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Report to the Ranking Member, Subcommittee on Oversight of Government 
Management, the Federal Workforce, and the District of Columbia, 
Committee on Homeland Security and Governmental Affairs, U.S. Senate: 

United States Government Accountability Office: 

GAO: 

April 2007: 

Intellectual Property: 

Better Data Analysis and Integration Could Help U.S. Customs and Border 
Protection Improve Border Enforcement Efforts: 

GAO-07-735: 

GAO Highlights: 

Highlights of GAO-07-735, a report to the RM, Subcommittee on Oversight 
of Government Management, the Federal Workforce, and the District of 
Columbia, Committee on Homeland Security and Governmental Affairs, U.S. 
Senate 

Why GAO Did This Study: 

U.S. government efforts to protect and enforce intellectual property 
rights are crucial to preventing billions of dollars in economic losses 
and for mitigating health and safety risks from trade in counterfeit 
and pirated goods. The Department of Homeland Securitys Customs and 
Border Protection (CBP) leads intellectual property (IP) enforcement 
activity at the U.S. border. GAO was asked to (1) examine key aspects 
of CBPs process to carry out border enforcement, (2) analyze CBPs 
border enforcement outcomes during fiscal years 2001 to 2006, and (3) 
evaluate CBPs approach for improving border enforcement. GAO examined 
relevant documents, interviewed agency officials in Washington, D.C. 
and seven port locations, and analyzed CBP data on trade and IP seizure 
and penalty activity. This is the public version of a law enforcement 
sensitive report by the same title (GAO-07-350SU). 

What GAO Found: 

CBPs Office of International Trade (OT), formed in 2006, and Office of 
Field Operations (OFO) carry out IP border enforcement processes, 
including targeting and examining suspicious shipments, seizing 
infringing goods, and assessing penalties as warranted. CBP uses 
computer-based and manual targeting to determine which shipments it 
will examine, and both methods have strengths and limitations. Port 
practices for recording exam results vary, making it difficult for CBP 
to fully assess the effectiveness of its IP targeting efforts. 

Since 2001, CBPs IP enforcement outcomes have been concentrated among 
particular transport modes, product types, and ports. Rising numbers of 
low-value seizures from mail facilities have driven growth in seizure 
actions, but uneven seizures of high-value goods from sea containers 
have caused the estimated value of seizures to fluctuate. The vast 
majority of seizure and penalty outcomes in the last 6 years have been 
concentrated among 10 or fewer of CBPs 300-plus ports. For example, 10 
ports account for 98 percent of the $1.1 billion in penalties assessed 
during fiscal years 2001 to 2006. 

CBP lacks agencywide performance measures in its strategic plan and an 
integrated approach across key offices to guide and improve IP 
enforcement. Narrowly focused initiatives led by offices now under OT 
have had limited results. CBP has not done a broader analysis to 
examine variances in port IP enforcement outcomes. For example, GAO 
found that some of the largest IP-importing ports had very small 
seizure rates relative to other top IP-importing ports. A lack of 
integration between OT and OFO impedes using this type of analysis to 
identify potential IP enforcement improvements. 

Figure: Top 25 IP-Importing Ports' Seizure Rates: Percent of IP 
Seizures in IP Imports (by Value), Fiscal Year 2005: 

[See PDF for Image] 

Source: GAO analysis of CBP data. 

Note: Port names are not included in the figure for law enforcement 
reasons. 

[End of figure] 

What GAO Recommends: 

In the restricted report, GAO recommended that the CBP Commissioner (1) 
include measures to guide and assess IP enforcement outcomes in CBPs 
strategic plan; (2) improve CBPs IP enforcement data; and (3) use 
existing data to better understand ports IP enforcement activities and 
outcomes, and link ports performance to measures in CBPs strategic 
plan. CBP generally agreed with our recommendations. 

[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-07-735]. 

To view the full product, including the scope and methodology, click on 
the link above. For more information, contact Loren Yager at (202) 512-
4347 or yagerl@gao.gov. 

[End of section] 

Contents: 

Letter: 

Results in Brief: 

Background: 

CBP Undertakes a Series of Steps, Amid Challenges, to Enforce IP Rights 
at the Border: 

IP Enforcement Outcomes Have Been Concentrated in Certain Areas and 
Reflect Pockets of Activity: 

CBP's Approach to Improving IP Enforcement Lacks Integration and Has 
Produced Limited Results: 

Conclusions: 

Recommendations for Executive Action: 

Agency Comments and Our Evaluation: 

Appendix I: Scope and Methodology: 

Appendix II: Analysis of Top Six Ports' IP Enforcement Outcomes: 

Appendix III: Comments from the Department of Homeland Security: 

GAO Comments: 

Appendix IV: GAO Contact and Staff Acknowledgments: 

Tables: 

Table 1: Percent of Total Estimated Domestic Value Seized by Commodity, 
Fiscal Years 2001-2006: 

Table 2: Top 10 Ports' Percent of Seizure and Penalty Outcomes, Fiscal 
Years 2001-2006: 

Table 3: CBP IP Penalty Amounts Assessed versus Collected, Fiscal Years 
2001-2006: 

Table 4: IP Seizure Rates of Top 25 Ports (by IP Import Value), Fiscal 
Year 2005: 

Figures: 

Figure 1: Import Value by Mode of Transport, Fiscal Year 2005: 

Figure 2: Number of Trade, Compliance Measurement, and Nontrade Exams 
CBP Performed, Fiscal Years 2001-2005: 

Figure 3: Overview of CBP's Process for Conducting IP Border 
Enforcement: 

Figure 4: Percent of IP Seizure Actions and Domestic Value by 
Transportation Mode, Fiscal Years 2003-2006: 

Figure 5: Trends in Number of IP Seizure Actions and Estimated Domestic 
Values, Fiscal Years 2001-2006: 

Figure 6: Top 25 IP-Importing Ports' Seizure Rates: Percent of IP 
Seizures in IP Imports (by Value), Fiscal Year 2005: 

Figure 7: IP Enforcement Outcomes for Top Six Ports, Fiscal Years 2001- 
2006: 

Abbreviations: 

ATS: Automated Targeting System: 

CBP: U.S. Customs and Border Protection: 

DHS: Department of Homeland Security: 

HTS: Harmonized Tariff System: 

ICE: U.S. Immigration and Customs Enforcement: 

IP: intellectual property: 

MSRP: Manufacturer's Suggested Retail Price: 

OFO: Office of Field Operations: 

OT: Office of International Trade: 

STOP: Strategy Targeting Organized Piracy: 

United States Government Accountability Office: 
Washington, DC 20548: 

April 26, 2007: 

The Honorable George V. Voinovich: 
Ranking Member: 
Subcommittee on Oversight of Government Management, the Federal 
Workforce and the District of Columbia: 
Committee on Homeland Security and Governmental Affairs: 
United States Senate: 

Dear Senator Voinovich: 

The illegal importation and distribution of counterfeit and pirated 
goods poses an increasing cost to the United States economy and 
threatens the health and safety of its citizens.[Footnote 1] The United 
States dominates the creation and exportation of intellectual property 
(IP)--creations of the mind--and provides broad protection for IP 
through means such as copyrights, patents, and trademarks. However, IP 
protection in many parts of the world is inadequate, and as a result, 
U.S. goods are subject to substantial counterfeiting and piracy in 
other countries.[Footnote 2] The Department of Justice has reported on 
the growing threat of IP crime in the United States, noting that IP has 
become increasingly more critical to our country's economic security. 
Other federal agencies have testified that the economic benefits of 
capitalizing on IP goods have drawn the attention of counterfeiters and 
pirates, and that the magnitude and complexity of IP rights violations 
have increased in recent years.[Footnote 3] In an effort to protect 
American public health and safety and safeguard the U.S. economy, a 
number of federal agencies are involved in keeping IP-infringing goods 
from entering the country and investigating or prosecuting those 
responsible for their importation. The Department of Homeland 
Security's (DHS) U.S. Customs and Border Protection (CBP) leads 
enforcement activity at the U.S. border by detecting and seizing 
counterfeit or pirated goods that enter the United States through its 
300-plus ports of entry and assessing penalties against IP rights 
offenders.[Footnote 4] 

In response to your request to review federal enforcement efforts of IP 
at the borders, this report (1) examines key aspects of CBP's process 
to carry out border enforcement, (2) analyzes CBP's border enforcement 
outcomes during fiscal years 2001 through 2006, and (3) evaluates CBP's 
approach for improving border enforcement. We plan to report on CBP and 
other federal agencies' activities and resources devoted to IP 
enforcement later in 2007. 

To address these issues, we met with CBP officials in Washington, D.C., 
and at seven port locations and reviewed relevant agency documents to 
understand CBP policies and practices related to IP border enforcement. 
At the ports, we examined port organizational structures and practices 
for enforcing IP rights, and we spoke with various CBP personnel who 
are responsible for identifying, examining, seizing, and assessing 
penalties on goods that involve IP violations. We analyzed CBP data on 
the volume and value of trade entering U.S. ports and on its IP seizure 
and penalty activity. Most of this analysis was based on data covering 
fiscal years 2001 through 2006, but some data were only available for 
fiscal years 2003 through 2006. We identified certain limitations in 
the seizure and penalty data but found them sufficiently reliable to 
indicate broad trends in enforcement outcomes. We discussed CBP's 
efforts with knowledgeable agency officials and obtained information on 
certain steps CBP has taken to improve its efforts. Our work focused on 
tangible goods that cross U.S. borders, rather than goods that are 
pirated over the Internet. We conducted our work from November 2005 
through January 2007 in accordance with generally accepted government 
auditing standards. The original version of this report was issued on 
March 20, 2007, as a restricted report, copies of which are available 
for official use only.[Footnote 5] This public version of the original 
report does not contain certain information that DHS regarded as law 
enforcement sensitive and requested that we remove. 

Results in Brief: 

CBP undertakes a series of steps to enforce IP rights at the U.S. 
border and faces numerous challenges throughout this process. CBP's 
process includes three key functions: (1) targeting suspicious 
shipments, (2) examining goods to determine their authenticity, and (3) 
enforcing IP laws through seizure and penalty actions. CBP's Office of 
International Trade, formed in October 2006, focuses on trade policy 
and program development and the Office of Field Operations oversees 
port operations and implements CBP policies; both play important roles 
in carrying out key IP functions. To help determine which of the 
millions of shipments entering the United States each year require 
further review, CBP relies on two primary targeting methods, computer- 
based and manual, but both have certain strengths and limitations for 
targeting IP violations. Both offices use computer-based targeting to 
electronically identify commercial shipments by known or suspected 
violators, which typically enter the country via sea, air, and truck. 
However, the primary computer method used for IP targeting does not 
work for noncommercial shipments, has limited usefulness in express 
consignment (e.g., Federal Express) and international mail processing 
environments, and has uncovered a relatively small portion of IP 
violations. Manual targeting involves skilled port employees making 
real-time decisions based on instinct and experience and can be used 
for any transport mode, but it requires dedication of time and 
resources, and its role in uncovering IP violations cannot be 
determined. Once a shipment has been targeted, CBP examination 
techniques range from document reviews to physical exams, with physical 
exams being the best method for evaluating potential IP violations. 
Determining whether infringement has occurred can be a challenging 
process in which port staff may require input from CBP's legal and 
product experts and from the rights holders themselves. Although port 
staff are required to enter exam results in CBP's data systems, CBP 
officials said that information on IP exams has been unevenly recorded 
across ports, making it difficult for CBP to fully analyze the effect 
of its targeting efforts in this area. CBP's IP enforcement process 
concludes by ports seizing infringing goods and, if warranted, 
assessing penalties against offenders. 

The bulk of CBP's enforcement outcomes in recent years have been 
generated by pockets of activity within certain modes of transport and 
product types as well as among a limited number of port locations. 
Although both seizure numbers and estimated values have increased in 
recent years, the increase in numbers can be attributed almost 
exclusively to seizures of small-value shipments made from air 
transportation, particularly express consignment and international 
mail. This type of seizure grew particularly rapidly in 2006, leading 
to a near doubling in the number of seizure actions compared with those 
in the prior year, an outcome that may reflect a shift in smuggling 
techniques that has forced CBP to be more reliant on manual targeting 
methods. In contrast, more than half of estimated seizure value has 
been generated by a much smaller number of seizures from ocean-going 
cargo containers, a transportation mode in which computer-based 
targeting is used. The sheer size of some of these seizures has caused 
total estimated seizure values to fluctuate from year to year, reaching 
a high in 2006. Wearing apparel, cigarettes, footwear, and handbags 
have accounted for the majority of seizure value in the past 6 years. A 
limited number of ports have produced the bulk of seizure and penalty 
activity since 2001, with nearly three-fourths of aggregate seizure 
value and 84 percent of penalty cases opened accounted for by the top 
10 ports as ranked by those outcomes.[Footnote 6] These are a mix of 
ports, including a few of the nation's largest and some that are 
smaller. Six of these ports have consistently driven enforcement 
outcomes over time. 

Despite recent increases in seizure outcomes, CBP lacks an integrated 
approach across key offices for further improving border enforcement 
outcomes, causing it to focus on certain efforts that have produced 
limited results while not taking initiative to understand and address 
the variations among ports' enforcement outcomes. Although CBP's 
strategic plan highlights the importance of IP enforcement, the plan 
lacks any performance measures in this area to guide agencywide efforts 
and measure outcomes. CBP offices that formed the Office of 
International Trade have led certain initiatives to improve IP 
enforcement processes, including developing a statistically driven risk-
assessment model to improve targeting, auditing certain importers' 
internal controls for preventing importation of infringing goods, and 
issuing guidance to give ports more discretion in deciding when to 
issue penalties in cases where collection is unlikely. However, these 
efforts have produced limited results: poor data collection during port-
based pilots prevents CBP from fully assessing the effectiveness of its 
risk model; the audits have produced some enforcement actions, but are 
time consuming and many are not yet complete; and the guidance, while 
reducing new penalty amounts as expected, has not helped to bridge the 
large gap between amounts assessed and those collected. Beyond these 
efforts, CBP has not analyzed existing data to identify factors that 
might account for variations in enforcement outcomes within or among 
certain ports, in part because port priorities and practices are highly 
decentralized. In addition to identifying a concentration of IP 
enforcement outcomes among certain ports, we also compared IP seizures 
to "IP imports" (goods that have been monitored by CBP for IP 
violations and goods that are similar to them) across a larger number 
of ports. We determined that, of 25 ports that represented 75 percent 
of the value of fiscal year 2005 IP imports, just 8 had seizure rates 
(seizure value as a percent of import value) that were higher than the 
group average. Surprisingly, the port with the highest seizure rate 
also had the smallest value of IP imports among the ports we examined. 
In contrast, the IP seizure rates for several of the ports with 
relatively larger IP import values were well below the group average. 
This illustrates the type of analysis that CBP could perform using 
existing data to better understand and potentially improve port 
enforcement outcomes. Such analysis would likely be conducted by the 
Office of International Trade, but overseeing and influencing port 
operations is the purview of Office of Field Operations. 

To develop a more effective approach to IP border enforcement, in the 
law enforcement sensitive report we recommended that the CBP 
Commissioner direct the Offices of International Trade and Field 
Operations to work together to (1) include in CBP's strategic plan 
measures to guide and assess IP enforcement efforts, (2) improve CBP's 
data on IP enforcement, and (3) analyze the data to better understand 
ports' IP enforcement activities and outcomes and link ports' 
performance to CBP's strategic plan. 

We provided a draft of the law enforcement sensitive report to DHS for 
review by CBP and ICE. In commenting on that report, CBP generally 
agreed with our recommendations. CBP and ICE also provided technical 
comments, which we incorporated into the law enforcement sensitive 
report as appropriate. We also provided a draft of this report to DHS 
for sensitivity review by CBP and ICE, which agreed that we had 
appropriately removed law enforcement sensitive information. 

Background: 

Counterfeit Goods Pose a Cost to U.S. Economy and a Threat to Health 
and Safety: 

Intellectual property is the result of human innovation and creation to 
develop products that people consume every day, whether it is the music 
we listen to, the books we read, the cars we drive, or the medicine we 
take. The protection of IP is recognized as important to continuing 
that innovation and creativity, and the United States has several laws 
aimed at protecting IP rights. Copyrights, patents, and trademarks are 
the most common forms of protective rights for IP.[Footnote 7] 
Protection is granted by guaranteeing owners limited exclusive rights 
to whatever economic reward the market may provide for their creations 
and products. According to the U.S. Intellectual Property Rights 
Coordinator, industries that relied on IP protection were estimated to 
account for over half of all U.S. exports, represented 40 percent of 
U.S. economic growth, and employed about 18 million Americans in 2006, 
making IP protection important to protecting our nation's 
economy.[Footnote 8] It is difficult to reliably measure criminal 
activity, but industry groups suggest that counterfeiting and piracy 
are on the rise and that a broader range of products, from auto parts 
to razor blades, and from medicines to infant formula, are subject to 
counterfeit production. The threat to America's health and safety from 
the theft of IP and counterfeiting of products is an increasing concern 
for many reasons--counterfeit batteries can explode, counterfeit car 
parts can fail to perform, and counterfeit pharmaceuticals can lack the 
ingredients necessary to cure deadly diseases.[Footnote 9] In addition 
to public health and safety concerns, the annual losses that companies 
face from IP violations are substantial. 

