Monday, December 18, 2006

Counterfeits in Court

An interesting case involving allegedly counterfeit goods came out of the CIT last week. The merchandise involved was PDA accessories including chargers and keyboards. Lots of goods issues were raised including one of my favorites: how is Customs supposed to determine the manufacturer's suggested retail price of counterfeit goods? Another issue was whether it is possible to counterfeit the "flying Windows" mark on a keyboard or--as plaintiff maintained--is using that mark protected "fair use" because it is effectively a requirement for all Windows based keyboards.

Unfortunately, these meaty issues were not resolved because Judge Stanceu dismissed the case on procedural grounds. In summary, the Court found there was no valid protest of the exclusion of the merchandise. Thus, there was no jurisdiction under 1581(a). The Court also found no jurisdiction under 1581(i) because the restriction on the importation of counterfeit goods is not an embargo under 19 USC sec. 1526(a) and no valid protest was filed which could be reviewed under 1581(i)(4). Further, because the challenged determination did not relate to revenue from "imports or tonnage," (i)(1) did not apply. But, the Court found the restriction to be an embargo created by sec. 1526(f) and that it did not relate to health and safety. Thus, it found jurisdiction under 1581(i)(4). It's confusing. Read the decision.

Unfortunately, jurisdiction is not enough. The plaintiff also needs to plead a case on which the CIT has the ability to grant relief. Relief, in this case, requires a final agency action and Customs had not yet decided whether it would seek to enforce its notice of penalty. Thus, it retained some level of discretion on how to proceed. Furthermore, if Customs did proceed with a penalty action, that would be a de novo case rather than review of an agency determination under 1581(i). Thus, no relief was available under (i).

All of which is a preface to what I want to talk about: that darned MSRP question. The penalty for importing counterfeits is based on the value of the merchandise if it were genuine. That raises an interesting question. What is the MSRP of "the merchandise if genuine" when the merchandise is made of cheap materials, by unskilled workers and not at all what the trademark holder would ever sell? Since, the genuine article would never be this lousy, there is no "merchandise if genuine" against which to measure the value of the fake. Get it? Fake shoes selling for $30 might be worth, in terms of labor, materials, profit, etc. $20. Putting a counterfeit famous trademark on them makes them more valuable because either the consumer or the public that seems them on the consumer is being duped into believing that they are expensive shoes. But, it seems that what the law requires is for Customs to figure out the value of these same $30 shoes if they were genuine. That, however, is not what happens. Instead, Customs (with the help of the trademark holder) finds a superficially similar genuine article and uses that as the MSRP. This results in possibly inflated penalties.

Sadly, the issue did not get addressed in this case. It is one of those things that is just going to have to wait for the right set of facts to come along.

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