deal of planning and coordination and they often yield 
substantial results.

    As a part of the overall interdiction of counterfeit goods, how 
could more frequent and better targeted joint operations reduce the 
inflow of counterfeit goods?

    Answer. More frequent and focused joint operations in anti-
counterfeiting and intellectual property rights enforcement certainly 
increases the number of seizures, and has a similar deterrent effect to 
some degree. Moreover, one additional benefit of joint operations in 
anti-counterfeiting is the public educational aspect. Only by reducing 
public demand for counterfeit items in general can we truly see a 
significant reduction in the problem. Well-publicized joint operations 
can help in this way.

    Question. These large operations require a great deal of 
transparency and communication among the agencies involved. Have you 
looked at these operations to see how this cooperation and 
communication could be better integrated into your standard operating 
procedure?

    Answer. Often, the same CBP Officers who work on joint operations 
with partner agencies also work in anti-counterfeiting and intellectual 
property rights protection. There is a natural knowledge transfer and 
experience building process in the operational planning, 
communications, and transparency of joint operations.

    We agree that analyzing all joint operations with the goal of 
finding best practices and efficiencies to be shared CBP-wide is an 
activity that CBP continues to undertake.

    Question. The Coast Guard has a presence at every port. In addition 
to increasing information sharing between the CBP and ICE, have you 
examined the benefits from joint trainings with the Coast Guard?

    Answer. Both the Coast Guard and CBP are frontline border security 
agencies. Joint training in the mission areas of anti-smuggling, 
illegal immigration, secure and safe cargo operations, and other border 
activities occurs frequently and is highly beneficial. However, as the 
Coast Guard has not had a significant role in anti-
counterfeiting or intellectual property rights enforcement, joint 
training in those activities has not been a priority for field 
personnel.

    Question. In the Trade Facilitation and Trade Enforcement Act of 
2015 (TFTEA), section 303 called for a new regulation regarding the 
disclosure of information upon seizure of circumvention devices to be 
promulgated within a year of the enactment of the legislation. This 
February marked 2 years since the passage of TFTEA and the regulation 
has yet to be promulgated. Circumvention devices are used to break the 
security of hardware in order to access illegal copyrighted content 
typically downloaded from the Internet. It is important for CBP to 
share information with businesses that are harmed by circumvention 
devices when they seize those devices.

    Why has the promulgation of this regulation been so significantly 
delayed?

    Answer. CBP has drafted a Notice of Proposed Rulemaking to 
implement sections 302 and 303 of TFTEA. The NPRM is currently within 
the interdepartmental review process. Also, as section 303(b) of TFTEA 
was the only subsection requiring the prescription of regulations for 
circumvention device seizure disclosures, CBP had concerns about 
issuing just that portion of TFTEA without the broader circumvention 
device regulatory context drafted in the NPRM currently in the 
interdepartmental review process. Without such context, the public may 
have been confused as to how such disclosures fit into CBP's 
circumvention device enforcement regime as changed by TFTEA. As such, 
the current package provides this context in a way that should empower 
those injured by the circumvention violations that TFTEA prohibits.

    CBP has also drafted an NPRM to amend its regulations to disclose 
to trademark owners, when merchandise has been voluntarily abandoned, 
the same comprehensive importation information that is disclosed when 
merchandise bearing a suspected counterfeit mark has been seized. The 
draft NPRM is currently in the interdepartmental review process.

    Question. Please provide us with an update on the promulgation of 
the regulation required by TFTEA section 303. When will the 
promulgation of this regulation be completed?

    Answer. As noted above, the NPRM is in the interdepartmental review 
process.

                                 ______
                                 
                Questions Submitted by Hon. Bill Nelson
    Question. What sort of products do you see the most come in as 
counterfeit goods and what countries do they normally come from?

    Answer. The most commonly seized items are wearing apparel and 
accessories such as team jerseys and belts. Forty-six percent of all 
goods seized come from China and 32 percent come from Hong Kong. For 
extensive information on our IPR seizures can be found at https://
www.cbp.gov/trade/priority-issues/ipr/statistics.

    Question. Have you shared information about problematic countries 
or types of products, as referenced above, with anyone at the White 
House or in USTR?

    Answer. CBP works closely with the partner government agencies, 
including USTR, to help with the development of the annual Special 301 
Report and the Notorious Markets List. Through this interagency 
collaborative process, CBP shares concerns about counterfeit issues 
from relevant economies. These concerns are discussed with the 
interagency at length and addressed in these reports to Congress.

    In addition, CBP recently provided IPR seizure statistics for China 
and Hong Kong to the National Economic Council.

    Question. If so, what was their response? If not, why not?

    Answer. The National Economic Council is currently reviewing the 
information that CBP provided. Additionally, as mentioned above, CBP's 
input is included in the annual Special 301 Report and the Notorious 
Markets List.

                                 ______
                                 
                 Prepared Statement of Hon. Ron Wyden, 
                       a U.S. Senator From Oregon
    This morning, the Finance Committee meets to discuss the challenge 
of protecting consumers from counterfeit goods. And, I am glad that we 
are having this discussion, which is overdue in my book. In addition, I 
hope that this committee will soon hold hearings on the 
administration's many trade activities--including the steel and 
aluminum investigations and potential tariffs, the NAFTA 
renegotiations, and the investigation of China under section 301.

    On counterfeit imports, any discussion of this issue has to begin 
by recognizing that over the last few decades, the Internet has 
transformed virtually every facet of our economy. It is the shipping 
lane of the 21st century. And people now take it for granted, but it's 
a miracle of the modern world that a small business in Oregon is able 
to reach consumers almost anywhere, anytime. No longer does expanding 
your customer base mean investing in bricks and mortar.

    Wildfang is a socially conscious Portland clothing company that was 
founded by women and run by women. They have two stores in Portland, 
but what's really driving sales, according to founder Emma McIlroy, is 
online sales. A full 70 percent of their business happens online, and 
that's where their growth is happening. This is a company that seized 
the opportunity to sell around the world via the Internet, and now has 
25 employees.

    But as with any economic transformation, the upside comes with new 
challenges. That includes the chance that when you buy something 
online, it could be a fake.

    It's up to the Federal Government to make sure our approach to 
combating counterfeits isn't stuck in the 20th century. These days, 
when you talk about cracking down on counterfeit goods, you're no 
longer talking about stopping the guy selling fake purses out of his 
trunk. You're talking about illegitimate products passed off on even 
the most streetwise consumers, often because they're mixed right in 
with the genuine products people want. Many of those fakes pose serious 
dangers. Makeup and food and beverage containers made with dangerous 
chemicals. Electronics that pose a fire hazard. Toys that are unsafe 
for children.

    The number of small packages coming into our country has surged, 
and Customs and Border Protection has a major role to play in 
identifying counterfeits and stopping them before they enter our 
marketplace. But unfortunately, CBP is too often playing catch up ball 
tracking these fake products down.

    After conducting a recent study of this exact issue requested by 
Chairman Hatch, the Government Accountability Office recommended a set 
of policy updates to have CBP work more closely with the private 
sector. Those recommendations included expanding CBP's authority to 
notify online sales platforms when they've got products on their hands 
that might be fake.

    You might hope that would set the wheels in motion to get those 
policies in place. But CBP responded to GAO late last year by claiming 
it would take until this upcoming September to determine if that 
additional authority was really necessary.

    Over the last few years, this committee has put a lot of sweat 
equity into policies that strengthen the enforcement of our trade laws 
and protect American consumers and workers. Senator Hatch and I 
authored the Trade Facilitation and Trade Enforcement Act of 2015 that 
put in place important new tools for CBP to detect and prevent 
counterfeits, including by sharing information about counterfeit 
imports with rights holders. So in preparation for this hearing, 
committee staff from both sides, sat down with CBP to dig into this 
issue.

    My staff asked, ``Does CBP need more authority to crack down on 
counterfeits?'' CBP said they didn't know. When asked when they would 
know, CBP said they didn't know when they would know.

    It's concerning to me that we were unable to get a straight answer 
on a matter like this from the agency at the heart of our efforts to 
protect American consumers from counterfeit goods. So I'm going to give 
CBP another chance to answer these questions today.

    But let's also recognize that getting this right isn't going to be 
as simple as putting a few more policy tools in CBP's kit.

    Year after year, administrations have fallen short in hiring enough 
officers--blue uniforms--to fulfill the critical need of protecting 
U.S. consumers and businesses from illegal and unfairly traded goods. 
It's a tough job CBP's got on its hands, working with other law 
enforcement agencies and foreign governments to go after the source of 
these problems. If the administration is focused solely on hiring an 
army of Border Patrol agents, I don't see how that is going to build up 
CBP's capacity to deal with these counterfeit challenges. So the 
Congress and the administration need to guarantee that CBP has the 
resources it needs to combat counterfeiters, and that it actually 
follows through.

    This is a matter of protecting families from harmful products and 
preventing rip-off artists from undercutting the American brand. It's 
essential that the Federal Government take the right approach with 
fresh policies that take the realities of our modern economy into 
account.

    I look forward to hearing from our witnesses on these issues today.

