Intellectual Property: Agencies Can Improve Efforts to Address Risks Posed by Changing Counterfeits Market

Infringement of IPR through the illegal importation and distribution of counterfeit goods harms the U.S. economy and can threaten the health and safety of U.S. consumers. CBP leads IPR enforcement at U.S. ports of entry by detecting and seizing counterfeit goods that enter the United States. CBP works with ICE, which investigates IPR violations and builds cases for prosecution.

GAO was asked to review CBP's and ICE's IPR enforcement at U.S. borders. In this report, GAO examines (1) what is known about counterfeit goods entering the United States and the challenges they present, (2) efforts CBP and ICE have undertaken to enhance IPR enforcement and the extent to which they have assessed the results, and (3) the extent of CBP's and ICE's collaboration on IPR enforcement and ways they coordinate with the private sector. GAO reviewed agency data and documents, interviewed agency officials, and conducted field work at port locations selected on the basis of factors such as the volume of IPR seizures and variety of modes of transportation at each location. GAO also conducted undercover purchases of commonly counterfeited consumer goods on popular consumer websites, using investigative tools and techniques.

Changes in the market for counterfeit goods entering the United States pose new challenges for consumers, the private sector, and U.S. agencies that enforce intellectual property rights (IPR). Specifically, growth in e-commerce has contributed to a shift in the sale of counterfeit goods in the United States, with consumers increasingly purchasing goods online and counterfeiters producing a wider variety of goods that may be sold on websites alongside authentic products. For example, 20 of 47 items GAO purchased from third-party sellers on popular consumer websites were counterfeit, according to testing by the products' rights holders (see table), highlighting potential risks to consumers. The changes in the market for counterfeit goods can also pose challenges to the private sector—for example, the challenge of distinguishing counterfeit from authentic goods listed for sale online—and complicate the enforcement efforts of U.S. Customs and Border Protection (CBP) and U.S. Immigration and Customs Enforcement (ICE).

CBP and ICE engage in a number of activities to enhance IPR enforcement; however, while ICE has assessed some of its efforts, CBP has taken limited steps to do so. CBP's and ICE's IPR enforcement activities broadly include detecting imports of potentially IPR-infringing goods, conducting special operations at U.S. ports, engaging with international partners, and undertaking localized pilot programs or port-led initiatives. CBP and ICE have collected some performance data for each of the eight activities GAO reviewed, and ICE has taken some steps to understand the impact of its efforts. However, CBP has conducted limited evaluation of its efforts to enhance IPR enforcement. Consequently, CBP may lack information needed to ensure it is investing its resources in the most efficient and effective activities.

CBP and ICE generally collaborate on IPR enforcement, but according to private sector representatives, restrictions on CBP's information sharing limit private sector enforcement efforts. GAO found that CBP and ICE have undertaken efforts that align with selected key practices for interagency collaboration, such as participating in developing a national IPR enforcement strategy and agreeing on roles and responsibilities. However, sharing additional information about seized items with rights-holding companies and e-commerce websites could improve enforcement, according to private sector representatives. CBP officials said they share information to the extent allowed under current regulations, but CBP has not completed an assessment of what, if any, additional information would be beneficial to share with private sector entities. Without such an assessment, CBP will not know if sharing additional information requires regulatory or legal changes.

GAO is making two recommendations to CBP, recommending that it (1) evaluate its efforts to enhance IPR enforcement and (2) assess potential additional information sharing with the private sector. CBP agreed with these recommendations.

Intellectual property (IP) is an important component of the U.S. economy,  and the United States is an acknowledged global leader in its creation.  Infringement of intellectual property rights (IPR) through the illegal  importation and distribution of counterfeit goods harms the U.S. economy  by stifling innovation, slowing economic growth, weakening the  competitiveness of U.S. employers, and threatening American jobs. IPR  infringement can also threaten the health and safety of American  consumers. U.S. agencies and businesses have cited an expansion of IP  crimes and an increasing use of Internet websites to facilitate the sale of  counterfeit goods imported from overseas in recent years.

The Department of Homeland Security’s U.S. Customs and Border  Protection (CBP) and U.S. Immigration and Customs Enforcement  (ICE)—two of the many U.S. agencies involved in IPR enforcement—are  responsible for IPR enforcement at U.S. borders. CBP leads  enforcement activity at the border by detecting and seizing counterfeit  goods that enter the United States through its more than 300 ports of  entry and by assessing penalties against IPR offenders. In fiscal year  2016, CBP processed over 32 million shipments and seized 31,560  shipments of IPR-infringing goods worth an estimated $1.38 billion.  Sixteen percent of those seizures contained potential threats to consumer  health and safety, according to CBP’s analysis of its seizure data. CBP  coordinates its efforts with ICE, which investigates IPR violations and  builds cases for federal prosecution. In fiscal year 2016, ICE arrested 458  individuals, obtained 328 indictments, and received 276 convictions  related to intellectual property crimes, according to ICE data.

You asked us to review CBP’s and ICE’s IPR enforcement at U.S.  borders. This report examines (1) what is known about counterfeit goods  entering the United States and the challenges they present, (2) efforts  CBP and ICE have undertaken to enhance IPR enforcement and the  extent to which they have assessed the results of these efforts, and (3)  the extent to which CBP and ICE collaborate on IPR enforcement as well  as ways in which they coordinate with the private sector in enforcing IPR.

To obtain information about IPR-infringing goods that enter the United  States and the challenges they present, we analyzed CBP seizure data  for fiscal years 2012 through 2016 and reviewed CBP and ICE  documents and reports as well as reports from other U.S government  entities and international organizations. We reviewed CBP’s seizure  data, conducted electronic tests of the data, and interviewed  knowledgeable agency officials to determine that these data were  sufficiently reliable for our purposes. We interviewed CBP and ICE  officials in Washington, D.C., and at selected port locations in Chicago,  Illinois; Los Angeles, California; Miami, Florida; and New York, New York.  We also interviewed representatives of IP rights–holding companies  (rights holders) and popular consumer websites that offer platforms for  third-party sellers. We used undercover identities to purchase selected  products from third-party sellers on popular consumer websites and  subsequently asked the rights holders for the selected products to test  their authenticity. To examine the extent to which CBP and ICE have  undertaken efforts to improve enforcement at the border and assessed  the results of those efforts, we reviewed agency plans and documents  and interviewed agency officials. To examine the extent to which CBP  and ICE collaborate on IPR enforcement, we assessed their collaboration  against selected interagency collaboration practices, reviewed agency  documentation, and analyzed the results of our interviews with CBP and  ICE officials in field and headquarters locations. To identify ways in  which CBP and ICE collaborate with the private sector, we spoke with  representatives of rights holders and popular consumer websites that  offer platforms for third-party sellers, interviewed CBP and ICE officials,  and reviewed agency documentation. (See app. I for more information  about our objectives, scope, and methodology.)

We conducted this performance audit from September 2016 to January  2018 in accordance with generally accepted government auditing  standards. Those standards require that we plan and perform the audit to  obtain sufficient, appropriate evidence to provide a reasonable basis for  our findings and conclusions based on our audit objectives. We believe  that the evidence obtained provides a reasonable basis for our findings  and conclusions based on our audit objectives. We conducted our related  investigative work in accordance with investigation standards prescribed  by the Council of the Inspectors General on Integrity and Efficiency.

Recent Legislation Related to IPR Enforcement

The Trade Facilitation and Trade Enforcement Act of 2015 (TFTEA)  includes provisions related to IPR enforcement, among other things.  According to CBP, the act codified existing CBP activities and supports  CBP’s efforts to protect U.S. economic security through trade  enforcement, to collaborate with the private sector, and to streamline and  modernize business processes to meet the demands and complexities of  a changing global supply chain. The act defines trade enforcement as  the enforcement of the customs and trade laws of the United States.  TFTEA requires the development and implementation of Centers of  Excellence and Expertise (Centers), which CBP began piloting in 2010,  and centralizes CBP’s trade enforcement and trade facilitation efforts.  Among other things, TFTEA directs the CBP Commissioner to establish IPR as a priority trade provides CBP with explicit authority to share certain information with  trademark and copyright owners prior to completing a seizure; directs the Secretary of the Department of Homeland Security to  establish the government-wide National Intellectual Property Rights  Coordination Center (IPR Center) within ICE;  requires the Assistant Director of the IPR Center to coordinate with  CBP and ICE, along with other agencies; and  requires the Assistant Director of the IPR Center to work with CBP  and other federal agencies to conduct outreach to the private sector.

