Cracking down on Counterfeit Couture: Why Courts Should Start Taking the Crime of Counterfeiting Seriously

Introduction

“[W]e’re going to aggressively protect our intellectual property. Our single greatest asset is the innovation and the ingenuity and creativity of the American people. It is essential to our prosperity and it will only become more so in this century.” -President Barack Obama, March 11, 20101

Intellectual property is one of the biggest contributors to the continued growth of the American economy; 2 protecting its industry will stimulate our currently rocky economy.3 However, the current level of intellectual property protection is not enough; staggering statistics prove that the black market industry of counterfeit goods is at an all time high.4 With advances in technology, and an increasing demand for luxury goods for less,5 counterfeit goods traffickers are taking advantage of the slumping economic market and mass producing cheap luxury.

Although Congress has gone through great pains to implement a criminal counterfeit statute, 6 the problem of counterfeiting still exists at all time highs.7 Congressional intentions to thwart the counterfeit industry have been hindered by the government’s reluctance to bring charges under 18 USC §23208 due to lenient sentencing.9 It is necessary for courts to start crack down on counterfeiters when they are convicted under § 2320.

Confusing Sentencing Guidelines (the Guidelines) are the culprit in allowing counterfeiters to escape criminal liability. By basing punishment on the counterfeit good’s retail

1 "2010 IPEC Annual Report on Intellectual Property Enforcement." 1 Feb. 2011. Web. Last accessed: 13 Apr. 2011. http://www.whitehouse.gov/sites/default/files/omb/IPEC/ipec_annual_report_feb2011.pdf [hereinafter, IPEC Report]2 Lauren E. Abolsky, Note: Operation Blackbeard: Is Government Prioritization Enough to Deter Intellectual Property Criminals?, 14 Fordham Intell. Prop. Media & Ent. L.J. 567, Winter 2004 [hereinafter, 14 Fordham Intell. Prop. Media & Ent. L.J. 567]

3 Id. at 5674 Fakes Are Never in Fashion." Editorial. Harper's Bazaar 2011. Fakes Are Never in Fashion. Harper's Bazaar. Web. 13 Apr. 2011. <http://fakesareneverinfashion.com/summits.asp>.

5 Nicole Giambarrese, Intellectual Property Comment: The Look for Less, A Survey of Intellectual Property Protections in the Fashion Industry, 26 Tuoro L. Rev. 243, 2010 [hereinafter, 26 Tuoro L. Rev. 243]6 18 U.S.C §23207 Id.8 IPEC Report9 IPEC Report

1

value, rather than the genuine good’s retail value,10 courts not only create a market norm for counterfeit goods, but devalue the impact that counterfeit goods have on the legitimate market. Some courts11 are perplexed by the Guidelines interpretation of determining the infringement value on which to base a sentence.12 The distinction between “infringed” and “infringing” goods is not necessarily that clear. Additionally, courts may be reluctant to impose sentences based on the “infringed” good’s retail value as there is an extensive list of scenarios in which the infringed value may apply.13 The current Guidelines also place a further burden on the prosecution. By having to prove that the counterfeit good was ‘likely to cause confusion’ with and ‘substantially indistinguishable from’ the genuine goods at trial, the prosecution is duly burdened by having to reprove this element at sentencing in order to secure a worthwhile punishment.14

By using the retail value of the infringed15 good, and by eliminating the duplicative requirement of proving that the good was ‘likely to cause confusion’ and ‘substantially indistinguishable’, courts will find it easier to determine a sentence for 18 USC § 2320 violators.

In Part I of this Article, I will discuss the history of the counterfeiting in general and Congress’ decision to create a criminal counterfeiting act. In my discussion of subsequent amendments to the criminal act, I will note the implications of this decision. In Part II, I will discuss how the criminal counterfeiting act is prosecuted and sentenced. In addition to this, I will also demonstrate that lenient sentencing is the true culprit in the continuation of the counterfeit epidemic, and finally, offer my solutions on how to effectuate Congress’ intent by providing for more effective sentencing.

Part I: History of Trademark Counterfeiting and the Need for Criminalization and Punishment

10 Jana Nicole Checa Chong, Note: Sentencing Luxury: The Valuation Debate in Sentencing Traffickers of Counterfeit Luxury Goods, 77 Fordham L. Rev. 1147, Dec. 2008 [hereinafter, 77 Fordham L. Rev. 1147]

11 United States v. Chnag Ho Kim, 963 F.2d 65, 66-70 (5th Cir. Tex. 1992)

12 U.S. Sentencing Guidelines Manual § 2B5.3 [hereinafter § 2B5.3]

13 Id., note that the Guidelines clearly show the use of “infringed” value is permissive if any of the named scenarios apply, however, some courts look at the list as a ‘totality of the circumstances’ test and will not impose a sentence based upon the “infringed” value unless several of the factors are met. United States v. Alim, 256 Fed. Appx. 236, 240-241 (11th Cir. Ala. 2007)

14 § 2B5.315Id., cmt.

2

A. History of Trademark Counterfeiting Statutes

It has always been easier to copy someone else’s well-known name than to start from the bottom and produce your own. People began using trademarks in the days of antiquity.16 As time went on and trademarks became more popular, trademark jurisprudence appeared. 17The earliest recorded case of trademark jurisprudence was decided in 1584 in Great Britain,18 where the plaintiff won his case by proving to the court that his former customers now refused to buy his product because of the defendant’s poor quality cloth.19 Even at an earlier time, the need for retribution for trademark infringement was necessary to ensure the quality of well-known marks.20

In the United States, trademark infringement civil actions were being brought in state courts as early as 1837,21 and began in federal courts in 1844.22 Because of the obvious need to provide remedies to those feeling the economic impact of trademark infringement, 23 Congress enacted the first federal trademark statute in 187024 by employing the Commerce Clause’s power.25

In 1947, President Truman signed the Lanham Act26 into law, which is a more comprehensive act protecting sellers and producers of goods and services from competitors.27 Although the Lanham Act provides injunctive relief from those who use an owner’s trademark,28 it is not an effective tool to combat counterfeiting.29 Under the Lanham Act, a trademark owner can only recover treble damages at the court’s discretion in cases of “willful and intentional

16 At least 3500 years ago, potters’ marks on clay pots to identify the potter and the quality of his good. Gilson on Trademarks, 1-1 Gilson on Trademarks § 1.01, 2010; n1.1

17 Id. n4.118 Id. 19 Id.20 Id. n1121 Id.22 Id. n1323 62 TM cases in US by 1870, at least forty of them decided in state of NY, Thomas Jefferson encouragement. Id. n1424 Id., n1525 Id., n11. Note also, that Congress may find power to regulate trademark infringement through Article 1, Section 8, Clause 8. This is the “Intellectual Property” clause to the constitution, giving Congress the power to “promote the progress of science and useful arts, by securing for limited times to authors and inventors the exclusive right to their respective writings and discoveries.” U.S. Const. art. I, § 8, cl. 8.26 15 U.S.C. § 105127 1-1 Gilson on Trademarks § 1.01, n2128 Id., n2229 Gilson on Trademarks, 2-5 Gilson on Trademarks § 5.19, 2010. n366.

