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Trademarks originated in medieval times to identify certain goods as the products of particular craftsmen. Today, courts recognize and protect four functions performed by trademarks. These are:

(1) identifying a particular seller's goods and distinguishing them from goods sold by others;

(2) signifying that all goods bearing the trademark come from or are controlled by a single source;

(3) signifying that all goods bearing the trademark are of an equal level of quality; and

(4) as a prime instrument in advertising and selling the goods.

1 J. THOMAS MCCARTHY, McCarthy on Trademarks and Unfair Competition § 3.01[2] (1995) (hereinafter McCarthy). A trademark is also an important "objective symbol of the good will that a business has built up. Without the identification function performed by trademarks, buyers would have no way of returning to buy products that they have used and liked." Id. Thus, trademarks (a term used here to include service marks) (72) are used not only to identify sources of goods, but also to obtain marketing advantage.

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1.     Constitutional Limits on Trademark Protection

Unlike copyrights and patents, Congress's power to regulate trademarks rests on no specific Constitutional grant. The Supreme Court has ruled that the patent and copyright clause of the Constitution does not apply to trademarks. Trade-Mark Cases, 100 U.S. 82 (1879). (73) The Supreme Court found "insurmountable difficulties" in attempting to classify "essential characteristics" of a trademark as inventions and discoveries, or as writings of authors. A trademark "require[s] no fancy or imagination, no genius, no laborious thought. It is simply founded on priority of appropriation." Id. at 94.

Therefore, Congress's power to regulate trademarks comes from the Commerce Clause of the Constitution which grants Congress the power "to regulate Commerce with foreign Nations, and among the several States, and with the Indian Tribes." U.S. CONST. art. I, § 8, cl. 3. Thus, Congress may exercise its power to regulate marks only in interstate or foreign commerce. See 15 U.S.C. § 1051 et seq.

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2.     Nature of the Rights Protected by Trademarks

Both state and federal law provide trademark owners with remedies against infringement. State laws often are based on the tort concepts of "passing off" and "dilution." Federal trademark law is contained in the Lanham Act, 15 U.S.C. § 1051 et seq., which provides that the owner of a trademark has the exclusive right to use the mark, or license it. A trademark owner also has the right to prevent the use of confusingly similar marks by unauthorized third parties. The owner of a mark on the principal register of the United States Patent and Trademark Office can seek civil remedies against a counterfeiter, 15 U.S.C. § 1116(d), or block importation of infringing goods, U.S.C. § 1124. Criminal remedies are provided for by 18 U.S.C. § 2320.

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3.     Statutory Limits on Trademark Protection

Federal trademark law, unlike federal laws preempting and controlling patents and copyrights, coexists with state and common-law trademark rights. Ownership of a mark arises not through any single act of federal registration, but rather through continued use. Registration of a mark with the Patent and Trademark Office, however, offers a number of procedural and substantive legal advantages over reliance on common law rights. For example:

(1) a registrant has access to the federal courts without pleading any required amount in controversy, 15 U.S.C. § 1121;

(2) in federal court, lost profits, damages and costs are recoverable, and treble damages and attorney fees are available, 15 U.S.C. § 1117;

(3) evidence of registration is "prima facie evidence of the validity of the registered mark, . . . of the registrant's ownership of the mark, and of the registrant's exclusive right to use the registered mark. . . ." 2 McCarthy, § 19.05 (1995). 15 U.S.C. § 1057(b); and

(4) registration may be used to establish priority of trademark rights, as the registration would specify either the date of first use in commerce, 15 U.S.C. § 1051(a), or the date of the intent to use the mark in commerce. 15 U.S.C. § 1051(b). (74)

Most important for prosecutors, federal registration is a jurisdictional prerequisite to federal criminal prosecution and is an essential element in a prosecution for trademark counterfeiting. 18 U.S.C. § 2320. The government must show that the genuine mark was registered on the principal register in the United States Patent and Trademark Office. See U.S.A.M.  9-68.331(D). To register a trademark on the principal register, the owner must establish (i) distinctiveness of the mark, and (ii) use or intent to use the mark in interstate or foreign commerce. 18 U.S.C. § 1052.

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3.     Statutory Limits on Trademark Protection
a.     Distinctiveness

A finding that a trademark is "distinctive" does not represent a judgment on the trademark's quality. Rather, trademarks must be distinctive in roughly the same way that copyrights must be original: "[n]o trademark by which the goods of the applicant may be distinguished from the goods of others shall be refused registration." 15 U.S.C. § 1052. Trademarks may be inherently distinctive, (75) non-inherently distinctive, (76) or descriptive. (77) This distinction is important because non-inherently distinctive trademarks are protected only if they have acquired secondary meaning. (78) See generally Abercrombie & Fitch Co. v. Hunting World, Inc., 537 F.2d 4 (2d Cir. 1976). The requirement that trademarks be distinctive prohibits registering generic marks, i.e., common commercial names for goods.

Of course, claims that a trademark is distinctive must always be considered in conjunction with the goods or services for which the mark is sought. Thus, the word "apple" cannot be registered to a single apple orchard, since it is a generic name for the items produced and could never be distinctive in that context. The same may initially be true if the mark "apple" were claimed by a gum or candy manufacturer, because the term directly classifies the flavor of the manufacturer's products and those of others. Consequently it would fail to identify any single source. (79) Yet the word "apple," although generic or generally descriptive in certain contexts, is arbitrary or fanciful for computer products, and has been accordingly registered as a trademark.

