[Federal Register Volume 67, Number 110 (Friday, June 7, 2002)]
[Proposed Rules]
[Pages 39321-39322]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-14287]


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DEPARTMENT OF THE TREASURY

Customs Service

19 CFR Part 133

RIN 1515-AC98


Civil Fines for Importation of Merchandise Bearing a Counterfeit 
Mark

AGENCY: Customs Service, Department of the Treasury.

ACTION: Notice of proposed rulemaking.

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SUMMARY: This document proposes to amend the Customs Regulations 
pertaining to the importation of merchandise bearing a counterfeit mark 
to clarify the limit on the amount of a civil fine which may be 
assessed by Customs when merchandise bearing a counterfeit mark is 
imported. The regulations currently use, as a measurement for 
determining the limit, the domestic value of merchandise as if it had 
been genuine, based on the manufacturer's suggested retail price of the 
merchandise at the time of seizure. The language set forth in the 
proposed rule adheres more closely to the statutory language, basing 
the limit of the civil fine on the value of the genuine goods according 
to the manufacturer's suggested retail price (MSRP), without any 
reference to domestic value. Because the MSRP excludes retail sales and 
markdowns, it is usually greater than the good's domestic value. 
Removing the distinction between the statutory and regulatory language 
will clear up confusion and result in Customs more uniformly 
determining the amount of a civil fine when merchandise bearing a 
counterfeit mark is imported.

DATES: Comments must be received on or before August 6, 2002.

ADDRESSES: Written comments, regarding both the substantive aspects of 
the proposed rule and how it may be made easier to understand, may be 
submitted to and inspected at the Regulations Branch, Office of 
Regulations and Rulings, U.S. Customs Service, 1300 Pennsylvania 
Avenue, NW., 3rd Floor, Washington, DC 20229.

FOR FURTHER INFORMATION CONTACT: Lynne O. Robinson, Office of 
Regulations and Rulings: (202) 927-2346.

SUPPLEMENTARY INFORMATION:

Background

    The Anticounterfeiting Consumer Protection Act of 1996 (the ACPA; 
Pub. L. 104-153, 110 Stat. 1386) was signed into law on July 2, 1996, 
to ensure that Federal law adequately addresses the scope and 
sophistication of modern counterfeiting which costs American businesses 
an estimated $200 billion a year worldwide. Toward that end, the ACPA 
amended section 526 of the Tariff Act of 1930, as amended (19 U.S.C. 
1526), to provide two new tools to fight the importation of counterfeit 
goods: (1) The seizure, forfeiture, and destruction of merchandise 
bearing a counterfeit mark under 19 U.S.C. 1526(e) (section 1526(e)), 
as amended by section 9 of the ACPA, and (2) the imposition of a civil 
fine under 19 U.S.C. 1526(f) (section 1526(f)), a new section of law 
created under section 10 of the ACPA.
    Under section 1526(e), merchandise bearing a counterfeit mark that 
is seized and forfeited must be destroyed except where the merchandise 
is not unsafe or a hazard to health and the trademark owner has 
consented to its disposal by one of several alternative methods (see 
sections 1526(e)(1), (2) and (3)). This provision ensures that a 
violator cannot regain possession of the forfeited goods and distribute 
them in some other manner (including making another attempt to import 
them at another U.S. port or into another country). Under section 
1526(f)(1), a civil fine is assessed against 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 
section 1526(e). Section 1526(f)(2) provides for a fine for the first 
seizure in an amount up to the value the imported merchandise would 
have had if it were genuine, according to the manufacturer's suggested 
retail price (MSRP). Section 1526(f)(3) provides for a fine for 
subsequent seizures in the amount of up to twice the value the imported 
merchandise would have had if it were genuine, according to the MSRP.
    On November 17, 1997, Customs published interim regulations in the 
Federal Register (62 FR 61231) to amend Sec. 133.25 of the Customs 
Regulations (19 CFR 133.25) to reflect the ACPA's amendment of 19 
U.S.C. 1526. The interim amendments were adopted as a final rule 
published in the Federal Register (63 FR 51296) on September 25, 1998. 
A final rule document published in the Federal Register (64 FR 9058) on 
February 24, 1999, redesignated Sec. 133.25 as Sec. 133.27.
    Under Sec. 133.27 of the Customs Regulations (19 CFR 133.27), 
Customs may impose a civil fine, in addition to any other penalty or 
remedy authorized by law, against any person who directs, assists 
financially or otherwise, or aids and abets the importation of 
merchandise bearing a counterfeit mark that is seized under Sec. 133.21 
(and 19 U.S.C. 1526(e)). Under Sec. 133.27(a), the fine imposed for the 
first violation (seizure) will not be more than the domestic value of 
the merchandise (as set forth in Sec. 162.43(a)) as if it had been 
genuine, based on the MSRP of the genuine merchandise at the time of 
seizure. Under Sec. 133.27(b), the fine imposed for subsequent 
violations will not be more than twice the domestic value of the 
merchandise as if it had been genuine, based on the MSRP of the genuine 
merchandise at the time of seizure.
    Upon review of Sec. 133.27, Customs has determined that the 
language of the regulation is inconsistent with the language of section 
1526(f). The regulation employs the term ``domestic value'' (of the 
merchandise) while the statute does not use that term. Moreover, 
because the MSRP is exclusive of any sale or markdown of a good at 
retail, it is usually greater than the good's domestic value. 
Therefore, setting the maximum amount of a civil fine by means of a 
formula that includes both the domestic value of the merchandise and 
the value of genuine merchandise according to the MSRP is confusing and 
contributes to misunderstanding by both Customs personnel and the 
public.
    A review of the regulatory history indicates that Customs, in using 
the term ``domestic value'' in Sec. 133.27 (Sec. 133.25 when published 
as a final rule on September 25, 1998), relied on 19 U.S.C. 1606 
(section 1606) and Sec. 162.43(a) of the Customs Regulations (19 CFR 
162.43(a)). Section 1606 provides that Customs will determine the 
domestic value of merchandise seized under the Customs laws at the time 
and place of appraisement. Section 162.43(a) provides that ``domestic 
value'' as used in section 1606 means the price for which seized or 
similar property is freely offered for sale at the time and place of 
appraisement and in the ordinary course of trade.
    While this ``domestic value appraisement rule'' of section 1606 and 
Sec. 162.43(a) is applicable in various circumstances involving 
merchandise seized under the Customs laws, its application is 
qualified. Under 19 U.S.C. 1600, the procedures set forth in 19 U.S.C. 
1602 through 1619, including the use of domestic value as laid out in 
section 1606, apply to seizures of property under any law enforced or

