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United States Government Accountability Office: 
GAO: 

Report to the Committee on Finance, U.S. Senate: 

November 2014: 

Intellectual Property: 

U.S. Customs and Border Protection Could Better Manage Its Process to 
Enforce Exclusion Orders: 

GAO-15-78: 

GAO Highlights: 

Highlights of GAO-15-78, a report to the Committee on Finance, U.S. 
Senate. 

Why GAO Did This Study: 

Under Section 337 of the Tariff Act of 1930, ITC investigates 
allegations of unfair import practices, including unlicensed use of 
intellectual property rights such as patents, copyrights, and 
trademarks. If ITC finds a violation of this law, it generally issues 
an exclusion order that directs CBP to deny entry of infringing 
products into U.S. commerce. CBP must determine, without inhibiting 
legitimate trade, whether products arriving at 328 U.S. ports are 
covered by exclusion orders. 

GAO was asked to review CBP's enforcement of exclusion orders. This 
report (1) describes CBP's processes for enforcing exclusion orders 
and (2) assesses CBP's management of its enforcement process at ports 
of entry. GAO analyzed CBP and ITC documents and data from October 
2009 through April 2014 and interviewed CBP and ITC officials. 

What GAO Found: 

The Department of Homeland Security's U.S. Customs and Border 
Protection (CBP) uses two processes to enforce exclusion orders issued 
by the U.S. International Trade Commission (ITC): a four-phase process 
to detect and deny entry to or seize infringing products at U.S. ports 
and an administrative ruling process that determines in advance of 
importing whether products are covered by exclusion orders. In the 
first phase of the process to enforce exclusion orders at the ports, 
CBP drafts a trade alert that provides enforcement instructions to CBP 
national targeting groups and local officials at all ports of entry to 
identify shipments for examination; without an alert, officials said, 
it would be difficult for CBP components to enforce an exclusion 
order. From September 2010 through April 2014, CBP excluded 158 
shipments of products, such as ink cartridges and footwear. Before a 
company attempts to import a certain product, it may request that CBP 
determine through its administrative ruling process whether the 
product is covered by a particular exclusion order. 

Figure: U.S. Customs and Border Protection's Process to Enforce 
Exclusion Orders at the Ports: 

[Refer to PDF for image: illustration] 

Issuing alerts: 
CBP receives exclusion order from ITC; 
CBP issues trade alert to intranet. 

Targeting shipments: 
National targeting groups and local port officials use alert to 
develop strategies for identifying shipments; 
Cargo and targeting systems. 

Examining products: 
Port officials consult systems and pull identified shipment; 
Port officials examine products in shipment. 

Excluding infringing shipments: 
Products covered by exclusion order? 
If no: Shipment released for entry; 
If yes: 
CBP excludes shipment; may seize and destroy products in future 
shipments; 
Port officials enter action into reporting system; 
CBP sends notice of action to importer and ITC. 

Source: GAO analysis of CBP documents and interviews with CBP 
officials. GAO-15-78. 

CBP: U.S. Customs and Border Protection; 
ITC: U.S. International Trade Commission. 

[End of figure] 

CBP's management of its exclusion order enforcement process at the 
ports contains weaknesses that result in inefficiencies and an 
increased risk of infringing products entering U.S. commerce. First, 
CBP does not routinely review ITC's list of exclusion orders or take 
other action to ensure that a trade alert has been posted to its 
intranet for each order. At GAO's request, CBP reviewed ITC's list of 
exclusion orders as of April 30, 2014, and reported that it had posted 
trade alerts for 83 of the 94 exclusion orders; however, it posted 17 
of the 83 trade alerts after GAO's request for data. Without routinely 
taking action to ensure that trade alerts are posted to CBP's 
intranet, infringing products could enter into U.S. commerce. Second, 
CBP does not routinely review ITC's list of exclusion orders to 
identify orders that may be candidates for rescission by ITC. 
Requesting rescission of exclusion orders could enable CBP to focus 
its enforcement efforts more effectively and efficiently. Third, CBP's 
guidance lacks time frames for issuing trade alerts, which prevents 
CBP from monitoring timeliness. GAO found that it took CBP from 2 days 
to 3 months to request a posting of a trade alert to the intranet 
during the period from October 2009 through April 2014. Without 
actively managing trade alerts and establishing time frames for 
posting alerts, CBP management cannot hold staff accountable for 
timely enforcement of exclusion orders, and there is an increased risk 
of infringing products entering U.S. commerce. 

What GAO Recommends: 

GAO recommends that CBP update its internal guidance with requirements 
to (1) routinely ensure that trade alerts are posted to the CBP 
intranet for each exclusion order, (2) routinely identify any orders 
whose changed conditions merit a CBP request that ITC rescind them, 
and (3) monitor timeliness of trade alert issuance. CBP concurred with 
recommendations one and three and described actions planned or under 
way to address them. However, CBP did not concur with recommendation 
number two. According to CBP, it is not mandated to identify 
potentially outdated orders and request that ITC rescind them. GAO 
continues to believe the recommendation is valid for reasons discussed 
in the report. 

View [hyperlink, http://www.gao.gov/products/GAO-15-78]. For more 
information, contact Kimberly M. Gianopoulos at (202) 512-8612 or 
gianopoulosk@gao.gov. 

[End of section] 

Contents: 

Letter: 

Background: 

CBP Uses Two Processes to Enforce Exclusion Orders, Depending on 
Whether Products Have Already Been Shipped: 

Management Weaknesses in CBP's Enforcement Process at Ports Result in 
Inefficiencies and Increased Risk of Infringing Products Entering U.S. 
Commerce: 

Conclusions: 

Recommendations for Executive Action: 

Agency Comments and Our Evaluation: 

Appendix I: Objectives, Scope, and Methodology: 

Appendix II: U.S. Customs and Border Protection Offices Responsible 
for Exclusion Order Enforcement: 

Appendix III: U.S. Customs and Border Protection Centers of Excellence 
and Expertise: 

Appendix IV: Comments from the Department of Homeland Security: 

Appendix V: GAO Contact and Staff Acknowledgments: 

Tables: 

Table 1: Number of Shipments and Examples of Products Excluded or 
Seized as a Result of U.S. Customs and Border Protection's Enforcement 
of Exclusion Orders, Fiscal Year 2010 through Fiscal Year 2014: 

Table 2: U.S. Customs and Border Protection Centers of Excellence and 
Expertise: 

Figures: 

Figure 1: Summary of the U.S. International Trade Commission's Section 
337 Investigation Process: 

Figure 2: Exclusion Orders: Types, Unfair Acts Covered, Product 
Categories, and Issuance Dates of Exclusion Orders in Effect as of 
April 30, 2014: 

Figure 3: U.S. Customs and Border Protection's Process to Enforce 
Exclusion Orders at the Ports: 

Figure 4: U.S. Customs and Border Protection Process for 
Administrative Rulings to Determine Prior to Importation Whether a 
Product Falls within the Scope of an Exclusion Order: 

Figure 5: Status of U.S. Customs and Border Protection's Trade Alerts 
for Exclusion Orders as of April 30, 2014: 

Figure 6: Key Customs and Border Protection Offices Involved in 
Exclusion Order Enforcement: 

Abbreviations: 

CBP: Customs and Border Protection: 

CROSS: Customs Rulings Online Search System: 

DHS: Department of Homeland Security: 

IPR Branch: Intellectual Property Rights Branch: 

IPR-NTAG: Intellectual Property Rights National Targeting and Analysis 
Group: 

ITC: International Trade Commission: 

OMB: Office of Management and Budget: 

USTR: United States Trade Representative: 

[End of section] 

United States Government Accountability Office: 
GAO:
441 G St. N.W. 
Washington, DC 20548: 

November 19, 2014: 

The Honorable Ron Wyden: 
Chairman: 
The Honorable Orrin G. Hatch: 
Ranking Member: 
Committee on Finance: 
United States Senate: 

Intellectual property plays an important role in the U.S. economy. The 
nation's legal and regulatory system of intellectual property rights, 
according to a 2012 Department of Commerce report,[Footnote 1] helps 
establish and sustain industries, drives innovation, and facilitates 
trade and commerce. Protecting intellectual property rights against 
infringement, however, is costly and complex. Companies may spend 
millions in litigation to protect their intellectual property rights, 
and determining whether specific imported products infringe on 
intellectual property rights can be complicated, particularly for 
technologically advanced products. Smartphones, for instance, combine 
software and hardware that undergo rapid changes in design and 
functionality. A single smartphone may have features and functions 
described in over 100,000 patents, including, for example, the phone's 
rounded corners or the particular finger movement needed to unlock the 
touch screen. 

Under Section 337 of the Tariff Act of 1930 (hereafter referred to as 
Section 337), the U.S. International Trade Commission (ITC) 
investigates allegations of unfair import practices, including those 
that infringe on intellectual property rights, such as unlicensed use 
of patents, copyrights, and trademarks.[Footnote 2] If ITC finds a 
violation of this law, it generally issues an exclusion order that 
directs the Department of Homeland Security's (DHS) U.S. Customs and 
Border Protection (CBP) to deny entry of infringing products into U.S. 
commerce.[Footnote 3] To enforce exclusion orders, CBP must determine 
whether products arriving at 328 U.S. ports of entry fall within the 
scope of exclusion orders, and as part of its mission, CBP endeavors 
to do so without inhibiting legitimate trade. In this report, we refer 
to the efforts that CBP undertakes to detect imports of infringing 
products as CBP's enforcement process at the ports. In addition to 
these enforcement efforts, CBP may be asked by companies to determine, 
in advance of importing certain products, whether those products are 
covered by a particular exclusion order, for instance, when a company 
has redesigned an infringing product such that it no longer infringes 
on the intellectual property right thereby falling outside the 
coverage of the exclusion order. In this report, we refer to these 
anticipatory efforts to facilitate enforcement as CBP's administrative 
ruling process.[Footnote 4] 

You requested that we review CBP's efforts to enforce exclusion 
orders. In this report, we (1) examine CBP's processes for enforcing 
exclusion orders and (2) assess CBP's management of its enforcement 
process at ports of entry. In this report, we neither take a position 
on, nor do we address, the matters pending in ongoing litigation 
between Microsoft and DHS related to CBP's enforcement of an exclusion 
order.[Footnote 5] 

To examine CBP's exclusion order enforcement processes and assess CBP 
management of its enforcement process at the ports, we (1) reviewed 
relevant laws, regulations, and CBP internal guidance, such as 
directives and procedures, and (2) interviewed CBP officials at 
headquarters, the field offices, and the ports, as well as officials 
at ITC and the Office of Management and Budget's (OMB) Office of the 
Intellectual Property Enforcement Coordinator. We selected ports with 
experience in enforcing exclusion orders as shown by CBP exclusions 
data from September 16, 2010, through April 30, 2014.[Footnote 6] We 
also selected ports where we could discuss and observe CBP's exclusion 
order enforcement process for shipments arriving in land, sea, and air 
environments. We visited the ports of Buffalo and John F. Kennedy 
International Airport in New York and Los Angeles/Long Beach Seaport 
and Los Angeles International Airport in California. To understand 
CBP's future exclusion order enforcement efforts, we interviewed CBP 
officials from the Electronics Center of Excellence and Expertise in 
Los Angeles, California; the Industrial and Manufacturing Materials 
Center of Excellence and Expertise in Buffalo, New York; and the 
Pharmaceuticals, Health, and Chemicals Center of Excellence and 
Expertise in New York, New York. The information gathered from our 
site visits cannot be generalized to all ports and field offices. We 
evaluated CBP's management of its enforcement process at the ports 
against requirements established by its own internal guidance and by 
government-wide internal control standards.[Footnote 7] We reviewed 
all exclusion orders in effect as of April 30, 2014, and collected CBP 
data on internal trade alerts used for targeting shipments of 
potentially infringing products. We also analyzed CBP data on the 
number of shipments CBP excluded from entry from September 16, 2010, 
through April 30, 2014. Using ITC exclusion order issuance dates and 
CBP's data on trade alert issuance dates, we analyzed the number of 
workdays the CBP officials took to request a posting of trade alerts 
to the CBP intranet from exclusion orders issued from October 1, 2009, 
through April 30, 2014. To assess the reliability of the data CBP 
provided to us, we interviewed agency officials and reviewed 
information regarding the underlying data systems and the checks, 
controls, and reviews used to generate the data and ensure their 
accuracy and reliability. We found the data sufficiently reliable for 
our purposes. For more information about our scope and methodology, 
see appendix I. 