CBP Leads IP Enforcement at the Border: 

Multiple federal agencies play a role in combating counterfeiting and 
piracy, and their efforts were wrapped into the administration's 
Strategy Targeting Organized Piracy, launched in October 2004. One 
objective of this effort is to improve border enforcement, and CBP is 
the agency primarily responsible for such enforcement, given its 
authority to detain and examine shipments and seize goods that violate 
U.S. law. CBP's current mission has two goals: preventing terrorists 
and terrorist weapons from entering the United States while 
facilitating the flow of legitimate trade and travel; and its priority 
mission is to ensure homeland security.[Footnote 10] 

CBP is responsible for enforcing antiterrorism, trade, immigration, and 
agricultural policy, laws, and regulations at more than 300 ports of 
entry. Two CBP offices play a role in carrying out policies and 
procedures related to IP enforcement: 

* Office of International Trade (OT) - Established in October 2006, 
this office consolidates the trade policy, program development, and 
compliance measurement functions of CBP into one office.[Footnote 11] 
This office is responsible for providing uniformity and clarity for the 
development of CBP's national strategy to facilitate legitimate trade 
and managing the design and implementation of strategic initiatives 
related to trade compliance and enforcement, including IP rights. 

* Office of Field Operations (OFO) - This office houses CBP's border 
operations and is comprised of 20 field offices under which are CBP's 
325 ports of entry.[Footnote 12] Overseeing more than 25,000 employees, 
including more than 20,000 CBP officers, OFO is responsible for 
carrying out CBP's cargo and passenger-processing activities related to 
security, trade, immigration, and agricultural inspection. 

Daily management of port operations is highly decentralized, with field 
offices overseeing but not directly managing port operations. CBP's 
port operations oversee an array of cargo-and passenger-processing 
environments, and port management structures are not uniform. For 
example, some ports' management oversees a single port of entry while 
others oversee multiple ports of entry (e.g., a seaport and nearby 
airport). 

* Seaports - CBP operations in the sea environment primarily consist of 
cargo container processing, but may include passenger processing for 
cruise ships. Cargo containers arriving at seaports may be transported 
to interior ports for processing via an import mechanism called the in- 
bond system.[Footnote 13] CBP receives manifest information 24 hours 
before lading at foreign ports so that it may screen cargo container 
data to identify high-risk shipments.[Footnote 14] 

* Airports - CBP processes passengers and cargo at U.S. airports with 
international flights. CBP's air environment includes air cargo, 
express consignment carriers, such as Federal Express, and 
international mail. Air cargo shipments are generally larger in size 
than express consignment or international mail shipments. CBP receives 
manifest information in the air environment 4 hours prior to arrival. 

* Land Border Crossings - CBP processes passengers, commercial truck 
and rail, and personal vehicles at land border crossings. CBP receives 
manifest information for commercial truck and rail shipments 30 minutes 
to 2 hours prior to arrival, depending on the transport mode. 

The volume of goods and people that CBP processes for entry into the 
United States every year is substantial and has been steadily 
increasing. For example, the number of "entries summaries" filed with 
CBP rose from nearly 24 million in fiscal year 2001 to nearly 30 
million in fiscal year 2005.[Footnote 15] In fiscal year 2005, CBP 
processed approximately 20 million sea, truck, and rail containers and 
about 450 million passengers and pedestrians.[Footnote 16] At the same 
time, the value of import trade has been growing, rising from about 
$1.2 trillion in fiscal year 2001 to about $1.7 trillion in fiscal year 
2005, according to CBP statistics.[Footnote 17] The largest share of 
imports by value arrives at the United States via ocean-going cargo 
containers, followed by air transport, as illustrated in figure 1. 
According to CBP, the proportion of import value by transport mode has 
remained relatively static since fiscal year 1999. 

Figure 1: Import Value by Mode of Transport, Fiscal Year 2005: 

[See PDF for image] 

Source: GAO analysis of CBP data. 

Note: "Land" includes imports that entered via truck or rail. "Other" 
includes imports that entered through foreign trade zones, warehouses, 
and other methods. 

[End of figure] 

Although all goods imported into the United States are subject to 
examination, CBP examines only a small portion of them.[Footnote 18] 
Most exams are conducted for security reasons, and these have been 
increasing each year, while the number of trade-specific exams has not 
grown since 2001, as shown in figure 2. In addition, CBP conducts a 
small portion of exams under its Compliance Measurement Program, which 
has components to address both security and trade compliance.[Footnote 
19] 

Figure 2: Number of Trade, Compliance Measurement, and Nontrade Exams 
CBP Performed, Fiscal Years 2001-2005: 

[See PDF for image] 

Source: GAO analysis of CBP data. 

Note: According to CBP, "nontrade exams" include exams conducted for 
security, narcotics, or agricultural reasons. These data include 
security exams conducted through nonintrusive inspection techniques 
such as mobile X-ray machines. 

[End of figure] 

After the formation of DHS and in light of homeland security 
priorities, CBP determined that it needed to focus its trade 
enforcement resources and activities on the most pressing trade issues. 
CBP has six Priority Trade Issues, one of which involves IP.[Footnote 
20] According to CBP's Intellectual Property Rights Trade Strategy, the 
agency's goal is to improve the effectiveness of its IP enforcement 
activities; ensure a uniform enforcement approach across its multiple 
port locations; and focus on making seizures with high aggregate 
values, that threaten health and safety or economic security, or that 
have possible ties to terrorist activity. CBP is also responsible for 
enforcing International Trade Commission exclusion orders that arise 
from an administrative process in which the commission determines that 
certain products constitute infringement of a relevant U.S. law and 
should be excluded entry to the United States.[Footnote 21] CBP 
coordinates its efforts with DHS's U.S. Immigration and Customs 
Enforcement (ICE), which investigates IP violations and builds cases 
for prosecution. 

CBP Undertakes a Series of Steps, Amid Challenges, to Enforce IP Rights 
at the Border: 

CBP takes a series of steps to enforce IP rights at the border and 
faces a number of challenges throughout this process. Two key offices, 
OT and OFO, are responsible for carrying out these steps, which include 
(1) targeting suspicious shipments; (2) examining detained shipments to 
determine if they carry infringing or excluded goods; and (3) enforcing 
IP laws by seizing goods and, if warranted, assessing penalties against 
importers. CBP uses two primary methods to target IP violations: 
computer-based and manual targeting. Their use varies, depending on the 
individual port approaches and the transportation mode being targeted, 
and both methods have certain strengths and limitations. OT and OFO 
both use computer-based methods to target vast numbers of commercial 
shipments, but the primary computer method used for IP purposes has led 
to a relatively small percent of IP seizures. Manual targeting by port 
employees is more ad hoc and flexible than computer-based targeting, 
given its reliance on employee skill and availability, but determining 
its effect on IP enforcement is difficult. Ports conduct exams on 
targeted shipments, and determining whether infringement has occurred 
during an exam can be a challenging process that requires training and 
input from experts. Because of differing port practices, information on 
IP exams has been unevenly recorded across ports, according to 
officials, making it difficult for CBP to fully analyze the effect of 
its targeting efforts in this area. CBP's process for enforcing IP 
concludes with ports seizing infringing goods and, if warranted, 
referring cases to ICE and assessing penalties. According to CBP 
officials, storing and destroying infringing goods has been costly, and 
the penalty process has resulted in few collections. Agency IP 
enforcement efforts have primarily been focused on goods for which the 
trademark or copyright has been recorded with CBP. 

CBP Operates in a Challenging Environment to Combat the Entry of 
Counterfeit Goods: 

Because importing counterfeit goods is an inherently deceptive 
activity, it presents challenges to CBP's ability to process large 
volumes of goods and determine those that are legitimate. CBP regularly 
confronts nefarious importers who attempt to smuggle IP-infringing 
goods into the country through various means. For example, according to 
a CBP press release, in August 2006, the Norfolk seaport found fake 
Nike shoes concealed inside a refrigerated container behind the 
jellyfish and salt kelp declared on the manifest.[Footnote 22] In 
addition, CBP contends with counterfeiter practices that make it 
difficult to detect shipments containing IP-infringing goods or 
distinguish legitimate from unauthorized goods. The law enforcement 
sensitive report described some of these practices in greater detail. 

Amid these challenges, however, OT and OFO both have responsibility for 
executing a series of actions to (1) target potential IP infringing 
goods as they enter the United States, (2) examine suspicious goods, 
and (3) enforce IP laws through seizures and penalties, if warranted. 
Figure 3 depicts an overview of CBP's process. 

Figure 3: Overview of CBP's Process for Conducting IP Border 
Enforcement: 

[See PDF for image] 

Sources: GAO (data); Nova Development (clip art). 

[End of figure] 

CBP Uses Various Targeting Methods, Depending on Port Practices and 
Transport Modes, Each Having Strengths and Limitations: 

CBP uses both computer-based and manual targeting approaches to target 
counterfeit goods either before or as they enter the United States-- 
both methods have strengths and limitations related to scope, data 
accuracy and overall sophistication, and resource requirements. CBP 
ports vary in the degree to which they use these methods, depending on 
their overall approach to IP enforcement and the modes of transport 
that they oversee. The primary computer-based targeting method used for 
IP purposes has uncovered a relatively small share of IP seizures. The 
effect of manual targeting is more difficult to determine. In addition, 
CBP undertakes other targeting and compliance measurement actions that, 
while not intended for IP enforcement, have uncovered IP violations. 

Computer-Based Targeting: 

CBP's computer-based targeting for IP violations is handled primarily 
through its Cargo Selectivity program, a system that targets commercial 
shipments, which are typically transported to the United States by sea, 
air, and truck.[Footnote 23] Commercial shipments may arrive to the 
United States via various modes of transport, but the largest shipments 
arrive via ocean-going cargo containers. When data about a particular 
shipment match the targeting criteria entered into the system, the port 
of entry is electronically notified, and the shipment is flagged for 
examination. Cargo Selectivity is not used to target noncommercial 
shipments, which typically enter the United States via express 
consignment, international mail, passengers, or private vehicle. 

Cargo Selectivity criteria can be developed to target on a nationwide 
basis or on a local, port-specific basis. National criteria for 
targeting suspected IP violations are developed and overseen by the 
Strategic Trade Center in Los Angeles (formerly in the Office of 
Strategic Trade and now under OT), where International Trade 
Specialists with expertise in particular industries develop criteria 
based on their analysis of recent seizure activity and information from 
industry representatives.[Footnote 24] CBP officials said that Cargo 
Selectivity criteria are designed to target known or suspected 
violators and that criteria can be written to target on all or some of 
a limited number of data elements. Ports develop local criteria in a 
similar fashion; however, they differ in the degree to which they use 
national or local criteria. 

CBP's Automated Targeting System (ATS) is another computer-based 
targeting tool, but it is not used to systematically target for IP 
violations. ATS is a primary component of CBP's approach for security 
targeting.[Footnote 25] As we note later in this report, CBP has 
conducted one pilot test of an ATS module for targeting IP violations. 

Manual Targeting: 

Manual targeting describes a range of activities in which individual 
employees at the ports or the Los Angeles Strategic Trade Center--based 
on their own knowledge, analysis, and experience--identify certain 
shipments for examination. According to CBP officials and based on our 
observations at select ports, manual targeting may involve CBP staff 
flagging shipments by: 

* conducting queries (such as in ATS) or executing analysis of 
electronically-filed manifest or entry data; 

* reviewing entry paperwork (including paper and electronic entries), 
which may be generated as a computer-based targeting;[Footnote 26] 

* visually observing packages in a processing or storage environment; 
and: 

* receiving information from other CBP employees within their own port 
or at other ports regarding a given shipment, perhaps based on 
information obtained from law enforcement agencies or rights holders. 

Both Targeting Methods Have Strengths and Limitations: 

Both Cargo Selectivity and manual targeting methods have certain 
strengths and limitations relating to their scope, usefulness, and 
feasibility: 

* Cargo Selectivity allows CBP to quickly screen vast volumes of 
commercial shipments on a nationwide basis, but it doesn't work for all 
types of shipments, and it has uncovered a relatively small share of IP 
violations since fiscal year 2003. Cargo Selectivity can use only a 
limited number of elements to target potentially infringing shipments, 
and getting criteria into the system takes time. According to CBP 
officials, the lack of sophistication and cumbersome process limits the 
system's overall usefulness for performing IP targeting.[Footnote 27] 
Also, CBP must use caution when developing its Cargo Selectivity 
targeting criteria in order to minimize the number of suspect shipments 
that are false positives, which can create unmanageable workloads for 
the ports, delay the movement of legitimate goods, and burden importers 
with exam costs. CBP data shows that IP targeting using Cargo 
Selectivity accounted for only about 3 percent of seizure actions made 
by CBP during fiscal years 2003 through 2006 and about 10 percent of 
the total estimated value of goods seized. More information on CBP's 
seizure outcomes is provided later in this report. 

* Ports use manual targeting to overcome some of the limitations of 
Cargo Selectivity. CBP officials at several ports we visited expressed 
the view that there is no substitute for the skills and experience of a 
well-trained CBP officer, but other officials noted that CBP can't rely 
on manual targeting to process vast volumes of trade. According to CBP 
officials, manual targeting is heavily dependent on employee 
availability and expertise; therefore, its use for IP targeting at some 
ports may be limited, particularly as CBP increasingly focuses its 
staff resources on security matters. CBP lacks data to fully determine 
the extent to which its seizure outcomes have resulted from manual 
targeting, but the portion could be large, given the relatively small 
portion that stems from Cargo Selectivity. 

Other Targeting or Compliance Measurement Actions May Uncover IP 
Violations: 

CBP undertakes other actions that, while not intended for IP 
enforcement, have uncovered IP violations, such as targeting for other 
trade violations or security reasons or actions that measure compliance 
with laws and regulations. For example, CBP's Compliance Measure 
Program, a statistical sampling program, is designed to examine 
randomly selected shipments for their compliance with a range of laws 
and regulations, including IP laws. According to CBP, IP violations 
have been found in a very small percent--less than one-tenth of 1 
percent--of such exams.[Footnote 28] In addition, Cargo Selectivity, 
when used to target for reasons such as terrorism or other trade 
issues, has revealed IP violations. Specifically, an additional 3 
percent of seizure actions and 10 percent of estimated seizure value 
was uncovered from non-IP related criteria during fiscal years 2003 to 
2005. Finally, any shipment that ATS identifies as high risk is 
automatically subjected to nonintrusive examinations using radiation 
detection and gamma-ray or X-ray scanning technologies. Such 
examinations may reveal unexpected results, such as contents that 
appear to differ from what is described in the manifest or entry data. 
When IP violations are suspected, the container is referred for further 
review to port personnel who handle trade enforcement. CBP could not 
provide data to show how often IP violations were found in this way. 

Targeted Shipments Are Subject to Examination, but Determining 
Infringement Can Be Difficult, and Exam Results Are Unevenly Recorded: 

Once shipments have been targeted for examination, CBP personnel at the 
ports are to examine shipments and record the results of their exams in 
CBP's data systems. Because of high counterfeit quality and complex 
U.S. IP laws, determining whether IP infringement has occurred can be 
difficult. CBP provides some training to assist ports in this endeavor. 
Because of variations in port practices for recording IP exam results, 
CBP's exam data are uneven, according to CBP officials, and limits the 
agency's ability to assess CBP's targeting effectiveness. 

Physical Exams Are Performed to Determine IP Violations: 

CBP uses the term "exam" to refer to a range of actions, including 
paperwork reviews, nonintrusive exams, and physical exams in which CBP 
examines all or a portion of the targeted goods. According to CBP 
officials, physical exams are the best means for assessing potential IP 
infringement. The procedures for conducting physical examinations 
differ according to the mode of transport and the movement of goods for 
examination.[Footnote 29] 

* Sea Cargo Examinations. In the sea cargo environment, sea containers 
are generally transported and examined away from their point of arrival 
at CBP exam facilities located at some distance from the port itself. 
When multiple shipments are contained in a single cargo container, 
these are first moved to a container freight station for debundling and 
then targeted shipments within the container are moved to the 
examination warehouse. 

* Air Cargo Examinations. In the air environment, the examination 
location may vary. For example, air cargo shipments may be examined at 
their arrival location or moved to a CBP exam facility while 
international mail and express consignment shipments may be examined at 
their arrival location. 

* Land Border Crossing Examinations. At land border crossings, vehicles 
and packages are moved to examination areas while still under CBP's 
control. 

CBP personnel who perform physical exams at the ports have discretion 
over how intensive an exam will be. For example, according to CBP and 
ICE officials, decisions are made about how many boxes will be opened 
from a single ocean-going cargo container; which boxes will be opened; 
and whether the container will be partly or fully unloaded. 

CBP personnel are to follow a common set of procedures grounded in law 
and regulation once shipments are opened for examination. When CBP 
decides to examine goods, it has a 5-day period, following the date on 
which the goods were presented for examination, to decide whether it 
will detain or release them.[Footnote 30] If examining personnel can 
immediately identify goods as counterfeit, perhaps because they have 
recently seized similar goods or the violations are obvious, CBP 
initiates procedures to detain the goods. However, because this is 
often not the case, samples of the merchandise may be provided to 
commodity experts at the ports called Import Specialists who evaluate 
the goods for IP infringement. As a result of their evaluation, Import 
Specialists will either order the goods to be detained for further 
review or released.[Footnote 31] 

When CBP decides to detain goods, it must notify the importer of the 
detention within 5 days after the decision was made, and may also 
notify the affected rights holder.[Footnote 32] The notice to the 
importer advises, among other things, the reason for the detention and 
the nature of any information or tests that CBP requires in order to 
process the matter. The importer and rights holder can take various 
actions, and communication with CBP may ensue for a period of 30 days. 
According to CBP officials, some rights holders are willing to 
negotiate with importers, which may involve financial compensation for 
the rights holder. If the importer's actions fail to secure release of 
the goods within 30 days or CBP finds them to be infringing, the agency 
proceeds with seizure and forfeiture actions. 

