[Senate Report 104-177]
[From the U.S. Government Publishing Office]
Calendar No. 250
104th Congress Report
SENATE
1st Session 104-177
_______________________________________________________________________
ANTICOUNTERFEITING CONSUMER PROTECTION ACT OF 1995
_______
November 28, 1995.--Ordered to be printed
_______________________________________________________________________
Mr. Hatch, from the Committee on the Judiciary, submitted the following
R E P O R T
[To accompany S. 1136]
The Committee on the Judiciary, to which was referred the
bill (S. 1136) to control and prevent commercial
counterfeiting, having considered the same, reports favorably
thereon, with an amendment, and recommends that the bill, as
amended, do pass.
CONTENTS
Page
I. Purpose..........................................................1
II. Legislative history..............................................2
III. Discussion.......................................................3
IV. Vote of the committee............................................6
V. Section-by-section analysis......................................9
VI. Cost estimate...................................................12
VII. Regulatory impact statement.....................................13
VIII.Changes in existing law.........................................13
I. Purpose
Existing Federal law is not adequate to protect consumers
and American businesses from the crime of counterfeiting
copyrighted and trademarked products. Such counterfeiting is
not harmless, and is not limited to minor sectors of
inconsequential markets. Today, counterfeit products cost
American businesses an estimated $200 billion each year.
Counterfeiting is a drain on the American economy, on the
Federal treasury, and costs American jobs. Organized crime is
increasingly involved in this illegal business, reaping profits
from the investment of legitimate companies which are plowed
back into other activities traditionally associated with
organized crime. Counterfeiters are increasingly sophisticated
and traffic in every kind of product, including auto parts,
pharmaceuticals, and food products. Some of these counterfeits
threaten the health and safety of American citizens.
S. 1136 seeks to correct the deficiency by making sure that
Federal law adequately addresses the scope and sophistication
of modern counterfeiting. The legislation provides important
weapons in the fight against counterfeiters in four principal
areas. First, it increases criminal penalties for
counterfeiting and allows law enforcement to fight
counterfeiters at the organizational level by making
trafficking in counterfeit goods or services an offense under
the Racketeer Influenced and Corrupt Organizations (RICO) Act,
thereby providing increased jail time, criminal fines, and
asset forfeiture against those involved in criminal
counterfeiting enterprises. Second, the bill enhances law
enforcement's ability to fight counterfeiting more effectively
by increasing the involvement of all levels of law enforcement
in this area and expanding their power to seize counterfeit
goods and the tools of the counterfeiters' trade. Third, the
legislation helps staunch the flow of counterfeit goods by
making it easier to find counterfeit goods in transit and
making it more difficult for seized goods to reenter the stream
of commerce. And fourth, the bill strengthens the hand of
businesses harmed by counterfeiters by updating existing
statutes and providing stronger civil penalties against
counterfeiters, including civil fines tied to the value of
genuine goods and statutory damage awards of up to $1,000,000
per mark.
II. Legislative History
Counterfeiting of trademarked and copyrighted merchandise
costs legitimate American businesses billions of dollars and
results in a multimillion dollar loss in sales and tax
revenues. Congress recognized the gravity of this problem when
it enacted the Trademark Counterfeiting Act of 1984. Both the
Senate and House Reports accompanying that legislation
emphasized the harm associated with counterfeiting. The Senate
Report stated that counterfeiting
defrauds purchasers, who pay for brand-name quality and
take home only a fake. It cheats manufacturers of sales
that their reputation has earned them, and tarnishes
that reputation when the manufacturers are blamed for
the flaws of goods they did not produce. Finally, it
injures unwitting retailers, who must face the ire of
customers who discover that their brand name purchases
are in fact counterfeits.1
\1\ S. Rept. 98-526, 98th Cong., 2d sess. 4 (June 21, 1984).
The House Report similarly observed that, in addition to
presenting ``grave risks to the health and safety of consumers
of these articles,'' counterfeiting has a ``dire effect on the
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economy'':
Businesses are unjustly criticized for having sold
substandard products, when in fact the products are
fake. Consumers buy products that fall apart after
minimal use. Trademark owners lose sales to
counterfeiters, when consumers seeking the genuine
article mistakenly buy the counterfeit. As businesses
suffer economically, workers suffer a corresponding
loss of jobs.2
\2\ H. Rept. 98-997, 98th Cong., 2d sess. 5-6 (Sept. 7, 1984).
Unfortunately, no one predicted the phenomenal growth of
the crime of counterfeiting, nor the increased availability of
technology that makes counterfeiting both easy and inexpensive.
In 1982, counterfeiting losses were estimated at $5.5 billion.
Today, such losses are estimated in excess of $200 billion. In
addition, no one could have predicted the extent to which
organized crime syndicates, often operating on an international
level, would become directly involved in the manufacturing,
distributing, selling, and financing of counterfeit products.
For these reasons, the chairman of the committee, Senator
Hatch, who was joined by Senators Leahy, Thurmond, Brown, Kyl,
Abraham, and Feinstein, introduced S. 1136, in the 104th
Congress, on August 9, 1995.3 Senators Simpson, D'Amato,
Lautenberg, Heflin, and Moseley-Braun subsequently joined as
cosponsors of the legislation.
\3\ S. 1136, 104th Cong., 1st sess. (1995).
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The Senate Judiciary Committee held hearings on the bill on
October 10, 1995, at which testimony was given by Leonard
Walton, Deputy Assistant Commissioner, Office of
Investigations, U.S. Customs Service; Thomas McGann, executive
vice-president, Burton Snowboards; Dempster Leech, president,
Harper Associates, a private investigation firm that has
extensive experience investigating product counterfeiting
cases; and John S. Bliss, president of the International
Anticounterfeiting Coalition. The committee received additional
written testimony from a number of representatives of the law
enforcement and business communities.
III. Discussion
the need for s. 1136
Traditionally, counterfeiting was thought to be a small-
time criminal operation, a victimless crime, consisting of the
sale of cheap watches and sunglasses. Today, however,
counterfeiting has grown into a multibillion dollar, highly
sophisticated illegal business, increasingly involving
organized crime syndicates. According to some estimates, it
costs American business more than $200 billion every year in
lost revenue. And, according to the U. S. Customs Service, it
results in a loss of up to an estimated 750,000 jobs.
