Archive

counterfeiters

ALWAYS RESIST BEFORE YOU CEASE AND DESIST

I was contacted by the management of a consumer product line; the COO was in a panic “we are being sued for trademark infringement and we received a 30-day cease and desist letter.”

Me: First, let’s be clear. You are not being sued. This is only a threat.

Him: But I am looking at the court papers, we are being sued.

Me: These haven’t been filed.  They are just threatening to file those papers if you don’t agree to their demands — basically, to stop using the trademark within 30 days.

Him: That’s not possible! But…they are a multi-million dollar company. They hired a top NY law firm to handle this.  They will crush us.

Me: They are just trying to intimidate you. No need to panic — let’s figure out a strategy.

Trademark infringement is when someone uses a brand name, logo, or slogan to trade off the goodwill of an established company.  The main test is whether it whether there is substantial similarly such that a competitor’s mark causes confusion in the marketplace. For example, a beverage manufacturer could not adopt the mark “Koka Kola,” because although this mark is spelled differently from the famous  Coca Cola mark, it is still pronounced the same and therefore could cause confusion amongst buyers. Trademark law would stop a manufacturer from using the name Koka Kola because It would appear to be trading off the good-will of an existing brand name to promote its products.

Whether or not a party has infringed on another’s trademark is a question for the courts. Though, most trademark infringement cases are settled out of court and they start with sending the alleged infringer a “Cease and Desist” notice to prompt negotiations. You don’t necessarily need to hire a big law firm to handle your case; as a solo practitioner, I have successfully defended clients against infringement claims. This one case stands out in particular.

I reviewed the claims and I told my client this: “if you want to defend this trademark, you it is unclear whether you will succeed (the name and logo were actually quite similar) and it will probably cost you upwards of $100,000 in legal fees; if you lose, in addition to these fees, you may have to hand over all your profits and pay the other side’s legal fees as well.”

“We’ll have to think about this” he replied. Then he shared with me something else … “our product is being counterfeited by a Chinese manufacturer using our same packaging and trademark and it’s being sold at such a low cost that we can’t compete. In any event, we were planning to discontinue this product in a year or so anyhow.”

At this point my legal light bulb went off.

1) Their remaining product cycle is 1+ year(s).

2) The counterfeiter in China affects not only my client but the guys threatening to sue us as well.

With this, I had my strategy: We have leverage as a result of this counterfeiter (as it would be in the other side’s best interest to allow us to keep the trademark so we would have the ability to go after these counterfeiters). “My suggestion is that we negotiate for the rights for 1-2 years of continued use and then we agree to abandon the trademark.” My client loved this idea and I agreed to a flat rate to handle this matter.

The Negotiations Begin….

I respond to their cease and desist by suggesting a conference call.

Round 1: Started out as friendly conversation and quickly became patronizing.

Them: Have you any experience representing clients in a trademark action of this magnitude?

 Me: Sorry, what do you mean by magnitude?

Them:  What I mean is that this is a fairly serious matter. A great deal of money could be at stake for your client.

Me: Yes, I read your letter but it is not clear that you have a valid infringement claim.

Silence.

Them: We are authorized to release our claims if your client agrees to cease using its trademark  — which is deceptively similar to ours. We can draft up the papers by Monday.

Me:  With all due respect, the United States Patent and Trademark Office approved our marks 2 years ago.  We also have valid trademarks in 9 other countries. You had every opportunity to file an objection to our registrations before they were granted.  How many attorneys do you have over there anyhow? Isn’t someone responsible for tracking these things?

Tone change. Suddenly I was being taken seriously.

Them:  Look, Ms. Brillson, our clients are expecting us to settle this matter by the end of the month.

Me:  Gentlemen, I’d love to help you get this done.  Sorry – I have to run to another meeting and then I will be on travel until next Friday.  Shall we reconvene on Friday then?

Round 2:

Me: Good afternoon sirs…, Excuse me, I have an urgent call on another line, please hold. (I clocked a 6 minute billing increment and then rejoined the call).

Side note: find ways to crank up legal billing for other side; may encourage the other side to compromise more willingly.

Me: Thanks for holding gentlemen.  I conferred with my clients we agree to abandon the trademark within 3 years of today’s date.

