[Federal Register Volume 63, Number 58 (Thursday, March 26, 1998)]
[Proposed Rules]
[Pages 14662-14668]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-7969]


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DEPARTMENT OF THE TREASURY

Customs Service

19 CFR Part 133

RIN 1515-AB49


Gray Market Imports and Other Trademarked Goods

AGENCY: Customs Service, Department of the Treasury.

ACTION: Proposed rule.

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SUMMARY: This document proposes to amend the Customs Regulations in 
light of the 1993 decision of the U.S. Court of Appeals for the 
District of Columbia in Lever Bros. Co. v. United States. In line with 
that decision, the proposed rule would, upon application by the U.S 
trademark owner, restrict importation of certain gray market articles 
that bear genuine trademarks identical to or substantially 
indistinguishable from those appearing on articles authorized by the 
U.S. trademark owner for importation or sale in the U.S., and that 
thereby create a likelihood of consumer confusion, in circumstances 
where the gray market articles and those bearing the authorized U.S 
trademark are physically and materially different. The proposed 
restrictions would apply notwithstanding that the U.S. and foreign 
trademark owners are the same, are parent and subsidiary companies, or 
are otherwise subject to common ownership or control. The proposed 
restrictions would not be applicable if the otherwise restricted 
articles are labeled in accordance with proposed standards to eliminate 
consumer confusion.
    In addition, it is proposed to reorganize the Customs Regulations, 
with respect to importations bearing recorded trademarks or trade 
names, in order to clarify Customs enforcement of trademark rights as 
they relate to products bearing counterfeit, copying, or simulating 
marks and trade names, and to clarify Customs enforcement against gray 
market goods.

DATES: Comments must be received on or before May 26, 1998.

ADDRESSES: Comments (preferably in triplicate) must be submitted to and 
may be inspected at the Regulations Branch, U.S. Customs Service, 1300 
Pennsylvania Avenue, NW., 3rd Floor, Washington, DC 20229.

FOR FURTHER INFORMATION CONTACT: Michael Smith, Intellectual Property 
Rights Branch, (202-927-2330).

SUPPLEMENTARY INFORMATION:

Background

    On January 15, 1993, the United States Court of Appeals for the 
District of Columbia issued a decision in Lever Bros. Co. v. United 
States, 981 F.2d 1330 (D.C. Cir. 1993) (Lever) regarding certain 
prohibitions against the importation of certain ``gray market'' goods. 
In general, gray market goods are articles that are genuine but are not 
authorized for importation by the U.S trademark owner. In light of this 
decision, a number of regulatory changes to part 133, Customs 
Regulations (19 CFR part 133) are proposed.

The Lever Decision

    Lever Brothers Company (``Lever U.S.'') owned the domestic 
trademarks ``SHIELD'' and ``SUNLIGHT,'' and manufactured products in 
the United States bearing those trademarks. Lever Brothers Limited 
(``Lever U.K.'') owned the foreign trademarks ``SHIELD'' and 
``SUNLIGHT,'' and manufactured products abroad bearing those 
trademarks. Lever U.S. and Lever U.K. were affiliated through Unilever, 
a Dutch company. The Lever court proceeded on the uncontested 
assumption that the articles produced for the U.S. and foreign markets 
respectively differed in terms of composition, and performance 
characteristics, among other things.
    A third party, unrelated to either Lever U.S. or Lever U.K., 
imported into the United States, without the authorization of Lever 
U.S., ``SHIELD'' deodorant soap and ``SUNLIGHT'' dishwashing products 
manufactured abroad by Lever U.K. Customs declined to restrict these 
importations, based on Sec. 133.21(c)(2) of the Customs Regulations, 19 
CFR 133.21(c)(2), which states that no protection against unauthorized 
genuine goods bearing otherwise restricted marks is provided when the 
foreign and domestic trademark owners are subject to common ownership 
or control.
    Lever U.S. brought suit to compel Customs to deny entry, claiming 
that the differences between the Lever U.K. and Lever U.S. products 
resulted in consumer confusion and deception about the nature and 
origin of the imported merchandise, thereby constituting a violation of 
section 42 of

[[Page 14663]]

the Lanham Act, 15 U.S.C. 1124. The Appellate Court found that section 
42 of the Lanham Act precludes the application of Customs' affiliate 
exception with respect to physically, materially different goods. The 
Court of Appeals affirmed the District Court's ruling that section 42 
of the Lanham Act bars the importation of such goods. The District 
Court was directed to issue an injunction requiring Customs to exclude 
from entry the ``SHIELD'' and ``SUNLIGHT'' products at issue.

Protection Against Gray Market Goods

    Currently, Customs enforces restrictions against trademarked gray 
market goods with two exceptions found in Sec. 133.21(c): the 
``affiliate'' exception of Sec. 133.21(c)(2), and the ``same owner'' 
exception of Sec. 133.21(c)(1). (In this document, for the sake of 
simplicity, except where the ``same owner'' exception and the 
``affiliate'' exception are separately mentioned and distinguished, 
these exceptions will be referred to generically as the ``affiliate 
exception'', the term used in Lever.)