Increasingly, counterfeit products pose significant health and
safety risks as well.
Counterfeit products range from watches and sunglasses to
automobile and airplane parts; from baby formula and other food
products to computer software and packaging. Counterfeited
automobile parts such as brake pads and oil filters cost the
domestic auto industry losses of more than $12 billion. The
auto industry has estimated that if the sales of these
counterfeit products were eliminated, an additional 200,000
workers could be hired.
The U.S. software industry has estimated that sales of
pirated software equal more than 40 percent of the industry's
total revenues, which is greater than some estimates of the
entire industry's profits. The committee was shown counterfeit
software labels and packages that were copied with such
sophistication that they even included hologram labels on phony
certificates of authenticity. These packages and documents
appeared identical in every respect to the genuine articles.
American companies spend millions of dollars to research,
develop, test, and market their products. Developing high-
quality goods requires substantial investment before profits
can be recouped. The theft of the value of intellectual
property is devastating, regardless of whether the product is a
shoe, a software program, or a motion picture. It often costs
hundreds of thousands of dollars to prepare a product for
market. Once such a product is sold, a counterfeiter, using
powerful computers and copying equipment, can quickly
manufacture and sell knock-offs for a fraction of the
legitimate company's costs. The sales of knock-offs can reduce
the legitimate company's opportunity to recoup its investment
in the product. Counterfeiters and intellectual property
pirates are increasingly efficient at getting knock-offs to
market in a way to reap profits from legitimate businesses'
investments. For example, according to John Bliss, president of
the International Anti-counterfeiting Coalition, before even
the theatrical release of the much-hyped movie ``Waterworld,''
which had estimated production costs in excess of $100 million,
pirated videos of the film were being sold on the streets of
New York.
American companies invest in quality to develop valuable
consumer goodwill and brand loyalty. Thomas McGann, executive
vice-president of Burton Snowboards, testified before the
committee that, while the injury to his company from displaced
sales by cheap knock-offs was substantial, the real injury to
businesses like his comes from erosion of a company's
reputation through association of their trademark and company
name with falsely marked products, which are likely to be of
lower quality than the genuine ones.
Counterfeiters can trade on the investment of genuine
businesses in quality and goodwill, reaping profits from the
work of others. And often, because of the sophisticated
computers and copying equipment, organized crime syndicates can
reproduce the products for only a few dollars. For example,
Dempster Leech testified before the committee that
counterfeiters can have a low-quality quartz watch, similar in
outward appearance to a high-priced designer watch, shipped to
the United States from Hong Kong for as little as $3. The
counterfeiter attaches a counterfeit trade name and logo on the
watch for 50 cents. The watch can then be sold on the street
for $15 to $20, or more.
Syndicates can generate millions of dollars in profit every
year in what has been traditionally thought to be a low-risk
criminal venture. Product counterfeiting is perceived to be
low-risk because the perceived likelihood of being caught and
punished is not very high and because the penalties, if caught,
are not too great. The perception of counterfeiting as a high-
profit, low-risk venture has enticed more and more organized
crime syndicates into the business. For example, David Thai,
the former head of the Born to Kill gang based in New York
City, recently stated that he made an estimated $13 million a
year selling counterfeit Rolex and Cartier watches. Because of
the high profit ratio compared to the small risk of being
arrested, prosecuted, and punished, it has not taken long for
organized crime syndicates like Mr. Thai's gang to dominate
this illegal industry.
In three recent raids in Los Angeles, counterfeit software
and other material with a potential retail value in excess of
more than $10.5 million was seized. Three Chinese triads were
implicated in the activity. Law enforcement officials seized
software, manuals, and hologram labels. They were surprised
also to find four pounds of plastic explosives, two pounds of
TNT, shotguns, handguns, and silencers.
Sometimes the counterfeiting business becomes not just a
method of generating money to support other nefarious
activities, but also a low-risk method of furthering the more
traditional criminal businesses themselves. Recently, $400,000
worth of counterfeit handbags was seized in New Jersey. During
the raid, law enforcement officials using drug sniffing dogs
discovered that heroin had been stitched into the linings of
the counterfeit Louis Vuitton handbags. The more high-risk
contraband was masked by the apparently low-risk contraband.
The committee has also been informed that counterfeiting
businesses can provide a convenient method of laundering
profits from other criminal enterprises such as drug
trafficking.
Perhaps the most disturbing element of the counterfeit
consumer product business, however, is the increasing threat
these products pose to the health and safety of every American
man, woman, and child. For example, there have been recent
seizures of counterfeit knock-offs of a popular infant formula.
These counterfeit formulas could be deadly to any child who is
allergic to the contents of the fake products and there is no
guarantee that the counterfeit baby formulas were produced in
safe and sanitary conditions.
Law enforcement officials have seized counterfeit brake
pads made from wood chips and other substandard materials that
will fail significantly sooner than the genuine articles.
Counterfeit brake pads made of such substandard materials have
been found to have caused automobile traffic fatalities. Recent
attention has been focused on the increasing danger from bogus
airplane parts made to substandard quality which can interfere
with the proper functioning of airplanes and, therefore,
endanger the safety of passengers.
Given these facts, one would expect that counterfeiting
crimes would be a priority for law enforcement officials. In
fact, the reverse has often been the case. This is partly a
problem of the law itself and partly a problem of educating
both some sectors of law enforcement and the public. Leonard
Walton, Deputy Assistant Commissioner, Office of
Investigations, U.S. Customs Service, testified before the
committee that these crimes are often not taken as seriously as
other crimes because of a lack of understanding of the real
harms suffered by consumers and businesses and a lack of
awareness of the close connection between these crimes and the
more violent ones they often support.
Existing law is still premised upon the myth that
counterfeiting is primarily a crime committed by individuals
operating in isolation. The law does not recognize that today
most counterfeiters are part of an organized structure that
more closely resembles a sophisticated international
corporation. To combat such criminals, law enforcement officers
must be free to attack the entire organization instead of a
single person somewhere within the structure.
This reality was underscored by written testimony received
from Sgt. Tom Budds, Chief, Asian Organized Crime Unit, Los
Angeles Sheriff's Department. He reported that the Los Angeles
U.S. Attorney's office refused to take part in a case involving
the seizure of more than $10.5 million in counterfeit software
products, in part because the criminal RICO laws they
traditionally use to combat such criminal organizations would
not apply, since the RICO laws have no predicate offense
involving counterfeiting.