TFTEA also includes reporting requirements for CBP and ICE.  Specifically, TFTEA requires CBP and ICE to submit a joint strategic plan  every 2 years that, among other things, describes their efforts to enforce  IPR and makes recommendations for the optimal allocation of resources  to ensure adequate enforcement. TFTEA also requires the agencies to  submit a joint report annually that includes specific IPR criminal and  border enforcement metrics, a summary of outreach efforts, and a  summary of efforts to address the challenges presented by Internet  commerce and the transit of small packages.

CBP and ICE both play critical roles in IPR enforcement. CBP’s  responsibilities include identifying and seizing IPR-infringing goods at the  U.S. border, a function that also includes assessing penalties and  denying entry to certain types of IPR-infringing goods. ICE’s  responsibilities include investigating IPR violations, building cases for  federal prosecution, and serving as the lead agency for the IPR Center.  CBP employs a risk-based approach that uses targeting and other tools  to identify for further examination a selection of imported goods that have  arrived at U.S. ports; when violations are found, CBP seizes infringing  goods and may refer cases to ICE for criminal investigation. Figure 1  shows CBP’s and ICE’s roles in IPR enforcement at the U.S. border.

CBP. CBP’s trade policy, processing, and enforcement operations,  including those related to IPR, are primarily carried out by two offices— the Office of Trade and the Office of Field Operations.

The Office of Trade develops policies to guide trade enforcement  efforts. The Office of Field Operations conducts a range of trade  processing and enforcement activities at more than 300 ports, where  people and goods enter the country by land, air, or sea. At these  ports, CBP officers and import specialists target potentially IPR- infringing goods, conduct examinations, and detain items if officers  suspect they are counterfeit.

Import specialists working for the Office of Field Operations’ 10  Centers appraise and evaluate detained goods to identify any IPR  violation. As we reported in June 2017, the creation of the Centers  represented a shift in CBP’s approach to trade operations, centralizing  the processing of imported goods on a national scale through  industry-focused Centers rather than individual ports of entry.

In determining goods’ authenticity, CBP relies on product information  supplied by rights holders and prioritizes enforcement of IPR that rights  holders have recorded with CBP, using the Intellectual Property Rights e- Recordation database. CBP also uses product identification manuals that  are prepared by rights holders and linked to the database. In addition,  CBP may consult with rights holders as part of the examination process. If  CBP determines that a good is counterfeit, it seizes and destroys the  good and may assess penalties if warranted.

IPR enforcement is one of seven priority trade issues around which CBP  focuses its activities and resources for trade facilitation and  enforcement. Priority trade issues represent high-risk areas that can  cause significant revenue loss, harm the U.S. economy, or threaten the  health and safety of the American people, according to CBP. In 2017, we  evaluated CBP’s trade enforcement efforts and found that CBP’s plans for  its priority trade issues generally lacked performance targets that would  enable it to assess the effectiveness of its enforcement activities. We  recommended that CBP include performance targets in its plans for  priority trade issues; CBP concurred with this recommendation.

ICE. ICE’s Homeland Security Investigations is responsible for a wide  range of domestic and international criminal investigations arising from  the illegal movement of people and goods into, within, and out of the  United States, including the importation and exportation of counterfeit  goods. ICE field agents work with CBP and various partners in their  investigations of identified cases of IP crime. In addition, the ICE-led,  multi-agency IPR Center coordinates with other federal agencies on IPR  infringement investigations, law enforcement training, and private sector  and public outreach. The IPR Center brings together many of the key  domestic and foreign investigative agencies to leverage resources and  promote a comprehensive response to IP crime.

Risks Associated with the Counterfeit Goods Market

Counterfeit goods may pose risks to the health and safety of consumers.  CBP and ICE have seized and investigated counterfeit goods, such as  health and personal care products and consumer electronics, that carried  a number of health and safety risks. For example, CBP has seized  counterfeit versions of personal care products such as contact lenses,  perfume, hair removal devices, hair curlers and straighteners, skin  cleansing devices, and condoms, which pose risks to the consumer that  include damage to skin or eyes caused by dangerous chemicals and  bacteria, burning or electrocution due to nonstandardized wiring, or  ineffectual family planning protection. ICE has also investigated IP crimes  involving counterfeit airbags, phone accessories, pharmaceuticals, and  other items that present risks to the health and safety of consumers.  Counterfeit electronics and batteries can also pose significant risks,  including the risk of injury or death, according to CBP. For instance, in  December 2015, CBP seized 1,378 hoverboards with counterfeit batteries  that carried a risk of causing fires.

In addition, the sale of counterfeit goods can pose a threat to national  security. For example, CBP and ICE have seized and investigated  counterfeit goods, such as integrated circuits, destined for Department of  Defense supply chains. Additionally, counterfeiting has been linked to  transnational organized crime and terrorist organizations. According to  the United Nations Office of Drugs and Crime, the illicit trafficking of  counterfeit goods is an increasingly attractive avenue for criminal  organizations to diversify their product range. Criminal networks use  similar routes and methods to move counterfeit goods as they use to  smuggle drugs, firearms, and people, according to reports from U.S. law  enforcement and international organizations. The high rate of return on  investment and perceived low risk of prosecution associated with IP  crimes make counterfeiting attractive to criminal organizations as a  lucrative source of revenue, according to the IPR Center.

In 2010, we reported that counterfeiting also posed a wide range of  economic risks to consumers, industry, government, and the economy as  a whole. Counterfeiting’s economic effects on consumers include, for  example, financial losses resulting from counterfeit products that fail due  to inferior quality. In addition, counterfeiting may pose risks to industry  and government by increasing IPR protection and enforcement costs, by  affecting sales and brand value for the businesses whose products are  counterfeited, and by potentially reducing tax revenue collected by the  government. Finally, counterfeiting may harm the U.S. economy as a  whole by slowing economic growth, resulting in the loss of jobs in IP- intensive industries, according to the Congressional Research Service.

Accelerated by E- Commerce, Changes in the Counterfeits Market Present Challenges to U.S. Agencies, Consumers, and the Private Sector

Driven in part by the rise of e-commerce, the market for counterfeit goods  in the United States has shifted in recent years from one in which  consumers often knowingly purchased counterfeits to one in which  counterfeiters try to deceive consumers into buying goods they believe  are authentic. According to CBP officials and seizure data, the volume,  value, and variety of counterfeit goods entering the United States  increased in fiscal years 2012 through 2016, and counterfeit goods were  increasingly imported in smaller express-carrier or mail packages. The  results of our undercover purchases from third-party sellers indicate that  counterfeit goods are available on a variety of popular e-commerce  websites frequented by U.S. consumers. These changes in the  marketplace present a number of challenges for U.S. agencies, the  private sector, and consumers.

E-Commerce Has Contributed to a Shift in the Market for Counterfeit Goods

The rise of e-commerce has contributed to a fundamental change in the  market for counterfeit goods, according to our analysis of documents from  CBP, ICE, and international organizations and our interviews with CBP  and ICE officials. U.S. agencies and international organizations have  observed a shift in the sale of counterfeit goods from “underground” or  secondary markets, such as flea markets or sidewalk vendors, to primary  markets, including e-commerce websites, corporate and government  supply chains, and traditional retail stores, where consumers typically  believe they are purchasing authentic goods. This shift has been  accompanied by changes in the ways in which counterfeit goods are sold,  as shown in table 1.

In the past, consumers could often rely on indicators such as appearance,  price, or location of sale to identify counterfeit goods in the marketplace,  but counterfeiters have adopted new ways to deceive consumers.  Consumers may have difficulty differentiating between counterfeit and  authentic goods in the primary market for several reasons:

The physical appearance of counterfeit goods may no longer serve as  a “red flag” for consumers that the good they are considering  purchasing is not genuine. Counterfeit goods and their packaging are  becoming more sophisticated and closely resemble genuine goods,  making it difficult for consumers, law enforcement, and sometimes  even manufacturers to identify counterfeit goods, according to CBP  and ICE officials.

