©2014. Published in Landslide, Vol. 7, No. 1, September/October 2014, by the American Bar Association. Reproduced with permission. All rights reserved. This information or any portion thereof may not be copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent of the American Bar Association or the copyright holder.
Everyone knows more or less what is meant by a “counterfeit trademark” or a “counterfeit good.” But what does it mean for a service mark to be “counterfeited”? Is the counterfeiting of a name in the advertising or sale of a service different than any other “passing off”? What remedies are available to a financial service provider, for example, who finds that its name is used by unidentified persons to engage in consumer fraud or other unlawful conduct on the Internet? This article provides an example of service mark counterfeiting by “John Doe” defendants and outlines the steps to pursue when the “house is burning down”—e.g., when a website needs to be shut down immediately because of an imminent threat to the public, or a U.S. bank account is identified as having received proceeds from the sale of a counterfeit transaction, rendering the account subject to an ex parte asset restraint.
Counterfeiting vs. Infringement
The word “counterfeit” is described in the trademark law as a “spurious mark which is identical with, or substantially indistinguishable from, a registered mark.”1 To be a counterfeit, a mark must be used for goods or services identical to those identified in a federal trademark or service mark registration. A mere infringement, by contrast, may result from the use of a mark that is merely “confusingly similar” to a claimant’s mark, for goods or services that may or may not be identical to those of the claimant. The difference is critical, because statutory damages of up to $2 million are available for counterfeiting,2 whereas damages for mere infringement are limited to actual damages plus attorney’s fees, at the most, and are difficult to prove.3
Similarly, the bad faith registration and use of domain names incorporating trademarks and service marks carries a statutory penalty of up to $100,000 per domain name,4 but does not equate to “counterfeiting.” Even if the domain name is “identical” to a registered trademark, there can be no counterfeit trademark in the absence of an actual good; the mere advertising of counterfeit goods does not constitute “use” of the mark on such goods.
The mere advertising of a service, however, can constitute “use” of a mark for that service. For example, a domain name incorporating the name of a financial service provider, used in pay-per-click advertising for financial services identical to those listed in a federal service mark registration covering that name, constitutes “use” of the name for those services. This is true despite the registrant’s argument that he or she is merely providing online advertising services and not the actual services advertised. In general, courts have been willing to hold that the registration and use of “cybersquatting” domain names may rise to the level of “counterfeiting” when accompanied by fraud and concealment of the owner’s identity. Concealing one’s identity while engaging in the unauthorized use of a well-known name or service mark militates strongly in favor of a finding that the activity is a “counterfeit” use.
Counterfeiting is a federal offense punishable by up to 10 years in prison and a fine of $5 million,5 as well as a predicate offense under the Racketeer Influenced and Corrupt Organizations Act (RICO).6 The Criminal Resource Manual of the U.S. Department of Justice defines a “counterfeit” as follows:
A. The mark is spurious. . . .
B. The mark was used in connection with trafficking in goods or services.
C. The mark is “identical with, or substantially indistinguishable from” the genuine trademark. . . .
D. The genuine mark is registered on the principal register in the United States Patent and Trademark Office. . . .
E. The genuine mark is in use. . . .
F. The goods or services are those for which the genuine mark is registered. . . .
G. The use of counterfeit mark is “likely to cause confusion, to cause the mistake, or to deceive.”7
An Example of Consumer Fraud
Suppose the service mark owner is a financial service provider whose name is Famous Finance. Suddenly, the company’s offices around the country are receiving telephone calls from consumers “looking for their money.” It turns out that these consumers paid an advance fee for loans promised to them by persons using a website at www.famousfinancecredit.com.
According to its contact page, the counterfeit “Famous Finance” has an address in California, a toll-free telephone number, and an e-mail address. However, the street address is fictitious, the telephone number is registered to a reseller, and the owner of the e-mail address cannot be identified without a subpoena.
Believing they were communicating with the real Famous Finance, consumers report that they entered their names, Social Security numbers, driver’s license numbers, and personal financial data into a dialog box at the website and clicked “Send.” The consumers then received a telephone call from a representative of the counterfeit “Famous Finance.”
Consumers were then informed by the “Famous Finance” representative that they were approved for a loan but because of their poor credit score, the loan had to be secured and an advance deposit was required. Consumers then received an e-mail from “Famous Finance” appending the necessary paperwork. They signed the application and faxed it back to “Famous Finance” at the same toll-free number along with the number of the bank account into which they wanted their funds deposited.
