Gray Market Imports and Other Trademarked Goods

DEPARTMENT OF THE TREASURY

Customs Service

19 CFR Part 133

[T.D. 99-21]

RIN 1515-AB49

Gray Market Imports and Other Trademarked Goods

AGENCY: U.S. Customs Service, Department of the Treasury.

ACTION: Final rule.

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SUMMARY: This document amends the Customs Regulations in light of Lever

Bros. Co. v. United States (D.C. Cir. 1993). In line with that

decision, the rule will, upon application by the U.S. trademark owner,

restrict importation of certain gray market articles that bear genuine

trademarks identical to or substantially indistinguishable from those

appearing on articles authorized by the U.S. trademark owner for

importation or sale in the U.S., and that thereby create a likelihood

of consumer confusion, in circumstances where the gray market articles

and those bearing the authorized U.S. trademark are physically and

materially different. These restrictions apply notwithstanding that the

U.S. and foreign trademark owners are the same, are parent and

subsidiary companies, or are otherwise subject to common ownership or

control. The restrictions are not applicable if the otherwise

restricted articles are labeled in accordance with a prescribed

standard under the rule that eliminates consumer confusion.

In addition, the Customs Regulations are reorganized, with respect

to importations bearing recorded trademarks or trade names, in order to

clarify Customs enforcement of trademark rights as they relate to

products bearing counterfeit, copying, or simulating marks and trade

names, and to clarify Customs enforcement against gray market goods.

EFFECTIVE DATE: March 26, 1999.

FOR FURTHER INFORMATION CONTACT: John F. Atwood, Intellectual Property

Rights Branch, (202-927-2330).

SUPPLEMENTARY INFORMATION:

Background

Section 42 of the Lanham Act, 15 U.S.C. 1124, protects against

consumer deception or confusion concerning an article's origin or

sponsorship by restricting the importation of trademarked goods under

certain circumstances. When an article is the domestic product of the

U.S. trademark owner, that owner exercises control over the use of the

trademark and the resulting goodwill. Similarly, Customs has taken the

position that an article bearing an identical trademark and produced

abroad by the U.S. trademark owner, a parent or subsidiary of the U.S.

trademark owner, or a party subject to common ownership or control with

the U.S. trademark owner, would be under the constructive control of

either the U.S. trademark owner or a party who owned or controlled the

U.S. trademark owner.

Customs has long taken the position that enforcement of the

distribution rights of a gray market article produced abroad by a party

related to the U.S. trademark holder was a matter to be addressed

through private remedies. This is known as the ``affiliate exception''

to Customs enforcement of restrictions under section 42 of the Lanham

Act against the importation of gray market goods. Thus, Customs

Regulations do not provide for restrictions on the importation of such

gray market articles.

In this regard, ``gray market'' articles, in general, are articles

that the U.S. trademark owner has not authorized for importation or

domestic sale, although the articles in fact bear genuine trademarks

that are identical to or substantially indistinguishable from those

appearing on articles that the U.S. trademark owner has so authorized.

Until Lever Bros. Co. v. United States, 981 F.2d 1330 (D.C. Cir.

1993) (Lever), the applicability of the affiliate exception depended

simply on the presence of the genuine trademark and the existence of

the relevant relationship between the companies, and was not contingent

on whether the gray market articles were the same as, or different

from, the articles that the U.S. trademark holder had authorized for

importation or domestic sale.

In Lever, the court drew a distinction between identical goods

produced abroad under the affiliate exception and goods produced abroad

under the affiliate exception that were physically and materially

different from the goods authorized by the U.S. trademark owner.

[[Page 9059]]

The court in Lever found that section 42 of the Lanham Act precluded

Customs application of the affiliate exception with respect to

physically, materially different goods.

Accordingly, by a document published in the Federal Register (63 FR

14662) on March 26, 1998, Customs proposed to make its regulations (19

CFR part 133, subpart C) consistent with Lever to protect against

consumer confusion as to the source or sponsorship of imported gray

market goods, even if the goods were produced by the owner of the U.S.

trademark or by a party related to the U.S. trademark owner.

Under the proposed rule, however, the trademarked gray goods would

not be restricted from importation, if they bear a prescribed label,

informing the ultimate retail purchaser that they were not authorized

by the U.S. trademark owner and were physically and materially

different from the goods that were so authorized.

To enable and assist Customs in determining the scope of what is

physically and materially different, a U.S. trademark owner under the

proposed regulatory changes would need to submit an application for

``Lever-rule'' protection (Sec. 133.2(e)), including a summary of the

physical and material differences between the gray market goods and

those goods authorized by the U.S. trademark owner for importation or

sale. This would result in Customs publishing a notice in the Federal

Register, giving interested parties an opportunity to comment on the

request for protection, before making a final determination in the

matter. If Customs determined to grant protection, a notice to this

effect would likewise be published in the Federal Register.

