US Attorneys > USAM > Title 9 > Criminal Resource Manual 1707
prev | next | Criminal Resource Manual

1707

Joint Statement—Part A. Title 18 Amendment

A. TITLE 18 AMENDMENT

Both the Senate and House bills called for Federal criminal penalties for persons who intentionally deal in goods or services, or the marks thereon, that they know to be counterfeit. The compromise bill reflects the agreement between the two bills on this point. As did both the House and Senate bills, section 2 of the compromise bill amends chapter 113 of title 18 of the United States Code by adding a new section 2320. Section 2320 provides for criminal penalties for anyone who "intentionally traffics or attempts to traffic in goods or services and knowingly uses a counterfeit mark on or in connection with such goods or services."

This key criminal provision represents a compromise between the Senate and House bills. The Senate bill was drafted to prohibit "trafficking in counterfeit goods or services," while the House bill barred "use of counterfeit mark" in connection with goods or services. Both the House and Senate sponsors recognize that a mark can be "counterfeit" only if is used in connection with certain types of goods or services. However, conduct regulated by Lanham Act relates to "marks" rather than "goods or services"; the sponsors feared that it might create confusion to adopt the terminology of "counterfeit goods or services" in a piecemeal fashion. An overall redrafting of the trademark laws is an appropriate way to make such changes and is beyond the scope of this legislation.

Like both the House and Senate bills, the compromise bill contains two distinct mental state requirements. The defendant must be shown, first, to have "intentionally" trafficked in particular goods or services, and second, to have "knowingly" used a counterfeit mark in connection with those goods or services. The requirement that the defendant's trafficking be "intentional" means that the government must show that the defendant trafficked in the goods or services in question deliberately, or "on purpose."

Whether the defendant "knew" that the mark was counterfeit depends on whether he or she had an awareness or a firm belief to that effect. (See H. Rept. 96-1396, 96th Cong., 2d Sess. __ (1980); S. Rept. [H120771 97-307, 97th Cong. 1st Sess. 67-68 (1981).) Of course, if the [H 12077] prosecution proves that the defendant was "willfully blind" to the counterfeit nature of the mark, it will have met its burden of showing "knowledge" (See United States v. Jewell, 532 F.2d 697 (9th Cir.), cert. denied, 426 U.S. 951 (1976); H. Rept. 96-1396, supra, at 36; S. Rept. 97-307, supra, at 68.) The government need not prove that it was the defendant's "purpose" or "objective" to use counterfeit marks, but merely that he or she knew that he or she was doing so.

The sponsors are aware that discount retail outlets sometimes obtain their merchandise from distributors who are not authorized by the trademark owner to provide those goods to the discount outlets. The sponsors are also aware of the existence of "parallel (sic) imports" or "gray market" goods, which are discussed more fully below. Neither of these types of goods are counterfeit within the meaning of this legislation. Because of the existence of these alternative distribution channels for non-counterfeit goods, a trademark owner will not ordinarily be able to establish that a defendant knew that goods bore counterfeit marks solely because the trademark owner informed the defendant that the trademark owner's authorized dealers had not sold the goods to the defendant.

If a person has an honest, good faith belief that the mark in question is not counterfeit, he or she will not be liable under this bill. Thus, a manufacturer who believes in good faith that he or she has a prior right to use a particular mark, or that a mark does not infringe a registered mark, could not be said to "know" that the mark is counterfeit.

The definition of the "counterfeit mark," which is discussed in more detail below, includes the fact that the infringed mark must be registered on the principal register in the U.S. Patent and Trademark Office. This factor was included in the definition of "counterfeit mark" in order to make this act easier to administer by limiting its scope to a clearly defined class of marks. In a criminal prosecution for counterfeiting, however, or in civil proceedings that are affected by this act, it is irrelevant whether the defendant knew that the mark in question is registered on the principal register in the Patent and Trademark Office. For that reason, the definition of "counterfeit mark" makes clear that it need not be shown that the defendant was aware of a mark's status at the Patent and Trademark Office.

With one exception, the penalties provided by the Senate and the House bills are identical. Both bills provided that an individual may be imprisoned for up to 5 years and fined up to $250,000 or both. Both bills also provided that a person other than an individual, such as a corporation, may be fined up to $1,000,000. (The term "person" is defined in 1 U.S.C. 1.) The compromise bill includes an additional provision from the House bill, setting forth increased penalties for second offenders. However, these enhanced penalties may be imposed only when the second violation occurs after the defendant has been convicted of a prior violation. Thus, a defendant who violates section 2320 on two separate instances, but who is not convicted of the first violation until after the second violation, is not subject to the enhanced penalties.

