Hangzhou Chic v. Mystery Parties

Case: 1:20-cv-05905 Document #: 1 Filed: 10/02/20 Page 1 of 24 PageID #:1
IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION
HANGZHOU CHIC INTELLIGENT )

TECHNOLOGY CO., LTD and UNICORN )
GLOBAL, INC., )
)
Plaintiffs, ) Case No.: 20-cv-5905
)
v. ) JURY TRIAL DEMANDED
)
THE PARTNERSHIPS AND )
UNINCORPORATED ASSOCIATIONS )
IDENTIFIED ON SCHEDULE A, )
)
Defendants. )
COMPLAINT
Plaintiffs Hangzhou Chic Intelligent Technology Co., Ltd. (“Chic”) and Unicorn Global,
Inc., (“Unicorn”) bring this action against the Defendants identified in attached Schedule A
(collectively, “Defendants”) and allege as follows:
NATURE OF ACTION
1. This action is for patent infringement arising under the patent law of the United
States, 35 U.S.C. § 1 et seq., including 35 U.S.C. §§ 271, 281, 283, 284, 285 and 289.
2. Plaintiffs have filed this action to combat e-commerce store operators who trade
upon Plaintiffs’ reputation and goodwill by making, using, offering for sale, selling and/or
importing into the United States for subsequent sale and use of unauthorized and unlicensed
products, namely the hoverboards shown in Exhibit 1, that infringe Plaintiffs’ patented designs
and innovative features (“Infringing Products”). Defendants create e-commerce stores operating
under one or more seller aliases or ficticious names identified in Schedule A (collectively,
“Defendant Internet Stores”) that are making, using, offering for sale, selling, and/or importing
into the United States for subsequent sale or use of Infringing Products to unknowing consumers.
Defendant Internet Stores share unique identifiers establishing a logical relationship between them
and Defendants’ operation, which arises out of the same transaction, occurrence, or series of
transactions or occurrences. Defendants attempt to avoid and mitigate liability by operating one
or more Defendant Internet Stores to conceal both their identities and the full scope and
interworking of their operation.
3. Plaintiffs are forced to file this action to combat Defendants’ infringement of their
patented designs, as well as to protect unknowing consumers from purchasing Infringing Products
over the Internet. Plaintiffs have been and continue to be irreparably damaged from the loss of
their lawful patent rights to exclude others from making, using, selling, offering for sale, and
importing their patented designs as a result of Defendants’ actions and seeks injunctive and
monetary relief.
JURISDICTION AND VENUE
4. This Court has original subject matter jurisdiction over the claims in this action
under the Patent Act, 35 U.S.C. § 1, et seq., 28 U.S.C. §§ 1331 and 1338(a)-(b).
5. Venue is proper in this Court under 28 U.S.C. § 1391, and this Court may properly
exercise personal jurisdiction over Defendants because each of the Defendants directly targets
business activities toward consumers in the United States, including Illinois, through at least the
fully interactive, e-commerce stores, operating under the Defendant Internet Stores. See Schedule
A. Specifically, Defendants have targeted sales to Illinois residents by setting up and operating e-
commerce stores that target United States consumers using one of more Defendant Internet Stores,
offer shipping to the United States, including Illinois, accept payment in U.S. dollars and, on
information and belief, have sold products featuring Plaintiffs’ patented designs and features to
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residents of Illinois. Each of the Defendants are committing tortious acts in Illinois, engaging in
interstate commerce, and have wrongfully caused Plaintiffs substantial injury in Illinois.
THE PARTIES
6. Plaintiff Chic is a high-tech company that manufactures and licenses hoverboard
products for sale in the United States. Chic is supported by Zhejiang University Ministry of
Education Computer Aided Product Innovation Design Engineering Center, the Zhejiang
University International Design, and Zhejiang Key Laboratory of Service Robot. Chic is located
in the Liangzhu University Science and Technology Park, Yuhang District, Hangzhou, China.
7. Chic designs and sells hoverboards, among other technologies, which incorporate
the Patents-in-Suit (collectively, “Plaintiffs’ Products”). Chic is the assignee of approximately
400 granted patents related to technologies associated with the products at issue here, six of which
are the subject of this action.
8. Plaintiff Unicorn is a corporation organized under the laws of the State of
California, having its principal place of business in Ontario, California. Unicorn is the exclusive
U.S. distributor of Plaintiffs’ Products. Unicorn, through its affiliates and licenses, operates
websites which promote and sell genuine Plaintiffs’ Products, and which feature proprietary
content, images and designs exclusive to Plaintiffs.
9. Defendants are individuals and business entities of unknown makeup who own
and/or operate one or more Defendant Internet Stores identified in Schedule A and/or other seller
aliases not yet known to Plaintiffs. Upon information and belief, Defendants reside and/or operate
in the People’s Republic of China or act as an entity from a foreign jurisdiction with less efficient
intellectual property enforcement systems, or redistribute products from the same or similar
3
sources in those locations. Defendants have the capacity to be sued under Federal Rule of Civil
Procedure 17(b).
10. On information and belief, Defendants either individually or jointly, operate one or
more Defendant Internet Stores listed in Schedule A. Tactics used by Defendants to conceal their
identities and the full scope of their operation make it virtually impossible for Plaintiffs to learn
Defendants’ true identities and the exact interworking of their network. If Defendants provide
additional credible information regarding their identities, Plaintiffs will take appropriate steps to
amend the Complaint.
FACTUAL ALLEGATIONS
11. Chic has been issued with several U.S. design and utility patents relating to
hoverboard products, including but not limited to, U.S. Design Patent Nos. D737,723 (“the ’D723
patent”), D738,256 (“the ’D256 patent”), D785,112 (“the ’D112 patent”), D784,195 (“the ’D195
patent”), U.S. Patents 10,696,347 B2 (“the ’347 patent”), and 10,696,348 B2 (“the ’348 patent”)
(collectively, “Patents-in-Suit”), which are in Exhibit 2.
12. The Patents-in-Suit claim and illustrate ornamental features and utility elements of
hoverboards.
13. The ’D723 patent and the ’D256 patent are entitled “Self-Balancing Vehicle,” and
were issued on September 1, 2015 and September 8, 2015, respectively.
14. The following table illustrates the figures in the ’D723 patent.
4
Patent Claim Issue Date

Number September
D737,723 1, 2015
5

Number September
D737,723 1, 2015
6

Number September
D738,256 8, 2015
7

Number September
D738,256 8, 2015
16. Both the ’D195 patent and the ’D112 patent are entitled “Human-Machine
Interaction Vehicle,” and were issued on April 18, 2017 and April 25, 2017, respectively.
8

Number April 25,
D785,112 2017
9

Number April 25,
D785,112 2017

Number April 18,
D784,195 2017
10

Number April 18,
D784,195 2017
19. The ’347 patent and the ’348 patent are entitled “Electric Vehicle” and both were
issued on June 30, 2020.
20. The following illustrates an explosed view (FIG. 2) in the ’347 patent.
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21. The following also illustrates an exploded view (FIG. 2) in the ’348 patent.
12
22. Jiawei Ying is the main named inventor of the Patents-in-Suit, and he has assigned
all rights, title, and interest to the patents to Chic.
23. Chic has licensed enforcement rights for the Patents-in-Suit to Unicorn.
24. Plaintiffs utilize the Patents-in-Suit when designing, manufacturing, and selling
Plaintiffs’ Products. The Patents-in-Suit have revolutionized ornamental design for hoverboards
and they also provide the hoverboards with high weight tolerance while providing agility during
operation of the hoverboards.
25. The Patents-in-Suit have streamline shapes that are appealing to United States
customers. Specifically, the ’D723 patent and the ’D256 patent have defined the fundamental
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ornamental configurations of the hoverboard product class. The ’D112 patent features a soft edge
between the central support platform and the fenders, and the ’D195 patent features a sharper edge.
26. The ’347 patent includes 20 claims and claim 1 is directed to an innovative electric
balance vehicle comprising a housing which includes a first side rotatable relative to a second side
and a support structure mounted within the housing. The support structure includes at least a first
one of a plurality of structural components coupled to the first side and at least a second one of the
plurality of structural components is coupled to the second side. The electric balance vehicle also
includes a first pedal disposed on the first side of the housing and a second pedal disposed on the
second side of the housing. A rotating mechanism is coupled with the support structure and is
configured to allow the first one of the plurality of structural components to rotate relative to the
second one of the plurality of structural components. A limiting shaft is disposed within the
housing to limit rotation of the first side relative to the second side. The electric balance vehicle
further includes a first wheel attached to a first end of the support structure and a second wheel
attached to a second end of the support structure, as well as a first motor mounted in the first wheel
and a second motor mounted in the second wheel. A plurality of sensors and a power supply are
mounted within the housing. The electric balance vehicle also includes at least one controller
mounted within the housing and electrically connected with the plurality of sensors, the power
supply, the first motor and the second motor, wherein the at least one controller is configured to
control the first motor and the second motor, respectively, to drive the first wheel and the second
wheel, respectively, to rotate according to one or more signals from the plurality of sensors.
27. The ’348 patent includes 21 claims and claim 1 is directed to an innovative electric
balance vehicle comprising, a first platform, a second platform, and a bottom cover having a first
bottom cover removably connected to the first platform and a second bottom cover removably
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connected to the second platform. The first platform and the second platform are made of a first
material, and wherein the first bottom cover and the second bottom cover are made of a second
material that differs in strength from the first material. The electric balance vehicle also includes
a rotation mechanism disposed between the first platform and the second platform, wherein the
rotation mechanism allows the first platform and the first bottom cover to rotate relative to the
second platform and the second bottom cover. A first wheel is rotatably fixed at a first end of the
first platform and a second wheel is rotatably fixed at a second end of the second platform, wherein
the first end and the second end are at opposites ends of the electric balance vehicle. The electric
balance vehicle also includes a first motor mounted within the first wheel and configured to drive
the first wheel and a second motor mounted within the second wheel and configured to drive the
second wheel. A plurality of sensors and a power supply are disposed between the bottom cover
and one of the first platform or the second platform. At least one controller is electrically coupled
to the first motor, the second motor, the plurality of sensors, and the power supply and is configured
to control the first motor and the second motor, respectively, to drive the first wheel and the second
wheel, respectively, using power from the power supply and based on signals from the plurality of
sensors. A limiting mechanism is configured to limit an overlarge relative rotation angle between
the first platform and the second platform, wherein the limiting mechanism is disposed between
the first platform and the second platform.
28. The Plaintiffs’ products that embody the Patents-in-Suit are stylish and modern,
and are visually pleasing to the consumers in the United States. At the same time, the Plaintiffs’
products are made of strudy construction that handles a rider’s weight while providing mobility,
stability and safety. As a result, the Plaintiffs’ Products have become enormously popular to
consumers of all ages, resulting in the sale of thousands of units in the United States.
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29. Plaintiffs have identified numerous e-commerce stores, including Defendant
Internet Stores, that offer for sale and/or selling Infringing Products to consumers in this Judicial
District and throughout the United States. E-commerce sales, including through stores like those
of Defendants, have resulted in a sharp increase in the shipment of unauthorized products into the
United States. See Excerpts from Fiscal Year 2018 U.S. Customs and Border Protection (“CBP”)
Intellectual Property Seizure Statistics Report at Exhibit 3.
30. Third party service providers like those used by Defendants do not adequately
subject new sellers to verification and confirmation of their identities, allowing infringers to use
untraceably identifiers, such as false names and addresses, when registering with e-commerce
platforms. See “Combating Trafficking in Counterfeit and Pirated Goods,” prepared by the U.S.
Dep’t of Homeland Security’s Office of Strategy, Policy, and Plans (Jan. 24, 2020) at Exhibit 4.
31. Defendants have targeted sales to Illinois residents by setting up and operating e-
commerce stores that target United States consumers using one or more Defendant Internet Stores.
32. Upon information and belief, Defendants have sold and are selling Infringing
Products on their e-commerce website, offered and are offering shipping to the United States,
including Illinois, and have accepted and are accepting payment in U.S. dollars.
33. Defendants concurrently employ and benefit from substantially similar advertising
and marketing strategies. For example, Defendants facilitate sales by designing the e-commerce
stores operating the Defendant Internet Stores so that they appear to unknowing consumers to be
authorized online retailers, outlet stores, or wholesalers. Defendant Internet Stores often include
content and images that make it difficult for consumers to distinguish such stores from an
authorized retailer. In addition, Defendant Internet Stores appear sophisticated and accept
payment in U.S. dollars via credit cards, Paypal, and/or Amazon Pay, for example.
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34. Plaintiffs have not licensed the Patents-in-Suit to the Defendants and none of the
Defendants are authorized retailers of genuine Plaintiffs’ Products.
35. On information and belief, Defendants have engaged in fraudulent conduct when
registering the Defendant Internet Stores by providing false, misleading and/or incomplete
information to e-commerce platforms.
36. On information and belief, Defendants have anonymously registered and
maintained seller aliases to prevent one from learning their true identities and the scope of their e-
commerce operation.
37. On information and belief, Defendants regularly register or acquire new seller
aliases for the purpose of offering for sale and selling Infringing products. Such registration
patterns are one of the many tactics used by Defendants to conceal their identities and the
interworking of their operation, as well as to avoid being shut down.
38. Despite operating under multiple fictitious aliases, the Defendant Internet Stores
often share unique identifiers, such as templates with common design elements with no contact
information or other identifying information, keywords, advertising tactics, similarities in prices
and quantities, same incorrect grammar and misspellings, and/or use of the same text and imagines.
39. Infringing Products sold by the Defendant Internet Stores bear similar irregularities
and indicia of being unauthorized to one another, suggesting that Defendants are interrelated and
that the Infringing Products come from and were manufactured by a common source.
40. On information and belief, Defendants maintain off-shore accounts and regularly
move funds from their financial accounts to off-shore bank accounts outside this Court’s
jurisdiction to avoid payment of any monetary judgment awarded to Plaintiffs.
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41. On information and belief, Defendants are an interrelated group of infringers
working in active concert to knowingly and willfully make, use, offer for sale, sell, and/or import
into the United States for subsequent sale or use Infringing Products in the same transaction,
occurrence, or series of transactions or occurrences.
42. Defendants, without any authorization or license from Plaintiffs, have jointly and
severally, knowingly and willfully made, used, offered for sale, sold, and/or imported into the
United States for subsequent resale or use products that directly and/or indirectly infringe the
Patents-in-Suit, irreparably harming Plaintiffs.
COUNT I
Design Patent Infringement – Patent No. D737,723
(35 U.S.C. § 271)
43. Plaintiffs re-allege and incorporate by reference the allegations provided in the
preceding paragraphs.
44. Defendants are making, using, offering for sale, selling, and/or importing into the
United States for subsequent sale or use Infringing Products that directly and/or indirectly infringe
the Patents-in-Suit.
45. Defendants have infringed the Patents-in-Suit through the alleged acts and will
continue to do so unless enjoined by this Court. Defendants’ wrongful conduct has caused
Plaintiffs to suffer irreparable harm resulting from the loss of control of their lawful patent rights
to exclude others from making, using, selling, offering for sale, and importing the patented
invention. Plaintiffs are entitled to injunctive relief under 35 U.S.C. § 283.
46. Plaintiffs are entitled to recover damages adequate to compensate for the
infringement, including Defendants’ profits under 35 U.S.C. § 289.
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47. Plaintiffs are also entitled to recover any other damages as appropriate under 35
U.S.C. § 284.
COUNT II
(35 U.S.C. § 271)
Plaintiffs to suffer irreparable harm resulting from the loss of control of thier lawful patent rights
U.S.C. § 284.
COUNT III
(35 U.S.C. § 271)
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Plaintiffs to suffer irreparable harm resulting from the loss of control of thier lawful patent rights
U.S.C. § 284.
COUNT IV
(35 U.S.C. § 271)
Plaintiffs to suffer irreparable harm resulting from the loss of control of their lawful patent rights
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U.S.C. § 284.
COUNT V
Patent Infringement – Patent No. 10,696,347 B2
(35 U.S.C. § 271)
64. Defendants directly or through intermediaries are making, using, offering for sale,
selling, and/or importing into the United States for subsequent sale or use Infringing Products that
directly and/or indirectly infringe the Patents-in-Suit.
65. Defendants have been and are infringing at least claims 1 through 20 of the ’347
patent in the State of Illinois, in this judicial district, and elsewhere in the United States.
Defendants’ wrongful conduct has caused Plaintiffs to suffer irreparable harm resulting from the
loss of control of their lawful patent rights to exclude others from making, using, selling, offering
for sale, and importing the patented invention. Defendants are directly infringing, literally
infringing, and/or infringing the ’347 patent under the doctrine of equivalents.
66. Plaintiffs are entitled to recover any other damages as appropriate under 35 U.S.C.
§ 284 and further entitled to injunctive relief under 35 U.S.C. § 283.
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COUNT VI
Patent Infringement – Patent No. 10,696,348 B2
(35 U.S.C. § 271)
69. Defendants directly or through intermediaries are making, using, offering for sale,
selling, and/or importing into the United States for subsequent sale or use Infringing Products that
directly and/or indirectly infringe the Patents-in-Suit.
70. Defendants have been and are infringing at least claims 1 through 21 of the ’348
patent in the State of Illinois, in this judicial district, and elsewhere in the United States.
Defendants’ wrongful conduct has caused Plaintiffs to suffer irreparable harm resulting from the
loss of control of their lawful patent rights to exclude others from making, using, selling, offering
for sale, and importing the patented invention. Defendants are directly infringing, literally
infringing, and/or infringing the ’348 patent under the doctrine of equivalents.
71. Plaintiffs are entitled to recover any other damages as appropriate under 35 U.S.C.
§ 284 and further entitled to injunctive relief under 35 U.S.C. § 283.
PRAYER FOR RELIEF
WHEREFORE, Plaintiffs seek relief as follows:
72. That Defendants, their agents, servants, employees, officers, attorneys, successors,
and assigns, and all persons acting in concert with defendants, or on their behalf, be enjoined, in
this and all other judicial districts in the United States, preliminarily during the course of this
litigation and permanently, from:
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a. making, using, offering for sale, selling, and/or importing into the United
States for subsequent sale or use any products not authorized by Plaintiffs
and that include any reproduction, copy or colorable imitation of the design
claimed in the Patents-in-Suit;
b. aiding, abetting, contributing to, or otherwise assisting anyone in infringing
upon the Patents-in-Suit; and,
c. effecting assignments or transfers, forming new entities or associations or
utilizing any other devise for the purpose of circumventing or otherwise
avoiding the prohibitions set forth in above;
73. Entry of an Order that, upon Plaintiffs’ request, those with notice of the injunction,
including, without limitation, any only marketplace platforms such as eBay, Amazon, and Walmart
(collectively, “Third Party Providers”) shall disable and cease displaying any advertisements used
by or associated with Defendants associated with the sale of goods that infringe the Patents-in-
Suit;
74. That Defendants deliver for destruction all Infringing Products that infringe on the
Patents-in-Suit;
75. A judgment in favor of Plaintiffs that Defendants have infringed the Patents-in-
Suit;
76. That Plaintiffs be awarded such damages as it shall prove at trial against Defendants
that are adequate to compensate Plaintiffs for infringement of the Patents-in-Suit, and all of the
profits realized by Defendants, or others acting in concert or participation with Defendants, from
Defendants’ unauthorized use and infringement of the Patents-in-Suit;
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77. That Plaintiff be awarded from Defendants, as a result of Defendants’ use and
infringement of the Patents-in-Suit, three times Plaintiffs’ damages therefrom and three times
Defendants’ profits therefrom, after an accounting under 35 U.S.C. § 284;
78. That Plaintiffs be awarded thier reasonable attorneys’ fees and costs; and
79. Award any and all other relief that this Court deems just and proper.
Date: October 2, 2020 Respectfully Submitted,
LOEB & LOEB LLP
By: /s/ Adam Kelly

Adam Kelly
Doug Masters
Arthur Yuan
321 North Clark Street, Suite 2300
Chicago, Illinois 60654
Tel.: 312-464-3100
Fax: 312-464-3111
Email: akelly@loeb.com
Email: dmasters@loeb.com
Email: ayuan@loeb.com
Christopher Binns (pro hac vice admission pending)

LOEB & LOEB LLP
345 Park Avenue
New York, New York 10154
Tel.: (212) 407-4000
Fax: (212) 407-4990
Email: cbinns@loeb.com
Attorneys for Plaintiffs
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Case: 1:20-cv-05905 Document #: 1-1 Filed: 10/02/20 Page 1 of 66 PageID #:25
EXHIBIT 2
EXHIBIT 3
se: 1:20-cv-05905 Document #: 1-2 Filed: 10/02/20 Page 2 of 37 PageID #:
Intellectual
Property Rights
Fiscal Year 2018 Seizure Statistics
Prepared by
U.S. Customs and Border Protection
Office of Trade
INTELLECTUAL
PROPERTY RIGHTS
Fiscal Year 2018 Seizure Statistics
Prepared by
U.S. Customs and Border Protection

