Vondran Legal® - Counterfeit Litigation Law Firm.  We represent both Plaintiff and Defendants in counterfeit and trademark cases.  Call us to discuss your case at (877) 276-5084.

Introduction

Are you facing accusations of selling counterfeit goods on e-commerce platforms like Etsy, eBay, or Amazon? Being accused of selling counterfeit items can be a daunting and stressful experience, especially when your business reputation and livelihood are on the line. These accusations can lead to account suspensions, hefty fines, or even legal action from brand owners or e-commerce platforms themselves.

In this blog, we will guide you through your legal rights and options if you are accused of selling counterfeit products. We will explore how to defend yourself against these allegations, navigate platform-specific procedures, and take proactive steps to protect your business. Our legal team specializes in defending sellers and small businesses accused of counterfeit sales. We understand the complexities of intellectual property law and e-commerce policies, and we are dedicated to ensuring that you receive fair treatment.

Have a plan of attack when accused of selling counterfeits

Here's a legal plan of action that focuses on minimizing liability, maintaining the client's reputation, and avoiding litigation where possible.  This is only a general response and not legal advice.  The responses will vary depending upon the situation and facts of the case.

1. Initial Client Consultation

• Gather Facts: We will discuss the transaction details with you. We need to understand how you got started in the business and how you found your supplier.  We need to review and contracts, agreements and emails between you and your supplier to determine if you believed you were not doing anything illegal.  For example, did the supplier offer you any warranties, or guarantees of authenticity?  The background of the case needs to be fully explored.
  
  
• Assess the Client's Good Faith: We are looking for evidence and clues that establish you, the seller, acted in good faith and had no knowledge of the counterfeit nature of the product at issue, whether clothing, jewelry, electronics goods etc.  Note: we handle a good number of Apple counterfeit sales cases.
  
  
• Review Contracts and Documents: We will need to review any contracts, sales agreements, invoices, brochures, websites, or authenticity certificates provided at the time of sale. Are there any disclaimers or terms limiting the seller's liability?

2. Immediate Actions

• Cease Sales and Notify Buyers: Depending upon how many purchasers at issue, it may be advisable to stop selling the alleged counterfeit goods and immediately and refrain from further transactions involving the disputed items. Proactively reach out to affected buyers, acknowledging the issue and expressing willingness to investigate and resolve the situation.  Many times, you may be dealing with some very upset and hostile purchasers, depending upon how much they paid for their goods.
  
  
• Conduct Internal Investigation: Investigate the source of the counterfeits. This includes contacting suppliers and verifying their credibility and the paperwork they provided. Secure proof of your attempts to verify authenticity, if any.
  
  
• Preserve Evidence: It is also important to make sure to preserve all potentially relevant evidence.  Secure all records related to the infringing goods, including purchase orders, communications with suppliers, marketing materials, and transaction details. This will be critical in both defending you and pursuing any third-party claims which may be viable, such as indemnification or third-party liability claims.

3. Communication Strategy

• Apologize and Offer Refunds: Again, this will depend on the nature of the case.  You may need to plan and develop a communication strategy for affected buyers. Express regret for the situation, clarify that you believed the fake goods to be authentic, and offer a resolution—usually full refunds or future credits.
  
  
• Offer Remediation: In addition to refunds, consider offering other forms of remediation (such as store credits or discounts) to preserve goodwill and reduce the likelihood of lawsuits.  Many people will not want to go to court to pursue smaller claims, however, there is always the risk of a class action lawsuit.

4. Legal Defense

• Prepare for Civil Claims: Buyers may pursue claims for fraud, false advertising, consumer fraud, breach of contract, or misrepresentation. A key defense will be the seller's lack of intent to deceive (good faith) and reliance on a trusted supplier.
  
  
• Analyze Potential Defenses:
  
  
• Good Faith Mistake: One defense or mitigating factors would be that the seller made a genuine mistake and did not knowingly sell counterfeit goods.

• Reliance on Supplier: It might also be argued that the client reasonably relied on the supplier's representations and documentation.

• Disclaimers in Sales Contracts: If the sales agreements included any disclaimers of warranties or representations of authenticity, these can be potentially asserted as defenses.

5. Third-Party Action

• Pursue Claims Against the Supplier: If the counterfeit merchandise was purchased from a supplier, we may want to investigate whether or not a valid claim for breach of contract, fraud, or negligent misrepresentation against the supplier exists. We will begin gathering evidence to prepare a potential claim for indemnification or compensation from the supplier.
  
  
• Demand Reimbursement: It might be required to send a detailed demand letter to the supplier for the cost of the counterfeit goods and any additional damages (such as legal fees or refunds paid to buyers).

6. Regulatory Considerations

• Comply with Consumer Protection Laws: Depending on where you do business, we would be wise to look into and ensure the the accused seller follows all relevant consumer protection regulations, including providing full refunds where required by law. This requires a review and understanding of any applicable state or federal laws regarding counterfeit goods and consumer protection.
  
