Counterfeit Law Blog

The United States Trade Representative spokesman, Scott Elmore, released a vague statement on August 1 addressing the continued negotiation of an Anti-Counterfeiting Trade Agreement (ACTA) at the 34th G8  Summit in July 2008.  Participants in the negotiation included Australia, Canada, the EU, Japan, South Korea, Mexico, Morocco, New Zealand, Singapore, Switzerland, and the United States.  Elmore's statement described the negotiations as focusing "on civil remedies for infringements of intellectual property rights, including such issues as availability of preliminary measures, preservation of evidence, damages, and legal fees and costs," as well as "border enforcement of intellectual property rights."  

The ACTA initiative was announced by the USTR in October 2007.  Since then, very little information regarding the ACTA negotiations has been made public and the contours of the agreement that may emerge from the on-going talks are not known.  Comments on ACTA that were submitted to the USTR earlier this year have been published in the Federal Register and can be accessed by clicking (1), (2), (3), and (4). 

The secrecy surrounding ACTA has generated a fair amount of opposition and concern, as nicely summarized in Monika Ermert's recent article posted at IP Watch.  

On July 14, the U.S. District Court for the Southern District of New York rejected Tiffany’s bid to invoke the doctrine of contributory infringement to hold eBay liable for the sale of counterfeit Tiffany jewelry by eBay sellers. Tiffany, Inc. v. eBay, Inc., Case No. 04-Civ-4607 (S.D.N.Y. July 14, 2008). Prior to filing the lawsuit, Tiffany had informed eBay that a large amount of counterfeit Tiffany jewelry was being sold on eBay and that sale of five or more of the same Tiffany items were very likely counterfeit. It had demanded that eBay preemptively remove listings containing five or more Tiffany items and automatically suspend the service of sellers that Tiffany identified as selling counterfeit goods. eBay refused to comply with these requests.

In its suit, Tiffany argued that the correct standard for liability as a contributory infringer should be whether wrongdoing by eBay might have been “reasonably anticipated” and that, under this standard, eBay is legally obligated to proactively investigate and take down auctions that raise a suspicion of counterfeiting, such as auctions offering multiple Tiffany items. The Court disagreed. It adopted a legal standard for contributory infringement under which an auction site is absolved of liability so long as it takes appropriate steps to remove listings and suspend sellers’ service when it receives specific knowledge of an infringing listing.

The District Court based its holding on a U.S. Supreme Court decision, Inwood Labs, Inc. v. Ives Labs, Inc., 546 U.S. 844 (1982), holding that the standard for contributory infringement articulated in, applies to businesses like eBay that provided a virtual marketplace. Inwood held that:

If a manufacturer or distributor intentionally induces another to infringe a trademark, or if it continues to supply its product to one whom it knows or has reason to know is engaging in trademark infringement, the manufacturer or distributor is contributorially responsible for any harm done as a result of the deceit.

The District Court in the Tiffany case held that the eBay auction service was a “product” for purposes of the Inwood test. It then concluded that (a) the correct legal standard is whether eBay knew or had reason to know of a particular infringement, not whether eBay could reasonably anticipate the infringement based on “known” patterns, such as Tiffany’s claim that any auction offering more than five of its products was likely to be counterfeit; (b) generalized knowledge is insufficient to impute knowledge of any and all instances of infringing activity to eBay; (c) Tiffany’s demand letters, its undercover buying programs, and its notices to eBay provided only generalized knowledge to eBay, which is insufficient to establish a duty to act; (d) eBay was not willfully blind to infringement; (e) when eBay had knowledge of specific infringing listings, eBay promptly terminated those listings; (f) when eBay had knowledge that a seller was repeatedly engaging in counterfeit activity, eBay’s practice was to suspend that seller and then take further corrective action; and finally, (g) the burden of policing the Tiffany mark should appropriately be placed on Tiffany.

