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Curbing Counterfeit Goods

Trademarks and trade dress have an important place in the international marketplace. The recognition and goodwill associated with a particular product because of its trademark or trade dress can substantially increase the price of that product. The value of having a recognizable trademark is clear from the efforts made by companies such as Nike, Coca-Cola, Rolex, and Levi Strauss to develop, advertise, and protect their trademarks and trade dress.

Unfortunately, this is also demonstrated by the large number of counterfeit and gray-market goods sold worldwide each year. International trademark infringement continues to be a serious problem for U.S. companies, particularly those with well-recognized trademarks. U.S. companies lose an estimated $60 billion each year because of the sale of counterfeit goods.

For this reason the United States successfully pressed its trading partners to develop rules aimed at preventing international trade in counterfeit goods as part of the Uruguay Round negotiations of the General Agreement on Tariffs and Trade. In addition, the United States has developed important domestic mechanisms to prevent the importation of products with infringing or counterfeit marks when time is of the essence.

A simple and inexpensive way to protect a registered trademark against imported counterfeit goods is to register the mark with the U.S. Customs Service. Registration serves to notify Customs of the identity of the parties permitted to use the trademark in the United States.

Once the trademark is recorded, Customs has the power to detain and/or seize goods that bear a counterfeit trademark, goods with a confusingly similar trademark, and certain gray-market products.

Counterfeit goods are seized, forfeited, and subsequently disposed of unless the trademark owner consents to their entry, export, or entry after obliteration of the trademark. Goods with a confusingly similar trademark are detained, and the importer is given 30 days either to obliterate or to remove the trademark. If this does not occur, the goods are subject to forfeiture.

Having a registered trademark recorded with the Customs Service is an effective tool for use against the importation of goods that infringe U.S. trademarks. However, if a trademark owner wishes to proceed directly against specific infringing goods, even if their source is unknown, filing an action with the U.S. International Trade Commission (ITC) under Section 337 of the Tariff Act of 1930 should be considered.

Historically, Section 337 actions have been brought to prevent the importation of products alleged to infringe U.S. patents. However, the law has also been successfully employed by trademark owners to exclude permanently from the United States foreign-made products that infringe U.S. trademarks.

To be entitled to a remedy under Section 337, the trademark owner must establish that there is (1) importation, sale, or sale for importation of a product that (2) infringes a valid and enforceable U.S. trademark, and (3) that there is a "domestic industry" relating to the product protected by the trademark. 19 U.S.C. Sections 1337(a)(1)(c), 1337(a)(2).

If, after an adjudicative investigation before an administrative law judge, the ITC finds that a violation has been proven, then it may issue an order directing the Customs Service to exclude infringing products from entering the United States. The exclusion order may be limited to products from specific sources or, in appropriate cases, to infringing products from any source worldwide.

In addition, the ITC may issue cease and desist orders that prohibit domestic entities from importing and selling infringing products in the United States.

Although Section 337 was amended by the Uruguay Round Agreements Act (URAA) to ensure that the statute complies with certain international requirements, the law continues to provide trademark owners with a powerful mechanism to prevent trademark infringement in international commerce.

For example, the URAA specifically eliminated the one-year statutory time limit for completion of cases under Section 337. Since the enactment of the URAA, however, the commission has usually completed its investigations within the same one-year period.

Section 337 investigations are in rem actions, which eliminates the need to establish personal jurisdiction over the alleged infringers. In fact, ITC exclusion orders often reach products imported by entities that were never named as parties and never had notice of the ITC investigation. This advantage is especially important when the products are consumer goods or high-technology products with short commercial lives.

In addition, the courts have enhanced the value of Section 337 to trademark holders by giving ITC determinations on trademark issues preclusive effect. Although the Federal Circuit recently held in Texas Instruments Inc. v. Cypress Semiconductor Corp., 90 F.3d 1558 (Fed. Cir. 1996), that ITC decisions on patent issues are not res judicata, the courts have consistently recognized the commission's trademark determinations as having preclusive effect in subsequent cases. Union Manufacturing Co. v. Han Baek Trading Co., 763 F.2d 42 (2d Cir. 1985).

