A Case of Sour Grapes?

Posted by Elizabeth Chew on March 28, 2013

Jury selection started this week in Manhattan federal court in a case commenced by billionaire William Koch, brother of conservative fundraisers David and Charles Koch, seeking damages for his purchase of over $300,000 in counterfeit wine at auction.  The suit, commenced in 2007, named both Zachys, the New York-based auction house who conducted the sale, and internet billionaire Eric Greenberg, the seller of some of the wines in question.    

http://www.dailymail.co.uk/news/article-2299268/Battle-billionaires-Bill-Koch-sues-Eric-Greenberg-300-000-fake-wine.html

At issue are two dozen bottles Koch purchased at Zachys’ auctions of select wines from Greenberg’s collection in 2004 and 2005.  Believing that the wines had at one time been owned by President Thomas Jefferson, Koch paid up to $30,000 per bottle.

Though Zachys settled out of the case before trial, Koch has maintained the suit against Greenberg, alleging that he knew or should have known at the time of the auction that the wines were fakes.  According to Koch, as early as 2002, Greenberg had been notified of the questionable origin of a portion of his wine collection by Sotheby’s, who identified certain bottles as inauthentic and refused to sell them. 

The inauthenticity of Greenberg’s wines was later confirmed by his own experts in an analysis conducted in preparation for his own lawsuit against the dealer who he claims sold him the counterfeit bottles.  In fact, it was the same expert who, years later and hired by Koch, identified one of Greenberg’s fakes – a bottle of Château Latour 1928 – in Koch’s collection.

In his defense, Greenberg counters that he is not responsible for Koch’s purchase of the fakes as Greenberg was not personally mentioned in the Zachys’ sales catalogue, nor did he select or inspect the wines to be sold at auction.  What about that bottle of Latour 1928?  It was mistakenly included in the group of wines for auction, he claims.

The case raises interesting questions about the age-old phrase “buyer beware.”  While the Zachys’ sale catalogue notes that “prospective bidders are invited to inspect the property before bidding,” Koch argues that it is unreasonable and cost-prohibitive for a buyer to have to hire an expert to inspect hundreds or even thousands of bottles prior to purchase.  The court made a  preliminary ruling last year that the typical “as is condition” defense does not shield Greenberg from liability because Greenberg had “peculiar knowledge”- that part of his collection had been determined counterfeit - unavailable to bidders.

The Court Rules Warner Bros.' "The Hangover: Part II" Is Protected By the First Amendment From Louis Vuitton's Trademark Infringement Claims

Posted by Oksana Wright on March 20, 2013

While “The Hangover: Part III” is set to be released in May 2013, its prequel, “The Hangover: Part II” was recently involved in a trademark dispute with one of the luxury fashion giant’s, Louis Vuitton.   Louis Vuitton sued Warner Bros. claiming that its use of a knock-off Louis Vuitton bag in the movie infringes upon Louis Vuitton’s trademarks. 

For those who are not familiar – “The Hangover: Part II” is the sequel to the 2009 hit “bachelor-party-gone-awry-comedy” “The Hangover” that, according to the complaint, became the highest gross R-rated comedy of all time and one of the highest grossing movies of 2011.   

In one of the earlier scenes in the movie a viewer can see travel trunks and bags that appear to be bearing a famous LV pattern.  In one scene in the airport, Alan (one of the main characters) reacts to another character moving his bag (a knock-off Louis Vuitton or as Warner Bros. calls it in its papers a “prop bag”) by saying “Careful that is…that is a Lewis Vuitton.”

 

Scene from "Hangover: Part II"

Warner Bros.' "The Hangover: Part II"

(http://www.nydailynews.com/entertainment/tv-movies/louis-vuitton-suing-hangover-part-ii-studio-luggage-faux-pas-article-1.995906)

One might think Louis Vuitton should have a strong claim against Warner Bros. who not only used the “prop” Louis Vuitton bags but also made a reference to the luxury brand (although the French name of the brand was mispronounced by Alan) in a movie that was viewed by millions of the consumers.  These scenes were used in numerous commercials and advertisements of the movie and Alan’s “Lewis Vuitton” line became an often-quoted joke and a catch phrase. 

However, Judge Carter of the U.S. District Court for the Southern District of New York, dismissed Louis Vuitton’s complaint finding that Warner Bros.’ use of the knock-off bags is protected by the First Amendment.  Louis Vuitton Mallatier S.A. v. Warner Brothers Entertainment Inc., 868 F. Supp. 2d 172 (S.D.N.Y. 2012).

