Intellectual Property
Better Data Analysis and Integration Could Help U.S. Customs and Border Protection Improve Border Enforcement Efforts Gao ID: GAO-07-735 April 26, 2007U.S. government efforts to protect and enforce intellectual property rights are crucial to preventing billions of dollars in economic losses and for mitigating health and safety risks from trade in counterfeit and pirated goods. The Department of Homeland Security's Customs and Border Protection (CBP) leads intellectual property (IP) enforcement activity at the U.S. border. GAO was asked to (1) examine key aspects of CBP's process to carry out border enforcement, (2) analyze CBP's border enforcement outcomes during fiscal years 2001 to 2006, and (3) evaluate CBP's approach for improving border enforcement. GAO examined relevant documents, interviewed agency officials in Washington, D.C. and seven port locations, and analyzed CBP data on trade and IP seizure and penalty activity. This is the public version of a law enforcement sensitive report by the same title (GAO-07-350SU).
CBP's Office of International Trade (OT), formed in 2006, and Office of Field Operations (OFO) carry out IP border enforcement processes, including targeting and examining suspicious shipments, seizing infringing goods, and assessing penalties as warranted. CBP uses computer-based and manual targeting to determine which shipments it will examine, and both methods have strengths and limitations. Port practices for recording exam results vary, making it difficult for CBP to fully assess the effectiveness of its IP targeting efforts. Since 2001, CBP's IP enforcement outcomes have been concentrated among particular transport modes, product types, and ports. Rising numbers of low-value seizures from mail facilities have driven growth in seizure actions, but uneven seizures of high-value goods from sea containers have caused the estimated value of seizures to fluctuate. The vast majority of seizure and penalty outcomes in the last 6 years have been concentrated among 10 or fewer of CBP's 300-plus ports. For example, 10 ports account for 98 percent of the $1.1 billion in penalties assessed during fiscal years 2001 to 2006. CBP lacks agencywide performance measures in its strategic plan and an integrated approach across key offices to guide and improve IP enforcement. Narrowly focused initiatives led by offices now under OT have had limited results. CBP has not done a broader analysis to examine variances in port IP enforcement outcomes. For example, GAO found that some of the largest IP-importing ports had very small seizure rates relative to other top IP-importing ports. A lack of integration between OT and OFO impedes using this type of analysis to identify potential IP enforcement improvements.
RecommendationsOur recommendations from this work are listed below with a Contact for more information. Status will change from "In process" to "Open," "Closed - implemented," or "Closed - not implemented" based on our follow up work.
Director: Team: Phone:GAO-07-735, Intellectual Property: Better Data Analysis and Integration Could Help U.S. Customs and Border Protection Improve Border Enforcement Efforts
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Report to the Ranking Member, Subcommittee on Oversight of Government
Management, the Federal Workforce, and the District of Columbia,
Committee on Homeland Security and Governmental Affairs, U.S. Senate:
United States Government Accountability Office:
GAO:
April 2007:
Intellectual Property:
Better Data Analysis and Integration Could Help U.S. Customs and Border
Protection Improve Border Enforcement Efforts:
GAO-07-735:
GAO Highlights:
Highlights of GAO-07-735, a report to the RM, Subcommittee on Oversight
of Government Management, the Federal Workforce, and the District of
Columbia, Committee on Homeland Security and Governmental Affairs, U.S.
Senate
Why GAO Did This Study:
U.S. government efforts to protect and enforce intellectual property
rights are crucial to preventing billions of dollars in economic losses
and for mitigating health and safety risks from trade in counterfeit
and pirated goods. The Department of Homeland Security‘s Customs and
Border Protection (CBP) leads intellectual property (IP) enforcement
activity at the U.S. border. GAO was asked to (1) examine key aspects
of CBP‘s process to carry out border enforcement, (2) analyze CBP‘s
border enforcement outcomes during fiscal years 2001 to 2006, and (3)
evaluate CBP‘s approach for improving border enforcement. GAO examined
relevant documents, interviewed agency officials in Washington, D.C.
and seven port locations, and analyzed CBP data on trade and IP seizure
and penalty activity. This is the public version of a law enforcement
sensitive report by the same title (GAO-07-350SU).
What GAO Found:
CBP‘s Office of International Trade (OT), formed in 2006, and Office of
Field Operations (OFO) carry out IP border enforcement processes,
including targeting and examining suspicious shipments, seizing
infringing goods, and assessing penalties as warranted. CBP uses
computer-based and manual targeting to determine which shipments it
will examine, and both methods have strengths and limitations. Port
practices for recording exam results vary, making it difficult for CBP
to fully assess the effectiveness of its IP targeting efforts.
Since 2001, CBP‘s IP enforcement outcomes have been concentrated among
particular transport modes, product types, and ports. Rising numbers of
low-value seizures from mail facilities have driven growth in seizure
actions, but uneven seizures of high-value goods from sea containers
have caused the estimated value of seizures to fluctuate. The vast
majority of seizure and penalty outcomes in the last 6 years have been
concentrated among 10 or fewer of CBP‘s 300-plus ports. For example, 10
ports account for 98 percent of the $1.1 billion in penalties assessed
during fiscal years 2001 to 2006.
CBP lacks agencywide performance measures in its strategic plan and an
integrated approach across key offices to guide and improve IP
enforcement. Narrowly focused initiatives led by offices now under OT
have had limited results. CBP has not done a broader analysis to
examine variances in port IP enforcement outcomes. For example, GAO
found that some of the largest IP-importing ports had very small
seizure rates relative to other top IP-importing ports. A lack of
integration between OT and OFO impedes using this type of analysis to
identify potential IP enforcement improvements.
Figure: Top 25 IP-Importing Ports' Seizure Rates: Percent of IP
Seizures in IP Imports (by Value), Fiscal Year 2005:
[See PDF for Image]
Source: GAO analysis of CBP data.
Note: Port names are not included in the figure for law enforcement
reasons.
[End of figure]
What GAO Recommends:
In the restricted report, GAO recommended that the CBP Commissioner (1)
include measures to guide and assess IP enforcement outcomes in CBP‘s
strategic plan; (2) improve CBP‘s IP enforcement data; and (3) use
existing data to better understand ports‘ IP enforcement activities and
outcomes, and link ports‘ performance to measures in CBP‘s strategic
plan. CBP generally agreed with our recommendations.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-07-735].
To view the full product, including the scope and methodology, click on
the link above. For more information, contact Loren Yager at (202) 512-
4347 or yagerl@gao.gov.
[End of section]
Contents:
Letter:
Results in Brief:
Background:
CBP Undertakes a Series of Steps, Amid Challenges, to Enforce IP Rights
at the Border:
IP Enforcement Outcomes Have Been Concentrated in Certain Areas and
Reflect Pockets of Activity:
CBP's Approach to Improving IP Enforcement Lacks Integration and Has
Produced Limited Results:
Conclusions:
Recommendations for Executive Action:
Agency Comments and Our Evaluation:
Appendix I: Scope and Methodology:
Appendix II: Analysis of Top Six Ports' IP Enforcement Outcomes:
Appendix III: Comments from the Department of Homeland Security:
GAO Comments:
Appendix IV: GAO Contact and Staff Acknowledgments:
Tables:
Table 1: Percent of Total Estimated Domestic Value Seized by Commodity,
Fiscal Years 2001-2006:
Table 2: Top 10 Ports' Percent of Seizure and Penalty Outcomes, Fiscal
Years 2001-2006:
Table 3: CBP IP Penalty Amounts Assessed versus Collected, Fiscal Years
2001-2006:
Table 4: IP Seizure Rates of Top 25 Ports (by IP Import Value), Fiscal
Year 2005:
Figures:
Figure 1: Import Value by Mode of Transport, Fiscal Year 2005:
Figure 2: Number of Trade, Compliance Measurement, and Nontrade Exams
CBP Performed, Fiscal Years 2001-2005:
Figure 3: Overview of CBP's Process for Conducting IP Border
Enforcement:
Figure 4: Percent of IP Seizure Actions and Domestic Value by
Transportation Mode, Fiscal Years 2003-2006:
Figure 5: Trends in Number of IP Seizure Actions and Estimated Domestic
Values, Fiscal Years 2001-2006:
Figure 6: Top 25 IP-Importing Ports' Seizure Rates: Percent of IP
Seizures in IP Imports (by Value), Fiscal Year 2005:
Figure 7: IP Enforcement Outcomes for Top Six Ports, Fiscal Years 2001-
2006:
Abbreviations:
ATS: Automated Targeting System:
CBP: U.S. Customs and Border Protection:
DHS: Department of Homeland Security:
HTS: Harmonized Tariff System:
ICE: U.S. Immigration and Customs Enforcement:
IP: intellectual property:
MSRP: Manufacturer's Suggested Retail Price:
OFO: Office of Field Operations:
OT: Office of International Trade:
STOP: Strategy Targeting Organized Piracy:
United States Government Accountability Office:
Washington, DC 20548:
April 26, 2007:
The Honorable George V. Voinovich:
Ranking Member:
Subcommittee on Oversight of Government Management, the Federal
Workforce and the District of Columbia:
Committee on Homeland Security and Governmental Affairs:
United States Senate:
Dear Senator Voinovich:
The illegal importation and distribution of counterfeit and pirated
goods poses an increasing cost to the United States economy and
threatens the health and safety of its citizens.[Footnote 1] The United
States dominates the creation and exportation of intellectual property
(IP)--creations of the mind--and provides broad protection for IP
through means such as copyrights, patents, and trademarks. However, IP
protection in many parts of the world is inadequate, and as a result,
U.S. goods are subject to substantial counterfeiting and piracy in
other countries.[Footnote 2] The Department of Justice has reported on
the growing threat of IP crime in the United States, noting that IP has
become increasingly more critical to our country's economic security.
Other federal agencies have testified that the economic benefits of
capitalizing on IP goods have drawn the attention of counterfeiters and
pirates, and that the magnitude and complexity of IP rights violations
have increased in recent years.[Footnote 3] In an effort to protect
American public health and safety and safeguard the U.S. economy, a
number of federal agencies are involved in keeping IP-infringing goods
from entering the country and investigating or prosecuting those
responsible for their importation. The Department of Homeland
Security's (DHS) U.S. Customs and Border Protection (CBP) leads
enforcement activity at the U.S. border by detecting and seizing
counterfeit or pirated goods that enter the United States through its
300-plus ports of entry and assessing penalties against IP rights
offenders.[Footnote 4]
In response to your request to review federal enforcement efforts of IP
at the borders, this report (1) examines key aspects of CBP's process
to carry out border enforcement, (2) analyzes CBP's border enforcement
outcomes during fiscal years 2001 through 2006, and (3) evaluates CBP's
approach for improving border enforcement. We plan to report on CBP and
other federal agencies' activities and resources devoted to IP
enforcement later in 2007.
To address these issues, we met with CBP officials in Washington, D.C.,
and at seven port locations and reviewed relevant agency documents to
understand CBP policies and practices related to IP border enforcement.
At the ports, we examined port organizational structures and practices
for enforcing IP rights, and we spoke with various CBP personnel who
are responsible for identifying, examining, seizing, and assessing
penalties on goods that involve IP violations. We analyzed CBP data on
the volume and value of trade entering U.S. ports and on its IP seizure
and penalty activity. Most of this analysis was based on data covering
fiscal years 2001 through 2006, but some data were only available for
fiscal years 2003 through 2006. We identified certain limitations in
the seizure and penalty data but found them sufficiently reliable to
indicate broad trends in enforcement outcomes. We discussed CBP's
efforts with knowledgeable agency officials and obtained information on
certain steps CBP has taken to improve its efforts. Our work focused on
tangible goods that cross U.S. borders, rather than goods that are
pirated over the Internet. We conducted our work from November 2005
through January 2007 in accordance with generally accepted government
auditing standards. The original version of this report was issued on
March 20, 2007, as a restricted report, copies of which are available
for official use only.[Footnote 5] This public version of the original
report does not contain certain information that DHS regarded as law
enforcement sensitive and requested that we remove.
Results in Brief:
CBP undertakes a series of steps to enforce IP rights at the U.S.
border and faces numerous challenges throughout this process. CBP's
process includes three key functions: (1) targeting suspicious
shipments, (2) examining goods to determine their authenticity, and (3)
enforcing IP laws through seizure and penalty actions. CBP's Office of
International Trade, formed in October 2006, focuses on trade policy
and program development and the Office of Field Operations oversees
port operations and implements CBP policies; both play important roles
in carrying out key IP functions. To help determine which of the
millions of shipments entering the United States each year require
further review, CBP relies on two primary targeting methods, computer-
based and manual, but both have certain strengths and limitations for
targeting IP violations. Both offices use computer-based targeting to
electronically identify commercial shipments by known or suspected
violators, which typically enter the country via sea, air, and truck.
However, the primary computer method used for IP targeting does not
work for noncommercial shipments, has limited usefulness in express
consignment (e.g., Federal Express) and international mail processing
environments, and has uncovered a relatively small portion of IP
violations. Manual targeting involves skilled port employees making
real-time decisions based on instinct and experience and can be used
for any transport mode, but it requires dedication of time and
resources, and its role in uncovering IP violations cannot be
determined. Once a shipment has been targeted, CBP examination
techniques range from document reviews to physical exams, with physical
exams being the best method for evaluating potential IP violations.
Determining whether infringement has occurred can be a challenging
process in which port staff may require input from CBP's legal and
product experts and from the rights holders themselves. Although port
staff are required to enter exam results in CBP's data systems, CBP
officials said that information on IP exams has been unevenly recorded
across ports, making it difficult for CBP to fully analyze the effect
of its targeting efforts in this area. CBP's IP enforcement process
concludes by ports seizing infringing goods and, if warranted,
assessing penalties against offenders.
The bulk of CBP's enforcement outcomes in recent years have been
generated by pockets of activity within certain modes of transport and
product types as well as among a limited number of port locations.
Although both seizure numbers and estimated values have increased in
recent years, the increase in numbers can be attributed almost
exclusively to seizures of small-value shipments made from air
transportation, particularly express consignment and international
mail. This type of seizure grew particularly rapidly in 2006, leading
to a near doubling in the number of seizure actions compared with those
in the prior year, an outcome that may reflect a shift in smuggling
techniques that has forced CBP to be more reliant on manual targeting
methods. In contrast, more than half of estimated seizure value has
been generated by a much smaller number of seizures from ocean-going
cargo containers, a transportation mode in which computer-based
targeting is used. The sheer size of some of these seizures has caused
total estimated seizure values to fluctuate from year to year, reaching
a high in 2006. Wearing apparel, cigarettes, footwear, and handbags
have accounted for the majority of seizure value in the past 6 years. A
limited number of ports have produced the bulk of seizure and penalty
activity since 2001, with nearly three-fourths of aggregate seizure
value and 84 percent of penalty cases opened accounted for by the top
10 ports as ranked by those outcomes.[Footnote 6] These are a mix of
ports, including a few of the nation's largest and some that are
smaller. Six of these ports have consistently driven enforcement
outcomes over time.
Despite recent increases in seizure outcomes, CBP lacks an integrated
approach across key offices for further improving border enforcement
outcomes, causing it to focus on certain efforts that have produced
limited results while not taking initiative to understand and address
the variations among ports' enforcement outcomes. Although CBP's
strategic plan highlights the importance of IP enforcement, the plan
lacks any performance measures in this area to guide agencywide efforts
and measure outcomes. CBP offices that formed the Office of
International Trade have led certain initiatives to improve IP
enforcement processes, including developing a statistically driven risk-
assessment model to improve targeting, auditing certain importers'
internal controls for preventing importation of infringing goods, and
issuing guidance to give ports more discretion in deciding when to
issue penalties in cases where collection is unlikely. However, these
efforts have produced limited results: poor data collection during port-
based pilots prevents CBP from fully assessing the effectiveness of its
risk model; the audits have produced some enforcement actions, but are
time consuming and many are not yet complete; and the guidance, while
reducing new penalty amounts as expected, has not helped to bridge the
large gap between amounts assessed and those collected. Beyond these
efforts, CBP has not analyzed existing data to identify factors that
might account for variations in enforcement outcomes within or among
certain ports, in part because port priorities and practices are highly
decentralized. In addition to identifying a concentration of IP
enforcement outcomes among certain ports, we also compared IP seizures
to "IP imports" (goods that have been monitored by CBP for IP
violations and goods that are similar to them) across a larger number
of ports. We determined that, of 25 ports that represented 75 percent
of the value of fiscal year 2005 IP imports, just 8 had seizure rates
(seizure value as a percent of import value) that were higher than the
group average. Surprisingly, the port with the highest seizure rate
also had the smallest value of IP imports among the ports we examined.
In contrast, the IP seizure rates for several of the ports with
relatively larger IP import values were well below the group average.
This illustrates the type of analysis that CBP could perform using
existing data to better understand and potentially improve port
enforcement outcomes. Such analysis would likely be conducted by the
Office of International Trade, but overseeing and influencing port
operations is the purview of Office of Field Operations.