Identifying IP Violations Can Be Difficult: 

Because of high counterfeit quality and the complexity of U.S. laws, 
making a determination of IP infringement in some instances is 
difficult. To help ports assess whether goods are authentic, CBP's 
agency regulations[Footnote 33] provide rights holders the option to 
record trademarks, trade names, or copyrights with CBP. CBP currently 
charges $190 for its recordation application. Through the fee-based 
recordation process, CBP collects information from an IP owner about 
specific registered trademarks, copyrights, or trade names, and then 
enters that information into an electronic database accessible by CBP 
officers at ports across the country. However, CBP officials said that 
some IP owners do not record their rights with CBP, meaning that CBP 
lacks information about their products and access to individuals within 
the company who can address potential infringement. Moreover, when 
counterfeit quality is quite good, even the rights holder may have to 
conduct research to distinguish real from fake. 

In addition, the complexity of U.S. IP laws and CBP's array of seizure 
authorities present challenges to port staff, according to CBP 
officials. CBP has an array of detention and seizure authorities for IP 
violations; port personnel must be aware of these authorities and 
ensure their actions are in accord with them. CBP advises the ports 
that the most appropriate seizure authority will depend on the type of 
IP right infringed, whether the right is federally registered, whether 
the right is recorded with CBP, and the type of alleged 
infringement.[Footnote 34] CBP is authorized, in some instances, to 
seize goods for which the right is registered with appropriate rights- 
granting authorities but not recorded with CBP; however, OT's lead IP 
attorney stated that because the statutory bases for such enforcement 
are established by criminal statutes that invoke certain limitations 
and evidentiary requirements, such seizures would be available only in 
cases involving clear instances of counterfeiting or piracy and would 
require CBP to establish more elements of the infringement than is 
required for recorded rights. Therefore, CBP directs ports to focus 
their IP enforcement on recorded goods. For certain other types of 
violations, CBP does not commence seizure actions either because of 
agency policy or the lack of proper authority.[Footnote 35] 

CBP and rights holders offer training to port personnel to assist them 
in evaluations. For example, OT's IP attorneys train port personnel, 
including CBP Officers, Import Specialists, and others, on the legal 
and regulatory authorities in this area. Between 35 and 40 ports 
received training in each of fiscal years 2005 and 2006. In addition, 
private sector training is periodically arranged for CBP ports. Rights 
holder representatives give CBP staff advice about how to determine 
whether goods are counterfeit. For example, rights holders may tell CBP 
about security features they embed in their products or other methods 
they use to protect their IP. 

Uneven Quality of Exam Data Limits CBP's Ability to Analyze IP 
Enforcement Efforts: 

CBP maintains data systems in which port staff are required to record 
the results of exams they conduct, but the uneven quality of exam data 
has made it difficult for the agency to accurately analyze the results 
of IP targeting and to fully track all incidents of IP violations, 
according to CBP officials. CBP requires port staff to document exam 
results, whether or not violations were found, in order to contribute 
to the agency's repository of enforcement knowledge and for future 
targeting purposes. Officials in OT and its legacy offices familiar 
with the agency's data for IP-related exams told us the data are not 
uniform or timely and contains inaccuracies. For example, these 
officials said they have found instances where goods were seized for IP 
violations, but exam records did not indicate that any discrepancies 
were found. Also, officials said that staff at some ports quickly 
record exam results, but staff at other ports do not record exam 
results until several months after the goods have been detained or 
seized, if ever. Among ports that quickly record results, sometimes 
port staff must later revise the exam results if further investigation 
determines that the goods are legitimate. In addition, although port 
staff are directed to indicate in CBP's data systems whether IP 
violations were found and can add additional information about laws 
that were violated or a narrative description of the goods, officials 
in OT and its legacy offices that are familiar with the data said that 
whether and how they record this information varies. These officials 
were not sure what accounted for variations in the quality of exam 
results across ports, and we did not independently assess CBP's 
policies or port practices for recording exam results. 

CBP's Key IP Enforcement Actions Entail Seizing Goods and Issuing 
Penalties: 

CBP's process for enforcing IP rights concludes with the seizure of 
counterfeit goods and, if warranted, the assessment of penalties 
against the IP infringer. A seizure action, as defined by CBP, entails 
CBP taking control and/or possession of articles imported contrary to 
law. Penalties result in monetary fines imposed on the 
violator.[Footnote 36] 

Once CBP officers have examined goods and determined that they are 
counterfeit, the legal process to seize goods is initiated. This 
process, carried out by Fines, Penalties, and Forfeiture offices at the 
ports, entails (1) resolving or deciding CBP compliance actions; (2) 
providing advice to other CBP officers on the various trade violations; 
(3) securing or maintaining seized property; and (4) making sure CBP's 
automated system accurately reflects description, location, value, and 
forfeiture status of seized goods. CBP calculates the domestic value of 
seizures to track the value of goods it intercepts.[Footnote 37] For 
penalties it issues under 19 U.S.C. 1526(f), CBP calculates the 
Manufacturer's Suggested Retail Price (MSRP)--which would have been the 
value of the merchandise if it were genuine. CBP determines whether 
additional enforcement in the form of civil penalties should be 
assessed. It is CBP's policy not to assess a penalty, however, until 
all forfeiture proceedings have been completed, and the property, 
except for representative samples, has been destroyed. When assessing 
19 U.S.C. 1526(f) penalties against a first-time violator, the amount 
of the penalty may be equal to or less than the MSRP. In the event of a 
second or subsequent seizure, the amount of the penalty is assessed at 
twice the value of the merchandise, based on the MSRP at the time of 
seizure. For seizures valued over $100,000 in domestic value, OFO 
maintains responsibility for reviewing the case before any legal action 
is taken. For penalties that are assessed, CBP officials said that 
substantial resources are dedicated to processing penalty cases, but 
they also said that penalty amounts are seldom fully collected. CBP's 
collection issues are discussed later in this report. 

Depending on the size and value of a seizure, CBP officers coordinate 
with ICE agents who then consult the Department of Justice's U.S. 
Attorneys Offices to determine if criminal investigation and 
prosecution is warranted. For example, a repeat violator may warrant 
criminal action if ICE has enough information to initiate a criminal 
investigation and build a case. 

Seized goods have to be secured, as they have potential value but 
cannot be allowed to enter U.S. commerce. Storage may be prolonged by 
law enforcement actions, but the goods are generally destroyed or 
otherwise disposed of according to law when determined to be illegal 
and are no longer needed. According to CBP officials, as seizures have 
increased, the agency's storage and destruction costs have grown and 
become increasingly burdensome. CBP reports that it spent over $9.1 
million to destroy seized property between fiscal years 2001 and 
2006.[Footnote 38] CBP officials said that the environmental 
regulations for disposing of goods, particularly in states like 
California, prevent CBP from disposing of certain counterfeit goods in 
landfills. Often the goods are destroyed through incineration. 

IP Enforcement Outcomes Have Been Concentrated in Certain Areas and 
Reflect Pockets of Activity: 

The bulk of CBP's enforcement outcomes have been concentrated within 
certain modes of transport and product types and reflect pockets of 
activity among a limited number of ports. Although the total number of 
seizure actions has grown since fiscal year 2001, nearly doubling 
between fiscal years 2005 and 2006, most of these actions involved 
small-value seizures made from air-based modes of transport and may 
reflect a shift in smuggling techniques toward larger numbers of 
smaller-sized shipments. The total estimated domestic value of goods 
seized since fiscal year 2001, however, has fluctuated due to 
variations in seizure activity involving large, ocean-going containers 
in which the highest-value seizures tend to be made. While the types of 
goods seized have varied over time, wearing apparel, cigarettes, 
footwear, and handbags have accounted for the majority of estimated 
seizure value in the past 6 years. Ten or fewer ports, including some 
of the nation's largest ports and others that are significantly 
smaller, have accounted for the bulk of seizure and penalty outcomes 
since 2001. Of these ports, six have made consistent contributions each 
year to IP enforcement outcomes. 

CBP measures IP seizure activity two ways: number of seizure actions 
and estimated domestic value of goods seized. The number of goods in 
one seizure action can range from a few items shipped via international 
mail to hundreds of boxes of goods in a ocean-going cargo container. 
CBP maintains the official seizure statistics for DHS, including those 
made by CBP, ICE, or jointly by the two agencies. CBP captures data on 
the transport mode or processing environment in which goods were 
seized, but in compiling seizure data, neither OT nor its legacy 
offices routinely verify this data field. In addition, there are 
certain limitations in CBP's seizure data, such as the precision of the 
estimates. However, we found CBP's data to be sufficiently reliable to 
indicate broad trends. 

Majority of IP Seizure Actions Occurred in Air Transportation 
Environment While Value of Seized Goods Was Concentrated in Sea 
Environment: 

For fiscal years 2003 through 2006, most IP seizure actions have been 
concentrated in the air transportation environment, while most seizure 
value has been concentrated in ocean-going cargo containers.[Footnote 
39] As shown in figure 4, about 78 percent of total seizure actions 
during fiscal years 2003 through 2006 occurred in air transportation 
processing environments.[Footnote 40] Significantly fewer seizure 
actions were made from ocean-going cargo containers or land-based 
transport modes, such as truck, train, or auto. Conversely, ocean-going 
cargo container seizures represented about 60 percent of total 
estimated seizure value during those years, with significantly smaller 
portions of value generated by air-and land-based seizures.[Footnote 
41] Even though about one-fourth of U.S. imports enter by land-based 
modes of transport, seizure actions and values in this mode were less 
than 5 percent of total seizures, as measured by either indicator. 

Figure 4: Percent of IP Seizure Actions and Domestic Value by 
Transportation Mode, Fiscal Years 2003-2006: 

[See PDF for image] 

Source: GAO analysis of CBP data. 

Note: According to CBP, "other" includes no transportation involved 
(often ICE seizures), "none listed" (often passenger seizures) and 
"other" (undefined). 

[End of figure] 

CBP seizure data show that the number of seizure actions has grown 
steadily from fiscal years 2001 to 2006, while domestic values have 
fluctuated. As shown in figure 5, there were over 3,500 seizure actions 
in fiscal year 2001, increasing to over 14,000 in 2006. Also shown in 
figure 5, the domestic value of goods seized in these years has 
fluctuated, reaching a high in 2006 of more than $155 million.[Footnote 
42] Although the overall trend for both measurements is upward, these 
outcomes represent a small fraction of overall imports. For instance, 
in fiscal year 2005, the domestic value of IP seizures represented less 
than one-tenth of 1 percent (0.02 percent) of the total value of 
imports of goods in product categories that are likely to involve IP 
protection.[Footnote 43] It is impossible to know whether these seizure 
outcome trends reflect improved enforcement actions or an increase in 
the share of counterfeit trade entering the United States during those 
years. 

Figure 5: Trends in Number of IP Seizure Actions and Estimated Domestic 
Values, Fiscal Years 2001-2006: 

[See PDF for image] 

Source: GAO presentation of CBP data. 

Note: CBP data can be accessed at 
http://www.cbp.gov/xp/cgov/import/commercial_enforcement/ipr/seizure/sei
zure_stats.xml. 

[End of figure] 

According to our analysis, growth in the number of seizure actions was 
fueled by increases in small-value seizures made in express consignment 
and international mail facilities. CBP publicly cites an 83 percent 
increase in the number of seizure actions from fiscal year 2005 to 2006 
as an indicator of its growing IP enforcement success. However, our 
analysis shows that this growth was driven primarily by smaller-value 
seizures. For example, to date, the largest number of seizures for 
international mail occurred in fiscal year 2006, with the number of 
seizure actions and their domestic value more than doubling from the 
previous year. CBP officials said they believed that while some of 
these seizures are personal shipments ordered from Internet sites that 
sell counterfeit merchandise, others have contained quantities of goods 
too large for personal use. Some officials also speculated that 
counterfeiters may be breaking commercial shipments into smaller 
components to avoid detection and face more limited losses in the event 
of a seizure. However, CBP has not conducted any systematic analysis to 
support these observations. 

Our analysis also shows that several factors influence trends in 
seizure value. Spikes in seizure value in fiscal years 2004 and 2006, 
accounting for approximately 30 percent of seizure value in each of 
those years, were largely due to shipments moving through the in-bond 
system.[Footnote 44] Also, CBP data show that about 15 percent of 
seizure value during fiscal years 2003 through 2006 stemmed from 
seizures made by ICE during its investigations, and OT and ICE 
officials said that ICE may have played a role in some of the seizures 
attributed to CBP. Of note in fiscal year 2006, a combined CBP and ICE 
initiative resulted in the seizure of 77 cargo containers of fake Nike 
Air Jordan shoes and 1 container of fake Abercrombie & Fitch clothing 
that were transported in part using the in-bond system (they entered 
the Los Angeles seaport, transited through Arizona, and were supposedly 
destined for export to Mexico). The estimated domestic value of these 
goods was about $19 million, representing about 12 percent of total 
domestic seizure value in fiscal year 2006. 

Seizures Have Been Concentrated among Certain Types of Products: 

Although the types and quantities of seized goods vary over time, 
seizures over the past 6 years have been highly concentrated among 
certain types of products. For example, seizures of footwear, wearing 
apparel, handbags/wallets/backpacks, and cigarettes accounted for over 
60 percent of the aggregate value of goods seized over the past 6 
years.[Footnote 45] Table 1 shows that footwear and wearing apparel 
accounted for 57 percent of domestic value of goods seized in fiscal 
year 2006, with the high percent of footwear seized partially resulting 
from the large CBP/ICE seizure described earlier. Health care products 
and pharmaceuticals accounted for only 3 percent of such value. When 
asked why commodity seizures vary from year to year, CBP officials 
stated that counterfeiters produce fake goods depending on marketplace 
demand at any given time. However, it is difficult to determine whether 
CBP and ICE seizures are representative of the types of counterfeit 
products entering the United States in any given year or merely reflect 
counterfeit products that CBP detected. 

Table 1: Percent of Total Estimated Domestic Value Seized by Commodity, 
Fiscal Years 2001-2006: 

Commodity: Wearing apparel; 
2001 (percent of domestic value): 14; 
2002 (percent of domestic value): 9; 
2003 (percent of domestic value): 15; 
2004 (percent of domestic value): 37; 
2005 (percent of domestic value): 17; 
2006 (percent of domestic value): 16; 
Aggregate 2001-2006 total (percent of domestic value)[A]: 19. 

Commodity: Cigarettes; 
2001 (percent of domestic value): 8; 
2002 (percent of domestic value): 38; 
2003 (percent of domestic value): 44; 
2004 (percent of domestic value): 17; 
2005 (percent of domestic value): 10; 
2006 (percent of domestic value): [Empty]; 
Aggregate 2001-2006 total (percent of domestic value)[A]: 18. 

Commodity: Footwear; 
2001 (percent of domestic value): 5; 
2002 (percent of domestic value): [Empty]; 
2003 (percent of domestic value): 3; 
2004 (percent of domestic value): 1; 
2005 (percent of domestic value): 10; 
2006 (percent of domestic value): 41; 
Aggregate 2001-2006 total (percent of domestic value)[A]: 13. 

Commodity: Handbags/Wallets/; Backpacks; 
2001 (percent of domestic value): 6; 
2002 (percent of domestic value): 3; 
2003 (percent of domestic value): 12; 
2004 (percent of domestic value): 17; 
2005 (percent of domestic value): 16; 
2006 (percent of domestic value): 9; 
Aggregate 2001-2006 total (percent of domestic value)[A]: 11. 

Commodity: Media; 
2001 (percent of domestic value): 13; 
2002 (percent of domestic value): 29; 
2003 (percent of domestic value): 8; 
2004 (percent of domestic value): 4; 
2005 (percent of domestic value): [Empty]; 
2006 (percent of domestic value): 4; 
Aggregate 2001-2006 total (percent of domestic value)[A]: 9. 

Commodity: Consumer electronics; 
2001 (percent of domestic value): [Empty]; 
2002 (percent of domestic value): 5; 
2003 (percent of domestic value): 4; 
2004 (percent of domestic value): 6; 
2005 (percent of domestic value): 9; 
2006 (percent of domestic value): 5; 
Aggregate 2001-2006 total (percent of domestic value)[A]: 5. 

Commodity: Computers/Hardware; 
2001 (percent of domestic value): 7; 
2002 (percent of domestic value): [Empty]; 
2003 (percent of domestic value): [Empty]; 
2004 (percent of domestic value): 1; 
2005 (percent of domestic value): 5; 
2006 (percent of domestic value): 9; 
Aggregate 2001-2006 total (percent of domestic value)[A]: 4. 

Commodity: Watches/Parts; 
2001 (percent of domestic value): 10; 
2002 (percent of domestic value): 4; 
2003 (percent of domestic value): 4; 
2004 (percent of domestic value): 2; 
2005 (percent of domestic value): 3; 
2006 (percent of domestic value): 2; 
Aggregate 2001-2006 total (percent of domestic value)[A]: 3. 

Commodity: Toys/Electronic games; 
2001 (percent of domestic value): 8; 
2002 (percent of domestic value): 2; 
2003 (percent of domestic value): 2; 
2004 (percent of domestic value): 3; 
2005 (percent of domestic value): 9; 
2006 (percent of domestic value): [Empty]; 
Aggregate 2001- 2006 total (percent of domestic value)[A]: 3. 

