Trademark Counterfeiting: Everything You Need to KnowTrademark Law ResourcesTypes of TrademarksHow To Register A TrademarkTrademark Infringement
Trademark counterfeiting is when an established trademark is put on a product or service that is not one of the legitimate goods offered by the trademark owner.12 min read
What Is Trade Counterfeiting?
Trademark counterfeiting refers to when an established trademark is placed on a product or service that is not one of the legitimate goods offered by the trademark owner. The federal Trademark Act, also called the Lanham Act, prohibits such counterfeiting.
In the United States, counterfeiting laws are becoming more and more favorable for those who own trademarks. Case law is growing substantially when it comes to the 1984 amendment to the trademark counterfeiting provisions of the Lanham Act. Owners of trademarks in the United States can depend on the law to help protect their marks from counterfeiters.
What Is a Trademark?
A trademark refers to any word or symbol used to associate goods or services with the manufacturer. The purpose of trademark law is to prevent the deception and confusion of customers and to protect the goodwill of businesses by not allowing others to misrepresent the source of goods or services.
What Is the Difference Between Counterfeit and Infringement?
If a manufacturer produces unauthorized goods so that they very closely resemble the brand-name goods, it is likely trademark counterfeiting. Trademark counterfeiting also occurs when services are presented or advertised to trick consumers into thinking that they come from a legitimate source.
Trademark counterfeiting is always considered infringement, and is a common type of trademark infringement. However, not all infringements qualify as counterfeits. A counterfeit trademark includes marks that are largely identical to the real mark. Infringements include marks that are similar but not identical to the genuine mark. A similar mark is more likely to qualify as an infringement than as counterfeiting.
For the Lanham Act to be applicable, the counterfeit mark must be associated with or used on services or goods that are nearly identical to the services and goods for which the true trademark or service mark was registered. If a third-party uses the same trademark or service mark on goods and services that are related but not identical, the owner of the mark needs to resort to litigation for trademark infringement.
The Sixth Circuit concluded that the use of a franchisor's trademark by the holdover franchisee is not considered trademark counterfeiting even if the franchisor did not authorize the use. However, many courts have rejected this conclusion.
For example, the district court in Choice Hotels International, Inc. v. Pennave Associates, 159 F. Supp. 2d 780 (E.D. Pa. 2001), aff'd, 43 F. App'x 517 (3d Cir. 2002) concluded that the franchisee's unauthorized use of the franchisor's mark is considered trademark counterfeiting. The franchisee had made an agreement with the franchisor to operate a hotel under the trademark of the franchisor. However, the franchise agreement was contingent on the franchisee making renovations to the premises of the hotel. However, the franchisee refused to make the renovations yet continued to use the mark of the franchisor. The court found that the use of the franchisor's mark by the franchisee is considered counterfeiting.
What Is the Effect of Trade Counterfeiting?
Uncontrolled counterfeiting can cost trademark owners millions of dollars due to damaged business reputation, lost sales, and litigation costs. Some experts estimate that counterfeiting costs business in the United States $200 billion dollars every year.
Trademark counterfeiting is a major issue because most consumers will not question whether a logo on goods is indicative of the true source. Not only are consumers misled, but the trademark owner may be harmed because the fake goods could be of lower quality.
Punishments for Trade Counterfeiting
The Lanham Act allows for special damages in cases related to trademark counterfeiting. It provides statutory damages in addition to the actual damages, attorney's fees, treble damages, and ill-gotten profits. The statutory damages can be as little as $500 or as significant as $100,000 for every counterfeit good sold. If the court deems that the sales were willful, the amount of statutory damages per counterfeit good may be as high as $1,000,000. The trademark owner can ask for injunctive relief to prevent future trademark counterfeiting. The owner can also ask for a seizure order from federal marshals. The person or group that committed the trademark counterfeiters will be subject to prosecution from the federal courts.
If an individual is deemed liable for counterfeiting a trademark in the United States, the Customs Office can seize the foreign counterfeit goods. This could lead to criminal charges or fines. The trademark owner has the right to sue the producers of the fake goods. The trademark owner will be able to recover his lost profits, and in some cases, the owner will collect up to three times the value of the actual damages.
Should You Choose Litigation?
Before you open a lawsuit for trademark counterfeiting, you should answer these two vital questions:
- What goals do you have in mind for the litigation?
- Which enforcement strategy do you think will best help you achieve these goals?
Be sure to answer and discuss these questions in detail before you proceed with litigation. Some of the goals that trademark owners commonly have included: seizing and possibly destroying the fake goods; recovering damages in the form of the counterfeiter's profits or the trademark owner's damages; getting information about other potential sources of fake products; recovering attorney fees; and preventing the defendant and other third parties from making counterfeits in the future.
No matter what goals you have in mind, it is important that you be aware of the potential risks, costs, and recovery. That way, you will be able to come up with a realistic strategy that is likely to be effective.
