Terry Brady, president of Underwriters Laboratories and formerly chief commercial and legal officer at UL, testified before the Senate Committee on Finance on March 6, 2018 that the counterfeiting issues seen by UL in the traditional marketplace are “amplified in the borderless world of e-commerce.”
During the hearing, several Senators asked Mr. Brady to provide additional information to the committee. The entirety of Mr. Brady's response is included below as a follow-up to the article, Terry Brady testifies before the Senate Finance Committee.
UL’s Brand Protection team supports international partnerships and works with stakeholders across sectors, to not only empower trust in the UL Mark but also to protect the safety of consumers around the world.
April 20, 2018
Dear Chairman Hatch and Ranking Member Wyden:
Thank you for giving me the opportunity to testify at the March 6, 2018 hearing on “Protecting E-commerce Consumers from Counterfeits.” It was an honor to share UL’s experience combating the rise of counterfeit goods and to offer our perspective on the challenges facing intellectual property rights holders in the evolving global market.
During the hearing, I was asked by Ranking Member Wyden to provide the committee with written recommendations on stronger penalties for counterfeiting; please find those recommendations below, along with my responses to the questions for the record I received following the hearing.
Stronger Penalties for Counterfeiting
UL believes that stronger penalties are critical to combating the scourge of counterfeiting. As I mentioned in my testimony, counterfeiting has become much harder for brands and law enforcement and customs to fight as counterfeiters have realized there is less risk of being assessed hefty monetary penalties or being incarcerated for a lengthy sentence associated with trafficking in counterfeit goods versus illegal drugs.
For penalties to be an effective deterrent, they must be strengthened and enforced. UL recommends the following:
- Increase use of penalties already available via 18 USC 2320;
- Conduct outreach to and training for the judiciary to remind them of the existing authority they have to impose penalties on counterfeiters;
- Strengthen civil penalties under 15 USC 1117 of the Lanham Act such as by increasing the minimum and maximum amount of statutory damages that may be imposed against counterfeiters, and imposing even more severe penalties against counterfeiters where there is a life safety risk; and
- Evaluate what CBP and ICE can already do on their own to identify if additional resources or authority is needed.
UL also suggests that the Committee review recommendations offered by the International Trademark Association and International Anti-Counterfeiting Coalition with respect to penalties.
Questions for the Record
Questions from Chairman Orrin Hatch:
1. Have you conducted any studies or test buys that used at least a similar methodology to GAO’s? If so, please describe the results of those studies to the extent that you are able.
UL has launched a bi-annual enforcement operation entitled Project Centurion that is intelligence-driven and based on statistics, prior investigations, and customs inquiries, amongst other data. Through this program UL has procured and evaluated products offered on e-commerce platforms. For example, a 2017 test buy of 27 samples of lithium-ion batteries and chargers used in consumer electronics demonstrated that 21 samples (77%) bore counterfeit UL marks.
Additionally, UL’s 2016 technical investigation of counterfeit iPhone adapters, referenced in the GAO report, is instructive. The study involved 400 counterfeit iPhone adapters with unauthorized UL certification marks that were obtained from multiple sources in eight countries including the US, Canada, Colombia, China, Thailand and Australia, although not necessarily purchased via e-commerce.
UL conducted just a subset of typical safety tests it would conduct on legitimate adapters and the results were alarming - 99% of the adapters failed the basic testing and 12 of the adapters demonstrated a serious risk of electrocution. Thus, the study highlights the potential dangers to unwitting consumers buying counterfeits of common electrical products.
2. UL has several partnership programs with e-commerce platforms. How do you work with e-commerce platforms, and what kinds of programs do you feel are most effective for protecting consumers?
UL’s Brand Protection team maintains consistent communication with the top e-commerce platforms with an understanding that working together is necessary not only to protect our brand but to reduce the entry of harmful products into the market. Since the GAO investigation, we have hosted and participated in brand protection workshops involving each of these platforms and thought leaders from the industry. UL also has facilitated multiple bilateral training sessions with each of these platforms. These training sessions have allowed UL to educate platforms on how to identify products with suspect counterfeit UL marks.
In addition, each platform has taught UL the unique proactive and reactive technologies used to combat illicit activity. Finally, the platforms have provided instruction to utilize each of the systems they have built for brand owners to report and remove infringing items.