Restrictions Under Section 42 and the Lever Decision

    Section 42 of the Lanham Act, 15 U.S.C. 1124, protects against 
consumer deception or confusion about an article's origin or 
sponsorship by restricting the importation of trademarked goods under 
certain circumstances. When an article is the domestic product of the 
U.S. trademark owner, that owner exercises control over the use of the 
trademark and the resulting goodwill. Similarly, Customs has taken the 
position that an article bearing an identical trademark and produced 
abroad by the U.S. trademark owner, a parent or subsidiary of the U.S. 
trademark owner, or a party subject to common ownership or control with 
the U.S. trademark owner, would be under the constructive control of 
either the U.S. trademark owner or a party who owned or controlled the 
U.S. trademark owner. Enforcement of the distribution rights of such an 
article produced abroad by a party related to the U.S. trademark holder 
was a matter to be addressed through private remedies. Therefore, 
Customs regulations do not provide for restrictions on the importation 
of such gray market goods. Prior to Lever, the applicability of this 
``affiliate exception'' depended simply on the presence of the genuine 
trademark and the existence of the relevant intracompany relationship, 
and was not contingent on whether the gray market articles were the 
same as, or different from, the articles authorized for importation or 
sale in the United States.
    However, the Court of Appeals in Lever drew a distinction between 
identical goods produced abroad under one of the scenarios contemplated 
by the affiliate exception and goods that are physically and materially 
different from the goods authorized by the U.S. trademark owner. 
Although the injunction in Lever was specifically limited to the 
articles at issue therein--``SHIELD'' deodorant soap and ``SUNLIGHT'' 
detergent--the Court of Appeals'' interpretation of the Lanham Act was 
not so limited and, absent some specially differentiating feature, 
would apply equally to other physically and materially different ``gray 
market'' goods. In addition, it seems clear that the Lever opinion 
should also apply not only to the ``affiliate'' exception of 
Sec. 133.21(c)(2), but also to the ``same owner'' exception of 
Sec. 133.21(c)(1). Customs proposes to make its regulations consistent 
with Lever to protect against consumer confusion as to the source or 
sponsorship of imported goods--notwithstanding that they are (1) 
produced by the owner of the U.S. trademark, (2) a parent or subsidiary 
of the U.S. trademark owner, or (3) a party subject to common ownership 
or control with the U.S. trademark owner--when the goods bear a mark 
identical to, or substantially indistinguishable from, a domestically 
registered trademark and are found to be physically and materially 
different from goods authorized by the U.S. trademark owner.
    Customs proposes regulations that will continue to apply the 
current restrictions on the importation of gray market goods bearing 
legitimate trademarks that are identical to or substantially 
indistinguishable from trademarks on articles authorized for 
importation or sale in the United States under scenarios where the 
affiliate exception does not apply. The new restrictions that are being 
proposed also will ban, upon application by the trademark owner, even 
in affiliate exception scenarios, the importation into the United 
States of articles bearing genuine trademarks but that are materially 
and physically different and which are not authorized by the U.S. 
trademark owner. In the latter case, however, the restrictions will not 
apply when the imported article also bears a label that would inform 
the ultimate retail purchaser in the United States of the gray market 
identity of the product. This exception is contained in an exception to 
the restrictions that is outlined more fully below.

The Proposed Labeling Exception

    In Lever, the Court of Appeals specifically notes that section 42 
of the Lanham Act forbids importation of merchandise bearing a mark 
that shall copy or simulate a trademark registered in accordance with 
its provisions. In the Court's opinion, the Lanham Act appears on its 
face to aim at deceit and consumer confusion; when identical trademarks 
have acquired different meanings in different countries, one who 
imports the foreign version to sell it under that trademark will (in 
the absence of some ``specially differentiating feature'') cause the 
confusion Congress sought to avoid. The Customs Service believes that 
an informative label appearing prominently on such trademarked gray 
market goods would constitute a ``specially differentiating feature'' 
of the kind referred to by the Court.
    Customs believes that a label can serve as an appropriate means of 
eliminating potential harm if the label makes clear that an article is 
materially and physically different from the product authorized by the 
trademark owner for importation or sale in the U.S. and is imported 
without authorization. Customs believes that a labeling exception to 
the new restrictions is consistent with the principles enunciated in 
Lever. In other words, where an article which is produced abroad by a 
party authorized to do so, bearing a genuine trademark, and imported 
without the authorization of the U.S. trademark owner, also bears a 
label in accordance with the proposed rule, Customs will regard the 
label as qualifying possible erroneous inferences regarding the 
characteristics of the article that might be drawn by the consumer from 
the trademark alone. Where such a label is present to modify the 
message regarding product characteristics that ordinarily may be 
communicated by the trademark standing alone, so as to eliminate the 
likelihood of consumer confusion, the Customs Service will conclude 
that the trademark, under those circumstances, does not ``copy or 
simulate'' the U.S.-registered mark. Such a label would modify any 
inference that may be drawn by the consumer from the trademark so as to 
eliminate the likelihood of consumer confusion.
    The proposed regulations implement the responsibility of the 
Customs Service as the agency charged with the enforcement of the law 
to do so in a reasonable manner, and to promulgate appropriate rules 
regarding how it will interpret and apply section 42 of the Lanham Act. 
The proposed rules

