§ 4.04 Punishment for the Crime of Trademark Counterfeiting
| Jurisdiction | United States |
| Publication year | 2020 |
§ 4.04 Punishment for the Crime of Trademark Counterfeiting
As with all federal crimes, the penalties for trademark counterfeiting are set out by statute and applied in accordance with provisions of the Sentencing Guidelines. This section will discuss the statutory penalties and the Sentencing Guidelines, as well as the forfeiture provision provided under Section 2320.
[1] Statutory Penalties
The statutory penalties for a violation of Section 2320 are severe and reflect Congress' belief in the importance of deterring counterfeiting. The statute carries a possible ten-year prison term, a fine of up to $2,000,000, or both, for first time offenders.371 A subsequent conviction carries a prison term of up to twenty years, a $5,000,000 fine, or both.372 In addition, Section 2320 provides for increased penalties under a number of circumstances, including: (1) for "knowingly or recklessly caus[ing] or attempting] to cause injury from conduct in violation" of Section 2320;373 and (2) trafficking in counterfeit military good or service or a counterfeit drug.374 A corporation convicted for the first time of violating Section 2320 can be fined up to $5,000,000.375 Fines for subsequent convictions are up to $15,000,000.376 Further, the Stop Counterfeiting in Manufactured Goods Act (Stop Counterfeiting Act) which was signed into law on March 16, 2006,377 requires the forfeiture of any property derived, directly or indirectly, from the proceeds of the violation as well as any property used, or intended to be used in relation to the offense.378 Formerly, the TCA only provided for the discretionary destruction of the counterfeited goods themselves.379 Victims are also explicitly entitled to restitution.380 The forfeiture provisions of Section 2320 were further strengthened by the Prioritizing Resources and Organization for Intellectual Property Act of 2008 (Pro IP Act),381 which provides for the mandatory forfeiture of "[a]ny property used or intended to be used, in any manner or part to commit" trademark counterfeiting and "[a]ny property constituting or derived from any proceeds obtained directly or indirectly as a result" of trademark counterfeiting.382 It also increased the penalties where the defendant recklessly or intentionally caused death383 or serious bodily injury.384
Thus, the statutory penalties for violating Section 2320 are greater, for example, than for violating the mail fraud or wire fraud statutes, each of which imposes a maximum of a five-year prison term for a first offense.385 Furthermore, in 1994, Congress added trademark counterfeiting under Title 18, Section 2320 of the United States Code to the list of violations that constitute "specified unlawful activity" under the money laundering statute.386 Finally, in recognition that then-existing federal law was not adequate to "protect consumers and American businesses from the crime of counterfeiting," in 1996, Congress made trafficking in counterfeit goods or services a predicate offense under RICO.387 A violation of RICO carries a maximum penalty that includes twenty years of imprisonment and fine of up to "twice the gross profits or other proceeds" of the racketeering activity.388 Finally, a conviction of trafficking in counterfeit goods and labels in violation of Title 18, Section 2320 of the United States Code qualifies as an aggravated felony for purposes of whether an alien is removable from the United States under Title 8, Section 1227(a)(2)(A)(iii) of the United States Code.389
[2] Sentencing Guidelines
[a] Individuals
[i] Introduction
Statutory maximums are limits on the sentence that may be imposed. Actual sentences under the EEA are determined with reference to the U.S. Sentencing Guidelines that were created in response to the Sentencing Reform Act of 1984. Until the Supreme Court decided United States v. Booker,390 in 2005, the Guidelines were mandatory in nature and courts generally were required to follow the sentenced imposed by the Guidelines. In Booker, the Supreme Court held that the mandatory nature of the Guidelines violates the Sixth Amendment of the constitution, and as a result the Guidelines must be applied in an advisory manner, although most district courts continue to adhere to the recommended Guideline sentence. Sentencing courts now follow a three-stage sentencing process: (1) calculate the sentencing guideline range under the Guidelines; (2) state on the record whether it is granting a departure (upwards or downwards) from the Guidelines and how that departure affects the Guidelines calculation; and (3) exercise its discretion and consider the goals of sentencing as established by Congress, and impose an appropriate sentence, whether or not it conforms to the Guidelines.
