A review of recent court cases can help you understand your rights--and hopefully prevent your product from falling victim to counterfeiters.

By Greg Sater

If you are bringing a product to market or are building a brand name through advertising, you should make sure you are up to speed on the subject of counterfeiting and what you can do to fight it.

Ask anyone who has had a hit product in the recent past, and you can bet they will tell you that they have been mercilessly counterfeited.

Following is a review of some of the most recently reported case law from courts around the country. These cases will help illustrate some of the basic legal principles and procedures that you should be familiar with, especially if you are going to go after counterfeiters in the U.S.

First of all, as background for the review of the recent case law, we need to define "counterfeiting."

COURTs DEFINE THE TERM
Although many people use the term "counterfeit" to describe a product that physically looks like another product (so that perhaps patent infringement has occurred), strictly speaking under U.S. law the term "counterfeit" does not relate to the physical or patentable attributes of the products involved, but rather relates to the trademark that is being used. If the copycat product or its packaging has adopted the identical or a nearly identical trademark as the authentic product, the law considers the copycat to be a counterfeit.

Of course, in the real world, usually, counterfeit products also adopt the physical attributes of the genuine products down to a T, in addition to misappropriating their trademarks, and thus also tend to run afoul of patent laws, if there are patents on the genuine products.

The Lanham Act provides powerful remedies for those who are interested in fighting counterfeiters, which in some cases go beyond and are preferable to the remedies available under patent, copyright and trademark laws.

Criminal penalties also are available for counterfeiting cases, and U.S. Customs can be engaged to help your cause, as well.

What you need to do first is to register your trademark. The counterfeiting laws only apply to registered marks. Then, obviously, you need to be on the lookout for copycat products (e.g., those sold online). Then, when you find one, you need to act fast.

How similar does the name of the copycat product need to be? Under U.S. law, a counterfeit is defined as "a spurious [mark] that is identical with, or substantially indistinguishable from, a [registered mark]." (15 USC §§1116(d)(1)(B)(ii) and 1127) In other words, it has to be the same or almost the same name; otherwise it is not going to be viewed as a counterfeit, you won't have the legal remedies that are available for counterfeiting and you and your lawyers will have to go with other provisions of U.S. law, which may be more cumbersome.

A CASE-BY-CASE BASIS
One of the federal court cases published this year, just in the last few months, serves as a good reminder of this basic legal requirement.

The Colgate toothpaste company acted on a consumer complaint and sent an investigator to several locations in New York to purchase tubes of toothpaste bearing the mark "Colddate," imported from China. After analyzing the competing toothpaste packages in detail, the court held that they and the marks on them were not "substantially indistinguishable" and that, therefore, they were not counterfeit products. Colgate-Palmolive Co. v. J.M.D. All-Star Import and Export, Inc., 486 F. Supp. 2nd 286 (S.D.N.Y. 2007). The court found non-trivial differences between the graphical elements and text found on the competing toothpaste packages, and found the names to be similar, but not similar enough for counterfeiting, due to "Colddate" having a double "dd" and "Colgate" having a single "g."

Other cases published in the last few months, however, illustrate the powerful remedies and procedures one can take advantage of in U.S. courts, when counterfeiting (as defined) has been found to occur.

In one case this past fall, the plaintiff was a producer of dresses and women's apparel who found a seller on eBay offering dresses bearing its registered trademarks. The plaintiff made a purchase from the eBay seller, identified the package as having been sent from a Virginia address and then filed suit, seeking a temporary restraining order, a seizure order, an order restraining the transfer of any assets, and an order sealing the court file so that there would be secrecy prior to the seizure being carried out. Diane von Furstenberg Studio v. Snyder, 2007 Westlaw 2688184 (E.D.Va. September 10, 2007).

The court granted this motion and, the next day, U.S. marshals executed the court order on the Virginia address and seized dresses bearing the registered marks, along with computers and financial records. The court then issued a preliminary injunction.

After that, the plaintiff sought a permanent injunction, statutory damages and legal fees. The court analyzed whether there would be a likelihood of confusion between the products and found there would be, since it was convinced that the defendants had tried "to capitalize on the popularity of the [plaintiff's] products." As for damages, the court noted that it had "wide discretion to determine the amount of statutory damages of anywhere between $500 and $100,000 per work for non-willful infringement and up to $1 million in cases of willful use of a counterfeit mark, plus attorney's fees. The issue of damages was put over, until trial. Diane von Furstenberg Studio v. Snyder, 2007 Westlaw 3003291 (E.D.Va. October 10, 2007).