Moreover, there is the persistent assumption that
counterfeiting is primarily a victimless crime. Many consumers
are unaware of the dangerous collateral activities they are
financing when they purchase even such seemingly harmless items
as a counterfeit watch, handbag, or tee-shirt. According to
testimony received by the committee, the Born to Kill gang in
New York used the profits made from selling counterfeit watches
to finance a variety of criminal activities in three different
States. These included robbery, extortion, and murder. In fact,
Mr. Thai, the leader of that gang, is now serving three
consecutive life sentences following his conviction for
multiple counts of murder, robbery, and extortion.
The Anticounterfeiting Consumer Protection Act, S. 1136,
seeks to make the dangerous crime of counterfeiting a higher
priority for law enforcement and to provide those charged with
enforcing the laws the tools they need to do the job. The
committee believes that the bill will aid in fighting this
drain on the U.S. economy, and this threat to the health and
well-being of American citizens, and recommends its adoption by
the Congress.
IV. Vote of the Committee
On October 26, 1995, with a quorum present, the Senate
Committee on the Judiciary accepted an amendment offered by
Senator Leahy by unanimous consent, and then, by unanimous
consent, ordered S. 1136 favorably reported.
The amendment offered by Senator Leahy clarified the
language of Section 10 of the bill to make clear that those
subject to civil penalties for participating in the importation
of counterfeit goods should include those who ``aid and abet''
rather than those ``in any way concerned in'' the activity, and
that those penalties should be meted out at the discretion of
the U.S. Customs Service, within the boundaries set out by
Congress in the bill.
The bill, as amended, is as follows:
SECTION 1. SHORT TITLE.
This Act may be cited as the ``Anticounterfeiting Consumer
Protection Act of 1995''.
SEC. 2. FINDINGS.
The counterfeiting of trademarked and copyrighted merchandise--
(1) has been connected with organized crime;
(2) deprives legitimate trademark and copyright owners of
substantial revenues and consumer goodwill;
(3) poses health and safety threats to American consumers;
(4) eliminates American jobs; and
(5) is a multibillion-dollar drain on the United States
economy.
SEC. 3. COUNTERFEITING AS RACKETEERING.
Section 1961(1)(B) of title 18, United States Code, is amended by
inserting ``, section 2318 (relating to trafficking in counterfeit
labels for phonorecords, computer programs or computer program
documentation or packaging and copies of motion pictures or other
audiovisual works), section 2319 (relating to criminal infringement of
a copyright), section 2320 (relating to trafficking in goods or
services bearing counterfeit marks)'' after ``sections 2314 and 2315
(relating to interstate transportation of stolen property),''.
SEC. 4. APPLICATION TO COMPUTER PROGRAMS, COMPUTER PROGRAM
DOCUMENTATION, OR PACKAGING.
Section 2318 of title 18, United States Code, is amended--
(1) in subsection (a), by inserting ``a computer program or
computer program documentation or packaging or'' after ``copy
of'';
(2) in subsection (b)(3), by inserting ``computer program,''
after ``motion picture,''; and
(3) in subsection (c)(3), by inserting ``a copy of a computer
program or computer program documentation or packaging,'' after
``enclose,''.
SEC. 5. TRAFFICKING IN COUNTERFEIT GOODS OR SERVICES.
Section 2320 of title 18, United States Code, is amended by adding
at the end the following new subsection:
``(e) Beginning with the first year after the date of enactment of
this subsection, the Attorney General shall include in the report of
the Attorney General to Congress on the business of the Department of
Justice prepared pursuant to section 522 of title 28, on a district by
district basis, for all actions involving trafficking in counterfeit
labels for phonorecords, copies of computer programs or computer
program documentation or packaging, copies of motion pictures or other
audiovisual works (as defined in section 2318 of title 18), criminal
infringement of copyrights (as defined in section 2319 of title 18), or
trafficking in goods or services bearing counterfeit marks (as defined
in section 2320 of title 18, an accounting of--
``(1) the number of open investigations;
``(2) the number of cases referred by the United States
Customs Service;
``(3) the number of cases referred by other agencies or
sources; and
``(4) the number and outcome, including settlements,
sentences, recoveries, and penalties, of all prosecutions
brought under sections 2318, 2319, and 2320 of title 18.''.
SEC. 6. SEIZURE OF COUNTERFEIT GOODS.
Section 34(d)(9) of the Act of July 5, 1946 (60 Stat. 427, chapter
540; 15 U.S.C. 1116(d)(9)), is amended by striking the first sentence
and inserting the following: ``The court shall order that service of a
copy of the order under this subsection shall be made by a Federal law
enforcement officer (such as a United States marshal or an officer or
agent of the United States Customs Service, Secret Service, Federal
Bureau of Investigation, or Post Office) or may be made by a State or
local law enforcement officer, who, upon making service, shall carry
out the seizure under the order.''.
SEC. 7. RECOVERY FOR VIOLATION OF RIGHTS.
Section 35 of the Act of July 5, 1946 (60 Stat. 427, chapter 540;
15 U.S.C. 1117), is amended by adding at the end the following new
subsection:
``(c) In a case involving the use of a counterfeit mark (as defined
in section 34(d) (15 U.S.C. 1116(d)) in connection with the sale,
offering for sale, or distribution of goods or services, the plaintiff
may elect, at any time before final judgment is rendered by the trial
court, to recover, instead of actual damages and profits under
subsection (a), an award of statutory damages for any such use in the
amount of--
``(1) not less than $500 or more than $100,000 per
counterfeit mark per type of goods or services sold, offered
for sale, or distributed, as the court considers just; or
``(2) if the court finds that the use of the counterfeit mark
was willful, not more than $1,000,000 per counterfeit mark per
type of goods or services sold, offered for sale, or
distributed, as the court considers just.''.
SEC. 8. DISPOSITION OF EXCLUDED ARTICLES.
Section 603(c) of title 17, United States Code, is amended in the
second sentence by striking ``as the case may be,'' and all that
follows through the end and inserting ``as the case may be.''.
SEC. 9. DISPOSITION OF MERCHANDISE BEARING AMERICAN TRADEMARK.