[[Page 14664]]

establish the criteria that Customs will apply in carrying out its 
responsibilities concerning the importation of gray market goods. These 
rules are limited to the importation requirements of section 42 of the 
Lanham Act and do not apply to other provisions of the Act. To be 
eligible for the exception to the restriction, the label must be 
conspicuous and legible and appear in proximity to the trademark in its 
most prominent location on the article or retail packaging of the 
product. Where the likelihood of consumer confusion is eliminated by an 
acceptable, qualifying label which clearly informs the consumer about 
the nature of a product, Customs will except the product bearing such a 
label from the restrictions on importing physically and materially 
different gray market products.
    The Customs Service is not imposing a regulatory requirement for 
the labeling of gray market goods. Customs proposes herein an exception 
to the new restriction on physically and materially different gray 
market products as described above. The proposed rule is intended to 
ensure that an acceptable label will be sufficiently conspicuous and 
legible and in sufficient proximity to the most prominent display of 
the trademark on the good or its package so as to eliminate inferences 
which might be drawn in the absence of such label.
    In the view of Customs, the information conveyed by a label of the 
type proposed herein would eliminate consumer confusion and inform any 
reasonably alert or informed customer as to the characteristics of the 
goods. Armed with that information, the consumer would then be free to 
proceed based on his own determination of self-interest, weighing 
quality, price and other factors. The proposed exception for 
conspicuously labeled gray market imports would preserve the integrity 
and commercial value of the U.S. registered mark and eliminate consumer 
confusion regarding the source or sponsorship of the goods. Further, it 
would prevent the Lanham Act protection from being invoked 
inappropriately as a barrier to trade, while permitting consumer 
choice, promoting price competition, and avoiding injecting the Customs 
Service into intracompany world market division arrangements or 
disputes.
    Customs is proposing standard language for the label that will 
except gray market goods from the new restriction on importation of 
such goods that are physically and materially different. The purpose of 
the proposed rule is to implement the Lever decision, and the label 
language has been designed to address simply and narrowly the factors 
on which the Court of Appeals for the D.C. Circuit focused in its 
ruling, namely, the gray market identity of the goods and the fact of 
physical and material difference. To the extent that an individual 
importer chooses to design a label that contains additional, product 
specific data, this is expressly permitted by the proposed rule.
    A single label will reduce the administrative burden on Customs and 
promote consistency in the treatment of gray market imports subject to 
the rules. Customs believes that it will simplify the labeling process 
for importers, reducing costs and the risk that a process of individual 
label review and approval by Customs could cause delay and serve as a 
barrier to trade. Finally, Customs believes that a single label may 
achieve general recognition among consumers as a gray market label 
whereas a multiplicity of individual labels actually might create 
consumer confusion as to the significance of the labels.
    The Customs Service believes that the proposed rule extends the 
appropriate protection under the trademark laws to owners of a U.S. 
trademark while not permitting those laws to be used as a shield 
against competition. In eliminating the risk of consumer confusion, the 
interest of the consumer in product choice and price competition in the 
marketplace should be considered along with the interest of the U.S. 
trademark holder in protecting its goodwill and reputation. The Customs 
Service believes that the right of the mark owner is limited to 
protection that addresses the potential damage to the mark owner. The 
identity and reputation of the domestic mark owner can be preserved and 
the public interest served by effectuating open and informed 
competition.

The Proposed Amendments

    A critical step in applying the Lever decision is defining the 
scope of ``physically and materially different.'' The Lever court did 
not provide specific criteria for determining when products should be 
considered physically and materially different. Customs recognizes that 
no bright line test can be established which would delineate the 
relevant difference(s) among the multitude of products that may be 
involved in the gray market. Such determinations are inherently fact 
specific and must be made on a case-by-case basis. Customs also 
recognizes, however, that without certain guidelines, the importing 
public cannot reasonably expect Customs consistently to protect owners 
of U.S.-registered trademarks while facilitating the flow of legitimate 
commercial trade. With that in mind, Customs proposes to amend its 
regulations to include categories of information that trademark owners 
may provide to Customs for consideration in its determination as to 
whether certain trademarks may be entitled to protection under the 
rationale of Lever and the new rules promulgated herein (``Lever-rule'' 
protection).
    Thus, in addition to the current information described in 
Sec. 133.2, Customs Regulations (19 CFR 133.2), Customs will consider 
the following:
    1. The composition of both the authorized and gray market 
product(s) (including chemical composition);
    2. Formulation, product construction, structure, or composite 
product components, of both the authorized and gray market product(s);
    3. The performance and operational characteristics of both the 
authorized and gray market product(s);
    4. Differences between the authorized and gray market products 
resulting from legal or regulatory requirements, certification, etc.;
    5. Other characteristics that can be described with particularity 
by the U.S. owner claiming gray market protection. Such characteristics 
must clearly distinguish authorized articles from gray market articles, 
applying criteria which establishes the protection of the statute, 
namely protection from consumer confusion and deception.
    In each case, any proffered characteristic must be supported by 
competent evidence. Customs recognizes that it cannot anticipate all of 
the considerations that may lead to a finding of ``physical and 
material difference,'' but Lever suggests certain categories of 
information which are appropriate. The last criterion above leaves open 
the possibility that unspecified information may be considered at 
Customs' discretion.
    Owners claiming gray market protection under the proposed provision 
should be aware that Customs will require the grounds for claiming 
physical and material differences to be stated with particularity. Any 
such request lacking in specificity will be rejected.