                             Communications

                              ----------                              


                  Alliance for Safe Online Pharmacies

                      1050 K Street, NW, Suite 400

                          Washington, DC 20001

                     [email protected]

                         Direct: (202) 312-7438

March 20, 2018

Hon. Orrin Hatch, Chairman          Hon. Ron Wyden, Ranking Member
U.S. Senate                         U.S. Senate
Committee on Finance                Committee on Finance
Dirksen Senate Office Building      Dirksen Senate Office Building
Washington, DC 20510-6200           Washington, DC 20510-6200

RE:  Statement for the Record from the Alliance for Safe Online 
Pharmacies (ASOP Global) on the full committee hearing on ``Protecting 
E-commerce Consumers From Counterfeits''

Dear Chairman Hatch and Ranking Member Wyden:

Thank you for considering the Alliance for Safe Online Pharmacies' 
(ASOP Global) statement for the record in response to the U.S. Senate 
Committee on Finance hearing ``Protecting E-commerce Consumers From 
Counterfeits'' on Tuesday, March 6, 2018.

ASOP Global is a nonprofit organization dedicated to addressing the 
public health threat posed by illegal online prescription drug sellers. 
Our work focuses on research, consumer awareness, advocacy, and 
international engagement. With over 85 member organizations worldwide, 
ASOP Global is active in the United States, Canada, Europe, India, 
Latin America and Asia. For more about ASOP Global please visit 
www.BuySafeRx.Pharmacy.

We would like to thank the Committee for its leadership on addressing 
the issue of counterfeit products entering the United States. 
Counterfeit drugs, including those marketed as controlled substances, 
have been linked to serious injury and even death. As you know, the 
significant influx in counterfeit, falsified and substandard medicines 
into the country remains a critical patient safety and public health 
issue.

According to U.S. Customs and Border Protection,\1\ counterfeit 
pharmaceutical products now account for nearly 6% of all counterfeit 
product seizures in the U.S. and totaled nearly $70 million in fiscal 
year 2017. Globally, the World Health Organization estimates that the 
costs incurred from counterfeit pharmaceutical products are 
approximately $75 billion per year.\2\ U.S. seizures and international 
operations, such as INTERPOL's Operation Pangea, continue to illustrate 
the need for comprehensive and coordinated efforts to ensure 
counterfeit medicines do not continue to make their way into American 
households.
---------------------------------------------------------------------------
    \1\ https://www.cbp.gov/sites/default/files/assets/documents/2018-
Feb/trade-fy2017-ipr-seizures.pdf.
    \2\ http://business.financialpost.com/opinion/they-cost-us-
billions-and-they-can-kill-counterfeit-drugs-are-invading-canada.

Recently, Members of Congress and several federal agencies have called 
attention to the increase in online sales of prescription medicines and 
illicit narcotics, such as fentanyl and carfentanil, shipped to the 
U.S. through the Postal Service.\3\ Senate investigators on the Senate 
Permanent Subcommittee on Investigations (PSI) have identified hundreds 
of illegal online drug transactions in over 40 states, adding up to 
$230,000 worth of fentanyl--with a street value of over $750 million--
from just six online seller s. This is not surprising given the size 
and sophistication of illegal online drug sellers often posing as 
legitimate online pharmacies. ASOP Global Board Member LegitScript has 
found there are roughly 35,000 active online drug sellers operating at 
any one time, and the National Association of Boards of Pharmacy (NABP) 
reports that 96% of these sites are unsafe and illegal, failing to 
comply with state and federal laws or pharmacy practice standards. What 
is more, a February 2018 report by NABP found that more half (54%) of 
the online drug sellers they analyzed offered controlled substances, 
and 40% offered one or more of the drugs frequently counterfeited with 
fentanyl.\4\ This puts millions of Americans at risk of receiving 
dangerous counterfeit or otherwise illegal and unsafe medications, 
often shipped into the U.S. from foreign sources to patients without 
requiring a prescription.
---------------------------------------------------------------------------
    \3\ https://www.hsgac.senate.gov/subcommittees/investigations/
hearings/combatting-the-opioid-crisis-exploiting-vulnerabilities-in-
international-mail.
    \4\ https://nabp.pharmacy/wp-content/uploads/2018/02/lnternet-Drug-
Report-Feb-2018.pdf.

Given the danger posed by counterfeit prescription drugs (including 
fentanyl) sold online, it is crucial the U.S. does more to reinforce 
international shipping standards. The failure to track and stop 
shipments containing illegal prescription and synthetic drugs from 
rogue online pharmacies, as well as failing to prepare for the increase 
in international shipments due to the lack of advanced electronic data, 
will only continue to put Americans at risk and worsen the nation's 
opioid epidemic. ASOP Global appreciates the Administration's effort to 
encourage foreign jurisdictions to provide advance shipment data, but 
feels more must be done. ASOP Global supports enactment of the 
Synthetics Trafficking and Overdose Prevention (STOP) Act as well as 
additional Administration actions to crack down on illegal shipments of 
---------------------------------------------------------------------------
counterfeit or otherwise illegal medicines into the U.S.

Recently FDA Commissioner Scott Gottlieb moved to improve the agency's 
ability to screen for illegal prescription and illicit drugs at several 
international mail facilities. He doubled the staff responsible for 
package inspections and called for further expansion this program.\5\ 
ASOP Global support this and otherFDA efforts to crack down on illegal 
online sellers and is pleased to see the Administration focus more 
resources on stopping dangerous counterfeit and otherwise illegal 
medicines at the border.
---------------------------------------------------------------------------
    \5\ https://www.apnews.com/6de59e7d620b4a75b605e60580blc569/FDA-
chief-wants-more-mail-inspectors-to-stem-opioid-influx.

In addition to the issue of stopping illegal prescription drugs via 
international mail facilities, as Senators Grassley, Feinstein, 
Klobuchar, Kennedy and Whitehouse recently observed,\6\ online 
platforms and marketplaces also have a key role to play in stopping the 
deadly supply of counterfeit and otherwise illegal medicines from 
reaching Americans. A recent study \7\ published in the American 
Journal of Public Health found widespread use of Twitter, Facebook and 
YouTube by illegal online pharmacies to market and sell fentanyl, 
oxycodone and other highly addictive, often deadly controlled 
substances to U.S. consumers, in direct violation of federal law. 
Moreover, online platforms and marketplaces make it easy--even by 
accident--to find illegal sources of prescription and illicit drugs 
online. For example, an innocuous search for e.g. ``Follistim (an 
infertility drug) online'' or ``fentanyl online'' yields dozens of top-
page search results for illegal sites offering medicines without a 
prescription shipped through the USPS. Rather than offering up illegal 
online drug sellers on page one--including Canada Drugs.com--which has 
been indicted and recently pled guilty to selling counterfeit medicines 
to Americans \8\--is in the public interest for online platforms and 
marketplaces to return results that lead Americans to legitimate 
sources of medicine and information in response to innocuous queries. 
We encourage this Committee to consider ways to further encourage 
online platforms and marketplaces to promote legitimate sources of 
medicine and health information as part of your ongoing efforts to 
protect Americans from counterfeit goods sold online.
---------------------------------------------------------------------------
    \6\ https://www.grassley.senate.gov/news/news-releases/grassley-
feinstein-colleagues-urge-tech-companies-clamp-down-illegal-online-
drug.
    \7\ https://www.ncbi.nlm.nih.gov/pubmed/29048960.
    \8\ https://buysaferx.pharmacy/news-release-statement-in-response-
to-case/.

Finally, ASOP Global supports the recommendations outlined in the 
Government Accountability Office's January 2018 Intellectual Property 
Report,\9\ including strengthening the detection of IPR-infringing 
goods, engagement with international partners, and launching localized 
pilots and port-specific initiatives. Increased resources focused 
towards the U.S. agencies responsible for this oversight, such as 
Customs and Border Protection, Homeland Security Investigations, 
Federal Bureau of Investigations, and others, are necessary.
---------------------------------------------------------------------------
    \9\ https://www.gao.gov/assets/690/689713.pdf.

The Alliance for Safe Online Pharmacies thanks you for considering this 
statement and stands ready to assist the Committee in your continued 
---------------------------------------------------------------------------
work on important public health and safety issue.

Respectfully,

Libby Baney
Executive Director

                                 ______
                                 
                      Asmodee North America, Inc.

                        1995 County Road B2 West

                          Roseville, MN 55113

                     https://www.asmodeena.com/en/

June 26, 2018

U.S. Senate
Committee on Finance
Dirksen Senate Office Bldg.
Washington, DC 20510-6200

Honorable Committee Members:

We write today on behalf of our firm, Asmodee North America, Inc. 
(Asmodee), in order to inform the Committee and the American public 
about Asmodee's experience with online counterfeit sales of our 
products. Asmodee supports our government in finding ways to better 
inform American consumers of the dangers presented by counterfeit 
goods. Asmodee also seeks to assist the U.S. Government in protecting 
intellectual property rights by curtailing the illegal sale of 
counterfeit goods through e-commerce sites.

About Asmodee

Asmodee is a leading global creator, publisher, and distributor of 
board games, card games, family games, hobby games, and digital games. 
We tell countless stories through our games. In fact, our trademarked 
motto is: ``Great Games . . . Amazing Stories.''

A global corporation, the Asmodee Group operates offices in Belgium, 
Canada, China, France, Germany, Italy, the Netherlands, Scandinavia, 
Spain, the United States, and the United Kingdom. Our North American 
headquarters is situated in Roseville, Minnesota, where we also operate 
2 major creative studios. We also operate in Texas, Virginia, 
California, Pennsylvania, and Washington State. Asmodee North America, 
Inc. employs roughly 250 people in the U.S.

