Shedding Light on the Gray Market

Counterfeit goods and other methods of product reproduction that infringe upon the intellectual property of the owner are strictly illegal, and heavily regulated, especially within the US. The gray, or “grey”, market however, enjoys much fewer limitations as the goods are authentic and obtained by legal means. “Gray goods”  are legally manufactured goods purchased from certified distributors, which are then resold, generally, without the permission of  the trademark holder. Though this channel is completely legitimate and lawful, there are some important trade and import restrictions surrounding gray market merchandise that must be adhered to. For example, if an Argentine company has a trademark and participates freely in the US market, there is no CBP restriction on its products’ entry into United States by other importers.   However, if the owner of that trademark is a U.S. entity, any imported product bearing the trademark becomes a restricted gray market article.  Click here to learn more.

A restricted gray market article is a foreign-made article bearing a genuine trademark owned and recorded by a  U.S. entity, imported without the authorization of the U.S. trademark owner.  In other words, gray market goods bear a genuine  mark which has been applied with the approval of the trademark owner, but the approval is limited to sales in a country other than the United States.  Restricted gray market merchandise will be seized for a violation of  19 U.S.C. 1526(b) if discovered by CBP.

Only trademarks which are recorded with CBP are entitled to gray market protection. Whenever a CBP Inspector queries the CBP Intellectual Property database, he or she will check the recordation file screen to determine whether the “Genuine Trademarked Articles Restricted” box states “Y” or “N”. If the box associated with that section is marked with a “Y”, it indicates that no one, except the trademark holder or his designee, may import genuine articles bearing that trademark. So if the goods are genuine, and a “Y” appears in the trademark recordation screen, the goods may not be imported without the U.S. trademark owner’s consent.

If, however, the box is marked with an “N”, this indicates that gray market goods bearing that mark may be imported by anyone, without restriction and regardless of whether the trademark holder consented.   This does not exempt Counterfeit goods from being seized, regardless of whether there is CBP recordation.  Read about the Supreme Court’s ruling in favor of the gray market in a suit against EBay and other discount retailers.

It is imperative to familiarize yourself with the ownership and recordation of trademarks in the U.S. before you attempt to import goods.  More and more often, companies are taking action to protect their product from unauthorized distribution, and Customs continues to strictly clamp down on restricted gray market items. Knowing your rights, and those of the trademark owner, can help you avoid a costly seizure of legally purchased goods.

SOLAS  New Container Weighing Requirements

Change is on the horizon in the shipping industry, and it is important to make sure you are staying informed. Effective July 1st, 2016, changes adopted by the International Maritime Organization (IMO) regarding verified container weights will become effective. These changes were first introduced at the 2014 Safety of Life at Sea (SOLAS) Convention, but it is now time for implementation. The full text of the applicable SOLAS regulations can be found here

These regulations initially came about as a result of safety issues within the shipping industry. There were problems regarding overweight/underweight containers, misreported freight, poor weight distribution within containers, and more: see “Safety and Shipping Review 2014“. Ideally these changes will help accomplish a reduction in loss of containers from vessels, increased assurance to all parties within the supply chain, and overall improved safety.  These new requirements will apply to all 171 IMO member countries, as well as the three associate members of this organization.

The responsibilities of the shipper (as designated by the bill of lading) under these new regulations are particularly important. The shipper will now be required to verify the gross mass of each container via a signed document; this document must be physically signed (stamps will be unacceptable), and the form must be submitted in time to be used by the master and terminal representatives in the ship’s stowage plan.  The shipper has the option of submitting the container weight via the shipping instructions to the line, or in a specific communication such as a weight certificate. Regardless of submission method, the weight included must be designated as the “verified gross mass” and authorized by the accompanying signature. The shipper is able to determine whether they would prefer to weigh the contents of the container prior to or after loading, but the critical designation is that estimated weights are not permitted. The equipment used to weigh contents must meet national certification requirements, and the party verifying container weight is not permitted to use weight provided by a previous party. Click here for the Implementing Guidelines issued by MSC

The execution of enforcement for this new requirement will be put on the shoulders of the carriers. Essentially, carriers are highly encouraged to refuse to load containers for which a signed weight verification is missing. Refusing to carry these containers will encourage shippers to abide by the new requirements set forth by SOLAS. As July is only a few months away, it is important for shippers to begin proactively planning how they will adjust their processes to abide by these new requirements.