T.D. 92-60

    On June 26, 1992, Customs published in the Federal Register (57 FR 
28605) a Notice of Court Order, notifying owners of trademarks recorded 
with Customs that the Lever court had ordered Customs to provide 
protection against physically and materially different gray market 
products. To date, two applications have been received,

[[Page 14665]]

requesting protection. The first, on behalf of the owner of the 
``Duracell'' trademark, was denied. See 57 FR 46063. The second, on 
behalf of the owner of the ``Yamaha'' trademark, was suspended 
following the public comment period, following the issuance of the 
decision of the appellate court in Lever. Customs will no longer accept 
applications under the June 26, 1992, Federal Register notice. Any 
further applications must be made after the final amendments resulting 
from this notice of proposed rulemaking become effective, and must be 
in compliance therewith. The ``Yamaha'' application will be evaluated 
in this fashion, and a decision thereon published in the Federal 
Register.

Proposed Amendment of Recordations

    Customs anticipates that the owners of U.S. registered trademarks 
currently recorded with Customs who believe that they may now be 
entitled to protection (``Lever-rule'' protection) from gray market 
importations under the regulatory changes, if adopted, may submit 
requests to Customs concerning their eligibility, along with detailed 
explanations of the reasons for their perceived eligibility. Any party 
applying for ``Lever-rule'' protection must also submit a summary of 
the physical and material differences relied on in support of its 
application. At approximately 30-day intervals, Customs will publish in 
the Federal Register a list of those trademarks for which ``Lever-
rule'' protection for physically and materially different gray market 
products has been requested including summaries of the physical and 
material differences. Interested parties shall then have 30 days in 
which to comment on the request(s). At the end of the 30-day comment 
period, Customs shall examine the request(s) and any comments from the 
public before issuing a determination on whether ``Lever-rule'' 
protection is granted. For parties requesting protection, the 
application for trademark protection will not take effect until Customs 
has made and issued this determination.
    If protection is granted, Customs will publish in the Federal 
Register a notice that a trademark will receive ``Lever-rule'' 
protection. Subsequent importations of physically and materially 
different products will be denied entry; the merchandise will be 
detained under the procedures described in proposed Sec. 133.25 of the 
Customs Regulations (proposed 19 CFR 133.25), and be subject to seizure 
after 30 days pursuant to 19 U.S.C. 1595a(c)(2)(C), unless the 
physically and materially different product bears in a conspicuous 
location a legible label stating that ``This product is not the product 
authorized by the United States trademark owner for importation and is 
physically and materially different.'' Other information designed to 
dispel consumer confusion may also be added. Proposed Sec. 133.23(d) 
will permit an importer to establish, during the 30-day detention 
period, that the detained merchandise is not physically and materially 
different from the product authorized for importation or sale in the 
U.S. by the U.S. trademark owner. Merchandise seized under the 
regulations may be subject to a petition for relief under the 
provisions of Secs. 133.51 and 133.52 and part 171, Customs Regulations 
(19 CFR part 171).

Additional Proposed Regulatory Changes

    In addition to the gray market regulation changes being proposed 
herein, Customs proposes to reorganize and renumber the remainder of 
subpart C, part 133. These changes are intended to clarify Customs 
enforcement of trademark rights as they relate to products bearing 
counterfeit, or copying or simulating marks and names, and to clarify 
Customs enforcement generally against gray market goods. None of the 
clerical proposals made in this connection, other than those stemming 
from the Lever decision, alters Customs enforcement practices.

Comments

    Before adopting this proposal, consideration will be given to any 
written comments that are timely submitted to Customs. All such 
comments will be available for public inspection in accordance with the 
Freedom of Information Act (5 U.S.C. 552), Sec. 1.4, Treasury 
Department Regulations (31 CFR 1.4), and Sec. 103.11(b), Customs 
Regulations (19 CFR 103.11(b)), during regular business days between 
the hours of 9:00 a.m. and 4:30 p.m. at the Regulations Branch, 1300 
Pennsylvania Avenue, NW., 3rd Floor, Washington, DC 20229.

Regulatory Flexibility Act and Executive Order 12866

    The proposed rule would generally reflect case law intended to 
protect products with valid U.S. trademarks against infringing imports. 
Hence, pursuant to the provisions of the Regulatory Flexibility Act (5 
U.S.C. 601 et seq.), it is hereby certified that the proposed rule, if 
adopted, will not have a significant economic impact on a substantial 
number of small entities. Accordingly, the rule is not subject to the 
regulatory analysis requirements of 5 U.S.C. 603 and 604. Nor does the 
proposed rule meet the criteria for a ``significant regulatory action'' 
as specified in E.O. 12866.

