US Customs Reauthorization Bill Signed into Law

Francisco A. Laguna

On February 24, 2016, President Obama signed the Trade Facilitation and Trade Enforcement Act of 2015, H.R. 644 (Customs Reauthorization Bill), into law.

The law, which we summarized over the past two weeks, contains the most far reaching set of changes since the Customs Modernization (MOD) Act, including significant changes to the operations and programs of US Customs and Border Protection (CBP), new provisions for combating evasion of the antidumping (AD) and countervailing duty (CVD) laws, and the inclusion of brand new measures to protect intellectual property rights (IPR).

A CBP Officer directs a truck with a seaport container to an inspection area at a port.  www.cbp.gov

A CBP Officer directs a truck with a seaport container to an inspection area at a port. http://www.cbp.gov

CBP officials have indicated the agency will be busy developing and implementing regulations for the law. Some key dates laid out in the law include:

Section 901 – De Minimis Level

This section amends 19 U.S.C. § 1321(a)(2)(C) to raise the de minimis threshold from $200 to $800. This amendment shall apply to merchandise imported or withdrawn from the warehouse for consumption on or after March 10, 2016.

Section 304 – Copyright Enforcement while Application Pending

Section 304 calls for a process to enforce copyright protection for marks after the filing of a registration application, but before the application has been approved and the registration is in full force and effect. These steps are to take effect by August 2016.

US Commerce Department.  www.commerce.govSection 421 – Enforcement of AD/CVD Orders

The Department of Commerce has been authorized to administratively investigate AD/CVD evasion and requires CBP to collect or preserve for collection AD/CVD duties owed on evading imports. These amendments are effective August 2016. Regulations to put the changes into effect are also called for by August 2016.

Section 303 – IPR Enforcement – Circumvention Devices

Section 303(a) expands CBP’s seizure and forfeiture authority to explicitly include unlawful circumvention devices, as defined under 17 U.S.C. § 1201(a)(2) or (b)(1).  CBP has to prescribe regulations implementing this process by February 2017.

Section 116 – Importer of Record (“Known Importer”) Program

Section 116(b) requires the Commissioner to submit a report to Congress no later than August 2016 containing recommendations for determining the most timely and effective way to require foreign nationals to provide customs brokers with appropriate and accurate information (comparable to that which is required of United States nationals concerning the identity, address and other related information), and for establishing a system for customs brokers to review information maintained by relevant Federal agencies for purposes of verifying the identities of importers, including nonresident importers, seeking to import merchandise into the United States.

As with all landmark legislation, the regulatory process is where the details will be provided.  While regulations may not be issued immediately, importers may still feel the effects of this law sooner rather than later. For example, CBP has been taking steps to increase enforcement of AD/CVD and IPR provisions in anticipation of the passage of the law using existing processes. Importers are likely to see the effects of CBP enforcement under current processes.

Contact TransLegal with your questions concerning the Trade Facilitation and Enforcement Act of 2015 / Customs Reorganization Bill.

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Alibaba: The Scandal You Should Know About Before Investing

Francisco A. Laguna & Rolanzo White

For those unfamiliar, Alibaba is an e-commerce company based in China. Founded in 1999 by Jack Ma, this giant has grown into one of the most valuable technology companies in the world.  It raised US$ 25 billion from its United States IPO, and in 2014, transactions on their sites totaled US$ 248 billion.

"Alibaba Group Logo" by Source (WP:NFCC#4). Licensed under Fair use via Wikipedia

“Alibaba Group Logo” by Source (WP:NFCC#4). Licensed under Fair use via Wikipedia

Alibaba does not warehouse, ship or sell products, instead they offer sales portals and platforms whereby third-party merchants can sell their goods to third-party buyers. The company began as an online business-to-business wholesale company operating as Alibaba.com. Over the next decade, Alibaba launched a variety of businesses including Taobao, an online payment system called Alipay, an online marketing technology platform called Alimama, Tmall, and Alibaba Cloud Computing. The Company derives the vast majority of its revenue – 81.6% for FY2014 – from its China retail marketplaces, Taobao, Tmall, and Juhuasuan.

