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Bringing counterfeiters to justice

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The Lanham Act defines the term "counterfeit" as a "spurious mark which is identical with, or substantially indistinguishable from, a registered mark." A "counterfeit mark" is defined as a counterfeit of a registered mark or a spurious designation that is identical with, or substantially indistinguishable from, a protected designation.

Under the Lanham Act, a plaintiff can bring a federal trademark infringement cause of action and/or a federal counterfeiting cause of action. A defendant will be liable for trademark infringement when it uses a counterfeit or copy of a registered mark in commerce, and such use is likely to cause confusion or to deceive the public. In addition, a defendant can be held liable for trademark infringement when it counterfeits or copies a registered mark and applies such counterfeits or copies to labels or packages to be used in commerce.

Zadra-Symes

To establish federal trademark counterfeiting, a plaintiff must prove the elements necessary to find federal trademark infringement as well as the additional element that the defendant intentionally used the mark knowing that it was counterfeit or that the defendant was willingly blind to such use. In many counterfeiting cases, particularly those arising in the context of the Internet, this knowledge requirement is not difficult to prove, as the defendant is blatantly using a well-known company's mark.

Zovko

If a defendant is shown to have committed federal trademark infringement and/or federal trademark counterfeiting, a variety of remedies are available to a plaintiff, including an injunction ordering the defendant to stop selling counterfeit goods and ordering the impounding of all goods that contain the defendant's infringing and counterfeit marks. In practice, a plaintiff would usually file an ex parte application for a temporary restraining order and an order to search and seize the counterfeit goods.

In addition to injunctive relief, a trademark owner is typically entitled to recover actual damages: he infringer's profits from the sale of the counterfeit goods; any damages sustained by the mark owner; and the costs of bringing the lawsuit.

A plaintiff successfully asserting a trademark counterfeiting action also can choose to collect statutory damages. Under the Lanham Act, a trademark owner may elect statutory damages of not less than $500 or more than $100,000 per counterfeit mark per type of goods or services sold in lieu of actual damages. If the court finds that the counterfeiter's use of the mark was "wilful," then not more than $1 million per counterfeit mark per type of goods or services sold will be awarded to the mark owner.

The statutory damages provision is a strong tool for trademark owners since, in many cases, it is difficult to prove a defendant's sales and profits in counterfeiting actions because counterfeiters often fail to keep accurate records of their illegitimate sales. In addition, alleged counterfeiters often fail to respond to lawsuit complaints entirely, resulting in default judgments, making proof of actual damages exceedingly difficult.

Criminal actions

Some IP owners pursue criminal charges against counterfeiters. In many cases, criminal charges can deter counterfeiters more effectively than civil charges because the penalties for criminal infringement can be quite severe.

The penalties, for example, for criminal trademark infringement can include fines of up to $2 million for an individual or up to $5 million for a corporation. In addition, a defendant may be subject to imprisonment for up to 10 years.

In some instances, counterfeiters have attempted to avoid criminal trademark infringement by importing labels bearing counterfeit trademarks separately from the goods on which such labels would appear at the point of sale. Once the separate shipments of goods and labels arrived in the United States, the counterfeiter would simply affix the labels bearing counterfeit trademarks to the goods and distribute the counterfeit goods. Somewhat surprisingly, some courts have found no criminal liability on the part of the counterfeiter in such a situation because the labels bearing counterfeit trademarks are not "goods" themselves within the meaning of the federal criminal trademark infringement statute.

As a response, on March 16, 2006, President Bush signed into law H.R. 32, which extends the reach of 18 U.S.C. ยง 2320 to prohibit trafficking in labels and packaging to which counterfeit marks are knowingly applied. This legislation, titled the Stop Counterfeiting in Manufactured Goods Act, also permits the forfeiture and destruction of counterfeit goods and the seizure of property and assets derived from counterfeiting. The speed with which this bill moved through the Legislature illustrates the significant effect that counterfeiting has on the U.S. economy.

The sale of counterfeit goods has a detrimental effect on many businesses. Accordingly, businesses should strongly consider devoting the necessary resources to bring counterfeiters to justice by pursuing civil actions and/or criminal actions in order to protect their intellectual property and, ultimately, their bottom line.


This article is the second of a two-part series. For a copy of the preceding article discussing preventive measures to protect your business from counterfeiters, contact Sara Lona at sara.lona@kmob.com. Michael Gray, formerly of Knobbe Martens Olson & Bear LLP, contributed to this report.

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