3

infringement.”30 For trademark owners, the Lanham Act makes it difficult to prove a counterfeiter’s intent31 and hinders suits where there are many counterfeiters in a vast geographic area, selling only a portion of any particular trademark owner’s goods.32 In these cases, the Lanham Act is not able to provide any remedy.33 Although civil suits can be brought under the Lanham Act, it alone is not enough to combat counterfeiting as many counterfeiters consider a possible suit as the cost of doing business.34

B. Criminalizationa. 1984 Act

After realizing the ineffectiveness of civil suits deterring the growing counterfeiting industry,35 Congress enacted 18 U.S.C. § 2320, the Trademark Counterfeiting Act, in 1984. § 2320 criminalizes intentional trafficking or intentional attempts to traffic counterfeit goods and services and provides for a maximum prison sentence of 10 years and a maximum fine of $2,000,000.36

b. Criminalizing Counterfeit Couture: Why Congress Made Counterfeiting a Crime

The economic impact that counterfeiting has on American and world industries is undeniable. Counterfeiting became a lucrative business in the United States throughout the years as certain trademarked goods became recognizable and gained popularity.37 Widely popular television shows and movies,38 with characters sporting stylish “it” brands created a demand for less expensive look-alikes.39 In the American fashion capital, New York City, consumers spend an estimated $23 billion on counterfeit goods per year.40

30 Id., n37631 Id.32 Id., n37333 Id.34 David J. Gladstone and Peter J. Toren, Article: The Criminalization of Trademark Counterfeiting, 31 Conn. L. Rev. 1, 5. Fall 1998 [herein after, 31 Conn. L. Rev. 1],

35 2-5 Gilson on Trademarks § 5.19, n366-37336 18 USCS § 2320

37 2-5 Gilson on Trademarks § 5.19, n373-37738 39 26 Tuoro L. Rev. 243, 260

40 "Media Kit | International AntiCounterfeiting Coalition." Homepage | International AntiCounterfeiting Coalition. Web. 14 Apr. 2011. <http://www.iacc.org/news-media-resources/media-kit.php>.

4

The counterfeit industry has grown vastly as demand for inexpensive luxury continues to increase. In 1982, the International Trade Commission (ITC) estimated a loss of $5.5 billion from counterfeiting and piracy.41 Four years after the Trademark Counterfeiting Act went into law, the ITC estimated that counterfeiting and piracy cost an average loss of $60 billion to American companies.42 By 1996, an estimated $200 billion loss to the United States was blamed on the counterfeit and piracy industry.43 Most current estimates place the counterfeit trade alone in the United States at $287 billion,44 with a loss to American companies at $20 billion. 45 Counterfeit products gross an estimated annual of $600 billion in sales each year, worldwide.46

a. The Fight against Fakes: The Importance of 18 USC § 2320

By criminalizing trademark counterfeiting, Congress demonstrates the gravity of the offense. Prior to criminalization, counterfeiters simply considered the possibility of a civil suit of the cost of doing business47 and did not think anything of their crime, neither did average citizens.48 Currently, the Trademark Counterfeiting Act serves four important purposes in its criminalization of trademark counterfeiting. 49

41 International AntiCounterfeiting Coalition, comp. THE NEGATIVE CONSEQUENCES OF INTERNATIONAL. Publication. International AntiCounterfeiting Coalition, Jan. 2005. Web. 11 Apr. 2011. <http://4356049642aa3c99a6e91c99180a8219894d6198.gripelements.com/pdf/member-resources/iacc_whitepaper.pdf>. See S. Rep. No. 104-177, 104th Cong., 1st Sess. 1-2 (1995). See also The Effects of Foreign Product Counterfeiting on U.S. Industry, Final Report on Investigation No. 332-158 Under Section 332(b) of the Tariff Act of 1930 (USITC Publication 1479) at xiv & 24(January 1984)(Copy on file with IACC).42Id., citing Foreign Protection of Intellectual Property Rights and the Effect on U.S. Industry and Trade, Report to the United States Trade Representative, Investigation No. 332-245, Under Section 332(g) of the Tariff Act of 1930 (USITC Publication 2065) at App. H (February 1988)(copy on file with the IACC).43 Id., citing S. Rep. No. 104-177, 104th Cong., 1st Sess. 1-2 (1995).44 New York City Comptroller, comp. Bootlegging Billions. Publication. New York City Comptroller. Web. 11 Apr. 2011. <http://www.comptroller.nyc.gov/bureaus/bud/04reports/Bootleg-Billions.pdf, p 17>.45 Fakes Are Never in Fashion. Harper's Bazaar. 46 Id.47 31 Conn. L. Rev. 1, 6

48 Even a Senator, during discussions of the subsequent amendments to the Trademark Counterfeiting Act and correlating Copyright Act was unaware that it was illegal to download songs from Napster. 14 Fordham Intell. Prop. Media & Ent. L.J. 567, 571

49 United States. Department of Justice. Prosecuting Intellectual Property Crimes. Department of Justice. Web. Last visited: 11 Apr. 2011. <http://www.justice.gov/criminal/cybercrime/ipmanual/03ipma.pdf>.

5

First, it protects a trademark holder’s intellectual property from theft of dilution.50 In creating §2320, Congress was concerned that counterfeiters were taking undue credit a trademark holder’s good will, reputation and honest services to earn a quick profit. 51Additionally, the counterfeiter selling the inferior, but similar looking counterfeit product devalues the trademark holder’s product. 52 Direct purchasers, while perhaps aware of the counterfeit nature of the good, spotted on the street, fashioning their famous maker look-alikes, may cause confusion amongst the public admiring a particular accessory.53 A torn strap on a fake Louis Vuitton handbag, particularly a well made one, may deter a potential purchaser interested in the quality of Louis Vuitton handbags. This deterrence will in turn hurt Louis Vuitton by costing them a would-be loyal customer. The loss of sales results in a price decrease of the legitimate good that additionally harms the trademark holder directly, affecting that holder’s profits.54 By criminalizing intellectual property theft, Congress protects the value of the trademark holder’s good. 55

Second, the Trademark Counterfeiting Act protects consumers from fraud.56 Not only can a consumer be misled into thinking that the counterfeit good he takes home is authentic,57 that same consumer could also be taking home a serious health or safety hazard.58 These safety hazards are present in anything from fake handbags and perfume to counterfeit prescription drugs.59

While the most discerning of shoppers may be aware of all authorized retailers selling their favorite designer fragrances, the majority of the shopping public would likely believe a store, with retail space, selling perfumes would be true to the ingredients posted on the package the perfume came in.60 What a big surprise these consumers receive when they dab a bit of perfume on their neck and break out in a rash because of the toxic chemicals, gasoline or rat urine contained in the beautiful bottle. 61

50 Id.51 Id.52 Id. 53 United States v. Foote, 2003 U.S. Dist. LEXIS 19312, 16-25 (D. Kan. July 31, 2003)

54 31 Conn. L. Rev. 1, 10-12

55 109 P.L. 181, 1; 120 Stat. 28556 Prosecuting Intellectual Property Crime. Department of Justice.57 Id.58 Id. 59 Id.60 Fakes Are Never in Fashion. Harper's Bazaar.61 Id.