The Court was impressed by eBay’s evidence that it invested millions of dollars each year on personnel and computer resources to combat counterfeiting. When alerted to a potentially infringing listing, eBay would remove the listing, send a warning to the seller, place restrictions on the seller’s account (such as a selling restriction, temporary suspension, or indefinite suspension), and/or refer the matter to law enforcement.  The Court found that eBay removed thousands of listings per month.  In addition, eBay maintained the VeRO “notice-and-takedown” program, whereby trademark owners could report to eBay any listing offering potentially infringing items so that eBay could remove the listings.  Indeed, the District Court found that, when Tiffany informed eBay of potentially counterfeit Tiffany listings, eBay never refused to remove a reported listing, acted in good faith in responding to Tiffany, and always provided Tiffany with the seller’s contact information. 

The Court stated that trademark plaintiffs bear a high burden of establishing “knowledge” of contributory infringement and that the determination of “knowledge” under Inwood is a contextual and fact-specific test, requiring a district court to consider the nature and extent of the communication, whether the defendant explicitly or implicitly encouraged the trademark violation, the extent and nature of the violations being committed, and whether there was a bad faith refusal to exercise a clear contractual power to halt the infringing activities. Given the presence of authentic goods sold on eBay, the Court found that generalized knowledge of counterfeiting is insufficient to impute knowledge to eBay of any specific acts of actual infringement.

Tiffany also argued that eBay improperly allowed repeat offenders to sell counterfeit goods even after it informed eBay of their misconduct.  The Court again disagreed.  First, it held that eBay’s refusal to suspend a seller after receiving notice of a single potential infringement was not inappropriate because Tiffany’s notices did not constitute a definitive finding that the item was counterfeit.  Without knowledge of actual counterfeiting, Tiffany could not demonstrate that eBay should have permanently suspended a seller.  Second, suspension represented a serious penalty, particularly to those sellers who relied on eBay for their livelihoods.  Third, eBay’s policy was generally effective in preventing sellers from relisting potentially counterfeit items, and eBay never refused to take down a particular listing upon receiving a notice from Tiffany that particular item listed was a counterfeit.  Finally, Tiffany did not prove that actual counterfeit items were sold by sellers who had previously been subject of a take-down notice filed by Tiffany. 

The Court also concluded that eBay did not continue to supply its service to sellers whom eBay knew to be selling actual counterfeits because: (a) the evidence did not show that counterfeiters could return with impunity to sell counterfeit Tiffany products on eBay, and (b) eBay did not encourage sellers whose listing had been removed to simply re-list the items or list other counterfeit items.

Thanks to Paul Kobak of Kluger, Peretz, Kaplan & Berlin for assistance in preparing this summary.

Under the statutory damage provision of the Lanham Act, 15 U.S.C. 1117(c), the court can award statutory damages of not less than $500 or more than $100,000 per counterfeit mark per "type of goods or services," or not more than $1,000,000 per counterfeit mark "per type of goods or services" if the court finds that the use of the counterfeit mark was willful.  A recent decision out of the Southern District of New York addresses what constitutes a “type" of good under this provision.  In Gucci America, Inc. v. MyReplicaHandbag.com, 2008 WL 512789 (S.D.N.Y. Feb. 26, 2008), Judge Koeltl accepted the recommendation of Magistrate Judge Eagan that the Internet retailer MyReplicaHandbag.com be assessed statutory damages of $4.3 million for counterfeiting trademarks owned by Gucci, Chloe and Davidoff. The plaintiffs had sought even more – $21.2 million – based on their assertion that MyReplicaHandbag.com had sold 424 different “types” of counterfeit goods.  The court rejected this count, holding that “[f]or the purpose of awarding damages, it seems unduly artificial to categorize the merchandise into separate ‘types’ for each subtle difference in a particular product’s size, shape, color, pattern or fabric.”  Instead, the court held, “the separate ‘types’ should be based on the functional purpose of the product.”  Based on the functional purpose of the counterfeit goods, the court held that “the defendants sold replicas of the following types of goods: (1) handbags (Gucci and Chloe); (2) wallets (Gucci); (3) handbag and wallet sets (Gucci); (4) watches (Gucci and Dunhill); (5) eyeglasses (Gucci); and (6) belts (Gucci).”  It then awarded Gucci $3,600,000 ($100,000 x 6 marks x 6 types of goods), Chloe $400,000 ($100,000 x 4 marks x 1 type of good), and Dunhill $300,000 ($100,000 x 3 marks x 1 type of good).  While Judge Eagan's observation that it is "unduly artificial to categorize the merchandise into separate ‘types’ for each subtle difference in a particular product’s size, shape, color, pattern or fabric" may have some merit, the standard he adopts -- that the "separate 'types' should be based on the functional purpose of the product" --  is overly simplistic and is not easily reconciled with other decisions.  For example, a 2006 decision cited in Gucci considered t-shirts and polo shirts to be separate types of goods.  Nike, Inc. v. Top Brand Co. Ltd., 2006 WL 2946472 (S.D.N.Y. Feb. 27, 2006) (Ellis, M.J.) (awarding$12 million -- $1,000,000 per infringed mark for each of four Nike trademarks for three types of goods, t-shirts, polo shirts and sweatshirts), adopted by Chief Judge Wood on October 6, 2006.  Handbag aficionados would argue that the differences between certain sizes and shapes of handbags are equivalent to the differences between a t-shirt and a polo shirt. 