After faxing their bank account data to “Famous Finance,” consumers received another call with instructions to wire the “security deposit” to a “Famous Finance” office, often (but not always) in Canada. Consumers ultimately wired the money as instructed, never to receive their loan or to hear again from “Famous Finance,” despite their frantic calls to the toll-free telephone number and their e-mails to the address posted on the website.
Consumers now believe that they have been cheated by the real Famous Finance. Some consumers call the real Famous Finance to complain. Others complain to the Better Business Bureau. In past episodes of this nature, Famous Finance has been mistakenly named as a respondent in state attorney general enforcement actions instigated by misdirected consumer complaints.
A total of 53,833 such “advance fee loan fraud” complaints were received by the FBI in 2013.8 With average losses of over $1,000 per complaint,9 the total annual loss from reported cases exceeds $50 million. However, advance fee loan fraud represents only about 10 percent of the scams that emanate from fictitious and anonymous websites, and the majority of incidents are unreported. Because such activity is facilitated by the counterfeiting of well-known names and service marks, the volume of criminal consumer fraud in the form of service mark counterfeiting activity on the Internet must approach or exceed $1 billion annually.
Although Famous Finance and the defrauded consumers have a joint cause of action against the unidentified perpetrators, Famous Finance must emphasize to those consumers, looking to get their money back, that their causes of action are different. Famous Finance may reimburse a consumer for his or her time and cost in providing a declaration and exhibits but cannot reimburse the consumer for his or her losses, and counsel for Famous Finance may have to remind the consumer more than once the former is not acting as the latter’s attorney.
Preliminary Extrajudicial Remedies
The first steps Famous Finance should take in response to the spate of misdirected complaints being received, short of a court action, are to:
1. Encourage the defrauded consumer to file an online complaint with the Federal Trade Commission (FTC) at www.ftccomplaintassistant.gov;
2. Record the consumer’s name and contact data, then refer the consumer to counsel in the hope of obtaining a declaration and exhibits if the consumer is willing to cooperate;
3. Take all necessary action to (a) bring about the immediate removal of content from the website at www.famousfinancecredit.com, which can usually be accomplished by notice and takedown demands directed to all registrars, domain name registration service providers, hosting providers, and any other fax and e-mail addresses associated with the website, any one of whom may (or may not) be associated with a real party in interest, but who, individually or collectively, have the capability to disable the website, and who are likely to cooperate when the gravity of the conduct is explained to them with sufficient emphasis; and, (b) disable the toll-free telephone number appearing on the counterfeit website, which can usually be accomplished by similarly articulated written correspondence to the relevant telephone service provider;
4. Supply the best possible evidence to the Criminal, Cyber, Response, and Services Branch of the FBI Cyber Division, but do not expect action or assistance from the FBI unless the total amount of losses to consumers is well over five figures; and
5. Place a notice on the company website warning consumers that unidentified persons are committing advance fee loan fraud using the name “Famous Finance,” informing them that federal law enforcement authorities have been notified, and referring them to the FTC complaint procedure noted in step 1.
Ex Parte Judicial Remedies
If the counterfeit website cannot be brought down immediately by means of written correspondence and other contact with domain name registration service and hosting providers, and the responsible individuals cannot be identified, then a court action targeted at the Internet domain name used for the offending website address may be necessary under the in rem provisions of the Anticybersquatting Consumer Protection Act (ACPA).10 If, in turn, the telephone number appearing at the website cannot be disconnected by similar means short of litigation, a “John Doe” action may have to be instituted in the jurisdiction of the wireless service provider. If the website is brought down, however, and the telephone number is disabled, the question arises, what is to be gained by the pursuit of “John Doe” defendants, even assuming they can be identified after the litigation is filed, where the actual collection of a money judgment appears highly remote?
Identification of Assets and Accounts
Assuming that the website has been disabled, nothing is to be gained from litigation against fictitious and anonymous entities unless an asset linked to the counterfeiting enterprise can be identified, e.g., an account in a U.S. bank or financial institution that has received proceeds from a counterfeit transaction.