We conducted this performance audit from November 2013 to November 
2014 in accordance with generally accepted government auditing 
standards. Those standards require that we plan and perform the audit 
to obtain sufficient, appropriate evidence to provide a reasonable 
basis for our findings and conclusions based on our audit objectives. 
We believe that the evidence obtained provides a reasonable basis for 
our findings and conclusions based on our audit objectives. 

Background: 

CBP is responsible for enforcing exclusion orders, which ITC issues 
upon a final determination of a violation of Section 337 and after 
consideration of public interest factors enumerated in the law. 
[Footnote 8] Unlawful activities covered by Section 337 include 
importing into the United States articles that infringe upon certain 
intellectual property rights or other unfair import practices 
described by Section 337.[Footnote 9] According to ITC, most Section 
337 investigations involve allegations of patent infringement. The ITC 
generally completes a Section 337 investigation within 12 to 18 
months, according to ITC officials. The length of an investigation may 
be influenced by the number of companies alleged to be importing 
infringing products; the number of patent infringements, or other 
unfair import practices, involved in the allegations; the complexity 
of the technology involved; the ITC staff's workload; and other 
factors. The ITC's investigation process consists of the seven steps 
shown in figure 1 and briefly summarized below.[Footnote 10] 

Figure 1: Summary of the U.S. International Trade Commission's Section 
337 Investigation Process: 

[Refer to PDF for image: illustration] 

1. Section 337 complaint; 
2. Decision to institute investigation; 
3. Public notice of investigation; 
4. Investigation; 
5. Initial determination; 
6. Review; 
7. Final determination. 

Source: GAO analysis of ITC data and interviews with officials. 
GAO-15-78. 

[End of figure] 

1. Section 337 complaint: A complainant (e.g., the intellectual 
property rights holder) files a complaint containing detailed facts 
alleging a violation of Section 337 and names the proposed 
respondents--the companies alleged to be involved in the manufacture, 
production, sale, or importation of infringing products. In response 
to a Federal Register notice published upon receipt of the complaint, 
the respondents and members of the public may make comments on the 
public interest issues arising from the complaint and potential 
exclusion orders. The complainant may respond to these public interest 
submissions. 

2. Decision to institute investigation: The ITC's Office of Unfair 
Import Investigations examines the complaint for sufficiency and 
compliance with all ITC rules and requirements. The ITC generally 
makes the decision to institute an investigation within 30 to 35 days. 
[Footnote 11] 

3. Public notice of investigation: If the ITC determines to institute 
an investigation, it issues a public notice in the Federal Register 
commencing an investigation based on the complaint. The notice date 
establishes the official start of the Section 337 investigation. The 
ITC will serve a copy of the complaint and notice of the investigation 
to all respondents named in the investigation and to the embassies in 
Washington, D.C., of the foreign respondents' countries. 

4. Investigation: The ITC delegates the investigation to the Chief 
Administrative Law Judge who assigns the case to an administrative law 
judge to preside over the proceedings. When appropriate, the Office of 
Unfair Import Investigations is also named as a party to the 
investigation. The presiding judge sets a target date by which the ITC 
investigation should be completed. The parties, including complainants 
and respondents, present information such as evidence and arguments 
with respect to alleged unlawful importations or sales. 

5. Initial determination: The presiding administrative law judge holds 
a hearing approximately 8 to 10 months after the public notice of 
investigation. After the hearing, the judge issues an initial 
determination as to whether the respondents violated Section 337 and, 
if appropriate, a recommendation for remedy (the recommended 
determination). The initial determination is issued no later than 4 
months before the target date set by the presiding judge for 
completion of the investigation. The ITC invites the parties and the 
public to submit comments regarding the public interest considerations 
through a Federal Register notice published within 30 days of the 
issuance of the recommended determination. 

6. Review: The ITC may determine to review the initial determination 
within 60 days of its issuance. If the ITC decides to review the 
initial determination, it identifies the issues under review, and 
requests briefings from the parties, including the complainants and 
respondents, on matters such as the substantive issues affecting 
whether there is a violation and on the remedy. The ITC also requests 
written submissions from the parties, other government agencies, and 
the public regarding remedy, bonding, and public interest.[Footnote 
12] At the end of the review period, the ITC issues a final decision 
to affirm the initial determination, modify it, reverse it, or refer 
the matter back to the presiding administrative law judge for further 
proceedings. 

7. Final determination: The ITC publishes notice of its final 
determination in the Federal Register. If the ITC determines that 
there is a violation, it also determines the appropriate remedy after 
considering the public interest. The remedies may include an exclusion 
order. The ITC's determination, the resulting orders, and the record 
supporting its determination are transmitted to the President of the 
United States, the United States Trade Representative (USTR), the 
Secretary of the Treasury, and CBP. The exclusion order is e-mailed to 
CBP on the date of issuance for enforcement.[Footnote 13] According to 
CBP officials, the ITC notifies CBP of the exclusion order by e-mail 
on the same day that it issues an exclusion order and thereafter meets 
with CBP regarding the involved exclusion order. 

There are two types of exclusion orders: general and limited. General 
exclusion orders direct CBP to exclude all infringing products without 
regard to source; limited exclusion orders direct CBP to exclude 
infringing products from a specified company or companies. For 
example, a general exclusion order on infringing printer cartridges 
may affect all importers of printer cartridges, whereas a limited 
exclusion order directs CBP to exclude covered products from named 
respondents. Based on ITC data, there were 94 exclusion orders in 
effect as of April 30, 2014, about half of which were general 
exclusion orders that affect a greater number of companies than 
limited orders. 

Side bar: 

Definitions of Patents, Trademarks, and Copyrights according to the 
U.S. Patent and Trademark Office: 

A patent is an intellectual property right granted by the government 
of the United States of America to an inventor "to exclude others from 
making, using, offering for sale, or selling the invention throughout 
the United States or importing the invention into the United States" 
for a limited time in exchange for public disclosure of the invention 
when the patent is granted. 

A trademark is a brand name or service mark that includes any word, 
name, symbol, device, or any combination, used or intended to be used 
to identify and distinguish the goods/services of one seller or 
provider from those of others, and to indicate the source of the 
goods/services. 

A copyright protects original works of authorship, such as writings, 
music, and works of art that have been tangibly expressed. 

Source: U.S. Patent and Trademark Office. GAO-15-78. 

[End of side bar] 

Exclusion orders cover a range of unfair acts, such as patent, 
trademark, and copyright infringement, as well as trade dress 
infringement, trade secret misappropriation, false advertising, and 
false designation of origin. Of the 94 exclusion orders in effect as 
of April 30, 2014, about 60 percent involved products such as 
integrated circuits, computer components, consumer electronics 
products, and chemical compositions that infringe U.S. patents. The 94 
exclusion orders covered a range of products, such as electronic 
goods; machinery parts; plastic plates, lids, footwear, and toys; 
motor vehicle parts and accessories; energy drinks; and cigarettes. Of 
the 94 exclusion orders, more than half were issued in 2005 through 
2014; the oldest was issued in 1979. Exclusion orders can be active 
until the protected intellectual property rights expire or ITC 
rescinds the orders.[Footnote 14] See figure 2 for an overview of 
exclusion order characteristics. 

Figure 2: Exclusion Orders: Types, Unfair Acts Covered, Product 
Categories, and Issuance Dates of Exclusion Orders in Effect as of 
April 30, 2014: 

[Refer to PDF for image: pie-chart, horizontal bar graph, line graph 
and associated data] 

Types of exclusion orders: 
General: 50; 
Limited: 43; 
Both[A]: 1. 

Types of unfair acts covered by exclusion orders[B]: 
Patent: 57; 
Trademark: 37; 
Copyright: 7; 
Trade dress[C]: 6; 
Other (trade secrets, false advertising, marking): 4. 

Types of products covered by exclusion orders: 

* Electric machinery, sound equipment, television equipment, and parts 
(e.g., amplifiers, electronic integrated circuits, or processors and 
controllers); 

* Nuclear reactors, boilers, machinery, and parts (e.g., print 
machinery including ink; valves for pipes; or machinery for sorting); 

* Plastics and articles thereof (e.g., plastic household and toilet 
articles, lids, or caps and other plastic closures); 

* Toys, games, sport equipment, and parts and accessories (e.g., toys 
and reduced scale models); 

* Vehicles, except railway or tramway, and parts (e.g., track-laying 
tractors, parts and accessories of motor vehicles, or motor vehicles); 

* Optic, photo, medical, or surgical instruments (e.g., optical 
instruments and appliances used in medical, surgical, dental, or 
veterinary sciences); 

* Other commodity groups (e.g., organic chemicals, footwear, 
beverages, and pharmaceutical products). 

Issuance date for exclusion orders: 

Number: 

1979: 1. 

1980: 1. 

1981: 1. 

1982: 2. 

1983: 2. 

1984: 3. 

1985: 3. 

1986: 2. 

1987: 0. 

1988: 1. 

1989: 3. 

1990: 1. 

1991: 2. 

1992: 0. 

1993: 0. 

1994: 0. 

1995: 0. 

1996: 1. 

1997: 1. 

1998: 0. 

1999: 1. 

2000: 1. 

2001: 1. 

2002: 2. 

2003: 2. 

2004: 4. 

2005: 5. 

2006: 5. 

2007: 5. 

2008: 4. 

2009: 8. 

2010: 5. 

2011: 11. 

2012: 5. 

2013: 8. 

2014: 3. 

Source: GAO analysis of U.S. Customs and Border Protection and U.S. 
International Trade Commission data. GAO-15-78. 

[A] U.S. International Trade Commission (ITC) Investigation Number 337-
TA-487 resulted in both a limited exclusion order and a general 
exclusion order, but it is enforced by U.S. Customs and Border 
Protection as a single exclusion order. 

[B] The types of unfair acts listed do not total 94 because some 
exclusion orders may cover multiple intellectual property rights. For 
example, Investigation Number 337-TA-780 covers a utility patent, a 
design patent, and a trademark. 

[C] According to ITC, trade dress is a product's total appearance and 
image, including features such as size, texture, shape, colors, and 
graphics. 