To develop a more effective approach to IP border enforcement, in the
law enforcement sensitive report we recommended that the CBP
Commissioner direct the Offices of International Trade and Field
Operations to work together to (1) include in CBP's strategic plan
measures to guide and assess IP enforcement efforts, (2) improve CBP's
data on IP enforcement, and (3) analyze the data to better understand
ports' IP enforcement activities and outcomes and link ports'
performance to CBP's strategic plan.
We provided a draft of the law enforcement sensitive report to DHS for
review by CBP and ICE. In commenting on that report, CBP generally
agreed with our recommendations. CBP and ICE also provided technical
comments, which we incorporated into the law enforcement sensitive
report as appropriate. We also provided a draft of this report to DHS
for sensitivity review by CBP and ICE, which agreed that we had
appropriately removed law enforcement sensitive information.
Background:
Counterfeit Goods Pose a Cost to U.S. Economy and a Threat to Health
and Safety:
Intellectual property is the result of human innovation and creation to
develop products that people consume every day, whether it is the music
we listen to, the books we read, the cars we drive, or the medicine we
take. The protection of IP is recognized as important to continuing
that innovation and creativity, and the United States has several laws
aimed at protecting IP rights. Copyrights, patents, and trademarks are
the most common forms of protective rights for IP.[Footnote 7]
Protection is granted by guaranteeing owners limited exclusive rights
to whatever economic reward the market may provide for their creations
and products. According to the U.S. Intellectual Property Rights
Coordinator, industries that relied on IP protection were estimated to
account for over half of all U.S. exports, represented 40 percent of
U.S. economic growth, and employed about 18 million Americans in 2006,
making IP protection important to protecting our nation's
economy.[Footnote 8] It is difficult to reliably measure criminal
activity, but industry groups suggest that counterfeiting and piracy
are on the rise and that a broader range of products, from auto parts
to razor blades, and from medicines to infant formula, are subject to
counterfeit production. The threat to America's health and safety from
the theft of IP and counterfeiting of products is an increasing concern
for many reasons--counterfeit batteries can explode, counterfeit car
parts can fail to perform, and counterfeit pharmaceuticals can lack the
ingredients necessary to cure deadly diseases.[Footnote 9] In addition
to public health and safety concerns, the annual losses that companies
face from IP violations are substantial.
CBP Leads IP Enforcement at the Border:
Multiple federal agencies play a role in combating counterfeiting and
piracy, and their efforts were wrapped into the administration's
Strategy Targeting Organized Piracy, launched in October 2004. One
objective of this effort is to improve border enforcement, and CBP is
the agency primarily responsible for such enforcement, given its
authority to detain and examine shipments and seize goods that violate
U.S. law. CBP's current mission has two goals: preventing terrorists
and terrorist weapons from entering the United States while
facilitating the flow of legitimate trade and travel; and its priority
mission is to ensure homeland security.[Footnote 10]
CBP is responsible for enforcing antiterrorism, trade, immigration, and
agricultural policy, laws, and regulations at more than 300 ports of
entry. Two CBP offices play a role in carrying out policies and
procedures related to IP enforcement:
* Office of International Trade (OT) - Established in October 2006,
this office consolidates the trade policy, program development, and
compliance measurement functions of CBP into one office.[Footnote 11]
This office is responsible for providing uniformity and clarity for the
development of CBP's national strategy to facilitate legitimate trade
and managing the design and implementation of strategic initiatives
related to trade compliance and enforcement, including IP rights.
* Office of Field Operations (OFO) - This office houses CBP's border
operations and is comprised of 20 field offices under which are CBP's
325 ports of entry.[Footnote 12] Overseeing more than 25,000 employees,
including more than 20,000 CBP officers, OFO is responsible for
carrying out CBP's cargo and passenger-processing activities related to
security, trade, immigration, and agricultural inspection.
Daily management of port operations is highly decentralized, with field
offices overseeing but not directly managing port operations. CBP's
port operations oversee an array of cargo-and passenger-processing
environments, and port management structures are not uniform. For
example, some ports' management oversees a single port of entry while
others oversee multiple ports of entry (e.g., a seaport and nearby
airport).
* Seaports - CBP operations in the sea environment primarily consist of
cargo container processing, but may include passenger processing for
cruise ships. Cargo containers arriving at seaports may be transported
to interior ports for processing via an import mechanism called the in-
bond system.[Footnote 13] CBP receives manifest information 24 hours
before lading at foreign ports so that it may screen cargo container
data to identify high-risk shipments.[Footnote 14]
* Airports - CBP processes passengers and cargo at U.S. airports with
international flights. CBP's air environment includes air cargo,
express consignment carriers, such as Federal Express, and
international mail. Air cargo shipments are generally larger in size
than express consignment or international mail shipments. CBP receives
manifest information in the air environment 4 hours prior to arrival.
* Land Border Crossings - CBP processes passengers, commercial truck
and rail, and personal vehicles at land border crossings. CBP receives
manifest information for commercial truck and rail shipments 30 minutes
to 2 hours prior to arrival, depending on the transport mode.
The volume of goods and people that CBP processes for entry into the
United States every year is substantial and has been steadily
increasing. For example, the number of "entries summaries" filed with
CBP rose from nearly 24 million in fiscal year 2001 to nearly 30
million in fiscal year 2005.[Footnote 15] In fiscal year 2005, CBP
processed approximately 20 million sea, truck, and rail containers and
about 450 million passengers and pedestrians.[Footnote 16] At the same
time, the value of import trade has been growing, rising from about
$1.2 trillion in fiscal year 2001 to about $1.7 trillion in fiscal year
2005, according to CBP statistics.[Footnote 17] The largest share of
imports by value arrives at the United States via ocean-going cargo
containers, followed by air transport, as illustrated in figure 1.
According to CBP, the proportion of import value by transport mode has
remained relatively static since fiscal year 1999.
Figure 1: Import Value by Mode of Transport, Fiscal Year 2005:
[See PDF for image]
Source: GAO analysis of CBP data.
Note: "Land" includes imports that entered via truck or rail. "Other"
includes imports that entered through foreign trade zones, warehouses,
and other methods.
[End of figure]
Although all goods imported into the United States are subject to
examination, CBP examines only a small portion of them.[Footnote 18]
Most exams are conducted for security reasons, and these have been
increasing each year, while the number of trade-specific exams has not
grown since 2001, as shown in figure 2. In addition, CBP conducts a
small portion of exams under its Compliance Measurement Program, which
has components to address both security and trade compliance.[Footnote
19]
Figure 2: Number of Trade, Compliance Measurement, and Nontrade Exams
CBP Performed, Fiscal Years 2001-2005:
[See PDF for image]
Source: GAO analysis of CBP data.
Note: According to CBP, "nontrade exams" include exams conducted for
security, narcotics, or agricultural reasons. These data include
security exams conducted through nonintrusive inspection techniques
such as mobile X-ray machines.
[End of figure]
After the formation of DHS and in light of homeland security
priorities, CBP determined that it needed to focus its trade
enforcement resources and activities on the most pressing trade issues.
CBP has six Priority Trade Issues, one of which involves IP.[Footnote
20] According to CBP's Intellectual Property Rights Trade Strategy, the
agency's goal is to improve the effectiveness of its IP enforcement
activities; ensure a uniform enforcement approach across its multiple
port locations; and focus on making seizures with high aggregate
values, that threaten health and safety or economic security, or that
have possible ties to terrorist activity. CBP is also responsible for
enforcing International Trade Commission exclusion orders that arise
from an administrative process in which the commission determines that
certain products constitute infringement of a relevant U.S. law and
should be excluded entry to the United States.[Footnote 21] CBP
coordinates its efforts with DHS's U.S. Immigration and Customs
Enforcement (ICE), which investigates IP violations and builds cases
for prosecution.
CBP Undertakes a Series of Steps, Amid Challenges, to Enforce IP Rights
at the Border:
CBP takes a series of steps to enforce IP rights at the border and
faces a number of challenges throughout this process. Two key offices,
OT and OFO, are responsible for carrying out these steps, which include
(1) targeting suspicious shipments; (2) examining detained shipments to
determine if they carry infringing or excluded goods; and (3) enforcing
IP laws by seizing goods and, if warranted, assessing penalties against
importers. CBP uses two primary methods to target IP violations:
computer-based and manual targeting. Their use varies, depending on the
individual port approaches and the transportation mode being targeted,
and both methods have certain strengths and limitations. OT and OFO
both use computer-based methods to target vast numbers of commercial
shipments, but the primary computer method used for IP purposes has led
to a relatively small percent of IP seizures. Manual targeting by port
employees is more ad hoc and flexible than computer-based targeting,
given its reliance on employee skill and availability, but determining
its effect on IP enforcement is difficult. Ports conduct exams on
targeted shipments, and determining whether infringement has occurred
during an exam can be a challenging process that requires training and
input from experts. Because of differing port practices, information on
IP exams has been unevenly recorded across ports, according to
officials, making it difficult for CBP to fully analyze the effect of
its targeting efforts in this area. CBP's process for enforcing IP
concludes with ports seizing infringing goods and, if warranted,
referring cases to ICE and assessing penalties. According to CBP
officials, storing and destroying infringing goods has been costly, and
the penalty process has resulted in few collections. Agency IP
enforcement efforts have primarily been focused on goods for which the
trademark or copyright has been recorded with CBP.
CBP Operates in a Challenging Environment to Combat the Entry of
Counterfeit Goods:
Because importing counterfeit goods is an inherently deceptive
activity, it presents challenges to CBP's ability to process large
volumes of goods and determine those that are legitimate. CBP regularly
confronts nefarious importers who attempt to smuggle IP-infringing
goods into the country through various means. For example, according to
a CBP press release, in August 2006, the Norfolk seaport found fake
Nike shoes concealed inside a refrigerated container behind the
jellyfish and salt kelp declared on the manifest.[Footnote 22] In
addition, CBP contends with counterfeiter practices that make it
difficult to detect shipments containing IP-infringing goods or
distinguish legitimate from unauthorized goods. The law enforcement
sensitive report described some of these practices in greater detail.
Amid these challenges, however, OT and OFO both have responsibility for
executing a series of actions to (1) target potential IP infringing
goods as they enter the United States, (2) examine suspicious goods,
and (3) enforce IP laws through seizures and penalties, if warranted.
Figure 3 depicts an overview of CBP's process.
Figure 3: Overview of CBP's Process for Conducting IP Border
Enforcement:
[See PDF for image]
Sources: GAO (data); Nova Development (clip art).
[End of figure]
CBP Uses Various Targeting Methods, Depending on Port Practices and
Transport Modes, Each Having Strengths and Limitations:
CBP uses both computer-based and manual targeting approaches to target
counterfeit goods either before or as they enter the United States--
both methods have strengths and limitations related to scope, data
accuracy and overall sophistication, and resource requirements. CBP
ports vary in the degree to which they use these methods, depending on
their overall approach to IP enforcement and the modes of transport
that they oversee. The primary computer-based targeting method used for
IP purposes has uncovered a relatively small share of IP seizures. The
effect of manual targeting is more difficult to determine. In addition,
CBP undertakes other targeting and compliance measurement actions that,
while not intended for IP enforcement, have uncovered IP violations.
Computer-Based Targeting:
CBP's computer-based targeting for IP violations is handled primarily
through its Cargo Selectivity program, a system that targets commercial
shipments, which are typically transported to the United States by sea,
air, and truck.[Footnote 23] Commercial shipments may arrive to the
United States via various modes of transport, but the largest shipments
arrive via ocean-going cargo containers. When data about a particular
shipment match the targeting criteria entered into the system, the port
of entry is electronically notified, and the shipment is flagged for
examination. Cargo Selectivity is not used to target noncommercial
shipments, which typically enter the United States via express
consignment, international mail, passengers, or private vehicle.
Cargo Selectivity criteria can be developed to target on a nationwide
basis or on a local, port-specific basis. National criteria for
targeting suspected IP violations are developed and overseen by the
Strategic Trade Center in Los Angeles (formerly in the Office of
Strategic Trade and now under OT), where International Trade
Specialists with expertise in particular industries develop criteria
based on their analysis of recent seizure activity and information from
industry representatives.[Footnote 24] CBP officials said that Cargo
Selectivity criteria are designed to target known or suspected
violators and that criteria can be written to target on all or some of
a limited number of data elements. Ports develop local criteria in a
similar fashion; however, they differ in the degree to which they use
national or local criteria.
CBP's Automated Targeting System (ATS) is another computer-based
targeting tool, but it is not used to systematically target for IP
violations. ATS is a primary component of CBP's approach for security
targeting.[Footnote 25] As we note later in this report, CBP has
conducted one pilot test of an ATS module for targeting IP violations.
Manual Targeting:
Manual targeting describes a range of activities in which individual
employees at the ports or the Los Angeles Strategic Trade Center--based
on their own knowledge, analysis, and experience--identify certain
shipments for examination. According to CBP officials and based on our
observations at select ports, manual targeting may involve CBP staff
flagging shipments by:
* conducting queries (such as in ATS) or executing analysis of
electronically-filed manifest or entry data;
* reviewing entry paperwork (including paper and electronic entries),
which may be generated as a computer-based targeting;[Footnote 26]
* visually observing packages in a processing or storage environment;
and:
* receiving information from other CBP employees within their own port
or at other ports regarding a given shipment, perhaps based on
information obtained from law enforcement agencies or rights holders.
Both Targeting Methods Have Strengths and Limitations:
Both Cargo Selectivity and manual targeting methods have certain
strengths and limitations relating to their scope, usefulness, and
feasibility:
* Cargo Selectivity allows CBP to quickly screen vast volumes of
commercial shipments on a nationwide basis, but it doesn't work for all
types of shipments, and it has uncovered a relatively small share of IP
violations since fiscal year 2003. Cargo Selectivity can use only a
limited number of elements to target potentially infringing shipments,
and getting criteria into the system takes time. According to CBP
officials, the lack of sophistication and cumbersome process limits the
system's overall usefulness for performing IP targeting.[Footnote 27]
Also, CBP must use caution when developing its Cargo Selectivity
targeting criteria in order to minimize the number of suspect shipments
that are false positives, which can create unmanageable workloads for
the ports, delay the movement of legitimate goods, and burden importers
with exam costs. CBP data shows that IP targeting using Cargo
Selectivity accounted for only about 3 percent of seizure actions made
by CBP during fiscal years 2003 through 2006 and about 10 percent of
the total estimated value of goods seized. More information on CBP's
seizure outcomes is provided later in this report.
* Ports use manual targeting to overcome some of the limitations of
Cargo Selectivity. CBP officials at several ports we visited expressed
the view that there is no substitute for the skills and experience of a
well-trained CBP officer, but other officials noted that CBP can't rely
on manual targeting to process vast volumes of trade. According to CBP
officials, manual targeting is heavily dependent on employee
availability and expertise; therefore, its use for IP targeting at some
ports may be limited, particularly as CBP increasingly focuses its
staff resources on security matters. CBP lacks data to fully determine
the extent to which its seizure outcomes have resulted from manual
targeting, but the portion could be large, given the relatively small
portion that stems from Cargo Selectivity.
Other Targeting or Compliance Measurement Actions May Uncover IP
Violations:
CBP undertakes other actions that, while not intended for IP
enforcement, have uncovered IP violations, such as targeting for other
trade violations or security reasons or actions that measure compliance
with laws and regulations. For example, CBP's Compliance Measure
Program, a statistical sampling program, is designed to examine
randomly selected shipments for their compliance with a range of laws
and regulations, including IP laws. According to CBP, IP violations
have been found in a very small percent--less than one-tenth of 1
percent--of such exams.[Footnote 28] In addition, Cargo Selectivity,
when used to target for reasons such as terrorism or other trade
issues, has revealed IP violations. Specifically, an additional 3
percent of seizure actions and 10 percent of estimated seizure value
was uncovered from non-IP related criteria during fiscal years 2003 to
2005. Finally, any shipment that ATS identifies as high risk is
automatically subjected to nonintrusive examinations using radiation
detection and gamma-ray or X-ray scanning technologies. Such
examinations may reveal unexpected results, such as contents that
appear to differ from what is described in the manifest or entry data.
When IP violations are suspected, the container is referred for further
review to port personnel who handle trade enforcement. CBP could not
provide data to show how often IP violations were found in this way.
Targeted Shipments Are Subject to Examination, but Determining
Infringement Can Be Difficult, and Exam Results Are Unevenly Recorded:
Once shipments have been targeted for examination, CBP personnel at the
ports are to examine shipments and record the results of their exams in
CBP's data systems. Because of high counterfeit quality and complex
U.S. IP laws, determining whether IP infringement has occurred can be
difficult. CBP provides some training to assist ports in this endeavor.
Because of variations in port practices for recording IP exam results,
CBP's exam data are uneven, according to CBP officials, and limits the
agency's ability to assess CBP's targeting effectiveness.
Physical Exams Are Performed to Determine IP Violations:
CBP uses the term "exam" to refer to a range of actions, including
paperwork reviews, nonintrusive exams, and physical exams in which CBP
examines all or a portion of the targeted goods. According to CBP
officials, physical exams are the best means for assessing potential IP
infringement. The procedures for conducting physical examinations
differ according to the mode of transport and the movement of goods for
examination.[Footnote 29]
* Sea Cargo Examinations. In the sea cargo environment, sea containers
are generally transported and examined away from their point of arrival
at CBP exam facilities located at some distance from the port itself.