Paperwork Reduction Act

    The collection of information related to this notice of proposed 
rulemaking has been previously reviewed and approved by the Office of 
Management and Budget (OMB) in accordance with the Paperwork Reduction 
Act of 1995 and assigned OMB Control Number 1515-0114. An agency may 
not conduct or sponsor, and a person is not required to respond to, a 
collection of information unless it displays a valid control number 
assigned by OMB. Although this document restates the collection(s) of 
information without substantive change, comments are specifically 
requested concerning:
    Whether the collection of information is necessary for the proper 
performance of the functions of the Customs Service, including whether 
the information will have practical utility;
    The accuracy of the estimated burden associated with the proposed 
collection of information (see below);
    How to enhance the quality, utility, and clarity of the information 
to be collected;
    How to minimize the burden of complying with the proposed 
collection of information, including the application of automated 
collection techniques or other forms of information technology; and
    Estimates of capital or startup costs and costs of operation, 
maintenance, and purchase of services to provide information.
    The collection of information related to this proposed regulation 
is in Sec. 133.2. This information is necessary in order to enable 
Customs to protect products with valid U.S. trademarks against 
infringing imports. The collection of information is voluntary. The 
likely respondents are businesses.
    Estimated total annual reporting and/or recordkeeping burden: 
________ hours.
    Estimated average annual burden hours per respondent and/or 
recordkeeper: 
    Estimated number of respondents and/or recordkeepers:
    Estimated annual frequency of responses:
    Comments on the collection of information should be directed to the 
Office of Management and Budget, Attention: Desk officer for the 
Department of the Treasury, Office of Information and Regulatory 
Affairs, Washington, DC 20503. A copy should also be sent to the 
Regulations Branch,

[[Page 14666]]

Office of Regulations and Rulings, U.S. Customs Service, 1300 
Pennsylvania Avenue, NW., Washington, DC 20229. Comments should be 
submitted within the same time frame as comments on the substance of 
the proposal.

Drafting Information

    The principal author of this document was Russell Berger, 
Regulations Branch, U.S. Customs Service. However, personnel from other 
offices participated in its development.

List of Subjects in 19 CFR Part 133

    Copyrights, Customs duties and inspection, Fees assessment, 
Imports, Penalties, Prohibited merchandise, Reporting and recordkeeping 
requirements, Restricted merchandise (counterfeit goods), Seizures and 
forfeitures, Trademarks, Trade names, Unfair competition.

Proposed Amendment

    It is proposed to amend part 133, Customs Regulations (19 CFR part 
133), as set forth below.

PART 133--TRADEMARKS, TRADE NAMES, AND COPYRIGHTS

    1. The general authority citation for part 133 would continue to 
read as follows, and the specific sectional authority for part 133 
would be revised to read as follows:

    Authority: 17 U.S.C. 101, 601, 602, 603; 19 U.S.C. 66, 1624; 31 
U.S.C. 9701.
    Section 133.1 also issued under 15 U.S.C. 1096, 1124;
    Sections 133.2 through 133.7, 133.11 through 133.13, and 133.15 
also issued under 15 U.S.C. 1124;
    Sections 133.21 through 133.25 also issued under 15 U.S.C. 1124, 
19 U.S.C. 1526;
    Sections 133.26 and 133.46 also issued under 19 U.S.C. 1623;
    Section 133.52 also issued under 19 U.S.C. 1526;
    Section 133.53 also issued under 19 U.S.C. 1558(a).

    2. It is proposed to amend Sec. 133.2 by adding new paragraphs (e) 
and (f) to read as follows:


Sec. 133.2  Application to record trademark.

* * * * *
    (e) ``Lever-rule'' protection. For owners of U.S trademarks who 
desire protection against gray market articles on the basis of physical 
and material differences (see Lever Bros. Co. v. United States, 981 
F.2d 1330 (D.C. Cir. 1993)), a description of any physical and material 
difference between the articles authorized for importation or sale in 
the United States and those not so authorized. In each instance, owners 
who assert that physical and material differences exist must state the 
basis for such a claim with particularity, and must support such 
assertions by competent evidence and provide summaries of physical and 
material differences for publication. Customs determination of physical 
and material differences may include, but is not limited to, 
considerations of:
    (1) The composition of both the authorized and gray market 
product(s) (including chemical composition);
    (2) Formulation, product construction, structure, or composite 
product components, of both the authorized and gray market product;
    (3) Performance and/or operational characteristics of both the 
authorized and gray market product;
    (4) Differences resulting from legal or regulatory requirements, 
certification, etc.;
    (5) Other distinguishing and explicitly defined factors that would 
likely result in consumer deception or confusion as proscribed under 
applicable law.
    (f) At approximately 30-day intervals, Customs will publish in the 
Federal Register a list of those trademarks for which gray market 
protection for physically and materially different products has been 
requested and summaries of physical and material differences. 
Interested parties shall then have 30 days in which to comment on the 
request(s). At the end of the 30-day comment period, Customs shall 
examine the request(s) and any comments from the public before issuing 
a determination whether gray market protection is granted. For parties 
requesting protection, the application for trademark protection will 
not take effect until Customs has made and issued this determination. 
If protection is granted, Customs will publish in the Federal Register 
a notice that a trademark will receive Lever rule protection.
    3. It is proposed to amend part 133 by revising subpart C to read 
as follows:

