The Federal Trade Commission (FTC) is soliciting comments on its 1997 Enforcement Policy Statement on U.S. Origin Claims and its ongoing enforcement of that policy. On September 26, 2019, the FTC held a workshop with key stakeholders to discuss how consumers perceive “Made in USA” claims, how advertisers and marketers comply with the standard, and whether the FTC’s current enforcement strategy is effective.

At the outset of the Workshop, the FTC raised the possibility of engaging in formal rulemaking, noting that 15 USC §45a gives it limited authority to promulgate rules for “Made in USA” claims that is less cumbersome than the typical rulemaking procedure, including the appropriate percentage of important components that would still be consistent with such a claim. However, the FTC’s primary focus throughout the workshop was to understand how consumers perceive Made in USA claims—both what it means for a product to be “Made in USA” and what messages a “Made in USA” claim communicates to consumers. The FTC was particularly interested in understanding whether consumers’ perceptions regarding the accuracy of a “Made in USA” claim might differ depending on the unavailability of materials in the United States, the specific product at issue, the sales platform, the identity of the competitors, and whether the competitors are using more or less foreign content or are bringing or removing jobs from the United States. In addition the FTC was interested in learning why stakeholders were generally reluctant to use qualifications (e.g. “Made in USA with fabric imported from Mexico.”)

The Current “Made in USA” Policy: How Well Does it Work?

Under the current FTC policy, to make an unqualified Made in USA claim, the product must be “all or virtually all” made in the United States. This includes both labor and raw materials. In enforcing this policy, the FTC has not articulated any particular percentage of content that is sufficient to satisfy the “all or virtually all” standard. Instead, the FTC has given guidance primarily through public closing letters as well as informal counseling. The FTC noted that it has issued 154 closing letters from 2010 to date. While there have been 27 court actions in the last two decades, enforcement activity is reserved for the worst offenders.

Stakeholders participating in the workshop expressed frustration with the vagueness of the FTC’s standards as well as the difficulty in complying with that standard. They advocated for bright line rules that they can easily apply to determine whether they can make an unqualified Made in USA claim.

In addition, the stakeholders also expressed frustration with conflicting frameworks within the United States such as the Made in USA standard in California, the Buy America Act and the implementation of that Act by federal agencies, and U.S. Customs laws. As one workshop participant pointed out, for some products, a product is considered to be made in the United States for Customs purposes, requiring the company to pay all applicable VAT and duties when exporting because the last substantial transformation occurred in the United States. However, that same product cannot be marked as “Made in USA” in the United States because the FTC’s standard is so strict. In the case of the jewelry industry, for example, it is often impossible to identify the original source of the raw materials.

How Can the FTC Improve its “Made in USA” Policy?

The FTC made clear that any rules it adopts must comport with consumer expectations as to what “Made in USA” means and how consumers interpret those claims. The FTC was skeptical of the feasibility of implementing a bright line rule that would apply across the board, noting that a claim can be false or misleading if a substantial minority of consumers are misled (which the FTC identified as low as approximately 10.5% net of control). Citing consumer research, the FTC found that there are two distinct views among consumers as to when a product can be considered made in the United States: (1) nearly all of the costs or parts must be from the United States for the product to qualify as made in the United States and (2) a high percentage of costs or parts must be made in the United States. The second group constitutes the majority of consumers, but the first group still constitutes a substantial minority.

The FTC also queried whether perceptions of Made in USA claims have changed in the past several years. The FTC noted that the impact of globalization and current political sentiments is unclear and requested that stakeholders submit recent consumer survey evidence in their written comments.

The FTC raised the possibility that different standards may apply to different products. The FTC noted that this was possible even under the current framework. For example, if a product is designed and produced in the United States but where the raw materials are sourced abroad, the FTC recommended that the stakeholder submit a survey showing that an unqualified “Made in USA” claim was consistent with consumer expectations. However, in developing updated Rules, the FTC was interested in learning whether factors such as the unavailability of resources in the United States and efforts to repatriate jobs to the United States may impact how consumers perceive a “Made in USA” claim for a particular product or in a particular category.

