Counterfeiting and Gray Market Goods

The US Chamber of Commerce estimates that trade in counterfeit goods accounts for 6 to 9% of all worldwide trade. Estimates suggest that the cost of piracy, counterfeiting and the theft of intellectual property are about $250 billion per year with a loss of 750,000 jobs annually. 

Counterfeiting and Piracy

Counterfeiting is the deliberate use of a false mark that is identical or substantially identical to a registered mark. Goods bearing counterfeit marks are never genuine; the marks, which are usually identical versions of the genuine trademark, have been applied without the authority of the trademark holder. For small businesses the US Patent and Trademark office has a website entitled StopFakes.gov including intellectual property rights information and country specific toolkits.

As part of the Stop Fakes campaign, The Strategy Organized to Stop Piracy (STOP!) is a comprehensive initiative to attempt to bring to an end the criminal networks that traffic in fakes, stop trade in pirated and counterfeit goods at borders, block bogus goods around the world, and help small businesses secure and enforce their rights in overseas markets.

The STOP campaign has established a hotline to assist businesses in protecting their intellectual property at home and abroad. 1-866-999-HALT provides information for businesses to use government resources to enforce trademarks, patents and copyrights overseas-- both in individual and multiple countries through international treaties.

The StopFakes.gov website provides a link to each governemental agency that is working  to prevent the entry and distribution of counterfeit and pirated goods in the United States.

The STOP Campaign states that it will help to control fakes by casting a wider, tighter net for pirated and counterfeit goods entering the United States and hunt down those who traffic in such goods by:

• Implementing new procedures and risk assessments that will allow the CBP to better identify firms routinely trafficking in fake goods,
• Conducting post-entry product audits to verify that an importer is authorized to use trademarks and copyrights,
• Applying these specialized technologies and techniques, which the Department of Homeland Security has developed in fighting the war on terror, to combat piracy and counterfeiting meshes with and improves the ability to identify high-risk companies and shipping techniques that could also be utilized by terrorist organizations,
• Work to make this state-of-the art approach to cracking down on the trade of fakes across our borders fully operational nationwide within a year.
• Empower US District Courts to issue injunctions against pirated and counterfeit goods entering any US port. Currently, district courts may issue injunctions only for goods entering at ports in their jurisdiction.

The Anti-Counterfeiting Consumer Protection Act of 1996

• Requires Customs (CBP) to destroy counterfeit goods.
• It also allows Customs to impose fines. The first offense the fine may be as large as the value of the seized goods measured by the manufacturers suggested retail price for the genuine article. For subsequent seizures the fine may be twice the value of the seized goods.
• Under a Customs rule, the Agency may release information, previously sought to be confidential such as the importer and manufacturer contact, date of importation, port of entry, and quantity and description of the seized goods.  CBP may also provide samples of the destroyed goods to the mark holder for examination, testing and for civil actions for infringement of trademark or copyright.
• Customs may make a determination that the counterfeit goods are not unsafe or a hazard to health and may be delivered to a governmental agency which has established a need for the goods or gifted to a charitable institution which has established need or sold at public auction.
• More information on counterfeit goods and what the CBP is doing is on  the CBP Web Site.

The International Chamber of Commerce

The International Chamber of Commerce (ICC )created Business Action to Stop Counterfeiting and Piracy (BASCAP) to raise awareness of the economic and social harm of counterfeiting and piracy and to petition for greater commitments by local, national and international authorities in the enforcement and protection of intellectual property rights. BASCAP connects and mobilises over 25 companies from businesses across industries, sectors and national borders to achieve results more effectively than any company can accomplish alone. BASCAP strengthens each member’s  efforts to protect its brand and investments from the illegal practices of counterfeiting and piracy.  

National Intellectual Property Rights Coordination Center

The U.S. Immigration and Customs Enforcement (ICE) Homeland Security Investigations (HSI) led National Intellectual Property Rights Coordination Center (IPR Center) stands at the forefront of the United States government's response to global Intellectual Property (IP) theft and enforcement of its international trade laws. The mission of the IPR Center is to ensure national security by protecting the public's health and safety, the U.S. economy, and our war fighters, and to stop predatory and illegal trade practices that threaten the global economy. To accomplish this goal, the IPR Center brings together 25 partner agencies, consisting of 20 key federal agencies, INTERPOL, Europol and the governments of Canada, Mexico and the United Kingdom in a task-force setting. The task force structure enables the IPR Center to effectively leverage the resources, skills, and authorities of each partner and provide a comprehensive response to IP theft. The IPR Center is led by an ICE-HSI Director with Deputy Directors from HSI and U.S. Customs and Border Protection (CBP).