Office of Trade
3
Table of Contents
Executive Summary...............................................................6
Year in Review.......................................................................7
IPR & E-Commerce ......................................................................15
Fiscal Year 2018 IPR Seizure Statistics .......................................16
Number of Seizures by Product ...................................................20
Products Seized by MSRP ...........................................................22
Total MSRP for Products Seized by Economy .............................24
Seizures by Economy...................................................................26
Seizures by Shipping Environment...............................................28
Health, Safety, and Security .........................................................30
Exclusion Orders ..........................................................................32
Centers of Excellence and Expertise............................................33
IPR Points of Contact ...................................................................34
Disclaimer: The information contained in this report does not

constitute the official trade statistics of the United States. The
statistics, and the projections based upon those statistics, are
not intended to be used for economic analysis, and are provided
for the purpose of establishing U.S. Department of Homeland
Security workload.
5
EXECUTIVE SUMMARY
Products that infringe U.S. trademarks and copyrights are subject

to exclusion orders issued by the United States International
Trade Commission threaten the health and safety of American
consumers and pose risks to our national interests. U.S. Customs
and Border Protection (CBP) and U.S. Immigration and Customs
Enforcement (ICE) Homeland Security Investigations’ (HSI)
enforcement of intellectual property rights (IPR) mitigates the
financial and welfare risks posed by imports of illicit products.
Each year, more than 11 million maritime containers arrive at

our seaports. At our land borders, another 10 million arrive by
truck and 3 million arrive by rail. An additional quarter billion
more cargo, postal, and express consignment packages arrive
through air travel. The Department of Homeland Security (DHS)
remains vigilant in targeting shipments containing IPR-infringing
goods, levying civil fines and criminally investigating those who
seek to violate our trade laws, harm consumers, and damage our
economy.
In fiscal year (FY) 2018, the number of IPR seizures decreased

by 333 seizures to 33,810 from 34,143 in FY 2017. The total
estimated manufacturer’s suggested retail price (MSRP) of the
seized goods, had they been genuine, increased to nearly $1.4
billion from over $1.2 billion in FY 2017.
In FY 2018, ICE-HSI arrested 381 individuals, obtained 296

indictments, and received 260 convictions related to intellectual
property crimes.
6 EXECUTIVE SUMMARY
YEAR IN REVIEW
35,000
10 Year Seizure Totals
30,000
25,000
20,000
15,000
10,000
5,000
0
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
In FY 2018, CBP completed 203 exclusion order enforcement actions

(shipments seized and shipments excluded).
CBP officially concluded the “pilot” phase of the IPR Voluntary

Abandonment program in 2018. While the IPR Voluntary
Abandonment Pilot presented alternatives that could increase the
efficiency of counterfeit interdictions, reduce the amount of resources
dedicated to administrative actions, and create overall cost savings
for CBP, current efforts must shift from operating in a pilot status and
focus on formal development efforts. This includes developing the
necessary legal framework to support IPR abandonment procedures
that align with stakeholder and industry partner requirements, as well
as addressing operational challenges identified during the pilot phase.
Additionally, CBP will continue to focus on using alternatives to seizure
authorities where operationally feasibly in order to balance trade
enforcement efficiency and effectiveness.
YEAR IN REVIEW 7
In FY 2018, CBP’s Integrated Trade Targeting Network (ITTN)
conducted 26 national level IPR-Trade Special Operations, and
103 local IPR-Trade Special Operations. These trade special
operations targeted high-risk shipments at seaports, airports,
international mail facilities, and express carrier hubs across the
United States, and resulted in 4,891 seizures of IPR-infringing
goods. If genuine, these goods would have a total estimated
MSRP of $94 million. This represents a 104% increase in MSRP
from IPR-Trade Special Operations from the previous fiscal
year (2017).
CBP and HSI seized 213 shipments of computer networking

equipment affixed with counterfeit trademarks with a total MSRP
value of nearly $15.5 million. This is a 25% increase in the number
of seizures of computer networking equipment, and a 112%
increase in MSRP value over FY 2017. The networking equipment
seizures violated a total of seven trademarks recorded with CBP
and occurred at 21 ports around the country.
A New Jersey importer of counterfeit computer networking

equipment was sentenced to one year in federal prison in New
Jersey Federal District Court and paid approximately $1 million
in restitution to seven end-user victims, including a healthcare
company, a major university, and federal and local government
agencies. Two trademark owners also received restitution.
A Texas importer of counterfeit computer networking equipment

was sentenced to two years in federal prison in Houston Federal
District Court. The importer paid a fine and restitution to trademark
owners totaling $60,000.
8 YEAR IN REVIEW
e: 1:20-cv-05905 Document #: 1-2 Filed: 10/02/20 Page 10 of 37 PageID #:
The ICE-led National IPR Coordination Center (IPR Center), along
with representatives from CBP, conducted Operation Team Player
prior to Super Bowl LII to jointly address the illegal importation of
counterfeit sports-related merchandise. These efforts resulted in
the seizure of over 171,926 counterfeit sports- and entertainment-
related items worth an estimated $15.7 million, and a joint
investigative effort led to 65 arrests with 24 convictions.
On December 11, 2017, the CBP Chicago Tactical Analytical Unit

targeted a foreign mail parcel from China for examination. It was
suspected that the parcel contained drug contraband, and HSI was
notified. On December 15, 2017, HSI special agents and postal
inspectors of the U.S. Postal Inspection Service (USPIS) intercepted
the parcel and performed a border search examination, discovering
approximately 248 grams of Clonazolam, a non-scheduled
benzodiazepine.
Further investigation revealed many of the package recipient’s

close associates were identified by the local police department
as members of a street gang. HSI, working with CBP’s Chicago
Tactical Analytical Unit, targeted and examined several international
mail parcels that were addressed to the recipient’s associates.
These examinations yielded the discovery and release of suspected
inert excipients – used in the pill-pressing process – and suspected
pill press parts. In March 2018, HSI, USPIS, and local police
executed search warrants at the subject’s residence, discovering
several hundred Xanax pills. In addition, agents also executed a
search warrant at a commercial warehouse property, during which
they discovered and dismantled a commercial-grade clandestine
10 YEAR IN REVIEW
drug production laboratory. The subject and an associate were
subsequently indicted for violations of Title 18, United States
Code, Section 2320, Trafficking of Counterfeit Goods.
CBP’s Centers of Excellence and Expertise (Centers) initiated

six of 27 national operations in 2017. In 2018, those numbers
increased to 24 out of 26, displaying how the Centers have
been developing and executing enforcement operations to
address areas of risk in the IPR arena. The MSRP of the seized
merchandise by Center-initiated operations rose from $1.4
million in 2017 to over $11.5 million in 2018. These enforcement
operations may be directed at a specific port of entry or expanded
to all ports of entry, more information about the risk is identified.
The Centers work in close cooperation with port personnel and
HSI agents where appropriate.
Pursuant to the Trade Facilitation and Trade Enforcement Act

of 2015 (TFTEA) Section 308(d), CBP prescribed regulations
for receiving donations from private sector parties of hardware,
software, equipment, and technologies for the purpose of
enforcing IPR. CBP’s implementation of section 308 (19
CFR 133.61) has yielded several high-profile public-private
partnerships that have demonstrably enhanced CBP’s ability to
quickly and accurately detect counterfeit merchandise entering
the U.S. For instance, within a two-day span in August, barcode
scanners donated by Cisco and used in conjunction with their
online package look-up tool, assisted in the seizure of 147
counterfeit switch base units, with a total MSRP of $958,375.
YEAR IN REVIEW 11
In FY 2018, CBP continued The Truth Behind Counterfeits public

awareness campaign to educate the traveling public of the many
negative impacts associated with the purchase of counterfeit
products. The campaign consists of ads placed on large electronic
bulletin boards at major international airports around the United
States and online ads on several travel websites during the heavily
traveled holiday and summer vacation time periods. The ads were
designed to enlighten these travelers of the unknown dangers
of counterfeit goods by alerting them that purchasing counterfeit
goods may support criminal activity, could have significant health
and safety consequences, and has a harmful impact on the U.S.
economy. The campaign encourages consumers to know before
they buy and to shop from reputable sources. In FY 2018, the
campaign was viewed an estimated 200 million times. More
information can be found on the campaign website at
www.cbp.gov/fakegoodsrealdangers.
12 YEAR IN REVIEW
Additionally, the ICE-led IPR Center
engages in partnerships with
the public and private sectors
to combat IP theft through
Operation Joint Venture.
This initiative is designed
to increase information
sharing with public and
private sectors to combat
the illegal importation and
distribution of counterfeit,
substandard and tainted
goods. Joint Venture targets
rights holders, manufacturers,
importers, customs brokers, freight
forwarders, bonded facilities, carriers and
others to discuss the IPR Center’s priorities of protecting public
health and safety, the economy, and securing the supply chain.
In addition to the industry outreach mission, it conducts domestic
and international training of federal, state, local and foreign law
enforcement to facilitate seizure of illicit goods. In FY 2018, more
than 16,000 people participated in 308 outreach and training
events.
CBP concentrates its IPR enforcement efforts on federally

registered trademarks and copyrights that have been recorded
with CBP by their owners using the Intellectual Property Rights
e-Recordation (IPRR) system, https://iprr.cbp.gov/. CBP
administers these recordations using a secure proprietary database
that CBP can access to make IPR enforcement determinations.
Product ID manuals that are prepared by rights holders are also
linked to the database and used by CBP in making if the goods are
legitimat determinations if the good are legitimate.
YEAR IN REVIEW 13
At the close of FY 2018, CBP enforced trademarks and copyrights
pertaining to over 17,641 active recordations, including 2,289 new
recordations and 812 renewals of expiring recordations.
During FY 2018, pursuant to Section 304 of TFTEA, 42 new

recordations were initiated for copyrights which had pending
registration applications with the U.S. Copyright Office (USCO).
CBP works closely with rights holders in making IPR enforcement

determinations. A public database of both active and inactive
recordations is available using a search engine called the
Intellectual Property Rights Search (IPRS) at http://iprs.cbp.gov/.
Information on potential IPR infringements can be submitted to
CBP using the e-Allegations Online Trade Violation Reporting
System at https://eallegations.cbp.gov/Home/Index2.
Counterfeit purse seized by CBP
14 YEAR IN REVIEW
IPR & E-Commerce
E-commerce sales, including those through third-party platforms, have
resulted in a sharp increase in the shipment of small packages into the
United States. In FY 2018, there were 161 million express shipments,
and 475 million packages shipped through the international mail
environment.
Over 90% of all intellectual property seizures occur in the international

mail and express environments. A majority of those fall under the de
minimis threshold of $800.
In March 2018, CBP released its CBP E-Commerce Strategy. The

strategy strengthens CBP’s ability to protect the public and U.S.
economy from noncompliant goods. The strategy drives compliance
and enforcement, and promotes coordination. CBP is working toward
implementation.
More e-commerce related information can be found at

https://www.cbp.gov/trade/basic-import-export/e-commerce
Growth of Small Shipment (in millions)

500 502
475
400
Mail Shipment
300
275
Express Bills 200 222
170 161
150
100 96 110
76 82 91
0
2013 2014 2015 2016 2017 2018
IPR & E-COMMERCE 15

FISCAL YEAR 2018 IPR SEIZURE STATISTICS
BY NUMBER OF SEIZURES
46 41
%
%
9
2 %
%
1 1
% %
All Other Countries

China (Mainland)
Hong Kong
Taiwan
Turkey
India
FY 2018 TOTALS:
33,810 - NUMBER OF SEIZURES
$1,399,873,842 - MSRP
16
TOP PRODUCTS SEIZED SHIPPING ENVIRONMENT
BY NUMBER OF SEIZURES BY NUMBER OF SEIZURES
APPAREL/
18% ACCESSORIES
14% FOOTWEAR
WATCHES/
13% JEWELRY
HANDBAGS/
11% WALLETS
EXPRESS - 21,632
CONSUMER
10% ELECTRONICS
CONSUMER
8% PRODUCTS
PHARMACEUTICALS/ MAIL - 9,643

7% PERSONAL CARE
2% OPTICAL MEDIA
1% TOYS CARGO - 1,673
COMPUTER/
1%
ACCESSORIES
ALL OTHERS - 862
ALL OTHERS 15%
17
Number of Seizures
by Product
18%
14% 10
13%
11%
10%
8% Wearing Apparel/
7% Accessories
2%
1% Footwear
1%
15% 20 Watches/Jewelry
2018 Handbags/Wallets
Consumer Electronics
Consumer Products
Pharmaceuticals/
30 Personal Care
70
Optical Media
Toys
Computers/Accessories
All Other Commodities
60 40
50
Products Seizures % of Total*

Wearing Apparel/Accessories 6,098 18%
Footwear 4,728 14%
Watches/Jewelry 4,291 13%
Handbags/Wallets 3,593 11%
Consumer Electronics 3,388 10%
Consumer Products 2,816 8%
Pharmaceuticals/Personal Care 2,293 7%
Optical Media 561 2%
Toys 487 1%
Computers/Accessories 450 1%
All Other Commodities 5,105 15%
Number of Seizures 33,810
20 NUMBER OF SEIZURES BY PRODUCT

15%
13% 10
12%
12%
11%
10% Wearing Apparel/
6% Accessories
2%
1% Watches/Jewelry
1%
15% 20 Footwear
2017 Consumer Electronics

Consumer Products
Handbags/Wallets
Pharmaceuticals/
30
Personal Care
70
Optical Media
Toys
60 40
50
Products Seizures % of Total*

Wearing Apparel/Accessories 5,223 15%
Watches/Jewelry 4,297 13%
Footwear 4,224 12%
Consumer Products 3,912 11%
Handbags/Wallets 3,266 10%
Pharmaceuticals/Personal Care 2,209 6%
Optical Media 809 2%
Computers/Accessories 454 1%
Toys 449 1%
All Other Commodities 5,163 15%

Seizures involving multiple product categories are included in the “All Others” category.
Because the individual percentage fgures are rounded, in some cases, the sum of the rounded
percentages for a given fscal year is slightly higher or lower than 100 percent.
NUMBER OF SEIZURES BY PRODUCT 21

Products
Products Seized byMSRP
Seized by MSRP
44%
16% 10
9%
8%
6%
6% Watches/Jewelry
3% Handbags/Wallets
2%
1% Pharmaceuticals/
<1%
3% 20 Personal Care
2018 Wearing Apparel/

Accessories
Consumer Electronics
Footwear
Consumer Products
70 30
Automotive/Aerospace
Toys
60 40
50
Products MSRP % of Total*

Watches/Jewelry $ 618,166,688 44%
Handbags/Wallets $ 226,505,542 16%
Pharmaceuticals/Personal Care $ 131,457,724 9%
Wearing Apparel/Accessories $ 115,163,801 8%
Consumer Electronics $ 89,593,498 6%
Footwear $ 77,500,746 6%
Consumer Products $ 40,846,424 3%
Computers/Accessories $ 29,939,882 2%
Automotive/Aerospace $ 14,861,590 1%
Toys $ 10,590,281 1%
All Other Commodities $ 45,247,665 3%
Total FY 2018 MSRP $ 1,399,873,842

22 PRODUCTS SEIZED BY MSRP

38%
19% 10
7%
7%
6%
6% Watches/Jewelry
4% Handbags/Wallets
3%
2% Consumer Electronics
<1%
6% 20 Labels/Tags
2017 Wearing Apparel/

Accessories
Pharmaceuticals/
Personal Care
Consumer Products
70 30
Footwear
Optical Media
Toys
60 40
50
Products MSRP % of Total*

Watches/Jewelry $ 460,162,145 38%
Handbags/Wallets $ 234,451,926 19%
Consumer Electronics $ 85,115,639 7%
Labels/Tags $ 80,951,055 7%
Wearing Apparel/Accessories $ 74,880,617 6%
Pharmaceuticals/Personal Care $ 69,758,720 6%
Consumer Products $ 46,265,355 4%
Footwear $ 41,490,429 3%
Optical Media $ 27,573,775 2%
Toys $ 12,128,156 1%
All Other Commodities $ 73,604,401 6%
Total FY 2017 MSRP $ 1,206,382,219

Seizures involving multiple product categories are included in the “All Others” category.
Because the individual percentage fgures are rounded, in some cases, the sum of the rounded
percentages for a given fscal year is slightly higher or lower than 100 percent.
PRODUCTS SEIZED BY MSRP 23

Total MSRP for Products
Seized by Economy
54%
31% 10
1%
<1%
<1%
<1% China (Mainland)
<1%
<1% Hong Kong
<1%
<1%
20 India
10%
2018 Korea
Canada
Turkey
Vietnam
70 30 Taiwan
Malaysia
Pakistan
All Other Countries
60 40
50
Trading Partner MSRP % of Total*

China (Mainland) $ 761,115,429 54%
Hong Kong $ 440,344,663 31%
India $ 19,952,488 1%
Korea $ 10,135,531 0.7%
Canada $ 7,798,500 0.6%
Turkey $ 5,759,008 0.4%
Vietnam $ 5,192,261 0.4%
Taiwan $ 5,008,077 0.4%
Malaysia $ 4,674,447 0.3%
Pakistan $ 2,779,413 0.2%
All Other Countries
Total $MSRP
137,114,027
for Products10%
Total FY 2018 MSRP $ 1,399,873,842
Number of Seizures Seized by Economy
33,810
24 TOTAL MSRP FOR PRODUCTS SEIZED BY ECONOMY

46%
32% 10
1%
<1%
<1%
<1% China (Mainland)
<1%
<1% Hong Kong
<1%
<1%
20 India
19%
2017 Singapore
Turkey
Taiwan
Vietnam
70 30 Korea
Canada
Thailand
All Other Countries
60 40
50
Trading Partner MSRP % of Total*

China (Mainland) $ 554,631,765 46%
Hong Kong $ 386,242,271 32%
India $ 8,341,949 1%
Singapore $ 4,997,430 0.4%
Turkey $ 4,983,051 0.4%
Taiwan $ 4,902,390 0.4%
Vietnam $ 4,391,835 0.4%
Korea $ 4,235,107 0.4%
Canada $ 3,036,994 0.3%
Thailand $ 1,856,892 0.2%
All Others $ 228,762,535 19%
Total FY 2017 MSRP 1,206,382,219
The aggregate seizure data refect the reported country of origin, not necessarily where the
seized goods were produced. Because the individual percentage fgures are rounded, in some
cases, the sum of the rounded percentages for a given fscal year is slightly higher or lower than
100 percent. 25
Seizures by Economy
46%
41% 10
2%
1%
1%
9% China (Mainland)
Hong Kong
20
2018 Turkey
India
Taiwan
70 30
All Other Countries
60 40
50
Trading Partner Seizures % of Total*

China (Mainland) 15,674 46%
Hong Kong 13,785 41%
Turkey 618 2%
India 439 1%
Taiwan 408 1%
All Other Countries 2,886 9%
26 SEIZURES BY ECONOMY
48%
39% 10
2%
2%
<1%
8% China (Mainland)
Hong Kong
20
2017 Turkey
Canada
Taiwan
70 30
All Other Countries
60 40
50
Trading Partner Seizures % of Total*

China (Mainland) 16,538 48%
Hong Kong 13,357 39%
Turkey 587 2%
Canada 581 2%
Taiwan 472 1%
All Others 2,608 8%
The aggregate seizure data refect the reported country of origin, not necessarily
where the seized goods were produced. Because the individual percentage
fgures are rounded, in some cases, the sum of the rounded percentages for a
given fscal year is slightly higher or lower than 100 percent.
SEIZURES BY ECONOMY 27
Seizures by
Shipping Environment
0
100
Express
Mail
Estimated MSRP (in millions)
200
Cargo
Other
300
400
FY 2018
FY 2017
500
600
Estimated Manufacturer's Suggested Retail Price (in millions)

Mode of FY 2018 FY 2017
Transport MSRP % of Total MSRP % of Total Difference % Change
Express $ 549.2 39% $ 429.3 36% $ 119.90 28%
Mail $ 197.3 14% $ 128.4 11% $ 68.90 54%
Cargo $ 447.9 32% $ 397.5 33% $ 50.40 13%
Other $ 205.4 15% $ 251.1 21% $ (45.70) -18%
Total $ 1,399.8 $ 1,206.3 $ 193.50 16%
28 SEIZURES BY SHIPPING ENVIRONMENT

0
Express 5,000
Mail
Cargo
Number of Seizures
Other 10,000
15,000
FY 2018
FY 2017 20,000
25,000
Seizures
Mode of FY 2018 FY 2017
Transport Seizures % of Total Seizures % of Total Difference % Change
Express 21,632 64% 20,417 60% 1,215 6%
Mail 9,643 29% 9,992 29% (349) -3%
Cargo 1,673 5% 2,628 8% (955) -36%
Other 862 3% 1,106 3% (244) -22%
Total 33,810 34,143 (333) -1%
Seizures included in the “Other” category involve exports, passenger baggage, or

other enforcement actions.
SEIZURES BY SHIPPING ENVIRONMENT 29

Health, Safety, and Security
24%
22% 10
21%
7%
6%
3% Personal Care
<1%
<1% Consumer Electronics
<1%
9%
20 Sunglasses/Eyewear
2018 Pharmaceuticals
Critical Components
Automotive/Aerospace
30 Batteries/ Machinery
70
Lights/Lamps
Perfumes
60 40
50
Health, Safety and Security Seizures % of Total*

Personal Care 1,264 24%
Sunglasses/Eyewear 1,126 21%
Pharmaceuticals 403 8%
Critical Components 306 6%
Automotive/Aerospace 171 3%
Batteries/Machinery 152 3%
Lights/Lamps 144 3%
Perfumes 137 3%
All Other Commodities 457 9%
30 HEALTH, SAFETY, AND SECURITY

34%
31% 10
6%
6%
4%
4% Personal Care
3%
2% Sunglasses
2%
8%
20 Consumer Electronics
2017 Critical Components

Pharmaceuticals
Sporting Goods
30 Automotive/Aerospace
70
Lights/Lamps
Perfumes
60 40
50
Health, Safety and Security Seizures % of Total*

Personal Care 1,409 34%
Sunglasses 1,306 31%
Consumer Electronics 267 6%
Critical Components 265 6%
Pharmaceuticals 175 4%
Sporting Goods 146 4%
Automotive/Aerospace 113 3%
Lights/Lamps 97 2%
Perfumes 75 2%
All Other Commodities 318 8%

Shipments with multiple types of products are included in the “All Others” category. Because the
individual percentage fgures are rounded, in some cases, the sum of the rounded percentages for
a given fscal year is slightly higher or lower than 100 percent.
HEALTH, SAFETY, AND SECURITY 31

Exclusion Orders
CBP enforces exclusion orders issued by the United States

International Trade Commission (ITC).
Most ITC exclusion orders are patent-based.
The ITC issues both limited and general exclusion orders.