Asmodee either directly, or through affiliates, owns the publishing 
brands Asmodee Games, Catan Studio, Days of Wonder, Fantasy Flight 
Games, Pearl Games, Plaid Hat Games, Rebel, Space Cowboys, and Z-Man 
Games. Through these publishing studios and our third-party partners, 
Asmodee is the originator of such best-selling titles as A Game of 
Thrones: The Board Game, Carcassonne, Catan, Dixit, Ticket to Ride, 
Pandemic, Rory's Story Cubes, Seven Wonders, Spot It!, Splendor, Star 
Wars: Destiny, Star Wars: X-Wing, and hundreds more. Many of these 
products sit at the very top of best-selling charts for toys and games 
globally.

Asmodee invests a tremendous amount of passion, talent, time and 
expense in building these products. We spend a significant amount of 
energy and capital in building the reputation and value of our brands, 
including our corporate identity. Because of our solid reputation, 
Asmodee enjoys strong, long-time licensing partnerships with 
significant intellectual property (IP) holders such as Disney, HBO, 
George RR Martin, NBC Universal, Middle-earth Enterprises, Lucasfilm, 
and others.

Our firm has grown to become a cultural force. You frequently see 
Asmodee games in classrooms, the news, and in stories told on 
television and in film. You find our IP in merchandise and other forms 
of licensing. We are the preeminent game-
specific (as opposed to toy) company in the United States, if not the 
world.

Impact of IP Counterfeiting on Asmodee and its Consumers

With success comes challenges. During the last 2 years in particular, 
counterfeit sales in the e-commerce marketplace have explosively 
increased. Sales of counterfeit Asmodee games have negatively impacted 
our brands, reputation, relationships, business infrastructure, 
revenue, profit, and value. In a very material way, this recent surge 
of counterfeit Asmodee products in the U.S. marketplace directly 
threatens the viability of our company and our industry, as well as the 
safety and satisfaction of our consumers.

Counterfeiting activities infringe upon nearly all our intellectual 
property, whether held by copyright, trademark, or common law rights. 
Naturally, they disproportionally affect our most popular titles. This 
IP piracy hurts everyone in our supply, publishing, and distribution 
chains. It also impacts consumers.

While consumers may occasionally purchase a counterfeit product 
directly from a brick-and-mortar game store, encounters with 
inauthentic goods occur most commonly on e-commerce sites--large, 
small, and in between. Counterfeit games frequently appear for sale on 
``third-party retailer'' sites inside the largest and most prominent of 
e-commerce platforms.

Counterfeit goods infect the ``co-mingling'' warehouse practices of 
large e-commerce platforms, where goods from its vendors, as well as 
third-party sellers, may be stored in the same warehouse SKU location 
for efficiency and geographic stock balancing. These ``co-mingled'' 
counterfeit goods may later be pulled and sold by the e-commerce 
retailer on its own account, or to service a sale on behalf of a 
legitimate third-party seller who originally shipped authentic stock to 
the e-commerce warehouse.

This counterfeit trade creates uncertainty about the nature, quality, 
and safety of our products, especially those sold through e-commerce 
platforms. Few counterfeit game components receive positive reviews. 
Many are unfit for purpose. Many receive scathing reviews. Most 
consumers have no idea that these reviews refer to inauthentic goods, 
and in most instances neither does the reviewer.

Counterfeit products place the consumer at a safety risk. While it is 
unlikely that counterfeit games get tested for safety, Asmodee spends 
extensively to test its products in order to meet mandated U.S. and 
C.E. safety requirements, including testing for substances such as 
phthalates, lead, and other toxic materials. We believe that 
counterfeiters rarely invest in testing their source materials and are 
likely to use toxic materials to lower their cost of manufacturing. In 
our view, such unsafe manufacturing and distribution activities 
endanger the public safety.

Commerce in counterfeit games materially affects price stability, for 
automated ``pricing robots'' calibrate their offers in response to the 
online availability and listed prices of discounted product. Artificial 
price plunges--unwanted by even the very e-commerce platforms driving 
the system--result in a distortion of the marketplace, crushing profits 
and undermine a healthy free trade system. This directly impacts all 
retailers, distributors, and publishers. This erodes investment and 
developmental incentivization at every level, threatening to rob the 
consumer of the potential product options otherwise found in a fertile 
marketplace.

Commerce in counterfeit games also tarnishes public confidence in our 
products and brands. As noted, consumers reviewing substandard 
counterfeits often innocently attack products in the most public and 
persistent online forums. This powerful ``misinformation'' creates 
further confusion for their fellow consumers.

Evidence of IP Counterfeiting

Asmodee has collected a very substantial number of physical counterfeit 
samples. We have photographic evidence of the products, receipt dates, 
transaction information, and shipping labels. U.S. Customs and Border 
Patrol (USCBP) has provided us with documentation of their sporadic 
seizures of counterfeit games, each depicting an intended e-commerce 
platform warehouse destination.

Asmodee has also compiled data on numerous consumer reviews explicitly 
calling out quality issues directly attributable to counterfeit games. 
These reviews clearly depict (e.g., via grading/stars) an alarming 
deterioration in customer confidence. They document the damaging 
misperception borne out of a marked increase in the circulation of 
counterfeit merchandise.

Asmodee has also gathered statistical evidence that correlate our 
sales, pricing, reviews, and our own customer service incidents, 
evidencing the impact and existence of substantial counterfeiting 
activity by many third-party sellers. Overall, such evidence indicates 
that illegal counterfeit copies of our products fill many e-commerce 
warehouses.

The e-commerce distribution methods that mask counterfeiting also masks 
other criminal activity in e-commerce, even on the largest platforms. 
Asmodee has evidence of stolen products, procured from legitimate 
sellers with stolen credit cards, being sold on e-commerce sites. Here, 
consumers face the prospect of unwittingly purchasing stolen goods.

Re: May 30, 2018 Questions from the Senate Committee on Finance

Given our experience wrestling with the damage wrought by counterfeit 
games sold through e-commerce channels, Asmodee offers the following 
thoughts in response to the Committee's questions of May 30, 2018.

For the avoidance of doubt, Asmodee is not an Internet platform. 
Asmodee is a content provider and product originator. Asmodee carefully 
regulates its own product development, testing, and manufacturing 
channels. We sell our own legitimate products directly to trade and to 
consumers. So here, we only address questions--or portions thereof--
relevant to our business model.

1. What types of remedial measures do you provide to U.S. consumers who 
may have unintentionally purchased a counterfeit good through an e-
commerce platform?

Asmodee only sells its own genuine games to trade and consumer 
customers. Still, we stand by our products and brands. Thus, we are 
sometimes forced to replace counterfeit goods, or parts thereof, 
purchased by consumers from e-commerce platforms. This is particularly 
the case when consumers cannot obtain recourse from the e-commerce 
vendor as in the case of counterfeit games purchased as gifts and 
opened after the allowed return period.

To the point of remediation, one must ask first ``who is accountable'' 
before one can contemplate the nature or scope of the remediation.

While Asmodee does its best to help affected consumers, we offer that 
it is not fair for the rights holder to compensate consumers for the 
counterfeiting of its own brands.

Many e-commerce operators take no accountability, claiming ``Fair 
Harbor'' under the DMCA. Others may issue refunds to consumers who 
discover counterfeits. However, we believe this cost is ultimately 
recharged to the authentic vendors in the form of common ``damage 
assessment co-ops'' vendor fees, and thus ultimately to the consumer.

Trying to hold third-party sellers accountable has proven near-
impossible. Due to the ease of becoming a third-party seller on even 
the largest e-commerce platforms, the great majority of bad actors 
provide false addresses and untraceable email accounts. Our 
understanding is that many bad actors may not even be based in the 
U.S., but that many are in China.

Further, third-party sellers may be held falsely accountable for 
selling counterfeit goods whenever the e-commerce operator ``co-
mingles'' goods from different sellers and vendors, as the e-commerce 
operator inadvertently pulls a co mingled counterfeit copy to fulfill 
the third-party seller's transaction.

Following is a consumer review of a counterfeit Catan game on the 
largest e-commerce site in the country presented on a leading e-
commerce platform as a ``Top customer review'' (on June 19, 2018):

Customer Review

2\1/2\ s I loved the game, but the board was in terrible condition.
By Joshua Caleb Stephenson on May 29, 2017

Verified Purchase

After playing this game with some friends, I absolutely loved it and 
wanted to buy my own game. It arrived yesterday and when I opened it up 
the quality of the game was in terrible condition. The board edges 
don't even fit together property making the game hard to setup and the 
hexagons are poorly cut and do not fit inside properly. I have to force 
the sides and hexagons in to get them to stay together. Some of the 
hexagons are printed poorly as well as you can see in the pictures. The 
pieces that came with it were in terrible condition as well, several 
roads were chipped and looked like they were cut in half and several of 
the house/cities were chipped and don't even stand up. I also was sent 
a yellow set of pieces which is supposed to be orange, and the yellow 
set was missing 3 roads as there is supposed to be 15 roads per color. 
I was looking forward to playing this game, but the board set I was 
sent was in terrible condition and made me feel like I got ripped off.

I will update this and let you all know if I am able to get a 
replacement.

Certainly, Joshua was injured in this case and should be remediated. 
However, who will remediate the 35 people who found this review 
``helpful'' (not to speak of those who read the review but did not 
click the ``helpful'' button)? These people are now more likely to be 
making a misinformed purchasing decision.

