The Plague: Counterfeits, Bootlegs and Knockoffs: How to Find a Cure

 By: Joshua Kaufman © 2003

On every tide that comes in ships arrive, laden with containers full of goods bound for our shores whose points of origin are thousands of miles away. These ships contain hundreds of thousands of products of every imaginable sort. Many of them are products bought from venders in the Far East at various trade shows. Unfortunately, a great number of these products are counterfeits. These knockoffs and bootlegs violate the rights of copyright owners, corporations, celebrities and legitimate business men and women. The knockoffs come in all shapes and forms. They may be prints, plates, wall hangings, clothing, Christmas ornaments, head bobbing dolls, figurines plush toys, sheets, pillows, etc. The list of knockoffs is as long as the list of legitimate products. No product category is immune from being contaminated by counterfeits. Millions upon millions of dollars worth of counterfeit knockoffs are sold every year in the American market place. No intellectual property owner is immune from the infringement disease and few have not already been infected by this plague.

The legal underpinnings for rights in licensed products are found either in copyright, trademark, or the right of publicity. If one owns the copyright in a work, under copyright law they have the exclusive right to determine how that image is exploited. Similarly, if you are a trademark owner or you have the right to determine how that work is used in the marketplace and if you are a celebrity state law allows you to control how others use your name and likeness on commercial products. Using copyright as an example, when an artist creates an artwork, say in the form of a painting, the copyright law provides that the copyright owner has the exclusive right to determine who may copy that work., or create derivative works of it in any medium. Also who is allowed to make posters, limited edition prints, post cards, greeting cards, calendars, figurines screen savers, mouse pad, covers, mugs, or any other licenses products that embody the artwork. Copyright law also prevents the reproduction of specific elements of a work. For example, an artist paints a scene depicting a number of people in a living room standing around having drinks chatting someone decides to copy a pair of individuals and a coffee table and reproduce just those elements in another work, that would be in infringement. It is a misconception to believe that the entire work has to be copied, or that the work has to be copied identically. The test for copyright infringement is substantial similarity. There are many myths circulating, such as if you change a little bit, or ten percent, or change colors the resulting work is somehow not an infringement. That is simply wrong. Modest deviations from a work are irrelevant in literary infringement cases Courts have held that the paraphrasing of text is considered a copyright infringement. Therefore, if a visual work is a "paraphrase" of another work, it will be an infringement. A gray area of the law that is still developing deals with infringements based on copying the overall "look and feel" of a work. Similarly, in publicity cases where people take one’s likeness and use it without permission, it is an infringement. The likeness does not have to be literal, if the use conjures up the underlining celebrity that can be enough. There is a famous case in which a robot that did not look like the celebrity was created: however, based on the context it was clear who the robot was supposed to depict. This non-literal use was found to be a violation of the celebrities’ rights of publicity. Therefore, making subtle changes, copying only parts of works, and/or rearranging works do not provide a safe harbor for counterfeiters. Anything that is derived from, adapted from, or based on a work that is protected by copyright, trademark, or the right of publicity that is created without permission is likely to be an infringement. As these counterfeit products are commercial goods fair use arguments will not be successful.

An importer, distributor, or retailer goes to China to a trade show, identifies products it wants and purchases them without "knowing" that these works are unauthorized. They arrive in the United States. The "innocent party" starts to sell them into their various distribution channels, only to receive a Cease and Desist letter from the lawyer representing the right’s holder. First thing the person who is caught with the infringing goods does is to proclaim their innocence, that they bought the products at a legitimate trade show and how, "it is not their fault," or "it is not their problem," or "you should go after the infringer in China". Unfortunately, for this "innocent party" their alleged innocence is not a defense. Violations of copyrights, and to lesser degree in trademark and publicity cases, are strict liability offenses where everybody in the stream of commerce who is handling the infringing works are liable, whether they knew, should have known, or were totally innocent. They are all liable. The manufacturer is liable, the importer is liable, the distributor is liable, the wholesaler is liable, the jobber is liable, and the retailer is liable. All are liable for damages to the rights’ owner. The only person who might not be held liable is the actual end-user consumer who buys the product in a store and puts it on a shelf at home. However, they will be liable once if they try to sell that product on e-Bay, or at a flea market, or to a friend.