Proposed section 2320 also provides for punishment of a person who attempts to engage in the proscribed conduct. An attempt is punishable at the same level as a completed offense. Through 18 U.S.C. 371, conspiracies to commit an offense under proposed section 2320 are also prohibited.

The sponsors wish to emphasize that the prison terms and fines specified in subsection (a) are maximum penalties, which they do not expect to be routinely imposed. In a case in which a defendant has trafficked in counterfeits (sic) that pose a grave danger to the public health and safety, these maximum penalties may be fully warranted. However, the sponsors also recognize that many instances of trademark counterfeiting do not pose these same risks, and in those cases imposition of the maximum penalties may not be warranted. The courts should exercise their discretion in imposing penalties that are appropriate under the circumstances. The sponsors believe, however, that a combination of appropriate prison terms and substantial fines will create a needed deterrent to trademark counterfeiting.

The compromise draft does not include proposed section 2320(b) from the House bill, which stated that documents seized in the course of a trademark counterfeiting prosection are exempt from disclosure under the Freedom on Information Act, 5 U.S.C. 552. That provision has been omitted as unnecessary, because the public interest is adequately protected by the existing exemption in that act relating to disclosure of "investigatory records compiled for law enforcement purposes." 5 U.S.C. 552(b)(7).Proposed subsection 2320(b). This provision authorizes the United States to obtain an order seeking the destruction of any counterfeit articles acquired by the Government in the course of a counterfeiting prosection. Before such an order may be granted, the Government must prove by the preponderance of the evidence that the articles actually bear counterfeit marks. Even if the defendant is ultimately acquitted of the criminal charge, there is no valid public policy reason to allow the defendant to retain materials that are in fact counterfeit.

This provision gives the court the same options it has in ordering destructions under 15 U.S.C. 1118. In practice, the courts have often ordered that counterfeit articles be given to charitable institutions or to the Federal Government. If goods are of value, and pose no threat to health or safety, they should be preserved whenever possible, so long as any counterfeit marks are removed.

The Senate bills contained a formal "safe harbor" provision. See proposed subsection 2320(c) of S. 875. This provision was intended to offer a potentially useful option to a manufacturer or merchant who is in doubt about whether a mark that he or she plans to use will infringe the trademark rights of a current registrant. Under the Senate provision, such a person could have taken two steps to ensure that he or she will not be liable for counterfeiting: first, notifying the trademark owner of his or her plans 30 days before implementing them, and second, labeling the goods or materials in question so as to disclaim any connection with the trademark owner. This provision was intended to address the concern of the Department of Justice that some manufacturers might be deterred from legitimate marketing techniques because of fear of potential liability under this act.

This compromise draft does not include this provision, in view of the concern of the House sponsors that the value of this provision had not been clearly shown that it might offer a loophole to actual counterfeiters. However, a party is free to take, on an informal basis, the same sorts of precautions contemplated by the Senate safe harbor provision. Thus, a party planning to use a particular mark could provide ample advance written notice to the owner of an existing mark about the party's plan to use a similar mark. The party could also conspicuously label its goods and related material so as to alert the public to the fact that the goods or services are not offered by the owner of the registered trademark.

If a party takes these steps in good faith, it would be virtually impossible to establish, in either a civil or criminal case, that he or she "knowingly" used a counterfeit mark. Such a painstaking effort to provide advance notice to the trademark owner and to prevent consumer deception would ordinarily preclude any liability under this act. Of course, if a party were to attempt to take these steps in bad faith, as part of an effort to immunize its trafficking in marks it knew to be counterfeit, these procedures would not prevent that party from being found liable under this act.

A party's failure to use this informal notice and labeling procedure is not evidence that he or she dealt in particular marks knowing that they were counterfeit. Indeed, if one believes in good faith that one has a right to use a particular mark, one will not have acted with "knowledge" that the mark was counterfeit, and will not incur any liability under this act.

A person's use of the informal notice and labeling procedures here described [H 12078] does not exempt that person from liability under the Lanham Act or other Federal, State, or local laws. The courts must make an independent assessment of whether a party has violated such laws, and the notice and labeling procedures here described do not provide a generalized immunity from liability under those laws.