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b.     Use in commerce

The Lanham Act only allows registration of marks "used in commerce," which means:

the bona fide use of a mark in the ordinary course of trade, and not made merely to reserve a right in a mark. For purposes of this [Act], a mark shall be deemed to be in use in commerce -

. . .

on services when it is used or displayed in the sale or advertising of services and the services are rendered in commerce, or the services are rendered in more than one State or in the United States and a foreign country and the person rendering the services is engaged in commerce in connection with the services.

The word "commerce" means all commerce which may lawfully be regulated by Congress.

15 U.S.C. § 1027.

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4.     Limitations on Exclusive Rights

A trademark can be registered with the United States Patent and Trademark Office for an initial period of ten years, and must be renewed every ten years thereafter. Between the fifth and sixth years of the initial registration period, the registrant must file an affidavit stating that the mark is in use in commerce. Failure to file such an affidavit results in the automatic cancellation of the registration "at the end of six years following the date of registration." 37 C.F.R. § 2.161.

A previously used mark may be legally appropriated if it has been abandoned by an earlier owner. Abandonment results when there is nonuse of the mark, accompanied by an intent to discontinue use. (80) In addition, public or common use of the mark in the public domain may undercut the distinctive nature of a popular mark. Such a mark may then become the common commercial name or generic name of the goods, as opposed to a source indicator for those goods. For example, the words "aspirin" and "escalator" were, at one time, registered trademarks that have since fallen into public usage. See, e.g., Bayer Co. v. United Drug Co., 272 F. 505 (S.D.N.Y. 1921). Companies that own marks like "Xerox" and "Jeep" expend considerable effort each year to avoid a similar fate. Since the viability of criminal charges may turn on determinations such as these, investigators and prosecutors contemplating criminal charges under § 2320 must confirm the continuing validity of the mark that is counterfeited.

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1.     Overview of Statute

The Trademark Counterfeiting Act, 18 U.S.C. § 2320, provides that:

(a)     Whoever 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 shall, if an individual, be fined not more than $2,000,000 or imprisoned not more than 10 years, or both, and, if a person other than an individual, be fined not more than $5,000,000.

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2.     Elements

In order to establish a criminal offense under 18 U.S.C. § 2320, the government must prove that:

(1) the defendant trafficked or attempted to traffic in goods or services;

(2) such trafficking, or 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 the mark so used was counterfeit.

Conspiracies to violate the Act can be prosecuted under 18 U.S.C. § 371. United States v. Yamin, 868 F.2d 130 (5th Cir.), cert. denied, 492 U.S. 924 (1989).

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a.     Trafficked in goods or services

The term "traffic" is defined in 18 U.S.C. § 2320(d)(2) to mean "transport, transfer, or otherwise dispose of, to another, as consideration for anything of value, or make or obtain control of with intent so to transport, transfer or dispose of." This definition is broad enough to cover all aspects of commercial activity from initial manufacture to sale to the ultimate purchasers. However, the knowing purchase of goods bearing counterfeit marks for the purchaser's personal use is not covered by § 2320. See Joint Statement on Trademark Counterfeiting Legislation, 130 Cong. Rec. H12076, H12078, 98th Cong., 2d Sess. (daily ed. Oct. 10, 1984) (hereinafter "Joint Statement"); see also U.S.A.M. 9-68.310.

b.     Trafficking was intentional

The first of two mens rea elements is that the defendant's trafficking was "intentional"; that is, that he or she acted deliberately or "on purpose." See U.S.A.M. 9-68.320; Joint Statement at H12076. The statute does not require, however, a specific intent to violate the statute. See United States v. Baker, 807 F.2d 427, 429 (5th Cir. 1986) (rejecting defendant's claim that, "even though he had the mental states required by the statute, he should not be convicted because he did not know that Congress had passed a statute criminalizing his conduct."); United States v. Gantos, 817 F.2d 41, 42-43 (8th Cir.), cert. denied, 484 U.S. 860 (1987).

c.     The defendant used a "counterfeit mark"

The term "counterfeit mark" is defined in the criminal statute, 18 U.S.C. § 2320(d)(1), and in the Lanham Act, 15 U.S.C § 1127. Although the definitions differ slightly for technical reasons, they are intended to be identical in substance. Joint Statement at H12078. The United States Attorney's Manual identifies seven requirements of a counterfeit mark, U.S.A.M. 9-68.331(A-G): (81)

(1) The mark is "spurious." A mark is "spurious" if it is "not genuine or authentic." Joint Statement at H12078.

(2) The mark was used in connection with goods or services. 18 U.S.C. § 2320(d)(1)(A)(I).

(3) The counterfeit mark is "identical with, or substantially indistinguishable from" the genuine trademark. 18 U.S.C.§ 2320(d)(1)(A)(ii). The phrase "substantially indistinguishable from" is intended to prevent a counterfeiter from escaping liability by modifying a protected trademark in trivial ways. At the other end, it also serves to exclude the arguable case of trademark infringement that is merely "reminiscent of" protected trademarks. Joint Statement at H12078; U.S.A.M. 9-68.331.

