AVVO Talk: How to Avoid Design Patent Issues When Importing Home Decoration Items?

Question Continued: Can you get sued over design patent issues if you import similar items like examples below? 

For examples, 
http://www.amazon.com/Copper-Rotating-Earring-O... 
http://www.amazon.com/Rotating-Earrings-Organiz...

Deanna's Response:

Hello, If you don't have permission from the patent holder, and there is one, then you would absolutely be at risk of an accusation of such unlawful act - by US Customs first and foremost. 

US Customs has its own seizure process on imported goods, so before you even get to an issue with the patent holder as some of the attorneys below have discussed, you need to know that US Customs can seize the goods themselves so you'll never get them. Once the seizure has occurred, then the penalty phase begins and depending on your level of "culpability" (i.e., guilt level - be it negligence, fraud, first time offender, etc.), the penalty amounts can vary but it's never cheap. And yes, because the patent holder would be notified, they too may commence a lawsuit against you as well.

Busted for its Caffeinated Undergarment? Don’t Stretch the Truth About Shapewear

Ever hear of cellulite slimming leggings made of fabric infused with caffeine to metabolize fat?  Me neither!  

(Photo courtesy of FTC)

Nevertheless, according to the Federal Trade Commission (FTC), the iPant AntiCellulite Shapewear by Wacoal advertised such benefits of this garment as follows:

"Novarel Slim microfiber incorporates microcapsules containing caffeine, retinol, ceramides and other active principles that improve skin’s appearance and control cellulite.  The caffeine activates microcirculation and speeds up the breakdown of fat. The active principles are released during the garment’s use, providing a permanent anti-cellulite effect."

The recommended use of 8 hours a day for 28 days further purported that test results indicated a reduction in thigh measurement, however, according to the FTC, such test results were merely based on “two unblended, uncontrolled trials with serious methodical flaws,” and was therefore considered deceptive advertising by the FTC.

The result?  $1.3 million in fines. OUCH!

Thinking about making a statement about your product that may be stretching the truth?  Steer clear of it and check out www.ftc.gov for more information on the making of truthful claims.

For more on the Wacoal case and another lingerie retailer facing FTC scrutiny for its questionable shapewear claims, check out the article here.

Have questions or comments? 

Learn more at www.fashioncompliance.com or

Tweet us @fashcompliance on www.twitter.com or

Email us at clark.deanna@gmail.com

CPSC Proposes Amending GCC Rules

Importers:  Did you know that the Consumer Product Safety Commission (CPSC) has proposed to amend the existing rule on the General Certificate of Conformity (GCC)?

Amendments including the requirement for the electronic filing of GCCs for regulated imported consumer products with U.S. Customs and Border Protection (CBP) at the time of filing the CBP entry, or the time of filing the entry and entry summary, are just some of the proposed amendments. 

Not keen on this idea?  You are in luck! 

 The CPSC recently voted to hold a workshop and seek additional public comments on aspects of its proposed rule on Certificates of Compliance, which the Commission first published on May 13, 2013.

Interested parties are invited to participate in, or attend the workshop, and to submit written comments.

The workshop will be held from 9 a.m. to 4 p.m. on Thursday, September 18, 2014 in the CPSC Hearing Room, 4th Floor of the Bethesda Towers Building, 4330 East West Highway, Bethesda, MD 20814.

Registration is now open using the following link, where you can also read the  formal notice by CPSC:

http://www.cpsc.gov/en/Newsroom/Public-Calendar/Register-for-CPSC-Public-Meetings-Workshops-and-Forums/Registration-for-Public-Workshop-on-Electronic-Filing-of-Certificates/

Questions or comments? Post below or email me at clark.deanna@gmail.com

Keep up with me at www.fashioncompliance.com or:

On Facebook at www.facebook.com/FashionCompliance

On Twitter @fashcompliance

“Can I Get Caught Too?” Er… Yes You Can!

People ask me all the time, “Do you really think I could get caught selling a product that is in violation of a U.S. law?  I’m such a small company, could I really be on anyone’s radar?”

My answer inevitably is “Yes,” that you don’t need to be a “big fish” to get hit with big penalties resulting from multiple violations (they rarely hit you with one).

Moreover, if you are importing violative products, you could end up being penalized by not just one federal agency but two (think tens-of-thousands-of-dollars…)

Taking children’s wearing apparel as an example, in the last 30 days there have been 7 recalls by the U.S. Consumer Product Safety Commission, including 1 announced just yesterday! 

They were recalled for either: 

-  failing to meet the federal flammability standard,

-       - posing a choking hazard, or

-       - posing a strangulation hazard.