In addition to these proposed changes, Customs also proposed to

reorganize and renumber the remainder of subpart C, part 133, for

editorial clarity. None of the proposed clerical changes, other than

those relating to the Lever decision, would alter Customs enforcement

practices.

Discussion of Comments

Twenty commenters responded to the notice of proposed rulemaking.

The major issues raised by the commenters, together with Customs

analysis, are presented below.

Labeling Provision

Comments

The label in proposed Sec. 133.23(b) is not consistent with the

Lever decision's rationale, language, or spirit. Customs does not have

jurisdiction to establish a consumer labeling requirement of this type

under that decision.

Because the proposed label fails to meet the court's disclosure

standard for genuine gray market imports, it is inadequate to eliminate

consumer confusion and protect the trademark owner in the case of non-

genuine (i.e., materially different) imports. Generally, case law under

the Lanham Act has explicitly rejected the notion that disclaimers

absolve infringing conduct. Courts dealing with this issue have

rejected such disclaimer language.

The Lever decision does not indicate that a labeling statement,

such as the one proposed by Customs, would be adequate to cure

potential consumer confusion. In any event, the label as proposed does

not provide enough information to the consumer to eliminate the

likelihood of confusion as to the nature and quality of the goods. The

label exception ignores trademark owners' rights. Even if the product

reaches the consumer with the label intact, the trademark owner's

reputation and goodwill are likely to suffer.

Physically and materially different gray market goods bearing the

proposed label are not equal to the goods that are perceived as

``genuine'' by the American consumer. Thus, an unfair burden is placed

on U.S. trademark owners to correct any confusion caused by the label.

Even if it were otherwise acceptable, the language of the label would

have to be changed to provide that the product is not genuine. The

label exception amounts to unfair competition and represents an undue

emphasis on price as just one of the many factors entering into a

consumer's purchasing decision.

The label is not permanent and could be removed after importation.

If a label is allowed, it should be affixed in the same manner as a

country of origin label under the marking law (19 U.S.C. 1304). Customs

should specify what civil penalties would be imposed on persons

intentionally removing, obliterating, or concealing the labels prior to

sale to retail customers. Customs should also consider seeking

authority to impose criminal penalties for such intentional acts.

Alternatively, the proposed rule should be changed to provide that

Customs will review alternative labels. The proposed ``label'' should

be presented merely as an acceptable form of labeling, not the

exclusive form of labeling, allowable to permit importation. Importers

should be permitted to affix labels after importation. Consumer

confusion is eliminated by affixing the labels prior to distribution

into commerce; the absence of labels on products at the time they

arrive in the U.S. is of no consequence.

The label should not be required in order to import gray market

goods in situations where the sale of the goods with the prescribed

label would violate some state or Federal law. In particular, the label

provision could result in violation of Food and Drug Administration

(FDA) or other Federal labeling requirements, such as those of the

Bureau of Alcohol, Tobacco and Firearms (BATF). Such violations could

place the public at risk. In such instances, the labeling provision

under the proposed rule as a prelude to importation should be excused.

Customs Responses

The court in Lever provided that confusion will be caused in the

absence of some ``specially differentiating feature'' that will

distinguish gray market articles that are physically and materially

different from articles authorized by the U.S. trademark holder.

Customs is of the opinion that the label as prescribed in

Sec. 133.23(b) constitutes a specially differentiating feature under

Lever. The Lever decision does not specifically address labeling, an

issue that was not before the court. Customs does not believe that the

absence of language in the opinion expressly sanctioning the use of a

label precludes Customs, as the agency responsible for enforcing the

statute, from exercising its rule making authority to interpret the

statute so as to permit the use of a label to identify a physically and

materially different gray market good, to differentiate it from the

authorized product, and thus dispel consumer confusion.

Customs believes that a label that makes clear that the gray market

product is physically and materially different from the U.S. trademark

owner's product is an appropriate means of dispelling consumer

confusion and eliminating potential harm, for purposes of importation.

This is for Customs entry purposes only. It is emphasized that Customs

is not making an infringement decision. The language of the label is

intended to inform the consumer that the product is not authorized by

the U.S. trademark owner for importation and that the product is

physically and materially different from the authorized product. To

accomplish this purpose, the required label language in Sec. 133.23(b)

is slightly revised by this final rule. Customs is of the opinion that

this language is sufficient to alert the U.S. consumer to the fact that

the product is not authorized by the U.S. trademark owner.

[[Page 9060]]

Customs believes that legitimate gray market goods are ``genuine''

in the sense that the goods were produced and marketed abroad by

authority of the trademark owner. Customs' role is limited. The rule,

as proposed and adopted, imposes an import restriction; it is not

intended to address all infringement and consumer protection issues.

