Counterfeiting Trademarks and other Intellectual Property

Most "knock-off" merchandise can violate trademark laws and lead to a criminal charge for those trafficking or manufacturing it.

When unauthorized goods are manufactured so that they closely resemble brand name items, the manufacturer has likely committed trademark counterfeiting. Trademark counterfeiting also occurs where services are advertised or presented in ways designed to mislead consumers into believing that the services originate from a legitimate source.

Federal law is concerned not only with the counterfeiting of U.S. currency, obligations and securities; it also regulates the counterfeiting of registered trademarks. A trademark is a distinctive mark, symbol, word (or words), logo, or other type of identifier representing an individual or company’s goods or services. For example,  Nike’s “swoosh” is a simple but widely recognized trademark that appears on the company’s products and in its advertising.

Trademark counterfeiting involves using the mark to mislead consumers into believing that the goods or services originate from the owner of the mark. In the United States, trademarks must be registered with the United States Patent and Trademark Office in order to receive the federal law’s protection.

Civil and Criminal Liability for Trademark Counterfeiting

Until relatively recently, a trademark owner’s recourse against a counterfeiter involved a civil lawsuit based on the Lanham Act of 1946. That federal law allows an owner to file a lawsuit seeking monetary damages from the person alleged to have unlawfully used the trademark; or the owner can seek a court order prohibiting the person from further unauthorized use of the trademark.

Because civil remedies failed to adequately deter counterfeiters, Congress created criminal penalties. The Trademark Counterfeiting Act of 1984 (TCA) makes illegal the intentional trafficking or attempted trafficking in goods or services that use a counterfeit trademark. The counterfeited goods or services must be “likely to cause confusion, to cause mistake, or to deceive” a consumer into believing that the goods or services originated from the same source as the goods or services that legitimately bear the trademark. (18 U.S.C. §2320(a)(1).)

The Stop Counterfeiting in Manufactured Goods Act of 2006 added penalties requiring the forfeiture of the counterfeit goods and proceeds generated from counterfeiting, as well as property used in the trafficking of the counterfeit goods. The Prioritizing Resources and Organization for Intellectual Property Act of 2008 increases the money damages from persons who provide assistance to counterfeiters.

Penalties for Trademark Counterfeiting

A defendant found guilty of trafficking in goods bearing a counterfeit trademark counterfeiting is subject to significant penalties—a sentence of up to 10 years in prison and a $2 million fine. If the defendant is not a person, but a legal entity (such as a corporation), a maximum fine of $5 million may be imposed. If an individual defendant has previously been convicted of trafficking in trademark counterfeiting the maximum penalties increase to 20 years in prison and a $5 million fine; defendants other than individuals can be fined up to $15 million.

Increased penalties for resulting injuries and deaths

If the defendant knowingly or recklessly causes or attempts to cause serious bodily injury by introducing counterfeit trademarked goods into the market, the maximum penalty increases to 20 years in prison. Where the defendant knowingly or recklessly causes or attempts to cause death, the defendant can be sentenced to any term of years in prison or may receive life in prison. For example, a person who sells unsafe counterfeit tires that subsequently blowout on the roadway, causing death, is subject to the longer prison terms if the defendant either knew of or recklessly disregarded the risk that the unsound tires would cause death.  

Restitution and Forfeiture

In addition to imprisonment and fines, a defendant convicted of counterfeiting is subject to forfeiture  and may be required to pay restitution to the trademark owner.  Restitution is the amount of money that the defendant must pay to compensate the owner for losses caused by the defendant’s crime, such as lost profits.

A defendant convicted of trademark counterfeiting can also be required to forfeit the counterfeited goods, as well as any property used in committing the offense and any property acquired through proceeds generated by trademark counterfeiting.  

Defenses to Trademark Counterfeiting Charges

Defendants facing trademark counterfeiting charges face a tough challenge: Unlike charges involving the counterfeiting of U.S. currency, the government is not required in trademark cases to prove that the defendant intended to defraud. In other words, simply copying or altering is enough; the prosecutor need not prove that you intended to trick anyone into thinking that your product was the genuine article.

The trademark owner's own fraud or abandonment of the mark

A defendant facing criminal trademark charges can assert that the owner obtained the trademark by making fraudulent representations in registering the mark, thus voiding the registration. For example, a defendant might argue that the trademark owner falsely claimed in the registration application that the mark was being used on certain goods when in fact the owner knew the mark was not being used in that manner. Or, a defendant might assert a fraud defense by arguing that the owner has used the mark to mislead the public as to the source of the goods. For example, a defendant might argue that a company’s trademark creates the impression that its oranges are Florida oranges when in fact they are grown outside of the country.      

A defendant might also assert an abandonment defense where a defendant can show that a trademark owner is no longer using the mark and has no intention of resuming use of the mark. For example, a company that discontinues using a trademark and instead creates a new trademark for the same goods will likely be found to have abandoned the discontinued mark.

 "Overrun" or "gray market" goods

A person accused of trademark counterfeiting may also argue that the goods in question are overrun or gray market goods.   Overrun refers to goods produced by a person or company authorized to manufacture goods with the protected mark, but the manufacturer produces more goods than are allowed under the agreement between the trademark owner and the manufacturer.   Gray market goods are authentic trademarked goods that are authorized to be sold in foreign markets, but are sold without authorization in the United States. Goods that are overrun or gray market are not criminalized under the TCA.      

Speak With a Lawyer

Counterfeiting law is complex and subject to frequent revisions by Congress. Violations can carry substantial prison sentences and fines. Activity related to counterfeiting may also violate state law.   If facing criminal counterfeiting charges, it is important to consult with a lawyer. An experienced lawyer can evaluate the strengths and weaknesses of the government’s case and craft a defense strategy for trial. A lawyer may also seek a dismissal or reduced charges.

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