[[Page 39322]]

administered by Customs unless such law specifies different procedures. 
Section 1526(f), however, specifies a different procedure for imposing 
civil fines for the importation of merchandise bearing a counterfeit 
mark. Therefore, the formula for civil fines set forth in section 
1526(f) is controlling, and the domestic value appraisement rule of 
section 1606 and Sec. 162.43(a) does not apply for that purpose.
    Based on the foregoing, Customs believes that the term ``domestic 
value'' should be removed from Sec. 133.27, leaving ``manufacturer's 
suggested retail price'' as the applicable measure of the penalty. The 
result would be that the formula for setting the maximum civil fine 
under the regulation would more closely follow the language of the 
statute. This would clarify for Customs personnel and the importing 
public the limit of a civil fine and would enhance uniformity in 
Customs assessment of fines when merchandise bearing a counterfeit mark 
is imported and seized. In addition, as the MSRP of a given article (in 
this case the genuine article that corresponds to imported merchandise 
bearing a counterfeit mark) is normally greater than its domestic 
value, because MSRP excludes retail sales and markdowns, civil fines 
based on the MSRP will normally be greater. Thus, uniform application 
of the regulation will ensure that the Congressional intent in enacting 
section 1526(f), i.e., to enhance deterrence of trade in counterfeit 
goods, is uniformly served.
    Customs notes that guidelines for the mitigation of penalties 
assessed under section 1526(f) and Sec. 133.27 were published in T.D. 
99-76 (33 Cust. Bull. No. 43, October 27, 1999). However, as the 
guidelines also use the term ``domestic value'' in the same manner as 
Sec. 133.27, if the proposed rule is adopted as final, Customs will 
modify the guidelines to more closely adhere to the language of section 
1526(f).

Executive Order 12866

    This document does not meet the criteria for a Asignificant 
regulatory action'' as specified in E.O. 12866.

Regulatory Flexibility Act

    The proposed amendment, if adopted as final, will result in the 
language of the regulation more closely adhering to the language of the 
statute, thus clarifying the maximum amount Customs can assess for a 
civil fine when merchandise bearing a counterfeit mark is imported and 
seized. Pursuant to the provisions of the Regulatory Flexibility Act (5 
U.S.C. 601, et seq.), it is certified that the proposed amendment, if 
adopted, will not have a significant economic impact on a substantial 
number of small entities. Accordingly, the proposed amendment is not 
subject to the regulatory analysis or other requirements of 5 U.S.C. 
603 and 604.

Drafting Information

    The principal author of this document was Bill Conrad, Office of 
Regulations and Rulings, U.S. Customs Service. However, personnel from 
other offices contributed in its development.

List of Subjects in 19 CFR Part 133

    Counterfeit goods, Penalties, Seizures and forfeitures, Trademarks.

Proposed Amendment to the Regulations

    For the reasons stated in the preamble, it is proposed to amend 
part 133 of the Customs Regulations (19 CFR part 133) as follows:

PART 133--TRADEMARKS, TRADE NAMES, AND COPYRIGHTS

    1. The authority citation for part 133 continues to read, in part, 
as follows:

    Authority: 17 U.S.C. 101, 601, 602, 603; 19 U.S.C. 66, 1624; 31 
U.S.C. 9701.
* * * * *
    2. Section 133.27 is revised to read as follows:


Sec. 133.27  Civil fines for those involved in the importation of 
merchandise bearing a counterfeit mark.

    In addition to any other penalty or remedy authorized by law, 
Customs may impose a civil fine under 19 U.S.C. 1526(f) on any person 
who directs, assists financially or otherwise, or aids and abets the 
importation of merchandise for sale or public distribution that bears a 
counterfeit mark resulting in a seizure of the merchandise under 19 
U.S.C. 1526(e) (see Sec. 133.21 of this subpart), as follows:
    (a) First violation. For the first seizure of merchandise under 
this section, the fine imposed will not be more than the value the 
merchandise would have had if it were genuine, according to the 
manufacturer's suggested retail price at the time of seizure.
    (b) Subsequent violations: For the second and each subsequent 
seizure under this section, the fine imposed will not be more than 
twice the value the merchandise would have had if it were genuine, 
according to the manufacturer's suggested retail price at the time of 
seizure.

Robert C. Bonner,
Commissioner of Customs.

    Approved: June 3, 2002.
Timothy E. Skud,
Deputy Assistant Secretary of the Treasury.
[FR Doc. 02-14287 Filed 6-6-02; 8:45 am]
BILLING CODE 4820-02-P