Subpart C--Importations Bearing Recorded Trademarks or Trade Names

Sec.
133.21  Articles bearing counterfeit trademarks.
133.22  Restrictions on importation of articles bearing copying or 
simulating trademarks.
133.23  Restrictions on importation of gray market articles.
133.24  Restrictions on articles accompanying importer and mail 
importations.
133.25  Procedure on detention of articles subject to restriction.
133.26  Demand for redelivery of released merchandise.

Subpart C--Importations Bearing Recorded Trademarks or Trade Names


Sec. 133.21  Articles bearing counterfeit trademarks.

    (a) Counterfeit trademark defined. A ``counterfeit trademark'' is a 
spurious trademark that is identical to, or substantially 
indistinguishable from, a registered trademark.
    (b) Seizure. Any article of domestic or foreign manufacture 
imported into the United States bearing a counterfeit trademark shall 
be seized and, in the absence of the written consent of the trademark 
owner, forfeited for violation of the customs laws.
    (c) Notice to trademark owner. When merchandise is seized under 
this section, Customs shall disclose to the owner of the trademark the 
following information, if available, within 30 days, excluding weekends 
and holidays, of the date of the notice of seizure:
    (1) The date of importation;
    (2) The port of entry;
    (3) A description of the merchandise;
    (4) The quantity involved;
    (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.
    (d) Samples available to the trademark owner. At any time following 
seizure of the merchandise, Customs may provide a sample of the suspect 
merchandise to the owner of the trademark for examination, testing, or 
other use in pursuit of a related private civil remedy for trademark 
infringement. To obtain a sample under this section, the trademark/
trade name owner must furnish Customs a bond in the form and amount 
specified by the port director, conditioned to hold the United States, 
its officers and employees, and the importer or owner of the imported 
article harmless from any loss or damage resulting from the furnishing 
of a sample by Customs to the trademark owner. Customs may demand the 
return of the sample at any time. The owner must return the sample to 
Customs upon demand or at the conclusion of the examination, testing, 
or other use in pursuit of a related private civil remedy for trademark 
infringement. In the event that the sample is damaged, destroyed, or 
lost while in the possession of the trademark owner, the owner shall, 
in lieu of return of the sample, certify to Customs that: ``The sample 
described as (insert description) and provided pursuant to 19 CFR 
133.21(d) was (damaged/

[[Page 14667]]

destroyed/lost) during examination, testing, or other use.''
    (e) Failure to make appropriate disposition. Unless the trademark 
owner, within 30 days of notification, provides written consent to 
importation of the articles, exportation, entry after obliteration of 
the trademark, or other appropriate disposition, the articles shall be 
disposed of in accordance with Sec. 133.52, subject to the importer's 
right to petition for relief from the forfeiture under the provisions 
of part 171 of this chapter.


Sec. 133.22  Restrictions on importation of articles bearing copying or 
simulating trademarks.

    (a) Copying or simulating trademark or trade name defined. A 
``copying or simulating'' trademark or trade name is one which may so 
resemble a recorded mark or name as to be likely to cause the public to 
associate the copying or simulating mark or name with the recorded mark 
or name.
    (b) Denial of entry. Any articles of foreign or domestic 
manufacture imported into the United States bearing a mark or name 
copying or simulating a recorded mark or name shall be denied entry and 
subject to detention as provided in Sec. 133.25.
    (c) Relief from detention of articles bearing copying or simulating 
trademarks. Articles subject to the restrictions of this section shall 
be detained for 30 days from the date on which the goods are presented 
for Customs examination, to permit the importer to establish that any 
of the following circumstances are applicable:
    (1) The objectionable mark is removed or obliterated as a condition 
to entry in such a manner as to be illegible and incapable of being 
reconstituted, for example by:
    (i) Grinding off imprinted trademarks wherever they appear;
    (ii) Removing and disposing of plates bearing a trademark or trade 
name;
    (2) The merchandise is imported by the recordant of the trademark 
or trade name or his designate;
    (3) The recordant gives written consent to an importation of 
articles otherwise subject to the restrictions set forth in paragraph 
(b) of this section or Sec. 133.23(c) of this subpart, and such consent 
is furnished to appropriate Customs officials;
    (4) The articles of foreign manufacture bear a recorded trademark 
and the one-item personal exemption is claimed and allowed under 
Sec. 148.55 of this chapter.
    (d) Exceptions for articles bearing counterfeit trademarks. The 
provisions of paragraph (c)(1) of this section are not applicable to 
articles bearing counterfeit trademarks at the time of importation (see 
Sec. 133.26).
    (e) Release of detained articles. Articles detained in accordance 
with Sec. 133.25 may be released to the importer during the 30-day 
period of detention if any of the circumstances allowing exemption from 
trademark or trade name restriction set forth in paragraph (c) of this 
section are established.
    (f) Seizure. If the importer has not obtained release of detained 
articles within the 30-day period of detention, the merchandise shall 
be seized and forfeiture proceedings instituted. The importer shall be 
promptly notified of the seizure and liability to forfeiture and his 
right to petition for relief in accordance with the provisions of part 
171 of this chapter.