One must also recognize that, as stated earlier, most consumers are not 
aware that they've received and are consuming a counterfeit product, 
such as in the example above. Most counterfeit goods are either unsafe, 
or of lower quality than authentic product. The results create a 
negative impact on our society, our businesses, our safety, and our 
happiness. In such a case, the consumer cannot be remediated (as he/she 
does not know of the injury). In our view, while remediation is 
important, the solution to the e-commerce counterfeiting problem lies 
in prevention, starting with a clear assignment of accountability.

The simple answer to the question above is that, clearly, if a consumer 
has bought a counterfeit product, he/she should be able to return that 
product at no cost to him or herself.

2. What types of remedial measures do you provide to rights holders who 
find that counterfeit goods are being sold through an e-commerce 
platform?

Asmodee typically is the aggrieved rights holder whose IP is damaged 
when consumers purchase a counterfeit Asmodee game through an e-
commerce platform.

3. In what circumstances does your organization come into physical 
contact with counterfeit products sold and delivered to consumers?

Asmodee receives actual counterfeit goods when consumers or trade 
customers send them to us, sometimes asking for compensation or 
replacement. When we suspect that someone is selling counterfeits 
online, we will test-purchase the goods as part of our investigation 
and policing process. When USCBP notifies us that they've seized 
suspected counterfeit goods at a U.S. port of entry, we might pay the 
requisite fee to obtain those counterfeit goods as part of our 
investigation and policing program.

4. What services, tools, protections, and assistance do you provide 
consumers and rights holders with respect to the sale of counterfeits?

For select products, Asmodee will provide a guide or guidelines 
detailing how a customer can determine if a product is a genuine 
Asmodee game. We show customers how they might identify counterfeits by 
examining the product or, especially relevant to e-commerce, how they 
might review the product's depiction or description, or the nature and 
circumstance of the sales offer.

As a rights holder and licensee of intellectual property, we try to 
protect ours and our licensors' rights by policing counterfeiting and 
standing behind our goods. This requires enormous investment, for we 
must police our supply chain from point of final consumer sale back 
through to the point of manufacture. We also find ourselves supplying 
consumers with genuine products or parts in return for counterfeit 
products or parts.

We also may, when we find such reviews, comment on online consumer 
reviews where we suspect a consumer may have received a counterfeit 
game.

5. Please explain what you feel are some of the biggest risks 
counterfeit goods currently pose e-commerce consumers?

They damage consumers' faith in otherwise reputable products and 
brands. They damage legitimate businesses and business infrastructure. 
They create tremendous confusion, anxiety, and wasted time. As in the 
case of counterfeit gifts, they may harm personal relationships. 
Regarding toxic components, they may provide a direct and material 
threat to consumer safety.

The rampant undermining of intellectual property rights inherent to 
counterfeiting will do tremendous damage to creative artists, content 
businesses, and to innovation in general. This could have a negative 
impact for both current and future generations.

6. What have you done to curtail those risks and what have you done to 
inform consumers of those same risks, which may not be known to the 
consumer?

Besides investing in material and outreach educating consumers about 
genuine Asmodee products, we are investing in manufacturing techniques, 
packaging, and game components that help deter counterfeiting, and help 
customers more easily identify genuine goods. Asmodee also polices the 
marketplace by searching for counterfeits offered through e-commerce 
and, wherever possible, works with sellers to shut down counterfeit 
offerings and sites/pages operated by counterfeiters.

That said, being a content and product originator, not an e-commerce 
platform, Asmodee does not often come into direct contact with the 
consumer at the point of purchase, as most of our products are sold 
through wholesale channels.

7. Do you engage with foreign governments to curtail the proliferation 
of counterfeits? If so, what types of activities and coordination have 
proven successful? What efforts have not been successful?

Asmodee always operates in accordance with the rule of law, regardless 
of venue. We register our copyrights and trademarks domestically and 
overseas, wherever appropriate and feasible. We occasionally seek 
recourse against counterfeiters via domestic and foreign courts. Our 
success directly depends on the strength of the particular foreign 
nation's IP laws and judicial system, and the associated costs.

8. To what extent do you facilitate delivery, storage, processing, and 
purchases of goods on your platform?

Asmodee does not operate an Internet platform.

Asmodee only sells its own genuine game products to trade customers and 
consumers. We police the development, testing, and manufacturing of all 
our products. This process retards IP theft at the point of 
manufacture. We then police the shipping, delivery, storage, and 
commercial sale of all of our products. We carefully examine returns in 
order to prevent the introduction of counterfeits into our warehouses.

9. Which inflection points in the e-commerce purchasing/selling process 
have you found most critical to intervene in to prevent and/or curtail 
the distribution of counterfeit goods?

We work with trustworthy suppliers who respect our IP, as well as all 
applicable quality and safety standards. These suppliers must use 
tested methods and components, maintaining secure manufacturing 
facilities and processes. Asmodee will regularly inspect third-party 
manufacturing facilities, either with our own staff, or by hiring 
third-party auditors.

We also seek to work with trusted trade customers, distributors, and 
retailers who are respectful of our IP and the needs and interests of 
our consumers. They must operate transparently enough to ensure that 
counterfeit goods do not inadvertently circulate through their 
warehouses or sales channels. In most cases, this requires that our 
trade customers only order Asmodee products directly from Asmodee. They 
must also police their own ordering, storage, and sales systems to 
combat the co-mingling of counterfeit goods or circulation of 
counterfeit products. With leading e-commerce platforms, on most 
accounts, this is not the case.

In our view, the critical points of inflection lie at (a) the point of 
procurement of products by e-commerce platforms, (b) the vetting and 
authentication of third party sellers on these platforms, and (c) the 
co-mingling of inventories from multiple vendors/sellers in e-commerce 
companies' ware houses.

Asmodee has sought, without luck, to partner with a leading e-commerce 
platform and assist in their vetting of accounts who wish to sell 
Asmodee's products on that platform. We've created unique software to 
securely identify our known authorized sellers, and we've offered to 
visit warehouses to identify counterfeit goods. All such suggestions 
were rejected by the platform. An explanation for these rejections has 
frequently been that our proposed solutions are ``not scalable.'' We 
interpret this as meaning they are ``too expensive.''

Prior to the enactment of the ``Fair Harbor'' DMCA rule, retailers were 
held accountable for what was sold in their stores and responsible for 
vetting their vendors, whether they be brick-and-mortar or online 
retailers. Both consumer and vendor alike assumed that retailers stood 
by their wares and their desire to sell authentic goods. However, with 
the advent of online anonymity, easy access to consumers via e-commerce 
platforms, and the lack of realistic accountability by e-commerce 
platforms under ``Safe Harbor,'' such trust is being materially eroded.

E-commerce operators take fees and commissions (often between 15-30% of 
proceeds) of third-party sales channeled through their platform, 
whether for legitimate or illegitimate goods. The enormous volume of 
counterfeit sales bolsters fixed cost absorption, profit, and cash flow 
of the e-commerce platform. Low online pricing of illegitimate goods 
boosts the e-commerce plat form's traffic volume, data gathering, and 
``add on'' sales. We submit to the committee this happens at the 
expense of those retailers who care about supply vetting, those 
retailers who are not afforded impunity from counterfeit product 
trafficking by ``Safe Harbors,'' and the honest creators of authentic 
products, and IP rights holders.

Despite their obfuscating public commentary, online e-commerce 
platforms significantly benefit from illegal counterfeiting activity 
and their lack of accountability, implicitly or not.

10. Have there been instances where genuine goods sold on your platform 
are intermingled and/or comingled with counterfeit goods: Can you 
provide an example?

Asmodee does not operate an Internet platform.

We have no evidence of counterfeit products being mixed with our own 
manufactured inventories. However, we have many examples and direct 
evidence of consumers having purchased counterfeit Asmodee products, 
sourced from so-called ``co-mingled'' inventories, facilitated by e-
commerce platform operators.

11. How do you coordinate with rights holders to verify whether goods 
sold over your platform are genuine?

Asmodee does not operate an Internet platform.

As an IP holder and licensee, we only sell our own genuine goods. We 
ask our trade customers to order Asmodee products exclusively from 
Asmodee or through an Asmodee-authorized distributor.

12. In what ways do counterfeiters evade actions you have taken to 
prevent counterfeits on your platform or using your services?

Asmodee does not operate an Internet platform.

We sell only our own genuine Asmodee goods to customers, and we ask our 
trade customers to only purchase Asmodee products from Asmodee or an 
Asmodee-authorized distributor.

Instead, it is our trade customers' e-commerce platforms that prove 
most vulnerable to exploitation by counterfeiters. Counterfeiters evade 
our policing efforts by taking advantage of these e-commerce platform's 
lack of transparency, unwillingness to share data with rights holders, 
and the lack of accountability afforded to e-commerce platforms by the 
Fair Harbor DMCA standards.

When Asmodee does not have full transparency from an e-commerce 
platform customer on counterfeiting issues, whether due to its 
stonewalling or declared inability to address our concerns, we all 
suffer. It has been our experience that the largest e-commerce 
platforms refuse to provide effective solutions to the counterfeiting 
and stolen goods sales done on their websites. In our practical 
experience, extended brand management ``tools'' by e-commerce platforms 
are largely inadequate and provide solely reactive solutions.