6

Third, the Trademark Counterfeiting Act also serves to protect the safety of the non-purchasing public.62 Third party users are harmed when direct purchasers unknowingly buy counterfeit products for someone else’s use, such as heart pumps or airplane parts.63 § 2320 provides criminal penalties and additional remedies to victims of counterfeit goods, both the holder of the infringed trademark as well as the consumers suffering from faulty products.

Fourth, the Trademark Counterfeiting Act enforces market rules.64 Counterfeiting trademarks weakens modern commercial systems. 65 Because of the gross economic harm counterfeiting trademarked goods causes to American industries,66 criminal deterrence is necessary to decrease the desire to enter into the counterfeit industry. Yale School of Law and School of Economics Professor Klevorik argues that the counterfeiter attempts to gain an unfair advantage in attempting to undermine the traditional structure in place to obtain a trademark or service mark.67 He argues that criminalizing counterfeiting is necessary to deter the desire to create a business based on someone else’s reputation.68 Klevorik maintains that society’s decision to implement the structures for trademarks proves that society places a value on these structures; those that attempt to gain deceitful economic benefit by undermining societal structures should be punished. 69

While not specifically discussing criminal trademark counterfeiting, Judge Posner argued that counterfeiting was the equivalent of theft by false pretenses.70 He observed that the “social cost measured by the resources consumed in counterfeiting and in trying to prevent counterfeiting and…the social costs of inflation caused by counterfeiting”71 harms society greatly.72 Judge Posner also remarked that when counterfeiters simply by-passing market norms,73 there will be fewer incentives to invest in a reputation for quality work.74

Clearly, the need to criminalize counterfeiting was dire. In order to protect the integrity of trademark holders, enforce market rules, and protect consumers and third-party users from 62 Prosecuting Intellectual Property Crimes. Department of Justice.63 31 Conn. L. Rev. 1, 10-1264 Prosecuting Intellectual Property Crimes. Department of Justice.65 Id.66 Id.67 31 Conn. L. Rev. 1, 18 n75

68 Id.69 Id.70 Id. 71 Id.72 Id.73 Id.,“the major function of criminal law in a capitalist society is to prevent people from bypassing the system of voluntary, compensated exchange-the ‘market,’ explicit or implicit-in situations where, because transaction costs are low, the market is a more efficient method of allocating resources than forced exchange”74 Id.

7

economic fraud and bodily harm,75 criminal sanctions against counterfeiters were necessary. Congressional action, coupled with alarming statistics about counterfeit goods, points to the need for harsher punishments for offenders of the Trademark Counterfeiting Act.

i. Subsequent Amendments

The impetus for Congress to continue to increase penalties for traffickers of counterfeit goods was a result of several things coming into light. First, Congress noted the economic impact of counterfeit goods, namely, the fact that counterfeit goods were costing the United States millions of dollars in tax revenue and tens of thousands of jobs in the manufacture, distribution and sale industries. 76Secondly, the steady invasion of counterfeit products into numerous industries alerted Congress to the need for a change.77 Among other things, Congress cited established ties between terrorist organizations and counterfeit sales to raise and launder money. 78

In 2006, Congress amended the 1984 Act to enhance criminal penalties for trademark counterfeiters.79 In addition to the criminal penalties provided in the 1984 version of the Trademark Counterfeiting Act, the 2006 Stop Counterfeiting in Manufactured Goods Act requires a criminal counterfeiter to pay restitution to the trademark owner and forfeit the counterfeit goods, the proceeds derived from those goods and any manufacturing equipment to manufacture the counterfeit goods.80

Congress subsequently amended the 1984 Act in 2008 to increase maximum penalties for trafficking in counterfeit goods.81 Congress believes that by providing strong criminal penalties against counterfeiting, it will not only combat the problem nationally, but will also strengthen ties internationally with trading partners, enabling them to create more powerful anti-counterfeiting agreements to fight this international problem.82

b. Terrorism, Drugs, and Louis Vuitton: The Need for Increased Penalties on Counterfeiters

Hard economic times should be reason enough for the United States to crack down more harshly on counterfeit goods traffickers. The counterfeit industry costs New York City alone $1

75 109 P.L. 181, 176 Id.77 Id. 78 Id.79 2-5 Gilson on Trademarks § 5.19, n386-38980 Id.,The 2006 Act also criminalized the trafficking of counterfeit labels, containers, patches, stickers, wrappers, badges, emblems, medallions, and any other packaging.81 109 P. L. 181, 182 Id.

8

billion in tax revenues.83 The counterfeit industry also causes a major detriment to American jobs; 750,000 jobs are lost each year to intellectual property theft.84 The counterfeit industry has grown vastly as demand for inexpensive luxury continues to increase. Two years before the enactment of the Trademark Counterfeiting Act, the International Trade Commission (ITC) estimated a worldwide loss of $5.5 billion from counterfeiting and piracy.85 Most current estimates place the counterfeit trade in the United States alone at $287 billion, with a loss of $20 billion to American companies.86

However, the economy is not the only area on which the counterfeit industry is having an impact. In a country dealing with economic turmoil, not many of our nation’s citizens would be willing to waste too many resources on going after traffickers of counterfeit luxury goods to benefit the fat cats of the fashion industry. Further, many believe these fashion industry giants are being greedy in not allowing the general population the chance to afford the couture featured on runways and sported by their favorite celebrities. While many criminals and average citizens alike view counterfeiting as a victimless crime, 87 counterfeit goods have been linked to egregiously dangerous criminal endeavors.88

The effect of counterfeit goods has a bigger impact than the average citizen might think. While the actual sale of the counterfeit luxury good may not be harmful, its underlying effects reach human trafficking, child labor, drug trafficking, money laundering, and terrorism.89 Because of the low risk of prosecution90 and potential for a massive profit91, criminal counterfeiting is an attractive enterprise for organized crime groups.92 This “high-return, low-risk” business93 allows organized criminals to fund their illicit activities, virtually under the police radar.94 Selling fake handbags from a Canal Street stand seems much more innocent than doing back alley drug deals. Trafficking counterfeit luxury goods actually yields higher profit margins than the sale of illicit drugs, 95 a far more risky business. With a high demand for counterfeit luxury goods and low risks involved in selling them, gang members quickly jumped on the counterfeit goods train in order to fund their illicit activities.96

83 Id., See also Fakes Are Never in Fashion. Harper's Bazaar.84 Fakes Are Never in Fashion. Harper's Bazaar.85 IPEC Report86 Id.87 77 Fordham L. Rev. 1147, 115788 Id.89 Id.90 International AntiCounterfeiting Coalition. Facts about Fakes. Web. 14 Apr. 2011. <http://www.iacc.org/about-counterfeiting/>.91 Id.92 Id.93 77 Fordham L. Rev. at 16194 Id. 95 26 Touro L. Rev. 243, 278