Customs is of the opinion that informing the U.S. consumer that the

product is not authorized by the U.S. trademark owner for importation

and that the product is physically and materially different provides

sufficient information to alert U.S. consumers to such differences and

satisfies the obligation of Customs with regard to regulation of

importation. As indicated in Sec. 133.23(b), other information designed

to further dispel consumer confusion may be added to the standard

language.

The label should help protect U.S. trademark owners because it

should put consumers on notice that the imported article is not

authorized by the U.S. trademark owner. Currently, Customs position is

that physically and materially different goods could enter U.S.

commerce where the trademark does not qualify for gray market

protection. Under the amended regulation, where Lever-rule protection

is granted, such goods may enter the U.S. only if they are labeled as

required by this rule. To this extent, greater protection and product

differentiation is provided under the new regulation.

The primary purpose of the label is not to promote price

competition. Previously, where trademarks did not qualify for gray

market protection, physically and materially different goods were

imported into the U.S. without any differentiating information to

inform the consumer. Because these products contained no specially

differentiating feature prior to the labeling provision in this

regulation and were permitted to be imported, the amended regulation

provides the consumer with information that differentiates the imported

physically and materially different product from the authorized product

of the U.S. trademark owner. To this extent, any burden on the

trademark owner is lessened by the labeling provision in the

regulation. For additional clarity, the language on the label in

Sec. 133.23(b) is slightly changed to read as follows: ``This product

is not a product authorized by the United States trademark owner for

importation and is physically and materially different from the

authorized product.''

Because it is within Customs' jurisdiction to enforce gray market

restrictions, the label informs the consumer that the imported product

is not the product authorized by the U.S. trademark owner. Customs is

implementing the Lever decision, relating to the importation of

physically and materially different goods, by adopting a prescribed

label as the ``specifically differentiating feature''. Customs is of

the opinion that it has the authority to establish a label that will

avoid the Lever-rule prohibition. The label is not a requirement, but

rather a ``safe harbor'' option.

With regard to removal of the label, the regulation provides that

the label is to remain on the product until the first point of sale to

a retail consumer in the U.S. The requirement that the label be placed

next to the trademark in its most prominent location insures that the

consumer is alerted to the label and the physical and material

difference between the products. The labeling provision is not governed

by the regulations on country of origin marking. With regard to

penalties for intentionally removing, obliterating, or concealing the

label prior to the first sale to retail customers, the removal of the

label after importation and prior to retail sale could result in

seizure and forfeiture of the goods (19 U.S.C. 1595a(c)(2)(C)).

Imported goods that are subject to Lever-rule protection must have

a label conforming to Sec. 133.23(b) applied prior to release of the

goods by Customs. The label may be applied after the articles are

presented for entry but prior to release of the goods. To clarify this

point, Sec. 133.23(d) is revised to indicate that if goods are detained

under Lever-rule protection, the label must then be placed on the goods

before they are entered.

The labeling provision does not supersede any Federal or state

labeling requirement. Additionally, the Bureau of Alcohol, Tobacco and

Firearms laws make an exception for other labels required by Federal

law. The label provision does not nullify or supersede any Federal

statute or regulation regarding the article or its labeling.

Physical-and-Material-Differences Standard

Comment

The physical and material differences standard in proposed

Sec. 133.2(e) should be broadened. Later court decisions following

Lever have spoken only of ``materially different goods'', and have held

that ``any difference'' between the product authorized by the trademark

owner and the unauthorized goods creates a presumption of consumer

confusion sufficient to support a trademark infringement claim.

Although the Lever decision did involve products which were both

physically and materially different from the product authorized for

sale in the U.S., no rationale exists for confining the import

restriction to physically and materially different goods, while

allowing goods that are physically similar, but different in other

material respects, to be freely imported. A number of courts have found

that a difference can be ``material'' without having to also be a

``physical'' difference. The proposed rule ignores the importance of

material differences such as packaging, quality control, and handling.

Nothing in the Lever decision suggests that only physically different

imports are subject to seizure. The proposed rule should be withdrawn

and a revised materiality test should be issued that encompasses the

full range of physical and non-physical differences deemed relevant

under the Lanham Act.

Customs Response

The Lever court applied a standard using both physical and material

differences. The regulation, applying the Lever standard, is the extent

to which Customs will enforce such protection. However, the Lever court

did not set out the parameters of the ``physically and materially

different'' standard. In setting out categories that fall within the

standard set by the Lever court, Customs will use the guidelines

contained in Sec. 133.2(e) as a starting point for determining if

protection is warranted under the Lever decision. In particular,

Sec. 133.2(e)(5) provides that Customs will consider other

characteristics that can be described with particularity and that would

likely result in consumer deception or confusion under the law. The

bases explicitly enumerated for granting Lever-rule protection are not

all inclusive.

Application for ``Lever-Rule'' Protection

Comments

Interested (third) parties should not be involved in an application

for protection. Application for Lever protection could likely turn into

a contested adversarial proceeding. Customs should use the same or

similar procedures used to record trademarks to process applications

for Lever protection. Customs currently makes its own decision whether

gray market protection should be granted. Similarly, there is no reason

to give third parties a role in the application process.

