§ 4.02 History of the Trademark Counterfeiting Act Section 2320

• Jurisdiction: United States

§ 4.02 History of the Trademark Counterfeiting Act—Section 2320

Traditionally violations of trademark rights have been litigated through civil process, not through criminal prosecution. Indeed, before the passage of the Trademark Counterfeiting Act ("TCA") in 1984, there were no federal criminal statutes that covered trademark counterfeiting. Congress, however, found this approach insufficient and specifically noted at the passage of the TCA that counterfeiters regarded civil penalties as the "cost of doing their illegal business."¹³ Therefore, in 1984, Congress enacted the TCA to criminalize trafficking in goods and services bearing a counterfeit mark.¹⁴ Ten years later, in 1994, Congress enhanced the penalties under the Act.¹⁵ In 1996, Congress continued to recognize that "[c]ounterfeiting is a drain on the American economy on the Federal treasury, and costs American jobs." Indeed, Congress recognized that, despite the criminal sanctions, organized crime had begun to use the proceeds of counterfeiting to finance other criminal activities such as "robbery, extortion and murder."¹⁶ Therefore, it enacted the Anticounterfeiting Consumer Protection Act of 1996,¹⁷ which among other things, substantially increased the possible penalties for a violation of criminal copyright and trademark statutes by making them a predicate act for a RICO violation under Title 18, Section 1961 of the United States Code.

In 2006, in recognition that "[t]he proliferation of counterfeit products in recent years creates not only a threat to legitimate businesses, but also to consumers,"¹⁸ Congress enacted the Stop Counterfeiting in Manufacture Goods Act (STOP Counterfeiting Act).¹⁹ The Act amended the TCA by expanding the definition of "counterfeit mark" to include, in general, labels and packaging that are either applied to or used in connection with counterfeit goods. While the scope of prohibited activities has been broadened, Section 2320 is not without limitation and is not intended to cover an individual or business that repackages genuine goods or services without deception.²⁰ It also amended the penalty provisions by requiring the mandatory destruction of counterfeit goods and the mandatory forfeiture of assets linked to counterfeiting and redefined "trafficking" and "financial gain" to provide protection against any distribution or intent to distribute counterfeit goods for purposes of commercial advantage or financial gain.

On September 30, 2008, President Bush signed into law the Prioritizing Resources and Organization for Intellectual Property Act of 2008 ("PRO IP Act"),²¹ which amended Title 17, Section 2320 of the United States Code to provide for, among other things, the mandatory forfeiture of "[a]ny property used or intended to be used, in any manner or part to commit" criminal copyright infringement and "[a]ny property constituting or derived from any proceeds obtained directly or indirectly as a result" of trafficking in counterfeit goods²² and increases the penalties where the defendant recklessly or intentionally caused death²³ or serious bodily injury²⁴ It also creates an "Intellectual Property Enforcement Coordinator" ("IPEC") who is to serve with the Executive Office of the President and is subject to Senate approval,²⁵ amends trademark law to provide for the recovery of treble damages,²⁶ and increases the amount of statutory damages in civil counterfeiting cases.²⁷

The National Defense Authorization Act (NDAA) for Fiscal 2012,²⁸ and the Food and Drug Administration Safety and Innovation Act (FDASIA)²⁹ made a number of important amendments to Section 2320. Section 818 of the NDAA amended Section 2320 to add subsection (a)(3), which prohibits trafficking in counterfeit military goods and services, "the use, malfunction, or failure of which is likely to cause serious bodily injury or death, the disclosure of classified information, impairment of combat operations or other significant harm to a combat operation, a member of the Armed Forces, or to national security."³⁰ A "counterfeit military good or service" is defined as "a good or service that uses a counterfeit mark and that (A) is falsely identified or labeled as meeting military specifications, or (B) is intended for use in a military or national security application."³¹ An individual who commits an offense under (a)(3) is subject to a statutory maximum term of imprisonment of twenty years, or thirty years for a subsequent offense.³² Finally, pursuant to Congress's directive the Sentencing Commission also amended the Sentencing Guidelines to cover violations of Section 2320(a)(3).