If you are in need of additional resources or more information, please visit the following link:


Antidumping Duties: What You Need to Know

As any Customs broker can tell you, there are an ever-increasing number of antidumping duty cases filed. It is imperative that importers (and their brokers) understand this topic.  Dumping duties are tariffs imposed by a government when it believes foreign goods are being sold below their fair market value or cost of production.   The whole world does it. This practice of foreign goods being “dumped” below cost both skews the market and cripples domestic competitors.  In the United States it is not uncommon for antidumping duties to be implemented at rates of 100% or 200% of invoice value;  this is in hopes of protecting domestic competitors and insulating the market from below-cost distortion.  Ideally, this raises the goods’ U.S. sale price to something closer to the cost of production with some profit.  For a complete overview of the countervailing duty petition and investigation process please reference the following handbook released by the United States International Trade Commission:

Antidumping duties can be crippling to companies who do not realize they are subject to such payments, which is why it is extremely important to be aware of which duties pertain to the products you import. At this time we have people who sold goods three years ago being advised that they owe 214% duty!  Can you imagine the devastating surprise?   The Mooney Law Firm is involved in antidumping cases involving products such as seafood, ball bearings, solar panels, oversized tires, garlic, auto parts, wooden bedroom furniture,  refrigerator parts, and more; this range of products demonstrates that antidumping cases can be brought in virtually all industries.  As the importer, you are responsible for determining which duties apply to the goods you import.  In addition to payment of back duties, the fines for neglecting to pay these antidumping duties on time are significant, which is why it is critical to be attentive and accountable for what you are importing.   You don’t want that 214% duty bill some years after the goods have been sold!  You are able to search by case number in the following database categorizing all of the active antidumping and countervailing duty cases:

Note that the agency responsible for enforcing antidumping duties is the Department of Commerce: most mistakenly assume it is Customs.  Under the umbrella of the DOC, the United States International Trade Commission is the federal agency in charge of investigating claims of dumping.  As an importer you have an obligation to be accountable for the product you bring in, and an important piece of this is abiding by the proper duty payments.

FMC Remains Aggressive with Penalties

Since the summer (2015) there have been penalty settlements announced by the Federal Maritime Commission (FMC) which total in excess of $2,000,000.00.  Its Bureau of Enforcement (BOE) is the arm of the Commission specifically focused on prosecution.  The BOE investigates violations of the Shipping Act as well as enforces FMC regulations, and Bureau attorneys are the ones who act as trial counsel in all formal Commission proceedings.  Often a settlement is reached between violating parties and Bureau attorneys, and detailed below are some notably large cases from the past year.   Settlements generally avoid any admission of wrongdoing, and avoid the extensive time and money expenditure required by administrative trials.

In August, the BOE announced FMC collections of $1,227,500.00.  These collections were made in the form of penalty payments by a variety of different parties, including seven different non-vessel operating common carriers (NVOCCs) and one vessel-operating common carrier (VOCC).  The violations alleged of the NVOCCs included unlawfully collecting forwarder compensation, misrepresenting the names of shipper accounts, allowing improper parties to access service contracts, knowingly obtaining transportation less than applicable rates, and more. The most heavily penalized party was the vessel operator United Arab Shipping Company; it was charged with violating 46 U.S.C. 41104(1) and 46 U.S.C. 41104(2) for allegedly paying unlawful rebates to a shipper and providing transportation at rates inconsistent with their published tariff.  In total, United Arab Shipping Company paid $537,500.00 in penalties to the agency.

In September another announcement was made regarding penalty collections, but this time only one party was involved.  A VOCC based in Norway named Siem Car Carriers was found to be in violation of 46 U.S.C. 41102(b).  In this case the violations were voluntarily disclosed, and an agreement was reached in which Siem paid $135,000.00 in penalties.  The Chairman of the FMC, Mario Cordero, states, “Voluntary disclosures can serve to diminish carrier exposure to very significant monetary penalties.”  Based on this, it is reasonable to assume that Siem would have been responsible for greater penalties if they had not taken the initiative to disclose this information voluntarily.   In January of this year we presented our first seminar on voluntary disclosure to Federal agencies.   It is interesting to see how the disclosed entity paid roughly 25% of what the non-disclosing entity paid above, though of course the facts and extent of the alleged violations may have differed greatly.

