Category: Illicit Trade

  • Call for Crackdown on Illicit Cigarettes

    Call for Crackdown on Illicit Cigarettes

    Photo: gloverbh222 from Pixabay

    Philippine Representative Joey Salceda has called for a crackdown on the illicit cigarette trade, reports The Inquirer.

    The lawmaker, who chairs the ways and means committee, estimates the Philippines loses at least PHP30 billion ($618.29 million) annually due to cigarette smuggling. He attributes the problem to lax law enforcement.

    Salceda said the Bureau of Internal Revenue should reverse a rule from 2015 that exempts cigarette manufacturers from tax stamps for exports and instead requires them to have unique identification codes (UIC). Because the rule relies on self-declaration, it is prone to abuse, according to Salceda.  

    “Stricter enforcement is absolutely critical, so the policy fix will involve closing the loopholes that lighten enforcement,” he added.

    Cigarettes top the Philippines’ Bureau of Customs’ (BOC) list of most smuggled products.

    According to the Department of Finance (DOF), more than half of contraband seized by the BOC in 2020 was illegal cigarettes.

    The DOF said that out of the PHP9.75 billion in smuggled goods that the BOC seized in 2020, 53.5 percent in terms of value, or PHP5.22-billion worth, were tobacco and cigarettes.

  • Lessons From History

    Lessons From History

    A poster from the U.S. National Crime Prevention Council urging consumers to report suspected fake vapor products.

    In their fight against illegal vapor products, authorities risk repeating the mistakes made in the same struggle against illicit combustible cigarettes.

    By George Gay

    I don’t go along with the idea that people who buy illicit cigarettes should be condemned on the grounds that, in doing so, they encourage organized crime because, to my mind, this amounts to stand-out hypocrisy even in a world whose wheels are liberally oiled with hypocrisy. Governments, through taxation, knowingly raise the prices of cigarettes to levels at which many smokers cannot afford them, and they do this while declaring that cigarettes are highly addictive. The outcome—the promotion of the illegal trade in cigarettes—is built into this strategy, which, in fact, in most cases at least, is aimed primarily at increasing tax revenues.

    But this sort of hypocrisy is easier to take than the sort of hand-wringing hypocrisy encased in government claims that they have only smokers’ interests at heart when they act against the illegal trade. Having spent decades telling us that tobacco smoke is deadly, they suggest that the smoke issuing from illicit cigarettes is even more deadly than the deadly smoke issuing from cigarettes produced in regulated factories; they have deemed that there are degrees of deadly. To them, apparently, smoking kills, but smoking illicit cigarettes kills you deader. Hmm.

    If you allow a consumer product to become popular and then make it unavailable to the person in the street by adding greedy levels of tax, you are as good as issuing an invitation to criminals

    Having said that, and while still maintaining the need to cast a critical eye over claims about illegal trade in general, I have to admit that the illegal trade in vaping products is in a different league to that of cigarettes. There are clearly some elements of illegally traded vaping products, such as e-liquid containers and batteries, the use of which could cause unnecessary risks to consumers and others. But note, there is a major difference between cigarettes and vaping products. The former is a product that is so risky to consume that it is unlikely to be made any riskier by unregulated manufacture whereas the latter is a low-risk product that could be made riskier by unregulated manufacture.

    Notwithstanding this, various authorities around the world seem to be repeating, in the case of vapor products, the sorts of mistakes that, previously made in respect of combustible cigarettes, have led to a massive illegal trade in cigarettes. And this is so, even though it’s not difficult to understand the pitfalls. If you allow a consumer product to become popular and then make it unavailable to the person in the street by adding greedy levels of tax and/or by forcing manufacturers to degrade the appealing qualities of that product, you are as good as issuing an invitation to criminals, organized or not.

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    Openly boosting the market

    I wrote above that the authorities were repeating mistakes, but this is a little misleading, at least in the U.S. because there the authorities seem to have OK’d open carry in respect of mistakes—they seem to be boosting the illegal market in vapor products. In January, an official “toolkit” aimed at addressing the U.S. black market in vapor products described how, a year earlier, the Food and Drug Administration, as part of its enforcement priorities for vapor products, was targeting: any flavored cartridge-based product using flavors other than tobacco or menthol; all other products for which the manufacturer had failed to take or was failing to take adequate measures to prevent minors’ access; and any product that was targeted to minors or that was marketed in a way likely to promote use by minors.

