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Fighting the Goods Fight – Counterfeit Liability

World Wrestling Entertainment (WWE) has been involved in an interesting suit the year. Irritated by the amount of counterfeit swag that is sold outside of venues holding WWE matches, the company asked the courts if it could be “deputized” in order to seize counterfeit merchandise. The federal judge who first heard the case felt that, if the company wanted ex parte seizure rights, it would need to name the counterfeiters first before acting against them.

WWE argued that it couldn’t possibly know in advance who might be outside selling counterfeit WWE wares. However, since WWE doesn’t license third-party retailers to sell WWE merchandise outside of the venue, identifying the bootleggers would be easy. The saga came before the Fifth Circuit Court of Appeals, which believes WWE should get the relief they seek from counterfeiters, but was unsure about allowing WWE to carry out the seizure orders themselves.

Who enforces seizure, and how?

The case conjures up an interesting vision of wrestlers toppling card tables outside of stadiums and grabbing all the bootlegged merchandise they can get their hands on. The vision should frighten retailers a bit. Counterfeiting is a growing problem in the U.S., and companies who make the real thing are getting just as irritated as WWE.

Certainly non-licensed sports apparel and fake purses are the most visible counterfeit goods out there, but a whole host of products are making their way to consumers, from fish and olive oil to an entire chain of fake Apple stores in China, manufacturers and retailers alike are being undersold and undercut, and they’re unhappy.

The WWE ruling, however, could add a new layer of liability to the mess. What if you’re a retailer and it is discovered that you have a large cache of counterfeit goods in your store? Does the Fifth Circuit’s ruling mean that the license holder can walk into your establishment and pull the goods directly from your shelf?

It’s hard to tell. At this point, the WWE is tasked with going back to the drawing table to explain to the court how the company intends to seize the property without the help of authorities. Once WWE lawyers come up with a plan, it will be up to the court to make its final ruling.

What is your liability in a counterfeit scenario?

Depending on what type of goods you sell, you may certainly lose the cost of what you paid for counterfeit goods if you’re selling them. But you also have a responsibility to consider the serious health and safety concerns associated with selling counterfeit goods like baby formula, electronics, or medications.

The long-term impact of selling damaged goods could hurt your reputation and force you to suffer extended losses. You might also want to consider how the goods got into your store in the first place – was it from a shipment far away, or is the switch happening at your own back door due to organized crime or other criminal activity?

The International Trademark Association offers some good advice about counterfeiting, and you should work with your staff to establish best practices throughout your organization to avoid receiving counterfeit goods in the first place, and then work with your lawyers and insurance professionals to get a read on how much you are exposed to counterfeit operations.

If you find your level of exposure is high, but it’s difficult to find a policy that will cover you, consider forming an enterprise risk captive to maintain the level of coverage. Contact us if we can help you.