3. UL has a long and historically mutually beneficial relationship with CBP. From your lengthy experience with the agency, what do you think CBP excels at? What are some of the more difficult issues and blind spots for CBP?
UL’s relationship with CBP goes back to the early 1990s. CBP has always been an excellent partner to UL, and our company has put a lot of resources into providing CBP with rapid mark verification services. As has been expressed elsewhere, CBP could improve its timely sharing of information with rights holders.
Questions from Ranking Member Wyden:
1. In one way or another, you all touched on the shift from containerized shipping to small packages. You have also highlighted the challenges in enforcement against counterfeit goods. Given that we seem to be in a new era of trade, wouldn’t you agree that the Federal government’s enforcement strategy to go after counterfeit goods needs to adapt to the changing market? If so, what changes would you recommend in current CBP and ICE enforcement priorities and approaches?
CBP and ICE should consider collaborative investigations and data sharing with rights holders, e-commerce platforms, and shipping providers (e.g., FedEx, UPS, DHL, US Postal Service).
2. In your written testimony, you highlight some examples of high impact enforcement that UL participated in, which included raids on warehouses containing thousands of dollars of potentially dangerous products. To me, designing enforcement to go after the distributors and manufactures – rather than seizing individual packages – is a critical component of enforcement. Can you tell me what CBP and other government agencies can do, from your perspective, to have the most impact on counterfeit imports?
UL works closely with online platforms to identify and remove counterfeit products from these sites before they enter the stream of commerce. Online and direct-to-consumer sales can cause many challenges to rights holders and enforcement agencies.
In order to deal effectively with these types of sales, both public and private sector stakeholders must work in partnership to attack all areas of illegal distribution networks. These include targeting manufacturers, export locations, import locations, and traditional and online marketplaces. UL and other companies have access to a large amount of data on offenders, and this intelligence can be shared more widely with law enforcement.
CBP can work in lockstep with rights holders, online platforms and other international agencies to strengthen enforcement and education solutions to combat these types of crimes. To that end, UL would like to engage federal law enforcement support for our Project Centurion operations (see response to question #1 from Chairman Hatch for more detail).
In addition, CBP should collaborate directly with rights holders and the government agencies (customs, law enforcement, administrative, etc.) in those countries were counterfeits are being produced and/or are being imported.
Question from Senator John Thune:
1. The GAO report notes that some European customs agencies are able to share more information than CBP. Mr. Brady, has UL interacted with foreign customs authorities as part of your efforts to protect UL’s intellectual property rights? Are there any best practices that we should consider for regulatory or statutory improvements, or both, to help protect against counterfeits?
In our 22 years of experience in combating counterfeiting, UL has developed a comprehensive, multi-dimensional strategy based on three essential tenets: education, enforcement, and partnerships. We work with our industry customers, law enforcement/customs around the globe, and others to stem the proliferation of counterfeits. For example, we have partnered successfully with INTERPOL to establish the International Intellectual Property Crime Investigators College (IIPCIC, http://www.iipcic.org/index.php) to educate law enforcement/customs agents to recognize and identify legitimate safety certification marks.
The IIPCIC is the premier anti-counterfeiting center for global law enforcement, regulatory authorities, and private sector investigators. The core curriculum consists of 14 in-depth IP protection courses, which provide the critical knowledge needed to combat current and emerging threats from IP criminals.
The training is free to all law enforcement agencies and has been developed in multiple languages. IIPCIC has also launched specialized customs agency modules to help front-line officers attack the counterfeiting issues. These modules were developed in cooperation with the World Customs Organization, and subject matter experts from various customs agencies contributed to the materials.
In addition, IIPCIC has developed and launched private sector e-learning modules that provide rights holders the opportunity to design and integrate their training materials, including product identification tools, within IIPCIC’s online curriculum. These specialized modules can be made available to the entire IIPCIC law enforcement community or restricted to a more limited audience.
Every year, UL partners with INTERPOL, the International Anti-Counterfeiting Coalition, and local authorities to put on the International Law Enforcement Intellectual Property Crime Conference. This event attracts police, customs, regulatory agencies and private sector representatives from around the globe to share and develop best practices to combat transnational organized IP crime. The 2018 conference will be held in Dubai on September 25-26; for more information about this year’s conference and previous ones, please visit: http://www.iipcic.org/conference.php.
