™ ™ Copyright © 2009,  AFTA™ - American Free Trade Association  Decoding Manufacturers often put overt and covert (i.e., visible and invisible) codes ("Distribution Control Codes" or "Tracking Codes") on products to exclusively track distribution in addition to, for example, the Batch Codes which are so useful for product recalls.   These Distribution Control Codes, which cannot be understood by consumers and may not even be seen except under ultraviolet or infrared light, are clearly not necessary or useful for recall or anti-counterfeiting purposes.   Moreover, Distribution Control Codes can be easily copied by counterfeiters and are similarly useless for purposes of confirming product authenticity.  Removal of Distribution Control or Tracking Codes preserves proprietary and confidential trade information and prevents arbitrary targeting of third party suppliers. First Sale Doctrine U.S. Copyright law gives copyright holders the right to prevent unauthorized importation of their copyrighted work into the United States (Section 106).  However, the U.S. Copyright law also includes the "First Sale Doctrine" (Section 109), which permits owners of copyrighted works the right to freely dispose of their lawfully obtained copyrighted merchandise without further obligation to the original U.S. copyright owner.  That is, after the "first sale" of the copyrighted article, the U.S copyright owner's exclusive copyrights are "exhausted" - they are eliminated. There is a somewhat analogous First Sale concept in trademark law, which has evolved through case law, similarly limiting the original trademark owner's right to control distribution of his trademarked product once it has been lawfully sold. In the context of global trade, the First Sale Doctrine protects the ability of third party distributors to purchase, sell and resell genuine, branded and copyrighted goods throughout the international marketplace at prices and under conditions dictated by consumer supply and demand.  The First Sale Doctrine facilitates competition and acts as a check and balance against cartel-like marketplace activities.  In the context of U.S. Copyright law, the First Sale Doctrine has been the subject of two separate Supreme Court decisions.  In 1998, in Quality King. V. L'anza Distribution, the U.S. Supreme Court only partially resolved the conflict between the First Sale Doctrine found in Section 109 of the Copyright Act and the owners right to prevent unauthorized importation described in Section 106. The Court determined that the phrase "lawfully made under this Title", which is the caveat included within the First Sale Doctrine, means that U.S. copyright owners of U.S. manufactured products cannot rely upon U.S. copyright law to restrict downstream distribution of copyrighted products after they have been "first sold."  In 2010, in Omega v. Costco, the U.S. Supreme Court was faced with another conflict between these same two sections of law, but this time in connection with a watch that was manufactured outside of the United States.  The U.S. Copyright owner, in this case, was a Swiss company trying to use its copyrighted design intentionally to control importation of its watches into the United States.  The lower appellate court had held in favor of Omega, deciding that the phrase "lawfully made under this Title" found in Section 109 of the Copyright Act (the "First Sale Doctrine") only provides the right to unfettered downstream distribution of U.S. made products and that Section 106 provides copyright owners of products made outside of the United States with a continuing right to control downstream distribution -- so that the "first sale" of even genuine articles in the United States could not occur without authorization of the foreign copyright owner.  As noted, in 2010, the case was heard in the Supreme Court, but because Justice Kagan needed to recuse herself, the outcome was a tie vote, creating no definitive precedential decision.  As a result, any book or movie or product label or instruction booklet manufactured outside of the United States could, conceivably, only be imported into the United States as and when authorized by the U.S. copyright owner. CBP Disclosure Manufacturers and the Administration are recommending that CBP provide product samples and transactional information to rights holders prior to seizure (based upon  a suspicion of a CBP inspector at a port of entry that goods might be counterfeit)  to verify product authenticity.  These samples may include Tracking or Distribution Codes which would disclose proprietary supply chain and sourcing data. Material Differences A Federal Circuit Court in In re Lever Bros held that an imported product which is "materially and physically different" from the domestic version of that product infringes upon domestic trademark rights. In response to that decision, CBP has adopted a regulation which provides U.S. trademark owners with "Lever Rule" protection against third party imports of "materially and physically different" merchandise.  This process provides an opportunity for public comment and an option to provide notice to the public to preserve the ability to distribute genuine, but different products.  