In Rodgers v. Grimaldi, the Second Circuit held that the Lanham Act is inapplicable to “artistic works” as long as the defendant’s use of the mark is (1) “artistically relevant” to the work and (2) not “explicitly misleading” as to the source or content of the work.  The threshold for artistic relevance will be satisfied unless the use “has no artistic relevance to the underlining work whatsoever.”  875 F.2d 994, 999.

Here, the Court, after completing a very comprehensive analysis of the movie, found that this low threshold was satisfied (at 178):

 Alan's terse remark to Teddy to “[be] [c]areful” because his bag “is a Lewis Vuitton” comes across as snobbish only because the public signifies Louis Vuitton—to which the [knock-off] bag looks confusingly similar—with luxury and a high society lifestyle. [] His remark also comes across as funny because he mispronounces the French “Louis” like the English “Lewis,” and ironic because he cannot correctly pronounce the brand name of one of his expensive possessions, adding to the image of Alan as a socially inept and comically misinformed character. This scene also introduces the comedic tension between Alan and Teddy that appears throughout the Film.

The Court also found that the second prong of the Rodgers “artistic work” test is satisfied and concluded “it is highly unlikely that an appreciable number of people watching the [movie] even notice that Alan’s bag is a knock-off.”  Id. at 182. The Court went even further in finding that “there is no likelihood of confusion that viewers would believe the [knock-off] bag is a real Louis Vuitton bag just because a fictional character made this claim in the context of a fictional character.”  Id. at 184.  Not surprisingly, the French fashion house was very disappointed with the Court’s decision.

Institute of Medicine Warns of Counterfeit Drugs

Posted by Christopher R. Kinkade on February 25, 2013

The Institute of Medicine (IOM) released a report on February 13, 2013, warning of the dangers of falsified and substandard medicines.  The FDA had asked the IOM to assess the global public health implications of falsified, substandard, and counterfeit pharmaceuticals to help open national and international discussions to resolve this increasing problem. 

The report encourages Congress to authorize and fund the FDA to create a drug tracking system.  Until such a system is in place, the report encourages a voluntary tracking system backed by the FDA and drug manufacturers to provide a means for monitoring the chain of custody of drug products and avoid infiltration into the supply chain by counterfeit drugs.

The IOM's report follows recent warnings by the FDA concerning counterfeit batches of the cancer drug Avastin being sold by a NY-based distributor.

IP Task Force Achieves Indictment of 5 Individuals & 5 Companies for Importing and Selling Hazardous Counterfeit Toys

Posted by Christopher R. Kinkade on February 13, 2013

The Department of Justice announced on February 6, 2013, the unsealing of an indictment in the Eastern District of New York against five Queens residents and their companies for allegedly importing hazardous and counterfeit toys from China for sale in the United States between 2005 and 2013.  The 24-count indictment charges Chenglan Hu, 51, Hua Fei Zhang, 52, and Xiu Lan Zhang, 60, all Chinese nationals and residents of Queens, N.Y., and Guan Jun Zhang, 29, and Jun Wu Zhang, 28, both naturalized citizens and Queens residents, along with their closely held companies Family Product USA Inc., H.M. Import USA Corp., ZCY Trading Corp., Zone Import Corp. and ZY Wholesale Inc., with importing and trafficking hazardous toys in violation of the Consumer Product Safety Act (CPSA) and toys bearing copyright-infringing images and counterfeit trademarks.  The indictment also includes charges of smuggling, money laundering, and structuring.

U.S. Attorney Loretta E. Lynch accused the defendants of importing and selling "dangerous and counterfeit children’s toys without regard for the law or the health of our children."  In particular, the toys contained lead paint and choking hazards.  The toys were sold at both wholesale and retail through a storefront and warehouse in Ridgewood, NY and locations in Brooklyn and Queens.  The defendants allegedly used their illicit profits to purchase luxury vehicles.  DOJ seized shipments on 33 separate occasions, but defendants allegedly continued to form new companies to maintain their counterfeiting operation.  16 of the 33 seizures were of toys bearing copyright-infringing images and counterfeit trademarks, including popular characters such as Winnie the Pooh, Dora the Explorer, SpongeBob SquarePants, Betty Boop, Teenage Mutant Ninja Turtles, Power Rangers, Spiderman, Tweety, Mickey Mouse, and Pokémon.