9

The drug trade is also implicated in the sale of counterfeit luxury goods. In 1993, a New York warehouse was raided by law enforcement officials.97 They discovered numerous fake handbags, however, the real shock came when the discovered illicit drugs sewn into the lining of these handbags. The smugglers intended to sell both forms of contraband.98 More recently, a man in Florida was convicted of conspiracy to distribute and possession of cocaine and crack cocaine.99 He was also convicted of 18 U.S.C. §2320 when police found thousands of dollars of fake handbags in his trunk.100 In July 2002, police found 5,000 fake Rolex watches and Mount Blanc pens during a drug operation raid of a home in Queens.101 The defendants sold counterfeit goods to launder drug money.102

Demand for cheap luxury creates a demand for a huge illicit job market in Third World countries in Asia to mass produce counterfeit luxury goods.103 Because of the heightened popularity and a craving for a fast profit, counterfeiting results in sweatshops with workers being paid unfair wages, receiving little to no benefits, and working in harsh conditions.104 In addition to the inequitable working conditions for adults, counterfeiting also results in increased forced child labor.105

Perhaps the most egregious connection between counterfeit goods and other illicit activities is terrorism. An Al Qaeda terrorist training manual stated that the organization recommends the sale of counterfeit goods as one of the means to raise funds in support of terrorist operations.106 Al Qaeda itself has been the culprit of sending counterfeit perfumes and colognes to consumers in the UK.107

96 77 Fordham L. Rev. at 161. A Fukienese gang, convicted of a series murders in the 1990s, used proceeds from counterfeit luxury goods to fund their illicit operations. 97 International AntiCounterfeiting Coalition. Facts about Fakes.98 Id.99 John Tuohy, Testimony from Felons Help Convict Cocoa Man, Florida Today, (November 27, 2001).100 Id.101 Scott Shifrel, 3 Charged in Money Laundering, Daily News (New York), July 11, 2002, at 4102 Id.103 26 Tuoro L. Rev. at 280

104 Id.105 Id.106 John von Radowitz, Fake Internet Goods ‘Linked to Terrorists’, PressAssociation, June 25, 2002. 107 Al-Qa’idah Trading in Fake Branded Goods, BBC Monitoring Reports (September 11, 2002); Lenore Taylor, Big Business Targets Terrorist Pirates, Australian Financial Review, January 29, 2003, at 9.

10

Heinous crimes tied to counterfeiting.108 The impact of counterfeits on the economy is undeniable. While Congress has attempted to stop the problem by criminalizing counterfeiting109 and enhancing penalties,110 this is simply not enough, without the support and enforcement from sentencing judges.

Part II: Crime, Punishment, and Why Courts Just can’t get it Right

A. Prosecuting Counterfeit Goods Traffickers

“The Department of Justice will continue aggressively to prosecute intellectual property crimes and to protect business and consumers alike from those looking to cheat their way to a quick profit.”-Assistant Attorney General Lanny A. Breuer111

In order to prove that a defendant violated the Trademark Counterfeiting Act, the government has to prove that (1) the defendant intentionally trafficked or attempted to traffic in goods, services, packaging or labels; (2) the defendant used a counterfeit mark on or in connection with those goods, services, labels, documentation, or packaging for those goods or services; and (3) the defendant knowingly used the mark and knew that the mark was counterfeit.112 To prove the second element, the prosecution also has to show that:

(a) The counterfeit mark was not authentic or genuine;(b) The counterfeit mark was identical to or indistinguishable from a genuine mark owned by

another;(c) The genuine mark was registered on the principal register in the United States Patent and

Trademark Office;(d) The genuine mark had been in use by the mark-holder or its licensee;(e) The counterfeit mark was used on or in connection with the defendant’s goods, services,

labels, documentation, or packaging;(f) The counterfeit mark was used in connection with the type of goods, services, packages,

documentation or labels for which the protected mark were designed, marketed, or otherwise intended to be used on or in connection with; and

(g) The counterfeit mark was used in a manner “likely to cause confusion, to cause mistake, or to deceive.”113

Proving that a defendant violated §2320 is relatively simple. The defendant may be found guilty of this felony even if he only actually trafficked one item.114 The defendant need not know 108 International AntiCounterfeit Coalition. Facts about Fakes.109 Id.110 109 P.L. 181, 1111 IPEC Report112 Prosecuting Intellectual Property Crimes. Department of Justice.113 Id.114 Foote, 2003 U.S. Dist. LEXIS 19312, 16-25. Defendant trafficked one fake Mont Blanc pen for $50

11

that counterfeiting was illegal.115 When proving the counterfeit good was “likely to cause confusion” with the genuine good, it is sufficient to show that the general public might believe the counterfeit good was the genuine item.116 Additionally, the United States Trademark and Patent Office provides supplementary resources for local, state, and federal prosecutors to make bringing a §2320 charge much less difficult than it was under the civil statute.117

If the prosecution successfully proves these elements, a defendant can be subject to fines of up to $2,000,000,118 a maximum prison sentence of ten years,119 restitution where there is an identifiable victim,120 and forfeiture of all counterfeit items.121

B. Sentencinga. Considerations and Reasons for Sentencing

In sentencing counterfeiters, courts are directed to consider the “nature and circumstances of the offense.”122 Counterfeiting is a form of fraud and theft. Because of the counterfeit market’s impact on American economy,123 it is necessary to ensure that the punishment equates to the harm124 caused.125

115 United States v. Baker, 807 F. 2d 427 (holding that showing a defendant trafficked deliberately was enough to prove intent); United States v. Gantos, 817 F. 2d 41 (upholding lower court’s decision refusing to instruct jury that §2320 required proof that defendant knew he was violating the law)116 The direct purchaser does not need to believe that the item was counterfeit for the prosecution to prove “likelihood of confusion.” United States v. Yamin, 868 F.2d 130 (5th Cir.)117 IPEC Report118 18 USC § 2320(a)119 Id.120 18 USC § 3663A(c)(1)(A)(ii); See also United States v. Lexington, 71 Fed. Appx. 507 (6th Cir. 2003)121 18 USC § 3663A(c)(1)(A)(ii)122 United States v. Song Wu Jiang, 2009 U.S. Dist. LEXIS 94417, 4-5 (E.D.N.Y. Oct. 5, 2009) citing 18 U.S.C. § 3553(a)(1)123 IPEC Report124 United States of America. Department of Justice. Criminal Division. Criminal Resource Manual. DOJ. Web. Last visited: 13 Apr. 2011. <http://www.justice.gov/usao/eousa/foia_reading_room/usam/title9/crm01701.htm>.

