With the giving season — and sales — in full swing, it’s a good time to address the less-than-joyful subject of knockoffs: coal in the stocking for nearly all brand owners. While the enormity of the knockoff problem is well-known, a largely overlooked legal method can help companies obtain relief.
Counterfeits are not a new phenomenon — even Coco Chanel dealt with them. The Internet, however, has made it easier than ever to sell knockoffs, a byproduct of the ease of e-commerce, increased demand for designer products and greater access to fashion for more people in more places. In fact, a 2016 study estimated that sales of fakes and counterfeits amounts to up to $461 billion per year, with U.S. companies and brands hit hardest, followed by those from Italy and then France.
The damage isn’t limited to luxury goods manufacturers. Footwear ranks as the most counterfeited item, with other heavily copied goods including toys, perfumes and handbags. The most copied brands worldwide are Ray-Ban, Rolex and Louis Vuitton. Recent media reports have highlighted a recent increase in cosmetics as well. The overwhelming majority of counterfeit goods are imported with more than 80 percent coming from either Hong Kong or China.
Knockoffs are a problem year-round, but even more during the holidays, both because the season’s sales are essential to brands’ profits and because the dramatic increase in shopping — much of it over the Internet — means the sales of fakes also increase.
Fighting these fashion forgeries can be tricky and expensive. Overseas knockoff artists selling over the Internet are both hard to find and difficult for U.S. courts to obtain jurisdiction over.
What’s more, the plethora of infringers means brand owners have to sue in multiple courts and hope any judicial orders they obtain are enforceable against fly-by-night makers.
Those attempting to clamp down on sales of knockoffs usually file lawsuits in U.S. district courts or register their trademarks with U.S. Customs. Unfortunately, these methods often fall short. District court lawsuits run into many of the problems mentioned above and filing in numerous states is particularly expensive. Further, U.S. courts have limited jurisdiction over overseas companies and almost none over Internet sellers whose identities cannot be ascertained. And even if those problems can be surmounted, litigation can take years, particularly when concerning patents.
Registering a trademark with U.S. Customs can be useful in certain circumstances, but does not apply to patents, design patents, unregistered trademarks, distinctive trade dress, or non-trademarked aspects of branding and packaging, nor can it be used to stop true knockoffs, which do not use the brand name or logo.
Many brand owners that have tried to fight knockoffs through these usual means incorrectly assume there are no other avenues, thus overlooking what is often the most effective method of obtaining relief: securing a general exclusion order from the U.S. International Trade Commission.
The USITC is an independent government trade agency in Washington D.C. that helps protect companies with significant U.S. operations from products made overseas that infringe their intellectual property. While the agency is often thought of as a resource for makers of high-tech products, it is by far the most expedient, cost-effective way for fashion companies to stop counterfeits from coming into the U.S., particularly when the items are being sold over the Internet and it is difficult to locate the actual source of the fake goods.
A brand owner that receives a USITC general exclusion order receives the right to have U.S. Customs stop any goods from entering the country if they infringe its intellectual property — be it a design patent, trademark, trade dress, copyright or even false advertising. The infringing goods are stopped at the border, regardless of where they are coming from and who is attempting to import them.
By law the procedure of obtaining a USITC general exclusion order must take no more than 16 months. This poses no problem for those looking to fight counterfeiters as defendants in knockoff cases usually default, allowing brand owners to obtain relief in less than a year and with less expense than most companies anticipate. Once obtained, the exclusion orders are primarily enforced by U.S. Customs, not the brand owner, and are generally in effect as long as the intellectual property right is valid.
A few well-known companies have already used USITC proceedings as part of their brand protection strategies, and the number of companies seeking general exclusion orders is increasing. For example, Crocs saw the popularity of their foam footwear spike in the early Aughts and became proactive about protecting its distinctive shoes. They obtained design and utility patents to protect them, but still saw cheap imitators swamp the market. Making matters worse, the products were coming in from various countries, under numerous names and untraceable sources, making enforcement almost impossible. To stop the inflow, Crocs filed a complaint with the USITC asserting both its utility and design patents. It also asserted that its products’ distinctive appearance and image were protected trade dress. The USITC issued a general exclusion order barring all knockoffs which infringed Crocs’ patents from entering the country.
In 2011, Louis Vuitton was in a similar situation with knockoffs of its popular handbags being made and sold at a rapid pace. To illustrate, just one of the known counterfeiters of its products was capable of producing up to 200,000 units per style, per month. The company tried numerous strategies to prevent the sale of these ubiquitous knockoffs, including sending cease-and-desist letters, bringing trademark enforcement lawsuits and even instituting criminal suits. It finally approached the USITC and received a general exclusion order barring knockoffs that used certain Louis Vuitton trademarks.
These orders obtained by Crocs and Louis Vuitton remain active today.
The USITC does have some disadvantages. It requires that brand owners have significant U.S. operations; doesn’t award damages for past sales; and involves procedural rules that can be tricky, often trapping the inexperienced. But for brand owners that meet its criteria and wisely engage attorneys with USITC experience, the agency proves a powerful weapon in cutting off a flood of knockoffs.
Aarti Shah is a member of the law firm Mintz Levin and focuses her practice on patent litigation, particularly at the USITC. Based in Washington, D.C., she has served in the U.S. International Trade Commission as a Senior Investigative Attorney.
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