Commodity: Batteries; 
2001 (percent of domestic value): 9; 
2002 (percent of domestic value): [Empty]; 
2003 (percent of domestic value): [Empty]; 
2004 (percent of domestic value): 2; 
2005 (percent of domestic value): [Empty]; 
2006 (percent of domestic value): [Empty]; 
Aggregate 2001-2006 total (percent of domestic value)[A]: 1. 

Commodity: Sunglasses/Parts; 
2001 (percent of domestic value): 6; 
2002 (percent of domestic value): 1; 
2003 (percent of domestic value): 1; 
2004 (percent of domestic value): [Empty]; 
2005 (percent of domestic value): [Empty]; 
2006 (percent of domestic value): [Empty]; 
Aggregate 2001-2006 total (percent of domestic value)[A]: 1. 

Commodity: Headwear; 
2001 (percent of domestic value): [Empty]; 
2002 (percent of domestic value): 1; 
2003 (percent of domestic value): 1; 
2004 (percent of domestic value): [Empty]; 
2005 (percent of domestic value): [Empty]; 
2006 (percent of domestic value): 2; 
Aggregate 2001- 2006 total (percent of domestic value)[A]: 1. 

Commodity: Pharmaceuticals; 
2001 (percent of domestic value): [Empty]; 
2002 (percent of domestic value): [Empty]; 
2003 (percent of domestic value): [Empty]; 
2004 (percent of domestic value): [Empty]; 
2005 (percent of domestic value): 2; 
2006 (percent of domestic value): 1; 
Aggregate 2001-2006 total (percent of domestic value)[A]: 1. 

Commodity: Health care; 
2001 (percent of domestic value): [Empty]; 
2002 (percent of domestic value): [Empty]; 
2003 (percent of domestic value): [Empty]; 
2004 (percent of domestic value): [Empty]; 
2005 (percent of domestic value): [Empty]; 
2006 (percent of domestic value): 2; 
Aggregate 2001-2006 total (percent of domestic value)[A]: 1. 

Commodity: Perfumes; 
2001 (percent of domestic value): [Empty]; 
2002 (percent of domestic value): [Empty]; 
2003 (percent of domestic value): [Empty]; 
2004 (percent of domestic value): [Empty]; 
2005 (percent of domestic value): 3; 
2006 (percent of domestic value): [Empty]; 
Aggregate 2001-2006 total (percent of domestic value)[A]: 0. 

Commodity: All other commodities; 
2001 (percent of domestic value): 15; 
2002 (percent of domestic value): 9; 
2003 (percent of domestic value): 6; 
2004 (percent of domestic value): 10; 
2005 (percent of domestic value): 15; 
2006 (percent of domestic value): 8; 
Aggregate 2001-2006 total (percent of domestic value)[A]: 10. 

Commodity: Total estimated domestic value (in millions); 
2001 (percent of domestic value): $57; 
2002 (percent of domestic value): $99; 
2003 (percent of domestic value): $94; 
2004 (percent of domestic value): $139; 
2005 (percent of domestic value): $93; 
2006 (percent of domestic value): $155; 
Aggregate 2001-2006 total (percent of domestic value)[A]: $638. 

Commodity: Total number of seizures; 
2001 (percent of domestic value): 3,586; 
2002 (percent of domestic value): 5,793; 
2003 (percent of domestic value): 6,500; 
2004 (percent of domestic value): 7,255; 
2005 (percent of domestic value): 8,022; 
2006 (percent of domestic value): 14,675; 
Aggregate 2001-2006 total (percent of domestic value)[A]: 45,831. 

Source: GAO presentation of CBP data. 

Note: Percentages not provided indicate that CBP did not report the 
commodity as a separate category in a given year. Seizures of these 
commodities may be included in the "All other commodities" category. 
Due to rounding, commodities may not total to 100 percent for any given 
fiscal year. 

[A] "Aggregate 2001-2006 total (percent of domestic value)" was 
calculated by aggregating the reported estimated domestic value per 
commodity in each year, and dividing this total by the total estimated 
domestic value of seizures for fiscal years 2001to 2006. 

[End of table] 

CBP reports that seizures are also concentrated in one trading partner-
-for fiscal years 2001 through 2006 combined, exports from China 
account for 65 percent of total seized IP domestic value. Hong Kong and 
Taiwan are distant seconds to China, accounting for 6 and 5 percent of 
seizures in that period, respectively. The combined share of goods 
seized that were exported from China and Hong Kong grew about 40 
percent per year during this period. Also listed among trading partners 
for which goods were seized for IP violations in fiscal years 2001 
through 2006 are Korea, Pakistan, Russia, South Africa, and Singapore. 

Ten or Fewer Ports Have Accounted for the Bulk of IP Enforcement 
Outcomes: 

CBP's IP enforcement outcomes, including seizures and penalties, have 
been highly concentrated among a limited number of ports across the 
country. We analyzed CBP's seizure and penalty data for fiscal years 
2001 through 2006 and found that the bulk of enforcement activity was 
carried out by 10 or fewer ports in each of four enforcement categories 
we reviewed: (1) total number of seizures, (2) total seizures by 
domestic value, (3) total penalty cases opened, and (4) total amount of 
penalties assessed. The top 10 ports for each category differ, but 
there is considerable overlap among the ports so ranked in each 
category. Table 2 also shows that during fiscal years 2001 through 
2006, the top 10 ports ranked by total seizure actions accounted for 
nearly two-thirds of those actions, and the top 10 ports ranked by 
total domestic seizure values accounted for nearly three-fourths of 
those values. Table 2 shows even greater concentration among the top 10 
ports for penalty cases opened and penalty amounts assessed. Our 
analysis indicates that, while seizure actions have been more broadly 
disbursed among CBP's ports, fewer of them have accounted for seizure 
values, and even fewer ports have assessed penalties for the seizures 
they make. The mix of ports in these rankings is surprising because 
they include some of the nation's largest ports as well as several that 
are significantly smaller. Moreover, as we discuss later, some of the 
ports among which seizures are concentrated are not among the top ports 
in terms of IP import value; and conversely, some high IP-importing 
ports have shown more limited seizure outcomes. 

Table 2: Top 10 Ports' Percent of Seizure and Penalty Outcomes, Fiscal 
Years 2001-2006: 

Dollars in millions. 

Enforcement measures: Top ten ports' number of IP seizures; 
Number or value of enforcement outcomes: 30,462; 
Percent of total: 66%. 

Enforcement measures: Top ten ports' domestic value of IP seizures; 
Number or value of enforcement outcomes: $463.2; 
Percent of total: 73%. 

Enforcement measures: Top ten ports' number of IP penalty cases opened; 
Number or value of enforcement outcomes: 1,208; 
Percent of total: 84%. 

Enforcement measures: Top ten ports' penalty amounts assessed; 
Number or value of enforcement outcomes: $1,135; 
Percent of total: 97%. 

Source: GAO analysis of CBP data. 

Notes: We analyzed CBP's seizure and penalty data for fiscal years 2001 
through 2006. We used seizure data that captures various IP-related 
violations and penalty data that captures only trademark violations 
where penalties were assessed under 19 U.S.C. 1526(f). 

In the law enforcement sensitive version of this report, ports were 
listed in the table according to their rank order in each enforcement 
category we analyzed. Port names have not been included in this table 
for law enforcement reasons. While the top 10 ports in each category 
are not the same, there is considerable overlap among them. 

Some of the ports included in our analysis may have multiple processing 
environments, and seizures associated with such ports may stem from 
more than one processing environment. Because of inconsistencies in how 
CBP records seizures by ports, we were unable to fully determine how 
many processing environments are reflected in the above data. 

[End of table] 

Because of inconsistencies in the way CBP records seizures by port, it 
can be difficult to determine precisely which processing environments 
accounted for seizure outcomes. We were able to determine the seizure 
reporting practices of the seven ports that we visited. For example, at 
one port, CBP uses one port "code" to record IP seizures made at the 
seaport and the nearby airport. Seizure data for another port includes 
seizures made at the seaport and from the international mail processing 
environment but does not include other air-based seizures made at the 
nearby airport, which are reported separately. Neither OT nor its 
legacy OFO office at the headquarters level could provide us 
information to understand the seizure reporting practices of CBP's 
ports. 

Among these top 10 ports, there is further concentration of activity. 
For example, we found that four ports ranked in the top 10 for all four 
categories and two ports ranked in the top 10 for three of the four 
categories. This indicates that the majority of enforcement outcomes 
were produced by a handful of ports over the 6-year time period. 
Appendix II contains additional analysis of these six ports' 
enforcement outcomes. 

Outside of the most active seizing ports, seizure outcomes have been 
more disbursed and prone to fluctuation. CBP's seizure data showed that 
around 243 ports of entry made seizures at least once during the past 6 
years. About 190 of those ports reported fewer than 100 aggregate 
seizure actions since 2001, and over 100 reported less than $100,000 in 
6 years' aggregate domestic value of seizures. Some of these ports had 
very little activity for 2001 through 2006, while others had occasional 
spikes in their seizure actions or domestic seizure values. 

CBP's Approach to Improving IP Enforcement Lacks Integration and Has 
Produced Limited Results: 

CBP lacks an integrated approach across key offices for improving 
border enforcement outcomes, having focused on certain efforts that 
have produced limited results while not taking the initiative to 
understand and address the variations among ports' enforcement 
outcomes. While CBP's strategic plan notes the importance of IP 
enforcement under two of CBP's strategic goals, the plan lacks 
performance measures to guide CBP's IP border enforcement efforts and 
assess its agencywide progress. CBP efforts to improve its IP border 
enforcement process, led by OT or its legacy offices, have produced 
mixed results: (1) poor data collection during port-based pilots limits 
OT's ability to evaluate the effectiveness of a new risk model for IP 
targeting; (2) audits conducted to assess certain importers' IP-related 
controls have resulted in some penalties, but many audits are not yet 
complete; and (3) actual collections on IP penalties remain far below 
the assessed amounts. Meanwhile, CBP has not attempted to understand 
variations within or among ports' enforcement outcomes. Using CBP's own 
import and seizure data, we identified some factors that may have 
influenced enforcement outcomes and some enforcement anomalies among 
key ports that bear further investigation. We also performed a simple 
analysis that could help CBP identify ports with higher or lower than 
average seizure outcomes. For example, of 25 ports that accounted for 
over 75 percent of the value of total IP-type imports in fiscal year 
2005, just 8 of them had higher than average shares of IP seizures (by 
value) compared with their IP imports (by value). Such analysis could 
be further refined by incorporating information about ports' import 
composition or by making comparisons across similar processing 
environments. Lacking an integrated approach, such analysis would 
likely be conducted by OT, but the responsibility for overseeing and 
influencing port operations lies with OFO. 

CBP's Strategic Plan Lacks Performance Measures for IP Enforcement: 

In its agency strategic plan,[Footnote 46] CBP notes the importance of 
IP enforcement under two strategic goals, however it has not included 
any performance measures to guide its IP border enforcement efforts and 
assess progress on its agencywide efforts. Leading organizations use 
strategic plans and performance measures to communicate their vision 
and priorities on an agency-wide basis and establish accountability. 
Under its strategic goal to facilitate legitimate trade and travel, CBP 
identifies the enforcement of relevant U.S. laws under its 
jurisdiction, including IP, as one of its strategic objectives. 
Although IP is included as a strategic objective, there are no specific 
IP performance measures under this goal. CBP also addresses IP 
enforcement under its goal to protect America and its citizens by 
prohibiting the introduction of illicit contraband, counterfeit goods, 
and other harmful materials. However, performance measures for this 
goal relate to prohibited agricultural items and narcotics. For 
example, there are three separate measures that address narcotics 
seizures, but none specific to IP. 

CBP does measure and report internally on the number of IP seizure 
actions and estimated seizure value and has other indicators related to 
IP enforcement, but these measures and indicators are not included as 
performance measures in its strategic plan. These measures and 
indicators are found in CBP's IP Rights Trade Strategy, an internal 
document classified as "For Official Use Only" with limited 
distribution across CBP.[Footnote 47] In our discussions with CBP, 
agency officials responsible for developing and overseeing the IP 
Rights Trade Strategy referred to it as an internal planning document 
on IP enforcement. The internal nature of this document, unlike an 
agency's strategic plan with performance measures, limits its 
usefulness in holding CBP accountable to Congress for its performance 
on IP enforcement. 

Legacy OT Offices Have Led Certain IP Improvement Efforts, but These 
Have Produced Mixed Results: 

Offices that are now part of OT have taken the lead in carrying out 
certain efforts to improve IP border enforcement, but these efforts 
have produced limited results. In its IP Rights Trade Strategy, CBP 
states that its goal is to support the administration's Strategy 
Targeting Organized Piracy (STOP) and to focus on high value seizures 
and seizures related to public health and safety issues. Among the 
initiatives outlined in the document, key IP border enforcement efforts 
include (1) improving computer-based IP targeting, primarily by 
developing a statistical risk-assessment model to complement Cargo 
Selectivity; (2) using audits to assess certain importers' controls for 
preventing IP infringing imports; and (3) issuing guidance to give 
ports more discretion on when to assess IP penalties. Although computer-
based targeting and audits are considered STOP priorities, none of 
these efforts have thus far significantly impacted CBP's efforts to 
focus on high value seizures or seizures related to public health and 
safety. 

Effectiveness of New Targeting Model Cannot Be Determined: 

A key component of CBP's IP enforcement improvement efforts has been 
the development of a statistically driven risk assessment model. 
However, problems with implementation in the first field-based pilot 
test, and poor data collection in a second pilot test prevents OT from 
fully evaluating the model's results. CBP developed this model to 
improve its ability to target unknown IP violators. The model figures 
prominently in CBP's strategic plan and has been continually 
highlighted as one of CBP's main contributions to STOP. 

CBP's risk model differs from Cargo Selectivity in two key ways: first, 
it uses statistical analysis of past seizures and certain other 
information to target future shipments, whereas Cargo Selectivity 
relies on human analysis to develop criteria. Second, CBP officials 
told us the model is designed to identify unknown violators based on 
its analysis of past seizure patterns, whereas Cargo Selectivity 
primarily targets known or suspected violators. However, pilot tests 
conducted in 2005 and 2006 revealed problems and produced limited 
results: 

* In the first pilot, run for 1 month by the Los Angeles Strategic 
Trade Center, the model was more efficient at targeting IP violations 
than Cargo Selectivity, according to CBP. However, CBP's implementation 
methodology resulted in certain targeted shipments being released 
before they could be examined, affecting CBP's ability to fully 
evaluate the model's accuracy. Also, the model sometimes targeted the 
shipments of actual rights holders, forcing CBP analysts to intervene 
to prevent exams of authentic goods. The pilot helped CBP refine the 
risk threshold at which it should conduct examinations based on the 
model's targeting. 

* The second pilot was run for about 3 months at one seaport and two 
land border crossings, but OT is unable to determine how the model 
worked because of weaknesses and inconsistencies in the data that 
participating ports collected for the pilot, according to OT officials. 
For example, for some targeted shipments, the data does not contain any 
exam results, even though goods were ultimately seized from those 
shipments. In other instances, the data contains exam results for 
shipments that were too low risk to have been targeted by the model. 

Although CBP has already cited the model as an accomplishment, it does 
not know how well the model works. OT officials said they plan to 
develop and carry out a third pilot by having the Los Angeles Strategic 
Trade Center keep track of what the model has targeted and what the 
exams revealed. However, this may be difficult because the center will 
have to communicate directly with ports involved in the pilot to 
determine what exams were conducted and what results were found. It is 
not clear whether further revisions will improve the model or what role 
the model will play in CBP's overall IP targeting strategy. 

After the first pilot of the risk model, OFO officials said they began 
developing a set of rules to target IP violations using ATS. These 
rules were developed with input from the former Office of Strategic 
Trade (now part of OT) and were tested concurrently with the risk model 
during the second pilot. However, data collection weaknesses also limit 
CBP's ability to assess the effectiveness of these rules, and their 
role in future targeting is unclear. 

Audits Have Resulted in Some Seizures and Penalties, but Their Efficacy 
Is Limited: 

Another prominent undertaking that is discussed in CBP's strategic plan 
and represents a second CBP contribution to STOP is the use of audits 
to uncover IP violations among select importers. These audits, 
initiated by the former Office of Strategic Trade (now part of OT), are 
referred to as "post-entry" audits because they examine records of 
goods that have been imported and released into commerce. This single- 
issue audit is designed to evaluate the adequacy of an importer's 
internal controls over IP imports, test whether the internal controls 
provide reasonable assurance that the company is compliant with CBP 
laws and regulations, and potentially find previously undetected IP 
violations made by the importer. These audits are most likely to be 
effective when dealing with compliance problems of established 
importers and less so when dealing with importers that purposely evade 
federal scrutiny, as is the case for importers involved in counterfeit 
trade. 

The audits began in 2005 and have produced some enforcement outcomes, 
but they and the post-audit decision process have been time consuming. 
OT's Regulatory Audit Division, in consultation with the Los Angeles 
Strategic Trade Center, selected approximately 20 importers as audit 
candidates in each of fiscal years 2005 and 2006, some of which had a 
history of IP violations.[Footnote 48] Of these 41 audits, 23 have been 
completed, 12 are in progress, 4 were suspended because they involved 
companies that ICE was investigating, and 2 have not yet started. CBP 
has selected about half of the next 20 companies to be audited for 
fiscal year 2007. The completed audits found evidence that some 
companies had imported IP infringing goods, some counterfeit goods had 
been released into commerce, and other infringing goods remained in 
company warehouses. According to agency officials, based on these 
violations, CBP decided to assess penalties against certain companies, 
but the intra-agency review process for the penalties took about 1 year 
because of intra-agency discussions about the legal basis for assessing 
penalties on goods that had already entered commerce. Although CBP has 
moved forward with penalties in certain cases--four companies were 
assessed penalties totaling over $5.7 million--future penalty decisions 
must be deliberated on the facts in each case, according to CBP 
officials. CBP officials said they periodically monitor the import 
performance of these audited companies and found one additional 
instance of IP infringement. When audit findings are significant, CBP 
works with the importer to develop a Compliance Improvement Plan to 
help prevent further IP violations. 