At her testimony before the Committee on House Judiciary Subcommittee on Courts, The Internet, and Intellectual Property during hearings on the PRO-IP bill last December, Sigal P. Mandelker, the Deputy Assistant Attorney General responsible for the Criminal Division of the Department of Justice (DOJ), touted the DOJ's increased efforts and successes in prosecuting counterfeiters.  According to Mandelker, DOJ filed 217 intellectual property cases in fiscal year 2007, a 7% increase over the 204 cases filed in 2006 and a 33% increase over the 169 filed in 2005. Mandelker reported that 287 defendants were sentenced in fiscal year 2007 on IP-related charges.  This is a 35% increase over 2006 and a whopping 92% increase over 2005.   Mandelker noted that, in fiscal year 2006, 187 defendants were convicted of criminal copyright and trademark offenses, an increase of 57% over 2005.  Of these, 39 were sentenced to 25 months or more.

Some of the highlights cited in Mandelker's testimony include:

• The October 12, 2007 sentencing, in the Eastern District of Virginia, of Abbas Chouman to  57 months in prison on one count of conspiracy to commit criminal copyright infringement.  Chouman was also ordered to forfeit $7 million. Chouman had pleaded guilty after being charged with operating a store that sold more than $7 million worth of counterfeit clothing.
• On August 6, 2007, two individual were sentenced in the Northern District of California to 37 months in prison for conspiracy to commit copyright infringement and trafficking in counterfeit goods and labels. The sentences were the result of Operation Remaster, an undercover FBI  investigation which resulted in seizure of approximately 494,000 pirated music, software, and movie CDs and DVDs, and more than 6,135 stampers for production of counterfeit optical disks.
  
• On June 22, 2007, the federal court for the Eastern District of Virginia sentenced Hew Raymond Griffiths to 51 months in prison for running an Internet software piracy operation known as DrinkOrDie out of his home in Australia.  The group was involved in the reproduction and distribution of pirated software, movies, games and music worth more than $50 million.  Griffiths' extradition from Australia to the US was one of the first extraditions for an intellectual property offense.
• On June 22, 2007, the last of nine defendants pleaded guilty in the District of Wisconsin to felony copyright infringement charges arising out of their involvement in eBay auctions of counterfeit Rockwell Automation software. The software had a combined retail value of approximately $30 million.
  
• On August 25, 2006, the Eastern District of Virginia sentenced the operator of piracy website BUYUSA.com to six years in prison and ordered him to pay $4.1 million in restitution. The forfeiture order in the case included a helicopter, two Cessna airplanes, a Lamborghini, a Hummer, a boat, and an ambulance.