SEEKING DAMAGES
In another recent case, a manufacturer of food products marketed with a registered mark sent an investigator to a Brooklyn warehouse where he found and purchased food products in packages bearing the marks. The plaintiff sued and sought a seizure order and temporary restraining order without notice to the defendants. Koon Chun Hing Kee Soy & Sauce Factory, Ltd. v. Excelsior Trading Corp., 2007 Westlaw 2743579 (E.D.N.Y. September 18, 2007).

The court granted the request. Eight days later, U.S. marshals seized cases of counterfeit products along with price lists, invoices, purchase records, a computer hard drive and files that could help the plaintiff to identify others involved in the counterfeiting. The court granted a preliminary injunction against those who were directly involved, but denied it as to others whose connection with the counterfeit products was tenuous (the only evidence against them being that their offices were in the same building with the others). Again, the question of damages was left for trial.

Two other reported cases this past fall, however, proceeded to trial on damages, and are useful to illustrate the principles involved in obtaining a monetary recovery.

In one case, a plaintiff moved for an award of statutory damages and attorney's fees which, as the court noted, are available in lieu of actual damages "because of the difficulty in proving actual damages in counterfeit cases." Commercial Law League of America, Inc. v. George, Kennedy & Sullivan, LLC, 2007 Westlaw 2710479 (S.D.Tex. September 14, 2007).

The court said statutory damages are "appropriate in light of the deception routinely practiced by counterfeiters." It noted, however, that although the law sets out the range of available awards, it "provides no guidance on how to select a damage figure within that range." Thus, courts have "wide discretion" to consider "such factors as the willfulness of the defendant's conduct, the deterrent effect of an award on both the defendant and on others, whether the defendant has cooperated in providing necessary records to assess the value of the infringing material and the losses sustained by the plaintiff." In this case, the court chose to award the plaintiff $10,000. (The plaintiff did not win more because it presented "no evidence of the value of the infringing material or any loss other than its legal fees." The court also awarded legal fees, however.

In the second case, the plaintiff had obtained a seizure of counterfeit goods from the defendants' warehouse. After that, however, when it sought discovery from the defendants concerning the extent of their counterfeiting and their profits so it might recover damages, the plaintiff was stymied by "pervasive discovery abuse and financial legerdemain" on the part of the defendants. Lorillard Tobacco Co. v. Montrose Wholesale Candies and Sundries, Inc., 2007 Westlaw 2580491 (N.D.Ill. September 10, 2007).

"The defendants either did not keep records, hid them or intentionally refused to produce them in discovery, and they obfuscated and lied about their ownership of assets."

"Having effectively prevented any meaningful discovery on the question of damages," the court would not buy the defendants' argument that "there should be no award of statutory damages." The court did not fall for this. Citing legislative history showing that Congress understood "the reality that damages are difficult to prove in counterfeiting cases, as counterfeiters either fail to keep records or destroy them in order to conceal the magnitude of their infraction," the court decided to award the plaintiff the full amount of statutory damages that it sought: $500,000 for each of the five trademarks that were involved in the case, or $2.5 million.

DON'T BE A VICTIM
If counterfeiting has occurred, and you act swiftly and aggressively, significant monetary awards can be obtained. And, the more information you can gather about the bank accounts or other assets of the people involved (for instance, via a court-ordered seizure of their hard drives and other records at the very beginning of the lawsuit, using the U.S. marshals without giving any prior notice to the other side), the better your chances will be, at the end of the case, of actually recovering on your significant monetary award.

Either way, with or without a monetary recovery, there is a clear and present benefit to seizing the counterfeit goods and, if possible, to obtaining computer hard drives and documents that may lead to the identification and prosecution of the people who are behind them (either in the U.S. or internationally). You don't have to be a victim.

Greg Sater is an attorney with Rutter Hobbs & Davidoff Inc., a law firm based in Los Angeles. He can be reached at (310) 286-1700, or via e-mail at gsater@rutterhobbs.com.