UL’s Global Security & Brand Protection team prides itself on an ever-evolving global customs program. UL has been fortunate to build relationships with a multitude of governmental entities with the objective of combating the entry of illicit products into the stream of commerce. Through providing training on how to recognize potential counterfeit goods, to lending assistance with authenticating inquiries, we provide a foundation that can be relied upon.
Countries where we have experienced success include Mexico, Panama, Uruguay, and China. We remain vigilant in educating and supporting additional countries that recognize the necessity of not only protecting intellectual property rights but also protecting the welfare and general safety of their citizens.
Question from Senator Rob Portman:
1. Mr. Brady, as the representative from the private sector, could you speak to information sharing between CBP, ICE, and those in private industry? What other types of information do you believe are useful in tackling this problem that industry desires but does not, or cannot, currently receive?
UL values the relationships we have with CBP, ICE, and industry and the work that we are able to do in concert with them to identify counterfeit UL marks and labels. Many of our mutual efforts have led to success in keeping some counterfeit products out of the stream of commerce.
In general, greater collaboration and information sharing will increase our mutual effectiveness in combating counterfeiting. The more information CBP and ICE can provide rights’ holders, the better. Timely provision of information, as allowed by law, gives UL and other rights’ holders the ability to more effectively target our own investigations and legal enforcement of our IP rights.
There are several types of information that are helpful to UL as a rights holder. UL typically receives redacted photographs of suspected counterfeit UL marks on seized goods. It is more beneficial when we receive unredacted images that provide greater visibility into the whole product; this allows for better evaluation and comparison against UL’s databases. In addition, UL finds values in receiving the Fines, Penalties and Forfeiture (FP&F) letters in a timely fashion; at times, it can take up to six months for us to get them.
Questions from Senator Maria Cantwell:
1. As the GAO report identifies, CBP does not proactively communicate with online marketplaces that have teams that work closely with the intellectual property rights center, brands, and law enforcement to keep counterfeit items off their sites. However, information sharing is critical.
- What are the specific legal parameters for sharing information with e-Commerce websites about counterfeit goods CBP seizes?
While UL agrees that information sharing is critical, we believe this question would be best answered by CBP.
- CBP is currently reviewing options for sharing additional information with rights holders and e-commerce websites. What is the timetable for this review?
As a rights holder, UL appreciates CBP’s efforts to review options for sharing additional information that may benefit our brand protection. That said, UL defers to CBP in answering the question about the timetable for this review.
- What are the differences between the information sharing rules for the CBP and ICE?
UL believes this question would be best answered by CBP and ICE.
2. In many respects, the “UL” mark on a product lets consumers know that the product they are buying meets high safety standards. Yet, as we heard in your testimony Mr. Brady, counterfeits are faking your seal, scamming consumers, and too often, putting their safety at risk. Your testimony could not have been more clear about the seriousness of this problem – “Counterfeit goods directly threaten human lives.”
- Mr. Brady, from your perspective, how can the collaboration between the public and private sector be improved?
Counterfeiting is a serious matter and puts the health and safety of the consumer at risk. Public and private sector operational and educational partnerships are essential in combating counterfeiters. There should be an easier process in place where law enforcement and rights holders can share intelligence. Rights holders have a large amount of raw intelligence on counterfeiters and are willing to share this with law enforcement where legally acceptable.
UL utilizes a law enforcement style database, and we are willing to provide law enforcement access to our intelligence to help them more effectively target counterfeiters. UL also has the capability to create a shared database portal to which both law enforcement and rights holders can contribute intelligence. This system can be set up to cover privacy issues but would provide both public and private sector organizations the ability to share timely intelligence.
UL also recommends undertaking joint enforcement operations between law enforcement agencies and rights holders. Joint projects have been undertaken in the past and these operations should be an ongoing priority for US enforcement agencies. In particular, these joint operations can be very effective when undertaken with source country agencies.
Federal government IP crime grants also are critical to support local and state law enforcement in their fight against counterfeiting. These grants should continue, and UL supports this initiative.
- You also stated that the US has some of the strongest intellectual property (IP) protections in the world, but you also called for tougher penalties. Were you referring to increasing existing fines and monetary penalties or additional measures to strengthen our IP laws?
I was asked a similar question by Ranking Member Wyden during the hearing. Please see my response in the section labeled “Stronger Penalties for Counterfeiting” above.
Thank you for the opportunity to provide additional comments and to respond to these questions.
Terrence R. Brady
Underwriters Laboratories, Inc.