Tabberone Logo

Tabberone is pronounced tab ber won
not tay ber own

Tabbers Temptations     www.tabberone.com/Trademarks/ Home | Site Index | Disclaimer | Email Me!
"The only thing necessary for the triumph of evil is for good men to do nothing"
Edmund Burke


The Tabberone™ Archives
These articles concern what we consider major trademark and copyright issues. They are usually reproduced with the original source referenced. Bear in mind, these articles are copyrighted and commercial use without permission of the authors may be considered infringement. The intended use here is educational, commentary and non-commercial. The reason they are reproduced in the Tabberone™ Archives, as opposed to just providing a link, is because links disappear and pages are removed. That presents a messy confirmation process that is annoying to the browser (you) but also presents a credibility issue. We do not claim any rights in these pieces. Do not regard the absence of a copyright statement or © to mean the article is not copyrighted. Some sites do not have a copyright statement.

When an article or a comment is posted on the internet by the copyright owner, the owner is seeking a world-wide, 24/7 audience; sometimes for a limited amount of time, sometimes indefinitely. In essence, an internet posting intentionally relinquishes one's copyright for exclusivity because the owner has posted it on the internet to been seen by everyone, everywhere. The Tabberone™ Archives non-commercial duplication of the posting is simply a continuance of the original wishes of the copyright owner. We post these articles for reference, for commentary and for confirmarion of our position.

Source:
http://www.finnegan.com/resources/articles/articlesdetail.aspx?news=d0fb159b-947e-427a-b03a-e6d60cf272f5

October 24, 2008

Taking an Aggressive Stance Against Counterfeiters:
An Overview of Trademark Counterfeiting Litigation Under the Lanham Act

IP Litigator
September/October 1999
Sommers, Mark

Article

As many trademark owners know, the rampant practice of trademark counterfeiting can cost owners millions of dollars in the form of lost sales, injury to business reputation, and litigation costs incurred to ward off counterfeiters. In fact, some estimates indicate that counterfeiting costs U.S. businesses over two hundred billion dollars a year. 1 Counterfeiting laws are becoming increasingly favorable to trademark owners in the United States, and case law under the 1984 amendments to the Lanham Act's trademark counterfeiting provisions is growing. 2 Within this broader legal framework, U.S. trademark owners may forcefully protect valuable marks against the acts of counterfeiters.

Trademark owners should beware, however, of the risks and costs involved with counterfeiting litigation in the United States. In particular, trademark owners should appreciate at the outset that the costs of litigation often exceed monetary damages recovered. Nonetheless, counterfeiting litigation pays other dividends by deterring other counterfeiting and by protecting and preserving valuable trademark rights. For instance, the damage to a company's reputation that arises from consumers who attribute a faulty or low-quality counterfeit product to the trademark owner itself can be severe, particularly when consumers are injured by the counterfeit product. Or in the case of luxury items, such as ROLEX® watches or GUCCI® leather goods, failure to take action against counterfeiters can erode the status-symbol allure of these goods.

This article examines the issues arising from an action for trademark counterfeiting under the Lanham Act. Specifically, this article will guide the trademark owner through strategic considerations, such as whether to bring a trademark counterfeiting action, what types of relief to seek, the procedural requirements for seeking and obtaining an ex parte seizure order, the execution of an ex parte seizure order, and the culmination of the litigation.

Whether to Litigate—What Is Trademark Counterfeiting?
As the first step in deciding whether to file a counterfeiting action under the Lanham Act, counsel must first determine whether the counterfeiting provisions of the Act actually apply to the facts of the case. Under the Act, the term "counterfeit" trademark means a "spurious mark which is identical with, or substantially indistinguishable from, a registered trademark." 3 In the typical case of trademark counterfeiting, a product is made to imitate all facets of the genuine product, including its trademark, so that purchasers are deceived into buying what they believe is a genuinely branded good. The typical case of trademark counterfeiting might also involve patent and copyright infringement.

