In my previous post, Intermediary Freight Forwarder Not Liable In Counterfeit Case-Singapore Court Rules-Part I, I mentioned I was intrigued by a recent court decision in Singapore to not hold a freight forwarder responsible at all for (albeit) unknowingly facilitating the transport of counterfeit goods, as well as the court’s decision to not instruct the freight forwarder to at least take more of an interest in “Knowing Its Customer” going forward.
TREND TO HOLD INTERMEDIARIES ACCOUNTABLE
In this post (Part II) I’d like to consider the trend to hold transport and storage intermediaries accountable.
I’ll start by providing a few details of a case my investigative group and I were involved in about eighteen-months ago that illustrates my point:
A shipping container left China en-route to a U.S. importer (consignee.) The “bill of lading” indicated that the U.S. importer was receiving “cable” and, indeed, the importer had the word “electronics” attached to its company name. This, of course, gave the impression that there was maybe a good reason for the importer to be receiving “cable.”
Except, our investigation disclosed that soon after the shipment was received by the consignee, sale invoices indicated that the same alleged “electronics” importer was selling knockoff “consumer products” (not cable) to distributors, and shortly thereafter, the knockoff consumer products began to appear in retail establishments in different parts of the U.S., as well as on e-commerce sites.
Similarly, in the Singapore case, the “bill of lading” indicated the two containers had household goods not (as Singapore Customs discovered) luxury counterfeit items.
KNOWING YOUR CUSTOMER
Perhaps, if the freight forwarder (in our investigation) was interested in “knowing its customer”, a basic background screening would have revealed that the U.S. importer’s business entity had only been established three (3) months prior to the shipment.
That, in itself, raises suspicions and is a good indicator that the consignee established the alleged “electronics business entity” essentially as a “shell” company to disguise its true purpose.
Now, the above background screening suggestion may seem absurd, but in this era of expanding global trademark infringement and intermediaries being held more accountable, it makes sense for freight forwarders to make “due diligence” efforts to know their customer before accepting business.
Did the freight forwarder in our investigation take the time to inquire with the shipper about the consignee’s legitimacy?
Did our freight forwarder even care?
Did our freight forwarder review the documents they’d been provided by the shipper with interest or indifference?
Was our freight forwarder’s business position essentially, “Don’t Ask – Don’t Tell”?
We don’t know. What we do know is that a container full of counterfeit consumer products was received by the criminals at a U.S. port.
HOLDING INTERMEDIARIES ACCOUNTABLE
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 same trend is developing in the transport and exchange of products, whether through e-commerce, or the physical trading of goods. This is no less true for the transport intermediaries of large sea containers or cargo, and overland transport by rail or truck.
BASCAP REPORT AND RECOMMENDATIONS
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.
The following points are made in the sub-section titled, “Transport Operators-Suggested Best Practices:
“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…”
THE DECLARATION OF INTENT TO PREVENT THE MARITIME TRANSPORT OF COUNTERFEIT GOODS
In November 2016, the international shipping industry took an important step by signing a joint agreement with a number of major brand owners called, “The Declaration of Intent to Prevent the Maritime Transport of Counterfeit Goods.”
This declaration of intent was an important first step in transforming the relationships between the brand owners, the shipping industry, and their customers in order to further combat counterfeiting.
Here are a few quotes from an article published in the World Trademark Review titled, Liability of Intermediaries: The Effective Anti-Counterfeiting Tool, written by Greek IP Attorney Michalis Kosmopoulos on May 24, 2018:
“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…” [i.e., self-storage facilities, transportation, financial services, open markets, etc.]
“Such third-party engagement renders the liability of intermediaries a cutting-edge matter in IP law worldwide.”
“Targeting intermediaries is vital for enhancing the effectiveness of an anti-counterfeiting program.”[
SAME INTERMEDIARY ACCOUNTABILITY PRINCIPLE APPLIES TO STORAGE LOCATIONS AND FACILITIES
According to retired NYPD detective William Ryan, president of Ryan Investigative Group, who was quoted in a 2016 New York Times article titled: Counterfeiting Trade Settles Into a New York Standby: Self-Storage Units, “They’re (self-storage operators) not paying attention to handbags and all this stuff moving in and out on a daily basis,” he said. “Suppose they weren’t moving handbags, they’re moving weapons. ‘See something, say something?’ Not in these places.”
“A worker at a competing storage business nearby shrugged and said employees did not know what was in the lockers. Mr. Ryan was less sympathetic, suggesting a “willful blindness.”C
U.S. IP Attorney Susan Neuberger Weller wrote in her 2013 article titled: Counterfeits, Trademark Infringement, and Contributory Liability: Your Vendors are Your Problem, “Counterfeit goods seem to be everywhere, and efforts to police their ubiquitous existence often seem futile. However, a recent decision involving counterfeit Coach products should inspire those who host vendors of counterfeit products to rethink their business strategy.”
She goes onto explain that a U.S. appeals court confirmed a district court’s award of $5 million in damages to Coach, Inc. “…for a flea market owner’s failure to stop his vendors from selling counterfeit Coach goods.
“The issue before the court was whether the flea market owner could be held liable for the infringing acts of others. Although finding that the owner could not be held vicariously liable for the vendors’ counterfeiting activities (since there was no showing that he and the vendors were in a partnership relationship or had authority to bind one another or to exercise joint ownership or control of anything), the court upheld a finding of contributory liability.
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.”
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