How to Deal with the Counterfeit Goods Problem

Shipping containers at the Port of Los Angeles in Los Angeles, Calif., January 30, 2019. (Mike Blake/Reuters)Let’s start by enforcing the law.

President Donald Trump’s incompetently executed trade war is set to cost U.S. companies something like $316 billion through the end of 2020, a conservative estimate, and the indications from the tentatively emerging trade armistice with Beijing is that it has accomplished donkey squat on the biggest beef U.S. firms have with China: the theft of intellectual property, particularly in the form of counterfeit goods.

The effort to control counterfeit goods is a lot like the effort to control the use of firearms in violent crime: Government is willing to try almost anything short of doing its job.

The gun-control case and the counterfeit-goods case contain important parallels. A significant one is the government’s attempt to outsource hard law-enforcement work to businesses. That’s a textbook example of the paradoxical fact that it is far easier to enforce the law on people and institutions already inclined to obey it, e.g. federally licensed firearms dealers and the (by definition) law-abiding types who do business with them. Chasing illegal gun dealers working out of the trunks of their cars through the streets of Chicago is exhausting work, whereas leaning on a multi-billion-dollar sporting-goods company with a fixed address, regular hours, and business records is a piece of cake.

In April, President Trump signed a memo — he signed a memo! — expressing the president’s presidential displeasure with the fact that counterfeit goods are sometimes sold on Amazon and Alibaba and directing those companies to do . . . something . . . about it. Amazon already takes proactive if imperfect measures against counterfeit goods at a cost it estimates around a half-billion dollars a year. That is why you do not see a lot of items such as fake Rolexes on Amazon. (Fake here meaning counterfeit, not cheesy knockoffs that borrow the design cues of the real thing but not its brand name.) The memo also directs the Department of Homeland Security, the Commerce Department, and the Justice Department to come up with recommendations for reducing the sale of counterfeit goods. Donald Trump has been bitching about trade since I was in elementary school — you’d think he’d have one or two ideas of his own by now.

I have a recommendation: Enforce the law. Get off your asses and do your jobs.

The United States has robust anti-counterfeiting laws, which would be even more robust with the implementation of Counterfeit Goods Seizure Act of 2019, a bipartisan bill (from Senators Bill Cassidy of Louisiana, Thom Tillis of North Carolina, Chris Coons of Delaware, and Mazie Hirono of Hawaii) that enjoys the support of the International Trademark Association. The U.S. government already has the power to seize certain counterfeit goods; the bill would expand the category of goods eligible for seizure to include those that infringe “design patents,” which is to say, counterfeits that replicate the real thing in everything but name.

That’s a good idea, but it won’t work unless the U.S. government gets serious about doing its job when it comes to law enforcement. As it stands, only about 3 percent of the shipping containers entering U.S. ports are inspected. The U.S. government manages to seize only about $1.4 billion a year in counterfeit goods, almost all of that being goods sent through the mail, mostly fake watches and handbags. All the statutory power in the world will not do any good unless Uncle Stupid puts in the grunt work: inspecting, investigating, indicting, seizing goods and financial assets, making it impossible for offenders to access shipping and banking services, etc. There is not a lot that we can directly do about what happens inside China and other countries, but somebody in the United States is receiving U.S.-bound counterfeit goods, and we could prosecute the heck out of them — if somebody were willing to put in the work.

It’s a funny old world: Federal agents will birth bovines if you try to bring a Diet Coke through airport security, but the vast majority — nearly the entirety — of the shipping containers entering U.S. ports do not get so much as a peek. We could hire a lot of port inspectors with what we’ve just pissed away on the trade war.

Lawyers, too. Some people bitch and moan about their intellectual property, but the big boys do something about it. The Scotch Whisky Association, for example, is a tireless defender of the intellectual property of its defenders; it has just sued a U.S. distillery over using the word “highlands” in its marketing material, which, the whisky police insist, falsely suggests an association with Scotland and its famous potables. More significant, the Scotch Whisky Association also has been successful in defending its members intellectual property in China, working through Chinese institutions. But that kind of work is not easy or cheap — it requires investigators, litigators, lobbyists, and that most precious of all commodities: time. A few other trade associations have had similar success, the Swiss watchmakers among them.

Businesses will have to help themselves to some extent. (And they do.) But protecting our rights is the reason we institute governments to begin with. It is the reason we have those great big heaving public payrolls. (In almost every federal agency, personnel is far and away the largest expenditure.) But even with all that money and manpower, it can be difficult to get the U.S. government to focus on its job. There are reasons for that — laziness, bureaucratic inertia, the dread of substantial accountability, etc.

Rather than take meaningful discrete steps with definable goals on the matter of counterfeiting, the Trump administration (like its predecessors) has chosen to lump counterfeit goods in with a slop-bucket of other trade complaints ranging from the substantive to the farcical. Properly understood, counterfeit goods aren’t even really a trade question at all: There are counterfeits produced right here in the United States, too.

Diplomatic efforts have been incompetent under the past three administrations: The proposed Anti-Counterfeiting Trade Agreement failed for reasons that should be familiar to those who have followed other multilateral trade negotiations, and attempts to revive an international accord on counterfeiting through the Transatlantic Trade and Investment Partnership were torpedoed by the Trump administration. No such accord will be effective unless China is a party to it and agrees to some reasonable enforcement protocols.

Sounds like a job for a great negotiator, some peerless practitioner of the art of the deal.

If one of those comes along, he’ll have his work cut out for him.

In the mean time, we should understand that fighting counterfeiting with tariffs and other taxes is dancing about architecture. There are a lot of guns being put into the hands of felons because our police and prosecutors refuse to do the work of enforcing the law on straw-buyers, and deputizing some $8-an-hour clerk at a sporting-goods shop is no substitute for police work. Throwing memos at Amazon isn’t going to get it done when it comes to counterfeit goods, either.

We know what needs to be done. Do it.

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