When selling online, counterfeiters may post pictures of authentic  goods on the websites where they are selling counterfeits and may  post pseudonymous reviews of their products or businesses in order  to appear legitimate.

By setting the price of a counterfeit at, or close to, the retail price of a  genuine good, counterfeiters are able to deceive consumers, who will  pay the higher price because they believe the goods are real or who  believe that they are getting a slight bargain on genuine goods.

Counterfeiters exploit third-party online marketplaces to gain an  appearance of legitimacy and access to consumers, according to the  Federal Bureau of Investigation.

The growth of e-commerce has provided additional opportunities for  counterfeiters to deceive consumers, according to U.S. agencies and  international organizations. In June 2000, approximately 22 percent of  Americans reported having made a purchase online, but by December  2016 that portion of the population had risen to 79 percent, according to a  study by Pew Research Center. Worldwide e-commerce sales are  expected to reach over $4 trillion by 2020, and e-commerce retail sales  are expected to reach nearly 15 percent of overall global retail spending  in 2020, according to CBP’s E-Commerce and Small Business Branch.  CBP also has reported that e-commerce is increasing and altering global  trade, as consumers import and export goods and services when they  make purchases over the Internet, allowing for more cross-border  transactions and giving counterfeiters direct access to consumers through  the Internet.

CBP Data Indicate Changes in Several Key Characteristics of Counterfeit Goods Seized

According to CBP seizure data and CBP officials, the volume, value, and  variety of counterfeit goods seized by CBP and ICE have increased.  CBP reports indicate the number of IPR seizures increased by 38 percent  in fiscal years 2012 through 2016, from approximately 22,850 seizures in  fiscal year 2012 to an estimated 31,560 seizures in fiscal year 2016. The  total estimated value of the seized goods, had they been genuine,  increased by 10 percent, from about $1.26 billion in fiscal year 2012 to an  estimated value of over $1.38 billion in fiscal year 2016. According to  CBP data, most of the goods seized during this period were shipped from  China and Hong Kong. Counterfeit goods originating in China accounted  for approximately half of all IPR seizures in fiscal years 2012 through  2016, and counterfeit goods shipped from Hong Kong represented over  one-third of all IPR seizures over the same time frame. As the number of  IPR seizures increased from 2012 to 2016, the proportion of seizures  shipped from China and Hong Kong remained fairly stable, ranging from  83 percent of all IPR seizures in 2014 and 2015 to 94 percent in 2013, as  shown in figure 2.

The variety of products being counterfeited has also increased, according  to CBP officials. CBP and ICE noted that, while many consumers typically  think of luxury handbags or watches as the most commonly counterfeited  goods, counterfeiting occurs in nearly every industry and across a broad  range of products. According to CBP officials we interviewed in  headquarters and CBP and ICE port officials, almost any product can be  counterfeited. For example, major seizure operations in fiscal year 2016  resulted in the confiscation of automobile parts, consumer electronics,  pharmaceuticals, sports-related merchandise, semiconductor devices,  furniture, and hoverboards. In fiscal year 2016, the commodity types with  the highest number of seizures were apparel, consumer electronics,  footwear, watches, and jewelry.

In addition, according to CBP data and officials, the ways in which  counterfeit goods are imported into the United States have changed in  recent years. Specifically, express carriers and international mail have  become the predominant forms of transportation for IPR-infringing goods  entering the United States, constituting approximately 90 percent of all  IPR seizures in fiscal years 2015 and 2016, according to CBP data and  officials. The number of IPR seizures from express carrier shipments  increased by 105 percent from fiscal year 2012 through fiscal year 2016,  while the number of IPR seizures shipped by cargo increased by 6  percent over the same period. Similarly, the total value of express carrier  seizures increased by 337 percent from fiscal year 2012 through fiscal  year 2016, while the total value of cargo seizures decreased by 34  percent over the same period.

CBP and ICE have attributed the increase in seizures of mail and express  carrier shipments to three factors:  continued growth of online counterfeit merchandise sales, which  facilitate direct-to-consumer shipments of infringing goods;  training by rights holders and coordination between CBP and ICE,  which have helped CBP and ICE to focus more enforcement efforts  on express carrier operations; and  counterfeiters’ response to enforcement efforts.

According to an IPR Center report, counterfeiters may assume that  multiple, smaller packages are more likely to elude seizure than a single  large shipment and may view the seizure of a few packages as the cost of  doing business.

Twenty of 47 Items Purchased from Third- Party Sellers on Popular E-Commerce Websites Were Counterfeits, Highlighting Potential Risks to Consumers

In an attempt to understand the frequency with which consumers may  unknowingly encounter counterfeit products online, we purchased a  nongeneralizable sample of four types of consumer products—shoes,  travel mugs, cosmetics, and phone chargers—from third-party sellers on  five popular e-commerce websites. According to CBP data and officials,  CBP often seizes IPR-infringing counterfeits of these types of products.  As table 2 shows, the rights holders for the four selected products  determined 20 of the 47 items we purchased to be counterfeit.

We did not identify any clear reasons for the variation among the  counterfeit and authentic that we purchased based on the products they  represented, the e-commerce websites from which they were purchased,  or the third-party sellers from whom they were purchased. For three of the  four product types, at least one item we purchased was determined to be  counterfeit, with results varying considerably by product. Representatives  of the rights holders could not provide a specific explanation for the  variation among authentic and counterfeit goods that we received. They  noted that the results of undercover purchases can fluctuate depending  on enforcement activities and the variety of goods and sellers on a  particular website on a given day. Rights-holder testing also showed that  we purchased at least one counterfeit item and one authentic item from  each of the five e-commerce websites. In addition, our analysis of the  customer ratings of third-party sellers from whom we made purchases did  not provide any clear indications that could warn consumers that a  product marketed online may be counterfeit. For example, we received  both counterfeit and authentic items from third-party sellers with ratings  that were less than 70 percent positive as well as sellers with ratings that  were up to 100 percent positive.

Some counterfeit items we purchased were easily identifiable as likely  counterfeit once we received them. Rights holders were able to determine  that they were not authentic on the basis of inferior quality, incorrect  markings or construction, and incorrect labeling. For example, one item  contained misspellings of “Austin, TX” and “Made in China,” as figure 3  shows.

Other items could be more difficult for a typical consumer to identify as  counterfeit. For example, the rights holder for a cosmetic product we  purchased identified one counterfeit item on the basis of discrepancies in  the color, composition, and design of the authentic and counterfeit items’  packaging, as figure 4 shows.

Counterfeit goods may also lack key elements of certification markings  and other identifiers. For example, on a counterfeit phone charger we  purchased, the UL certification mark did not include all components of the  authentic mark, as shown in figure 5.

The risks associated with the types of counterfeit goods we purchased  can extend beyond the infringement of a company’s IPR. For example, a  UL investigation of counterfeit iPhone adapters found a 99 percent failure  rate in 400 counterfeit adapters tested for safety, fire, and shock hazards  and found that 12 of the adapters posed a risk of lethal electrocution to  the user. Similarly, counterfeits of common consumer goods, such as  Yeti travel mugs, may contain higher-than-approved concentrations of  dangerous chemicals such as lead, posing health risks to consumers.  According to ICE, seized counterfeit cosmetics have been found to  contain hazardous substances, including cyanide, arsenic, mercury, lead,  urine, and rat droppings.

Representatives of rights holders and e-commerce websites whom we  interviewed reported taking independent action to try to protect IPR within  their areas of responsibility. Both rights holders and e-commerce  websites maintain IPR protection teams that work with one another and  with law enforcement to address infringement issues. These teams may  include global networks of investigators and contracted brand-protection  companies. E-commerce websites may also take a variety of steps to  block and remove counterfeit items listed by third-party sellers. These  efforts rely on data collected through a variety of means, including  consumer reporting of counterfeits, notification by rights holders of IPR  infringement, and corporate efforts to vet potential third-party sellers,  according to private sector representatives. According to these  representatives, both rights holders and e-commerce websites have  utilized technology to aid their efforts. For example, one rights holder  uses search-engine “crawlers” to find terms commonly associated with  counterfeit sales, in an effort to identify illicit sites and the individuals  behind them, while one e-commerce website maintains a large database  of information on the history and activity of its sellers.