The counterfeiting provisions of the Lanham Act apply equally to service marks. 4 But for both trademark and service-mark counterfeiting, the counterfeiting provisions apply only to federally registered marks. To obtain relief in cases of unregistered trademark 'counterfeiting,' owners must rely on a trademark infringement claim. Similarly, the Act specifically excludes from its definition of a counterfeit mark any mark or designation for which the producer or manufacturer was, at the time of the manufacture or production, authorized to use the mark. This exclusion effectively precludes trademark owners from seeking counterfeiting relief for parallel imports, gray-market goods, and production overruns. 5

In addition to registration, the Lanham Act imposes additional restrictions on the action for counterfeiting. The "spurious" or counterfeit mark must be used on, or in connection with, goods or services that are identical or substantially indistinguishable from those for which the genuine mark is registered. 6 Thus, a trademark owner must resort to trademark-infringement litigation if a third party uses the identical mark on goods that are closely related, rather than identical or nearly identical.

Finally, a party need not actually produce the counterfeit mark to be engaged in trademark counterfeiting under the provisions of the Lanham Act. The Act simply prohibits the use of a "counterfeit mark in connection with the sale, offering for sale, or distribution of goods or services." 7

Choosing Litigation—What Are the Trademark Owner's Goals?
Before bringing a lawsuit for counterfeiting, the trademark owner must answer two key questions: (1) what are the goals for the litigation? and (2) what enforcement strategy will work best to achieve those goals? These issues should be discussed thoroughly before proceeding with the suit.

There are several goals trademark owners should consider. These include: (1) recovering damages, either in the form of the counterfeiter's profits or the trademark owner's damages; (2) deterring the defendant or third parties from future counterfeiting; (3) seizing and/or destroying the counterfeit goods; (4) obtaining information about other counterfeiters or ultimate sources of counterfeit products; and (5) recovering attorney's fees. Whatever the goals, trademark owners must completely understand the potential costs, risks, and recovery in order to assist counsel in developing a realistic and meaningful strategy.

Initiating the Action—Strategic Considerations
Assuming a case meets the Lanham Act parameters, the trademark owner then must decide whether to litigate at all. Although the 1984 amendments to the Lanham Act have made enhanced damages or profits more commonplace, it remains costly to litigate a trademark counterfeiting case, particularly when multiple defendants are involved. Nonetheless, even assuming no monetary recovery is ultimately obtained, the deterrent effects of aggressive action against counterfeiters and counterfeiters-to-be can be well worth the money spent on litigation.

Where the trademark owner wishes to avoid litigation, other means of policing the counterfeiting activities are limited. The owner may seek to intimidate counterfeiters through cease and desist demands. Alternatively, the owner may wish to enlist a private investigator to investigate the activities of the alleged counterfeiter before committing to litigation.

Third party action can be brought in addition to, or as a substitute for, the trademark owner's own litigation. For instance, the U.S. Attorney's Office might have an interest in bringing a criminal counterfeiting action, or a regulatory body (such as the U.S. Food and Drug Administration in the case of c ounterfeit pharmaceuticals, or U.S. Customs in the case of imported counterfeit products) might want to pursue an action against the counterfeiter.

Assuming the trademark owner has considered the goals of litigation and the costs and benefits of bringing an action, the next step is to consider how to achieve those goals procedurally. The foremost of these decisions is whether to proceed with notice to the defendant or to proceed ex parte. Trademark owners often proceed ex parte to prevent the counterfeiters from concealing or destroying the counterfeit goods or documents relating to them. Proceeding ex parte also prevents third parties from hearing about the action and destroying evidence of their involvement.

Because counterfeiting litigation is often brought ex parte, it generally moves forward very quickly. Thus, counsel should decide at the earliest point possible what papers to prepare when initiating the lawsuit. The complaint (which must be verified under Federal Rule of Civil Procedure 65), application for relief, brief in support of the application for relief, and the proposed order are, of course, essential. But given the quick pace of the litigation, one is generally well advised to consider preparing and filing notices of deposition with the moving papers as well. Additionally, one need consider whether to file the case under seal, so as not to alert the counterfeiters or other involved parties of the action. If an ex parte seizure order is sought, the counterfeiting provisions of the Lanham Act require that the order granting the seizure be kept under seal until the alleged counterfeiter has an opportunity to contest the order. 8 As such, a motion to file under seal should be filed simultaneously with the moving papers.