The burden should be on the ``gray marketeer'' to rebut a

presumption of

[[Page 9061]]

infringement. The proposed rule is unsound in shifting to the trademark

owner the burden of demonstrating that the gray market import infringes

the owner's trademark rights. The proposed rule should be withdrawn and

re-issued to provide that once the U.S. trademark owner has shown a

material difference, whether physical or not, the burden is on the

``gray marketeer'' to rebut a presumption of infringement.

The comment period provided in proposed Sec. 133.2(f) is too long

for applications for Lever-rule protection. By publishing in the

Federal Register, at approximately 30-day intervals, a list of those

trademarks for which gray market protection has been requested,

followed by another 30-day period for comments, and then allowing time

for a Customs determination of eligibility and subsequent publication

in the Federal Register of a notice to this effect, a full calendar

quarter will have gone by before protection may be afforded. This

amounts to a virtual public invitation to import surges of a product

that ultimately is excluded. No more than half this time should be

tolerated.

Customs Responses

As part of the application process provided in Sec. 133.2(f), as

proposed, Customs would have published in the Federal Register, at

thirty-day intervals, a list of trademarks for which Lever-rule

protection was requested. After a thirty-day comment period, Customs

would determine whether to grant Lever-rule protection. If Lever-rule

protection was granted, Customs would then publish in the Federal

Register a notice that the trademark would receive Lever-rule

protection.

However, in response to the comment regarding the length of the

application process, Customs has determined to revise the application

process in Sec. 133.2(f) by eliminating the thirty day comment period.

To further expedite the application process while safeguarding the

rights of the parties involved, Customs will publish a list of

trademarks and the specific products for which Lever-rule protection

was requested in the Customs Bulletin, rather than in the Federal

Register. Customs will endeavor to process applications for Lever-rule

protection as promptly as possible. Where Lever-rule protection is

granted, Customs will publish in the Customs Bulletin a notice that the

trademark will receive Lever-rule protection. Section 133.2(f) is

revised accordingly.

If a trademark owner has applied for and received Lever-rule

protection, goods that bear the protected trademark and are physically

and materially different from the U.S. trademark owner's product

initially will be detained. The trademark owner is not required to

demonstrate that the gray market import infringes its trademark rights.

Once the goods have been detained, the burden is on the importer to

show either that the goods are identical and Lever-rule protection

should not apply, or that an exception is applicable. With regard to

the disclosure of proprietary information, upon application for Lever-

rule protection, in addition to specific physical and material

differences, the trademark owner must submit a summary of the physical

and material differences, which need not disclose proprietary

information.

Effect of Rule on Exclusion Orders

Comment

The proposed rule should not have any retroactive effect or affect

general exclusion orders issued by the U.S. International Trade

Commission (USITC), cease and desist orders of the USITC, or Customs

enforcement of existing orders. Trademark owners who have obtained

injunctions or exclusion orders relating to the importation and sale in

the United States of gray market goods should not be forced to apply

for protection under the proposed rule. In addition, no ``gray

marketeer'' previously enjoined or excluded by court order from

importing or selling gray market goods in the United States should be

able to circumvent the injunction or exclusion order through Customs

proposed labeling exception.

Customs Response

The regulation is prospective only and will not be applied

retroactively. The rule should not undermine exclusion orders or court

orders enjoining the importation of goods. Customs expects that the

courts and the USITC will take the rule into consideration when

fashioning injunctions or exclusion orders that are relevant to the

regulations.

Conclusion

In view of the forgoing, and following careful consideration of the

comments received and further review of the matter, Customs has

concluded that the proposed amendments, with the changes discussed

above, should be adopted.

Additional Changes

For greater clarity: in Sec. 133.2(e), in the first sentence, the

word ``specific'' is added after the words ``between the'' and before

the words ``articles authorized for importation or sale in the United

States''; and, in Sec. 133.2(e)(1) the word ``specific'' is added after

the word ``The'' and before the words ``composition of both the

authorized and gray market products''. For enhanced editorial accuracy,

the heading of subpart C, part 133, is slightly revised.

Regulatory Flexibility Act and Executive Order 12866

This final rule document implements a court decision intended to

protect products with valid U.S. trademarks against infringing imports.

For this reason, pursuant to the provisions of the Regulatory

Flexibility Act (5 U.S.C. 601 et seq.), it is hereby certified that the

rule does not have a significant economic impact on a substantial

number of small entities. Any economic impact is a consequence of the

Lever decision. Accordingly, it is not subject to the regulatory

analysis requirements of 5 U.S.C. 603 and 604. Nor does the rule meet

the criteria for a ``significant regulatory action'' as specified in

E.O. 12866.