Section 526(e) of the Tariff Act of 1930 (19 U.S.C. 1526(e)) is
amended--
(1) in the second sentence, by inserting ``destroy the
merchandise. Alternatively, if the merchandise is not unsafe or
a hazard to health, and the Secretary has the consent of the
trademark owner, the Secretary may'' after ``shall, after
forfeiture,'';
(2) by inserting ``or'' at the end of paragraph (2);
(3) by striking ``, or'' at the end of paragraph (3) and
inserting a period; and
(4) by striking paragraph (4).
SEC. 10. CIVIL PENALTIES.
Section 526 of the Tariff Act of 1930 (19 U.S.C. 1526) is amended
by adding at the end the following new subsection:
``(f)(1) Any person who directs, assists financially or otherwise,
or aids and abets the importation of merchandise for sale or public
distribution that is seized under subsection (e) shall be subject to a
civil fine.
``(2) For the first such seizure, the fine shall be not more than
the value that the merchandise would have had if it were genuine,
according to the manufacturer's suggested retail price, determined
under regulations promulgated by the Secretary.
``(3) For the second seizure and thereafter, the fine shall be not
more than twice the value that the merchandise would have had if it
were genuine, as determined under regulations promulgated by the
Secretary.
``(4) The imposition of a fine under this subsection shall be
within the discretion of the United States Customs Service, and shall
be in addition to any other civil or criminal penalty or other remedy
authorized by law.''.
SEC. 11. PUBLIC DISCLOSURE OF AIRCRAFT MANIFESTS.
Section 431(c)(1) of the Tariff Act of 1930 (19 U.S.C. 1431(c)(1))
is amended--
(1) in the matter preceding subparagraph (A), by inserting
``vessel or aircraft'' before ``manifest'';
(2) by amending subparagraph (D) to read as follows:
``(D) The name of the vessel, aircraft, or
carrier.'';
(3) by amending subparagraph (E) to read as follows:
``(E) The seaport or airport of loading.''; and
(4) by amending subparagraph (F) to read as follows:
``(F) The seaport or airport of discharge.''.
SEC. 12. CUSTOMS ENTRY DOCUMENTATION.
Section 484(d) of the Tariff Act of 1930 (19 U.S.C. 1484(d)) is
amended--
(1) by striking ``Entries'' and inserting ``(1) Entries'';
and
(2) by adding at the end the following new paragraph:
``(2) The Secretary, in prescribing regulations
governing the content of entry documentation, shall
require that entry documentation contain such
information as may be necessary to determine whether
the imported merchandise bears an infringing trademark
in violation of section 42 of the Act of July 5, 1946
(60 Stat. 440, chapter 540; 15 U.S.C. 1124) or any
other applicable law, including a trademark appearing
on the goods or packaging.''.
SEC. 13. UNLAWFUL USE OF VESSELS, VEHICLES, AND AIRCRAFT IN AID OF
COMMERCIAL COUNTERFEITING.
Section 80302(a) of title 49, United States Code, is amended--
(1) by striking ``or'' at the end of paragraph (4);
(2) by striking the period at the end of paragraph (5) and
inserting ``; or''; and
(3) by adding at the end the following new paragraph:
``(6)(A) A counterfeit label for a phonorecord,
computer program or computer program documentation or
packaging or copy of a motion picture or other
audiovisual work (as defined in section 2318 of title
18);
``(B) a phonorecord or copy in violation of section
2319 of title 18; or
``(C) any good bearing a counterfeit mark (as defined
in section 2320 of title 18).''.
SEC. 14. REGULATIONS.
Not later than 6 months after the date of enactment of this Act,
the Secretary of the Treasury shall prescribe such regulations or
amendments to existing regulations that may be necessary to implement
and enforce this Act.
V. Section-by-Section Analysis
section 1. short title
This section sets forth the title of the Act, the
``Anticounterfeiting Consumer Protection Act of 1995''.
section 2. findings
This section contains the findings, which state that the
counterfeiting of trademarked and copyrighted merchandise (1)
has been connected with organized crime; (2) deprives
legitimate trademark and copyright owners of substantial
revenues and consumer goodwill; (3) poses health and safety
threats to American consumers; (4) eliminates American jobs;
and (5) is a multibillion-dollar drain on the United States
economy.
section 3. counterfeiting as racketeering
This section amends section 1961(1)(B) of title 18 to make
trafficking in counterfeit goods a Racketeer Influenced and
Corrupt Organizations (RICO) predicate offense. By extending
the Federal RICO statute to cover criminal infringement and
trafficking in counterfeit products, including phonorecords,
computer programs, and video products, the act expands the
power of law enforcement to seize the fruits, raw materials,
and tools of criminal counterfeiting enterprises and provides
an additional statutory basis for prosecution of
counterfeiters. This section makes it possible to combat the
entire structure of a counterfeiting organization, from those
providing the financing to those involved in the manufacture,
distribution, and sale of the copies. And, it enhances the
penalties faced by those criminal organizations engaging in
this illegal enterprise.
section 4. application to computer programs, computer program
documentation, or packaging
This section amends section 2318 of title 18 to make it a
crime to traffic in computer software programs, computer
program labels and computer software packaging. The prohibition
in current law only applies to record and video labels. The
section will make sure that the same protections provided these
products will also be available for the computer industry, one
of the primary targets of counterfeiting operations today. In
addition, by including the trafficking of counterfeit labels
and packaging under RICO, a counterfeiter will no longer be
able to traffic in the components of a computer software
product, closing a potential legal loophole.
section 5. trafficking in counterfeit goods or services
This section, which amends section 2320 of title 18,
requires the U.S. Attorney General to include in his or her
annual report to Congress statistics relating to all criminal
counterfeiting actions. This provision will make it easier to
assess the extent to which commercial counterfeiting is being
investigated and prosecuted by federal officials. In addition,
according to testimony received by the committee, several
witnesses concluded that requiring statistical reporting by the
Attorney General of anticounterfeiting activities will
facilitate prosecution of these offenses.
