Trademark Counterfeiting

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Trademark Counterfeiting

Of the many forms of trademark infringement that brand owners face, trademark counterfeiting is likely the costliest. Rather than simply dealing with competitors attempting to profit from established goodwill, victims face the devaluation of their brand and significant costs trying to identify the infringing items.

What is Trademark Counterfeiting?

Companies use trademarks to help consumers differentiate their products and services from those of their competitors. The goal of this use is to avoid a likelihood of confusion – which could result in purchasers not getting what they pay for. Trademark counterfeiting is a direct attempt from a third party to create this confusion in order to profit from another brand.

When someone places a trademark on goods or services that do not come from the represented brand, they have engaged in trademark counterfeiting. This form of infringement occurs all over the world, but about 24 percent of all companies whose products are counterfeited are based in the United States. The following fake items are among the most heavily trafficked:

  • Footwear
  • Clothing
  • Leather goods
  • Electronics
  • Watches

Even if a knockoff doesn’t feature a trademark of another brand, it could still qualify as trademark infringement. This can occur if a likelihood of confusion is created among consumers. This can often result in litigation between the infringer and trademark owner, and counterfeiting behavior is seen as particularly egregious. In fact, the Justice Department occasionally gets involved.

The Department of Justice must prove the following facts for a finding of trademark counterfeiting:

  1. The use of a trademark is spurious (i.e. “not genuine or authentic).
  2. Use of the counterfeit trademark was connected to commercial activities.
  3. The identifier used is either identical to or substantially indistinguishable from the authentic trademark.
  4. The trademark registration of the genuine identifier has been placed on the Principal Register of the S. Patent and Trademark Office (USPTO).
  5. In addition to being registered, the authentic trademark must be in use.
  6. The products or services sold by the counterfeiter must be the same type as those sold by the authentic brand.
  7. A likelihood of confusion

The sixth requirement involves the similarity of goods such as being in the same trademark class. Even if an identical brand identifier is used, counterfeiting may not have occurred if the products or services offered aren’t the same.

Regardless, these actions likely still constitute trademark infringement.  Trademark litigation may be necessary if the violating party is acting willfully and doesn’t cease their activities.

Trademark Counterfeiting Act of 1984

President Truman signed the Lanham Act in 1946 in order to stymy trademark infringement and other forms of unfair competition. This provided several penalties for intellectual property infringement along with legal remedies for trademark owners. The Trademark Counterfeiting Act of 1984 made it a federal criminal offense to violate the Lanham Act’s provisions on trademark counterfeiting.

The 1984 law created criminal penalties of up to $250,000 and the potential of five years in prison. Corporations and other legal entities engaging in these actions could’ve faced a fine of up to $1 million. This was later amended so that individuals could receive 10 years imprisonment and $2 million in fines, and corporations faced potential fines of up to $5 million. Repeat offenders will see increased penalties.

The Trademark Counterfeiting Act also created the following:

  • Potential for higher court awards in trademark litigation.
  • Seizure of materials prior to litigation to avoid tampering.
  • Procedures for destruction of counterfeiting items.
  • Maximum penalties given related to safety-sensitive products (e.g. pharmaceuticals).

Even with these increased penalties, trademark counterfeiting remains a serious problem. It’s estimated that the U.S. economy loses $600 billion every year to counterfeit items. Due to trade tariffs, the ease of Amazon trademark infringement, and hard-to-spot fakes thanks to technologies such as 3D printing, it’s predicted that this problem will only become worse.

The penalties provided by the Trademark Counterfeiting Act do not typically apply to other instances of infringement. Brand owners still have the right to seek damages and remedies similar to those provided by the law, but there are many differences between infringement and counterfeiting.

Trademark Counterfeiting vs Trademark Infringement

Although the terms trademark infringement and counterfeiting are often used interchangeably, they each have distinct legal definitions that separate them. Any potential for confusion could qualify as an infringing act, but an identical or nearly identical brand identifier is necessary for counterfeiting.

Products or services that are advertised or presented in a way that’s meant to deceive consumers could also result in a finding of counterfeit behavior. For a court to reach this finding, though, it typically must be proven that this was the intent all along. This can be a difficult evidentiary burden to meet, but any practice that could potentially confuse consumers still qualifies as infringement.

Consider the following examples of counterfeiting vs trademark infringement:

Infringement

  • Logos within the same industry that feature similar design characteristics.
  • Product packaging featuring the same color scheme for similar products.
  • Accidental use of a brand name that’s registered with the USPTO.
  • All acts of trademark counterfeiting.

