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Prolonged & Indefinite Seizure by Customs Beyond Mere Delay

Posted by James Juo | Aug 09, 2023 | 0 Comments

U.S. Customs and Border Patrol (“CBP”) can seize imported goods entering the U.S. that bear an infringing a registered trademark or copyright that has been recorded with the CBP. at the was authorized to use its trademark. 19 U.S.C. § 1595a(c)(2)(C) (seizure and forfeiture of “merchandise or packaging in which copyright, trademark, or trade name protection violations are involved”).

Recordation of a registered trademark must be renewed with the CBP at the same time the trademark is renewed with the USPTO. Recordation of a registered copyright must be renewed with the CBP every twenty years. CBP maintains a searchable online database of such recordation which includes identification of a contact person for the intellectual property rights (“IPR”) holder who can assist CBP in determining the authenticity of suspected infringing products.

After seizing a shipment, CBP sends an importer a seizure notice. The importer can then (1) request administrative forfeiture proceedings; (2) file a claim and cost bond requesting that CBP immediately refer the case to the U.S. attorney's office for litigation; (3) file a petition for administrative relief with the port director of CBP; or (4) tender an offer in compromise to the Commission of Customs through the Fines, Penalties and Forfeitures Office at the port of seizure.

After the seized goods are forfeited, CBP may impose a fine on the importer of infringing goods. In determining the amount of the fine, mitigating factors include lack of knowledge of the goods' true nature, prior record of good importation, inexperience in importation, cooperation with CBP and inability to pay the fine. On the other hand, aggravating factors such as prior importation of later seized and forfeited goods, criminal violations relating to the transaction, submission of falsified documentation, and other deceptive practices.

Certification Marks

A certification mark is a type of trademark that is used to show consumers that particular goods and/or services, or their providers, have met certain standards. A certification mark does not distinguish between producers. Trade associations and centralized commercial groups are the most common owners of these marks. To get the rights to use a given mark, the business's goods must reach a certain standard.

Certification marks can show geographic origin, standards met with respect to quality or manufacture, or work performed by a person that meets certain standards. For example, the ENERGY STAR mark is used to certify that appliances such as refrigerators meet certain energy efficiency standards. Another well-known certification mark is UL for safety standards.

UL's Certification Mark

In October 2019, Hounen Solra, Inc. (“Hounen”) contacted UL LLC (“UL”), a third-party safety certification company with a strong reputation in the safety certification industry, to certify solar panel modules to be imported into the U.S.

In November 2019, to initiate discussions about certification, a representative from Hounen contacted a UL representative identified as “Yongbin.” The Hounen representative explained that Hounen would only issue purchase agreements with end customers if UL could authorize use of the UL mark within a specified delivery timeline. Hounen sought UL's commitment to this delivery timeline, and Yongbin guaranteed that UL would timely authorize Hounen to use UL's mark. He estimated that the certification process would be complete by the time the modules reached the U.S.

But even if the certification process were not completed in time, UL would allow Hounen to use the mark. Yongbin explained that such preemptive authorization was common practice; as long as the certification process was ongoing and the requisite fees were paid, UL could authorize customers to use its mark to facilitate delivery deadlines. Further assuring Hounen, Yongbin explained that UL could provide a declaration confirming that the certification process was ongoing—which would serve as evidence of UL's permission for Hounen to use the mark—in the event of a problem with CBP.

Unfortunately, UL had not completed testing and certification by the time the first batch of modules were ready for shipment in January 2020.

Consistent with Yongbin's representations that UL preemptively authorized use of its mark whether or not certification was complete, Hounen instructed its manufacturer to append the UL mark to the modules.

The first batch of modules were shipped to the United States in February 2020. Around the same time, Yongbin sent a declaration stating that “testing is ongoing” which purported to serve as evidence that UL authorized Hounen to use the mark.

CBP targeted the first shipment of the modules for examination on March 25, 2020, and detained the shipment in early April. When CBP asked UL to confirm that the modules were not counterfeit, UL stated that it was “highly suspicious of [their] authenticity.”

In April 2020, Yongbin provided Da Chuan and Hounen with another “certificate of compliance” that purported to serve as evidence of UL's authorization. The Certificate also stated, however, that it “d[id] not provide authorization to apply the UL mark.”

At the end of April 2020, UL sent CBP a letter stating that the modules were not “authorized” and that UL did “not consent” to the importation of such unauthorized marks.

CBP seized this first shipment in May 2020. CBP similarly detained and seized seven more module shipments between April and June 2020.

UL allegedly would only consent to the release of the seized modules if Hounen's manufacturer would admit that it was at fault in using in using UL's mark without authorization.

In August 2020, Hounen submitted petitions to CBP, seeking release of the seized modules. Through new counsel, Hounen resubmitted those petitions in January 2021. CBP denied Hounen's petitions in March 2021. A month later, in April 2021, UL relayed to CBP its consent to release all of the seized modules.