    Of course, it’s easy to say, “well, fair enough, other flavors are simply not permitted.” But the ban on these other flavors was not taken in a knowledge vacuum. Those other flavors were a lifeline for some adult consumers wishing to switch from high-risk cigarettes to low-risk vaping products. And the importance of this lifeline is acknowledged in the toolkit, which was produced by a partnership between the National Intellectual Property Rights Coordination Center and the National Crime Prevention Council. “FDA also acknowledged the risk of an illicit trade of ‘black market’ … vapor products arising out of this new enforcement policy but maintained that it has the regulatory tools and enforcement authorities to address such products,” the toolkit says.

    Does this strike you as odd? The National Crime Prevention (my emphasis) Council is apparently happy to work with the FDA while it participates in the creation of a black market for vapor products. That is not crime prevention: It is crime control at best and crime uncontrol at worst.

    If you read through the toolkit, one of the justifications for banning most flavors in vapor products and thereby fanning the flames of the illegal trade in them is that these flavors appeal to minors and therefore encourage them to use vapor products. But there must be something else going on here. According to the toolkit, the black market for vapor products is an “emerging concern across the country.” And “[f]irst and foremost they [black market products] undermine tobacco control measures to address underage use of tobacco and nicotine products.” But the toolkit also tells us that, according to the 2020 National Youth Tobacco Survey (NYTS) conducted by the FDA and the Centers for Disease Prevention and Control* (CDC), there has been a decline in underage use of vapor products. “In 2019, 28 percent of high school students and 11 percent of middle school students used vapor products,” the toolkit quoted. “In 2020, 19.6 percent of high school students and 4.7 percent of middle school students used vapor products. This amounted to 1.8 million fewer high school [students] and middle school students using vapor products in 2020 compared to 2019.” (*Usually, but less logically, called the Centers for Disease Control and Prevention.)

    But there are other concerns that the toolkit highlights. “According to FDA, ‘[a]dditional risks posed by these [illicit] products include the potential that they contain harmful chemicals or constituents that are not present in other products, that they are manufactured using comparatively poor quality controls and that they are designed in ways that facilitate modifications by distributors or users—all of which increase the risk of adverse events.’”

    There is truth in this, but note the “potential” qualification and the reference to designs that facilitate modifications, which, according to my reading, muddies the waters. The toolkit talks of the ability of users to add illicit substances such as tetrahydrocannabinol (THC), but this is outside the sphere of vaping with nicotine, the lifeline for many smokers.

    The toolkit also says that black market products contribute to and facilitate other criminal activity that threatens the U.S. economy, public health and community safety as well as violating the intellectual property rights of U.S. companies. And here we come to an important crossroads. Is the fight against black market vapor products there to protect consumers or companies?

    Well, the IPR Center says, working in partnership with Philip Morris International (PMI) and Juul Labs, it is “proud to offer a training course on illicit trade in tobacco and vapor products,” which, we must hope, refers to a course on combatting the illegal trade in tobacco and vapor products. I have no problem with PMI and Juul playing such a role. In fact, I would imagine that these two companies have a lot to bring to the table. But there does seem to be a worrying level of inconsistency in the way that tobacco/nicotine companies are viewed: on the one hand as partners and on the other hand as pariahs.

    While PMI and Juul have a lot to bring to the table, they also have a lot to lose, unfairly, in the way of intellectual property rights, but then it is surely the case that a lot of smaller companies have had their intellectual property rights taken away from them by the actions of the FDA in demanding ludicrously complex and expensive market authorization applications. And why don’t consumers get a say? It would seem from the toolkit that their sole function is to be the audience during lectures on how to behave. Is that going to go down well with an ex-smoker who has had the vaping product she used to quit her cigarette habit withdrawn because it’s too appealing?

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    Missing figures

    One of the weaknesses of the toolkit is its lack of supporting figures, and you have to wonder why this is so. On Jan. 13, it was announced that, during December 2020, U.S. Customs and Border Protection (CBP) officers at the Dallas Fort Worth International Airport, working in conjunction with FDA agents, had seized 42 shipments from China that contained 33,681 “units of e-cigarettes,” later confirmed to comprise 33,681 individual e-cigarettes, each with a flavored cartridge. The seized goods were said to have a manufacturer’s suggested retail price of $719,453. Now I know there is a tendency for certain authorities in the U.S. to panic, but it seems odd to me that this haul should be the subject of a press announcement. After all, it doesn’t seem big enough to have threatened the end of civilization. I mean, it’s not like the borders had been crossed by a deadly virus.

