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"(g) Nothing in this section shall supersede any provi

2 sion of Federal, State, or other law imposing criminal penal

3 ties or affording civil remedies in addition to those provided

4 for in this section, except that no civil claimant who recovers 5 treble damages or treble profits pursuant to this section shall 6 also be entitled to corresponding recovery under any other

7 Federal, State or other law in connection with the same

8 underlying occurrences or transactions.”.

9

(b) The table of sections for title 18, United States

10 Code, is amended by adding after the item relating to section

11 2319 the following:

“2320. Criminal trafficking in counterfeit marks.”.

Mr. Hughes. Trademark counterfeiting in the past has commonly involved the counterfeiting of goods like designer jeans and handbags. Such actions create serious financial consequences for the holders of those trademarks. Not only do they lose the sales of those items to the counterfeiters, but their reputations suffer when the goods the consumer believes to be genuine fall apart after minimal use. That consumer will, in all likelihood, not buy that product again.

Recently, however, the problem of trademark counterfeiting has taken a far more serious turn. Apparently items that are essential to human health and safety are now being counterfeited. One example is airplane parts, which could cause a major air disaster if they fall apart or fail in midflight.

The likelihood of failure of a counterfeit part that has not sustained the rigorous safety and strength tests which the authorized manufacturer would conduct is a clear risk to human life. Medicines, toiletries, clothing, airplane parts—the list is endless. All kinds of products are being counterfeited and one can only imagine what will turn up next on the list. It has become a multibillion dollar business.

This bill presents substantial criminal and civil law issues that we anticipate will not be very easy to resolve. A basic question is whether criminal sanctions are appropriate for such conduct and, if they are, should they be limited to cases where the counterfeiting causes a risk to human life or safety?

Are the civil provisions of the Lanham Act sufficient to deal with most aspects of this problem? Are there antitrust consequences to this bill? How can we best protect the consumers who are the ultimate victims of trademark counterfeiting?

These are just some of the issues we will face in considering this bill. The witnesses we will hear from today and in the future are well qualified to advise the subcommittee and to relate their own experiences with the problem of trademark counterfeiting.

In future hearings, we expect to hear from, among other interested parties, representatives of the Department of Justice, the American Bar Association, and consumer groups. Today we are privileged to hear from those who have firsthand knowledge of the problem: Business people and lawyers with experience in manufacturing, retailing, and wholesaling.

They are here to tell us about the effects that trademark counterfeiting has had on them and what they anticipate the results of the legislation would be if enacted.

The first panel, and if they will come forward, consists of James L. Bikoff and Paul L. Haluza. Mr. Bikoff is President and Executive Director of the International Anticounterfeiting Coalition, a group of some 175 corporations and associations. Mr. Bikoff has been president of the Coalition since its inception in 1978. Mr. Bikoff is a lawyer admitted to practice in the State of New York.

Our next witness on the panel is Paul Haluza, who is currently director of government relations and public affairs for the Motor and Equipment Manufacturers Association.

Mr. Haluza joined MEMA in July of 1981 as a special assistant to the president for governmental and public affairs and was promoted to his current position in January of 1982.

Gentlemen, we welcome you to the Subcommittee on Crime this morning. We have your statements which, without objection, will be made part of the record and you may proceed as you see fit.

Why don't we start with you, Mr. Bikoff? Welcome. TESTIMONY OF JAMES L. BIKOFF, ESQUIRE, PRESIDENT, INTER

NATIONAL ANTICOUNTERFEITING COALITION; ACCOMPANIED BY JED RAKOFF, COUNSEL, OF MUDGE, ROSE, GUTHRIE, ALEXANDER & FERDON; AND PAUL T. HALUZA, DIRECTOR, GOVERNMENTAL RELATIONS AND PUBLIC AFFAIRS, MOTOR AND EQUIPMENT MANUFACTURERS ASSOCIATION

Mr. BIKOFF. Mr. Chairman, first, I would like to convey the appreciation of the International Anticounterfeiting Coalition for an opportunity to provide you with our comments on this critical issue.

We are appearing here today in support of H.R. 2447, the Trademark Counterfeiting Act of 1983, introduced by Chairman Peter Rodino. I am accompanied by Jed Rakoff, of Mudge, Rose, Guthrie, Alexander & Ferdon, who is counsel to the Coalition, and who will be happy to answer some questions after our presentation.

The Coalition is a group of 175 companies and firms which was begun in 1978 to combat the growing international problem of the counterfeiting of trademark products, particularly consumer goods. The problem has increased tremendously over the last few years and now involves the risk of use of hazardous products in addition to the consumer products that were the early subject of counterfeiting.

Unless counterfeiters face swift, sure criminal sanctions, the incentive to consider this spreading consumer abuse will certainly continue unabated. Commercial counterfeiting involves the placing of a false trademark on a product which is generally of inferior and substandard quality. The product is made to appear superficially indistinguishable from the genuine article and the consumer, in many cases, purchases the product relying on the counterfeit version of the trademark and only learns much later that the product is fake and that he has been defrauded.

Although the early efforts of the counterfeiters were in the consumer areas, such as apparel and watches and sporting goods and tapes, the recent increase has been in fields that are directly related to public health and safety and national defense.

Some of the areas in which the Coalition has seen problems in this field are electrical and electronic products such as circuit breakers, cosmetics, and shampoos, which have high bacteria counts and can lead to skin inflammations, and automotive products and aircraft products, some of which Mr. Haluza will be speaking on today.