section 6. seizure of counterfeit goods
This provision amends section 34(d)(9) of the Lanham Act to
make it clear that in a civil action, any Federal or local law
enforcement officer can execute a seizure order, which reduces
the risk that seizure orders will go unexecuted because of a
personnel shortage of any particular law enforcement
department. This provision also removes any confusion about
whether local law enforcement officers may execute a Federal
court's seizure order. This provision does not interfere with
constitutional concerns relating to comity between Federal and
State governments, however. The language allowing State and
local law enforcement officers to carry out seizure orders is
permissive, not mandatory. Consequently, a State or local law
enforcement officer could not be compelled to execute a Federal
court's order. Moreover, by making it clear that any Federal or
local officer may carry out the seizure, it may be easier for
civil litigants to actually seize counterfeit goods before the
counterfeiters are able to move their products to another
jurisdiction.
section 7. recovery for violation of rights
This section amends section 35 of the Lanham Act, allowing
civil litigants the option of obtaining discretionary,
judicially imposed damages in trademark counterfeiting cases,
instead of actual damages. The committee recognizes that under
current law, a civil litigant may not be able to prove actual
damages if a sophisticated, large-scale counterfeiter has
hidden or destroyed information about his counterfeiting.
Moreover, counterfeiters' records are frequently
nonexistent, inadequate or deceptively kept in order to
willfully deflate the level of counterfeiting activity actually
engaged in, making proving actual damages in these cases
extremely difficult if not impossible. Enabling trademark
owners to elect statutory damages is both necessary and
appropriate in light of the deception routinely practiced by
counterfeiters. The amounts are appropriate given the extent of
damage done to business goodwill by infringement of trademarks.
section 8. disposition of excluded articles
This section eliminates a provision found in section 603(c)
of title 17 that has been interpreted to allow seized pirated
goods to be returned to the importer. Custom officials have
complained of a frustrating cycle under current law. Pirated
goods are seized at one location and then returned to the
importer. This individual then tries to bring the same products
into the country at a different location. There have been times
when U.S. Customs Service officials have seized the same goods
three and four times. Under this section, the rule would be for
government officials to destroy pirated products once they are
seized.
section 9. disposition of merchandise bearing american trademark
This provision amends section 526(e) of the Tariff Act to
ensure that counterfeits of American products are routinely
destroyed, unless there is no public safety risk and the
trademark owner agrees to some other disposition of the
merchandise (e.g., delivery of the merchandise to charity).
Once again, this provision is necessary to ensure that
counterfeited merchandise is not returned to the criminal
importer who will simply redistribute the counterfeit goods.
section 10. civil penalties
This section amends section 526 of the Tariff Act to allow
a U.S. Customs Service officer to impose civil fines on those
involved in the importation of counterfeit goods. This
provision gives the U.S. Customs Service the discretion to
impose a fine, up to the value of the merchandise if it were
genuine, for the first seizure. For the second and subsequent
seizures, the fine may be an amount up to twice the value of
the merchandise if it were genuine. This provision has two
primary purposes. First, it will provide a deterrent to
counterfeiting in cases in which resources are not available to
bring a criminal case. Second, it makes penalties related to
counterfeit products at least as stringent as those penalties
applied to counterfeits made in this country.
section 11. public disclosure of aircraft manifests
This section amends section 431(c)(1) of the Tariff Act to
permit public disclosure of aircraft manifests under the same
terms currently allowed for sea shipments. Under current law,
the U.S. Customs Service routinely discloses information
relating to the nature of shipments imported by sea. This
information has proven to be extremely valuable to U.S.
trademark holders who are trying to trace or interdict the
entry of counterfeit goods.
Additional authority is needed, however, to disclose the
same information for shipments by air. Since most low-weight,
high value counterfeits are shipped by air, trademark holders
need access to air shipment data as well as sea shipment data
if they are to be able to better assist enforcement officials
in identifying counterfeiters and stopping the flow of
fraudulent goods transported in this manner. Moreover, this
provision eliminates the unwarranted and out-of-date
distinction between information required about goods shipped by
sea as compared to goods shipped by air.
section 12. customs entry documentation
This section amends section 484(d) of the Tariff Act to
require that the U.S. Customs Service's entry documentation,
required to be completed by importers, provide information
about trademarks on their goods or packaging that would help
the U.S. Customs Service to determine whether those trademarks
are valid.
This provision enables the Customs Service, assisted by
trademark owners, to identify shipments likely to contain
counterfeit products because they come from a location where
goods bearing a particular mark are not legitimately
manufactured. For example, information that a shipment of Rolex
watches originated from China would cause concern since Rolex
watches are manufactured only in Switzerland.
This provision should not be burdensome to legitimate
businesses or to the U.S. Customs Service since most businesses
already identify their trademarks on shipping documents, and
identification of the trademark would add very little to the
other shipping data already required to be recorded. Requiring
trademark information to appear on entry documentation could
significantly assist both law enforcement personnel and
trademark owners to identify counterfeit goods and to locate
both counterfeiters and importers of counterfeit goods. Because
of the role of trademark owners in this process, the trademark
information contained in the entry documentation should be made
publicly available in a form that permits the trademark owner
to discover shipments purporting to contain its products.
In promulgating regulations under this section, the
Secretary should ensure that such information is made publicly
available in an expeditious and efficient manner. To accomplish
this end, the Secretary may require that trademark information
be included on vessel or aircraft manifests (as prescribed by
19 U.S.C. 1431). If the Secretary does so, this information
should be made publicly available in a manner consistent with
the way other manifest data is made publicly available.
SECTION 13. UNLAWFUL USE OF VESSELS, VEHICLES, AND AIRCRAFT IN AID OF
COMMERCIAL COUNTERFEITING
This section amends section 80302(a) of title 49 to include
counterfeit goods as ``contraband'' items. This allows law
enforcement officials to seize vehicles, vessels, and aircraft
used in counterfeiting operations. This provision will assist
law enforcement officials to combat today's highly organized
counterfeiters. Since other contraband products already listed
under current law, such as narcotics, are routinely shipped by
organized crime syndicates, this provision simply adds the most
recent of organized crime's illegal product lines to the list
of contraband products. Indeed, the committee heard testimony
regarding an instance in which counterfeit handbags were
imported into the United States carrying concealed quantities
of other contraband, including drugs such as heroin.
SECTION 14. REGULATIONS
This section requires the Secretary of the Treasury to
prescribe any necessary regulations governing application of
this act no later than 6 months after the date of enactment of
this act.