The trademark owner should also consider at the outset all of the forms of relief available to trademark counterfeiting litigants. Specifically, the trademark owner will undoubtedly want the counterfeiter enjoined from future counterfeiting, in which case they will seek a temporary restraining order ("TRO"). The TRO might also include provisions for a "gag order" preventing communication to third parties about the action in order to prevent the alleged counterfeiter from informing suppliers, customers, or others involved in the counterfeiting activities. The Federal Rules of Civil Procedure require that a TRO not exceed ten days (absent good cause for a ten-day extension), and that a hearing be held to show cause why a preliminary injunction should not be granted within those ten days. 9 Thus, before filing the papers, counsel should be prepared to go forward with the show-cause hearing rather quickly.

Requesting expedited discovery under Federal Rules of Civil Procedure 30 and 34 should also be considered. Obviously, discovery will enable counsel to prepare for the hearing on the seizure required by Section 34(d)(10) of the Lanham Act and for the show-cause hearing discussed above. Typical expedited discovery has the defendant producing documents and/or appearing for depositions upon three to seven days notice.

Additionally, counsel should strongly consider freezing the counterfeiter's assets to ensure the availability of future recovery. Both the Ninth and the Eleventh Circuits have allowed district courts the power to freeze the alleged counterfeiter's assets as security for future recovery of the equitable remedy of an accounting of profits. 01

Seeking and Obtaining an Ex Parte Seizure Order
In counterfeiting cases, trademark owners often seek the ex parte seizure of the counterfeit goods. The 1984 amendments to Section 34(d) of the Lanham Act expressly give the courts the power to grant this relief. These provisions, however, only apply to cases of trademark counterfeiting as defined by the Act. The statute authorizes the seizure of not only the counterfeit goods, but also the means of making the counterfeit goods or marks, and records documenting the manufacture, sale, or receipt of counterfeit goods or marks.

The Act outlines procedures the seizure applicant must follow when seeking an ex parte seizure order. First, the proposed order must set forth the findings of fact and conclusions of law in support of the order. 11

Second, the seizure order must particularly describe the matter to be seized and each place where the matter is to be seized. 12 The proposed order must be carefully drafted so that it defines the materials to be seized without being overly broad. In particular, the order should be drafted so that it does not apply to (1) goods or marks not deemed counterfeit under the statutory definition (e.g., gray-market goods), which might be in the defendant's possession, or (2) goods bearing bogus unregistered trademarks. In some courts, the inclusion of such materials could be fatal to the relief sought. Further, the locations to be included in the seizure order should be carefully identified. Language contemplating the seizure of any unknown business locations operated by the counterfeiter should be included in the event that the seizure turns up such information.

Third, the order must specify the time period in which the seizure will occur, which is limited to seven days from the time the order is granted. 13

Fourth, the order must specify the amount of security bond to be posted with the court. 14 This bond is intended to satisfy any potential wrongful seizure claimed by the defendant, and can generally be posted as a cash or surety bond, depending on local practice.

Fifth, the order must set forth a date for a hearing on the seizure. 15 This date must occur between ten and fifteen days from the date the seizure order is issued, unless the trademark owner shows good cause for another date, or unless the defendant consents. At this hearing, the trademark owner has the burden to show that the "findings of fact and conclusions of law necessary to support [the] order are still in effect." 16 The court may also address any claims of wrongful seizure or may modify time limits for discovery at this hearing. 17 This hearing is often combined with the show-cause hearing.

Under the Lanham Act, a court must take action to protect a defendant from publicity on any seizure ordered. 18 A statement that the seizure has not been publicized in any way should therefore also be included in a proposed seizure order.