There are many examples that are referred to in my testimony of actual case histories involving agricultural chemicals, auto parts, and aircraft, and I will not go into those at this time, except to say that in the automotive industry, it is estimated that the amount of counterfeit sales in the United States is close to $3 billion per year, which I think is indicative of the growing problem and the scope of the problem.

There are other areas within the counterfeiting problem that are being attacked, such as the Coalition has committees that are working with U.S. Customs to try to stop the inflow of counterfeit merchandise coming from abroad, which is one of the problems. We are also working with the General Agreement on Tariffs and Trade, through the U.S. Government, to try to get acceptance of an international anticounterfeiting code.

We are participating in efforts with the Department of Commerce and the USTR in seeking enforcement of legislation in key problem countries such as Taiwan, South Korea, Philippines, and others.

All of these efforts are important. However, the United States is the most lucrative market for counterfeit goods, and for that reason, it is important that we try to have a very strict comprehensive statute in this country that will provide more risks to those who would deal in counterfeit products.

H.R. 2447, we think, provides an effective solution by combining significant criminal penalties with the likelihood of forfeiture of counterfeit goods. Any manufacturer, distributor, or retailer who produces or sells products containing counterfeit marks with intent to deceive would fall under the bill's purview. Innocent retailers and consumers would not be affected.

Beyond the criminal sanctions, the bill encourages trademark owners to bring civil actions for damages and attorneys' fees, and unlike the current civil remedies which are available under the Lanham Act, the bill would make attorneys' fees, investigative fees, and treble damages mandatory, which is a needed enhancement of a civil remedy.

In addition, the bill would authorize Federal district courts, in their discretion, to order seizure of counterfeit products, which is a disincentive much needed in this area where goods have been prone to disappear or be made unavailable after a notice has been given to a defendant to appear at a hearing.

We believe that this legislation represents the best attempt to incorporate and protect the interests of many diverse groups, including members of the retail community, the consumer and the manufacturing community.

As you know, H.R. 2447 has been endorsed by the Coalition, by the Consumer Federation of America, and by the Nation's largest retailer, Sears, Roebuck & Co., the latter with one provision, that an amendment be placed within the bill which would authorize a defendant to recover attorneys' fees if a seizure was effected without adequate evidence that the goods were counterfeit.

This amendment, I might add, has been accepted by the Senate committee considering the counterpart bill.

The only opposition which has emerged to date has been the Discount Trade Association, who is testifying here today, and its leader member, K-Mart.

I would very briefly speak to their primary objections which have been vocalized in the Senate. They argue that the bill is a thinly veiled attempt by brand-name manufacturers to engage in retail price maintenance. The argument is that the ex parte seizure provisions be utilized to obtain sensitive information regarding the source of what is called "gray market goods," goods that are genu

ine but not authorized for distribution in this country or through a particular retail outlet.

I want to clarify for the record that this Coalition has absolutely no intention to interfere with the distribution of gray market goods. We will make that clear on the record or in any other way. This bill seeks to stop only counterfeit products which are defined, we think, in a very narrow way and do not include gray market goods which, by their very definition, are not counterfeit, but are genuine.

Second, the opponents argue that the seizure provisions of the bill lack adequate standards and safeguards. On that, we believe that the bill would be subject to all of the safeguards provided in rule 65. In addition, we support the amendment that Sears Roebuck has agreed to which would provide attorneys' fees to defendants.

We are also prepared to support modification of the ex parte provision to make it clear that orders issued under the bill would only be carried out by law enforcement authorities; that materials seized would be held in court custody pending a hearing; and that notice and probable cause requirements would also be made clear.

The final argument made by K-Mart and the discount group is that there is no need for additional legislation in this area. On that argument, I think that the media and the growth of membership in our group, which has been from approximately 70 companies last year at this time to 175, testify that there is no adequate solution under present law.

At the present time, we are limited basically to civil remedies which, for the most part, have been unsatisfactory to deter counterfeiters. What we need are stronger criminal and civil remedies which will provide a higher risk than is currently available. Counterfeiting being at current a high-profit, low-risk industry, like many other forms of crime, especially organized crime, it is clearly a problem that will grow unless there is some legislation that establishes a significant disincentive.

I would like to express our thanks for the opportunity to testify today and we will be happy to answer questions following Mr. Haluza's presentation. Thank you.

[The statement of Mr. Bikoff follows:]

TESTIMONY OF JAMES L. BIKOFF, PRESIDENT, THE INTERNATIONAL

ANTICOUNTERFEITING COALITION My name is James L. Bikoff. I am President and Executive Director of the International Anticounterfeiting Coalition. The Coalition and its 175 worldwide members consider the issue of international counterfeiting of brand name products to be a critical one.

I am appearing here today in support of H.R. 2447, the Trademark Counterfeiting Act of 1983, introduced by Chairman Peter Rodino. I am accompanied by Jed Rakoff of Mudge, Rose, Guthrie, Alexander & Ferdon, counsel to the Coalition.

THE INTERNATIONAL ANTICOUNTERFEITING COALITION The Coalition is a group of 175 corporations and associations, begun in 1978, whose principal purpose is to combat the growing international problem of counterfeiting of trademarked products, particularly consumer goods. Every working day consumers from New York to California are being defrauded of vast sums of money and unwittingly forced to risk use of hazardous products because counterfeiting has become a high-profit, low-risk business. Unless counterfeiters face swift, sure crimi

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