Delivering for Best-in-Class Wholesaler-Distributors
July 2009

The Federal criminal laws that prohibit any person from trafficking in counterfeit goods and services apply not only to the counterfeiter—the law applies with equal force to any individual or company that knowingly resells a counterfeit product. (18 U.S.C. 2320). This law, known as the Trademark Counterfeiting Act of 1984, carries substantial monetary fines (up to $5 million) and prison time (up to 20 years imprisonment or in some cases life) for individuals and companies who violate the Act.

The Act makes it illegal for any person to intentionally traffic, or attempt to traffic, in goods or services and knowingly use a counterfeit trademark on or in connection (such as product labeling and packaging) with those goods or services. The term “traffic” is broadly defined to include the sale of a product that bears a counterfeit trademark. Traffic also means transporting, transferring or otherwise disposing of a product for money or anything of value.

A counterfeit trademark means a spurious mark or designation (e.g., packaging, labeling) that is identical with, or substantially indistinguishable from, a trademark which is registered in the U.S. Patent and Trademark Office, and is used on goods without the consent of the trademark owner. A counterfeit certification mark is considered a counterfeit trademark. Criminal liability requires that the seller had actual knowledge, or constructive knowledge (reasonably should have known under the circumstances), that the product or its labeling or packaging contained a counterfeit trademark.

So a wholesaler-distributor who knowingly sells counterfeit products has a lot to lose under the Federal law:

  • Imprisonment – Up to 10 years for the first offense and up to 20 years for a repeat offender. An offender who knowingly or recklessly causes death as a result of an unlawful sale faces up to life in prison.
  • Fines – Up to $15.0 million for corporations and $5.0 million for individuals who are repeat offenders.
  • Seizure and destruction of the counterfeit products in the wholesaler-distributor’s possession.
  • Civil lawsuits by the trademark owner under the Federal trademark law for the recovery of damages, lost profits, attorneys’ fees and injunctive relief.

Product Liability Exposure

In addition to the above liability exposure, a wholesaler-distributor selling a counterfeit product (with or without knowledge that it is counterfeit) faces legal action by injured parties if the product is defective and causes death, personal injury, property damage, interruption of business operations or other losses. In these instances the wholesaler-distributor will likely be the one who is ultimately liable to pay these damages – since it is unlikely the manufacturer of the counterfeit product can be found, or is solvent, or insured, or can be subject to the jurisdiction of the U.S. courts. In cases where the wholesaler-distributor knew, or reasonably should have known, that the product was counterfeit, the company will face possible claims for punitive damages as well; and this exposure is generally not covered by the company’s product liability insurance policy.

Preventive Steps for the Wholesaler-Distributor

Purchase genuine products from the manufacturer who owns the trademark on the product or from one of the manufacturer’s authorized resellers.

Be wary of special “deals” that seem too good to be true, closeouts and inventory reduction sales. Extraordinary bargains are a red flag and can be used as evidence that the wholesaler-distributor had constructive knowledge that the product was a counterfeit.

  • Be wary of products sold outside the customary distribution channel, such as an online auction.
  • Be wary of purchasing “no-name” products where the manufacturer is not identified.
  • If there are concerns about the authenticity of a certification mark, contact the certifier.
  • Be aware of signs that a product may not be genuine, such as
    • Product not accompanied by a warranty, instructions or warnings;
    • Apparent product defects or substandard product performance;
    • Misspelled words or ungrammatical English on the product, packaging, instructions or other documentation;
    • Different shape or design than the genuine product;
    • Absence of the genuine manufacturer’s markings on the product (e.g., part number, logo, name, third party certification mark);
    • Country of origin marking different from the genuine manufacturer’s source;
    • Different colors or shades of color in the packaging, labels or the product itself.
  • Report discovered counterfeit products to the genuine manufacturer and U.S. Immigrations and Customs Enforcement.

If there is any doubt about the genuineness of a product, the wholesaler-distributor should contact the manufacturer for verification of its authenticity. Don’t risk the legal consequences of being a seller of a counterfeit product.