Additionally, any materials seized under the Act "shall be taken into the custody of the court," and the court must enter an appropriate protective order to cover any seized records. 19 At least one federal appeals court has upheld the power of the district court to appoint a substitute custodian for materials seized under the Trademark Counterfeiting Act. 20 The court will likely be particularly inclined to appoint a substitute custodian where the seized materials are too voluminous to be kept with the court, or where the materials require unusual storage conditions. In these cases, the U.S. Marshal, the trademark owner's counsel, and/or private investigators may be appointed as substitute custodians.

When seeking an ex parte seizure order, the moving papers and the proposed order must show that providing the defendant with notice would thwart effective relief and that a TRO alone would be ineffective. 21 To show this, the owner should provide reasons why the defendant is likely to conceal, destroy, or otherwise dispose of the counterfeit goods and/or records relating to those goods if they were to receive notice of the action. This showing may be met through evidence that other similarly situated defendants have hidden or destroyed counterfeit goods or records. An owner should include findings of fact and conclusions of law sufficient to meet the other statutory requirements outlined in Section 34(d)(4)(B) of the Act. 22

Finally, an owner should consider including "optional," nonstatutory elements in the application and order. For instance, under most circumstances, it is wise to include a provision in the order specifically providing for videotaping or photography during the seizure. This tactic will provide an owner with visual evidence to defend any potential wrongful seizure claims that might arise. Further, the alleged counterfeiters have little power to resist the use of cameras or video equipment during the seizure when these items are included in the order.

Executing the Ex Parte Seizure Order
Once the trademark owner has obtained an ex parte seizure order, successfully executing the court's order requires thorough preparation. Few seizures will proceed perfectly according to plan, and the seizure participants must be prepared to handle any exigencies that arise.

As a first step, counsel should identify the participants in the seizure and assemble a "team." Although the seizure itself is carried out by U.S. marshals or "other law enforcement officer[s]," 23 these individuals often cannot effectively execute the seizure without the assistance of others. The "team" should usually include trademark counsel. 24 Counsel can provide direction to the seizure and address legal issues that are likely to arise during its course, such as the scope of the seizure, whether a particular good or document is covered by the terms of the seizure order, any objections by the defendant to the seizure itself or the procedures being followed, and other related issues. Counsel's presence is also useful in the event a wrongful seizure claim is made.

Other potential participants in the seizure team include private investigators and/or photographers or videographers. Investigators can help the marshals or officers in identifying counterfeit goods or documents covered by the seizure order. They can also assist in maintaining a proper chain of custody for the seized materials, preparing a list of materials seized, and labeling the seized goods and documents according to the location from which they were seized. To cut costs, investigators can serve the dual role of photographer or videographer. They can also be helpful as witnesses or affiants in the event of a wrongful seizure claim.

To prepare the team, trademark counsel might consider conducting a briefing meeting the day before the seizure. "Briefing books" specifically describing or visually illustrating what the counterfeit mark looks like, and what materials counsel anticipates finding during the seizure, are often helpful. These books should also outline the scope of the seizure order and provide details about each participant's role. Any known information on the location of the goods to be seized or on the defendants should also be included.

Depending on who the court appoints as the custodian of the seized goods and materials, it may also be important to prepare for storing the seized goods and materials ahead of time. In some cases, the seized materials may be voluminous or require special storage conditions, which might necessitate the leasing of an off-site storage facility. The court-appointed custodian should hold the key.

Proceeding with the Litigation
Most trademark counterfeiting cases are settled quickly, since they are often the clearest-cut cases of infringement trademark owners encounter. If the case does not settle quickly, the trademark owner likely will face the most common ploy of the counterfeiter to place the trademark owner on the defensive—namely, bringing a wrongful seizure action under 15 U.S.C. § 1116(d)(11).Because an ex parte seizure order is viewed as an "extraordinary remedy," the Lanham Act specifically provides for a cause of action against the owner in the event of a wrongful seizure. The Act does not, however, define "wrongful seizure." 25 According to the legislative history of the Trademark Counterfeiting Act, this omission was intentional, since the drafters thought the courts would be best able to determine what constitutes a wrongful seizure under the circumstances of a particular case. 26 The legislative history instead provides a few "rules of thumb."