Them: This is not an acceptable offer!  Are you sure you have properly advised your clients that large damages are at stake here?

Me: I will have to seek guidance from my clients before I can revise my offer. Unfortunately, the CEO is out dealing with some urgent business until next week.   You see, we just discovered that the product bearing the trademark name in question is being counterfeited. This is something that affects us all.

Sidebar note: We had just received news that our sales were down as a result of the illegal counterfeiter in china. We began talks with Chinese customs to attempt to seize these goods. See To Catch a Thief: Intellectual Property Rights in Action (BrillsonLAW, Dec. 12, 2012).

Round 3

Me: Gentlemen, I’d like to bring in your attention the grave issue we are addressing with respect to the Chinese counterfeiting I advised you of during our last call.  These goods bear our trademark – that same trademark you say is substantially similar to yours.  Surely your clients are concerned about this as well. They are currently selling to Big Lots throughout the US.

Them: Go on.

Me:  We are in the process of tracking down these counterfeiters and seizing their goods.  It is a costly and potentially lengthy process but one that will benefit us mutually.  We have been asked to make a large deposit with Customs in Hong Kong.  I would recommend that we split this deposit.

Them: We do not have any instructions from our client in this regard.

Me: Either way – it could take up to 2 years to stop this production completely. I think you can agree that any efforts on our part to curb this activity would be of mutual benefit.

Them: Possibily so.

Me:  Ok. It seems we are close to reaching an agreement.  The revised offer from my client is that they agree to abandon the trademark within 2 years.

Them: Our client will only agree to a 1 year extension.

Me:  Gentlemen, I understand what you are authorized to negotiate but didn’t we just agree that going after the counterfeiters in China would be mutually beneficial? 

Them: In theory, yes.

Me:   …and that it could take up to two years.

Them: I don’t see how this is relevant to our infringement claims.

Me:  Forgive me if I am missing something here?  Doesn’t my client need to have a valid trademark in order to pursue the counterfeiters?

Them: We will need to discuss this with our client.

Me: I will be on extended travel starting on Monday. As your clients had hoped to settle this by the end of the month, please advise them that if we do not have a deal in place by then our offer will be withdrawn. While we prefer to stay away from litigation, (only the lawyers win here, hey…chuckle. chuckle) we are pretty confident that our trademarks will be upheld.

Them: We will get back to you as soon as possible.

Round 4:

Them: Our clients have agreed to allow you to continue to use the trademark for 2 additional years.

Me: Great… 2 years from the date of the signed agreement.  Thanks, it’s been a pleasure.

            Them: Um…sorry…but….

Me: Gentlemen, sorry to cut you off but I have a call on the other line…would you like to hold?

Them: Um…We will draft up the agreement.

Take-aways: If you are the recipient of a cease and desist letter (which is normally the first step in alerting someone that that are potentially infringing on their intellectual property), here’s what to do:

Step One – don’t panic

Step Two – hire counsel with experience in intellectual property before doing anything

Step Three – break apart scenario and understand the big picture

Step Four – perform a cost/benefit analysis

Step Five – formulate a strategy and take control of negotiations

And remember…the underdog wins by using an entirely different strategy: identifying and exploiting their stronger opponent’s weaknesses. I look forward to hearing your thoughts and comments!

Global reach of the Internet means that sellers of counterfeit goods can reach consumers like never before. For this reason, you will want to protect your goods with patents and/or trademarks in those countries you will be selling, manufacturing or developing your products or services. The biggest violators are based in China, Indonesia, Taiwan and Mexico; with cheaper labor available, they are manufacturing knock-offs and selling to customers in your most lucrative markets.

Even if you’ve taken every precaution to file trademarks and patents…what happens when you find out your goods have been counterfeited or your trademark has been misappropriated?

I represented a company whose goods were being knocked off by a manufacturer in China. The freight forwarder erroneously sent us a copy of the counterfeiter’s bill of lading– identifying the goods under my client’s trademarked name. The bill of lading revealed that over $100,000 of pirated goods were being shipped F.O.B. Hong Kong to several international destinations.