I was recently asked to write a column for the UK publication "World Trademark Review" about Rep. Conyers pending bill, HR 4279, titled Protecting Intellectual Property ("PRO-IP").  The official summary of the bill can be found here.  The PRO-IP bill generated considerable controversy when introduced in December 2007, primarily because of the proposed revision of the statutory damage provision of the Copyright Act. which has been referred to as “gluttonous” by William Patry, Senior Copyright Counsel for Google.  Currently,  the Copyright Act provides that, for purposes of calculating statutory damages, “all the parts of a compilation or derivative work constitute one work.”   Applying this limitation the Fourth Circuit Court of Appeals in Xoom v. Imageline limited the clip art distributor Imageline, which had published two compilation CDs containing thousands of clip art images, to only two statutory damage awards against a competitor that had allegedly copied a multitude of Imageline’s images from the two CDs.  PRO-IP would amend the Copyright Act so that the court (or jury, in a jury trial) has the discretion to make “either one or multiple awards of statutory damages” with respect to infringement of a compilation such as Imageline's CDs.  In a case like Xoom, this would give the court the discretion to award multiple statutory damage awards instead of being limited by the number of compilations infringed.  However, the magazine and consumer electronics industries, as well as some commentators and law professors have raised concerns that providing such discretion will inhibit innovation and result in disproportionate damage awards.  Others fear that its passage would prompt the recording industry to threaten individuals who engage in P2P piracy with astronomical damage awards.  Interestingly, at the preliminary House Subcommittee hearings on PRO-IP, Congressman Rick Boucher, a founder of the House Internet Caucus, suggested  that, to avoid chilling innovation, the statutory damage scheme for copyright may need to be overhauled to decouple damages available against willful direct infringers – such as organized software pirates – from those available against device manufacturers accused of indirect secondary infringement. Others have also suggested that damage awards against individuals engaged in P2P file sharing should be separately addressed by the Copyright Act.  It will be interesting to see whether such alternative proposals gain any traction when the bill comes up in Committee for mark-up in March.

The Ninth Circuit Court of Appeals held in December that a plaintiff in a trademark counterfeiting case who elects to recover statutory damages is not entitled to recover attorney’s fees under Section 35(b) of the Lanham Act. Unlike Section 35(a), which only allows an award of attorney’s fees upon a finding that the case is “exceptional,” Section 35(b) provides for attorney’s fees to be granted as a matter of course, absent extenuating circumstances, in a case of willful counterfeiting:

“In assessing damages under subsection (a) of this section, the court shall, unless the court finds extenuating circumstances, enter judgment for three times such profits or damages, whichever is greater, together with a reasonable attorney's fee, in the case of any violation … that consists of intentionally using a mark or designation, knowing such mark or designation is a counterfeit mark.”

Focusing on the clause “[i]n assessing damages under subsection (a),” the Ninth Circuit in K and N Engineering, Inc. v. Bulat, 2007 WL 4394416 (9th Cir. Dec. 18, 2007), held that the Section 35(b) presumption in favor of attorney’s fees does not apply if the plaintiff elects statutory damage because statutory damages are provided for by subsection (c), rather than assessed “under subsection (a).” The court did not decide whether a plaintiff that elects statutory damages also waives its right to recover attorney’s fees under the "exceptional case" standard of Section 35(a).

A plaintiff who elects statutory damages can still try to recover its attorney's fees "through the back door."  As the court noted in Gucci America, Inc. v. Duty Free Apparel, Ltd., 315 F.Supp.2d 511 (S.D.N.Y. 2004), a counterfeiting plaintiff’s attorney’s fees may be “a persuasive measure towards determining statutory damages.” Thus, evidence regarding the plaintiff’s attorney’s fees should be submitted to the court as evidence in support of a significant statutory damage award, and the court should take such fees into consideration when it sets the amount of statutory damages.