Sec. 133.23  Restrictions on importation of gray market articles.

    (a) Restricted gray market articles defined. ``Restricted gray 
market articles'' are foreign-made articles bearing a genuine trademark 
or trade name identical with or substantially indistinguishable from 
one owned and recorded by a citizen of the United States or a 
corporation or association created or organized within the United 
States and imported without the authorization of the U.S. owner. 
``Restricted gray market goods'' include goods bearing a genuine 
trademark or trade name which is:
    (1) Independent licensee. Applied by a licensee (including a 
manufacturer) independent of the U.S. owner, or
    (2) Foreign owner. Applied under the authority of a foreign 
trademark or trade name owner other than the U.S. owner, a parent or 
subsidiary of the U.S. owner, or a party otherwise subject to common 
ownership or control with the U.S. owner (see Secs. 133.2(d) and 
133.12(d) of this part), from whom the U.S. owner acquired the domestic 
title, or to whom the U.S. owner sold the foreign title(s); or
    (3) ``Lever-rule''. Applied by the U.S. owner, a parent or 
subsidiary of the U.S. owner, or a party otherwise subject to common 
ownership or control with the U.S. owner (see Secs. 133.2(d) and 
133.12(d) of this part), to goods that the Customs Service has 
determined to be physically and materially different from the articles 
authorized by the U.S. trademark owner for importation or sale in the 
U.S. (as defined in Sec. 133.2 of this part).
    (b) Labeling of physically and materially different goods. Goods 
determined by the Customs Service to be physically and materially 
different under the procedures of this part, bearing a genuine mark 
applied under the authority of the U.S. owner, a parent or subsidiary 
of the U.S. owner, or a party otherwise subject to common ownership or 
control with the U.S. owner (see Secs. 133.2(d) and 133.12(d) of this 
part), shall not be detained under the provisions of paragraph (c) of 
this section where the merchandise or its packaging bears a conspicuous 
and legible label designed to remain on the product until the first 
point of sale to a retail consumer in the United States stating that:

    ``This product is not the product authorized by the United 
States trademark owner for importation and is physically and 
materially different.''

The label must be in close proximity to the trademark as it appears in 
its most prominent location on the article itself or the retail package 
or container. Other information designed to dispel consumer confusion 
may also be added.
    (c) Denial of entry. All restricted gray market goods imported into 
the United States shall be denied entry and subject to detention as 
provided in Sec. 133.25, except as provided in paragraph (b) of this 
section.
    (d) Relief from detention of gray market articles. Gray market 
goods subject to the restrictions of this section shall be detained for 
30 days from the date on which the goods are presented for Customs 
examination, to permit the importer to establish that any of the 
following exceptions, as well as the circumstances described above in 
Sec. 133.22(c), are applicable:
    (1) The trademark or trade name was applied under the authority of 
a foreign trademark or trade name owner who is the same as the U.S. 
owner, a parent or subsidiary of the U.S. owner, or a party otherwise 
subject to common ownership or control with the U.S. owner (in an 
instance covered by Secs. 133.2(d) and 133.12(d) of this part); and/or
    (2) For goods bearing a genuine mark applied under the authority of 
the U.S. owner, a parent or subsidiary of the U.S. owner, or a party 
otherwise subject to common ownership or control with the U.S. owner, 
that the merchandise as imported is not physically and materially 
different, as described in Sec. 133.2(e), from articles authorized by 
the U.S. owner for importation or sale in the United States.
    (e) Release of detained articles. Articles detained in accordance 
with Sec. 133.25 may be released to the importer during the 30-day 
period of detention if any of the circumstances allowing exemption from 
trademark restriction set forth in Sec. 133.22(c) of this subpart or in 
paragraph (d) of this section are established.

[[Page 14668]]

    (f) Seizure. If the importer has not obtained release of detained 
articles within the 30-day period of detention, the merchandise shall 
be seized and forfeiture proceedings instituted. The importer shall be 
notified of the seizure and liability of forfeiture and his right to 
petition for relief in accordance with the provisions of part 171 of 
this chapter.


Sec. 133.24  Restrictions on articles accompanying importer and mail 
importations.

