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Strategies for Fighting Counterfeiting

Roger A. Colaizzi

Partner, Venable LLP

racolaizzi@venable.com

+1 202-344-8051

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What is Counterfeiting?

Counterfeit goods are phony products offered for sale as authentic.

“Counterfeiting has evolved in recent years from a localized industry concentrated on copying high-end designer goods to a sophisticated global business involving the mass production and sale of a vast array of fake goods.”

“Counterfeiting and piracy diminish the profits of legitimate producers and risk harm to consumers who may purchase fraudulent, potentially dangerous products.” Source - Ambassador Ronald Kirk, 2011 Special 301 Report, Office of

the United States Trade Representative (April, 2011)

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Counterfeiting Poses a Two-Fold Threat To Your Business By distributing inferior imitations, counterfeiters damage the goodwill and

reputation of upstanding companies.

Years spent building your brand are quickly rendered futile when imitators tarnish the quality of your reputation.

By inundating the market with low-cost (and low-quality) products, counterfeiters free-ride on the research, development, and marketing of others.

Indeed, counterfeiters reap profits that rightfully belong to your business.

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A New Cost of Doing Business

Counterfeiting is an ongoing problem.

For every counterfeiter that is shut down, many more begin operations.

A dynamic anti-counterfeiting strategy is required to enable companies to respond quickly to new counterfeiting threats and minimize the number of counterfeit products in the marketplace.

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Counterfeiting Statistics

In Fiscal Year 2013, the Department of Homeland Security seized counterfeit goods valued at over $1.7 billion at U.S. borders.

In fiscal year 2011 U.S. Customs performed 24,792 seizures worth $178.3 million, compared to 19,959 in 2010.

While the number of seizures was up, the value of CBP’s seizures had gone down. Low value seizures made up 80% of the increase in seizures from 2010 to 2011. Over the past five years, counterfeiters have shown a marked shift towards

using international mail and express courier services to transport counterfeit goods.

Electronic Articles, Toys/Electronic Games, Health/Personal Care items, and Perfume/Cologne made up 46% of the domestic value of seizures in 2011.

China continues to be the number one source for counterfeit and pirated goods seized, accounting for 62% of the total domestic value of seizures.

Consumer electronics was the top commodity seized in 2011.

Sources – International AntiCounterfeiting Coalition; U.S. Customs 2010 Annual Report

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Anti-Counterfeiter Tools

In-depth Investigations Locating counterfeit product

Monitoring brands across the Internet Tracing counterfeits back to their source

Government Agencies Customs Border Protection Immigration and Customs Enforcement Office of the United States Trade

Representative

Administrative proceedings ITC

Federal Court Chinese Enforcement

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Monitoring and Investigating (In-House)

There are multiple ways to locate counterfeit goods.

Search the Internet for evidence of infringing activity. Monitor trade shows and swap meets to determine if

counterfeit products are being sold. Monitor major retailers (both online and brick-and-

mortar locations). Oversee the auditing and investigation of

manufacturing facilities. Purchase products from seemingly legitimate sites –

including those with which you may have relationships to determine whether customer orders are being fulfilled with authentic product.

Monitor products that are returned to you to determine if they are authentic and trace their source(s) if they are fakes.

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Monitoring and Investigation (Outside Firm) Hiring an outside firm to manage your anti-counterfeiting strategy can save your company money in the long run. Benefits

Proprietary technology to monitor infringing sales online Identify counterfeiting modes, instead of the classic

“whack-a-mole” style to endorsement. Automatically generate and send cease and desist

letters Global reach

Online and brick-and-mortar Measureable return on investment

Many third party firms have the ability to develop monthly, quarterly, annual reports on demand.

These reports can track every single effort taken to enforce your company’s brand

The reports will also show a value of what is taken down, seized, and/or destroyed juxtaposed to the amount spent.

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National Intellectual Property Rights Coordination Center (“IPR Center”)

IPR Center stands at the forefront of the U.S. government’s response to global intellectual property (IP) theft.

