The closure of the de minimis loophole on May 2 is poised to potentially reshape the enforcement landscape for design patents across CPG sectors, including the cosmetics and personal care products industries.
For years, US manufacturers and suppliers have faced challenges as foreign companies, particularly from China, have exploited this exemption to ship millions of products into the US market duty-free and largely unchecked.
This policy change effectively stops the flood of small parcels (shipments valued at $800 or less) that have sidestepped traditional trade and intellectual property enforcement mechanisms at the border. Utilizing informal customs channels has allowed packages containing counterfeit or infringing goods to pass through to the US market with minimal inspection, which can undermine domestic brand efforts to safeguard IP rights and comply with trade regulations.
Origins and evolution of the de minimis exemption
Congress originally enacted Section 321 in 1938 “in order to avoid expense and inconvenience to the Government disproportionate to the amount of revenue that would otherwise be collected,” according to the Congressional Report “Imports and the Section 321 (De Minimis) Exemption: Origins, Evolution, and Use.”
Initially, the exemption applied to imports valued at one dollar or less. Over the decades, Congress amended Section 321, and in 2015, it raised the threshold to $800, citing that “[h]igher thresholds for the value of articles that may be entered informally and free of duty provide significant economic benefits to businesses and consumers in the United States and the economy of the United States.”
However, the number of de minimis entries surged from 153 million in 2015 to over 1 billion in 2023. As noted in the Congressional Report, “the increased volume of de minimis entries has, according to some Customs and Border Protection (CBP) officials, led to challenges in screening entries for imports that violate US laws.”
Additionally, some Members of Congress raised concerns that the exemption “undermines the protection provided by tariffs to certain domestic industries” and weakens CBP’s ability to enforce prohibitions on imports made with forced labor or other violations.
The impact on cosmetics and personal care brands
Under the now-closed de minimis rule, shipments valued at $800 or less could enter the country without formal customs procedures. This system, Ehsun Forghany, Partner at ArentFox Schiff, told CosmeticsDesign, “has allowed foreign companies to circumvent any court orders barring products found to infringe US design patents and other intellectual property rights from entering into the United States.”
This has been especially problematic for the cosmetics and personal care industry, where product design and packaging are key differentiators and prime targets for infringement.
As Forghany shared, Chinese e-commerce platforms have capitalized on the loophole, flooding the US market with small parcels that sidestep traditional trade and IP enforcement mechanisms.
Forghany noted, “This has been particularly detrimental to American manufacturers in the cosmetics and personal care industry because Chinese e-commerce giants have used this loophole to dominate the American market by shipping millions of small parcels daily, all while circumventing trade and intellectual property laws that US businesses must follow.”
A turning point for enforcement
The closure marks a turning point. As Forghany explained, “Closing the de minimis loophole prevents foreign companies from bypassing trade enforcement measures and intellectual property laws through de minimis shipments.”
With this policy shift, the expectation is a rise in enforcement actions and litigation. “Customs and Border Patrol has historically reported a sharp increase in dangerous or counterfeit products entering the US via de minimis shipments,” said Forghany.
“Without stronger enforcement measures at the border,” he continued, “American companies cannot practically enforce any judgments obtained against foreign companies infringing their design patent and other IP rights.”
Forghany believes that the strengthened border measures will motivate US brands to pursue their rights more actively. “Closing the de minimis loophole will incentivize American brands to enforce their design patent rights against foreign companies in district court and administrative proceedings, which in turn, will likely lead more American brands to enforce their intellectual property rights through litigation.”
Preparing for heightened IP enforcement
He advised that companies prepare now. “American companies should revisit their IP procurement strategy to ensure that their most innovative designs are adequately protected so that, upon detecting infringement, they can strategically and effectively enforce their design patent and other IP rights against foreign companies,” he concluded.
As the US tightens oversight and enforcement, cosmetics and personal care companies may find new opportunities to protect their brands, but only if they take proactive steps to strengthen their intellectual property portfolios.