(4) The genuine mark is registered on the principal register in the United States Patent and Trademark Office. 18 U.S.C. § 2320(d)(1)(A)(ii).

(5) The genuine mark is in use. The genuine mark must not only be registered, it must also be in use. 18 U.S.C. § 2320(d)(1)(A)(ii).

(6) The goods or services are those for which the genuine mark is registered. The definition of a counterfeit mark extends only to imitations of registered marks that are used in connection with the goods or services for which the mark is registered. See 18 U.S.C. § 2320(d)(1)(A)(i), (ii). "For example, a mark used in connection with typewriter paper which is identical to or substantially indistinguishable from a mark registered only for use on typewriters would not be a counterfeit mark, although civil remedies might be available under the Lanham Act." U.S.A.M. 9-68.331.

(7) The use of the counterfeit mark is "likely to cause confusion, to cause mistake, or to deceive." The phrase "use of which is likely to cause confusion, to cause mistake, or to deceive" is taken from the Lanham Act, 15 U.S.C. § 2320(d)(1)(A)(iii), and is intended to insure that no conduct will be criminalized which does not constitute trademark infringement under the Lanham Act. Joint Statement at H12079.

The likelihood of confusion is a question of fact for the jury. United States v. Gonzalez, 630 F. Supp. 894 (S.D. Fla. 1986). However, criminal courts have adopted a number of factors used in the civil context when analyzing whether there is a likelihood of confusion between two marks. United States v. Torkington, 812 F.2d 1347, 1354 (11th Cir. 1987); United States v. McEvoy, 820 F.2d 1170, 1172 (11th Cir.), cert. denied, 484 U.S. 902 (1987). These factors, which may be argued to a jury in a criminal case, Torkington, 812 F.2d at 1354, include the type of trademark, the similarity of design, the similarity of product, identity of retailers and purchasers, similarity of advertising media used, the defendant's intent, and any actual confusion engendered.

Generally, the test is whether an average consumer would be deceived into thinking that the product was made by the genuine trademark owner. See Montres Rolex, S.A. v. Snyder, 718 F.2d 524, 530-32 (2d Cir. 1983), cert. denied, 465 U.S. 1100 (1984). Where counterfeit goods are involved in criminal cases under § 2320, the trier of fact may decide whether likelihood of confusion is likely either through a side by side comparison of products, through expert testimony, or both. See United States v. Yamin, 868 F.2d 130 (5th Cir.), cert. denied,

492 U.S. 924 (1989); Rolex Watch USA, Inc. v. Canner, 645 F. Supp. 484, 489 (S.D. Fla. 1986).

The "likely to cause confusion" test may also be satisfied by a showing that it is likely that members of the public would be "confused, mistaken or deceived should they encounter the allegedly counterfeit goods in a post-sale context." Torkington, 812 F.2d at 1352. Because subsequent purchasers or recipients of the goods may be duped, it is not a defense that the original buyer was told that the goods were counterfeit; nor is it a defense that the buyer was actually not confused because of the comparatively low price of the fake goods. Id. at 1350. See also United States v. Gantos, 817 F.2d 41, 43 (8th Cir.) (a "counterfeit" is not limited to goods which deceive only the immediate purchaser; the fact that the defendant told the buyer that the "Rolex" watches were counterfeit does not make them any the less counterfeit), cert. denied, 484 U.S. 860 (1987); United States v. Hon, 904 F.2d 803, 806 (2d Cir.) ("an interpretation of § 2320's confusion requirement to include the non-purchasing public advances the important purpose underlying the trademark laws of protecting the trademark owner's investment in the quality of the mark and his product's reputation. . . ."), cert. denied, 498 U.S. 1069 (1991).

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d.     The defendant knew that the mark was counterfeit

The government must also prove that the defendant "knew" that the mark used on or in connection with trafficked goods or services was counterfeit. See U.S.A.M. 9-68.340. This element requires proof of actual knowledge of the counterfeit nature of the mark, defined in the Joint Statement as "an awareness or a firm belief to that effect." Joint Statement at H12076. "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." Joint Statement at H12077. This burden can be met, however, by demonstrating that the defendant was "willfully blind" to the counterfeit nature of the mark. See Joint Statement at 12077; see also United States v. Sung, 51 F.3d 92, 94 (7th Cir. 1995) (vendor is under duty to inquire into the status of the mark); United States v. Jewell, 532 F.2d 697 (9th Cir.), cert. denied, 426 U.S. 951 (1976). This showing can be made through circumstantial evidence regarding the defendant's purchase of the goods, the method of delivery, packaging conventions, and an unusually low price. Knowledge of the criminality of the conduct is not an element of the offense. United States v. Baker, 807 F.2d 427 (5th Cir. 1986).

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3.     Defenses

a.     Lanham Act defenses

"All defenses, affirmative defenses, and limitations on remedies which would be applicable in an action under the Lanham Act for trademark infringement are applicable for trafficking in counterfeit goods under 18 U.S.C. § 2320." 18 U.S.C. § 2320(c). Incorporating all civil defenses into the criminal statute insures that no person will be found criminally culpable of trademark counterfeiting if he could have successfully defended a civil infringement action. U.S.A.M. 9-68.400.