In December 2015, still more violations were announced, and this time they involved freight forwarders, NVOCCs, and two unlicensed entities acting as ocean transportation intermediaries (OTIs). The British Association of Removers and Sparx Logistics are both NVOCCs that allegedly violated FMC regulations by obtaining ocean transportation at lower than applicable rates; while neither company admitted to actually doing so, they did agree to settle and pay penalties. Wilhelmsen Ships Services and N/J International are licensed NVOCCs and freight forwarders which were involved in cases charging them with operating without a valid Qualifying Individual for a period of over one year. As a result, both companies were ordered to pay penalties to the FMC. Lastly, Azap Motors and Knopf International are unlicensed entities that were both alleged to be offering OTI services without a proper FMC license. Both companies agreed to pay penalties, and Azap Motors even dissolved as a company.  Collections from penalty violations totaled $334,000.00 for the month overall.

As 2016 has kicked off, so have the FMC collections. It was announced recently that the FMC collected a total of $520,000.00 through civil penalties in the month of February.  These penalties came from four different OTIs (both NVOCCs and freight forwarders) and one VOCC. It is important to note that in that month all NVOCCs were penalized for the same action: they allegedly obtained transportation at less than applicable rates. The FMC takes this seriously, and it is important to ensure you are paying a fair price for transportation as set by tariffs.   Misrepresentation of weight, volume or commodity is dealt with harshly by the agency.

You can learn a great deal from examining past FMC penalties.  When dealing with trade and transportation it is your responsibility to understand the regulations set forth by the FMC as well as the Shipping Act, and to ensure that your actions are in accordance with these guidelines.  Otherwise, as we have seen in these cases, severe penalties may be assessed letting the agency laugh all the way to the bank.

2016: The Year of Cuba

2016 has kicked off with some big changes, many of which pertain to the United State’s relationship with Cuba. On January 27th, 2016, the Bureau of Industry and Security (BIS) and the Office of Foreign Assets Control (OFAC) announced new regulations that further reduce U.S. sanctions on Cuba. Translation: things are looking up in terms of repairing a long-term strained relationship between the two. These modifications relate to financing, exportation, and travel; they further liberalize bilateral access and promote improved relations between the United States and Cuba. Since January, regulations have steadily been chipped away at an effort to slowly dilute the embargo; these include regulations eased as recently as March 15th.

Previously, there were very strict regulations regarding payment and financing terms for non-agricultural exports to Cuba. C.O.D. was the only means of payment allowed: credit was forbidden. However, many of these terms have now been reduced or repealed, allowing for payments of cash in advance, sales on an open account, and financing by a third-party country or the U.S. In support of this, a regulation was promulgated on March 15th to ease the transfer of money between Cuban and American banks. Establishing expanded methods and means of financing helps encourage trade and exchange between the U.S. and Cuba, and it is an important step in growing the relationship between the two.

In addition, regulations regarding U.S. exports were altered. Licenses for exports of food and services which are deemed to aid Cuba have been expanded; this category now includes telecommunications, agricultural, civil aviation safety, and news gathering software items. This expansion allows a larger variety of items to be sent to Cuba, and a case-by-case basis licensing policy has been introduced for even more additional items.

The most drastic changes are those regarding travel. OFAC (the Office of Foreign Assets Control, which regulates embargos) has now approved an expanded number of business-related travel reasons; these include professional conferences, sports competitions, artistic expeditions, humanitarian projects, market research, and sales/contract negotiation. It is important to note that travel blatantly for tourism alone is still banned, but there are an increasing number of ways to circumvent this. As of March 15th individual travel is permitted for “people-to-people missions”; this includes any trip which involves a meaningful cultural exchange with Cuban people. This is a big development, as previously this category was limited to tour groups only. Since commercial flights to Cuba are scheduled to resume in the Fall, it is an appropriate time for these more lenient travel regulations to be taking form.  Given these new “people-to-people ” rules, it seems a foregone conclusion that individuals who make, let’s say, culturally driven sojourns with enjoyable side trips are very unlikely to find themselves under threat of prosecution at this time.

