Legalizing Counterfeit: The Thin Line between Buying and Selling

The days of clandestine transactions for bags, watches, and other accessories along New York City’s buzzing Canal Street have long passed. Now, a midday stroll along Broadway and Canal Street features tarp-covered sidewalks with bags and shoes that appear to be from several different luxury brands. However, these sidewalk products are far from authentic. Considering the high demand for luxury goods and the corresponding tolerance for inauthentic versions, this article examines the legality of selling and purchasing counterfeit luxury goods and the measures, if any, that have been taken to address this this issue.

Distinguishing Knockoffs from Counterfeit Goods

It is essential to differentiate whether a good is a “counterfeit” or a “knockoff.” The distinction between the two may seem small, but the differences have significant legal implications. A knockoff will resemble a branded, authentic product, but generally will not be wholly identical to, or contain identical trademarks or logos of, the original product.¹[1]What is the difference between a counterfeit and a knockoff?, WISH MERCHANT (Feb. 17, 2023), https://merchantfaq.wish.com/hc/en-us/articles/1260801007010-What-is-the-difference-between-a-counterfeit-and-a-knockoff-. Thus, transactions involving goods that simply resemble luxury products are only subject to civil action for misleading consumers or dilution.²[2]15 U.S.C. §1125.

On the other hand, counterfeit goods are designed to replicate an authentic product.³[3]What is the difference between a counterfeit and a knockoff?, WISH MERCHANT (Feb. 17, 2023), https://merchantfaq.wish.com/hc/en-us/articles/1260801007010-What-is-the-difference-between-a-counterfeit-and-a-knockoff-. They appear to be virtually identical to authentic products by featuring a brand’s label, trademarks, or distinctive trade dress.⁴[4]Counterfeit of Knockoff Designer Goods – Is It Illegal to Purchase Them. HG.ORG LEGAL SERVICES, https://www.hg.org/legal-articles/counterfeit-or-knockoff-designer-goods-is-it-illegal-to-purchase-them-31573. Counterfeit manufacturers go to extreme lengths such as providing fake invoices, receipts, and dust bags to situate their infringing goods as indistinguishable from their genuine counterparts.⁵[5]Chinese counterfeit products dominate the worldwide fakes industry, DAXUE CONSULTING (Feb. 9, 2023), https://daxueconsulting.com/counterfeit-products-in-china/. This violation of intellectual property rights by sellers is a punishable criminal offense under 15 U.S.C. § 1114.⁶[6]15 U.S.C. §1114. Under federal law, a person who knowingly “distributes, wholesales, or sells counterfeit merchandise faces substantial penalties” including imprisonment for 10-20 years, fines up to $5 million, and potential civil lawsuits brought by the owner of the product’s trademark.⁷[7]SEVENS LEGAL, APC, https://www.sevenslegal.com/criminal-attorney/counterfeit-merchandise-federal-offense/277/#:~:text=Under%20federal%20law%2C%20any%20individual,20%20years%20for%20repeat%20offenders. So, what does this mean for counterfeit buyers?

The One-Sided Line

The counterfeit goods industry has a long history in the United States. The naked eye may not be able to visually identify a counterfeit bag, but since counterfeit goods tend to be made from low-quality materials, a buyer may be able to physically feel the difference in quality, or see stitching or a pattern that is crooked.⁸[8]Sara Lipowitz, What Are Counterfeit Goods and Are They Illegal to Buy or Sell, https://www.lawyers.com/legal-info/consumer-protection/avoiding-scams/fake-and-counterfeit-goods-are-no-bargain.html (Nov. 4, 2021). Generally, a buyer is seen as an innocent victim in the transaction, even if they knew the item was counterfeit.⁹[9]Id. Thus, it is not illegal to purchase counterfeit goods.¹⁰[10]Id.

The legal rationale against selling counterfeit goods hinges on the impact on the global economy.¹¹[11]U.S. INTELLECTUAL PROPERTY AND COUNTERFEIT GOODS—LANDSCAPE REVIEW OF EXISTING/EMERGING RESEARCH, https://www.uspto.gov/sites/default/files/documents/USPTO-Counterfeit.pdf (2020). In 2020, the Library of Congress (“Library”) reported that though it is nearly impossible to quantify the true impact of the counterfeit market on the U.S. government and U.S. industries due to limited data, the estimated cost of counterfeiting on the U.S. economy is around $29 billion a year.¹²[12]Id. The Library also reported that 80% of global counterfeit goods are produced in China and imported into the U.S.¹³[13]Id. Thus, the majority of counterfeit goods are entering the U.S. market through its borders.¹⁴[14]Id.

The U.S. Customs and Border Protection (“CBP”) has identified economic impacts, legal implications, and health and safety as the leading risks of buying counterfeit goods.¹⁵[15]The Truth Behind Counterfeits, U.S. CUSTOMS AND BORDER PROTECTION, https://www.cbp.gov/trade/fakegoodsrealdangers. The economic impacts include a threat to American innovation, dilution of brand’s value and intellectual property, decreased sales revenue, loss of jobs, and unfair competition; the impacts of which wreak havoc beyond U.S. borders. The legal implications, such as copyright infringement and trademark violations, have a larger impact on individual owners and threaten a brand’s value, prestige, and competitive advantage in the market.¹⁶[16]U.S. INTELLECTUAL PROPERTYAND COUNTERFEIT GOODS—LANDSCAPE REVIEW OF EXISTING/EMERGING RESEARCH, https://www.uspto.gov/sites/default/files/documents/USPTO-Counterfeit.pdf (2020). In order to curb transactions, the CBP works to intercept and detain goods that are suspected counterfeits before they enter the stream of commerce.¹⁷[17]Id.