[End of figure] 

CBP Uses Two Processes to Enforce Exclusion Orders, Depending on 
Whether Products Have Already Been Shipped: 

CBP uses two processes to enforce exclusion orders: a four-phase 
process to detect and deny entry to or seize infringing products at 
U.S. ports and an administrative ruling process that determines in 
advance of importing whether products are covered by exclusion orders. 
Enforcement efforts begin when CBP receives the exclusion order from 
the ITC.[Footnote 15] CBP's Office of International Trade and Office 
of Field Operations administer a process for enforcing exclusion 
orders at the ports that involves four phases: issuing trade alerts, 
targeting shipments, examining products, and excluding infringing 
shipments. CBP's Intellectual Property Rights (IPR) Branch within the 
Office of International Trade uses an administrative ruling process 
that upon request, determines in advance of importing whether products 
are covered by exclusion orders. (See appendix II for an organization 
chart showing the CBP offices involved in the enforcement processes.) 
Companies with existing products or companies that have redesigned 
products such that they no longer infringe on the intellectual 
property rights, thereby falling outside the coverage of the exclusion 
order, may request that CBP determine through its administrative 
ruling process whether the companies can import the specified products 
without violating the order. CBP officials said that these companies 
generally submit their requests for an administrative ruling around 
the time when the exclusion order is issued. 

CBP Uses a Four-Phase Process to Enforce Exclusion Orders at the Ports: 

As shown in figure 3, CBP's process to enforce exclusion orders at the 
ports has four phases. In the first phase, upon receiving an exclusion 
order from ITC, CBP drafts a trade alert that provides enforcement 
instructions to CBP national targeting groups and officials at all 
ports of entry.[Footnote 16] IPR Branch officials said the trade alert 
generally triggers CBP's enforcement at the ports; without an alert, 
officials said, it would be difficult for CBP components to enforce an 
exclusion order. In the second phase, the national targeting groups 
and local port officials may develop targeting strategies for each 
exclusion order to detect shipments with potentially infringing 
products for examination. In the third phase, port officials examine 
targeted shipments to determine whether the products are covered by 
exclusion orders. Lastly, port officials exclude or seize shipments 
with infringing products, notify importers and ITC of exclusions, and 
document exclusions in a CBP tracking system. 

Figure 3: U.S. Customs and Border Protection's Process to Enforce 
Exclusion Orders at the Ports: 

[Refer to PDF for image: process illustration] 

Phase 1: Issuing trade alerts[A]: 
CBP receives exclusion order from ITC; 
CBP posts trade alert on the CBP intranet. 

Phase 2: Targeting shipments: 
Companies involved in the ITC investigation may provide CBP with 
relevant targeting information; 
National: Targeting groups use information from alerts and companies 
to develop targeting strategies for identifying shipments for 
examination at all ports; 
Local: Port officials may use information from alert to develop 
targeting strategies for identifying shipments for examination at 
local ports. 

Phase 3: Examining products: 
Port officials consult cargo and targeting systems and pull identified 
shipment for examination; 
Port officials examine products in shipment and review information in 
trade alert to determine if they are covered by an exclusion order; 
Port officials consult with CBP headquarters officials for guidance. 

Phase 4: Excluding infringing shipments[B]: 
Products covered by exclusion order? 
If no: Shipment released for entry; 
If yes: 
First importation: CBP excludes shipment from entry; or: 
Subsequent importations: CBP seizes and destroys products in shipment; 
Port officials enter exclusion or seizure into exclusion order 
tracking and notification system; 
CBP sends notice of exclusion or seizure to importer and ITC. 

Source: GAO analysis of CBP documents and interviews with CBP 
officials. GAO-15-78. 

CBP: U.S. Customs and Border Protection; 
ITC: U.S. International Trade Commission. 

Notes: Not shown in the graphic is CBP's exclusion order enforcement 
process during the United States Trade Representative's 60-day review 
period. During this review period, companies are allowed to continue 
importing if they secure a bond in advance of importing products, 
assuming a bond is required. 

[A] CBP officials said that companies interested in determining 
whether their existing or redesigned products are covered by exclusion 
orders generally submit their requests for an administrative ruling 
around the time that CBP receives notice of the exclusion order from 
ITC. See the discussion of CBP's administrative ruling process later 
in this section. 

[B] After an importer's first excluded shipment, ITC generally will 
issue a seizure and forfeiture order to CBP, which directs CBP to 
seize, rather than merely deny entry to, any future shipments of the 
same infringing products from the importer. 

[End of figure] 

Phase 1: Issuing Trade Alerts: 

Using information from the exclusion order, IPR Branch officials, 
sometimes with assistance from CBP's Electronics Center of Excellence 
and Expertise (Electronics Center),[Footnote 17] draft trade alerts 
with enforcement instructions to national targeting groups and local 
port officials. The trade alert generally includes information such as 
a description of the protected intellectual property right, names of 
the companies known to import infringing products, specific 
enforcement instructions, and the CBP national groups responsible for 
targeting shipments. According to standard operating procedures, IPR 
Branch officials post the trade alert on the CBP intranet, an internal 
network that officials said is accessible to all CBP officials. Upon 
receipt of any additional information from the ITC or the 
complainants,[Footnote 18] the IPR Branch updates trade alerts as 
necessary. IPR Branch officials told us that the trade alert generally 
triggers CBP's enforcement at the ports; without an alert, officials 
said, it would be difficult for all CBP components to enforce an 
exclusion order. 

Phase 2: Targeting Shipments: 

The second phase of CBP's enforcement process involves the development 
of national and local targeting strategies to help identify shipments 
with products covered by exclusion orders for possible examination. 

National targeting: At the national level, the Intellectual Property 
Rights National Targeting and Analysis Group (IPR-NTAG) or the 
Electronics Center develops targeting strategies for identifying 
shipments with products covered by exclusion orders. Using information 
found in the trade alerts and other sources, officials from these 
groups analyze data on countries of origin, ports of entry, 
transportation modes, importers, shippers, and manufacturers to 
develop strategies. According to Electronics Center officials, 
information from meetings with complainants and respondents may help 
inform the development of their targeting strategies. 

To carry out national targeting strategies, IPR-NTAG and Electronics 
Center officials primarily use two targeting methods: user-defined 
rules and cargo hold requests. 

* User-defined rules: Based on their analysis, officials may create a 
user-defined rule, which is a set of criteria that is entered into 
CBP's national targeting system.[Footnote 19] If an incoming shipment 
meets the criteria established in the rule, the system will identify 
the shipment for potential examination. User-defined rules provide 
continuous targeting of shipments arriving at all ports for as long as 
the rule exists in the system. IPR-NTAG officials said they generally 
test a rule for 1 to 2 weeks to determine the number of shipments 
identified for examination and, of those shipments examined, the 
number found not to contain infringing products (negative exams). 
Based on the resulting proportion of negative exams, officials will 
adjust the rule to avoid overtargeting and ensure that the number of 
shipments identified by the rule does not inhibit the flow of 
legitimate trade. Officials said that targeting with user-defined 
rules is straightforward for limited exclusion orders because these 
identify infringing importers and may also specify the shipments' 
countries of origin and ports of entry. For example, officials 
developed a user-defined rule for a limited exclusion order covering 
certain digital televisions; the exclusion order listed the companies 
known to import infringing products. By contrast, officials said that 
national targeting with user-defined rules may not be feasible for 
general exclusion orders because these are broadly scoped and user-
defined rules can only be refined up to a point. General exclusion 
orders tend to cover products that fall under a general description, 
such as rubber-soled shoes, with a large volume of shipments and from 
multiple companies and countries of origin. As a result, user-defined 
rules for some general exclusion orders would identify hundreds of 
shipments for examination at multiple ports, resulting in numerous 
negative exams, thus inhibiting the flow of legitimate trade. 

* Officials said that user-defined rules are revised based on 
targeting results and any new information from complainants and 
respondents. If user-defined rules do not result in the detection of 
infringing shipments over time, officials will terminate them. 
However, targeting officials may create a new user-defined rule if a 
complainant reports to the IPR Branch that it is finding products 
within U.S. commerce that should have been excluded, or if a 
complainant gains new information on companies that are importing 
infringing shipments. 

* Cargo hold requests: Officials said that if they cannot create user-
defined rules, as in the case of a general exclusion order, they may 
manually review the information in their cargo and targeting systems 
and identify incoming shipments for examination based on information 
in the trade alert.[Footnote 20] When they identify such shipments, 
officials send cargo hold requests to specific ports designating the 
shipments to be pulled for examination. These cargo hold requests may 
provide information such as the relevant exclusion order; a link to 
the trade alert; examination instructions; information relating to the 
importer, manufacturer, or products; and contact information for any 
necessary follow-up communication with the targeting groups. 

Unlike user-defined rules, cargo hold requests apply only to shipments 
at specific ports and occur only when officials conduct manual reviews 
of information on arriving shipments. IPR-NTAG officials said they 
review information on incoming shipments as part of their regular job 
duties, but they noted that exclusion order enforcement is one of many 
enforcement activities they must conduct.[Footnote 21] As a result, 
these officials said the number of cargo holds requested varies based 
on how individual officials prioritize their responsibilities to 
manage their workloads. 

Side bar: 

Local Operation: Interlocking Laminate Flooring: 

From March to May 2014, U.S. Customs and Border Protection (CBP) 
officials at the Port of Los Angeles/Long Beach said they conducted an 
operation targeting shipments of interlocking laminate flooring, which 
is covered by a general exclusion order. Based on their research, 
officials had found that 70 percent of the companies importing 
infringing products imported them through this port. Port officials 
said they targeted 58 shipments; 26 of the 58 shipments, or 45 
percent, contained products that were covered by the exclusion order. 
As a result of the operation, officials said that the importers began 
sourcing their shipments from licensed manufacturers to comply with 
the exclusion order. 

Source: CBP. GAO-15-78. 

[End of side bar] 

Local targeting: Local port officials may conduct local targeting for 
exclusion orders when resources are available and such targeting would 
not duplicate national targeting efforts. Port officials told us they 
specialize in the commodities that commonly arrive at their ports and 
use their expertise to analyze data on incoming shipments to identify 
suspicious shipments for examination. According to port officials, 
local targeting methods include developing local user-defined rules, 
generating cargo hold requests, and conducting port-based operations, 
which are targeting exercises conducted within a specific time frame 
on specific shipments of products at specific ports.[Footnote 22] Port 
officials also told us that the amount of local targeting conducted 
varies based on how individual officials prioritize their 
responsibilities to manage their workloads. 

Phase 3: Examining Products: 

Based on the results of the various targeting methods, port officials 
may examine products in the identified shipments to determine whether 
the products are covered by exclusion orders. Officials at the ports 
we visited told us that they will frequently seek guidance from IPR 
Branch officials when determining whether a product is covered by an 
exclusion order. At the initiative of the complainant, CBP officials 
may receive training in determining how products in shipments may 
infringe upon the intellectual property rights of the complainant's 
product. For example, Electronics Center officials said that a company 
that produces inkjet printer cartridges contacted CBP and arranged to 
provide training to port officials on the features of its cartridges 
and how to determine if imported products violate the company's 
patents. In addition, CBP officials may use specialized equipment to 
gain additional information on the imported products. For example, to 
quickly determine if imported pills contain formulas that are covered 
by an exclusion order, port officials told us they use handheld tools 
that can scan powder in pills and report the formula used. CBP 
officials can also consult a network of six internal labs to conduct 
analyses on products as part of their fact finding. For example, 
Electronics Center officials said they use the electronics lab in San 
Francisco, California, if they must examine a high-tech product with 
complex patents, such as mobile phone software or hardware. 