At CBP's December 2006 Trade Symposium, the Assistant Commissioner for 
Trade discussed CBP's plan to conduct a greater share of its trade 
enforcement using these post-entry audits rather than cargo exams. The 
time consuming nature of these audits and their greater efficacy with 
established importers than with smugglers indicates the difficulties 
that the agency will face in making this kind of enforcement shift. 

New Penalty Guidance Reduces the Number of Uncollectible Penalties, but 
Actual Collections Remain Low: 

A third undertaking has been the development of new guidance to reduce 
the number of uncollectible penalties that CBP assesses, thereby 
freeing up port resources for other activities. CBP officials reported 
that significant resources are dedicated to processing penalty cases; 
however, they noted that few penalties are collected and such 
enforcement has little deterrent effect. We reviewed CBP penalty data 
and found that less than 1 percent of penalty amounts assessed for IP 
violations were collected annually during fiscal years 2001 through 
2006 (see table 3). 

Table 3: CBP IP Penalty Amounts Assessed versus Collected, Fiscal Years 
2001-2006: 

Total penalty amount assessed; 
2001: $52.0; 
2002: $65.0; 
2003: $45.0; 
2004: $442.9; 
2005: $423.9; 
2006[A]: $136.6. 

Total penalty amount collected; 
2001: $0.5; 
2002: $0.3; 
2003: $0.4; 
2004: $0.5; 
2005: $0.4; 
2006[A]: $0.6. 

Percent collected; 
2001: 0.90; 
2002: 0.48; 
2003: 0.91; 
2004: 0.11; 
2005: 0.10; 
2006[A]: 0.45. 

Source: GAO analysis of CBP data. 

Note: Penalty data are based on penalties assessed under 19 U.S.C. 
1526(f). CBP also assesses penalties for IP violations under 19 U.S.C. 
1595a(b) and provided us information on these types of penalties, but 
because CBP could not identify which were IP related, these types of 
penalties are not included in the table. 

[A] Fiscal year 2006 is reported based on data provided in January 
2007. CBP officials said that the amount collected may change because 
some open penalty cases are still being processed, but they said that 
future adjustments are unlikely to significantly change the disparity 
between penalty amounts assessed and collected. 

[End of table] 

Various factors contribute to CBP's limited collection rates on IP 
penalties, including petitions for mitigation or dismissal by the 
violator, dismissal due to criminal prosecutions, and the nature of 
counterfeit importation. CBP officials said that many violators 
petition to have a penalty mitigated or dismissed, and these actions 
often reduce the amount of the penalty that CBP collects.[Footnote 49] 
One agency official explained that some penalties are dismissed as a 
result of the case going to criminal prosecution, in which the U.S. 
Attorney negotiates to have a penalty dropped in exchange for 
information or other evidence that will support the criminal case. 
Also, the deceptive nature of counterfeit importation makes it 
difficult for CBP to track violators and enforce penalties. 

To address the problem of poor collections, OFO communicated new CBP 
guidance to ports in 2006 that caused new penalty cases and assessed 
amounts to drop, but this has had limited impact on narrowing the gap 
between the amounts assessed and collected. CBP's guidance addresses 10 
problem scenarios under which penalties are unlikely to be collected so 
that Fines, Penalties, and Forfeiture offices will be able to avoid 
assessing penalties in those circumstances. The objective of the 
guidance is to reduce resources spent assessing uncollectible penalties 
as well as to reduce the gap between penalties assessed and collected. 
The total penalties assessed declined by two-thirds between fiscal 
years 2005 and 2006, from about $424 million to about $137 million, 
which CBP officials attribute to the new guidance. Despite an increase 
in the amount of penalties collected between fiscal year 2005 to 2006, 
from about $406,000 to about $614,000, less than 1 percent of the total 
penalties assessed was collected for each of the fiscal years we 
reviewed. 

CBP Has Not Analyzed Variations in Port Enforcement Outcomes: 

Despite some of its improvement efforts, CBP has not undertaken any 
systematic analysis of its seizure and penalty activity to understand 
variations in enforcement outcomes within or across ports or to learn 
from ports that have been relatively more successful in capturing 
fraudulent IP goods. For example, CBP has not analyzed the potential 
reasons for fluctuations in seizure outcomes at key ports that have 
impacted its overall seizure outcomes, and it has not identified 
inconsistencies between seizure and penalty outcomes at certain ports. 
Performing this type of analysis raises questions about individual 
ports' performance outcomes and may help to inform CBP about 
potentially effective port practices for IP enforcement. For example, 
in our analysis of 25 ports that brought in over 75 percent of the 
total value of IP-type imports in fiscal year 2005, we identified 8 
whose seizure rate (i.e., the percent of IP seizures out of IP imports 
at that port, by value) was higher than the average for the top 25 IP- 
importing ports. We also found that some of the largest IP-importing 
ports had very small seizure rates relative to other IP-importing 
ports. Such analysis can be performed using existing data and could 
help CBP focus on identifying the handful of ports with relatively 
stronger enforcement records and determining whether their strategies 
and practices could be expanded and used at other ports. 

CBP Has Not Analyzed Yearly Fluctuations in Port Enforcement Outcomes: 

CBP has not analyzed year-to-year fluctuations in ports' seizure 
activity or other enforcement outcomes that may seem inconsistent with 
a port's overall IP enforcement profile. In some years, fluctuations at 
key ports have had a significant impact on the agency's overall 
enforcement results. For example, the number of seizure actions at one 
port has accounted for a growing share of all seizure actions since 
fiscal year 2001, representing nearly half of all seizure actions in 
fiscal year 2006, while seizure actions at another port have gone down 
over time, representing 18 percent of total seizure actions in fiscal 
year 2002 and less than 1 percent in fiscal year 2006. Two ports have 
been leading contributors to total estimated seizure values. However, 
while the value of seizures made by one of these ports has generally 
risen from fiscal year 2001 to 2006, the value of seizures made by the 
other port has fluctuated significantly, representing about 60 percent 
of total seizure value in fiscal year 2002 and about 17 percent of 
total seizure value in fiscal year 2005. The identities of these ports 
have not been included in this report for law enforcement reasons. 

In addition, CBP has not analyzed individual ports' seizure and penalty 
outcomes to identify potential inconsistencies in the use of certain 
enforcement tools. We identified some ports with high seizure outcomes 
that have not had correspondingly high penalty outcomes. While ports 
may not necessarily assess penalties on all of their seizure outcomes, 
particularly if the seizure value is limited, we identified ports with 
relatively high average seizure values but limited penalty outcomes. 
For instance, three ports ranked among the top 10 ports for seizure 
value for fiscal years 2001 through 2006, with average seizure values 
ranging from about $83,000 to about $123,000, but none of these ports 
ranked among the top 10 for penalty cases opened, and only one of them 
ranked among the top 10 for penalty amounts assessed. The penalty cases 
these ports opened during this period ranged between 3 and 7 percent of 
their seizures. In comparison, the second highest ranked port for 
seizure value, with an average seizure value of about $88,000, was also 
one of the most active ports for penalty actions, opening penalty cases 
for about 37 percent of its seizures. Moreover, during our audit, we 
identified a sharp drop in penalty outcomes for one of the top 10 
ports, starting in fiscal year 2004, that neither OT nor OFO had 
identified. In investigating the reason for the drop, OFO determined 
that the port was not following proper procedures for assessing and 
reporting its IP penalties. We asked OT officials to explain these 
anomalies between seizure and penalty outcomes, and they responded that 
such analysis had not been conducted. 

We asked officials in OT and its legacy offices whether they had 
analyzed port enforcement outcomes in this way and to what they 
attributed these fluctuations and inconsistencies. These officials said 
that imports vary among ports, seizures fluctuate according to changes 
in the nature of counterfeit trade, and ports have different priorities 
for performing IP enforcement. Overall outcomes or fluctuations might 
also be due to variations in ports' enforcement techniques or changes 
in IP enforcement resources or the availability of skilled personnel. 
For example, an official at one port we visited told us that during 
fiscal year 2004, the port made an important change in its methods for 
performing trade-related targeting, by disbanding a seven-person team 
that had focused solely on trade targeting and shifting these resources 
to security targeting. During our February 2005 visit to this port, the 
port official stated that this change had contributed to significantly 
lower seizure activity at the port in 2005. When we discussed seizure 
outcomes at another port with OT officials--which have resulted 
predominantly from the manual targeting skills of port staff--they 
compared the workload created by these seizures with their limited 
impact given that these are predominantly small value seizures. OT 
officials said neither they, nor their legacy offices, have conducted 
any analysis of individual ports' seizure and penalty outcomes. 
Additional analysis of selected ports' enforcement outcomes are 
contained in appendix II. 

CBP Has Not Analyzed Relative IP Enforcement Outcomes among Ports: 

CBP has also not conducted any analysis of ports' relative enforcement 
outcomes. One way to conduct this analysis is to identify ports whose 
seizure rate--the share of their IP seizures (by value) out of their 
total IP imports (by value)--is relatively higher or lower than other 
ports. For example, in fiscal year 2005, we focused on the top 25 ports 
that account for over 75 percent of the value of all IP imports into 
the United States.[Footnote 50] Of these 25 ports, we found that 8 had 
seizure rates higher than the group average seizure rate of 0.015 
percent. Surprisingly, the port with the highest seizure rate, seizing 
about 0.123 percent of its fiscal year 2005 IP import value, was also 
the port with the smallest value of IP imports among the ports we 
examined. This port accounted for only about 1 percent of all IP import 
value that year, but over 7 percent of total seizure value. In 
contrast, the IP seizure rates for several ports with relatively larger 
IP import values were well below the group average. Figure 6 shows the 
top 25 IP-importing ports by value in fiscal year 2005 and ranks them 
by their seizure rate that year. The eight ports in which the seizure 
rate is greater than the average (shown by the dotted line on the 
figure) are highlighted in grey. The figure also shows that many ports 
had very low seizure rates relative to the average. Port names have not 
been included for law enforcement reasons. 

Figure 6: Top 25 IP-Importing Ports' Seizure Rates: Percent of IP 
Seizures in IP Imports (by Value), Fiscal Year 2005: 

[See PDF for image] 

Source: GAO analysis of CBP data. 

Note: Port names are not included in this figure for law enforcement 
reasons. 

[End of figure] 

Figure 6 illustrates the differences across ports in terms of IP 
seizures compared with IP imports in fiscal year 2005, the most recent 
year for which we had IP import data. We also examined these data over 
previous years and found similar results. For example, Port A had the 
first or second highest rate of any port in the top 25. Also, the eight 
ports with above-average ratios in fiscal year 2005 are consistent with 
prior years. Because of the wide range of factors that affect IP 
seizures (including the unknown amount of goods actually involved in IP 
violations transiting a given port), these data alone are not a 
complete measure of port performance. Ports can be compared relative to 
each other, but port performance in even those ports that appear 
relatively more successful could still be potentially improved. For 
example, the majority of these top 25 ports had IP seizures that 
accounted for less than one hundredth of a percent of their IP import 
value. Table 4 further illustrates the variability in seizure actions 
and the range of seizure rates among the top IP-importing ports. 

Table 4: IP Seizure Rates of Top 25 Ports (by IP Import Value), Fiscal 
Year 2005: 

Port[A]: Port A; 
IP imports (billions US$)[A]: [Empty]; 
IP seizures (number): 38; 
IP seizures (thousands US$)[A]: [Empty]; 
IP seizure rate (IP seizures/IP imports) (percent): 0.123. 

Port[A]: Port B; 
IP imports (billions US$)[A]: [Empty]; 
IP seizures (number): 215; IP seizures (thousands US$)[A]: [Empty]; 
IP seizure rate (IP seizures/IP imports) (percent): 0.066. 

Port[A]: Port C; 
IP imports (billions US$)[A]: [Empty]; 
IP seizures (number): 245; 
IP seizures (thousands US$)[A]: [Empty]; 
IP seizure rate (IP seizures/IP imports) (percent): 0.065. 

Port[A]: Port D; 
IP imports (billions US$)[A]: [Empty]; 
IP seizures (number): 2,737; 
IP seizures (thousands US$)[A]: [Empty]; 
IP seizure rate (IP seizures/IP imports) (percent): 0.023. 

Port[A]: Port E; 
IP imports (billions US$)[A]: [Empty]; 
IP seizures (number): 177; 
IP seizures (thousands US$)[A]: [Empty]; 
IP seizure rate (IP seizures/IP imports) (percent): 0.019. 

Port[A]: Port F; 
IP imports (billions US$)[A]: [Empty]; 
IP seizures (number): 318; 
IP seizures (thousands US$)[A]: [Empty]; 
IP seizure rate (IP seizures/IP imports) (percent): 0.018. 

Port[A]: Port G; 
IP imports (billions US$)[A]: [Empty]; 
IP seizures (number): 391; 
IP seizures (thousands US$)[A]: [Empty]; 
IP seizure rate (IP seizures/IP imports) (percent): 0.016. 

Port[A]: Port H; 
IP imports (billions US$)[A]: [Empty]; 
IP seizures (number): 42; 
IP seizures (thousands US$)[A]: [Empty]; 
IP seizure rate (IP seizures/IP imports) (percent): 0.015. 

Port[A]: Port I; 
IP imports (billions US$)[A]: [Empty]; 
IP seizures (number): 9; 
IP seizures (thousands US$)[A]: [Empty]; 
IP seizure rate (IP seizures/IP imports) (percent): 0.012. 

Port[A]: Port J; 
IP imports (billions US$)[A]: [Empty]; 
IP seizures (number): 22; 
IP seizures (thousands US$)[A]: [Empty]; 
IP seizure rate (IP seizures/IP imports) (percent): 0.006. 

Port[A]: Port K; 
IP imports (billions US$)[A]: [Empty]; 
IP seizures (number): 197; 
IP seizures (thousands US$)[A]: [Empty]; 
IP seizure rate (IP seizures/IP imports) (percent): 0.005. 

Port[A]: Port L; 
IP imports (billions US$)[A]: [Empty]; 
IP seizures (number): 29; 
IP seizures (thousands US$)[A]: [Empty]; 
IP seizure rate (IP seizures/IP imports) (percent): 0.004. 

Port[A]: Port M; 
IP imports (billions US$)[A]: [Empty]; 
IP seizures (number): 10; 
IP seizures (thousands US$)[A]: [Empty]; 
IP seizure rate (IP seizures/IP imports) (percent): 0.003. 

Port[A]: Port N; 
IP imports (billions US$)[A]: [Empty]; 
IP seizures (number): 91; 
IP seizures (thousands US$)[A]: [Empty]; 
IP seizure rate (IP seizures/IP imports) (percent): 0.003. 

Port[A]: Port O; 
IP imports (billions US$)[A]: [Empty]; 
IP seizures (number): 154; 
IP seizures (thousands US$)[A]: [Empty]; 
IP seizure rate (IP seizures/IP imports) (percent): 0.002. 

Port[A]: Port P; 
IP imports (billions US$)[A]: [Empty]; 
IP seizures (number): 21; 
IP seizures (thousands US$)[A]: [Empty]; 
IP seizure rate (IP seizures/IP imports) (percent): 0.002. 

Port[A]: Port Q; 
IP imports (billions US$)[A]: [Empty]; 
IP seizures (number): 52; 
IP seizures (thousands US$)[A]: [Empty]; 
IP seizure rate (IP seizures/IP imports) (percent): 0.002. 

Port[A]: Port R; 
IP imports (billions US$)[A]: [Empty]; 
IP seizures (number): 62; 
IP seizures (thousands US$)[A]: [Empty]; 
IP seizure rate (IP seizures/IP imports) (percent): 0.001. 

Port[A]: Port S; 
IP imports (billions US$)[A]: [Empty]; 
IP seizures (number): 17; 
IP seizures (thousands US$)[A]: [Empty]; 
IP seizure rate (IP seizures/IP imports) (percent): 0.001. 

Port[A]: Port T; 
IP imports (billions US$)[A]: [Empty]; 
IP seizures (number): 16; 
IP seizures (thousands US$)[A]: [Empty]; 
IP seizure rate (IP seizures/IP imports) (percent): 0.001. 

Port[A]: Port U; 
IP imports (billions US$)[A]: [Empty]; 
IP seizures (number): 1; 
IP seizures (thousands US$)[A]: [Empty]; 
IP seizure rate (IP seizures/IP imports) (percent): 0.000. 

Port[A]: Port V; 
IP imports (billions US$)[A]: [Empty]; 
IP seizures (number): 13; 
IP seizures (thousands US$)[A]: [Empty]; 
IP seizure rate (IP seizures/IP imports) (percent): 0.000. 

Port[A]: Port W; 
IP imports (billions US$)[A]: [Empty]; 
IP seizures (number): 22; 
IP seizures (thousands US$)[A]: [Empty]; 
IP seizure rate (IP seizures/IP imports) (percent): 0.000. 

Port[A]: Port X; 
IP imports (billions US$)[A]: [Empty]; 
IP seizures (number): 1; 
IP seizures (thousands US$)[A]: [Empty]; 
IP seizure rate (IP seizures/IP imports) (percent): 0.000. 

