The battle against international intellectual property theft is fought on several fronts

By Jacqueline M. Carolan, Partner, Fox Rothschild LLP
& Eric E. Reed, Attorney at Law, Fox Rothschild LLP

Jacqueline M. Carolan

Eric E. Reed

In appropriate circumstances, victims of intellectual property theft can obtain injunctive relief and damages through civil lawsuits. However, a U.S. lawsuit is of little value when the knock-off artists’ operations are overseas or their assets are beyond the reach of U.S. courts. In today’s globalized economy, where intellectual property theft is as easy as e-mailing specifications or delivering a sample by international express mail to an overseas manufacturer, victims of intellectual property theft increasingly turn to federal law enforcement for assistance.

Intellectual property theft affects both innovators and consumers of branded products. The proliferation of everything from bootleg DVDs; knock-off handbags, electronics and shoes; to counterfeit pharmaceuticals and medical products presents issues of brand and price erosion, lost profits, and increasingly, safety issues.

Overseas manufacturing of counterfeit products presents a particular challenge to the enforcement of intellectual property rights. Despite 1992 and 1995 Memoranda of Understanding with the U.S. regarding the recognition and enforcement of intellectual property rights, U.S. Immigration and Customs Enforcement reports that China continues to be the number one source country for counterfeit and pirated goods seized, accounting for 66%, or $124.6 million, of the total domestic value of seizures.

Enlisting the help of law enforcement

When intellectual property theft involves large dollar values or organized crime, or affects public health or safety (such as with counterfeit pharmaceuticals), victims of this crime may be able to enlist the assistance of law enforcement. Federal law enforcement in particular can pursue the foreign conduct of United States citizens or domestic entities, and can also punish domestic conduct that furthers the prohibited overseas activities (18 U.S.C. § 1837). Distributing knockoff handbags in the United States is illegal even if the bags are made in China.

Unlike private litigants, federal law enforcement may obtain warrants to search premises and seize product. Whereas the worst outcome for an infringing party in a lawsuit is an injunction and a money judgment, an offender in a criminal case faces fines, debarment from regulated industries (such as pharmaceuticals), and, potentially, incarceration of individual actors.

Law enforcement agencies also enjoy the advantages of cooperative relationships with foreign governments and the sharing of information and capabilities through multi-agency task forces.

The National Intellectual Property Rights Coordination Center brings together representatives from Immigration and Customs Enforcement, Customs and Border Protection, the Food and Drug Administration, the FBI, the Patent and Trademark Office, the United States Postal Service and other U.S. government agencies to combat intellectual property theft.

For fiscal year 2010, U.S. Immigration and Customs Enforcement and U.S. Customs and Border Protection reported 19,959 seizures of stolen intellectual property, a 34% increase over 2009 numbers. Seizures of products increased 97% over the previous year, and accounted for 23% of all intellectual property rights seizures by domestic value. The total domestic value of the fake goods seized in fiscal year 2010 totaled $188.1 million, with the estimated manufacturers’ suggested retail prices of those items (if they had been legitimate) totaling $1.4 billion.

Several federal criminal statutes prohibit the misappropriation of intellectual property rights. Federal criminal statutes address the intentional infringement of copyrights (18 U.S.C. § 2319), trafficking in bootleg recordings of live performances (18 U.S.C. § 2319A) and trafficking in counterfeit goods (18 U.S.C. § 2320). Similarly, the misappropriation of trade secrets used in interstate commerce is a federal crime (18 U.S.C. § 1832) punishable by fines and imprisonment of up to 10 years. Misappropriation of trade secrets for the benefit of any “foreign government, foreign instrumentality or foreign agent” constitutes economic espionage (18 U.S.C. § 1831), and is also a federal crime. Individual violators face fines of up to $500,000 or 15 years of imprisonment, or both, while offending organizations face fines of up to $10 million.

Recent federal prosecutions

Federal prosecutions in recent history demonstrate the government’s capabilities in combatting intellectual property theft:

In April 2011, En Wang, a Chinese national, was sentenced in absentia to 33 months in federal prison after a jury convicted him of trafficking in counterfeit Viagra. He fled the country prior to sentencing.
On November 29, 2010, the U.S. Department of Justice and the Department of Homeland Security announced the execution of seizure orders against 82 domain names of commercial websites involved in the illegal sale and distribution of a diverse array of counterfeit goods, including sports equipment, shoes, handbags, athletic apparel and sunglasses, as well as illegal copies of copyrighted DVD boxed sets, music and software.
On December 10, 2010, a jury convicted former Goldman Sachs employee Sergey Aleynikov of commercial economic espionage for stealing the proprietary computer code for Goldman Sachs’ high-frequency trading platform and transferring it to a server in Germany to build a similar computer trading platform at another firm.
In July 2010, former General Motors employee Shanshan Du and her husband, Yu Qin, were charged with conspiracy and commercial economic espionage related to their alleged theft of General Motors’ hybrid vehicle technology. The defendants allegedly sought to sell the technology to a Chinese automotive manufacturer.
In May 2007, several defendants were sentenced in the Western District of Missouri to terms of imprisonment from one to four years for involvement in conspiracies to sell counterfeit Lipitor and human growth hormone.
In the summer of 2004, Ralph Michael Cooper was sentenced to 2 1/2 years in federal prison for selling sub-standard counterfeit components for Black Hawk and Sea Hawk helicopters to the United States military.

Need for Protection Programs

The examples above underscore the importance of developing and implementing robust intellectual property protection programs. Whether in civil litigation or criminal enforcement, the legal system is better able to assist those who help themselves by controlling access to and use of sensitive intellectual property, and implementing procedures for the early detection of misappropriation.

A quick and effective internal investigation should be conducted when intellectual property theft is suspected. Attorneys can assist with these investigations, as well as with the determination of whether to seek law enforcement assistance or commence a lawsuit, or both. Small-scale knock-off operations are less likely to elicit an immediate response from law enforcement than larger operations, and the counterfeiting of pharmaceuticals is more likely to interest law enforcement than knock-off picture frames. In any instance, the results of a preliminary internal investigation of suspected theft can assist in convincing law enforcement to act, either by bringing criminal charges or conducting its own investigation.

The technological, logistical and economic developments that facilitate cheap overseas manufacturing also further the international proliferation of intellectual property theft. Lawsuits offer victims some assistance in addressing this crime, but agents with guns can act more quickly and effectively than lawyers with paper to shut down counterfeiting operations in the U.S. and abroad. For this reason, in appropriate cases, victims of intellectual property theft should seriously consider approaching law enforcement for assistance.

Jacqueline M. Carolan, a Partner at Fox Rothschild LLP, concentrates her practice on complex litigation. She has significant experience in product liability and mass tort litigation and has represented clients in a variety of sectors, including asbestos, nursing homes, health care and drug products. Carolan also regularly represents hospitals, healthcare agencies and other corporate clients.

Eric E. Reed practices in Fox Rothschild LLP’s Litigation, White Collar Compliance, and Defense and Securities Industry practice groups. Reed represents businesses and individuals in a wide range of business-related disputes, as well as administrative and criminal compliance matters.