What is an essential way for third-party intermediaries to avoid facilitating a criminal enterprise?
KNOW YOUR CUSTOMER (KYC)
Whether it is self-storage operators, landlords, or maritime transporters, all supply chain intermediaries have a moral and legal obligation to “Know Their Customer.”
If they do not, as Greek IP attorney Michalis Kosmopoulos wrote, they evolve into legal targets. “The most effective approach is to target the infrastructure and means used by counterfeiters to supply their products internationally. In this regard, counterfeiters often act through third parties…such third-party engagement renders the liability of intermediaries a cutting-edge matter in IP law worldwide.”
In a blog post I published in March 2017 titled, “The Need for IP Cargo Transporters to Conduct Background Screening of Their Customers – “Know Your Customer,” I presented some details on a global consumer products infringement case my group and I investigated earlier that year that illustrated the lack of interest the transporter had in knowing its customer. (The post details how we came to that conclusion.)
In the same March 2017 post I wrote the following:
“ ‘The International Chamber of Commerce (ICC) Business Action to Stop Counterfeiting and Piracy (BASCAP) published an outstanding report in March 2015 titled: ROLES and RESPONSIBILITIES of INTERMEDIARIES: Fighting Counterfeiting and Piracy in the Supply Chain. This comprehensive report spells out the problem and makes considered recommendations.
“ ‘Holding intermediaries more and more accountable —in the transfer and transport of money and products—is an increasing global trend. Intermediaries (such as banks) are expected to now make a vigorous effort to know their customers before permitting their services to be used.’ ”
“ ‘The following points are made in the sub-section titled, “Transport Operators-Suggested Best Practices in the BASCAP report:
“ ‘Historically, the system has relied greatly on customs to identify suspicious behavior. In a vastly expanded global marketplace, enforcers, intermediaries and rights holders need to develop new solutions as seen in banking and other sectors.
“ ‘Develop and adopt appropriate voluntary practices to stop counterfeiters’ abuse of transport and distribution systems. This effort can start with adequate due diligence and Know Your Customer processes, including quality system reviews for shipping clients and customers. These systems should ensure accurate shipment paperwork, including in-depth background checks…’ ”
WHAT’S THE POINT?
The global trend to hold intermediaries more-and-more accountable should absolutely include self-storage operators as well. Self-storage facilities cannot continue to be a sanctuary for counterfeiters to operate undisturbed.
DUE DILIGENCE RECOMMENDATIONS TO SELF-STORAGE OPERATORS
Here are recommendations to self-storage operators interested in establishing and maintaining a crime-free facility: Adopt a “Code of Best Practices” similar to what is recommended by the UK Self Storage Association:
In Tick Box’s code of practice, self-storage facilities commit to:
- Prohibiting the storage of illegal goods, which includes counterfeit goods and non-duty paid alcohol and tobacco.
- Being aware of who is storing goods at a premise through photo identification and proof of address documentation.
- Providing reasonable assistance to the local trading standards service in investigations relating to the storage of counterfeit goods and other unlawful activity.
- Ensuring a commitment to fair trading and making the public aware of the commitment through the prominent display of the code of practice in a location visible to members of the public.
- Ensuring that all staff employed at a self-storage facility are aware of the code of practice and its requirements.
- Ensuring that all customers, on completion of their rental application form, are made aware of the code of practice.
The UK Self Storage Association recommendations are an important start, but consider the “Code of Best Practices” embraced by a self-storage franchise (in an article I referenced in Part I) that was sued by the New York City Office of Special Enforcement as a result of a counterfeiter’s arrest for not only storing the counterfeits in the storage facility, but for selling the counterfeits onsite.
The following is the “Code of Best Practices” established as a result of the lawsuit:
- Managers can access tenants’ units without prior notice, as long as they “reasonably believe a nuisance is occurring in the unit”
- Manager walkthroughs must be performed at least once a day
- Internal records must be reviewed daily to see if any unusual activity has occurred in any units if so, the manager is required to investigate further
- Requires them to report all suspected illegal activity to the authorities
- Explicitly forbids the storage or sale of any counterfeit items on site
- Photocopies of tenant IDs must be retained for at least a year after they move out
- There must be a sufficient amount of surveillance cameras on-site 
RECOMMENDATIONS FOR IP INVESTIGATORS
The need for IP investigators to explore an intermediary’s potential culpability, as well as the subject-counterfeiter, is essential to a thorough infringement investigation. As former FBI supervisory special agent and former program manager at the U.S. National IPR Center, Michael LeMieux commented:
“…As with other intermediaries, the truly egregious of the bunch should be treated as potentially cognizant of their role in the CF supply chain and held accountable where appropriate. Investigators want to determine that intermediary culpability as early as possible in the investigation and work that aspect just as diligently as they do the case against the primary infringing party.”
IP-PI SERVICES OPPORTUNITY
There is a professional-services opportunity for IP private investigators to offer self-storage operators that include (but is not limited to) the following:
- Background screening of applicant-lessee and/or lessee whose activities create a nuisance or raise suspicions
- Surveillance of renters engaged in suspicious activity
UPDATE…LAREDO, TEXAS…SELF-STORAGE SEIZURE…
Update on the May seizure of counterfeit goods from a self-storage facility in Laredo, Texas, that was then estimated at 79,000 items and valued at $16 million:
On July 6th, U.S. law enforcement completed the seizure-count and the estimate was hurled up to $41 million, with a stockpile that rose to 181,000 counterfeits in 795 boxes.
Here are the brands affected: Adidas, Apple, Calvin Klein, Casio, Chanel, Coach, Diesel, Fendi, Gucci, Hugo Boss, LG, Luis Vuitton, Mark Kors, Nike, Rolex, Samsung, Sony, Under Armor, Yves St. Laurent; and DC and Marvel Comics.
SO…HERE’S THE $41 MILLION QUESTION
Is it possible for any law-abiding/self-storage operator to think that seven hundred and ninety-five (795) boxes flowing in-and-out of their facility is not just a bit suspicious?
 BP The Trademark Counterfeiter’s Depot – Self-Storage Facilities: Another Third-Party Supply Chain Intermediary – Part I
 Liability of Intermediaries: the Effective Anti-Counterfeiting Tool
 The Need for IP Cargo Transporters to Conduct Background Screening of Their Customers—“Know Your Customer”
 UK Self Storage Industry Fights Illegal Activity with Tick Box
 Storage Facility Settles Unprecedented Counterfeit Goods Lawsuit