The sale of counterfeit and contraband goods over its platforms has long been an issue that could potentially impact Alibaba’s business significantly. Alibaba has always claimed to be against the counterfeiting on their sites.  On April 14, 2014, Alibaba’s proprietary news website, Alizila, published an article entitled “Fight against Online Sale of Fakes Goes on for Alibaba Group.” Alibaba claims to have removed an estimated 114 million listings for suspected fake goods from their giant Taobao marketplace during the first ten months of 2013. Their stated goal was to curb the infringement of intellectual property rights on its websites. The company has implemented measures to correct the problem which include searching their sites for merchants selling counterfeits and opening communication with government authorities and major brand owners. That being said, their current measures to stop counterfeiting have failed according to the recent complaints. The site rife with counterfeits is Taobao. Taobao is Alibaba’s largest shopping platform, hosting millions of merchants. Taobao offers buyers the ability to purchase unusual items and services like boyfriends for hire, live scorpions, and plenty of counterfeit merchandise.

"Jack Ma 2008" by World Economic Forum at en.wikipedia. Licensed under CC BY-SA 3.0 via Commons

“Jack Ma 2008” by World Economic Forum at en.wikipedia. Licensed under CC BY-SA 3.0 via Commons

Recently, Alibaba, Jack Ma and company executives have been hit with three class action law suits. The first was a derivative suit led by a common stock holder named Steve Surray (United States District Court for the Southern District of California). The second was a class action suit led by Gucci America Inc. who is joined by Balenciaga, Bottega Veneta, Yves Saint Laurent, Luxury Goods International (L.G.I.), and Kering (US District Court for the Southern District of New York). The last class action was filed by Myrtle Chao; the plaintiffs consist of people who bought the publicly traded ADSs of Alibaba on a U.S. stock exchange during the Class Period of 10/21/2014 – 01/28/2015 (United States District Court for the Central District of California).

Overall, these complaints accuse Alibaba of being untruthful about the counterfeiting problem on their sites and aiding and abetting the assailants. In other words, Alibaba is not only accused of allowing the sale of items like fake cigarettes, alcohol, restricted weapons and counterfeit luxury goods, it is also accused of providing an “ecosystem” for this type of behavior. In the Gucci complaint, the class claims that Alibaba knowingly encourages, assists and profits from the sale of counterfeits by providing online marketing, credit card processing, financing and shipping services. For example, Alibaba knowingly continued to allow the Hangzhou Yanbei Trading Company, a “Gold Supplier” and “Assessed Supplier” to sell counterfeit Gucci bags after inspecting them and concluding that they were, indeed, counterfeit. Alibaba is also accused of helping customers find counterfeit goods. For instance, they allow for keyword searches like “Gucci replica” and suggested terms like “cucci” and “guchi” when “Gucci” is typed into the search bars on their various platforms to intentionally drive customers to merchants of counterfeit products.

"Alibaba Binjiang Park" by Danielinblue, designed by HASSELL (architects)[1] - Own work. Licensed under CC BY-SA 4.0 via Commons

“Alibaba Binjiang Park” by Danielinblue, designed by HASSELL (architects)[1] – Own work. Licensed under CC BY-SA 4.0 via Commons

Alibaba is being sued for, among other things, trademark infringement, counterfeiting under the Lanham Act and violations of the Racketeer Influenced and Corrupt Organizations Act (“RICO”). The plaintiffs want Alibaba to stop aiding counterfeiters and take down any infringing product currently on their sites and have asked the court for statutory, punitive, and court-determined damages that could cost Alibaba millions.

Alibaba’s actions, if true, are illegal and could mean a severe drop in market value, which could further disrupt the Chinese economy and investor confidence.  The prudent investor may wish to consider waiting until the lawsuits are resolved, at least at the district court level.

TransLegal has offices throughout Asia, including China.  We assist our clients with enforcement of IP rights in the region.  Call us with your questions.