How is the FTC’s Current Enforcement Strategy Working?

Finally, the FTC asked the participants whether they felt that the FTC’s current approach to enforcing the Made in USA policy was effective. While the stakeholders felt that the Policy was difficult to apply, the stakeholders also almost universally stated that the FTC’s current enforcement efforts sent mixed messages to bad actors. The panelists felt that harsher penalties should be imposed on bad actors, citing the Patriot Puck case as an example of a “slap on the wrist” that does little to deter bad behavior.

While the FTC praised the low recidivism rate of companies that have received closing letters, some of the panelists disagreed with this assessment, observing that some recipients of closing letters have continued to make mistakes years later. In addition, some panelists expressed frustration with well-known companies that claim that their products are “Made in USA” when it is well known that the products contain a high percentage of foreign sources.

Closing Thoughts

“Made in USA” claims are popular among marketers. American consumers want products made in America for a wide variety of reasons, transcending political divides. For many consumers, buying “Made in USA” products signifies attributes such as higher quality, no human rights abuses, no child labor, responsible sourcing, as well as protecting US jobs. Given the importance of these claims, the FTC has been under increased pressure to increase enforcement of deceptive “Made in USA” claims. However, marketers struggle to interpret the FTC’s abstract “all or virtually all” standard while also reconciling it with competing standards that paradoxically render a product of US origin when exported, but not within the United States. The time is ripe for the FTC to take another look at its “Made in USA” policy.

Marketers making “Made in USA” claims should consider submitting comments before October 11, 2019. The FTC’s list of questions is available here.

On September 12, the Court of Justice of the European Union (CJEU) handed down yet another ruling on the interpretation of EU copyright law. With its Cofemel-decision (C-683/17), the CJEU harmonized the requirements for utilitarian objects, which might also be protected by a (registered or unregistered) design right, to benefit from copyright protection. Provided that the conditions explained hereunder are met, the Cofemel-decision confirms that lighting equipment, clothing items, furniture, motor vehicles, etc. enjoy copyright protection in all the EU Member States.

Going back several years, the implementation of the InfoSoc Directive (2001/29/EC) into national law marked the start of a harmonized EU copyright law. Several rulings of the CJEU later, it is now established case law that any work fulfilling the following two conditions will enjoy copyright protection. First, the work has to constitute the author’s own intellectual creation (Infopaq, C-5/08). The author must express his creative abilities in the production of the work by making free and creative choices so that the worked is stamped with his “personal touch” (Painer, C-145/10). Second, the work must be an expression of such a creation in the sense that the object can be accurately and objectively identified (Levola Hengelo, C-310/17).

With regard to the specific relationship between copyright and design rights, the CJEU established in 2011 in its Flos-ruling (C-168/09) that any work, whether or not it is, or has been subject to (registered or unregistered) design right protection, can enjoy copyright protection. According to the CJEU, basically reiterating Article 17 of Directive 98/71/EC on the protection of designs, it was up to the Member States “to determine the extent to which, and the conditions under which, such a protection is conferred, including the level of originality conferred.” As a consequence, differing national approaches had been developed throughout the EU. Hence, the question arose whether, in such circumstances, the level of copyright protection would not be harmonized and could thus differ from the standards imposed by the CJEU in its earlier case law.

In the dispute between G-Star and Cofemel concerning a jeans, sweater, and T-shirt model, the Portuguese Supreme Court asked the CJEU whether the national standard for copyright protection for utilitarian works could be upheld. In essence, Portuguese copyright law required utilitarian works (i.e. works of applied art, industrial designs and works of design) to invoke an individual, aesthetically remarkable, visual effect.

The CJEU explained the different ratios and objectives pursued by copyright and design right protection. As long as these objectives are pursued, nothing prevents both intellectual property rights to protect one and the same subject cumulatively. Moreover, any such cumulative application does not affect nor alter the conditions under which protection is awarded. Said differently, the CJEU explicitly confirmed that the harmonized (two) conditions of EU copyright law still apply and that no other national requirements can be relied upon. With regard to the specific Portuguese standard, the CJEU thus ruled that whereas the existence of aesthetic considerations is part of the creative activity, this alone does not suffice to establish whether the work constitutes the author’s intellectual creation, reflecting the freedom of choice and the personality of the author and thus fulfilling the originality requirement of EU copyright law.