Port[A]: Port Y; 
IP imports (billions US$)[A]: [Empty]; 
IP seizures (number): 8; 
IP seizures (thousands US$)[A]: [Empty]; 
IP seizure rate (IP seizures/IP imports) (percent): 0.000. 

Port[A]: Subtotal: Top 25 ports; 
IP imports (billions US$)[A]: $430; 
IP seizures (number): 4,888; 
IP seizures (thousands US$)[A]: $66,419; 
IP seizure rate (IP seizures/IP imports) (percent): 0.015. 

Port[A]: Subtotal: Remaining ports; 
IP imports (billions US$)[A]: $125; 
IP seizures (number): 3,134; 
IP seizures (thousands US$)[A]: $26,816; 
IP seizure rate (IP seizures/IP imports) (percent): 0.021. 

Port[A]: Total all ports; 
IP imports (billions US$)[A]: $555; 
IP seizures (number): 8,022; 
IP seizures (thousands US$)[A]: $93,235; 
IP seizure rate (IP seizures/IP imports) (percent): 0.017. 

Source: GAO analysis of CBP data. 

Note: Although we report fiscal year 2005 values here for illustration, 
we conducted the analysis for each of fiscal years 2002 through 2005 
and found similar results. In each year, the top 25 ports identified 
here accounted for between 75 and 78 percent of total IP imports and 
their average ratio of IP seizures to IP imports ranged from 0.015 
percent to 0.030 percent. 

[A] Port names and data on the ports' fiscal year 2005 IP imports and 
value of IP seizures are not included in this table for law enforcement 
reasons. For fiscal year 2005, the IP import values for these ports 
ranged from about $5 billion to about $89 billion. The domestic value 
of their IP seizures ranged from about $1,000 to about $18.9 million. 

[End of table] 

Lack of Integration across Key Offices Impedes Further Improvements in 
IP Enforcement: 

CBP lacks an integrated approach across key offices for further 
improving border enforcement outcomes. Our analysis of CBP's data is 
one illustration of the kind of work that the agency could do using 
existing data to understand differences in IP enforcement outcomes 
across ports, potentially identifying areas where improvements could be 
made, and more effectively managing its resources to meet the agency's 
goals and objectives. CBP could refine this analysis by comparing 
across similar ports and processing environments, such as seaports to 
seaports and airports to airports, however inconsistencies in how CBP 
currently captures seizure activity across ports, as previously 
discussed, makes this refinement more difficult. CBP could use its 
experience and practical knowledge of some of the factors affecting 
trade flows at their ports to further inform the analysis. When we 
discussed our analysis with CBP, OT officials said they have not 
conducted this type of analysis because they do not have any 
responsibility or authority to oversee and influence port operations, 
which is under the purview of OFO. However, OT is responsible for 
overseeing CBP's implementation of its Priority Trade Initiatives, and 
it has access to data that could inform OFO's understanding of port IP 
enforcement practices and outcomes and inform CBP's resource allocation 
decisions.[Footnote 51] 

Conclusions: 

Enforcing IP protection at U.S. borders has become progressively more 
challenging for CBP as the volume of trade entering the United States 
increases, and as the of types of IP-infringing goods expand. CBP needs 
to maximize its IP enforcement efforts in an environment strained by 
the need to balance its primary mission to protect homeland security 
with trade facilitation and enforcement of U.S. trade laws, among other 
objectives. While CBP has publicly cited increases in enforcement 
outcomes based on larger numbers and higher values of IP seizures, 
indicating its success, it has not fully disclosed the composition of 
those seizures or analyzed what has accounted for the increases. 
However, as indicated by our review, a limited number of ports have 
driven overall IP enforcement activity. 

CBP's strategic plan lacks measures to guide agencywide IP enforcement 
efforts, and the efforts of two key offices responsible for carrying 
out IP enforcement, OT and OFO, are not well integrated. So far, the 
agency's main efforts to improve IP enforcement have involved 
initiatives carried out primarily by OT, and these have produced 
limited results. However, neither OT nor OFO has been engaged in trying 
to assess the effectiveness of CBP's core IP border enforcement 
efforts--namely, the targeting, examination, seizure, and penalty 
activities undertaken by CBP's front-line port operations. CBP's 
ability to fully assess ports' IP enforcement activities is hampered by 
inconsistencies in the way IP enforcement data are recorded at the 
ports. In addition, OT does not have responsibility or authority to 
oversee or influence port operations. 

As demonstrated by our own analysis of CBP data, the agency has 
sufficient information available despite the data's limitations to 
conduct a more comprehensive review of IP border enforcement outcomes 
in ways that would provide insights about targeting, examination, 
seizure, and penalty assessment practices across ports. Certain 
improvements to existing data could make this type of review even more 
powerful. In addition, such analysis could prove useful as CBP responds 
to congressional directives to develop resource allocation models in 
order to determine the optimal staffing levels needed to carry out its 
commercial operations and other missions. CBP would be able to make 
more measurable links between its strategic objectives and enforcement 
outcomes, leading to more effective management practices and allocation 
of limited resources. Given the challenging environment in which CBP 
must process a vast influx of goods into the United States every day, 
it is particularly important that the agency consistently collect key 
data, perform useful analysis of the data, and use the data to better 
inform policies and practices and make decisions to focus its use of 
limited resources. 

Recommendations for Executive Action: 

To develop a more effective approach to IP border enforcement, we 
recommended in the law enforcement sensitive report that the CBP 
Commissioner direct the Offices of International Trade and Field 
Operations to work together to take the following three actions: 

* Clarify agencywide goals related to IP enforcement activity by 
working with the Office of Management and Budget to include in its 
agency's strategic plan measures to guide and assess IP enforcement 
outcomes; 

* Improve data on IP enforcement activity by: 

- Determining the completeness and reliability of existing IP 
enforcement data and identifying aspects of the data that need to be 
improved; 

- Ensuring uniformity in port practices to overcome any weaknesses in 
data reporting; 

* Use existing data to understand and improve IP border enforcement 
activity by: 

- Analyzing IP enforcement outcomes across ports and other useful 
categories, such as modes of transportation; 

- Reporting the results of this analysis internally to provide 
performance feedback to the ports, better link port performance to 
performance measures in CBP's Strategic Plan, and inform resource 
allocation decisions. 

Agency Comments and Our Evaluation: 

We provided a draft of the law enforcement sensitive report to DHS for 
review by CBP and ICE. Through DHS, CBP commented that it generally 
agreed with our recommendations and provided certain additional 
comments. Specifically, CBP said it would consider developing IP 
enforcement measures and include them in the agency's strategic plan to 
clarify agencywide goals. CBP concurred with our second recommendation 
to improve its IP enforcement data. 

Regarding our third recommendation, CBP generally agreed to use 
existing data to understand and improve IP border enforcement activity. 
It stated that strong data analysis and targeting are critical to 
successful IP enforcement and agreed to improve the linkages between 
the agency's IP enforcement objectives and port performance. However, 
CBP did not regard our analysis of ports' IP seizures relative to IP 
imports as a useful tool for addressing the threat of IP infringement 
and identified a range of limitations with our analysis. We disagree. 
This simple presentation can be a powerful tool to generate discussion 
among IP policymakers and port management and staff about IP seizure 
patterns, risks, and outcomes. CBP has not yet attempted to complete 
even this basic analysis or initiate such discussions. Doing so would 
invariably lead to potential refinements of the analysis; we suggest a 
number of these in the report, some of which CBP identifies in its 
comments. We encourage CBP to refine this analysis and develop and use 
other types of analysis to ensure that ports are helping the agency 
achieve its IP enforcement objectives. 

CBP made certain additional comments about the draft law enforcement 
sensitive report. For example, CBP said that our report focused on 
transaction-level seizures and penalties, while not fully recognizing 
the importance of additional elements of its IP enforcement approach. 
We focused on seizures and penalties because they are the core IP 
enforcement activities for which CBP is responsible, and we found that 
CBP had not systematically analyzed its own performance of these 
activities. However, we also discuss the risk model, the audits, and 
the new penalty guidance; and these elements are reasonable components 
of a broader approach, but we believe their effect on overall IP 
enforcement has been limited. Moreover, we believe that CBP needs to 
continue to ensure the robustness of its core enforcement activities. 
CBP also stated that our report failed to note that the formation of OT 
in October 2006 was designed in part to address the lack of integration 
between OT and OFO. We disagree that the formation of this office has, 
in itself, addressed the lack of integration that we identify in the 
report regarding IP enforcement. Although OT consolidates CBP's trade 
policy and program development functions, including those related to IP 
enforcement, front-line implementation of policies and programs 
continue to be carried out at the ports under the leadership of OFO. OT 
and OFO will need to work closely together to overcome the historic 
lack of integration regarding IP policy and program development and 
execution. CBP and ICE also provided technical comments, which we 
incorporated in the law enforcement sensitive report as appropriate. 

We also provided DHS a draft copy of this public report for a 
sensitivity review by CBP and ICE. CBP and ICE agreed that we have 
appropriately removed information that they considered law enforcement 
sensitive. 

We are sending copies of this report to appropriate congressional 
committees and the Librarian of Congress; the Secretaries of the 
Departments of Commerce, Homeland Security, Justice, and State; the 
Commissioner of U.S. Customs and Border Protection; the Assistant 
Secretary for U.S. Immigration and Customs Enforcement; the Directors 
of the U.S. Patent and Trademark Office and the U.S. Food and Drug 
Administration; the Chairman of the U.S. International Trade 
Commission; and the U.S. Trade Representative. We will make copies 
available to others upon request. In addition, the report will be 
available at no charge on the GAO Web site at http://www.gao.gov. We 
provided copies of the law enforcement sensitive report to the 
Secretary of the Department of Homeland Security, the Commissioner of 
U.S. Customs and Border Protection, the Assistant Secretary for U.S. 
Immigration and Customs Enforcement, and appropriate congressional 
committees with a need to know. 

If you or your staff have any questions about this report, please 
contact me at (202) 512-4347 or yagerl@gao.gov. Contact points for our 
Office of Congressional Relations and Public Affairs may be found on 
the last page of this report. GAO staff who made major contributions to 
this report are listed in appendix IV. 

Sincerely yours, 

Signed by: 

Loren Yager, Director: 
International Affairs and Trade: 

[End of section] 

Appendix I: Scope and Methodology: 

The Ranking Minority Member of the Senate Subcommittee on Oversight of 
Government Management, the Federal Workforce and the District of 
Columbia, Committee on Homeland Security and Governmental Affairs asked 
us to (1) examine key aspects of the U.S. Customs and Border 
Protection's (CBP) process to carry out enforcement of intellectual 
property (IP) at U.S. borders; (2) analyze CBP's border enforcement 
outcomes during fiscal years 2001 through 2006; and (3) evaluate CBP's 
approach for improving border enforcement. 

To examine key aspects of CBP's border enforcement process, we reviewed 
documents and interviewed officials at CBP headquarters in Washington, 
D.C., and at selected port locations. At headquarters, we met with 
officials in the Office of International Trade (OT) and Office of Field 
Office Operations (OFO) and obtained documents. We reviewed agency 
strategic plans, annual performance accountability reports, laws, 
regulations, and policies that addressed agency goals and the roles and 
responsibilities of these two key offices and field locations in 
enforcing IP rights at the border, including CBP's internal plan for 
addressing IP enforcement as a Priority Trade Issue. We also reviewed 
documents and interviewed officials at OT's Los Angeles Strategic Trade 
Center, which has been responsible for developing and implementing 
CPB's approach to IP enforcement since approximately 2002. We analyzed 
data that the center provided on the use and outcomes of using Cargo 
Selectivity criteria to target for IP violations. In addition, we 
reviewed documents and interviewed CBP officials at four field offices 
and seven ports (the names of the ports where we conducted field work 
are not included in this report for law enforcement reasons). We 
selected these ports in order to observe CBP's IP enforcement practices 
at ports with high and medium import levels (measured by value) and 
across a range of processing environments. Five of these ports were 
among the top 25 IP-importing ports in fiscal year 2005, and five of 
them were among the six most active CBP ports as measured by selected 
IP enforcement outcomes. We reviewed documents on CBP's organizational 
structures at these ports and the ports' approaches for carrying out 
their overall missions, including IP enforcement. The CBP officials we 
interviewed at these ports were responsible for identifying, examining, 
seizing, and assessing penalties on goods that involve IP violations. 
In addition, we reviewed relevant papers, studies, and our reports that 
addressed key aspects of CBP's mission and its IP border enforcement 
responsibilities. We also met with officials from the Department of 
Homeland Security's Immigration and Customs Enforcement, the Department 
of Commerce's Patent and Trademark Office, the Department of Justice, 
the U.S. Copyright Office, and the U.S. International Trade Commission, 
to discuss their respective roles in registering IP rights and 
investigating and prosecuting IP violations. 

To analyze CBP's border enforcement outcomes, we obtained and reviewed 
seizure and penalty enforcement data covering fiscal years 2001 through 
2006. First, to measure the value of IP-related trade entering U.S. 
ports, we identified products, using detailed product codes, that are 
likely to embody intellectual properties and obtained CBP data on the 
importation of these products by port over fiscal years 2002 to 2005. 
In order to identify these products, we reviewed the broad product 
groups that CBP uses to categorize seizure actions and domestic value 
and then identified all individual products that are covered by these 
groups within the U.S. harmonized tariff schedule. We discussed our 
detailed product list with CBP, which concurred with our list, and we 
obtained import data from them according to the list. We reviewed these 
data for internal consistency and any known limitations on its quality. 
We determined that these data were sufficiently reliable to provide the 
value of IP imports by port over the time period we examined. Second, 
we assessed CBP's IP enforcement efforts on an aggregate, product, and 
port basis by analyzing its seizure and penalty data. Specifically, we 
obtained data from CBP on seizure and penalty outcomes for individual 
ports of entry for fiscal years 2001 through 2006. For fiscal years 
2003 through 2006, we obtained data on the mode of transport or 
processing environments in which seizure were made. Finally, we 
obtained data on seizures by product category and source country from 
CBP's external Web site.[Footnote 52] To assess the reliability of the 
seizure and penalty data, we examined them for internal consistency and 
discussed with CBP how the data are collected and reviewed. We also 
reviewed our prior work that reported on CBP's seizure data.[Footnote 
53] Based on this prior work and our discussions with CBP officials, we 
identified some limitations in the seizure data related to the 
precision of the seizure value estimates and the veracity of the fields 
that indicate product types and modes of transport or processing 
environments. We also found some inconsistencies in the various data 
sets we received, which we reported to CBP. The limitations and 
inconsistencies we identified, however, did not indicate large 
discrepancies in the data, and we found the data to be sufficiently 
reliable for the purposes of reporting on broad trends in seizures and 
penalties over time and among ports. Based on our discussions with CBP 
headquarters and port officials, we selected four types of enforcement 
actions by which to analyze port outcomes: (1) number of seizure 
actions, (2) domestic value of seizures, (3) number of penalty cases 
opened, and (4) penalty amounts assessed. We aggregated the data on 
these enforcement actions for fiscal years 2001 through 2006, ranked 
ports by each of the enforcement actions, and identified the top 10 
ports for each of the categories. 

To evaluate CBP's approach for improving border enforcement, we 
discussed CBP's efforts with knowledgeable OT and OFO officials in 
Washington, D.C., and the field offices and ports we visited. We 
reviewed CBP's and OFO's strategic plans, CBP's annual performance and 
accountability reports, and CBP's internal plan for addressing IP 
enforcement as a Priority Trade Issue to identify CBP's goals, 
objectives, and plans for conducting and improving IP enforcement at 
the border. We also examined documents related to the administration's 
Strategy Targeting Organized Piracy. From this, we identified key 
initiatives that CBP has undertaken to improve the effectiveness of IP 
border enforcement and discussed the status of these initiatives with 
knowledgeable CBP officials. We also assessed the initiatives to 
determine how they relate to CBP's IP enforcement goals. We analyzed IP 
enforcement outcomes across ports, identified fluctuations that have 
significantly impacted CBP's overall IP enforcement outcomes and 
inconsistencies in outcomes at certain ports, and discussed these 
observations with CBP officials. We compared IP seizures with IP 
imports on a value basis for the top 25 IP-importing ports for fiscal 
years 2002 through 2005, determined the average seizure rate for these 
ports, and compared the ports' individual seizure rates with the 
average. While estimated domestic value of seizures and values for IP 
imports are not equivalent measurements, we determined that these were 
sufficiently reliable proxies for the purpose of seizure to import 
comparisons. We also conducted interviews with CBP officials in 
headquarters and field locations to obtain information on how OT and 
OFO carry out their operations and in final meetings discussed ways in 
which OT and OFO could better use their data to improve IP enforcement. 

This report is based on a law enforcement sensitive report issued on 
March 20, 2007, as a restricted report, copies of which are available 
for official use only.[Footnote 54] This public version does not 
contain certain information that DHS regarded as law enforcement 
sensitive and requested that it not be included. We provided DHS a 
draft copy of this public report for a sensitivity review by CBP and 
ICE, which agreed that we had appropriately removed law enforcement 
sensitive information. 

We conducted our work from November 2005 through January 2007 in 
accordance with generally accepted government auditing standards. 