The Lanham Act authorizes a district court to grant an ex parte order for the seizure of items involved in the unlawful use of a counterfeit mark, including goods, counterfeit marks, the means of making such marks, and records.  Under the statutory procedure, a court that issues an ex parte seizure order must schedule a hearing, generally within 15 days after the date the seizure order is issued.   At that hearing, the party who obtained the order has "the burden to prove that the facts supporting findings of fact and conclusions of law necessary to support such order are still in effect.” In order to continue the seizure order, the court must make the following findings:

(i) an order other than an ex parte seizure order is not adequate;

(ii) the applicant has not publicized the requested seizure;

(iii) 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;

(iv) an immediate and irreparable injury will occur if such seizure is not ordered;

(v) the matter to be seized will be located at the place identified in the application;

(vi) the harm to the applicant of denying the application outweighs the harm to the legitimate interests of the person against whom seizure would be ordered of granting the application; and

(vii) the person against whom seizure would be ordered, or persons acting in concert with such person, would destroy, move, hide, or otherwise make such matter inaccessible to the court, if the applicant were to proceed on notice to such person.

If the party who obtained the order does not meet its burden of proof, the seizure order will be dissolved or modified.

In Beltronics USA, Inc. v. Midwest Inventory Distribution LLC, the federal district court in Kansas decided November 13, 2007 to dissolve an ex parte seizure order it had previously issued to Beltronics because, after conducting the required hearing, the court was not satisfied that the defendants would destroy, move, hide, or otherwise make the seized goods inaccessible, or that an order other than an ex parte seizure order would not be adequate to ensure that Beltronics would have adequate remedies if the defendants are ultimately found to have infringed Beltronics’ trademark.

The court was swayed by the absence of evidence that the defendants were “the type of fly-by-night defendants who will seek to evade the couirt’s jurisdiction.” The defendants had never failed to appear in court when required to do so, there was no prior legal action against them, and there was no other indicia that they would be unlikely to comply with a court order. Noting that the defendants are incorporated businesses with inventories, assets, and a fixed physical presence that sell merchandise other than Beltronics equipment, the court concluded that they would have much to lose if held in contempt of a court order. Consequently, the court could not find that  an order other than an ex parte seizure order would not be adequate to protect Beltronics. On the grounds that Beltronics has not made the showings required by the ex parte seizure statute, the court dissolved the seizure order and directed Beltronics to return the seized goods to the defendants. At the same time, however, it entered a preliminary injunction prohibiting the defendants from selling or offering for sale any Beltronics goods which do not bear an original Beltronics serial number label. In addition, in order to ensure the preservation of evidence, the court prohibited the defendants from destroying, modifying, moving, hiding, or otherwise making any such goods inaccessible during the course of the litigation.

The United States District Court for the Eastern District of Virginia in Diane Von Furstenberg Studio v. Snyder recently awarded Diane Von Furstenberg Studio the maximum statutory damage award available in cases of non-willful trademark counterfeiting. In deciding to award DVF $100,000, the court identified five factors as relevant in deciding the amount of a statutory damage award:

1.The expenses saved and profits reaped by the defendant.
2.The revenues lost by the plaintiff including damage to reputation.
3.The value of the trademark.
4.The need to deter and discourage additional counterfeiting activity by the defendant and others.
5.Whether the defendant cooperated and took responsibility for its actions.

Noting that the Internet gives counterfeit sellers a virtually limitless number of customers, the court stated that Snyder's choice of eBay as her marketplace weighed in favor of a large damage award.

Had the court found that Snyder acted willfully, it could have enhanced the statutory damage award to up to $1 million. However, because DVF withdrew its claim that the defendant acted willfully and in bad faith, DVF was not eligible for enhanced statutory damages or attorney’s fees in this case.

Snyder has filed an appeal from the damage award.

The Guardian Unlimited reported Friday that law enforcement authorities have shut down the website tv-links.co.uk, a popular website that provided links to pirated copies of films and television programs, and arrested a 26-year-old man from Cheltenham, UK in connection with criminal offenses related to the facilitation of copyright infringement on the Internet. Much of the film content available on the site had apparently been recorded on camcorders at movie theaters.

