An Economical Good In Disguise; The True Impact of Counterfeit Goods

Kelsey Powderly, Salma S. Safiedine, Darcy Sharp1

Counterfeit goods are a domestic and international problem that affects businesses, consumers,
and workers alike. Businesses are harmed through lost profits, but counterfeiting is even more
damaging to the business brand - an attractive target to counterfeiters. When counterfeit luxury
goods are made more available and sold at worse quality, the business loses brand prestige and
exclusivity and thereby suffers harm to their good will. In 2006, it was estimated that between
$15 billion and $50 billion in profits offset sales of genuine items due to their counterfeit-
counterpart.2 However, it isnt just the businesses that are affected: consumers are endangered
by unregulated goods that are often dangerous to their health and wellbeing; and the workers
who make the goods are often times underage, underpaid, and working in very unhealthy and
harsh conditions. Luxury brands suffer losses when consumers purchase their goods from
counterfeiters, and in turn the economy suffers from loss of tax revenue that would have come
from the luxury business.3

Counterfeit goods are non-genuine goods that copy or otherwise purport to be those of the
trademark owner whose mark has been unlawfully used.4 The good is commonly not of the
same material or quality as the original item, and an item does not have to perfectly duplicate a
trademark to be considered counterfeit. All counterfeit goods infringe on a companys
trademark, but counterfeiting is narrower in scope and applies only to marks made to look
identical to the actual registered mark.5 Counterfeiting can be distinguished from traditional
trademark infringement or passing off [or Knockoffs], which involves the use of confusingly
similar trademarks or service marks on or in association with similaras opposed to fake
products or services.6 The key difference being that counterfeit items impersonate a brand,
whereas knockoffs copy the design and appearance of premium labels.

1
Salma S. Safiedine is an attorney with the Washington D.C. firm, Safiedine Partners Law LLC. She also
serves as Director of the American Bar Associations Racial Justice Improvement Project, Co-Chair of
the American Bar Associations Race and Diversity Committee, and Editor of the ABA White Collar
Crime Committee Newsletter. Darcy Sharp, a law student at The George Washington University Law
School, and Kelsey Powderly, a law student at New York University School of Law, currently serve as
interns for the American Bar Associations Criminal Justice Section.
2
Suraj Commuri, The Impact of Counterfeiting on Genuine-Item Consumers Brand Relationships, 73
Journal of Marketing 86, 8698 (2009), available at
http://bear.warrington.ufl.edu/weitz/mar7786/Articles/comuti%202009%20counterfeit.pdf
3
The Truth About Counterfeit Luxury Goods, OpSec Security (Sep. 15, 2010),
http://blog.opsecsecurity.com/the-truth-about-counterfeit-luxury-goods.
4
Kevin Lewis, The Fake and the Fatal: The Consequences of Counterfeits, 17 The Park Place Economist
47, 4850 (2009), available at https://www.iwu.edu/economics/PPE17/lewis.pdf
5
Vaibhavi Pandey & Deblina Dey, Counterfeiting And Infringement Of Trademarks: The Thin Line Of
Difference Between The Laws, Mondaq (Jan. 30, 2015),
http://www.mondaq.com/india/x/370064/Trademark/Counterfeiting+And+Infringement+Of+Trademarks
+The+Thin+Line+Of+Difference+Between+The+Laws (quoting David Quam, Trademark Counterfeiting
1-4.
6
Counterfeiting, International Trademark Association,
http://www.inta.org/TrademarkBasics/FactSheets/Pages/Counterfeiting.aspx
Counterfeiting is certainly a cause for concern, partly because of the activities often supported by
its proceeds. The Chamber of Commerce claims that counterfeiting is responsible for the loss of
more than 750,000 jobs in the United States.7 Counterfeiting cost American businesses $250
billion in lost revenue in 2011.8 The FBI believes that counterfeit goods financed the World
Trade Center bombing in 1993 as well as the 9/11 attacks.9