At the same time (and quite maddeningly), e-commerce platforms continue 
to collect transaction fees from every illegal sale. They enjoy fixed 
cost mitigation from storage cost fees charged to bad-actor third-party 
sellers. They derive a substantial advantage from website traffic 
spurred by the impossibly low prices of counterfeit and stolen 
products. They work with impunity under the DMCA. We submit that the 
lack of collaboration and transparency by the largest e-commerce 
platform on this issue to-date enables and effectively aids and abets 
illegal behavior.

13. After a suspected counterfeit distributor has been identified_
whether by your company or a third party_what steps do you take, if 
any, to verify claims of counterfeit distribution?

Asmodee checks to see whether the distributor has purchased goods from 
Asmodee or an Asmodee-authorized distributor. We seek photographic 
evidence of the character of the suspected goods. We may also obtain 
physical samples. We have considered hiring private investigators, and 
to submit the case to the proper authorities.

14. What is the process, if any, for removing a suspected counterfeit 
distributor from your platform?

Asmodee does not operate an Internet platform.

We seek removal of suspected counterfeit distributors from our 
customers' platforms by providing our customers with swift notice and 
clear evidence of counterfeiting. We employ exhaustive and expensive 
manual and automated policing assistance to take down sites operated by 
counterfeiters within and outside our distribution network.

We have exhaustively tried to work with the largest e-commerce platform 
on preventive measures, but without success.

15. After removal, what processes does your company have in place, if 
any, to prevent a counterfeit distributor from regaining access to your 
platform and subsequently U.S. consumers?

Asmodee does not operate an Internet platform.

We request that our e-commerce platform customers immediately deny the 
violating seller from selling our goods. However, in some instances it 
is the e-commerce platform itself selling counterfeit goods, due to 
procurement from illicit vendors, or in fulfilling their transaction 
from co-mingled inventories.

As it is trivial for anyone to create a new seller account on most e-
commerce platforms under assumed/fake names, using fake physical 
addresses and easily-obtained anonymous email accounts, we have found 
it more or less hopeless to expect bad actors not to easily regain 
access to any marketplace from which they were ejected. Payment and 
banking information would potentially be the best route to find these 
actors. Unfortunately, tracing such information is beyond the current 
proficiency of this games publisher; and e-commerce platforms have thus 
far been unwilling to provide us with much detail on the financial 
transactions of bad actors.

After Asmodee proved a large e-commerce platform had procured and sold 
counterfeit goods on its own account, we did not see a rush to account 
ability, a willingness to enact realistic compensation for the damage 
wrought, or even a mea culpa, from the platform operator.

Legal routes in pursuing these matters against e-commerce platforms are 
not attractive due to: (a) the size of these organizations and the 
proportional cost of legal action; (b) the economic necessity to 
continue selling our products to these platforms; and (c) DMCA-related 
legal precedents based on a few cases brought by small, poorly funded, 
plaintiffs.

We maintain a consistent vigil against counterfeiters. This requires 
ongoing communication with our trade customers, continuous oversight of 
consumer reports and reviews, and a never-ending search across active 
e-commerce offers worldwide. We provide our customers with swift notice 
to share any clear evidence of counterfeiting, in order to seek removal 
of the suspected counterfeit distributors from their platform. We 
constantly employ exhaustive and expensive manual and automated 
policing assistance to take down sites operated by counterfeiters from 
within, and outside of, our distribution network. This feels like a 
never-ending battle.

16. If you become aware of a counterfeit good and/or distributor on 
your platform, what actions including initiating legal action does your 
company have the power to take?

Asmodee does not operate an Internet platform.

With regards to our customers' e-commerce platforms, we seek removal of 
the offending counterfeit goods and/or counterfeiter. Should a trade 
customer fail to act appropriately, we may curtail or terminate our 
business with that customer. We may even seek recourse through the 
judicial system, but this faces the issues raised in point 15 above.

17. How have you coordinated with U.S. federal and local authorities to 
curtail the distribution and manufacture of counterfeit goods within 
the United States?

Wherever possible, we provide the USCBP with product and brand 
registration material, guides, and other information to help facilitate 
the identification and seizure of counterfeit products. This is an 
ongoing process for Asmodee. Where the authorities allow, we do the 
same in other select countries.

To date, we have tried to work primarily with our e-commerce platform 
customers by assisting with counterfeit detection and prevention. This 
engagement has been far from mutual and remains very one-sided in favor 
of the e-commerce platforms.

We have worked off and on with an e-commerce platform to identify a 
counterfeit distributor and to refer this counterfeiter to the Office 
of Homeland Security. Even in this, however, the e-commerce platform 
has shared very little data, so Asmodee has been a follower rather than 
a partner in this process.

As many of the counterfeit sellers are either impossible to track, or 
originate outside of the U.S., we have limited ability to provide 
federal or local authorities with viable targets.

18. If there are other pieces of information, details, or data you feel 
would be helpful to the committee, we respectfully request that you 
submit them as part of your answers as well.

E-commerce enabled counterfeiting has become a huge problem for 
intellectual property holders, brick-and-mortar retailers, and to 
consumers. To Asmodee and our industry, it is an existential issue. 
Supported by modern technology, the prevalence of online anonymity, and 
lack of accountability for their chosen e-commerce sales platforms, 
operators who would previously sell their counterfeit goods on the 
street and in dark alleyways, have unprecedented and direct access to 
their marks. Given the sophistication, investment, and scale of the 
counterfeit operations, one comes to suspect these efforts may be 
managed by well-funded criminal organizations.

In our view, the facilitating factors in the deluge of counterfeit 
product on e-commerce platforms are:

    (1)  Supply: Countries with low-cost but robust manufacturing 
sectors, combined with weak internal IP enforcement, have economic 
benefit in overlooking the substantiality of their counterfeit exports. 
China surely is the largest contributor to the problem, but illicit 
manufacturing will likely change to other countries if China was to 
remedy its significant shortfalls in this area.

        As this memo is written, the U.S. looks to impose new tariffs 
on goods originating in China. While such trade measures may be 
necessary (this being beyond our expertise to determine), we believe a 
focus on legislation and action that forcefully targets online 
counterfeiting would have a substantial and positive impact on the U.S. 
trade imbalance with China. We recommend such measures be fast-tracked. 
Further, such action will likely be positively supported by our 
European allies, who are afflicted by similar (if not as severe) 
counterfeiting problems.

    (2)  Legislation: The DMCA Fair Harbor standards for online 
platforms was intended to protect the nascent Internet. The resulting 
commercialization of the Internet has evolved into handful of dominant 
Internet business behemoths exploiting a vacuum of accountability while 
profiting from illicit transactions and traffic on their platforms.

        New or revised legislation is critically needed to address this 
issue. Asmodee provides a few recommendations for specific solutions at 
the end of this document.

    (3)  E-commerce Platforms: Unlike their public statements, 
expressions of support, P.R. efforts and platitudes to the problem, it 
is our firsthand experience that major e-commerce platform businesses 
fall far short in taking responsibility and action in this area. The 
practical capabilities of so-called ``sophisticated platform software'' 
such as ``Brand Registry'' is poor, its use solely reactionary (not 
preventative), with highly disproportional burdens of proof on the 
rights-holders.

        It is our opinion that current efforts in counterfeit 
prevention by e-commerce platforms is window-dressing enacted to meet 
whichever minimum legal and P.R. standards are necessary for them to 
continue business-as-usual. We do not see obvious public statements 
such as ``Zero Tolerance for Counterfeits'' in practice. We come to 
this opinion from experience

        Asmodee has been continually turned down in data-requests to e-
commerce platforms related to sales and supply of our own products, 
information that would allow us to assist the platforms with detection 
of counterfeiting activity. Instead, only an extremely limited data-set 
is ever shared with us, and this only after ANA proves a product to be 
counterfeit--usually after procuring a sample ourselves by purchase on 
the e-commerce platform itself. In many cases, once we have gone 
through with this exercise, substantial damage has already been done.

        Most e-commerce platforms refuse to adhere to any form of sales 
policy or ``authorized reseller'' program (by which companies like 
Asmodee could contribute to the anti-counterfeiting effort and help 
guarantee authenticity). We have proof that a large e-commerce platform 
procured counterfeit products to sell on its own account, knowingly or 
unknowingly, by utilizing automated, algorithmic purchasing systems 
that search for the lowest available price, and with little/no human 
oversight. Some platforms sell counterfeit products on their own 
account from ``co-mingled'' product assortments--behavior that may also 
incriminate and destroy the reputation of honest sellers on the 
platform, whenever the e-commerce platform operator fulfills such sales 
with counterfeits tainting ``co-mingled'' inventories.

    (4)  Consumers: Consumers have, for good reason, learned to trust 
the commercial U.S. retail system. Consumers are both trusting and 
price-sensitive, making them ideal targets for low-priced counterfeit 
products sold under the trusted aegis of large U.S. e-commerce platform 
retailers.

        Despite recent government investigators finding that 20 out of 
46 randomly purchased items on a sampling of e-commerce platforms being 
counterfeits, despite hundreds of thousands of dangerous counterfeit 
solar eclipse glasses sold online, despite dangerous counterfeit 
cosmetics and hygiene products, counterfeit vitamins, counterfeit pet-
medicine, despite the myriad stories of honest businesses injured by 
counterfeiting, consumers unfortunately have a convenience and 
financial incentive to ignore the problem or dismiss such information.