Phase 4: Excluding Infringing Shipments: 

If port officials determine that a product is covered by an exclusion 
order, CBP excludes the shipment from entering U.S. commerce and 
notifies the importer of its action. At this point, the importer may 
decide to return the shipment to the port of origin or export it to 
another country.[Footnote 23] After an importer's first excluded 
shipment, ITC generally will issue a seizure and forfeiture order to 
CBP, which directs CBP to seize, rather than merely deny entry to, any 
future shipments of the same infringing products from the importer. 
[Footnote 24] Once ITC issues the seizure and forfeiture order, CBP 
officials said they update the trade alert and targeting instructions 
in the targeting system so that port officials know to seize any 
future shipments of the infringing products.[Footnote 25] However, if 
port officials determine that a product is not covered by an exclusion 
order, the shipment is released for entry into the United States. 
[Footnote 26] 

Port officials enter data on excluded or seized shipments into CBP's 
exclusion order notification and tracking system. Developed in 2010 in 
response to a GAO recommendation, the system enables port officials to 
enter excluded shipments into the system and document the date, time, 
location, and action taken for each excluded shipment.[Footnote 27] 
The system then electronically notifies the port director and the IPR 
Branch of the exclusion or seizure. The port director sends a letter 
explaining the exclusion or seizure to the importer, the IPR Branch, 
and the ITC. 

When CBP seizes counterfeit products at ports, it notifies the 
affected intellectual property rights holders. However, when CBP 
denies entry to or seizes products that are covered by an exclusion 
order, CBP does not inform the complainants. In our 2008 report, we 
found that some companies do not consider CBP's enforcement of 
exclusion orders to be transparent because of this lack of 
communication from CBP, which may impede the complainant's ability to 
protect its intellectual property rights, independently and in 
collaboration with CBP. We recommended in that report that CBP examine 
whether it has the statutory authority needed to develop regulations 
that would allow CBP to notify complainants of infringing shipments 
that have been excluded, and if authorized, to develop such 
regulations.[Footnote 28] CBP subsequently determined that it did not 
have the required statutory authority and identified the need for 
legislative action, which it believed would help strengthen 
enforcement efforts. According to CBP officials, increased 
communication with complainants regarding exclusions could provide 
complainants with the opportunity to provide CBP with information to 
help revise its targeting strategies. In March 2011, the 
administration recommended that Congress give DHS the authority to 
notify intellectual property rights holders when infringing products 
have been excluded or seized pursuant to an exclusion order.[Footnote 
29] According to CBP, as of September 2014, Congress had not enacted 
this recommendation into law. 

CBP's enforcement of exclusion orders from fiscal years 2010 through 
2014 resulted in the exclusion or seizure of 158 shipments of various 
kinds of products. See table 1. 

Table 1: Number of Shipments and Examples of Products Excluded or 
Seized as a Result of U.S. Customs and Border Protection's Enforcement 
of Exclusion Orders, Fiscal Year 2010 through Fiscal Year 2014: 

Fiscal year[A]: 2010; 
Number of shipments excluded or seized: 4; 
Examples of products in excluded shipments: Magic cube puzzles, ink 
cartridges, coaxial cable connectors. 

Fiscal year[A]: 2011; 
Number of shipments excluded or seized: 22; 
Examples of products in excluded shipments: Plastic plates and plastic 
lids, ink cartridges, cigarettes, coaxial cable connectors, 
transceivers, energy drinks. 

Fiscal year[A]: 2012; 
Number of shipments excluded or seized: 64; 
Examples of products in excluded shipments: Plastic food storage 
containers with resealable lids, ink cartridges, footwear, sucralose, 
cigarettes, coaxial cable connectors, phones, toner cartridges. 

Fiscal year[A]: 2013; 
Number of shipments excluded or seized: 34; 
Examples of products in excluded shipments: Ink sticks, ink 
cartridges, footwear, cigarettes, cell phone cases. 

Fiscal year[A]: 2014; 
Number of shipments excluded or seized: 34; 
Examples of products in excluded shipments: Laminate flooring, 
footwear, digital multimeters, cigarettes, cell phone cases, massagers. 

Fiscal year[A]: Total; 
Number of shipments excluded or seized: 158. 

Source: GAO analysis of U.S. Customs and Border Protection (CBP) data. 
GAO-15-78: 

[A] For fiscal year 2010, the data are incomplete. U.S. Customs and 
Border Protection (CBP) did not begin tracking exclusions in its 
exclusion order notification and tracking system until September 16, 
2010. For fiscal year 2014, CBP provided data on exclusions through 
April 30, 2014. 

[End of table] 

CBP officials explained that several factors may limit the number of 
shipments that CBP excludes: 

* First, unlike the importers of counterfeit products, the respondents 
in exclusion order cases tend to be legitimate companies that seek to 
be in compliance with trade laws; thus, they generally do not 
intentionally attempt to import infringing products. 

* Second, respondents may work to resolve issues, such as finding new 
suppliers, obtaining licenses, or redesigning products, so that they 
do not have shipments of products excluded at the ports. 

* Third, the conditions related to the underlying patent, trademark, 
or other protectable rights associated with the exclusion order may 
change, such that the complainant or respondent or both are no longer 
in business, or the infringing products are no longer made. 

* Finally, CBP officials noted that data on excluded shipments are 
underreported because of alternative actions that can be taken by CBP 
for shipments of products that are covered by an exclusion order but 
are also protected by a recorded trademark. In such cases, CBP 
officials will seize the shipment as a trademark violation rather than 
deny it entry under an exclusion order. Officials told us that 
complainants would rather have CBP seize these infringing products 
than risk the possibility that importers might try to reship the 
products to the United States through another port. 

CBP Uses an Administrative Ruling Process in Advance of Importing to 
Determine Whether Products Are Covered by Exclusion Orders: 

Prior to importing, a company may request that CBP determine through 
its administrative ruling process whether its products fall within the 
scope of an exclusion order.[Footnote 30] According to CBP officials, 
companies may redesign their products in an attempt to remove products 
from the scope of exclusion orders. In other instances, companies may 
request an administrative ruling before they start to import (1) a 
redesigned product, (2) a new product, or (3) a product that was not 
accused at ITC but is potentially within the scope of the exclusion 
order. Upon a company's request and when CBP determines it to be in 
the interest of the sound administration of customs and related laws, 
CBP will undertake to issue a ruling letter on whether the product in 
question is subject to exclusion. Figure 4 provides an overview of the 
administrative ruling process CBP uses to determine whether a new or 
redesigned product is covered by an exclusion order. 

Figure 4: U.S. Customs and Border Protection Process for 
Administrative Rulings to Determine Prior to Importation Whether a 
Product Falls within the Scope of an Exclusion Order: 

[Refer to PDF for image: process illustration] 

Importer submits a written request to CBP for an administrative ruling 
on products to be imported into the United States. 

The ruling request is assigned to a case attorney who prepares a draft 
decision. 

CBP issues a ruling and publishes it in CROSS within 90 days after 
issuance. 

A ruling in effect more than 60 days cannot be revoked unless a notice 
is published in the Customs Bulletin. 

Source: GAO analysis of CBP documents and interviews with CBP 
officials. GAO-15-78. 

CBP: U.S. Customs and Border Protection; 
CROSS: Customs Rulings Online Search System. 

[End of figure] 

Requests for an administrative ruling are submitted in writing to 
CBP's IPR Branch. Each request is entered in CBP's Regulations and 
Rulings Directorate's case management system. Upon receipt, a ruling 
request is assigned to a case attorney who reviews the request and 
other relevant materials, including the exclusion order, a sample of 
the product, the patent and the prosecution history, and the ITC's 
initial and final determinations. If the case attorney has a question 
about a specific point in the ITC record, the attorney may contact ITC 
to seek clarification on the specific issue.[Footnote 31] At this 
time, CBP also meets with the respondent to discuss the request for an 
administrative ruling. 

A CBP administrative ruling is generally effective upon its issuance 
by CBP. Within 90 days from issuance, the decision is made public and 
published in CBP's Customs Ruling Online Search System.[Footnote 32] 
Once the ruling is public, copies of the decision will be provided to 
the complainant and the ITC. For rulings that have been in effect for 
less than 60 days, generally, CBP may decide to revoke a ruling simply 
by giving written notice to the person to whom the original was 
issued.[Footnote 33] A revocation may occur, for example, if CBP 
discovers that facts relevant to the ruling were misrepresented in the 
request, or if changing circumstances materially affect the basis of 
CBP's determination in the ruling. After 60 days, CBP must adhere to 
additional requirements if it decides to revoke a ruling, such as 
publishing a notice proposing the revocation and inviting public 
comment.[Footnote 34] CBP officials noted that if CBP issues an 
administrative ruling that approves the new or redesigned product for 
entry, the product is still potentially subject to examination at the 
ports to ensure compliance. From September 16, 2010, through April 30, 
2014, the IPR Branch issued 18 rulings, of which 13 ruled that the 
products were not infringing and could enter U.S. commerce. In 
addition, the importer with an administrative ruling that approves a 
redesigned product may also ask for a CBP certification on its 
product. The CBP certification confirms that the redesigned product is 
not covered by an exclusion order.[Footnote 35] 

Currently, CBP's administrative ruling process is an ex parte process 
where only the importer requesting the ruling participates in the 
process, not the complainants in the original case that resulted in 
the exclusion order. IPR Branch officials told us that they are 
developing a proposal for an inter partes process within CBP's 
administrative ruling process that would enable the complainant as 
well as the importer that has requested a ruling to provide 
information before CBP issues its administrative ruling on the 
product. The proposed process would allow both the complainant and the 
importer to make arguments and rebut those of the other party. IPR 
Branch officials noted that the proposed inter partes process will 
have advantages over the current process because it will gather 
information from both the complainant and the importer, potentially 
enabling CBP to expedite its administrative ruling process. IPR Branch 
officials could provide no estimate as to when the proposed inter 
partes process will be finalized.[Footnote 36] 

In anticipation of a possible request for an administrative ruling and 
to increase their understanding of the exclusion order in general, CBP 
officials may meet with officials from the ITC and with the 
complainants and respondents involved in the ITC's Section 337 
investigations. Officials said that these meetings can provide them 
with useful information, especially if an administrative ruling is 
being considered or requested by the respondent. For example, since 
the summer of 2013, according to IPR Branch officials, CBP and ITC 
have regularly held meetings upon the issuance of a new exclusion 
order. CBP and ITC officials characterized the nature of these 
meetings as limited to CBP seeking clarification on issues that ITC 
addressed during its investigation. IPR Branch officials also access a 
secure web-based repository established by ITC to review the ITC's 
administrative record, such as the initial and final determinations 
and documentation of the ITC proceedings, to understand the questions 
of law and issues of fact raised in the investigation. In addition to 
their meetings with ITC, CBP officials from the IPR Branch and the 
Electronics Center may meet separately with complainants and 
respondents on an informal basis during the Section 337 investigation 
or after an exclusion order is issued. These meetings are typically 
initiated by the complainants and respondents, although the 
Electronics Center is in regular communication with companies it 
serves as part of its mission. During these meetings, the complainants 
may share useful information on the intellectual property rights at 
issue and highlight relevant findings in the investigation, while 
respondents may explore whether their products are covered by an 
exclusion order or discuss potential redesigns for their infringing 
products. Electronics Center officials said they met with 16 
complainants and 31 respondents in fiscal year 2013 to discuss 
information on supply chains, transportation modes, ports of entry, 
and distribution networks. In addition, since fiscal year 2013, the 
Electronics Center has collaborated with the IPR Branch on five 
administrative rulings. 

