Legal framework

The primary federal legislation in the United States addressing trademark infringement and counterfeiting is the Lanham Act (15 USC §1051 and following). Many states have adopted their own laws that impose civil liability and/or criminal penalties for counterfeiting violations, although the requirements and scope of state trademark protection vary by state.

Federal trademark law defines a ‘counterfeit’ as “a spurious mark which is identical to, or substantially indistinguishable from, a registered mark”. This definition requires a closer degree of similarity than is required for trademark infringement. It also requires that the trademark in question be registered. Trademark counterfeiting is both a civil violation and a criminal offence.

Legal remedies against counterfeit goods under federal law include:

  • criminal prosecution;
  • civil seizures;
  • import penalties; and
  • enhanced civil damages, including treble damages plus attorneys’ fees or statutory damages up to $2 million.

In contrast, grey-market goods (often referred to as parallel imports by sellers) are not considered to be counterfeit and the sale or distribution of these types of goods is not treated as a criminal violation. However, grey-market goods may be considered infringing under other provisions of trademark, patent or copyright law.

Border measures

Customs and Border Protection

The first line of defence against counterfeit goods entering the United States is US Customs and Border Protection (CBP), a federal enforcement agency of the Department of Homeland Security. The CBP has the authority to inspect imports into the United States and to seize counterfeit goods at over 300 ports of entry into the United States. Trademark registrations recorded with the CBP are accessible in a searchable online database called the Intellectual Property Rights Search.

To enjoy the benefits of inspections and seizures conducted by the CBP, rights holders must record their trademark registrations with the CBP and provide it with information concerning how to identify counterfeit goods. Although only registered trademarks can be recorded with the CBP, an unregistered trade name that has been used for at least six months can be recorded with the CBP. The cost of recording a registration with the CBP is $190 per class of goods covered by the registration and the recordation process can be completed online.

In the case of suspected infringing goods, the CBP will provide rights holders with a notice containing information including the date of import, port of entry, description of the suspected infringing merchandise, quantity of goods, country of origin and, in some instances, the name and address of the manufacturer, exporter and/or importer. The CBP may also send a sample of the suspected infringing merchandise to the rights holder for authentication purposes.

Recording registrations with the CBP is only the first step in an effective anti-counterfeiting policy at the borders. To aid the CBP in enforcement, rights holders should be proactive in providing it with up-to-date materials and frequent training to educate agents to distinguish authentic goods from counterfeit ones, including:

  • physical characteristics of the goods;
  • information regarding authorised distribution channels; and
  • information regarding any known unauthorised distributors and distribution points.

In addition to the authority to inspect and seize goods for which registrations have been recorded, the CBP will enforce orders from the International Trade Commission (ITC).

International Trade Commission

In addition to the protection afforded by CBP recordation, Section 337 of the Tariff Act of 1930 provides for a quasi-judicial proceeding before the ITC as another avenue to stop counterfeit goods at the US border. Rather than relying on administrative action by the CBP, the ITC provides a venue for rights holders to initiate proceedings seeking seizure or impoundment of counterfeit articles by requesting a Section 337 investigation of suspected infringing or counterfeit goods. If the ITC finds in favour of the complainant, it will issue an exclusion order against specific shipments and products (19 USC § 1337). Exclusion orders can be limited exclusion orders against specific parties or general orders against all infringing products (regardless of the identity of the importer and whether it was party to the investigation).

In general, companies must fulfil three requirements in order to assert claims under Section 337:

  • There must be an importation, sale or potential future importation of the infringing product into the United States.
  • An unfair act of competition relating to the imported good must occur (ie, an infringement of a valid US trademark). Importantly, and unlike the protections afforded by recordation with the CBP, rights holders can assert unregistered, common law trademark rights in an ITC proceeding.
  • The complainant must be engaged in sufficient domestic activity, such as employment of labour and capital or investment in US facilities related to the imported product in question. While the company seeking the Section 337 investigation must show sufficient US ties, the target of the investigation need not be subject to personal jurisdiction in the United States because the statute permits in rem jurisdiction over the infringing goods.

Criminal prosecution

The Trademark Counterfeiting Act of 1984, which is codified in 18 USC § 2320, provides for criminal penalties for intentional or unauthorised use of a counterfeit trademark. The criminal penalties for first-time offenders are up to 10 years in prison and/or a $2 million fine in the case of an individual, or a $5 million fine in the case of a corporation or entity. For repeat offenders, the act calls for a penalty of up to 20 years in prison and/or a $5 million fine in the case of an individual, or a $15 million fine in the case of a corporation or entity. The act further provides for enhanced penalties for causing serious bodily injury and a maximum of life imprisonment where a defendant knowingly or recklessly causes or attempts to cause death in connection with criminal counterfeiting. Criminal counterfeiting of military goods or services and counterfeit drugs also calls for enhanced penalties.