Paperwork Reduction Act

The collection of information related to this final rule has been

previously reviewed and approved by the Office of Management and Budget

(OMB) in accordance with the Paperwork Reduction Act of 1995 and

assigned OMB Control Number 1515-0114. An agency may not conduct or

sponsor, and a person is not required to respond to, a collection of

information unless it displays a valid control number assigned by OMB.

This document restates the collection[s] of information without

substantive change.

Comments concerning suggestions for reducing the burden of the

collections of information should be directed to the Office of

Management and Budget, Attention: Desk Officer for the Department of

the Treasury, Office of Information and Regulatory Affairs, Washington,

D.C. 20503. A copy should also be sent to the Regulations Branch,

Office of Regulations and Rulings, U.S. Customs Service, 1300

Pennsylvania Avenue, NW., 3rd Floor, Washington, D.C. 20229.

List of Subjects in 19 CFR Part 133

Copyrights, Customs duties and inspection, Fees assessment,

Imports, Penalties, Prohibited merchandise, Reporting and recordkeeping

requirements, Restricted merchandise (counterfeit goods), Seizures and

forfeitures, Trademarks, Trade names, Unfair competition.

[[Page 9062]]

Amendments to the Regulations

Part 133, Customs Regulations (19 CFR part 133), is amended as set

forth below.

PART 133--TRADEMARKS, TRADE NAMES, AND COPYRIGHTS

1. The general authority citation for part 133 continues to read as

follows, and the specific sectional authority for part 133 is revised

to read as follows:

Authority: 17 U.S.C. 101, 601, 602, 603; 19 U.S.C. 66, 1624; 31

U.S.C. 9701.

Section 133.1 also issued under 15 U.S.C. 1096, 1124;

Sections 133.2 through 133.7, 133.11 through 133.13, and 133.15

also issued under 15 U.S.C. 1124;

Sections 133.21 through 133.25 also issued under 15 U.S.C. 1124,

19 U.S.C. 1526;

Sections 133.26 and 133.46 also issued under 19 U.S.C. 1623;

Sections 133.27 and 133.52 also issued under 19 U.S.C. 1526;

Section 133.53 also issued under 19 U.S.C. 1558(a).

2. Section 133.2 is amended by adding new paragraphs (e) and (f) to

read as follows:

Sec. 133.2 Application to record trademark.

* * * * *

(e) ``Lever-rule'' protection. For owners of U.S. trademarks who

desire protection against gray market articles on the basis of physical

and material differences (see Lever Bros. Co. v. United States, 981

F.2d 1330 (D.C. Cir. 1993)), a description of any physical and material

difference between the specific articles authorized for importation or

sale in the United States and those not so authorized. In each

instance, owners who assert that physical and material differences

exist must state the basis for such a claim with particularity, and

must support such assertions by competent evidence and provide

summaries of physical and material differences for publication. Customs

determination of physical and material differences may include, but is

not limited to, considerations of:

(1) The specific composition of both the authorized and gray market

product(s) (including chemical composition);

(2) Formulation, product construction, structure, or composite

product components, of both the authorized and gray market product;

(3) Performance and/or operational characteristics of both the

authorized and gray market product;

(4) Differences resulting from legal or regulatory requirements,

certification, etc.;

(5) Other distinguishing and explicitly defined factors that would

likely result in consumer deception or confusion as proscribed under

applicable law.

(f) Customs will publish in the Customs Bulletin a notice listing

any trademark(s) and the specific products for which gray market

protection for physically and materially different products has been

requested. Customs will examine the request(s) before issuing a

determination whether gray market protection is granted. For parties

requesting protection, the application for trademark protection will

not take effect until Customs has made and issued this determination.

If protection is granted, Customs will publish in the Customs Bulletin

a notice that a trademark will receive Lever-rule protection with

regard to a specific product.

3. Part 133 is amended by revising subpart C to read as follows:

Subpart C--Importations Bearing Registered and/or Recorded

Trademarks or Recorded Trade Names

Sec.

133.21 Articles bearing counterfeit trademarks.

133.22 Restrictions on importation of articles bearing copying or

simulating trademarks.

133.23 Restrictions on importation of gray market articles.

133.24 Restrictions on articles accompanying importer and mail

importations.

133.25 Procedure on detention of articles subject to restriction.

133.26 Demand for redelivery of released merchandise.

133.27 Civil fines for those involved in the importation of

counterfeit trademark goods.

Subpart C--Importations Bearing Registered and/or Recorded

Trademarks or Recorded Trade Names

Sec. 133.21 Articles bearing counterfeit trademarks.

(a) Counterfeit trademark defined. A ``counterfeit trademark'' is a

spurious trademark that is identical to, or substantially

indistinguishable from, a registered trademark.

(b) Seizure. Any article of domestic or foreign manufacture

imported into the United States bearing a counterfeit trademark shall

be seized and, in the absence of the written consent of the trademark

owner, forfeited for violation of the customs laws.