According to representatives of rights holders, consumers can best  protect themselves by buying directly from the manufacturer or its  authorized retailers online, avoiding prices that look “too good to be true,”  and reporting counterfeit purchases. For additional actions that consumer  protection organizations, government agencies, and private companies  have recommended consumers take to limit the risk of purchasing  counterfeits online, see appendix II.

Changes in the Marketplace Can Pose Challenges to U.S. Agencies and the Private Sector

We identified a number of key challenges that the changes in the market  for counterfeit goods can pose to CBP and ICE as well as to the private  sector. First, the increasing sophistication of counterfeits can make it  difficult for law enforcement officers to distinguish between legitimate and  counterfeit goods. According to CBP officers, because the quality of  counterfeits is improving, inspecting and processing a seizure can be time  consuming and often requires working with private industry to test  potential counterfeits.

Second, the increased variety and quantity of counterfeit goods crossing  the border complicate CBP and ICE enforcement efforts. As the range of  counterfeit goods expands, CBP has a wider variety of goods to screen,  which requires CBP officials to have in-depth knowledge of a broad range  of products and of how to identify counterfeits. The overall volume of  goods entering the country—including more than 11 million maritime  containers; 13 million containers carried over land borders by truck or rail;  and 250 million cargo, mail, and express carrier packages annually—can  also be difficult to manage, according to CBP officials. CBP has  responsibility for facilitating trade as well as preventing the importation of  illicit goods—missions that can conflict when attempts to identify illicit  goods threaten to slow the movement of legitimate trade. Additionally, the  increased volume of imports at specific locations can strain CBP  resources. For example, CBP officials at one international mail facility  noted that the volume of both incoming mail and counterfeit goods  increased exponentially when some international mail shipments from  China were rerouted to enter the United States through that port.

Third, shifts in the mode of transportation of counterfeit goods to the  United States pose additional challenges to CBP and ICE. According to  CBP officials, seizure processing takes roughly the same amount of time  and costs the same regardless of shipment size or value, which means  that CBP must expend the same resources to seize an express carrier  shipment that contains a few infringing goods as it would to seize a large  cargo container with hundreds of infringing goods. Another effect of the  shift in transportation mode is that seizures have become less of a  deterrent for counterfeiters who break up large shipments into multiple  smaller express carrier or mail packages. Each of these smaller packages  includes fewer goods than a single large shipment, decreasing the  counterfeiter’s risk of losing significant quantities of merchandise to a  single seizure. Furthermore, the shift in mode of transportation affects  CBP’s ability to target shipments in advance. For example, as we have  previously reported, the mail environment generally does not provide CBP  with access to advance information that can be used for targeting or  package retrieval. In other shipping environments, CBP officials may  have access to advance information that they can use to target potentially  counterfeit goods.

Fourth, counterfeiters may use a variety of methods to try to deceive law  enforcement or evade detection. A large majority of infringing products  are produced overseas and shipped to the United States, according to the  Intellectual Property Enforcement Coordinator. According to CBP  officials and CBP, IPR Center, and Intellectual Property Enforcement  Coordinator reports, counterfeiters may try to evade detection in a  number of ways. For example, counterfeiters sometimes separate IPR- infringing labels from counterfeit goods during the transportation process  and then complete the labeling and packaging of the goods in the United  States (see fig. 6). In fiscal year 2016, CBP seized 572 shipments  containing counterfeit labels and tags intended to be applied to articles  after importation to create non-genuine products, which CBP estimated  would be worth more than $17 million if they were genuine.

Finally, CBP and ICE officials noted that targeting the root causes of IPR  infringement requires international cooperation to disrupt the networks  that produce, sell, and ship counterfeit goods. IPR enforcement is a  global issue, as counterfeit operations may cross several borders;  however, officials said some countries are more receptive to working with  U.S. agencies than others. For example, ICE officials noted that some  countries, such as China, do not have stringent IP laws in place or do not  enforce existing laws. Officials added that it can be difficult to convince  some countries to take IP theft seriously when it constitutes a large part of  their economy.

The changing marketplace also presents challenges to the private sector,  according to representatives from rights holders and e-commerce  websites:  It is more difficult for rights holders and e-commerce websites to  identify and investigate individual counterfeit cases, as e-commerce  websites face growing inventory from a larger registry of sellers.  Tracking goods from known counterfeiters through various website  fulfillment and delivery mechanisms is also a significant challenge for  the private sector.

The growth of e-commerce has accelerated the pace at which  counterfeiters can gain access to consumers or reinvent themselves if  shut down. E-commerce platforms on mobile devices, for example,  represent the newest space in which counterfeiters can operate.

CBP and ICE Engage in Activities to Enhance IPR Enforcement, but CBP Has Not Fully Evaluated the Results of Its Activities

CBP and ICE engage in a number of activities to enhance IPR  enforcement and have collected performance data on the activities we  reviewed. However, CBP has conducted limited evaluation of its IPR  enforcement, while ICE has taken some steps to evaluate the impact of  its efforts.

CBP and ICE Undertake Several Types of Activities to Enhance IPR Enforcement

According to our analysis of CBP and ICE documents and interviews with  CBP and ICE officials, CBP and ICE undertake a variety of activities to  enforce IPR, including (1) detecting potentially infringing goods, (2)  conducting special operations, (3) engaging with international partners,  and (4) undertaking localized pilot programs or port-led initiatives.

Detecting potentially IPR-infringing goods. CBP and ICE engage  in a number of activities to detect imports of potentially IPR-infringing  goods. For example, CBP officers at each port have responsibilities  for targeting such goods, and CBP conducts targeting and trend  analysis at the national level. As we observed during our port visits,  CBP also uses its Automated Targeting System to review data on  inbound and outbound shipments and to identify shipments of  potential concern. CBP has created two IPR targeting models for the  system. In addition, CBP and ICE both maintain online systems for  reporting allegations of counterfeiting and other IPR infringements.

Conducting special operations. CBP and ICE periodically conduct  special operations—such as operations focused on particular  products or surge operations that provide additional manpower to  examine a larger number of shipments—at U.S. ports of entry. CBP’s  Mobile Intellectual Property Enforcement Team (MIPET) and ICE’s  national operations are examples of activities in this area of effort.

Engaging with international partners. IPR enforcement requires  coordination with international partners. The IPR Center includes  representatives of the governments of Canada and Mexico, as well as  international law enforcement entities like Interpol and Europol. CBP  and ICE also work with the customs and law enforcement agencies in  other countries to share information, provide training, and conduct  joint operations.

Undertaking localized pilots and port-led initiatives. CBP and ICE  delegate much of the responsibility for day-to-day enforcement to  ports, Centers, and field offices. This allows CBP’s headquarters  offices to test pilot programs in a small number of ports and allows  ports and Centers to initiate their own activities to enhance IPR  enforcement. CBP engaged in localized pilots or port-led initiatives to  enhance IPR enforcement at each of the locations we visited.

Within these areas of effort, CBP and ICE have undertaken activities to  enhance their IPR enforcement. We selected and reviewed eight activities  in these four categories, as shown in table 3.

CBP and ICE Have Collected Some Performance Data on IPR Enforcement Activities

Consistent with federal internal control standards, CBP and ICE have  collected some data on the results of each of the eight activities we  reviewed. Generally, the agencies collected information on the outputs  of the selected activities, such as the number and value of seizures  resulting from these activities (see table 4).

CBP Has Conducted Limited Evaluation of Its IPR Enforcement

We found that CBP has conducted limited evaluation of the impact of its  efforts to enhance IPR enforcement. In particular, (1) CBP’s metrics for  tracking the overall effectiveness of its IPR enforcement have limitations,  (2) CBP has not systematically evaluated individual IPR enforcement  activities, and (3) CBP lacks a defined process for assessing port-led  initiatives and sharing information about effective practices.

