[Federal Register Volume 68, Number 142 (Thursday, July 24, 2003)]
[Rules and Regulations]
[Pages 43635-43637]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-18838]


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DEPARTMENT OF HOMELAND SECURITY

Customs and Border Protection

DEPARTMENT OF THE TREASURY

19 CFR Part 133

[CBP Decision 03--12]
RIN 1515-AC98


Civil Fines for Importation of Merchandise Bearing a Counterfeit 
Mark

AGENCY: Customs and Border Protection, Department of Homeland Security.

ACTION: Final rule.

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SUMMARY: This document amends the Customs Regulations to clarify the 
limit on the amount of a civil fine which may be assessed by the Bureau 
of Customs and Border Protection (CBP; a bureau of the new Department 
of Homeland Security that encompasses much of the agency formerly known 
as the U.S. Customs Service) when imported merchandise bearing a 
counterfeit mark is seized under 19 U.S.C. 1526(e). 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 amended regulation adheres more 
closely to the statutory language, basing the limit of the civil fine 
on the value of the genuine good according to the manufacturer's 
suggested retail price (MSRP), without any reference to domestic value. 
Because the MSRP excludes discounted 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 CBP more uniformly determining the amount of a civil fine 
when merchandise bearing a counterfeit mark is imported.

EFFECTIVE DATE: August 25, 2003.

FOR FURTHER INFORMATION CONTACT: Lynne O. Robinson, Office of 
Regulations and Rulings: (202) 572-8743.

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.

[[Page 43636]]

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), CBP 
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 section 1526(e) and Sec.  
133.21 of the Customs Regulations (19 CFR 133.21). 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, CBP 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 CBP personnel and the public.
    A review of the regulatory history indicates that CBP, 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 CBP 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 
administered by CBP unless such law specifies different procedures. 
Because section 1526(f) specifies the formula for imposing civil fines 
for the importation of merchandise bearing a counterfeit mark, the 
domestic value appraisement rule of section 1606 and Sec.  162.43(a) 
does not apply.
    This conclusion led CBP to publish a Notice of Proposed Rulemaking 
(NPRM) in the Federal Register (67 FR 39321) on June 7, 2002, which 
proposed to remove the term ``domestic value'' from Sec.  133.27, 
leaving ``manufacturer's suggested retail price'' as the applicable 
measure of the penalty. The notice stated that using the MSRP as the 
measure for a penalty will: (1) Result in a formula for setting the 
maximum civil fine under the regulation that more closely follows the 
language of the statute; (2) clarify for CBP personnel and the 
importing public the limit of a civil fine; (3) enhance uniformity in 
CBP's assessment of fines when merchandise bearing a counterfeit mark 
is imported and seized; and (4) ensure that the Congressional intent in 
enacting section 1526(f), i.e., to enhance deterrence of trade in 
counterfeit goods, will be uniformly served. Deterrence is furthered by 
the fact that 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 discounted sales and markdowns) and a civil fine based on the 
MSRP will normally be greater.

Discussion of Comments

    The NPRM invited public comment, and CBP received 15 responses by 
the close of the comment period. Of the 11 specific comments gleaned 
from the 15 responses, several agreed with CBP's proposal to amend the 
regulation and with CBP's reasons for doing so. However, some 
commenters suggested changes to the proposed amendment which are 
discussed below:
    Comment: A commenter proposed that all previously issued fines 
under 19 U.S.C. 1526(f) should be canceled as they were not issued 
pursuant to a valid regulation.
    Customs response: CBP disagrees. All penalties were issued in a 
manner consistent with the provisions of the statute, i.e., fine 
amounts were finally set based on the MSRP. Thus, CBP will not cancel 
fines issued prior to the effective date of this amendment.
    Comment: A commenter proposed that CBP should not issue a penalty 
notice assessing a fine under 19 U.S.C. 1526(f) where the manufacturer 
has not determined a MSRP for its genuine product. Another commenter 
suggested the use of ``domestic resale value'' when the MSRP of a 
genuine good is not available.
    Customs response: CBP disagrees. CBP believes that in most cases, 
there will be a readily available MSRP to use in determining a fine 
under the statute. Occasional problematic situations will be handled on 
a case-by-case basis, and reasonable alternatives to using a 
manufacturer's MSRP, such as using the MSRP of a comparable good, will 
be employed with the assistance of CBP officers experienced in 
appraising merchandise.
    Comment: A commenter proposed that the regulation incorporate 
sentencing guidelines used for criminal offenses.
    Customs response: CBP disagrees. The sentencing guidelines are used 
by courts to determine sentences in criminal cases. Section 1526(f) 
provides for a civil fine which Congress sought to be imposed in 
addition to any other civil or criminal penalty (see section 
1526(f)(4)). There is no indication that Congress wanted CBP to employ 
criminal sentencing guidelines in assessing penalties under section 
1526(f).
    Comment: A commenter proposed that because a fine under section 
1526(f) is issued at the discretion of CBP, CBP officers should be 
instructed to impose