However, over time, federal courts, the International Trade Commission and CBP have entertained, and often adopted, positions which lower the threshold for product differences sufficient to constitute trademark infringement. Manifest Confidentiality Federal law permits shippers to request confidential treatment of certain information appearing in CBP shipping manifests in order to protect the confidentiality of proprietary information germane to business transactions which has measurable competitive value.  The law also limits the disclosure of merchandise information to a "general description". Because of tight budgets, ineffective systems and technical difficulties, inappropriate disclosures occur allowing release of specific and detailed product names and of shipper and consignee identities. Legislation Every recent congressional session has seriously considered "anti-counterfeiting" legislation which unintentionally - or intentionally - includes provisions broad enough to restrict, if not totally eliminate, parallel market trade.  For more information on this year's pending bills and related legislative activity, please review information in "Members Only" pages. Litigation AFTA monitors litigation and agency rulemaking to measure its impact on lawful parallel market trade. For example, CBP rulings, ITC decisions and federal court rulings continue to modify the standards which establish the types of material differences which constitute trademark infringement.  For more information on current litigation and rulemaking being monitored by AFTA, please review information in  "Members Only" pages. Innocent Infringement Infringing Exports Trademark Bullies Rogue Websites Free Trade Agreements IPR is the most valuable tool of any global business, and marketplace competition depends upon the free flow of genuine, branded merchandise. CBP currently has authority to assess fines against any " person who directs, assists financially or otherwise, or aids and abets the importation of merchandise bearing a counterfeit mark that is seized."   The Administration is now proposing that potential penalties for violation of domestic IPR be substantially mitigated for any party who voluntarily reports an IPR violation, has no knowledge of a pending CBP investigation, and had no knowledge or intent to handle counterfeit or piratical goods. The procedure, if adopted, should not result in penalties for those who suffer forfeiture. The United States is a gateway for global trade throughout the Americas.  Distributors, warehouses, banks, shippers, forwarders, brokers and agents support this critical industry, which supplies products of different origin and configurations to customers throughout the World.   Many articles are stored temporarily in bonded warehouses and/or foreign-trade zones pending transport to the ultimate customer in another country.  Efforts are underway to facilitate CBP's seizure of goods intended for export, regardless of ultimate destination, if those goods infringe upon U.S. intellectual property rights. The US Patent and Trademark Office requested comments from small businesses victimized by "trademark bullies” and has published its report/recommendations based upon comments received. In addition, there have been calls for Senate hearings about trademark bullying. A "trademark bully" is a trademark owner that uses its trademark rights to harass another business beyond what the law might be reasonably interpreted to allow.  Oftentimes, trademark owners with deep pockets are able to threaten litigation as a means to coerce settlements from smaller, third party importers, distributors, and retailers.  In response to the comments received, there was no suggestion of chastising IPR owners who purportedly "bully" smaller companies; rather the report merely suggested that small businesses be better educated about trademark rights and have the ability to engage pro bono counsel. The Senate has introduced legislation ("Protect IP Act") that would require Internet Service Providers (Google, Yahoo, Ebay, Amazon, etc.) to shut down websites that purportedly sell infringing merchandise.  This legislation would also deter credit card companies from processing payments from these sites and hold ISPs even more responsible for monitoring the Internet to prevent sales of infringing products. In addition, the legislation includes a private cause of action against the domain owners. The need for swift and effective removal of counterfeit goods from the targeted websites should not result in a program which deprives website owners of their right to due process and which fails to effectively distinguish the lawful offerings of genuine goods in the parallel marketplace. The United States is a party to many bilateral and multinational free trade and other types of agreements regulating the conditions and protocols of global trade.  Often, these Agreements are referred to as "TRIPS-plus" because the U.S. uses its leverage as a major global economy to incentivize smaller, lesser developed countries to implement intellectual property legislation and policies more protective than our own domestic policy and/or more burdensome and onerous than that required under international treaties and protocols. The provisions of our international agreements should conform to the letter and intent of US law, including our laws supporting a viable and lawful parallel marketplace for genuine, branded goods.