Counterfeits, Knockoffs, Replicas: Parsing the Legal Implications

The legal implications between knockoffs and illegal goods.

Consider these scenarios: Consumer A walks down Canal Street in New York City and a cheery-eyed vendor beckons to her to look at a collection of “Louis Vuitton handbags — the very best!” She peruses a few and then after a brief haggle forks over $80 for a Speedy 30 — complete with the classic LV monogram, which is far cheaper than the actual $970 retail price of the bag.

Meanwhile, Consumer B, walking along Wilshire Boulevard in Beverly Hills, strolls into a specialty retail shop and spots a handbag similar to the one just bought by Consumer A in New York. But it isn’t identical to the Speedy 30; this bag is from New Fashion Brand and doesn’t have the same monogrammed leather. It is real leather, though. And the bag is $400 — less than half as much as what the Speedy 30 sells for online from Louis Vuitton.

This story first appeared in the May 25, 2016 issue of WWD.  Subscribe Today.

Then, in London, Consumer C Googles “Speedy 30 replica,” which results in a page that includes dozens of YouTube reviews of the bag and several web sites offering a “Louis Vuitton Damier Speedy 30” for $170. It looks nice, but doesn’t have the monogram. The site says it is leather and has brass fittings. She clicks “buy.”

Finally, Consumer D, in Chicago, is online and Googles “Speedy 30 cheap,” which takes her to several e-commerce sites that offer the Speedy 30 with monogram for $32. She buys it.

In each of these situations, the shopper has failed to buy an authentic Louis Vuitton Speedy 30 handbag. In scenario B she was lured away from doing so, but were the shoppers being deceived? Perhaps. Moreover, were any of these transactions illegal?

Ah, there’s the rub.

In the fashion world, and even with other products, there are fine — very fine — distinctions between a counterfeit, a knockoff and a replica. A counterfeit is clearly illegal and brands and governments spend millions fighting those because, in some cases, the sale of counterfeit goods can help fuel terrorism. Brands such as Coach, Tory Burch, Cartier and Polo Ralph Lauren have all won judgments in the hundreds of millions of dollars against web sites selling counterfeits — although most of these are in China, and the brands are unlikely ever to recover the money.

As for knockoffs — they aren’t illegal unless a brand can prove that the resemblance is so close that the consumer is misled. But how to tell the difference? As a primer, here’s a quick definition of each:

• Counterfeit: Essentially a product that is identical to another product, and thereby infringes upon the trademark of that product mark (trademark). These are typically sold online, and via street corner and back-alley vendors. See scenarios A and D, above.

• Knockoff: A product that resembles another item, but isn’t exactly identical. Can be found online and in stores, often at reputable retailers or brands, usually at a cheaper price than the original items that inspired them. Not illegal, but can be challenged in court by the brand that inspired the design. See scenarios B and C.

• Replica: A relatively new term coined by counterfeiters to promote their products online. When replicas are identical to existing marks, it is illegal. But there are offerings online such as in case C that resemble a design, but is not identical, therefore it is similar to a knockoff.

Amy Goldsmith, partner in the retail group and co-chair of the intellectual property practice group at Tarter Krinsky & Drogin, describes the word “knockoff” as a “colloquial term, which encompasses both counterfeits and infringements of any products, including fashion goods such as handbags, apparel, footwear and the catchall term — accessories.”

With counterfeit items, Goldsmith said the U.S. Trademark Act defines it as “substantially indistinguishable from a registered mark.” And it in a copyright context, Goldsmith said the term “counterfeit label” means an identifying label or container that appears to be genuine, but is not.

“The counterfeit is hard to distinguish from the original — although there are usually quality differences between the genuine goods, labels or packaging and the fake ones.”

There also are usually significant price differences, as in scenario A. But in addition to counterfeiting there is “trademark infringement,” which is something related, but different.

Goldsmith added that trademark infringement “occurs when someone makes an unauthorized use of a trademark on or in connection with goods or services in a manner that is likely to cause confusion.”

In other words, putting a brand name on a product that is clearly fake, or as with the sketch with this story, coming up with a brand name that is close to — but not identical to — a real one. Think “Nyke” for Nike, for example, as both use a version of the famed swoosh.

There are other distinctions as well.

“Contrary to counterfeiting, infringement is not limited to those who own registrations,” Goldsmith explained. “If your company has common law rights, then those rights can be infringed by the use of an identical mark or a substantially similar mark in a way that causes confusion.”

Ed Weisz, a partner in the intellectual property department at Cozen O’Connor in New York, said trademark laws are “designed to protect the public from being deceived into thinking that the goods being purchased are from a different source.” Again, counterfeits have identical marks while knockoffs use similar designs.

Weisz said, “As a result, it is easier for a consumer to be deceived with respect to counterfeit goods — as opposed to a knockoff product — and, as a result, damages against the counterfeiter can be more severe, and easier for a plaintiff to obtain.”

David Harlow, intellectual property attorney at Manning, Fulton & Skinner PA, agreed and added that the idea of a counterfeit “is to give the purchaser the impression that he or she is purchasing the genuine article.”