Management Weaknesses in CBP's Enforcement Process at Ports Result in 
Inefficiencies and Increased Risk of Infringing Products Entering U.S. 
Commerce: 

CBP's management of its exclusion order enforcement process at the 
ports contains weaknesses that result in inefficiencies and an 
increased risk of infringing products entering U.S. commerce. First, 
CBP does not routinely review ITC's list of exclusion orders or take 
other action to ensure that a trade alert has been posted to its 
intranet for each order. As a result of our audit, CBP reviewed ITC's 
list of exclusion orders as of April 30, 2014, and reported that it 
had posted trade alerts for 83 of the 94 exclusion orders; however, it 
posted 17 of the 83 trade alerts after our request for data. Without 
routinely taking action to ensure that trade alerts are posted to the 
intranet, there is an increased risk that infringing products could 
enter into U.S. commerce. Second, CBP does not routinely review ITC's 
list of exclusion orders to identify orders that may be candidates for 
rescission by ITC.[Footnote 37] As a result of our inquiry, CBP 
identified 6 exclusion orders as possible candidates for ITC 
rescission. Requesting rescission of exclusion orders could enable CBP 
to focus its enforcement efforts more effectively and efficiently. 
Third, CBP's guidance lacks time frames for issuing trade alerts, 
which prevents CBP from monitoring timeliness. We found that it took 
CBP from 2 days to 3 months to request a posting of a trade alert to 
the intranet during the period from October 2009 through April 2014. 
Without actively managing trade alerts and establishing time frames 
for posting alerts, CBP management cannot hold staff accountable for 
timely enforcement of exclusion orders, and there is an increased risk 
of infringing products entering U.S. commerce. We reported on similar 
weaknesses in our 2008 report on federal intellectual property 
enforcement efforts at the border.[Footnote 38] 

CBP Provides Exclusion Order Guidance within Several Documents: 

CBP's IPR Branch has issued official guidance on enforcing exclusion 
orders and tracking exclusion order enforcement. This guidance is 
found in a federal regulation,[Footnote 39] an internal directive, and 
an internal document detailing standard operating procedures. IPR 
Branch officials said that the standard operating procedures issued in 
2010 provide the most current guidance on exclusion order enforcement. 

CBP Does Not Routinely Review ITC Exclusion Orders or Take Other 
Action to Ensure Enforcement Coverage and Efficiency: 

CBP does not routinely review ITC exclusion orders or take other 
action to ensure that trade alerts exist or to identify orders that 
may be candidates for rescission by ITC. As previously discussed, the 
first phase of the process for enforcing exclusion orders at the ports 
involves issuing trade alerts to trigger CBP's targeting and 
enforcement efforts. CBP guidance on exclusion order enforcement 
states that the IPR Branch will issue trade alerts with enforcement 
instructions to national targeting groups and local port officials; 
the IPR Branch issues trade alerts by posting them to the CBP 
intranet.[Footnote 40] While federal internal control standards state 
that management should conduct periodic reviews, reconciliations, or 
comparisons of data to assess the quality of performance over time, 
CBP's guidance does not require IPR Branch officials to conduct 
routine reviews of exclusion orders for these purposes.[Footnote 41] 

IPR Branch officials told us that they had not conducted a review of 
ITC's list of exclusion orders in 5 years. In response to our request 
for data, IPR Branch officials reviewed ITC exclusion orders in effect 
as of April 30, 2014, to determine whether the IPR Branch had issued a 
trade alert for each order. According to ITC data, there were 94 
exclusion orders that CBP was required to enforce as of that date. The 
IPR Branch reported that it had posted trade alerts on CBP's intranet 
for 83 of the 94 exclusion orders. However, our analysis of the data 
found that the IPR Branch had posted trade alerts on the intranet for 
17 of these orders in early April 2014, after receiving our data 
request.[Footnote 42] For the remaining 11 of the 94 exclusion orders, 
IPR Branch officials reported that they had not posted trade alerts to 
the intranet, as stated in CBP guidance. These 11 exclusion orders, 
plus the 17 exclusion orders posted on the intranet in April 2014, 
were part of a group of 28 older exclusion orders, for which IPR 
Branch officials explained that they had created trade alerts either 
in paper form or in another electronic system. However, they had never 
transferred these alerts to the intranet when CBP began issuing trade 
alerts on its intranet in 2004. As a result of our review, officials 
found they had not created a trade alert in any form for 1 of these 28 
exclusion orders. Figure 5 shows the status of CBP's trade alerts for 
exclusion orders as of April 30, 2014. 

Figure 5: Status of U.S. Customs and Border Protection's Trade Alerts 
for Exclusion Orders as of April 30, 2014: 

[Refer to PDF for image: pie-chart and subcharts] 

Total: 94. 

Trade alerts on intranet: 83: 
Posted prior to GAO inquiry: 66; 
Posted in response to GAO inquiry: 17; 

No trade alerts on intranet: 11: 
No alerts posted because orders were candidates for rescission: 10; 
No alert posted[A]: 1. 

Source: GAO analysis of CBP documents and interviews with CBP 
officials. GAO-15-78. 

CBP: U.S. Customs and Border Protection. 

[A] This exclusion order was issued by the U.S. International Trade 
Commission (ITC) in February 2005. An official from CBP's Intellectual 
Property Rights Branch said CBP did not issue a trade alert for this 
exclusion order because CBP had no record of having received a notice 
from ITC that the exclusion order had been issued. ITC officials 
provided us with a copy of an ITC letter notifying CBP of the 
exclusion order; however, these officials did not have documentation 
confirming CBP's receipt of the letter. According to ITC officials, in 
2005 CBP officials would receive hand-delivered copies of the 
exclusion order; however, ITC officials now transmit exclusion orders 
via e-mail. As a result of our review, CBP officials said they 
contacted the complainant involved in the exclusion order in July 2014 
and were informed that the complainant was unaware of any infringing 
importations following the exclusion order's issuance in February 
2005. CBP issued a trade alert for this exclusion order in July 2014. 

[End of figure] 

For 10 of the 11 exclusion orders that did not have trade alerts on 
the intranet, IPR Branch officials said they decided not to post trade 
alerts to the CBP intranet in April 2014 because officials considered 
these orders candidates for ITC rescission. According to a federal 
regulation, any person may file a petition to request that ITC rescind 
an exclusion order if he or she believes that changes in conditions of 
fact or law or the public interest require rescission.[Footnote 43] 
According to an IPR Branch official, CBP believed that the conditions 
related to the underlying patent, trademark, or other protectable 
rights for these 10 orders had changed; for example, the complainant 
named in one exclusion order was no longer in business. IPR Branch 
officials later decided that they would not request that ITC rescind 2 
of these orders because discussions with complainants established that 
the exclusion orders should remain active; the IPR Branch posted trade 
alerts for these to the intranet in July 2014. In addition, according 
to IPR Branch officials, the intellectual property rights protected by 
2 other exclusion orders that were candidates for rescission expired 
in July 2014. As a result, the IPR Branch sent a letter to ITC in 
August 2014 requesting that it rescind 6 exclusion orders.[Footnote 44] 

CBP's lack of routine reviews of exclusion orders has resulted in gaps 
and inefficiencies in CBP's exclusion order enforcement. For the 27 
exclusion orders with trade alerts in either paper form or in another 
electronic system, IPR-NTAG reported that it had not implemented 
national targeting strategies for these exclusion orders. If any 
targeting occurred, IPR Branch officials said it would have been 
initiated at the port level.[Footnote 45] As a result of these 
targeting gaps, there is an increased risk that infringing products 
could have entered into U.S. commerce.[Footnote 46] For the 1 
exclusion order without a trade alert, a routine review of ITC's 
exclusion orders by CBP officials would have identified the error 
sooner. In addition, with routine reviews of ITC's list of exclusion 
orders, officials could have identified the ones that were candidates 
for rescission sooner and requested that ITC rescind them, potentially 
allowing CBP to more effectively and efficiently focus its enforcement 
efforts. This is not a new problem. In our 2008 report, we found 
similar weaknesses.[Footnote 47] We reported that CBP had posted trade 
alerts to its intranet for 24 of the 66 orders that were in effect as 
of July 2007, and had not yet transferred paper alerts for 15 older 
exclusion orders to the intranet because of limited resources. We also 
noted that CBP had trade alerts for 5 orders that had expired or had 
been rescinded. 

CBP Lacks Established Time Frames for Issuing Trade Alerts: 

IPR Branch officials have not established a time frame in CBP's 
guidance for issuing trade alerts, which prevents officials from 
monitoring timeliness. Federal internal control standards state that 
management should establish procedures, such as time frames, to ensure 
that the agency is meeting its objectives and document these 
procedures in policies or directives. In addition, monitoring the 
effectiveness of internal control activities, such as determining 
timeliness, should occur in the normal course of business.[Footnote 48] 

An IPR Branch official said that the IPR Branch's approach to issuing 
trade alerts has evolved since 2006 toward an increased emphasis on 
timeliness. IPR Branch officials said they generally try to post a 
trade alert to the CBP intranet within 5 workdays of receiving an 
exclusion order from ITC. Prior to 2006, the official told us that the 
IPR Branch wanted to gain a full understanding of the exclusion order 
and the intellectual property rights in question before issuing a 
trade alert, but more recently, according to this official, the IPR 
Branch has placed more importance on providing information as quickly 
as possible so the national targeting groups can more promptly develop 
targeting methods. 

Our analysis of CBP's data shows that for 33 exclusion orders issued 
from October 1, 2009, through April 30, 2014, the IPR Branch generally 
took anywhere from 2 days to about 3 months to request a posting of a 
trade alert to the intranet.[Footnote 49] For 9 of the 33 exclusion 
orders, about 27 percent, CBP requested a posting of trade alerts to 
the CBP intranet within 5 workdays of exclusion order issuance. 
Without established time frames for issuing trade alerts in its 
guidance on enforcing exclusion orders, CBP cannot do the following: 

* CBP cannot monitor and assess its performance on timeliness, which 
increases the risk of enforcement gaps. The longer it takes the 
national targeting groups to receive trade alerts and develop 
targeting approaches that will identify shipments for examination at 
the ports, the greater the risk that infringing products covered by an 
exclusion order may be permitted entry into U.S. commerce. 

* CBP management cannot hold staff accountable for timely enforcement. 
Effective internal control, such as establishing time frames for 
performance, is a key factor in achieving agency missions and program 
results through improved accountability.[Footnote 50] 

Conclusions: 

CBP uses two processes to enforce exclusion orders: one that 
identifies shipments with infringing products arriving at the ports 
and one that determines in advance of importing whether products are 
covered by exclusion orders. These processes leverage information from 
both the complainants and respondents involved in Section 337 cases 
adjudicated by the ITC that result in exclusion orders. CBP's 
management of its process for enforcing exclusion orders at the ports 
has weaknesses that result in inefficiencies and enforcement gaps. 
First, CBP does not routinely review exclusion orders to ensure that 
trade alerts exist for all ITC exclusion orders. We found that for 
about one-fourth of the exclusion orders in effect during our review, 
CBP had not posted trade alerts on its intranet until after our data 
request. Without an alert, it would be difficult for CBP components to 
enforce an exclusion order. Second, CBP lacks an established procedure 
that would enable it to routinely determine those exclusion orders 
that are candidates for ITC rescission, potentially resulting in fewer 
exclusion orders and trade alerts to manage, which would allow CBP to 
better focus its enforcement efforts. Third, CBP has not established a 
time frame for trade alert issuance in CBP's guidance, which prevents 
management from monitoring timeliness in issuing trade alerts. In our 
2008 report examining CBP's intellectual property enforcement, we 
found similar weaknesses in its management of exclusion order 
enforcement. Lacking guidance on time frames for key steps in 
exclusion order enforcement, CBP officials cannot hold staff 
accountable for timely enforcement, which is critical to reducing the 
risk of infringing products entering U.S. commerce. 

