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CRM 1500-1999

1709. Joint Statement -- Parts C And D. Definitions -- "Trafficking" -- "Counterfeit Marks"


Subsection 2320(d) provides a definition of the term "trafficking." This definition is derived from a related, recently enacted statute, the Piracy and Counterfeiting Amendments Act of 1982, now codified at 18 U.S.C. 2318(b). Under this definition, the scope of the act is limited to commercial activities. Thus it is not a crime under this act for an individual knowingly to purchase goods bearing counterfeit marks, if the purchase is for the individual's personal use.

The "for value" clause in the definition of trafficking means transfers without consideration of goods or materials bearing counterfeit marks are not covered by this section. Of course, consideration can take many forms, and the courts should analyze transactions based on their substance and not on their form. The definitions of "Lanham Act" and of "Olympic Charter Act" in subsection 2320(d) are self-explanatory.


The proposed act defines "counterfeit marks" in two places--in the criminal code amendment, proposed 18 U.S.C 2320(d), and in the Lanham Act amendment, proposed 15 U.S.C. 1116(d)(1)(B). This definition is important for three reasons. First, it helps to define the conduct for which the criminal penalties of this act may be imposed. See proposed 18 U.S.C. 2320(a). Second, it identifies the cases in which ex parte seizures are authorized by this act. See proposed 15 U.S.C. 1116(d)(1)(A). Finally, it helps to define the circumstances in which treble damages or profits and attorney's fees are to be awarded in Lanham Act cases, absent extenuating circumstances. See proposed 15 U.S.C. 1117(b).

For technical reasons, the two definitions of "counterfeit mark" differ slightly in their terms, but they are identical in substance. The Lanham Act already contains a definition of the term "counterfeit": a "spurious mark which is identical with, or substantially indistinguishable from, a registered mark." 15 U.S.C. 1127. Because it is part of the Lanham Act, the definition of "counterfeit mark" contained in proposed subsection 1116(l)(B) incorporates the section 1127 definition. By contrast, existing Federal criminal laws contains no definition of "counterfeit" with respect to trademarks; the amendment to title 18 therefore spells out the elements that are included in the section 1127 definition of "counterfeit." (As the Senate bill indicated, "spurious" means "not genuine or authentic.")

Under this act, there are two types of "counterfeit marks." The first is counterfeits of marks that are registered on the principal register of the Patent and Trademark Office and in use, and that are used by the defendant in connection with the same goods or services for which the mark is registered. See proposed 18 U.S.C. 2320(d)(1)(A); proposed 15 U.S.C. 1116(d)(1)(B)(i). The second is spurious designations that are substantially indistinguishable from Olympic designations protected under 36 U.S.C. 380. See proposed 18 U.S.C. 2320(d)(1)(B); proposed 15 U.S.C. 1116(d)(1)(B)(ii). Under this act, Olympic symbols will receive the same protection as will federally registered trademarks, subject to the limitations specified in 36 U.S.C. 380 concerning the protection afforded those symbols.

Proposed subsection 18 U.S.C. 2320(d)(1)(A)(iii) states that a "counterfeit mark" must be one the use of which is likely "to cause confusion, to cause mistake, or to deceive." This is the key phrase in the remedial section of the Lanham Act, 15 U.S.C. 1114, and its inclusion here is intended to ensure that no conduct will be criminalized by this act that does not constitute trademark infringement under the Lanham Act. As a practical matter, however, this element should be easily satisfied if the other elements of a "counterfeit mark" have been proven--since a counterfeit mark is the most egregious example of a mark that is "likely to cause confusion."

Under both the criminal and civil definitions, the term "counterfeit mark" refers to a mark or designation that is "identical with or substantially indistinguishable from" a genuine mark or designation. The definition of "substantially indistinguishable" will need to be elaborated on a case-by-case basis by the courts. See e.g., Montres Rolex S.A. v. Snyder, 718 F.2d 524, 530-32 (2d Cir. 1983), 104 S. ct. (sic) 1594 (1984). Obviously, a mark need not be absolutely identical to be a genuine mark in order to be considered "counterfeit." Such an interpretation would allow counterfeiters to escape liability by modifying the registered trademarks of their honest competitors in trivial ways. However, the sponsors do not intend to treat as counterfeiting what would formerly have been arguable, but not clear-cut, case of trademark infringement.

For example, a manufacturer may adopt a mark for its goods that is reminiscent of, although certainly not "substantially indistinguishable from," a trademark used by the "name-brand" manufacturer of the product. Thus, "Prastimol" might be used as the mark for a medication that is the functional equivalent of a product sold under the trademark "Mostimol." Whether or not this sort of imitation violates the Lanham Act or other provisions of law, it does not constitute use of a "counterfeit mark" for purpose of the (sic) bill.

The definition of "counterfeit mark" in this Act (other than in cases involving protected Olympic symbols) reaches only instances in which the mark is used in connection with goods or services for which the mark is registered on the principal register of the U.S. Patent and Trademark Office and in use. Thus, this act has no impact on cases in which the allegedly infringed mark is unregistered. In addition, because this act is intended to reach only the most egregious forms of trademark infringement, it does not affect cases in which the defendant uses a [H 12079] registered mark in connection with goods and services for which the mark is not registered. Under the Lanham Act, a plaintiff can sometimes obtain relief against a defendant who uses a mark in connection with goods or services that are "related" to those for which the mark is registered. For example, a plaintiff with a federal registration for use of the mark "Hopscotch" on typewriters might have a Lanham Act remedy against a defendant who used that mark to identify typing paper, even though the plaintiff had not registered that mark for use in connection with typing paper. Under the present act, however, the use of the mark "Hopscotch" on typing paper would not count as the use of a "counterfeit mark."

