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What do you get when you combine four FBI Agents, 62 Chinese smugglers, and a billion counterfeit cigarettes? Besides the plot of a Hollywood potboiler, you get the tale of an intricate counterfeit cigarette bust that spanned several continents, a slew of agents, six years, 1,000 meetings, and enough fake smokes to supply every American man, woman and child with more than a few carcinogenic puffs.

Writing for the Center for Public Integrity, Te-Ping Chen brings her readers into the murky world of counterfeit cigarettes. Through bribery and sheer volume, Chinese cigarette counterfeiters overwhelm the inspection infrastructure in China and the United States. The numbers are startling. A shipping container of one million counterfeit cigarettes can cost about $120,000 to make, but can sell for as much as $2 million in the United States. A bribe of $20,000 can ensure safe passage out of China, and then it becomes a game of chance stacked in favor of the counterfeiter. Cargo containers are only inspected 22% of the time on average in the United States. While seizures are considered a cost of doing business for these smugglers, a run of bad luck seizures tempted the counterfeiters in the story to attempt to purchase protection from the Italian Mafia. Unfortunately for the villains, the Mafia fixers turned out to be FBI agents.

Te-Ping Chen does an excellent job of detailing the intricate nature of the smuggling world. Through the well-worn trade paths of cigarettes also comes counterfeit money, fake pharmaceuticals, and weapons. Notorious bad actors like the North Korean government profit greatly from the criminality. No doubt, a weapon of mass destruction could conceivably slip through safeguards using these same trade routes.

And what does this have to do with PRO-IP Act? Plenty, in fact. The PRO-IP Act goes to the root of the counterfeiting problem by increasing the price of doing business in counterfeits. Doubling the fines per counterfeit violation is a good start. Increasing diplomatic resources will also help, as it could enhance cooperation with law enforcement at the point of origin. And with counterfeit cigarettes often unhealthier than the real thing, criminal penalties for selling counterfeit items that do bodily harm could possibly ensure long jail sentences for the counterfeiters of cigarettes and other types of potentially harmful contraband.

This is an excellent article – entertaining, informative and even poignant in parts. Towards the end of the tale, two of the counterfeiters at the center of the investigation presented their undercover FBI Agent with two Rolexes as a wedding present for the mock gangster. “These aren’t counterfeit, are they?” asked the agent. “No,” replied the suspect, “these are the real deal.”

You’ll think Goodfellas, and you won’t be far off – or disappointed. Read the whole thing.

Not what you think, but the august and aptly-named Foreign Policy details some foreign policy implications of counterfeiting (paid registration may be required).

The article details the culprits (China and India are the biggest) and introduces the reader to several law enforcement figures who are simply overwhelmed at the sheer volume of the problem. Some enforcement may also require individual acts of heroism. In Nigeria, Dora Akunyili, a 54-year-old pharmacy professor, took over Nigeria’s drug watchdog industry in 2001 and fought hard to reduce the percentage of counterfeit drugs in Nigeria. Akunyili succeeded. The Nigerian drug supply chain from 70% in 2001 to close to 10% today. Her efforts are helping to prevent counterfeit drugs from killing innocent Nigerians, like her own sister who died after taking fake diabetes medicine in 1988. These efforts have also endangered Akunyili, who narrowly escaped assassination, had her office blown up, and now lives with round-the-clock bodyguard protection.

On the demand side, humanitarian groups seeking to provide drugs to treat third world health problems are left with a stark choice. Either these groups purchase expensive medications through legitimate sources, or they go through more shadowy channels to purchase drugs that may be counterfeit and do not work.

And publicizing the counterfeiting of any drug is often a losing proposition for these drug companies: when counterfeiting of particular drugs is publicized, the public demand for the drug drops even through legitimate channels.

The World Health Organization (WHO) has taken a lead in trying to stem the tide of counterfeit drugs in the world pharmaceutical supply chain. They face real opposition – often, the governments they attempt to influence are also directly involved in profiting from the trade of counterfeit drugs. And even a powerful and influential organization like the WHO is not immune to political pressure. Quoting from the article:

The WHO has been vocal about combating fakes, but even it hesitates to embarrass member countries who allow fake drugs to enter the market. Unfortunately, many observers believe it may take large-scale casualties for real action to occur. As one British drug-security expert put it to me in April, “Action against al Qaeda really only took off after September 11.”

The rise of British organized crime is documented in this piece from the London Times. Note the prominence of smuggling in these criminal organizations whether it involves guns, cannabis, or counterfeits.

We will continue to monitor the press for impressions and interpretations of this landmark decision, but articles can be found here, here, and here.

Declan McCullagh notes that given Amazon’s success in working with large sellers, eBay’s strategy would have likely been different had Tiffany filed suit today.

Mark Hamblett of New York Law Journal has a particularly comprehensive analysis here.

