By Andrea Anapolsky
What do Fendi, compact discs, car parts and Viagra have in common? They are among thousands of products targeted by intellectual property pirates who have successfully infiltrated the global market with thousands of counterfeited trademarked items. And buying Fendi handbags at Wal-Mart is just the tip of the iceberg. What lurks beneath the surface is a lucrative underground economy, which as of January 2006, resulted in an annual loss of $1.54 billion dollars worldwide, reported the Gieschen Consultancy.
Counterfeiting is a form of trademark infringement, in which unauthorized third parties intentionally use a mark that is identical with or substantially indistinguishable from a mark that is registered on the Principal Register of the United States Patent and Trademark Office. Trademarks serve three commercial functions: they identify the product and services to consumers, they identify the source of the products or services and they function as advertising devises creating awareness and good will ward the product being advertised (15 U.S.C. ��1127).
Until the past few decades, law enforcement officials ignored the misappropriation of intellectual property rights. When the legislature realized that millions of dollars were being lost to counterfeiters, Congress passed the Landham Act, under which a prevailing trademark owner may obtain an injunction against future infringement, damages caused by the infringement, defendant’s profits attributable to the infringement and the costs of the action. If the infringement is willful, a court may treble the award of damages and profits, and in some cases, a plaintiff may recover reasonable attorneys’ fees. Congress attempted to further sharpen its anti-counterfeiting campaign when it enacted the Trademark Counterfeiting Act of 1984 (18 U.S.C. �� 2320), which made counterfeiting a federal crime. Under this statute, courts may order the destruction of the counterfeit labels, packages and the machines for making them. Additionally, the federal counterfeiting statute provides for fines of up to $2 million dollars and prison terms of up to 10 years, or both, for individuals, and fines of up to $5 million for business entities.
Despite these efforts, losses from counterfeit items continue to ripple from owners of trademarked products to consumers, to government and to society at-large. Companies suffer losses from sales, loss of goodwill and potential exposure for product liability; consumers must pay higher prices for brand name products; governments lose tax revenue to the underground economy; and society faces lost jobs and potentially hazardous products.
Part of the reason why counterfeiters continue to succeed is that there are several ways counterfeiters circumvent current law. Often counterfeiters will import “counterfeit” bags unlabeled into the U.S. so that they may argue they are not counterfeiting one specific product, and lacked the required mens rea requirements that a counterfeiter (i) know the products are counterfeit and (ii) intends to sell the products. The Tenth Circuit even went so far as to acquit the defendant in U.S. v. Giles of all criminal charges after he sold wholesale sets of “patches” bearing the Dooney & Bourke luggage label (U.S. v. Giles, 213 F.3d 1247 (10th Cir. 2000)). The Court reasoned that the defendant did not violate 18 U.S.C. �� 2318, the federal criminal statute for trafficking in labels, because the statute only applied to specific products and in this case the statute intended “that ‘goods’ be viewed as separate and distinct from the marks they carry” and that for a mark to be counterfeit, that mark needs to be “used in connection with goods.” (Ibid.)
Another reason why counterfeiting continues to flourish is that consumers continue to buy counterfeit items, even if they believe it is a counterfeit. After LVMH Moet Hennessy Louis Vuitton, owner of the Fendi brand, sued Wal-Mart Stors, Inc. in federal court on June 9, 2006, alleging counterfeit Fendi bags and wallets were being sold in Wal-Mart stores for up to 68% less than the actual retail price of the items, a Wal-Mart spokesperson noted that this lawsuit would likely have little effect on Wal-Mart sales. This comment by the Wal-Mart representative drives the point that perhaps part of the reason counterfeiting remains an issue is because the public at large, generally, do not view counterfeiting as serious. Housewives continue to host “purse parties” where counterfeit luxury items are sold in homes, despite waves of arrests over the past few years. Without some sort of accountability placed on buyers and law enforcement agencies alike, this pattern of criminal practice will continue. So, next time you find yourself at a discounter store and see a designer item offered at an enormous discount, take a lesson from Wal-Mart: an original Fendi handbag for $295 is probably too good to be true.
Andrea Anapolsky is an associate in Weintraub Genshlea Chediak Tobin & Tobin’s Business, Securities and Commercial Transactions section. She represents both public and private companies.