    Nevertheless, given that the 33,681 units were the result of a week-long joint operation by the CBP and the FDA, it is perhaps likely that the total haul for fiscal year 2021 (Oct. 1, 2020, to Sept. 30, 2021) will be higher than that for fiscal year 2020, which saw 93,590 units seized as part of 69 incidents, especially since the fiscal year 2020 haul was up significantly from that of fiscal year 2019: 14,418 units seized as part of eight incidents.

    The trend is upward. I couldn’t obtain figures for fiscal years 2017 and 2018 but was told that, since the start of an FDA enforcement policy in January 2020, the number of seizures had increased by a factor of eight, which I took to mean that the numbers for 2017 and 2018 would have been low to negligible—as you would have expected.

    Will the trend continue upward? Almost certainly in the short-term to medium-term because the FDA describes its enforcement activities as continuing and aggressive, though, being charitable, there will be some downward pressure because, presumably, it will take a while to filter through to some manufacturers that this enforcement policy is in place.

    The FDA press note announcing the December 2020 seizures said that it and the CBP had been looking to intercept “counterfeit or other violative e-cigarettes, including certain flavored e-cigarettes imported to the U.S. that did not meet the Federal Food, Drug and Cosmetic Act (FD&C Act) requirements as amended by the Family Smoking Prevention and Tobacco Control Act (Tobacco Control Act).” Counterfeit trade is likely to continue at a rate that will be partly determined by the success or otherwise of the continuing strategy of seizures and, therefore, the profitability of the operations of those offering such products. At the same time, the import of products including illicit flavors is likely to increase, despite the downward pressure mentioned above, simply because a strong demand has built up for these products among adults. A caveat has to be added here, however, because it is not beyond the bounds of possibility that flavored products might be passed for sale as part of the FDA’s review of premarket tobacco product applications for vapor products. But I wouldn’t hold out too much hope. The press note contained copious amounts of the usual hand-wringing about flavored vaping products and their effect on young people.

    The press note also includes a quote about how protecting U.S. consumers from “illicit and especially harmful tobacco products, such as counterfeit or flavored e-cigarettes, is of utmost importance to the FDA.” The note said, “we will continue to investigate and remove from the marketplace products that pose a particular danger to the public health.” As far as I could ascertain, however, the dangers described on a CDC website to which I was directed by the FDA apply to both licit and illicit products and, in any case, are shot through with qualifications along the lines of “might be” and “could in the future” or are the sorts of dangers that people, young and old, are exposed to while walking down the street.

    A recent study, reported by Oliver Milman in The Guardian in February, found that, worldwide in 2018, air pollution caused by the burning of fossil fuels was responsible for more deaths than tobacco smoking and malaria combined. I would imagine that the number of deaths caused by vaping with nicotine is some way down the list—perhaps just above the number of deaths that occur each year after people are attacked by mutant goldfish.

  • Illicit Juul Products Uncovered in Florida

    Illicit Juul Products Uncovered in Florida

    Photo: Steveheap – Dreamstime.com

    About 3.3 percent of surveilled retail outlets in Miami-Dade County and Broward County were found to be selling illicit Juul Labs products during a recent enforcement campaign by the company.

    Juul Labs’ Brand Protection Team investigated 917 retailers in the Florida counties, which are near a U.S. port of entry and international mailing facility—known entry points for the importation of illicit products. With the support of a third-party compliance auditor, the team conducted product surveillance and obtained samples across retailers. The samples were then evaluated to determine whether they were illicit products.

    Of the 30 outlets in South Florida selling illicit products, six outlets sold counterfeit Juul pods, primarily offered in illegally marketed flavors, while one sold counterfeit Juul devices. Ten outlets sold diverted Juul pods, primarily diverted from Canadian and Russian markets, and 13 outlets sold illegal and unauthorized compatible pods, with most of these compatible brands subject to International Trade Commission exclusion orders.