When multiple shipments are contained in a single cargo container,
these are first moved to a container freight station for debundling and
then targeted shipments within the container are moved to the
examination warehouse.
* Air Cargo Examinations. In the air environment, the examination
location may vary. For example, air cargo shipments may be examined at
their arrival location or moved to a CBP exam facility while
international mail and express consignment shipments may be examined at
their arrival location.
* Land Border Crossing Examinations. At land border crossings, vehicles
and packages are moved to examination areas while still under CBP's
control.
CBP personnel who perform physical exams at the ports have discretion
over how intensive an exam will be. For example, according to CBP and
ICE officials, decisions are made about how many boxes will be opened
from a single ocean-going cargo container; which boxes will be opened;
and whether the container will be partly or fully unloaded.
CBP personnel are to follow a common set of procedures grounded in law
and regulation once shipments are opened for examination. When CBP
decides to examine goods, it has a 5-day period, following the date on
which the goods were presented for examination, to decide whether it
will detain or release them.[Footnote 30] If examining personnel can
immediately identify goods as counterfeit, perhaps because they have
recently seized similar goods or the violations are obvious, CBP
initiates procedures to detain the goods. However, because this is
often not the case, samples of the merchandise may be provided to
commodity experts at the ports called Import Specialists who evaluate
the goods for IP infringement. As a result of their evaluation, Import
Specialists will either order the goods to be detained for further
review or released.[Footnote 31]
When CBP decides to detain goods, it must notify the importer of the
detention within 5 days after the decision was made, and may also
notify the affected rights holder.[Footnote 32] The notice to the
importer advises, among other things, the reason for the detention and
the nature of any information or tests that CBP requires in order to
process the matter. The importer and rights holder can take various
actions, and communication with CBP may ensue for a period of 30 days.
According to CBP officials, some rights holders are willing to
negotiate with importers, which may involve financial compensation for
the rights holder. If the importer's actions fail to secure release of
the goods within 30 days or CBP finds them to be infringing, the agency
proceeds with seizure and forfeiture actions.
Identifying IP Violations Can Be Difficult:
Because of high counterfeit quality and the complexity of U.S. laws,
making a determination of IP infringement in some instances is
difficult. To help ports assess whether goods are authentic, CBP's
agency regulations[Footnote 33] provide rights holders the option to
record trademarks, trade names, or copyrights with CBP. CBP currently
charges $190 for its recordation application. Through the fee-based
recordation process, CBP collects information from an IP owner about
specific registered trademarks, copyrights, or trade names, and then
enters that information into an electronic database accessible by CBP
officers at ports across the country. However, CBP officials said that
some IP owners do not record their rights with CBP, meaning that CBP
lacks information about their products and access to individuals within
the company who can address potential infringement. Moreover, when
counterfeit quality is quite good, even the rights holder may have to
conduct research to distinguish real from fake.
In addition, the complexity of U.S. IP laws and CBP's array of seizure
authorities present challenges to port staff, according to CBP
officials. CBP has an array of detention and seizure authorities for IP
violations; port personnel must be aware of these authorities and
ensure their actions are in accord with them. CBP advises the ports
that the most appropriate seizure authority will depend on the type of
IP right infringed, whether the right is federally registered, whether
the right is recorded with CBP, and the type of alleged
infringement.[Footnote 34] CBP is authorized, in some instances, to
seize goods for which the right is registered with appropriate rights-
granting authorities but not recorded with CBP; however, OT's lead IP
attorney stated that because the statutory bases for such enforcement
are established by criminal statutes that invoke certain limitations
and evidentiary requirements, such seizures would be available only in
cases involving clear instances of counterfeiting or piracy and would
require CBP to establish more elements of the infringement than is
required for recorded rights. Therefore, CBP directs ports to focus
their IP enforcement on recorded goods. For certain other types of
violations, CBP does not commence seizure actions either because of
agency policy or the lack of proper authority.[Footnote 35]
CBP and rights holders offer training to port personnel to assist them
in evaluations. For example, OT's IP attorneys train port personnel,
including CBP Officers, Import Specialists, and others, on the legal
and regulatory authorities in this area. Between 35 and 40 ports
received training in each of fiscal years 2005 and 2006. In addition,
private sector training is periodically arranged for CBP ports. Rights
holder representatives give CBP staff advice about how to determine
whether goods are counterfeit. For example, rights holders may tell CBP
about security features they embed in their products or other methods
they use to protect their IP.
Uneven Quality of Exam Data Limits CBP's Ability to Analyze IP
Enforcement Efforts:
CBP maintains data systems in which port staff are required to record
the results of exams they conduct, but the uneven quality of exam data
has made it difficult for the agency to accurately analyze the results
of IP targeting and to fully track all incidents of IP violations,
according to CBP officials. CBP requires port staff to document exam
results, whether or not violations were found, in order to contribute
to the agency's repository of enforcement knowledge and for future
targeting purposes. Officials in OT and its legacy offices familiar
with the agency's data for IP-related exams told us the data are not
uniform or timely and contains inaccuracies. For example, these
officials said they have found instances where goods were seized for IP
violations, but exam records did not indicate that any discrepancies
were found. Also, officials said that staff at some ports quickly
record exam results, but staff at other ports do not record exam
results until several months after the goods have been detained or
seized, if ever. Among ports that quickly record results, sometimes
port staff must later revise the exam results if further investigation
determines that the goods are legitimate. In addition, although port
staff are directed to indicate in CBP's data systems whether IP
violations were found and can add additional information about laws
that were violated or a narrative description of the goods, officials
in OT and its legacy offices that are familiar with the data said that
whether and how they record this information varies. These officials
were not sure what accounted for variations in the quality of exam
results across ports, and we did not independently assess CBP's
policies or port practices for recording exam results.
CBP's Key IP Enforcement Actions Entail Seizing Goods and Issuing
Penalties:
CBP's process for enforcing IP rights concludes with the seizure of
counterfeit goods and, if warranted, the assessment of penalties
against the IP infringer. A seizure action, as defined by CBP, entails
CBP taking control and/or possession of articles imported contrary to
law. Penalties result in monetary fines imposed on the
violator.[Footnote 36]
Once CBP officers have examined goods and determined that they are
counterfeit, the legal process to seize goods is initiated. This
process, carried out by Fines, Penalties, and Forfeiture offices at the
ports, entails (1) resolving or deciding CBP compliance actions; (2)
providing advice to other CBP officers on the various trade violations;
(3) securing or maintaining seized property; and (4) making sure CBP's
automated system accurately reflects description, location, value, and
forfeiture status of seized goods. CBP calculates the domestic value of
seizures to track the value of goods it intercepts.[Footnote 37] For
penalties it issues under 19 U.S.C. 1526(f), CBP calculates the
Manufacturer's Suggested Retail Price (MSRP)--which would have been the
value of the merchandise if it were genuine. CBP determines whether
additional enforcement in the form of civil penalties should be
assessed. It is CBP's policy not to assess a penalty, however, until
all forfeiture proceedings have been completed, and the property,
except for representative samples, has been destroyed. When assessing
19 U.S.C. 1526(f) penalties against a first-time violator, the amount
of the penalty may be equal to or less than the MSRP. In the event of a
second or subsequent seizure, the amount of the penalty is assessed at
twice the value of the merchandise, based on the MSRP at the time of
seizure. For seizures valued over $100,000 in domestic value, OFO
maintains responsibility for reviewing the case before any legal action
is taken. For penalties that are assessed, CBP officials said that
substantial resources are dedicated to processing penalty cases, but
they also said that penalty amounts are seldom fully collected. CBP's
collection issues are discussed later in this report.
Depending on the size and value of a seizure, CBP officers coordinate
with ICE agents who then consult the Department of Justice's U.S.
Attorneys Offices to determine if criminal investigation and
prosecution is warranted. For example, a repeat violator may warrant
criminal action if ICE has enough information to initiate a criminal
investigation and build a case.
Seized goods have to be secured, as they have potential value but
cannot be allowed to enter U.S. commerce. Storage may be prolonged by
law enforcement actions, but the goods are generally destroyed or
otherwise disposed of according to law when determined to be illegal
and are no longer needed. According to CBP officials, as seizures have
increased, the agency's storage and destruction costs have grown and
become increasingly burdensome. CBP reports that it spent over $9.1
million to destroy seized property between fiscal years 2001 and
2006.[Footnote 38] CBP officials said that the environmental
regulations for disposing of goods, particularly in states like
California, prevent CBP from disposing of certain counterfeit goods in
landfills. Often the goods are destroyed through incineration.
IP Enforcement Outcomes Have Been Concentrated in Certain Areas and
Reflect Pockets of Activity:
The bulk of CBP's enforcement outcomes have been concentrated within
certain modes of transport and product types and reflect pockets of
activity among a limited number of ports. Although the total number of
seizure actions has grown since fiscal year 2001, nearly doubling
between fiscal years 2005 and 2006, most of these actions involved
small-value seizures made from air-based modes of transport and may
reflect a shift in smuggling techniques toward larger numbers of
smaller-sized shipments. The total estimated domestic value of goods
seized since fiscal year 2001, however, has fluctuated due to
variations in seizure activity involving large, ocean-going containers
in which the highest-value seizures tend to be made. While the types of
goods seized have varied over time, wearing apparel, cigarettes,
footwear, and handbags have accounted for the majority of estimated
seizure value in the past 6 years. Ten or fewer ports, including some
of the nation's largest ports and others that are significantly
smaller, have accounted for the bulk of seizure and penalty outcomes
since 2001. Of these ports, six have made consistent contributions each
year to IP enforcement outcomes.
CBP measures IP seizure activity two ways: number of seizure actions
and estimated domestic value of goods seized. The number of goods in
one seizure action can range from a few items shipped via international
mail to hundreds of boxes of goods in a ocean-going cargo container.
CBP maintains the official seizure statistics for DHS, including those
made by CBP, ICE, or jointly by the two agencies. CBP captures data on
the transport mode or processing environment in which goods were
seized, but in compiling seizure data, neither OT nor its legacy
offices routinely verify this data field. In addition, there are
certain limitations in CBP's seizure data, such as the precision of the
estimates. However, we found CBP's data to be sufficiently reliable to
indicate broad trends.
Majority of IP Seizure Actions Occurred in Air Transportation
Environment While Value of Seized Goods Was Concentrated in Sea
Environment:
For fiscal years 2003 through 2006, most IP seizure actions have been
concentrated in the air transportation environment, while most seizure
value has been concentrated in ocean-going cargo containers.[Footnote
39] As shown in figure 4, about 78 percent of total seizure actions
during fiscal years 2003 through 2006 occurred in air transportation
processing environments.[Footnote 40] Significantly fewer seizure
actions were made from ocean-going cargo containers or land-based
transport modes, such as truck, train, or auto. Conversely, ocean-going
cargo container seizures represented about 60 percent of total
estimated seizure value during those years, with significantly smaller
portions of value generated by air-and land-based seizures.[Footnote
41] Even though about one-fourth of U.S. imports enter by land-based
modes of transport, seizure actions and values in this mode were less
than 5 percent of total seizures, as measured by either indicator.
Figure 4: Percent of IP Seizure Actions and Domestic Value by
Transportation Mode, Fiscal Years 2003-2006:
[See PDF for image]
Source: GAO analysis of CBP data.
Note: According to CBP, "other" includes no transportation involved
(often ICE seizures), "none listed" (often passenger seizures) and
"other" (undefined).
[End of figure]
CBP seizure data show that the number of seizure actions has grown
steadily from fiscal years 2001 to 2006, while domestic values have
fluctuated. As shown in figure 5, there were over 3,500 seizure actions
in fiscal year 2001, increasing to over 14,000 in 2006. Also shown in
figure 5, the domestic value of goods seized in these years has
fluctuated, reaching a high in 2006 of more than $155 million.[Footnote
42] Although the overall trend for both measurements is upward, these
outcomes represent a small fraction of overall imports. For instance,
in fiscal year 2005, the domestic value of IP seizures represented less
than one-tenth of 1 percent (0.02 percent) of the total value of
imports of goods in product categories that are likely to involve IP
protection.[Footnote 43] It is impossible to know whether these seizure
outcome trends reflect improved enforcement actions or an increase in
the share of counterfeit trade entering the United States during those
years.
Figure 5: Trends in Number of IP Seizure Actions and Estimated Domestic
Values, Fiscal Years 2001-2006:
[See PDF for image]
Source: GAO presentation of CBP data.
Note: CBP data can be accessed at
http://www.cbp.gov/xp/cgov/import/commercial_enforcement/ipr/seizure/sei
zure_stats.xml.
[End of figure]
According to our analysis, growth in the number of seizure actions was
fueled by increases in small-value seizures made in express consignment
and international mail facilities. CBP publicly cites an 83 percent
increase in the number of seizure actions from fiscal year 2005 to 2006
as an indicator of its growing IP enforcement success. However, our
analysis shows that this growth was driven primarily by smaller-value
seizures. For example, to date, the largest number of seizures for
international mail occurred in fiscal year 2006, with the number of
seizure actions and their domestic value more than doubling from the
previous year. CBP officials said they believed that while some of
these seizures are personal shipments ordered from Internet sites that
sell counterfeit merchandise, others have contained quantities of goods
too large for personal use. Some officials also speculated that
counterfeiters may be breaking commercial shipments into smaller
components to avoid detection and face more limited losses in the event
of a seizure. However, CBP has not conducted any systematic analysis to
support these observations.
Our analysis also shows that several factors influence trends in
seizure value. Spikes in seizure value in fiscal years 2004 and 2006,
accounting for approximately 30 percent of seizure value in each of
those years, were largely due to shipments moving through the in-bond
system.[Footnote 44] Also, CBP data show that about 15 percent of
seizure value during fiscal years 2003 through 2006 stemmed from
seizures made by ICE during its investigations, and OT and ICE
officials said that ICE may have played a role in some of the seizures
attributed to CBP. Of note in fiscal year 2006, a combined CBP and ICE
initiative resulted in the seizure of 77 cargo containers of fake Nike
Air Jordan shoes and 1 container of fake Abercrombie & Fitch clothing
that were transported in part using the in-bond system (they entered
the Los Angeles seaport, transited through Arizona, and were supposedly
destined for export to Mexico). The estimated domestic value of these
goods was about $19 million, representing about 12 percent of total
domestic seizure value in fiscal year 2006.
Seizures Have Been Concentrated among Certain Types of Products:
Although the types and quantities of seized goods vary over time,
seizures over the past 6 years have been highly concentrated among
certain types of products. For example, seizures of footwear, wearing
apparel, handbags/wallets/backpacks, and cigarettes accounted for over
60 percent of the aggregate value of goods seized over the past 6
years.[Footnote 45] Table 1 shows that footwear and wearing apparel
accounted for 57 percent of domestic value of goods seized in fiscal
year 2006, with the high percent of footwear seized partially resulting
from the large CBP/ICE seizure described earlier. Health care products
and pharmaceuticals accounted for only 3 percent of such value. When
asked why commodity seizures vary from year to year, CBP officials
stated that counterfeiters produce fake goods depending on marketplace
demand at any given time. However, it is difficult to determine whether
CBP and ICE seizures are representative of the types of counterfeit
products entering the United States in any given year or merely reflect
counterfeit products that CBP detected.
Table 1: Percent of Total Estimated Domestic Value Seized by Commodity,
Fiscal Years 2001-2006:
Commodity: Wearing apparel;
2001 (percent of domestic value): 14;
2002 (percent of domestic value): 9;
2003 (percent of domestic value): 15;
2004 (percent of domestic value): 37;
2005 (percent of domestic value): 17;
2006 (percent of domestic value): 16;
Aggregate 2001-2006 total (percent of domestic value)[A]: 19.
Commodity: Cigarettes;
2001 (percent of domestic value): 8;
2002 (percent of domestic value): 38;
2003 (percent of domestic value): 44;
2004 (percent of domestic value): 17;
2005 (percent of domestic value): 10;
2006 (percent of domestic value): [Empty];
Aggregate 2001-2006 total (percent of domestic value)[A]: 18.
Commodity: Footwear;
2001 (percent of domestic value): 5;
2002 (percent of domestic value): [Empty];
2003 (percent of domestic value): 3;
2004 (percent of domestic value): 1;
2005 (percent of domestic value): 10;
2006 (percent of domestic value): 41;
Aggregate 2001-2006 total (percent of domestic value)[A]: 13.
Commodity: Handbags/Wallets/; Backpacks;
2001 (percent of domestic value): 6;
2002 (percent of domestic value): 3;
2003 (percent of domestic value): 12;
2004 (percent of domestic value): 17;
2005 (percent of domestic value): 16;
2006 (percent of domestic value): 9;
Aggregate 2001-2006 total (percent of domestic value)[A]: 11.