CBP eventually approved the release of the modules subject to the removal of the UL mark in August 2021. By the time CBP released the modules, about two years had passed, and the modules had depreciated in value. Hounen never delivered the seized modules to the intended buyers under contract. In addition, Hounen paid CBP significant fines and penalties to obtain the release of the modules.

Lawsuit for Fraud, Negligent Misrepresentation, and Negligence

Hounen then sued UL in the Northern District of Illinois for fraud, negligent misrepresentation, and negligence, alleging that UL misled Hounen regarding authorization to use of the certification mark while testing was pending, and Hounen relied on that misrepresentation to its detriment. Hounen Solar, Inc v. UL LLC, No. 1:22-cv-03240 (N.D. Ill. Aug. 3, 2023).

Ruling on a motion to dismiss an amended complaint, the Court found Hounen plausibly alleged that UL's misrepresentations caused the shipment of modules with unauthorized marks and that its further misrepresentations caused CBP to seize the modules. That seizure caused Hounen to materially breach its contracts with its customers and obligated Hounen to pay fines and penalties. The Court also found that Hounen plausibly alleged injury from the seizure in preventing the timely delivery of the modules to buyers.

Hounen also plausibly alleged reasonable reliance on the statements of UL's representative with knowledge of UL's opaque certification process when discussing the possibility of certification. “Under Illinois law, justifiable reliance exists when it was ‘reasonable for plaintiff to accept defendant's statements without an independent inquiry or investigation.'” Wigod v. Wells Fargo Bank, N.A., 673 F.3d 547, 569 (7th Cir. 2012).

UL argued that its entire business model centered around certifying products once testing was complete. While the Court acknowledged “UL's point as a matter of logic,” but found that “factual uncertainty remains regarding the reasonableness of Hounen's reliance” because UL internally controls its certification process, which “varies by each individual project” and unilaterally decides what it means to “obtain authorization” to use the mark.

Yongbin told Hounen that authorizing use of a mark before certification was complete was common practice, and Hounen alleges that UL engaged in similar pre-testing certification with a different company. In that light, it would not necessarily be unreasonable to credit assurances that UL would modify and streamline its proprietary certification process to accommodate a tight timetable of an important customer. When UL's representative advised that “UL allowed field testing of products already using the UL Mark that would act as a retroactive type of certification,” id. ¶ 122, Hounen had no contrary information. . . . Of course, discovery could reveal that the practice of authorization before testing was uncommon or frowned upon in the industry and that Hounen seized on a deal that it knew was too good to be true. For now, however, whether Hounen's reliance was reasonable depends on facts that have not yet been fleshed out.

* * *

Yongbin's alleged knowledge that UL was always going to tell CBP that the marks were counterfeit is what made his prior statements deliberate falsehoods. See Wigod, 673 F.3d at 570 (noting that a “particularly egregious” false statement of intent regarding future conduct can form basis of a fraudulent misrepresentation cause of action under Illinois law (quoting BPI Energy Holdings, Inc. v. IEC (Montgomery), LLC, 664 F.3d 131, 136 (7th Cir. 2011))). Hounen alleged that it relied on Yongbin's representations (which UL sanctioned), that those representations were false because UL had no intention of authorizing the use of its certification mark on an untested product, and that this fundamental misrepresentation caused Hounen injury.

With respect to whether UL owed Hounen a duty of care for a negligence claim, the Court noted that Hounen relied on the same “aggregate of operative facts,” to support its fraud, negligent misrepresentation, and negligence counts. Sojka v. Bovis Lend Lease, Inc., 686 F.3d 394, 399 (7th Cir. 2012) (quoting Florek v. Village of Mundelein, 649 F.3d 594, 599 (7th Cir. 2011)). Having found that Hounen has stated a plausible claim based on a fraud theory, it was unnecessary to determine whether another theory is also sufficient. “A motion to dismiss under Rule 12(b)(6) doesn't permit piecemeal dismissals of parts of claims; the question at this stage is simply whether the complaint includes factual allegations that state a plausible claim for relief.” BBL, Inc. v. City of Angola, 809 F.3d 317, 325 (7th Cir. 2015). Because the amended complaint would survive dismissal even if a negligence theory proves inadequate, the Court declined to determine at this stage whether UL owed Hounen a duty of care.

Satisfied that the amended complaint plausibly alleged causation, namely that “Hounen's injury stems from CBP's prolonged and indefinite seizure of the modules, rather than a delay in shipment,” the Court denied UL's motion to dismiss.

Thomas P. Howard, LLC is experienced in trademarks nationwide including in Colorado.

About the Author

James Juo

James Juo is an experienced intellectual property attorney. He has successfully litigated various intellectual property disputes involving patents, trademarks, copyrights, and trade secrets. He also has counseled clients on the scope and validity of patent and trademark rights.


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