As a task force, the IPR Center uses the expertise of its member agencies to share information, develop initiatives, coordinate enforcement actions, and conduct investigations related to IP theft. Through this strategic interagency partnership, the IPR Center protects the public’s health and safety, the U.S. economy and the war fighters

IPR Center partners employ a strategic approach to combat IP Theft. That approach includes:

Investigation – Identifying, disrupting, prosecuting and dismantling criminal organizations involved in the manufacture and distribution of counterfeit products.

Interdiction – Using focused targeting and inspections to keep counterfeit and pirated goods out of U.S. supply chains, markets and streets.

Outreach and Training – Providing training for domestic and international law enforcement to build stronger enforcement capabilities worldwide.

Government Agencies

Source –IPR Center http://www.iprcenter.gov/about-us

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National Intellectual Property Rights Coordination Center (“IPR Center”)

Partner Agencies U.S. Postal Inspection Service (USPIS) Defense Criminal Investigative Service Air Force Office of Special Investigations (AFOSI) U.S. Naval Criminal Investigative Service (NCIS) General Service Administration’s Office of the Inspector

General INTERPOL Royal Canadian Mounted Police Department of Commerce's Office of Intellectual Property

Rights (OIPR) U.S. Department of State’s Office of International Intellectual

Property Enforcement (IPE) Federal Bureau of Investigation (FBI) U.S. Immigration and Customs Enforcement’s (ICE)

Homeland Security Investigations (HSI) U.S. Customs and Border Protection (CBP) Food and Drug Administration’s (FDA) Office of Criminal

Investigations (OCI) U.S. Army Criminal Investigation Command Defense Logistics Agency (DLA) U.S. Patent and Trademark Office (USPTO) U.S. Consumer Product Safety Commission (CPSC) National Aeronautics and Space Administration (NASA) Mexican Revenue Service EUROPOL

Government Agencies

Source –IPR Center http://www.iprcenter.gov/about-us

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Venable’s strategies for working with IPR Communication

Venable has contacted the IPR Center and discussed the rampant counterfeiting that occurs in the Direct Response (“DR”) Industry.

Information collection Venable is gathering relevant information to

present to the IPR Center. The IPR Center wants to work with companies to stop counterfeiting, but they do not have the resources to chase every lead. The more information we can provide the IPR Center, the more likely they will look into your case.

Follow-Up Venable stands ready to assist the IPR Center to

obtain any additional information it needs to further its case against counterfeiters.

Venable can assist in gathering evidence for DR companies to present to the IPR Center.

Government Agencies

Source –IPR Center http://www.iprcenter.gov/about-us

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Government Agencies

Customs Border Protection United States Customs and Border Patrol

("CBP"), as the primary U.S. border enforcement agency within the U.S. Department of Homeland Security, is a key player in the government's federal interagency initiative called the Strategy Targeting Organized Piracy ("STOP!") http://www.stopfakes.gov/

CBP has the authority to enforce U.S. trademark and copyright laws by detaining, seizing, causing forfeiture of, and destroying counterfeit and pirated goods imported into the United States.

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Government Agencies

Customs Border Protection Record with CBP your intellectual property that previously

has been properly registered with the U.S. Patent and Trademark Office and Copyright Office.

Owners of recorded IPR can work with CBP to develop anti-counterfeiting strategies so that officers at Ports of Entry will be able properly to identify IPR infringing goods. Provide detailed images of the subject registered

merchandise Product specifications (length, width, height, weight,

etc.) Physical samples, if available, of all registered,

authorized goods Physical samples, if available, of

infringing/counterfeit products previously imported into the US

Names, addresses and contact information, if available, of any suspected foreign exporters or US importers of the counterfeit or pirated goods to prevent future infringing imports by these companies

After assembling the product identification information, CBP suggests that the importer set up meetings with the relevant Ports of Entry.

In order for these meetings to have the maximum beneficial impact, it is essential that you present as comprehensive a training package as possible to each Port.

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Office of the United States Trade Representative USTR's Office of Intellectual Property and Innovation

(IPN) uses a wide range of bilateral and multilateral trade tools to promote strong intellectual property laws and effective enforcement worldwide, reflecting the importance of intellectual property and innovation to the future growth of the U.S. economy.