President Obama announced in February his plans to make a trip to Cuba in this month; it will be the first time an American President has visited Cuba in 88 years. The goal to repair and expand relations with Cuba through enhanced communication and travel was originally announced by Obama in December 2014, and this seems to be a big step in that direction. It is sure to be worthwhile keeping an eye out for regulatory chanages regarding import, export, trade, financing, and more as relations between the U.S. and Cuba continue to warm.

The Trade Facilitation and Enforcement Act of 2015

The Trade Facilitation and Enforcement Act of 2015 was passed by the Senate on February 11th, 2016 in a 75-20 vote. Now that the bill has been passed by the House and the Senate, the final piece of the puzzle is for President Obama to sign the bill into law. Given that this is projected to be enacted by the President soon, it is imperative for international traders to understand its key provisions.

The Act is split into 9 different sections with an overall focus on facilitating and enforcing trade; this will help to promote U.S. global opportunities while keeping the playing field level and fair. Key provisions of the Act focus on enhancing enforcement of international trade laws, providing stronger protection for international intellectual property, and modernizing U.S. Customs and Border Protection (CBP) processes. According to an article published by The Washington Examiner, “Current customs rules that have not fully embraced technological and trade advances are creating bottlenecks at the border that impede the just-in-time manufacturing process, which is critical to the productivity, efficiency, and global competitiveness of the U.S.” Passing this bill marks the first, long overdue, significant update to CBP processes and policies in over 10 years.

Three aspects of the bill are of particular interest. First, the focus on strengthening anti-evasion procedures is key via establishment of a Trade Remedy Law Enforcement Division at CBP’s Office of Trade. This division will be specifically aimed at preventing the evasion of antidumping and countervailing duty orders. If it is determined that evasion has occurred, CBP is required to suspend liquidation of entries and enforce the appropriate cash deposit rate for the merchandise. Updates streamline the process for investigating evasion and assessing the corresponding penalty.

Another area of focus in the bill is intellectual property protection, manifested through the creation of a greater National Intellectual Property Rights Coordination Center. It will focus on investigating sources of merchandise that infringe intellectual property rights. The thought is to advance U.S. competitiveness globally by identifying those responsible for producing, smuggling, or distributing copyrighted and/or trademarked merchandise, rather than just seizing the end products when discovered.

Lastly, the Act drastically alters provisions regarding duty drawback. Essentially new provisions simplify drawback procedures by extending the deadline for filing drawback claims. It rises to five years while creating more transparency in the calculation of drawback refunds, and establishing a standard for classification of substitution drawback items.

Overall, this seems to be a piece of legislation that will help to advance the American economy when signed into law. While this brief post is only able to focus on certain key highlights, there are many changes proposed within the Trade Facilitation and Enforcement Act of 2015 that are significant and impactful. To view the bill in its entirety, please visit the following link:

If you have any further questions regarding The Mooney Law Firm or the services we provide, please contact us today!

An Introduction to Business Succession Planning

Many of our clients are smaller, family-owned enterprises which have succession concerns.  It is always important to be thinking ahead, whether it’s your overall strategic vision, marketing and sales, human resources, or any other facet of your business.  The common thread for success in each of these disciplines is having a well-developed plan, including one for exit.   Here I focus primarily on planning within a family business, i.e. regarding passing a company from one generation to the next.  This includes planning for the unexpected, as the reality is that you may not always be able to foresee exactly when you will exit your business (if you catch my drift). The sooner you develop a succession plan, the better prepared you will be.

According to the Conway Center for Family Business, “Nearly 70% of family businesses would like to pass their business on to the next generation, but only 30% will actually be successful at doing so.”  Prior to establishing the critical plan, it is important to agree on some fundamental goals and objectives not only for the transition of ownership, but also for next-generation management.  The most essential element is identifying successors, because not all heirs are really interested in what your business does.   Regardless, all family members need to be factored in, even if they are not designated as successors.  A good plan will allow you to assign active and non-active roles for each member.  Additionally, the plan should outline any additional support or privileges that will be needed by the successor from other family members.  It is critical to agree on a method for dispute resolution, document the plan in writing, and ensure it is agreed to by all family members.  Yes, that is ordinarily possible.