Specifically, the product recalls were as follows:

1) Children’s Pajamas, recalled by the Bailey Boys – Flammability (sold at children’s boutique stores nationwide)

2) Wearever Girl’s Hooded Jacket Sets, recalled by David’s Place – Strangulation (sold exclusively at Burlington Coat Factory stores)

3) Girls’ BCG Hooded Windsuits, recalled by Academy Sports + Outdoors – Strangulation (sold exclusively at Academy Sports + Outdoors stores and its website)

4) Girls’ Pink Leopard Jackets, recalled by Ram’s Imports – Strangulation (sold exclusively at Burlington Coat Factory stores)

5) Yoki Girls Faux Leather Jackets with Drawstrings, recalled by Mirage Fashions – Stangulation (sold exclusively at Burlington Coat Factory stores)

6) Infant Sandals, recalled by American Boy and Girl – Choking Hazard (sold exclusively at Meijer stores)

7) Hooded Sweatshirts, recalled by Little Willy’s – Strangulation (sold exclusively at Zullily.com and Gilt.com stores)

Consumers should immediately take the recalled product away from children and return them to the store they purchased it from for a full refund.

As for the seller, not only does getting caught typically mean heavy penalties, but a product recall is disruptive to business (stay tuned for a future article on this as changes to the rules are being considered), can hurt your business relationships, and can tarnish your reputation.

And who wants that to happen?  Not you, and not me either.

Questions/comments?  Post below or email me at clark.deanna@gmail.com

Keep Up With Me:

On Twitter @fashcompliance

On Facebook  www.facebook.com/FashionCompliance (*like* the page to get our updates)

On YouTube  www.youtube.com/FashionCompliance

Rising to “Official” Importer Status – Now What?

From essential oils to women’s jewelry, I’ve spoken with many small business owners whose enterprises are growing, so much so that the time has come from merely carrying back foreign articles for sale in their suitcases to actually becoming a commercial importer.

So who do you share the news with?  Well, with any good news you may want to share it with your loved ones, however you actually need to share it with US Customs and that is achieved through the submission of an "Importer ID Record," which is Customs Form 5106 (CF 5106) and may be found here.

Being an “official” first time importer, you would use this form to identify yourself to US Customs as such.  The form is also used if you are using an Importer Number for the first time, or if you have not engaged in any customs business within the past year.

The CF 5106 can also be used if there is already an importer number on file but there is a change in the name or address currently on file.

Importantly, this form has an extra box on the top of the first page to check if you also want your address updated at US Customs Fines, Penalties and Forfeitures Office.  I can’t tell you why it’s not automatically updated with that office, but I can tell you that a failure to do so via this form can leave an importer “on the hook” for the payment of a penalty for which no response had been made for mitigation or remission (i.e., “cancellation,” in everyday language) purposes.

In other words, saying that you never received a copy of the notice will not serve as a valid excuse for non-responsiveness if this form was not properly filed.  

One final note of importance is that where an importer has a continuous bond on file with US Customs, a rider must accompany the CF 5106 as well.  For more information on an importer’s bond requirements, see my article dated Sept. 16, 2009 here.

 Questions/comments?  Post below, email me at clark.deanna@gmail.com, or tweet/follow me on Twitter @fashcompliance

Responsible Supervision Over Employees of Customs Brokers

The Customs Brokers regulations under 19 CFR §111.28 provides for the exercise of responsible supervision by brokers over the transaction of customs business within such business entity or sole proprietorship.

Under the statute, 19 USC §1641(b)(4), responsible supervision and control means that degree of supervision and control necessary to ensure the proper transaction of the customs business of a broker, including actions necessary to ensure that an employee of a broker provides substantially the same quality of service in handling customs transactions that the broker is required to provide.

Factors US Customs looks at in order to gauge whether or not responsible supervision and control had been exercised by a broker lays in its evaluation of certain factors including:

1.      The training required of employees of the broker;

2.      the issuance of written instructions and guidelines to employees of the broker;

3.      the volume and type of business of the broker;

4.      the reject rate for the various customs transactions;

5.      the maintenance of current editions of the Customs Regulations,  the Harmonized Tariff Schedule of the United States, and Customs issuances;

6.      the availability of an individually licensed broker for necessary consultation with employees of the broker;

7.      the frequency of supervisory visits of an individually licensed broker to another office of the broker that does not have a resident individually licensed broker;

8.      the frequency of audits and reviews by an individually licensed broker of the customs transactions handled by employees of the broker;

9.      the extent to which the individually licensed broker who qualifies the district permit is involved in the operation of the brokerage; and

10.   any circumstance which indicates that an individually licensed broker has a real interest in the operations of a broker.