Recommendations for Executive Action: 

To improve CBP's management of its process for enforcing exclusion 
orders, we recommend that the Secretary of Homeland Security direct 
the CBP Commissioner to take the following three actions to update 
CBP's internal guidance with requirements to: 

* Routinely ensure that trade alerts are posted on the CBP intranet 
for each exclusion order. 

* Routinely identify any orders whose changed conditions merit a CBP 
request that ITC rescind them. 

* Monitor timeliness by establishing time frames for issuing trade 
alerts for exclusion orders and reviewing performance against these 
standards. 

Agency Comments and Our Evaluation: 

We provided a draft of this report to CBP, ITC, and USTR for their 
review and comment. We received technical comments from CBP, ITC, and 
USTR, which we incorporated where appropriate. We also received 
written comments from CBP through DHS that are reprinted in appendix 
IV. 

In its written comments, CBP concurred with two of our three 
recommendations: to update CBP's internal guidance with requirements 
to routinely ensure that trade alerts are posted on the CBP intranet 
for each exclusion order and monitor timeliness by establishing time 
frames for issuing trade alerts for exclusion orders and reviewing 
performance against these standards. As part of its efforts to 
implement these two recommendations, CBP reported that it is 
developing a template for case attorneys to use in developing future 
trade alerts and that it is updating its internal standard operating 
procedures with requirements for CBP staff to monitor the timeliness 
of posting trade alerts on the CBP intranet. While these are positive 
actions, it is not yet clear whether they will address the 
recommendations to the full extent. We will continue to monitor CBP's 
actions in this area. 

CBP did not concur with our recommendation to update its guidance with 
a requirement to routinely identify any orders whose changed 
conditions merit a CBP request that ITC rescind them. CBP noted that 
there is no statutory or regulatory authority mandating that it 
monitor the ITC's list of exclusion orders to determine if changed 
conditions of law or fact would warrant the rescission of any of the 
orders. In addition, CBP asserted that ITC, as the issuing agency of 
exclusion orders, and the relevant complainants, or both have 
responsibility for ensuring that the list of outstanding exclusion 
orders is current. As we state in the report, any person may file a 
petition to request that ITC rescind an exclusion order if he or she 
believes that changes in conditions of fact or law or the public 
interest require rescission. While CBP is not specifically mandated to 
conduct a routine review of exclusion orders to identify candidates 
for ITC rescission, CBP is the enforcement agency of exclusion orders. 
Based on internal control standards, we reiterate that it is good 
management practice for CBP to conduct these reviews that could 
potentially allow it to more effectively and efficiently focus its 
efforts by reducing the number of exclusion orders it is responsible 
for enforcing. For example, in response to our audit, CBP conducted 
such a review, identified six exclusion orders that it believed were 
candidates for ITC rescission, and submitted a letter requesting that 
ITC rescind the orders. Thus, we continue to believe that our 
recommendation is valid and that CBP should fully implement it. 

CBP also noted in its written response that the report would have been 
more value-added if it had included additional discussion on the 
challenges of making patent infringement determinations at the border 
under the time constraints imposed by statute, or on the development 
of the inter partes process. These issues CBP mentions were outside 
the scope of our review. However, our report does discuss CBP's 
current ex parte administrative ruling process and provided details on 
CBP's development of an inter partes process that would enable both 
the complainant and the importer to provide information during the 
administrative ruling process. As of October 2014, CBP officials could 
not provide an estimate as to when the inter partes process would be 
finalized. 

We are sending copies of this report to the appropriate congressional 
committees, the Secretary of Homeland Security, the Chairman of the 
U.S. International Trade Commission, the United States Trade 
Representative, and other interested parties. In addition, the report 
is available at no charge on GAO's website at [hyperlink, 
http://www.gao.gov]. 

If you or your staff have any questions about this report, please 
contact me at (202) 512-8612 or gianopoulosk@gao.gov. Contact points 
for our Offices of Congressional Relations and Public Affairs may be 
found on the last page of this report. GAO staff who made key 
contributions to this report are listed in appendix V. 

Signed by: 

Kimberly M. Gianopoulos: 
Director: 
International Affairs and Trade: 

[End of section] 

Appendix I: Objectives, Scope, and Methodology: 

This report reviews the efforts of U.S. Customs and Border Protection 
(CBP) to enforce exclusion orders issued by the U.S. International 
Trade Commission (ITC). Specifically, we (1) examine CBP's processes 
for enforcing exclusion orders and (2) assess CBP's management of its 
enforcement process at ports of entry. In this report, we neither take 
a position on, nor do we address, the matters pending in ongoing 
litigation between Microsoft and the U.S. Department of Homeland 
Security related to CBP's enforcement of an exclusion order.[Footnote 
51] 

To provide an overview of ITC exclusion orders, we first reviewed the 
list of exclusion orders on the ITC website as of April 30, 2014, to 
determine the number of exclusion orders that CBP was responsible for 
enforcing. Though ITC's list named 96 exclusion orders, we interviewed 
agency officials to assess the reliability of the data, and ITC 
provided clarification on duplicate orders or consolidated 
investigations. As a result of our interviews, ITC confirmed that 94 
exclusion orders were in effect as of April 30, 2014. We also 
interviewed ITC officials regarding the underlying data systems and 
the checks, controls, and reviews used to generate the data and ensure 
their accuracy and reliability. We found the data sufficiently 
reliable for the purpose of this report. We then analyzed CBP data on 
these exclusion orders to determine characteristics such as the type 
of exclusion order (general or limited); the protected intellectual 
property rights (e.g., trademark, copyright, patent); and the 
Harmonized Tariff Schedule categorization numbers for the products 
covered by the exclusion orders. We analyzed these numbers to 
determine the types of commodities protected by exclusion orders. To 
assess the reliability of CBP's data, we interviewed agency officials 
regarding the underlying data systems and the checks, controls, and 
reviews used to generate the data and ensure their accuracy and 
reliability. We found the data sufficiently reliable for the purpose 
of this report. 

To examine CBP's process for enforcing exclusion orders at ports of 
entry, we reviewed CBP's internal guidance related to exclusion order 
enforcement. We interviewed agency officials at CBP, ITC, the Office 
of Management and Budget's Office of the Intellectual Property 
Enforcement Coordinator, and the Office of the United States Trade 
Representative in Washington, D.C., to discuss each agency's role in 
facilitating or informing CBP's enforcement of exclusion orders. We 
interviewed CBP headquarters officials to understand CBP's process for 
issuing trade alerts and communicating them to national targeting 
groups and local port officials. Using the list of exclusion orders on 
ITC's website as of April 30, 2014, we analyzed CBP data to determine 
whether CBP had issued a trade alert for each exclusion order. To 
assess the reliability of CBP's data, we reviewed issued trade alerts 
for each of the exclusion orders and interviewed agency officials 
regarding the checks, controls, and reviews used to generate the data 
and ensure their accuracy and reliability. We found the data 
sufficiently reliable for the purpose of this report. 

To determine how CBP develops targeting strategies for enforcing 
exclusion orders, we interviewed agency officials from CBP's national 
targeting groups for exclusion order enforcement: the Intellectual 
Property Rights National Targeting and Analysis Group in Long Beach 
and the Electronics Center of Excellence and Expertise in Los Angeles. 
To understand how CBP examines products and excludes infringing 
shipments at the ports, we interviewed agency officials at four ports: 
Buffalo, New York; John F. Kennedy International Airport in Jamaica, 
New York; Los Angeles/Long Beach Seaport in Long Beach, California; 
and Los Angeles International Airport in Los Angeles, California. We 
selected ports with experience in enforcing exclusion orders based on 
CBP exclusions data from September 16, 2010, through April 30, 
2014;[Footnote 52] during this period, a total of 12 ports excluded 
shipments as part of CBP's enforcement of exclusion orders. We also 
selected ports where we could discuss and observe CBP's exclusion 
order enforcement process when processing shipments arriving by land, 
sea, and air. One selected port, Buffalo, processes shipments arriving 
by land; two ports, John F. Kennedy International Airport and Los 
Angeles International Airport, process shipments arriving by air; and 
one port, Los Angeles/Long Beach Seaport, processes shipments arriving 
by sea. We interviewed port officials to obtain information on 
training received and equipment used by CBP officials to determine 
whether products in shipments are covered by exclusion orders. In 
addition to interviewing port officials, we observed them as they 
targeted and examined shipments, and seized shipments as required. The 
information gathered from our site visits cannot be generalized to all 
ports and field offices. 

To understand CBP's future exclusion order enforcement efforts, we 
interviewed CBP officials from the Industrial and Manufacturing 
Materials Center of Excellence and Expertise in Buffalo, New York, and 
the Pharmaceuticals, Health, and Chemicals Center of Excellence and 
Expertise in New York, New York. Officials from these centers provided 
us with an overview of how they will eventually take responsibility 
for enforcing exclusion orders related to the industry sectors that 
their centers cover. 

We analyzed CBP data on the number of shipments excluded from entry 
from September 16, 2010, through April 30, 2014, including the number 
of exclusions by fiscal year and the types of products excluded during 
this period. CBP officials noted that data on excluded shipments are 
underreported because of alternative actions that can be taken by CBP 
for shipments of products that are covered by an exclusion order but 
are also protected by a recorded trademark. In such cases, CBP 
officials said they will seize the shipment as a trademark violation 
rather than exclude it under an exclusion order. To assess the 
reliability of CBP's data, we interviewed agency officials regarding 
the underlying data systems and the checks, controls, and reviews used 
to generate the data and ensure their accuracy and reliability. We 
found the data sufficiently reliable for the purpose of this report. 

To assess how CBP manages its exclusion order enforcement process, we 
evaluated CBP's management of the process against CBP criteria in its 
exclusion order guidance, found in a CBP regulation,[Footnote 53] an 
internal directive, and a document outlining standard operating 
procedures. We also evaluated CBP's management of the process against 
requirements established in federal internal control standards, such 
as establishing procedures to ensure that the agency is meeting its 
objectives, documenting these procedures in policies or directives, 
and monitoring the effectiveness of internal control activities in the 
normal course of business.[Footnote 54] We interviewed CBP officials 
from the Intellectual Property Rights Branch in the Regulations and 
Rulings Directorate to discuss how they manage the issuance of trade 
alerts. We reviewed CBP's written guidance on exclusion order 
enforcement to determine whether CBP documents time frames for issuing 
trade alerts. Using ITC exclusion order issuance dates and CBP's data 
on trade alert issuance dates, we analyzed the number of workdays that 
CBP officials took to request posting of trade alerts to the CBP 
intranet for exclusion orders issued from October 1, 2009, through 
April 30, 2014. To assess the reliability of CBP data, we interviewed 
agency officials and reviewed underlying data sources. CBP trade alert 
data are for the dates on which CBP officials requested a posting of 
trade alerts to the CBP intranet and not the dates on which the alerts 
were actually posted. We found the data sufficiently reliable for the 
purpose of this report. 

To describe CBP's process for determining, in advance of importing 
certain products, whether those products are covered by exclusion 
orders, we reviewed regulations outlining CBP's administrative ruling 
process.[Footnote 55] We also interviewed CBP officials from the 
Intellectual Property Rights Branch in the Regulations and Rulings 
Directorate to discuss how the ruling process works and CBP's proposed 
changes to the process. We interviewed ITC officials to discuss the 
extent to which ITC informs this process by providing information on 
the exclusion orders and the administrative records associated with 
ITC investigations. 