        It clearly is in the e-commerce platform's best interest to 
perpetuate the consumer's false sense of safety. Outside small print, 
no clear warning regarding potential counterfeit products on e-commerce 
sites exist to our knowledge. Reviews that profess to counterfeits may 
be struck and obfuscated by the e-commerce platforms by editorial such 
as ``This item was fulfilled by [Platform], and we take responsibility 
for this fulfillment experience.''

    (5)  Mail Subsidy: It is our understanding that the United Nations 
(via the Universal Postal Union), partly with U.S. help, subsidize 
developing nation's mail and package delivery cost via uneven 
application of ``Terminal Dues,'' effectively making it much cheaper to 
post mail from these developing nations. As such, the cost of sending a 
package from China to the U.S. is very small. This greatly facilitates 
not only counterfeit trade (financially transacted by U.S. e-commerce 
platforms) into the U.S., but also assists in illegal shipments of 
drugs and other contraband.

We are happy to offer specific case histories, material, or evidence 
that might be helpful to the committee as it seeks to protect the U.S. 
consumer in this ongoing struggle against the circulation and sale of 
counterfeits in e-commerce.

Recommendations

We believe the following actions would solve many of the current 
counterfeiting problems (as well as perhaps the malign ``fake ads'' 
problem) on the Internet.

    (1)  No product (or message) should be sold by an Internet platform 
into the U.S. without a U.S. person or entity being accountable for the 
product or message.

        Those Internet platforms that allow third-party sales of 
products or messages should be responsible to ensure that a real U.S. 
person or U.S. entity is accountable for the safety, legality, and 
authenticity of their message or product. If it is later found that a 
selling person or entity was itself ``fake,'' or if the selling entity 
is non-U.S., the Internet platform would then be held accountable for 
the sale, with whatever civil or criminal penalties apply.

    (2)  Grant IP holders substantially more authority to access data 
from Internet platforms (including e-commerce platforms) related to the 
commercial exploitation of their IP-related products or services 
offered on the platform. For example, if a counterfeit product has been 
proven to be sold by an e-commerce platform, the IP-holder should have 
the right to access comprehensive sales and supply information from all 
vendors and sellers whom have transacted in that IP during the last 12 
months, so that IP-holders may help prevent future abuse and identify 
potential theretofore unknown abuses. Further, e-commerce platforms 
should be required to disclose known counterfeiting to rights holders 
and affected consumers.

    (3)  Many e-commerce platforms transact business alongside their 
platform participants (i.e., third-party sellers). This behavior is 
tantamount to having your cake and eating it too, and inherently unfair 
competition to the other platform participants. Any Internet platform 
that partakes directly in income-generating activity alongside the 
users of its own platform should be prevented from seeking Fair Harbor 
protection under the DMCA (or whatever will replace the existing DMCA).

    (4)  Internet platforms should not be allowed to physically ``co-
mingle'' products from different marketplace sellers (and their own 
goods). If the platform elects to do so, it should be accountable for 
any sale of a counterfeit good from the tainted supply source. This 
accountability should be retroactive to the passage of the DMCA 
(October 12, 1998), and e-commerce platforms should remediate vendors, 
sellers, and consumers for damage done in the intervening years.

    (5)  Eliminate all subsidies on posted mail and packages from China 
immediately and as soon as practicable, abolish the program altogether 
lest the issue be transferred to other nations. With today's email and 
Internet access this program seems outdated, and subsidies for 
developing nations are likely better granted in alternate ways (such as 
providing them Internet access).

In Closing

Please feel free to contact us directly with any further questions, 
concerns, or requests. We intend to provide the committee with whatever 
assistance we can offer. This is of the highest priority to us.

Asmodee wishes the committee good luck in its effort to better inform 
American consumers of the dangers presented by counterfeit goods, and 
to better protect American consumers and businesses in the future. 
Thank you for working on behalf of our company, our team, our consumer 
community, and our nation.

Respectfully yours,

Christian T. Petersen               Pete Fenlon
CEO                                 CEO
Asmodee North America, Inc.         Catan Studio (an Asmodee Division)

                                 ______
                                 
                Coalition to Combat Counterfeiting (CCC)

                    10340 Democracy Lane, Suite 204

                           Fairfax, VA 22030

                           P: (703) 383-1330

                           F: (703) 383-1332

                       E: [email protected]

                 Written Testimony of Mitchell Moonier

Chairman Hatch and Members of the Committee,

My name is Mitchell Moonier, and I am submitting testimony on behalf of 
the Coalition to Combat Counterfeiting (CCC)--a national anti-
counterfeiting coalition representing a broad spectrum of industries 
including apparel and footwear, special occasion dresses, home 
appliances, jewelry, precious metals, and toys. Our mission is to raise 
public awareness of counterfeiting, and to support public policies, 
regulations, and innovative solutions for strengthening the ability to 
identify fake goods and enforce intellectual property rights (IPR).

Background

The expansion of e-commerce has given domestic manufacturers greater 
access to consumers across the globe and has lowered costs for doing 
business. Likewise, it has also enhanced the ability for fake goods to 
enter the market and successfully compete with their legitimate 
counterparts. Many of these fakes pose numerous health and safety risks 
to American families, steal domestic jobs, and defraud the economy. 
Before, counterfeit products were confined to small street operations 
with limited reach, but the growth of e-commerce has allowed these 
hazardous fakes to surround our daily lives. Every day, we hear of 
consumers encountering everything from coats stuffed with chicken 
feces, water filters that filter arsenic into the water rather than 
remove it, and children's toys that fail to meet even the slightest of 
safety standards.

Businesses--both large and small--lose out, as well. Instead of 
researching and developing new innovative products, more funds are 
redirected to counterfeit deterrence programs. A recent report by the 
U.S. Chamber of Commerce found companies spending as much as $20 
million annually to protect intellectual property. For smaller ``mom 
and pop'' shops unable to afford such protections, it is better to 
lower prices than compete with the inferior goods. The costs add up--
recent estimates show that the U.S. economy loses anywhere from $225 to 
$600 billion a year.

The impact on business, large and small, of consumption of counterfeits 
is that production shifts from legitimate businesses to shady 
manufacturers. In addition to operating under inhumane conditions, 
these operations in many cases are connected to terrorism, money 
laundering, and human trafficking.

The work of Customs and Border Protection (CBP) and Immigration and 
Customs Enforcement (ICE) is vital for protecting American IPR. Over 
the past decade, seizures of fake goods have increased 117 percent and 
the total retail price of seizures increased 800 percent. These 
statistics illustrate the significance of the problem and that it is 
growing worse. The $1.6 billion in seized goods for 2016, based on 
conservative estimates, represents less than 1 percent of the total 
estimated amount of fake goods that entered our borders. Counterfeiters 
are targeting higher value products and the U.S. economy is losing at a 
faster pace. Customs agencies are more technologically advanced than 
ever before, yet counterfeiters, in response, have shifted to simpler 
methods to evade detection by the authorities including using express 
carriers and international mail.

We realize that there is not a ``one size fits all'' solution that 
fully addresses the counterfeiting of goods. The growth of e-commerce 
has rapidly outpaced innovation in protecting intellectual property, 
and improvements are needed before it becomes too late. It goes without 
saying that such an endeavor will require significant time and funding, 
but we believe both are necessary as this issue is an ongoing threat to 
our national security.

Recommendations

The findings from the recent GAO report should be concerning to rights 
holders and consumers alike. In addition to the act of counterfeiting, 
itself, issues with data collection and information sharing among 
enforcement agencies threaten the preservation of intellectual 
property. Moving forward, we share many of GAO's concerns and believe 
that the following recommendations would significantly improve 
enforcement against counterfeit goods.

Improve International Cooperation

Greater cooperation is needed between U.S. and international customs 
authorities. In a report released last week, the Organization for 
Economic Cooperation and Development (OECD) estimated that 2.5 percent 
of global trade, or $461 billion, consists of fake goods. Furthermore, 
20 percent of global intellectual property infringements are of U.S. 
rights holders. Our participation in the global economy means that U.S. 
intellectual property must be protected both at home and abroad, 
alongside our international partners. On the other hand, consequences 
should be strongly considered for trading partners that lack adequate 
laws or enforcement of U.S. intellectual property.

Assess Interagency Efforts

There needs to be a broader assessment of CBP interaction with other 
domestic agencies. Agencies including the United States Patent and 
Trademark Office (USPTO), Department of Commerce, United States Trade 
Representative (USTR), United States Postal Service (USPS), and the 
Federal Bureau of Investigation (FBI) also play an important role in 
protecting intellectual property. However, each agency employs its own 
recording methods for seized goods and may share limited information 
with CBP. This makes it difficult and confusing for rights holders to 
protect their intellectual property, and effectively engage with law 
enforcement.

We support further assessments by the GAO that evaluate the sufficiency 
of current laws in protecting intellectual property, the extent in 
which all IP-related agencies coordinate with each other, and each 
agency's metrics for evaluating intellectual property protection.

Express Carriers and International Mail

The use of express carriers and international mail should be a focal 
point in the fight against counterfeits. Since 2012, seizures of 
express carrier goods have increased 105 percent while cargo seizures 
have only increase 6 percent. The volume of small packages makes it 
impossible for customs authorities to detect infringing goods, and the 
problem is further complicated with the use of fake labels that often 
assist in evading customs duties.