With the CJEU’s Cofemel-ruling, the requirements for utilitarian works to benefit from copyright protection are now harmonized across the EU. As a consequence, certain national standards for copyright protection for designs will have to be adapted. It remains to be seen how harmonised the views of the national courts of the Member States will be when determining if a design expresses the author’s individual creation and personal touch and therefore should enjoy copyright protection.

It has long been said that politics makes strange bedfellows. In this case, Ann Marie Buerkle, the Acting Chairman of the United States Consumer Product Safety Commission, a Republican, sided with Democratic Commissioners Robert Adler and Elliot Kaye to elect Commissioner Adler as the incoming Vice-Chair of the Commission. That means Commissioner Adler will assume the Acting Chairmanship of the agency when Ms. Buerkle steps down as Chairman on September 30, 2019—a little less than one year after the Republicans gained the majority on the Commission for the first time in twelve years.

In today’s hyper-partisan politics, such a vote is noteworthy and surprising to many. Currently, the Commission is made up of five commissioners—Republicans Buerkle, Dana Baiocco, and Peter Feldman, and Democrats Robert Adler and Elliot Kaye. Traditional, partisan thinking presumes that the majority of the Commission (i.e., the three Republicans) would have elected a Republican to replace Ms. Buerkle as Acting Chair of the agency. But that is not the case here.

In a statement issued on Friday, Ms. Buerkle stated that “consumer protection is not political” and that she believed the incoming Acting Chairman should be “the most experienced, most senior commissioner who has previously served in this role.” A commissioner since 2009, Mr. Adler served as the Acting Chairman of the Commission in late 2013 and early 2014 upon the departure of then-Chairman Inez Tenenbaum. Although Ms. Buerkle and Mr. Adler, admittedly, have diverging political and regulatory philosophies, they are known within the product safety community to have a cordial working relationship grounded in mutual respect.

So what does this mean for the regulated community and other product safety stakeholders? In the short term, upon Acting Chairman Buerkle’s departure from the agency altogether on October 27, 2019 (about one month after she relinquishes the chair to Adler), the Commission will return to a 2-2 split along party lines and presumably some partisan gridlock, although the Commission will continue to operate according to its current fiscal year’s operating plan. As to longer term implications, presumably, Friday’s vote will incentivize the White House to nominate, and the Republican-controlled Senate to confirm, a third Republican commissioner to restore the Republican majority upon Ms. Buerkle’s departure from the agency in late October.

In the meantime, we congratulate Commissioner Adler on this development, and look forward to continue working with him and his staff.

Protecting creative endeavors and designs is a core activity of just about all fashion companies. Fashion items (clothing, accessories, handbags, shoes, etc.) can indeed be protected by copyright and design rights within the European Union.

Lesser known is the ‘unregistered community design’ (or: ‘UCD’) established by the European legislator in 2002 for the protection of products with a short lifespan. As the fashion industry is driven by rapid innovation, based on seasonal collections with new designs each time, this specific, unregistered and therefore inexpensive intellectual property right provides the ideal protection for many fashion companies. As fashion is a wide spread phenomenon and knows no boundaries, this intellectual property right could turn out to be the excellent fit not only for European fashion companies, but also for US fashion companies operating within the EU.

In this post, we will take a closer look at the how, what and why of this unregistered design right.

The object of protection in design law

The design right, be it the registered or unregistered variant, essentially protects the appearance of a product, which is determined by its characteristic features. These are in particular the lines, contours, colors, shape, texture, decorations, logos, photos, illustrations, materials, etc. For example, new designs of clothing or accessories, as well as decorative prints qualify for design protection.

The requirements for protection

To claim design protection, the design must meet two requirements: the design must be new and have an individual character.

The design will be considered new if no identical design has been made available to the public. Designs are considered to be identical if their characteristics differ only in unimportant details.

The design will have an individual character if the general impression it has on the informed user (the attentive consumer, shopper, fashionista or fashion blogger) differs from the general impression that the user has in comparison with older, existing designs. In other words, no déjà-vu feeling may arise.

