Understanding Contributory Counterfeiting Charges and Liability

Understanding Contributory Counterfeiting Charges and Liability

Counterfeiting is a big problem today, with fake products flooding the market and causing major headaches for brands. But it’s not always just the counterfeiters themselves who can face legal trouble. In some cases, third parties who facilitate or contribute to the counterfeiting can also be held liable. Here’s what you need to know about contributory counterfeiting and how companies try to crack down on it.

What is Contributory Counterfeiting?

Contributory counterfeiting refers to when a person or company assists or facilitates someone else’s counterfeiting activities. For example:

• Providing the equipment or raw materials to produce counterfeit goods
• Letting counterfeiters use your distribution channels or retail space
• Facilitating the sale of counterfeit products online
• Knowingly buying and reselling counterfeit products

The key is that you’re not directly making the counterfeits yourself, but your actions allow the counterfeiting to happen or help the counterfeiters profit from it. This makes you liable too.

Contributory Counterfeiting Laws

In the U.S., contributory trademark infringement is illegal under federal law. The Lanham Act, which deals with trademarks, says you can be liable if you “intentionally induce” someone else to infringe a trademark or “continue to supply” a product knowing it’s infringing.

There’s also a common law doctrine called contributory counterfeiting. This says you can be liable if you provide direct assistance to counterfeiters while knowing your actions will contribute to the counterfeiting. The assistance has to be more than just general knowledge or peripheral involvement.

Cases like Fonovisa v. Cherry Auction have established that contributory counterfeiting applies to flea market operators who knowingly allow vendors to sell fakes on their property. Online platforms may also be liable if they facilitate counterfeit sales and don’t take action when notified.

Going After Contributory Counterfeiters

Brand owners are getting more aggressive about going after contributory counterfeiters in addition to the counterfeiters themselves. It’s a way to disrupt the whole counterfeiting operation. Big companies often want to make examples out of contributory counterfeiters to deter others.

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For instance, in 2018 luxury brand Chanel sued the operators of The RealReal, an online consignment shop. Chanel alleged The RealReal didn’t properly authenticate items or remove fakes from its site. The lawsuit claimed this facilitated counterfeit sales, making The RealReal liable for contributory counterfeiting. The case ended in a settlement.

Some other examples of contributory counterfeiting lawsuits:

• Louis Vuitton sued eBay for letting fakes be sold on its platform
• Apple went after mobile phone distributors for selling knockoff accessories
• Nike sued a flea market for renting space to vendors selling fake Nike shoes

Brands will often send cease & desist letters to contributory counterfeiters first as a warning shot. If you get one, consult a lawyer immediately. You’ll want to review your anti-counterfeiting practices and procedures.

Penalties and Damages

If found liable for contributory counterfeiting, you could face:

• Injunction ordering you to stop the infringing conduct
• Having to pay sizable monetary damages
• Your assets being seized
• Jail time in criminal cases

Damages can be massive, especially for willful infringement. Trademark owners can recover lost profits, the counterfeiters’ profits, and statutory damages up to $2 million per registered mark infringed. Ouch!

For example, a jury ordered a flea market operator to pay Nike $1.8 million for letting counterfeit sales happen on its property. And Louis Vuitton was awarded $3.6 million from eBay.

Avoiding Contributory Liability

Here are some tips to steer clear of contributory counterfeiting accusations:

• Have a robust anti-counterfeiting policy and enforce it consistently
• Screen sellers and merchandise thoroughly to weed out fakes
• Quickly remove suspect items when notified by brands
• Consult a lawyer about staying on the right side of the law
• Educate staff to recognize and report counterfeits
• Keep solid records showing your efforts against counterfeiting

It’s not always easy to avoid contributory liability when fakes slip through the cracks. But showing you take the problem seriously and act in good faith goes a long way.

The Bottom Line

Contributory counterfeiting is serious business. Companies are aggressively targeting third parties involved with fakes, not just counterfeiters. If your platform or services enable counterfeiting, you could get slapped with a lawsuit too. Protect yourself by implementing robust anti-counterfeiting measures. And if you get a cease & desist letter, lawyer up!

References

Fonovisa v. Cherry Auction – Supreme Court case establishing contributory counterfeiting liability for flea market operators

Chanel Settles Counterfeiting Lawsuit Against The RealReal

Louis Vuitton Wins Lawsuit Against eBay Over Fakes

Apple Asserts Contributory Trademark Infringement Claim Against Counterfeit Accessory Distributors

Nike Inc. v. Variety Wholesalers Inc.

Nike Awarded $1.8 Million in Damages Against Flea Market Operator