In the Famous Finance example, the perpetrators took pains to solicit payment by means of wire transfers, resulting in the receipt of cash by a designated recipient at any number of possible locations. Although the technical obstacles to the identification of illicit bank accounts are beyond the scope of this article, under particular facts an account amenable to seizure can be identified. Depending on the size and severity of the counterfeiting, this could result in a material change in the financial calculus.
A U.S. district court has the authority to freeze assets pursuant to its inherent equitable power to issue provisional remedies ancillary to its authority to provide final equitable relief.11 An account in a U.S. bank or financial institution that can be linked to the receipt of proceeds from a counterfeiting transaction is therefore subject to an ex parte order freezing the account and restraining the bank or financial institution from transferring any proceeds from that account subject to adjudication of the plaintiff’s claim.12
A party seeking an asset freeze must show a likelihood of dissipation of the claimed assets, or other inability to recover monetary damages, if relief is not granted; and, of course, a likelihood of success on the merits.13 In the seminal case Reebok International, Ltd. v. Marnatech Enterprises, Inc., the court affirmed an order freezing not only the defendants’ assets that were linked to an infringing transaction, but also everything that the defendants owned.14
In 1999, the Supreme Court reined in the use of such ex parte restraints. In Grupo Mexicano de Desarrollo, S.A. v. Alliance Bond Fund, Inc., it held that a federal district court maintains the inherent authority to issue a prejudgment asset restraint only if the plaintiff states a cause of action for final equitable relief and the prejudgment asset restraint preserves the availability of that final relief.15
In a trademark infringement claim, including a service mark counterfeiting action, a cause of action for final equitable relief in the form of an accounting is expressly provided under section 35(a) of the Lanham Act.16 Accordingly, there is no doubt that the ex parte restraint of a defendant’s assets is available upon a showing that the claimant is likely to succeed on its claim, the asset is likely to be dissipated in the absence of an ex parte restraint, and such restraint will preserve the availability of final relief.
Naming of John Doe Defendants
Courts have held that the naming of anonymous defendants is “not favored,”17 and, in some cases, have concluded that the practice is prohibited by Rule 10(a) of the Federal Rules of Civil Procedure, which requires the plaintiff to include the names of the parties in the action.18 Nonetheless, under statutes in the majority of states, a defendant whose name is unknown may be sued under a fictitious name in specified circumstances.19
To protect the due process rights of the defendant, who is being made a party without actual notice of the action, compliance with the state statutory procedures is mandatory.20 The plaintiff must file a specific claim against a described though unnamed party within the statute of limitations and then diligently seek to identify the fictitiously named defendant.21 The identity of the unknown defendant must be “reasonably capable of discovery”—a plaintiff cannot use a fictitious defendant designation to reserve a spot for any unknown individuals or entities that may be discovered later.22
The mere filing of a “John Doe” complaint does not commence an action against a real party.23 In order to make unknown individuals or entities parties, the plaintiff must follow the requirements as to the issuance and service of process. Once the fictitiously named defendant is identified and served, such individual or entity is considered to have been made a party to the action from its commencement.24 On the other hand, a defendant sued under a fictitious name that is never actually identified or served will be considered not to have been made a party.25
In Columbia Insurance Co. v. seescandy.com, the plaintiff moved for a temporary restraining order and order to show cause why a preliminary injunction should not issue against a group of alleged trademark infringers.26 The court found that granting a temporary restraining order against the anonymous defendants would be futile because the plaintiff was not able to collect the information necessary to serve the complaint. However, because the plaintiff made a sufficient showing to demonstrate that the individual defendants committed an unlawful act, the plaintiff was granted leave to make a filing with the court in respect to the process the court should consider ordering. Accordingly, the plaintiff’s motion for a temporary restraining order was denied without prejudice. In allowing the plaintiff to proceed with discovery aimed at identification of the John Doe defendants, the court articulated four criteria a plaintiff must show in order to obtain preservice discovery in an action against an anonymous defendant:
- Identify the missing party with sufficient specificity such that the court can determine that the defendant is a real person or entity who could be sued in federal court;
- Identify all previous steps taken to locate the elusive defendant;
- Establish to the court’s satisfaction that the plaintiff’s suit against the defendant could withstand a motion to dismiss; and
- File a request for discovery with the court identifying the persons or entities on whom discovery process might be served and for which there is a reasonable likelihood that the discovery process will lead to identifying information about the defendant.27
Plaintiffs in trademark and copyright infringement cases frequently seek expedited discovery to ascertain the names of individuals and entities associated with e-mail addresses and domain names. The question that arises most frequently is whether the subpoena infringes the constitutional right to freedom of speech. The defendant may move to quash the subpoena on the grounds that freedom of speech under the First Amendment includes the right to speak anonymously.