We conducted this performance audit from November 2013 to November 
2014 in accordance with generally accepted government auditing 
standards. Those standards require that we plan and perform the audit 
to obtain sufficient, appropriate evidence to provide a reasonable 
basis for our findings and conclusions based on our audit objectives. 
We believe that the evidence obtained provides a reasonable basis for 
our findings and conclusions based on our audit objectives. 

[End of section] 

Appendix II: U.S. Customs and Border Protection Offices Responsible 
for Exclusion Order Enforcement: 

U.S. Customs and Border Protection's (CBP) Office of International 
Trade and Office of Field Operations are responsible for coordinating 
CBP's efforts to enforce exclusion orders. Several units under these 
two offices have key responsibilities in CBP's enforcement process and 
its related administrative ruling process (see figure 6). 

Figure 6: Key Customs and Border Protection Offices Involved in 
Exclusion Order Enforcement: 

[Refer to PDF for image: organization chart] 

Top level: 
Commissioner: 
Deputy Commissioner. 

Second level: 

Office of International Trade[A]: 
* Regulations and Rulings Directorate[A]: 
- Border Security and Trade Compliance: 
-- Intellectual Property Rights Branch[A]. 
* Office of Trade Policy and Programs: 
- Intellectual Property Rights Policy and Programs; 
-- Intellectual Property Rights National Targeting and Analysis 
Group[A]. 

Office of Border Patrol; 
Office of Air and Marine; 
Office of Intelligence and Investigative Liaison; 
Office of International Affairs; 

Office of Field Operations[A]: 
* Operations: 
- Directors, Field Operations[A]; 
- Centers of Excellence and Expertise[A]. 

[A] CBP offices responsible for exclusion order enforcement. 

Source: GAO analysis of CBP documents. GAO-15-78. 

CBP: U.S. Customs and Border Protection. 

[End of figure] 

[End of section] 

Appendix III: U.S. Customs and Border Protection Centers of Excellence 
and Expertise: 

In 2012, U.S. Customs and Border Protection (CBP) established 10 
Centers of Excellence and Expertise to provide trade information and 
processing for the trade community and U.S. government partners. While 
in their early stages, the centers are intended to facilitate 
legitimate trade, increase CBP's industry-based knowledge, and assist 
CBP in addressing risks and protecting intellectual property rights 
more efficiently and effectively. Each center is specific to a single 
industry sector (see table 2). 

Table 2: U.S. Customs and Border Protection Centers of Excellence and 
Expertise: 

Centers: Agriculture and Prepared Products; 
Location: Miami. 

Centers: Apparel, Footwear, and Textiles; 
Location: San Francisco. 

Centers: Automotive and Aerospace; 
Location: Detroit. 

Centers: Base Metals; 
Location: Chicago. 

Centers: Consumer Products and Mass Merchandising; 
Location: Atlanta. 

Centers: Electronics; 
Location: Los Angeles. 

Centers: Industrial and Manufacturing Materials; 
Location: Buffalo. 

Centers: Machinery; 
Location: Laredo. 

Centers: Petroleum, Natural Gas, and Minerals; 
Location: Houston. 

Centers: Pharmaceuticals, Health, and Chemicals; 
Location: New York. 

Source: U.S. Customs and Border Protection. GAO-15-78. 

[End of table] 

The centers, with staff located at ports of entry throughout the 
United States, operate as virtual organizations that centralize 
industry sector expertise. For example, the Electronics Center of 
Excellence and Expertise is located in Los Angeles but has staff 
located in other ports that deal with imports of electronics, such as 
El Paso, Texas; Memphis, Tennessee; Cleveland, Ohio; and San Diego, 
California. Of the 10 centers, this is the one with a role in the 
enforcement of exclusion orders as of November 2014 (see sidebar). 

Side bar: 

Electronics Center of Excellence and Expertise, Los Angeles, 
California: 

The Electronics Center of Excellence and Expertise (Electronics 
Center) is the most developed of the U.S. Customs and Border 
Protection's (CBP) 10 industry-specialized virtual centers. As of 
November 2014, it was the only center with a role in enforcing 
exclusion orders, specifically the enforcement of electronics-related 
exclusion orders. In fiscal year 2013, the Electronics Center 
conducted targeting for 32 exclusion orders. Electronics Center staff 
members meet informally with the complainants and respondents involved 
in an investigation before the U.S. International Trade Commission 
(ITC) issues an exclusion order. CBP intends for this model of 
advanced collaboration to speed up the exclusion order enforcement 
process because staff will better understand the products involved and 
the complainant and respondent companies' trading patterns. In 
addition, the center's specialists assist CBP's Intellectual Property 
Rights (IPR) Branch in developing trade alerts for exclusion orders 
involving electronic technologies and products. The IPR Branch has 
collaborated with the Electronics Center in proactively working with 
companies to avert the importation of infringing products at ports and 
to place CBP in a better position to rule on admissibility, rulings, 
and certification. The Electronics Center also conducts its own 
targeting of shipments for exclusion order enforcement, with 
assistance, if necessary, from CBP's Intellectual Property Rights 
National Targeting and Analysis Group. 

Source: U.S. Customs and Border Protection. GAO-15-78. 

[End of side bar] 

All centers employ trade specialists with a range of account 
management and operational skills, including import, supply chain, and 
operations specialists. Importers can go directly to their assigned 
center for assistance, instead of consulting CBP officials at multiple 
ports of entry. Center officials are expected to continuously update 
their industry-related expertise for exclusion orders by attending and 
participating in industry conferences, trade forums, enforcement 
seminars, and online training. 

[End of section] 

Appendix IV: Comments from the Department of Homeland Security: 

U.S. Department of Homeland Security: 
Washington, DC 20528: 

October 31, 2014: 

Kimberly M. Gianopoulos: 
Acting Director, International Affairs and Trade: 
U. S. Government Accountability Office: 
441 G Street, NW: 
Washington, DC 20548: 

Re: Draft Report GAO-15-78, "Intellectual Property Rights: Customs and
Border Protection Could Better Manage Its Process to Enforce Exclusion 
Orders" 

Dear Ms. Gianopoulos: 

Thank you for the opportunity to review and comment on this draft 
report. The U.S. Department of Homeland Security (DHS) appreciates the 
U.S. Government Accountability Office's (GAO's) work in planning and 
conducting its review and issuing this report. 

The Department appreciates GAO's recognition of the important role the 
U.S. Customs and Border Protection (CBP) has in protecting 
Intellectual Property Rights. CBP, without inhibiting legitimate 
trade, must determine whether products arriving at 328 U.S. ports of 
entry fall within the scope of exclusion orders issued by the U.S. 
International Trade Commission CITC). Additionally, companies request 
that CBP determine, in advance of importing certain products, whether 
items are covered by an existing exclusion order. 

CBP believes this report would have been more value-added had it 
included additional discussion on the challenges of making patent 
infringement determinations at the border under the time constraints 
imposed by statute, or on the development of the inter partes procedure.
Unlike trademark and copyright border enforcement, which is purely a 
factual issue (did the right owner authorize the use of the protected 
mark or work) where CBP regulations provide a mechanism for soliciting 
the right owner's advice as to whether the protected mark or work was 
used with authorization, exclusion order enforcement requires that CBP 
adjudicate mixed questions of law and fact. In many cases the imported 
article was not accused and found to infringe at the ITC. Such 
adjudications frequently involve questions of claim construction and 
other complex legal issues that are not susceptible of a rapid 
response. Thus, at the border CBP is often faced with the task of 
determining, in thirty days or less, questions that the ITC, under 
their processes (which involve a hearing on the record, expert 
testimony) would typically be able to adjudicate over a much longer 
period of time. 

Even with the aforementioned challenges, CBP has taken positive steps 
to improve exclusion order enforcement, along with developing a draft 
notice of proposed rulemaking to amend CBP's current ex parte rulings 
procedure and establish an inter partes procedure that would allow
both parties to the dispute to participate in CBP's adjudication of 
the infringement question. CBP will continue working with the trade 
community and 337 practitioners to strengthen the transparency and 
enforcement of ITC exclusion orders. 

The draft report contained three recommendations with which the 
Department concurs with two and non-concurs with one. Specifically, 
GAO recommended that the Secretary of Homeland Security direct the CBP 
Commissioner to: 

Recommendation 1: Routinely ensure that trade alerts are posted on the 
CBP intranet for each exclusion order. 

Response: Concur. To ensure the timely posting of exclusion order 
trade alerts to CBPnet, CBP has already taken steps through the 
development of a template that will be readily available for case 
attorneys and can form the basis of all exclusion order trade alerts. 
In addition, CBP's Office of International Trade (OT) is updating its 
internal standard operating procedures for the enforcement of trade 
alerts within OT's Regulations and Rulings Directorate. This will 
include additional information on OT's Intellectual Property Right 
(IPR) Branch's processing of an exclusion order after it is received, 
such as, the assignment to an IPR attorney who will draft the alert 
and highlighting branch chief responsibilities to monitor time 
deadlines and ensure timely posting to the field officers on CBPnet. 
Estimated Completion Date (ECD): January 31, 2015. 

Recommendation 2: Routinely identify any orders whose changed 
conditions merit a CBP request that ITC rescind them. 

Response: Non-concur. There is no statutory or regulatory authority 
mandating that CBP monitor the ITC's list of exclusion orders in order 
to determine if there are changed conditions of law or fact that would 
warrant rescission. The ITC as the issuing agency for exclusion orders,
and/or complainants, has responsibility for ensuring the list of 
outstanding exclusion orders is current. Accordingly, CBP requests 
that GAO consider this recommendation resolved and closed. 

Recommendation 3: Monitor timeliness by establishing time frames for 
issuing trade alerts for exclusion orders and reviewing performance 
against these standards. 

Response: Concur. To ensure the timely posting of exclusion order 
trade alerts to CBPnet, CBP has already taken steps through the 
development of a template that will be readily available for case 
attorneys and can form the basis of all exclusion order trade alerts. 
In addition, CBP's Office of International Trade (OT) is updating its 
internal standard operating procedures for the enforcement of trade 
alerts within OT's Regulations and Rulings Directorate. This will 
include additional information on OT's IPR Branch's processing of an 
exclusion order after it is received, such as, the assignment to an 
IPR attorney who will draft the alert and highlighting branch chief 
responsibilities to monitor time deadlines and ensure timely posting 
to the field officers on CBPnet. ECD: January 31, 2015. 

Again, thank you for the opportunity to review and comment on this 
draft report. Technical comments were previously provided under 
separate cover. Please feel free to contact me if you have any 
questions. We look forward to working with you in the future. 

Sincerely, 

Signed by: 

Jim H. Crumpacker, CIA, CFE: 
Director: 
Departmental GAO-OIG Liaison Office: 

[End of section] 

Appendix V: GAO Contact and Staff Acknowledgments: 

GAO Contact: 

Kimberly M. Gianopoulos, (202) 512-8612 or gianopoulosk@gao.gov: 

Staff Acknowledgments: 

In addition to the contact named above, Christine M. Broderick 
(Assistant Director), Marisela Perez (Analyst-in-Charge), Christina 
Bruff, David Dayton, Etana Finkler, and Bonnie Ho made key 
contributions to this report. Lorraine Ettaro, Jeffrey Isaacs, and 
Grace Lui also provided assistance. 

[End of section] 

Footnotes: 

[1] Department of Commerce, Intellectual Property and the U.S. 
Economy: Industries in Focus (Washington, D.C.: March 2012). 

[2] 19 U.S.C. § 1337. 

[3] ITC can issue a "cease and desist" order directing the violating 
parties to cease certain actions in addition to or in lieu of an 
exclusion order. 19 U.S.C. § 1337. 