As such, ITC determinations in trademark cases are useful in later actions for damages in U.S. district courts. Indeed, the URAA amendments specifically direct that in a parallel district court action involving the same subject matter, the entire ITC record "shall be transmitted to the district court and shall be admissible in the civil action." 28 U.S.C. ¤1659(b).

A review of Section 337 investigations involving trademarks since the implementation of the URAA in late 1994 shows that this statute is a very viable means of dealing with trademark infringement.

Trademark Owners 2-0

In both of the trademark-based investigations that have been completed since implementation of the URAA, the trademark owner successfully obtained relief from infringing imports. In the first investigation, Certain Asian-Style Kamaboko Fish Cakes, Inv. No. 337-TA-378, a U.S. producer of fish cakes marketed in the United States and Canada, alleged that importers had taken advantage of its goodwill and threatened that goodwill by selling lower-quality products under the same or similar mark. The commission issued an exclusion order prohibiting the unlicensed importation of infringing Asian-style fish cakes, and issued cease and desist orders to two of the domestic respondents prohibiting them from marketing the fish cakes in the United States.

More significant, however, is the ITC's recent decision in Certain Agricultural Tractors Under 50 Power Take-Off Horsepower, Inv. No. 337-TA-380. In that investigation, Section 337 was used to exclude gray-market goods from the United States. A gray-market good is "a foreign-manufactured good, bearing a valid United States trademark, that is imported without the consent of the United States trademark holder." K Mart Corp. v. Cartier Inc., 486 U.S. 281, 285 (1988).

The complainant (Kubota Tractor Corp.) alleged that certain trading companies were purchasing used Kubota tractors made for the Japanese market and then exporting them for sale in the United States. The administrative law judge held that in order to maintain a trademark-based action involving gray-market goods, the complainant must demonstrate "differences between the accused products and the authorized products [that] are material and thus sufficient to create confusion over the source of the product and hence to damage the markholder's goodwill."

In its opinion, the ITC adopted an expansive view of what constitutes a material difference. Determined at the time of importation, a material difference can be something as minimal as the absence of English-language labels on the imported products, even if the products are identical to their U.S. counterparts in all other respects.

With this decision, the ITC signaled its willingness to move decisively against the importation of gray-market products. The commission's resolve is evidenced by its issuance of a "general exclusion order" directing the Customs Service to prevent all gray-market Kubota tractors from entering the United States, rather than only those tractor models that the commission specifically found to be in violation of Section 337.

Two other trademark-based investigations are currently pending at the ITC. In the first case, Swiss Army Brands, the exclusive U.S. distributor of Victoronox Swiss Army knives for the last 40 years, claims that pocket knives from China are infringing its common law trademark, registered trademark, and trade dress. It also alleges dilution of the trademark, passing off, false designation of country of origin, and false advertising.

In the most recently filed trademark case, Haggerty Enterprises, a U.S. manufacturer of fluid-filled lamps (lava lamps), requests that the commission exclude imported lamps that the complainant alleges have infringed its registered trademark on the configuration of its lamp. Both of these cases are scheduled to be completed within a year from the date of their initiation.

Customs recordation and Section 337 investigations afford U.S. trademark owners with effective and timely means of preventing trademark infringement in international commerce. Furthermore, the agencies charged with enforcing these laws, the Customs Service and the ITC, continue to demonstrate a willingness to move expeditiously and forcefully to curb the international trafficking in counterfeit goods, gray-market goods, and products that otherwise infringe U.S. trademarks.

V. James Adduci II is the managing partner and Michael L. Doane is an associate at Adduci, Mastriani & Schaumberg.

Legal Times* Week of September 8, 1997

Reprinted with permission of Legal Times, 1730 M St., N.W., Suite 802, Washington, D.C. 20036. Phone: 202-457-0686. Copyright, Legal Times, 1997.

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