Commodity: Media;
2001 (percent of domestic value): 13;
2002 (percent of domestic value): 29;
2003 (percent of domestic value): 8;
2004 (percent of domestic value): 4;
2005 (percent of domestic value): [Empty];
2006 (percent of domestic value): 4;
Aggregate 2001-2006 total (percent of domestic value)[A]: 9.
Commodity: Consumer electronics;
2001 (percent of domestic value): [Empty];
2002 (percent of domestic value): 5;
2003 (percent of domestic value): 4;
2004 (percent of domestic value): 6;
2005 (percent of domestic value): 9;
2006 (percent of domestic value): 5;
Aggregate 2001-2006 total (percent of domestic value)[A]: 5.
Commodity: Computers/Hardware;
2001 (percent of domestic value): 7;
2002 (percent of domestic value): [Empty];
2003 (percent of domestic value): [Empty];
2004 (percent of domestic value): 1;
2005 (percent of domestic value): 5;
2006 (percent of domestic value): 9;
Aggregate 2001-2006 total (percent of domestic value)[A]: 4.
Commodity: Watches/Parts;
2001 (percent of domestic value): 10;
2002 (percent of domestic value): 4;
2003 (percent of domestic value): 4;
2004 (percent of domestic value): 2;
2005 (percent of domestic value): 3;
2006 (percent of domestic value): 2;
Aggregate 2001-2006 total (percent of domestic value)[A]: 3.
Commodity: Toys/Electronic games;
2001 (percent of domestic value): 8;
2002 (percent of domestic value): 2;
2003 (percent of domestic value): 2;
2004 (percent of domestic value): 3;
2005 (percent of domestic value): 9;
2006 (percent of domestic value): [Empty];
Aggregate 2001- 2006 total (percent of domestic value)[A]: 3.
Commodity: Batteries;
2001 (percent of domestic value): 9;
2002 (percent of domestic value): [Empty];
2003 (percent of domestic value): [Empty];
2004 (percent of domestic value): 2;
2005 (percent of domestic value): [Empty];
2006 (percent of domestic value): [Empty];
Aggregate 2001-2006 total (percent of domestic value)[A]: 1.
Commodity: Sunglasses/Parts;
2001 (percent of domestic value): 6;
2002 (percent of domestic value): 1;
2003 (percent of domestic value): 1;
2004 (percent of domestic value): [Empty];
2005 (percent of domestic value): [Empty];
2006 (percent of domestic value): [Empty];
Aggregate 2001-2006 total (percent of domestic value)[A]: 1.
Commodity: Headwear;
2001 (percent of domestic value): [Empty];
2002 (percent of domestic value): 1;
2003 (percent of domestic value): 1;
2004 (percent of domestic value): [Empty];
2005 (percent of domestic value): [Empty];
2006 (percent of domestic value): 2;
Aggregate 2001- 2006 total (percent of domestic value)[A]: 1.
Commodity: Pharmaceuticals;
2001 (percent of domestic value): [Empty];
2002 (percent of domestic value): [Empty];
2003 (percent of domestic value): [Empty];
2004 (percent of domestic value): [Empty];
2005 (percent of domestic value): 2;
2006 (percent of domestic value): 1;
Aggregate 2001-2006 total (percent of domestic value)[A]: 1.
Commodity: Health care;
2001 (percent of domestic value): [Empty];
2002 (percent of domestic value): [Empty];
2003 (percent of domestic value): [Empty];
2004 (percent of domestic value): [Empty];
2005 (percent of domestic value): [Empty];
2006 (percent of domestic value): 2;
Aggregate 2001-2006 total (percent of domestic value)[A]: 1.
Commodity: Perfumes;
2001 (percent of domestic value): [Empty];
2002 (percent of domestic value): [Empty];
2003 (percent of domestic value): [Empty];
2004 (percent of domestic value): [Empty];
2005 (percent of domestic value): 3;
2006 (percent of domestic value): [Empty];
Aggregate 2001-2006 total (percent of domestic value)[A]: 0.
Commodity: All other commodities;
2001 (percent of domestic value): 15;
2002 (percent of domestic value): 9;
2003 (percent of domestic value): 6;
2004 (percent of domestic value): 10;
2005 (percent of domestic value): 15;
2006 (percent of domestic value): 8;
Aggregate 2001-2006 total (percent of domestic value)[A]: 10.
Commodity: Total estimated domestic value (in millions);
2001 (percent of domestic value): $57;
2002 (percent of domestic value): $99;
2003 (percent of domestic value): $94;
2004 (percent of domestic value): $139;
2005 (percent of domestic value): $93;
2006 (percent of domestic value): $155;
Aggregate 2001-2006 total (percent of domestic value)[A]: $638.
Commodity: Total number of seizures;
2001 (percent of domestic value): 3,586;
2002 (percent of domestic value): 5,793;
2003 (percent of domestic value): 6,500;
2004 (percent of domestic value): 7,255;
2005 (percent of domestic value): 8,022;
2006 (percent of domestic value): 14,675;
Aggregate 2001-2006 total (percent of domestic value)[A]: 45,831.
Source: GAO presentation of CBP data.
Note: Percentages not provided indicate that CBP did not report the
commodity as a separate category in a given year. Seizures of these
commodities may be included in the "All other commodities" category.
Due to rounding, commodities may not total to 100 percent for any given
fiscal year.
[A] "Aggregate 2001-2006 total (percent of domestic value)" was
calculated by aggregating the reported estimated domestic value per
commodity in each year, and dividing this total by the total estimated
domestic value of seizures for fiscal years 2001to 2006.
[End of table]
CBP reports that seizures are also concentrated in one trading partner-
-for fiscal years 2001 through 2006 combined, exports from China
account for 65 percent of total seized IP domestic value. Hong Kong and
Taiwan are distant seconds to China, accounting for 6 and 5 percent of
seizures in that period, respectively. The combined share of goods
seized that were exported from China and Hong Kong grew about 40
percent per year during this period. Also listed among trading partners
for which goods were seized for IP violations in fiscal years 2001
through 2006 are Korea, Pakistan, Russia, South Africa, and Singapore.
Ten or Fewer Ports Have Accounted for the Bulk of IP Enforcement
Outcomes:
CBP's IP enforcement outcomes, including seizures and penalties, have
been highly concentrated among a limited number of ports across the
country. We analyzed CBP's seizure and penalty data for fiscal years
2001 through 2006 and found that the bulk of enforcement activity was
carried out by 10 or fewer ports in each of four enforcement categories
we reviewed: (1) total number of seizures, (2) total seizures by
domestic value, (3) total penalty cases opened, and (4) total amount of
penalties assessed. The top 10 ports for each category differ, but
there is considerable overlap among the ports so ranked in each
category. Table 2 also shows that during fiscal years 2001 through
2006, the top 10 ports ranked by total seizure actions accounted for
nearly two-thirds of those actions, and the top 10 ports ranked by
total domestic seizure values accounted for nearly three-fourths of
those values. Table 2 shows even greater concentration among the top 10
ports for penalty cases opened and penalty amounts assessed. Our
analysis indicates that, while seizure actions have been more broadly
disbursed among CBP's ports, fewer of them have accounted for seizure
values, and even fewer ports have assessed penalties for the seizures
they make. The mix of ports in these rankings is surprising because
they include some of the nation's largest ports as well as several that
are significantly smaller. Moreover, as we discuss later, some of the
ports among which seizures are concentrated are not among the top ports
in terms of IP import value; and conversely, some high IP-importing
ports have shown more limited seizure outcomes.
Table 2: Top 10 Ports' Percent of Seizure and Penalty Outcomes, Fiscal
Years 2001-2006:
Dollars in millions.
Enforcement measures: Top ten ports' number of IP seizures;
Number or value of enforcement outcomes: 30,462;
Percent of total: 66%.
Enforcement measures: Top ten ports' domestic value of IP seizures;
Number or value of enforcement outcomes: $463.2;
Percent of total: 73%.
Enforcement measures: Top ten ports' number of IP penalty cases opened;
Number or value of enforcement outcomes: 1,208;
Percent of total: 84%.
Enforcement measures: Top ten ports' penalty amounts assessed;
Number or value of enforcement outcomes: $1,135;
Percent of total: 97%.
Source: GAO analysis of CBP data.
Notes: We analyzed CBP's seizure and penalty data for fiscal years 2001
through 2006. We used seizure data that captures various IP-related
violations and penalty data that captures only trademark violations
where penalties were assessed under 19 U.S.C. 1526(f).
In the law enforcement sensitive version of this report, ports were
listed in the table according to their rank order in each enforcement
category we analyzed. Port names have not been included in this table
for law enforcement reasons. While the top 10 ports in each category
are not the same, there is considerable overlap among them.
Some of the ports included in our analysis may have multiple processing
environments, and seizures associated with such ports may stem from
more than one processing environment. Because of inconsistencies in how
CBP records seizures by ports, we were unable to fully determine how
many processing environments are reflected in the above data.
[End of table]
Because of inconsistencies in the way CBP records seizures by port, it
can be difficult to determine precisely which processing environments
accounted for seizure outcomes. We were able to determine the seizure
reporting practices of the seven ports that we visited. For example, at
one port, CBP uses one port "code" to record IP seizures made at the
seaport and the nearby airport. Seizure data for another port includes
seizures made at the seaport and from the international mail processing
environment but does not include other air-based seizures made at the
nearby airport, which are reported separately. Neither OT nor its
legacy OFO office at the headquarters level could provide us
information to understand the seizure reporting practices of CBP's
ports.
Among these top 10 ports, there is further concentration of activity.
For example, we found that four ports ranked in the top 10 for all four
categories and two ports ranked in the top 10 for three of the four
categories. This indicates that the majority of enforcement outcomes
were produced by a handful of ports over the 6-year time period.
Appendix II contains additional analysis of these six ports'
enforcement outcomes.
Outside of the most active seizing ports, seizure outcomes have been
more disbursed and prone to fluctuation. CBP's seizure data showed that
around 243 ports of entry made seizures at least once during the past 6
years. About 190 of those ports reported fewer than 100 aggregate
seizure actions since 2001, and over 100 reported less than $100,000 in
6 years' aggregate domestic value of seizures. Some of these ports had
very little activity for 2001 through 2006, while others had occasional
spikes in their seizure actions or domestic seizure values.
CBP's Approach to Improving IP Enforcement Lacks Integration and Has
Produced Limited Results:
CBP lacks an integrated approach across key offices for improving
border enforcement outcomes, having focused on certain efforts that
have produced limited results while not taking the initiative to
understand and address the variations among ports' enforcement
outcomes. While CBP's strategic plan notes the importance of IP
enforcement under two of CBP's strategic goals, the plan lacks
performance measures to guide CBP's IP border enforcement efforts and
assess its agencywide progress. CBP efforts to improve its IP border
enforcement process, led by OT or its legacy offices, have produced
mixed results: (1) poor data collection during port-based pilots limits
OT's ability to evaluate the effectiveness of a new risk model for IP
targeting; (2) audits conducted to assess certain importers' IP-related
controls have resulted in some penalties, but many audits are not yet
complete; and (3) actual collections on IP penalties remain far below
the assessed amounts. Meanwhile, CBP has not attempted to understand
variations within or among ports' enforcement outcomes. Using CBP's own
import and seizure data, we identified some factors that may have
influenced enforcement outcomes and some enforcement anomalies among
key ports that bear further investigation. We also performed a simple
analysis that could help CBP identify ports with higher or lower than
average seizure outcomes. For example, of 25 ports that accounted for
over 75 percent of the value of total IP-type imports in fiscal year
2005, just 8 of them had higher than average shares of IP seizures (by
value) compared with their IP imports (by value). Such analysis could
be further refined by incorporating information about ports' import
composition or by making comparisons across similar processing
environments. Lacking an integrated approach, such analysis would
likely be conducted by OT, but the responsibility for overseeing and
influencing port operations lies with OFO.
CBP's Strategic Plan Lacks Performance Measures for IP Enforcement:
In its agency strategic plan,[Footnote 46] CBP notes the importance of
IP enforcement under two strategic goals, however it has not included
any performance measures to guide its IP border enforcement efforts and
assess progress on its agencywide efforts. Leading organizations use
strategic plans and performance measures to communicate their vision
and priorities on an agency-wide basis and establish accountability.
Under its strategic goal to facilitate legitimate trade and travel, CBP
identifies the enforcement of relevant U.S. laws under its
jurisdiction, including IP, as one of its strategic objectives.
Although IP is included as a strategic objective, there are no specific
IP performance measures under this goal. CBP also addresses IP
enforcement under its goal to protect America and its citizens by
prohibiting the introduction of illicit contraband, counterfeit goods,
and other harmful materials. However, performance measures for this
goal relate to prohibited agricultural items and narcotics. For
example, there are three separate measures that address narcotics
seizures, but none specific to IP.
CBP does measure and report internally on the number of IP seizure
actions and estimated seizure value and has other indicators related to
IP enforcement, but these measures and indicators are not included as
performance measures in its strategic plan. These measures and
indicators are found in CBP's IP Rights Trade Strategy, an internal
document classified as "For Official Use Only" with limited
distribution across CBP.[Footnote 47] In our discussions with CBP,
agency officials responsible for developing and overseeing the IP
Rights Trade Strategy referred to it as an internal planning document
on IP enforcement. The internal nature of this document, unlike an
agency's strategic plan with performance measures, limits its
usefulness in holding CBP accountable to Congress for its performance
on IP enforcement.
Legacy OT Offices Have Led Certain IP Improvement Efforts, but These
Have Produced Mixed Results:
Offices that are now part of OT have taken the lead in carrying out
certain efforts to improve IP border enforcement, but these efforts
have produced limited results. In its IP Rights Trade Strategy, CBP
states that its goal is to support the administration's Strategy
Targeting Organized Piracy (STOP) and to focus on high value seizures
and seizures related to public health and safety issues. Among the
initiatives outlined in the document, key IP border enforcement efforts
include (1) improving computer-based IP targeting, primarily by
developing a statistical risk-assessment model to complement Cargo
Selectivity; (2) using audits to assess certain importers' controls for
preventing IP infringing imports; and (3) issuing guidance to give
ports more discretion on when to assess IP penalties. Although computer-
based targeting and audits are considered STOP priorities, none of
these efforts have thus far significantly impacted CBP's efforts to
focus on high value seizures or seizures related to public health and
safety.
Effectiveness of New Targeting Model Cannot Be Determined:
A key component of CBP's IP enforcement improvement efforts has been
the development of a statistically driven risk assessment model.
However, problems with implementation in the first field-based pilot
test, and poor data collection in a second pilot test prevents OT from
fully evaluating the model's results. CBP developed this model to
improve its ability to target unknown IP violators. The model figures
prominently in CBP's strategic plan and has been continually
highlighted as one of CBP's main contributions to STOP.
CBP's risk model differs from Cargo Selectivity in two key ways: first,
it uses statistical analysis of past seizures and certain other
information to target future shipments, whereas Cargo Selectivity
relies on human analysis to develop criteria. Second, CBP officials
told us the model is designed to identify unknown violators based on
its analysis of past seizure patterns, whereas Cargo Selectivity
primarily targets known or suspected violators. However, pilot tests
conducted in 2005 and 2006 revealed problems and produced limited
results:
* In the first pilot, run for 1 month by the Los Angeles Strategic
Trade Center, the model was more efficient at targeting IP violations
than Cargo Selectivity, according to CBP. However, CBP's implementation
methodology resulted in certain targeted shipments being released
before they could be examined, affecting CBP's ability to fully
evaluate the model's accuracy. Also, the model sometimes targeted the
shipments of actual rights holders, forcing CBP analysts to intervene
to prevent exams of authentic goods. The pilot helped CBP refine the
risk threshold at which it should conduct examinations based on the
model's targeting.
* The second pilot was run for about 3 months at one seaport and two
land border crossings, but OT is unable to determine how the model
worked because of weaknesses and inconsistencies in the data that
participating ports collected for the pilot, according to OT officials.
For example, for some targeted shipments, the data does not contain any
exam results, even though goods were ultimately seized from those
shipments. In other instances, the data contains exam results for
shipments that were too low risk to have been targeted by the model.
Although CBP has already cited the model as an accomplishment, it does
not know how well the model works. OT officials said they plan to
develop and carry out a third pilot by having the Los Angeles Strategic
Trade Center keep track of what the model has targeted and what the
exams revealed. However, this may be difficult because the center will
have to communicate directly with ports involved in the pilot to
determine what exams were conducted and what results were found. It is
not clear whether further revisions will improve the model or what role
the model will play in CBP's overall IP targeting strategy.
After the first pilot of the risk model, OFO officials said they began
developing a set of rules to target IP violations using ATS. These
rules were developed with input from the former Office of Strategic
Trade (now part of OT) and were tested concurrently with the risk model
during the second pilot. However, data collection weaknesses also limit
CBP's ability to assess the effectiveness of these rules, and their
role in future targeting is unclear.