In July 1996, the Anti-counterfeiting Consumer Protection Act of 1996 was enacted. This act amended the Racketeer Influenced and Corrupt Organisations Act and provides criminal penalties for infringement of copyrights, trafficking in goods or services bearing counterfeit marks and trafficking in counterfeit labels. The act permits seizure not only of the counterfeit goods themselves, but also of property, equipment, storage facilities and vehicles associated with the manufacture and transport of counterfeit goods.

The Stop Counterfeiting in Manufactured Goods Act was signed into law in March 2006. The act addressed two areas of counterfeiting enforcement:

  • It specifically prohibits the shipment of counterfeit labels and packaging that sellers had previously attached to counterfeit products without fear of criminal prosecution.
  • The courts are required to order the destruction of all counterfeit products seized in a criminal investigation, and sellers are required to turn over their profits and the equipment used in their counterfeiting operations, and to reimburse the corporations they defrauded in the course of their counterfeiting operations.

Civil enforcement

In addition to criminal prosecution, rights holders may pursue civil litigation against counterfeiters (including both direct infringers and contributory infringers) under the Lanham Act (15 USC § 1051 and following). In order to pursue counterfeiting claims under the Lanham Act, the mark in question must be a federally registered mark.

Civil litigation against counterfeiters can pose unique challenges to rights holders, from identifying and serving the infringers to collecting evidence to support the case. In many circumstances, private investigators may prove vital in investigating, building and pursuing a civil infringement case against counterfeiters. In addition, counterfeiting defendants often fail to respond to a civil complaint or appear in civil proceedings, in which case the plaintiff can pursue a default judgment against the defendant(s).

The remedies available to civil litigants include recovery of actual damages or profits, injunctive relief and/or statutory damages, as well as recovery of attorneys’ fees (15 USC § 1117(c)). Statutory damages can range from $1,000 to $200,000 for each counterfeit mark per type of goods. In cases of wilful infringement, increased statutory damages of up to $2 million are available. The availability of statutory damages is particularly beneficial in cases involving counterfeit goods, where evidence regarding actual sales and/or profits of the infringer may be difficult, if not impossible, to obtain.

Civil seizures

Brand owners can also pursue ex parte seizure orders under 15 USC § 1116(d)(1)(A). This is a unique remedy under US law, which usually requires notice to the defendant before action is taken. Therefore, courts require that the rights holder demonstrate that seizure is a necessary remedy in the case and show that:

  • a seizure order is the only adequate remedy;
  • the rights holder is likely to succeed on the merits of the case;
  • the rights holder will suffer immediate and irreparable injury if the seizure is not ordered;
  • the counterfeit goods will be located at the place identified by the plaintiff; and
  • the defendant will destroy, move or hide the goods if it is given advance notice of the seizure.

The plaintiff must also post a bond as security in the event the seizure is deemed wrongful.

Courts are typically scrupulous in requiring the foregoing elements in order to protect the due process of law. A typical civil seizure complaint should be supported by several detailed sworn affidavits, a persuasive memorandum of law and detailed information concerning the five points mentioned above.

Anti-counterfeiting online

While the days of flea markets and pushcarts selling knock-off goods are not entirely a memory of the past, in recent years use of the Internet in connection with the sale of counterfeit goods has increased exponentially. The Internet permits sellers of counterfeit goods to conceal their identities, while providing them with an inexpensive platform through which to conduct their illicit businesses. Anonymous sellers in the United States use self-created websites, and sales platforms such as Alibaba, Taobao, Amazon and eBay, to sell counterfeit goods with diminished chances of detection. Rights holders’ attempts to identify these sellers are complicated by the sellers’ use of fulfilment centres to ship their goods. Identification of these sellers is often costly and time consuming.

The key to effective enforcement of brand owners’ rights is persistent monitoring of the Internet. While in-house monitoring of the Internet can be effective, many brand owners also engage the assistance of outside service providers that can dedicate the necessary time and resources to conduct comprehensive investigations of counterfeit goods online, which includes detection and location of rogue websites and unauthorised use of brand images and logos.