    Juul Labs said it would deliver its findings to law enforcement authorities and support their efforts to bring legal action. “We need to be a responsible and trusted steward of vapor products,” said Adrian Punderson, vice president of brand protection at Juul Labs, in a statement. “As such, it is our obligation to support enforcement against illicit and illegal products as we strive to reset the vapor category and earn a license to operate in society.”

  • Illicit Cigarettes One-Fifth of Sales in Latvia

    Illicit Cigarettes One-Fifth of Sales in Latvia

    Photo: Makalu from Pixabay

    Illicit cigarettes accounted for 20.4 percent of the Latvian tobacco market in 2020, 3.6 percentage points more than in 2019, reports the Baltic News Network, citing Nielsen figures.

    The Latvian Chamber for Commerce and Industry (LTRK) notes that with this share, Latvia has come close to Lithuania where the percentage of illegal cigarettes was 21.8 percent last year. In Estonia, by contrast, the percentage of illegal cigarettes on the market was only 9.5 percent of the total market volume.

    LTRK Chairman Janis Endzins attributed the increase to the impact of Covid-19 on consumer purchasing power, a recently enacted ban on menthol cigarettes and Latvia’s excise tax policy.

    “At the end of 2020, we observed continued reduction of the illegal market, reaching its lowest point in the past 10 years. However, currently, there is no reason to expect positive changes,” he said. “Likely, this negative trend with illegal trade will remain in the future and will definitely affect alternatives to cigarettes, such as smokeless products, for which the government decided to rapidly increase excise tax in spite of experts’ recommendations.”

    According to Endzins, illegal online trade of e-cigarettes is on a rise, and there have been cases of contraband tobacco-heating devices being intercepted by the State Border Guard.

    Data from the study shows that 2.4 percent of all cigarettes consumed in Latvia last year were counterfeit. This means the total percentage of counterfeit cigarettes among all illegal cigarettes consumed in Latvia last year was nearly 12 percent. The largest portion of illegal cigarettes was carried to Latvia from Belarus (67.2 percent). Similarly to previously reported study periods, 61 percent of the total illegal cigarettes volume consisted of cigarette brands such as NZ, Premier, Queen, Minsk and Fest.

    Nielsen studies the illicit market every year by collecting empty cigarette packs and determining the origin of tobacco products based on excise labels and health warnings.  

  • Philippines Declares War on Smuggling

    Philippines Declares War on Smuggling

    The Philippines’ Bureau of Customs (BOC) has declared an all-out war against cigarette smuggling, reports The Manila Times. Cigarettes top the bureau’s list of most smuggled products.

    In 2020, the BOC seized PHP5.77 billion ($119.138 million) worth of illicit cigarettes—more than half of the PHP10.63 billion worth of smuggled goods intercepted by the bureau in 2020. The agency recorded 997 seizures from January 2020 to December 2020. Of the number, 204 seizure cases were for smuggled cigarettes and tobacco products.

    Commissioner Rey Leonardo Guerrero tapped the Customs Intelligence and Investigation Service (CIIS) to take the lead for the anti-smuggling effort in cooperation with the Enforcement Security Service, the National Bureau of Investigation and the Philippine Coast Guard.

    Guerrero’s directive came in the wake of a series of interceptions of more than PHP100 million worth of smuggled cigarettes made by operatives of the Manila Container Port-CIIS during the first two months of the year.

    Deputy Commissioner for Intelligence Group Raniel Ramiro disclosed that the latest interception comprised 820 master cases of Astro brand cigarettes with a street value of PHP30 million. In January and in early February, the CIIS operatives also seized PHP70 million worth of illegal cigarettes and other goods following a raid in three separate storage facilities in Paco, Manila, Las Pinas City and Pasay City.

  • China Shuts Down Counterfeit Juul Factory

    China Shuts Down Counterfeit Juul Factory

    Chinese authorities have shut down an illicit enterprise involved in the manufacture and international distribution of counterfeit Juul products in China, Juul Labs announced in a press release. The operation resulted in the seizure of more than 110,000 counterfeit products, closure of the production facility and arrest of criminal actors behind the illicit enterprise.

