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Beauty & The Law The Perils of Counterfeit Beauty Products If the price is too good to be true, it probably is. by Jean Warshaw 58 June 2013 | beautystorebusiness.com hard time distinguishing low-end counterfeits from the genuine product and are often confused into believing they have bought a legitimate item. NOT ALL TRADEMARK INFRINGEMENTS ARE COUNTERFEITS Counterfeiting is a subset of trademark infringement. As I mentioned in the May 2011 Beauty & The Law column "So Here's To Your Good Name," you can get trademark rights just by using a name to identify your goods and services, or you can register your trademark with the state or federal government. Using a confusingly similar name on a similar product can be a trademark infringement even if the infringing product doesn't resemble the real thing. In contrast, a trademark must be registered with the federal government before a violation is classified as a counterfeit. Counterfeits are products that are labeled and packaged to look just like the real product, but are fakes that are usually made of cheaper materials. They bear a mark that is "substantially indistinguishable" from the trademark of a legitimate product, but they aren't authorized by the trademark owner, and they don't have the trademark owner's quality controls. Counterfeiters try to make their packages look like the real thing as much as possible. Gray-market goods are not counterfeits. They are products that are imported into the United States without authorization, but are made outside of the United States by someone authorized to use the trademark in the country where they are made. Similarly, product overruns are not counterfeits because they were authorized by the trademark owner; although the manufacturing agreement will probably ban their sale. Imitation goods are products that are similar to the genuine article, but don't have the genuine article's trademarks. Imitations could violate patents and trade secrets but since they don't bear the trademark they are not trademark infringements. Products labeled "If you like X then you'll love Y" aren't counterfeit because packaging isn't the same as the packaging for X. The package is clear that it contains Y. If consumers could be confused about the origin of the product, this type of labeling could still be a trademark infringement. PRIVATE ENFORCEMENT A federal law called the Lanham Act gives trademark owners who have registered their trademarks in the United States Patent and Trademark Office the right to sue counterfeiters who use those trademarks. If the counterfeiters intended to confuse or deceive purchasers about the source of the products, then the trademark owner is entitled to an award of the profits on account of the counterfeiting or the damages they suffered. Even if you can only guess at the amount of sales you lost to the counterfeiter, a court may award you between $1,000 and $200,000 for each trademark on each type of product. If the counterfeiter acted willfully, the award per trademark can soar to $1 million. These set ranges are called statutory damages, because they are established by the statute, not by the amount of damages to the trademark owner. A court can issue an injunction preventing the sale of the counterfeit product. If the trademark owner is willing to put up security for damages in case the product is not counterfeit, it may be able to persuade a court to have the counterfeit products seized without notice to the counterfeiter before the court finally resolves the issues, but only if the products don't come from a reputable merchant. The purpose of a seizure is to preserve evidence when the manufacturer or seller is a bootlegger who is not trustworthy and would not be likely to comply with court orders or even appear in court. If a court concludes that the product is counterfeit, it can order the product recalled and destroyed. A trademark owner who wins a court case can obtain treble damages if the defendant intentionally Image courtesy of Barry Burns COUNTERFEIT BEAUTY PRODUCTS HURT THE beauty industry and consumers in many ways, as "Making It & Faking It" by Leah Genuario in the April 2012 issue of Beauty Store Business pointed out. That informative feature is available online at beautystore business.com. It highlights the facts that counterfeit products cause consumers to lose trust in products, and counterfeits can actually hurt people. Counterfeits violate trademark rights and copyrights and diminish the value of those rights. As you would expect from the list of problems, counterfeits can expose beauty stores to needless lawsuits from suppliers and customers. Counterfeit products can be seized by government agencies, and there are criminal penalties for selling them. According to the U.S. Department of Homeland Security, $1.26 billion in counterfeit and pirated products were seized in 2012. Personal-care products and pharmaceuticals were 7% of the total, and 72% of all the counterfeit goods were from China. These numbers could be low because some industry organizations are reluctant to participate in studies that could publicize the extent of the problem and shake consumer confidence. In order to stop small shipments that enter the United States through the mail and delivery services, agencies in the DHS took down 697 websites that sold counterfeit and pirated goods last year. Global losses from counterfeiting and piracy are even more staggering. The Organisation for Economic Co-operation and Development, a group with 34 member countries, including the United States, concluded in 2007 that the value of counterfeit and pirated goods in international trade could have been $250 billion. That figure isn't up to date and doesn't even include domestically made counterfeit products. Traditionally, counterfeiters focused on luxury items but more recently have turned to products such as toothpaste, baby shampoo and hair dryers because of the significant profits they can make. Consumers have a