Audits Have Resulted in Some Seizures and Penalties, but Their Efficacy
Is Limited:
Another prominent undertaking that is discussed in CBP's strategic plan
and represents a second CBP contribution to STOP is the use of audits
to uncover IP violations among select importers. These audits,
initiated by the former Office of Strategic Trade (now part of OT), are
referred to as "post-entry" audits because they examine records of
goods that have been imported and released into commerce. This single-
issue audit is designed to evaluate the adequacy of an importer's
internal controls over IP imports, test whether the internal controls
provide reasonable assurance that the company is compliant with CBP
laws and regulations, and potentially find previously undetected IP
violations made by the importer. These audits are most likely to be
effective when dealing with compliance problems of established
importers and less so when dealing with importers that purposely evade
federal scrutiny, as is the case for importers involved in counterfeit
trade.
The audits began in 2005 and have produced some enforcement outcomes,
but they and the post-audit decision process have been time consuming.
OT's Regulatory Audit Division, in consultation with the Los Angeles
Strategic Trade Center, selected approximately 20 importers as audit
candidates in each of fiscal years 2005 and 2006, some of which had a
history of IP violations.[Footnote 48] Of these 41 audits, 23 have been
completed, 12 are in progress, 4 were suspended because they involved
companies that ICE was investigating, and 2 have not yet started. CBP
has selected about half of the next 20 companies to be audited for
fiscal year 2007. The completed audits found evidence that some
companies had imported IP infringing goods, some counterfeit goods had
been released into commerce, and other infringing goods remained in
company warehouses. According to agency officials, based on these
violations, CBP decided to assess penalties against certain companies,
but the intra-agency review process for the penalties took about 1 year
because of intra-agency discussions about the legal basis for assessing
penalties on goods that had already entered commerce. Although CBP has
moved forward with penalties in certain cases--four companies were
assessed penalties totaling over $5.7 million--future penalty decisions
must be deliberated on the facts in each case, according to CBP
officials. CBP officials said they periodically monitor the import
performance of these audited companies and found one additional
instance of IP infringement. When audit findings are significant, CBP
works with the importer to develop a Compliance Improvement Plan to
help prevent further IP violations.
At CBP's December 2006 Trade Symposium, the Assistant Commissioner for
Trade discussed CBP's plan to conduct a greater share of its trade
enforcement using these post-entry audits rather than cargo exams. The
time consuming nature of these audits and their greater efficacy with
established importers than with smugglers indicates the difficulties
that the agency will face in making this kind of enforcement shift.
New Penalty Guidance Reduces the Number of Uncollectible Penalties, but
Actual Collections Remain Low:
A third undertaking has been the development of new guidance to reduce
the number of uncollectible penalties that CBP assesses, thereby
freeing up port resources for other activities. CBP officials reported
that significant resources are dedicated to processing penalty cases;
however, they noted that few penalties are collected and such
enforcement has little deterrent effect. We reviewed CBP penalty data
and found that less than 1 percent of penalty amounts assessed for IP
violations were collected annually during fiscal years 2001 through
2006 (see table 3).
Table 3: CBP IP Penalty Amounts Assessed versus Collected, Fiscal Years
2001-2006:
Total penalty amount assessed;
2001: $52.0;
2002: $65.0;
2003: $45.0;
2004: $442.9;
2005: $423.9;
2006[A]: $136.6.
Total penalty amount collected;
2001: $0.5;
2002: $0.3;
2003: $0.4;
2004: $0.5;
2005: $0.4;
2006[A]: $0.6.
Percent collected;
2001: 0.90;
2002: 0.48;
2003: 0.91;
2004: 0.11;
2005: 0.10;
2006[A]: 0.45.
Source: GAO analysis of CBP data.
Note: Penalty data are based on penalties assessed under 19 U.S.C.
1526(f). CBP also assesses penalties for IP violations under 19 U.S.C.
1595a(b) and provided us information on these types of penalties, but
because CBP could not identify which were IP related, these types of
penalties are not included in the table.
[A] Fiscal year 2006 is reported based on data provided in January
2007. CBP officials said that the amount collected may change because
some open penalty cases are still being processed, but they said that
future adjustments are unlikely to significantly change the disparity
between penalty amounts assessed and collected.
[End of table]
Various factors contribute to CBP's limited collection rates on IP
penalties, including petitions for mitigation or dismissal by the
violator, dismissal due to criminal prosecutions, and the nature of
counterfeit importation. CBP officials said that many violators
petition to have a penalty mitigated or dismissed, and these actions
often reduce the amount of the penalty that CBP collects.[Footnote 49]
One agency official explained that some penalties are dismissed as a
result of the case going to criminal prosecution, in which the U.S.
Attorney negotiates to have a penalty dropped in exchange for
information or other evidence that will support the criminal case.
Also, the deceptive nature of counterfeit importation makes it
difficult for CBP to track violators and enforce penalties.
To address the problem of poor collections, OFO communicated new CBP
guidance to ports in 2006 that caused new penalty cases and assessed
amounts to drop, but this has had limited impact on narrowing the gap
between the amounts assessed and collected. CBP's guidance addresses 10
problem scenarios under which penalties are unlikely to be collected so
that Fines, Penalties, and Forfeiture offices will be able to avoid
assessing penalties in those circumstances. The objective of the
guidance is to reduce resources spent assessing uncollectible penalties
as well as to reduce the gap between penalties assessed and collected.
The total penalties assessed declined by two-thirds between fiscal
years 2005 and 2006, from about $424 million to about $137 million,
which CBP officials attribute to the new guidance. Despite an increase
in the amount of penalties collected between fiscal year 2005 to 2006,
from about $406,000 to about $614,000, less than 1 percent of the total
penalties assessed was collected for each of the fiscal years we
reviewed.
CBP Has Not Analyzed Variations in Port Enforcement Outcomes:
Despite some of its improvement efforts, CBP has not undertaken any
systematic analysis of its seizure and penalty activity to understand
variations in enforcement outcomes within or across ports or to learn
from ports that have been relatively more successful in capturing
fraudulent IP goods. For example, CBP has not analyzed the potential
reasons for fluctuations in seizure outcomes at key ports that have
impacted its overall seizure outcomes, and it has not identified
inconsistencies between seizure and penalty outcomes at certain ports.
Performing this type of analysis raises questions about individual
ports' performance outcomes and may help to inform CBP about
potentially effective port practices for IP enforcement. For example,
in our analysis of 25 ports that brought in over 75 percent of the
total value of IP-type imports in fiscal year 2005, we identified 8
whose seizure rate (i.e., the percent of IP seizures out of IP imports
at that port, by value) was higher than the average for the top 25 IP-
importing ports. We also found that some of the largest IP-importing
ports had very small seizure rates relative to other IP-importing
ports. Such analysis can be performed using existing data and could
help CBP focus on identifying the handful of ports with relatively
stronger enforcement records and determining whether their strategies
and practices could be expanded and used at other ports.
CBP Has Not Analyzed Yearly Fluctuations in Port Enforcement Outcomes:
CBP has not analyzed year-to-year fluctuations in ports' seizure
activity or other enforcement outcomes that may seem inconsistent with
a port's overall IP enforcement profile. In some years, fluctuations at
key ports have had a significant impact on the agency's overall
enforcement results. For example, the number of seizure actions at one
port has accounted for a growing share of all seizure actions since
fiscal year 2001, representing nearly half of all seizure actions in
fiscal year 2006, while seizure actions at another port have gone down
over time, representing 18 percent of total seizure actions in fiscal
year 2002 and less than 1 percent in fiscal year 2006. Two ports have
been leading contributors to total estimated seizure values. However,
while the value of seizures made by one of these ports has generally
risen from fiscal year 2001 to 2006, the value of seizures made by the
other port has fluctuated significantly, representing about 60 percent
of total seizure value in fiscal year 2002 and about 17 percent of
total seizure value in fiscal year 2005. The identities of these ports
have not been included in this report for law enforcement reasons.
In addition, CBP has not analyzed individual ports' seizure and penalty
outcomes to identify potential inconsistencies in the use of certain
enforcement tools. We identified some ports with high seizure outcomes
that have not had correspondingly high penalty outcomes. While ports
may not necessarily assess penalties on all of their seizure outcomes,
particularly if the seizure value is limited, we identified ports with
relatively high average seizure values but limited penalty outcomes.
For instance, three ports ranked among the top 10 ports for seizure
value for fiscal years 2001 through 2006, with average seizure values
ranging from about $83,000 to about $123,000, but none of these ports
ranked among the top 10 for penalty cases opened, and only one of them
ranked among the top 10 for penalty amounts assessed. The penalty cases
these ports opened during this period ranged between 3 and 7 percent of
their seizures. In comparison, the second highest ranked port for
seizure value, with an average seizure value of about $88,000, was also
one of the most active ports for penalty actions, opening penalty cases
for about 37 percent of its seizures. Moreover, during our audit, we
identified a sharp drop in penalty outcomes for one of the top 10
ports, starting in fiscal year 2004, that neither OT nor OFO had
identified. In investigating the reason for the drop, OFO determined
that the port was not following proper procedures for assessing and
reporting its IP penalties. We asked OT officials to explain these
anomalies between seizure and penalty outcomes, and they responded that
such analysis had not been conducted.
We asked officials in OT and its legacy offices whether they had
analyzed port enforcement outcomes in this way and to what they
attributed these fluctuations and inconsistencies. These officials said
that imports vary among ports, seizures fluctuate according to changes
in the nature of counterfeit trade, and ports have different priorities
for performing IP enforcement. Overall outcomes or fluctuations might
also be due to variations in ports' enforcement techniques or changes
in IP enforcement resources or the availability of skilled personnel.
For example, an official at one port we visited told us that during
fiscal year 2004, the port made an important change in its methods for
performing trade-related targeting, by disbanding a seven-person team
that had focused solely on trade targeting and shifting these resources
to security targeting. During our February 2005 visit to this port, the
port official stated that this change had contributed to significantly
lower seizure activity at the port in 2005. When we discussed seizure
outcomes at another port with OT officials--which have resulted
predominantly from the manual targeting skills of port staff--they
compared the workload created by these seizures with their limited
impact given that these are predominantly small value seizures. OT
officials said neither they, nor their legacy offices, have conducted
any analysis of individual ports' seizure and penalty outcomes.
Additional analysis of selected ports' enforcement outcomes are
contained in appendix II.
CBP Has Not Analyzed Relative IP Enforcement Outcomes among Ports:
CBP has also not conducted any analysis of ports' relative enforcement
outcomes. One way to conduct this analysis is to identify ports whose
seizure rate--the share of their IP seizures (by value) out of their
total IP imports (by value)--is relatively higher or lower than other
ports. For example, in fiscal year 2005, we focused on the top 25 ports
that account for over 75 percent of the value of all IP imports into
the United States.[Footnote 50] Of these 25 ports, we found that 8 had
seizure rates higher than the group average seizure rate of 0.015
percent. Surprisingly, the port with the highest seizure rate, seizing
about 0.123 percent of its fiscal year 2005 IP import value, was also
the port with the smallest value of IP imports among the ports we
examined. This port accounted for only about 1 percent of all IP import
value that year, but over 7 percent of total seizure value. In
contrast, the IP seizure rates for several ports with relatively larger
IP import values were well below the group average. Figure 6 shows the
top 25 IP-importing ports by value in fiscal year 2005 and ranks them
by their seizure rate that year. The eight ports in which the seizure
rate is greater than the average (shown by the dotted line on the
figure) are highlighted in grey. The figure also shows that many ports
had very low seizure rates relative to the average. Port names have not
been included for law enforcement reasons.
Figure 6: Top 25 IP-Importing Ports' Seizure Rates: Percent of IP
Seizures in IP Imports (by Value), Fiscal Year 2005:
[See PDF for image]
Source: GAO analysis of CBP data.
Note: Port names are not included in this figure for law enforcement
reasons.
[End of figure]
Figure 6 illustrates the differences across ports in terms of IP
seizures compared with IP imports in fiscal year 2005, the most recent
year for which we had IP import data. We also examined these data over
previous years and found similar results. For example, Port A had the
first or second highest rate of any port in the top 25. Also, the eight
ports with above-average ratios in fiscal year 2005 are consistent with
prior years. Because of the wide range of factors that affect IP
seizures (including the unknown amount of goods actually involved in IP
violations transiting a given port), these data alone are not a
complete measure of port performance. Ports can be compared relative to
each other, but port performance in even those ports that appear
relatively more successful could still be potentially improved. For
example, the majority of these top 25 ports had IP seizures that
accounted for less than one hundredth of a percent of their IP import
value. Table 4 further illustrates the variability in seizure actions
and the range of seizure rates among the top IP-importing ports.
Table 4: IP Seizure Rates of Top 25 Ports (by IP Import Value), Fiscal
Year 2005:
Port[A]: Port A;
IP imports (billions US$)[A]: [Empty];
IP seizures (number): 38;
IP seizures (thousands US$)[A]: [Empty];
IP seizure rate (IP seizures/IP imports) (percent): 0.123.
Port[A]: Port B;
IP imports (billions US$)[A]: [Empty];
IP seizures (number): 215; IP seizures (thousands US$)[A]: [Empty];
IP seizure rate (IP seizures/IP imports) (percent): 0.066.
Port[A]: Port C;
IP imports (billions US$)[A]: [Empty];
IP seizures (number): 245;
IP seizures (thousands US$)[A]: [Empty];
IP seizure rate (IP seizures/IP imports) (percent): 0.065.
Port[A]: Port D;
IP imports (billions US$)[A]: [Empty];
IP seizures (number): 2,737;
IP seizures (thousands US$)[A]: [Empty];
IP seizure rate (IP seizures/IP imports) (percent): 0.023.
Port[A]: Port E;
IP imports (billions US$)[A]: [Empty];
IP seizures (number): 177;
IP seizures (thousands US$)[A]: [Empty];
IP seizure rate (IP seizures/IP imports) (percent): 0.019.
Port[A]: Port F;
IP imports (billions US$)[A]: [Empty];
IP seizures (number): 318;
IP seizures (thousands US$)[A]: [Empty];
IP seizure rate (IP seizures/IP imports) (percent): 0.018.
Port[A]: Port G;
IP imports (billions US$)[A]: [Empty];
IP seizures (number): 391;
IP seizures (thousands US$)[A]: [Empty];
IP seizure rate (IP seizures/IP imports) (percent): 0.016.
Port[A]: Port H;
IP imports (billions US$)[A]: [Empty];
IP seizures (number): 42;
IP seizures (thousands US$)[A]: [Empty];
IP seizure rate (IP seizures/IP imports) (percent): 0.015.
Port[A]: Port I;
IP imports (billions US$)[A]: [Empty];
IP seizures (number): 9;
IP seizures (thousands US$)[A]: [Empty];
IP seizure rate (IP seizures/IP imports) (percent): 0.012.
Port[A]: Port J;
IP imports (billions US$)[A]: [Empty];
IP seizures (number): 22;
IP seizures (thousands US$)[A]: [Empty];
IP seizure rate (IP seizures/IP imports) (percent): 0.006.
Port[A]: Port K;
IP imports (billions US$)[A]: [Empty];
IP seizures (number): 197;
IP seizures (thousands US$)[A]: [Empty];
IP seizure rate (IP seizures/IP imports) (percent): 0.005.
Port[A]: Port L;
IP imports (billions US$)[A]: [Empty];
IP seizures (number): 29;
IP seizures (thousands US$)[A]: [Empty];
IP seizure rate (IP seizures/IP imports) (percent): 0.004.
Port[A]: Port M;
IP imports (billions US$)[A]: [Empty];
IP seizures (number): 10;
IP seizures (thousands US$)[A]: [Empty];
IP seizure rate (IP seizures/IP imports) (percent): 0.003.
Port[A]: Port N;
IP imports (billions US$)[A]: [Empty];
IP seizures (number): 91;
IP seizures (thousands US$)[A]: [Empty];
IP seizure rate (IP seizures/IP imports) (percent): 0.003.
Port[A]: Port O;
IP imports (billions US$)[A]: [Empty];
IP seizures (number): 154;
IP seizures (thousands US$)[A]: [Empty];
IP seizure rate (IP seizures/IP imports) (percent): 0.002.
Port[A]: Port P;
IP imports (billions US$)[A]: [Empty];
IP seizures (number): 21;
IP seizures (thousands US$)[A]: [Empty];
IP seizure rate (IP seizures/IP imports) (percent): 0.002.
Port[A]: Port Q;
IP imports (billions US$)[A]: [Empty];
IP seizures (number): 52;
IP seizures (thousands US$)[A]: [Empty];
IP seizure rate (IP seizures/IP imports) (percent): 0.002.
Port[A]: Port R;
IP imports (billions US$)[A]: [Empty];
IP seizures (number): 62;
IP seizures (thousands US$)[A]: [Empty];
IP seizure rate (IP seizures/IP imports) (percent): 0.001.
Port[A]: Port S;
IP imports (billions US$)[A]: [Empty];
IP seizures (number): 17;
IP seizures (thousands US$)[A]: [Empty];
IP seizure rate (IP seizures/IP imports) (percent): 0.001.
Port[A]: Port T;
IP imports (billions US$)[A]: [Empty];
IP seizures (number): 16;
IP seizures (thousands US$)[A]: [Empty];
IP seizure rate (IP seizures/IP imports) (percent): 0.001.
