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Criminal Resource Manual

Criminal Resource Manual
CRM 1500-1999

1716. Trademark Counterfeiting -- Specific Exclusions From Definition Of "Counterfeit Mark"

There are two situations which the Congress intended to exclude from the definition of "counterfeit mark." The first involves so-called "overrun goods." The second involves so-called "parallel imports" or gray market" goods. With respect to overrun goods, the statutory definition explicitly excludes marks "used in connection with goods or services of which the manufacturer or producer was, at the time of the manufacture or production in question authorized to use the mark or designation for the type of goods or services so manufactured or produced, by the holder of the right to use such mark or designation." 18 U.S.C. § 2320(d). An example of this so-called "overrun exemption" would be in a case in which a manufacturer is licensed by a trademark owner to produce 500,000 umbrellas using the trademark owners mark and the trademark licensee produces an additional 500,000 umbrellas using that mark without authorization. See Joint Statement on Trademarking Counterfeiting Legislation, 130 Cong. Rec. H12076, H12079 (daily ed. Oct. 10, 1984) (hereinafter "Joint Statement"). Congress intended that the burden be on the defendant to prove that the goods or services in question fall within the overrun exemption. Id.

Congress did not intend the criminal provisions to apply to marks on so called "parallel imports" or "gray market" goods, in which both the goods and the marks are genuine, but which are sold outside of the trademarks owners authorized distribution channels. See Joint Statement, 130 Cong. Rec. H12077, H12079; Subsequent legislative history appears to suggest, however, that these exceptions should not necessarily be read to preclude prosecution of cases involving factory "seconds" or "rejects" that are knowingly sold as first quality goods. See H.R. Rep. No. 556, 104th Cong., 2d Sess. 3 (1996).

The following text is excerpted from the "Purpose and Summary" section of a House of Representatives report that describes amendments to 18 U.S.C. § 2320 resulting from the Anticounterfeiting Consumer Protection Act of 1996, Pub. L. 104-153, 110 Stat. 1386 (1996). H.R. Rep. No 556, 104th Cong., 2d Sess. 3 (1996).

Mr. Leonard S. Walton, the Deputy Assistant Commissioner of Investigations for the United States Customs Service, compared the pattern of criminal activity and organizational structure associated with counterfeiting to that of drug trafficking. For three years, Mr. Walton's agents investigated an expansive Korean crime syndicate that operated an enormous counterfeiting operation throughout America. In September 1995, that investigation culminated in coordinated raids in New York City and Los Angeles that netted $27 million in counterfeit merchandise and resulted in the indictments of 43 members of the crime syndicate. Mr. Walton explained that Section 2 of the bill, which applies RICO provisions in the criminal counterfeiting context, is essential to allow law enforcement agents to take down the entire criminal organization rather than merely react to each crime the organization commits.
Organized crime is not the only source of criminal commercial counterfeiting. In some cases, the source is an otherwise legitimate manufacturer of goods. This category of counterfeiters purchases "seconds" or "rejects" from a manufacturer, applies counterfeit labels, and sells the products as first quality. Another example is where the counterfeiter is a legitimate manufacturer of a low-grade or generic product, but mislabels them as a high-grade brand name product. The provisions of H.R. 2511 are directed toward this lower level opportunistic criminal activity as well as the more egregious cases involving organized crime syndicates.

H.R. Rep. No. 556, 104th Cong., 2d Sess. 3 (1996).

[cited in JM 9-68.100]