WWD reports today that six individuals were arrested Tuesday in what may be the first New York City criminal counterfeiting case involving fragrances. The arrests resulted from an NYPD raid on Price Right Perfume and Watches, located at 1205 Broadway in Manhattan. According to WWD, more than 600 bottles of counterfeit fragrances with a retail value of $36,000 were seized including fakes labeled Armani, Ralph Lauren, Chanel, Kenneth Cole, Liz Claiborne and Davidoff. The report quotes an unidentified source as estimating that the store’s inventory had a retail value of close to $3 million, although the portion of this that is counterfeit remains to be determined. The raid was preceded by an investigation sponsored by the Fragrance Foundation and several leading fragrance companies, according to WWD. The industry may have been aided in their efforts to interest law enforcement in the case by the concern that counterfeit fragrances may contain ingredients that are irritating or harmful to consumers.

Another district court judge has weighed in on the question of whether the Second Circuit Court of Appeals’ rule requiring a showing of willful deception or actual confusion for an award of monetary relief in counterfeiting cases survived the 1999 amendment of Section 35 of the Lanham Act (15 U.S.C. §1117(a)). The 1999 amendment provided for damages to be awarded in cases of trademark dilution, but only if a “willful violation” is found. Although the damage provision that applies in trademark infringement and counterfeiting cases does not explicitly require a “willful violation,” this requirement had been read into the statute by the Second Circuit in pre-1999 cases such as George Basch Co. v. Blue Coral, Inc., 968 F.2d 1532 (2d Cir.1992). New York federal Judge Marrero has now joined several other district courts in holding that, by specifying that a “willful violation” must be found before damages can be awarded in a dilution case, Congress, by implication, rejected the Second Circuit’s rule that a willful violation must be shown before damages can be awarded in counterfeiting cases.

The case, Cartier v. Aaron Faber, Inc., 2007 WL 2823691 (S.D.N.Y. Sept. 27, 2007), involved an enterprise in the business of buying and selling premium watches that had admitted that it had caused third-party jewelers to mount diamonds on watches bearing the marks CARTIER, PANERAI, PIAGET, and VAN CLEEF & ARPELS, which it then sold or offered for sale on consignment to auction houses. The altered watches retained the brand owners’ original marks and displayed no additional mark indicating that the diamonds had been added by J & P. At least some of the watches were modified to appear identical to more expensive genuine models. The court held that the altered watches were counterfeits:

"The retention of the Plaintiffs' marks with no indication that the watches had been significantly altered by J & P creates a likelihood that customers would be deceived into believing that the alterations were performed by the original manufacturers. As the Court stated in granting the preliminary injunction: 'A customer viewing the watches on her own or secondary purchasers of the watches would directly attribute to Cartier the bejeweled bezels, cases and/or bracelets, and any flaws in the workmanship or quality of the watch resulting from that alteration.'”

In addition to the dispute over whether willfulness had to be shown to support a damage award, the parties disagreed as to whether the injunction entered in the case should outright prohibit sales of altered watches or permit such sales so long as J & P added another trademark to the watches to indicate that they had been altered. Cartier and the other plaintiff brand owners argued that the court could rule on a motion for summary judgment (i.e., without holding an evidentiary hearing) that addition of an independent mark would not adequately convey to the public that the watches had been altered. However, the Court declined to rule without an evidentiary hearing that it would be impossible for J&P to mark the modified watches in such a way as to make clear to consumers that it had performed after-market alterations. Instead, the scope of the permanent injunction will be determined after evidence is heard on this issue.

The U.S. has requested that the WTO establish a dispute settlement panel in its case challenging China’s restrictions on the importation and distribution of films, DVDs, music and other copyright-intensive products. The U.S. seeks to eliminate barriers to the importation and internal distribution of U.S. audio-visual products. These barriers make it difficult to for U.S. companies to get their legitimate products into the Chinese marketplace, thereby fostering the market for pirated products.

The U.S. panel request focuses on Chinese laws and regulations that deny U.S. companies the right to import books, journals, movies, music, and videos into China; discriminate against U.S. distributors in China; and impede the distribution of these products. The panel request alleges that these restrictions violate various provisions of China’s Protocol of Accession to the WTO, the General Agreement on Tariffs and Trade (the “GATT”), and the General Agreement on Trade in Services (the “GATS”). The panel request will be considered by the WTO Dispute Settlement Body (DSB) at its next meeting on October 22.