The USA Manual describes four general types of harm that intellectual property crimes cause: (1) Fraud on consumers who were deceived into purchasing an inauthentic item, (2)

legitimate income lost by the trademark holder, (3) the inability of the trademark holder to control the use of his property, and (4) the defendant’s unjust enrichment by unlawfully using the trademark holder’s property

125 Id.

12

Counterfeiting is punished to achieve specific and general deterrence.126 When a severe sentence is imposed, general deterrence is accomplished.127 A sentence of a substantial prison term will send a “clear message” to other counterfeiters that trafficking in counterfeit goods will be punished severely.128 Specific deterrence will be attained when the defendant is imprisoned and upon his release, he is unable to obtain employment and has a criminal record.129 Because of the harsh reality a prison sentence will impose, it is highly unlikely that the sentenced counterfeiter will “engage in further criminal activity”.130

In order to ensure that the crime of counterfeiting is taken seriously, courts should not be lenient with sentencing these trademark infringing felons. As the majority of counterfeiters sentenced will not be able to afford stiff fines and restitution,131 it is necessary to punish them with prison terms and probation. If courts find leniency absolutely essential and impose a probation term rather than imprisonment, they must impose a fine, restitution, community service along with a probationary term of not less than one year.132 Courts need to recognize and punish counterfeiting as a felony133 so the general public will finally be aware of the dire consequences that result from trademark infringement.

b. The Sentencing Guidelines

In applying an appropriate sentence, courts are directed by the Guidelines.134 Although the Guidelines are not mandatory,135 federal courts are encouraged to follow them for continuity amongst the circuits.136 In terms of sentencing, counterfeiting trademarked goods is a class C felony; there is no possibility of charging this crime as a misdemeanor.137

The base offense level of criminal infringement of a trademark is 8;138 a defendant with no criminal history is likely to receive 0-6 months of imprisonment. 139 This base offense level

126Song Wu Jiang, 2009 U.S. Dist. LEXIS 94417 at 4-5 127 Id.128 Id.129 Id.130 Id.131

132 United States v. Hanna, 2003WL 22705133 (S.D.N.Y. Nov. 17, 2003), citing 18 U.S.C. 3561(c)(1)133 Id.134 § 2B5.3

135 United States v. Booker, 543 U.S. 220 (2005)136

137 Foote, 2003 U.S. Dist. LEXIS 19312, 16-25138 § 2B5.3

139 Table, 18 USCS Appx. 2B1.1

13

was increased from a level of 6 to a level of 8 in 2000140 to take into account that the majority of intellectual property offenses involve more than “minimal planning”. 141

If the infringement amount exceeds $2,000, but is under $5,000, the Guidelines instruct to increase the base offense by one level. 142 If the infringement amount exceeds $5,000, the Guidelines suggest increasing the offense by the number of levels in the 2B1.1 table143 that correspond to the infringement amount.144

Since the crime of counterfeiting is treated similarly to offenses of theft and fraud, the Guidelines suggest that sentencing for trademark counterfeiting should “reflect the nature and magnitude of the pecuniary harm caused by their crimes.”145

Courts are then guided to calculate the infringement amount. In determining the infringement amount, the Guidelines direct courts to multiply the number of infringing goods by the goods’ retail value.146 In determining the retail value, 147 courts can determine whether the sentence should be based on the retail value of either the infringed item or the infringing item.

While the Guidelines may appear to be simple, some courts struggle to correctly apply them to a counterfeit conviction. The words “infringed” and “infringing” commonly cause problems with sentencing judges.148 According to the Guidelines, an “infringed item” means the trademarked item with respect to which the crime against intellectual property was committed.149 The “infringing item” is the item that violates trademark laws.150

The definitional difference offered by the Guidelines is confusing. An “infringed item” is the genuine good; for example, where a defendant traffics counterfeit Kate Spade handbags, the “infringed item” is the genuine Kate Spade handbag that is legally authorized to use the Kate Spade trademark. In the same example, the “infringing item” is the counterfeit Kate Spade handbag, illegally using the Kate Spade trademark. When calculating the “infringement

140 § 2B5.3

141 Prosecuting Intellectual Property Crimes. Department of Justice.142 § 2B5.3

143 §2B5.3. This table is used for determining the level of criminal punishment in cases of theft, property destruction, and fraud. 144 § 2B5.3(b)(1)(B)145 Id., cmt. Backg’d.146 Id., cmt. n.2(A),(B)147 Id., cmt.148 Kim, 963 F.2d 65, 66-70149 §2B5.3, Cmt. App.1150 Id.

14

amount,” courts can either use the value of the counterfeit good, or the value of the genuine good, to determine sentencing.151

The manner in which the guidelines are written have been interpreted to suggest that only in extreme cases should the courts use the retail value of the infringed item to determine sentencing.152 However, by determining a value akin to the manufacturer’s suggested retail price, courts will be able to stay true to Congress’ intent when it created 18 USC § 2320.153 Congress’ intent was that copyright and trademark violations be treated like fraud or theft.154 Therefore, it is necessary for the infringement amount to “serve as the principal factor in determining the offense level.”155

C. Why the Problem is Not Getting Better: Courts Need to Embark upon a Counterfeit Crackdown

a. Making Faux Luxury a Risky Business

It is necessary to harshly punish counterfeiters so that the business of faux luxury is so risky that counterfeiters have to increase the price of their goods so high that they are run out of the market.156 The demand for luxury goods drives the counterfeit market,157 however, if counterfeit goods are priced equally or substantially equivalent to the genuine goods, the counterfeit market will lose its luster and customers will turn to purchasing the genuine good.158 In order to create a higher risk when entering into a counterfeit business, it is necessary to deter counterfeiters with the high likelihood of punishment, whether it is imprisonment or steep fines.159

Critics of harsh sentences for counterfeiters propose that counterfeit goods actually make the genuine goods more desirable to the general public.160 Giorgio Armani even believes that

151 Id., App.2152 See Kim, 963 F.2d 65, 66-70; see also United States v. Cho, 136 F.3d 982, 982-986 (5th Cir. Tex. 1998)

153 77 Fordham L. Rev. at 1170154 §2B5.3, Cmt. Bkg’d155 Id.156 77 Fordham L. Rev. at 1170, Jonathan Barnett argues that “prosecution of counterfeiting may reduce socially excessive consumption by increasing the cost of acquiring counterfeit fashion goods.” 157 26 Tuoro L. Rev. 24315877 Fordham L. Rev at 1165, n139, discussing the “Incentive Theory” as coined by Professor Mark A. Lemley of Stanford Law School (the idea that consumers believe ownership of a luxury item will denote status); Lemley argues that as long as the price of a counterfeit good remains above the marginal cost, counterfeiters will continue to produce the goods 159 Id.160 Id.

15

counterfeit goods show his popularity, and he expressed his approval for counterfeit Armani styles.161 Intellectual property attorney, Jonathan M. Barnett,162 follows Armani’s belief, stating that legitimate trademark holders may even “benefit from the existence of counterfeits in the market.”163 Barnett maintains that rather than prosecuting and sentencing counterfeiters more harshly,164 we should leave them alone, as they may create an incentive for buyers to one day be able to purchase the “real stuff”.165

Barnett underscores the importance of the larger impact that counterfeit goods have on the economy as a whole. Even if the effect of a counterfeit goods market increases name recognition of the genuine good,166 the multi-billion dollar deficit the counterfeit industry causes legitimate trademark owners,167 the billions of dollars in tax revenue forgone,168 and the thousands of jobs in manufacturing and sales lost to the counterfeit industry169 strongly outweigh any positive effects the presence of counterfeit goods may have in the economy.