    Through its global enforcement operations, Juul Labs was able to identify individuals who were offering suspected counterfeit Juul products at wholesale from China. After in-depth surveillance and monitoring, the company was able to locate a clandestine factory manufacturing counterfeit Juul products for international distribution. Juul Labs then shared this information with Chinese law enforcement and supported its efforts to investigate and raid the illicit factory.

    In addition to seizures of counterfeit Juul products, packaging and labeling, officials were able to retain a significant amount of documentation on businesses and individuals with purchase history, which will be used in follow-up investigations and enforcement actions. As a result of the raid, both the factory owner and manager have been arrested and will be subject to criminal prosecution.

    The raided factory had thousands of counterfeit packaging for Juul products at 5 percent nicotine by weight in various flavors, with production runs ongoing for counterfeit Juul pods in menthol flavor. Juul Labs suspects the that the products were intended for the U.S. market. In addition, the factory appeared to have been manufacturing disposable vapor products under various brand names.

  • PMI Partners with Homeland Security

    PMI Partners with Homeland Security

    Photo: Tobacco Reporter archive

    Philip Morris International has signed a memorandum of understanding (MOU) with the National Intellectual Property Rights Coordination Center at the U.S. Department of Homeland Security (DHS) to assist and support Homeland Security Investigations’ illicit tobacco trade operations and other intellectual property rights investigations.

    “We are thrilled to partner with DHS and the IPR Center to combat the illicit tobacco trade,” said PMI’s head of illicit trade prevention for the U.S. Hernan Albamonte in a statement. “This partnership will provide both parties necessary information to thwart terrorist and criminal organizations that profit from the trade of illicit tobacco and jeopardize our national security.”

    The MOU is focused on comprehensive strategies and coordinating efforts to disrupt and combat all forms of illicit tobacco trade, as well as to address vital areas of intellectual property, brand protection, and anti-counterfeiting strategies. The agreement will also facilitate knowledge transfer between the center and PMI to share mutually beneficial information and research to combat the illicit tobacco trade and assist in other intellectual property rights investigations.

    “The agreement being signed today, is a continuation of a years-long partnership between the IPR Center and PMI to protect the American public by enforcing the nation’s intellectual property rights laws and educating consumers on the dangers of illicitly traded tobacco products,” said Steve Francis, IPR Center director. “The IPR Center will leverage this robust public-private partnership to develop outreach, training efforts and share referral information to open investigations and target these criminal acts.”

    J.B. Simko

    “PMI is focused on developing smoke-free alternatives that are a better choice for adults than continued smoking,” said PMI’s Vice President Of External Affairs J.B. Simko. “Our goal is that one day these products will replace combustible cigarettes for good. The illicit trade undermines these efforts by making unregulated products more accessible, so we are determined to do our part to fight it.”

  • Cigarette Factories Raided in Benelux

    Cigarette Factories Raided in Benelux

    Photo: Europol

    Authorities seized 14 million cigarettes and 186 tons of cut tobacco during raids carried out in Belgium and the Netherlands this month, reports Europol. Seven workers were arrested at the illegal factory in the Netherlands. With a production area of 6,000 square meters, the illegal factory in Belgium is one of the largest dismantled to date.

    This sweep followed an investigation led by Belgian customs with the support of the Polish Police Central Bureau of Investigation, the Dutch Fiscal Information and Investigation and Europol.

    The confiscated cigarettes were likely destined for the U.K., which levies high rates of taxation on tobacco products.

    These seizures follow those of a separate operation in Spain. On Jan. 4, the Spanish National Police and Spanish Tax Agency targeted a tobacco smuggling network operating in Cordoba and Seville. This operation was also carried with the support with the Polish Central Bureau of Investigation, the Polish National Revenue Agency and Europol.

    The Spanish operation resulted in the arrest of 12 individuals, including Spanish, Ukrainian and Belarussian nationals, and the seizure of 910,000 cigarettes, 4.2 tons of filters and 10.3 tons of cut tobacco, along with various pieces of machinery and vehicles. The total value of the seized goods exceeds €1 million.

    Europol’s Analysis Project Smoke within the European Economic and Financial Crime Centre supported both these investigations. This team is dedicated to investigating the unlawful manufacturing and smuggling of excise goods.

    Analysis Project Smoke facilitated the international cooperation between the involved countries by providing a secure platform of communication, running cross-checks against Europol’s databases and providing analytical and operational expertise to tailor the respective investigation strategies.