Counterfeiting

  • Printing an exact copy of another brand’s logo on similar products.
  • Running digital ads claiming to be from another company – potentially even if products don’t feature the trademark.
  • Franchisees using a franchisor’s identifier without meeting their licensing requirements.

If your trademark is not registered with the USPTO, you still have rights. Common law trademark protection can help brand owners who face counterfeiting or any form of infringement. While you won’t have all the legal rights available to those with federal registration, you may still be able to end further misuse.

Additional Issues with Counterfeit Goods

While the economic costs and the harm to the trademark owner are substantial, these aren’t the only issues that arise from counterfeit goods and services. Consumers also experience significant problems related to the trafficking of items featuring counterfeit trademarks. The most obvious issue is that purchasers aren’t getting what they thought they purchased.

Unfortunately, this can lead to lost money and higher prices for individual consumers. If a shoddily produced product doesn’t last as long as an authentic item, for instance, the original buyer must purchase the item again. Additionally, brands may have to raise their prices in order to counteract the losses caused by counterfeit items.

A rising amount of counterfeit activities have also been found to significantly reduce the tax base in communities, and this means less funding for essential resources. Some of the most damaging issues, though, relate to consumer health. Unsafe pharmaceuticals, tainted alcohol and exploding electronics have found their way into the supply chain due to trademark counterfeiting.

Parallel Imports

One area of intellectual property law that confuses some entrepreneurs is parallel importation. This occurs when certain products are imported from foreign countries without the express permission of the intellectual property owner. Items involved in parallel importation do not feature counterfeit trademarks. They are authentic products sold outside of their intended market.

This can occur even when two jurisdictions make the same products available. It is typically done due to differences in prices between countries. A pair of authentic Levi’s jeans purchased in Mexico City, for instance, costs just over $40. The same pair bought in Brussels costs over $120. By importing from different jurisdictions, resellers can make a substantial profit.

Parallel imports can cause a variety of issues for intellectual property owners. The most obvious is the potential loss of profit. The act could also strain relationships with licensees who believed they had exclusive access to products in their jurisdiction.

Grey Market Goods

The term “parallel imports” and “grey market goods” are often used interchangeably, but there are distinct differences between the two. Like their parallel market counterparts, grey market items are authentic products that utilize no counterfeit trademarks. Instead of being dispersed through traditional means, though, the items are sold through non-authorized distribution channels.

This means that grey market goods could qualify as parallel imports, but products do not have to come from other jurisdictions to be categorized as such. One example is the sale of frequent flyer miles on unauthorized channels. Most airlines prohibit this trading unless they offer their own medium for doing so, but these unauthorized transactions account for one of the largest grey markets in existence.

Due to laws like the first sale doctrine, there may be nothing explicitly prohibited with grey market goods, but intellectual property owners can implement certain restrictions. A product bought outside of an authorized channel, for instance, may not be eligible for warranty protection. Trademark infringement could occur if the source of an authorized product isn’t clear to consumers.

Trademark Counterfeiting Remedies

There are a variety of trademark counterfeiting remedies available to brand owners. Many of these involve litigation, but it’s possible to end infringing activities through the use of a trademark cease and desist letter. If this isn’t effective, the owner of properties registered through the USPTO can file a lawsuit in federal court.

In addition to traditional trademark infringement remedies, additional relief is possible for cases of counterfeiting.

Injunctive Relief

The issuance of a preliminary and permanent trademark injunction is the most common outcome for a successful plaintiff in trademark litigation. These court orders require infringing to end their activities either temporarily or permanently. A permanent injunction is only issued upon the conclusion of a case.

Since it’s difficult to explain away counterfeit behavior, the potential for economic compensation is higher in these cases than in traditional trademark infringement cases.

Monetary Damages

When courts decide that trademark counterfeiting has occurred, they 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. Statutory relief could even reach $1 million per offense if willful intent is proven.

Plaintiffs may also be entitled to attorney’s fees and treble damages. Treble damages are enhanced awards typically granted in cases of infringement that are particularly egregious. This can result in financial compensation of up to three times the amount of the initial award. Granting these treble damages isn’t mandatory even if willfulness is proven.

Seizure and Destruction

The Trademark Counterfeiting Act of 1984 allows for the ex parte seizure of certain items prior to trial. No notice must be given to the defendant prior to this action, but courts will only grant such an order in specific and urgent circumstances.

Counterfeit goods, production machines and business documents can all be seized. These orders are meant to ensure defendants don’t attempt to hide evidence, but the plaintiff must post a security bond just in case the accused isn’t found liable. Even if this preemptive action doesn’t take place, courts can order the items seized and destroyed if the defendant is later found to have violated IP rights.

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