Prevention versus the Ease of Access

With these illegal transactions, it is likely easier to stop them at the source—upon arrival into the country—than it is to criminalize every counterfeit purchase across the country or investigate every seller. However, this is no easy task. If goods are not intercepted at the U.S. border by federal agents, local efforts like law enforcement raids are a common, though less frequent, tactic to crackdown on the selling of counterfeit goods.¹⁸[18]Cameron Wolf, The 15 Biggest Raids on Counterfeit Goods in Recent History, COMPLEX (Oct. 18, 2014) https://www.complex.com/style/2014/10/the-15-biggest-raids-on-counterfeit-goods-in-recent-history. After several historical counterfeit raids across the U.S. from 2008-2014 ranging from $10 million to $163 million in seized goods,¹⁹[19]Id. it appeared that anti-counterfeit measures were a priority for CBP. However, with new vendors popping up days after such raids, many observers began to believe government agencies were not taking counterfeiting seriously.²⁰[20]GOTHAM GAZETTE, https://www.gothamgazette.com/index.php/superman/3925-the-high-price-of-counterfeit-goods. Years later, a New York Police Department counterfeit crackdown in November 2022 uncovered $10 million in phony high-end goods and led to 17 total arrests, with vendors facing felony charges.²¹[21]Chris Jose, $10 Million in Luxury Knockoff Goods Seized from Canal Street Vendors by NYPD, 4 NEW YORK, https://www.nbcnewyork.com/news/local/crime-and-courts/10-million-in-luxury-knockoff-goods-seized-from-canal-street-vendors-by-nypd/3976324/ (Nov. 29, 2022, 8:14 PM). This was a step towards lessening counterfeit transactions in New York City for local law enforcement, but just weeks later, counterfeit vendors again took over sidewalks in Midtown to cater to holiday shoppers.²²[22]Valentina Jaramillo, Joe Marino, Craig McCarthy an Natalie O’Neill, Dozens of fake designer purse vendors selling knock-offs to NYC holidays shoppers, NEW YORK POST, https://nypost.com/2022/12/08/dozens-of-fake-designer-purse-vendors-selling-knock-offs-to-holiday-shoppers-near-30-rock/ (Dec. 8, 2022, 4:39 PM).

Due to advancements in technology and e-commerce, the world of buying counterfeit goods now goes well beyond the street. With a rising interest and desire for luxury goods, retail platforms like DHgate—the world’s leading online wholesale platform for goods made in China—are gaining popularity.²³[23]DHGATE, http://www.dhgate.com. To reiterate, designer dupes are “knockoffs” because they are meant to closely resemble a designer good without copying the logo or trademarked features.²⁴[24]Dupes vs. Counterfeits- Do You Know The Difference?, JEANS AND A TEACUP (Nov. 3, 2019) https://www.jeansandateacup.com/dupes-vs-counterfeits-do-you-know-the-difference/. However, pro-DHgate influencers are often seen promoting hauls of counterfeit products that are nearly identical to their authentic counterpart.²⁵[25]Ade Onibada, How Counterfeit Hauls Killed The Taboo of the Knockoff and Disrupted Luxury Influencing, BUZZFEED NEWS, https://www.buzzfeednews.com/article/adeonibada/counterfeit-hauls-dhgate-designer-luxury-influence (Oct. 3, 20222, 11:58PM). Now, instead of using your last dollar to buy a new designer item, you can filter, scroll, and purchase for a fraction of the cost. Instead of choosing to barter on a sidewalk, you can buy the same products from the sanctity of your living room.

If it is Illegal, Why Does it Happen so Frequently?

To halt consumers’ easy accessibility to counterfeit items, legislative measures have been implemented.²⁶[26]The Illicit Trafficking of Counterfeit Goods and Transnational Organized Crime, UNITED NATIONS OFFICE ON DRUGS AND CRIME, https://www.unodc.org/documents/counterfeit/FocusSheet/Counterfeit_focussheet_EN_HIRES.pdf. Due to the link between luxury brand counterfeiters and organized crime, international organizations like the United Nations Office on Drugs and Crime (“UNODC”) and the World Customs Organization Container Control Programme, are working to improve member nations’ enforcement efforts internally (training and border protection) and externally (production and cross-border trafficking).²⁷[27]Id. Parties to the United Nations Convention against Transnational Organized Crime can “decide to adopt tougher laws in order to tackle the illicit trafficking of counterfeit goods.”²⁸[28]Id. They are also equipping officials with tools to better identify counterfeit goods by training officials to confiscate counterfeits before they reach consumers.²⁹[29]Id. The goal is to gain the ability to trace the origin of counterfeit goods, in order to dismantle production from its source.³⁰[30]Id. Additionally, by creating bilateral and multilateral cross-border networks of highly trained officials,³¹[31]Id. CBP will be able to better prevent counterfeit goods from ever entering the U.S.

The legal implications and negative economic impact on the global economy of selling counterfeit goods are far-reaching—from intellectual property infringement to organized crime. In the wake of a rapidly increasing consumer desire to acquire inauthentic goods, the CBP and organizations such as the UNODC, must take drastic measures to combat not only trafficking and selling, but the production of counterfeit goods altogether.

Written by: Shiara LaSette Robinson
Shiara is a 2024 J.D. Candidate at Brooklyn Law School