Ever been to Canal Street in Manhattan and seen “Rolex Watches” branded with the iconic Rolex insignia for $100? Well, you’ve seen a counterfeit good with a counterfeit trademark.
“Trademark Counterfeiting” is a legal construct in as much an (unfortunate) emerging cultural-industrial phenomena. Under the Lanham Act, Trademark Counterfeiting exists when the trademark in question is a “spurious mark which is identical with, or substantially indistinguishable from, a registered trademark.”
Such a situation arises when a given product is designed and manufactured in such a way as to appear to be THE authentic model-product, up to including, even displaying the trademark of the authentic-manufacturer.
Critically, the Lanham Act does not actually demand that direct purchasers would necessarily be mistaken or deceived. Instead, the plaintiff need only show that there is a likelihood of confusion, mistake, or deception to the broader public (rather than the immediate purchaser).
While all trademark infringement is damaging to a trademark holder, trademark counterfeiting is considered to be a particularly pernicious form of infringement and is taken very seriously indeed by the US Justice System.
Centrally, the Trademark Counterfeiting Act of 1984 was designed specifically to combat this sort of fraudulent activity and developed a systematic way to identify and penalize offenders. The Act allows for criminal penalties in the millions of dollars and even jail time. The paradigm shift in treating Trademark Counterfeiting as a criminal offense rather than a strictly civil matter fundamentally raised the stakes for offenders and provided for a slew of measures law enforcement officers may now take to conduct their investigations, up to and including the confiscation and destruction of the Counterfeit goods.
UNDERSTANDING TRADEMARK COUNTERFEITING
Trademark counterfeiting is the direct attempt of a third party to place a trademarked brand on goods or services that have not come from the manufacturer of the represented brand. As a result, consumers don’t get what they think they’ve paid for. Of course, the customer is actually getting a much lower quality product than they would otherwise expect from the brand and ultimately, the resulting disappointment and confusion among consumers tarnishes the reputation of the owner of the trademark.
You’ll often see trademark counterfeiting on certain types of goods such as:
This selection of goods is not all that surprising and represents the types of products that can be easily made at very cheap rates in (often) third world countries. While some customers understand that they are purchasing a knock-off rolex watch and are perfectly happy to do so (at the shockingly low rates), other customers are generally tricked and deceived into thinking they are obtaining a genuine watch instead of a fraud.
HOW IS A TRADEMARK PROVEN TO BE COUNTERFEIT?
According to the U.S. Department of Justice, a trademark is considered to be counterfeit if it meets these criteria:
- The use of a trademark is not genuine or authentic. It is considered “spurious.” 18 U.S.C. § 2320(d)(1)(a).
- The counterfeit trademark is connected to commercial activities. 18 U.S.C. § 2320(d)(1)(A)(i).
- The counterfeit trademark is either “identical to or substantially indistinguishable” from the authentic trademark. 18 U.S.C. § 2320 (d)(1)(a)(ii)
- The original trademark is registered with the U.S. Patent and Trademark Office (USPTO) and is currently in use. 18 U.S.C. § 2320(d)(1)(A)(ii).
- The products or services sold by the counterfeiter must be the same type as those sold by the authentic brand. If a third party uses your clothing brand logo to sell electronics, for example, that may not be considered counterfeiting, but could still be considered trademark infringement. 18 U.S.C. § 2320(d)(1)(A)(ii)
WHAT’S THE DIFFERENCE BETWEEN TRADEMARK INFRINGEMENT AND TRADEMARK COUNTERFEITING?
It is perfectly understandable that this distinction is muddied and at times confusing. Nevertheless, trademark Counterfeiting is uniquely different (certainly from a legal perspective) from more benign instances of “Infringement” and entails entirely different legal standards and repercussions. Simply, while all Counterfeiting is “Infringement”, not all “Infringement” is “Counterfeiting”.
For an offense to rise to the level of “Counterfeiting”, and for the offender to be charged criminally, under 18 U.S.C. § 2320, “the government must prove: (1) that the defendant trafficked or attempted to traffic in goods or services; (2) that such trafficking, or attempt to traffic, was intentional; (3) that the defendant used a “counterfeit mark” on or in connection with such goods or services; and (4) that the defendant knew that the mark so used was counterfeit.”