Limited exclusion orders apply only to infringing articles of named
respondents. General exclusion orders bar the entry of infringing
articles by all.
Exclusion orders prohibit the entry of all covered articles, even if

they were not specifically accused and found to infringe by the ITC.
Once excluded, subsequent importations of the same articles by

the same importer are subject to seizure.
FISCAL YEAR 2017

Shipments Shipments Seizure Est. Rulings Advice to
Seized Excluded MSRP Issued Ports
52 63 $1,865,192 20 64
FISCAL YEAR 2018

Shipments Shipments Seizure Est. Rulings Advice to
Seized Excluded MSRP Issued Ports
172 31 $968,803 13 55
*The term "rulings" covers rulings and other interpretive decisions.
32 EXCLUSION ORDERS
Centers of Excellence
and Expertise
FY 2018
Centers MSRP % of Total MSRP
Consumer Products & Mass Merchandising $1,037,183,325.61 74%
Apparel, Footwear & Textiles $192,996,006.67 14%
Electronics $121,609,129.95 9%
Automotive & Aerospace $14,638,119.41 1%
Machinery $11,475,793.21 1%
Pharmaceuticals, Health & Chemicals $8,896,989.09 1%
Base Metals $7,544,135.00 1%
Agriculture & Prepared Products $4,578,950.61 0.3%
Industrial & Manufacturing Materials $951,392.73 0.1%
Total FY 2018 MSRP $ 1,399,873,842
FY 2018
Centers Seizures % of Total Seizures

Consumer Products & Mass Merchandising 13,984 41%
Apparel, Footwear & Textiles 11,707 35%
Electronics 4,271 13%
All Other Centers 3,848 11%
Total FY 2018 Seizures 33,810
CENTERS OF EXCELLENCE AND EXPERTISE 33

IPR Points of Contact
Contact the IPR Help Desk to Report Violations and Obtain

Assistance - CBP’s IPR Help Desk is staffed Monday through Friday
to answer questions on IPR enforcement. Contact the IPR Help Desk
at iprhelpdesk@cbp.dhs.gov.
Consult a CBP IPR Attorney - For those who have legal questions
about CBP’s IPR enforcement and would like to interface with a CBP
IPR attorney, the IPR Branch is available to help. To request information
on CBP’s recordation program, please contact the IPR Branch at
iprrquestions@cbp.dhs.gov. For general inquiries on IPR enforcement,
please contact hqiprbranch@cbp.dhs.gov.
Obtain Guidance from the CBP E-Commerce Division - The IPR &
E-Commerce Division (IPR Division) coordinates with rights holders,
members of the trade community, CBP staff, other federal agencies,
and foreign governments in developing and implementing the agency’s
IPR strategy, policy and programs. To contact the IPR Division, email
iprpolicyprograms@cbp.dhs.gov.
e-Allegations - If you are aware of or suspect a company or

individual is committing IPR crime, please report the trade violation
to CBP at the e-Allegations Online Trade Violation Reporting System
https://eallegations.cbp.gov/Home/Index2. Trade violations can also be
reported by calling 1-800-BE-ALERT.
National Intellectual Property Rights Coordination Center -

To report violations of intellectual property rights, including counterfeiting
and piracy, contact the National IPR Coordination Center at
https://www.iprcenter.gov/referral/ or telephone 1-866-IPR-2060.
34 IPR POINTS OF CONTACT

www.cbp.gov/ipr
www.iprcenter.gov
CBP Publication # 0917-0719
EXHIBIT 4
Combating Trafficking in
Counterfeit and Pirated Goods
Report to the President of the United States
January 24, 2020
Office of Strategy, Policy & Plans

Table of Contents
Table of Contents ............................................................................................................................ 2
1. Executive Summary ................................................................................................................ 4
2. Introduction ............................................................................................................................. 7
3. Overview of Counterfeit and Pirated Goods Trafficking ..................................................... 10
4. Health and Safety, Economic, and National Security Risks ................................................. 16
5. How E-Commerce Facilitates Counterfeit Trafficking......................................................... 20
6. Private Sector Outreach and Public Comment...................................................................... 24
7. Immediate Action by DHS and Recommendations for the USG ......................................... 26
8. Private Sector Best Practices ................................................................................................ 34
9. Conclusions ........................................................................................................................... 41
10. Appendix A: The IPR Center................................................................................................ 42
11. Appendix B: Ongoing CBP Activities to Combat Counterfeit Trafficking.......................... 44
12. Appendix C: Homeland Security Investigations.................................................................. 47
13. Appendix D: U.S. Government Efforts................................................................................. 49
14. Appendix E: Global Initiatives ............................................................................................. 52
15. References ............................................................................................................................. 54
2
Foreword/Message from the Acting Secretary of Homeland Security

The rapid growth of e-commerce has revolutionized the way
goods are bought and sold, allowing for counterfeit and pirated
goods to flood our borders and penetrate our communities and
homes. Illicit goods trafficked to American consumers by e-
commerce platforms and online third-party marketplaces
threaten public health and safety, as well as national security.
This illicit activity impacts American innovation and erodes the
competitiveness of U.S. manufacturers and workers.
Consumers must be confident in the safety, quality, and

authenticity of the products they purchase online. DHS is
committed to combating counterfeiters and pirates with the help
of our U.S. Government partners and private sector
stakeholders - who are critical to helping secure supply chains
to stem the tide of counterfeit and pirated goods.
“Combating Trafficking in Counterfeit and Pirated Goods,” has been prepared by the U.S.
Department of Homeland Security’s Office of Strategy, Policy, and Plans. The report uses
available data, substantial public input, and other information to develop a deeper
understanding of how e-commerce platforms, online third-party marketplaces, and other
third-party intermediaries facilitate the importation and sale of massive amounts of
counterfeit and pirated goods. The report identifies appropriate administrative, statutory,
regulatory, and other actions, including enhanced enforcement measures, modernization of
legal and liability frameworks, and best practices for private sector stakeholders. These strong
actions can be implemented swiftly to substantially reduce trafficking in counterfeit and
pirated goods while promoting a safer America.
This report was prepared pursuant to President Donald J. Trump’s April 3, 2019,
Memorandum on Combating Trafficking in Counterfeit and Pirated Goods. The President’s
historic memorandum provides a much warranted and long overdue call to action in the U.S.
Government’s fight against a massive form of illicit trade that is inflicting significant harm
on American consumers and businesses. This illicit trade must be stopped in its tracks.
This report was prepared in coordination with the Secretaries of Commerce and State, the
Attorney General, the Office of Management and Budget, the Intellectual Property
Enforcement Coordinator, the United States Trade Representative, the Assistant to the
President for Economic Policy, the Assistant to the President for Trade and Manufacturing
Policy, and with other partners in the U.S. Government. The report also benefitted from
extensive engagement with the private sector.
Sincerely,
Chad Wolf
Acting Secretary,
U.S. Department of Homeland Security
3
1. Executive Summary
The President’s April 3, 2019, Memorandum on Combating Trafficking in Counterfeit and Pirated
Goods calls prompt attention to illicit trade that erodes U.S. economic competitiveness and
catalyzes compounding threats to national security and public safety.
Counterfeiting is no longer confined to street-corners and flea markets. The problem has
intensified to staggering levels, as shown by a recent Organisation for Economic Cooperation and
Development (OECD) report, which details a 154 percent increase in counterfeits traded
internationally — from $200 billion in 2005 to $509 billion in 2016. Similar information collected
by the U.S. Department of Homeland Security (DHS) between 2000 and 2018 shows that seizures
of infringing goods at U.S. borders have increased 10-fold, from 3,244 seizures per year to 33,810.
Relevant to the President’s inquiry into the linkages between e-commerce and counterfeiting,
OECD reports that “E-commerce platforms represent ideal storefronts for counterfeits and provide
powerful platform[s] for counterfeiters and pirates to engage large numbers of potential
consumers.” 1 Similarly, the U.S. Government Accountability Office (GAO) found that e-
commerce has contributed to a shift in the sale of counterfeit goods in the United States, with
consumers increasingly purchasing goods online and counterfeiters producing a wider variety of
goods that may be sold on websites alongside authentic products.
Respondents to the July 10, 2019, Federal Register Notice issued by the Department of Commerce
echoed these observations. 2 Perhaps most notably, the International Anti-Counterfeiting Coalition
(IACC) reports that the trafficking of counterfeit and pirated goods in e-commerce is a top priority
for every sector of its membership — comprised of more than 200 corporations, including many
of the world’s best-known brands in the apparel, automotive, electronics, entertainment, luxury
goods, pharmaceutical, personal care and software sectors. The IACC submission goes on to say:
Across every sector of the IACC’s membership, the need to address the
trafficking of counterfeit and pirated goods in e-commerce has been cited as a
top priority. The vast amounts of resources our members must dedicate to
ensuring the safety and vitality of the online marketplace, bears out the truth of
the issue highlighted by Peter Navarro, Assistant to the President for Trade and
Manufacturing Policy, in his April 3, 2019 Op-Ed piece in The Wall Street
Journal - that the sale of counterfeit brand-name goods presents a pervasive and
ever-growing threat in the online space. One IACC member reported making
1 OECD (2018), Governance Frameworks to Counter Illicit Trade, Illicit Trade, OECD Publishing,
Paris, https://doi.org/10.1787/9789264291652-en.
2 Under Federal Register Notice (84 FR 32861), the Department of Commerce sought “comments from intellectual property
rights holders, online third-party marketplaces and other third-party intermediaries, and other private-sector stakeholders on the
state of counterfeit and pirated goods trafficking through online third-party marketplaces and recommendations for curbing the
trafficking in such counterfeit and pirated goods.”
4
hundreds of investigative online test purchases over the past year, with a nearly
80% successfully resulting in the receipt of a counterfeit item. 3
The scale of counterfeit activity online is evidenced as well by the significant efforts e-commerce
platforms themselves have had to undertake. A major e-commerce platform reports that its
proactive efforts prevented over 1 million suspected bad actors from publishing a single product
for sale through its platform and blocked over 3 billion suspected counterfeit listings from being
published to their marketplace. Despite efforts such as these, private sector actions have not been
sufficient to prevent the importation and sale of a wide variety and large volume of counterfeit and
pirated goods to the American public.
The projected growth of e-commerce fuels mounting fears that the scale of the problem will only
increase, especially under a business-as-usual scenario. Consequently, an effective and meaningful
response to the President’s memorandum is a matter of national import.
Actions to be Taken by DHS and the U.S. Government
Despite public and private efforts to-date, the online availability of counterfeit and pirated goods
continues to increase. Strong government action is necessary to fundamentally realign incentive
structures and thereby encourage the private sector to increase self-policing efforts and focus more
innovation and expertise on this vital problem. Therefore, DHS will immediately undertake the
following actions and make recommendations for other departments and agencies to combat the
trafficking of counterfeit and pirated goods.
Immediate Actions by DHS and Recommendations for the U.S. Government

1. Ensure Entities with Financial Interests in Imports Bear Responsibility
2. Increase Scrutiny of Section 321 Environment
3. Suspend and Debar Repeat Offenders; Act Against Non-Compliant International Posts
4. Apply Civil Fines, Penalties and Injunctive Actions for Violative Imported Products
5. Leverage Advance Electronic Data for Mail Mode
6. Anti-Counterfeiting Consortium to Identify Online Nefarious Actors (ACTION) Plan
7. Analyze Enforcement Resources
8. Create Modernized E-Commerce Enforcement Framework
9. Assess Contributory Trademark Infringement Liability for Platforms
10. Re-Examine the Legal Framework Surrounding Non-Resident Importers
11. Establish a National Consumer Awareness Campaign
3International Anti-Counterfeiting Coalition’s comments made on the Department of Commerce, International Trade
Administration, Office of Intellectual Property Rights’, Report on the State of Counterfeit and Pirated Goods Trafficking
Recommendations, 29 July 2019. Posted on 6 August 2019. https://www.regulations.gov/document?D=DOC-2019-0003-0072
5
Best Practices for E-Commerce Platforms and Third-Party

Marketplaces
Government action alone is not enough to bring about the needed paradigm shift and ultimately
stem the tide of counterfeit and pirated goods. All relevant private-sector stakeholders have critical
roles to play and must adopt identified best practices, while redoubling efforts to police their own
businesses and supply chains.
While the U.S. brick-and-mortar retail store economy has a well-developed regime for licensing,
monitoring, and otherwise ensuring the protections of intellectual property rights (IPR), a
comparable regime is largely non-existent for international e-commerce sellers. The following
table catalogs a set of high priority “best practices” that shall be communicated to all relevant private
sector stakeholders by the National Intellectual Property Rights Coordination Center. It shall be the
Center’s duty to monitor and report on the adoption of these best practices within the scope of the
legal authority of DHS and the Federal government.
Best Practices for E-Commerce Platforms and Third-Party Marketplaces

1. Comprehensive "Terms of Service" Agreements
2. Significantly Enhanced Vetting of Third-Party Sellers
3. Limitations on High Risk Products
4. Rapid Notice and Takedown Procedures
5. Enhanced Post-Discovery Actions
6. Indemnity Requirements for Foreign Sellers
7. Clear Transactions Through Banks that Comply with U.S. Enforcement Requests for
Information (RFI)
8. Pre-Sale Identification of Third-Party Sellers
9. Establish Marketplace Seller ID
10. Clearly Identifiable Country of Origin Disclosures
Foremost among these best practices is the idea that e-commerce platforms, online third-party
marketplaces, and other third-party intermediaries such as customs brokers and express
consignment carriers must take a more active role in monitoring, detecting, and preventing
trafficking in counterfeit and pirated goods.
6
2. Introduction
E-commerce platforms represent ideal storefronts for counterfeits…and provide
powerful platform[s] for counterfeiters and pirates to engage large numbers of
potential consumers.
- Organisation for Economic Cooperation and Development 4
The rapid growth of e-commerce platforms, further catalyzed by third-party online marketplaces
connected to the platforms, has revolutionized the way products are bought and sold. “Online third-
party marketplace” means any web-based platform that includes features primarily designed for
arranging the sale, purchase, payment, or shipping of goods, or that enables sellers not directly
affiliated with an operator of such platforms to sell physical goods to consumers located in the
United States.
In the United States, e-commerce year-over-year retail sales grew by 13.3 percent in the second
quarter of 2019 while total retail sales increased by only 3.2 percent as brick-and-mortar retail
continued its relative decline. 5 For example, Amazon reports third-party sales on its marketplace
grew from $100 million in 1999 to $160 billion in 2018. 6 In 2018 alone, Walmart experienced an
e-commerce sales increase of 40 percent. 7
Counterfeits threaten national security and public safety directly when introduced into government
and critical infrastructure supply chains, and indirectly if used to generate revenue for transnational
criminal organizations. Counterfeits also pose risks to human health and safety, erode U.S.
economic competitiveness and diminish the reputations and trustworthiness of U.S. products and
producers. Across all sectors of the economy, counterfeit goods unfairly compete with legitimate
products and reduce the incentives to innovate, both in the United States and abroad.
While the expansion of e-commerce has led to greater trade facilitation, its overall growth—
especially the growth of certain related business models—has facilitated online trafficking in
counterfeit and pirated goods. American consumers shopping on e-commerce platforms and online
third-party marketplaces now face a significant risk of purchasing counterfeit or pirated goods.
This risk continues to rise despite current efforts across e-commerce supply chains to reduce such
trafficking.
4 OECD (2018), Governance Frameworks to Counter Illicit Trade, Illicit Trade, OECD Publishing,
Paris, https://doi.org/10.1787/9789264291652-en.
5 Department of Commerce, U.S. Census Bureau, Economic Indicators Division, “Quarterly Retail E-Commerce Sales 2nd
Quarter 2019,” 19 August 2019. https://www2.census.gov/retail/releases/historical/ecomm/19q2.pdf

6 Jeff Bezos, “2018 Letter to Shareholders,” The Amazon Blog. 11 April 2019. https://blog.aboutamazon.com/company-
news/2018-letter-to-shareholders
7 Note: Walmart does not separate out the percentage of third-party vendor sales. More information can be found, here, Jaiswal,
Abhishek, “Getting Started Selling on Walmart in 2019: An Insider’s Guide to Success,” BigCommerce.
https://www.bigcommerce.com/blog/selling-on-walmart-marketplace/#millennials-are-the-drivers-of-legacy-brand-change-
including-walmart. See also, “Walmart Marketplace: Frequently Asked Questions,” Walmart.
https://marketplace.walmart.com/resources/#1525808821038-8edf332b-5ba2.
7
The OECD reports international trade in counterfeit and pirated goods amounted to as much as
$509 billion in 2016. This represents a 3.3 percent increase from 2013 as a proportion of world
trade. From 2003 8 through 2018, seizures of infringing goods by the U.S. Customs and Border
Protection (CBP) and U.S. Immigration and Customs Enforcement (ICE) increased from 6,500 to
33,810 while the domestic value of seized merchandise — as measured by manufacturer’s
suggested retail price of the legitimate good (MSRP) — increased from $94 million in 2003 to
$1.4 billion in 2018.9
The rise in consumer use of third-party marketplaces significantly increases the risks and
uncertainty for U.S. producers when creating new products. It is no longer enough for a small
business to develop a product with significant local consumer demand and then use that revenue
to grow the business regionally, nationally, and internationally with the brand protection efforts
expanding in step. Instead, with the international scope of e-commerce platforms, once a small
business exposes itself to the benefits of placing products online — which creates a geographic
scope far greater than its more limited brand protection efforts can handle — it begins to face
increased foreign infringement threat.
Moreover, as costs to enter the online market have come down, such market entry is happening
earlier and earlier in the product cycle, further enhancing risk. If a new product is a success,
counterfeiters will attempt, often immediately, to outcompete the original seller with lower-cost
counterfeit and pirated versions while avoiding the initial investment into research and design.
In other words, on these platforms, the counterfeit and pirated goods compete unfairly and
fraudulently against the genuine items. While counterfeit and pirated goods have been sold for
years on street corners, alleys, and from the trunks of cars, these illicit goods are now marketed to
consumers in their homes through increasingly mainstream e-commerce platforms and third party
online marketplaces that convey an air of legitimacy.
With the rise of e-commerce, the problem of counterfeit trafficking has intensified. The OECD
documents a 154 percent increase in counterfeits traded internationally, from $200 billion in 2005
to $509 billion in 2016. 10 Data collected by CBP between 2000 and 2018 shows that seizures of
infringing goods at U.S. borders, much of it trafficked through e-commerce, has increased ten-fold.
Over 85 percent of the contraband seized by CBP arrived from China and Hong Kong. These high
rates of seizures are consistent with a key OECD finding.
Counterfeit and pirated products come from many economies, with China
appearing as the single largest producing market. These illegal products are
frequently found in a range of industries, from luxury items (e.g. fashion apparel
or deluxe watches), via intermediary products (such as machines, spare parts or
8
https://www.cbp.gov/sites/default/files/documents/FY2003%20IPR%20Seizure%20Statistics_0.pdf.
9https://www.cbp.gov/sites/default/files/assets/documents/2019-Aug/IPR_Annual-Report-FY-2018.pdf
10OECD/EUIPO (2016), Trade in Counterfeit and Pirated Goods: Mapping the Economic Impact, OECD Publishing, Paris.
https://www.oecd-ilibrary.org/docserver/9789264252653-
en.pdf?expires=1576509401&id=id&accname=id5723&checksum=576BF246D4E50234EAF5E8EDF7F08147
8
chemicals) to consumer goods that have an impact on personal health and safety
(such as pharmaceuticals, food and drink, medical equipment, or toys). 11
Operation Mega Flex
In 2019, in response to the alarmingly high rates of contraband uncovered by DHS and a request
from the White House Office of Trade and Manufacturing Policy (OTMP), CBP initiated
Operation Mega Flex. This operation uses enhanced inspection and monitoring efforts to identify
high-risk violators that are shipping and receiving illicit contraband through international mail
facilities and express consignment hubs.
The periodic “blitz operations” conducted under the auspices of Operation Mega Flex examine
thousands of parcels from China and Hong Kong and carefully catalog the range of contraband
seized. To date, such operations have included visits to seven of CBP’s international mail facilities
and four express consignment hubs and the completion of over 20,000 additional inspections. The
following table summarizes the findings of three Mega Flex blitzes conducted between July and
September of 2019.
Results of Operation Mega Flex (2019)

