Proposed DHS Rules on Warehouse Liability for Counterfeit Products

The Department of Homeland Secretary (DHS) and Customs and Border Protection (CBP) will step up efforts to stop the flow of fake products into U.S. commerce. In a 54-page report to the President released on Friday, DHS outlined a series of actions and recommendations for the US government and the private sector to curb trafficking in counterfeit and pirated goods, saying “the rapid growth of e-commerce has revolutionized the way goods are bought and sold, allowing for counterfeiting and pirated goods to flood our borders…..This illicit trade must be stopped in its tracks.”   The report is a response to an April 3, 2019 Presidential Memorandum on Combating Trafficking in Counterfeit and Pirated Goods, call to action against illicit trade, requesting DHS lead an interagency investigation on a strategy to combat counterfeit trade.

The report takes particular aim at e-commerce platforms, third-party marketplaces and domestic warehouses and fulfillment centers. Yet, the report appears to go beyond e-commerce to include any imported products stored in a US warehouse. The report calls for unprecedented new measures, including:

  • Greater power to examine products in U.S. warehouses and fulfillment centers after the shipments have cleared customs;
  • Increased scrutiny of the so-called Section 321 (small package, low value imports) environment;
  • CBP will treat domestic warehouses and fulfillment centers as the ultimate consignee for any good that has not been sold to a specific consumer at the time of its importation. Although this may already occur under current policy, the concern is that CBP may attach new meaning or responsibility to the ultimate consignee.
  • A new data collection process where CBP will collect certain information from domestic warehouses and fulfillment centers about third-party sellers who utilize the warehouse to store inventory for sale to consumers.
  • DHS will encourage e-commerce platforms and third-party intermediaries that own or operate warehouses or fulfillment centers to pursue, in coordination with rights holders, bulk abandonment and destruction of counterfeit products when notified by CBP that they may have counterfeit products in their possession. Failure to cooperate following notification could be a factor when CBP and ICE identify counterfeit cases to pursue under existing authorities.

This is a serious initiative that will be fleshed out and implemented over the coming months and years. Some of the recommended changes can be quickly put in place while others will require either regulatory or statutory changes.

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