By Logan McEwen, JBA Franchise, Intellectual Property and Technology Committee co-chair
The internet and associated commerce have significantly reduced barriers for the entry of new and small businesses, primarily in terms of marketing and consumer reach.
What business owners and their attorneys encounter with increasing frequency are counterfeiters and unscrupulous competitors.
In this age of drop shipping, internet reviews, consumer forums, social media and digital storefronts, bad actors in the marketplace can hit the ground running to start counterfeiting your products or disparaging your business.
A tool to combat the rising tide of counterfeit goods can be found under Section 43(a) of the Lanham Act. More often than not, digital reach extends across state lines and so do the risks. This makes federal claims under the Lanham Act an invaluable tool against out-of-state counterfeiters and disparagers.
What often trips up businesses and their lawyers is drawing the line between the two claims covered by those provisions of the Lanham Act.
Section 43(a)(1)(A) of the Lanham Act addresses that sincerest form of commercial flattery: counterfeiting, passing-off and reverse passing-off.
Counterfeit handbags and watches used to be big business. Now batteries, electronic and traditional cigarettes, THC products and an increasing number of consumer electronics are being produced and sold by counterfeiters.
The first introduction your business or client is likely to have with a counterfeiting issue is through customer service: A retailer or distributor you don’t know, in a territory where you don’t do business, sold a product with your trademark on it but with an unrecognizable serial number.
Take for example the recent vaping-related lung illnesses and deaths. Most were attributed to illicit THC cartridges sold in jurisdictions where THC products are not legal for medicinal or recreational use. A few cases arose from legal purchases in THC regulated markets where the cartridges were counterfeit products.
While profits and potential sales are a concern, the greatest threat counterfeiters pose is decimating the goodwill you’ve built over years. Remember, you have a tool against counterfeiters, under Section 43(a)(1)(A), to stop them, confiscate the goods and stop future operations and sales.
The second tool is under Section 43(a)(1)(B) of the Lanham Act. It addresses false advertising that occurs when your competitors make false claims about your business or their own.
The rise in false advertising litigation seems logical due to the general rise in advertising. Online advertising removed the traditional barriers of production costs that kept otherwise inadvisable advertisements from being published.
Now, advertising can be published to thousands of consumers within seconds of it popping into someone’s head.
It’s important to know the Lanham Act provides a remedy against competitors, not consumers. Negative reviews by consumers, even if false, do not fall within the scope of the Lanham Act’s false advertising remedy.
Negative reviews by competitors pretending to be consumers also fall within the Lanham Act’s scope, if you can prove that connection.
One of the benefits of a Lanham Act false advertising claim is the remedies include corrective advertising, whether payment for you to perform the advertising or the court ordering the other party to directly publish corrective advertising.
The counterfeiting and false advertising provisions of the Lanham Act often are lumped together as unfair competition claims, but counsel for an injured business should be aware of the distinction.
A counterfeiting claim brought under Section 43(a)(1)(B) (false advertising) will be subject to dismissal, as will a false advertising claim under Section 43(a)(1)(A) (counterfeit claims). While the claim may be salvageable through amendment, it is not a great start for the attorney or their client, especially if there are time-sensitive matters like a preliminary injunction.
As the world gets smaller and louder, these legal tools will see increasing use in competitive markets.
Logan McEwen is an attorney with Marks Gray focusing on intellectual property litigation and real property.