First, CBP’s metrics for tracking the overall effectiveness of its IPR  enforcement have limitations. When asked how they assess effectiveness  of CBP’s IPR enforcement, CBP officials in headquarters cited an  increase in the number and value of IPR seizures as an indication of the  effectiveness of CBP’s IPR enforcement efforts. However, while seizure  statistics provide important information about CBP activities, using  seizure data to measure the effectiveness of CBP’s IPR enforcement has  limitations. For example, according to the U.S. Joint Strategic Plan on  Intellectual Property Enforcement for fiscal years 2017 through 2019, it is  difficult to determine whether an increase in the number of IPR seizures  represents a result of more-effective IPR enforcement or reflects a higher  volume of trade in counterfeits. Also, according to CBP officials, the  increasing shift from seizures of large cargo shipments to seizures of  smaller express carrier and mail shipments may partially explain the  growth in the number of reported seizures. Further, while CBP officials in  headquarters noted that the overall value of IPR seizures has increased,  CBP officials in the field observed that presenting CBP seizure statistics  in relation to the overall volume of trade could provide additional context  on whether CBP is seizing a larger portion of overall shipments or  whether increased seizures might be partially attributable to an increase  in the volume of trade. Other CBP officials noted that, in theory, effective  enforcement could cause the number of seizures to decrease as the  number of counterfeits entering the country also decreases. Finally, given  the volume of trade in counterfeits, CBP officials commented that CBP  cannot “seize its way out of” the problem of IP theft.

Second, CBP has not systematically evaluated its individual IPR  enforcement activities and has not followed through on previous plans to  conduct such evaluations. We identified one instance in which CBP  evaluated an IPR enforcement activity. Specifically, CBP officials  conducted an analysis of the fiscal year 2016 expedited seizure  processing pilot and identified several benefits, including savings of  frontline officer hours and time and cost savings, associated with seizure  processing. While CBP has acknowledged the need to evaluate other IPR  enforcement activities, it has not followed through on previous plans to  conduct evaluations. For example, CBP’s 2010 IPR Enforcement  Strategy: 5-Year Plan laid out goals and corresponding activities that it  planned to pursue. CBP outlined specific plans to evaluate all but one of  these goals at least once over the course of the 5-year period covered by  the strategy. In response to our questions about what activities had been  undertaken and how they had been evaluated, CBP could not provide  evidence that it had conducted evaluations of any of these activities as  planned.

CBP has more recently said that it plans to evaluate other IPR  enforcement efforts to better understand their impact. For example, one  goal of MIPET and other surge operations is to build the capacity of  officers at participating ports. The U.S. Joint Strategic Plan on Intellectual  Property Enforcement for fiscal years 2017 through 2019 notes that CBP  intends to assess ports after surge operations to determine their effect on  long-term interdiction rates. Additionally, although CBP tracks the  accuracy of its Automated Targeting System’s IPR targeting models, a  CBP official stated that CBP has not evaluated the extent to which its  officers use these models at ports of entry. Officials said that such  evaluation would be beneficial for determining whether to continue using  the models and, if so, whether policy changes are needed to improve  their use. The U.S. Joint Strategic Plan on Intellectual Property  Enforcement also states that CBP plans to evaluate the voluntary  abandonments pilot, and CBP officials noted their intention to evaluate  compliance rates in various e-commerce environments to inform future  enforcement efforts.

Finally, CBP does not have a standard process for collecting information  about the results of port-led initiatives to enhance IPR enforcement and  for sharing this information internally. We have previously noted that  agencies can use pilots and demonstration projects to identify innovative  ways to improve performance, because pilots and demonstration projects  allow for experiences to be evaluated, shared systematically with others,  and adjusted as appropriate. CBP’s decentralized structure allows it to  pilot new activities at individual ports. CBP officials stated that they  currently collect information on special operations conducted at ports but  that they do not have a standardized process for assessing port-led  efforts and sharing information on process improvements. Officials also  noted that they sometimes share information about port-led efforts during  quarterly phone calls and stated that they had shared information about  the expedited seizure processing initiative and the Special Operations  Team in such calls. However, they were unable to provide examples of  information about other port-led initiatives that had been shared through  this process. Officials we interviewed in the field and in headquarters  indicated that sharing of such information could be useful.

Federal internal control standards state that agency management should  use data it collects to make informed decisions and evaluate the agency’s  performance in achieving key objectives. According to federal program  evaluation guidance, which articulates best practices for program  evaluation, a program evaluation is a systematic study using research  methods to collect and analyze data to assess how well a program is  working and why. Program evaluation is closely related to performance  measurement and reporting. Evaluations answer specific questions about  program performance; may focus on assessing program operations or  results; and can play a key role in strategic planning and program  management, providing feedback on both program design and execution.  CBP officials acknowledged that further steps to evaluate their IPR  enforcement efforts would be useful. Without evaluations of, or more  complete information about, the results of its efforts, CBP may not have  the information it needs to direct its resources to the most effective  enforcement activities.

ICE Has Taken Some Steps to Assess Its Efforts

While ICE officials identified a number of challenges that affect their  ability to track the effectiveness of IPR enforcement activities, the agency  has taken steps to understand the impacts of some of its efforts. ICE officials noted that evaluating the impacts of specific IPR enforcement  activities, including those we reviewed, can be difficult, because these  impacts ultimately rely on prosecutors’ decisions to pursue criminal  charges—that is, decisions over which ICE has no control. ICE officials  also noted factors that limit the usefulness of enforcement statistics, such  as arrests or convictions for IPR-related offenses, as measures of the  effectiveness of ICE’s IPR enforcement activities. First, according to ICE  officials, prosecutors for some cases that start as IPR investigations  ultimately pursue money laundering or other, related charges, because  they carry harsher penalties. Second, while ICE collects data on  enforcement outcomes by fiscal year, the complicated nature of some  investigations often causes a significant amount of time to elapse  between an investigation’s start and any results. Thus, various IPR  enforcement statistics reported for a single fiscal year, such as the  number of cases initiated, arrests made, or convictions secured, may be  unrelated, making it sometimes difficult to link enforcement outcomes to  ICE investigations.

To address some of these challenges, ICE has created a process to track  cases it deems significant, which, according to ICE officials, will allow it to  better understand the impact of its efforts. ICE officials told us that ICE  had developed a set of criteria for what constitutes a significant case and  that a panel reviews proposals from the field to determine whether an  investigation meets the criteria for a significant case. If a case is deemed  significant, ICE tracks it until (1) the criminal activity is disrupted (i.e.,  actions taken as part of the investigation impede the operations of the  target organization) or (2) a criminal organization is dismantled (i.e., the  leadership, network, and financial base of the target organization are  impeded to the point where it is unable to reconstitute itself). According to  ICE, of the 115 IPR-related investigations that were deemed significant  cases in fiscal years 2012 through 2016, 59 cases, or about 51 percent,  had resulted in a disruption of criminal activity or dismantlement of a  criminal organization as of January 2017.

CBP and ICE Generally Collaborate on IPR Enforcement, but CBP Is Restricted in Sharing Information with the Private Sector

Our analysis showed that CBP and ICE collaboration on IPR enforcement  is generally consistent with selected key practices for interagency  collaboration and that the agencies collaborated to address some  challenges they have faced with the creation of the Centers. CBP and  ICE also coordinate with the private sector in a variety of ways. However,  according to private sector representatives we spoke to, restrictions on  CBP’s information sharing limit the ability of rights holders and e- commerce websites to protect IPR.

Collaboration between CBP and ICE on IPR Enforcement Is Generally Consistent with Selected Key Practices

CBP and ICE collaborate on IPR enforcement in ways that are generally  consistent with the following selected key practices that we have  previously identified as important for enhancing and sustaining  collaboration among federal agencies: (1) define and articulate a common  outcome; (2) establish mutually reinforcing or joint strategies; (3) identify  and address needs by leveraging resources; (4) agree on roles and  responsibilities; and (5) establish compatible policies, procedures, and  other means to operate across agency boundaries.

In developing the U.S. Joint Strategic Plan on Intellectual Property  Enforcement, CBP and ICE, among other agencies, defined and  articulated common IPR enforcement outcomes, and they continue to  define common outcomes through interagency efforts. The plan’s seven  objectives, mandated by the Prioritizing Resources and Organization for  Intellectual Property Act of 2008, include reducing counterfeit and  infringing goods in domestic and international supply chains, among  others. For example, through the IPR Center, CBP and ICE coordinate  special interagency operations that target IPR violations for specific  industries or product types, such as beauty products, pharmaceuticals, or  automotive parts (e.g., airbags).