[ii] Base Offense Level
Individuals convicted for violating Section 2320 are sentenced pursuant to United States Sentencing Guideline (U.S.S.G.) Section 2B5.3,391 which is the same sentencing guideline used to sentence defendants convicted of other criminal intellectual property violations such as criminal copyright.392 That section sets the Base Offense Level for trafficking in counterfeit goods at eight, pursuant to the May 1, 2000 emergency amendments.393 Previously the Base Offense Level had been six. In addition to increasing the base offense level, it also provides for the possibility of much stiffer penalties in many cases by making it clear that "loss" shall be based on the retail value of the infringed item. Prior to the emergency amendments, Section 2B5.3 of the Sentencing Guidelines established that if "the retail value of the infringing items exceeded $2,000," then the offense level was to be increased "by the corresponding number of levels from the table in Section 2F1.1 (fraud and deceit)."394 While the fraud table in Section 2F1.1 is ordinarily based on "loss,"395 the Guidelines suggested that the enhancement of the offense calculated using that table in the counterfeiting context should be based on the "value of the infringing items."396 Using this language, courts consistently used the market value of the infringing or counterfeit items in making this assessment.397
Recognizing the potential to severely undervalue the loss to the victim, particularly the mark-holder victim,398 when determining a sentence for trafficking in counterfeit goods, Congress instructed the Sentencing Commission to rectify the sentencing guidelines to be "sufficiently stringent to deter" trademark and copyright counterfeiting.399 Congress specifically instructed the Sentencing Commission to consider the "quantity" of the infringing goods and the "retail value" of the good infringed upon when sentencing a defendant.400
In response, the Sentencing Commission amended Section 2B5.3 in a number of important respects. First it sets the Base Offense Level at eight. Next, it instructs the sentencing court to increase the level by 1 where the infringement amount exceeded $2,000 but did not exceed $6,500. In the event that the infringement amount exceeded $6,500 "increase the by the number of levels from the table in § 2B1.1.
[iii] Infringement Amount
Section 2B5.3 Application Note 2 now provides if a court finds any of eight listed circumstances present, the "infringement amount is the retail value of the infringed item, multiplied by the number of infringing items. . . ."401 Perhaps the most important of these circumstances is where the infringing item appears to be substantially identical to the infringed item since the goal of most counterfeiters is to manufacture an item that appears to be a copy of the genuine item.402 The Eleventh Circuit found that the district court properly found that the infringed item in is the "retail value" of authentic unexpired Viagra since the "counterfeit Viagra 'is, or appears to a reasonably informed purchaser to be, identical or substantially equivalent to the infringed item.' In support of its position, the government noted that the expiration date was difficult to see; that [defendant] was attempting to infringe on Viagra that still had retail value; and that the trial evidence established a substantial equivalence between the infringed and infringing items."403
The Sentencing Commission explained that use of the retail value of the infringed item is appropriate where it is highly likely that the sale of an infringing item displaces the sale of a legitimate, infringed item or where it is impractical to apply the retail value of the infringing item.404 An issue has arisen under Application Note 2(A)(vii) that provides that in a case involving counterfeit labels that have not been so used and which, if used, "would appear to a reasonably informed purchaser to be affixed . . . to a genuine good, the 'infringed item' is the identifiable genuine good or service."405 Defendants involved in trafficking in counterfeit goods often at the time of their arrest have large quantities of counterfeit labels that far exceed the actual counterfeit goods in their possession. The government has successfully used defendant's possession of counterfeit labels to obtain far greater sentences under the Sentencing Guidelines than the amount of counterfeit goods in defendant's possession would warrant.406
If none of these circumstances apply, the court should calculate the "infringement amount" as the retail value of the infringing items multiplied by the number of infringing items.407 The Sentencing Guidelines instruct the court that where the number of infringing items cannot be determined, "the court need only make a reasonable estimate of the infringement amount using any relevant information, including financial records."408 If the circumstances apply to only some of the infringing items, the court may combine partial calculations.409
The second specific characteristic provides "[i]f the offense involved the display, performance, publication, reproduction, or distribution of a work being prepared for commercial distribution, increase by 3 levels."410 In...
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