VI. Cost Estimate
U.S. Congress,
Congressional Budget Office,
Washington, DC, November 2, 1995.
Hon. Orrin G. Hatch,
Chairman, Committee on the Judiciary,
U.S. Senate, Washington, D.C.
Dear Mr. Chairman: The Congressional Budget Office has
reviewed S. 1136, the Anticounterfeiting Consumer Protection
Act of 1995, as ordered reported by the Senate Committee on the
Judiciary on October 26, 1995. CBO estimates that enacting this
legislation would have no significant impact on the federal
budget. While the bill could lead to increases in both direct
spending and receipts, the amounts involved would be less than
$500,000 a year. Because S. 1136 could affect direct spending
and receipts, pay-as-you-go procedures would apply. The bill
would not affect the budgets of state or local governments.
S. 1136 would make several changes to current law that aim
to prevent commercial counterfeiting. Violators of certain
provisions would be subject to civil or criminal fines, or
forfeiture of assets.
Enacting S. 1136 could increase governmental receipts from
additional fine collections, but we estimate that any such
increase would be less than $500,000 annually. Civil penalties
would be recorded in the budget as miscellaneous receipts to
the Treasury. Criminal fines would be deposited in the Crime
Victims Fund and would be spent in the following year. (Thus,
direct spending from the fund would match the increase in
revenues with a one-year lag.) Enacting this legislation also
could increase governmental receipts from additional
forfeitures of criminals' assets, but we estimate that any such
increase also would be less than $500,000 annually in value.
Proceeds from the sale of any such assets would be deposited as
revenues into the Assets Forfeiture Fund of the Department of
Justice and spent out of the fund in the same year. Thus,
direct spending from the Assets Forfeiture Fund would match any
increase in revenues.
If you wish further details on this estimate, we will be
pleased to provide them. The CBO staff contact is Mark
Grabowicz.
Sincerely,
June E. O'Neill, Director.
VII. Regulatory Impact Statement
In accordance with paragraph 11(b), rule XXVI of the
Standing Rules of the Senate, the Committee, after due
consideration, concludes that the act will not have significant
regulatory impact.
VIII. Changes in Existing Law
In compliance with paragraph 12 of rule XXVI of the
Standing Rules of the Senate, the changes in existing law made
by the bill, as reported by the committee, are shown as follows
(existing law proposed to be omitted is enclosed in bold
brackets, new matter is printed in italic, and existing law
with no changes is printed in roman):
UNITED STATES CODE
* * * * * * *
TITLE 15--COMMERCE AND TRADE
* * * * * * *
CHAPTER 22--TRADEMARKS
* * * * * * *
Sec. 1116. Injunctive relief
(a) Jurisdiction; Service.--* * *
* * * * * * *
(d) Civil Actions Arising Out of Use of Counterfeit
Marks.--(1)(A) In the case of a civil action arising under
section 1114(1)(a) of this title or section 380 of Title 36
with respect to a violation that consists of using a
counterfeit mark in connection with the sale, offering for
sale, or distribution of goods or services, the court may, upon
ex parte application, grant an order under subsection (a) of
this section pursuant to this subsection providing for the
seizure of goods and counterfeit marks involved in such
violation and the means of making such marks, and records
documenting the manufacture, sale, or receipt of things
involved in such violation.
* * * * * * *
(9) [The court shall order that a United States marshal or
other law enforcement officer is to serve a copy of the order
under this subsection and then is to carry out the seizure
under such order.] The court shall order that service of a copy
of the order under this subsection shall be made by a Federal
law enforcement officer (such as a United States marshal or an
officer or agent of the United States Customs Service, Secret
Service, Federal Bureau of Investigation, or Post Office) or
may be made by a State or local law enforcement officer, who,
upon making service, shall carry out the seizure under the
order. The court shall issue orders, when appropriate, to
protect the defendant from undue damage from the disclosure of
trade secrets or other confidential information during the
course of the seizure, including, when appropriate, orders
restricting the access of the applicant (or any agent or
employee of the applicant) to such secrets or information.
* * * * * * *
Sec. 1117. Recovery for violation of rights
(a) Profits; Damages and Costs; Attorney Fees.--* * *
* * * * * * *
(c) In a case involving the use of a counterfeit mark (as
defined in section 34(d) (15 U.S.C. 1116(d)) in connection with
the sale, offering for sale, or distribution of goods or
services, the plaintiff may elect, at any time before final
judgment is rendered by the trial court, to recover, instead of
actual damages and profits under subsection (a), an award of
statutory damages for any such use in the amount of--
(1) not less than $500 or more than $100,000 per
counterfeit mark per type of goods or services sold,
offered for sale, or distributed, as the court
considers just; or
(2) if the court finds that the use of the counterfeit
mark was willful, not more than $1,000,000 per counterfeit mark
per type of goods or services sold, offered for sale, or
distributed, as the court considers just.
* * * * * * *
TITLE 17--COPYRIGHTS
* * * * * * *
CHAPTER 6--MANUFACTURING REQUIREMENTS AND IMPORTATION
* * * * * * *
Sec. 603. Importation prohibitions: Enforcement and dispositions of
excluded articles
(a) The Secretary of the Treasury and the United States
Postal Service shall separately or jointly make regulations for
the enforcement of the provisions of this title prohibiting
importation.
* * * * * * *
(c) Articles imported in violation of the importation
prohibitions of this title are subject to seizure and
forfeiture in the same manner as property imported in violation
of the customs revenue laws. Forfeited articles shall be
destroyed as directed by the Secretary of the Treasury or the
court, [as the case may be, however, the articles may be
returned to the country of export whenever it is shown to the
satisfaction of the Secretary of the Treasury that the importer
had no reasonable grounds for believing that his or her acts
constituted a violation of law] as the case may be.