    Belgium customs seized 409.9 million illicit cigarettes in 2020, up 108 percent from 2019. In  addition, customs seized 49 tons  of hookah tobacco (up from 4.1 tons in 2019) and 73 tons of other tobacco products.

    In total for the year, five illegal cigarette factories were dismantled in Belgium, along with four illegal shisha tobacco factories, one tobacco cutting site, two cigarette packaging sites and six storage sites. In all, 32 people directly connected to illicit tobacco product trade on Belgian soil were arrested.

    This illicit traffic in Belgium is “a problem that concerns the entire European Union,” according to Florence Angelici, spokeswoman of the FPS Finance. 

  • Next Generation Assigns Patent

    Next Generation Assigns Patent

    Photo: Martinmark – Dreamstime.com

    Next Generation Labs (NGL), the world’s largest manufacturer of TFN R-S, S and R isomer nicotine, has assigned the rights of its Republic of Korea R-S nicotine manufacturing patent to NextEra Co.

    NGL said it has taken this step “to help strengthen direct in-market enforcement efforts by NextEra against unscrupulous manufacturers who have attempted to ship unauthorized synthetic, nonsynthetic and, in some instances, counterfeit or mislabeled TFN synthetic nicotine vape products into the South Korea market.”

    NextEra is NGL’s exclusive TFN partner and is the largest flavor formulator and distributor of synthetic nicotine vape products in South Korea. Under the assignment, NextEra products containing TFN will continue to be sold, and NextEra will use all means available to protect the market and prohibit violative brands from entering South Korea.

    “This is a strategic patent assignment that will give NextEra the full freedom to use all legal means at its disposal to seek enforcement of existing intellectual property rights related for TFN recreational nicotine in the market,” NGL wrote in a statement

    “Next Generation Labs fully expects NextEra to immediately take action against violators and utilize all necessary legal remedies against any business seeking to either: divert R-S nicotine product sales into South Korea from other markets, attempt to sell mislabeled tobacco-derived nicotine as a synthetic product, or to sell counterfeit TFN products in South Korea,” the company added.

    The terms of the patent transaction have not been made public, and the transaction will not impact Next Generation Labs’ other patents in South Korea or impact control of patents in any other jurisdiction worldwide.

  • Raising Awareness of Black-Market Vapor

    Raising Awareness of Black-Market Vapor

    Photo: Timothy S. Donahue

    The National Crime Prevention Council (NCPC) and National Intellectual Property Rights Coordination Center (IPRC) in the U.S. have released an innovative toolkit as part of their nationwide campaign to raise awareness on the dangers of black-market vapor products and empower law enforcement and adult community leaders to prevent and enforce against these illicit activities.

    The IPRC and NCPC launched this public-private partnership, with the support of Juul Labs, in October 2019, seeking to raise awareness on the consequences of illicit vapor products, with the objective of delivering tools and resources to communities grappling with this critical issue across the country. Now, the IPRC and NCPC have expanded upon this initiative by providing law enforcement and other key stakeholders with a toolkit that will aid in their efforts to educate and mobilize their communities against this dangerous illicit trade.

    The toolkit is a comprehensive resource that details the various forms of illicit vapor products, such counterfeit, compatible and diverted products, and teaches the community how to spot such products. It also contains broader educational resources, along with strategies on how best to elevate these vital messages through social media, community events and meetings, and in cooperation with local businesses.

    According to Juul, Illicit vapor products present a number of public health, economic and security consequences. Critically, they undermine underage-prevention measures because of their ease of access and may present additional health and safety risks for adult consumers given that they often are produced in unsanitary conditions without manufacturing and quality controls and lack ingredient testing and product characterization. They also may contain harmful chemicals not present in other, authentic products.

    As part of this campaign, and with the support of IPRC, NCPC will leverage its vast, nationwide network to get this toolkit into the hands of law enforcement, trade partners, and other adult community leaders.

    “It is imperative that we continue to partner across stakeholders, including law enforcement, to address the illicit market of vapor products,” Juul wrote in a statement. “Supporting public-private partnerships like the IPRC/NCPC initiative is one way we can actively fight back against illicit trade of vapor products. By empowering stakeholders through awareness and education, we can address the illicit trade of vapor products and foster a more responsible marketplace for the category.”