Owners of trademarks should remember that the costs and risks of counterfeiting litigation may outweigh the advantages. The litigation costs may exceed the monetary damages that you recover. However, counterfeiting litigation will benefit you significantly in other ways. Litigation will prevent future cases of counterfeiting and will help preserve and protect trademark rights. Low-quality and counterfeit products can damage the reputation of a company severely. This is especially true if there are consumers who suffer injuries from counterfeit product. Litigation will help preserve the allure of luxury brands, such as GUCCI® and ROLEX®.
When Is the Lanham Act Applicable?
The Lanham Act and its counterfeiting provisions apply to both trademarks and service marks. However, the counterfeiting provisions only apply to marks that have been federally registered. If the trademark is unregistered, owners will need to make a claim for trademark infringement. The Lanham Act is not applicable if the manufacturer or producer accused of counterfeiting had authorization to use the mark at the time of production or manufacture. Therefore, trademark owners cannot open a lawsuit for production overruns parallel imports, or gray-market goods.
A third-party that is accused of trademark counterfeiting may attempt to argue that the counterfeit goods are gray market or overrun goods. An overrun good is produced by a company or individual authorized to produce or manufacture goods with the trademark. Overrun goods usually result when a manufacturer produces a greater number of goods than permitted under an agreement between the manufacturer and the trademark owner. Gray market goods refer to goods with authentic trademarks that are permitted to be sold in other markets. These goods are then sold and distributed in the United States without authorization. Under the TCA, gray market or overrun goods are not criminalized.
According to the Lanham Act, the third-party does not need to produce or manufacture the counterfeit mark to actually be engaged in counterfeiting. The Act denies a third-party the use of a trademark or service mark for distribution or sale of goods or services.
How to Initiate a Lawsuit for Trademark Counterfeiting
If your case appears to meet the parameters of the Lanham Act, you must decide if it is worthwhile to file a lawsuit. Even though the 1984 Lanham Act's amendments have made significant profits and damage awards more likely, it is still very costly to litigate a trademark counterfeiting case, especially if there is more than one defendant involved. However, even if you don't manage to obtain a monetary award, it is possible that the deterrent effects of the lawsuit will make the money you spend worthwhile.
Most trademark owners would prefer to avoid litigation. However, there are limited methods of policing against counterfeiting activities. Some trademark owners choose to intimidate the alleged counterfeiters by making cease-and-desist demands. Another alternative is to obtain an investigation of the accused counterfeiter before initiating the lawsuit.
Other third parties can also take action. For example, the U.S. Attorneys' Office might pursue action against in a counterfeiting case. The U.S. Food and Drug Administration is another regulatory body that may take action.
Once a trademark owner considers the goals, costs, and benefits of litigation, the next step will be to start the process. First, the owner must decide whether to proceed ex parte or to notify the defendant. To reduce the possibility that counterfeiters will conceal or destroy evidence, most trademark owners choose to proceed ex parte. Other third parties also won't hear about the action if you proceed ex parte, and won't destroy any evidence indicating their involvement.
Since most trademark owners choose to proceed ex parte, litigation often moves forward quickly. So as soon as possible, you and your lawyer should discuss what papers need to be prepared to initiate the lawsuit. Some essential documents include the complaint, the proposed order, the application for relief, and the brief.
Since litigation in these cases moves at a fast pace, you should start preparing and filing the notices of deposition along with the moving papers. You should also consider whether you should file the trademark counterfeiting case under seal to avoid alerting other criminal counterfeiters. If you request an ex parte seizure order, the Lanham Act will require that the order be kept under seal until the counterfeiter contests the order. Therefore, you should file a motion to keep the order under seal when you file the moving papers.
Undoubtedly, the trademark owner will want to prevent the defendant from participating in future counterfeiting activities. Therefore, the trademark owner may request a temporary restraining order. The restraining order may include provisions for a "gag order," which will forbid communication about the action to third parties. That way, the alleged counterfeiter cannot inform customers, suppliers, and others involved in the trademark counterfeiting activities.
A temporary restraining order should not be longer than 10 days, according to the Federal Rules of Civil Procedure. There should also be a hearing to show why the federal court should not grant a preliminary injunction in these 10 days. Therefore, before filing these papers, you should be prepared to attend a show-case hearing.
You should consider relying on the Federal Rules of Civil Procedure 30 and 34 to request expedited discovery. Discovery will permit the counsel to prepare a seizure and show-cause hearing that is required by the Lanham Act. Expedited discovery usually requires that the defendant appear for depositions or produce documents with up to a week's notice.
The counsel should consider freezing the defendant's assets. This will help ensure the availability of the assets for future recovery. Both the Ninth and Eleventh Circuits of the U.S. Court of Appeals permit district courts to freeze assets as a form of security for future recovery of damages or profits.
How to Get an Ex Parte Seizure Order
Trademark owners often attempt to obtain an ex parte seizure of counterfeit goods. The 1984 amendments to the Lanham Act (Section 34(d)) provides the courts with the ability to grant an ex parte seizure order. However, the provisions only applies to cases of counterfeiting as explicitly defined by the Lanham Act. The statute permits the seizure of counterfeit goods as well as the means of producing or manufacturing these counterfeit marks and goods. The seizure of documents related to the sale, manufacture, or receipt of these goods or marks is also permitted by the statute.