Barnett also ignores the small likelihood that the consumers purchasing counterfeit luxury goods will actually purchase the genuine product. In various surveys, the likely purchasers of counterfeit goods were those that claimed the price of the genuine article was simply to extravagant for their budgets.170 If these purchasers had enough disposable income, they would not have purchased the counterfeit good in the first place.171

b. Congress’ efforts to combat counterfeiting seem to be in vain.

161 26 Tuoro L. Rev. 243162 Jonathan M. Barnett, Essay: Shopping for Gucci on Canal Street: Reflections on Status Consumption, Intellectual Property, and the Incentive Thesis, 91 Va. L. Rev. 1381, October 2005163 77 Fordham L. Rev at 1167164 77 Fordham L. Rev at 169 (“the fashion industry does not need anticounterfeiting protection, and the laws that inhibit counterfeiters are actually ‘detract[ing] from intellectual property protections’”)165 Id., at 1169166 Id., at 1170167 IPEC Report168 Id., Tax revenues lost to counterfeit retailers not charging a sales tax on goods.169 IPEC Report170 COUNTERFEIT AND LOOK-ALIKE PRODUCTS – SOCIAL AWARENESS. Publication. Rapport. Web. 11 Apr. 2011. <http://www.iccwbo.org/uploadedFiles/BASCAP/Pages/promarka_raport_ang(2).pdf>.

171 Alexander Nill "The scourge of global counterfeiting". Business Horizons. FindArticles.com. 13 Apr, 2011. http://findarticles.com/p/articles/mi_m1038/is_n6_v39/ai_19125124/ COPYRIGHT 1996 JAI Press, Inc. ,COPYRIGHT 2004 Gale Group (consumers purchase counterfeit luxury goods because they cannot afford the high price tag that the ‘greedy’ corporations place on the genuine good, but still want to be fashionable and reflect a certain social status that the luxury goods imply)

16

Trafficking counterfeit goods results in such dire consequences, but why are we not prosecuting and sentencing 18 U.S.C. § 2320 violators more vigorously? 18 U.S.C. § 2320 is relatively easy to prove.172 However, courts are reluctant to impose harsh sentences with unclear Guidelines that appear to only permit using the retail value of an infringed item in rare cases.173

In 2010, courts sentenced 207 defendants of convicted counterfeit goods trafficking.174 Almost sixty percent of those defendants received no prison term at all.175 Of the few that were imprisoned, the majority received less than two years in prison.176 Ten convicted defendants were sentenced to 25-36 months in prison, seven received a sentence of 37-60 months in prison, and only four of the defendants convicted were handed prison sentences of more than 60 months.177 Surprisingly, fewer defendants were sentenced to prison for trademark infringement in 2010 than in 2009,178 although data shows that counterfeit goods are trafficked at higher rates each year.179

In order to help eliminate the problems that trafficking counterfeit goods brings to our nation’s economy, courts need to use the retail value of the infringed item to determine sentencing. By employing retail value of the infringed, rather than infringing, items, defendants will be subject to a harsher sentence for trademark counterfeiting. Not only will this change provide a general deterrent for the masses of counterfeiters, but the specific deterrence for each defendant will be extremely effective.

In most cases, there are huge price disparities between infringed and infringing item.180 Perhaps this price difference has to do with the various courts’ reluctance to impose harsh penalties. Some may argue this is an unfair valuation.181 The counterfeiter is only likely to profit marginally in comparison to the trademark holder, and the trademark holder is not likely losing out on direct purchases because those who purchase counterfeit goods are not likely to pay the retail price tag. However, counterfeiting is a problem that needs to be taken seriously because of its grave impacts and those who violate §2320 should be subject to harsh penalties.172 IPEC Report. In 2010, out of the 259 defendants that Assistant United States Attorneys charged with copyright or trademark infringement, 207 of those defendants were convicted and sentenced.173 77 Fordham L. Rev. at 1170174 IPEC Report175 Id., 121 out of 207 defendants received no prison term after being convicted of counterfeiting176 Id., 38 defendants received prison sentences of 1-12 months in prison and 27 were sentenced to prison for 13-24 months177 Id.178Id., 97 defendants were given prison terms 2009 while only 86 were sentenced to prison in 2010.179 Id.180 Id. CBP and ICE HSI had 19,959 intellectual property seizures in FY 2010.The domestic value of the seized goods—i.e., the value of the infringing goods, not the manufacturer’s suggested retail price (MSRP) for legitimate product—was $188.1 million. The estimated MSRP of the seized goods—i.e., the value the infringing goods would have had if they had been genuine—was $1.4 billion.

18177 Fordham L. Rev. 1163. If the value was based primarily on retail value, the valuation “would overstate substantially the pecuniary harm caused to…trademark owners.”

17

c. Confusion with “Infringed” versus “Infringing” Retail Value Leads to Inconsistent Sentences

The Guidelines provide that the infringement amount is to be calculated by the retail value of the infringed item, multiplied by the number of infringing items, in a case involving any of the following:182 (1) the infringing item is, or appears to a reasonably informed purchaser to be, identical or substantially equivalent to, or likely to cause confusion with, the infringed item,183 or (2) the retail price of the infringing item is not less than 75% of the retail price of the infringed item,184 or (3)the retail value of the infringing item is difficult or impossible to determine without unduly complicating or prolonging the sentencing,185 or (4) the retail value of the infringed item provides a more accurate assessment of the pecuniary harm to the trademark owner.186 After considering all of the possibilities with which to calculate the infringement amount based on the retail value of the legitimate good, the court is unable to determine that any of the situations apply, it is then encouraged to use the retail value of the counterfeit item to determine the infringement amount.187

The Guidelines appear to offer a straightforward application of the use of the retail value of the infringed item when calculating the infringement amount. However, courts struggle with the calculation of the infringement amount to determine sentencing.188 This difficulty in calculation results in the courts only applying retail value of the genuine good in very rare cases.189

Additionally, many courts are confused with the application of infringed or infringing goods to determine infringement amount.190 In United States v. Kim,191 the district court erroneously applied the phrase “retail value of infringing items” to mean the retail value of the

182 Note that these are only the applicable factors to luxury goods; 18 USCS Appx. 2B5.3 is used as a guideline for sentencing in copyright cases as well not applicable to this paper183 United States v. Alim, 256 Fed. Appx. 236, 240-241 (11th Cir. Ala. 2007) (Defendant’s stepson testified that he could not tell the difference between the infringing items and the genuine items, even though he worked in the business of counterfeit goods)

184 United States v. Larracuente, 952 F. 2d 672, 674-75 (2nd Cir. 1992) (high quality counterfeits should be valued at the retail price of the genuine items they are infringing)185. Cho, 136 F. 3d 982 (holding that it is “not clear error” for the district court to use the retail value of the genuine items to calculate the retail value of the counterfeit items, especially when it is difficult to calculate the counterfeit price)186 §2B5.3, cmt., Application Note187 Id., cmt. n.2(B)188 77 Fordham L. Rev. 1170189 Id.190 Id.191 Kim, 963 F.2d 65, 66-70