The work does not stop there.  After a succession plan has been decided upon, it is important to create both a business and an owner estate plan.  These will address issues of taxation upon transfer of ownership. It is important to structure the succession in a way that accurately reflects the value of the business while minimizing taxes and avoiding delays in transfer of ownership. The final piece of the puzzle is ensuring there is a trustee or executor to enforce the timeline and method for transition, when that time comes.

Family business succession plans might fail due to differing family interests, but taking these initial steps ensure that you have done what you can to avoid it.   A careful planning process promotes an open family dialogue, and ensures that everyone is on the same page regarding the future of the family business. You can do this!

FTZ Subzones: Not a Remote Possibility Anymore

It is no secret that there are many benefits to taking advantage of Foreign Trade Zones (FTZs).  Regardless of the size of an importer or exporter, using FTZs can significantly reduce costs from customs duties and taxes, and as a result increase  a company’s  global market competitiveness.  By definition, a foreign-trade zone is a geographical area (located within 60 miles of a United States port) where commercial merchandise is considered to be outside the jurisdiction of U.S. Customs and Border Protection. Even though the site is physically within the United States, it is treated as being outside of the Customs’ jurisdiction.  Therefore ordinary Customs rules, regulations, and fees do not apply.

A downside to FTZs is that by law they may only be operated by a city or county.  For private parties wanting their own zones, however, there is a solution, and it goes by the name of “Foreign Trade Zone Subzones”.  An FTZ subzone is an area approved by the Foreign-Trade Zone Board for use by a specific company.  Subzones endow all of the same benefits as general-purpose FTZs, but they relieve companies from having to relocate within the established Foreign Trade Zone sites.  Essentially, if you are able to have a pre-existing site or warehouse permitted as a subzone for your company, then you are operating your own private Foreign-Trade Zone.

This establishment of subzones provides many potential benefits for companies, especially those that import or re-export products. For example, let’s take a look at Volkswagen.  This company was able to have one of its production plants in Chattanooga, TN declared an FTZ subzone, and as a result VW has estimated that it could save upwards of $1.9 million dollars in inverted tariffs. ( Tires and parts otherwise subject to high duties enter the subzone completely exempt from them, and then later  enter the U.S.  after being incorporated into cars, no longer as parts, at a much lower duty rate.  The ability to manufacture within a subzone coupled with the exemption from ordinary Customs’ duties and tariffs can translate to very significant savings.  There are many other legal advantages we don’t have space to list here.

Declaring locations as subzones used to be seen as more a privilege than a right, but there has been a shift in this attitude over the past few years.  The application process for forming a subzone is fairly streamlined, and all of the required steps and documentation can be found at the following link:  The average total cost including necessary permit and legal fees may range from $15,000 to $25,000, and the average time span from application to operation can be  6 months or less.  It is important to consider the costs and benefits before proceeding with a decision to pursue subzone declaration, but it is clear that there a number of significant advantages from this classification.

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New BIS Export Enforcement Guidelines

As we start off this new year there are some important new changes to be aware of; this includes the Bureau of Industry and Security’s (BIS) proposed changes to export enforcement guidelines. This bureau is the agency responsible for enforcing the Export Administration Regulations (EAR), which handles all export enforcement cases. These proposed changes will impact how the BIS categorizes export violations, as well as how they determine the appropriate penalty for qualifying violations.

We must initially examine how violations will be categorized, because this will in-turn effect how they are penalized. First, BIS will categorize violation cases as either egregious or non-egregious. Four factors will be considered in determining the egregiousness of each case; a willful or reckless violation of the law, the awareness of conduct at issue, harm caused to the regulatory program objectives, and relevant individual characteristics. The other important factor at play for violation categorization is whether or not the violation was voluntarily self-disclosed. Self-disclosure was a factor of “great weight” prior to these changes,  but it now plays an even more pivotal role in determining the applicable monetary penalty.