Martin Schwimmer at The Trademark Blog posts his first impressions here.

My first impressions – It is clear that Judge Sullivan hewed closely to current trademark law.

While Tiffany attempted to argue that eBay’s direct infringement was analogous to the liability a store would incur should a store employee sell infringing items on its premises, Judge Sullivan disagreed. Judge Sullivan noted that eBay never took possession of the items sold on its website, and never directly sold counterfeit items to Tiffany buyers.

On the issue of contributory rather than direct infringement, Sullivan rejected measures proposed by Tiffany that presume trademark infringement, including a “five or more” rule that would prescribe listings of five or more Tiffany items on eBay as presumptively infringing. He instead maintained that eBay needed specific knowledge of infringement before being required to act, not a more generalized knowledge that infringement might be occurring on any class of listings. And Judge Sullivan noted that eBay took efforts to prevent repeat infringement offenders from setting up shop on eBay’s website.

Judge Sullivan seemed uncomfortable in delving into the policy arena, even if warranted. He does, in fact, imply that Congress could make policy in this arena, noting that the current law does not allow him to weigh the relative burden or efficiencies between Tiffany or eBay for policing counterfeits in eBay’s marketplace.

On the facts, Judge Sullivan noted that while eBay earned over $4 million from fees generated from the listing of Tiffany items on its website between 2000 and 2004,
eBay’s efforts to combat counterfeiting were extensive. These efforts included eBay’s Trust and Safety Department, its Fraud Engine that uses complex models to automatically searches its website for auctions violating eBay’s Terms of Service, and eBay’s Verified Rights Owner (VeRO) program that provides a mechanism for trademark owners to flag potential infringement in auctions not yet closed.

Sullivan also noted Tiffany’s relative lack of effort in policing its trademarks on eBay. Beginning in 2003, Tiffany has used a non-dedicated motley of security personnel, paralegals and temps that amounted to less than two full-time employees per month dedicated to policing Tiffany trademarks on eBay. Judge Sullivan also cited the budget outlays made by Tiffany for enforcement of its trademarks were consumed in large part by the litigation between Tiffany and eBay.

The Bottom line: Judge Sullivan maintained current American trademark precedent by ruling that trademark owners are the parties primarily responsible for policing their own trademarks.

The Financial Times weighs in today with a nuanced look at the recent French court ruling against eBay. Taking the middle road, the Financial Times argues that while eBay cannot strictly be held accountable for the actions of its users, eBay must try to do more to combat the counterfeiting threat. Such measures, the Financial Times adds, would benefit eBay as well, lest it becomes seen as merely a gallery of rogues, counterfeiters, and cheats.

Commenting specifically on one aspect of the court ruling, the Financial Times takes issue with the finding of eBay’s liability for legitimate goods sold on eBay that violate exclusive distribution agreements. Leaks in the supply chain, says the Financial Times, should be the sole responsibility of the manufacturer.

From Industry Week, an article about Beijing’s efforts to clean up counterfeiting before hosting this year’s Summer Olympics. Essentially, the article implies that the Chinese Government’s desire not to be embarrassed on the world stage by dodgy counterfeit operations exceeds the power of local muckety-mucks to bribe their way into lax enforcement on the local level. The implication, of course, is that the Chinese government can do more in normal times to stop counterfeiting.

Pundits and prognosticators are weighing in on the Paris’ Tribunal de Commerce’s verdict in which it ordered eBay to pay LVMH Möet Hennessy Louis Vuitton and sister company Christian Dior SA $63.1 million of damages relating to eBay’s sales of counterfeit and unauthorized LVMH goods.

Law.com
New York Times
Time (with a focus on French internet provincialism in the wake of the LVMH decision and an earlier French court judgment against eBay in favor of Hermes).

Citing the unusually large damages, the Wall Street Journal Law Blog wonders whether the victory and staggering damages were a product of “home cooking,” with a French court ruling for a French company (and against an American company).

Women’s Wear Daily notes a less noticed aspect of the decision – a separate award of $4.7 million to LVMH for eBay’s selling of brands Parfums Christian Dior, Kenzo Parfums, Guerlain and Parfums Givenchy through unauthorized distribution channels. The French court also ordered eBay to stop selling these brands or face a fine of $79,000 per day.

On the other hand, Richard Waters, writing in the Financial Times, says that focusing on the distribution channel aspect of the decision is an attempt by eBay to distract from the meat of the anti-counterfeiting holding. Waters also draws parallels between eBay’s legal challenges in the trademark sphere and copyright challenges facing YouTube.

Meanwhile, BusinessWeek looks at the totality of the eBay ruling and speculates on whether it might be a precedent for the Tiffany v. eBay case currently being decided in New York. BusinessWeek also speculates on the effects of these cases on eBay’s bottom line and business model.