In an instance of “Counterfeiting”, the fraud must be identical or nearly identical to the trademarked brand with the intent to confuse consumers. Intent is such a critical element because the penalties are so severe.
Here are some examples of infringement vs. counterfeiting:
- Infringement: “Just Go For It” on a pair of Basketball shoes: Likely infringes on Nike’s, “Just Do It” slogan
- Counterfeiting: Printing an exact copy of the “Just Do It” phrase on a Basketball Shoe
- Infringement: Using the same color brown, font style, and designs on a Chocolate wrapper as the Hershey Bar design
- Counterfeiting: Placing the Hershey Logo on a Chocolate Bar
- Infringement: Accidentally using a trademarked brand name.
- Counterfeiting: Franchisees using a franchisor’s identifier without meeting their licensing requirements.
WHAT’S THE IMPACT OF COUNTERFEIT GOODS ON CONSUMERS?
There’s no doubt that trademark owners face significant financial harm, but they aren’t the only ones who suffer from counterfeit goods and services finding their way onto the market.
Consumers also experience significant problems when purchasing goods featuring counterfeit trademarks. The most obvious issue is that consumers aren’t getting what they thought they purchased and this is a particularly common experience for online shoppers. A consumer believes he is purchasing a Mont Blanc Fountain Pen on Ebay for a $300 discount but in reality, he is just getting an expensive fake.
As a corollary, many brands must raise prices to counteract the losses they suffer due to counterfeit goods and consumers end up picking up the tab.
One of the less commonly considered consequences is the fact that there’s a reduced tax base collected in communities where trademark counterfeiting is on the rise. That means the entire community suffers because of less funding for essential services.
Some of the worst issues, though, relate to consumer health. Counterfeit goods are obviously not regulated like their legitimate counterparts. As a result, unsafe or mislabeled pharmaceuticals, chemical-cleaning supplies, toys with lead poisoning, non-tested scooters and bicycles have found their way onto store shelves and into consumers’ homes. Thus, consumers of counterfeit products are being harmed twice; the first injury is the fraud and the second is very often the unknowing consumption/use of a dangerous product.
HOW CAN TRADEMARK COUNTERFEITING BE STOPPED?
Initiating a lawsuit for trademark counterfeiting is a very serious proposition indeed. Trademark litigation is not only expensive, but it is a long process, potentially entangling the plaintiff and defendant in a legal battle for years. Plaintiffs should consider not only their chances of “success”, according to both the statutory rigors of the Lanham Act and case law, but also the scope of success that is achievable. A trademark attorney with experience can help navigate through some of these big picture considerations but typically, the first step in most trademark infringement cases, is a cease and desist letter from a trademark attorney to the offending party. The idea here is to send a sufficiently “scary” letter to compel the offender to stop their fraudulent activity. If the offender shows no signs of ceasing their fraudulent activity, you may need to initiate a lawsuit.
WHAT CAN A COURT DO TO STOP TRADEMARK COUNTERFEITING?
Courts have several remedial options available to them:
- Court Ordered Injunctions: These are court orders that require the third party to stop using the trademark either temporarily (while the case is pending) or permanently (at the conclusion of the case).
- Monetary Damages: When trademark counterfeiting has been established, courts have a variety of financial remedies they can grant. Actual damages are the most common, but statutory awards can also be granted that range from $500 to $100,000 per counterfeit item sold. Plaintiffs may also be entitled to attorney’s fees and additional damages (called treble damages) in cases of infringement that are particularly egregious.
- Seizure and Destruction: Counterfeit goods, means of manufacture, and business documents can all be seized without warning in some cases. These orders are meant to ensure defendants don’t attempt to hide evidence. Even without seizure and destruction, courts can order the items seized and destroyed at a later date.
It is worthwhile to spend a bit of time focusing on this last point. Trademark owners very often attempt to initiate an Ex Parte Seizure of the actual counterfeit goods and under the terms of the the Lanham Act (Section 34(d)), the actual “means of production” of the counterfeit goods can also be seized. This is a powerful tool because it mitigates (at least temporarily) the offender’s ability to continue manufacturing producing the goods. In order to obtain an ex parte seizure order, the applicant must provide a robust and comprehensive lsit of items to be seized along with a precise location of goods that are to be seized. Any products that are ultimately seized will be in “the court’s custody” and remain there until disbursement.