Under the Lanham Act, defenses include laches, unclean hands, fraud in obtaining trademark registration, or use of the mark in violation of the antitrust laws. Possible defenses may also involve a challenge to the continuing validity of the trademark infringed: the mark may not be properly registered, may have been abandoned or may have fallen into common or generic usage.

Where such defenses are raised, case law under the Lanham Act, 15 U.S.C. § 1051 et seq., may prove instructive. As a general rule, however, cases that provide an opportunity for a defendant to colorably raise such defenses should not be prosecuted criminally.

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b.     Overrun or "grey market goods"

The statute expressly excludes from the definition of "counterfeit mark" any items commonly termed "overrun goods," which are:

goods or services of which the manufacturer or producer was, at the time of the manufacture or production in question authorized to use the mark or designation for the type of goods or services so manufactured or produced, by the holder of the right to use such mark or designation.

18 U.S.C. § 2320(d)(1)(B). (82)

The legislative history provides an example: if a licensee was authorized to make 500,000 umbrellas bearing a trademark owner's mark and the licensee manufactured without authorization an additional 500,000 umbrellas bearing that mark during the course of the license, the contractual and other civil remedies already existing make it inappropriate to criminalize such practices. Joint Statement at H12077.

The overrun exclusion cannot be claimed, however, where a licensee produces a type of good other than the one for which he is licensed. For example, "if a licensee is authorized to produce 'Zephyr' trenchcoats, but without permission manufactures 'Zephyr' wallets,' the overrun exception would not apply." Id. The legislative history also makes clear that the burden is on the defendant to prove that the goods or services in question fall within the overrun exclusion.

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4.     Charging Decisions

As the following discussion demonstrates, most charging issues are parallel to those raised in criminal copyright cases. See "Drafting the Indictment," supra p. 31.

a.     Intent of statute

Before the Anti-Counterfeiting Act of 1984, there were no federal criminal penalties for trademark counterfeiting. Congress enacted this section in response to an increase in commercial trademark counterfeiting and it reflects an intention to impose stiff criminal penalties upon intentional acts that were previously subject only to civil sanctions under the Lanham Act. "Congress was concerned not only that '[t]rademark counterfeiting . . . defrauds purchasers, who pay for brand-name quality and take home only a fake,' but also that 'counterfeiters [can earn] enormous profits . . . by capitalizing on the reputations, development costs, and advertising efforts of honest manufactures at little expense to themselves.'" United States v. Hon, 904 F.2d 803, 806 (2d Cir. 1990)(citation omitted), cert. denied, 498 U.S. 1069 (1991). (83)

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b.     Money laundering/RICO

In 1994, Congress added trademark counterfeiting under 18 U.S.C. § 2320(c)(7)(D) to the list of violations that constitute "specified unlawful activity" under the money laundering statute, 18 U.S.C. § 1956. Thus, proceeds earned by a defendant from trafficking in counterfeit goods can now form the basis of a money laundering charge. This is an important development because the penalties for violations of § 1956 and § 1961 are substantially greater than for trafficking in counterfeit goods. A violation of § 1956 carries a maximum sentence of twenty years in prison and a fine of $500,000 or twice the amount involved in the transaction. There is also a civil penalty of up to $10,000 or the value of the funds involved in the transaction, whichever is greater. (84) Additionally, on July 2, 1996, Congress amended § 1961 to include § 2320 as a RICO predicate offense. A violation of RICO carries a maximum penalty that includes twenty years' imprisonment and a fine of up to "twice the gross profits or other proceeds" of the racketeering activity. 18 U.S.C. § 1963. In light of the greatly increased penalties under §§ 1956 and 1963, prosecutors should consider whether a case involving trafficking in counterfeit goods might support money laundering charges under § 1956 and/or a RICO count. (85)

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c.     Equitable charging considerations

Victims of trademark counterfeiting can also turn to civil remedies that are among the most powerful afforded under our civil law (including ex parte seizure of a defendant's infringing products and treble damage recovery for willful acts of infringement), a factor to consider when determining whether a criminal charge is appropriate. Indeed, the decision to charge or decline a criminal case for trademark counterfeiting (as with criminal copyright cases under § 2319, see "Equitable charging considerations," supra p. 33) turns on a number of equitable factors.

(1)     Extent of civil recovery

At the time Congress enacted § 2320, it also amended the Lanham Act, 15 U.S.C. §§ 1051 et seq., to create new civil remedies: treble damages or the amount of defendant's profits (whichever is greater), attorney's fees, and ex parte seizure of counterfeit goods and instrumentalities under certain circumstances. 15 U.S.C. § 1116(d). As with copyright cases, however, an ex parte civil seizure or a treble damage award should not necessarily foreclose a criminal prosecution. After all, damages awarded in a civil judgment cannot always be collected. In cases where counterfeiters cannot satisfy a civil judgment because they do not have the money, or especially when they have hidden funds or transferred them overseas, criminal prosecution might be warranted.

