Product counterfeiting legislation in the United States: a review and assessment of characteristics, remedies, and penalties.

• Author: Wilson, Jeremy M.

TABLE OF CONTENTS INTRODUCTION A. Forms of Intellectual Property B. An Overview of Federal Anti-Counterfeiting Laws 1. Lanham Act 2. The Trademark Counterfeiting Act 3. Federal Trademark Dilution Act 4. The Anticounterfeiting Consumer Protection Act 5. Anticybersquatting Consumer Protection Act 6. Stop Counterfeiting in Manufactured Goods Act 7. PRO-IP Act I. ANALYSIS OF CURRENT STATE ANTI-COUNTERFEITING LAWS A. Civil Remedies 1. Policy Characteristics 2. Damages B. Criminal Sanctions 1. Policy Characteristics 2. Punishment II. COMPARING CIVIL AND CRIMINAL STATE STATUTES A. Civil Remedies Index B. Criminal Sanctions Index C. Civil Remedies Versus Criminal Sanctions Indices DISCUSSION AND CONCLUSION INTRODUCTION

Product counterfeiting presents an enormous threat to brand owners, manufacturers, governments, and consumers around the world. (1) While luxury brand items are commonly associated with counterfeits, any manufactured good can be counterfeited, including aircraft and automobile parts, artwork, batteries, agricultural products, chemicals and pesticides, clothing, collectables, electronics, food and drinks, healthcare products, household products, jewelry, tobacco, and toys. (2) Hundreds of millions of dollars in sales revenue are diverted annually through the manufacturing and trafficking of counterfeit goods. (3) The Organization for Economic Cooperation and Development estimated that international trade in counterfeit goods was as much as $461 billion in United States Dollars (USD) in 2013, up from an earlier estimate of $200 billion USD in 2005, (4) while Business Action to Stop Counterfeiting and Piracy, an initiative of the International Chamber of Commerce, estimated the total annual cost of counterfeiting to be over $650 billion USD as of 2008. (5) However, because of the illicit nature of counterfeiting, it is extremely difficult to obtain an accurate estimate of its economic impact on society. A 2010 report issued by the U.S. Government Accountability Office contended that estimates circulated and recycled by the media, government, and non-government agencies cannot be substantiated due to limitations in their underlying research methodologies. (6) Nevertheless, these estimates consistently point to product counterfeiting as a growing global problem.

In addition to the direct and immediate loss of sales revenue by manufacturers whose goods are counterfeited, businesses also face the potential loss of goodwill due to consumer dissatisfaction from experiences with the inferior quality of some counterfeited goods. (7) Moreover, if the product being counterfeited poses a serious threat to public health and safety, such as with pharmaceuticals, consequences extend beyond economic loss. For instance, in 2008, the blood thinner Heparin was found to have counterfeit active ingredients, and it was eventually linked to eighty-one deaths in the United States. (8) More recently in early 2016, at least six deaths in California were linked to counterfeit fentanyl, (9) as well as numerous additional overdoses across the U.S. since 2015. (10)

Despite federal and state legislation in the U.S. combating product counterfeiting, it remains an understudied area, but research and policy interests in it are increasing. Therefore, as a necessary foundation, it is important for scholars, practitioners, and policymakers to better understand the legal development surrounding this crime problem, particularly as it relates to providing protection against trademark infringement.

To help provide a foundation for this area of growing scholarship, the purpose of this Article is threefold. First in Introduction Subpart A, we review the various forms of intellectual property to illustrate the 'family' of violations in which product counterfeits are considered and highlight the key characteristics that distinguish it from the others. Second, in Introduction Subpart B, we provide a historical review of federal legislation aimed at combating product counterfeiting. This illustrates how the federal legal response has developed and changed over time, relative to the scope of coverage and penalties. Then, in Part I, we conduct a systematic analysis of the extent to which state laws offer protection against product counterfeiting, both civilly and criminally. To support these analyses, we consulted existing literature, as well as the corresponding federal and state laws. We then coded state statutes in terms of scope and potential damages and penalties, allowing us to calculate the proportion of states granting different forms of protection. In Part II, we compare the relative strength of state civil and criminal anti-counterfeiting statutes. In the Discussion and Conclusion part, we discuss how this assessment provides a solid foundation for understanding the legislative development of product counterfeiting to serve as the basis for advancing research, policy, and practice.