Specifically, the seizure of a few legitimate items along with the counterfeit goods will not render a seizure wrongful. If all or the bulk of the goods s eized are legitimate, however, the legislative history indicates that this would constitute a wrongful seizure for which the defendant would be entitled to damages, regardless of the good faith of the trademark owner. Further, if the trademark owner acts in bad faith in seeking a seizure order (the legislative history provides the example of a merchant trying to stifle competition), this would clearly constitute a wrongful seizure. 27 The remainder of the situation was left to the courts to handle on a case-by-case basis.

As a means of pushing the litigation forward, owners should consider filing a summary judgment motion on the issues of liability and damages. On the issue of damages, the 1984 amendments to the Lanham Act particularly favor trademark owners. According to the Act, in cases of intentional and knowing use of a counterfeit mark or designation "the court shall, unless the court finds extenuating circumstances, enter judgment for three times such profits or damages, whichever is greater, together with a reasonable attorney's fee . . . ." 28 Thus, once the trademark owner can prove the amount of actual damages suffered, and/or the amount of the alleged counterfeiter's profits associated with the counterfeiting activities, the trademark owner is entitled to treble those damages or profits absent extenuating circumstances. Although the statute does not define "extenuating circumstances," the legislative history to this section indicates that "it will be a rare case in which a defendant who has trafficked in goods or services using a mark that he or she knows to be counterfeit can show that he or she should not be assessed treble damages." 29

As a result of the more recent 1996 amendments to the Lanham Act, a counterfeiting plaintiff is now entitled to seek statutory damages as an alternative to actual damages or defendant's profits. Under this section, the plaintiff may elect to seek statutory damages of not less than $500 or more than $100,000 per counterfeit mark (determined by the court) per type of goods or services sold, offered for sale, or distributed. 30 In cases of willful infringement, the court has the discretion to award up to $1,000,000 per counterfeit mark as statutory damages. 31 Conclusion
Trademark owners face serious risks in failing to aggressively pursue counterfeiters. They can protect their interests by asserting the counterfeiting provisions of the Lanham Act. Owners may seize the offending goods, recover monetary damages, deny defendants their profits, and obtain injunctive relief against future counterfeiting. Obviously, trademark owners must also be aware of the costs involved in seeking relief. By asserting their rights in court, however, trademark owners can create a financially oppressive marketplace for counterfeiters, making their activities unprofitable and unattractive.


Endnotes

1 1 Cong. Rec. H5778, June 4, 1996, Remarks of Cong. Moorhead, reprinted in 52 BNA PTCJ 184 (6/6/96).

2 2 The Trademark Counterfeiting Act of 1984, Pub. L. No. 98-473, 98 Stat. 2178 (1984) amended various sections of the Lanham Act and title 18 of the U.S. Code (containing the criminal laws).

3 3 Lanham Act § 45, 15 U.S.C. § 1127 (1998).

4 4 "As used in [subsection 34(d)(1)(B) of the Lanham Act] the term 'counterfeit mark' means– (I) a counterfeit of a mark that is registered on the principal register in the United States Patent and Trademark Office for such goods or services sold . . . ." Lanham Act § 34(d)(1)(B), 15 U.S.C. § 1116(d)(1)(B) (emphasis added).

5 5 Lanham Act § 34(d)(1)(B), 15 U.S.C. § 1116(d)(1)(B); see also J. Thomas McCarthy, McCarthy on Trademarks and Unfair Competition § 25:15 (1998).

6 6 Lanham Act § 34(d)(1)(B), 15 U.S.C. § 1116(d)(1)(B).

7 7 Lanham Act § 34(d)(1)(A), 15 U.S.C. § 1116(d)(1)(A).

8 8 Lanham Act § 34(d)(8), 15 U.S.C. § 1116(d)(8).

9 9 Fed. R. Civ. P. 65(b).

10 10 See Levi Strauss & Co. v. Sunrise Int'l Trading, Inc., 51 F.3d 982, 34 U.S.P.Q.2d 1712 (11th Cir. 1995); Reebok Int'l Ltd. v. Marnatech Enter., Inc., 970 F.2d 552, 23 U.S.P.Q.2d 1377 (9th Cir. 1992).

