Another Broker Agrees to POA Validation Requirements in Trademark Settlement With Nike

Another customs broker recently agreed to additional requirements for validation of powers of attorney as part of a settlement of a trademark lawsuit with Nike. Like the recent settlement between Nike and Alto Customhouse Brokers (see 1702140037), a settlement reached in December in Los Angeles federal court between Nike and KAL America requires the customs brokerage to validate all new powers of attorney it receives from importers by means of notarization, phone calls and checking government-issued IDs. The settlement ends one of the few remaining of a series of trademark cases brought by Nike against customs brokers. Nike has over time moved away from the practice, according to customs lawyers familiar with the issue.

According to a search on the federal courts’ Pacer filing database, the KAL America case is an outlier in that it wasn’t filed until 2015. Out of 36 trademark lawsuits listed as filed by Nike since the beginning of 2010, a total of 13 targeted customs brokers. Nearly all have resulted in settlements that required additional validation of powers of attorney. But most of the lawsuits against brokers were filed in 2010 and 2011. Coach, the leather goods maker, has also pursued trademark cases against customs brokers (see 13042619).

Intellectual property rights holders may have realized the lawsuits against customs brokers are not an effective means of combating the issue of counterfeits, customs lawyers said. “Invariably, the brokers have been victims of some form of identity theft. IP holders tend only to sue very small brokers (and never large brokers or carriers who they might use themselves), and the defendants have little money to defend themselves or pay judgments,” said John Peterson of Neville Peterson, who represented KAL America but declined to comment specifically on the case. “If the goal was to stop counterfeiting, these cases have not been very effective. If the goal was to collect damages, again, not effective. Most settlements I've seen won't even cover the IP owner's cost of bringing suit. That probably explains the decline in the tactic,” he said.

Going after an intermediary that never sees the cargo is not the appropriate way to handle the counterfeiting problem, said Su Kohn Ross of Mitchell Silberberg. Nike may have realized “that this is not going to accomplish what they want,” she said. And the POA validation requirements included in the settlements are “totally unworkable,” she said. The injunctions that form part of the settlements require that the customs broker check the government-issued identification of the employee of the importer that signs the POA. “If I’m a broker in Los Angeles, and my importer is in New York, tell me how I actually know that the government ID that I’m receiving belongs to the person who is supposedly signing the POA?” she asked.

Having another broker based near the importer check the employee’s ID and attest to its validity is not an option, Kohn Ross said. “You are now telling me I need to say to my importer, who already is going to beat me up on fees, ‘now you need to get in front of another customs broker,’” she said. “You tell me how that’s going to work. Nobody’s going to do it. There’s a cost associated with it nobody’s going to incur.”

Nike has also gone after some more established brokers and, once satisfied they have due diligence procedures in place, Nike left them alone, Kohn Ross said. But the problem is not the “serious well-established, long in-business” brokers. What the injunctions really accomplish is pushing illegitimate importers to brokers that don’t have resources and are in a position to be taken advantage of, she said. “They haven’t had any impact at all on the quantity of counterfeit goods.” Nike did not comment.

The underlying problem is the lack of any “decent protections against identity theft” in the Automated Broker Interface, Peterson said. “CBP does not have an importer directory, nor do they require the filing of POAs. On any given day, someone with access to ABI or ACE can say they're representing anyone, importing anything, and CBP has no way to know whether that's true,” he said. That’s in contrast with Mexico, which doesn’t let anyone import until they’ve been accepted into a central directory. In Mexico, “if an entry is filed for Company X by a broker that's not in the system, the entry will not be accepted,” Peterson said. But here, “identity theft is super-easy. If you steal a company's EIN or importer number, the ABI/ACE system will give you the company's bond information and accept the entry. Companies large and small have been victimized,” Peterson said.

The Trade Facilitation and Trade Enforcement Act of 2015 authorizes CBP to establish an importer directory and impose “know your importer” regulations on brokers,” Peterson said (see 1602170074). “It will be interesting to see when and how these things develop,” he said. But otherwise, “it's a bit surprising that CBP has done nothing to come to the defense of their licensed brokers on issues like this,” Peterson said. “Brokers have to work within the constraints CBP places on them.” CBP did not immediately comment.

Meanwhile, brokers have been developing their own due diligence programs, including the Broker Known Importer Program developed by the National Customs Brokers & Forwarders Association of America (see 1504220071). CBP has allowed brokers use an ACE flag for entries from importers that have been vetted according to BKIP guidelines (see 1505140011), though some controversy still exists over the lack of a clear definition of what it means to be "known," Kohn Ross said. The concept of a broker asking the right questions, understanding the transaction involved and the importer’s business, and exercising what the law calls responsible supervision is something that brokers, whether associated with the program or not, have been doing for years, she said. It’s good to see CBP acknowledging that contribution, Kohn Ross said.

One takeaway from the trademark suits against customs brokers is the caution that brokers must exercise when taking on clients referred by freight forwarders, Kohn Ross said. There’s nothing wrong with the practice, which happens in “a lot of different contexts,” she said. But brokers need to be able to make the forwarder understand that the forwarder will not act as the intermediary, and that the broker needs to have contact with the importer directly. “I need make sure that what I’m saying on behalf of the importer -- the entry that I’m preparing or responding to questions from customs -- that the information is accurate,” she said. Sometimes, for business or other reasons the broker is not willing or able to stand up to the forwarder when the forwarder says no, Kohn Ross said. “If you’re dealing with a forwarder that says no, the next words out of your mouth should be, ‘thank you very much we can’t do business together.’”