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(2)     Violation of existing civil order -- contempt

Criminal charges may also be warranted if counterfeiting continues after entry of a permanent injunction or consent decree in a civil case. These facts strongly suggest that civil remedies will not deter the infringement and that the defendant may regard civil penalties as a cost of doing business. The existence of a civil order also allows a prosecutor to consider bringing a charge of criminal contempt under 18 U.S.C. § 401, in lieu of or in addition to separate criminal charges.

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d.     Monetary damages

As noted in the section on charging decisions in criminal copyright cases, see "Equitable charging considerations," supra p. 33, strict adherence to monetary thresholds may be inappropriate in evaluating trademark infringement cases if the most obvious consequences stemming from the defendant's conduct understates the true harm. This is especially true where the charging guidelines refer only to the trafficker's profits and not the economic harm done to the trademark owner. Instead, charging standards should take several factors into account: (1) the amount of loss by all of the victims, including diminution of market share; (2) the total number of counterfeit goods manufactured or sold; (3) the quality of the infringing goods; (4) the price at which they were sold; (5) the normal retail price for non-infringing goods; (6) the market to which such infringing products were sold; and (7) the impact of the items' release on potential demand for the legitimate goods.

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e.     Units of prosecution

In drafting the indictment in a trademark counterfeiting case, the prosecutor should consider the individual marks counterfeited as the proper unit of prosecution. Thus, the trafficking of goods bearing different counterfeited marks should be charged in separate counts. In United States v. Song, 934 F.2d 105 (7th Cir. 1991), the court upheld the defendant's conviction on five separate crimes charged in five separate counts "because she was trafficking in goods bearing five different counterfeit marks." Id. at 109. The court based its determination on plain language of § 2320 which covers someone who "'intentionally traffics or attempts to traffic in goods or services and knowingly uses a counterfeit mark' on such goods or services." Id. at 108 (emphasis in original). (86)

The charging determination is, of course, subject to a rule of reason, and generally the best approach is to organize charges around a single course of conduct to avoid confusing the jury. As in copyright cases, prosecutors must consider the number of separate victims affected by the crimes. However, if charging separate counts for each victim would produce an unwieldy indictment, prosecutors may choose to group each offense by category, such as, for example, the date upon which the goods were manufactured, distributed, or seized. Indictments charging counterfeiting and trafficking schemes can be unified through a conspiracy count under 18 U.S.C. § 371.

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f.     Juvenile prosecutions

Federal criminal law does not permit the prosecution of juveniles (defined as those who have not attained their eighteenth birthday, 18 U.S.C. § 5031), absent narrowly enumerated exceptions. It is unlikely a violation of 18 U.S.C. § 2320 will meet these limited exceptions. Where violators are discovered to be juveniles, federal investigators should consider turning over available evidence to state agencies for evaluation under state laws.

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1.     Statutory

In 1994, Congress revised the penalties under § 2320 to now carry a possible 10-year prison term or a fine of up to $2,000,000, or both, for first-time offenders. Pub. L. No. 103-322, 108 Stat. 2110, 2148 (1994). In addition, a subsequent conviction carries a prison term of up to 20 years, a $5,000,000 fine, or both. These revisions also raised the first offender corporate fine from $1,000,000 to $5,000,000. Recidivist corporations may be fined up to $15,000,000.

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2.     Sentencing Guidelines

Sentences for trademark counterfeiting and for copyright violations are now both determined by reference to U.S.S.G. § 2B5.3 which sets the Base Offense Level at 6. (87) See "Sentencing Guidelines," supra p. 37. It also establishes, as a Specific Offense Characteristic, that if "the retail value of the infringing items exceeded $2,000," then the guideline level is increased by the corresponding number of levels from the table in U.S.S.G. § 2F1.1 (Fraud and Deceit). The Commentary further makes clear that the term "infringing items," as used above, "means the items that violate the copyright or trademark laws (not the legitimate items that are infringed upon)."

The Sentencing Guidelines unequivocally require consideration of "the retail value of the infringing items." It is not entirely clear, however, what "retail value" means in the trademark or copyright context. "Retail value" is commonly associated with the sale of legitimate items because the price of such items normally relates to the manufacturer's suggested retail price when the items are generally distributed through conventional retail channels. By comparison, infringing items have no equivalent "retail value" unless one considers, for example, their prices on the black or "thieves'" market. The background commentary does little to clarify this issue, noting only that "the enhancement is based on the value of the infringing items, which will generally exceed the loss or gain due to the offense." In fact, however, such an accounting will not adequately reflect the "loss" attributable to the offense, because "loss" under the guidelines reflects only the loss to public consumers, and not the potentially greater losses to sellers of legitimate, non-infringing goods. (88)

As discussed above, see "Sentencing Guidelines," supra p. 37, courts in several copyright infringement cases have, at least implicitly, recognized these difficulties, and employed various theories to achieve equitable results. In United States v. Kim, 963 F.2d 65, 68 (5th Cir. 1992), the court specifically held that the phrase "retail value of the infringing items" refers to the retail value of the counterfeit merchandise. (89) However, the Kim court found that the district court's sentencing based on the retail value of the genuine merchandise was not clearly erroneous only because the defendant failed to introduce evidence concerning the retail value of the infringing items. Id.