The right of anonymity, however, protects political expression, not commercial speech. Moreover, the surreptitious conduct of business using a fictitious name to conceal one’s identity is an indictable offense.28 There is no tradition of anonymous commerce in the United States, and the fictitious trade name laws in all 50 states require vendors of goods and services to designate themselves or an agent for service of process in actions arising out of the advertising or sale of goods and services.
The right of anonymous free speech, therefore, does not permit the exploitation of anonymity on the Internet to evade accountability that would attach in any brick-and-mortar environment relating to the origin and source of goods and services.29 To enforce such a subpoena, however, the claimant must establish a reasonable likelihood that the subpoena will lead to the infringer’s identity.30
Electronic Service of Process
While a plaintiff is entitled to bring suit against an anonymous defendant, he must sufficiently identify the defendant to enable service of process that will allow the court action to proceed. However, the law has long “recognized that, in the case of persons missing or unknown, employment of an indirect and even a probably futile means of notification is all that the situation permits and creates no constitutional bar to a final decree foreclosing their rights.”31
Thus, U.S. courts have allowed electronic service of process under various circumstances. Authorization for service of process by electronic mail has typically been granted in U.S. court cases where a defendant has attempted to evade service and is reasonably accessible only by electronic mail. To obtain such authorization in the case of fictitious and anonymous websites, however, parties may be required to first engage in efforts to effect service by traditional means that are futile, expensive, and time-consuming, and must then incur the additional time and expense of obtaining a court order allowing for substituted service by electronic mail.
Service of process in cases arising from counterfeiting on the Internet is complicated by the fact that relevant domain names are typically registered to fictitious and anonymous entities. The telephone number registered in the Whois record is typically out of service or reaches a machine at which calls are not returned. The registered e-mail address may be the only “handle” available for service of the complaint and summons.
Accordingly, Famous Finance must file a motion for substituted service of process by electronic mail under Rule 4(e) or (f) of the Federal Rules of Civil Procedure applicable to service on an individual in the United States or a foreign country, respectively. There are problems, however, because Rule 4(e) does not authorize electronic service in the United States absent a state statute providing for such service, and Rule 4(f)(3), which allows for service “by other means not prohibited by international agreement,” is expressly limited to service of process in foreign countries.
The chances in a particular case are good that there is no “foreign country” as required by Rule 4(f) other than a fictitious address, ostensibly located in a foreign country, registered by the domain name owner in the Whois database. Under the Federal Rules, therefore, an anonymous domain name registrant can exempt himself or herself from the possibility of electronic service by registering a fictitious address in “Belize, Wisconsin,” instead of “Wisconsin, Belize,” unless there is a state law allowing for electronic service in the jurisdiction where suit is brought.
Some federal courts have confronted this anomaly by allowing electronic service of process under Rule (4)(f)(3) regardless of the registrant’s jurisdiction on the grounds that the availability of electronic service under Rule 4(f)(3) is “universal” if the other criteria are met; but others have not. The availability of electronic service may therefore boil down to a question of state law.
Consumer fraud and other unlawful conducted on the Internet may constitute service mark “counterfeiting” under U.S. trademark law. Where such counterfeiting poses an irreparable threat to the service mark owner and the public, and the conduct is clearly culpable, preliminary extrajudicial measures and ex parte judicial remedies are available. Websites and telephone numbers used for counterfeit websites can ordinarily be disabled in a matter of hours or days and, where an account in a U.S. bank or financial institution can be linked to a transaction involving a counterfeit good or service, that account can be frozen by an ex parte order restraining the transfer of funds from the account pending adjudication of the plaintiff’s claim. In such cases, the procedural remedies available to the claimant lie in the effective naming of John Doe defendants, the use of expedited discovery and subpoenas, and in some cases the availability of electronic service of process.
1. 15 U.S.C. § 1127.
2. Id. § 1117(c).
3. Id. § 1117(a).
4. Id. § 1117(d).
5. 18 U.S.C. § 2320(b)(1)(A).