Blitz I Blitz II Blitz III
Total
July 16 & 17 August 21 September 18
Inspections 9,705 5,757 5,399 20,861
Discrepancies 1,145 1,010 735 2,890
Discrepancy Rate 11.8% 17.5% 13.6% 13.9%
Counterfeits 212 467 382 1,061
Counterfeit Rate 2.2% 8.1% 7.1% 5.1%
Source: U.S. Customs and Border Protection
Among the discrepancies uncovered by Operation Mega Flex were 1,061 shipments of counterfeit
products. These counterfeits range from fake name brand items, like Louis Vuitton bags to sports
equipment made with faulty parts. Other contraband included drug paraphernalia, deadly opioids,
and counterfeit drivers’ licenses. 12 In all, counterfeits constituted more than one of every three
discrepancies uncovered by inspectors. 13
11 OECD/EUIPO (2016), Trade in Counterfeit and Pirated Goods: Mapping the Economic Impact, OECD Publishing, Paris.
https://www.oecd-ilibrary.org/docserver/9789264252653-
en.pdf?expires=1576509401&id=id&accname=id5723&checksum=576BF246D4E50234EAF5E8EDF7F08147
12Oren Fliegelman, “Made in China: Fake IDs,” The New York Times. 6 February 2015.
https://www.nytimes.com/2015/02/08/education/edlife/fake-ids-or-why-would-a-student-order-a-tea-set.html
13 Among the near 3,000 discrepancies, 20% of them were agricultural violations, such as bad meat, fruit, or produce, unsafe for
the American consumer. These agricultural discrepancies are dangerous to the United States because they may contain diseases
or pests that can greatly impact agriculture. For example, on October 16, 2018, CBP seized nearly 900 pounds of mitten crabs
from an incoming Chinese freight. In Asia, mitten crabs are considered a seasonal delicacy; however, they have a disastrous
impact on other global habitats and are labeled as an invasive species. See, Department of Homeland Security, U.S. Customs and
Border Protection, “CBP Prevents Smuggling of Nearly 900 Pounds of Invasive Mitten Crabs,” 31 October 2018.
https://www.cbp.gov/newsroom/national-media-release/cbp-prevents-smuggling-nearly-900-pounds-invasive-mitten-crabs.
9
Authorities also seized 174 controlled or prohibited substances, including: recreational drugs like
LSD, cocaine, DMT, ecstasy, marijuana, mushrooms, and poppy pods as well as steroids and
highly addictive painkillers like Tramadol.
It is not just a rise in the volume of counterfeits we are witnessing. GAO notes that counterfeiters
are increasingly producing a “wider variety of goods that may be sold on websites alongside
authentic products.” 14
DHS finds the current state of e-commerce to be an intolerable and dangerous situation that must
be addressed firmly and swiftly by strong actions within the Department and across other relevant
agencies of the U.S. Government (USG). These include: The Federal Bureau of Investigation and
the Department of Justice, the Department of Commerce, and the Department of the Treasury. This
report provides a blueprint for swift and constructive changes and sets forth several actions for
immediate implementation.
3. Overview of Counterfeit and Pirated Goods

Trafficking
While most e-commerce transactions involve legitimate sellers and products, far too many involve
the trafficking of counterfeit and pirated goods and expose legitimate businesses and consumers
to substantial risks. This is a global phenomenon; the OECD reports international trade in
counterfeit and pirated goods amounted to as much as half a trillion dollars in 2016. 15
Key Drivers of Counterfeiting and Piracy in E-Commerce
Historically, many counterfeits were distributed through swap meets and individual sellers located
on street corners. Today, counterfeits are being trafficked through vast e-commerce supply chains
in concert with marketing, sales, and distribution networks. The ability of e-commerce platforms
to aggregate information and reduce transportation and search costs for consumers provides a big
advantage over brick-and-mortar retailers. Because of this, sellers on digital platforms have
consumer visibility well beyond the seller’s natural geographical sales area.
Selling counterfeit and pirated goods through e-commerce is a highly profitable activity:
production costs are low, millions of potential customers are available online, transactions are
convenient, and listing on well-branded e-commerce platforms provides an air of legitimacy.
Other discrepancies found by CBP in the blitz operations included 13 weapon modifications and gun parts, 3 occurrences of drug
paraphernalia, and 3 pill presses. For full summary of findings, see, Department of Homeland Security, U.S. Customs and Border
Protection, Operation Mega Flex I, II and III Summaries, 2019.
14U.S. Government Accountability Office Report to the Chairman, Committee on Finance, U.S. Senate: Intellectual Property:
Agencies Can Improve Efforts to Address Risks Posed by Changing Counterfeits Market, GAO-18-216, Washington, DC:
Government Accountability Office, January 2018. https://www.gao.gov/assets/690/689713.pdf
15See OECD, Trends in Trade in Counterfeit and Pirated Goods (March 2019), available at
https://www.oecd.org/governance/risk/trends-in-trade-in-counterfeit-and-pirated-goods-g2g9f533-en.htm
15See Parker et al. 2016
10
When sellers of illicit goods are in another country, they are largely outside the jurisdiction for
criminal prosecution or civil liability from U.S. law enforcement and private parties.
The Role of Online Third-Party Marketplaces
Third-party online marketplaces can quickly and easily establish attractive “store-fronts” to
compete with legitimate businesses. On some platforms, little identifying information is necessary
to begin selling.
A counterfeiter seeking to distribute fake products will typically set up one or more accounts on
online third-party marketplaces. The ability to rapidly proliferate third-party online marketplaces
greatly complicates enforcement efforts, especially for intellectual property rights holders. Rapid
proliferation also allows counterfeiters to hop from one profile to the next even if the original site
is taken down or blocked. On these sites, online counterfeiters can misrepresent products by
posting pictures of authentic goods while simultaneously selling and shipping counterfeit versions.
Counterfeiters have taken full advantage of the aura of authenticity and trust that online platforms
provide. While e-commerce has supported the launch of thousands of legitimate businesses, their
models have also enabled counterfeiters to easily establish attractive “store-fronts” to compete
with legitimate businesses.
Platforms use their third-party marketplace functions to leverage “two-sided” network effects to
increase profitability for the platform by adding both more sellers and more buyers. Because sellers
benefit with each additional buyer using the platform (more consumers to sell to), and buyers are
more likely to join/use the platform with each additional seller (more sellers to buy from), there
can be diminished internal resistance to adding lower quality sellers.
Platforms that recognize this strategy may incentivize seller listings to stimulate further growth
and increase profits but do so without adequate scrutiny. As just one incentive, many platforms
create “frictionless entry” by reducing the costs for sellers and buyers to join, thereby increasing
the likelihood that the platform will reach an efficient and highly profitable scale.
Platforms also generate value by opening previously unused (or less frequently used) markets. In
addition, online platforms reduce transaction costs by streamlining the actual transaction; for
example, buyers and sellers use a standardized transaction method that simplifies interactions with
buyers and reduces the risk that the buyer will not pay.
For example, before the rise of e-commerce, secondhand products could be sold at garage sales or
in classified newspaper advertisements. E-commerce created a process for allowing buyers and
sellers to trade goods digitally, reducing transaction costs and creating a global marketplace for
used, but too often counterfeit, products.
Another way platforms generate value is by aggregating information and reducing search costs. A
buyer may search for a product, either by keyword or product category, at lower search cost than
visiting brick-and-mortar stores. Because of this, sellers on digital platforms have consumer
visibility well beyond the seller’s natural geographical sales area.
11
In addition, consumers who have made a purchase may use tools provided by the marketplace to
rate the product and the seller involved. These ratings create an important mechanism to facilitate
future consumer trust in an otherwise unknown seller.
In principle, such a rating system provides a key to overcoming a common economic problem that
might otherwise preclude sales: without a low-cost trust building feature that also communicates
quality, and in a market with significant numbers of low-quality products, buyers may refuse to
purchase any product at all, or would demand a lower price to reflect the uncertainty. One frequent
result is that low cost counterfeits drive out high quality, trusted brands from the online
marketplace. In practice, even the ratings systems across platforms have been gamed, and the
proliferation of fake reviews and counterfeit goods on third-party marketplaces now threatens the
trust mechanism itself.
Lower Startup and Production Costs
The relative ease of setting up and maintaining e-commerce websites makes online marketplaces
a prime locale for the retailing of counterfeit and pirated goods. E-commerce retailers enjoy low
fixed costs of setting up and maintaining web businesses and lower costs for carrying out normal
business operations such as managing merchant accounts. These ventures can be set up quickly
without much sophistication or specialized skills.
Some online platforms allow retailers to use pre-made templates to create their stores while other
platforms only require that a seller create an account. These businesses face much lower overhead
costs than traditional brick-and-mortar sellers because there is no need to rent retail space or to
hire in-person customer-facing staff. Not only can counterfeiters set up their virtual storefronts
quickly and easily, but they can also set up new virtual storefronts when their existing storefronts
are shut down by either law enforcement or through voluntary initiatives set up by other
stakeholders such as market platforms, advertisers, or payment processors.
In the production stage, counterfeiters keep costs low by stealing product secrets or technological
knowledge, exploiting new production technologies, and distributing operations across
jurisdictions. One method involves employees who sell trade secrets to a third party who, in turn,
develops and sells counterfeit products based on the stolen secrets. Another method relies on an
intermediary to steal a firm’s product or technology. The use of intermediaries reduces the
traceability to the counterfeiter.
Counterfeiting and piracy operations also take advantage of new low-cost production technologies.
For example, the technological advances in modeling, printing and scanning technologies such as
3D printing reduce the barriers for reverse engineering and the costs of manufacturing counterfeit
products.
Lower production costs can also be achieved through distributed production operations. One
method involves manufacturing the counterfeit good in a foreign market to lower the chances of
detection and to minimize legal liability if prosecuted. This can be combined with importation of
12
the counterfeit labels separately from the items, with the labels being applied to the products after
both items arrive in the U.S.
In addition, it is much cheaper to manufacture illicit goods because counterfeit and pirated goods
are often produced in unsafe workplaces with substandard and unsafe materials by workers who
are often paid little—and sometimes nothing in the case of forced labor. Moreover, in the case of
goods governed by Federal health and safety regulations, it often costs much less to produce
counterfeit versions that do not meet these health and safety standards.
Lower Marketing Costs
Businesses that use only an internet presence as their consumer-facing aspect typically enjoy lower
costs of designing, editing, and distributing marketing materials. Counterfeiters also benefit from
greater anonymity on digital platforms and web sites and greater ease to retarget or remarket to
customers. For example, counterfeiters use legitimate images and descriptions on online platforms
to confuse customers, and they open multiple seller accounts on the platform so that if one account
is identified and removed, the counterfeiter can simply use another.
The popularity of social media also helps reduce the costs of advertising counterfeit products. The
nature of social media platforms has aided in the proliferation of counterfeits across all e-
commerce sites. Instagram users, for example, can take advantage of connectivity algorithms by
using the names of luxury brands in hashtags. Followers can search by hashtag and unwittingly
find counterfeit products, which are comingled and difficult to differentiate from legitimate
products and sellers.
Lower Distribution Costs
Traditionally, many counterfeit goods were distributed through swap meets and individual sellers
located on street corners. With the rise of online platforms for shopping, customers can have
products delivered to them directly.
Foreign entities that traffic in counterfeits understand how to leverage newer distribution methods
better suited to e-commerce than the traditional trade paradigm (i.e., imports arriving via large
cargo containers with domestic distribution networks). Today, mail parcel shipments, including
through express consignments, account for more than 500 million packages each year. 16 Seizures
in the small package environment made up 93 percent of all seizures in 2018, a 6 percent increase
over 2017. From 2012 to 2016, the number of seizures from express consignment carriers
increased by 105 percent, and the MSRP of those seizures had a 337 percent increase. 17 In contrast,
seizures from cargo decreased by 36 percent from FY17 to FY18.
16https://www.cbp.gov/sites/default/files/assets/documents/2019-Apr/FY%202017%20Seizure%20Stats%20Booklet%20-
%20508%20Compliant.pdf p. 14
17https://www.gao.gov/assets/690/689713.pdf?mod=article_inline p. 14
13
The International Chamber of Commerce found that counterfeiters use international air packages
because the high volume of these packages makes enforcement more difficult. 18 A recent report
by the OECD points out that distributing counterfeits across a series of small packages spreads the
risk of detection, and lowers the loss from having one or more shipments seized, suggesting that
losses to the counterfeiter on an ongoing basis would be within a tolerable range. 19
The OECD report also notes that it is harder for authorities to detect counterfeits in small parcels
than in shipping containers because cargo containers making entry at a maritime port provide
customs officials with more information, well in advance of arrival. Moreover, the effort required
for CBP to seize a shipment does not vary by size of the shipment, meaning that a package of a
few infringing goods requires the same resources to seize as a cargo container with hundreds of
infringing goods.
Section 321 of the Tariff Act of 1930 has likewise encouraged counterfeiters to favor smaller
parcel delivery. Under Section 321, a foreign good valued at or less than $800 and imported by
one person on one day is not subject to the same formal customs entry procedures and rigorous
data requirements as higher-value packages entering the United States. This reduced level of
scrutiny is an open invitation to exploit Section 321 rules to transport and distribute counterfeits.
Rules set by the Universal Postal Union (UPU) have historically contributed to the distortion in
rates for delivery of international e-commerce purchases to the United States. 20 UPU
reimbursement rates have underpriced domestic postage rates for small parcels. This market
distortion made it cheaper for small package exports to the United States. from certain countries
than would otherwise be economically feasible and has encouraged the use of the international
postal mode over other shipment channels. The United States recently scored a historic victory
when the UPU overhauled its terminal dues system 21, effectively eliminating this outdated
policy. 22
Consumer Attitudes and Perceptions
The sale of counterfeits away from so-called “underground” or secondary markets (e.g. street
corners, flea markets) to e-commerce platforms is reshaping consumer attitudes and perceptions.
Where in the past, consumers could identify products by relying on “red flag” indicators—such as
a suspicious location of the seller, poor quality packaging, or discount pricing—consumers are
now regularly exposed to counterfeit products in settings and under conditions where the articles
appear genuine.
While the risks of receiving a counterfeit may have been obvious to a consumer purchasing items
on street corners, with the rise of online platforms, it is not so obvious anymore. For example, it is
18https://cdn.iccwbo.org/content/uploads/sites/3/2015/03/ICC-BASCAP-Roles-and-Responsibilities-of-Intermediaries.pdf p. 32
19OECD/EUIPO (2018), Misuse of Small Parcels for Trade in Counterfeit Goods: Facts and Trends, Illicit Trade, OECD
Publishing, Paris. https://doi.org/10.1787/9789264307858-en p. 77
20The UPU is a specialized agency of the United Nations that coordinates postal policies between 190 countries. Importantly,
these treaties determine the cost of shipping between the various countries and offers low rates to mail originating from abroad,
as compared to domestic postage rates.
21
Universal Postal Union (2019), Decisions of the 2019 Geneva Extraordinary Congress,
http://www.upu.int/uploads/tx_sbdownloader/actsActsOfTheExtraordinaryCongressGenevaEn.pdf
22 https://www.nytimes.com/2019/09/25/business/universal-postal-union-withdraw.html
14
unlikely that anyone would set out to purchase a counterfeit bicycle helmet given the potential
safety risks; however, such items are readily available to unsuspecting consumers on e-commerce
websites.
Reports indicate that some third-party marketplace listings falsely claim to have certifications with
health and safety standards or offer items banned by federal regulators or even the platforms
themselves. Coupled with the inability of buyers to accurately determine the manufacturer or the
origin of the product, it is challenging for buyers to make informed decisions in the e-commerce
environment.
In 2017, MarkMonitor found that 39 percent of all unwitting purchases of counterfeit goods were
bought through online third-party marketplaces. 23 Sellers on large well-known platforms rely on
the trust that those platforms hosting of the marketplace elicits. The results of this survey indicate
that bad actors selling counterfeit goods on legitimate online platforms erodes trust in both the
brands and the platforms themselves.
In 2018, Incopro conducted a survey focusing on United Kingdom (UK) consumers who had
unwittingly purchased counterfeit goods and how their perceptions of online marketplaces were
affected as a result. 24 The results of this survey show that 26 percent of respondents reported that
they had unwittingly purchased counterfeits. Of these, 41 percent reported that they had never
received a refund after reporting a seller to online marketplaces.
In addition, roughly one-third of respondents reported that they would be less likely to buy a widely
counterfeited product from an online marketplace while 46 percent reported no longer using a
particular online marketplace after receiving counterfeit goods. Respondents also reported that,
when trying to differentiate between genuine and counterfeit products, they consider online
reviews along with the reputation of online marketplaces.
These recent findings, against the larger backdrop of the e-commerce environment, demonstrate
the immediacy of the problem as consumer confidence and brand integrity continue to suffer in
the realm of online third-party marketplaces.
Top Products Prone to Counterfeiting and Piracy
Counterfeiters sell fake goods as authentic goods — for example, a copy of a Louis Vuitton bag
or Rolex watch fraudulently sold as the “real thing.” Counterfeiters use identical copies of
registered trademarks without the authorization of the rightful owner.
Piracy typically refers to the act of copying a protected work (such as a book, movie, or music)
without the consent of the rights holder or person duly authorized by the rights holder.
23MarkMonitor (2017). MarkMonitor Online Barometer: Global online shopping survey 2017 – consumer goods. Downloaded
from https://www.markmonitor.com/download/report/MarkMonitor_Online_Shopping_Report-2017-UK.pdf. p. 6
24INCOPRO, 2018. Counterfeit Products are Endemic – and it is damaging brand value: INCOPRO Market Research Report
available at https://www.incoproip.com/cms/wp-content/uploads/2018/11/2018_Incopro_Market-Research-report.pdf.
15
The below table provides a summary of the annual IPR seizure statistics collected by CBP in FY18;
including items from all modes of transportation. Apparel and other types of accessories, along
with footwear, top the list at 18 percent and 14 percent of seizures, respectively. Commonly
counterfeited items in these categories include brand name shoes such as Nike and Adidas, as well
as NFL jerseys.
Watches and jewelry follow at 13 percent of total seizures. During the Mega Flex operation on
August 21, 2019, for example, CBP officers seized counterfeit Rolex watches valued at over $1.4
million. Handbags and wallets represented nearly 11 percent of all seizures, including counterfeits
of luxury brands such as Louis Vuitton, Michael Kors, and Gucci. Consumer electronics
represented 10 percent of seizures, including products such as iPhones, hover boards, earbuds,
microchips, and others.
Pharmaceuticals and personal care items account for only 7 percent of total seizures. However, as
discussed in the next section, many of the products in these categories pose significant dangers to
the consumer. Fake prescription drugs can lack active ingredients, contain incorrect dosages, or
include dangerous additives. Fake personal care items such as cosmetics have been found to
contain everything from harmful bacteria to human waste. Between 2017 and 2018, CBP and ICE
Homeland Security Investigations (HSI) seized over $31 million in fake perfumes from China.
CBP Intellectual Property Rights Annual Seizure Statistics Fiscal Year 2018
Products Seizures Percent of Total
1. Wearing Apparel/Accessories 6,098 18%
2. Footwear 4,728 14%
3. Watches/Jewelry 4,291 13%
4. Handbags/Wallets 3,593 11%
5. Consumer Electronics 3,388 10%
6. Consumer Products 2,816 8%
7. Pharmaceuticals/Personal Care 2,293 7%
8. Optical Media 561 2%
9. Toys 487 1%
10. Computers/Accessories 450 1%
Source: U.S. Customs and Border Protection
4. Health and Safety, Economic, and National Security

