Originally published in IP Litigator, April 2001
The flood of counterfeit goods has reached staggering proportions. Many factors have contributed to the increase, but few would disagree that the Internet helped throw open the gates. As the digital marketplace has grown, so too has the digital marketplace for knock-offs. It is the very "faceless" nature of the digital marketplace that allows both genuine merchants and counterfeiters alike to exploit their respective trades.
Traditionally, counterfeiters encountered marketplace barriers that prevented wide retail distribution of their goods and steered them through certain well-established, low-profile channels. Simply put, the aura of retailer authenticity could not be replicated arid, as such, the distribution of counterfeits was principally passed through street vendors or discount outlet stores in low-rent districts, where the broad-based segments of the consuming public did not shop. The consuming segment attracted to these trade channels was fairly limited, comprising either consumers unconcerned over the moral dilemma of purchasing counterfeit goods or consumers so naive as to be duped into believing the counterfeits were genuine.
The traditional counterfeiting trade also needed to set up sophisticated distribution channels and establish or locate wholesalers and retailers willing to trade in unauthorized goods. Warehouses had to be rented and goods had to be hauled across the country and the globe. Consequently, big business counterfeiters consisted of relatively large-scale and well-managed operations that were fairly easily identified.
But with the growth of e-commerce, these traditional market "safeguard" and barriers have all but been removed. Today, a single pirate operating out of an apartment can make handsome profits through Web sites selling any number of counterfeit products. Forsaking run-down storefronts and vending booths, the Web-based pirate can create an ambiance of luxury and an image of authenticity through little financial investment. Web sites can be designed and fashioned to reassure unwitting consumers of authenticity through false claims and photographs of genuine articles, especially in an environment in which the goods for sale are incapable of close prepurchase scrutiny or examination. The appearance of the Web site authenticity makes it more difficult for consumers to distinguish between approved Web site retailers (such as a well-known department store like Bloomingdale's) featuring genuine goods, and unauthorized Web site "discounters" selling knockoffs. Simply put, claims of authenticity from professional-looking Web sites viewed from the comfort of one's home or office seem more legitimate or trustworthy than those made face-to-face from back-street vendors.
Web-based counterfeiters do not need warehouses, distribution networks, or retail outlets to sell their goods. They can ship goods directly from manufacturers to the customers. Geographically remote or obscure places once considered economically and commercially unfeasible may now be targeted, so long as potential customers have mailing addresses and access to the Internet.
The Internet also helps cloak the identities of the counterfeiters. Internet vendors need not provide any information to consumers on their Web sites. If information is provided, it can be false or misleading. More often than not, counterfeiters register domain names through nonexistent corporations or entities. Often, domain names are held in the name of an individual, and the associated Web site claims to be operated by a viable company. False and misleading contact information is routinely provided to the domain name registrar. A citizen of Belarus can set up a Web site with a domain name registered to a company in Bermuda. A US citizen can register a domain name to a fictitious company with a fake address in Iran-a country with which the United States has a trade embargo. These cover-ups make it difficult to determine who is really behind the Web site selling the bogus goods and, of course, make it difficult to bring them into court.
The Internet has also made obtaining ex parte seizure orders more challenging. It can be exceedingly difficult, if not impossible, to locate the brick-and-mortar counterpart of an online store selling knock-offs. Without a warehouse or other meaningful physical location, seizing large-scale product inventory is not possible. Perhaps a precursor of alternative relief may be found in a recent criminal case, in which the US District Court for the Northern District of California ordered the defendants to forfeit the domain name for the Web site at which the defendants had sold counterfeit copyrighted software. The defendants had registered the domain name www.software-inc.com to Software, Inc. of the Bahamas, but had operated and managed the site from Los Angeles, selling unauthorized copies of computer software as authorized copies.
In this column, a wide variety of counterfeiting issues will be addressed, specifically emphasizing the challenges presented by the Internet. Topics slated for discussion in the next few months will include the various remedies against ciberpiracy–the stealing of a trademark as a domain name and industry initiatives to impose higher penalties on counterfeiters who use the Internet to sell their goods. Another topic ripe for discussion is the use of auction sites as distribution points for counterfeit products and the extent to which Web site owners need collaborate with trademark owners. Like the Internet, this area of the law is quickly evolving.
Copyright © 2002 Finnegan, Henderson, Farabow, Garrett & Dunner, LLP. The information provided in this article is for informational purposes only and is not intended and should not be construed as legal advice. This memorandum may be considered advertising under applicable state laws.