The DOJ's press release is available at http://www.justice.gov/opa/pr/2013/February/13-crm-162.html.

Information about the DOJ's IP Task Force may be found at http://www.justice.gov/dag/iptaskforce/.

Ultimate Weapon in the Works for Detecting Counterfeit Food

Posted by Daniel Schnapp on February 13, 2013

It sounds stranger than science fiction, but the European Space Agency claims that a laser device developed to measure carbon on Mars could soon be used to detect counterfeit food.

According to this article, the ESA was able to demonstrate that the laser can quickly determine whether food is counterfeit by measuring the carbon dioxide emanating from the food.   

For example, fake honey made using sugar would be detected by the laser by scanning the carbon dioxide released from burning only a few milligrams of the product.  Incidentally, according to this article, honey is a frequently counterfeited food.  

Although there is no indication that law enforcement has obtained the use of what is surely an extremely costly tool, it may only be a matter of time that the laser is obtained and used by such agencies as the U.S. Department of Agriculture and the Food and Drug Administration.

 

UGG Maker Obtains Preliminary Injunction against Counterfeiters

Posted by Christopher R. Kinkade on February 04, 2013

Deckers Outdoor Corp., owner of the UGG brand of footwear, recently obtained a preliminary injunction against one hundred anonymous entities that were selling counterfeit UGG products through domain names that also incorporated the UGG mark, in Deckers Outdoor Corp. v. Doe, No. 12-cv-10006 (N.D. Ill. Jan. 16, 2013).  The Court has effectively shut down the defendants' commercial operations, enjoining them from making, importing, and selling products under the UGG marks, freezing their PayPal accounts, and controlling the infringing domains.  

Many of the websites also incorporated copyrighted photographs of authentic UGG products and logos, which, coupled with the use of UGG in the domain names, demonstrated a bad faith intent to profit, supporting violations under the Anticybersquatting Consumer Protection Act in addition to the trademark counterfeiting claim.  Deckers had obtained a temporary restraining order in December against the defendants, who are believed to be foreign nationals.

Deckers is proactive when it comes to educating consumers about counterfeit products, which is important for maintaining the goodwill associated with a valuable brand.  Deckers has a dedicated "What is counterfeit" website, which is prominently linked from its home page and includes a listing of the thousands of counterfeit websites Deckers has identified.

Anti-Counterfeiting Security Standard Emerging for Electronic Supply Chains

Posted by John Rolecki on January 15, 2013

Growing concern over the susceptibility of electronics manufacturers to counterfeit components has heightened the need for a set of standard practices for such manufacturers to mitigate the threat of counterfeiting.  At the time of this publication, SAE International is working to develop exactly this, in the form of the “Counterfeit Electronic Parts; Avoidance, Detection, Mitigation, and Disposition standard.”  The standard-in-progress comes on the heels of a report released in November 2011 finding that “almost 10,000 suppliers to the US government were reported for suspected involvement in fake parts and other activities.” 

The report, which can be found here, notes that “reports of counterfeit parts in the electronics supply chain quadrupled from 2009 to 2011.”  Accordingly, although the emerging standard – expected to be released by the end of January 2013 – is explicitly “intended for use in aviation, space, defense, and other high performance/reliability electronic equipment applications,” it is likely to contain generally helpful information relating to counterfeiting mitigation for all electronics manufacturers. 

IMAGiNE Leader Sentenced for Criminal Copyright Infringement

Posted by Christopher R. Kinkade on January 08, 2013

District Judge Allen of the Eastern District of Virginia sentenced Jeramiah B. Perkins, alleged leader of the Internet piracy group IMAGiNE, to 60 months in prison and 3 years of supervised release and ordered him to pay $15,000 in restitution for recording and reproducing thousands of copyrighted films.  

Perkins was indicted on April 18, 2012, along with three other co-conspirators, all of which have pled guilty to conspiracy to commit copyright infringement, and each of which has been sentenced from 23 to 60 months in prison.  The conspirators brought recording devices into theaters to capture the video and audio tracks of films, then syncrhonized the tracks to create complete movies which were then posted online.  The infringed works included "Avatar," "Iron Man 2," "Captain America: The First Avenger," "The Men Who Stare at Goats," "Clash of the Titans," "The Sorcerer's Apprentice," and "The Green Hornet."

The case is United States v. Perkins, 2:12-CR-00059 (E.D. Va. Jan. 3, 2013).