Unfortunately, counterfeiting is also the cause of some confusion in the American legal system.
This is partly because the buyers of counterfeit goods within the United States are often unaware
of the illegal nature of their purchases. Congress and state legislatures do target the problem in
broad strokes but leave it to other agencies to handle the on-the-ground, detailed work of
combatting these crimes.10 Another problem in enforcing restrictions against counterfeit goods is
that most of these goods sold in the United States are manufactured by illegal and underground
organizations in China and India with the express purpose of being sold on the international
black market.11 Furthermore, many of these goods are sold online or by street vendors in major
cities, which means that they are easily mobile, hard to trace, and easily hidden from law
enforcement officials.12 Most of the protections afforded by the United States against counterfeit
goods on behalf of business lie in trademark and patent protections.13 However, the United
States Congress and other lawmakers do address the problem of counterfeiting with general and
specific laws targeting both manufacturers and traffickers.14

Although basic trademark and infringement are technically different from counterfeit
manufacturing, the two concepts are tied together and they still share basic protections provided
by United States law. Firstly, any fraudulent goods sold through the mail or through an online
service are subject to mail and wire fraud charges, the penalties of which include jail time and
extensive fines if found guilty.15 Moreover, there are specific laws that deal exclusively with
counterfeit goods from both consumers and counterfeiters perspectives. One such example is
the False Designations of Origin, False Descriptions, and Dilution Forbidden law. 16 In section,
a(1)a the law forbids falsifying anything

7
Kevin Lewis, supra note 2, at 47.
8
Id.
9
Id.
10
See generally Trademark Counterfeiting in the United States 4.05 and Apps. 4.1, 4.2 (Brian W.
Brokate & Dawn Atlas eds., 2008).
11
United Nations: Office on Drugs and Crime, The Globalization of Crime: A Transnational Organized
Crime Threat Assessment (United Nations Office on Drugs and Crime 2010).
12
Id at 187.
13
Eg. Recovery for violation of rights, 15 U.S.C.A. 1117 (West) (providing a civil redress for harm
caused to original trademark holders by infringements of legally held trademarks); Infringement of patent
35 U.S.C.A. 271 (West) (similar to the previously mentioned law only as it applies to patent holders
rather than trademark holders, the differences between which are not a practical difference in relation to
this paper).
14
See, eg, 15 U.S.C. 1125 (West); STOP COUNTERFEITING IN MANUFACTURED GOODS ACT,
PL 109181, March 16, 2006, 120 Stat 285.
15
See 18 US Code 63 (authorizing police to arrest individuals for committing fraud through the US mail
or through online scams).
16
15 U.S.C. 1125 (West).
 (I)n connection with any goods or services, or any container for goods and forbids the
uses in commerce any word, term, name, symbol, or device, or any combination thereof,
orfalse or misleading description of fact, or false or misleading representation of
factlikely to cause confusion, or to cause mistake, or to deceive as to the affiliation,
connection, or association of such person with another person, or as to the origin,
sponsorship, or approval of his or her goods, services, or commercial activities by another
person

For example, activities such as sticking a label on a handbag and calling it a Prada product
when it is actually a design copy or posting a picture on Ebay of an actual designer purse and
then selling the counterfeit version to the unknowing customer are both included within the laws
provisions and expressly forbidden within it.17

Perhaps even more important is 18 U.S.C. 2320, Trafficking in Counterfeit Goods or

Services and the Stop Counterfeiting In Manufactured Goods Act.18 These laws form a more
complete picture of civil and criminal penalties when taken in conjunction the previous law,
which targets manufacturers. This principle becomes especially important when the relationship
between the United States and the producer(s) of counterfeit goods is considered. Often, it is only
the trafficker who is physically within the country. Therefore, the more effective domestic
policies pursue the trafficker rather than the manufacturer, who is more unlikely to be extradited
or even identified.19 These laws, such as the aforementioned 18 USC 2320 and the
Counterfeiting in Manufactured Goods Act which are aimed at targeting the traffickers are
more likely to undermine sales of counterfeit goods within the US, analogous to the way laws
against receiving stolen property work against theft.