(c) Notice to trademark owner. When merchandise is seized under

this section, Customs shall disclose to the owner of the trademark the

following information, if available, within 30 days, excluding weekends

and holidays, of the date of the notice of seizure:

(1) The date of importation;

(2) The port of entry;

(3) A description of the merchandise;

(4) The quantity involved;

(5) The name and address of the manufacturer;

(6) The country of origin of the merchandise;

(7) The name and address of the exporter; and

(8) The name and address of the importer.

(d) Samples available to the trademark owner. At any time following

seizure of the merchandise, Customs may provide a sample of the suspect

merchandise to the owner of the trademark for examination, testing, or

other use in pursuit of a related private civil remedy for trademark

infringement. To obtain a sample under this section, the trademark/

trade name owner must furnish Customs a bond in the form and amount

specified by the port director, conditioned to hold the United States,

its officers and employees, and the importer or owner of the imported

article harmless from any loss or damage resulting from the furnishing

of a sample by Customs to the trademark owner. Customs may demand the

return of the sample at any time. The owner must return the sample to

Customs upon demand or at the conclusion of the examination, testing,

or other use in pursuit of a related private civil remedy for trademark

infringement. In the event that the sample is damaged, destroyed, or

lost while in the possession of the trademark owner, the owner shall,

in lieu of return of the sample, certify to Customs that: ``The sample

described as [insert description] and provided pursuant to 19 CFR

133.21(d) was (damaged/destroyed/lost) during examination, testing, or

other use.''

(e) Failure to make appropriate disposition. Unless the trademark

owner, within 30 days of notification, provides written consent to

importation of the articles, exportation, entry after obliteration of

the trademark, or other appropriate disposition, the articles shall be

disposed of in accordance with Sec. 133.52, subject to the importer's

right to petition for relief from the forfeiture under the provisions

of part 171 of this chapter.

Sec. 133.22 Restrictions on importation of articles bearing copying or

simulating trademarks.

(a) Copying or simulating trademark or trade name defined. A

``copying or simulating'' trademark or trade name is one which may so

resemble a recorded mark or name as to be likely to cause the public to

associate the copying or

[[Page 9063]]

simulating mark or name with the recorded mark or name.

(b) Denial of entry. Any articles of foreign or domestic

manufacture imported into the United States bearing a mark or name

copying or simulating a recorded mark or name shall be denied entry and

subject to detention as provided in Sec. 133.25.

(c) Relief from detention of articles bearing copying or simulating

trademarks. Articles subject to the restrictions of this section shall

be detained for 30 days from the date on which the goods are presented

for Customs examination, to permit the importer to establish that any

of the following circumstances are applicable:

(1) The objectionable mark is removed or obliterated as a condition

to entry in such a manner as to be illegible and incapable of being

reconstituted, for example by:

(i) Grinding off imprinted trademarks wherever they appear;

(ii) Removing and disposing of plates bearing a trademark or trade

name;

(2) The merchandise is imported by the recordant of the trademark

or trade name or his designate;

(3) The recordant gives written consent to an importation of

articles otherwise subject to the restrictions set forth in paragraph

(b) of this section or Sec. 133.23(c) of this subpart, and such consent

is furnished to appropriate Customs officials;

(4) The articles of foreign manufacture bear a recorded trademark

and the one-item personal exemption is claimed and allowed under

Sec. 148.55 of this chapter.

(d) Exceptions for articles bearing counterfeit trademarks. The

provisions of paragraph (c)(1) of this section are not applicable to

articles bearing counterfeit trademarks at the time of importation (see

Sec. 133.26).

(e) Release of detained articles. Articles detained in accordance

with Sec. 133.25 may be released to the importer during the 30-day

period of detention if any of the circumstances allowing exemption from

trademark or trade name restriction set forth in paragraph (c) of this

section are established.

(f) Seizure. If the importer has not obtained release of detained

articles within the 30-day period of detention, the merchandise shall

be seized and forfeiture proceedings instituted. The importer shall be

promptly notified of the seizure and liability to forfeiture and his

right to petition for relief in accordance with the provisions of part

171 of this chapter.

Sec. 133.23 Restrictions on importation of gray market articles.

(a) Restricted gray market articles defined. ``Restricted gray

market articles'' are foreign-made articles bearing a genuine trademark

or trade name identical with or substantially indistinguishable from

one owned and recorded by a citizen of the United States or a

corporation or association created or organized within the United

States and imported without the authorization of the U.S. owner.