[End of section] 

Appendix II: Analysis of Top Six Ports' IP Enforcement Outcomes: 

To analyze IP enforcement outcomes across ports, we selected four 
categories of enforcement outcomes from the data CBP provided: (1) 
number of seizure actions, (2) domestic value of seizure, (3) number of 
penalty cases opened, and (4) penalty amounts assessed. We analyzed 
data by port location for fiscal years 2001 through 2006. For four of 
these categories, we found that six ports accounted for the bulk of 
enforcement activity (see fig. 7). Four of these ports ranked in the 
top 10 for all four IP enforcement categories and 2 ranked in the top 
10 for three out of the four categories. These ports may include 
multiple processing environments (e.g., land, sea, air modes), and 
seizure associated with such ports may stem from more than one 
processing environment. Because of inconsistencies in how CBP records 
seizures by port, we were unable to fully determine how many processing 
environments are reflected in the enforcement data. We were able to 
determine the seizure reporting practices of the seven ports that we 
visited. For example, at one location, CBP has one port "code" that 
includes seizures made at the seaport as well as the nearby airport. 
However, seizure data for another location includes seizures made at 
the seaport and from the international mail processing environment, but 
does not include other air-based seizures made at the nearby airport, 
which are reported separately. Neither OFO nor OT officials at the 
headquarters level could provide us information to understand the 
seizure reporting practices of CBP's ports. 

As figure 7 illustrates, CBP's data can be used to compare enforcement 
outcomes across the ports (left to right) or compare outcomes within a 
single port (top to bottom). With the exception of Port D, the scales 
are uniform. When analyzing IP enforcement outcomes both across ports 
and within a single port, we found wide variability when comparing 
outcomes from year to year and among the enforcement categories. For 
example, the Port F experienced increases in the number of seizure 
actions for fiscal years 2002 and 2004; but in alternating years, the 
number dropped, in some cases by as much as 50 percent. Penalty 
outcomes also fluctuated by port location. For example, Port G had 
relatively constant numbers of penalty cases opened and penalty amounts 
assessed until fiscal year 2005, when these outcomes peaked, and then 
fell off sharply in fiscal year 2006. When examining outcomes within a 
single port, we found that the fluctuations in seizure outcomes did not 
mirror fluctuations in penalty outcomes. For example, Port C had a 
relatively steady number of seizure actions between fiscal years 2003 
and 2006, but the number of penalty cases opened fluctuated greatly 
during the same time period. While we did not expect to find a direct 
correlation between seizure and penalty outcomes, given that the 
seizure data consists of all IP-related activity and penalty data 
limited to only those assessed under 19 U.S.C. 1526(f), we did not 
expect to find such wide variations within the most active ports during 
the 6-year time period we reviewed. 

Figure 7: IP Enforcement Outcomes for Top Six Ports, Fiscal Years 2001- 
2006: 

[See PDF for image] 

Source: GAO analysis of CBP data. 

[A] The scale for Port D is not uniform because it had substantially 
more seizure actions compared with other ports, making it difficult to 
compare in a uniform scale. 

[B] Penalty data for Port F was not available for fiscal years 2003 
through 2006 due to a change in the way the port records its IP-related 
penalties. CBP was unable to provide more complete information for this 
port. As a result, total IP penalty outcomes for this port are likely 
underrepresented in the above figure. 

[End of figure] 

[End of section] 

Appendix III: Comments from the Department of Homeland Security: 

Note: GAO comments supplementing those in the report text appear at the 
end of this appendix. 

U.S. Department of Homeland Security: 
Washington, DC 20528: 

March 6, 2007: 

Mr. Loren Yager: 
Director: 
International Affairs and Trade: 
U.S. Government Accountability Office: 
441 G Street, NW: 
Washington, DC 20548: 

Dear Mr. Yager: 

Thank you for the opportunity to review and comment on the Government 
Accountability Office's (GAO's) draft report GAO-07-350SU entitled, 
Intellectual Property: Better Data Analysis and Integration Could Help 
U.S. Customs and Border Protection Improve Border Enforcement Efforts. 

The Department's U.S. Customs and Border Protection (CBP) provides the 
following general comments. First, the report cites a lack of 
integration between key offices involved in Intellectual Property 
Rights (IPR) enforcement, which CBP acknowledges was a problem during 
the review period. However, the report fails to note action already 
taken by Congress and CBP to address this issue. Congress recognized 
the integration issue, and with the passage of the SAFE Port Act in 
2006, mandated creation of the Office of International Trade (OT) to 
solve this problem. OT, established by CBP in the last quarter of 
calendar year 2006, has authority to set IPR policy and direction for 
ports. Throughout the report, GAO misrepresents this major change in 
CBP's organizational structure by referring inaccurately to OT, which 
did not exist during the review period, rather than the Office of 
Strategic Trade (OST), which actually existed during the review period. 
OST and OT are very different organizations. In addition, the lack of 
integration cited by GAO has been addressed by combining all IPR policy 
and program functions into the Office of International Trade. This 
includes the IPR policy and program functions that formerly were the 
responsibility of Office of Field Operations (OFO). Hence, OT has 
responsibility for establishing direction, setting policy, and creating 
programs for ports with regard to IPR enforcement. 

Second, throughout the report, GAO promotes a simple analysis of 
seizure outcomes among ports as the key approach for improving IPR 
enforcement at the border. As discussed with GAO during the audit, CBP 
disagrees that this analysis is useful for addressing IPR threat, let 
alone representing a major weakness in the agency's approach. GAO bases 
its analysis on "IP-type" imports, which it defines as tariff 
classifications previously associated with at least one IPR seizure. A 
fundamental flaw with this approach is that it fails to recognize 
relative risk and assumes that all similar commodities form a universe 
at equal risk for IP infringement. As "IP-type" imports, GAO includes 
the value of all goods entered under tariff classifications such as 
furniture used infrequently to try to smuggle counterfeit products, but 
for which the overwhelming majority of imports are highly unlikely to 
be IPR infringing. In addition, both products bearing trademarks or 
copyrighted works and products that do not (e.g., trademarked T-shirts 
as well as plain T-shirts with no mark) are included in the value of 
"IP-type" imports. 

Further, GAO does not take into account a number of additional factors 
known to be relevant to IPR risk such as source country, shipping 
patterns, and shipments entered by right holders and their licensees. 
Instead, GAO assumes that there is a direct correlation between "IP- 
type" imports and IPR infringement threat. However, no evidence 
supporting this assumption is presented. GAO also performs this 
analysis on ports that are or include express consignment or mail 
facilities. For such ports, the value of "IP-type" imports cannot be 
determined because entry is not required and therefore values are not 
available for the vast majority of packages entered at these 
facilities. For these reasons, CBP finds GAO's analysis to be 
incomplete and unreliable as a basis for action to improve enforcement 
or allocate resources. 

Third, the report focuses on the transaction-level seizures and 
penalties elements of CBP's IPR enforcement strategy, and while these 
are important, the agency's strategy is more comprehensive than this 
limited approach. In order to minimize the IPR threat, CBP takes a 
multilayered approach to IPR enforcement that expands and complements 
the seizure of IPR infringing goods and issuance of penalties. The 
agency's strategy expands the border outward by using audit techniques 
to assess and improve the internal control systems that importers use 
to prevent imports of IPR infringing goods and to issue penalties on 
imported counterfeit goods that have been distributed into commerce; 
collaborating with other U.S. government agencies and trading partners 
to improve enforcement; cooperating with right holders; and training 
both CBP employees and officials of foreign customs administrations. 
This approach addresses counterfeiting at the organizational source to 
deter future violations rather than only addressing the immediate 
violation. As GAO notes, only one subsequent IPR violation has been 
found among importers that have been audited for IPR, an indication of 
the success of this approach. 

Finally, the report states several times that CBP lacks performance 
measures for IPR, but this is inaccurate. CBP acknowledges that the CBP 
Strategic Plan does not contain specific measures for IPR enforcement. 
However, CBP's National IPR Trade Strategy does contain performance 
measures for IPR, and it is this strategy that guides CBP's IPR 
enforcement efforts. The following excerpt from CBP's National IPR 
Trade Strategy, which was provided to GAO, describes CBP's IPR 
performance measures. 

Table: 

Objective: 1. Apply risk model to: 
* Identify high risk shipments for cargo exams; 
* Identify accounts at high risk for importing IPR infringing products; 
IPR risk model is a Strategy Targeting Organized Piracy (STOP) 
deliverable; 
Measure: Evaluate targeting efficiency of risk model using cargo 
selectively criteria efficiency as a baseline; 
Evaluate effectiveness of model in identifying high risk accounts based 
on lack of internal controls to prevent imports of IPR infringing goods 
and/or proving IPR violations; 
Target: 15% increase in targeting efficiency; Conduct post-entry 
verifications to assess effectiveness. 

Objective: 2. Manage targeting in order to minimize impact on front 
line resources, facilitate legitimate trade and increase effectiveness 
of cargo exams relative to IPR PTI goals: 
a) Reduce/eliminate inefficient cargo exam; 
b) Conduct targeting based on IPR Priority Trade Issue (PTI) goals; 
Measure: Evaluate targeting efficiency by comparing the total number of 
discrepancies to the total number of exams; Evaluate effectiveness 
based on the number and value of IPR seizures that meet IPR PTI goals; 
Evaluate facilitation by reduction in unproductive criteria hits; 
Target: 15% increase in targeting efficiency; 15% increase in number 
and value of seizures meeting PTI goals; 10% reduction in unproductive 
criteria hits. 

Objective: 3. Conduct post-entry verifications ("IPR audits") to 
enforce IPR and prevent future violations. Post-entry verification is a 
STOP deliverable; 
Measure: Evaluate effectiveness of post-entry verification based on 
finding of lack of internal controls to prevent future imports of IPR 
infringing goods and/or finding of additional IPR violations; 
Target: Conduct 20 post-entry verifications. 

Objective: 1. Collaborate with ICE, other agencies and foreign 
governments to enhance international protection and enforcement of IPR; 
International cooperation is a STOP component; 
Measure: US Joint Commission on Commerce and Trade (JCCT) Pilot paper 
being drafted. Evaluate the effectiveness based on the results of the 
information provided; 
Target: Establish a benchmark to utilize as a baseline to measure 
success. 

Objective: 5. Communicate IPR risks and strategy to increase employee 
knowledge/skill levels in such areas as: 
* IPR strategy objectives and initiatives; 
* Legal authorities and procedures; 
Measure: Number of employees that received training (sort by job 
category and specify area of training); 
Target: Provide IPR enforcement training to 100% of ICE and CBP 
employees attending the Advanced Fraud Course (Glynco); Train 100% of 
ICE and CBP Attache personnel newly assigned to foreign ports; Train 
all major ports and additional ports as necessary and requested on 
legal authorities and procedures. 

Objective: 6. Conduct industry outreach to familiarize IPR holders on 
how to work with CBP/ICE to protect IPR at the border; Industry 
outreach is a STOP component; 
Measure: Evaluation by participants; 
Target: 90% approval rating. 

Objective: 7. Deter IPR violations through the issuance of fines and 
penalties; 
Measure: Issuance of fines in accordance with newly established 
guidelines; 
Target: Establish baseline. 

[End of table] 

The report makes three recommendations to the Commissioner of CBP. The 
agency concurs in part with recommendation one, concurs with 
recommendation two, and concurs in part with recommendation three of 
the draft report. The following discusses the report's recommendations 
and CBP's response. 

Recommendation 1: Clarify agency-wide goals related to IP enforcement 
activity by developing measures to guide and assess IP enforcement 
outcomes and including them in CBP's strategic plan. 

Response: Concur in part. The Office of International Trade (OT) will 
review CBP's Intellectual Property (IP) enforcement measures and 
consider creating the appropriate strategic measure(s) to be inserted 
into the strategic plan. 

Recommendation 2: Improve data on IP enforcement activity by: 

a) Determining the completeness and reliability of existing IP 
enforcement data and identifying aspects of the data that need to be 
improved; 

b) Ensuring uniformity in port practices to overcome any weaknesses in 
data reporting: 

Response: Concur. OT will issue guidance to the ports regarding policy/ 
procedures for the input of seizure and exam findings data and 
coordinate with the Office of Field Operations to provide ports with 
periodic progress reports on their compliance with the data quality 
guidelines. 

Recommendation 3: Use existing data to understand and improve IP border 
enforcement activity by: 

a) Analyzing IP enforcement outcomes across ports and other useful 
categories, such as modes of transportation; 

b) Reporting the results of this analysis internally to provide 
performance feedback to the ports, better link port performance-to- 
performance measures in CBP's Strategic Plan, and inform resource 
allocation decisions. 

Response: Concur in part. CBP agrees that strong data analysis and 
targeting are critical to the success of the IPR enforcement strategy 
and that the link between port performance and CBP IPR Trade Strategy 
measures needs to be more clearly defined. Although the performance 
metrics proposed by GAO are inadequate to meet this end, CBP will work 
to improve measures linking tactical activities (exams, audits, 
training, penalties, etc.) to CBP IPR Trade Strategy objectives. 

Thank you again for the opportunity to comment on this draft report and 
we look forward to working with you on future homeland security issues. 

Sincerely, 

Signed by: 

Steven J. Pecinovsky: 
Director: 
Departmental GAO/OIG Liaison Office: 

The following are GAO's comments on the Department of Homeland 
Security's letter dated March 6, 2007, which commented on GAO's law 
enforcement sensitive report. 

GAO Comments: 

1. We disagree that OT's formation has, in itself, addressed the lack 
of integration that we identify in the report regarding IP enforcement. 
Although OT consolidates its legacy offices' trade policy and program 
development functions--specifically, the Office of Strategic Trade, the 
Office of Regulations and Rulings, and a headquarters component of the 
Office of Field Operations, front-line implementation of policies and 
programs continue to be carried out at the ports under the leadership 
of OFO. Because there is still separation between the office that sets 
policy and the office that implements policy, there is no evidence that 
the creation of OT will address the lack of integration that initiated 
congressional action and that we identified in our review. OT and OFO 
will need to work closely together to overcome the lack of integration 
between policy development and implementation that we refer to in the 
report. Regarding CBP's comment that we inaccurately refer to OT 
throughout the report, we modified the report to clarify references to 
OT and its legacy offices. 

2. CBP mischaracterizes the purpose and usefulness of our analysis of 
IP imports and enforcement activity at its ports. Seizing IP infringing 
goods is a core IP enforcement activity for which CBP is responsible, 
but CBP has not conducted systematic analysis of its own data to 
examine variations in enforcement outcomes over time or among ports. 
This simple analysis can be a powerful tool to generate discussion 
among IP policymakers and port management and staff about IP seizure 
patterns, risks, and outcomes and to improve CBP's approach to IP 
enforcement. We do not suggest using it to target imports. We clearly 
state that our analysis is only illustrative of the types of analysis 
that CBP could undertake and that CBP should refine and develop its own 
approach. We support CBP's decision to follow our recommendation to 
conduct such analysis. 

3. Our measure of IP imports is broader than CBP suggests, but it is 
not intended as a measure of risk. CBP does not currently have such a 
measure, and we believe our measure, which we reviewed with CBP, is 
useful. Our measure is intended to identify the overall relative volume 
of potential IP traffic that ports process, which is lower than total 
import volume. Doing so enables us to examine IP seizure activity 
relative to a meaningful measure of port volume. Our measure is based 
not only on tariff classifications where CBP actually found IP 
violations but also their related products groups. These 
classifications may include both IP and non-IP goods that are not 
separated out in the tariff schedule. Doing so is appropriate because 
CBP cannot easily distinguish, based on the tariff information, whether 
goods involve IP protection, have been purposely misclassified, or are 
being used to smuggle infringing products. The draft report explained 
our selection process and methodology, but we added clarity to further 
explain our measure and how we developed it. We also state that this 
analysis is one logical way to examine port performance and do not 
suggest, as CBP states in its response to our third recommendation, 
that the seizures-to-imports ratio is, in itself, a complete 
performance measure. 

4. We also agree that CBP should consider the range of factors that 
affect IP goods in conducting its analysis. We clearly stated in the 
report that our analysis was only one way to examine port performance. 
Our analysis was not intended to be used for risk analysis or 
targeting, but only to provide a measure of seizure activity relative 
to port size, and we did not assume a direct correlation between the 
volume of IP imports and risk. 

5. We agree that CBP's import data does not fully capture IP import 
values at express consignment and mail facilities, but even with this 
likely underreporting of such imports, several ports at which such 
facilities are dominant ranked among the top IP importing ports. As we 
state in the report, we agree that CBP should take differences across 
port environments into account in developing its own analysis. 

6. We focused on "transaction-level seizures and penalties" because 
these are the core IP enforcement activities for which CBP is 
responsible, and we found that CBP had not systematically analyzed its 
own performance of these core activities. We also address additional 
elements of CBP's approach to improve IP enforcement that fell within 
the scope of our audit, including its IP audits. However, we found that 
these efforts have had a limited impact on overall IP enforcement, 
while perhaps drawing attention away from improvements to its core 
activities. For example, CBP acknowledges that its audits, completed 
thus far on 41 companies during a 2-year period, are most effective 
for improving IP enforcement among legitimate importers, but these 
importers likely do not account for the bulk of IP infringing goods 
that enter the United States. 