Port[A]: Port U;
IP imports (billions US$)[A]: [Empty];
IP seizures (number): 1;
IP seizures (thousands US$)[A]: [Empty];
IP seizure rate (IP seizures/IP imports) (percent): 0.000.
Port[A]: Port V;
IP imports (billions US$)[A]: [Empty];
IP seizures (number): 13;
IP seizures (thousands US$)[A]: [Empty];
IP seizure rate (IP seizures/IP imports) (percent): 0.000.
Port[A]: Port W;
IP imports (billions US$)[A]: [Empty];
IP seizures (number): 22;
IP seizures (thousands US$)[A]: [Empty];
IP seizure rate (IP seizures/IP imports) (percent): 0.000.
Port[A]: Port X;
IP imports (billions US$)[A]: [Empty];
IP seizures (number): 1;
IP seizures (thousands US$)[A]: [Empty];
IP seizure rate (IP seizures/IP imports) (percent): 0.000.
Port[A]: Port Y;
IP imports (billions US$)[A]: [Empty];
IP seizures (number): 8;
IP seizures (thousands US$)[A]: [Empty];
IP seizure rate (IP seizures/IP imports) (percent): 0.000.
Port[A]: Subtotal: Top 25 ports;
IP imports (billions US$)[A]: $430;
IP seizures (number): 4,888;
IP seizures (thousands US$)[A]: $66,419;
IP seizure rate (IP seizures/IP imports) (percent): 0.015.
Port[A]: Subtotal: Remaining ports;
IP imports (billions US$)[A]: $125;
IP seizures (number): 3,134;
IP seizures (thousands US$)[A]: $26,816;
IP seizure rate (IP seizures/IP imports) (percent): 0.021.
Port[A]: Total all ports;
IP imports (billions US$)[A]: $555;
IP seizures (number): 8,022;
IP seizures (thousands US$)[A]: $93,235;
IP seizure rate (IP seizures/IP imports) (percent): 0.017.
Source: GAO analysis of CBP data.
Note: Although we report fiscal year 2005 values here for illustration,
we conducted the analysis for each of fiscal years 2002 through 2005
and found similar results. In each year, the top 25 ports identified
here accounted for between 75 and 78 percent of total IP imports and
their average ratio of IP seizures to IP imports ranged from 0.015
percent to 0.030 percent.
[A] Port names and data on the ports' fiscal year 2005 IP imports and
value of IP seizures are not included in this table for law enforcement
reasons. For fiscal year 2005, the IP import values for these ports
ranged from about $5 billion to about $89 billion. The domestic value
of their IP seizures ranged from about $1,000 to about $18.9 million.
[End of table]
Lack of Integration across Key Offices Impedes Further Improvements in
IP Enforcement:
CBP lacks an integrated approach across key offices for further
improving border enforcement outcomes. Our analysis of CBP's data is
one illustration of the kind of work that the agency could do using
existing data to understand differences in IP enforcement outcomes
across ports, potentially identifying areas where improvements could be
made, and more effectively managing its resources to meet the agency's
goals and objectives. CBP could refine this analysis by comparing
across similar ports and processing environments, such as seaports to
seaports and airports to airports, however inconsistencies in how CBP
currently captures seizure activity across ports, as previously
discussed, makes this refinement more difficult. CBP could use its
experience and practical knowledge of some of the factors affecting
trade flows at their ports to further inform the analysis. When we
discussed our analysis with CBP, OT officials said they have not
conducted this type of analysis because they do not have any
responsibility or authority to oversee and influence port operations,
which is under the purview of OFO. However, OT is responsible for
overseeing CBP's implementation of its Priority Trade Initiatives, and
it has access to data that could inform OFO's understanding of port IP
enforcement practices and outcomes and inform CBP's resource allocation
decisions.[Footnote 51]
Conclusions:
Enforcing IP protection at U.S. borders has become progressively more
challenging for CBP as the volume of trade entering the United States
increases, and as the of types of IP-infringing goods expand. CBP needs
to maximize its IP enforcement efforts in an environment strained by
the need to balance its primary mission to protect homeland security
with trade facilitation and enforcement of U.S. trade laws, among other
objectives. While CBP has publicly cited increases in enforcement
outcomes based on larger numbers and higher values of IP seizures,
indicating its success, it has not fully disclosed the composition of
those seizures or analyzed what has accounted for the increases.
However, as indicated by our review, a limited number of ports have
driven overall IP enforcement activity.
CBP's strategic plan lacks measures to guide agencywide IP enforcement
efforts, and the efforts of two key offices responsible for carrying
out IP enforcement, OT and OFO, are not well integrated. So far, the
agency's main efforts to improve IP enforcement have involved
initiatives carried out primarily by OT, and these have produced
limited results. However, neither OT nor OFO has been engaged in trying
to assess the effectiveness of CBP's core IP border enforcement
efforts--namely, the targeting, examination, seizure, and penalty
activities undertaken by CBP's front-line port operations. CBP's
ability to fully assess ports' IP enforcement activities is hampered by
inconsistencies in the way IP enforcement data are recorded at the
ports. In addition, OT does not have responsibility or authority to
oversee or influence port operations.
As demonstrated by our own analysis of CBP data, the agency has
sufficient information available despite the data's limitations to
conduct a more comprehensive review of IP border enforcement outcomes
in ways that would provide insights about targeting, examination,
seizure, and penalty assessment practices across ports. Certain
improvements to existing data could make this type of review even more
powerful. In addition, such analysis could prove useful as CBP responds
to congressional directives to develop resource allocation models in
order to determine the optimal staffing levels needed to carry out its
commercial operations and other missions. CBP would be able to make
more measurable links between its strategic objectives and enforcement
outcomes, leading to more effective management practices and allocation
of limited resources. Given the challenging environment in which CBP
must process a vast influx of goods into the United States every day,
it is particularly important that the agency consistently collect key
data, perform useful analysis of the data, and use the data to better
inform policies and practices and make decisions to focus its use of
limited resources.
Recommendations for Executive Action:
To develop a more effective approach to IP border enforcement, we
recommended in the law enforcement sensitive report that the CBP
Commissioner direct the Offices of International Trade and Field
Operations to work together to take the following three actions:
* Clarify agencywide goals related to IP enforcement activity by
working with the Office of Management and Budget to include in its
agency's strategic plan measures to guide and assess IP enforcement
outcomes;
* Improve data on IP enforcement activity by:
- Determining the completeness and reliability of existing IP
enforcement data and identifying aspects of the data that need to be
improved;
- Ensuring uniformity in port practices to overcome any weaknesses in
data reporting;
* Use existing data to understand and improve IP border enforcement
activity by:
- Analyzing IP enforcement outcomes across ports and other useful
categories, such as modes of transportation;
- Reporting the results of this analysis internally to provide
performance feedback to the ports, better link port performance to
performance measures in CBP's Strategic Plan, and inform resource
allocation decisions.
Agency Comments and Our Evaluation:
We provided a draft of the law enforcement sensitive report to DHS for
review by CBP and ICE. Through DHS, CBP commented that it generally
agreed with our recommendations and provided certain additional
comments. Specifically, CBP said it would consider developing IP
enforcement measures and include them in the agency's strategic plan to
clarify agencywide goals. CBP concurred with our second recommendation
to improve its IP enforcement data.
Regarding our third recommendation, CBP generally agreed to use
existing data to understand and improve IP border enforcement activity.
It stated that strong data analysis and targeting are critical to
successful IP enforcement and agreed to improve the linkages between
the agency's IP enforcement objectives and port performance. However,
CBP did not regard our analysis of ports' IP seizures relative to IP
imports as a useful tool for addressing the threat of IP infringement
and identified a range of limitations with our analysis. We disagree.
This simple presentation can be a powerful tool to generate discussion
among IP policymakers and port management and staff about IP seizure
patterns, risks, and outcomes. CBP has not yet attempted to complete
even this basic analysis or initiate such discussions. Doing so would
invariably lead to potential refinements of the analysis; we suggest a
number of these in the report, some of which CBP identifies in its
comments. We encourage CBP to refine this analysis and develop and use
other types of analysis to ensure that ports are helping the agency
achieve its IP enforcement objectives.
CBP made certain additional comments about the draft law enforcement
sensitive report. For example, CBP said that our report focused on
transaction-level seizures and penalties, while not fully recognizing
the importance of additional elements of its IP enforcement approach.
We focused on seizures and penalties because they are the core IP
enforcement activities for which CBP is responsible, and we found that
CBP had not systematically analyzed its own performance of these
activities. However, we also discuss the risk model, the audits, and
the new penalty guidance; and these elements are reasonable components
of a broader approach, but we believe their effect on overall IP
enforcement has been limited. Moreover, we believe that CBP needs to
continue to ensure the robustness of its core enforcement activities.
CBP also stated that our report failed to note that the formation of OT
in October 2006 was designed in part to address the lack of integration
between OT and OFO. We disagree that the formation of this office has,
in itself, addressed the lack of integration that we identify in the
report regarding IP enforcement. Although OT consolidates CBP's trade
policy and program development functions, including those related to IP
enforcement, front-line implementation of policies and programs
continue to be carried out at the ports under the leadership of OFO. OT
and OFO will need to work closely together to overcome the historic
lack of integration regarding IP policy and program development and
execution. CBP and ICE also provided technical comments, which we
incorporated in the law enforcement sensitive report as appropriate.
We also provided DHS a draft copy of this public report for a
sensitivity review by CBP and ICE. CBP and ICE agreed that we have
appropriately removed information that they considered law enforcement
sensitive.
We are sending copies of this report to appropriate congressional
committees and the Librarian of Congress; the Secretaries of the
Departments of Commerce, Homeland Security, Justice, and State; the
Commissioner of U.S. Customs and Border Protection; the Assistant
Secretary for U.S. Immigration and Customs Enforcement; the Directors
of the U.S. Patent and Trademark Office and the U.S. Food and Drug
Administration; the Chairman of the U.S. International Trade
Commission; and the U.S. Trade Representative. We will make copies
available to others upon request. In addition, the report will be
available at no charge on the GAO Web site at http://www.gao.gov. We
provided copies of the law enforcement sensitive report to the
Secretary of the Department of Homeland Security, the Commissioner of
U.S. Customs and Border Protection, the Assistant Secretary for U.S.
Immigration and Customs Enforcement, and appropriate congressional
committees with a need to know.
If you or your staff have any questions about this report, please
contact me at (202) 512-4347 or yagerl@gao.gov. Contact points for our
Office of Congressional Relations and Public Affairs may be found on
the last page of this report. GAO staff who made major contributions to
this report are listed in appendix IV.
Sincerely yours,
Signed by:
Loren Yager, Director:
International Affairs and Trade:
[End of section]
Appendix I: Scope and Methodology:
The Ranking Minority Member of the Senate Subcommittee on Oversight of
Government Management, the Federal Workforce and the District of
Columbia, Committee on Homeland Security and Governmental Affairs asked
us to (1) examine key aspects of the U.S. Customs and Border
Protection's (CBP) process to carry out enforcement of intellectual
property (IP) at U.S. borders; (2) analyze CBP's border enforcement
outcomes during fiscal years 2001 through 2006; and (3) evaluate CBP's
approach for improving border enforcement.
To examine key aspects of CBP's border enforcement process, we reviewed
documents and interviewed officials at CBP headquarters in Washington,
D.C., and at selected port locations. At headquarters, we met with
officials in the Office of International Trade (OT) and Office of Field
Office Operations (OFO) and obtained documents. We reviewed agency
strategic plans, annual performance accountability reports, laws,
regulations, and policies that addressed agency goals and the roles and
responsibilities of these two key offices and field locations in
enforcing IP rights at the border, including CBP's internal plan for
addressing IP enforcement as a Priority Trade Issue. We also reviewed
documents and interviewed officials at OT's Los Angeles Strategic Trade
Center, which has been responsible for developing and implementing
CPB's approach to IP enforcement since approximately 2002. We analyzed
data that the center provided on the use and outcomes of using Cargo
Selectivity criteria to target for IP violations. In addition, we
reviewed documents and interviewed CBP officials at four field offices
and seven ports (the names of the ports where we conducted field work
are not included in this report for law enforcement reasons). We
selected these ports in order to observe CBP's IP enforcement practices
at ports with high and medium import levels (measured by value) and
across a range of processing environments. Five of these ports were
among the top 25 IP-importing ports in fiscal year 2005, and five of
them were among the six most active CBP ports as measured by selected
IP enforcement outcomes. We reviewed documents on CBP's organizational
structures at these ports and the ports' approaches for carrying out
their overall missions, including IP enforcement. The CBP officials we
interviewed at these ports were responsible for identifying, examining,
seizing, and assessing penalties on goods that involve IP violations.
In addition, we reviewed relevant papers, studies, and our reports that
addressed key aspects of CBP's mission and its IP border enforcement
responsibilities. We also met with officials from the Department of
Homeland Security's Immigration and Customs Enforcement, the Department
of Commerce's Patent and Trademark Office, the Department of Justice,
the U.S. Copyright Office, and the U.S. International Trade Commission,
to discuss their respective roles in registering IP rights and
investigating and prosecuting IP violations.
To analyze CBP's border enforcement outcomes, we obtained and reviewed
seizure and penalty enforcement data covering fiscal years 2001 through
2006. First, to measure the value of IP-related trade entering U.S.
ports, we identified products, using detailed product codes, that are
likely to embody intellectual properties and obtained CBP data on the
importation of these products by port over fiscal years 2002 to 2005.
In order to identify these products, we reviewed the broad product
groups that CBP uses to categorize seizure actions and domestic value
and then identified all individual products that are covered by these
groups within the U.S. harmonized tariff schedule. We discussed our
detailed product list with CBP, which concurred with our list, and we
obtained import data from them according to the list. We reviewed these
data for internal consistency and any known limitations on its quality.
We determined that these data were sufficiently reliable to provide the
value of IP imports by port over the time period we examined. Second,
we assessed CBP's IP enforcement efforts on an aggregate, product, and
port basis by analyzing its seizure and penalty data. Specifically, we
obtained data from CBP on seizure and penalty outcomes for individual
ports of entry for fiscal years 2001 through 2006. For fiscal years
2003 through 2006, we obtained data on the mode of transport or
processing environments in which seizure were made. Finally, we
obtained data on seizures by product category and source country from
CBP's external Web site.[Footnote 52] To assess the reliability of the
seizure and penalty data, we examined them for internal consistency and
discussed with CBP how the data are collected and reviewed. We also
reviewed our prior work that reported on CBP's seizure data.[Footnote
53] Based on this prior work and our discussions with CBP officials, we
identified some limitations in the seizure data related to the
precision of the seizure value estimates and the veracity of the fields
that indicate product types and modes of transport or processing
environments. We also found some inconsistencies in the various data
sets we received, which we reported to CBP. The limitations and
inconsistencies we identified, however, did not indicate large
discrepancies in the data, and we found the data to be sufficiently
reliable for the purposes of reporting on broad trends in seizures and
penalties over time and among ports. Based on our discussions with CBP
headquarters and port officials, we selected four types of enforcement
actions by which to analyze port outcomes: (1) number of seizure
actions, (2) domestic value of seizures, (3) number of penalty cases
opened, and (4) penalty amounts assessed. We aggregated the data on
these enforcement actions for fiscal years 2001 through 2006, ranked
ports by each of the enforcement actions, and identified the top 10
ports for each of the categories.
To evaluate CBP's approach for improving border enforcement, we
discussed CBP's efforts with knowledgeable OT and OFO officials in
Washington, D.C., and the field offices and ports we visited. We
reviewed CBP's and OFO's strategic plans, CBP's annual performance and
accountability reports, and CBP's internal plan for addressing IP
enforcement as a Priority Trade Issue to identify CBP's goals,
objectives, and plans for conducting and improving IP enforcement at
the border. We also examined documents related to the administration's
Strategy Targeting Organized Piracy. From this, we identified key
initiatives that CBP has undertaken to improve the effectiveness of IP
border enforcement and discussed the status of these initiatives with
knowledgeable CBP officials. We also assessed the initiatives to
determine how they relate to CBP's IP enforcement goals. We analyzed IP
enforcement outcomes across ports, identified fluctuations that have
significantly impacted CBP's overall IP enforcement outcomes and
inconsistencies in outcomes at certain ports, and discussed these
observations with CBP officials. We compared IP seizures with IP
imports on a value basis for the top 25 IP-importing ports for fiscal
years 2002 through 2005, determined the average seizure rate for these
ports, and compared the ports' individual seizure rates with the
average. While estimated domestic value of seizures and values for IP
imports are not equivalent measurements, we determined that these were
sufficiently reliable proxies for the purpose of seizure to import
comparisons. We also conducted interviews with CBP officials in
headquarters and field locations to obtain information on how OT and
OFO carry out their operations and in final meetings discussed ways in
which OT and OFO could better use their data to improve IP enforcement.
This report is based on a law enforcement sensitive report issued on
March 20, 2007, as a restricted report, copies of which are available
for official use only.[Footnote 54] This public version does not
contain certain information that DHS regarded as law enforcement
sensitive and requested that it not be included. We provided DHS a
draft copy of this public report for a sensitivity review by CBP and
ICE, which agreed that we had appropriately removed law enforcement
sensitive information.