Rolex Watch v. Rolex Deli

Posted by Oksana Wright on December 26, 2012

Rolex, a manufacturer of luxury Swiss watches, successfully enjoined a Brooklyn Deli from further use of the ROLEX trademark in connection with its business. 

Rolex sued Rolex Deli for trademark infringement and trademark dilution under the Lanham Act in order to avoid confusion among customers of expensive watch and deli sandwiches.  Judge Barbara S. Jones of the Southern District of New York found that Rolex cannot establish its trademark infringement claim because “[t]he products marketed by Rolex Watch – watches, clocks, and their components and cases – are a far cry from products sold in a delicatessen,” it is “highly unlikely that Rolex Watch will bridge the gap and enter the food industry,” Rolex “provided no evidence of actual confusion,” and “consumers will be sufficiently sophisticated to differentiate between the parties’ goods.”  Rolex Watch U.S.A., Inc. v. Rolex Deli Corp., No.11cv9321 (BSJ), 2012 WL 5177517 (S.D.N.Y. Oct. 18, 2012).

The Judge, however, found that Rolex proved its claim for trademark dilution, a claim that is only available to owners of “famous, distinctive marks broadly recognized by the general public.”  A claim of dilution permits an owner of such mark to enjoin others from using it regardless of the absence of competition or confusion. 

A claim of dilution may be for “blurring” or “tarnishment.”  Although Rolex failed to prove dilution for tarnishment (because it did not show that Deli’s use of the ROLEX mark will bring the mark into disrepute), Rolex was able to prove dilution by blurring.  Specifically, Rolex had established that there is a similarity between Rolex Deli’s mark and the ROLEX mark that impairs distinctiveness of the famous ROLEX mark.

Rolex was also seeking to recover its attorney’s fees and costs but the Judge found no basis for such an award.

Rolex Watch v. Rolex Deli

(The Fashion Law: http://www.fashion-law.org/2011/12/rolex-v-rolex-deli.html)

Apparently Rolex Deli, who did not deny Rolex Watch’s allegations, is not the only “Rolex” in the food industry.  Rolex is also a popular fast food in Uganda. 

Uncertainties Of Parallel Importation In Russia

Posted by Oksana Wright on December 04, 2012

Parallel importation is the importing of goods outside the distribution channels contractually negotiated by the manufacturer of such goods.   Although sometimes such goods are called “gray market goods”, unlike counterfeit goods, parallel import goods are the original brand products, distribution of which is no longer controlled by the IP owner.

For example, in Russia, until recent court decisions, parallel import goods were treated as counterfeiting, and as a result, in many instances were confiscated by the authorities and destroyed pursuant to Article 1515 of the Civil Code.  In Russia, counterfeiting is subject to administrative liability that allows local authorities to initiate an action against any importer of counterfeit goods.

Pursuant to Article 1487 of the Russian Civil Code importation of goods that were manufactured and trademarked abroad is only allowed if the manufacturer/IP owner imported or expressly consented to importation of such goods to Russia.

All authorized importers must be registered in a special register created by the Russian custom authorities. 

In several recent decisions, the Russian Supreme Arbitration Court (the highest Court for the resolution of commercial disputes) found that the parallel goods should be treated differently from counterfeit goods. 

In the leading case on this issue (known as the Porsche case) a non-authorized company (Genesis LLC) attempted to import a Porsche to Russia. The lower court fined Genesis LLC and held that the car must be confiscated as counterfeit.

However, the Supreme Arbitration Court reversed the decision finding that the imported Porsche was not a counterfeit because it was manufactured by a trademark owner and the trademark was legally marked on the vehicle.  As a result, the Court held that there should be no administrative liability, including confiscation, destruction and fines. 

At the same time, the Court mentioned that although there is no administrative liability the owner of Porsche trademark may file a private cause of action against the importer seeking various remedies provided in Article 1515 of the Russian Civil Code. 

Cases that followed the Porsche decision (including cases that involved many well known trademarks such as Evian, Heineken and Longines Watch) confirmed the Court’s position that:

(1) importation of parallel goods, unlike counterfeiting, is not subject to confiscation and administrative liability;

(2) importation of parallel goods, however, does not trigger exhaustion of IP owner’s rights (The “exhaustion of rights” is a concept that provides once IP owner sells his product in a particular jurisdiction, he must allow the resale of that product in that jurisdiction because the IP rights covering the product have been “exhausted” by the first sale.  An IP owner may file a private lawsuit seeking protection from infringement of his intellectual property rights caused by the parallel goods importation.