[[Page 43637]]

fines only in the most egregious circumstances.
    Customs response: CBP disagrees. The statute makes clear that a 
first offense and subsequent offenses are subject to penalty. There is 
no indication that Congress contemplated a range of offenses from minor 
to serious and a different result for minor offenses, whatever they 
might be. Further, the legislative history demonstrates strong 
Congressional resolve to stem the flow of counterfeit merchandise into 
the United States. Strict enforcement of the civil seizure and fine 
provisions under the statute are the means to accomplish the deterrence 
Congress envisioned. Violators will have the chance to submit arguments 
during the petitioning process for mitigation of the fine.
    Comment: A commenter proposed that an importer/petitioner be 
permitted to challenge CBP's finding that a good bears a counterfeit 
mark in its petition to mitigate a fine assessed under section 1526(f).
    Customs response: CBP does not disagree with this comment. A 
finding by CBP that a good bears a counterfeit mark forms the basis for 
a seizure under section 1526(e). A penalty under section 1526(f) 
follows the seizure under section 1526(e). They are separate 
proceedings. If a violator can successfully challenge the CBP finding 
that a good bears a counterfeit mark in the section 1526(e) proceeding, 
it will not face a section 1526(f) proceeding. In the section 1526(f) 
proceeding, a petitioner may always raise the issue of whether the good 
in question bears a counterfeit mark. At that time, CBP may review the 
validity of the initial finding and may remit the section 1526(f) 
penalty in appropriate circumstances.

Conclusion

    Based on the comments received and the analysis of those comments 
as set forth above, and after further review of this matter, CBP 
believes that the proposed regulatory amendments should be adopted 
without change. CBP notes that with adoption of these amendments to the 
regulation, CBP will undertake to similarly amend the guidelines it 
uses to mitigate penalties assessed under section 1526(f). The current 
guidelines are set forth in T.D. 99-76, 33 Cust. Bull. No. 43, October 
27, 1999.

Executive Order 12866

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

Regulatory Flexibility Act

    This amendment to the regulation will result in the language of the 
regulation more closely adhering to the language of the governing 
statute, thus clarifying for the public the maximum amount CBP 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 therefore certified that 
the amendment will not have a significant economic impact on a 
substantial number of small entities. Accordingly, the 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, Customs and Border Protection. However, 
personnel from other offices contributed in its development.

List of Subjects in 19 CFR Part 133

    Counterfeit goods, Penalties, Seizures and forfeitures, Trademarks.

Amendment to the Regulations

0
For the reasons stated in the preamble, part 133 of the Customs 
Regulations (19 CFR part 133) is amended as follows:

PART 133--TRADEMARKS, TRADE NAMES, AND COPYRIGHTS

0
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.
* * * * *

0
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, CBP 
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 in the United States 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 in the United 
States at the time of seizure.

Robert C. Bonner,
Commissioner, Customs and Border Protection.

    Approved: July 21, 2003.
Timothy E. Skud,
Deputy Assistant Secretary of the Treasury.
[FR Doc. 03-18838 Filed 7-23-03; 8:45 am]
BILLING CODE 4820-02-P