Update: The Stop Counterfeiting in Manufactured Goods Act
The electrical supply channel can better protect itself from counterfeit products by sharing information and encouraging active prosecution of counterfeiters around the globe.
By Ronald Rucker and Ben McIntosh
‘‘Counterfeiting is the new drugs," said Barbara Kolsun, former chair of the International AntiCounterfeiting Coalition.
Kolsun may be on to something: Some estimate that counterfeiting represents more than 5 percent of all world trade and costs the federal government $200 billion per year. Global counterfeit products total $500 billion per year, while the FBI believes pirating and counterfeiting cause U.S. companies to lose $250 billion per year.
The Stop Counterfeiting in Manufactured Goods Act became law on March 16, 2006. Among other things, it aimed to strengthen the nation’s counterfeiting laws by eliminating loopholes exploited by criminals. While there are only a few significant court cases interpreting the act, the cases can help one determine whether more legislation is needed.
In the case of United States v. Beydoun, the U.S. Fifth Circuit court held that a counterfeiter’s jail sentence would be determined, at least in part, by the number of counterfeit items produced, rather than the number actually sold.
Wajdi Abdulaziz Beydoun and his associates imported cigarette rolling papers falsely labeled as “Zig-Zags,” a registered U.S. Trademark. Beydoun was apprehended by U.S. officials and pled guilty to conspiracy to traffic in counterfeit goods and trafficking in counterfeit goods. At the sentencing phase, the U.S. government sought to imprison Beydoun for 46 to 57 months, the severity of the punishment due in large part to the fact that the government believed the “infringement amount” exceeded $1 million. In addition to the jail time, the government asked the court to order Beydoun to pay $1.85 million in restitution to the owner of the Zig-Zag trademark.
The lower court agreed with the government’s estimate and sentenced Beydoun to 46 months of imprisonment and three years of supervised release. However, the court set restitution at $566,267, multiplying the 1 million counterfeit booklets by the trademark owner’s gross profit per booklet.
Beydoun appealed his sentence and the restitution order. Beydoun’s argument was that his sentence was too high because it was based on the lower court’s use of the number of counterfeit booklets produced. Beydoun felt that since 32,640 booklets were shipped for distribution, only that amount should be considered. The appeals court rejected Beydoun’s argument, reasoning that the issue was not how many counterfeited items Beydoun sold, but how many he produced with the intent to sell. The court went on to state that since the crime of “trafficking in counterfeit goods” is complete when counterfeited items are produced with the intent to sell, it was proper to consider the 1 million counterfeit booklets made, not the 32,640 sold.
Beydoun also asked the court to set aside the lower court’s $566,267 restitution order. The court sided with Beydoun and held that the victim’s loss should be determined by multiplying the number of items actually put into the market by the victim’s lost net profit. Accordingly, the Fifth Circuit decided that the lower court was wrong to determine the restitution amount by multiplying 1 million booklets by the trademark owner’s gross profit per booklet.
The Beydoun holding reveals that courts will do their part to make sure counterfeiters serve sentences equal to their crimes. Even though we have made strides in the fight against counterfeiting, it is clear that those within the electrical supply industry have to work together.
“Collaboration of all parties in the electrical supply channel is critical to keeping the supply channel clean,” said Clark Silcox, general counsel for the National Electrical Manufacturers Association and an architect of the Stop Counterfeiting in Manufactured Goods Act. “By keeping the supply channel clean, we can protect the public from dangerous, inferior products while avoiding liability for items we didn’t manufacture.”
RUCKER is a managing shareholder in the law firm of Carmody MacDonald P.C., St. Louis, and serves as general counsel to NAED. He can be reached at 314.854.8677 or rer@carmodymacdonald.com. MCINTOSH is an associate with the law firm of Carmody MacDonald P.C., St. Louis. He can be reached at 314.854.8600 or bdm@carmodymacdonald.