The term "counterfeit mark" in this bill also excludes the marks on so-called "parallel imports" or "gray market" goods--that is, trademarked goods legitimately manufactured and sold overseas and then imported into the United States outside the trademark owner's desired distribution channels. (See generally Bell & Howell: Mamiya Co. v. Masel Supply Co., 719 F.2d 42 (2d Cir. 1983). Current Treasury Department regulations permit the importation of such goods when the foreign and domestic owners of the trademark are under common ownership and control. See 19 C.F.R. 133.31(c). This regulation is now being challenged in the courts. (See, e.g., Vivitar Corp. v. United States, No. 84-1-00067 (U.S. Court of International Trade, slip. op., Aug. 20, 1984); Osawa & Co. v. B & H Photo, No. 83-6874 (S.D.N.Y., slip op., May 24, 1984); Coalition to Preserve the Integrity of American Trademarks v. United States, No. 84-0390 (D.D.C., filed Feb. 5, 1984).) Regardless of the status of "parallel imports" or "gray market" goods under the Treasury regulations, however, the sponsors do not consider such goods to bear "counterfeit" marks for purposes of this legislation, since the marks on these goods are placed there with the consent of the trademark owner or of a person affiliated with the trademark owner.

The bill also does not extend to imitations of "trade dress," that is the color, shape, or design of a product or of its packaging, unless those features have been registered as trademarks. For example, generic drugs may be manufactured in pills or capsules that resemble the chemically equivalent brand-name product. This practice has generated litigation under the existing provisions of the Lanham Act. See, e.g., Inwood Laboratories v. Ives Laboratories, 456 U.S. 844 (1982). Provided that such goods are not sold through use of a counterfeit of a registered trademark, they will not be affected by this legislation. The sponsors do not intend, however, to exempt generic drugs entirely from the scope of this bill. If such a drug were to be marketed through use of a counterfeit mark, this Act would make available the same remedies that would exist in any other counterfeiting case.

Third, the definition of "counterfeit mark" follows the House bill in explicitly excluding marks that are used in connection with so-called "overrun" goods--that is, certain goods produced without authorization by a current licensee of a trademark owner. In this Statement the term "licensee" will be used to describe a person who has been authorized by a trademark owner to use a particular mark in connection with certain goods or services, whether or not the agreement between the trademark owner and the authorized party is formally titled "license." The exclusion would cover a case, for example, in which a licensee was authorized to make 500,000 umbrellas bearing a trademark owner's mark, and the licensee without authorization manufactured an additional 500,000 umbrellas bearing that mark during the course of the license. The exemption is not limited to "manufacturing," but extends to any type of production of goods or services, including, for example, agricultural production. The House Report explained the reasoning behind the overrun provision in H.R. 6071 as follows:

The trademark owner has put the wheels in motion for the manufacturer to make the overruns, and has the means to protect himself or herself. For example, the trademark owner can specify in the contract that the making of overruns shall constitute a breach of contract, and that the manufacturer shall be liable for liquidated damages if overruns are made. The contract might also specify that the trademark owner has the right to inspect the manufacturer's facilities to ensure that overruns are not being made . . . The contractual and other civil remedies already existing make it inappropriate to criminalize such practices. (H. Rept. 98-997, 98th Cong., 2d Sess. 13 (1984).

The overrun provision contained in the compromise draft has been revised from the provision in the House bill. First, the compromise bill does not create a grace period for persons dealing with former licensees--that is, licensees whose right to manufacturer goods bearing a particular mark has been terminated at the time of manufacture. Correspondingly, the language of the House bill concerning the knowledge of the user about the termination of the relationship between the trademark owner and the licensee has been omitted. Finally, the phrase "contractual" or other "relationship" has been replaced by the phrase "authorized by." This last change in wording is simply intended to clarify the precise nature of the relationship between the trademark owner and the licensee that was described in the House bill.

If a licensee manufacturers overruns during the course of a valid license, the marks on those goods will remain noncounterfeit for purposes of this act, whatever changes may later occur in the relationship between the trademark owner and the licensee. Thus, if goods are manufactured during the course of a valid license, and sold after the termination of the license, the marks of those goods remain noncounterfeit. In addition, if one purchases goods or services produced by a former licensee in the good faith belief that the licensee is then authorized to produce that type of goods, one will not know that the goods are counterfeit and will thus not be liable under proposed 18 U.S.C. 2320(A) or 15 U.S.C. 1117(b).

As the House report made clear, the burden will be on the defendant to prove that the goods or services in question would fall within the overrun exclusion, under both the criminal and civil provisions. (This allocation of the burden of proof is indicated in both the House bill and the compromise draft by the phrase introducing the overrun exemption: "but such terms does not include. . . .") The compromise bill also follows the House bill in that the overrun exemption does not apply if a licensee produces a type of goods in connection with which he or she was not authorized to use the trademark in question. Thus, if a licensee is authorized to produce "Zephyr" trenchcoats, but without permission manufacturers "Zephyr" wallets, the overrun exception would not apply.

The overrun exclusion in the legislation does not in any way alter or affect any remedy that may now exist under the Lanham Act or other provisions of law for the manufacturer or sale of overrun goods. The exclusion is intended simply to exempt those goods from the special penalties available under this bill.

At the suggestion of the Justice Department, neither the Senate nor the House bill included an explicit effect on interstate commerce element. The Department argued that the explicit inclusion of this element was unnecessary, since a Federal nexus exists because the marks protected are federally registered trademarks or Olympic symbols protected by a Federal statute. However, the bill is intended to reach all trafficking in counterfeits that affects interstate commerce, including trafficking that is discovered in its incipiency, such as before counterfeit merchandise has left the factory.