The  proposed changes by the BIS have allowed for the creation of a base penalty matrix. This matrix takes into account the previously discussed factors, as well as the number of relevant EAR violations.  The base penalty amount is based on three different values; the maximum statutory amount, the transaction value, and the applicable schedule amount. The matrix will be structured as shown below;


The current “statutory maximum” penalty is twice the value of the transaction, not to exceed $250,000. The” transaction value” is defined as “the U.S. dollar value of a subject transaction” based on commercial invoices, bills of lading, Customs declarations, and other relevant documents. The “applicable schedule amount” referenced in the matrix is determined by referring to a table (not reproduced here) that categorizes various transaction values with corresponding penalty amounts. (Ex. If the transaction value is between $10,000 and $25,000, the corresponding schedule amount in the table is $25,000.) Once the base penalty has been determined, there are a set of factors that will be considered in determining whether the base amount needs to be adjusted. Aggravating factors increase the penalty, mitigating factors reduce the penalty, and general/other relevant factors are considered on a case-by-case basis and can either increase or reduce the penalty.

The overall goal of these changes is to make BIS penalty amounts more predictable and transparent. Additionally, these changes are intended to more closely align BIS procedures with those of the Treasury’s Office of Foreign Assets Controls (OFAC).  It is imperative for companies involved in export to understand these changes, as they could lead to higher penalties for export violations if implemented.  We have always urged clients to make Voluntary Disclosures quickly, and in most cases have avoided any penalty whatsoever.  Public comments regarding this proposal are due by February 26, 2016.

Dealing With Patent Trolls

Freight forwarders, Customs brokers, and carriers always provide shipment tracking to their customers. There are a variety of ways to do this; they may use their own software to track shipments, or they may track shipments by linking to another carriers’ website. There is nothing magical about this, yet this type of technology may be covered by patents or copyright. Logistics professionals deal with threats of patent infringement lawsuits asserted by patent owners, especially so-called patent trolls, increasingly.  Patent trolls are those who seek to enforce patent rights, but do not actually manufacture or supply services based on the patents.  They make a living just by demanding payment for the supposed infringement upon a right they themselves are unlikely to use.

The most aggressive company presently following that template in the shipping industry is ArrivalStar.  ArrivalStar is incorporated in the tax haven of Luxembourg, and it is one of the most litigious patent plaintiffs in the U.S.  In 2013 alone, it lodged 137 lawsuits across the country.   Defendants in its suits include the biggest names in logistics and transportation, such as FedEx, UPS, DHL, American Airlines, American Express, Continental Airlines, Delta Airlines, the Port Authority of New York and New Jersey, and others. Our brief analysis of ArrivalStar’s lawsuits indicate that none have actually gone to trial; most are settled quickly for an undisclosed sum.  In certain cases where the defendants vehemently fought back, ArrivalStar withdrew from the lawsuit, dropping its claims.  In some cases, its patents had been infringed and it did collect sizable license or other payments.

Trolls usually avoid active lawsuits, either because they are afraid that their patent allegations will not withstand a challenge, or because they believe that there is actually little or no infringement by the defendants. They also avoid extensive litigation because they are concerned with the costs: simply mounting a patent infringement suit can cost $100,000 in a few short months, and actually taking a case to trial can easily exceed a million dollars in legal fees and costs over a period of years.  Since trolls are often bankrolled by investors whose sole purpose is to engage in litigation, or by law firms which work on contingency, they do not have the litigation motives of a normal business competitor. When defendants fight back, trolls often retreat because they would rather go after the targets who may give in more easily.

Conventional wisdom on how to best defend a patent case does not apply in the case of trolls, because that would be conservative, expensive, and time-consuming.  Small carriers, freight forwarders, or Customs brokers do not readily have the wherewithal to finance those suits. We have helped several logistics companies avoid suits by doing a proper analysis of their tracking systems and respective data components, and then responding clearly under the U.S. Patent Act with the defenses available to both patent troll and/or ArrivalStar-type demands. Alternatively, we have settled infringement claims without extended suit.  Any such demand must be taken very seriously, but with the knowledge that a mere demand does not mean infringement actually occurred.

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