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Mr. MOSSINGHOFF. It would be a question to be determined by a court on whether or not there would be a likelihood of confusion. That is the legal test that is used in the trademark world.
There is also a growing body that if you have a very strong trademark-and the classic example is Kodak being one of the strongest, a totally fanciful word that meant nothing before it was applied to photographic supplies—that courts will prevent people from using the word Kodak on an antediluvian theory, that by several people using this mark they dilute its effectiveness.
So, there are really two standards. There is the confusing similarity standard or the likelihood of confusion, and then there is the issue of whether you dilute a property right.
In general, I think the enlightened view is as long as the mark is a very strong mark, like Kodak, which as I say meant nothing before it was coined by the photographic company, that courts will—and I think they should-support keeping that name from becoming widespread in use, even though the consumer is not likely to think that cat food is made by Kodak, for example. I think the antediluvian theory should be applied by the courts, and is applied.
Mr. HUGHES. Let me just ask you this, in the same vein. Suppose Bali of Mexico has a competitor that is using Bali as one of the provinces. The shoes look almost alike and they are imported into this country. Could we reach them extraterritorially under this legislation? First of all, would that be a counterfeit product if it is trademarked Mexico?
Mr. MOSSINGHOFF. Would this be a case of the same manufactur
Mr. HUGHES. Let's say Bali of the United States has a subsidiary in Mexico, Bali of Mexico, and a competitor makes a comparable shoe in Mexico, they are located in Mexico, they use the same basic trademark identity, only it is Bali of a province in Mexico.
Mr. MOSSINGHOFF. And import it?
Mr. MOSSINGHOFF. I think the importation would be. I think it would be. If the mark came in and it met the test if Bali was owned by someone in the United States and registered on principal register, it met the test and it was not in any way associated with the original Bali, it was not the subsidiary but it was a competitor of the subsidiary, I would say yes, that it would be covered when it came into the United States."
What they do in Mexico would be a matter that the U.S. Trade Representative is pushing, but in the United States I think importing it, selling it, would clearly come
Mr. HUGHES. It would trigger the provisions of the-
Mr. MOSSINGHOFF. I don't pretend in any way to be an expert on criminal law, but I don't believe that is extraterritorial if you rely on acts in the United States—the fact that it was manufactured in Mexico, what you are prosecuting is the transfer into the United States. It seems to me that does not reach extraterritorially.
Mr. HUGHES. You are always going to have that transfer. The question is whether or not you reach people in Mexico who are actually committing the violations to possibly innocent purchasers in the United States. This triggers sanctions in this country for search and seizure.
Mr. MOSSINGHOFF. But if they are innocent, at least as far as the criminal provisions apply, I would assume that this bill wouldn't reach them. They would be without the willful intent.
Mr. HUGHES. Well, this bill doesn't have the willful intent. This legislation before us has the intent to deceive standard. Well, it raises some interesting questions.
Let me ask you on another subject. Is any effort being made to try to determine the nature and extent of counterfeit trademarking throughout the United States, what impact it has in our country? To your knowledge, has the Department of Commerce or any agency of government, ever obtained more correct data on just the extent of the counterfeit trademark problem?
Mr. MOSSINGHOFF. Yes; the International Trade Commission in a series of hearings that began in August of this .year-I believe I was the leadoff witness and then there was a series of industry and other interested persons who testified, and we are looking to that investigation by the International Trade Commission to firm up some of the data which is soft, admittedly.
This is just my own speculation, but one reason it is soft is that a lot of manufacturers don't want a lot of press coverage of the fact that there are counterfeit copies of their goods out. That is not a self-serving thing for a company to do, to admit or to publish the fact that there are hundreds of thousands of counterfeit X, Y, or Z's. That is not self-serving for a manufacturer to do because the public is going to read that and decide they will stay away from all of them for a while, I think.
Mr. HUGHES. We sort of have a dilemma on our hands because in order for us to act, we have to act on the basis of the extent of the problem, whether or not it should trigger federal jurisdiction. One of the issues that bears on that is the nature and extent of the problem.