Increase Engagement With the Private Sector

We support the GAO's recommendation for CBP to share additional 
information with intellectual property rights holders prior to 
completing a seizure, as authorized under the Trade Facilitation and 
Trade Enforcement Act (TFTEA). Although CBP received authorization 
almost three years ago, the GAO notes that it has yet to determine 
which information would be beneficial to share with the private sector. 
It is important that CBP make these determinations immediately, so 
rights holders can act appropriately. Additionally, the government 
should explore public-private partnerships to strengthen detection and 
enforcement efforts, particularly to address the issue of small package 
shipments through express carriers and international mail.

While we have identified multiple areas of improvement in the national 
intellectual property enforcement framework, we applaud the attention 
given to these issues by Congress and the appropriate agencies. We look 
forward to continuing to work together to protect U.S. intellectual 
property rights and consumers from these harmful products.

The Coalition appreciates the opportunity to submit these comments to 
the Committee. Should you or your staff have any questions, please feel 
free to reach out to us. We are more than happy to meet with you or 
your staff to discuss these critical issues impacting our businesses 
and consumers.

                                 ______
                                 
                         The Counterfeit Report

                             P.O. Box 3193

                           Camarillo, CA 93010

                             (805) 303-5000

               Statement of Craig M. Crosby Publisher/CEO

    Senator Hatch, I would like to thank you for your interest in 
consumer protection from counterfeit products, and inviting statements 
from those in the industry affected by counterfeits.

    I am the CEO and Publisher of The Counterfeit Report, a consumer 
protection advocate and industry watchdog reaching over 7.5 million 
viewers that has removed over 26 million counterfeit products from e-
commerce websites including eBay, Amazon, Walmart and Alibaba.

    These websites are the ideal platforms for enabling and 
facilitating counterfeiters and dishonest sellers to distribute an 
inexhaustible supply counterfeit goods directly to unsuspecting 
consumers with little or no consequence to the seller or e-commerce 
websites.

    Counterfeiters will produce over $1.7 trillion in counterfeit 
products \1\ in 2018, 90% of which originate in China. An overwhelming 
majority are distributed through e-commerce websites.
---------------------------------------------------------------------------
    \1\ ``The Economic Costs of Counterfeiting and Piracy.'' The report 
was prepared for The International Chamber of Commerce Business Action 
to Stop Counterfeiting and Piracy unit (ICC BASCAP) and The 
International Trademark Association (INTA), January 2017, Frontier 
Economics, Ltd.

    The Counterfeit Report (``TCR'') research has been cited, and TCR 
deposed, in the federal court RICO lawsuit against eBay (Wimo Labs, LLC 
v. eBay 8:15-cv-01330), which settled and was sealed in 2017, and the 
pending landmark Amazon (as a direct seller) lawsuit (Daimler AG v. 
---------------------------------------------------------------------------
Amazon, U.S. District Court 17-cv-7674).

    Clearly, these goliaths facilitate criminal activity and benefit 
from the proceeds of dishonest actions which impact jobs, consumer 
safety, and public trust, creating a public perception of deception 
with impunity.

    TCR purchased over 2,500 manufacturer confirmed counterfeit 
products from eBay, Amazon and Walmart sellers, representing over 
726,400 fakes sold to duped consumers. Each counterfeit purchase is 
cataloged and retained as evidence, identifying the seller, point of 
origin, and number of items sold, as well as dozens of other data 
points.

    Please note that Alibaba is not specifically addressed here, as 
Alibaba has been publicly condemned by The Office of the United States 
Trade Representative and placed on the U.S. Notorious Markets List--a 
designation reserved for the world's most notorious markets for 
counterfeit goods.

    Industry research indicates that 80% of consumers do not expect to 
receive a counterfeit when making online purchases, yet over one-third 
of consumers unwillingly received a fake \2\ from online purchases last 
year. The purchases include dangerous and deadly counterfeit products, 
and inarguably fake items such as FBI and police badges, and law 
enforcement ID.
---------------------------------------------------------------------------
    \2\ ``Global Online Shopping Survey 2017--Consumer Goods.'' 
Prepared by: Clarivate Analytics for MarkMonitor Inc., November 2017.

    For example: Counterfeit Apple A1265 iPhone chargers are common on 
eBay and Amazon. Counterfeit chargers have caused two deaths, one coma, 
numerous fires, and injuries from explosions and equipment damage. Just 
two of the many eBay sellers selected by The Counterfeit Report for 
test purchases made over 10,000 sales of confirmed counterfeit chargers 
to unsuspecting consumers, yet the listings and sellers remained. The 
buyers were never notified by the websites. Test purchases also include 
auto suspension parts, OTC drugs, medical devices, toys, electronics, 
---------------------------------------------------------------------------
health supplements, and much, much more.

    The Counterfeit Report investigation uncovered that eBay and Amazon 
deliberately and fraudulently hide the fact from buyers that they have 
purchased manufacturer confirmed counterfeits and are entitled to 
refunds. But, buyers are never told this--in fact, eBay tells buyers 
opposite in their eBay purchase history for removed counterfeit 
listings ``the sale should process as normal and you have nothing to 
worry about.''

    You would be shocked to learn that the e-commerce giants solicit, 
facilitate, and encourage the sale of hundreds of millions of 
Counterfeit Products through their self-described ``ecosystems,'' which 
provide manufacturers, sellers, and buyers of counterfeit goods a 
marketplace for such goods, and provide online advertising, marketing, 
credit card processing, financing, and shipping services that 
effectuate the sale of the Counterfeit Products. Of course, they take a 
transaction fee for each fake item sold.

    Amazon and Walmart also act as direct sellers of counterfeits, in 
addition to allowing unvetted global third-party ``marketplace'' 
sellers to list just about anything on their websites, including 
counterfeits, right alongside authentic items, implying the websites 
endorsement.

    I have appeared on ABC, NBC, FOX, 20/20 and other TV network 
presentations featuring counterfeit products. TCR distributes 
counterfeit information to over 2,000 news outlets. I have presented 
for the LAPD, LA City Attorney, and the FBI in a fake goods news 
conferences.

    The Counterfeit Report website provides consumer education, 
featuring visual guides to counterfeit products of over 250 global 
manufacturers. TCR also acts as an authorized agent for right holder's 
infringing products, and publishes individual Counterfeit Product 
Alerts on counterfeited product on its website. The alerts offer 
thousands of comparison photos demonstrating the sophistication of 
counterfeiters in creating deceptive, visually identical counterfeit 
products that easily fool consumers. Quite simply, most consumers 
simply can't identify counterfeit products and are unknowing victims 
who lose billions of dollars and may receive a deadly product.

    What I think may interest you most is the outrageous conduct of the 
internet giants, eBay, Amazon and Walmart. TCR test purchases 
identified and documented practices, policies and procedures that 
satisfy the ongoing pattern of criminal conduct; fraud, false 
advertising, unfair business practices, Racketeering (RICO), and 
conduct that is not consistent with ordinary business conduct and an 
ordinary business purpose to provide consumers with honest services (18 
U.S.C. Sec. 1346). For example:

        Amazon, eBay, Walmart and Alibaba all have policies 
prohibiting replicas, fakes, counterfeits, or other illegal copies on 
their websites. However, that claim is not true. A TCR Press Release 
identifying the particularly alarming sale of inarguably fake FBI and 
Police badges and made-to-order photo identification on eBay was 
emailed to eBay CEO, Devin Wenig. The email was viewed 304 times, yet 
over a year later, the eBay listings remain. Similar results occurred 
with Amazon, also selling the fake law enforcement items.

        A consumer would expect to be notified they have purchased a 
dangerous, fraudulent or deadly product on eBay, Amazon or Walmart, and 
are entitled to a refund under the Money Back Guarantee displayed on 
each website's listing page. However, in practice, a buyer viewing 
their eBay purchase history after a counterfeit listing is removed is 
deliberately misled with the message ``If you've already sent payment, 
the sale should process as normal and you don't have anything to worry 
about.'' The opposite may be true, and buyers could have a lot to worry 
about if they received a dangerous product. Amazon does not post any 
warning.

        Buyers that actually do identify a counterfeit item can 
request a refund under eBay's Money Back Guarantee, but there is a 
catch: eBay directs buyers to return the item to the seller, a 
nonsensical solution promoting resale; against eBay policy and illegal. 
If challenged, eBay requires a manufacturer's written counterfeit 
confirmation, allowing buyers just 2 to 5 days, and arbitrarily 
requires that ``in order to continue with the investigation of your 
Money Back Guarantee, you must destroy and discard the item.'' Clever, 
but without the counterfeit item, buyers have no evidence for their 
unresolved eBay claim, credit card refund or counterfeit feedback.

    eBay went as far as to engage two goliath international law firms, 
Winston and Strawn and O'Melveny and Meyers, in an attempt to silence 
The Counterfeit Report's findings. Using scorched earth litigation 
tactics for two arbitrations initiated by The Counterfeit Report for 
refunds of inarguably fake $26 and $116 item purchases, eBay's attempt 
to dissuade The Counterfeit Report failed. I am happy to share with you 
all the correspondence and court documents.

    eBay and Amazon ``User Feedback'' should provide valuable insight 
to the Buyers and Sellers involved in a transaction--allowing each to 
build reputations that are based on ratings and comments left by their 
trading partners--but it doesn't.