6. Id. § 1961(1)(B) (“‘[R]acketeering activity’ means . . . any act which is indictable under any of the following provisions of title 18, United States Code: . . . section 2320 (relating to trafficking in goods or services bearing counterfeit marks) . . . .” (emphasis added)).
7. U.S. Dep’t of Justice, Criminal Resource Manual § 1715 (emphasis added) (citations omitted), available at http://www.justice.gov/usao/eousa/foia_reading_room/usam/title9/crm01715.htm.
8. Sarah E. Needleman & Ruth Simon, Loan Scheme Belts Small Businesses, Wall St. J., May 27, 2014, http://online.wsj.com/news/articles/SB20001424052702303749904579578481820306024.
9. In 2006, the average loss from a single incidence of advance fee loan fraud was estimated at $1,164. Advance Fee Loan Fraud, Fraud Squad TV, http://www.fraudsquadtv.com/docs/Advance_Fee_Loans_Fraud.php (last visited June 30, 2014).
10. 15 U.S.C. § 1125(d).
11. Reebok Int’l, Ltd. v. Marnatech Enters., Inc., 970 F.2d 552, 559 (9th Cir. 1992).
12. See Tiffany (NJ) LLC v. Forbse, 107 U.S.P.Q.2d 1304, 1314 (S.D.N.Y. 2012).
13. Johnson v. Couturier, 572 F.3d 1067, 1085 (9th Cir. 2009).
14. 970 F.2d 552.
15. 527 U.S. 308, 324–33 (1999).
16. 15 U.S.C. § 1117(a) (providing that a plaintiff is entitled, “subject to the principles of equity, to recover (1) defendant’s profits, (2) any damages sustained by the plaintiff, and (3) the costs of the action”).
17. See, e.g., Ontiveros v. Arpaio, No. CV 05-1776-PHX-DGC (VAM), 2005 U.S. Dist. LEXIS 23636 (D. Ariz. Oct. 13, 2005); Plant v. Does, 19 F. Supp. 2d 1316, 1319 (S.D. Fla. 1998).
18. See, e.g., Gossett v. Stewart, No. CV 08-2120-PHX-DGC (ECV), 2008 U.S. Dist. LEXIS 101836 (D. Ariz. Dec. 8, 2008).
19. See 67A C.J.S. Parties § 175.
20. Fireman’s Fund Ins. Co. v. Sparks Constr., Inc., 8 Cal. Rptr. 3d 446, 452 (Ct. App. 2004).
21. Greczyn v. Colgate-Palmolive, 869 A.2d 866, 869–70 (N.J. 2005).
22. Knauf v. Elias, 742 A.2d 980, 985 (N.J. Super. Ct. App. Div. 1999).
23. Gilliam v. Smart, 809 So. 2d 905, 908 (Fla. Dist. Ct. App. 2002).
24. Gutierrez v. Superior Court, 52 Cal. Rptr. 592, 601 (Dist. Ct. App. 1966).
25. D’Arbonne Constr. Co. v. Foster, 72 S.W.3d 862, 865 (Ark. 2002).
26. 185 F.R.D. 573 (N.D. Cal. 1999).
27. Id. at 578–80.
28. See, e.g., United States v. Brockway, 932 F.2d 973 (9th Cir. 1991) (unpublished table decision); United States v. Frank, 494 F.2d 145 (2d Cir. 1974).
29. The First Amendment is “not a license to trammel on legally recognized rights in intellectual property.” Cable/Home Commc’n Corp. v. Network Prods., Inc., 902 F.2d 829, 849 (11th Cir. 1990) (quoting Dallas Cowboys Cheerleaders, Inc. v. Scoreboard Posters, Inc., 600 F.2d 1184, 1188 (5th Cir. 1979)); accord Sony Music Entm’t Inc. v. Does 1–40, 326 F. Supp. 2d 556 (S.D.N.Y. 2004); Gucci Am., Inc. v. Hall & Assocs., 135 F. Supp. 2d 409, 418 (S.D.N.Y. 2001).
30. Patrick Collins, Inc. v. Doe 1, 288 F.R.D. 233, 237 (E.D.N.Y. 2012).
31. Mullane v. Cent. Hanover Bank & Trust Co., 339 U.S. 306, 317 (1950) (allowing service by publication); see Rio Props., Inc. v. Rio Int’l Interlink, 284 F.3d 1007, 1016–17 (9th Cir. 2002).