    (a) Detention. Articles accompanying importer and mail importations 
subject to the restrictions of Secs. 133.22 and 133.23 shall be 
detained for 30 days from the date of notice that such restrictions 
apply, to permit the establishment of whether any of the circumstances 
described in Sec. 133.22(c) or Sec. 133.23(d) are applicable.
    (b) Notice of detention. Notice of detention shall be given in the 
following manner:
    (1) Articles accompanying importer. When the articles are carried 
as accompanying baggage or on the person of persons arriving in the 
United States, the Customs inspector shall orally advise the importer 
that the articles are subject to detention.
    (2) Mail importations. When the articles arrive by mail in 
noncommercial shipments, or in commercial shipments valued at $250 or 
less, notice of the detention shall be given on Customs Form 8.
    (c) Release of detained articles.--(1) General. Articles detained 
in accordance with paragraph (a) of this section may be released to the 
importer during the 30-day period of detention if any of the 
circumstances allowing exemption from trademark or trade name 
restriction(s) set forth in Sec. 133.22(c) or Sec. 133.23(d) of this 
subpart are established.
    (2) Articles accompanying importer. Articles arriving as 
accompanying baggage or on the person of the importer may be exported 
or destroyed under Customs supervision at the request of the importer, 
or may be released if:
    (i) The importer removes or obliterates the marks in a manner 
acceptable to the Customs officer at the time of examination of the 
articles; or
    (ii) The request of the importer to obtain skillful removal of the 
marks is granted by the port director under such conditions as he may 
deem necessary, and upon return of the article to Customs for 
verification, the marks are found to be satisfactorily removed.
    (3) Mail importations. Articles arriving by mail in noncommercial 
shipments, or in commercial shipments valued at $250 or less, may be 
exported or destroyed at the request of the addressee or may be 
released if:
    (i) The addressee appears in person at the appropriate Customs 
office and at that time removes or obliterates the marks in a manner 
acceptable to the Customs officer; or
    (ii) The request of the addressee appearing in person to obtain 
skillful removal of the marks is granted by the port director under 
such conditions as he may deem necessary, and upon return of the 
article to Customs for verification, the marks are found to be 
satisfactorily removed.
    (d) Seizure. If the importer has not obtained release of detained 
articles within the 30-day period of detention, the merchandise shall 
be seized and forfeiture proceedings instituted. The importer shall be 
promptly notified of the seizure and liability to forfeiture and his 
right to petition for relief in accordance with the provisions of part 
171 of this chapter.


Sec. 133.25  Procedure on detention of articles subject to restriction.

    (a) In general. Articles subject to the restrictions of 
Secs. 133.22 and 133.23 shall be detained for 30 days from the date on 
which the merchandise is presented for Customs examination. The 
importer shall be notified of the decision to detain within 5 days of 
the decision that such restrictions apply. The importer may, during the 
30-day period, establish that any of the circumstances described in 
Sec. 133.22(c) or Sec. 133.23(d) are applicable. Extensions of the 30-
day time period may be freely granted for good cause shown.
    (b) Notice of detention and disclosure of information. From the 
time merchandise is presented for Customs examination until the time a 
notice of detention is issued, Customs may disclose to the owner of the 
trademark or trade name any of the following information in order to 
obtain assistance in determining whether an imported article bears an 
infringing trademark or trade name. Once a notice of detention is 
issued, Customs shall disclose to the owner of the trademark or trade 
name the following information, if available, within 30 days, excluding 
weekends and holidays, of the date of detention:
    (1) The date of importation;
    (2) The port of entry;
    (3) A description of the merchandise;
    (4) The quantity involved; and
    (5) The country of origin of the merchandise.
    (c) Samples available to the trademark or trade name owner. At any 
time following presentation of the merchandise for Customs examination, 
but prior to seizure, Customs may provide a sample of the suspect 
merchandise to the owner of the trademark or trade name for examination 
or testing to assist in determining whether the article imported bears 
an infringing trademark or trade name. To obtain a sample under this 
section, the trademark/trade name owner must furnish Customs a bond in 
the form and amount specified by the port director, conditioned to hold 
the United States, its officers and employees, and the importer or 
owner of the imported article harmless from any loss or damage 
resulting from the furnishing of a sample by Customs to the trademark 
owner. Customs may demand the return of the sample at any time. The 
owner must return the sample to Customs upon demand or at the 
conclusion of the examination or testing. In the event that the sample 
is damaged, destroyed, or lost while in the possession of the trademark 
or trade name owner, the owner shall, in lieu of return of the sample, 
certify to Customs that: ``The sample described as (insert description) 
and provided pursuant to 19 CFR 133.25(c) was (damaged/destroyed/lost) 
during examination or testing for trademark infringement.''
    (d) Form of notice. Notice of detention of articles found subject 
to the restrictions of Sec. 133.22 or Sec. 133.23 shall be given the 
importer in writing.


Sec. 133.26  Demand for redelivery of released merchandise.

    If it is determined that merchandise which has been released from 
Customs custody is subject to the restrictions of Sec. 133.22 or 
Sec. 133.23 of this subpart, the port director shall promptly make 
demand for the redelivery of the merchandise under the terms of the 
bond on Customs Form 301, containing the bond conditions set forth in 
Sec. 133.62 of this chapter, in accordance with Sec. 141.113 of this 
chapter. If the merchandise is not redelivered to Customs custody, a 
claim for liquidated damages shall be made in accordance with 
Sec. 141.113(g) of this chapter.

Samuel H. Banks,
Acting Commissioner of Customs.
    Approved: March 5, 1998.
John P. Simpson,
Deputy Assistant Secretary of the Treasury.
[FR Doc. 98-7969 Filed 3-25-98; 8:45 am]
BILLING CODE 4820-02-P