Trademark Counterfeiting

April 1, 2007

What parent of a middle school child has not experienced this: Your son or daughter returns from a class trip to New York City or Washington, D.C. displaying the Oakley or Chanel sunglasses purchased from a street vendor at a discounted price with the spending money you had entrusted to him or her. You tell your child that the sunglasses are no doubt fake. The poorly manufactured knock-offs then break within a couple of days.

Any parent, or businessperson, recognizes that example as a sale of counterfeit goods. All the markings are there: the seller is a street vendor with no established place of business, the discount prices are too good to believe, and the product is of poor quality. This may be a lesson to our middle schooler, but is it possible that legitimate retailers and wholesalers may sometimes be no better informed?

In the United States, trademark law protects the owners of marks so that they alone may sell goods or services in association with those marks. Only one owner has the right to sell Coca-Cola drinks using the Coca-Cola mark, and only one owner may sell computer operating systems using the Microsoft Windows name or the colored windowpane design.

Let’s turn to you, our local businessperson. These days, particularly with the advent of e-commerce, wholesalers and retailers have the opportunity to acquire merchandise outside of normal sales and distribution channels. For instance, a supplier of computer equipment may locate Intel processors or HP memory chips or Cicso routers through suppliers plying their wares over the internet. Wholesale parts may even show up on E-Bay. The advertisements may illustrate the product, claim authenticity, and display the purported manufacturer’s name and logo on the product. The local merchant orders those parts at a good price. The company, in turn, markets the product to its customers here at home.

But then it turns out that the products, in fact, are not genuine, but counterfeit. Maybe the product does not work correctly and the end user complains to the purported manufacturer. Maybe the serial number does not check out. Maybe the trademark owner has nabbed the upstream counterfeiter, who then turns over its customer list. The trademark owner starts to threaten you and your company for handling the parts, accusing you of selling counterfeit products.

You think that your company is protected because, after all, you really did believe the items that you purchased and resold were, in fact, genuine. It is not that easy. If you are reselling a product with a counterfeit mark as defined in a federal statute, you have violated the Anti-counterfeiting Consumer Protection Act of 1996. Your good faith may not matter. At the least, you are liable for the trademark owner’s lost profits on sales, or for alternative statutory damages in the range of $500 to $100,000 per type of good sold. Any goods remaining in your inventory are subject to seizure.

But it gets worse. If a violation is “willful”, the offending seller is civilly liable for triple damages and the trademark owner’s attorneys’ fees. The seller may also be liable for criminal remedies. In the civil context, you can still be held to be a “willful” counterfeiter, even though you did not know that the goods were counterfeit. The seller who obtains inventory with “willful blindness” of counterfeiting may still be liable for enhanced penalties. For instance, you can be found to have been willfully blind by purchasing items from an off-shore supplier at a heavily discounted price, or with obvious defects or with improper serial numbers.

By now, your middle schooler may be wagging a finger at you. So what can you do to prevent this scenario? The most important thing is to avoid situations where you can be found to be a “willful infringer” or engaged in “willful blindness”. Some safety measures include:

  • Check out your seller. Does it appear to be legitimate with a recognized background?
  • Is the price just too good?
  • Insist in your purchase order that the goods be genuine and that the sales documentation describe the product by brand name.
  • If the product comes with serial numbers, use any product support available from the trademark owner to verify those numbers.
  • Inspect the goods. If they do not seem real, do not resell them until you have verified.
  • If one of your customers learns that one of the products is fake, investigate whether other products in the same shipment are similarly counterfeit.
  • Record serial numbers of products sold and document your sales transactions.

Manufacturers of computer equipment increasingly are hunting down counterfeiters abroad and unwitting resellers at home. These days, setting an example of good buying judgment for your middle schooler is more important than ever.

Tom Donovan is a Director in the Litigation Department of McLane, Graf, Raulerson & Middleton, Professional Association. He Focuses his practice on intellectual property and complex commercial disputes and can be contacted directly at (603) 628-1337 or by email at tdonovan@mclane.comThe McLane Law Firm is the largest full-service law firm in the state of New Hampshire, with offices in Concord, Manchester and Portsmouth.