As this product was both patented and trademarked, I contacted Customs in Hong Kong and reported the infringing activity — I thought we could easily have the pirated goods seized at the port. It turns out that even with proof in hand, in order to seize goods, a deposit of over $250,000 would be required for Customs to take any action – more than the value of the shipment! If the goods were found to be non-infringing, a portion of that money would go back to the owner of the goods to pay for his damages and inconvenience.

In any event, this money would be tied up for months, if not longer, while an investigation would be conducted – comparing the goods with the patent claims to determine whether they infringed upon my client’s patents. Comparatively, we learned that it would be easier to claim trademark infringement because a trademark could be visually evaluated (though damages for trademark infringement are significantly less than for patents).

After several weeks of haggling with Hong Kong Customs with no results, I decided to take a drastic measure and contact the Hong Kong police to report a theft and, at the same time hired local counsel to file an injunction (an order issued by a court that forces someone to do something or stop doing something  — in this instance, it stopped the agent from shipping out the goods to his customers).  This method proved most effective; we were able to successfully seize the goods and the Police notified the manufacturer’s local representative that the goods would be held (at a hefty daily storage charge) until the matter was decided.

I contacted the local agent and, in the style of Vito Corleone, made him an offer he couldn’t refuse:
“Tell your boss that we are willing to release all claims provided:                                                          —all profits on this shipment get paid directly to us.                                                                          –we will release the goods to you so you can forward them on to your customers in order for you to get paid.  However, we will require your company to sign a manufacturing/distribution agreement with monthly guaranteed minimums under a long-term contract commitment .”

 Note: We had to assume they were still making the goods and had new orders to fill; since the goods were of high quality, we decided to take the approach that if you can’t beat ’em, join ’em — as a result of this relationship, over the next few years, my client grew his profits significantly.

While not everyone is so lucky as to be handed information that leads them directly to their counterfeiters, by monitoring the Internet (particularly wholesale sites) you may be able to uncover proof that unauthorized sellers are pirating your goods. In some cases you may want to stop the counterfeiting and sue for damages —  in others, you may want to negotiate. Contact a lawyer to help you strategize and take action – sometimes they will work on a success-fee basis.

Take-aways:
1. While patents are more valuable than trademarks, it’s easier to catch a thief based on appearance (trademark/packaging) rather than functionality.
2. Trademark filings are more nuanced that many people think. In addition to performing a trademark similarly search, classifying goods and services and determining where to file are other important considerations.
3. Don’t spend the money until you need to – start with a single trademark/patent and file in other countries when you start doing business there; you can still claim the date of first use based on your original trademark filing.
4. Ballpark costs

  • Trademarks: $1,200 to $1,800 to hire a lawyer to handle the initial filing
  • Provisional Patents: Approx. $1,500-$2,500 depending on complexity (gives you 1 year to market your product/service before filing a full blown patent application)
  • Patents: Costs up to $10,000 for a utility patent and $5,000 for a design patent

Note: Ask your lawyer to prepare an international patent/ trademark strategy that coincides with your rollout schedule for your budgeting purposes.   

5. Having a registered trademark can help you take control over bad actors that register a domain name using your trademarked name (e.g. .net, .biz, .cn, etc) more on this later…                                   6. Remember to use the ™ symbol next to your trademark while it is pending approval and the ® symbol after you have registered it.

In my next blog, “Davy vs. Goliath” I’ll share my experience from the other side of the table – defending a trademark owner against threatened litigation. Thoughts? Comments?

This article is not intended to constitute legal advice or to take the place of conferring with your own attorney.

©2012 Paula Brillson. All Rights Reserved

NEWMAR Fire

DON'T BE A VICTIM OF NEWMAR RV CORP

Digital Law Group

Reach beyond the "norm" in order to see and achieve what is possible...

The Gust Blog

Truth and Technology Trumps Legalese and Bureaucracy

Truth and Technology Trumps Legalese and Bureaucracy

Startup.

Truth and Technology Trumps Legalese and Bureaucracy

The EmpLAWyerologist Firm

The Employer's Legal Wellness Professional

Law Firm Transitions Blog

Truth and Technology Trumps Legalese and Bureaucracy

Blogs from Andrew Romans

Truth and Technology Trumps Legalese and Bureaucracy

HighContrast

Simeon Simeonov on entrepreneurship, innovation & venture capital