Risks
Counterfeit trafficking exposes American consumers to significant health and safety risks — in
addition to significant economic impacts and, in some cases, threats to national security.
Health and Safety
The types of counterfeit goods available on e-commerce platforms go far beyond those products
with potential hidden toxins — like sports jerseys, jewelry and purses—and include many products
16
that can pose more obvious serious risks to health and safety, like prescription drugs and air bags.
It is not only the sellers of the counterfeit goods, but also the e-commerce platforms and other
third-party intermediaries (e.g., shippers) that facilitate their sale, that are profiting from the
marketing and distribution of these illicit products to the American public.
The profit margins are especially high for counterfeiters in the sale of counterfeit pharmaceuticals.
In the past, counterfeit prescription drugs primarily involved so-called lifestyle drugs like sildenafil
(Viagra). Today, this market has expanded to include all types of therapeutic medicines, including
insulin, cancer medications, and cardiovascular drugs.
Counterfeiting has also spread into over-the-counter medicines like cough syrup and weight loss
drugs. As more Americans purchase drugs online, many U.S. consumers appear to be largely
unaware of the potential dangers of purchasing counterfeit drugs from internet pharmacies.
Unlike legitimate drug manufacturers that are subject to inspections by the U.S. Food and Drug
Administration, labs that manufacture counterfeits have no such oversight. According to a 2019
Better Business Bureau study, “companies based in China, Hong Kong, Singapore, and India
shipped 97 percent of the counterfeit medicines seized in the U.S.” 25
In March 2019, Europol, the European Union’s law enforcement agency, seized 13 million doses
of counterfeit medicine ranging from opioids to heart medication. Europol noted that this type of
counterfeiting is on the rise due to the relatively low risk of criminal detection. 26
Counterfeit medicines not only defraud consumers who are often afflicted with serious health
issues; they can also be lethal. Fake prescription opioids are often laced with deadly fentanyl, much
of which originates in China. In raising awareness of the dangers, the National Institutes of Health
(NIH) has warned:
Preventing counterfeit medicines from entering the United States is especially

difficult, in part because nearly 40 percent of drugs are made overseas and
approximately 80 percent of the active medicinal components of drugs are
imported. Because many of these medicines are expensive, buyers are attracted by
lower prices. The rise of Internet pharmacies makes regulation of drug safety more
difficult. 27
25Baker, C. Steven, “Fakes are Not Fashionable: A BBB Study of the Epidemic of Counterfeit Goods Sold Online,” Better
Business Bureau, May 2019. https://www.bbb.org/globalassets/local-bbbs/st-louis-mo-142/st_louis_mo_142/studies/counterfeit-
goods/BBB-Study-of-Counterfeit-Goods-Sold-Online.pdf
26Baker, C. Steven, “Fakes are Not Fashionable: A BBB Study of the Epidemic of Counterfeit Goods Sold Online,” Better
Business Bureau, May 2019. Pg. 9. https://www.bbb.org/globalassets/local-bbbs/st-louis-mo-

142/st_louis_mo_142/studies/counterfeit-goods/BBB-Study-of-Counterfeit-Goods-Sold-Online.pdf
27National Institutes of Health, Blackstone, Erwin A., Joseph P. Fuhr Jr., and Steve Pociask, “The Health and Economic Effects
of Counterfeit Drugs,” American Health and Drug Benefits 7(4): 216-224,

https://www.ncbi.nlm.nih.gov/pmc/articles/PMC4105729/; See also, Mackey, Tim K., et al., “After counterfeit Avastin®-- what
have we learned and what can be done,” Nature Reviews Clinical Oncology 12, 302-308. 2015.
https://www.nature.com/articles/nrclinonc.2015.35.pdf
17
Health and safety risks extend far beyond fake prescription drugs. Counterfeit cosmetics often
contain ingredients such as arsenic, mercury, aluminum, or lead and may be manufactured in
unsanitary conditions, which can ultimately lead to problems with one’s eyes or skin.
An investigation of counterfeit iPhone adapters conducted by the GAO found a 99 percent failure
rate in 400 counterfeit adapters tested for safety, fire, and shock hazards, and found that 12 of the
adapters posed a risk of lethal electrocution to the user. 28 In December 2015, CBP seized 1,378
hover boards with counterfeit batteries, which can cause fires resulting in injury or death. 29
Children’s toys, some laced with deadly metals like cadmium and lead, represent another area in
which counterfeiters have taken advantage of e-commerce business models that provide limited to
no accountability for sellers.
The Department of Justice has prosecuted individuals for the online sale of a “high value target”
of counterfeiters — namely, airbags. 30 Along with other counterfeit automotive parts like brake
pads, wheels, and seat belts, unsafe airbags can have catastrophic consequences for drivers, as well
as for their passengers and others on the road. Bicycle helmets, another favorite of counterfeiters,
likewise can lead to catastrophic consequences for cyclists.
Of the contraband products seized in 2016 by CBP and ICE/HSI, an astonishing 16 percent posed
direct and obvious threats to health and safety. 31 E-commerce also facilitates the widespread sale
of pirated versions of copyrighted works. Pirated medical books — which can contain errors that
endanger patients’ lives — have been found on platforms along with other pirated books
(textbooks and trade books) and illicit reproductions of music-CD box sets.
Economic Harm
The growth in online sales of counterfeit and pirated goods directly harms — and unfairly
competes against — the many legitimate companies that produce, sell and distribute genuine
goods, often resulting in lost profits, employee layoffs, and diminished incentives to innovate.
Frontier Economics (2018) finds that counterfeit goods displaced roughly half a trillion dollars of
global sales of legitimate companies in 2013 and forecasts this displacement to reach $1 to $1.2
trillion by 2022. 32 The study also estimates that global employment losses due to counterfeit goods
28Underwriters Laboratory (UL), “Counterfeit iPhone Adapters”, available at: https://legacy-uploads.ul.com/wp-

content/uploads/sites/40/2016/09/10314-CounterfeitiPhone-WP-HighRes_FINAL.pdf. Also see, U.S. Government Accountability
Office Report to the Chairman, Committee on Finance, U.S. Senate: Intellectual Property: Agencies Can Improve Efforts to
Address Risks Posed by Changing Counterfeits Market, GAO-18-216, Washington, DC: Government Accountability Office,
January 2018. Pg.18. https://www.gao.gov/assets/690/689713.pdf
29U.S. Government Accountability Office Report to the Chairman, Committee on Finance, U.S. Senate: Intellectual Property:
Agencies Can Improve Efforts to Address Risks Posed by Changing Counterfeits Market, GAO-18-216, Washington, DC:
Government Accountability Office, January 2018. https://www.gao.gov/assets/690/689713.pdf
30Department of Justice, U.S. Attorney’s Office, Western District of New York, “Two Men Charged with Importing and Selling
Counterfeit Airbags,” 24 October 2016. https://www.justice.gov/usao-wdny/pr/two-men-charged-importing-and-selling-

counterfeit-airbags; Department of Justice, U.S. Attorney’s Office, Western District of New York, “Cheektowaga Man Sentenced
for Buying and Selling Counterfeit Airbags,” 9 May 2019.
31Department of Homeland Security, U.S. Customs and Border Protection, “Intellectual Property Rights: Fiscal Year 2018
Seizure Statistics,” August 2019. https://www.cbp.gov/sites/default/files/assets/documents/2019-Aug/IPR_Annual-Report-FY-

2018.pdf
32https://iccwbo.org/publication/economic-impacts-counterfeiting-piracy-report-prepared-bascap-inta/
18
were between 2 million and 2.6 million jobs in 2013, with job displacement expected to double by
2022.
Counterfeit goods also damage the value of legitimate brands. When brand owners lose the ability
to collect a price premium for branded goods, it leads to diminished innovation as brand owners
are less likely to invest in creating innovative products. Legitimate companies, and particularly
small businesses, report devastating impacts due to the abundance of competing online counterfeits
and pirated goods. Moreover, while e-commerce platforms can benefit legitimate businesses by
helping them to reach customers with a new product, the same process and technology also makes
it easier for unscrupulous firms to identify popular new products, produce infringing versions of
them, and sell these illicit goods to the business’s potential customers.
As previously noted, the speed at which counterfeiters can steal intellectual property through e-
commerce can be very rapid. If a new product is a success, counterfeiters may attempt to
immediately outcompete the original seller with lower-cost counterfeit versions — while avoiding
research and development costs. The result: counterfeiters may have a significant competitive
advantage in a very short period of time over those who sell trusted brands.
Such fast-track counterfeiting poses unique and serious problems for small businesses, which do
not have the same financial resources as major brands to protect their intellectual property. Lacking
the ability to invest in brand-protection activities, such as continually monitoring e-commerce
platforms to identify illicit goods, perform test buys, and send takedown notices to the platforms,
smaller businesses are more likely to experience revenue losses as customers purchase counterfeit
versions of the branded products.
In many cases, American enterprises have little recourse aside from initiating legal action against
a particular vendor. Such legal action can be extremely difficult. Many e-commerce sellers of
infringing products are located outside the jurisdiction of the United States, often in China; existing
laws and regulations largely shield foreign counterfeiters from any accountability.
Organized Crime and Terrorism
The impact of counterfeit and pirated goods is broader than just unfair competition. Law
enforcement officials have uncovered intricate links between the sale of counterfeit goods and
transnational organized crime. A study by the Better Business Bureau notes that the financial
operations supporting counterfeit goods typically require central coordination, making these
activities attractive for organized crime, with groups such as the Mafia and the Japanese Yakuza
heavily involved. 33 Criminal organizations use coerced and child labor to manufacture and sell
counterfeit goods. In some cases, the proceeds from counterfeit sales may be supporting terrorism
and dictatorships throughout the world. 34
33https://www.bbb.org/globalassets/local-bbbs/st-louis-mo-142/st_louis_mo_142/studies/counterfeit-goods/BBB-Study-of-
Counterfeit-Goods-Sold-Online.pdf
34United Nations Office of Drugs and Crime (UNODC), Focus On: The Illicit Trafficking of Counterfeit Goods and
Transnational Organized Crime, available at:

https://www.unodc.org/documents/counterfeit/FocusSheet/Counterfeit_focussheet_EN_HIRES.pdf
19
National Security
One of the greatest threats counterfeits pose to national security is their entry into the supply chain
of America’s defense industrial base. This defense industrial base includes both private sector
contractors and government agencies, particularly the Department of Defense.
In FY 2018, 12 percent of DHS seizures included counterfeit versions of critical technological

components, automotive and aerospace parts, batteries, and machinery. Each of these industrial
sectors have been identified as critical to the defense industrial base, and thus critical to national
security. One example drawn from a 2018 study by the Bureau of Industry and Security within the
Department of Commerce featured the import of counterfeit semiconductors or “Trojan chips” for
use in defense manufacturing and operations 35. Such Trojan chips can carry viruses or malware
that infiltrate and weaken American national security. The problem of counterfeit chips has
become so pervasive that the Department of Defense has referred to it as an “invasion.” Companies
from China are the primary producers of counterfeit electronics. 36
5. How E-Commerce Facilitates Counterfeit

Trafficking
While e-commerce has supported the launch of thousands of legitimate businesses, e-commerce
platforms, third-party marketplaces, and their supporting intermediaries have also served as
powerful stimulants for the trafficking of counterfeit and pirated goods. The central economic
driver of such trafficking is this basic reality: Selling counterfeit and pirated goods through e-
commerce platforms and related online third-party marketplaces is a highly profitable venture.
For counterfeiters, production costs are low, millions of potential customers are available online,
transactions are convenient, and listing goods on well-known platforms provides an air of
legitimacy. When sellers of illicit goods are in another country, they are also exposed to relatively
little risk of criminal prosecution or civil liability under current law enforcement and regulatory
practices. It is critical that immediate action be taken to protect American consumers and other
stakeholders against the harm and losses inflicted by counterfeiters.
35https://www.bis.doc.gov/index.php/documents/technology-evaluation/37-defense-industrial-base-assessment-of-counterfeit-
electronics-2010/file
36Saunders, Gregory and Tim Koczanksi, “Counterfeits,” Defense Standardization Program Journal, October/December 2013.
https://www.dsp.dla.mil/Portals/26/Documents/Publications/Journal/131001-DSPJ.pdf
20
Figure One provides a simplified overview of how counterfeit products move from production
by counterfeiters to sales to American consumers:
Counterfeit Production and Distribution
The counterfeit sales process begins with some type of production capability for the counterfeit
good. In this stage, counterfeiters enjoy enormous production cost advantages relative to legitimate
businesses. Counterfeits are often produced in unsafe workplaces, with substandard and unsafe
materials, by workers who are often paid little or sometimes nothing in the case of forced labor.
In the case of goods subject to federal health and safety regulations, it costs much less to produce
counterfeit versions that do not meet these health and safety requirements that make the legitimate
products so safe.
Counterfeiters likewise minimize the need for incurring significant research and development
expenditures by stealing intellectual property, technologies, and trade secrets. They also shave
production costs using inferior ingredients or components.
For example, a common way for counterfeiters to produce fake prescription opioids like
Oxycontin, or a prescription drug like Viagra, is to start with the real pills as a basic ingredient.
These real pills are then ground up into a powder, diluted with some type of (sometimes toxic)
powder filler, and then “spiked” with an illegal and deadly narcotic like fentanyl, in the case of
fake opioids, or illegal and deadly amphetamines or strychnine, in the case of Viagra.
In the case of apparel, such as running shoes, employees from a legitimate branded company may
leave the company and set up their own facility. These employees have the expertise to
manufacture identical-looking shoes; but they will typically do so with cheaper, inferior
components. The result: the shoes may fail during activity, injure the user with an inferior insole,
or, at a minimum, wear out faster than the real product. 37
37Department of Homeland Security, U.S. Customs and Border Protection, “CBP Seizes Over $2.2 Million worth of Fake Nike
Shoes at LA/Long Beach Seaport,” 9 October 2019. https://www.cbp.gov/newsroom/local-media-release/cbp-seizes-over-22-
million-worth-fake-nike-shoes-lalong-beach-seaport
21
The technological advances in modeling, printing, and scanning technologies such as 3D printing,
have also significantly reduced the barriers for reverse engineering and the costs of manufacturing
counterfeit products. Again, one problem that may arise may be the use of inferior production
inputs that lead to product failure.
These are just a few of the many ways counterfeits begin their long journey into American
households. There is often no way for legitimate businesses to compete, on a production cost basis,
with counterfeiters. There is also often no way for a consumer to tell the difference between a
counterfeit and legitimate good.
Third-Party Marketplaces and Counterfeiter Websites
A counterfeiter seeking to distribute fake products will typically set up one or more accounts on
third-party marketplaces, and these accounts can often be set up quickly and without much
sophistication or many specialized skills. Under such circumstances, it is axiomatic that online
retailers face much lower overhead costs than traditional brick-and-mortar sellers. There is no need
to rent retail space or to hire in-person, customer-facing staff.
In a common scenario, third-party marketplace websites contain photos of the real product, fake
reviews of the counterfeit product, and other such disinformation designed to mislead or fool the
consumer into believing the legitimacy of the product. The proliferation of such disinformation is
the hallmark of the successful online counterfeiter. Such deception not only provides counterfeiters
with an enormous competitive advantage over their brick-and-mortar counterparts; legitimate
sellers on the internet are harmed as well.
In some cases, counterfeiters hedge against the risk of being caught and their websites taken down
from an e-commerce platform by preemptively establishing multiple virtual store-fronts. A key
underlying problem here is that on at least some e-commerce platforms, little identifying
information is necessary for a counterfeiter to begin selling. In the absence of full transparency,
counterfeiters can quickly and easily move to a new virtual store if their original third-party
marketplace is taken down.
The popularity of social media also helps proliferate counterfeits across various e-commerce
platforms. Instagram users, for example, can take advantage of connectivity algorithms by using
the names of luxury brands in hashtags. Followers can search by hashtag and unwittingly find
counterfeit products, which are comingled and difficult to differentiate from legitimate products
and sellers.
According to a 2019 report, Instagram and Counterfeiting, nearly 20 percent of the posts analyzed
about fashion products on Instagram featured counterfeit or illicit products. 38 More than 50,000
Instagram accounts were identified as promoting and selling counterfeits, a 171 percent increase
from a prior 2016 analysis. Instagram’s Story feature, where content disappears in twenty-four
hours, was singled out as particularly effective for counterfeit sellers.
38Stroppa, Andrea, et al., “Instagram and counterfeiting in 2019: new features, old problems,” Ghost Data, 9 April 2019. Rome,
New York. https://ghostdata.io/report/Instagram_Counterfeiting_GD.pdf
22
A more recent development on social media is the proliferation of “hidden listings” for the sale of
counterfeits. Social media is used to provide direct hyperlinks in private groups or chats to listings
for counterfeit goods that purport to be selling unrelated legitimate items. By accessing the link,
buyers are brought to an e-commerce platform which advertises an unrelated legitimate item for
the same price as the counterfeit item identified in the private group or chat. The buyer is directed
to purchase the unrelated item in the listing but will receive the sought-after counterfeit item
instead.
Order Fulfillment in E-Commerce
The foreign counterfeiter must first choose between sending a package either by express
consignment carrier or through the international post. As a general proposition, express
consignment shippers — such as DHL Express, Federal Express, and the United Parcel Service —
were subject to data requirements before they were extended to the international posts.
In the next step along the delivery chain, a parcel will arrive at a port of entry under the authority
of CBP. Millions of parcels arrive daily, and it is impossible to inspect more than a very small
fraction.
Although ocean shipping is still a major mode of transport for counterfeits, the rapid growth of
other modes, such as truck and air parcel delivery, threaten to upend established enforcement
efforts, and as such, is increasingly used by international counterfeiters. This continued shift from
bulk cargo delivery to other modes by counterfeiters is illustrated in the trends in seizure statistics.
It is clear from these observations that counterfeit traffickers have learned how to leverage newer
air parcel distribution methods that vary from the traditional brick-and-mortar retail model (for
example, imports arriving via large cargo containers with domestic distribution networks). This is
an issue that must be directly addressed by firm actions from CBP.
Section 321 De Minimis Exemption and Counterfeit Trafficking
Under Section 321 of the Tariff Act of 1930, as amended by the Trade Facilitation and Trade
Enforcement Act of 2015 (TFTEA), articles with a value of $800 or less, imported by one person
on one day, can be admitted free of duty and taxes. Under 19 CFR § 10.151 and 19 CFR part 143,
Subpart C, those importations are often not subject to the same formal customs procedures and
rigorous data requirements as higher-value packages entering the United States. Instead, the low-
value shipments can be admitted into U.S. commerce with the presentation of a bill of lading or a
manifest listing each bill of lading and a limited data set. The relatively limited nature of the data
requirements complicates the identification of high-risk goods by CBP and other enforcement
agencies. Under 19 CFR § 143.22, CBP has existing authority to require formal entry (and the
complete data set for any shipment) for any merchandise, if deemed necessary for import
admissibility enforcement purposes; revenue protection; or the efficient conduct of customs
business.
23
Warehouses, Fulfillment Centers and Counterfeit Trafficking
Certain e-commerce platforms have adopted a business model that relies on North American
warehouses to provide space for foreign-made goods, followed by one-at-a-time order fulfillment,
at which point the goods are individually packed and shipped to U.S. consumers on much shorter
delivery timelines. The platforms that use this model may also coordinate with customs brokers,
as well as provide third-party logistics and freight forwarding services to assist with the initial
delivery of goods to the warehouse.
Although this model is a significant innovation for legitimate commerce and provides benefits to
consumers in the form of reduced costs and shipping time, it creates a mechanism that allows
counterfeit traffickers to minimize transportation costs as well, while intermingling harmful goods
among legitimate goods. From a risk perspective, this model allows goods to enter the United
States in a decentralized manner, allowing a counterfeit trafficker to spread the risk of seizure
across a number of low-value packages. In situations where the fulfillment center is outside the
U.S. Customs area, this model provides the opportunity to use ocean container shipping as the
primary mode of transit for the shipment, which keeps overall shipping costs relatively low as
ocean cargo is much cheaper than air delivery. It is in part because of these incentives that these
fulfillment centers have emerged as an important element of the supply chains for many counterfeit
traffickers.
6. Private Sector Outreach and Public Comment

