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No More Knockoffs

Oct. 10, 2017
Here’s how your company can help stop the flow of counterfeit electrical products into the electrical market.

Counterfeit electrical and electronic supplies are an enormous global problem. According to the Organization for Economic Cooperation and Development (OECD), counterfeit products are a $500 billion problem worldwide. When we think of counterfeit products, we usually think of counterfeit handbags or footwear; however, the problem affecting technological products is equally serious. The issues caused by knockoff electric products are far more serious because counterfeits can cause property damage, physical harm and even severe burns and death.

The internet has changed everything. Its growth has contributed greatly to the plague of counterfeiting. Before the internet, counterfeit goods were sold on street corners, flea markets and in shady stores. Today, billions of consumers have access to the internet and can easily buy counterfeit products from abroad. The products are delivered to their front door by U.S. Mail. The internet has changed our way of life and e-commerce is growing at an amazing rate. Worldwide e-commerce sales are expected to reach $4 trillion by 2020.

E-commerce and electrical supplies. Several years ago, a camera battery manufacturer asked me to compare the number of counterfeit batteries sold in brick-and-mortar locations to batteries sold on the internet. We conducted a nationwide survey and the results were shocking. Batteries sold in stores were almost never counterfeit. By contrast, 30% of the batteries we purchased on the internet were counterfeit.

These results should not be surprising when we understand that the internet provides perfect cover for thieves to operate for the following reasons:

  • It’s an inexpensive platform. Little investment is needed to open a website or to sell on eBay, Amazon or Alibaba.
  • It provides anonymity. Sellers can easily hide their identities.
  • The internet provides access to buyers worldwide, so it’s a platform to reach millions of customers.
  • It’s relatively simple to open an online storefront.
  • If an internet store is closed down by legal authorities, it’s simple to open a new store.
  • Sellers can create fake “testimonials” and reviews, thereby fooling consumers into thinking that the sellers are trustworthy and the retail store is reliable.

A brief survey of the electrical goods sold on eBay and Amazon indicates the vast number of electrical supplies available on internet marketplaces. According to the National Association of Electrical Distributors (NAED), the top product categories sold in the electrical industry include fuses, circuit breakers, load centers and wire & cable.

For circuit breakers, I found 319,000 listings on eBay and 40,000 on Amazon. It’s not surprising that these products have so many listings. Other products affected by counterfeiting include power strips, surge protectors, switches, batteries, extension cords, electrical connectors, GFCIs, high-voltage surge arrestors, lighting fixtures and wire & cable.

Since a relatively high percentage of goods sold on internet marketplaces are counterfeits or knockoffs, we can conclude from the number of goods available on internet marketplaces that there are tens of thousands of unlawful electrical products sold on the internet.

Legal Remedies against counterfeit products

Electrical manufacturers, distributors and consumers are the victims of these counterfeit sellers. What can they do to protect themselves? One weapon that is available is the legal system. The United States has strong laws against counterfeit products, including criminal and civil laws.

Federal criminal law. Federal law, 18 USC § 2320 prohibits the use of a counterfeit trademark in connection with the sale of a product. Violators of this law can be imprisoned for up to 10 years and fined up to $2 million. A repeat violator can be imprisoned for up to 20 years and fined up to $5 million. These penalties are enhanced if a defendant knowingly or recklessly causes death from the sale of counterfeit products.

The potential federal penalties are very severe. In practice, however, federal prosecutors generally do not prosecute smaller cases and require that the complainant demonstrate significant financial loss or that consumers are endangered. As an alternative, victims can turn to state criminal laws for enforcement.

State criminal laws. More than 40 states now have criminal laws against trademark counterfeiting. It’s usually easier to get a state prosecutor interested in your case than a federal prosecutor, especially if the violator is located in your state. State police and district attorneys are becoming more knowledgeable about trademark violations and are receptive to requests that counterfeiters should be prosecuted.

Civil lawsuits. Federal law permits a victim of counterfeiting to sue the counterfeiter for damages. Courts can impose enhanced civil damages against a counterfeiter, which include:

1. Triple damages

2.  Statutory damages up to $2 million

3. Recovery of plaintiff’s attorneys’ fees

4. Civil seizure is extremely powerful remedy. Federal law allows a plaintiff, accompanied by law enforcement, to enter the defendant’s property without prior notice and to seize counterfeit goods and any equipment used to manufacture these goods.

