The 5 steps to follow if you are accused of selling counterfeit products
Across the province of street corner peddlers and car trunk sellers, counterfeit products are now available almost everywhere. Even large retailers known for the quality of their products have been accidentally caught selling counterfeit products. To compound this problem, the quality of fake products has improved and they have become much easier to obtain. Worse still, 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 online marketplaces, and sellers often have no idea that the products they are selling are fake. Worse yet, the producers of counterfeit products generally reside in “just-free” countries, where it would be prohibitively expensive and perhaps impossible for brand-name manufacturers to sue them.
However, brand companies have started to fight back hard. Many have hired law firms to attack counterfeit products in any way they can; for example, the California firm Johnson & Pham has been hired by many brands to shut down counterfeit sellers. They have targeted online sellers who reside in the United States and are willing to receive notifications. Many of these online sellers are ordinary people looking to earn a few extra dollars. And none of them are prepared for costly laws that demand tens of thousands of dollars in compensation and potentially require tens of thousands of additional dollars to hire an attorney.
Brand name manufacturers will generally go after online sellers for one of the following causes of action:
A. Trademark Infringement: Section 32(l) of the Lanham Act specifically prohibits the unauthorized use, sale, offer for sale, distribution or advertising of counterfeit products. Most state trademark statutes have similar sections. Trafficking in counterfeit goods is often described as “first degree trademark infringement”.
B. Unfair Competition: Even if a trademark is not registered, an action for unfair competition can be brought to avoid consumer confusion. If the trademark is not registered, this may be the most viable cause of action.
C. Trademark Dilution: Since counterfeiters generally only look for famous brands, most cases of counterfeiting will also alleviate brand dilution.
D. Copyright Infringement: In many cases, the counterfeiter will duplicate brand logos, packaging designs, instruction manuals, etc. Many of these are registered copyrights.
Generally, the law firm hired by the brand contacts the counterfeit sellers before filing a lawsuit. If you receive such a letter, you must act quickly to defend yourself. Below is a plan of action that I recommend to clients.
Action plan
1. Don’t ignore the letter. These cases will not go away if you ignore them. Instead, the very aggressive companies that brands hire to go after counterfeiters will file a complaint and escalate their lawsuit. And, if you continue to ignore the problem, the brand will get a default judgment against you, probably for many times the damage it would have suffered otherwise.
2. Do not contact the law firm. If you call the brand manufacturer’s law firm, you will speak with an experienced attorney who will do everything possible to represent their clients. This includes getting admissions from you, which are very likely to happen. For example, the attorney may ask “Where did you get the counterfeit products?” Arguably, answering that question is admitting that you trafficked in counterfeit goods.
3. Get the facts. The most important fact for you to determine is whether or not the trademark owner will be able to present you as an intentional infringer. In particular, if the brand manufacturer can convince a jury that you knew you were dealing in counterfeit products, the damages can be much higher. In particular, if you are an innocent infringer, the damages a brand name manufacturer can recover are extremely limited and may be zero. On the other hand, if the brand manufacturer can prove that you knowingly trafficked in counterfeit products, your profits, the brand’s actual damages, treble damages, counterfeit statutory damages, and attorneys’ fees. In particular, when actual knowledge of the forgery is proven, damage awards can easily exceed one million dollars ($1,000,000).
4. Hire an attorney. Given the large number of these cases now being pursued by brand name manufacturers, many attorneys are now offering special affordable programs to help individuals and small businesses settle these lawsuits. When hiring such an attorney, keep in mind that you want an experienced intellectual property attorney who can actually litigate a case if necessary; Forget hiring an attorney who helped you with his will or even one who may have handled someone you know’s divorce. . Ask the attorney how much experience they have handling counterfeiting cases and whether the attorney has actually litigated trademark matters. And, of course, ask the attorney how much the action is likely to cost if the case settles without litigation, and how much it is likely to cost if the case needs to be litigated.
5. Have your attorney pursue a lawsuit. Once you know what the brand manufacturer wants, you and your attorney can determine the best approach for your case. In particular, if the claim is low enough, consider paying it or having your attorney negotiate further. If the claim is very high and you are an innocent infringer, litigation may be required to reduce the brand manufacturer’s claim. If you are not an innocent wrongdoer, litigating a case like this can have disastrous consequences. In particular, the damages awarded against you can be staggering (and probably not dischargeable in bankruptcy), and there is a real possibility of criminal enforcement.
If you have received a letter accusing you of dealing in counterfeit goods, you are undoubtedly under a lot of stress. I hope that the above action plan will help you make a decision on how to carefully and calmly resolve this case.