Naree Chan, legal counsel at legaltemplates.net, said while selling counterfeit products is “illegal in the U.S., the laws currently do not punish someone for buying counterfeits.”

“In fact, the laws assume consumers are innocently being duped and try to protect honest Americans from the bad intentions of manufacturers looking to make a quick buck,” Chan said. “In reality, as we know, many consumers are looking for a cheaper version of a fancy price-tagged item. France and Italy, for example, recognize this reality and punish tourists who buy fake designer goods.”

New York-based fashion attorney Elizabeth Kurpis, an associate at the law firm Mintz Levin, described the differences between counterfeits and knockoffs as one being legal and the other not.

“But trademark owners may still bring civil lawsuits against those that produce and sell either, depending on the circumstances,” Kurpis said. “At this time, there is no straightforward definition of ‘knockoff.’ It is generally understood as a cheap copy intended to evoke the original product by having a similar appearance, but without the identical or nearly identical use of a registered trademark.”

Andrei Mincov, founder and chief executive officer of the Trademark Factory, said that in most cases “there’s a gray area between a knockoff and a counterfeit because it is not always clear if certain features of an item can serve and are recognized as a trademark. A good example would be the red soles of Louboutin shoes.”

In the case of Christian Louboutin, the brand has been in and out of court for several years, including a fight with Yves Saint Laurent and Van Haren, to battle to protect what it sees as its trademarked red soles.

In the $600 billion counterfeit market, which includes everything from handbags and apparel to electronics and medicine, battles are fought in courts as well as on the street. Federal, state and local investigators regularly make raids on alleged counterfeiters — typically where the goods are sold. But with the emergence of online sites, the fight against counterfeits has become more challenging.

In the courtroom, most cases involve brands and designers looking to protect their precious intellectual property. In regard to the legal implications, Mincov said as with “any legal dispute escalated into a courtroom, the outcome often depends on how much money both parties are willing to throw at their lawyers.

“But beyond that, the first thing the court will need to establish is what protected content, if any, was used by the defendant,” Mincov explained. “This is very easy in case of registered trademarks — which is precisely why they register trademarks — but becomes increasingly difficult as the content gradually moves away from what is called trade dress toward a more ambiguous ‘general style’ of an item.”

Mincov said this is at the heart of the legal interpretation, and with knockoffs, “the court is dealing with things that are more ephemeral. And the outcome often depends on which of the parties has a better story.”

Greg Shatan, a New York-based attorney in the brand protection practice at McCarter & English, said in a knockoff case, “it can be much more difficult to prove trademark infringement because the name and logo are nowhere to be found.”

Shatan said “without the trademark dimension, [a knockoff case] can be much more challenging than a counterfeit case. Clothing or accessory designs are typically not covered by copyright law. Here again, you may be able to show that a particular ornamental aspect of the product is the type of work that’s covered by copyright, but a copyrighted work can’t be functional, so that’s a hurdle to overcome.”

Shatan said at the moment U.S. law “doesn’t yet protect fashion designs as such — we’ve come close to passing laws that would protect fashion designs, but it hasn’t happened yet. Europe is ahead of us on this point. Without trademark or copyright claims, you can turn to unfair competition or consumer protection statutes, among other things, but those can be more difficult to apply in these situations.”

With counterfeits, Harlow said “locating the manufacturers and ultimately stopping the flow of counterfeit goods can be more difficult than with knockoffs or ordinary infringers.”

“The manufacturers unfortunately are often offshore,” Harlow noted. “More often than you would think, they are ‘legitimate’ offshore contract manufacturers of the genuine goods, who are running a ‘third shift’ that goes out the back door to a friend or relative who runs the distribution of the counterfeit goods.”

Then there’s the e-commerce dimension to consider. Kurpis said the “online landscape can make enforcement next to impossible. As you might expect, it isn’t easy trying to pursue counterfeiters and infringers of intellectual property rights. Despite the numerous enforcement methods available, such as cease and desist letters and notice and takedowns, it is ultimately necessary to identify the infringer in order to follow through with legal action in the U.S.”

But that is extremely difficult as Kurpis said that infringers “jump from platform to platform, switching between different hosts, providing false information to ISPs and other third parties, concealing their identity and location, and registering new domain names often enough to make it difficult to connect them with other members of their illegal enterprise. As a result, enforcement can become a continuous game of cat and mouse.”

Regarding how brands and designers can protect themselves from knockoffs and counterfeits, Goldsmith said they should “protect, watch and act.”

“The first step is to protect what you own in the markets in which you currently manufacture and sell or may do so in the future,” Goldsmith said. “Trademarks are territorial — you need one wherever you are — and almost all countries work on a first-to-file wins system. So file early. Then watch what others are doing so that you can act. Global watching services are available, which tell your company who has filed similar trademarks, who is using a domain name which includes your brand name, and who is selling what type of products. Since there are negative consequences to delaying (for instance, irreparable harm cannot be proven if you wait too long), watching and acting in a timely fashion is important.”

As for how consumers can protect themselves, the answer is an easy one: buy the real thing.

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