Does enforcement against counterfeit and infringing goods work? According to Stephen Litchfield, Schneider Electric’s assistant general counsel, it’s effective. He has said:

“My perception based on activity level is that the number of counterfeit Square D circuit breakers have declined from what we were seeing in the last three years. I would like to think a good part of that has been our success in filing lawsuits against those selling these counterfeits. Getting indictments and successful prosecutions provides a chilling effect.”

Civil lawsuits are an effective tool to stop counterfeiters. However, many companies are concerned about the costs of civil enforcement. It is advisable, therefore, for companies to use experienced and skilled lawyers and to have discussions with them about budgeting and costs. A frank discussion at the beginning of a case can prevent surprises about the costs of enforcement.

U.S. Customs. United States Customs and Border Protection (CBP) is your first line of defense again counterfeit and unlawful products. CBP officers are stationed at all the major ports and are charged with inspecting imports and preventing the importation of infringing goods.

The CBP seizes over a billion dollars in infringing goods each year. In 2016, CBP conducted 31,000 seizures totaling $1.3 billion. CBP seizures of infringing consumer electronics accounted for $122 million of merchandise. An example of CBP’s efficiency is that in 2016 over 32,000 infringing batteries were removed from counterfeit hoverboards, thereby saving consumers from defective electric products that could have resulted in serious injury.

In order for the CBP to seize infringing goods, the manufacturer must record its trademark with CBP. This is different than registering a trademark with the U.S. Patent and Trademark Office. It’s not complicated and it is essential that you record your trademark with CBP in order to obtain the protection offered by U.S. Customs.

Working with UL. The Underwriters Laboratories (UL) trademark is a coveted mark of approval for electrical products. There are over 20 billion products with UL labels each year, and the UL trademark has been copied by unscrupulous sellers. UL has a vigorous program that works with law enforcement to remove products bearing counterfeit UL trademarks from the marketplace and to identify those responsible for their manufacture and distribution. It is helpful, therefore, for electrical manufacturers and distributors to enlist UL in their enforcement efforts and to gain from UL’s expertise in this area.

The problem caused by counterfeit goods will not disappear. A wise person said, “It’s a battle that we cannot win, but one that we cannot afford to lose.” Be on the winning side. If you use the weapons at your disposal, you can prevail in this fight.

PRACTICAL TIPS FOR FIGHTING COUNTERFEIT PRODUCTS               

1. Register your trademarks with the U.S. Patent and Trademark Office.

2. Record your trademarks with United States Customs and Border Protection (CBP). You also need to train Customs officers how to tell the difference between genuine and counterfeit products.

3. Be very cautious about buying goods on the internet. Remember that if a deal sounds too good to be true, it usually is.

4. Educate and train your employees about counterfeit products. Your employees are out in the field and may encounter infringing products before management does.

5. Work with trade organizations that are knowledgeable and have programs to fight counterfeit and unlawful electrical goods. These include UL, the National Association of Electrical Manufacturers (NEMA), the Electrical Safety Foundation International (ESFI) and NAED. There are also trade associations dedicated to anti-counterfeiting in all industries, such as the International Anti-Counterfeiting Coalition (IACC).

6. Understand the electrical products supply chain. It’s critical to use only trusted and reputable suppliers. If you are focused on getting only the best deal, regardless of quality and trustworthiness, you could easily fall victim to counterfeit goods. Is it really worthwhile to take the risk for a cheaper price? Remember that if you sell or install counterfeit goods, you are subject to criminal prosecution and you can be sued for breach of contract, gross negligence and fraud, especially if the goods cause injury or death.

7. Learn to spot counterfeit goods. Often the products are shoddily made or the packaging is cheap and second-rate.

8. Be tough on counterfeiters. Don’t make deals with them allowing them to sell the remainder of their infringing goods. They must surrender all their infringing goods and identify their suppliers. Most counterfeiters are recidivists and will strike you again, unless you give them no quarter and prevent their ongoing fraud.

The author is an attorney and a partner at Burns & Levinson LLP, Boston, MA. He is one of the nation’s leading lawyers in brand protection, anti-counterfeiting and gray market litigation. He can be reached at 617-345-3000 or at [email protected].