It all started when a steel ball and magnet became one of the more effective ways to prop up a smartphone back in 2012. The Steelie phone holder was just a newborn from a machine shop in Boulder. The little magnet and ball inspired hundreds, possibly thousands, of similar products — one might call them knockoffs — and created loads of legal work for the Colorado company behind the ball, Nite Ize.

From fending off poorly made copies to battling imitators that ripped off the Steelie brand name and packaging, Nite Ize went into whack-a-mole mode trying to keep up with products online that infringed on its intellectual property. Its latest weapon, a special International Trade Commission order directing U.S. Customs agents to seize offending products at the border, went into effect in late April and has resulted in Amazon taking down 381 items in a few short weeks.

But the ultimate solution will take the world to fix: Changing the nearly 150-year-old Universal Postal Union rule that allows countries like China to ship a small package of up 4.4 pounds to America for approximately $1.42. Using those cheap rates, Chinese companies are able to put their smartphone holders in consumers’ hands for far less than Nite Ize can.

“It’s easy for people to go to Amazon and feel like they get a relative value for a (competing) product especially if it looks the same. But that (seller) has sideswiped all our intellectual property and research and development,” said Rick Case, who founded Nite Ize in 1989 with a headband flashlight strap. “… And with China Post, they’re shipping direct from China to the consumer for a dollar. That’s not within the bounds of what any viable company is able to do.”

With the Trump administration and its allies accusing China of a litany of unfair trade practices, Nite Ize has joined the chorus of American companies saying the inequities are as basic as the cost of postage.

Nite Ize is doing what it can to promote awareness of the century-old Universal Postal Union, which was established by the Treaty of Bern in 1874 to create a flat rate to send letters between countries. Developing countries received a discount. But according to the National Association of Manufacturers, China is still considered a developing country so letters and packages sent from China to a U.S. address cost the seller $1.42, said Patrick Hedren, the association’s Vice President for Labor, Legal & Regulatory Policy.

“The only possible way to talk to your grandmother in Italy (in the 1800s) was to send a letter. That’s clearly not the same now,” Hedren said. “…It’s unfair and discriminates between operators and domestic shippers. We’re not the only country facing this problem. It’s driving Sweden and Canada nuts.”

Fake or a copy?

Counterfeit and knockoff products have long been part of the American economy. The former is a duplicate that pretends to be a brand; the latter is a copy that doesn’t purport to be the same brand. For the better part of the last century, imitators were more inclined to knock off luxury goods like pricey handbags or designer drugs that made the effort financially worthwhile — think of the caricature of a back-alley vendor hawking “genuine” Rolodex watches.

The rise of online marketplaces like Amazon has made it easier for all items, luxury or not, to find their way into American homes. Of course, online marketplaces have also created a place where small businesses with innovative products can thrive and reach global customers.

Nite Ize itself considers Amazon one of its largest partners that has helped it sell hundreds of products. Not all come from Case’s brain. The company acquired the Steelie patents from creator Frank Vogel, who successfully crowdfunded the product in 2012 and now receives royalties on sales.

Protecting innovative ideas yet enabling them to inspire others is also a “modern practice,” said George Lewis, a Denver patent and trademark lawyer at Merchant & Gould.

“We call it designing around other people’s patents,” Lewis said. “Above board companies do it all the time. That’s one of the purposes of patents — to innovate around it. I may try to improve the product or change it so that it’s better and then get people to buy mine without infringing on your patent rights. That’s perfectly legal.”

While companies like Amazon take down items that are blatant copyrights or trademark infringements, it’s up to the brand to notify Amazon about violators. For patent violators, Amazon requires a court order, which is not easy to get if the offender is some stranger in a foreign country.

“It’s very hard to serve them (a foreign violator) paperwork. It’s another thing to have them show up in court. Now multiply that by hundreds and hundreds of times,” said Case, whose legal team had submitted 256 items before April and Amazon removed 149. “I think one feels like, ‘What do we do?’ We’re a U.S. company. We follow U.S. patent protocol. Years ago, this worked. This process worked. Our court system upheld this and supported intellectual property.”

Amazon has stepped up its tools to help brands monitor infringement. The company offers a “Brand Registry” portal to make it easier to report violators. It even added a spot to submit offenders of a brand’s International Trade Commission orders. Since April, Amazon updated the number of companies that have joined this effort by 50 percent, to 60,000 brands and those brands “on average are finding and reporting 99 percent fewer suspected infringements than before the launch of Brand Registry,” the company said in an email to The Denver Post.