Mr. MOSSINGHOFF. I agree with that. We are looking to the ITC. I think you can say now, though, that it is an extremely serious problem. The data that already exists, the recalls by the Food and Drug Administration of some 200 plus heart pumps, things like that, that does exist; the NASA situation with counterfeit semiconductors made it into the shuttle that almost-NASA has an extremely good tracking system. It didn't make it into the shuttle, but it was aimed in the direction of making it in. Those things do exist. So, the problem is well documented. It is just that the actual dimensions of it are not defined.
Mr. HUGHES. Thank you very much, Commissioner. We appreciate your contributions. We look forward to working with you.
Mr. MOSSINGHOFF. Thank you.
Mr. HUGHES. Unfortunately the Customs Commissioner, Commissioner von Raab, will be unable to testify this morning. The testimony that we have from the Customs Service will be offered by Richard Abbey, the chief counsel for the U.S. Customs Service.
Mr. Abbey has been chief counsel for some 4 years. He has been an attorney, as I understand it, in the Office of the Chief Counsel for about 16 years. He has had a very distinguished career in the area of customs law. We are delighted to have you with us this morning.
We have your statement, Mr. Abbey, which without objection will be made a part of the record in full. We hope you can summarize for us.
TISTIMONY OF RICHARD H. ABBEY, CHIEF COUNSEL, U.S. CUS
TOMS SERVICE, ACCOMPANIED BY THOMAS E. SLOAN, DIRECTOR, ECONOMIC CRIME DIVISION, AND KAY L. FIKE, IMPORT SPECIALIST
Mr. ABBEY. Before I commence my testimony, I would like to introduce the people who are here with me today.
To my right is Tom Sloan. He is the Director of our Economic Crime Division. I also have with me Kay Fike, who is a senior import specialist from San Francisco.
Mr. HUGHES. Welcome, Mr. Sloan and Ms. Fike.
Mr. ABBEY. Of course, I convey Mr. von Raab's apologies for not being able to be here.
Mr. Chairman and members of the subcommittee, we appreciate this opportunity to appear before you today to present the U.S. Customs Service programs enforcing trademark and copyright laws and regulations to combat international trafficking in counterfeit goods.
As you know, the U.S. Customs Service is the agency of the U.S. Government charged with protecting against the importation into the United States of counterfeit goods. Customs protects trademark owners against the unauthorized importation of goods bearing both counterfeit trademarks and marks that copy or simulate registered trademarks but do not amount to counterfeits. The Customs Service also proceeds against imported articles that infringe works protected by copyright.
Registered trademarks and copyrights must be recorded with Customs to gain import protection. Upon recordation a notice is issued to all Customs field offices, informing them of the recordation and providing information concerning the authorized manufacturing sources and suspected infringements.
U.S. Customs is authorized by regulation to seize and forfeit to the U.S. Government any imported article determined to bear a counterfeit trademark. A counterfeit trademark, as you have already heard, is defined in the law as a "spurious mark which is identical with or substantially undistinguishable from a registered trademark.” Let me say that we have not had any difficulty working with that definition.
When a mark copies or simulates a registered trademark but is not found to be a counterfeit, the importer is afforded the opportunity to obliterate the mark himself prior to importation, to export the goods or arrange for some other appropriate means to cancel the violation.
If the article is determined to be an infringing copy of a copyrighted work, the district director of Customs is authorized by regulation to seize and forfeit to the U.S. Government the infringing article. In cases where the imported article copies or infringes on a trademark or copyright that is not registered with Customs, the article may be imported without restriction.
Frequently, in an attempt to avoid Customs detection, importers falsely enter or smuggle counterfeit items, thus avoiding Customs inspections. Customs investigators who become aware of such illegal activities then pursue criminal and civil prosecution of the violations using existing statutes.
If the investigation shows a willful infringement of a copyright for commercial advantage, the importer may be charged under the criminal infringement provisions of the Copyright Act.
There is no current law, though, solely germane to criminal infringements of a trademark. Generally, Customs pursues prosecution in such cases on the substantive charges of smuggling, false entry, false statements, or conspiracy. civil violations of law will concurrently be charged under existing statutes resulting in substantial monetary penalties and the possible forfeiture of seized articles.
On February 15, 1983 a new Customs fraud investigations initiative was inaugurated and recently named "Operation Tripwire." With this program, Customs established the Customs Fraud Investigations Center in Washington, DC, and Regional Field Enforcement Teams were established throughout the United States. This program intensifies our commitment to combat fraud and to develop and coordinate cases in an effort to proceed criminally against fraudulent importers.
