Disaster May Strike When Trademarks are Improperly Used on Imported Goods

The United States Customs Laws offer incredibly powerful enforcement tools designed to protect the rights of trademark owners.  These tools empower the U.S. Customs Service to seize infringing goods entering the U.S. from foreign countries and the Department of Homeland Security to raid and seize such goods in warehouses and retail stores. 

“The first step to utilize these tools is to register the trademark with the U.S. Patent and Trademark Office and then with U.S. Customs,” according to Brad Thorson, a member of DeWitt’s Intellectual Property Practice Group.  “After that, if the trademark owner becomes aware of infringing products being imported, the trademark owner can alert U.S. Customs to the shipper, port, and likely date of arrival of suspected infringing goods.  Such information is readily available through various import information services.”

“It is vital for importers to ensure the goods they are importing do not infringe a registered trademark,” Thorson continued.  “Even innocent parties have felt the full force and power of Customs and Homeland Security.”   

Brad shared the story of a highly reputable U.S. retailer who suffered the consequences of packaging instructions being misinterpreted by an overseas manufacturer. 

“While one component of the product had been approved by a third-party certification laboratory (TPCL), the entire product had not,” said Thorson.  “The manufacturer misunderstood what the TPCL’s certification covered and marked the outside of the packaging with the TPCL’s registered certification mark (“bug”).  This erroneously suggested that the entire product, rather than only the component, had been certified.”

“The TPCL became aware of the mislabeled products being sold in stores and notified U.S. Customs but not the retailer,” Thorson continued.  “The retailer only learned of the error after incoming shipments were seized at several U.S. ports, and notices of the seizures were sent to the retailer for a response.”  

The seizure of the goods by Customs at the border was only the beginning of the retailer’s problems.  

“We immediately contacted Customs and the TPCL,” Thorson said.  “And we filed documents explaining how this honest mistake occurred.  We told Customs and the TPCL that there were still incoming shipments that were mid-ocean which could not be stopped from landing in the U.S.  We supplied Customs and the TPCL with the dates these shipments would be arriving and identified the ports.  Those shipments were seized as well.”

Thorson and his client proposed a simple solution to the problem—cutting the TPCL bug off the cardboard packaging of all products currently in the U.S. and incoming on ships.  The TPCL and U.S. Customs accepted this proposal.  Documents were signed memorializing this agreement.  But that wasn’t good enough for Homeland Security.

According to Thorson, “The day after this agreement was signed, U.S. Homeland Security Investigations (HSI) conducted simultaneous raids of more than a dozen retail stores in eight different states.  HSI closed down and locked the stores, detained and sequestered the employees, disconnected the phones, confiscated the employee’s cell phones, seized all products which at one time bore the TPCL bug (the bug had already been removed from all of the goods per the agreement), demanded passwords to the retailer’s computers, downloaded the company’s computer records, and individually questioned each employee before they were permitted to leave.”

The government then began making demands and threats.  The government demanded the retailer forfeit all goods seized at the border and in the raids and pay a civil fine of 100% of the manufacturer’s suggested retail price (MSRP) of those goods.  This double-whammy demand would have cost the retailer millions of dollars.  

The government threatened to indict the company and certain of its employees for criminal trademark counterfeiting if the government’s demands were not met.  Criminal trademark counterfeiting carries a criminal penalty of up to $5,000,000 for an organization.  An individual may be fined up to $2,000,000 and sentenced to 20 years in prison.

After nearly two years of negotiation with the Department of Justice, Homeland Security and HSI, the government relented.  The government agreed to not bring criminal charges against anyone.  The government also agreed to release certain of the seized goods consistent with the agreement reached two years earlier between the retailer, the TPCL and U.S. Customs.  The retailer agreed to pay a civil penalty to the government.  

“The civil penalty was a fraction of the amount initially demanded by the government,” Thorson explained.  “We took the deal to avoid years of litigation expense and the distraction involved with contesting the civil forfeiture.  We also eliminated the possibility of any criminal charges being brought against the retailer or its employees.”

Two lessons are provided by this case.  First, U.S. government enforcement of a private trademark is, for goods being imported, potentially much more powerful than civil litigation.  Second, importers should have procedures that ensure products they are importing do not infringe registered trademarks of others.  

Thorson, and the other members of DeWitt’s Intellectual Property Practice Group, have the skills and experience to successfully guide trademark owners and importers.  Brad Thorson can be reached at 612-305-1415 or bjt@dewittllp.com.