We conducted our work from November 2005 through January 2007 in
accordance with generally accepted government auditing standards.
[End of section]
Appendix II: Analysis of Top Six Ports' IP Enforcement Outcomes:
To analyze IP enforcement outcomes across ports, we selected four
categories of enforcement outcomes from the data CBP provided: (1)
number of seizure actions, (2) domestic value of seizure, (3) number of
penalty cases opened, and (4) penalty amounts assessed. We analyzed
data by port location for fiscal years 2001 through 2006. For four of
these categories, we found that six ports accounted for the bulk of
enforcement activity (see fig. 7). Four of these ports ranked in the
top 10 for all four IP enforcement categories and 2 ranked in the top
10 for three out of the four categories. These ports may include
multiple processing environments (e.g., land, sea, air modes), and
seizure associated with such ports may stem from more than one
processing environment. Because of inconsistencies in how CBP records
seizures by port, we were unable to fully determine how many processing
environments are reflected in the enforcement data. We were able to
determine the seizure reporting practices of the seven ports that we
visited. For example, at one location, CBP has one port "code" that
includes seizures made at the seaport as well as the nearby airport.
However, seizure data for another location includes seizures made at
the seaport and from the international mail processing environment, but
does not include other air-based seizures made at the nearby airport,
which are reported separately. Neither OFO nor OT officials at the
headquarters level could provide us information to understand the
seizure reporting practices of CBP's ports.
As figure 7 illustrates, CBP's data can be used to compare enforcement
outcomes across the ports (left to right) or compare outcomes within a
single port (top to bottom). With the exception of Port D, the scales
are uniform. When analyzing IP enforcement outcomes both across ports
and within a single port, we found wide variability when comparing
outcomes from year to year and among the enforcement categories. For
example, the Port F experienced increases in the number of seizure
actions for fiscal years 2002 and 2004; but in alternating years, the
number dropped, in some cases by as much as 50 percent. Penalty
outcomes also fluctuated by port location. For example, Port G had
relatively constant numbers of penalty cases opened and penalty amounts
assessed until fiscal year 2005, when these outcomes peaked, and then
fell off sharply in fiscal year 2006. When examining outcomes within a
single port, we found that the fluctuations in seizure outcomes did not
mirror fluctuations in penalty outcomes. For example, Port C had a
relatively steady number of seizure actions between fiscal years 2003
and 2006, but the number of penalty cases opened fluctuated greatly
during the same time period. While we did not expect to find a direct
correlation between seizure and penalty outcomes, given that the
seizure data consists of all IP-related activity and penalty data
limited to only those assessed under 19 U.S.C. 1526(f), we did not
expect to find such wide variations within the most active ports during
the 6-year time period we reviewed.
Figure 7: IP Enforcement Outcomes for Top Six Ports, Fiscal Years 2001-
2006:
[See PDF for image]
Source: GAO analysis of CBP data.
[A] The scale for Port D is not uniform because it had substantially
more seizure actions compared with other ports, making it difficult to
compare in a uniform scale.
[B] Penalty data for Port F was not available for fiscal years 2003
through 2006 due to a change in the way the port records its IP-related
penalties. CBP was unable to provide more complete information for this
port. As a result, total IP penalty outcomes for this port are likely
underrepresented in the above figure.
[End of figure]
[End of section]
Appendix III: Comments from the Department of Homeland Security:
Note: GAO comments supplementing those in the report text appear at the
end of this appendix.
U.S. Department of Homeland Security:
Washington, DC 20528:
March 6, 2007:
Mr. Loren Yager:
Director:
International Affairs and Trade:
U.S. Government Accountability Office:
441 G Street, NW:
Washington, DC 20548:
Dear Mr. Yager:
Thank you for the opportunity to review and comment on the Government
Accountability Office's (GAO's) draft report GAO-07-350SU entitled,
Intellectual Property: Better Data Analysis and Integration Could Help
U.S. Customs and Border Protection Improve Border Enforcement Efforts.
The Department's U.S. Customs and Border Protection (CBP) provides the
following general comments. First, the report cites a lack of
integration between key offices involved in Intellectual Property
Rights (IPR) enforcement, which CBP acknowledges was a problem during
the review period. However, the report fails to note action already
taken by Congress and CBP to address this issue. Congress recognized
the integration issue, and with the passage of the SAFE Port Act in
2006, mandated creation of the Office of International Trade (OT) to
solve this problem. OT, established by CBP in the last quarter of
calendar year 2006, has authority to set IPR policy and direction for
ports. Throughout the report, GAO misrepresents this major change in
CBP's organizational structure by referring inaccurately to OT, which
did not exist during the review period, rather than the Office of
Strategic Trade (OST), which actually existed during the review period.
OST and OT are very different organizations. In addition, the lack of
integration cited by GAO has been addressed by combining all IPR policy
and program functions into the Office of International Trade. This
includes the IPR policy and program functions that formerly were the
responsibility of Office of Field Operations (OFO). Hence, OT has
responsibility for establishing direction, setting policy, and creating
programs for ports with regard to IPR enforcement.
Second, throughout the report, GAO promotes a simple analysis of
seizure outcomes among ports as the key approach for improving IPR
enforcement at the border. As discussed with GAO during the audit, CBP
disagrees that this analysis is useful for addressing IPR threat, let
alone representing a major weakness in the agency's approach. GAO bases
its analysis on "IP-type" imports, which it defines as tariff
classifications previously associated with at least one IPR seizure. A
fundamental flaw with this approach is that it fails to recognize
relative risk and assumes that all similar commodities form a universe
at equal risk for IP infringement. As "IP-type" imports, GAO includes
the value of all goods entered under tariff classifications such as
furniture used infrequently to try to smuggle counterfeit products, but
for which the overwhelming majority of imports are highly unlikely to
be IPR infringing. In addition, both products bearing trademarks or
copyrighted works and products that do not (e.g., trademarked T-shirts
as well as plain T-shirts with no mark) are included in the value of
"IP-type" imports.
Further, GAO does not take into account a number of additional factors
known to be relevant to IPR risk such as source country, shipping
patterns, and shipments entered by right holders and their licensees.
Instead, GAO assumes that there is a direct correlation between "IP-
type" imports and IPR infringement threat. However, no evidence
supporting this assumption is presented. GAO also performs this
analysis on ports that are or include express consignment or mail
facilities. For such ports, the value of "IP-type" imports cannot be
determined because entry is not required and therefore values are not
available for the vast majority of packages entered at these
facilities. For these reasons, CBP finds GAO's analysis to be
incomplete and unreliable as a basis for action to improve enforcement
or allocate resources.
Third, the report focuses on the transaction-level seizures and
penalties elements of CBP's IPR enforcement strategy, and while these
are important, the agency's strategy is more comprehensive than this
limited approach. In order to minimize the IPR threat, CBP takes a
multilayered approach to IPR enforcement that expands and complements
the seizure of IPR infringing goods and issuance of penalties. The
agency's strategy expands the border outward by using audit techniques
to assess and improve the internal control systems that importers use
to prevent imports of IPR infringing goods and to issue penalties on
imported counterfeit goods that have been distributed into commerce;
collaborating with other U.S. government agencies and trading partners
to improve enforcement; cooperating with right holders; and training
both CBP employees and officials of foreign customs administrations.
This approach addresses counterfeiting at the organizational source to
deter future violations rather than only addressing the immediate
violation. As GAO notes, only one subsequent IPR violation has been
found among importers that have been audited for IPR, an indication of
the success of this approach.
Finally, the report states several times that CBP lacks performance
measures for IPR, but this is inaccurate. CBP acknowledges that the CBP
Strategic Plan does not contain specific measures for IPR enforcement.
However, CBP's National IPR Trade Strategy does contain performance
measures for IPR, and it is this strategy that guides CBP's IPR
enforcement efforts. The following excerpt from CBP's National IPR
Trade Strategy, which was provided to GAO, describes CBP's IPR
performance measures.
Table:
Objective: 1. Apply risk model to:
* Identify high risk shipments for cargo exams;
* Identify accounts at high risk for importing IPR infringing products;
IPR risk model is a Strategy Targeting Organized Piracy (STOP)
deliverable;
Measure: Evaluate targeting efficiency of risk model using cargo
selectively criteria efficiency as a baseline;
Evaluate effectiveness of model in identifying high risk accounts based
on lack of internal controls to prevent imports of IPR infringing goods
and/or proving IPR violations;
Target: 15% increase in targeting efficiency; Conduct post-entry
verifications to assess effectiveness.
Objective: 2. Manage targeting in order to minimize impact on front
line resources, facilitate legitimate trade and increase effectiveness
of cargo exams relative to IPR PTI goals:
a) Reduce/eliminate inefficient cargo exam;
b) Conduct targeting based on IPR Priority Trade Issue (PTI) goals;
Measure: Evaluate targeting efficiency by comparing the total number of
discrepancies to the total number of exams; Evaluate effectiveness
based on the number and value of IPR seizures that meet IPR PTI goals;
Evaluate facilitation by reduction in unproductive criteria hits;
Target: 15% increase in targeting efficiency; 15% increase in number
and value of seizures meeting PTI goals; 10% reduction in unproductive
criteria hits.
Objective: 3. Conduct post-entry verifications ("IPR audits") to
enforce IPR and prevent future violations. Post-entry verification is a
STOP deliverable;
Measure: Evaluate effectiveness of post-entry verification based on
finding of lack of internal controls to prevent future imports of IPR
infringing goods and/or finding of additional IPR violations;
Target: Conduct 20 post-entry verifications.
Objective: 1. Collaborate with ICE, other agencies and foreign
governments to enhance international protection and enforcement of IPR;
International cooperation is a STOP component;
Measure: US Joint Commission on Commerce and Trade (JCCT) Pilot paper
being drafted. Evaluate the effectiveness based on the results of the
information provided;
Target: Establish a benchmark to utilize as a baseline to measure
success.
Objective: 5. Communicate IPR risks and strategy to increase employee
knowledge/skill levels in such areas as:
* IPR strategy objectives and initiatives;
* Legal authorities and procedures;
Measure: Number of employees that received training (sort by job
category and specify area of training);
Target: Provide IPR enforcement training to 100% of ICE and CBP
employees attending the Advanced Fraud Course (Glynco); Train 100% of
ICE and CBP Attache personnel newly assigned to foreign ports; Train
all major ports and additional ports as necessary and requested on
legal authorities and procedures.
Objective: 6. Conduct industry outreach to familiarize IPR holders on
how to work with CBP/ICE to protect IPR at the border; Industry
outreach is a STOP component;
Measure: Evaluation by participants;
Target: 90% approval rating.
Objective: 7. Deter IPR violations through the issuance of fines and
penalties;
Measure: Issuance of fines in accordance with newly established
guidelines;
Target: Establish baseline.
[End of table]
The report makes three recommendations to the Commissioner of CBP. The
agency concurs in part with recommendation one, concurs with
recommendation two, and concurs in part with recommendation three of
the draft report. The following discusses the report's recommendations
and CBP's response.
Recommendation 1: Clarify agency-wide goals related to IP enforcement
activity by developing measures to guide and assess IP enforcement
outcomes and including them in CBP's strategic plan.
Response: Concur in part. The Office of International Trade (OT) will
review CBP's Intellectual Property (IP) enforcement measures and
consider creating the appropriate strategic measure(s) to be inserted
into the strategic plan.
Recommendation 2: Improve data on IP enforcement activity by:
a) Determining the completeness and reliability of existing IP
enforcement data and identifying aspects of the data that need to be
improved;
b) Ensuring uniformity in port practices to overcome any weaknesses in
data reporting:
Response: Concur. OT will issue guidance to the ports regarding policy/
procedures for the input of seizure and exam findings data and
coordinate with the Office of Field Operations to provide ports with
periodic progress reports on their compliance with the data quality
guidelines.
Recommendation 3: Use existing data to understand and improve IP border
enforcement activity by:
a) Analyzing IP enforcement outcomes across ports and other useful
categories, such as modes of transportation;
b) Reporting the results of this analysis internally to provide
performance feedback to the ports, better link port performance-to-
performance measures in CBP's Strategic Plan, and inform resource
allocation decisions.
Response: Concur in part. CBP agrees that strong data analysis and
targeting are critical to the success of the IPR enforcement strategy
and that the link between port performance and CBP IPR Trade Strategy
measures needs to be more clearly defined. Although the performance
metrics proposed by GAO are inadequate to meet this end, CBP will work
to improve measures linking tactical activities (exams, audits,
training, penalties, etc.) to CBP IPR Trade Strategy objectives.
Thank you again for the opportunity to comment on this draft report and
we look forward to working with you on future homeland security issues.
Sincerely,
Signed by:
Steven J. Pecinovsky:
Director:
Departmental GAO/OIG Liaison Office:
The following are GAO's comments on the Department of Homeland
Security's letter dated March 6, 2007, which commented on GAO's law
enforcement sensitive report.
GAO Comments:
1. We disagree that OT's formation has, in itself, addressed the lack
of integration that we identify in the report regarding IP enforcement.
Although OT consolidates its legacy offices' trade policy and program
development functions--specifically, the Office of Strategic Trade, the
Office of Regulations and Rulings, and a headquarters component of the
Office of Field Operations, front-line implementation of policies and
programs continue to be carried out at the ports under the leadership
of OFO. Because there is still separation between the office that sets
policy and the office that implements policy, there is no evidence that
the creation of OT will address the lack of integration that initiated
congressional action and that we identified in our review. OT and OFO
will need to work closely together to overcome the lack of integration
between policy development and implementation that we refer to in the
report. Regarding CBP's comment that we inaccurately refer to OT
throughout the report, we modified the report to clarify references to
OT and its legacy offices.
2. CBP mischaracterizes the purpose and usefulness of our analysis of
IP imports and enforcement activity at its ports. Seizing IP infringing
goods is a core IP enforcement activity for which CBP is responsible,
but CBP has not conducted systematic analysis of its own data to
examine variations in enforcement outcomes over time or among ports.
This simple analysis can be a powerful tool to generate discussion
among IP policymakers and port management and staff about IP seizure
patterns, risks, and outcomes and to improve CBP's approach to IP
enforcement. We do not suggest using it to target imports. We clearly
state that our analysis is only illustrative of the types of analysis
that CBP could undertake and that CBP should refine and develop its own
approach. We support CBP's decision to follow our recommendation to
conduct such analysis.
3. Our measure of IP imports is broader than CBP suggests, but it is
not intended as a measure of risk. CBP does not currently have such a
measure, and we believe our measure, which we reviewed with CBP, is
useful. Our measure is intended to identify the overall relative volume
of potential IP traffic that ports process, which is lower than total
import volume. Doing so enables us to examine IP seizure activity
relative to a meaningful measure of port volume. Our measure is based
not only on tariff classifications where CBP actually found IP
violations but also their related products groups. These
classifications may include both IP and non-IP goods that are not
separated out in the tariff schedule. Doing so is appropriate because
CBP cannot easily distinguish, based on the tariff information, whether
goods involve IP protection, have been purposely misclassified, or are
being used to smuggle infringing products. The draft report explained
our selection process and methodology, but we added clarity to further
explain our measure and how we developed it. We also state that this
analysis is one logical way to examine port performance and do not
suggest, as CBP states in its response to our third recommendation,
that the seizures-to-imports ratio is, in itself, a complete
performance measure.
4. We also agree that CBP should consider the range of factors that
affect IP goods in conducting its analysis. We clearly stated in the
report that our analysis was only one way to examine port performance.
Our analysis was not intended to be used for risk analysis or
targeting, but only to provide a measure of seizure activity relative
to port size, and we did not assume a direct correlation between the
volume of IP imports and risk.
5. We agree that CBP's import data does not fully capture IP import
values at express consignment and mail facilities, but even with this
likely underreporting of such imports, several ports at which such
facilities are dominant ranked among the top IP importing ports. As we
state in the report, we agree that CBP should take differences across
port environments into account in developing its own analysis.
6. We focused on "transaction-level seizures and penalties" because
these are the core IP enforcement activities for which CBP is
responsible, and we found that CBP had not systematically analyzed its
own performance of these core activities. We also address additional
elements of CBP's approach to improve IP enforcement that fell within
the scope of our audit, including its IP audits. However, we found that
these efforts have had a limited impact on overall IP enforcement,
while perhaps drawing attention away from improvements to its core
activities. For example, CBP acknowledges that its audits, completed
thus far on 41 companies during a 2½-year period, are most effective
for improving IP enforcement among legitimate importers, but these
importers likely do not account for the bulk of IP infringing goods
that enter the United States.
7. CBP mischaracterizes our analysis by asserting that our report
states across-the-board that CBP lacks performance measures for IP
enforcement. Our draft report stated that the agency's strategic plan
lacks specific measures for IP enforcement, but noted that CBP does
indeed measure and report internally on the number of IP seizure
actions and estimated seizure value. The draft report also discussed
certain actions that CBP has taken under its "Intellectual Property
Rights Trade Strategy," an internal planning document that is the same
as what CBP calls the "National IPR Trade Strategy" in its letter.