11 11 Lanham Act § 34(d)(5)(A), 15 U.S.C. § 1116(d)(5)(A).

12 12 Lanham Act § 34(d)(5)(B), 15 U.S.C. § 1116(d)(5)(B).

13 13 Lanham Act § 34(d)(5)(C) & (E), 15 U.S.C. § 1116(d)(5)(C) & (E).

14 14 Lanham Act § 34(d)(5)(D), 15 U.S.C. § 1116(d)(5)(D).

15 15 Lanham Act § 34(d)(5)(E), (d)(10)(A), 15 U.S.C. § 1116(d)(5)(E), (d)(10)(A).

16 16 Id.

17 17 Lanham Act § 34(d)(10)(B), (d)(11), 15 U.S.C. § 1116(d)(10)(B), (d)(11).

18 18 Lanham Act § 34(d)(6), 15 U.S.C. § 1116(d)(6).

19 19 Lanham Act § 34(d)(7), 15 U.S.C. § 1116(d)(7).

20 20 See General Electric Co. v. Speicher, 877 F.2d 531 (7th Cir. 1989) (In reversing the district court's holding that a seizure was improper, the Seventh Circuit stated that "[t]he judge forgot that he himself had signed an order authorizing General Electric’s counsel to retain the seized items.").

21 21 Lanham Act § 34(d)(4), 15 U.S.C. § 34(d)(4); see also Louis Vuitton v. White, 945 F.2d 569, 20 U.S.P.Q.2d 1133 (3d Cir. 1991).

22 22 15 U.S.C. § 1116(d)(4)(B) states:

The court shall not grant [an application for an ex parte seizure order] unless— . . .(B) the court finds that it clearly appears from the specific facts that—

(i) an order other than an ex parte seizure order is not adequate to achieve the purposes of section 32 of this Act (15 U.S.C. 1114);
(ii) the applicant has not publicized the requested seizure;
(iii) the applicant is likely to succeed in showing that the person against whom seizure would be ordered used a counterfeit mark in connection with the sale, offering for sale, or distribution of goods or services;
(iv) an immediate and irreparable injury will occur if such seizure is not ordered;
(v) the matter to be seized will be located at the place identified in the application;
(vi) the harm to the applicant of denying the application outweighs the harm to the legitimate interests of the person against whom seizure would be ordered of granting the application; and
(vii) the person against whom the seizure would be ordered, or persons acting in concert with such person, would destroy, move, hide, or otherwise make such matter inaccessible to the court, if the applicant were to proceed on notice to such person.

23 23 Lanham Act § 34(d)(9), 15 U.S.C. § 1116(d)(9).

24 24 The legislative history of the Trademark Counterfeiting Act indicates approval for the participation of the trademark owner's attorney(s) in executing the seizure: "[T]he law enforcement official who carries out the order may not be sufficiently familiar with the goods or services in question to be able to determine what materials or documents should be seized. For this reason, it may be desirable for the court to permit a representative of the applicant, such as its counsel, to accompany the U.S. marshal to assist in making these determinations." Senate-House Joint Explanatory Statement on Trademark Counterfeiting Legislation, 130 Cong. Rec. H12076 at 12082 (Oct. 10, 1984).

25 25 Lanham Act § 34(d)(11), 15 U.S.C. § 1116(d)(11).

26 26 130 Cong. Rec. at H12083.

27 27 See id.

28 28 Lanham Act § 35(b), 15 U.S.C. § 1117(b).

29 29 130 Cong. Rec. at H12083.

30 30 Lanham Act § 35(c)(1), 15 U.S.C. § 1117(c)(1).

31 31 Lanham Act § 35(c)(2), 15 U.S.C. § 1117(c)(2).

Copyright © Finnegan, Henderson, Farabow, Garrett & Dunner, LLP. This article is for informational purposes and is not intended to constitute legal advice. This memorandum may be considered advertising under applicable state laws.