``Restricted gray market goods'' include goods bearing a genuine

trademark or trade name which is:

(1) Independent licensee. Applied by a licensee (including a

manufacturer) independent of the U.S. owner, or

(2) Foreign owner. Applied under the authority of a foreign

trademark or trade name owner other than the U.S. owner, a parent or

subsidiary of the U.S. owner, or a party otherwise subject to common

ownership or control with the U.S. owner (see Secs. 133.2(d) and

133.12(d) of this part), from whom the U.S. owner acquired the domestic

title, or to whom the U.S. owner sold the foreign title(s); or

(3) ``Lever-rule''. Applied by the U.S. owner, a parent or

subsidiary of the U.S. owner, or a party otherwise subject to common

ownership or control with the U.S. owner (see Secs. 133.2(d) and

133.12(d) of this part), to goods that the Customs Service has

determined to be physically and materially different from the articles

authorized by the U.S. trademark owner for importation or sale in the

U.S. (as defined in Sec. 133.2 of this part).

(b) Labeling of physically and materially different goods. Goods

determined by the Customs Service to be physically and materially

different under the procedures of this part, bearing a genuine mark

applied under the authority of the U.S. owner, a parent or subsidiary

of the U.S. owner, or a party otherwise subject to common ownership or

control with the U.S. owner (see Secs. 133.2(d) and 133.12(d) of this

part), shall not be detained under the provisions of paragraph (c) of

this section where the merchandise or its packaging bears a conspicuous

and legible label designed to remain on the product until the first

point of sale to a retail consumer in the United States stating that:

``This product is not a product authorized by the United States

trademark owner for importation and is physically and materially

different from the authorized product.'' The label must be in close

proximity to the trademark as it appears in its most prominent location

on the article itself or the retail package or container. Other

information designed to dispel consumer confusion may also be added.

(c) Denial of entry. All restricted gray market goods imported into

the United States shall be denied entry and subject to detention as

provided in Sec. 133.25, except as provided in paragraph (b) of this

section.

(d) Relief from detention of gray market articles. Gray market

goods subject to the restrictions of this section shall be detained for

30 days from the date on which the goods are presented for Customs

examination, to permit the importer to establish that any of the

following exceptions, as well as the circumstances described above in

Sec. 133.22(c), are applicable:

(1) The trademark or trade name was applied under the authority of

a foreign trademark or trade name owner who is the same as the U.S.

owner, a parent or subsidiary of the U.S. owner, or a party otherwise

subject to common ownership or control with the U.S. owner (in an

instance covered by Secs. 133.2(d) and 133.12(d) of this part); and/or

(2) For goods bearing a genuine mark applied under the authority of

the U.S. owner, a parent or subsidiary of the U.S. owner, or a party

otherwise subject to common ownership or control with the U.S. owner,

that the merchandise as imported is not physically and materially

different, as described in Sec. 133.2(e), from articles authorized by

the U.S. owner for importation or sale in the United States; or

(3) Where goods are detained for violation of Sec. 133.23(a)(3), as

physically and materially different from the articles authorized by the

U.S. trademark owner for importation or sale in the U.S., a label in

compliance with Sec. 133.23(b) is applied to the goods.

(e) Release of detained articles. Articles detained in accordance

with Sec. 133.25 may be released to the importer during the 30-day

period of detention if any of the circumstances allowing exemption from

trademark restriction set forth in Sec. 133.22(c) of this subpart or in

paragraph (d) of this section are established.

(f) Seizure. If the importer has not obtained release of detained

articles within the 30-day period of detention, the merchandise shall

be seized and forfeiture proceedings instituted. The importer shall be

notified of the seizure and liability of forfeiture and his right to

petition for relief in accordance with the provisions of part 171 of

this chapter.

Sec. 133.24 Restrictions on articles accompanying importer and mail

importations.

(a) Detention. Articles accompanying an importer and mail

importations subject to the restrictions of Secs. 133.22 and 133.23

shall be detained for 30 days from the date of notice that such

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restrictions apply, to permit the establishment of whether any of the

circumstances described in Sec. 133.22(c) or 133.23(d) are applicable.

(b) Notice of detention. Notice of detention shall be given in the

following manner:

(1) Articles accompanying importer. When the articles are carried

as accompanying baggage or on the person of persons arriving in the

United States, the Customs inspector shall orally advise the importer

that the articles are subject to detention.

(2) Mail importations. When the articles arrive by mail in

noncommercial shipments, or in commercial shipments valued at $250 or

less, notice of the detention shall be given on Customs Form 8.

(c) Release of detained articles. (1) General. Articles detained in

accordance with paragraph (a) of this section may be released to the

importer during the 30-day period of detention if any of the

circumstances allowing exemption from trademark or trade name

restriction(s) set forth in Sec. 133.22(c) or 133.23(d) of this subpart

are established.

(2) Articles accompanying importer. Articles arriving as

accompanying baggage or on the person of the importer may be exported

or destroyed under Customs supervision at the request of the importer,

or may be released if:

(i) The importer removes or obliterates the marks in a manner

acceptable to the Customs officer at the time of examination of the

articles; or

(ii) The request of the importer to obtain skillful removal of the

marks is granted by the port director under such conditions as he may

deem necessary, and upon return of the article to Customs for

verification, the marks are found to be satisfactorily removed.