This report benefitted from extensive outreach to, and comments from, numerous private sector
stakeholders in response to the FRN 2019-14715 issued on July 10, 2019. Respondents included:
e-commerce platforms that operate third-party marketplaces, third-party sellers, shippers, third-
party logistics providers, payment processors, and intellectual property rights holders.
Rights holders and Stakeholders Feedback
In providing comments on platforms’ current preventative efforts, rights holders argued that some
platforms do not do enough to ensure that sellers provide accurate information. They also stressed
that the onboarding and vetting of sellers remains a concern of the highest priority.
Some commenters further argued that sellers will not be sufficiently deterred unless they can be
identified and punished for promoting counterfeit and pirated goods via online platforms. Further,
they contended that platforms should be more proactive in their approach to combating IPR theft
and misuse. Commenters also advised that the lack of relevant policies and procedures to verify
sellers’ true names and addresses, and to conduct the necessary vetting and due diligence,
contributes to a range of impediments to effective enforcement.
Rights holders widely view the present legislative landscape for online enforcement — where
online intermediaries are generally not strictly liable for the products sold on their marketplaces
by third parties — to be out of date. While in the brick-and-mortar economy, contributory
infringement liability has been well-developed through case law for the licensing and oversight of
24
sellers, a comparable regime is largely non-existent in the e-commerce realm. A key problem here
is that the laws that apply today have remained largely unchanged since the early days of e-
commerce. They were developed at a time when Congress’ primary concern was to avoid over-
regulation of the nascent market — as exemplified by the numerous safe harbors and limitations
on liability for third-party intermediaries.
Rights holders further argued that the current rules, regulations, and practices governing e-
commerce disproportionately place the burden of enforcement on rights holders. While e-
commerce platforms that operate third-party marketplaces provide various tools for rights holders
to report counterfeit listings of their brands, they have effectively shifted the primary responsibility
to monitor, detect, and remove infringing products to the rights holders.
Commenters also noted several disparities across e-commerce platforms. For example, among
third-party marketplaces that control who may list products on their site for sale, some scrutinize
their sellers much more than others. Some allow anyone to sell a product if they provide basic
information about themselves, such as credit card and tax identity information. Others require more
detailed information, such as an existing online presence, proof that the seller is a business entity
and not an individual, and that the seller has established customer support.
Submissions were also received from several platforms noting that they have invested heavily in
proactive efforts to prevent counterfeits from reaching their online stores, and several commenters
noted that some platforms have significant interactions with law enforcement to combat
counterfeits trafficking. Additionally, there was concern expressed by some respondents that while
several of the leading online platforms have built out substantial programs, mandating that these
practices be adopted by all online platforms could have significant consequences for smaller
competitors.
Observations in Support of Strong Government Action
Five observations emerged from this stakeholder outreach and a broader review of the e-commerce
landscape: first, actions by the private sector components of the e-commerce supply, distribution,
and sales chain will be critical to reducing the heavy volume of counterfeit and pirated goods
circulating in the U.S. economy. This is particularly true for third-party marketplaces, which
provide tools that producers of counterfeit and pirated goods can exploit.
With respect to such actions, platforms are increasingly developing methods to remove counterfeit
listings and compensate consumers who have unwittingly purchased counterfeit goods. Platforms
are also improving their capabilities to more quickly identify counterfeits as well as identify
product sectors that are more vulnerable to counterfeiting.
Second, despite such actions, private stakeholders have fallen far short of adequately addressing
the substantial challenges that must be surmounted if the trafficking of counterfeit and pirated
goods is to be deterred. Such trafficking continues to grow both in the volume and array of goods
trafficked. A key failing within the private sector is a lack of a commonly accepted set of best
practices to combat counterfeit trafficking.
25
Third, rights holders are often burdened by e-commerce platforms that operate third-party
marketplaces with a disproportionate share of the costs of monitoring, detection, and enforcement
falling on rights holders. This burden falls heavily on smaller American enterprises that cannot
spread the costs due to trademark infringements and brand enforcement over large sales and
inventories.
Fourth, no amount of officers or government resources alone can stem this trafficking.
Fifth, absent the adoption of a set of best practices and a fundamental realignment of incentives
brought about by strong government actions, the private sector will continue to fall far short in
policing itself. Indeed, the current incentive structure tends to reward the trafficking in counterfeit
and pirated goods more than these incentives help to deter such trafficking.
The next two sections of this report identify a set of strong government actions that DHS, in
consultation with the interagency, believes is necessary to bring about this fundamental
realignment of incentives — and thereby ensure that e-commerce stakeholders appropriately
shoulder much more of the responsibility for preventing the online trafficking in counterfeit and
pirated goods.
7. Immediate Action by DHS and Recommendations

for the USG
CBP and ICE are the primary federal agencies responsible for securing America’s borders. A key
responsibility is to prevent goods that infringe U.S. copyrights, registered trademarks, and certain
patents from entering the United States. CBP’s interdiction of counterfeit goods at U.S. Ports of
Entry (POE) is the frontline of USG IPR enforcement.
In meeting their responsibilities, CBP and ICE have the statutory authority to inspect any package
as it is imported into U.S. territory. CBP and ICE may draw upon numerous other authorities to
stop and prevent the trafficking of counterfeit and pirated goods, from the assessment of civil fines
and other penalties to debarring and suspending irresponsible actors. Many of these authorities are
underutilized or underdeveloped to match the risks in the evolving e-commerce environment.
The previous sections of this report have provided an overview of the counterfeit trafficking
landscape and identified key problems that need to be addressed firmly and swiftly. This section
identifies a set of actions DHS will make through enforcement actions, sub-regulatory changes,
and as necessary, notice and comment rulemaking or requested statutory amendments. These
actions are summarized in the following table:
Immediate Actions to be Taken by DHS and Recommendations for the U.S. Government
1. Ensure Entities with Financial Interests in Imports Bear Responsibility
3. Suspend and Debar Repeat Offenders; Act Against Non-Compliant International Posts
4. Apply Civil Fines, Penalties and Injunctive Actions for Violative Imported Products
26

6. Anti-Counterfeiting Consortium to Identify Online Nefarious Actors (ACTION) Plan
9. Assess Contributory Trademark Infringement Liability for Platforms
10. Re-Examine the Legal Framework Surrounding Non-Resident Importers
Unless the trafficking of counterfeit and pirated goods is greatly reduced, Americans will continue
to face unacceptably high health and safety risks, American enterprises and workers will continue
to endure severe negative impacts, innovation and economic growth will suffer, and America will
continue to be exposed to significant national security risks.
1. Ensure Entities with Financial Interests in Imports Bear

Responsibility
DHS will pursue a modernized enforcement and regulatory framework that reflects the economic
realities of international e-commerce and ensures that the flow of contraband is stopped at its
source.
• CBP will adjust its entry processes and requirements, as necessary, to ensure that all
appropriate parties to import transactions are held responsible for exercising a duty of
reasonable care.
• 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. As
discussed in this report, counterfeit products evade detection and sit in fulfillment centers
waiting for purchase by a consumer. By treating domestic warehouses and fulfillment
centers as consignees in such circumstances, CBP can enhance their ability to identify
Section 321 abuses consistent with current authorities, as well as use its other statutory and
regulatory authorities to combat trafficking of counterfeit goods in the possession of
domestic warehouses and fulfillment centers.
• DHS will encourage platforms and other third-party intermediaries that own or operate
warehouses or fulfillment centers to pursue, in coordination with rights holders, bulk
abandonment and destruction of contraband goods that were not interdicted by CBP but
are in the platform’s or other third-party intermediary’s possession in a warehouse or
fulfillment center. In cases where CBP suspects merchandise destined for a U.S. fulfillment
center violates trade laws prohibiting importation of counterfeit goods and initiates a
seizure process for merchandise, CBP will notify the platform or other third-party
intermediary operating the fulfillment center or warehouse and request they pursue
abandonment and destruction with the rights holders of any identical offending goods in
their possession. Failure to cooperate following such notification could be a factor when
CBP and ICE identify counterfeit cases to pursue under their existing authorities.
27
• CBP will require formal entry for shipments deemed high-risk, notwithstanding that such
shipments might otherwise qualify for duty-free or informal entry treatment. High-risk
merchandise shall include those categories of goods that pose an elevated risk of
counterfeiting and shall consider the source of the merchandise.
• CBP will address such high-risk shipments within its current bonding regime, developing
a framework for a new type of bond specifically for counterfeit risk (like bonds required
for anti-dumping and countervailing duties).
• In consultation with the Department of Justice, CBP will provide guidance regarding the
types of customs violations that could be actionable under the False Claims Act (FCA)
and will make information regarding successful FCA claims publicly available to inform
and enable the public to identify and bring such violations to the attention of the
government.
As described above, existing laws and administrative practices may not sufficiently define
responsibilities in the e-commerce environment, including who within an e-commerce transaction
bears responsibility and legal liability for illicit merchandise and other violations. Statutes and
administrative practices can be clarified and updated to provide greater transparency and
information about the various parties involved so that DHS can identify high-risk transactions,
interdict dangerous merchandise, and cause bad actors to pay the price for their actions. To address
this problem in the Section 321 environment, CBP shall require data that sufficiently identifies the
third-party seller and the nature and value of the imported merchandise, as well as other
information that is necessary to determine the responsible party for Section 321 eligibility
purposes, consistent with existing legal authorities. This will be informed by the following efforts:
• Gather Information through Pilot Program. CBP has been examining different e-
commerce platform business models and has initiated several pilot programs designed to
better understand the dynamics involved, and the type of information that the government
should be collecting, including the “Section 321 Data Pilot” specifically for Section 321
entries, 84 Fed Reg. 35405 (July 23, 2019). CBP plans to continue these efforts for
approximately two years and will use the information gained to better target counterfeits
in the Section 321 environment, to help shape the scope of further policy formation, and
ensure compliance with customs laws.
• Enhanced Data Requirements. Upon collection of adequate amounts of data through the
Section 321 Data Pilot to identify gaps in the current data collection framework, but no
later than six months from the issuance of this report, CBP will, consistent with applicable
law, take all necessary steps — including, as applicable, issuing a notice of proposed
rulemaking — to initiate a new data collection process. This process will include collecting
certain information from domestic warehouses or fulfillment centers about third-party
sellers in transactions for which the third-party seller utilizes a domestic warehouse or
fulfillment center to store inventory for further sale to domestic consumers. The collection
will also include data that sufficiently identifies the third-party seller and the nature and
28
value of the imported merchandise, as well as other information that is necessary to

determine the responsible party for Section 321 eligibility purposes, consistent with
existing legal authorities. As appropriate, the domestic warehouse or fulfillment center may
be deemed the “person” for Section 321 eligibility if the warehouse or fulfillment center
fails to provide CBP with such information.
• Issue Guidance. To prevent abuse of Section 321, CBP will develop administrative
guidance and, if necessary, consider whether promulgating new regulations is necessary to
better define and subsequently enforce Section 321 eligibility requirements. At a minimum
this guidance will address the following:
o What value needs to be reported for a Section 321 entry; and
o What information will be necessary to uniquely identify the ultimate consignee.
3. Suspend and Debar Repeat Offenders; Act Against Non-

Compliant International Postal Operators
In appropriate circumstances, CBP and ICE currently take steps to add persons (both entities and
individuals) that have been found to lack present responsibility to the federal suspension and
debarment list. Those persons on this suspension and debarment list are prohibited from
participating in both government procurement and certain other non-procurement activities.
However, current agency practices continue to permit these persons to obtain importer of record
numbers and import goods into the United States.
Explicitly clarifying the scope of suspension and debarment to prevent participation in the importer
of record program by amending Executive Order 12549 will assist CBP in requiring regulated
entities to screen their customers against the suspension and debarment list. This will improve
targeting and reduce the number of packages sent by repeat offenders, thereby stopping the flow
of contraband at their sources.
• CBP recommends amending Executive Order 12549 to explicitly bar suspended and
debarred persons from participating in the Importer of Record Program.
• Following such an amendment, or as otherwise consistent with applicable law and

Executive Orders, CBP will require express consignment operators, carriers, and hub
facilities to verify their customers have not been suspended or debarred from participating
in the Importer of Record Program and refuse to provide import-related services to such
suspended or debarred customers.
• Consistent with applicable law, CBP will condition continued access to its “trusted trader
programs” by express consignment operators, carriers, and hub facilities on compliance
with this verification process that determines whether a customer has been suspended or
debarred.
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• Consistent with applicable law, CBP also will identify non-compliant international postal
operators and international posts by developing an International Mail Non-Compliance
metric and will take enforcement actions based on these metrics.
4. Apply Civil Fines, Penalties, and Injunctive Actions for Violative

Imported Products
It is critical to the integrity of e-commerce and for the protection of consumers and rights holders
that e-commerce platforms that operate third-party marketplaces, and other third-party
intermediaries assume greater responsibility, and therefore greater liability for their roles in the
trafficking of counterfeit and pirated goods. To that end, CBP and ICE will use existing statutory
and regulatory authorities to reach the activities of third-party marketplaces and other
intermediaries where evidence demonstrates they have unlawfully assisted in the importation of
counterfeit and pirated goods through the following actions:
• CBP and ICE will immediately begin to identify cases in which third-party intermediaries
have demonstrably directed, assisted financially, or aided and abetted the importation of
counterfeit merchandise. In coordination with the Department of Justice, CBP and ICE will
seek all available statutory authorities to pursue civil fines and other penalties against these
entities, including remedies under 19 U.S.C. § 1526(f), as appropriate.
• DHS recommends the administration pursue a statutory change to explicitly permit the
government to seek injunctive relief against third-party marketplaces and other
intermediaries dealing in counterfeit merchandise.
• In the interim, DHS will provide information and support to registered brand owners
looking to utilize statutory authorities to seek injunctive relief against persons dealing in
counterfeit merchandise, whether through direct sales or facilitation of sales, following
seizures of goods that are imported contrary to law.
• ICE shall prioritize investigations into intellectual property-based crimes regardless of size
and will make referrals for all such investigations where appropriate.
• ICE will coordinate with the Department of Justice to develop a strategy to investigate and
prosecute intellectual property violations at all levels of the supply chain at a sufficiently
high level to respond to the concerns raised in this report and according to its budget and
broader mission goals.
The United States Postal Service (USPS) is responsible for the presentation of mail and the
provision of advance electronic data (AED) to CBP for arriving international mail parcels. USPS
receives such AED from international posts. As has been noted, given the number of e-commerce
transactions that are sent by mail, there is a significant gap in the information CBP receives. USPS
and CBP have enhanced their collaboration in the targeting and identification of offending
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merchandise that is imported through international mail. Both agencies are implementing new
strategies for leveraging the AED already available to identify offending merchandise by taking
the following actions:
• DHS and USPS have signed a letter of intent that enables the USPS to work alongside CBP
during special operations to become a force multiplier in the interdiction of counterfeit
products.
• Upon completion and publication of the Synthetics Trafficking and Overdose Prevention
(STOP) Act implementing regulations, DHS will use information gleaned from the 321
Data Pilot and will make recommendations to USPS to address any critical data gaps that
remain between what is required of mail versus air cargo. At a minimum, this effort will
seek to enhance the individualized tracking of international mail parcels sent through air
cargo.
6. Plan for ACTION
Counterfeit networks can be complex and multidimensional, exploiting legal and regulatory
nuances in the different stages and aspects of international trade. Yet, for a variety of reasons,
including competition law and trade secrets protection, various stakeholders in the e-commerce
supply and distribution chains historically have not shared information on problematic sellers,
shippers, freight forwarders, brokers, and other third-party intermediaries involved in counterfeit
trafficking.
To address this issue, the IPR Center established the E-Commerce Working Group (ECWG) to
foster and encourage the flow of actionable data and information between platforms and relevant
third-party intermediaries as well as affected carriers, shippers, search engines, and payment
processors. DHS supports the efforts of the IPR Center’s ECWG and recommends the formation
of the Anti-Counterfeiting Consortium to Identify Online Nefarious Actors (ACTION). Specific
ACTION efforts will include the following:
• Sharing information within the ACTION framework on sellers, shippers, and other third-
party intermediaries involved in trafficking in counterfeit and pirated goods.
• Sharing of risk automation techniques allowing ACTION members to create and improve
on proactive targeting systems that automatically monitor online platform sellers for
counterfeits and pirated goods.
• In addition, ACTION members may enter non-binding memoranda of understanding

(MOU) with the IPR Center, consistent with U.S. law, to clarify the expectations and legal
understanding for data sharing and coordinated IPR enforcement moving forward. Such
MOUs will provide a vehicle to create a compliance scoring mechanism, as well as to
delineate reasonable efforts to know the seller as well as the scope of products involved
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(e.g., fast-moving consumer goods, consumer electronics, fashion and luxury products,
sports goods, software, and games, and toys).
Packages shipped through the international mail environment account for approximately 500
million packages annually. This does not include the millions of packages sent out daily via express
consignment carriers. Amidst this flood of packages, insufficient resources can create a key
limitation on the capabilities of DHS and other government agencies to screen, target, and detect
the counterfeit and pirated goods that hide amongst the increasing massive flow of small packages.
A lack of resources also limits the ability of intelligence gathering and analysis, the proper
determination of whether suspect goods may be counterfeit, the collection of comprehensive data
on the trafficking in counterfeit and pirated goods, and the ability to conduct criminal
investigations into the organizations that traffic in counterfeit goods. To address these issues, the
following actions shall be taken:
• CBP will analyze whether the fees collected by CBP are currently set at sufficient levels
to reimburse the costs associated with processing, inspecting, and collecting duties, taxes,
and fees for parcels. CBP shall also provide recommendations to the Department of the
Treasury regarding any fee adjustments that would be necessary to fund and reimburse the
federal government’s costs for more effectively combating the trafficking of counterfeit
and pirated goods.
DHS will pursue a modernized enforcement framework that reflects the economic realities of
international e-commerce. This new framework may rely on the provision of privileges or benefits
by CBP to e-commerce entities in exchange for the submission of additional data elements and
sufficient internal controls that demonstrate the entities’ ability to identify and manage risk within
their respective supply chains. This new framework may also require updates to existing statutes
and regulations to underpin this effort. Key elements of a modernized e-commerce enforcement
framework could include, but are not limited to:
• Seeking statutory authority to treat IPR infringing goods as summarily forfeited upon
discovery by CBP or ICE similar to the treatment of Schedule I and II narcotics under Title
21 of the U.S. Code. This will send a clear message about the importance of IPR
enforcement, and simultaneously streamline the disposition of CBP enforcement actions.
• Pursuing statutory and/or regulatory changes, as necessary, so that CBP can better share
information with the private sector;
• Implementing a risk-based bonding regime for e-commerce transactions; and
• Adopting streamlined enforcement processes for seized, abandoned, and forfeited goods.
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9. Assess Contributory Trademark Infringement Liability for E-

Commerce
Online platforms have avoided civil liability for contributory trademark infringement in several
cases. Given the advance and expansion of e-commerce, DHS recommends that the Department
of Commerce consider the following measures:
• Assess the state of liability for trademark infringement considering recent judicial opinions,
and the impact of this report—including platforms’ implementation of the best practices
directed herein.
• Seek input from the private sector and other stakeholders as to the application of the
traditional doctrines of trademark infringement to the e-commerce setting, including
whether to pursue changes in the application of the contributory and/or vicarious
infringement standards to platforms.
10. Re-Examine the Legal Framework Surrounding Non-Resident

Importers
Currently, non-resident importers can legally enter goods into the United States provided they have
a “resident agent” as defined in regulation. In practice, it can be difficult to compel non-resident
importers to pay civil penalties and respond to other enforcement actions available to the USG.
With this in mind, DHS should reevaluate the legal framework for allowing non-resident importers
in the Section 321 de minimis low-value shipment environment.
Given the critical role that consumers can play in the battle against online counterfeiting, DHS
recommends the development of a national public-private awareness campaign. The national
public awareness campaign recommended by DHS should involve platforms, rights holders, and
the applicable government agencies to provide education for consumers regarding the risks of
counterfeits as well as the various ways consumers can use to spot counterfeit products. At present,
many consumers remain uninformed as to the risks of buying counterfeit and pirated products
online. These risks are both direct to them (e.g., tainted baby food), as well as indirect (e.g., sales
revenues can fund terrorism).
Many consumers are also unaware of the significant probabilities they face of being defrauded by
counterfeiters when they shop on e-commerce platforms. As this report has documented, these
probabilities are unacceptably high and appear to be rising. Even those consumers motivated to
conduct research and stay informed might lack the specialized knowledge and efficient user tools
to make diligent online buying decisions.
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A strong and ongoing national campaign to increase public awareness about the risks of
counterfeits in an e-commerce world should help alert consumers about the potential dangers of
some online purchases. To the extent e-commerce platforms empower their consumers to
participate in the monitoring and detection of counterfeits, e.g., by implementing several of the
best practices recommended in this report, this will also help in the fight against the trafficking in
counterfeit and pirated goods.
This effort could use technology as well as provide online education. For example, online
marketplaces could prominently display messages on their home pages, as well as on high-risk
item pages, warning customers about the dangers of counterfeits and urging respect for intellectual
property rights. Additionally, the campaign could be paired with technologically-enabled
assurances of authenticity. Such an approach would provide commercial advantages to the
platforms that adopt it while also benefiting consumers and rights holders through reliable methods
to identify and certify the authenticity of branded products across online platforms.
8. Private Sector Best Practices

The following table catalogs a set of high priority “best practices” that should be swiftly adopted
by e-commerce platforms that operate third-party marketplaces, and other third-party
intermediaries. Under the authority of the Secretary of the Department of Homeland Security, these
best practices shall be recommended and communicated to all relevant private sector stakeholders
by the ICE/HSI-led IPR Center.
It shall be a duty of the IPR Center to encourage, monitor, and report on the adoption of, and the
progress and effectiveness of, these best practices, through all means necessary within the scope
of the legal authority of DHS and the Federal Government.
Best Practices for E-Commerce Platforms and Third-Party Marketplaces