In order to be able to claim an unregistered community design, it is also important that the designer properly notes, maintains and documents who created which designs, when, and when they were first disclosed to the public. Conversely, to avoid wrongful allegations of infringement, it is important to properly document and date the entire design process. Only in this way it can be demonstrated that the design was independently developed. Sketches, inspiration boards and brainstorming sessions are therefore best kept in a structured and chronological manner.

The choice between the registered and the unregistered community design

As soon as the design meets the above requirements, the designer has two options in the field of design law:

1) The designer chooses to register the design for a fee at a national or international design agency (for example the European Office, the EUIPO, or the Benelux Office, the BOIP). The protection lasts for a term of 5 years, after which it can be extended up to 5 times against payment up to a maximum protection term of 25 years;

2) or the designer opts for the unregistered design, which is created automatically (read: free and without registration obligation) for a one-time term of protection of 3 years from the date the design is made available to the public within the European Union for the first time. The designer must therefore disclose his creation to the public instead of undergoing the whole registration process. Public disclosure or making the design available to the public means: publishing, exhibiting, placing on the market or otherwise making publicly available in such a way that, in normal practice, the specialized circles operating within the European Union can reasonably be aware of the design. In other words, a design that has remained on the drawing board will not be deemed to have been made public.

The scope of protection of the registered and unregistered community design

However, the scope of protection of a registered and unregistered design will be different. As such, the holder of an unregistered design can only take action against counterfeiting in the literal sense of the word. It will thus be necessary to prove that the copycat-design was created by copying the older design.

On the other hand, a registered design has a broader scope of protection: its holder may exclusively exploit this design and has the right to oppose the use or subsequent registration by third parties of products with the same appearance or with an appearance that does not create a different overall impression.

Tips and tricks for the unregistered design

Although an unregistered community design offers less scope for protection, it remains a hugely interesting intellectual property right in the fashion sector. It is free, flexible, requires no administrative hassle, and offers a relatively short but clear scope of protection against counterfeiters. A well-documented and chronologically structured creation process, on the other hand, is indispensable in order to be able to claim this protection (or, to defend against possibly unjustified claims of design holders).

This article was originally published in Fashion United here.

Under a new rule that became effective August 3, 2019, the United States Patent and Trademark Office (“USPTO”) requires all foreign-domiciled trademark applicants, registrants, and parties to a trademark proceeding to be represented by an attorney who is licensed to practice law in the United States. This requirement applies to any entity with a principal place of business outside of the United States and its territories and any individual with a permanent legal residence outside of the United States and its territories.

This new rule is one of the USPTO’s responses to an increasing number of inaccurate, overbroad, and in some instances, possibly fraudulent trademark submissions, some of which originate abroad. The goal of this rule (and other USPTO efforts not focused solely on foreign trademark owners) is to help improve the accuracy of the U.S. trademark register and increase compliance with U.S. trademark law.

According to the USPTO, “increasing numbers of foreign applicants are likely receiving inaccurate or no information about the legal requirements for trademark registration in the U.S., such as the standards for use of a mark in commerce, who can properly aver to matters and sign for the mark owner, or even who the true owner of the mark is under U.S. law.” As further explained by Andrei Iancu, Under Secretary of Commerce for Intellectual Property and Director of the USPTO, “Businesses rely on the U.S. trademark register to make important legal decisions about their brands. In order to maintain the accuracy and integrity of the register, for the benefit of all its users, the USPTO must have the appropriate tools to enforce compliance by all applicants and registrants. This rule is a significant step in combatting fraudulent submissions.”

Applications and submissions that were filed prior to August 3, 2019 by someone other than a U.S. – licensed attorney will be considered by the USPTO as-is. However, applicants and registrants may not respond to USPTO office actions without first appointing U.S. counsel. Further, for ongoing TTAB proceedings where a foreign-domiciled party is not currently represented by a U.S.-licensed attorney, the TTAB will suspend the proceeding and require appointment of a U.S. -licensed attorney.

Further guidance can be found here.

