Death By Counterfeit

July 5, 2006
The Licensing Book

It may sound sensationalistic, and perhaps it is just a bit.  Yet the truth is, counterfeit goods can be the death of a brand.  Whether due to loss of profits, loss of brand equity, loss of the ability to license the brand, or all of the above . . . the end result is the same.

So what should a brand owner do to combat counterfeit goods?  What can a brand owner do?  First, knowledge is still power.  So, understanding your legal rights is always a good place to start.  Second, take action to stop counterfeit goods before they ever reach the streets, by registering your trademarks and copyrights with U.S. Customs. And finally, attack the situation as a unified front of intellectual property owners.  This is often a more economically viable and successful option. 

Basic Legal Facts

The legal definition of a counterfeit is a spurious mark (protected by trademark law, copyright law, or both) which is identical to, or substantially indistinguishable from, a registered mark.  What exactly does this mean?  The easiest example is the once all too common fake Rolex.  From a visual perspective, it was virtually indistinguishable from a genuine Rolex.

What is not counterfeit?  Gray market goods.  In other words, genuine goods that are manufactured for distribution elsewhere and yet are imported into the U.S. are not legally considered counterfeit.

Counterfeit goods can be attacked on two fronts – by litigation initiated by the intellectual property owner or by criminal charges initiated by law enforcement.  There are currently substantial criminal penalties for trafficking counterfeit goods, with a maximum of 20 years in prison and a maximum fine of $15 million.  However, indicting counterfeiters is not always at the top of prosecutors’ “to do” lists.

When evaluating whether litigation against counterfeiters should be at the top of your “to do” list, keep in mind the following damages which may be available. First, statutory damages under federal law are often a much more appealing option than relying on a counterfeiter’s records to prove damages via lost sales.  Under federal trademark law, such statutory damages will not be less than $500 and not more than $100,000 per counterfeit mark per type of good sold.  In addition, if a court finds that the use of the counterfeit mark was willful, the statutory damages increase to not more than $1,000,000 per counterfeit mark per type of good sold.

Under federal copyright law, statutory damages are generally only available if a copyright registration has been obtained prior to the infringement, and will not be less than $750 or more than $30,000 per infringing good.  If the court finds that the infringement was willful, statutory damages can increase to as much as $150,000.

And, while statutory damages are appealing, even lawyers will acknowledge that reaching the point in litigation where such damages are awarded is no small or inexpensive achievement.  Therefore, it may be comforting to know that courts have awarded attorneys’ fees in “exceptional cases” which include situations where the defendant proceeded to use a trademark after requesting and being denied permission, and where defendants’ actions were found to be deliberate and willful.

In addition to the monetary damages available, legislation enacted this past March provides additional protection against counterfeit goods.  Under the Stop Counterfeiting in Manufactured Goods Act, counterfeit labels in and of themselves are now considered counterfeit goods.  Previously, counterfeit labels not attached to goods could not be seized, and thus counterfeiters would merely ship them separately through Customs.  Now, this new legislation closes that loophole and also requires that seized counterfeit goods and the equipment used to create the goods must be destroyed.

Utilize Customs

Taking advantage of Customs’ ability to stop counterfeit goods before they enter the U.S. market has never been easier.  The first step in this process is to register your trademark and/or copyright with customs.  This application can now be filed online at the U.S. Customs and Border Protection website (www.cbp.gov).  After completion of the application process, any goods which are imported into the U.S. and bear the trademark and/or copyright registered will be denied entry and subject to detention.  The cost associated with this registration process is fairly inexpensive (less than $200 per copyright and less than $200 per trademark per class of goods).  With appropriate communication to Customs, this can be an effective means to limit the number of counterfeit goods entering the U.S. market from abroad.    

Unified Front

As many brand owners have recently shown, there is something to be said for creating a unified front both in the U.S. and abroad.  In the U.S., many brand owners, such as those who combat “purse parties,” have found that working together it is more cost efficient and more powerful when convincing local prosecutors to take action.  Banding together has also proven successful abroad, as evidenced by Burberry, Chanel, Gucci, Prada and Louis Vuitton’s successful lawsuit in China against the operators of numerous stalls selling counterfeit goods and the landlords of those stalls.

The battle against counterfeit goods is not new and is not likely to end in the near future.  The goods news, however, is that the tools to fight this battle are increasing and intellectual property owners are becoming more savvy fighters.

Practices

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