5 Steps to Take If You're Accused of Selling Counterfeit Goods

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Long the province of street corner peddlers and car trunk salesmen, counterfeit goods are now available just about everywhere.  Even big time retailers known for the quality of their products have been caught accidentially selling counterfeit products.  To compound this issue, the quality of fake products has been getting better, and they have become much easier to get.  Worse yet, many of the largest suppliers claim to be authorized wholesalers.  This has led to many fake products being sold on Amazon.com, eBay, and other Internet marketplaces - and often the sellers have no idea that the products that they are selling are fakes.  Worse yet, the producers of counterfeit products generally reside in "Justice Free" countries, where it would be prohibitively expensive, and perhaps impossible for brand name manufacturers to sue them.

However, brand name companies have started to fight back hard.  Many have retained law firms to target counterfeited goods in any way they can - for example, the California firm Johnson & Pham has been retained by many brands to shut down counterfeit sellers.  They have targeted online sellers that reside in, and are amenable to service of process, in the United States.  Many of these online sellers are ordinary people looking to make a few extra dollars.  And none of them are prepared for expensive lawsuits demanding tens of thousands of dollars in compensation, and potentially requiring tens of thousands of additional dollars to hire counsel.

Possible Grounds for a Lawsuit

Brand name manufacturers will generally pursue online sellers for one of the following causes of action:

Trademark Infringement

Section 32(l) of the Lanham Act specifically prohibits the unauthorized use, sale, offering for sale, distribution, or advertising of counterfeit goods.  Most state trademark statutes have analogous sections.  Trafficking in counterfeit goods is often described as "trademark infringement in the first degree."

Unfair Competition

Even if a mark is not registered, an action for unfair competition can be brought to prevent consumer confusion.  If the mark is not registered, this may be the most viable cause of action.

Trademark Dilution

As counterfeiters usually only go after famous marks, most counterfeit cases will allege trademark dilution as well.

Copyright Infringement

In many cases, the counterfeiter will duplicate the Brand's logo, packaging designs, instruction manuals, etc.  Many of these are registered copyrights.

Generally, the law firm retained by the brand contacts counterfeit sellers before initiating a lawsuit.  If you should receive such a letter, you need to act quickly to defend yourself.  Below is an action plan that I recommend to clients.

Action Plan

1. Do not Ignore the Letter

These cases will not go away if you ignore them.  Instead, the very agressive firms that brands hire to pursue counterfeiters will file a complaint and raise their demand.  And, if you continue to ignore the issue, the brand will obtain a default judgment against you - likely for many times the damage you would have suffered otherwise.

2. Do not Contact the Law Firm

If you call the brand manufactuer's law firm you are going to speak with an experienced attorney who is going to do everything that s/he can to represent her clients.  This includes getting admissions from you, which are extremely likely to occur.  For example, the attorney may ask you "Where did you get the counterfeit goods from?"  Answering such a question is arguably an admission that you trafficked in counterfeit goods.

3. Get the Facts

The most important fact for you to determine is whether or not the brand holder will be able to paint you as a willful infringer.  In particular, if the brand name manufacturer can convince a jury that you knew you were trafficking in counterfeit goods, damages can be much higher.  In particular, if you are an innocent infringer, the damages that a brand name manufacturer can recover are extremely limited and may be zero.  On the other hand, if the brand name manufacturer can show that you knowingly trafficked in counterfeit goods, your profits, the brands actual damages, treble damages, counterfeit statutory damages, and attorneys fees.  In particular, where actual knowledge of counterfeiting is shown, damage awards can easily exceed a million dollars ($1,000,000).

4. Hire an Attorney

Given the large number of these cases that are now being pursued by brand name manufacturers, many attorneys now offer affordable special programs to help individuals and small businesses resolve these suits.  When you hire such an attorney, keep in mind that you want an experienced IP attorney that can actually litigate a case if need be - forget about hiring an attorney that helped with your will or even one that may have handled the divorce of someone you know.  Ask the attorney how much experience s/he has dealing with counterfeit cases, and if the attorney has actually litigated trademark issues.  And, of course, ask the attorney how much the action is likely to cost if the case is resolved without litigation, and how much it is likely to cost if the case needs to be litigated.

5.  Have your Attorney Seek a Demand

Once you know what the brand name manufacturer wants, you and your attorney can determine the best approach to take with your case.  In particular, if the demand is low enough, consider paying it or having your attorney negotiate further.  If the demand is very high, and you are innocent infringer, litigation may be required to reduce the brand name manufacturer's demand.  If you are not an innocent infringer, litigating a case like this can have disastrous consequences.  In particular, the damage award against you can be staggering (and is probably not dischargeable in bankruptcy), and there is a real possibility of criminal enforcement. See Counterfeiting Trademarks and other Intellectual Property for information on the criminal consequences.

If you have received a letter accusing you of trafficking in counterfeit goods, you are undoubtedly under a lot of stress.  I hope that the above action plan helps you approach your decision as to how to resolve such a case carefully and calmly.