Establish Mutually Reinforcing or Joint Strategies

CBP and ICE, among other agencies, participated in the development of  the U.S. Joint Strategic Plan on Intellectual Property Enforcement for  fiscal years 2017 through 2019 and completed a TFTEA-required joint  strategic plan. The Prioritizing Resources and Organization for Intellectual  Property Act of 2008 requires the U.S. Intellectual Property Enforcement  Coordinator to coordinate the development of the Joint Strategic Plan on  Intellectual Property Enforcement. This plan serves as a blueprint for  the work CBP, ICE, and other federal agencies are to carry out in support  of IPR enforcement. The joint strategic plan for fiscal years 2017 through  2019 notes that CBP and ICE will, among other things, engage in joint  efforts, such as meeting at least annually with industry stakeholders to  discuss potential new opportunities for employing technology to enhance  identification and investigation of illicit trade. In addition, TFTEA required  CBP and ICE to develop, by February 2017 and every 2 years thereafter,  an interagency strategic plan for trade enforcement that includes  information related to IPR enforcement. The agencies finalized this  strategy in October 2017 and provided us with a copy after we had sent  them our draft report for comment.

Identify and Address Needs by Leveraging Resources

CBP and ICE have leveraged IPR enforcement resources in a variety of  ways. For example, according to a strategy issued by the IPR Center,  ports and field offices may establish Trade Enforcement Coordination  Centers and colocate CBP and ICE personnel to enhance information  sharing and foster collaboration on enforcement actions. Officials in three  of the locations we visited told us that colocating CBP and ICE staff or  temporarily assigning some agency staff to the other agency improves the  two agencies’ ability to work together. In addition, ICE officials at two of  the locations we visited said that CBP officers share their expertise in  operating the Automated Targeting System, which CBP officers use more  frequently. ICE officials in one location also told us that CBP officers  sometimes accompany ICE agents on investigative operations and that  the ICE agents without IPR backgrounds find the CBP officers’ expertise  helpful.

Internally, CBP also has taken steps to leverage resources. For example,  CBP conducts surge operations, such as MIPET operations, to  temporarily focus resources on specific IPR violations. In addition,  according to CBP, the agency created the Centers to increase CBP’s  industry knowledge.

CBP and ICE have defined roles and responsibilities for a variety of  interagency IPR enforcement efforts. For example, after CBP established  the Centers, CBP and ICE jointly issued guidance that explained the  Centers’ role in CBP and clarified CBP’s and ICE’s roles and  responsibilities in the case-referral process. This guidance describes the  process by which CBP may refer IPR-infringement cases to ICE, which is  then responsible for determining whether to initiate an investigation. CBP  defines intra-agency roles and responsibilities in its Trade Special  Operations Standard Operating Procedures, which provide CBP  personnel with direction for initiating, developing, and executing national- level trade targeting operations. For example, the standard operating  procedures define the targeting roles for three CBP targeting groups—the  National Targeting and Analysis Group, the Commercial Targeting and  Analysis Center, and the Tactical Trade Targeting Unit—as well as for the  Centers.

Establish Compatible Policies, Procedures, and Other Means to Operate across Agency Boundaries

CBP and ICE have established compatible policies, procedures, and  other means to operate across agency boundaries. For example, CBP  and ICE developed standard operating procedures for the Commercial  Enforcement Analysis Response (CEAR) process—a process to ensure  coordination between the agencies when violations are detected, agree  on a response best suited to remedy the problem, and follow up on  actions taken.

CBP and ICE have also taken steps to address some challenges they  encountered following the creation of the Centers. Both CBP and ICE  officials noted that the creation of the Centers has posed communication  challenges, but the agencies have taken steps to address some of the  challenges posed by the new organizational structure. Officials at ports  we visited and Centers we interviewed noted that there were challenges  associated with integrating the Centers, which operate nationally, into  local efforts, like the CEAR process. This is consistent with our June 2017  report, in which we noted that ICE officials have had to adjust to working  in the new, nationwide environment of the Centers. For example, ICE  officials in one city may be working on a case with an import specialist  located in another city. This has diminished cooperation and  communication between CBP and ICE and resulted in fewer  investigations, according to ICE officials. CBP and ICE have initiated  steps to address some of the challenges posed by the new organizational  structure. For example, CBP and ICE issued joint guidance in December  2016 outlining how the two agencies would coordinate with one another in  light of the creation of the Centers. Additionally, according to CBP  officials, the CEAR process was revised in September 2017 with the  Centers in a lead role.

CBP officials also noted they have had to adapt to new ways of sharing  information within the agency between officers and import specialists at  Centers when processing a seizure. Officials at port locations we visited  and at the Centers where we conducted interviews noted that the creation  of the Centers has enhanced IPR enforcement. However, officials at the  Centers and ports also noted challenges related to the sharing of  information. For example, Center and port officials stated that sharing  information about seizures via email and coordinating remotely—often  across time zones—can extend the amount of time needed to process a  seizure. Center officials also stated that ports may use different  procedures for processing seizures, which can be challenging for the  Centers because they operate on a national level and therefore may  interact with a number of ports. CBP has initiated steps to address some  challenges related to sharing information about seizures. For example,  CBP is adding a function to upload photos and forms to its seizures  database, allowing for enhanced information sharing across locations,  according to CBP officials.

CBP and ICE Coordinate with the Private Sector in Several Ways, but Restrictions on CBP Information Sharing Limit Private Sector IPR Enforcement

CBP and ICE Work with Various Private Sector Entities to Enforce IPR

CBP and ICE work with a variety of private sector entities—including  rights holders, industry groups, importers, and e-commerce websites,  among others—to enforce IPR and prevent the sale of counterfeit goods  on e-commerce websites, according to CBP and ICE documents and our  interviews with CBP and ICE officials and private sector representatives.  In particular, CBP and ICE work with the private sector to encourage  rights holders to record trademarks and copyrights, make determinations  on the authenticity of goods, conduct training, and collaborate with e- commerce websites.

Recording trademarks and copyrights. CBP and ICE conduct  outreach with rights holders to ensure recordation of trademarks and  copyrights in CBP’s online recordation system. According to CBP  officials, business owners are often unaware of CBP’s recordation  process, and many may not recognize that CBP prioritizes  enforcement of IP that has been recorded with CBP after it has been  registered with the U.S. Patent and Trademark Office or the U.S.  Copyright Office. CBP engages in efforts to enhance awareness of  this process, such as meeting with industry groups, according to CBP.  Representatives of one rights holder told us that increasing the  number of trademarks recorded with CBP was an important  component of the company’s enhanced IPR enforcement efforts.

Determining goods’ authenticity. CBP officials noted that they often  coordinate with rights holders to determine whether a detained item is  counterfeit. ICE also works with rights holders during criminal  investigations, according to ICE officials. When CBP officers and  import specialists are uncertain about the authenticity of a particular  item, they work with rights holders to evaluate the item, because  rights holders have the most detailed knowledge of how a product is  made and packaged and therefore can determine whether seemingly  authentic goods are in fact counterfeit. Representatives of all of the  rights holders we spoke with noted that this was an important part of  their interaction with CBP. In addition, representatives of rights  holders and e-commerce websites stated that they share information  to assist with law enforcement and with potential criminal prosecution.

Conducting training. CBP and ICE coordinate with rights holders,  industry groups, and other private sector entities to receive training on  topics like detection, supply chains, and packaging. For example,  CBP officials said they work with rights holders to arrange trainings  about specific products to help officers identify potentially counterfeit  goods. CBP reported that in fiscal year 2016, rights holders conducted  11 “webinars” and over 50 trainings for agency personnel to increase  CBP expertise regarding their products. CBP also conducted three  industry roundtables on IPR enforcement. In addition, to combat the  illegal importation and distribution of counterfeit goods, the IPR Center  engages in training and outreach to rights holders, manufacturers,  importers, and others through its Operation Joint Venture initiative.  The IPR Center reported that it reached out to more than 14,000  people at over 300 outreach and training events in fiscal year 2016  through Operation Joint Venture. Representatives of one rights holder  we spoke with noted that the company hosts two large conferences  every year to discuss issues in IPR enforcement with other private  sector entities and U.S. and international law enforcement.