The Lanham Act includes a list of procedures an applicant must follow to obtain an ex parte seizure order. The proposed order needs to include a comprehensive report the findings of conclusions of law and findings of fact as support for the order. The seizure order must describe what should be seized in detail as well as the location of the matter to be seized. The proposed order must not be broad when defining what materials to be seized. The order should not be so broad that it applies to the following:
- Marks or goods not considered counterfeit based on the statutory definition;
- Marks or goods that may be in the possession of the defendant;
- Goods that bear unregistered and bogus trademarks.
For some courts, the inclusion of the materials described above in a proposed order could be fatal for the relief desired. The proposed seizure order should carefully identify all locations. The seizure order should also include language requesting the seizure of any originally unknown business locations that turn up during the seizure. The order should include information about when the seizure should occur. The limit is one week from the time when the courts grant the order.
The order needs to include the amount of security bond that will be posted in the court. In the event the defendant claims wrongful seizure, the bond can be used to satisfy the claim. The security bond can be posted as a surety or cash bond. This will depend on the normal practices of the court.
The order must include a date for a hearing about the seizure. The date must be between ten to fifteen days from the time the courts issue the seizure order. The only exception to this rule is that the trademark owner shows good cause for another proposed date.
Another exception to this rule is if the defendant consents to the proposed date. At the hearing, the trademark owner will still need to show that the conclusions of law and findings of fact necessary to support the seizure order are still relevant. It is possible that the court will address wrongful seizure claims. The court may also make changes to time limits for discovery at the hearing for the seizure order. The hearing for the seizure order often occurs at the same time as the show-cause hearing.
The Lanham Act states that the court must protect defendants from publicity for any ordered seizures. Therefore, the proposed seizure order should include a statement that the seizure has not and will not be publicized.
Materials that are seized under the Lanham Act will be in the court's custody. The court will need to enter a protective order to cover all seized records. Federal appeals courts are able to use the power of the district court to select a custodian for any materials seized under the Lanham Act. If the seized materials cannot be kept in the custody of the court because they are too voluminous, the court may appoint another custodian as a substitute. A substitute custodian is also possible if the materials demand unique or uncommon storage conditions. Possible substitute custodians include:
- The U.S. Marshal
- Private investigators
- The counsel of the trademark owner
When requesting an ex parte seizure order, the proposed order and the moving papers need to show that providing a notice to the defendant would prevent effective relief. The proposed order and moving papers must also show that the TRO would be ineffective on its own.The owner needs to provide a list of reasons the defendant is likely to destroy, conceal, or dispose of the counterfeit goods and any records related to these counterfeit goods if they receive notice of the seize order. The trademark owner can show this by referring to other similar cases where the defendant destroyed or hid the counterfeit goods and the records. The trademark owner also needs to include conclusions of law and findings of fact that are sufficient to meet statutory requirements Section 34(d)(4)(B) of the Lanham Act outline.
The trademark owner should consider including nonstatutory elements in the order and application. These elements are optional, but they can truly help an application. In most cases, a provision should be included in the order to allow photography and videotaping during the seizure. This will provide the trademark owner with visual evidence as defense if the defendant makes a claim for wrongful seizure. The alleged counterfeiter will have little power to prevent the use of video equipment and cameras during the seizure the items are in the seizure order.
How to Execute the Ex Parte Seizure Order
Once the court grants an ex parte seizure order to the trademark owner, thorough preparation is needed to execute the order successfully. Most seizures don't go according to plan perfectly. Therefore, the participants in the seizure need to be able to handle exigencies as they arise.
The counsel will need to identify the seizure participants and create a team. Law enforcement officers like U.S. marshals carry out the seizure. However, these individuals need the help of others to execute the seizure successfully. Therefore, trademark counsel needs to be included in the seizure "team." Counsel can help address legal issues that will likely arise during the course of the seizure and help provide general direction for the seizure. Some examples of legal issues that may arise are whether a document or good is covered by the seizure order, the seizure's scope, and possible objections to the seizure or procedures by the defendant. The presence of the counsel is also useful as defense against the claim of wrongful seizure.
Videographers, photographers, and private investigators are all potential participants for the seizure team. Investigators will be able to help the officers or marshals identify counterfeit goods and related documents that are covered by the order. They can also help maintain chain of custody for all the materials seized, prepare a list of seized materials, and label the goods and documents seized according to location. Investigators can serve as the videographer or photographer a well to cut costs. They can also be helpful affiants or witnesses if the defendant files a wrongful seizure claim.
If you are in a situation in which your business faces trademark counterfeiting, post your legal need here and UpCounsel can provide a list of experienced attorneys in your area. UpCounsel only accepts the top 5 percent of attorney applicants to the website, giving you access to the best and brightest minds in the legal world.