Key areas of work include: the negotiation, implementation, and monitoring of

intellectual property provisions of trade agreements; bilateral and regional engagement through such

vehicles as the annual "Special 301" review and numerous IP dialogues with trading partners;

multilateral engagement on IP issues through the World Trade Organization (WTO), and other organizations;

implementation of trade policy in support of U.S. innovations, including those in the pharmaceutical and medical technology industries; and

providing interagency trade policy leadership.

Government Agencies

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Administrative Proceedings

International Trade Commission (ITC)

The ITC is an independent non-partisan, quasi-judicial federal agency.

Adjudicates cases involving alleged infringement by imports of IPR.

Administers U.S. Trade remedy laws

Provides the U.S. Trade Representative and Congress with independent advice and information on international trade and competitiveness

Administers import injury investigations.

Can issue exclusion orders

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Federal Court To the extent counterfeiters can be traced back to the United States, companies can seek redress using litigation in Federal Court.

Send cease and desist letters. Negotiate settlement agreements enforceable by

U.S. Courts. Go into court immediately and secure preliminary

injunctive relief. Seek orders seizing the counterfeit product. Seek discovery of counterfeiting and financial data. Recover monetary settlements or judgments. Destroy counterfeit goods Take down infringing web sites.

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Federal Court The Trademark Counterfeiting Act (“TCA”) The TCA provides a federal vehicle for anti-counterfeiting

enforcement. The TCA defines a counterfeit as “a spurious mark which is

identical with, or substantially indistinguishable from a registered mark.”

The TCA strengthens Lanham Act remedies available to plaintiffs bringing actions against counterfeiters including:

ex parte seizures; and enhanced damages.

Seizures are carried out by U.S. Marshalls. Plaintiff must describe the place to be searched and

the goods to be seized with particularity. The government retains possession of the seized

goods. Plaintiff is required to post a bond.

TCA allows for damages In cases of intentional and knowing counterfeiting, the

TCA provides for a mandatory award of attorney’s fees.

The TCA allows Plaintiff to elect statutory damages instead of actual damages.

$1000 – 200,000 per mark Up to 2,000,000 for willful violations.

15 U.S.C.§§1116-18 et seq.

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Federal Court The difference between Trademark Infringement and Counterfeiting

Trademark Infringement

Plaintiff must show use in commerce.

Plaintiff must show a likelihood of confusion.

Similarity of the marks Strength of the owner’s

mark Price of the goods Actual confusion Intent Length of co-existence Channels of trade Target customers Relationship of the goods

in the minds of consumers Other factors that suggest

the consuming public would think the junior user makes the senior user’s product

Plaintiff can recover actual damages and/or defendants profits.

Plaintiff can be awarded injunctive relief.

Extends liability to the infringer and to third parties via contributory and vicarious liability theories.

Counterfeiting Plaintiff does not have to show use

in commerce. Plaintiff must show use on

goods and services to obtain ex parte seizure and/or certain enhanced damages.

Likelihood of confusion is presumed.

Plaintiff can recover actual damages or elect to recover statutory damages (must show use).

Plaintiff can recover enhanced damages.

Plaintiff can be awarded injunctive relief.

Extends liability to those, who with specific intent provides goods or services necessary to the counterfeiting.

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Enforcement in China Criminal Proceedings Administrative Proceedings

Consumer Rights Protection Association State Quality Control and Examination Center Customs General Administration Public Security Bureau Quality Control Department under SAIC State Food and Health Administration, Drugs

Administration. Civil Proceedings Customs

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Civil Enforcement in China Be sure to forum shop. As you get further from the

bigger cities, case decisions tend to favor local enterprise. Possible venues are:

Infringer’s place of business Plaintiff’s place of business Place of infringing activity

Investigation Use an investigator on the ground

Investigator can collect evidence, find manufacture facilities, uncover supply chain.

Investigators have been known to collude with counterfeiters. Make sure to keep tabs on their activities.

Run IP searches online. Partner with a respected law firm who knows the local

culture and legal landscape.

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Chinese Customs

Record IP with Chinese Customs Monitor and seize counterfeits at border Can record

Trademark Copyright Patent (this is different from U.S.)

Sanctions Fine up to 30% of the value of the seizure Can be found criminally liable Confiscation

Automatic Protection

Bond A bond is required to be paid within 3 days of any seizure The amount of the bond depends on the value of the goods

seized.

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