Working with e-commerce websites. CBP and ICE officials noted  that their agencies collaborate with e-commerce companies in a  number of national and international working groups to better  understand the challenges associated with IPR enforcement in e- commerce. In 2016, CBP created an E-Commerce and Small  Business Branch within its Office of Trade, which, among other things,  is charged with helping CBP understand the complexities resulting  from the increasing volume of online trade. Representatives of one e- commerce website stated that the IPR Center, in particular, has been  effective in private sector outreach. ICE officials noted that in  November 2017, the IPR Center hosted a symposium on e-commerce  with over 150 attendees from the private sector and government.

Representatives from most rights holders and websites we spoke with  stated that coordination with U.S. agencies is effective and that CBP and  ICE work well with the private sector. Rights holders told us they are  aware that, due to competing priorities, CBP and ICE are unable to focus  as extensively on IPR enforcement as rights-holding companies would  like, but they noted that the agencies are willing partners in enforcement  as resources permit.

Restrictions on CBP Information Sharing Reportedly Limit Private Sector IPR Enforcement

Private sector representatives of rights holders and e-commerce websites  stated that restrictions on the amount and type of information that CBP  shares about seized goods impede their ability to protect IPR. CBP  officials stated that they share information about identified counterfeits  with e-commerce websites and rights holders to the extent possible under  current regulations. However, the officials noted that there are legal  limitations to the amount and type of information they can share,  particularly if the e-commerce website is not listed as the importer on  forms submitted to CBP. One rights holder representative stated that the  information CBP provides, such as importer names from bills of lading, is  sometimes not useful, because counterfeiters use fake identities or  otherwise mask their identities.

Several private sector representatives stated that receiving additional  information from CBP would enhance their ability to protect IPR. Rights  holders noted that additional identifying information about the  counterfeiter would aid rights-holding companies in their own  investigations and enforcement activities. One rights holder said that  some European customs agencies are able to share more information  than CBP, better enabling rights holders to take action following a  seizure. Representatives of one website noted that information on the  exterior of seized packages, such as business identifiers on packages  destined for distribution centers, would be helpful for identifying groups of  counterfeit merchandise from the same seller.

However, according to CBP officials, CBP cannot provide such  information to e-commerce websites. Without this information, websites  may be unable to identify additional counterfeit goods from the same  seller in their distribution centers. Representatives of one e-commerce  website noted that ICE sometimes shares information when it relates to  an investigation, but ICE’s involvement in the enforcement process  begins only after CBP has identified and seized counterfeit items.  Representatives of two e-commerce websites stated that, because of the  limited information shared by CBP, they may not be aware of IPR- infringing goods offered for sale on their website even if CBP has seized  related items from the same seller. CBP officials stated that they have not  yet determined whether changes to the amount and type of information  provided to e-commerce websites would require regulatory changes or  additional legal authorities. These officials noted that CBP is reviewing  options for sharing additional information with rights holders and e- commerce websites and is assessing what, if any, additional information  would be beneficial to share with private sector entities. They also said  that they have discussed differences in CBP’s and ICE’s information  sharing with ICE officials.

Representatives of rights holders and e-commerce websites noted that  information shared by law enforcement is critical to private sector IPR  enforcement, such as pursuing civil action against a counterfeiter or  removing counterfeit items from websites. Congress has also  demonstrated an interest in CBP’s sharing information with the private  sector in certain instances. Specifically, in TFTEA, Congress provided  CBP with explicit authority to share certain information with trademark  and copyright owners prior to completing a seizure. However, CBP has  not yet completed an assessment of additional information that would be  beneficial to share with the private sector or determined whether it can  share such information under current regulations and statutes. As a  result, CBP does not know whether it needs to revise its regulations or  seek additional authorities.

Counterfeit goods provide a lucrative market for criminal activity and can  pose serious risks to consumers. Growth in e-commerce has changed the  way counterfeiters interact with consumers, and the accompanying  increase in the volume and sophistication of counterfeit goods has  created challenges for CBP and ICE enforcement. While CBP and ICE  have undertaken activities to enhance IPR enforcement and collected  some performance data on their activities, CBP has conducted limited  evaluation of its efforts. Managing the huge volume of both legitimate and  counterfeit goods entering the country requires efficient use of resources.  Without better information on the effectiveness of its activities, CBP may  not be able to focus its resources on the most efficient or effective efforts.  Additionally, without collecting and disseminating effective practices  resulting from port-led initiatives, CBP may be missing an opportunity to  scale up or improve on existing efforts.

With the growth of e-commerce, the private sector—including rights  holders and e-commerce websites—can play an important role in helping  to enforce IPR and protect consumers. Information shared by CBP plays  an important role in facilitating private sector enforcement, but CBP has  not determined what, if any, additional information would be beneficial to  share with private sector entities. Until it completes an assessment of  information sharing, CBP will not know whether sharing additional  information requires regulatory or legal changes.

We are making the following two recommendations to CBP:  The Commissioner of CBP should take steps to evaluate the  effectiveness of CBP’s IPR enforcement efforts, such as by improving its  metrics to track the overall effectiveness of its IPR enforcement efforts,  evaluating selected activities to enhance IPR enforcement, and  developing a process to assess and share information on port-led  initiatives to enhance IPR enforcement (Recommendation 1)

The Commissioner of CBP, in consultation with ICE, should assess what,  if any, additional information would be beneficial to share with the private  sector and, as appropriate, take action to enhance information sharing,  where possible, such as by proposing regulatory revisions or requesting  additional legal authorities from Congress. (Recommendation 2)

We provided a draft of this report to the Department of Homeland Security  for comment. In its comments, reproduced in appendix III, the department  concurred with our recommendations to (1) take steps to evaluate the  effectiveness of CBP’s IPR enforcement efforts and (2) assess what, if  any, additional information would be beneficial to share with the private  sector. The department also described actions that CBP plans to take to  implement our recommendations. CBP and ICE also provided technical  comments, which we incorporated as appropriate. Our draft report also  included recommendations to CBP and to ICE to complete a joint  strategic plan, as required by TFTEA. After the agencies received our  draft report, they notified us that this plan had been completed in October  2017, and they provided us with a copy of the plan. As a result, we  removed these recommendations from the final report. We also provided  relevant excerpts of the draft report to the private sector companies  mentioned in it and incorporated their technical comments as appropriate.

As agreed with your office, unless you publicly announce the contents of  this report earlier, we plan no further distribution until 30 days from the  report date. At that time, we will send copies to the appropriate  congressional committees and the Secretary of Homeland Security. In  addition, the report will be available at no charge on the GAO website at  http://www.gao.gov. If you or your staff has any questions about this  report please contact me at (202) 512-8612 or gianopoulosk@gao.gov.  Contact points for our Offices of Congressional Relations and Public  Affairs may be found on the last page of this report. GAO staff who made  key contributions to this report are listed in appendix IV.

Appendix I: Objectives, Scope, and Methodology

We examined (1) what is known about counterfeit goods entering the  United States and the challenges they present, (2) efforts U.S. Customs  and Border Protection (CBP) and U.S. Immigration and Customs  Enforcement (ICE) have undertaken to enhance intellectual property  rights (IPR) enforcement and the extent to which they have assessed the  results of these efforts, and (3) the extent to which CBP and ICE  collaborate on IPR enforcement as well as ways in which they coordinate  with the private sector in enforcing IPR.

To examine what is known about counterfeit goods that enter the United  States and the challenges they present, we reviewed U.S. government  reports and strategic plans, including those produced by CBP, ICE, the  National Intellectual Property Rights Coordination Center (IPR Center),  and the Office of the U.S. Intellectual Property Rights Enforcement  Coordinator. We also reviewed reports on the counterfeits market and  illicit trafficking from international organizations, including the  Organisation for Economic Cooperation and Development and the United  Nations Office on Drugs and Crime. In addition, we analyzed data from  annual CBP public reports on IPR seizures from fiscal years 2012 through  2016 to identify the types of goods seized, the goods’ countries’ of origin,  the modes of transportation used to import the goods, and the value of  the goods. We analyzed data from CBP’s public IPR reports because,  according to CBP officials, those data are refined prior to the issuance of  the reports and therefore are more accurate than data extracted directly  from CBP’s seizure database. We reviewed the data, conducted  electronic tests of the data, and interviewed knowledgeable agency  officials to determine that these data were sufficiently reliable for our  purposes. We interviewed CBP and ICE officials in Washington, D.C.,  and in field locations in Chicago, Illinois; Los Angeles, California; Miami,  Florida; and New York, New York, to discuss the composition of IPR- infringing goods and challenges the agencies face in enforcing IPR. We  selected these locations on the basis of the number and composition of IP  seizures in each location, the availability of multiple ports of entry  covering different modes of transportation, and geographic diversity. We  also interviewed representatives of IP rights–holding companies and e- commerce websites to discuss the challenges counterfeit goods pose in  online marketplaces.

