Service's ability to stop imports of goods that counterfeit or infringe trademarks and copyrights, we surveyed firms that had recorded such rights with Customs from January 1, 1980 to April 10, 1985. Our universe included all firms, or their outside legal counsels, that had recorded trademarks or copyrights with Customs and alleged that the rights were being infringed at the time of the recordation. To obtain the

perspectives of firms on Customs' ability to enforce section 337 exclusion orders, we surveyed firms that had obtained exclusion orders in section 337 proceedings initiated since January 1975.1 Our universe included all firms that had obtained exclusion orders to protect intellectual property rights in cases starting January 1, 1975, with all litigation concluded as of

April 25, 1985.

Customs Not Stopping

Counterfeit/Infringing Goods

The majority of respondents to our surveys reported that counterfeit and infringing goods continued to enter the country after they had enlisted the assistance of the Customs Service, causing appreciable losses in sales and in consumer confidence in their products. However, the large majority of firms that provided assistance to Customs, usually information on incoming shipments containing counterfeit or infringing goods, reported

1This survey was part of a larger effort that also addressed many aspects of the International Trade Commission's administration of section 337 proceedings.

that they were satisfied with Customs'

information provided.

response to the

Given the relatively small fee for recording registered trademarks or copyrights with the Customs Service, a number of the respondents to our survey on Customs' recordation system indicated that they did not have high expectations regarding Customs' ability to protect these rights. The following comment received from one survey respondents typifies this opinion.

"In view of the huge task facing Customs and since the relative expense [of al client's using Customs is not substantial, anything which Customs can perform to help a client is considered . . of substantial benefit.

As shown in figure 1, of the firms responding to our survey on Customs' recordation system, nearly 80 percent of those that indicated they had a basis to judge reported that counterfeit and infringing goods continued to enter the country after

recordation. Of these firms, over half reported that the value of counterfeit and infringing imports at least remained the same, with about 31 percent of them stating that the level actually increased. About 87 percent of the firms indicating that counterfeit and infringing goods continued to enter the country reported that the counterfeit and infringing goods did at least some damage to sales, with 60 percent characterizing the loss in sales as moderate to very great. Survey respondents valued the sales losses caused by these imports at less than $100,000 to $15 million. Similarly, about 78 percent of these firms reported

87

Firms indicating that counterfeit/infringing goods continued to enter country after recordationb

Firms initiating section 337 proceedings do so with the objective that, should they win, the exclusion orders will effectively stop the counterfeit and/or infringing goods from entering the country. The president of one such company characterized an exclusion order as a "wall around the country." The high cost of litigating section 337 cases--generally between $100,000 and $1 million, with a few costing over $2.5 million--contributes to this expectation.

Although some firms voluntarily stop importing counterfeit or infringing goods covered by exclusion orders, others ignore the orders, placing the enforcement burden on Customs' port inspectors. An exclusion order often is not an effective deterrent to importing such goods, since Customs cannot seize these goods. Foreign infringers who have shipments stopped by Customs are required only to re-export the goods and, thus, lose only the shipping charges. Indeed, foreign infringers have been known to "port shop," that is, ship the counterfeit or infringing goods from port to port until they gain entry. We also understand that foreign infringers sometimes repackage the goods that are returned to the country of origin and attempt to export them to the United States at a later date. A number of knowledgeable business officials commented that protection of

intellectual property is uneven from port to port.

As shown in figure 2, of the survey respondents who indicated they had a basis to judge, over 65 percent reported that counterfeit and infringing goods covered by the exclusion orders continued to enter the country after the orders were issued. About 71 percent of these firms reported substantial decreases in the value of such imports, in some cases due to the willingness of importers to voluntarily abide by the International Trade Approximately 29 percent reported

Commission determinations.

little change. About 73 percent of the firms indicating that imports of counterfeit and infringing goods continued to enter the country reported that these imports damaged their sales to at least some extent, with about 46 percent of them stating that their sales were hurt to a moderate or substantial extent. Survey respondents valued the sales losses caused by these imports from less than $100,000 to $5 million. Company officials told us that the continued presence of illegitimate goods in the domestic marketplace, sometimes in a form virtually

indistinguishable from the original, also caused consumers to

lose confidence in the authentic products.