Some articles to consider regarding  protection of  your products from counterfeit:

How To Combat Counterfeiting, from World Trademark Review  

Procedures and strategies for anti-counterfeiting: United States

Five Tips for Preotecting Your Brand Against On-Line Counterfeit

How to Protect your Product from China Counterfeiting with 360° Trademark Protection

Gray Market Goods

Gray market goods (also called parallel imports or diverted goods) are marketed through distribution channels other than those authorized by the manufacturer or producer. Generally they are items manufactured overseas and imported into the US without the authorization of the trademark holder. By definition, gray market goods will always be genuine.  They bear a trademark which has been applied with the approval of the trademark holder, but the approval to use the mark is intended to apply to sale in a country other than the US. Often this occurs when there is a significant price discrepancy for the item in different countries. While not considered counterfeit, there may be differences between those items and those manufactured for sale in the US (i.e. warranties may differ, requirements with US laws, such as labeling requirements may be different, or rebate offers may not apply.)

Gray market goods comprise 3 categories:

• Unintended goods-- Unintended goods are goods authorized for sale in one country but then redirected to another country, and may be in direct competition to authorized distributors.
• Licensed goods-- Licensed goods are goods manufactured through a trademark license but sold through unauthorized channels.
• Distress goods- Obsolete inventories, excess or damaged goods may also be sold in the gray market.

The effect of selling gray market goods may be that a similar item will be available for sale in the US at different prices. Gray market goods are allowed entry into the US and are not illegal, except to the extent that the trademark holder has entered into a contractual agreement with a foreign manufacturer that agrees not to import the goods into the US. For legally restricted items, such as drugs, the unauthorized importation of these goods would be categorized as “black market”. Black market goods are illegal.

With regard to warranties, a manufacturer may deny upholding warranties on a gray market item, on the grounds that the non-gray market reflects a higher level of service, not contemplated by the manufacturer, i.e., the manufacturer may not have a service center in that country which was factored into the retail price. A US manufacturer, asserting that there is no privity of contract between the manufacturer and the consumer, may refuse to uphold the implied warranty of fitness or the implied warranty of merchantability. See APPA Webpage on Warranties.

Practical Ways to Prevent Gray Market Goods

By adopting uniform pricing structures you can take away the incentive to sell goods at a reduced price. However, this is not always feasible.

Labeling- Products with bar coding can assist in identifying the source of production and their authorized distributors. Advising on the product label that this product is for sale only in a specific country may also help, such as “authorized for sale only in the US.”  Some advise to label a product to be sold in a foreign market solely in that language to avoid diverting the product back into the US.

Licensing and distribution agreements may include prohibitions on resale. Policing outgoing inventory with incoming sales figures may also help.

Vigorous enforcement of trademark rights to restrict advertisements for the product may discourage gray market sales.

US Customs and Border Protection (CBP) Gray Market Goods Rule

Owners of U S trademarks have some protection against the importation of gray market goods, if the goods are “physically and materially” different from the authorized goods intended for sale in the US.  For example, a product with the same name, with US trademarks, but being sold in different countries with different formulations geared to local tastes, must bear a disclaimer if the product is imported in to the US without a restriction of importation.  This is called the “Lever- rule protection”.  The disclaimer must say “this product is not the product authorized by the US trademark owner for importation and is physically and materially different.”  This disclaimer must be on the label in close proximity to the legitimate trademark.  Under this regulation, where this label is placed on goods which would be excluded under Lever‑rule protection, the goods could then enter into the US.

• To establish these protections, those with registered patents and trademarks can choose to record their rights with the CBP to ensure effective enforcement at US borders.
• U.S. Customs and Border Protection’s Office of International Trade has developed a new online trade violation reporting system called eAllegations to provide concerned members of the public a means to confidentially report suspected trade violations to CBP.