1. Comprehensive "Terms of Service" Agreements
4. Efficient Notice and Takedown Procedures
6. Indemnity Requirements for Foreign Sellers
7. Clear Transactions Through Banks that Comply with U.S. Enforcement Requests
9. Establish Marketplace Seller IDs
1. Comprehensive “Terms of Service” Agreements
It is critical that platforms require all third-party sellers to sign comprehensive and stringent terms
of service agreements that maximize the authorities of the platforms to combat counterfeit
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trafficking. Terms of service agreements will provide platforms with an important legal means to
combat counterfeit trafficking
Most obviously, these terms of service should incorporate explicit prohibitions on selling
counterfeit and pirated goods. Once the platform has affirmatively detected infringement on a
seller profile, the actions listed below under the category of “post-discovery actions” should be
allowed under the terms and taken swiftly.
The terms of service should also list the potential repercussions sellers face for violations.
Generally, these repercussions should allow platforms to impose sanctions such as suspension,
termination, and debarment without waiting for a determination by a court for sellers who violate
the terms of the agreement. The terms should include escalating capabilities to suspend, terminate,
and debar counterfeit traffickers and their affiliates.
Specifically, they should allow the platform to conduct, at a minimum, the following actions in
response to violations or identified risk factors in the seller’s profile and product postings without
waiting for a determination by a court:
(1) terminate or suspend a seller account based on the use or reference to a username that
is confusingly similar to a registered trademark;
(2) take down or suspend and keep down individual product postings based on the misuse
of photographs, logos, external links to infringing content, certain coded messages with
actual intellectual property references removed, or imbedded offers to manufacture; and
(3) allow for an escalating enforcement structure that results in (for major infractions and/or
repeat minor infractions) permanent removal of the seller, and any known related seller
profiles, from the marketplace feature of the platform and further results in forfeiture and
destruction of all offending goods in warehouses or fulfillment centers operated by, or
under the control of, the platform.
To maximize platform authorities, and as explained further below, such terms of service should
also allow platforms to impose appropriate limitations on products listed, require clearly
identifiable country of origin disclosures, impose U.S. banking and indemnity requirements, and
significantly improve pre-sale identification of third-party sellers.
Significantly enhanced vetting of third-party sellers is one of the most effective forms of due
diligence platforms can engage in to reduce the risk of counterfeits entering the e-commerce
stream. Platforms should have a uniform and articulable vetting regime to determine if a seller will
be allowed to list products for sale.
To facilitate enhanced vetting, platforms should, at a minimum, require the following:
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(1) sufficient identification of the seller, its accounts and listings, and its business locations
prior to allowing the seller to list products on the platform;
(2) certification from the seller as to whether it, or related persons, have been banned or
removed from any major e-commerce platforms, or otherwise implicated in selling
counterfeit or pirated products online; and
(3) acknowledgment, where applicable, that the seller is offering trademarked products for
which the seller does not own the rights (either because they are a reseller or seller of used
products).
Information provided by potential sellers should also be vetted for accuracy, including through the
following efforts:
(1) use of technological tools, as well as analyses of historical and public data, to assess
risk of sellers and products; and
(2) establishment of an audit program for sellers, concentrating on repeat offenders and
those sellers exhibiting higher risk characteristics.
Any failure to provide accurate and responsive information should result in a determination to
decline the seller account and/or to hold the seller in violation of the platform’s terms of service.
Platforms should have in place protocols and procedures to place limitations on the sale of products
that have a higher risk of being counterfeited or pirated and/or pose a higher risk to the public
health and safety. For example, some of the major platforms completely prohibit the sale of
prescription medications by third-party sellers in their marketplaces. Many platforms also ban the
sale of products that are known to be particularly vulnerable to counterfeiting and that pose a safety
risk when sold online. Examples include car airbag components, infant formula, and new batteries
for cellular phones.
Platforms can also place other types of restrictions on third-party sellers before certain high-risk
categories of goods may be sold. For example, some platforms require prior approval for items
such as automotive parts, jewelry, art, food, computers, sports collectibles, DVDs, and watches
that are particularly prone to counterfeiting.
Platforms should prominently publish a list of items that may not be sold on third-party
marketplaces under any circumstances (prohibited), as well as a list of items that can only be sold
when accompanied by independent third-party certification (restricted). In constructing these lists,
platforms should consider, among other things, whether a counterfeit version of the underlying
product presents increased risks to the health and safety of U.S. residents or the national security
of the United States. When a seller claims their merchandise has an independent third-party
certification, and this certification is required in order for the product to be legally offered for sale
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in the United States, platforms should make good-faith efforts to verify the authenticity of these
certifications.
4. Efficient Notice and Takedown Procedures
Notice and takedown is the most common method of removing counterfeit listings from third-
party marketplaces and e-commerce platforms. This noticing process can be particularly time-
consuming and resource-intensive for rights holders who currently bear a highly disproportionate
share of the burden of identifying the counterfeit listings for noticing.
These rights holders must invest significant resources to scour millions of listings across multiple
platforms to identify potentially counterfeit listings and notify the third-party marketplace or e-
commerce platform. This kind of comprehensive policing of e-commerce often is not possible for
smaller enterprises.
As a further burden, some third-party marketplaces require rights holders to buy the suspected
products from the sellers to verify that they are in fact counterfeit. There often is a delay of a day
or longer between the time that notice is provided, and the time listing is removed. During this
period, counterfeiters may continue to defraud American consumers.
To address these abuses — and assume a much greater share of responsibility for the policing of
e-commerce — platforms should create and maintain clear, precise, and objective criteria that
allow for quick and efficient notice and takedowns of infringing seller profiles and product listings.
An effective regime should include, at a minimum, the following: (1) minimal registration
requirements for an interested party to participate in the notice and takedown process; (2)
reasonable rules that treat profile owners offering large quantities of goods on consumer-to-
consumer platforms as businesses; and (3) transparency to the rights holders as to how complaints
are resolved along with relevant information on other sales activity by the seller that has been
implicated.
Upon discovery that counterfeit or pirated goods have been sold, platforms should conduct a series
of “post-discovery” actions to remediate the fraud. These should include:
(1) notification to any buyer(s) likely to have purchased the goods in question with the offer
of a full refund;
(2) notification to implicated rights holders, with details of the infringing goods, and
information as to any remaining stock of the counterfeit and pirated goods held in warehouses;
(3) implementation of practices that result in the removal of counterfeit and pirated goods
within the platform’s effective control and in a manner that prevents such goods from re-
entering the U.S. or being diverted to other markets; and
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(4) immediate engagement with law enforcement to provide intelligence and to determine
further courses of action.
6. Indemnification Requirements for Foreign Sellers
For a large portion of e-commerce, foreign sellers do not provide security or protection against a
loss or other financial burden associated with the products they sell in the United States. Because
these sellers are located outside the United States, they also may not be subject to the jurisdiction
of U.S. courts in civil litigation or government enforcement actions. Further adding to this liability
gap, there is this: while e-commerce platforms generally have a U.S. presence and are under U.S.
jurisdiction, under the current interpretations of American laws and regulations, they are often
found not to be liable for harm caused by the products they sell or distribute.
The result of this jurisdictional and liability gap is that consumers and rights holders do not have
an efficient or predictable form of legal recourse when they are harmed by foreign products sold
on third-party marketplaces. Accordingly, e-commerce platforms should require foreign sellers to
provide some form of security in cases where a foreign product is sold to a U.S. consumer. Such
form of security should be specifically designed to cover the potential types and scope of harm to
consumers and rights holders from counterfeit or pirated products.
Note that there are several ways that platforms might flexibly achieve this goal. For example,
requiring proof of insurance would provide a form of security for any reasonably foreseeable
damages to consumers that might flow from the use of the product. Rights holders could also be
compensated in cases of infringement.
7. Clear Transactions Through Banks that Comply with U.S.

Enforcement Requests
Many foreign sellers on third-party marketplaces do not have a financial nexus to the United States,
making it difficult to obtain financial information and to subject all parts of the transaction to U.S.
law enforcement efforts.
Platforms should close this loophole by encouraging all sellers to clear transactions only with
banks and payment providers that comply with U.S. law enforcement requests for information and
laws related to (relevant to) the financing of counterfeit activity.
Stakeholders have, at times, reported that buyers have been surprised to discover upon completion
of an online sales transaction, that the order will be fulfilled by an unknown third-party seller and
not the platform itself. Without addressing the separate legal question of whether this comprises
deceptive action per se, at least some buyers may have made different purchasing decisions if they
38
had known, prior to purchase, the identity of the third-party “storefront” owner, and/or the party
ultimately responsible for fulfilling the transaction.
To increase transparency on this issue, platforms should significantly improve their pre-sale
identification of third-party sellers so that buyers can make informed decisions, potentially
factoring in the likelihood of being sold a counterfeit or IPR infringing merchandise. Platforms
should implement additional measures to inform consumers, prior to the completion of a
transaction, of the identity of storefront owners and/or those responsible for fulfilling a transaction,
as well as any allegations of counterfeits being sold by a particular seller. On the converse, if a
particular seller is a licensed reseller of the product, this information should also be provided.
Even if this information may be currently available, firm steps should be taken to ensure that this
information is featured prominently in product listings. This will prompt greater consumer
awareness and lead to more informed decision-making.
9. Establish Marketplace Seller IDs
Platforms generally do not require a seller on a third-party marketplace to identify the underlying
business entity, nor to link one seller profile to other profiles owned by that same business, or by
related businesses and owners. In addition, the party that appears as the seller on the invoice and
the business or profile that appears on the platform to be the seller, may not always be the same.
This lack of transparency allows one business to have many different profiles that can appear
unrelated. It also allows a business to create and dissolve profiles with greater ease, which can
obfuscate the main mechanism that consumers use to judge seller credibility, namely reviews by
other buyers.
Platforms should require sellers to provide the names of their underlying business or businesses
(if applicable), as well as any other related seller profiles owned or controlled by that seller or that
clear transactions through the same merchant account. Platforms can use this seller ID information
in three helpful ways:
First, to communicate to the consumer a more holistic view of “who” is selling the goods, allowing
the consumer to inspect, and consult reviews of, all related seller profiles to determine
trustworthiness. Second, linking all related sellers together will assist rights holders in monitoring
who is selling goods that they believe to be infringing. Third, the platform can use the connections
to other seller profiles to better conduct its own internal risk assessment, and make risk mitigation
decisions (e.g., requiring cash deposits or insurance) as appropriate based on the volume and
sophistication of the seller.
Brick-and-mortar retail stores are required to have labels on their products that clearly identify the
country or countries of origin. No such requirement applies to online e-commerce.
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Platforms should require sellers to disclose the country of origin of their products; and platforms
should post this country of origin information for all the products they sell. This will assist both
the platforms and consumers in evaluating the risks that a product might be counterfeit.
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9. Conclusions
Both private sector and USG input to this report have shown that the flood of counterfeit and
pirated goods now being trafficked to American consumers through online third-party
marketplaces is threatening both the public health and safety as well as national security. The lack
of effective methods for addressing counterfeit goods stifles American innovation and erodes the
competitiveness of U.S. manufacturers and workers. Despite increased efforts of both the USG
and private sector stakeholders, the trafficking of counterfeit and pirated goods continues to
worsen, in both the volume and the array of products being trafficked.
This report to President Donald J. Trump has identified a set of strong government actions that
DHS and other federal agencies can begin executing immediately to address a crisis that is
undermining America’s trust in e-commerce even as it is exposing the American public to undue
and unacceptable risks.
Additionally, this report has proposed a set of best practices for private sector stakeholders that
DHS believes should be adopted swiftly. As the longstanding experiences of brick-and-mortar
stores demonstrate, the private sector is capable of operating businesses that sell legitimate, not
illicit, goods to American consumers. We should expect the same level of care from online third-
party marketplaces that we expect from the stores physically located in our communities.
During the time you have spent reading this report, hundreds of thousands of new clicks in online
third-party marketplaces have started the process for a new wave of counterfeits flooding into the
United States. Although the USG will continue to benefit from additional information flowing
from current-running pilot programs, and longer-term legislative and regulatory efforts, the time
has come for action, both from the USG and those private sector companies that desire to be good
partners in combating the scourge of counterfeiting.
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10. Appendix A: The IPR Center

The National Intellectual Property Rights Coordination Center (IPR Center) is led by Homeland
Security Investigations. The IPR Center plays an important role in consumer and rights holders
education on the dangers of purchasing counterfeit goods and on how to report a suspected
counterfeit to law enforcement.
In 2018, the IPR Center conducted 192 IPR and commercial fraud-related outreach efforts,
reaching 12,061 people. As recommended in this report, this IPR Center should play a critical and
expanded role in the ongoing battle against counterfeit trafficking.
This Appendix describes some of the major initiatives the IPR Center is currently involved in.
Background on the IPR Center
The IPR Center brings together 25 U.S Government and foreign government agencies in a task
force setting using a three-pronged approach to combat intellectual property and trade crime:
interdiction, investigation, and outreach to the public and law enforcement. It seeks to coordinate
a unified USG response to the growing threat of counterfeiting and has significantly expanded the
original multi-agency law enforcement and regulatory endeavor created to target IPR crimes.
As part of this effort, rights holders, online marketplaces, payment processers and companies
involved in all points across the supply chain regularly meet with members of the IPR Center to
share their best practices, concerns, and suggestions. The information gathered at these events can
lead to further collaboration across sectors to develop innovative solutions to complex cross-
cutting challenges, including enhanced information sharing, joint enforcement actions, and
specialized, targeted training and outreach.
IPR Training
The IPR Center, with assistance from the Department of State, works closely with International
Narcotics and Law Enforcement Affairs (DOS/INL) and DOJ International Computer Hacking
and Intellectual Property Section (formerly Intellectual Property Law Enforcement Coordinator -
IPLEC). In conjunction with ICE Attaché offices, the IPR Center directs, organizes and delivers
regional IPR training in the form of lectures and presentations to foreign customs, police,
prosecutors, and magistrates.
IPR Center training programs are usually 3-5 days in length and emphasize IPR enforcement,
particularly the investigation and prosecution of IPR violations and associated crimes such as
smuggling and money laundering.
The training programs are interactive workshops led by subject matter experts and focus on health
and safety risks associated with counterfeited items such as pharmaceuticals, electronics,
automotive parts, and health and beauty products. With the growing number of e-commerce
marketplaces, the training programs have an Internet-investigations focus as well.
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Private sector representatives or associations are also invited to participate in the training programs
to highlight the challenges their industry sector may face in a particular region and to highlight the
necessity of government and industry cooperation.
Automotive Anti-Counterfeiting Council
The IPR Center meets regularly with automotive original equipment manufacturers through the
Automotive Anti-Counterfeiting Council (A2C2) to address the sale and distribution of counterfeit
parts and components to unsuspecting consumers, including the distribution of counterfeit parts
through third-party marketplaces. The IPR Center and the A2C2 work together to provide training
to federal and local law enforcement partners and payment processors on recognizing counterfeit
automotive parts and conducting criminal investigations and prosecutions.
Defense Industrial Base Supply Chain
Addressing counterfeits in the defense industrial base supply chain is critical to national security.
A faulty counterfeit product can harm not only the individual who uses it. It can impact the safety
and security of the entire country if dangerous counterfeits are used in combat situations.
The Defense Federal Acquisition Regulation Supplement (DFARS) is a Department of Defense

(DOD)-specific supplement to the Federal Acquisitions Regulation (FAR), which establishes
government-wide regulations governing executive agency procurement contracts. DFARS
252.246-7007, Contractor Counterfeit Electronic Part Detection and Avoidance System, requires
that certain government contractors institute and implement a counterfeit detection and avoidance
system for electronic parts, including establishing the minimum requirements for such a system
and penalties for a failure to comply. In addition, contractors can recover the costs of any rework
or corrective action taken to remedy any counterfeits parts from subcontractors.
Operation Chain Reaction (OCR) is an ICE-led initiative at the IPR Center that targets counterfeits
entering the supply chains of the DOD and other USG agencies. OCR began in June 2011, and it
combines the expertise of 17 federal agencies. Each year, the OCR Task Force co-hosts the
Counterfeit Microelectronics Working Group (CMWG) with the Department of Justice’s
Computer Crimes and Intellectual Property Section (CCIPS). Attendees include representatives
from industry, law enforcement, Department of Defense (DOD), and Assistant United States
Attorneys (AUSAs). The focus of the meetings is to enhance communication between law
enforcement and industry and discuss the latest trends in the counterfeiting of integrated circuits.
The CMWG’s role is to protect the DOD supply chain through extensive collaboration.
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11. Appendix B: Ongoing CBP Activities to Combat

Counterfeit Trafficking
This appendix provides a brief summary of some of the major activities CBP and DHS engage in
as part of the battle against the trafficking of counterfeit and pirated goods.
National Targeting Center
CBP’s National Targeting Center (NTC) carries out daily targeting on IPR recidivists, which often
use third-party marketplaces for counterfeit trafficking. It makes referrals to the IPR Center for
review and distribution to its field offices for further investigation. It also provides real time IPR
case support for Homeland Security Investigations and collaborates with the NTC’s investigations
division to collaborate on IPR criminal leads and existing cases.
COAC E-Commerce Working Group
The Commercial Customs Operations Advisory Committee (COAC) provides recommendations

to the Secretaries of the Treasury and DHS on improvements to the commercial operations of CBP.
The COAC consists of 20 members appointed by the Secretary of the Treasury and the Secretary
of DHS.
COAC members are representative of the individuals and firms affected by the commercial
operations of CBP. CBP’s Office of Trade leads the COAC E-Commerce Working Group, which
focuses on policy challenges surrounding the increase of e-commerce shipment volumes. The
group recently finalized a supply chain map that the COAC recommended CBP use for outreach
and policy-making endeavors.
Outreach
Section 311 of the Trade Facilitation and Trade Enforcement Act (TFTEA) (codified at 19 U.S.C.
§ 4350) calls for DHS to develop and execute an educational awareness campaign aimed at
informing international travelers about the legal, economic, and public health and safety impacts
of importing IPR-infringing merchandise. There have been four phases to date in the “Truth
Behind Counterfeits” IPR public awareness campaign—summer 2017, holidays 2017, summer
2018, and holidays 2018.
During each of these four phases, advertisements have run on large-scale billboards in major U.S.
airports throughout the country. There has also been a digital component to the campaign where
the ads run on relevant travel-related websites.
CBP continues to partner with the private sector to conduct IPR risk assessments by allowing IPR
owners to assist CBP in identifying authentic and low-risk shipments. CBP is also highly engaged
with the private sector through participation in the IPR Working Group of the COAC’s Trade
Enforcement and Revenue Collection Subcommittee, and the Department of Commerce’s Industry
Trade Advisory Committee on Intellectual Property Rights.
44
In FY 2018, CBP conducted roundtables to bring together personnel from the law enforcement
community and industry stakeholders for information sharing among members. This provided an
opportunity for industry stakeholders to share specific industry standards with field personnel
working to protect stakeholder rights at the border. In FY 2018, CBP held roundtables at the
Automotive and Aerospace Center of Excellence and Expertise IPR Conference.
CBP personnel from headquarters, the ports, the centers, NTC, and the targeting groups also meet
regularly with private sector stakeholders and trade associations to discuss trends, technologies,
and ways to cooperate on IPR enforcement. CBP maintains IPR enforcement personnel across the
country, allowing CBP personnel to meet with businesses and trade associations either at
headquarters or in locations close to where the companies are located or do business. CBP
personnel regularly meet with brand protection and other corporate officials on a company-specific
basis.
Additionally, CBP pursues bilateral and multilateral engagements with foreign counterparts to
conduct joint customs IPR enforcement operations, share effective enforcement practices, and
exchange information on IPR violations to improve targeting and interdiction of counterfeit and
pirated goods.
CBP, in coordination with ICE/HSI, focuses its bilateral engagement efforts on those countries
with which CBP and ICE/HSI have a Customs Mutual Assistance Agreement (CMAA) and
continues to pursue establishing new CMAAs with foreign governments around the world. CBP
attachés stationed at embassies around the world facilitate cooperation through operational
planning, information exchange, and sharing best practices between CBP and foreign customs
authorities.
Training
CBP’s IPR-related training focuses on training front-line and Center of Excellence and Expertise
(Center) personnel on how detect, examine, and enforce IPR violations. Several offices within
CBP collaborate to provide a robust IPR instructor-led training course that covers IPR seizure
authority, enforcement best practices, administrative IPR procedures, and other critical legal and
policy topics.
CBP’s Office of Trade also conducts IPR webinars to educate port and Center personnel on IPR
infringing products. Rights holders provide information on how to recognize IPR-infringing
products, labels, and packaging. CBP is also developing a formalized Advanced IPR Enforcement
Training course that will expand on the existing IPR Instructor-led Training course to increase
students’ knowledge of advanced IPR enforcement areas.
Private sector engagement also continues to comprise a significant part of CBP training for
frontline personnel. Rights holders are routinely invited to address CBP audiences at local ports
and the Centers. CBP also hosts national webinars with rights holders designed to train personnel
across the country. Rights holders also provide CBP personnel with product identification guides
45
that describe methods to distinguish between genuine and infringing products. These guides afford
frontline personnel the ability to compare imported merchandise with pictures of genuine products.
Additionally, CBP Regulations and Rulings provide training on advanced detection of

trademark/copyright infringement to Import Specialists of the Automotive and Aerospace Center,
the Consumer Products and Mass Merchandising Center, and the Apparel, Footwear and Textile
Center, as well as to CBP officers at the ports of Newark, New Jersey, and John F. Kennedy
Airport.
Rulemakings and Procedures
CBP has recently published two notices of proposed rulemaking related to the protection of
intellectual property rights. In the first, CBP proposes to standardize the process by which customs
brokers verify the identity of their clients, typically importers. The proposed regulations would
formalize the verification process and require that a re-verification process be carried out by
brokers every year. This improved broker knowledge is designed to allow for better commercial
fraud prevention and revenue protection, and to help prevent the use of shell or shelf companies
by importers who attempt to evade the customs laws of the United States. Preventing the use of
shell or shelf companies by importers would help reduce the misclassification of merchandise to
avoid duties, protect against IPR violations, reduce antidumping/countervailing duty infractions,
and reduce the importation of unsafe merchandise.
The second proposal would create a procedure for the disclosure of information otherwise
protected by the Trade Secrets Act to a trademark owner when merchandise has been voluntarily
abandoned if CBP suspects that the successful importation of the merchandise would have violated
U.S. trade laws prohibiting the importation of merchandise bearing counterfeit marks. This
regulation will provide greater transparency for partner government agencies, as well as for rights
holders; allowing both to reassess and amend their own enforcement strategies in light of
contemporaneous attempts to import counterfeit and pirated goods.
Trade Special Operations
A CBP Trade Special Operation (TSO) is a comprehensive and focused trade targeting action
conducted during a limited timeframe to address a specific trade enforcement risk, usually in
support of one of CBP’s Priority Trade Issues (PTIs), which include IPR violations. These
operations target high-risk shipments at seaports, airports, CBP’s international mail facilities, and
express consignment carrier hubs across the United States.
Three related developments have contributed to the growth in the number of national and local
TSOs and improved visibility into their results: (1) The implementation of the Automated
Targeting System (ATS) Import Targeting module and the updated ATS Import Cargo module at
the beginning of FY 2019; (2) the issuance of an updated TSO Standard Operating Procedures in
FY 2019; and (3) the ongoing efforts of proactive trade enforcement managers collaborating within
CBP’s Integrated Trade Targeting Network, which meets monthly and represents all of CBP trade
components (Field Offices, Centers, Headquarters, and other offices).
46
12. Appendix C: Homeland Security Investigations