* * * * * * *
TITLE 18--CRIMES AND CRIMINAL PROCEDURE
* * * * * * *
CHAPTER 96--RACKETEER INFLUENCED AND CORRUPT ORGANIZATIONS
* * * * * * *
Sec. 1961. Definitions
As used in this chapter--
(1) ``racketeering activity'' means (A) any act or
threat involving murder, kidnapping, gambling, arson,
robbery, bribery, extortion, dealing in obscene matter,
or dealing in a controlled substance or listed chemical
(as defined in section 102 of the Controlled Substances
Act), which is chargeable under State law and
punishable by imprisonment for more than one year; (B)
any act which is indictable under any of the following
provisions of title 18, United States Code: Section 201
(relating to bribery), section 224 (relating to sports
bribery), sections 471, 472, and 473 (relating to
counterfeiting), section 659 (relating to theft from
interstate shipment) if the act indictable under
section 659 is felonious, section 664 (relating to
embezzlement from pension and welfare funds), sections
891-894 (relating to extortionate credit transactions),
section 1029 (relating to fraud and related activity in
connection with access devices), section 1084 (relating
to the transmission of gambling information), section
1341 (relating to mail fraud), section 1343 (relating
to wire fraud), section 1344 (relating to financial
institution fraud), sections 1461-1465 (relating to
obscene matter), section 1503 (relating to obstruction
of justice), section 1510 (relating to obstruction of
criminal investigations), section 1511 (relating to the
obstruction of State or local law enforcement), section
1512 (relating to tampering with a witness, victim, or
an informant), section 1513 (relating to retaliating
against a witness, victim, or an informant), section
1951 (relating to interference with commerce, robbery,
or extortion), section 1952 (relating to racketeering),
section 1953 (relating to interstate transportation of
wagering paraphernalia), section 1954 (relating to
unlawful welfare fund payments), section 1955 (relating
to the prohibition of illegal gambling businesses),
section 1956 (relating to the laundering of monetary
instruments), section 1957 (relating to engaging in
monetary transactions in property derived from
specified unlawful activity), section 1958 (relating to
use of interstate commerce facilities in the commission
of murder-for-hire), sections 2251, 2251A, 2252, and
2258 (relating to sexual exploitation of children),
sections 2312 and 2313 (relating to interstate
transportation of stolen motor vehicles), sections 2314
and 2315 (relating to interstate transportation of
stolen property) section 2318 (relating to trafficking
in counterfeit labels for phonorecords, computer
programs or computer program documentation or packaging
and copies of motion pictures or other audiovisual
works), section 2319 (relating to criminal infringement
of a copyright), section 2320 (relating to trafficking
in goods or services bearing counterfeit marks),
section 2321 (relating to trafficking in certain motor
vehicles or motor vehicle parts), sections 2341-2346
(relating to trafficking in contraband cigarettes),
section 2421-24 (relating to white slave traffic), (C)
any act which is indictable under title 29, United
States Code, section 186 (dealing with restrictions on
payments and loans to labor organizations) or section
501(c) (relating to embezzlement from union funds), (D)
any offense involving fraud connected with a case under
title 11 (except a case under section 157 of that title
\1\), fraud in the sale of securities, or the felonious
manufacture, importation, receiving, concealment,
buying, selling, or otherwise dealing in a controlled
substance or listed chemical (as defined in section 102
of the Controlled Substances Act), punishable under any
law of the United States, or (E) any act which is
indictable under the Currency and Foreign Transactions
Reporting Act;
* * * * * * *
CHAPTER 113--STOLEN PROPERTY
* * * * * * *
Sec. 2318. Trafficking in counterfeit labels for phonorecords and
copies of motion pictures or other audiovisual
works
(a) Whoever, in any of the circumstances described in
subsection (c) of this section, knowingly traffics in a
counterfeit label affixed or designed to be affixed to a
phonorecord, or a copy of a computer program or computer
program documentation or packaging or a motion picture or other
audiovisual work, shall be fined under this title or imprisoned
for not more than five years, or both.
(b) As used in this section--
(1) the term ``counterfeit label'' means an
identifying label or container that appears to be
genuine, but is not;
(2) the term ``traffic'' means to transport, transfer
or otherwise dispose of, to another, as consideration
for anything of value or to make or obtain control of
with intent to so transport, transfer or dispose of;
and
(3) the terms ``copy'', ``phonorecord'', ``motion
picture'', ``computer program,'' and ``audiovisual
work'' have, respectively, the meanings given those
terms in section 101 (relating to definitions) of title
17.
(c) The circumstances referred to in subsection (a) of this
section are--
(1) the offense is committed within the special
maritime and territorial jurisdiction of the United
States; or within the special aircraft jurisdiction of
the United States (as defined in section 46501 of title
49);
(2) the mail or a facility of interstate or foreign
commerce is used or intended to be used in the
commission of the offense; or
(3) the counterfeit label is affixed to or encloses,
or is designed to be affixed to or enclose, a copy of a
computer program or computer program documentation or
packaging, a copyrighted motion picture or other
audiovisual work, or a phonorecord of a copyrighted
sound recording.
* * * * * * *
Sec. 2320. Trafficking in counterfeit goods or services
(a) Whoever intentionally traffics or attempts to traffic
in goods or services and knowingly uses a counterfeit mark on
or in connection with such goods or services shall, if an
individual, be fined not more than $2,000,000 or imprisoned not
more than 10 years, or both, and, if a person other than an
individual, be fined not more than $5,000,000. In the case of
an offense by a person under this section that occurs after
that person is convicted of another offense under this section,
the person convicted, if an individual, shall be fined not more
than $5,000,000 or imprisoned not more than 20 years, or both,
and if other than an individual, shall be fined not more than
$15,000,000.
* * * * * * *
(e) Beginning with the first year after the date of
enactment of this subsection, the Attorney General shall
include in the report of the Attorney General to Congress on
the business of the Department of Justice prepared pursuant to
section 522 of title 28, on a district by district basis, for
all actions involving trafficking in counterfeit labels for
phonorecords, copies of computer programs or computer program
documentation or packaging, copies of motion pictures or other
audiovisual works (as defined in section 2318 of title 18),
criminal infringement of copyrights (as defined in section 2319
of title 18), or trafficking in goods or services bearing
counterfeit marks (as defined in section 2320 of title 18, an
accounting of--
(1) the number of open investigations;
(2) the number of cases referred by the United States
Customs Service;
(3) the number of cases referred by other agencies or
sources; and
(4) the number and outcome, including settlements,
sentences, recoveries, and penalties, of all
prosecutions brought under sections 2318, 2319, and
2320 of title 18.