[4] See Administrative Rulings, 19 C.F.R. Part 177. These regulations 
detail CBP's general processes to respond to an importer's request to 
obtain certainty in its import transaction about the admissibility of 
its product. 

[5] The litigation involves CBP's enforcement efforts pertaining to an 
exclusion order issued by ITC, finding a violation of Section 337 
because certain Motorola products had infringed Microsoft's patent 
rights. Microsoft Corporation v. Dep't of Homeland Sec. et al, 1: 13-
cv 01063-RWR (D.D.C. July 12, 2013). 

[6] We used data starting on September 16, 2010, because CBP started 
tracking exclusions in its exclusion order notification and tracking 
system on this date. 

[7] Office of Management and Budget, Management's Responsibility for 
Internal Control, OMB Circular No. A-123 (Washington, D.C.: Dec. 21, 
2004) and GAO, Standards for Internal Control in the Federal 
Government, [hyperlink, 
http://www.gao.gov/products/GAO/AIMD-00-21.3.1] (Washington, D.C.: 
November 1999). 

[8] 19 U.S.C. § 1337 (d)(1). The ITC may also issue a temporary 
exclusion order if the requirements of Section 337(e) are met (19 
U.S.C. § 1337(e)) or where the named respondents are found in default 
under Section 337(g) (19 U.S.C. § 1337(g)). 

[9] 19 U.S.C. § 1337(a). 

[10] Generally outlined in 19 C.F.R. Part 210 and 19 U.S.C. § 1337. 

[11] The ITC will decide whether to institute an investigation within 
30 days unless certain conditions apply such as exceptional 
circumstances that preclude adherence to the 30-day deadline. 
Moreover, the ITC will determine whether to institute an investigation 
within 35 days if a motion for temporary relief is filed with the 
complaint. 19 C.F.R. § 210.10(a). 

[12] Public interest includes consideration of public health and 
welfare, competitive conditions in the U.S. economy, the production of 
like or directly competitive articles, and the interests of U.S. 
consumers. 

[13] Upon the ITC's issuance of an exclusion order, the USTR, on 
behalf of the President, begins a 60-day review process to decide 
whether to disapprove the ITC's determination for policy reasons. 
During this review period, companies are allowed to continue importing 
if they secure a bond, assuming a bond is required. Usually the USTR 
takes no action with respect to the ITC's determination and the 
exclusion order remains in effect. The complainant can then be 
compensated for any infringing products imported during this period by 
recovering the bond money through an ITC administered process. If the 
USTR disapproves the ITC's determination, the products are permitted 
to enter U.S. commerce. The USTR has disapproved an ITC determination 
one time since the President assigned this authority to the USTR in 
2005. 

[14] For the purposes of this report, "rescission" refers to the 
revocation, cancellation, or repeal of an exclusion order. In this 
instance, ITC has the authority to rescind an exclusion order if it 
determines that the conditions that required the exclusion order have 
changed such that a rescission is appropriate. 19 U.S.C. § 1337(k) and 
19 C.F.R. § 210.76 (a)(b). 

[15] 19 U.S.C. § 1337(d)(1). 

[16] CBP national targeting groups develop targeting strategies for 
identifying shipments with products subject to exclusion orders. 

[17] In fiscal year 2012, CBP launched Centers of Excellence and 
Expertise to provide a single point of contact for participating 
importers when processing their shipments. Each center provides 
support to importers within key industry sectors and consists of CBP 
staff at U.S. ports with related commodity expertise. As of November 
2014, CBP officials said that 1 of the 10 centers--the Electronics 
Center--was fully established and participated in CBP's enforcement of 
exclusion orders. For more information on the centers, see appendix 
III. 

[18] Throughout this report, "complainant" refers to the party in an 
ITC investigation who initiated the investigation and whose 
intellectual property rights or domestic industry is protected by an 
exclusion order. "Respondent" refers to a party in an ITC 
investigation whose product or products are alleged to infringe the 
intellectual property rights of the corresponding complainant, or who 
has otherwise been proved to have committed unfair acts or methods of 
competition in violation of Section 337 (e.g., trade secret 
misappropriation). 

[19] CBP's Automated Targeting System compares traveler, cargo, and 
conveyance information against law enforcement, intelligence, and 
other enforcement data to support CBP in identifying individuals and 
cargo that need additional review across the different means of 
transportation. 

[20] In addition to its Automated Targeting System, CBP may also 
consult its Automated Commercial Environment, a system that processes 
information on shipments submitted by importers and exporters, 
enabling CBP to learn more about incoming shipments. 

[21] CBP enforces laws for 40 other government agencies, such as the 
U.S. Fish and Wildlife Service, the U.S. Department of Agriculture, 
and the Centers for Disease Control and Prevention. 

[22] IPR-NTAG officials said though they have initiated operations for 
other types of intellectual property enforcement, they had not 
initiated operations of this nature for exclusion order enforcement as 
of April 2014. 

[23] According to an IPR Branch official, an ITC exclusion order 
generally allows an importer whose shipment has been excluded to 
request a warehouse entry or an application for foreign trade-zone 
admission from CBP. The official further explained that an importer 
can also protest an exclusion by filing a protest with the director of 
the port where the exclusion occurred. 

[24] 19 C.F.R. § 210.75(b)(6). 

[25] According to CBP, if a shipment is seized pursuant to an ITC 
seizure and forfeiture order, the importer can file a petition for 
administrative relief pursuant to 19 U.S.C. § 1618 or, by filing a 
claim and cost bond, seek judicial review in accordance with 19 U.S.C. 
§ 1608. 

[26] Port officials may allow a shipment to enter the country and then 
take up to 30 days to determine whether the product is covered by an 
exclusion order. If CBP determines that the product is covered by an 
exclusion order after it has entered into U.S. commerce, CBP will 
demand redelivery of the shipment. See 19 C.F.R § 113.62(d). 

[27] CBP developed this system in response to a recommendation in our 
2008 report that CBP collect data on the number of exclusions (denials 
of entry), in total and per exclusion order. See GAO, Intellectual 
Property: Federal Enforcement Has Generally Increased, but Assessing 
Performance Could Strengthen Law Enforcement Efforts, [hyperlink, 
http://www.gao.gov/products/GAO-08-157] (Washington, D.C.: Mar. 11, 
2008). CBP officials said that they do not track the number of 
examinations that did not result in exclusions. 

[28] [hyperlink, http://www.gao.gov/products/GAO-08-157]. 

[29] Office of the Intellectual Property Enforcement Coordinator, 
Administration's White Paper on Intellectual Property Enforcement 
Legislative Recommendations (Washington, D.C.: March 2011). 

[30] 19 C.F.R. Part 177. These regulations detail CBP's general 
processes to respond to an importer's request to obtain certainty in 
its import transaction about the admissibility of its product. 

[31] CBP and ITC officials noted that ITC does not provide guidance to 
CBP on products that were not the subject of ITC's original Section 
337 investigation. 

[32] The 90-day time frame is set by 19 C.F.R. § 177.10. 

[33] 19 C.F.R. § 177.12. 

[34] Id. 

[35] According to CBP officials, the approval of a certification is 
entirely at the discretion of CBP. CBP officials also noted that the 
acceptance of a certification for the purpose of entry does not 
establish any precedent as to CBP's acceptance of the certification 
for future shipments. 

[36] According to CBP officials, a draft "notice of proposed rule-
making" (notice) that would institute the inter partes process within 
its administrative rulings process has been completed. The notice 
explains the need for creating the inter partes procedures and 
proposes that a new subsection be added to existing regulations. The 
notice must be reviewed and cleared by CBP and approved by the 
Department of the Treasury. CBP will then give the public 60 days to 
submit comments on the notice. After the public comment period has 
closed, CBP must analyze the comments and respond to them and 
incorporate any changes to the proposed regulations. Once this process 
has been completed, the draft final rule must be reviewed and cleared 
again by CBP and approved by the Department of the Treasury prior to 
publication in the Federal Register. As of October 2014, the draft 
notice was with CBP's Trade and Commercial Regulations Branch, 
Regulations and Rulings Directorate, which is responsible for 
shepherding the document through the internal and interagency review 
process. 

[37] For the purposes of this report, "rescission" refers to the 
revocation, cancellation, or repeal of an exclusion order. In this 
instance, ITC has the authority to rescind exclusion orders if it 
determines that the conditions that required the exclusion order have 
changed such that a rescission is appropriate. 19 U.S.C. § 1337(k) and 
19 C.F.R. § 210.76 (a)(b). 

[38] [hyperlink, http://www.gao.gov/products/GAO-08-157]. 

[39] 19 C.F.R. § 12.39. 

[40] Officials told us that the CBP intranet, which was developed in 
2004, is accessible to all CBP staff in headquarters, field offices, 
and ports. 

[41] OMB Circular No. A-123 and [hyperlink, 
http://www.gao.gov/products/GAO/AIMD-00-21.3.1]. Internal control, in 
the broadest sense, includes the plan of organization, methods, and 
procedures adopted by management to meet its goals. 

[42] ITC issued these 17 exclusion orders between 1990 and 1997. 

[43] 19 C.F.R. § 210.76(a). 

[44] Based on CBP's letter to the ITC, the ITC published a notice in 
the Federal Register seeking public comments as to whether the 6 
exclusion orders should be rescinded in whole or in part based on 
changed conditions of fact or law or the public interest pursuant to 
19 C.F.R. § 210.76. See 79 Fed. Reg. 64214 (Oct. 28, 2014). Written 
submissions are due on December 22, 2014, and reply submissions on 
January 15, 2015. 

[45] While CBP does not track local targeting efforts, CBP records 
excluded shipments and the national targeting methods used to identify 
them. Our analysis of CBP's data on exclusions related to the 27 
exclusion orders without trade alerts posted on the intranet found two 
exclusions that were the result of local targeting. These two 
exclusions occurred in fiscal year 2010 and were related to 1 of the 
27 orders with no trade alert on the intranet. 

[46] IPR Branch officials said that 2 of the 27 exclusion orders were 
older trademark-based orders and seizures were made because of 
trademark violations. 

[47] [hyperlink, http://www.gao.gov/products/GAO-08-157]. 

[48] OMB Circular No. A-123 and [hyperlink, 
http://www.gao.gov/products/GAO/AIMD-00-21.3.1]. 

[49] In our 2008 report, we found that it took CBP more than 60 days 
to post trade alerts for 14 of the 18 exclusion orders for which it 
could provide such data. See [hyperlink, 
http://www.gao.gov/products/GAO-08-157]. 

[50] OMB Circular No. A-123. 

[51] The litigation involves CBP's enforcement efforts pertaining to 
an exclusion order issued by ITC, finding a violation of Section 337 
because certain Motorola products had infringed Microsoft's patent 
rights. Microsoft Corporation v. Dep't of Homeland Sec. et al, 1: 13-
cv 01063-RWR (D.D.C. July 12, 2013). 

[52] We used data starting from September 16, 2010, because CBP 
started tracking exclusions in its exclusion order notification and 
tracking system on this date. 

[53] 19 C.F.R. § 12.39. 

[54] Office of Management and Budget, Management's Responsibility for 
Internal Control, OMB Circular No. A-123 (Washington, D.C.: Dec. 21, 
2004) and GAO, Standards for Internal Control in the Federal 
Government, [hyperlink, 
http://www.gao.gov/products/GAO/AIMD-00-21.3.1] (Washington, D.C.: 
November 1999) 

[55] 19 C.F.R. § 177.10 Part 177. 

[End of section] 

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