Consumers are harmed by counterfeit goods when they unknowingly buy unsafe, contaminated
counterfeit products, such as make up and pharmaceuticals, which can cause health issues.
Prescription drugs and over-the-counter medications remain among the most counterfeited
products in the world.20 It is estimated that anywhere from 100,000 to a million people die every
year due to receiving counterfeit medication; arguably, that is a low estimate as many countries
do not have appropriate mechanisms in place to identify or report suspicious deaths of this
type.21 Counterfeit medication constituted a large problem in the United States until the 1980s,
when Congress took action by implementing the Prescription Drug Marketing Act.22 This Act
targets both manufacturers and traffickers by tamping down and closing the U.S. drug supply

17
Id. (note that this law provides no protection for the original business against anyone knowingly buying
counterfeit goods and only targets those selling or manufacturing the counterfeit goods).
18
18 U.S.C.A. 2320 (West); STOP COUNTERFEITING IN MANUFACTURED GOODS ACT, PL
109181, March 16, 2006, 120 Stat 285
19
Attaran A., Bate R., Kendall M. (2011) Why and how to make an international crime of medicine
counterfeiting. Journal of International Criminal Justice 9(2) pp.325-354.
20
Mackey TK, Liang BA, York P, Kubic T. Counterfeit Drug Penetration into Global Legitimate
Medicine Supply Chains: A Global Assessment. American Journal of Tropical Medicine and Hygiene.
2015.
21
See id.
22
Counterfeit Drugs (Pharmaceutical Research and Manufacturers of America), available at
http://www.phrma.org/counterfeit-drugs.
system to non-US companies.23 Unfortunately, the Acts initial successes have been undermined
in the modern age by online pharmacies, of which there are thousands, which ship counterfeit
medications to individuals within the United States.24 In response to this, the Federal Drug
Administration (FDA) formed a Counterfeit Drug Task Force in July 2003 with the mission of
combating and eliminating counterfeit medications.25

The Prescription Drug Marketing Act is a fairly complete piece of legislation and, while
Congress has not been entirely silent on the issue in the new, online times, the courts have also
been active.26 Recently, the pharmaceutical company Pfizer found that its anti-inflammatory
drug Ponstan had been counterfeited in Columbia; although the pills looked almost identical,
they contained little more than boric acid, floor wax, and yellow highway paint materials
toxic to humans.27 The Park Place Economist discusses how even pharmacies themselves cannot
tell if they have been sold counterfeit pharmaceuticals.28 An article by Kevin Lewis details how
Maxine Blount, a woman who had been diagnosed with breast cancer in 1998, died as the result
of taking a counterfeit drug Procrit.29 The drug had been prescribed by her doctor to help her
build up strength during chemotherapy treatments. However, her nurse later found out that the
specific pills Blount was taking contained only 5 percent of the necessary active ingredient, and
that amount was not enough to allow her to take the chemo treatments as needed. As a result, her
cancer advanced and she died in 2002. Blount had purchased the drugs from a reputable large
pharmacy chain and even the pharmacy had no idea the drugs were counterfeit.30

On a more active front, the FDA task force has been working closely with the U.S. Bureau of
Customs and Border Patrol to identify the contents of suspect packages crossing into the U.S.
from other countries as well, through sharing intelligence and coordinating resources.31 It has
also implemented a voluntary program for drug manufacturers wherein they notify the FDA
within five working days if they suspect that any purchased ingredients have been counterfeited.
This program extends to counterfeit materials discovered in foreign countries if the FDA can
demonstrate clear evidence to believe that the products are intended for distribution in the United
States.32

Counterfeit products with physically harmful effects are not limited to medications. Cosmetics
contain many chemicals that, if not properly manufactured in safe conditions, can be quite