* * * * * * *
TITLE 19--CUSTOMS DUTIES
* * * * * * *
CHAPTER 4--TARIFF ACT OF 1930
* * * * * * *
Sec. 1431. Manifests; requirement, form, and contents
(a) In General.--Every vessel required to make entry under
section 1434 of this title or obtain clearance under section 91
of the Appendix to Title 46 shall have a manifest that complies
with the requirements prescribed under subsection (d) of this
section.
* * * * * * *
(c) Public Disclosure of Information.--(1) Except as
provided in subparagraph (2), the following information, when
contained in such vessel or aircraft manifest, shall be
available for public disclosure:
(A) The name and address of each importer or
consignee and the name and address of the shipper to
such importer or consignee, unless the importer or
consignee has made a biennial certification, in
accordance with procedures adopted by the Secretary of
the Treasury, claiming confidential treatment of such
information.
(B) The general character of the cargo.
(C) The number of packages and gross weight.
[(D) The name of the vessel or carrier.]
(D) The name of the vessel, aircraft, or carrier.
[(E) The port of loading.]
(E) The seaport or airport of loading.
[(F) The port of discharge.]
(F) The seaport or airport of discharge.
(G) The country of origin of the shipment.
* * * * * * *
Sec. 1484. Entry of merchandise
(a) Requirement and Time.--(1) Except as provided in
sections 1490, 1498, 1552, 1553, and 1336(j) of this title, one
of the parties qualifying as ''importer of record'' under
paragraph (2)(B), either in person or by an agent authorized by
the party in writing, shall, using reasonable care--
* * * * * * *
(d) Signing and Contents.--[Entries] (1) Entries shall be
signed by the importer of record, or his agent, unless filed
pursuant to an electronic data interchange system. If
electronically filed, each transmission of data shall be
certified by an importer of record or his agent, one of whom
shall be resident in the United States for purposes of
receiving service of process, as being true and correct to the
best of his knowledge and belief, and such transmission shall
be binding in the same manner and to the same extent as a
signed document. The entry shall set forth such facts in regard
to the importation as the Secretary may require and shall be
accompanied by such invoices, bills of lading, certificates,
and documents, or their electronically submitted equivalents,
as are required by regulation.
(2) The Secretary, in prescribing regulations governing the
content of entry documentation, shall require that entry
documentation contain such information as may be necessary to
determine whether the imported merchandise bears an infringing
trademark in violation of section 42 of the Act of July 5, 1946
(60 Stat. 440, chapter 540; 15 U.S.C. 1124) or any other
applicable law, including a trademark appearing on the goods of
packaging.
* * * * * * *
Sec. 1526. Merchandise bearing American trademark
importation prohibited
(a) Except as provided in subsection (d) of this section,
it shall be unlawful to import into the United States any
merchandise of foreign manufacture if such merchandise, or the
label, sign, print, package, wrapper, or receptacle, bears a
trademark owned by a citizen of, or by a corporation or
association created or organized within, the United States, and
registered in the Patent and Trademark Office by a person
domiciled in the United States, under the provisions of
sections 81 to 109 of Title 15, and if a copy of the
certificate of registration of such trademark is filed with the
Secretary of the Treasury, in the manner provided in section
106 of said Title 15, unless written consent of the owner of
such trademark is produced at the time of making entry.
* * * * * * *
(e) Merchandise Bearing Counterfeit Mark; Seizure and
Forfeiture; Disposition of Seized Goods.--Any such merchandise
bearing a counterfeit mark (within the meaning of section 1127
of Title 15) imported into the United States in violation of
the provisions of section 1124 of Title 15, shall be seized
and, in the absence of the written consent of the trademark
owner, forfeited for violations of the customs laws. Upon
seizure of such merchandise, the Secretary shall notify the
owner of the trademark, and shall, after forfeiture, destroy
the merchandise. Alternatively, if the merchandise is not
unsafe or a hazard to health, and the Secretary has the consent
of the trademark owner, the Secretary may obliterate the
trademark where feasible and dispose of the goods seized--
(1) by delivery to such Federal, State, and local
government agencies as in the opinion of the Secretary
have a need for such merchandise,
(2) by gift to such eleemosynary institutions as in
the opinion of the Secretary or have a need for such
merchandise, or
(3) more than 1 year after the date of forfeiture, by
sale by appropriate customs officers at public auction
under such regulations as the Secretary prescribes,
except that before making any such sale the Secretary
shall determine that no Federal, State, or local
government agency or eleemosynary institution has
established a need for such merchandise under paragraph
(1) or (2)[, or].
[(4) if the merchandise is unsafe or a hazard to
health, by destruction.]
(f)(1) Any person who directs, assists financially or
otherwise, or is in any way concerned in the importation of
merchandise for sale or public distribution that is seized
under subsection (e) shall be subject to a civil fine.
(2) For the first such seizure, the fine shall be equal to
the value that the merchandise would have had if it were
genuine, according to the manufacturer's suggested retail
price, determined under regulations promulgated by the
Secretary.
(3) For the second seizure and thereafter, the fine shall
be equal to twice the value that the merchandise would have had
if it were genuine, as determined under regulations promulgated
by the Secretary.
(4) The imposition of a fine under this subsection shall be
within the discretion of the United States Customs Service, and
shall be in addition to any other civil or criminal penalty or
other remedy authorized by law.
* * * * * * *
TITLE 49--TRANSPORTATION
* * * * * * *
CHAPTER 803--CONTRABAND
* * * * * * *
Sec. 80302. Prohibitions
(a) Definition.--In this section, ``contraband'' means--
(1) a narcotic drug (as defined in section 102 of the
Comprehensive Drug Abuse Prevention and Control Act of
1970 (21 U.S.C. 802)), including marijuana (as defined
in section 102 of that Act (21 U.S.C. 802)), that--
* * * * * * *
(4) material or equipment used, or intended to be
used, in making a coin, obligation, or other security
referred to in clause (3) of this subsection; [or]
(5) a cigarette involved in a violation of chapter
114 of title 18 or a regulation prescribed under
chapter 114[.] ; or
(6)(A) A counterfeit label for a phonorecord,
computer program or computer program documentation of
packaging or copy of a motion picture or other
audiovisual work (as defined in section 2318 of title
18);
(B) a phonorecord or copy in violation of section
2319 of title 18; or
(C) any good bearing a counterfeit mark (as defined
in section 2320 of title 18).
* * * * * * *