“Our customers trust that when they make a purchase through Amazon’s store — either directly from Amazon or from one of its millions of third-party sellers — they will receive authentic products, and we take any claims that endanger that trust seriously. We strictly prohibit the sale of counterfeit products and invest heavily — both funds and company energy — to ensure our policy against the sale of such products is followed,” Amazon said.

While offline retailers take responsibility for items sold since they buy them from manufacturers, online marketplaces like Amazon don’t own the third-party products, and so they don’t have the same liability, pointed out Lewis. And an online marketplace doesn’t want to remove an item without a court order because it doesn’t want to be the judge, he said.

“Amazon doesn’t know if you made it or not. They’re not going to be the arbitrator,” he said. “But it’s been discouraging for midsize and small innovators like Nite Ize. …The reason why we’re so innovative is we reward our innovators. They get a patent on it that they know will last for 20 years and they can make money off it. … If you spend the time and money to create a market, China will always be able to outsell. They didn’t have to create the market and pretty soon, you go out of business because you can’t recoup the money. That’s what happens when there is no intellectual property.”

Counterfeit goods and the postal system

The value and amount of counterfeit items seized at U.S. borders has shifted, according to U.S. Homeland Security report for 2017 on seizure statistics. While the value went down slightly in 2017 from the prior year to $1.2 billion, the number of patent and copyright-infringing seizures grew 8 percent to 34,143. The report didn’t include packages mailed to U.S. citizens. But it did mention that e-commerce sales through third-party platforms “resulted in a sharp increase in small packages into the U.S.” and “89 percent of all IPR seizures take place in the international mail and express environments.”

While American consumers may get items mailed cheaply from China, returning a package to a Chinese seller doesn’t get the same rate, making returns much more expensive. The National Association of Manufacturers is pushing for the postal service to share data on the shapes of the packages sent and how many are sent per country. Right now, the U.S. Postal Service only shares data on all inbound international mail.

Last year, that was 658.8 million pieces of international inbound mail, up 6 percent from the prior year, according to U.S. Postal Service. Earlier years were unavailable. Another thing it shares: losses. USPS lost $97.9 million on inbound international mail in 2015. That grew 34 percent the next year to a loss of $134.5 million. In 2017, it lost $170 million, according to the Postal Regulatory Commission’s annual compliance reports.

By eliminating the discount to Chinese sellers, the hope is that U.S. shoppers will skip the pricier shipping and opt for the real thing. Ultimately, that would discourage illegitimate foreign sellers.

“There are many ways you can play whack-a-mole by trying to stop this on a case-by-case basis. But it’s not successful,” said Hedren, with NAM. “That’s why we’ve been focused on this very strange, esoteric postal issue that not only enables this but makes it very profitable (for knockoffs). The U.S. Postal Service is hugely subsidizing Chinese counterfeits and even drugs. It’s a mind-boggling consequence of a system that’s been around for more than 100 years.”

The Postal Service, heavily criticized recently by President Donald Trump for giving Amazon shipping discounts, said this is an issue it can’t control. It has repeatedly recommended a more realistic rate, according to documents filed with the U.S. Government Accountability Office report to Congress last October.

“The characterizations of ‘steep postal discounts’ under a ‘century old treaty’ are incorrect,” the postal agency said in a statement. “…The Postal Service does not set these rates, but is bound by them. The State Department and the other UPU member nations have negotiated stepped annual increases in terminal dues that establish the default terminal dues rates that China and other countries must pay, thereby providing progressively higher rate benchmarks for tracked packages for the coming years.”

Some legislators are also paying attention and are pushing for changes. In April, U.S. Sen. Bill Cassidy from Louisiana and Texas Congressman Kenny Marchant introduced separate bills to end the Postal Service’s practice to subsidize inbound international shipments.Those are still winding their way through the system.

“If you have ever bought stamps or shipped a package through the mail, you’re also footing part of the bill for inbound packages from China,” Marchant said in a statement. “The United States Postal Service is subsidizing inbound packages from foreign countries and sticking American ratepayers with the tab. To the detriment of small businesses in my district and their customers, it is often cheaper to ship a package from China to anywhere in the United States than to mail a package from one North Texas city to another.”

At Nite Ize, while the International Trade Commission order has helped it more quickly clamp down on infringing online products, Chief Legal Officer Clint Todd said it will continue to be a daily battle of finding offenders online. But he hopes that if postal rates change for Chinese shippers, then consumers will see and respond to the actual price to ship counterfeit products from China.

“I’m trying to mention it every time we talk to someone who’s interested in our ITC order,” Todd said. “It’s something contributing to the problem overall. Your taxpayer dollars are paying for the subsidy that is helping destroy U.S. companies and U.S. jobs. This needs to be out there. Everyone who hears about it is similarly appalled.”