On August 27, 2019, the U.S. International Trade Commission (ITC) published a final rule regarding the procedures for the preparation and filing of Miscellaneous Tariff Bill (MTB) petitions and public comments. The Miscellaneous Tariff Bill (MTB) Act temporarily reduces or eliminates import duties on specified raw materials and intermediate products used in manufacturing that are not produced or available domestically. It is intended to ensure that U.S. manufacturers are not at a disadvantage to their foreign competitors when sourcing manufacturing components. Under the MTB process, U.S. importers may petition for duty-free or reduced-duty treatment of certain imported products by submitting an MTB petition to the ITC. Typically, importers request duty relief for manufacturing raw material inputs such as chemicals, electronic goods, and proprietary parts that are not produced in the United States. However, there are no restrictions on what products and parts can be requested. In general, for an MTB petition to be successful there must not be any domestic industry opposition, and any reduction of duties resulting from the change to the duty rate for the proposed product breakout may not exceed $500,000 per annum. Importers can request an elimination or reduction of duties, depending on the annual duty savings anticipated and the $500,000 threshold.

The new rules take effect on September 26, 2019.  It is anticipated that the ITC will begin accepting MTB petitions after October 15, 2019, and petitions must be filed within 60 days of this date.  These dates will be confirmed after the ITC formally announces the commencement of the MTB petition process. Any successful petition would then need to pass Congress and be signed into law by the president before becoming effective. If signed into law, then the MTB petitions may become effective January 1, 2021, with an expiration date of December 31, 2024.

The new procedures appear more stringent than those applied during the 2016 round of MTB petitions. The petitions should include to the extent available: (1) CBP rulings issued on the product; and (2) a copy of other CBP documentation indicating where the article is classified in the HTS. Additionally, the petitions should include:

  1. an estimate of both total value and dutiable value for the product for the next five calendar years;
  2. an estimate of the share of total imports represented by the petitioner’s imports of the subject article;
  3. the names of any domestic producers of the article, if available;
  4. a certification of completeness and correctness; and
  5. an acknowledgement of the petitioner’s awareness that the information submitted is subject to ITC audit and verification.

The ITC has also indicated that there will be a clearer way to renew current MTBs. However, that information is not yet available

Here, we identify 10 key issues relating to how the U.S. antitrust agencies—the Federal Trade Commission (FTC) and Department of Justice (DOJ)—analyze CPG transactions.

1) High-End vs. Low-End

Antitrust agencies often define the market for the merging parties’ products quite narrowly. In one notable example, the FTC defined a market limited to “intense mints” (think Altoids), which excluded traditional mints (think Life Savers).

The antitrust agencies often define markets around product sub-segments based on distinct prices, characteristic, or measures of quality within a broader category. In particular, the antitrust agencies frequently segment CPGs along a spectrum from high-end to low-end products.

2) In-Store Location

A CPG’s shelf-space location in a retail store or positioning on the shelf may also affect how the antitrust agencies define the product market and assess the merger’s effect. This is a frequent issue in food and beverage mergers.

For example, in 2002, the FTC sued to block a merger that would have combined Vlasic and Claussen pickles. The agency alleged that refrigerated pickles constituted a separate market from shelf-stable pickles sold in the center aisles.

3) Branded vs. Private Label

There is no bright line rule on whether the antitrust agencies will consider private label products “in” or “out” of the market. It depends on the facts.

Private label products were excluded when the FTC defined the market for branded seasoned salt products. In contrast, the FTC reportedly cleared Energizer Holdings’ acquisition of Spectrum Brands’ battery business (Rayovac branded batteries) because the evidence confirmed that branded batteries face strong competition from private-label batteries.

4) Sales Channels

The agencies may also limit the market to particular sales channels. For example, in a recent case challenging the combination of two cooking oil products, the FTC alleged that the market was limited to sales made to retailers. In 2011, the DOJ alleged that hairspray sold in retail stores was a separate market from the sale of such products in salons because of differences in price, location convenience, and breadth of brands carried.

Additionally, there is no bright-line guidance for whether online retail sales will be “in” the market. Only a transaction-by-transaction assessment will determine how online sales factor into market definition and competitive-effects analysis.