However, we disagree with CBP's assertion that this document serves as
an agencywide guide for CBP's IP enforcement efforts. In our
discussions with CBP about this document, CBP officials said the
document was written for internal planning purposes. We found that the
distribution of this document has been limited. For example, CBP
documents show that revisions to the IP Rights Trade Strategy have not
been distributed to the field since 2003. Moreover, certain CBP
officials told us that the ports are generally not familiar with this
document. Finally, given the document's classification as "For Official
Use Only," it is not distributed to Congress or the public, unlike the
agency's strategic plan, which limits its usefulness for holding CBP
accountable for its performance on IP enforcement. We added information
in our report to clarify the importance of agencywide strategic plans
and performance measures in communicating priorities on an agencywide
basis and establishing accountability. We added information that the IP
Rights Trade Strategy contains other indicators related to IP
enforcement. We also modified our recommendation to clarify that we
recommend that CBP include IP enforcement-related measures in its
strategic plan. Given the Office of Management and Budget's role in the
strategic planning process, we also clarified that CBP should work with
the Office of Management and Budget to include IP-enforcement related
measures in its strategic plan.
8. See comment 7.
9. See comments 2 and 3.
[End of section]
Appendix IV: GAO Contact and Staff Acknowledgments:
GAO Contact:
Loren Yager, (202) 512-4128, or yagerl@gao.gov:
Staff Acknowledgments:
In addition to the individual named above, Christine Broderick,
Assistant Director; Shirley Brothwell; Carmen Donohue; Adrienne Spahr;
and Timothy Wedding made significant contributions to this report.
Virginia Chanley, Jerome Sandau, Ernie Jackson, Karen Deans, Etana
Finkler, and Jena Sinkfield also provided assistance.
FOOTNOTES
[1] Counterfeit goods carry a false trademark identical to, or
substantially indistinguishable from, a U.S. registered trademark (See
Timothy P. Trainer and Vicki E. Allums, Protecting Intellectual
Property Across Borders, 2006 ed. (Eagan, MN: Thomson/West, 2006).)
Pirated goods are reproduced without authorization, especially in
infringement or copyright.
[2] GAO, Intellectual Property: U.S. Efforts Have Contributed to
Strengthened Laws Overseas, but Challenges Remain, GAO-04-912
(Washington, D.C.: Sept. 8, 2004).
[3] Officials from the Departments of Commerce, the U.S. Trade
Representative, and Homeland Security have all recently reported on the
growing threats to the United States from increases in counterfeit
goods.
[4] Given its role in overseeing the import and export of physical
goods, CBP's efforts are primarily directed toward counterfeit goods
manufactured overseas and, occasionally, the means to create or finish
them in the United States. Computer-or Internet-based piracy of
copyrighted media, such as music, movies, or software, is also a
significant problem, but because these activities usually have no link
to the border, CBP is not as involved in fighting this form of IP
infringement. Our use of the term "counterfeit" in this report refers
broadly to violations that may involve a range of IP infringement.
[5] GAO, Intellectual Property: Better Data Analysis and Integration
Could Help U.S. Customs and Border Protection Improve Border
Enforcement Efforts, GAO-07-350SU (Washington, D.C.: Mar. 20, 2007).
[6] We ranked ports according to their aggregate number of seizure
actions, estimated seizure values, IP penalty cases opened, and IP
penalty amounts assessed during fiscal years 2001 through 2006. The top
10 ports for each category differ, but there is considerable overlap
among the ports so ranked in each category.
[7] A copyright provides protection for literary and artistic works
such as books, musical compositions, computer software, and
cinematographic works (movies). A copyright is a property right in an
original work of authorship that arises automatically upon creation of
such a work and belongs, in the first instance, to the author. A patent
protects an invention by giving the inventor the right to exclude
others from making, using, or selling a new, useful, nonobvious
invention during a specific term. Trademarks are words, phrases, logos,
or other graphic symbols used by manufacturers or merchants to identify
their goods and distinguish them from others. Other types of
intellectual property include trade secrets, industrial designs, and
geographic indications. Geographic indications are names used to
identify products with quality, reputation, or other characteristics
attributable to the origin of the product.
[8] Statement by Chris Israel, U.S. Intellectual Property Rights
Coordinator, before the Senate Committee on Homeland Security and
Governmental Affairs Subcommittee on Oversight of Federal Management,
the Federal Workforce, and the District of Columbia on July 26, 2006.
[9] The World Health Organization estimates that 10 percent of all
pharmaceuticals worldwide are counterfeit.
[10] Under the Homeland Security Act of 2002, border inspection
functions of a number of agencies, including the Immigration and
Naturalization Service, the U.S. Customs Service, and the Department of
Agriculture were transferred to DHS. P.L. 107-296, Title IV. CBP is
responsible for carrying out these functions by assessing and
collecting customs duties, excise taxes, and fees and penalties due on
imported merchandise; interdicting and seizing contraband; processing
persons, baggage, cargo, and mail; detecting and apprehending persons
engaged in fraudulent practices designed to circumvent Customs and
related laws; protecting American business and labor and IP rights;
and, protecting the general welfare and security of the United States
by enforcing import and export restrictions and prohibitions.
[11] The Office of International Trade was formed by merging CBP's
Office of Strategic Trade, Office of Regulations and Rulings, and
certain trade-related policy functions of the Office of Field
Operations.
[12] U.S. Customs and Border Protection, Securing America's Borders at
Ports of Entry, Office of Field Operations, Strategic Plan Fiscal Years
2007 through 2011.
[13] Because of the in-bond system, a significant portion of goods
received at U.S. ports do not immediately enter U.S. commerce but are
instead transferred to other ports for official entry or are
transported through the United States to Mexico or Canada. For example,
containers arriving at the port of Los Angeles might be transferred via
truck to the port of Cleveland for official entry. In a recent report,
GAO found that weaknesses in CBP's management of the in-bond system
persist and that CBP does not adequately monitor and track in-bond
shipments (see International Trade: Persistent Weaknesses in the In-
Bond Cargo System Impede Customs and Border Protection's Ability to
Address Revenue, Trade, and Security Concerns, GAO-07-561 (Washington,
D.C.: Apr. 17, 2007).
[14] A manifest is a listing of the conveyance's cargo, e.g., goods
within an ocean-going container.
[15] A formal entry is required for imports greater than $2,500 in
value, and refers to information (usually in electronic format, but
sometimes in paper format) that is filed by the importer or broker.
Entry data includes the manufacturer's identification number, the
importer's identification number, country of origin of the goods, and a
more precise description of merchandise and is used by CBP to, among
other things, assess customs duties and determine when cargo will be
cleared to leave a port.
[16] Performance and Accountability Report, Fiscal Year 2005, U.S.
Customs and Border Protection.
[17] Import Trade Trends, Fiscal Year 2005 Year End Report, U.S.
Customs and Border Protection.
[18] CBP is authorized by law (19 U.S.C. 1499(c)(1)) to examine all
merchandise entering the territory of the United States.
[19] The Compliance Measurement Program is a statistical sampling
program that randomly selects shipments for review and examination to
determine the degree to which they comply with relevant laws and
regulations. The program initially focused on trade compliance and
revenue issues. In fiscal year 2006, CBP expanded the program to also
focus on supply chain security.
[20] The number and focus of Priority Trade Issues has changed over
time. As of fiscal year 2006, the Priority Trade Issues included
agriculture, antidumping and countervailing duties, IP rights,
penalties, revenue, and textiles and wearing apparel.
[21] Section 337 of the Trade Act of 1930, as amended (Title 19 U.S.C.
1337), makes it is unlawful to import into the United States articles
that infringe a U.S. patent, trademark, copyright or mask work.
[22] CBP, "U.S. Customs and Border Protection Intercepts "Cool"
Counterfeit Shoes Worth Over One Million Dollars," press release,
Washington, D.C., August 3, 2006.
[23] Cargo Selectivity has been long used to help CBP and legacy
Customs to determine whether and how "intensively"--ranging from
document review to physical examination--it should examine certain
shipments for various types of violations. In addition to IP
violations, CBP uses Cargo Selectivity to target other types of trade
issues, such as tariff classification, quota issues related to
textiles, and revenue matters.
[24] CBP has five Strategic Trade Centers located around the country,
each aligned with one of the agency's Priority Trade Issues. The
Strategic Trade Center in Los Angeles is responsible for addressing IP
enforcement and penalties.
[25] ATS is a complex model that calculates a risk score for each cargo
shipment arriving in the United States. The system is primarily used
for security targeting, but CBP is considering ways to expand its use
to include targeting for nonsecurity matters as well.
[26] CBP receives a large portion of manifest and entry data in
electronic format. According to CBP officials, CBP's data systems may
require entry packets to be generated from electronically filed data,
but many shipments are released without this requirement.
[27] According to some CBP officials, the lack of sophistication makes
it particularly difficult for the agency to enforce certain exclusion
orders. CBP uses national Cargo Selectivity criteria to specify which
manufacturers or products are subject to exclusion orders, but when the
orders are more general in nature and identify products to be excluded
based on certain production processes, it is very difficult to write
criteria to correctly target offending goods without creating a large
number of false positives and an unmanageable workload for the ports.
[28] Of about 287,000 Compliance Measurement exams conducted during
fiscal years 2000, 2001, 2003, 2004 and 2005, IP violations were
uncovered in an average of about 0.06 percent of them. The program was
temporarily suspended in fiscal year 2002. Reviewing the structure and
implementation of the Compliance Measurement program was outside the
scope of this audit.
[29] CBP officials at certain ports said that sometimes targeted
shipments do not arrive as intended for examination because of human
error or fraud. Problems associated with the physical control over
containers have been identified in the past. (See DHS Inspector
General, Audit of Targeting Oceangoing Cargo Containers (Unclassified
Summary), OIG-05-26 (Washington, D.C., July 2005). In this audit, we
did not review CBP's internal controls for ensuring that targeted IP
shipments were examined as intended.
[30] 19 U.S.C. 1499 (c) (1).
[31] Import Specialists may use input from other experts in CBP,
including attorneys, commodity specialists, and laboratory technicians,
as well as rights holders or the U.S. agencies with which the rights
are registered.
[32] 19 U.S.C. 1499 (c) (2).
[33] 19 Code of Federal Regulations, Part 133, Subparts A, B, and D.
[34] Customs Directive 2310-010A, December 11, 2000.
[35] For example, CBP advises staff to determine whether, in the case
of suspected trademark violations, the goods are counterfeit,
"confusingly similar," or "gray market." According to CBP, confusingly
similar marks are those that, while not identical to, or substantially
indistinguishable from, genuine marks, are nonetheless similar enough
to the genuine mark so as to constitute an infringement. Gray market
goods are genuine trademarked goods that were manufactured and intended
for sale in another country but were imported to the United States
without the authorization of the trademark holder. Customs Directive
2310-010A states that, where the subject trademarks are recorded with
CBP, the agency has authority to seize violative goods based on either
of those trademark violations. With regard to marks not recorded with
CBP, while the agency may seize goods bearing counterfeit versions of
trademarks registered on the Principal Register of the U.S. Patent and
Trademark Office but not recorded with CBP, the agency refrains from
seizing goods bearing nonrecorded confusingly similar marks for policy
reasons and lacks statutory authority to seize restricted gray market
goods bearing nonrecorded trademarks.
[36] CBP is granted the authority to seize goods under various
statutes, however 19 U.S.C. § 1526(e) is the statute under which CBP
commonly seizes counterfeit goods due to trademark violations. CBP has
the authority under 19 U.S.C. § 1526(f) to assess monetary penalties
for these violations.
[37] Domestic value is calculated as the landed cost plus profit (the
cost of the merchandise when last purchased, plus all duties, fees,
broker's charges, profit, unlading charges, and U.S. freight charges to
bring the good to the importer's premises), a value generally lower
than the price at which the goods might sell to the final consumer.
[38] Between fiscal years 2001 and 2006, CBP spent about $2.5 million
to destroy apparel; about $662,000 to destroy electronics; about
$500,000 to destroy DVDs; about $382,000 to destroy shoes; and about
$352,000 to destroy batteries.
[39] Data on the mode of transport or processing environment in which
seizures were made were only available for fiscal years 2003 through
2006. CBP's data reflect a number of modes and processing environments,
some of which we have grouped together. For example, data we report for
the air transportation environment include seizures made in air cargo,
express consignment, international mail, and private aircraft
processing environments. Data we report on the ocean-going cargo
container environment include seizures made from what CBP refers to as
"commercial vessels" and "private vessels." According to CBP,
commercial vessels are predominantly carried by ocean-going cargo
containers and processed in the seaport environment, but may also be
transported via truck or rail to interior ports of entry using the in-
bond system.
[40] Seizures made in air transportation processing environments were
the predominant source of seizure actions in each of fiscal years 2003
through 2006, although their percent ranged from a high of about 85
percent to a low of about 68 percent.
[41] Seizures made from ocean-going cargo containers were the
predominant source of seizure value in each of fiscal years 2003
through 2006, although the percent ranged from a high of about 70
percent to a low of about 53 percent.
[42] It is important to note that total estimated seizure value, the
value calculated by CBP, in any given year is a function of the type of
goods seized, which varies from year to year.
[43] This ratio compares the total estimated domestic value of IP
seizures with the total declared value of IP imports. We defined IP
imports as products that involve or may involve IP protection and goods
that are similar to them. To do so, we reviewed the broad product
groups that CBP uses to categorize seizure actions and identified all
products that are covered by these groups in the U.S. harmonized tariff
schedule. These products include such items as shoes, wearing apparel,
handbags and luggage, computer hardware, and consumer electronics. The
subset excludes products such as agriculture and other raw goods. A
complete description of our methodology can be found in appendix I.
[44] We recently reported that weaknesses persist in CBP's management
of the in-bond system, impeding CBP's ability to ensure proper
collection of trade revenue and management of trade risks. In
particular, CBP does not adequately monitor and track in-bond shipments
and does not consistently perform in-bond compliance reviews to help
identify program weaknesses. See International Trade: Persistent
Weaknesses in the In-Bond Cargo System Impede Customs and Border
Protection's Ability to Address Revenue, Trade, and Security Concerns,
GAO-07-561 (Washington, D.C.: Apr. 17, 2007).
[45] To determine categories of goods, CBP may not group commodities
according to Harmonized Tariff System (HTS) numbers because not all
seizure records contain HTS numbers. CBP officials said that the field
for which the HTS number is to be entered can accept both numbers and
text, and that seizing officers sometimes enter incorrect data.
Therefore, the Los Angeles Strategic Trade Center developed its own
method for grouping seizures into product groups.
[46] Protecting America: U.S. Customs and Border Protection 2005-2010
Strategic Plan.
[47] Due to the status of IP enforcement as a Priority Trade Issue, CBP
developed this internal planning document to articulate its approach
for addressing this issue.
[48] In 2005, staff at the Los Angeles Strategic Trade Center chose
nine importers that were known IP violators, the statistical risk model
was used to select nine importers, and three were chosen both by the
risk model and because they were known violators. Since then,
candidates chosen were either known violators or suspects; selection
was not linked to the risk model.
[49] When a collection action goes to court, the Department of
Justice's U.S. Attorney Offices are responsible for prosecuting the
government's case. However, according to several CBP officials, U.S.
Attorney Offices generally do not agree to pursue penalty cases because
of their own resource limitations or because they view CBP's penalty
amounts as excessive.
[50] These 25 ports account for 77 percent of the value of all IP
imports into over 300 ports of entry into the United States, as well as
71 percent of the value of IP seizures in fiscal year 2005.
[51] CBP is required under section 403 the Security and Accountability
for Every Port Act of 2006 (SAFE Port Act), P.L. 109-347, to develop a
Resource Allocation Model for determining optimum staffing levels
required to carry out CBP commercial operations, including IP
enforcement. The legislation requires CBP to submit the model to the
Senate Finance Committee and House Ways and Means Committee no later
than June 30, 2007, and every 2 years thereafter. In addition, the
conference report (H. Rept. No. 109-699) accompanying DHS' fiscal year
appropriations legislation (P.L. 109-295) directed CBP to submit, by
January 23, 2007, a resource allocation model for current and future
years' staffing requirements that specifically assesses optimal
staffing levels at all land, air, and sea ports of entry and provides a
complete explanation of CBP's methodology for aligning staffing levels
to threats, vulnerabilities, and workload across all mission areas. CBP
has completed one component of the model for air passenger processing
and expected to complete others by March 31, 2007.
[52]
http://www.cbp.gov/xp/cgov/import/commercial_enforcement/ipr/seizure.
[53] GAO, Intellectual Property: U.S. Efforts Have Contributed to
Strengthened Laws Overseas, but Challenges Remain, GAO-04-912
(Washington, D.C.: Sept. 8, 2004).
[54] GAO, Intellectual Property: Better Data Analysis and Integration
Could Help U.S. Customs and Border Protection Improve Border
Enforcement Efforts, GAO-07-350SU (Washington, D.C.: Mar. 20, 2007).
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