The Customs Fraud Investigations Center supports investigations of commercial frauds. Commercial frauds are violations of the law that are attempts to avoid paying duties and other assessments, or restrictions on commercial shipments of imported goods, such as the use of counterfeit marks. The fraud center does not conduct fraud investigations. Rather, the Customs officers in the seven Customs regions throughout the United States conduct the investigations.
The fraud center has taken an active role in addressing the counterfeiting problem at the international and national levels. In addition to working within Government organizations, fraud center staff members have met with attorneys, congressional staff and key industrial personnel to develop intelligence and significant programs to stem the tide of counterfeit merchandise from entering our commerce.
Upon obtaining information or documents relating to counterfeiting of products or other types of commercial fraud, the fraud center coordinates and disseminates the information throughout the Customs Service. With the implementation of Operation Tripwire, Customs enforcement efforts have escalated.
A significant number of recent fraud cases have involved counterfeit trademarks and copyrights. Let me list a few examples.
"Members Only," a registered trademark for men's jackets, continues to be a target for counterfeit activity. Recently a shipment of jackets from Korea was seized. These jackets bore a counterfeit "Members Only" trademark.
Designer jeans for Calvin Klein, Sergio Valente, and Jordache Enterprises also continue to be a lucrative area for counterfeiting. A seizure this past summer netted 1,000 pairs of counterfeit Jordache jeans which were seized after a failed attempt to smuggle them into the United States. Two persons were arrested and charged with conspiracy and smuggling.
On July 15, 1983 the grand jury for the southern district of New York returned a true bill charging seven individuals with conspiracy to illegally import counterfeit
Jordache blue jeans. The indictment charges the defendants with conspiracy to violate 18 U.S.C. 542, 545, and 2314 and 19 U.S.C. 1526.
A five-count indictment alleges that for the period on or about May 1982, up to and including July 15, 1983, the defendants, by means of false and fraudulent practices imported more than 100,000 pairs of Jordache and Sergio Valente blue jeans without the consent of the rightful trademark holders. These jeans have a wholesale value of approximately $1.5 million.
In another case, Customs officers seized 2,280 dozen counterfeit Walt Disney T-shirts from Korea. LaCoste Izod has also experienced a rash of attempted importations of counterfeit clothing bearing their alligator emblems. The pirated Izods primarily originate in the Philippines.
Several shipments of piratical “ET” merchandise have been seized by Customs officers in Cleveland, OH. The value of these seizures is over $425,000 and criminal prosecution is pending.
A counterfeit computer case recently broke in Philadelphia. The investigation began when an attorney for a computer company reported to Customs special agents that copies of the computers were being offered for sale in the Philadelphia area.
Customs special agents and Philadelphia police, using undercover officers, telephone taps, hidden recorders, and search warrants seized 80 counterfeit computers and components for 100 or more computers. The evidence gathered is being presented to a Federal grand jury investigating possible violations of Federal mail fraud, infringements of the Copyright Act, and smuggling laws.
Counterfeiting is not limited to goods. Counterfeit documents are being used to enter merchandise into the U.S. Current problem areas include counterfeit textile visas from Taiwan, counterfeit coffee, stamps and fraudulent shipping documents.
Since April, our officers in Los Angeles have denied entry to a growing number of textile shipments with counterfeit visas. This merchandise has been valued at more than $7 million.
A new and growing scheme aimed at evading quota restrictions involves the transshipment of goods through nonquota countries using fraudulent country of origin labeling and shipping documents. Between November 1982 and June 1983, Customs seized upward of 115,000 bags of coffee valued at about $17 million entered with counterfeit coffee stamps.
In conclusion, I want to reiterate the U.S. Customs Service's commitment to combating international trafficking of counterfeit goods and other commercial Customs frauds. Counterfeiting trademarked items have become a multibillion dollar a year business and is a growing problem for U.S. industries. We commend the Congress in your efforts to strengthen the laws against the counterfeiting of trademarks, and we will actively enforce all new laws.
Thank you, Mr. Chairman. I will be happy to answer any questions you may have.
Mr. HUGHES. Thank you very much, Mr. Abbey.