18

genuine (infringed) items.192 The circuit court then found that the Guidelines’ “clear and unambiguous phrase” discussing the “retail value of the infringing items” obviously refers to the value of the counterfeit merchandise.193 In a roundabout manner, the court eventually determined that the district court’s use of retail value of the infringed item was relevant in determining the retail value of the infringing counterfeit goods.194

Although Kim was decided before subsequent amendments,195 it created an authority that the retail value of the counterfeit item was the appropriate measure for which to determine enhancement.196 Courts following the Kim line of reasoning provided that the proper way to calculate loss was to determine the value of the counterfeit goods.197

Cases decided after the Guidelines were amended to allow for consideration of the value of the infringed item still continue to employ the application of the infringing value in determining the infringement amount.198 Courts believe that the Guidelines only permit the use of the genuine good’s retail value in only very rare cases.199

In United States v. Foote,200 the court held that the offense level was to be calculated based on the value of the infringing goods.201 Similarly, the court in United States v. Slater202 stated that courts should be given considerable leeway in determining the retail value of the

192 Id.193 Id.194 Id.195 Prosecuting Intellectual Property Crimes. Department of Justice. Sentencing Guidelines revised in 2000 to include sentencing determinations based on the amount of harm the defendant caused, whether he displaced the victim’s legitimate sales, and the difficulties in calculating the counterfeit’s value. Prior to the 2000 Amendments, the guidelines were silent as the legitimate good’s retail value and simply referred to the retail value of the counterfeit goods. The current guidelines instruct a court to apply the retail value of an authentic good if any of the factors listed in the commentary apply.196 However, this reliance may be improperly placed. United States v. Bao, 189 F.3d 860, 867 (9th Cir. 1999) (It appears that the defendant misinterpreted what Kim had said, in that the value of the infringing good should always be relied upon in determining the proper sentencing enhancement.)

197 Cho, 136 F.3d 982-986 (“Kim squarely stands for the proposition that the retail value of the infringing items determines the § 2F1.1 enhancement.”)198 77 Fordham L. Rev. at 1170199 Id. 200 Foote, 2003 U.S. Dist. LEXIS 19312, 16-25201 Id., (holding that the offense level is to be determined based on the total retail value of all counterfeit items sold by the defendant; the court looked at the defendant’s bank account records to determine this as there was no evidence of the sales in the trial record)

202 348 F.3d 666, 670 (7th Cir. 2003)

19

infringing items when calculating the infringement amount. Additionally, even after the considerable flexibility the Guidelines offer to courts to utilize the retail value of the infringed item,203 some courts simply refuse to even consider the genuine good’s value.204

By varying sentencing considerations, inconsistent penalties result based on jurisdiction, or even sentencing judge. Defendants are left in the dark as to what kind of sentence they might possibly face, as the value used could be the difference of a small fine to imprisonment. Not one factor appears to be determinative in the post-2000 Amendment Guidelines era, although prior to the amendment, it appears that courts used price and quality as major factors in determining the defendant’s sentence.205

d. Reluctance or Confusion?

It is possible that reluctance, rather than confusion, is the reason that the majority of counterfeiters are not sentenced to prison. Several courts have made it clear that although trademark infringement is against the law, it is not as serious of a felony as other crimes.206

203 §2B5.3 “The infringement amount is the retail value of the infringed item…in a case involving any of the following…”204 Hanna, 2003 U.S. Dist. LEXIS 20564 (neglecting to even take into consideration the value of the genuine goods when attempting to determine the defendant’s sentence where the value of counterfeit Coach handbags he sold was between $5,000-$10,000)

205 Larracuente, at 672 (high-quality fakes should be valued at the retail price of the genuine good); Bao, 189 F. 3d 860 (retail value of the genuine items is a price ceiling in determining the infringement amount)206 United States v. Zheng Xiao Yi, 460 F. 3d 623(5th Cir. 2006) (the district court’s use of retail value of infringed items to provide a more accurate assessment of pecuniary harm to trademark owners was not based on any facts on record and the defendant’s sentence was remanded); United States v. Diallo, 575 F. 3d 252 (3d Cir. 2009) (even though defendant was a repeat offender, the court imposed a lenient sentence based on street value, rather than genuine, because the court believed this reflected a more accurate assessment o the harm caused to the trademark holder caused by counterfeiting. Amongst the vast amount of counterfeit items Diallo trafficked, he had counterfeit Prada handbags (genuine retail value starting at $570-http://usa.prada.com/en/US/e-store/) and Louis Vuitton handbags (genuine retail value starting at $730-http://www.louisvuitton.com/us/flash/index.jsp?direct1=home_entry_us); United States v. Kim, 2008 U.S. Dist. LEXIS 80043 (D. Idaho, Aug. 29, 2008) (A defendant selling counterfeit Calvin Klein, Tommy Hilfiger, and Nike t-shirts at a flea market was unlikely “stealing sales” from trademark holders. The court departed from the Sentencing Guidelines recommendations of 10-16 months imprisonment and imposed a one month incarceration period, followed by nine months home detention. The court reasoned that probation might be too lenient, but punishment of one month in prison would be sufficient to “sent the message that taking advantage” of trademark holders will be punished. The court here explained at great

20

In United States v. Arman, 207 the court held that the 63-month prison sentence recommended by the Guidelines was “overly harsh” for a defendant who was convicted of trafficking counterfeit goods.208 It notes that counterfeiting of any kind is a “serious offense and warrants considerable punishment,” however, since Arman trafficked counterfeit cameras, his penalty needed to be less severe.209 Some of the reasons the court cited for this departure from the Guidelines were that fake “cameras, handbags, sunglasses and watches do not pose a serious threat to the health and safety of unwary consumers,” and the trademark holder’s revenue was not threatened.210 The Arman court noted that harsh punishments for average street vendors who sell fake purses, sunglasses and cameras was not what Congress intended when it created more severe sentencing.211

Perhaps the courts reluctant to impose harsh sentences on traffickers of counterfeit luxury goods are correct in their rulings. Why spend tax dollars putting a street vendor selling fake Louis Vuitton purses in jail when we have rapists and murderers still on the streets? If, as the Arman court suggests,212 Congressional intent in creating more severe sentencing guidelines was not aimed at low level street vendors, we could be putting innocent criminals in jail.213

If Congress intended a disparity in the treatment amongst low level street vendors, just trying to make an “honest” living, and hardened criminals using counterfeit luxury goods to fund their illicit activities, it would have clearly done so. Mitigating factors are present in the Guidelines,214 as well as departure considerations for particularly serious offenses.215

length its desire to not even impose a criminal sentence; however, it begrudgingly concludes that it is “not the role of the court to tell Congress how to protect the rights of trademark holders and the sanctity of commerce.”