The Kim court disagreed with the Second Circuit's decision in United States v. Larracuente, 952 F.2d 672, 674 (2d Cir. 1992), noting that the Second Circuit approved using the retail value for genuine merchandise to determine the increase in the defendant's offense level under U.S.S.G. § 2B5.3. Kim, 963 F.2d at 69. The court in Larracuente found that because "unauthorized copies [of bootleg tapes] are prepared with sufficient quality to permit their distribution through normal retail outlets, the value of the infringing items is their normal retail price." Larracuente, 953 F.2d at 674. The Second Circuit expressly noted, however, "[w]e would have a different question if the infringing items were of obviously inferior quality and were for that reason distributed to consumers who pay far less than the retail price for authentic items." Id. at 675.

Similarly, the court in United States v. Sung, 51 F.3d 92, 96 (7th Cir. 1995), held that the "retail value of the infringing products" is the retail value of seized, unsold goods if the government can establish with "'reasonable certainty,' subject to a deduction of 3 levels under U.S.S.G. § 2X1.1(b)(1)" that the defendant "'was about to complete all [necessary] acts but [for] apprehension.'" Id. (citation omitted). The Seventh Circuit remanded the case to the district court to determine whether the sentencing calculations should include the retail value of the defendant's purchase of 240,000 boxes of infringing hair spray, which were seized from him by the government.

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3.     Forfeiture

a.     Criminal

The forfeiture provision, contained at 18 U.S.C. § 2320(b), resembles a civil, rather than a criminal provision. It provides that "[u]pon a determination by a preponderance of the evidence that any articles in the possession of a defendant in a prosecution under this section bear counterfeit marks, the United States may obtain an order for the destruction of such articles." In choosing a civil-type forfeiture provision, the joint committee explained that "[e]ven 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." Joint Statement at H12077.

b.     Civil

In addition to allowing government seizures of infringing items under a § 2320 prosecution, the Lanham Act also provides, at least to a limited extent, for ex parte seizures initiated by private trademark owners. Because the Lanham Act requires trademark owners seeking an ex parte order to give reasonable notice to the United States Attorney, 15 U.S.C. § 1116(d)(2), and because the actual seizures of the infringing goods can only be made by a federal or state law enforcement officer, 18 U.S.C. § 1116(d)(9), (90) federal prosecutors should be familiar with the civil seizure provisions.

In order to obtain an ex parte seizure order, an applicant must establish, inter alia, that the applicant is:

likely to succeed in showing that the person against whom seizure would be ordered used a counterfeit mark in connection with the sale, offering for sale, or distribution of goods or services.

15 U.S.C. § 1116(d)(4)(B)(iii). (91)

The plaintiff must also show that the defendant "would destroy, move, hide, or otherwise make" the counterfeit goods "inaccessible to the court" if notice were given. 15 U.S.C. § 1116(d)(4)(b)(vii). Thus, courts should not order a seizure against a "reputable merchant," absent unusual circumstances. (92) In addition, the plaintiff must establish that the counterfeit goods "will be located at the place identified in the application." 15 U.S.C. § 1116(d)(4)(b)(v).

Further, the applicant must make the traditional showings that he or she would suffer irreparable injury if the goods were not seized, 15 U.S.C. § 1116(d)(4)(B)(iv), and that the balance of hardships tips in his or her favor. 15 U.S.C. § 1116(d)(4)(B)(vi).

In addition to the substantive requirements, certain procedural requirements must be met. These include posting a bond adequate to pay for damages incurred by any person "as a result of a wrongful seizure," 15 U.S.C. § 1116(d)(4)(A), an assurance against publicity, and a requirement for a prompt post-seizure hearing. Of particular importance for federal prosecutors is the requirement that the United States Attorneys are to be given "such notice as is reasonable under the circumstances" of the impending ex parte seizure. 15 U.S.C. § 1116(d)(2). Moreover, that subsection also provides that the United States Attorney "may participate in the proceedings arising under [an ex parte seizure] application if such proceedings may affect evidence of an offense against the United States. The court may deny such application if the court determines that the public interest in a potential prosecution so requires."

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The trademark counterfeiting statute may apply in some cases where the criminal copyright statute does not. For example, unlike the criminal copyright scheme, the trademark counterfeiting statute does not require that a minimum number of copies be reproduced or distributed to constitute a felony. Rather, the law reaches all trafficking in counterfeit goods, "including trafficking that is discovered in its incipiency, such as before the counterfeit merchandise has left the factory." (93) Joint Statement at H12079.

The trademark statute also can be used in certain cases where proving the Copyright Act's element of "commercial advantage or private financial gain" may be difficult. The definition of trafficking expressly includes instances where an individual makes or obtains control of a counterfeit item with an intent to "transport, transfer, or otherwise dispose of to another, as consideration for anything of value." 18 U.S.C. § 2320(d)(2). At least one court has read the "anything of value" requirement broadly to include goods offered by a defendant in exchange for a "good will" arrangement to provide a continuing supply of other counterfeit goods. "Such 'good will' can be considered a thing of value in the form of an intangible asset." United States v. Koehler, 24 F.3d 867, 871 (6th Cir.1994)(citing Newark Morning Leger Co. v. United States, 507 U.S. 546, 556 (1993)).