23
See id. at 1.
24
See id at 2.
25
Office of the Commissioner, Drug Safety and Availability - FDA Counterfeit Drug Task Force Reports
(The Food and Drug Administration), available at
http://www.fda.gov/Drugs/DrugSafety/ucm169825.htm.
26
See S. 3187, the Food and Drug Administration Safety and Innovation Act (an amendment to the
existing Federal Food, Drug, and Cosmetic Act, accomplishing many things, including enhancing
penalties under Title 18 for trafficking in counterfeit drugs).
27
Kevin Lewis, The Fake and the Fatal: The Consequences of Counterfeits, 17 The Park Place Economist
47, 4850 (2009), available at https://www.iwu.edu/economics/PPE17/lewis.pdf.
28
Id.
29
Id.
30
Id.
31
Office of the Commissioner at 2-3.
32
Id at 2.
harmful to people. In 2012, Lynn Lavigne of New Jersey was sentenced in federal court on
charges of trafficking counterfeit MAC cosmetics. Homeland Security conducted the
investigation that resulted in the seizure of 1,643 items. The investigation was the result of a
complaint filed with the police that the cosmetics had caused one purchaser to have a rash on her
eyelid within minutes of using the product.33 Also in New Jersey, a family was sentenced to
prison time and parole time for importing hundreds of pounds of fake makeup from China and
selling the items as MAC products.34 Homeland Security has also said that fake fragrances have
been found to contain bovine urine.35 Clearly the courts and law enforcement are cracking down
on these practices. Counterfeit cosmetics, like medication, have their own subcategory of law.

Purchasers often do not know that they are buying counterfeit cosmetics. The goods often closely
replicate the original trademarked product in look and design, but the materials and chemicals
used in the products are not inspected for safety. Some beauty product manufacturers have
attempted to combat this confusion by providing guides online for consumers to understand the
risks involved with purchasing counterfeit beauty products and how to spot a counterfeit.36

In a way, cosmetics are very similar to medication in how they are regulated. The two most
important laws pertaining to cosmetics marketed in the United States are the Federal Food, Drug,
and Cosmetic Act and the Fair Packaging and Labeling Act.37 The FDA regulates cosmetics
under the authority of these laws and the FDA task force discussed above also concerns itself
with combatting counterfeit cosmetics manufactured or trafficked into the United States.38
Unlike medications with the Prescription Drug Marketing Act, counterfeit cosmetics do not have
their own prohibitive legislation. However, the broader anti-counterfeiting laws do apply,
including the semi-selective Federal Food, Drug, and Cosmetic Act, recently amended by S.
3187, the Food and Drug Administration Safety and Innovation Act, which increased the
punishments for traffickers of counterfeit cosmetics.

Unfortunately, businesses are often at a disadvantage when bringing charges against

counterfeiters, and generally courts have found that third-party online sellers are not liable for
counterfeit goods sold through their online market place.39 Due to the markets anonymous and

33
News Release, U.S. Immigration and Customs Enforcement, New Jersey Woman Sentenced for Selling
Counterfeit Cosmetics (May 8, 2012), available at https://www.ice.gov/news/releases/new-jersey-
woman-sentenced-selling-counterfeit-cosmetics.
34
News Release, Middlesex County Prosecutors Office, Three Sentenced In Designer Cosmetics
Counterfeiting Scheme (Mar. 3, 2015), available at
http://www.co.middlesex.nj.us/Government/Departments/PSH/Prosecutor/News/Pages/03-03-2015.aspx.
35
News Release, U.S. Immigration and Customs Enforcement, ICE Seizes More Than $500,000 Worth of
Counterfeit Goods at Flea Market (Aug. 4, 2014), available at http://www.ice.gov/news/releases/ice-
seizes-more-500000-worth-counterfeit-goods-flea-market.
36
See Counterfeit Education, MAC Cosmetics, https://www.maccosmetics.com/counterfeit-education.
37
21 U.S.C.A. 321 (West).
38
Office of the Commissioner, Drug Safety and Availability at 2.
39
See Tiffany Inc. v. eBay Inc., 600 F.3d 93 (2d Cir. 2010).
easily accessible nature, counterfeiters are able to use third-market sellers without repercussions
until the trademark-holding business itself steps in.40

Courts have found that third-party sellers, such as Ebay or Amazon, are not liable for counterfeit
goods sold through their online marketplace.41 In Tiffany & Co. v. Ebay, the Second Circuit
Court of Appeals ruled that manufacturers are responsible for reporting cases of trademark
infringement to eBay.42 EBay was decidedly not responsible for stopping the sale of counterfeit
goods on its website. The Supreme Court declined to hear the trademark infringement lawsuit,
striking a blow for manufacturers who want to combat counterfeiting online.43 With a large
percentage of fraudulent goods being sold online, businesses are often hindered when they are
unable to sue third party sellers and are required to police the market themselves. However,
French courts have disagreed with the Second Circuit decision. In 2008, Louis Vuitton Moet
Hennessy (LVMH) sued eBay in France over the sales of counterfeit perfumes and handbags on
its website. LVMH alleged eBay had not done enough to stop the sale of counterfeit goods, and
eBay lost the lawsuit.44 Unlike in the United States, online auctions have a civil responsibility
under French Law for the goods it sells, and thus eBay is responsible for preventing ilicit goods
from entering its auction market.45