  
• Report to Authorities: Depending on the jurisdiction, the client may be legally required to report the supplier to regulatory authorities if counterfeit goods are involved. This can also help mitigate liability and show good faith efforts to rectify the situation.

7. Mitigating Reputational Damage

• Public Relations Strategy: In the right case, we may need to explore hiring an experienced PR firm or public relations agency to carefully manage the narrative. Acknowledging the mistake publicly and detailing how the seller is working to remedy the situation can reduce reputational damage, which is crucial if you plan to continue sales after managing the crisis.
  
  
• Rebuilding Trust: Once the issue is resolved, implementing new verification processes and procedures to ensure product authenticity to prevent future issues and rebuild customer trust is also a key component to a counterfeit response strategy.

8. Pre-Litigation Settlement

• Negotiate Settlements: If litigation threats pour in, it will be crucial to have a plan in place to deal with this.  Attempts to settle disputes with buyers outside of court will be important to keep costs down. Refunds and additional remediation (like offering future discounts) may also reduce the chances of lawsuits (or arbitration demands if your contract with your buyers call for arbitration or mediation). Once cases are settled, the agreement should address provisions whereby buyers waive future claims related to the issue.  A strong and detailed settlement agreement is of paramount importance.
  
  
• Consider Mediation or Arbitration: If buyers are unwilling to settle amicably, offer alternative dispute resolution methods such as mediation or arbitration to avoid the cost and time of litigation.

9. Litigation Preparation

• If Buyers Sue: Be prepared to defend against potential lawsuits for fraud, breach of contract, or consumer protection violations. Build a defense based on the client's good faith, efforts to resolve the issue, and reliance on a third-party supplier.
  
  
• Limiting Damages: Work to limit damages by proving the client did not act with malice or fraudulent intent and offering refunds in good faith.

10. Future Risk Management

• Implement Verification Protocols: Once the cases are resolved, it would be prudent to review and advise your company regarding establishing robust verification protocols for future acquisitions of expensive items, including thorough vetting of suppliers and the use of third-party authentication services.
  
  
• Review and Update Contracts: You may also want to take this opportunity to review and update contracts to include strong disclaimers of authenticity and warranty limitations to protect against future claims.

This comprehensive plan should help you generally understand the various steps that should be considered if you our your company is being accused of selling counterfeit products.  This is not to mention the lawsuits that can follow from the trademark and copyright holders whose goods have been sold (without any profit to them).  Depending on the scope of your sales, these entities may also come to seek their fair share of profits, including filing a federal court lawsuit in some cases.

Potential Legal Ramifications

A seller of counterfeit goods, even if unaware of the fraudulent nature of the items, could face significant legal liability under both federal and state laws. The laws generally cover both civil and criminal penalties, with varying degrees of severity based on factors like intent, scale, and harm caused. Here's a breakdown of potential liability under counterfeit laws and statutes:

1. Federal Laws

 a. The Lanham Act (15 U.S.C. § 1114 and § 1125)

The Lanham Act is the primary federal law governing trademark infringement, including counterfeiting. It offers both civil and criminal penalties. 

• Trademark Infringement: If the jewelry bears counterfeit trademarks, the seller could be liable for trademark infringement under the Lanham Act. Even if the seller did not know the items were counterfeit, selling goods with counterfeit trademarks violates the Act.
  
  
• Civil Penalties:
  
  
• Damages: A trademark holder may sue the seller for actual damages, lost profits, and even the infringer's profits from selling the counterfeit goods.

• Statutory Damages: In cases involving counterfeit trademarks, plaintiffs can opt for statutory damages instead of proving actual damages. Statutory damages can range from $1,000 to $200,000 per counterfeit mark, per type of goods sold, depending on whether the violation was willful or not. In cases of willful infringement, this can increase up to $2 million.

• Injunctions: The court can order the seller to stop selling counterfeit goods and to destroy the counterfeit inventory.

• Attorney's Fees: The seller could also be liable for the plaintiff's attorney fees and court costs if the trademark owner prevails.
  
  
• Criminal Penalties: Under the Lanham Act, criminal charges may apply if the seller knowingly sold counterfeit goods:
  
  
• Fines: Individuals could face fines of up to $2 million for a first offense and $5 million for subsequent offenses.

• Imprisonment: For knowing violations, sellers may be sentenced to up to 10 years in prison for first-time offenders and up to 20 years for repeat offenders.

b. The Stop Counterfeiting in Manufactured Goods Act (2006)

This amendment to the Lanham Act strengthens penalties for trafficking in counterfeit goods. It covers both the manufacture and sale of counterfeit labels and goods. 

• Prohibition of Counterfeit Marks: The Act criminalizes trafficking in goods or services bearing counterfeit trademarks. If the seller sold jewelry with counterfeit logos or brand marks, they could face criminal liability even if they did not manufacture the goods.
  