A statement by the Office of the U.S. Trade Representative explained, “The United States and China have tried, through formal consultations over the last several months, to address U.S. concerns about the importation and distribution barriers that U.S. movies, music and publications face in China. Those discussions have unfortunately not led to a resolution of our concerns, and so we are now taking the next step in this case and asking the WTO to establish a panel.”U

The First Circuit Court of Appeals has affirmed the convictions and sentencing of Nelson Acevedo-Cruz and his wife Noraida Beltran who were indicted on November 4, 2004 on multiple counts of conspiracy to infringe copyright, trafficking in counterfeit labels, and trafficking in counterfeit goods or services. Following a twelve-day trial in November 2005, a jury found Acevedo and Beltran guilty on all charged counts. Acevedo and Beltran were sentenced to 48 months and 36 months in prison, respectively. In their appeal, the defendants contended that they did not know that they were making unauthorized copies of movies. The appeals court rejected this contention in part because of evidence presented by the government at trial of an earlier permanent injunction entered against Acevedo in a civil action that enjoined him from reproducing copyrighted movies. The Court of Appeals affirmed the sentences which were below the guideline ranges of 63-78 months for Acevedo and 41-51 months for Beltran. The decision is reported as U.S. v. Beltran, 2007 WL 2685157 (1st Cir. Sept. 14, 2007).

The United States has requested that the World Trade Organization (WTO) establish a dispute settlement panel, the next step in its WTO case challenging China’s laws for protecting and enforcing copyrights and trademarks.  The request will be considered by the WTO Dispute Settlement Body at its next meeting on August 31.  In an August 13 statement announcing the request, a U.S. Trade Representative spokesperson explained the U.S. action:

“The United States and China have tried, through formal consultations over the last three months, to resolve differences arising from U.S. concerns about inadequate protection of intellectual property rights in China. That dialogue has not generated solutions to the issues we have raised, so we are asking the WTO to form a panel to settle this dispute....It is in the best interest of all nations, including China, to protect intellectual property rights. Over the past several years China has taken tangible steps to improve IPR protection and enforcement. However, we still see important gaps that need to be addressed. We will pursue this legal dispute in the WTO and will continue to work with China bilaterally on other important IPR issues.”

The U.S. requested WTO dispute settlement consultations with China in April. The U.S. and China engaged in consultations in early June.  According to the USTR, China has not taken steps to address the U.S.'s concerns during this period.

The recent sentencing of Mamdou Diallo illustrates that many members of the federal judiciary are unsympathetic to Government requests for stiff sentences for counterfeiters.  Federal prosecutors asked for a sentence of 33 to 41 months in prison for Diallo, who was was found guilty of trafficking in goods bearing counterfeit trademarks in April 2006 after a trooper found counterfeit Louis Vuitton, Prada, Coach, Kate Spade, Bluberry and Chanel handbags, clothing and jewelry in his van.  A similar sentence was also recommended by the probation officer who prepared Diallo's presentence report.  Both relied on the cost of the genuine versions of the goods that Diallo sold -- approximately $215,000 -- in assessing the seriousness of Diallo's crime.  In contrast, Diallo's lawyers argued that the sentence should be based on what Diallo would have sold the counterfeits for -- around $10,000.  U.S. District Court Judge Nora Barry Fischer, of Pittsburgh, accepted the defense's argument, sentencing Diallo to 6 months’ home detention, 3 years’ probation and restitution of $2,600. According to The Herald of Sharon, PA, Judge Barry felt that the value of a genuine item does not provide an accurate assessment of the harm to a trademark or copyright caused by counterfeiting, reflecting a fairly sanguine view of the harms caused to brand-owners by counterfeiting.  Judge Barry reportedly also adopted the lower value because the goods “would not appear to a reasonably informed purchaser to be identical” to genuine items and the defendant intended to sell them at a flea market for prices significantly below the prices of the genuine versions.