1. FORMS OF INTELLECTUAL PROPERTY

   Unlike many definitions of counterfeit goods, which often include piracy (e.g. unauthorized sharing of digital files containing movies, music, and computer software), the World Trade Organization's Agreement on Trade-Related Aspects of Intellectual Property Rights directly links the term counterfeiting to trademarks. (11) In this part, we distinguish trademark counterfeiting from other types of intellectual property theft. Specifically, intellectual property generally takes one of three primary forms: copyrights, patents, and trademarks. (12)

   Copyright is protection covering all original published and unpublished works of authorship, including literary, theatrical, musical, and artistic, (13) such as poetry, novels, photographs, movies, songs, and computer software. Copyright gives the owner exclusive rights to reproduce, alter, distribute, perform, and display the work. (14)

   Patents protect inventions and discoveries. (15) A patent for an invention is issued by the U.S. Patent and Trademark Office for a term of 20 years from the filing date, allowing the patent-holder to exclude others from producing, using, selling, or importing the invention into the U.S. (16) Once a patent has been issued, the patent-holder has the responsibility to take civil action against potential violators for monetary damages. (17) While no criminal law exists providing for the enforcement of patent rights, a patentholder may obtain a limited or general exclusion order, which can be enforced by U.S. Customs and Border Protection, to prevent the importation of goods that would infringe on patent rights. (18)

   Trademarks protect words, phrases, names, symbols, designs, and logos used in federally regulated commerce to identify the source of products or services and distinguish them from other products and services. (19) Trademark rights are intended to prevent others from using a confusingly similar mark, but cannot be used to prevent others from producing or selling the same products or services under a clearly different mark. (20) Trademark protections last for ten years, but can be renewed with an affidavit attesting that the rights holder continues to use the trademark. (21)

   Although copyrights, patents, and trademarks protect the rights of the owner in various ways, the different kinds of intellectual property sometimes overlap, and differences between a counterfeited and a pirated product are not always clear. Even though copying music tends to infringe upon a copyright (piracy), in some cases, it may simultaneously fall under trademark infringement (counterfeiting), if the physical copy of the item closely resembles the actual product. (22) Although some counterfeited products may fit the definition of more than one type of intellectual property, the purpose of this study is to review laws that prohibit product counterfeiting in the U.S., which is a violation of trademark rights. Therefore, our investigation focuses exclusively on trademark laws.

2. AN OVERVIEW OF FEDERAL ANTI-COUNTERFEITING LAWS

   U.S. federal trademark legislation has gone through numerous iterations over its 150-year history. (32) Prior to the first federal trademark law being passed in 1870, states were responsible for regulating trademarks, and trademark holders relied upon common law causes of action to protect their marks and recover damages. (33) When the U.S. Congress passed the 1870 federal trademark law, (34) it was titled "An Act to Revise, Consolidate and Amend the Statutes Relating to Patents and Copyrights," which reflected confusion that existed between the various intellectual property rights at the time. (35) It was based on the Patent and Copyright clauses of the Constitution, but would later be struck down by the U.S. Supreme Court for exceeding the authority of those clauses to cover rights that now are covered under trademark law. (36) Congress then revised the law in 1876 and included criminal sanctions with penalties or fines up to $1,000 and imprisonment for up to two years. (37) This new law also gave law enforcement the ability to obtain search wan-ants and destroy all counterfeit marks, packaging, and instrumentalities associated with the crime. (38) Interestingly, in 1879, the U.S. Supreme Court found the 1870 and 1876 trademark laws to be unconstitutional on the grounds that Congress improperly used the Patent and Copyright clauses of the Constitution to regulate trademarks. (39) As a result, Congress revised their previous work and in 1881 passed a new trademark law, "An Act to Authorize the Registration of Trademarks and Protect the Same." (40) Unlike the previous laws that were passed under the Patent and Copyright clauses of the Constitution, this new law was passed under the Commerce Clause and did not include any criminal sanctions. (41) The 1881 law went through two changes, one in 1905 and another in 1920. Since then, Congress has passed seven main pieces of legislation regarding trademarks, each of which will be discussed in this...