  
• Forfeiture and Destruction: The Act mandates the forfeiture and destruction of counterfeit goods, equipment used to make them, and any property derived from the proceeds of counterfeit sales.

c. 18 U.S.C. § 2320 – Trafficking in Counterfeit Goods or Services

This federal criminal statute addresses the trafficking of counterfeit goods and can lead to severe criminal penalties for sellers, even if they believed the goods were legitimate.

• Elements of the Offense: To be found guilty, the prosecution must show that the seller intentionally trafficked in goods or services and knew that these goods or services used a counterfeit mark.
  
  
• Penalties:
  
  
• First-Time Offenders: Up to 10 years in prison and fines up to $2 million for individuals and $5 million for organizations.
• Repeat Offenders: Up to 20 years in prison and higher fines.
• Forfeiture: The seller may have to forfeit the counterfeit goods and any property used to commit the offense.
• Restitution: Courts may order restitution to victims, including customers who bought the counterfeit goods.

 2. State Laws

 a. State Trademark Counterfeiting Laws

Many states have their own laws dealing with trademark counterfeiting, often mirroring the Lanham Act. State laws provide for both civil and criminal penalties, and many states have adopted uniform trademark laws based on the federal framework.

• Civil Penalties: States often allow trademark owners to seek damages, injunctions, and attorney fees from sellers of counterfeit goods. In some states, damages may be tripled (treble damages) if the seller's conduct is deemed willful.
  
  
• Criminal Penalties: Depending on the state, selling counterfeit goods can lead to misdemeanor or felony charges. Penalties may include fines, imprisonment, or both. Fines can range from thousands to millions of dollars, and prison terms may extend from months to several years.

 b. State Consumer Protection and Unfair Competition Laws

States also regulate counterfeit goods under consumer protection laws, which prohibit unfair and deceptive business practices, including selling fake goods as genuine. 

• Unfair and Deceptive Practices: A seller could be found liable for misrepresenting counterfeit goods as authentic, even if they were unaware of the counterfeit nature. Courts will evaluate whether the seller acted in a way that could deceive reasonable consumers.
  
  
• Civil Remedies: Buyers may seek remedies like rescission (voiding the sale), refunds, and damages. Some states allow for treble damages under consumer protection statutes for willful violations.
  
  
• Attorney General Action: State Attorneys General may also bring civil actions against sellers of counterfeit goods under state laws.

 3. Potential liability to Buyers 

a. Fraud

• Common Law Fraud: If a buyer can prove that the seller knowingly misrepresented the authenticity of the jewelry (even if the seller genuinely believed it to be real), the seller could face liability for fraud. The key elements are a false representation, intent to deceive (even if reckless disregard), reliance by the buyer, and harm caused by the deception.
  
  
• Punitive Damages: In cases of fraud, the court may award punitive damages to punish the seller, particularly if the misrepresentation was deemed reckless or intentional.

b. Breach of Contract and Warranty

• Breach of Contract: Buyers may claim that the sale of counterfeit goods constituted a breach of the sales contract, especially if authenticity was expressly promised.
  
  
• Breach of Warranty: If the seller provided a warranty of authenticity, even impliedly, they could be liable for breaching this warranty if the goods turned out to be counterfeit.

4. Restitution and Refunds

 Sellers may be required to offer full refunds to all buyers who purchased counterfeit jewelry, even if the seller acted in good faith. Courts may also order restitution in civil cases, requiring the seller to pay back the money obtained from selling counterfeit goods.

5. Defenses

A seller may assert several defenses in response to claims of liability under counterfeit laws:

• Lack of Knowledge: If the seller genuinely did not know the goods were counterfeit, this can be a defense to criminal charges, although it is less effective in civil cases.
  
  
• Good Faith: Demonstrating that the seller took reasonable steps to verify the authenticity of the goods could mitigate penalties or limit damages.
  
  
• Supplier Fraud: If the seller relied on representations made by a supplier who provided false documents or assurances, the seller may pursue indemnity claims against the supplier. However, this does not always absolve the seller of liability to buyers.

6. Conclusion

 The seller of counterfeit goods, even acting in good faith, could face substantial civil and criminal liability under both federal and state laws. The penalties include damages, restitution, injunctions, forfeiture, fines, and even imprisonment. Proper legal guidance, early resolution efforts, and a robust defense strategy are critical in mitigating these risks.

Contact Vondran Legal®

Don't let accusations ruin your business. If you've been accused of selling counterfeit goods, contact us today for a consultation to discuss your case and how we can help you fight back.  We have been helping businesses and individuals since 2004 resolve business and intellectual property disputes including copyright, trademark, right of publicity and trade secret cases.  Call us for more information at (877) 276-5084 or fill out the contact form on the right side of this page and we will reach out to you.