These factors are required to be considered by US Customs when imposing a monetary penalty upon a broker for a lack of responsible supervision and control. [US v. UPS, 686 F. Supp.2d 1337 (2010)]

Therefore, it would be prudent to ensure that oversight of employees with respect to these factors remains high.

Questions/comments?  Post below or email me at clark.deanna@gmail.com

Prior Disclosure - To Make or Not to Make...

“US Customs is moving in the direction of aggressive penalties for non-compliance.  When US Customs conducts a compliance assessment, an importer must be 99% compliant (i.e., US Customs only allows a 1% error rate) in order to be considered compliant.” -- Assistant Field Director, US Customs Field Office - NYC

Every importer is aware – or should be aware – of the imposition of penalties for the failure to follow US Customs regulations.
 
Even if an importer believes it has been compliant, an internal audit or other self-assessment, can reveal areas where errors have been made, and some of these may have resulted in a loss of revenue to US Customs whether of liquidated, or unliquidated, entries.
 
So what is an importer to do?  Is it better to present the issue(s) to US Customs?  And if so, how does an importer go about doing that without opening up “Pandora's Box” in terms of auditing, or the delay of shipments, on the part of US Customs now that you have put yourself on its radar? Is it better to stay under the radar?
 
Clearly, if a post-entry amendment can be done to rectify the mishap, that is an easy way to resolve the issue. 
 
But what if the impact of a seemingly small discrepancy actually extends across years of entries?  Or perhaps, the discrepancy is narrow in terms of the volume of entries, but nonetheless resulted in a gross underdeclaration of duties?
 
Well, now there is a serious problem to deal with.  Unfortunately, the problem can be a much much (yes, I wrote the word twice) bigger one.  Let me explain why.
 
First of all, 19 USC §1592 sets forth the penalty assessments for failing to pay lawful duties.  The penalties differ based upon a range of culpability, ranging from fraud (the most serious), to gross negligence, to negligence (least serious offensive).
 
They are as follows:
 
Fraud violations = the domestic value of the merchandise.
 
Gross negligence violations =
(A) The lesser of
(i) four times (4x) the loss of lawful duties, taxes, and fees deprived the government, or,
(ii) the domestic value, or,
(B) 40% of the dutiable value, but in no case to exceed the domestic value of the merchandise, if the violation did not affect the assessment of duties.
 
Negligence violations =
(A) The lesser of:
(i)two times (2x) the loss of lawful duties, taxes, and fees deprived the government or,
(ii)the domestic value, or,

(B) 20% of the dutiable value, but in no case to exceed the domestic value of the merchandise, if the violation did not affect the assessment of duties.
 
Of course, there is always the option to try and mitigate the above duties, which would reduce the penalties as follows:
 
• Fraud – from a minimum of 5 times (5x) to a maximum of 8 times (8x) the total duty loss, or 50% to 80% of the dutiable value in non-revenue loss cases, but never to exceed the domestic value of the merchandise;

• Gross negligence – from a minimum of 2.5 times (2.5x) to a maximum of 4 times (4x) the total duty loss, or 25% to 40% of the dutiable value in non-revenue loss cases, but never to exceed the domestic value of the merchandise; or

• Negligence – from a minimum of 0.5 times (0.5x) to a maximum of 2 times (2x) the total duty loss or 5% to 20% of the dutiable value in non-revenue loss cases, but never to exceed the domestic value of the merchandise.
 
Contrast these penalties, including the possibility of mitigation, to that of when an importer does make a prior disclosure.

The penalty is zero (0) if the importations involve unliquidated (i.e., open) Customs entries and no fraud is involved.

If the entries are liquidated (i.e., closed or finalized) and no fraud is involved, the penalty is the interest on the loss of duties.

If a fraudulent violation is disclosed, the penalty is reduced from the regular assessment of the domestic value of the goods to 1 times (1x) the duty loss, or if the violation involves no duty loss, the penalty is reduced to 10% of the dutiable value of the merchandise.

Based on these figures, at face value, making a prior disclosure (codified in 19 USC §1592(c)(4)) would appear to be the prudent path to take. After all, by doing so, penalties are substantially reduced.

A prior disclosure must be submitted prior to the commencement of a “formal investigation” by US Customs. There are many rules regarding how to make the prior disclosure and what must be included within it in order to be considered valid, including, the circumstances of a violation of 19 USC §1592, and a tender of any duty loss.
 
US Customs regulations for Prior Disclosure are found in 19 CFR §162.74 and more information about it can be found in Customs informed compliance publication entitled “The ABCs of Prior Disclosure.” 
 
Questions/comments?  Email me at clark.deanna@gmail.com or post below.