Section 717 of the FDASIA amended Section 2320 to add subsection (a)(4), which prohibits trafficking in a counterfeit drug. A "counterfeit drug" is a drug, as defined in Section 201 of the Federal Food, Drug and Cosmetic Act,³³ that uses a counterfeit mark.³⁴ Section (a)(4) was amended in 2016 to read: traffics in a drug and knowingly uses a counterfeit mark on or in connection with such drug, . . ."³⁵ An individual who commits an offense under subsection (a)(4) is subject to the same statutory maximum term of imprisonment as for an offense involving a counterfeit military good or service—20 years, or 30 years for a second or subsequent offense.³⁶

[1] Elements of Trafficking in Counterfeit Goods or Services

To establish civil trademark counterfeiting the plaintiff must show (1) the defendant infringed a registered trademark, and (2) the defendant intentionally used the trademark knowing it was counterfeit.³⁷ With the enactment of the STOP Counterfeiting Act in 2006, Title 18, Section 2320 of the United States Code proscribes two separate but related activities.³⁸ First, it continues to make criminal, in general, trafficking or attempting to traffic in counterfeit goods or services.³⁹ Second, it expressly criminalizes trafficking or attempting to traffic "in labels, patches, stickers, wrappers, badges, emblems, medallions, charms, boxes, containers, cans, cases, hangtags, documentation, or packaging of any type or nature, knowing that a counterfeit mark has been applied thereto, the use of which is likely to cause confusion, to cause mistake, or to deceive."⁴⁰

Thus, the "goods or services" provision of the Act requires the government to establish beyond a reasonable doubt four elements: (1) the defendant trafficked or attempted to traffic in goods or services; (2) such trafficking, or the attempt to traffic, was intentional; (3) the defendant used a "counterfeit mark" on or in connection with such goods or services; and (4) the defendant knew that a counterfeit mark was so used.⁴¹

The "goods or services" provision has two separate mens rea requirements: first, that the defendant "intends" to traffic in goods or services, and second, that the defendant "knows" that the use of the mark on or in connection with those goods or services is counterfeit.⁴² Courts have held consistently that these mental state elements do not require proof of a "specific intent" to violate the statute, namely, proof that the defendant knew that his act violated the law. Rather, the courts have held that Congress's definition of the crime prohibited by Section 2320 "explicitly" requires proof of only a general intent.⁴³

The TCA does not require any showing of loss to the victim. The government is not required to prove that the rightful owner of the mark would have made additional sales but for the sales of the counterfeiter, or that the value of its mark was diminished. In the legislative history, Congress noted that the bill was intended to reach all counterfeiting that affects interstate commerce, specifically including "trafficking that is discovered in its incipiency, such as before counterfeit merchandise has left the factory."⁴⁴ Thus, the government need not show that defendant made any sales⁴⁵ nor any unjust enrichment by the counterfeiter, who may actually have lost money on the counterfeiting operations. Nor is it necessary to prove that the product received under the counterfeit mark was somehow faulty and caused any consequential loss or harm to the recipient. Indeed, it is not even necessary to demonstrate that the product received is of lesser quality than the genuine product. This point is especially salient in cases where the defendant is being prosecuted for trafficking in digital goods bearing a counterfeit mark, such as computer software or music (as sold on, e.g., compact discs) because copies of digital goods can be identical to a legitimate product.

The TCA was intended to cover losses to the trademark owner, even though all these losses need not be proven. Most obviously, the mark-holder has lost sales of goods that are counterfeited. Moreover, it is inherent in the counterfeiting process that the quality controls that would ordinarily be imposed by the markholder, and which the trademark laws are designed to encourage, would not be imposed. Even if a counterfeited product was equivalent in quality to an authentic product, and it is usually is not, the warranty relationship between the recipient of the counterfeit good and the purported manufacturer would be violated. Thus, the consumer would be left with no means to address the problem of faulty goods.⁴⁶ These factors can combine to harm a manufacturer's reputation. Apart from these inherent harms, the mere existence of additional goods on the market with counterfeit marks predictably causes intangible harms, such as the diminution in the value of all trademarks. Accordingly, Congress recognized that demonstrating loss in a particular case would be superfluous to the formal definition of the crime.

The elements of the crime of trafficking in counterfeit goods or services are discussed in greater detail below.

[a] Trafficking or Attempting to Traffic in Goods or Services

The first element, trafficking or attempting to traffic in goods or services, is essential to establishing that the dealing in counterfeited trademarked goods actually...