The counterfeit lie
From Julie Zerbo:
The accepted custom in gray-market or other “unauthorized sale” plaintiffs in the Southern and Eastern Districts of New York is to plead the case as if it were counterfeiting.— Likelihood ®© Blog (@likely2confuse) May 21, 2019
The judges in these courts know the drill for counterfeiting cases. 1-2-3, judgment.
It often works.
I will expand a bit.
This is a strategy — dressing up non-counterfeit cases as counterfeit cases — I have seen in a number of cases, and which a lawyer for a major New York trademark enforcement firm confirmed for me last night.
I don’t know this for a fact, but I have a pretty good hunch that New York is America’s world headquarters for trademark and copyright counterfeiting, and concomitantly for cases filed by the owners of these rights to stop it.
Before I go further, I need to detour for those who are not regular practitioners in this area to clarify the difference between garden-variety trademark infringement and trademark counterfeiting. As is so often the case, the Finnegan IP website is a great source of both exposition and balance:
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.“ 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. 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.
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. 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.“
Good. So, counterfeits are “fakes,” mainly of apparel and accessories. And judges in the New York federal courts — predominantly the Southern District of New York, which is mostly Manhattan, and to a lesser extent the Eastern District, which covers the other boroughs of New York City as well as Long Island — know these cases well. The defendants, all or some, almost invariably fail to defend or even appear; default judgments, often for fancy amounts of money that will never be collected, are entered; permanent injunctions are entered. The main reason for this is that, if indeed you are selling or trafficking in fake goods, there really isn’t a defense other than “it wasn’t me.”
In other words, these cases are as close to criminal cases, and in particularly relatively unsophisticated criminal cases such as those for sale and possession of drugs, as you get in civil law. The parallels are considerable, in fact, before you even get to court: counterfeiting cases are, like criminal cases, proceeded by “investigations” (private investigations), “buys” (obtaining evidence of the sale and of what is being sold), in many cases, “raids” (including sometimes lawyer-prosecutors at the head of squads of private cops, and in some cases backed up by local police or even feds) and even the civil equivalent of plea deals — negotiated consent injunctions suitable for framing.
And, as it turns out, a very large number of judges in these districts are former prosecutors. So the fact that it’s pretty easy to serve up counterfeiting cases in a way that they sound like slam-dunk drug prosecutions works out pretty well for the enforcement bar, and is quite rational and reasonable. Like the rest of us, judges are attracted to making decisions based on patterns they recognize. “Cops? Robbers? Stealing? I don’t know much about trademarks, but I know about those things. Judgment for plaintiff.”
So now, just as counterfeit goods are unlawful and unethical free rides on genuine signals of authenticity, plaintiffs — sometimes the same parties as the counterfeiting victims; sometimes not so much — have recognized the value of applying those signals to cases they know are not quite counterfeiting, but which look a lot like them. Cases against purveyors of genuine second-hand luxury goods, such as What Goes Around Comes Around, are the new sub-genus.
The metaphors abound. Referring again to Julie’s insightful and courageous writing on the game, the analogy can be made to the extension of luxury trademarks to stuff that’s just a notch or two above garbagio goods. A comparison can also be made to the more general process by which trademark owners use a variety of enforcement strategies to, typically short of obtaining an actual judgment and generally operating in terrorem, create buffer zones or penumbras of rights that exceed those to which they are strictly entitled under the law.
So too the counterfeit counterfeit claim: How much can you make your gray-market case or dispute over distribution rights look like just a case against just another grifter, free-rider — crook?
Luckily, judges are increasingly onto this technique. In the second-hand-luxury-goods litigation that is the subject of Julie’s original tweet, and which is — finally — exploding everywhere, as it must, getting past the misapplied “counterfeit” source identifier is going to be Job One for them.