Importantly, while the criminal copyright statute is subject to a three-year statute of limitations, 17 U.S.C. § 507(a), prosecutions for trademark counterfeiting under 18 U.S.C. § 2320 are covered by the traditional five-year limitations period. See 18 U.S.C. § 3282.    

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Charging both copyright and trademark violations arising from the same act or acts does not violate the Double Jeopardy Clause of the Fifth Amendment of the Constitution because "each offense contains an element not contained in the other." United States v. Dixon,

509 U.S. 688, 698 (1993) (citing Blockburger v. United States, 284 U.S. 299, 304 (1932)). Accordingly, inconsistent verdicts from a trial involving charges of copyright infringement and trademark counterfeiting should not jeopardize a successful conviction. See United States v. Sheng, 26 F.3d 135 (9th Cir. 1994). Similarly, a jury's inability to reach a verdict on an accompanying conspiracy count does not necessarily affect a finding of guilt on the substantive count or counts. United States v. Steele, 785 F.2d 743, 750 (9th Cir. 1986)(criminal copyright case).

It may be appropriate to bring trademark counterfeiting charges in criminal copyright infringement cases. Often, for example, manufacturers or vendors of infringing items may illegally attempt to reproduce the packaging for genuine copyrighted works. This packaging often carries counterfeit trademarks, which will support charges under the trademark counterfeiting statute. In several early cases involving sound recordings and motion pictures, pirates were charged under 18 U.S.C. § 2320 with illegitimately reproducing recording labels, manuals, or packaging, in addition to being charged with copyright violations for reproducing the underlying work on audio or videotape. (94) Similarly, it is not uncommon for software counterfeiters to reproduce not only the underlying code (supporting charges for copyright infringement), but also to reproduce the instruction manuals and packaging traditionally offered by a legitimate seller of these products. Reproducing the text of an instruction manual can give rise to an another charge of copyright infringement, as well as an additional charge under § 2320 (95) if the infringing copy bears a registered trademark.

It may be possible to charge a § 2320 violation even in cases where the defendant did not attempt to copy genuine packaging, but did knowingly reproduce the counterfeit mark in the course of reproducing the product itself. "Once a product is put into commerce, any confusion, mistake, or deception occurring at some future time is sufficient to establish liability for trademark infringement." Sega Enters. Ltd. v. MAPHIA, 1996 WL 734409 (N.D. Ca. Dec. 18, 1996). In Maphia, the count granted plaintiff's motion for summary judgment where the defendant operated a BBS that facilitated the distribution of plaintiff's computer games. When the downloaded game was played, the game began with a screen showing plaintiff's federally registered trademark. The court rejected defendant's claim that plaintiff's trademark was being used merely "as a file identifier" and such use does not violate the Lanham Act. The court stated that the use of plaintiff's trademark "creates the likelihood of confusion as to whether Sega endorsed or sponsored the games made available on defendant's BBS." "Accordingly. . . . [defendant's] use of Sega's trademark on virtually identical Sega game programs constitutes counterfeiting." Id. at 16.

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----- footnotes ------

72.     "Service marks" are trademarks which identify a service as opposed to a product.

73.     That clause grants to Congress the power "[t]o promote the Progress of Science and the useful Arts, by securing for Limited Times to Authors and Inventors the exclusive Right to their respective Writings and Discoveries." U.S. CONST. art. I, § 8, cl. 8.

74.     For a complete list of the advantages that federal registration offers, see 2 McCarthy, § 19.05 (1995).

75.     Distinctive trademarks are trademarks such as "Exxon" that immediately serve as an identifier of the source of the product. See, e.g., Taco Cabana Int'l v. Two Pesos, Inc., 932 F.2d 1113, 1120 n.7 (5th Cir.), aff'd, 505 U.S. 763 (1992).

76.     Trademarks that are non-inherently distinctive are not sufficiently "distinctive" to be automatically eligible for federal registration, but are eligible for registration if they have become distinctive through use.

77.     A mark is "descriptive" if it is descriptive of (i) the intended purpose, (ii) function or use of the goods, (iii) the size of the goods, (iv) the class of users of the goods, (v) a desirable characteristic of the goods or (vi) the end effect upon the user. 1 McCarthy, § 11.05[2] (1995). A descriptive mark is usually accorded a narrow scope of exclusivity and is therefore deemed to be a weak mark.

78.     Secondary meaning for a descriptive term is a matter of fact, to be determined from relevant evidence probative of probable customer reaction. 1 McCarthy, § 11.09 (1995). According to McCarthy, "the Supreme Court of North Carolina gave an excellent capsule definition of secondary meaning in the context of descriptive terms:"

When a particular business has used words publici juris so long or so exclusively or when it has promoted its product to such an extent that the words do not register their literal meaning on the public mind but are instantly associated with one enterprise, such words have attained a secondary meaning. That is to say, a secondary meaning exists when in addition to their literal, or dictionary meaning, words connote to the public a product from a unique source.

Id. quoting Charcoal Steak House of Charlotte, Inc. v. Staley, 263 N.C. 199, 139 S.E.2d 185 (1964) ("CHARCOAL STEAK HOUSE" held descriptive; nonsuit affirmed on basis of no likelihood of confusion).