However, courts have found in favor of luxury manufacturers when the third party sells the
goods in person, such as in Coach, Inc. v. Goodfellow, when Coach sued a flea market operator
who was aware that his vendors were selling counterfeit products.46 When counterfeiters are
caught, the state can bring action against them. A defendant is charged with counterfeiting in
New York when: with the intent to deceive or defraud some other person or with the intent to
evade a lawful restriction on the sale, resale, offering for sale, or distribution of goods, he or she
manufactures, distributes, sells, or offers for sale goods which bear a counterfeit trademark, or
possesses a trademark knowing it to be counterfeit for the purpose of affixing it to any goods,
and the retail value of all such goods bearing counterfeit trademarks exceeds one thousand
dollars. People v. Levy.47 Other states have similar codes.

Although most combat actions to counterfeit manufacturing in the United States are occurring in
the courts instead of Capitol Hill, Congress has not remained completely silent on the issue; in
2008 it passed the Joint Strategic Plan (the Plan), one of the newest laws to address this issue in
the United States.48 The Plans design better addresses the international nature of counterfeiting
and its repercussions in the United States.49
40
Justin Maya, Counterfeit and Knock-off Goods Sold Online & The Battle to Prevent Trademark
Infringement, Santucci Priore, P.L. (Feb. 12, 2015), https://500law.com/counterfeit-knock-off-goods-sold-
online-battle-prevent-trademark-infringement/.
41
See Tiffany Inc. at 93.
42
Id.
43
See Tiffany Inc. v. eBay Inc., 131 S. Ct. 647 (2010).
44
See Louis Vuitton Malletier v. eBay, Inc., Tribunal de Commerce [Commercial Court],
Paris, 1B ch., Case No. 2006077799, June 30, 2008.
45
Id.
46
See Coach, Inc. v. Goodfellow, 717 F. 3d 498 (6th Cir. 2013).
47
People v Levy, 65 AD3d 1057 (2d Cir. 2010).
48
Joint Strategic Plan, 15 U.S.C.A. 8113 (West).
49
Id at 2.
The Plan authorizes an existing White House task force, the Office of the U.S. Intellectual
Property Enforcement Coordinator (IPEC), to work under congressional and executive authority
with a national and international focus on improving law enforcement agencies resources on the
issue.50 Specifically, IPECs responsibilities under the Plan are to provide guidance to
departments and agencies on basic issues of policy and interpretation, to the extent necessary to
assure the coordination of intellectual property enforcement policy and consistency with other
law.51

The Plan also authorizes US law enforcement agencies to work with not only international
agencies like the United Nations and the International Criminal Police Organization
(INTERPOL) but also with other countries domestic law enforcement agencies working to
combat the problems posed by counterfeit goods.52 Communication is critical because of the
layered and widespread nature of global counterfeiting.53 Furthermore, it is fairly well
established that international teamwork as well as domestic reforms will be required to correct
the problem.54 For example, the FBI does not have international jurisdiction. However, under the
Plan, agencies such as the FBI are granted express authorization to work with any international
organization deemed necessary on a case-by-case basis.

