Regulatory: Reconsidering IP enforcement in light of increased counterfeiting prosecutions

Counterfeit goods can be dangerous for consumers and damaging to companies

Intellectual property crimes are on the rise because they are highly lucrative and historically there has been little criminal enforcement activity. Recently, however, federal agencies have begun to increase their efforts to investigate and prosecute IP violators. From the IP holder’s perspective, stepped-up enforcement raises the question: Is it better to pursue civil remedies or actively work with law enforcement to protect products and brands?

Shifting perceptions of counterfeiting

Once regarded as a victimless crime that involved selling cheap knockoff sunglasses and watches, counterfeiting is increasingly viewed as a serious threat to the public health. The Food and Drug Administration (FDA) estimates that counterfeit drugs account for approximately 10 to 15 percent of all pharmaceuticals sold in the world. A staggering 50 to 60 percent of drugs in developing countries are counterfeit. Other dangerous counterfeit consumer products that are commonly seized in U.S. ports include infant formula, toothpaste, automobile parts, batteries and electronic products. Counterfeit goods have even infiltrated military supply chains.

Counterfeiting also presents a serious threat to the economic well-being of American innovators. Based on 2005 estimates, counterfeiting costs the U.S. economy approximately $200 to $250 billion per year, and according to the FBI, Interpol and the World Customs Organization (WCO), approximately 5 to 7 percent of world trade ($512 billion) is in counterfeit goods. IP holders suffer lost sales, downward pressure on prices, damage to brand equity and consumer confidence and  costs associated with anti-counterfeiting and anti-piracy efforts.

The President, Congress and federal law enforcement agencies are responding to these threats. In October 2008, Congress enacted legislation creating a new U.S. Intellectual Property Enforcement Coordinator (IPEC). The IPEC harmonizes the efforts of the U.S. government agencies that have a stake in IP enforcement and coordinates international enforcement efforts. Additionally, Attorney General Eric Holder reestablished the Department of Justice’s Task Force on Intellectual Property, which coordinates international law enforcement investigations, and deployed two federal prosecutors to manage IP protection efforts in Southeast Asia and Eastern Europe.

Statistics from recent years show that these efforts are beginning to show real results: An increasing number of intellectual property investigations, arrests and seizures, and joint U.S./WCO and INTERPOL investigative operations. Overwhelming evidence points to future increases in these enforcement efforts.

Cause to reevaluate the current strategy

While civil remedies are important to enforcing IP rights, it is time for IP holders to consider referring cases to the National Intellectual Property Rights Coordination Center or to the appropriate U.S. Attorney’s Office. Such referrals increase the availability of combative tools, including:

  • Investigative techniques that are not available to private litigants, such as undercover operations, wiretaps and other electronic surveillance
  • Criminal and civil forfeiture of ill-gotten assets
  • International investigations conducted by law enforcement, thus avoiding the legal roadblocks and ethical pitfalls facing private litigants when gathering evidence abroad
  • Greater deterrent effect than private enforcement, especially given the increasing criminal penalties associated with IP crimes
  • Leverage in the form of government resources to protect IP rights

Federal agencies and prosecutors are actively looking to partner with IP holders to identify potential targets for prosecution. They will rely on IP holders to explain, for example, the product and the relevant market, the distribution channels, differences between the counterfeit product and the genuine article, methods of detecting a counterfeit product and counterfeiting’s effects on the innovator and the public. Absent cooperation, law enforcement will be hard-pressed to independently develop the necessary evidence or an appreciation of the harm the counterfeit product presents.

It would behoove the savvy IP holder to examine its current strategy for protecting its intellectual property rights and consider the pragmatics of a partnership with law enforcement.

Contributing Author

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Michael Buchanan

Michael F. Buchanan is a Partner in the Litigation department at Patterson Belknap Webb & Tyler LLP, where he focuses on patent litigation and white...

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Contributing Author

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Frank Cavanagh

Frank A. Cavanagh is an associate in Patterson Belknap Webb & Tyler LLP’s Litigation department.

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