207 2006 U.S. Dist. LEXIS 4592, 4-6 (N.D. Ill. Feb. 2, 2006)208 Id. 209 Id.210 Id., The court noted that since Arman’s goods were “obviously fake,” it was unlikely that the customers would mistakenly purchase one of his cameras, believing them to be genuine. The court continues, in stating that the cameras, like many of the “fake Louis Vuitton handbags and Gucci sunglasses” were a mere “substitute for the genuine article that the purchases were unable to afford.” 211 Id.212 Id.213Counterfeiting is a crime; a felony at that. 18 USC § 2320. Congress was clear that its intention was to criminalize counterfeiting. There are no innocent counterfeit goods traffickers.214§ 2B5.3, cmt. App. N2(B)215 Id., at N4. The departure considerations also provide for departure from the Guidelines when “the method used to calculate the infringement amount is based upon a formula or extrapolation that results in an estimated amount that may substantially exceed the actual pecuniary harm caused to the copyright or trademark owner.” While there are obvious important reasons for this departure, the wide scope of the departure and deference given to the courts appears to go against congressional intent in making counterfeiting a crime in the first place. In order to deter

21

D. Solutions to Sentencing Problems: Consistent Use of “Infringed” Item’s Retail Value

In order to sufficiently deter counterfeit goods traffickers, it is necessary to implement consistent use of the retail value of the infringed item in determining the infringement amount for sentencing enhancements. Courts often cite that the infringing value more accurately reflects the pecuniary harm to the trademark holder.216 Valuing the product at the infringing value may seem fairer to the defendant, as he did not receive the benefit of the Coach or Louis Vuitton price tag. However, this does not take into account that the defendant actually did receive the benefit of the good will and reputation that Coach and Louis Vuitton have with the defendant’s customers. Regardless of the discounted price tag, the only reason the customers purchased the defendant’s products was because of the name attached to them, a name that was not the defendant’s own, and not at his leisure to use.

Additionally, imposing a lighter sentence is obviously not serving the purpose of general deterrence,217 as more counterfeiters are investigated each year.218 It simply makes more sense for courts to implement sentences with the infringement amount based on the retail value of the infringed item.

One of the factors that determine whether the court uses the infringed value is determining if the counterfeit good was “substantially indistinguishable” from, or “likely to cause confusion” to a reasonably informed purchaser, leading that person to believe the counterfeit good was the genuine good.219 This factor is identical to one that must be proved at trial.220 The government goes through great lengths to prove this confusion at trial.221

criminals, it cannot be said that courts are given complete deference to decide what this pecuniary harm might be. Since there is no guidance for determining the issue in the Guidelines, it is necessary to note that this article would also argue to change the departure considerations. This article would propose that courts may depart from the Guidelines only when the infringement amount would egregiously exceed the actual pecuniary harm caused to the copyright or trademark owner. It would also be necessary for Congress to cite examples in which this would be an egregious overstatement of the pecuniary harm; this would ensure that the Guidelines were adhered to in order to remain consistent throughout the circuits and that counterfeiting is adequately deterred.216 Diallo, 575 F. 3d 252 217 Hanna, 2003 U.S. Dist. LEXIS 20564

218 IPEC Report219 §2B5.3, cmt. 220 18 USC§ 2320221 The government need not prove that the conduct results in actual confusion, because 2320 specifically requires only that the good causes a “likelihood of confusion.” (United States v. Yamin, 868 F. 2d 130). A court will reject a defendant’s arguments that his products are not likely to cause confusion because defendant disclosed the good’s counterfeit nature, (Foote, 2003

22

If the government sufficiently proved that the goods were “likely to cause confusion” to, or “substantially indistinguishable” from, the genuine goods in the defendant’s trial, this proof should be sufficient in sentencing as well. Sentencing is determined by preponderance of evidence, but beyond a reasonable doubt is a much higher standard that must be proved in a criminal trial. By forcing the courts to take a second look at whether the good was “likely to cause confusion” during sentencing,222 the government is faced with a duplicative burden of proving the same element during trial and at sentencing.223 If the element of “likely to cause confusion” is proved at trial, the sentencing judge should have no question that the proper retail value by which to base the infringement amount is the infringed item.

The infringing value should only be taken into account on rare occasions. For example, if the defendant only had a handful of counterfeit items to traffic, however, in that handful, he had ten Louis Vuitton purses, with a genuine retail price starting at $730,224 the court could take this mitigating factor into consideration. Considering that a counterfeit Louis Vuitton handbag could retail for as low as $20 (giving the defendant a net infringement amount of $200, which would subject him to a fine), courts will be able to take this factor into consideration to give a break to a small-time counterfeit goods dealer.

Last, if courts believe a defendant is truly remorseful and a prison sentence would be unnecessarily harsh,225 the courts could still use the infringed amount to determine probation226 plus a fine, restitution, or community service. Courts could ensure that counterfeiting was adequately deterred, but spare the most repentant defendants a harsh prison sentence.

Conclusion

U.S. Dist. LEXIS 19312, 16-25); the fake goods were so low in price that a reasonable purchaser would have known them to be fake, (United States v. Gonzalez, 630 F. Supp. 894, 896 (S.D. Fla. 1986)); or that the difference in quality was so obvious that a reasonable consumer would not believe the good was actually genuine. (United States v. Farmer, 370 F. 3d 435 (4th Cir. 2004)). Additionally, likelihood of confusion is satisfied if the good is likely to cause confusion in a post-sale context. (Yamin, 868 F.2d 130).

222 Alim, 256 Fed. Appx. 240-241 (used the trial court records to determine whether the good was likely to cause confusion and was substantially indistinguishable from genuine good)223. Prosecuting Intellectual Property Crimes. Department of Justice. The burden is a great one because this element is generally proved by an expert witness; this may prove to be costly.224 http://www.louisvuitton.com/us/flash/index.jsp?direct1=home_entry_us225 United States v. Song, 934 F.2d 105, 109 (7th Cir. Ind. 1991)226 Hanna, 2003 U.S. Dist. LEXIS 20564

23

The counterfeit epidemic is not going to go away. Celebrities and notable figures continue to flaunt the latest, most expensive fashions. It is human nature that those who cannot afford a real Louis Vuitton will want to obtain something close to it, and if counterfeit goods are readily available, people wanting to imitate the stars will do so, at a cheaper cost. Counterfeit goods appear as if they are here to stay.

Links to terrorism, the illicit drug trade, human trafficking, and health and safety hazards were reasons that Congress decided to get serious about counterfeiting. It is clear that the crime of counterfeiting is not simply an innocent attempt to make cheap luxury attainable to the masses.

While it is relatively easy to prosecute a violation of 18 USC §2320, courts reluctant to impose meaningful sentences on clearly guilty defendants might deter the government from even wasting resources in charging a counterfeit goods trafficker. The Sentencing Guidelines need to be changed to encourage courts to punish counterfeit goods traffickers so that the entire market is sufficiently deterred from committing the crime. It is necessary to amend the Guidelines to allow courts to punish 18 USC §2320 violators to the fullest extent. By using the value of the genuine, infringed good, rather than the counterfeit, infringing good, to determine the sentence. Creating disincentives to engage in counterfeit trafficking is necessary if Congress and the courts want to quell the epidemic that is infecting the economy, the fashion industry, and our everyday lives.

24