(3) Mail importations. Articles arriving by mail in noncommercial

shipments, or in commercial shipments valued at $250 or less, may be

exported or destroyed at the request of the addressee or may be

released if:

(i) The addressee appears in person at the appropriate Customs

office and at that time removes or obliterates the marks in a manner

acceptable to the Customs officer; or

(ii) The request of the addressee appearing in person to obtain

skillful removal of the marks is granted by the port director under

such conditions as he may deem necessary, and upon return of the

article to Customs for verification, the marks are found to be

satisfactorily removed.

(d) Seizure. If the importer has not obtained release of detained

articles within the 30-day period of detention, the merchandise shall

be seized and forfeiture proceedings instituted. The importer shall be

promptly notified of the seizure and liability to forfeiture and his

right to petition for relief in accordance with the provisions of part

171 of this chapter.

Sec. 133.25 Procedure on detention of articles subject to restriction.

(a) In general. Articles subject to the restrictions of

Secs. 133.22 and 133.23 shall be detained for 30 days from the date on

which the merchandise is presented for Customs examination. The

importer shall be notified of the decision to detain within 5 days of

the decision that such restrictions apply. The importer may, during the

30-day period, establish that any of the circumstances described in

Sec. 133.22(c) or Sec. 133.23(d) are applicable. Extensions of the 30-

day time period may be freely granted for good cause shown.

(b) Notice of detention and disclosure of information. From the

time merchandise is presented for Customs examination until the time a

notice of detention is issued, Customs may disclose to the owner of the

trademark or trade name any of the following information in order to

obtain assistance in determining whether an imported article bears an

infringing trademark or trade name. Once a notice of detention is

issued, Customs shall disclose to the owner of the trademark or trade

name the following information, if available, within 30 days, excluding

weekends and holidays, of the date of detention:

(1) The date of importation;

(2) The port of entry;

(3) A description of the merchandise;

(4) The quantity involved; and

(5) The country of origin of the merchandise.

(c) Samples available to the trademark or trade name owner. At any

time following presentation of the merchandise for Customs examination,

but prior to seizure, Customs may provide a sample of the suspect

merchandise to the owner of the trademark or trade name for examination

or testing to assist in determining whether the article imported bears

an infringing trademark or trade name. To obtain a sample under this

section, the trademark/trade name owner must furnish Customs a bond in

the form and amount specified by the port director, conditioned to hold

the United States, its officers and employees, and the importer or

owner of the imported article harmless from any loss or damage

resulting from the furnishing of a sample by Customs to the trademark

owner. Customs may demand the return of the sample at any time. The

owner must return the sample to Customs upon demand or at the

conclusion of the examination or testing. In the event that the sample

is damaged, destroyed, or lost while in the possession of the trademark

or trade name owner, the owner shall, in lieu of return of the sample,

certify to Customs that: ``The sample described as [insert description]

and provided pursuant to 19 CFR 133.25(c) was (damaged/destroyed/lost)

during examination or testing for trademark infringement.''

(d) Form of notice. Notice of detention of articles found subject

to the restrictions of Sec. 133.22 or Sec. 133.23 shall be given the

importer in writing.

Sec. 133.26 Demand for redelivery of released merchandise.

If it is determined that merchandise which has been released from

Customs custody is subject to the restrictions of Sec. 133.22 or

Sec. 133.23 of this subpart, the port director shall promptly make

demand for the redelivery of the merchandise under the terms of the

bond on Customs Form 301, containing the bond conditions set forth in

Sec. 113.62 of this chapter, in accordance with Sec. 141.113 of this

chapter. If the merchandise is not redelivered to Customs custody, a

claim for liquidated damages shall be made in accordance with

Sec. 141.113(g) of this chapter.

Sec. 133.27 Civil fines for those involved in the importation of

counterfeit trademark goods.

In addition to any other penalty or remedy authorized by law,

Customs may impose a civil fine on any person who directs, assists

financially or otherwise, or aids and abets the importation of

merchandise bearing a counterfeit mark (within the meaning of

Sec. 133.21 of this subpart) as follows:

(a) First violation. For the first seizure of such merchandise, the

fine imposed will not be more than the domestic value of the

merchandise (see Sec. 162.43(a) of this chapter) as if it had been

genuine, based on the manufacturer's suggested retail price of the

merchandise at the time of seizure.

(b) Second and subsequent violations. For the second and each

subsequent seizure of such merchandise, the fine imposed will not be

more than twice the domestic value of the merchandise as if it had been

genuine, based on the

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manufacturer's suggested retail price of the merchandise at the time of

seizure.

Raymond W. Kelly,

Commissioner of Customs.

Approved: February 19, 1999.

John P. Simpson,

Deputy Assistant Secretary of the Treasury.

[FR Doc. 99-4531 Filed 2-23-99; 8:45 am]

BILLING CODE 4820-02-P