In addition, in an attempt to understand the frequency with which  consumers may unknowingly encounter counterfeit products online, we  used investigative tools and techniques to conduct nongeneralizable,  undercover purchases of consumer goods from third-party sellers on  popular consumer websites and asked the rights holders to test the goods  to determine whether they were authentic or counterfeit.

We selected four trademarked consumer products of which CBP often  seizes counterfeits, according to CBP seizure data and CBP officials,  and that represented a range of consumer goods: Nike Air Jordan  shoes, Yeti travel mugs, Urban Decay cosmetics, and UL–certified  phone chargers.

We selected five popular e-commerce websites that (1) were among  the top 50 consumer shopping websites as of March 2017, according  to Alexa, a data analytics company, and (2) received a rating of “B” or  better from the Better Business Bureau. From the top 50 consumer  shopping websites, we chose those that (1) offered platforms for third- party sales, (2) sold a variety of trademarked products to the public,  and (3) offered a minimum of two items from at least two different  third-party sellers.

We purchased, and had rights holders test, a total of 47 items from  third-party sellers on the five e-commerce websites. We selected  items that were advertised as new, brand-name items, and we  generally selected the lowest-priced items, factoring in both purchase  price and shipping while also targeting a variety of sellers and product  options. We did not select items whose cost exceeded the  manufacturer’s suggested retail price or exceeded that of an identical  item sold and fulfilled by the host website. Where seller ratings were  available, we selected items from third-party sellers with ratings of 60  percent (or the equivalent, such as 3 of 5 stars) or higher; on average,  the sellers of the items we selected had customer ratings above 90  percent as of August 2017.

For each selected product, we purchased a minimum of two items and  a maximum of five items from different third-party sellers on any of the  five e-commerce websites that listed the product. Across all the  websites, we purchased a minimum of eight items for each product.  On each website, we purchased a maximum of one item from any  third-party seller.

We contacted the companies that held the trademark or copyright for  each of the four products, asking for their assistance in reviewing the  items we purchased to determine whether they were authentic or  counterfeit. These companies made their assessments with no  knowledge of the websites or sellers from which we purchased the  items. We discussed the results of these tests with representatives of  the rights-holding companies and the e-commerce websites where we  purchased the items.

To examine the efforts CBP and ICE have undertaken to improve IPR  enforcement and the extent to which they have assessed the results of  those efforts, we reviewed agency and government-wide strategic plans  for IPR enforcement, and we spoke with agency officials in headquarters  and selected field locations. We reviewed a selection of eight CBP and  ICE activities, which we grouped under four major areas of effort on the  basis of the activities highlighted in these strategic plans and agency  interviews. The list of activities we reviewed does not constitute the  entirety of activities undertaken by CBP and ICE to enhance IPR  enforcement and is intended to highlight significant efforts. We did not  review activities that officials told us were in early stages, because it  would not be reasonable to expect the agencies to have assessed the  results of those activities. Our discussion of activities does not include  activities related to private sector engagement, which we discuss  elsewhere in the report. We reviewed documentation pertaining to the  eight activities we reviewed, and we interviewed CBP and ICE officials  about the activities and any efforts to assess their results. We reviewed  federal internal control standards and prior GAO reports to identify good  practices for assessing the results of activities, and we determined the  extent to which CBP and ICE had followed those practices.

To examine the extent to which CBP and ICE follow selected practices for  effective interagency collaboration, we reviewed agency documentation  and spoke with CBP and ICE officials in headquarters and in selected  field locations. We reviewed prior GAO reports to identify effective  practices for interagency collaboration and selected five of eight practices  that we had identified in a fiscal year 2006 report. The five practices we  selected as most relevant to the ways in which CBP and ICE coordinate  with one another are (1) establish mutually reinforcing or joint strategies;  (2) define and articulate a common outcome; (3) agree on roles and  responsibilities; (4) identify and address needs by leveraging resources;  and (5) establish compatible policies, procedures, and other means to  operate across agency boundaries. We did not evaluate CBP and ICE’s  interagency collaboration against the remaining three practices identified  in our fiscal year 2006 report. We also assessed CBP’s intra-agency  collaboration against three of the five selected practices on the basis of  interviews with CBP officials in headquarters and selected field locations  and reviews of CBP documentation. We did not evaluate internal CBP  collaboration against the other two practices—establish mutually reinforcing or joint strategies and define and articulate a common  outcome—because we determined that such practices were not  applicable to intra-CBP collaboration. To determine the ways in which  CBP and ICE collaborate with the private sector, we interviewed CBP and  ICE officials in headquarters and selected field locations, reviewed CBP  and ICE documentation, and interviewed representatives of rights-holding  companies and e-commerce websites.

Appendix II: Consumer Information and Advice for Avoiding Counterfeits Online

According to consumer protection organizations and government  agencies, consumers can take the following steps to try to limit the risks  of buying counterfeit goods online.  1.  Locate the listed retailer on the product page and determine whether it  is a third party. “Fulfilled by” does not mean “Sold by.”  2.  Look for external consumer trust–building features, such as a mailing  address or telephone number, real-time customer service, customer  reviews, or third-party accreditation that can be verified through the  accreditor.  3.  Buy products only from authorized retailers, such as official brand  stores. If uncertain whether a retailer acquired its product from a  legitimate distributor, ask for verifiable information from the retailer  about the source of the goods.  4.  Be aware of pricing. While some counterfeiters may try to legitimize  their merchandise with realistic prices, others may attract buyers with  low prices. If a price seems too good to be true, it probably is.  5.  During checkout, ensure your payments are submitted via a website  beginning with https:// and look for a lock symbol in your web browser.  6.  After receiving an item, look for signs that it may be counterfeit, such  as irregular brand markings; missing “use by” dates, safety seals, or  markings; and missing warranty information. Verify the item’s serial  number by checking the manufacturer’s website.  7.  If you suspect that you have purchased a counterfeit product, notify  the brand owner and contact the place of purchase. Also, report the  counterfeit at http://www.iprcenter.gov/referral. To report an unsafe  consumer product, visit http://www.SaferProducts.gov.

According to the National Intellectual Property Rights Coordination  Center, word-of-mouth is the best way to spread information about  illegitimate products as well as sources of safe, affordable, and legal  alternatives. For further information, consult http://www.stopfakes.gov.

Appendix III: Comments from the Department of Homeland Security

Appendix IV: GAO Contact and Staff Acknowledgements

Kimberly Gianopoulos, (202) 512-8612 or gianopoulosk@gao.gov.

In addition to the contact named above, Joyee Dasgupta (Assistant  Director), Kara Marshall (Analyst-in-Charge), Kristen Timko, Katie  Bassion, Reid Lowe, Sarah Collins, Neil Doherty, Ramon Rodriguez,  Helina Wong, Julie Spetz, Kevin Loh, Wayne McElrath, Grace Lui, James  Murphy, Mary Moutsos, Justin Fisher, Rachel Stoiko, and Sarah Veale  made key contributions to this report.

From travel mugs to cosmetics, counterfeit goods harm the U.S. economy and can pose a threat to consumers.

These products can be hard to spot and may be offered online next to authentic goods. For example, manufacturers determined 20 of 47 items we purchased from third-party sellers on popular sites were counterfeit.

Customs and Border Protection leads efforts to stop imported counterfeit goods at the border, and Immigration and Customs Enforcement conducts investigations.

We recommended that CBP improve evaluations of the effectiveness of its efforts and assess opportunities to enhance information sharing with the private sector.