5) Geographic Markets

The agencies typically define the relevant geographic market in CPG mergers as national, or no broader than national. High transportation costs, differences in brands, U.S. regulations that make it difficult for customers to purchase products sold outside the U.S., or a lack of imports, may contribute to the agencies’ assessment.

Geographic markets may also be limited to certain regions, states, or metropolitan areas, at least where the seller can charge different prices to retailers based on differing competitive conditions.

6) Merger’s Effect on Competition

The ultimate question in any merger investigation is whether the transaction will “substantially lessen competition.” In short, the investigating antitrust agency tries to assess whether a merger is likely to result in higher prices, lower quality, or reduced innovation.

In CPG transactions, the concern about potentially diminished price competition isn’t limited to higher shelf prices or lower discounts to consumers. The agencies are also concerned about the potential for the merger to reduce promotional discounts, slotting allowances, and trade spend paid to retailers.

7) Brand Equity and Entry Requirements

Brand is often a key ingredient for success. But brand may also be a key reason the FTC or DOJ raises concerns about barriers to entry, expansion, or repositioning. In many of the agencies’ enforcement actions, brand equity was one of the most significant barriers to entry because it could make it time-consuming and costly for a new entrant to convince retailers to stock their product or gain consumer acceptance.

8) Documents

The merging parties’ documents are a key factor in whether the FTC or DOJ opens a detailed investigation and, ultimately, whether the agency decides to clear the merger or attempt to block it in court.

Two types of documents can be pivotal: (1) those describing the effects of the merger and (2) those reflecting how the parties analyze their market and calculate market shares.

9) Customers

Customer views carry significant weight in merger investigations. During investigations, the agencies typically call the parties’ largest customers, such as retailers and distributors, to learn how they view the merging parties’ products and which other products may be reasonable alternatives to the parties’ products.

10) Data

The antitrust agencies also routinely rely on data-driven analyses to assess the likely competitive effects of the transaction and help define markets. Two common analyses in a CPG merger are:

  • Natural Experiments. The agencies typically seek to use scanner data to evaluate the impact of certain events on the parties’ sales and prices. For example, did sales or prices of the parties’ products change after a rival product went out on recall or a new branded product was introduced?
  • Diversion analysis. A common technique is to use an event, such as an entry, an exit, or a promotion, to quantify the amount by which sales were diverted from one product to another. If a substantial volume of sales shift, the antitrust agencies are likely to view those brands as particularly close substitutes.

Conclusion

When evaluating potential mergers and acquisition in the CPG space, antitrust risk can be a key consideration. With guidance, careful planning, and early read-outs from anticipated economic analyses, that risk can be carefully managed to meet business objectives.

This blog post is a condensed version of an article that originally appeared August 18, 2019 on Retail Leader. Visit Retail Leader for the full version of the article, which include pre-deal pointers for industry executives and counsel.

Alexis Gilman is a Partner in Crowell & Moring LLP’s Antitrust Group in Washington, DC. From 2010-2017, he worked at the Federal Trade Commission, including three years as the head of the Mergers IV Division, where he oversaw numerous investigations of mergers involving branded consumer products, retail, and other industries.

Elizabeth M. Bailey is an economist and academic affiliate at NERA Economic Consulting in San Francisco where she handles CPG mergers and acquisitions.

In today’s protectionist environment, importers are facing heightened legal risks and a potential False Claims Act (FCA) violation when providing information to Customs and Border Patrol (CBP). In June, the United States Attorney’s Office for the Southern District of New York filed a civil fraud lawsuit against Manhattan-based children’s apparel companies Stargate Apparel, Inc., Rivstar Apparel, Inc., and their CEO, Joseph Bailey. The Complaint, filed under seal, had alleged that Bailey, Rivstar, and Stargate violated the FCA when they submitted invoices to CBP understating the true value of imported goods.

