April 01, 2014

Fake Bags, Real Consequences

Maurine M. Wall

We’ve all done it. Whether it’s a fake Louis Vuitton bag ordered from eBay or a bootleg Saints jersey bought from a friend’s uncle, odds are we have all laid our hands on a counterfeit product at some time or another. Counterfeit goods are everywhere, and we rarely stop to think about the social consequences and legal ramifications of the trade in these items.

But counterfeit goods are often manufactured using child labor. The sale of counterfeit items supports organized crime, human trafficking, and even terrorism. While fashion magazines and interest groups have sponsored ad campaigns publicizing the evils of this industry, the demand for counterfeit goods has not decreased.

New York City Council Member Margaret Chin, representing Manhattan District 1, which includes Canal Street, is working to change that. New York’s Canal Street is internationally known as the destination for purchasing counterfeit handbags and watches, but Ms. Chin wants to stop the trade by reducing the demand. To that end, she introduced a bill that would criminalize the purchase of counterfeit goods in New York City.

On the supply side, Title 18 United States Code Section 2320 punishes the sale of counterfeit goods with a fine of up to $2,000,000 or imprisonment for up to 10 years for a first offense, while a second offense may be punished with a fine of up to $5,000,000 or imprisonment for up to 20 years. To secure a conviction under this statute, the government must demonstrate that the accused “knew the marks used on the goods were counterfeit.” U.S. v. Diallo, 575 F.3d 252, 255 (3d Cir. 2009).

Similarly, Ms. Chin’s bill would criminalize the “purchase of a tangible item containing a counterfeit trademark when [the purchaser] knows or should have known such trademark is counterfeit[.]” Critics have argued that the bill cannot be enforced because prosecutors could not show that a purchaser knew the item was counterfeit. Karen Turner, a prosecutor in the Brooklyn District Attorney’s Office, stated at a hearing earlier this year that “unless the police officer is present at the purchase and overhears a conversation of, ‘This is fake. You know that?’ ‘Yes I do. I still want to pay $50’, [the violation] would be impossible for us to prove.”

However, the bill attempts to address this concern by pointing to evidentiary indications that the purchaser understood the counterfeit nature of the item. In its current form, the bill penalizes a consumer who “should have known such trademark is counterfeit for reasons including, but not limited to, the quality and price of the purchased item, and/or the condition of the seller and the sale location.” The constitutionality of this provision has not yet been confirmed, but it certainly points to the kind of circumstantial evidence that could potentially be used to show knowledge on the part of the consumer. For example, if you buy a Louis Vuitton bag for $50 from the back of a van under a bridge, can you really argue that you thought it was authentic?

But not all counterfeit transactions happen this way, and the debate around the bill poses an interesting issue regarding how to differentiate between various consumers of counterfeit goods. On one hand, a Brooklyn native could buy a cute purse from a store in her neighborhood without realizing that it’s actually a counterfeit Birkin. Detractors have cited the unwitting consumer facing prosecution as a reason to reject the bill. On the other hand, people visit New York from Atlanta, Annapolis, and Indianapolis and go straight down to Canal Street to buy fake Gucci bags and Rolex watches for their own use and for resale at home. While evidence may emerge in each case regarding the buyer’s knowledge, the issue of proof will need to be resolved by the council, likely in connection with law enforcement, judges, prosecutors, and defense attorneys.

After conviction, the current version of the bill imposes harsh penalties on buyers of counterfeit goods. Each violation is punishable by a term of imprisonment not to exceed a year, a fine not to exceed $1,000, a civil penalty not to exceed $1,000, or any combination thereof. Further, each counterfeit item purchased qualifies as a separate violation, meaning that the $50 fake Fendi available on Canal Street might soon cost as much as the real thing.

Putting aside the issues of whether knowledge can be proven and whether the penalties should be reduced, as some have argued, Ms. Chin’s bill addresses the demand side of the counterfeit goods trade. Whether this bill passes or not, something must be done to reduce the demand for counterfeit goods in order to end this dangerous business.

Resource: Committee Report 6/13/13 and Hearing Transcript 6/13/13 regarding Introduction 544, available at http://legistar.council.nyc.gov/LegislationDetail.aspx?ID=885894&GUID=926F900B-7A1E-48E8-991D-6A3CFE24EA90&Options=ID|Text|&Search=544.

Maurine M. Wall

Maurine M. Wall is an associate at Stone Pigman Walther Wittmann L.L.C. in New Orleans, Louisiana.