Claiming "I didn’t know" simply gets you nowhere. It is the obligation of everyone in the stream of commerce to thoroughly investigate the products they sell, to undertake appropriate due diligence and ascertain the rights of those from whom they acquire the goods. A strong indemnity clause in a purchase agreement is imperative. In the event that one is found to have acquired counterfeit goods then contractually they will have the recourse to seek reimbursement and damages from the person or entity from whom the works were purchased.

What is the exposure for an infringer? What are the nature of damages for which they can be held liable? Under copyright law, there are two distinct sets of damages. If the copyright owner, prior to the act of infringement, had registered their work with the Copyright Office, they are entitled to either statutory damages or actual damages. If they had not filed a registration, they are entitled to only actual damages. Statutory damages encompass attorney fees and an award of up to $150,000 per infringement, based on the Court’s discretion. Per infringement means, if there are 144 mugs with 12 different images that are infringed on, that will be 12 separate infringements. Actual damages are similar in copyright, trademark, and rights of publicity. Generally, they represent the losses of the rights’ holder which would represent the royalty that they could have obtained and also all the net profits of all of the various infringers in the stream of commerce that are attributable to the infringing activity. The rights’ holders are therefore entitled to all the profits of the retailer, jobber, distributor, importer and the manufacturer. That is a cumulative sum, not an either or recovery. The law is set up so that if there are a string of "innocent" parties, the most innocent, that being the rights’ holder, is the one to made whole and the others are responsible for going back to the person from whom they acquired the work and seeking indemnity. Yes, the law is punitive, but the intent is to discourage infringement and encourage due diligence. If one was simply able to repay the rights’ holder the royalty that they would have paid if they would have entered into a legitimate license there would be no incentive for parties to act appropriately. The result, ironically, is that infringements can end up being quite lucrative prepositions for those whose rights have been infringed upon.

The enforcement process generally goes along the following lines. The rights’ holder becomes aware of the infringement, acquires samples of the infringing product or identifies them in catalogues, on websites, etc. They then contact counsel who completes an analysis of the evidence to ascertain whether or not an infringement has actually occurred. A "Cease and Desist" letter is generally sent out by the attorney to the infringer. However, a lawsuit can be filed with no notice if circumstances so dictate. Some Cease and Desist letters simply asks that the infringing activities cease and the infringing goods be destroyed, others seek an appropriate license. The majority, however, not only require that the infringing items not be sold and that the inventory be destroyed, but that an accounting of all sales be made and damages representing the lost profits be paid. Oftentimes, the Cease and Desist letter will go to somebody upstream like the importer or distributor and the opportunity is offered to them to cover the damage exposure of their customers so that their customers are not sued or informed that they have been sold infringing goods. Usually, importers, distributors, and wholesalers are anxious not to have their clients involved in legal disputes and cover the potential losses of their customers. However, it is up to the right’s holder to decide if they want to settle with one party or go after everyone in the stream of commerce. Generally, these are federal cases and lawsuits are filed in Federal Court.

There is one other avenue of redress for rights’ holders, that is contacting the U.S. Customs Service. If one registers their works with Customs, they can attempt to have infringing goods seized at the border. This only works if you are informed as to where and when the goods are entering the country. Customs is not going to search the millions of tons of goods that come in a day looking for your specific work. If you have a good lead, then working with Customs can be an efficient way to nip the problem at the point of entry.

A number of rights’ holders in the Art Industry have recently come together to form the Art Copyright Coalition. The founding members are some of the leading art publishers, artists, and licensors in the field. The goal of the ACC is to go after infringers on an industry-wide and unified basis. In comparing notes, these entities have found that they are often victims of the same factories abroad, the same importers, distributors, and retailers. Now if one of them finds out that they have been infringed upon the information is shared among the entire membership and joint enforcement teams are created where the affected parties go after the infringers on a joint basis. You can find out more information about the Art Copyright Coalition at their website www.artcc.org, their motto is "Protecting Art & Creativity. Be the hunter, not the hunted."

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Joshua Kaufman is a partner in the law firm of Venable,  LLP and general Counsel to the Art Copyright Coalition. While he is based in Washington, DC, his practice is national in scope. He is one of the country’s foremost attorneys in the field of art and licensing law. He has published over 200 articles on various topics in the field. He is also an adjunct professor of law at American University Law School. A large number of his articles can be read and downloaded from his web site at, www.jjkaufman.com.