Homeland Security Investigations (HSI) within DHS’s Immigration and Customs Enforcement
agency is the principal investigative arm of DHS. It is a vital U.S. asset in combating criminal
organizations illegally exploiting America's travel, trade, financial and immigration systems and
including the theft of intellectual property.
Investigations
HSI investigates sophisticated, complex conspiracies that span international boundaries. These
investigations result in the prosecution of members of transnational criminal organizations and the
seizure of illicit proceeds and contraband.
Operation In Our Sites
Since 2010, HSI has been conducting Operation In Our Sites (IOS). This operation targets criminal
organizations that distribute dangerous and illicit goods via websites, online platforms, and social
media sites.
Initially formed as a U.S.-based initiative for the seizure of domain name registrations, IOS has
evolved to develop long term investigations that identify targets and assets in the U.S. and disrupt
the financial schemes used by these organizations, both domestically and internationally.
Operation IOS has been expanded to include efforts by various European countries and
coordinated by Europol (the European Union’s law enforcement agency). These efforts include
civil takedowns by private sector companies/groups.
In 2018, 26 countries and dozens of private sector companies participated in IOS, resulted in the
criminal seizure of over 33,000 domain name registrations and the civil seizure of over 1.2 million
domain name registrations.
In addition, over 2.2 million URL links to e-commerce platforms and social media platforms have
been seized as a result of IOS. When a domain name registration is seized as part of IOS, Internet
traffic to that site is redirected towards a seizure banner notifying visitors that the site has been
seized for offering counterfeits. Since IOS began, there have been more than 177 million views of
the IOS seizure banner.
On February 14, 2018, HSI also published its E-Commerce Strategic Plan. It leverages
collaboration among private industry, law enforcement, and advocates for a cooperative
enforcement approach to identify and dismantle organizations and prosecute people that traffic in
dangerous and illicit goods utilizing various e-commerce outlets. These outlets include both the
open-net and the dark web along with sales platforms, social media, and a variety of payment
processors and shipping methods.
47
National Cyber-Forensics and Training Alliance
HSI has two staff members at the National Cyber-Forensics and Training Alliance (NCFTA), a
non-government organization in Pittsburgh, PA. The professionals at NCFTA work with industry
and law enforcement to de-conflict leads and coordinate operations between agencies, as well as
to share intelligence and develop investigative referrals. The NCFTA brings together experienced
law enforcement agents and analysts, governmental experts, and industry leaders to form an
integral alliance between academia, law enforcement, and industry.
E-Commerce Working Group
In November 2017, HSI established the E-Commerce Working Group; it includes representatives
from various online marketplaces, payment platforms, and express consignment businesses along
with CBP and the FBI. This working group also includes the International Anti-Counterfeiting
Coalition, a Washington, D.C.-based non-profit organization devoted to combating product
counterfeiting and piracy.
The E-Commerce Working Group meets regularly to facilitate the exchange of intelligence, share
best practices, and identify cross-sector collaboration among its members. In late 2018, HSI led a
pilot project which involved the sharing of data among the participating online platforms. This
pilot project demonstrated that criminal organizations are exploiting multiple online platforms to
sell counterfeit items.
HSI is also working with members of the E-Commerce Working Group as they strive to establish,
by late 2019, a practice of sustained and timely sharing of large amounts of information between
the platforms. Once this has been accomplished, the initiative will be expanded to include
participation by the payment platforms and express consignment sectors.
Training
HSI offers an advanced commercial fraud training course entitled “Intellectual Property and Trade
Enforcement Investigations.” This two-week training covers a range of intellectual property and
trade enforcement topics. Representatives from the consumer electronics, tobacco, automotive,
and other industries subject to high counterfeit risk deliver presentations as part of this training.
Four sessions of this course were delivered to 120 HSI and CBP attendees in FY 2019.
48
13. Appendix D: U.S. Government Efforts

Across the interagency, the USG engages in a comprehensive approach to monitor, deter, and
prevent the importation, distribution, and sale of counterfeit and pirated goods into the United
States. Law enforcement and regulatory agencies, as well as prosecutors and civil complainants
all play a role in addressing this issue, especially as it affects the health and safety, economy and
national security of the United States. Some aspects of this approach are mode-neutral while others
are specific to the international sale of counterfeit and pirated goods through third-party platforms.
This appendix provides a brief summary of some of the major activities of select agencies and
entities to address counterfeits and pirated goods sold on third-party marketplaces. This appendix
does not present a comprehensive overview of all efforts to address intellectual property violations.
Department of State
The U.S. Department of State has found that increased diplomatic engagement on intellectual
property protections at the highest practical levels, supported by interagency engagement and
sustained and targeted capacity building, is an effective way to build up the necessary political will
to adequately protect IPR overseas. This diplomatic and capacity-building engagement provides
evidence of the weight that the U.S. gives to IPR protection worldwide. High-level engagement
on IPR also allows U.S. officials the opportunity to educate foreign officials on the economic,
social, and cultural benefits of protecting IPR while at the same time warning of the dangers to
their economies, public health, and human safety presented by counterfeits and piracy.
The Department of State, through its Bureau of International Narcotics and Law Enforcement
Affairs (INL), in consultation with the Bureau of Economic and Business Affairs Office of
Intellectual Property Enforcement, supports the U.S. Transnational and High-Tech Crime Global
Law Enforcement Network (GLEN).
The GLEN consists of the worldwide deployment of experienced U.S. law enforcement experts to
deliver training and technical assistance to foreign law enforcement partners designed to advance
operational success. INL also provides assistance to United States Patent and Trademark Office
(USPTO) and the DHS IPR Center to enable them to deliver complementary capacity building.
Department of Commerce
The Department of Commerce International Trade Administration’s Office of Standards and

Intellectual Property OSIP (OSIP) provides domestic outreach events to promote IPR protection
in online marketplaces and to educate small and medium sized enterprises on the value of
protecting and enforcing their intellectual property rights both domestically and internationally.
Commerce’s “STOPfakes Road Shows” represent a unique, interagency outreach event. They are
presented in multiple U.S. cities with IPR-intensive industries and provide an array of panel
speakers and IPR experts. These Roadshows deliver critically important information about
intellectual property to audiences that need it most – start-ups, entrepreneurs, small and medium-
sized businesses, independent creators, and inventors.
49
In addition, OSIP continues to expand the program’s unique interactive features. These include
guided assistance by CBP officials to assist with trademark recordation and guidance from U.S.
Copyright Office officials in registering copyright protections.
USPTO provides policy and technical advice to the Administration and Congress on legislation
and other matters relating to civil, criminal, and border enforcement of intellectual property. It is
constantly working to improve domestic intellectual property laws and regulations and also seeks
to increase public awareness through education on the risks of infringement and the benefits of
IPR protection and enforcement.
In 2019, USPTO launched a multi-year, nationwide public awareness campaign with the National
Crime Prevention Council in a joint effort to educate U.S. consumers about the dangers of
counterfeit goods.
USPTO, including through its Global Intellectual Property Academy (GIPA), provides and
participates in technical assistance and capacity-building programs for foreign governments
seeking to develop or improve their intellectual property laws and regulations, and to enhance the
expertise of those responsible for intellectual property rights enforcement.
Federal Bureau of Investigation
In October 2015, the Federal Bureau of Investigation (FBI) developed a new strategy to combat
IPR crime by helping different industry sectors identify common challenges and work together to
solve these challenges. The FBI’s strategy focuses on building partnerships with key
intermediaries in the supply chain for counterfeit and pirated goods, such as e-commerce
platforms, payment processors, and the ecosystem for online advertising.
The FBI’s strategy also focuses on identifying and pursuing investigations against “systemic
enablers” or entities which knowingly facilitate the large-scale infringement of intellectual
property rights. As one example of this in action, in 2017 the FBI helped several e-commerce
companies re-evaluate their policies regarding the sale of potentially hazardous counterfeit goods
online.
At the IPR Center, the FBI helps provide funding and logistical support for the HSI-managed
“report IP theft” button, a web-based application for consumers and rights holders to submit
complaints to law enforcement regarding suspected infringing activities. The FBI is currently
working on developing new analytic tools to help process consumer and rights holder complaints.
U.S. Trade Representative
The Office of the U.S. Trade Representative (USTR) is responsible for developing and
coordinating international trade policy for the U.S. government with respect to IPR protections.
USTR also oversees negotiations with trading partners, including on IPR issues.
50
USTR uses a wide range of bilateral and multilateral trade tools to promote strong intellectual
property laws and effective enforcement worldwide, reflecting the importance of intellectual
property and innovation to the growth of the U.S. economy.
U.S. Food and Drug Administration
The U.S. Food and Drug Administration (FDA) protects the public health by ensuring the safety,
efficacy, and security of food, drugs, medical devices, cosmetics and many public health products.
One key method that FDA uses to strengthen its public health mission is through regulations and
investigations of counterfeit products.
The FDA also issues safety alerts and recalls of dangerous products. The Consumer Product Safety
Commission (CPSC) promotes the safety of consumer products by addressing unreasonable risks
of injury and developing uniform safety standards. Not surprisingly, counterfeit and pirated
products typically do not comply with CPSC requirements.
Consumer Product Safety Commission
CPSC promotes the safety of consumer products by addressing unreasonable risks of injury and
developing uniform safety standards. Not surprisingly, counterfeit and pirated products typically
do not comply with CPSC requirements.
U.S. Postal Service
As discussed in this report, one critical mission of USPS is to receive advance electronic data
(AED) for inbound international mail, originating in 191 different countries. At present, USPS
receives AED data from a majority of the inbound international mail it receives. However, it is
also required, under the Synthetics Trafficking and Overdose Protection (STOP) Act of 2018, Pub.
L. No. 115-271, §§ 8001-8009, 132 Stat. 3893, Title VIII, Subtitle A, to receive AED on all
international mail packages by December 31, 2020.
Importantly, USPS provides the its advance electronic data it receives to CBP. This information
sharing assists CBP in better targeting packages before the items arrive at the international service
centers.
51
14. Appendix E: Global Initiatives

The proliferation of counterfeit goods on third-party marketplaces is a global problem. This
Appendix offers a brief survey of some of the global options and cooperative efforts available to
combat the trafficking of counterfeit and pirated goods.
International Organizations
The World Trade Organization’s (WTO) Agreement on Trade-Related Aspects of Intellectual

Property Rights contains disciplines to protect intellectual property that are enforceable through
the WTO’s Dispute Settlement Body. The World Intellectual Property Organization, a United
Nations specialized agency, is a global forum for intellectual property services, policy,
information, and collaboration. The World Customs Organization (WCO) leads international
customs cooperation, including with respect to the enforcement of intellectual property rights.
The International Police Organization (INTERPOL), in a partnership with Underwriters

Laboratories (UL) operates the International IPR Crime Investigators College (IIPCIC). The
mission of IIPCIC is to educate global law enforcement and stakeholder groups to effectively
combat transnational IPR crime. Over 160 countries have visited the IIPCIC site since its launch
and representatives from over 800 law enforcement agencies have enrolled in the training.
INTERPOL enables its members to share and access data on crime and criminals, including
counterfeit goods.
Europe
Several European government agencies have developed Memoranda of Understandings (MOUs)

with the private sector to address counterfeit issues. For example, the European Commission has
facilitated an MOU on the sale of counterfeit goods via the internet with major internet platforms
and rights holders who are affected by online sales of counterfeit goods. The platforms commit to
notice and take down procedures and to taking pro-active and preventive measures, such as the use
of monitoring tools allowing detection of illegal content.
The European Commission also concluded an MOU on Online Advertising and IPR in 2018 that
extends to trademarks and copyright. Signatories commit to minimize the placement of advertising
on websites and mobile applications that infringe on IPR or disseminate counterfeit goods so as to
reduce the revenues of these trafficking websites and apps.
In France, through the French Ministry of Economy, postal operators have signed a charter to
address counterfeits with rights holders that focuses on outreach, collaboration and training. In
December 2018, brand owners and certain online platforms also signed a charter to fight
counterfeits online, which organizes cooperation between brand owners, online platforms, and law
enforcement authorities and helps implement preventive measures as well as notice and takedown
procedures.
There have also been European efforts to enhance technology associated with protecting
intellectual property rights. The European Union Intellectual Property Office (EUIPO) held the
52
inaugural EU Blockathon competition to develop IPR-protection solutions based on blockchain

technologies.
The Intellectual Property Crime Coordinated Coalition (IPC3) at Europol provides operational and
technical support to law-enforcement agencies and other partners in the EU. The IPC3 has
supported more than 50 high-priority cases of intellectual property infringement. It takes down
websites used to sell counterfeit merchandise and shut downs illegal operations that use bitcoin.
The City of London Police (CoLP), and IPR Center partner agency, host the Police Intellectual
Property Crime Unit (PIPCU). CoLP is funded by the UK Intellectual Property Office to fight
criminals who infringe trademark and copyrights. It works with law enforcement agencies in the
UK and across the world to arrest criminals who engage in the production, importation and sale of
counterfeit goods.
Postal and customs agencies in France and Italy have organized joint operations where all parcels
entering the international office of exchanges from targeted countries are screened for counterfeit
goods.
Canada
Canada has created Project Chargeback to fight counterfeiting, fraud, and IPR theft by enabling
deceived consumers to get their money back. The initiative, which began in 2012, is administered
by the Canadian Anti-Fraud Center (CAFC).
Under the authority of Project Chargeback, defrauded consumers can file a complaint with their
bank or the CAFC and provide information on the purchase. The CAFC then works with rights
holders to confirm that the goods were counterfeit and relays this information to the cardholder’s
bank.
The cardholder’s bank then initiates a charge back against the seller’s merchant account. That
results in the termination of the merchant’s account used by the counterfeiter, and the victims are
instructed not to return the counterfeit goods to the seller.
53
15. References
Following the mandates set forth in President Trump’s April 3, 2019, Memorandum on Combating
Trafficking in Counterfeit and Pirated Goods, the report shall, as its primary goals:
• Analyze available data and other information to develop a deeper understanding of the
extent to which online third-party marketplaces and other third-party intermediaries are
used to facilitate the importation and sale of counterfeit and pirated goods;
• Identify the factors that contribute to trafficking in counterfeit and pirated goods; and
describe any market incentives and distortions that may contribute to third-party
intermediaries facilitating trafficking in counterfeit and pirated goods.
• Identify appropriate administrative, statutory, regulatory, or other changes, including
enhanced enforcement actions, that could substantially reduce trafficking in counterfeit and
pirated goods or promote more effective law enforcement regarding trafficking in such
goods.
In the course of pursuing these goals, the report shall also:
• Evaluate the existing policies and procedures of third-party intermediaries relating to
trafficking in counterfeit and pirated goods, and identify the practices of those entities that
have been most effective in curbing the importation and sale of counterfeit and pirated
goods, including those conveyed through online third-party marketplace
• Identify appropriate guidance that agencies may provide to third-party
intermediaries to help them prevent the importation and sale of counterfeit and
pirated goods.
• Identify appropriate administrative, regulatory, legislative, or policy changes that
would enable agencies, as appropriate, to more effectively share information
regarding counterfeit and pirated goods, including suspected counterfeit and pirated
goods, with intellectual property rights holders, consumers, and third-party
intermediaries.
• Evaluate the current and future resource needs of agencies and make appropriate
recommendations for more effective detection, interdiction, investigation, and
prosecution regarding trafficking in counterfeit and pirated goods, including
trafficking through online third-party marketplaces and other third-party
intermediaries; and recommend changes to the data collection practices of agencies,
including specification of categories of data that should be collected and
appropriate standardization practices for data.
• Identify areas for collaboration between the Department of Justice and Department
of Homeland Security on efforts to combat trafficking in counterfeit and pirated
goods.
See full memorandum at, President Donald J. Trump, Memorandum on Combating Trafficking
in Counterfeit and Pirated Goods, 3 April 2019. https://www.whitehouse.gov/presidential-
actions/memorandum-combating-trafficking-counterfeit-pirated-goods/
54

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Case: 1:20-cv-05905 Document #: 1 Filed: 10/02/20 Page 1 of 24 PageID #:1

IN THE UNITED STATES DISTRICT COURT

HANGZHOU CHIC INTELLIGENT )

(collectively, “Defendants”) and allege as follows:

interworking of their operation.

JURISDICTION AND VENUE

6. Plaintiff Chic is a high-tech company that manufactures and licenses hoverboard

the Patents-in-Suit (collectively, “Plaintiffs’ Products”). Chic is the assignee of approximately

are the subject of this action.

8. Plaintiff Unicorn is a corporation organized under the laws of the State of

content, images and designs exclusive to Plaintiffs.

amend the Complaint.

(collectively, “Patents-in-Suit”), which are in Exhibit 2.

were issued on September 1, 2015 and September 8, 2015, respectively.

Patent Claim Issue Date

Patent Claim Issue Date

Patent Claim Issue Date

Patent Claim Issue Date

Patent Claim Issue Date

Patent Claim Issue Date

Patent Claim Issue Date

Patent Claim Issue Date

issued on June 30, 2020.

all rights, title, and interest to the patents to Chic.

operation of the hoverboards.

the first platform and the second platform.

29. Plaintiffs have identified numerous e-commerce stores, including Defendant

Intellectual Property Seizure Statistics Report at Exhibit 3.

Defendants are authorized retailers of genuine Plaintiffs’ Products.

information to e-commerce platforms.

36. On information and belief, Defendants have anonymously registered and

interworking of their operation, as well as to avoid being shut down.

information or other identifying information, keywords, advertising tactics, similarities in prices

jurisdiction to avoid payment of any monetary judgment awarded to Plaintiffs.

41. On information and belief, Defendants are an interrelated group of infringers

occurrence, or series of transactions or occurrences.

Patents-in-Suit, irreparably harming Plaintiffs.

invention. Plaintiffs are entitled to injunctive relief under 35 U.S.C. § 283.

infringement, including Defendants’ profits under 35 U.S.C. § 289.

invention. Plaintiffs are entitled to injunctive relief under 35 U.S.C. § 283.

infringement, including Defendants’ profits under 35 U.S.C. § 289.

invention. Plaintiffs are entitled to injunctive relief under 35 U.S.C. § 283.

infringement, including Defendants’ profits under 35 U.S.C. § 289.

invention. Plaintiffs are entitled to injunctive relief under 35 U.S.C. § 283.

infringement, including Defendants’ profits under 35 U.S.C. § 289.

directly and/or indirectly infringe the Patents-in-Suit.

§ 284 and further entitled to injunctive relief under 35 U.S.C. § 283.

directly and/or indirectly infringe the Patents-in-Suit.

§ 284 and further entitled to injunctive relief under 35 U.S.C. § 283.

PRAYER FOR RELIEF

WHEREFORE, Plaintiffs seek relief as follows:

litigation and permanently, from:

claimed in the Patents-in-Suit;

b. aiding, abetting, contributing to, or otherwise assisting anyone in infringing

upon the Patents-in-Suit; and,

c. effecting assignments or transfers, forming new entities or associations or

utilizing any other devise for the purpose of circumventing or otherwise

avoiding the prohibitions set forth in above;

Defendants’ unauthorized use and infringement of the Patents-in-Suit;

Defendants’ profits therefrom, after an accounting under 35 U.S.C. § 284;

Date: October 2, 2020 Respectfully Submitted,

LOEB & LOEB LLP

By: /s/ Adam Kelly