7. CBP mischaracterizes our analysis by asserting that our report 
states across-the-board that CBP lacks performance measures for IP 
enforcement. Our draft report stated that the agency's strategic plan 
lacks specific measures for IP enforcement, but noted that CBP does 
indeed measure and report internally on the number of IP seizure 
actions and estimated seizure value. The draft report also discussed 
certain actions that CBP has taken under its "Intellectual Property 
Rights Trade Strategy," an internal planning document that is the same 
as what CBP calls the "National IPR Trade Strategy" in its letter. 
However, we disagree with CBP's assertion that this document serves as 
an agencywide guide for CBP's IP enforcement efforts. In our 
discussions with CBP about this document, CBP officials said the 
document was written for internal planning purposes. We found that the 
distribution of this document has been limited. For example, CBP 
documents show that revisions to the IP Rights Trade Strategy have not 
been distributed to the field since 2003. Moreover, certain CBP 
officials told us that the ports are generally not familiar with this 
document. Finally, given the document's classification as "For Official 
Use Only," it is not distributed to Congress or the public, unlike the 
agency's strategic plan, which limits its usefulness for holding CBP 
accountable for its performance on IP enforcement. We added information 
in our report to clarify the importance of agencywide strategic plans 
and performance measures in communicating priorities on an agencywide 
basis and establishing accountability. We added information that the IP 
Rights Trade Strategy contains other indicators related to IP 
enforcement. We also modified our recommendation to clarify that we 
recommend that CBP include IP enforcement-related measures in its 
strategic plan. Given the Office of Management and Budget's role in the 
strategic planning process, we also clarified that CBP should work with 
the Office of Management and Budget to include IP-enforcement related 
measures in its strategic plan. 

8. See comment 7. 

9. See comments 2 and 3. 

[End of section] 

Appendix IV: GAO Contact and Staff Acknowledgments: 

GAO Contact: 

Loren Yager, (202) 512-4128, or yagerl@gao.gov: 

Staff Acknowledgments: 

In addition to the individual named above, Christine Broderick, 
Assistant Director; Shirley Brothwell; Carmen Donohue; Adrienne Spahr; 
and Timothy Wedding made significant contributions to this report. 
Virginia Chanley, Jerome Sandau, Ernie Jackson, Karen Deans, Etana 
Finkler, and Jena Sinkfield also provided assistance. 

FOOTNOTES 

[1] Counterfeit goods carry a false trademark identical to, or 
substantially indistinguishable from, a U.S. registered trademark (See 
Timothy P. Trainer and Vicki E. Allums, Protecting Intellectual 
Property Across Borders, 2006 ed. (Eagan, MN: Thomson/West, 2006).) 
Pirated goods are reproduced without authorization, especially in 
infringement or copyright. 

[2] GAO, Intellectual Property: U.S. Efforts Have Contributed to 
Strengthened Laws Overseas, but Challenges Remain, GAO-04-912 
(Washington, D.C.: Sept. 8, 2004). 

[3] Officials from the Departments of Commerce, the U.S. Trade 
Representative, and Homeland Security have all recently reported on the 
growing threats to the United States from increases in counterfeit 
goods. 

[4] Given its role in overseeing the import and export of physical 
goods, CBP's efforts are primarily directed toward counterfeit goods 
manufactured overseas and, occasionally, the means to create or finish 
them in the United States. Computer-or Internet-based piracy of 
copyrighted media, such as music, movies, or software, is also a 
significant problem, but because these activities usually have no link 
to the border, CBP is not as involved in fighting this form of IP 
infringement. Our use of the term "counterfeit" in this report refers 
broadly to violations that may involve a range of IP infringement. 

[5] GAO, Intellectual Property: Better Data Analysis and Integration 
Could Help U.S. Customs and Border Protection Improve Border 
Enforcement Efforts, GAO-07-350SU (Washington, D.C.: Mar. 20, 2007). 

[6] We ranked ports according to their aggregate number of seizure 
actions, estimated seizure values, IP penalty cases opened, and IP 
penalty amounts assessed during fiscal years 2001 through 2006. The top 
10 ports for each category differ, but there is considerable overlap 
among the ports so ranked in each category. 

[7] A copyright provides protection for literary and artistic works 
such as books, musical compositions, computer software, and 
cinematographic works (movies). A copyright is a property right in an 
original work of authorship that arises automatically upon creation of 
such a work and belongs, in the first instance, to the author. A patent 
protects an invention by giving the inventor the right to exclude 
others from making, using, or selling a new, useful, nonobvious 
invention during a specific term. Trademarks are words, phrases, logos, 
or other graphic symbols used by manufacturers or merchants to identify 
their goods and distinguish them from others. Other types of 
intellectual property include trade secrets, industrial designs, and 
geographic indications. Geographic indications are names used to 
identify products with quality, reputation, or other characteristics 
attributable to the origin of the product. 

[8] Statement by Chris Israel, U.S. Intellectual Property Rights 
Coordinator, before the Senate Committee on Homeland Security and 
Governmental Affairs Subcommittee on Oversight of Federal Management, 
the Federal Workforce, and the District of Columbia on July 26, 2006. 

[9] The World Health Organization estimates that 10 percent of all 
pharmaceuticals worldwide are counterfeit. 

[10] Under the Homeland Security Act of 2002, border inspection 
functions of a number of agencies, including the Immigration and 
Naturalization Service, the U.S. Customs Service, and the Department of 
Agriculture were transferred to DHS. P.L. 107-296, Title IV. CBP is 
responsible for carrying out these functions by assessing and 
collecting customs duties, excise taxes, and fees and penalties due on 
imported merchandise; interdicting and seizing contraband; processing 
persons, baggage, cargo, and mail; detecting and apprehending persons 
engaged in fraudulent practices designed to circumvent Customs and 
related laws; protecting American business and labor and IP rights; 
and, protecting the general welfare and security of the United States 
by enforcing import and export restrictions and prohibitions. 

[11] The Office of International Trade was formed by merging CBP's 
Office of Strategic Trade, Office of Regulations and Rulings, and 
certain trade-related policy functions of the Office of Field 
Operations. 

[12] U.S. Customs and Border Protection, Securing America's Borders at 
Ports of Entry, Office of Field Operations, Strategic Plan Fiscal Years 
2007 through 2011. 

[13] Because of the in-bond system, a significant portion of goods 
received at U.S. ports do not immediately enter U.S. commerce but are 
instead transferred to other ports for official entry or are 
transported through the United States to Mexico or Canada. For example, 
containers arriving at the port of Los Angeles might be transferred via 
truck to the port of Cleveland for official entry. In a recent report, 
GAO found that weaknesses in CBP's management of the in-bond system 
persist and that CBP does not adequately monitor and track in-bond 
shipments (see International Trade: Persistent Weaknesses in the In- 
Bond Cargo System Impede Customs and Border Protection's Ability to 
Address Revenue, Trade, and Security Concerns, GAO-07-561 (Washington, 
D.C.: Apr. 17, 2007). 

[14] A manifest is a listing of the conveyance's cargo, e.g., goods 
within an ocean-going container. 

[15] A formal entry is required for imports greater than $2,500 in 
value, and refers to information (usually in electronic format, but 
sometimes in paper format) that is filed by the importer or broker. 
Entry data includes the manufacturer's identification number, the 
importer's identification number, country of origin of the goods, and a 
more precise description of merchandise and is used by CBP to, among 
other things, assess customs duties and determine when cargo will be 
cleared to leave a port. 

[16] Performance and Accountability Report, Fiscal Year 2005, U.S. 
Customs and Border Protection. 

[17] Import Trade Trends, Fiscal Year 2005 Year End Report, U.S. 
Customs and Border Protection. 

[18] CBP is authorized by law (19 U.S.C. 1499(c)(1)) to examine all 
merchandise entering the territory of the United States. 

[19] The Compliance Measurement Program is a statistical sampling 
program that randomly selects shipments for review and examination to 
determine the degree to which they comply with relevant laws and 
regulations. The program initially focused on trade compliance and 
revenue issues. In fiscal year 2006, CBP expanded the program to also 
focus on supply chain security. 

[20] The number and focus of Priority Trade Issues has changed over 
time. As of fiscal year 2006, the Priority Trade Issues included 
agriculture, antidumping and countervailing duties, IP rights, 
penalties, revenue, and textiles and wearing apparel. 

[21] Section 337 of the Trade Act of 1930, as amended (Title 19 U.S.C. 
1337), makes it is unlawful to import into the United States articles 
that infringe a U.S. patent, trademark, copyright or mask work. 

[22] CBP, "U.S. Customs and Border Protection Intercepts "Cool" 
Counterfeit Shoes Worth Over One Million Dollars," press release, 
Washington, D.C., August 3, 2006. 

[23] Cargo Selectivity has been long used to help CBP and legacy 
Customs to determine whether and how "intensively"--ranging from 
document review to physical examination--it should examine certain 
shipments for various types of violations. In addition to IP 
violations, CBP uses Cargo Selectivity to target other types of trade 
issues, such as tariff classification, quota issues related to 
textiles, and revenue matters. 

[24] CBP has five Strategic Trade Centers located around the country, 
each aligned with one of the agency's Priority Trade Issues. The 
Strategic Trade Center in Los Angeles is responsible for addressing IP 
enforcement and penalties. 

[25] ATS is a complex model that calculates a risk score for each cargo 
shipment arriving in the United States. The system is primarily used 
for security targeting, but CBP is considering ways to expand its use 
to include targeting for nonsecurity matters as well. 

[26] CBP receives a large portion of manifest and entry data in 
electronic format. According to CBP officials, CBP's data systems may 
require entry packets to be generated from electronically filed data, 
but many shipments are released without this requirement. 

[27] According to some CBP officials, the lack of sophistication makes 
it particularly difficult for the agency to enforce certain exclusion 
orders. CBP uses national Cargo Selectivity criteria to specify which 
manufacturers or products are subject to exclusion orders, but when the 
orders are more general in nature and identify products to be excluded 
based on certain production processes, it is very difficult to write 
criteria to correctly target offending goods without creating a large 
number of false positives and an unmanageable workload for the ports. 

[28] Of about 287,000 Compliance Measurement exams conducted during 
fiscal years 2000, 2001, 2003, 2004 and 2005, IP violations were 
uncovered in an average of about 0.06 percent of them. The program was 
temporarily suspended in fiscal year 2002. Reviewing the structure and 
implementation of the Compliance Measurement program was outside the 
scope of this audit. 

[29] CBP officials at certain ports said that sometimes targeted 
shipments do not arrive as intended for examination because of human 
error or fraud. Problems associated with the physical control over 
containers have been identified in the past. (See DHS Inspector 
General, Audit of Targeting Oceangoing Cargo Containers (Unclassified 
Summary), OIG-05-26 (Washington, D.C., July 2005). In this audit, we 
did not review CBP's internal controls for ensuring that targeted IP 
shipments were examined as intended. 

[30] 19 U.S.C. 1499 (c) (1). 

[31] Import Specialists may use input from other experts in CBP, 
including attorneys, commodity specialists, and laboratory technicians, 
as well as rights holders or the U.S. agencies with which the rights 
are registered. 

[32] 19 U.S.C. 1499 (c) (2). 

[33] 19 Code of Federal Regulations, Part 133, Subparts A, B, and D. 

[34] Customs Directive 2310-010A, December 11, 2000. 

[35] For example, CBP advises staff to determine whether, in the case 
of suspected trademark violations, the goods are counterfeit, 
"confusingly similar," or "gray market." According to CBP, confusingly 
similar marks are those that, while not identical to, or substantially 
indistinguishable from, genuine marks, are nonetheless similar enough 
to the genuine mark so as to constitute an infringement. Gray market 
goods are genuine trademarked goods that were manufactured and intended 
for sale in another country but were imported to the United States 
without the authorization of the trademark holder. Customs Directive 
2310-010A states that, where the subject trademarks are recorded with 
CBP, the agency has authority to seize violative goods based on either 
of those trademark violations. With regard to marks not recorded with 
CBP, while the agency may seize goods bearing counterfeit versions of 
trademarks registered on the Principal Register of the U.S. Patent and 
Trademark Office but not recorded with CBP, the agency refrains from 
seizing goods bearing nonrecorded confusingly similar marks for policy 
reasons and lacks statutory authority to seize restricted gray market 
goods bearing nonrecorded trademarks. 

[36] CBP is granted the authority to seize goods under various 
statutes, however 19 U.S.C.  1526(e) is the statute under which CBP 
commonly seizes counterfeit goods due to trademark violations. CBP has 
the authority under 19 U.S.C.  1526(f) to assess monetary penalties 
for these violations. 

[37] Domestic value is calculated as the landed cost plus profit (the 
cost of the merchandise when last purchased, plus all duties, fees, 
broker's charges, profit, unlading charges, and U.S. freight charges to 
bring the good to the importer's premises), a value generally lower 
than the price at which the goods might sell to the final consumer. 

[38] Between fiscal years 2001 and 2006, CBP spent about $2.5 million 
to destroy apparel; about $662,000 to destroy electronics; about 
$500,000 to destroy DVDs; about $382,000 to destroy shoes; and about 
$352,000 to destroy batteries. 

[39] Data on the mode of transport or processing environment in which 
seizures were made were only available for fiscal years 2003 through 
2006. CBP's data reflect a number of modes and processing environments, 
some of which we have grouped together. For example, data we report for 
the air transportation environment include seizures made in air cargo, 
express consignment, international mail, and private aircraft 
processing environments. Data we report on the ocean-going cargo 
container environment include seizures made from what CBP refers to as 
"commercial vessels" and "private vessels." According to CBP, 
commercial vessels are predominantly carried by ocean-going cargo 
containers and processed in the seaport environment, but may also be 
transported via truck or rail to interior ports of entry using the in- 
bond system. 

[40] Seizures made in air transportation processing environments were 
the predominant source of seizure actions in each of fiscal years 2003 
through 2006, although their percent ranged from a high of about 85 
percent to a low of about 68 percent. 

[41] Seizures made from ocean-going cargo containers were the 
predominant source of seizure value in each of fiscal years 2003 
through 2006, although the percent ranged from a high of about 70 
percent to a low of about 53 percent. 

[42] It is important to note that total estimated seizure value, the 
value calculated by CBP, in any given year is a function of the type of 
goods seized, which varies from year to year. 

[43] This ratio compares the total estimated domestic value of IP 
seizures with the total declared value of IP imports. We defined IP 
imports as products that involve or may involve IP protection and goods 
that are similar to them. To do so, we reviewed the broad product 
groups that CBP uses to categorize seizure actions and identified all 
products that are covered by these groups in the U.S. harmonized tariff 
schedule. These products include such items as shoes, wearing apparel, 
handbags and luggage, computer hardware, and consumer electronics. The 
subset excludes products such as agriculture and other raw goods. A 
complete description of our methodology can be found in appendix I. 

[44] We recently reported that weaknesses persist in CBP's management 
of the in-bond system, impeding CBP's ability to ensure proper 
collection of trade revenue and management of trade risks. In 
particular, CBP does not adequately monitor and track in-bond shipments 
and does not consistently perform in-bond compliance reviews to help 
identify program weaknesses. See International Trade: Persistent 
Weaknesses in the In-Bond Cargo System Impede Customs and Border 
Protection's Ability to Address Revenue, Trade, and Security Concerns, 
GAO-07-561 (Washington, D.C.: Apr. 17, 2007). 

[45] To determine categories of goods, CBP may not group commodities 
according to Harmonized Tariff System (HTS) numbers because not all 
seizure records contain HTS numbers. CBP officials said that the field 
for which the HTS number is to be entered can accept both numbers and 
text, and that seizing officers sometimes enter incorrect data. 
Therefore, the Los Angeles Strategic Trade Center developed its own 
method for grouping seizures into product groups. 

[46] Protecting America: U.S. Customs and Border Protection 2005-2010 
Strategic Plan. 

[47] Due to the status of IP enforcement as a Priority Trade Issue, CBP 
developed this internal planning document to articulate its approach 
for addressing this issue. 

[48] In 2005, staff at the Los Angeles Strategic Trade Center chose 
nine importers that were known IP violators, the statistical risk model 
was used to select nine importers, and three were chosen both by the 
risk model and because they were known violators. Since then, 
candidates chosen were either known violators or suspects; selection 
was not linked to the risk model. 

[49] When a collection action goes to court, the Department of 
Justice's U.S. Attorney Offices are responsible for prosecuting the 
government's case. However, according to several CBP officials, U.S. 
Attorney Offices generally do not agree to pursue penalty cases because 
of their own resource limitations or because they view CBP's penalty 
amounts as excessive. 

[50] These 25 ports account for 77 percent of the value of all IP 
imports into over 300 ports of entry into the United States, as well as 
71 percent of the value of IP seizures in fiscal year 2005. 

[51] CBP is required under section 403 the Security and Accountability 
for Every Port Act of 2006 (SAFE Port Act), P.L. 109-347, to develop a 
Resource Allocation Model for determining optimum staffing levels 
required to carry out CBP commercial operations, including IP 
enforcement. The legislation requires CBP to submit the model to the 
Senate Finance Committee and House Ways and Means Committee no later 
than June 30, 2007, and every 2 years thereafter. In addition, the 
conference report (H. Rept. No. 109-699) accompanying DHS' fiscal year 
appropriations legislation (P.L. 109-295) directed CBP to submit, by 
January 23, 2007, a resource allocation model for current and future 
years' staffing requirements that specifically assesses optimal 
staffing levels at all land, air, and sea ports of entry and provides a 
complete explanation of CBP's methodology for aligning staffing levels 
to threats, vulnerabilities, and workload across all mission areas. CBP 
has completed one component of the model for air passenger processing 
and expected to complete others by March 31, 2007. 

[52] 
http://www.cbp.gov/xp/cgov/import/commercial_enforcement/ipr/seizure. 

[53] GAO, Intellectual Property: U.S. Efforts Have Contributed to 
Strengthened Laws Overseas, but Challenges Remain, GAO-04-912 
(Washington, D.C.: Sept. 8, 2004). 

[54] GAO, Intellectual Property: Better Data Analysis and Integration 
Could Help U.S. Customs and Border Protection Improve Border 
Enforcement Efforts, GAO-07-350SU (Washington, D.C.: Mar. 20, 2007). 

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