        Inexplicably, negative ``counterfeit'' feedback left to 
protect eBay and Amazon consumers from dishonest seller practices just 
``disappeared'' after many of the confirmed counterfeit purchases by 
The Counterfeit Report. eBay's leadership team had no explanation why 
the ``in policy'' feedback was removed, while Senior Director and eBay 
Counsel, Amber Leavitt, acknowledged, but never responded to The 
Counterfeit Report's inquiry.

        Under eBay policy, ``Sellers can leave only positive ratings 
for buyers. That means buyers should feel free to leave honest feedback 
without fear of retaliation.''

        eBay blocks buyers from placing seller feedback, removes 
negative seller feedback, and arbitrarily removes links for buyers to 
provide seller feedback for known manufacturer confirmed counterfeit 
and fake products. In 2015, eBay admitted the allegations were true to 
Business Insider, that eBay altered and removed feedback, removed 
warnings, and allowed counterfeit sellers to remain. Amazon blocks 
negative counterfeit feedback.

    eBay and Amazon marketing and support practices encourage the sale 
of counterfeits.
        Through manipulation of its ``keyword'' search process, 
consumers searching Amazon, eBay and Walmart for a trademarked item are 
guided to listings of known, manufacturer confirmed counterfeit and 
fake products.

        Amazon cancelled all TCR refunds for confirmed counterfeit 
product purchases, later rescinding the action after a press release.

        eBay chose to block TCR test purchases, and disclosed to 
sellers effective ways to block TCR test purchases of counterfeit and 
fake items, identifying the multiple accounts used by TCR. This policy 
is endorsed by eBay's Director of Global Trust Policy, Gary Fullmer, 
with his written warning to The Counterfeit Report, ``Do not circumvent 
these blocks, including using your multiple accounts to do so.''

        Remarkably, eBay sends direct email solicitations to consumers 
(over 4,000 just to TCR) to purchase the fake items--a practice that 
landed eBay in Federal Court--yet the practice continues and the 
counterfeit sellers remain.

    eBay claims it's ``just a venue'' and has immunity under eBay's 
often cited 2008 Tiffany (NJ) Inc. v. eBay Inc. lawsuit.

        However, eBay allows staffers to determine if items are 
accurately described in counterfeit purchase dispute cases despite the 
manufacturer's written counterfeit confirmations--an action that landed 
eBay in arbitration in which The Counterfeit Report prevailed.

        Despite repeated written notifications to Amazon, eBay and 
Walmart of the sale of the same manufacturer confirmed counterfeit, and 
fake products--products that never existed in the authentic product 
line but bear a trademark--the items and sellers often remain, and 
additional purchases have been made from over a period of months.

        While Amazon was publicly initiating lawsuits against two 
Amazon counterfeit sellers, sharply contrasting activity was occurring 
in the background. Amazon argued and won a U.S. Appeal's Court decision 
\3\, \4\ to disavow itself from any responsibility for 
``offering to sell'' counterfeits products. Shortly thereafter, a 
lawsuit named Amazon a direct seller of counterfeits, outside the 
protection of the prior decision.
---------------------------------------------------------------------------
    \3\ In a devastating blow to manufacturers and consumer protection, 
the U.S. Court of Appeals upheld a U.S. District Court decision by 
Judge Ricardo S. Martinez excusing Amazon (NASDAQ: AMZN) from liability 
in the sale of counterfeit items on its website (Milo & Gabby, LLC. v. 
Amazon.com, Inc.).
    \4\ Wade Shepard, ``As Amazon and eBay Flood With Illegal Goods 
From China, Beijing Cracks Down on Foreign E-Commerce,'' Forbes 
(November 22, 2017), available at: https://www.forbes.com/sites/
wadeshepard/2017/11/22/as-amazon-and-ebay-flood-with-illegal-goods-
from-china-beijing-cracks-down-on-foreign-e-commerce/#7223fl604dfd.

    I hope you agree that the abundance of evidence is compelling and 
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worthy of a continued investigation.

                                 ______
                                 
              Precious Metals Association of North America

                    10340 Democracy Lane, Suite 204

                           Fairfax, VA 22030

                           P: (703) 383-1330

                           F: (703) 383-1332

                         E: [email protected]

              Written Testimony of Scott Smith, President

Chairman Hatch and Members of the Committee,

My name is Scott Smith, and I am the CEO of Pyromet, which is a 
privately owned precious metals manufacturer and refiner of silver, 
gold, and platinum group metals. Since 1969, Pyromet has been a 
reputable name in precious metals and precious metals management. I 
also serve as President of the Precious Metals Association of North 
America (PMANA) and am submitting this written testimony on behalf of 
our members. It is our traders, distributors, and authorized purchasers 
of the United States Mint that are particularly concerned with 
counterfeit bullion produced in the People's Republic of China, and 
subsequently sold on e-commerce platforms.

Background

According to the Organization for Economic Cooperation and Development 
(OECD), the trade of fake goods represents 2.5 percent of global trade, 
or $461 billion every year. Among the many counterfeits traded globally 
each year are fake precious metals bullion coins and bars--most of 
which are produced in China and easily distributed through e-commerce 
platforms. Additionally, estimates show over 85 percent of U.S. 
counterfeit goods originate in China.

Precious metals bullion has been introduced by numerous national 
governments and private mints around the world for nearly fifty years. 
The U.S. began production of its own bullion in 1986 with the 
introduction of the American Eagle Gold coin. Since then, the American 
Eagle family has since expanded to include silver, platinum, and 
palladium bullion coins.

U.S. Mint bullion coins are not sold directly to the public. Instead, 
authorized purchasers that satisfy stringent financial and professional 
criteria buy bullion coins and sell them at a premium to investors. 
Precious metals bullion can also take the form of bars--or ingots--and 
are usually produced by private mints from around the world and are 
sold by domestic traders and distributors. This network of bullion 
distributors, many of whom are members of the PMANA, includes some of 
the most trusted names in the precious metals industry. When investors 
are deceived by counterfeit bullion, distributors' brands, and jobs all 
along the precious metals supply chain, are significantly affected.

Whether in coin or bar form, it is relatively easy to pass off 
counterfeit bullion as authentic. Manufacturers will often coat, or 
``plate,'' tungsten in a thin layer of gold. Since tungsten and gold 
have nearly the same weight and density, plated coins can pass a novice 
investor's basic tests. Even the most experienced precious metals 
traders require spending as much as $100,000 on innovative technology 
to detect fake bullion. At the time of submission, one-ounce of gold is 
worth $1,322, but a gold-plated one-ounce counterfeit coin or bar can 
be purchased from a Chinese manufacturer for as low as $250--a 
potential 427% return on investment for criminals. While criminals 
profit, our traders and distributors are affected with damaged brands, 
falling revenues, and less capital to purchase additional bullion for 
investors. Furthermore, the decrease in demand for bullion causes 
refiners and manufacturers along the supply chain to suffer.

The problem has grown in recent years with the explosion of e-commerce 
trading and its ability to connect consumers to the worldwide market. 
At the same time, it has also given Chinese manufacturers, with the 
backing of their government, greater access for selling fake goods.

Chinese law requires truth in advertising, which also means that 
counterfeit bullion products be sold as such. However, the law does not 
require that counterfeits be physically marked accordingly. With this 
legal shortcoming, e-commerce sites such as Alibaba are flooded with 
posts that advertise counterfeit bullion as ``replica,'' ``copy,'' and 
``fake.'' While this is completely legal in the People's Republic of 
China, it gives government-sanctioned manufacturers the ability to 
manipulate vulnerable American consumers and those looking to defraud 
consumers in the future. In other words, if they are not deceiving 
American consumers directly, they are providing domestic criminals with 
the necessary tools to do so in the future. On their web profiles, 
Chinese manufacturers often tout the ability of their counterfeit 
bullion to pass as the real thing. Answers to ``frequently asked 
questions'' make potential buyers aware that counterfeit coins are non-
magnetic, weigh almost identical to authentic coins, and pass most 
authentication tests. Clearly, their intent is to deceive consumers in 
one way or another.

Further complicating customs authorities' ability to track fake 
bullion, thieves use small packages, fake labels, and ship through 
express and international mail to evade detection and the payment of 
duties. Over 90% of goods seized by Customs and Border Protection (CBP) 
come through either express or international mail. While this statistic 
is encouraging, we know that far too many small packages successfully 
pass-through customs to their targeted destination.

Policy Proposal

In order to combat the spread of counterfeit coins through e-commerce 
networks, and to lessen the already significant burden placed on law 
enforcement, the PMANA urges Congress to amend 15 U.S. Code Sec. 2101 
to expand marking requirements to include bullion investment coins and 
bars. Doing so would require any imitation or replica item manufactured 
or imported into the United States to be plainly and permanently marked 
``Copy'' or ``Replica.'' This would provide transparency for consumers 
and weaken the ability for domestic and international criminals to take 
advantage of them.

Additionally, the PMANA urges the United States Trade Representative 
(USTR) to include language in future trade agreements that holds all 
parties to the same marking requirements as U.S. citizens under 15 U.S. 
Code Sec. 2101, as amended with language relating to investment 
bullion. This trade provision would generate jobs along the precious 
metals supply chain, protect consumers, and generate tax revenue in 
both counterfeit producing countries and in the U.S.

Thank you for giving the PMANA the opportunity to submit these comments 
to the Committee. If you or your staff have any questions, please do 
not hesitate to reach out to us. We are more than happy to discuss our 
concerns with you or your staff and look forward to working together to 
protect consumers and businesses from counterfeit products.

Respectfully Submitted,

Scott Smith

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