79.     Such a mark may, however, be capable of acquiring distinctiveness if a manufacturer is able to show that apple gum were to be uniquely identified with one particular producer.

80.     Two years of continuous non-use is presumptive of abandonment, but the presumption can be rebutted by proof of lack of intent to abandon. Thus, if nonuse results because of economic pressures -- but not as a result of intent to discontinue use -- the nonuse may be excused and held not to constitute abandonment.

81.     The Act also covers trademarks protected by the Olympic Charter Act. The designations protected are set forth at 36 U.S.C. § 380.

82.     Also excluded from the definition of counterfeit mark are so-called "parallel imports" or "grey market" goods, which are trademarked goods legitimately manufactured and sold overseas and then imported into the United States outside of the trademark owner's traditional distribution channels. Thus the criminal statute cannot be used to reach those who traffic in goods that were produced by a licensed manufacturer at the time that the license was valid, even if the goods were then sold at a time when the license was not. See Joint Statement at 12079. Neither is the statute intended to apply to mere imitations of "trade dress," such as the color, shape, or design of a product or its packaging -- unless such features are also registered as trademarks.

83.     See also Brian J. Kearney, The Trademark Counterfeiting Act of 1984: A Sensible Legislative Response to the Ills of Commercial Counterfeiting, 14 Fordham Urb. L.J. 115, 119-120 (1986).

84.     For a detailed discussion of the elements of money laundering and for Department of Justice policy see U.S.A.M. 9-105.000 and Money Laundering Federal Prosecution Manual, June 1994, Money Laundering Section, United States Department of Justice.

85. -

86.     The court in Song did not address cases where a vendor sold different types of goods, some of which might carry the same counterfeit mark.

87.     Effective November 1, 1993, the previous § 2B5.4 (Criminal Infringement of Trademark) was deleted in its entirety and consolidated with § 2B5.3, which now controls criminal infringement of a copyright or trademark. See Sentencing Guidelines Appendix C, amendments 481 and 482.

88.     The narrow view of "loss" adopted in this portion of the Guidelines fails to recognize the potentially more sizeable losses suffered by legitimate sellers in the form of lost retail sales. Note that guidelines for similar offenses adopt a broader concept of "loss." See e.g.,U.S.S.G. § 2B1.1 (Larceny, Embezzlement, and Other Forms of Theft) (Commentary, Application Note 2) ("Where the market value is difficult to ascertain or inadequate to measure the harm to the victim, the court may measure loss in some other way, such as reasonable replacement cost to the victim."). See also United States v. Cianscewski, 894 F.2d 74 (3d Cir. 1990) (cost to victim of stolen check is full amount of check, not price at which stolen check is resold); United States v. Wilson, 900 F.2d 1350 (9th Cir. 1990) (sentencing court acted reasonably when it considered victim's development cost to measure intended loss, and was not limited to strict market valuation of loss).

89.     The court in Kim analyzed § 2B5.4 and not § 2B5.3. However, the language in the former section was identical to the present § 2B5.3 and was consolidated into that section. Thus, the Kim decision seems equally applicable today.

90.     On July 2, 1996, Congress amended this subsection to permit any "state or local law enforcement officer" to carry out a seizure of infringing items. Anticounterfeiting Consumer Protection Act of 1996, Pub. L. No. 104-153, 110 Stat. 1386 (1996). Prior to this, only "United States Marshals" were specifically authorized to carry out a seizure order. The court also has the discretion to appoint a security agency to carry out the seizure, as well as to allow the plaintiff's attorney to accompany and assist the law enforcement officials executing the order. 15 U.S.C. § 1116(d)(9).

91.     Under this provision, ex parte seizures can only be made of "counterfeit goods," which excludes "parallel imports," "gray goods" and "production overruns." (For a discussion of these terms see "Lanham Act defenses," supra

p. 59). Thus, the scope of this provision equals that of 18 U.S.C. § 2320.

92.     According to the joint statement:

A reputable businessperson would not be likely to conceal or destroy evidence when notified of a pending lawsuit, and the issuance of an ex parte seizure order against such a person would therefore be wholly inappropriate, absent the unusual circumstances just mentioned. Rather, the sponsors believe that ex parte seizures are a necessary tool to thwart the bad faith efforts of fly by night defendants to evade the jurisdiction of the court.

Joint Statement at H12081.

93.     It should also be noted that the trademark counterfeiting seizure provision requires that civil litigants seeking to obtain ex parte seizure of infringing goods notify the U.S. Attorney of such intentions; no such requirement is placed on litigants seeking ex parte seizure in copyright cases.

94.     Note that in such cases, prosecutors might also consider the propriety of charging violations of 18 U.S.C. § 2318. See "Trafficking in Counterfeit Labels, 18 U.S.C. § 2318," supra p. 42.

95.     Literally thousands of trade and service marks have been registered, relatively recently, by the computer industry. A very small sampling of marks contained on the principal register appears below:

"Apple," "Macintosh," "Powerbook," "Newton,

"IBM," "Think pad," "Prodigy,"

"Lotus," "Smartsuite," "Symphony," "123,"

"Microsoft," "Bookshelf," "Powerpoint,"

"Novell" "Netware,"

"Wordperfect," "Pageperfect."