Ninth Circuit Clarifies Scope of Civil Penalty Provisions for Importation of Counterfeit Products
, Kilaru, Naresh
Authored by Naresh Kilaru and Mark Sommers
In stemming the importation of counterfeit goods into the United States, the U.S. Customs Service typically serves as the first line of defense, with authority to inspect, seize, and destroy goods it suspects or determines to be counterfeit, and to impose civil fines. To aid Customs officials in recognizing counterfeit goods, owners of federally registered marks record their mark with the Customs Service. Recently, in United States v. Able Time, Inc., [No. 06-56033, 2008 U.S. App. LEXIS 20316 (9th Cir. 2008)] the U.S. Court of Appeals for the Ninth Circuit addressed whether Customs can impose civil penalties on offending goods not covered by the trademark owner's registration or made by the trademark owner itself.
Summary of DecisionIn Able Time, the Bureau of Customs and Border Protection seized a shipment of watches into the United States that were labeled with the mark TOMMY, a registered trademark owned by Tommy Hilfiger Licensing, Inc., and imposed a civil penalty on the importer pursuant to 19 U.S.C. § 1526(f). Hilfiger's federal registration covered cosmetics, cologne and similar products, but not watches. Hilfiger also had never used the TOMMY mark for watches. The U.S. District Court for the Central District of California found that the imported watches could not be "counterfeit" as a matter of law because Hilfiger had no rights in the mark TOMMY for watches at the time of the seizure, and accordingly that the civil penalty imposed by Customs was unlawful. The Ninth Circuit reversed, holding that products may be "counterfeit" and subject to civil penalties even though they are not identical to the trademark owner's.
In reaching its decision, the Ninth Circuit relied on the plain meaning of the relevant statutes. The Tariff Act authorizes the imposition of civil penalties for the importation of "counterfeit" products, as defined by Section 45 of the Lanham Act, that are imported into the United States in violation of Section 42 of the Lanham Act. [19 U.S.C. § 1526(e)] Neither Lanham Act provision referenced by the Tariff Act contains any requirement that the counterfeit product be identical to the trademark owner's. Section 45 of the Lanham Act defines "counterfeit" as "a spurious mark which is identical with, or substantially indistinguishable from, a registered mark." [15 U.S.C. § 1127] Section 42 of the Lanham Act prohibits the importation of merchandise that "copies or simulates" a registered trademark. [15 U.S.C. § 1124] Customs regulations in turn define a "copying or simulating" trademark as one which so resembles a recorded mark as to be likely to create a public association between the two. [19 C.F.R. § 133.22(a)] The Ninth Circuit confirmed this was nothing more than the traditional "likelihood of confusion" test for trademark infringement, which does not require that products be identical. Thus, based on the plain statutory language, the Court held Customs may impose civil penalties for the importation of any counterfeit product that is likely to cause confusion. The Court remanded the case for further proceedings to determine whether the mark TOMMY for watches was likely to cause confusion with Hilfiger's use of TOMMY for cosmetics and cologne.
Importer's Arguments UnpersuasiveThe Court rejected two arguments made by the defendant importer that are worth noting.
First, to support its position that Customs can impose civil penalties only when identical products are imported, the defendant pointed to Section 1526(f)(2) of the Tariff Act. This subsection provides that the amount of the civil penalty for importing counterfeit products shall be "not more than the value that the merchandise would have had if it were genuine, according to the manufacturer's suggested retail price." [19 U.S.C. § 1526(f)(2) (emphasis added)] According to the defendant, this provision shows Congress' intent to impose a civil penalty only when there is, in fact, a genuine article with which to compare the counterfeit product. Otherwise, it would be impossible to calculate the amount of the penalty (i.e., there can be no retail price for genuine Hilfiger watches if such watches do not exist). The Court rejected this argument on the ground Section 1526(f)(2) affects only the calculation of the civil penalty, "not the initial determination of whether a penalty should apply." In other words, Section 1526(f)(2) mandates only that the penalty be no more than the retail price of the genuine article if a genuine article exists, not that a genuine article exist in the first place. As to how the penalty amount should be calculated in the absence of a genuine article, the Court concluded based on the legislative history that Congress intended this determination to ultimately be left to Customs' discretion.
Second, the defendant pointed to certain sections of the Lanham Act that define a "counterfeit" mark as one appearing on identical products. For instance, Section 1116(d)(1)(B)(i) of the Lanham Act, which authorizes private civil suits against counterfeiters, arguably defines a counterfeit mark as one that appears on goods identical to the trademark owner's. [15 U.S.C. § 1116(d)(1)(B)(i) (defining a "counterfeit mark" as a "counterfeit of a mark that is registered . . . for such goods or services")] The Court rejected this argument, holding there was no need to rely on the meaning given to "counterfeit” in other statutes because the meaning of “counterfeit” in the statute at issue, Section 1526(e) of the Tariff Act, was plain and unambiguous. The Court also observed that Congress may have intended to apply a more restrictive definition of “counterfeit” in the context of civil actions by self-interested private plaintiffs than in penalty suits brought by the government.
ConclusionBy allowing Customs to impose civil penalties for the importation of any counterfeit product that is likely to cause confusion, the Ninth Circuit's decision makes clear that Customs has broad enforcement authority. Every time a potential counterfeit product is not identical to the trademark owner's, Customs officials are essentially tasked with using their best judgment to determine the likelihood of confusion and taking the appropriate action. Without such broad authority, Customs would be hindered in preventing non-identical but infringing counterfeit goods from entering U.S. borders.
Reprinted with permission from the IP Litigator, published by Aspen Law and Business. This article is for informational purposes, is not intended to constitute legal advice, and may be considered advertising under applicable state laws. This article is only the opinion of the authors and is not attributable to Finnegan, Henderson, Farabow, Garrett & Dunner, LLP, or the firm's clients.