The alleged fraud was first brought to light by a whistleblower who filed a complaint under the FCA. It alleged that from 2007 to 2015, Stargate engaged in a double-invoicing scheme with a manufacturer in China. And that the manufacturer provided Stargate with two invoices for the each shipment of goods. One invoice, referred to as the “pay by” invoice, was for a much higher amount and reflected the actual price Stargate paid the manufacturer for the goods. The second invoice was for a much lower price. Stargate presented only this second invoice to CBP and thus was able to pay a fraudulently lower amount of customs duties.

A second variation of this fraud scheme involved invoices for “sample” goods. The Chinese manufacturer would send two invoices for one shipment, one marked commercial invoice and one marked sample invoice. Together, the two invoices reflected the real price Stargate paid to the manufacturer, but Stargate only paid customs duties on the commercial invoice and not on the sample invoice because sample goods are not subject to customs duties. According to the Complaint, none of the goods Stargate received from the manufacturer were actually sample goods.

The allegations claim that Bailey, Stargate, and Rivstar engaged in similar schemes with additional manufacturers. Through these schemes, the Complaint alleges that they undervalued imports by tens of millions of dollars and cost the U.S. government over $ 1 million in duty revenue. Bailey and his companies now face civil penalties and treble damages, and Bailey faces an additional criminal charge of conspiracy to commit wire fraud.

Importer FCA cases just like this one have been on the rise in recent years. The Trump administration’s focus on trade policy will likely only lead to continued scrutiny in this area. Additionally, the recent Supreme Court ruling in U.S. ex rel Hunt v. Cochise Consultancy, No. 18-315 (2019), has allowed whistleblowers to take advantage of a longer statute of limitations period previously only available to the government under 31 U.S.C. § 3731(b)(2). Thus, where the government does not learn of the FCA violation, a lawsuit can be filed up to 10 years after the date the false statement was made. This expanded statute of limitations may also contribute to the increase in importer FCA cases.

On August 12, 2019, a jury in Delaware federal court found L’Oreal USA Inc. liable for misappropriating Olaplex LLC’s trade secrets, infringing two patents relating to hair-coloring, and breaching a nondisclosure agreement between the two parties. The jury awarded $91.3 million to Olaplex. Olaplex’s victory demonstrates the importance of entering into nondisclosure agreements before disclosing potential intellectual property to a competitor – especially a large one.

This suit stems from a meeting in 2015 between L’Oreal and Olaplex to discuss a potential acquisition or licensing deal. Olaplex alleged that after the parties met, L’Oreal exploited its trade secrets and created “three knockoff versions” of products discussed during the meeting. At trial, the jury found that L’Oreal stole Olaplex’s trade secrets in violation of the nondisclosure agreement.

The jury found that L’Oreal willfully infringed both patents, leaving open the possibility of an award of increased damages.

L’Oreal hopes to remove this stain upon its reputation on appeal.

In June 2018, the Office of the United States Trade Representative (USTR) announced additional tariffs on products imported from China. The additional tariffs are part of the U.S.’ response to China’s unfair trade practices related to “the forced transfer of American technology and intellectual property” pursuant to Section 301 of the Trade Act of 1974. To date, three lists of tariffs against China have been posted.

Today, August 13, 2019, the USTR released two additional lists (List 4A and List 4B) of products that will be subject to a 10% tariff that will directly affect the Fashion Industry, particularly apparel and clothing accessories, footwear, and hats.

This list will go into effect September 1, 2019. The ad valorem tariff could potentially impact approximately $42 billion worth of imported apparel.

List 4A covers the following:

Footwear articles (91 tariff lines);
Apparel and clothing accessories (e.g., scarves, gloves, trousers, suits, blouses, shirts, skirts)(356 tariff lines); and
Headwear products (hair-nets, safety headgear of reinforced or laminated plastics, and safety headwear) (3 tariff lines).

List 4B (the second list of products subject to the tariffs) will not go into effect until December 15, 2019.  It will include an additional 56 lines of footwear articles; and 35 lines of apparel and clothing accessories.

List 4A: Effective as of September 1, 2019

List 4B: Effective as of December 15, 2019

USTR also indicated that it will launch an exclusion request process for products subject to the additional 10 percent ad valorem tariff.

The complete list of Chinese Tariffs, Trade Actions, and Retaliatory Measures is available here.