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Challenging ‘Contraband’ Counterfeit Seizures in Federal Court
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Challenging ‘Contraband’ Counterfeit Seizures in Federal Court
The seizure of counterfeit goods by federal authorities has become a big issue in recent years. Major raids have resulted in millions of dollars worth of fake merchandise being taken. While the goverment argues this is necessary to combat illegal trafficking, many small business owners feel unfairly targeted. They want to know how to challenge these seizures in court.
The main law enforcement agencies conducting counterfeit seizures are Immigration and Customs Enforcement (ICE) and Homeland Security Investigations (HSI). They regularly team up with local police on raids against storage units, warehouses, and flea markets suspected of selling knock-off goods.
In November 2019, one such joint operation between HSI and the NYPD resulted in $24 million worth of counterfeit items being confiscated from several New York storage units. The merchandise included fake Chanel, Louis Vuitton, Gucci, and NFL apparel. Two individuals were charged with trafficking offenses. U.S. Attorney Geoffrey S. Berman called it “the largest-ever seizure of counterfeit luxury goods in New York City.”[1]
While the government touts these seizures as major victories, many small retailers feel unfairly targeted. They complain of overly aggressive agents seizing merchandise based on little evidence. And once their goods are taken, there is no easy way to get them back.
The process for challenging contraband seizures is daunting for several reasons:
- The goverment has broad authority to take property suspected of being illegal or “dangerous.”
- The burden of proof is on the owner to show the property was obtained legally.
- Seized goods can be held indefinately pending resolution of a case.
- There are short deadlines to contest a seizure, often just 30 days.
- Even winning a case does not guarantee return of merchandise. The government can still destroy “contraband.”
Given these obstacles, many small retailers feel forced to settle rather than fight. They end up accepting plea deals or fines just to try recovering some of their losses.
Broad ‘Contraband’ Definition
A major issue is the broad definition of “contraband” used by federal agents. Under asset forfeiture laws, contraband can be seized without a criminal conviction. It includes: [2]
- Illegal items like drugs or weapons.
- Property used to facilitate a crime.
- Proceeds from criminal activity.
- Merchandise that violates trademark or copyright laws.
So counterfeit goods clearly fall under the contraband definition. However, retailers argue that federal agents are overzealous in declaring items to be fake or pirated copies. Small mistakes in labeling can be enough to justify seizure of an entire inventory.
For example, an independent clothing boutique had several items taken because the sizes on the label didn’t match the actual garment size. Even though the clothes themselves weren’t counterfeit, the labeling issue was enough for agents to consider them “facilitating” fraud.
The boutique owner tried explaining it was a mistake by their manufacturer. But the agents still confiscated the items, valued at over $15,000 retail. To get the clothes returned, the owner had to provide invoices from the manufacturer showing they were legitimate goods. This process took months, causing significant hardship for the small business.
Owners Must Prove Legality
Another major roadblock is the “innocent owner defense.” To challenge a seizure, the burden is on the owner to prove their merchandise was obtained legally. But doing so can be difficult.
Small retailers often source goods from a complex network of suppliers, brokers and distributors. They may not have detailed records on every item’s exact origin. This leaves them vulnerable to accusations of trafficking in counterfeit merchandise.
For example, a flea market vendor had thousands of dollars in designer sunglasses seized from his booth. He claimed to not know the glasses were fake and said he bought them from a now-defunct supplier. But he didn’t have any invoices or other proof of this.
The vendor unsuccessfully fought the seizure in court. He could not meet the burden of proving the sunglasses were purchased lawfully. So the government was allowed to destroy the counterfeit items.
No Time Limit on Holding Goods
Another frustration for owners is the indefinite holding period for seized goods. Agents can keep merchandise while an investigation and legal case play out. This process can drag on for months or even years.
Owners have no right to access seized goods until a court rules in their favor. So their inventory sits in an evidence warehouse gathering dust. This creates cash flow problems for retailers that rely on selling that merchandise. They want it back quickly, but have no recourse to speed things up.
For example, a small phone accessories kiosk in a mall had over $10,000 in inventory seized by ICE. The vendor couldn’t afford a lawyer, so he represented himself in court. It took nearly two years before he successfully recovered his goods. By then, many of the items were discontinued or damaged. So even though he won his case, it was a devastating blow to his business.
Short Deadline to File Claim
To contest a federal seizure, owners must file a claim very quickly, usually within 30 days. This short deadline makes it difficult to obtain legal counsel and get the necessary records together.
Many owners end up missing the deadline because they don’t understand the strict procedures for challenging forfeitures. As a result, their goods are forfeited by default. And it becomes much harder to recover them after that point.
For example, a small online electronics seller had a shipment of refurbished Apple products seized at the U.S. border. He thought he could resolve it directly with CBP by providing invoices showing he bought the items legally. But while negotiating with agents, the 30-day deadline passed.
So by the time he got a lawyer, it was too late to file a claim. The electronics were already considered forfeited. He was forced to settle with the government to get any compensation. And he never recovered the seized inventory.
No Guarantee Merchandise Will Be Returned
Finally, even if an owner wins in court, the government still has authority to destroy seized merchandise deemed “contraband.” So there is no guarantee of getting goods back, even after proving they were obtained legally. [3]
This is understandably very frustrating for owners who fight long legal battles expecting to recover their property. They think proving the legality of their goods should entitle them to get it all back. But that is often not the case when it comes to forfeitures.
For example, a small designer successfully sued the government after HSI raided their factory and seized thousands of items. They were able to show the goods did not violate any trademarks or copyrights. But because the products were alleged to be “counterfeit,” the court still allowed HSI to destroy them, even though no laws were broken.
Fighting an Uphill Battle
These examples show why many owners feel like they are fighting an uphill battle to recover seized goods. The system makes it difficult to challenge forfeitures, even when no counterfeiting occurred. So retailers become discouraged and reluctant to spend time and money on a lengthy court fight.
Some suggestions for improving the process include:
- Having neutral third-parties inspect seized goods for counterfeiting instead of only law enforcement.
- Quickly returning merchandise if owners can provide proof it was obtained legally.
- Requiring more detailed evidence from agents before goods can be seized.
- Extending deadlines for owners to contest seizures.
- Setting reasonable time limits for how long goods can be held.
- Allowing return of property if owners win in court, instead of still allowing destruction.
These changes could help make the system more fair and transparent for small business owners. It would enable them to better exercise their rights to recover seized merchandise. And it ensures only true counterfeit traffickers are targeted, not legitimate retailers who make honest mistakes.
The government wants to appear tough on counterfeiting. But they should be careful that enforcement efforts don’t go too far. It’s important to still provide businesses proper due process protections. Otherwise, livelihoods can be ruined over minor errors that get blown out of proportion.
With some common sense reforms, federal agencies can still combat trafficking while avoiding unnecessary harm to small retailers. The rights of all parties must be balanced in our justice system.
References
[1] U.S. Attorney’s Office Press Release
[2] U.S. Government Accountability Office Report
[3] Vanderbilt Law Review Article