The Joint Strategic Plan serves as a sweeping reform to the manner in which the United States
combats the problem of counterfeit goods.55 Prior to enactment of the Plan, the international
nature of counterfeit goods manufacture and sale prevented Congress from drafting effective
legislation on the issue to a large extent. The Plan combines awareness and cooperation on an
international scale with intelligence and action domestically for the first time. While the Plan is
still too new to adequately measure effectiveness, experts hope that it will prove useful in
reducing the global proliferation of counterfeit goods.56

Outside of Congress, many more federal agencies are fixating their attentions on stopping
counterfeit goods.57 In 2013, the Food and Drug Administration advocated to the U.S.
Sentencing Commission an amendment to the federal sentencing guidelines to greatly increase
the criminal penalties for manufacturing or trafficking in counterfeit medications. The
Sentencing Commission passed these reforms, including increas[ing] by two levels the penalties
applicable to (all) offenses involving counterfeit drugs.58 The Immigration and Customs
50
Id.
51
15 U.S.C. 8111(b) (the Act authorizing the creation of the Joint Strategic Plan).
52
Joint Strategic Plan at 3.
53
Stefano Betti and Rosella Mangion, Prosecuting Counterfeiting and Organised Crime: The Need for a
Creative Legal Approach, World Trademark Review (Anti-counterfeiting 2014 A Global Guide, 2014).
54
United Nations: Office on Drugs and Crime at 3.
55
Nick Akerman and Lile Deinard, Intellectual Property: The PRO-IP Act, IncisiveMedia, The National
Law Journal (2008).
56
Id.
57
Burns & Levinson LLP, United States, Lexology (May 8, 2015), available at
http://www.lexology.com/library/detail.aspx?g=9ed605d5-e268-4653-b97f-dcfc535db4d8.
58
See Office of Regulatory Affairs, Food and Drug Administration Safety and Innovation Act (FDASIA)
- FDASIA Title VII Overview (Office of Regulatory Affairs Jan. 29, 2015), available
http://www.fda.gov/RegulatoryInformation/Legislation/FederalFoodDrugandCosmeticActFDCAct/.html.
Enforcement has also largely increased in recent years its patrol for counterfeit goods, especially
bulk goods like clothing and shoes; this patrol includes communications with other countries
regarding any information they might have about international counterfeiting operations.59

The large-scale counterfeiting of goods continues to swiftly grow due to the rise of global
trading, improved communication, and online sales.60 Any meaningful reform must come from
international agreements. Unfortunately, international cooperation between the major producer
and the major consumer countries continues to falter, largely due to the philosophical differences
between countries various legal systems and how they work to protect entities intellectual
property rights.61 However, progressive strides are being made, and American businesses are
pledging to help end counterfeiting on an international scale.62 The International Chamber of
Commerce created a task force designed specifically to create new solutions within businesses
themselves that will make it more difficult to steal or fake designs or formulas.63 They also
purport a desire to influence governments into making more changes within international legal
systems in an effort to protect intellectual property.64 These 21 companies range from Apple to
Chanel to Japan Tobacco International and cover most sectors greatly affected by
counterfeiting.

Although counterfeit goods continue to be a domestic and international problem, like the United
States, many nations are beginning to take more progressive strides to minimize the negative
impact and prevalence of counterfeit goods through appropriate public policy reform and
increased agency communication. Although the U.S. courts have demonstrated an appreciation
for the importance of brand value, and policy and procedures are moving forward with robust
copyright and trademark infringement laws, many other nations have not followed in strong suit.
If not to protect the business brand and good will, there is still a strong argument for zealous
laws against counterfeiting; especially when at stake is the health and protection of the
impoverished counterfeit worker and often-oblivious consumer.

59
International Law Enforcement Agencies Seize 706 domain names selling counterfeit merchandise,
U.S. Immigration and Customs Enforcement (United States Department of Homeland Security Dec. 2,
2013), available at http://www.ice.gov/news/releases/ice-international-law-enforcement-agencies-seize-
706-domain-names-selling-counterfeit.
60
United Nations: Office on Drugs and Crime at 1.
61
Jack Perkowski, Protecting Intellectual Property Rights In China, Forbes, Apr. 18, 2012,
http://www.forbes.com/sites/jackperkowski/2012/04/18/protecting-intellectual-property-rights-in-china/.
62
International Chamber of Commerce, About BASCAP, The World Business Association, available at
http://www.bascap.com/.
63
ICC - International Chamber of Commerce, BASCAP Member Companies, ICC - International
Chamber of Commerce, available at http://staging.iccwbo.org/Advocacy-Codes-and-
Rules/BASCAP/About-BASCAP/BASCAP-member-companies/.
64
About BASCAP at 1.