Additionally, many high-end brand owners make efforts to combat the sale of counterfeits of their brands by providing educational information about counterfeiting directly on their websites. The level of detail available on the respective websites of brand owners varies. Some brand owners prefer not to detail specific product characteristics that allow them to distinguish a genuine product from a counterfeit product; while others describe such identifiers with particularity, so as to provide prospective purchasers with the strongest tools to identify counterfeits. Brand owners will also often have dedicated email addresses so as to centralise consumer complaints regarding potential counterfeiting activities surrounding their brands. Several internet auction sites have established takedown procedures (eg, eBay’s Verified Rights Owner Programme) that allow brand owners to report infringements of their IP rights, resulting in removal of offending listings. Moreover, a number of national agencies geared towards the overall protection of IP rights maintain websites that serve the dual purpose of making available educational anti-counterfeiting information and providing a mechanism for consumers to report suspected counterfeit goods, including the CBP, the National Intellectual Property Rights Coordination Centre and the Internet Crime Complaint Centre, which is a partnership between the Federal Bureau of Investigation and the National White Collar Crime Centre.

New developments within the past few years require brand owners to reassess and expand their online anti-counterfeiting programmes to address the more than 1,000 new generic top-level domains (gTLDs) that have been rolling out since 2013. Top-level domains are the strings that appear after the dot in domain names – the ‘core’ top-level domains being ‘.com’, ‘.info’, ‘.net’ and ‘.org’. Examples of the new gTLDs include generic terms such as ‘.camera’ and ‘.equipment’, and foreign character gTLDs including ‘.game’ in Chinese and ‘.online’ in Cyrillic. With these new domains comes the potential expansion of the online marketplace for counterfeiting, as well as new rights protection mechanisms for brand owners designed to prevent or deter such activity. Brand owners should evaluate the risks associated with new gTLDs that may be relevant to their brands or the generic names of their products and, if warranted, take affirmative steps to monitor those gTLDs or police new domains for counterfeits. Brand owners may also wish to take advantage of rights protection mechanisms, such as registration of brands with the Trademark Clearinghouse, defensive registration during sunrise registration periods and rapid suspension of domains that may infringe their rights.

Preventive measures/strategies

Counterfeiting is a difficult and pervasive problem, with no easy solution. A wise description of the problem is: “It is a war that cannot be won, but which we cannot afford to lose.” Rights holders should take the following steps in order to be vigilant in safeguarding the integrity of their brands:

  • Register trademarks with the US Patent and Trademark Office.
  • Register copyrights with the US Copyright Office.
  • Record trademarks and trade dress with the CBP.
  • Monitor the Internet for counterfeiters and imitators of your products.
  • Maintain a watch of the grey market, which is often the same route as that followed by counterfeiters.
  • Develop a network of experienced and trusted investigators and attorneys.
  • Educate the sales channel, including employees, wholesalers, distributors and retailers, about counterfeiting of the brand. Members of your own sales channel are often the first to detect counterfeit goods in the distribution channel.
  • Use anti-counterfeit identification on your products to identify genuine goods. This can include holograms, bar codes, hidden security devices and even DNA markers.
  • Train law enforcement and the CBP to identify counterfeit goods. Distribute up-to-date product identification manuals and attend training sessions for CBP and law enforcement personnel.

New developments: 3D printing

In 2014 the newest threat involving product imitation began to emerge in earnest. Three-dimensional (3D) printers, which can make 3D objects from digital designs, gained popularity among consumers and businesses. About 56,000 3D printers priced less than $100,000 were sold in 2013. President Obama embraced this technology, stating that 3D printing has the ability “to revolutionize the way we make almost everything”.

Brand owners are justifiably concerned that 3D printing – also called ‘additive manufacturing’ – will enable counterfeiters to create exact copies of their products. A pirate can use a 3D scanner to create a digital blueprint of the product design and then a 3D printer to create that product.

Many brand owners are concerned about the ability of companies and individuals to create their own copies of trademarked, copyrighted or patented products. At the time of writing, 3D printing is still in its infancy and it takes many hours to create even a simple item. However, the pace of technology will increase quickly. Over the next few years, quicker methods of 3D manufacturing are likely to emerge that are likely to endanger IP rights. Lawmakers in the United States should grapple now with the IP problems of 3D printing, rather than waiting until infringing 3D products are on the market.

Mark Schonfeld

Alexandra Capachietti

Sara Beccia

This article first appeared in World Trademark Review. For further information please visit www.worldtrademarkreview.com.