COUNTERFEIT COMPONENTS AND RELATED
LEGAL ISSUES
Counterfeit Electronic Components Avoidance Workshop
December 3rd 2007
Laurence E. Pappas
© Equality Services, LLC 2008
COUNTERFEIT COMPONENTS AND RELATED
LEGAL ISSUES
I.
Contracts
Comparison of Rejection Of The Goods And Revocation Of Acceptance
Of The Goods
Rejection
Revocation
1.
Timing
Early, before acceptance
Later, after acceptance
2.
Standard
Generally, perfect tender
Substantial impairment
3.
Other
requirements
1. Seasonably notify seller
2. Hold the goods for seller
3. Follow reasonable seller instructions
4.
Consequences
1. Goods back to seller
2. No buyer payment obligation
© Equality Services, LLC 2008
COUNTERFEIT COMPONENTS AND RELATED
LEGAL ISSUES
I.
Contracts
Acceptance, Rejection, and Revocation
1.
Buyer can reject if not accepted.
2.
If buyer accepts, buyer cannot reject.
3.
If buyer accepts, buyer can in certain situations revoke acceptance.
© Equality Services, LLC 2008
COUNTERFEIT COMPONENTS AND RELATED
LEGAL ISSUES
I.
Contracts
ACCEPTANCE WITH ADDITIONAL TERMS
If the response to an offer is an
acceptance or confirmation, does it
propose additional terms?
No
Offer accepted
Yes
Did the offer limit acceptance to its
terms?
Yes
Contract formed but the additional
terms not included
No
Do the terms materially alter the
contract?
Yes
No
Did the offeror object to the new terms
in a reasonable time?
Yes
No
Contract formed
including the
additional terms
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COUNTERFEIT COMPONENTS AND RELATED
LEGAL ISSUES
II.
Application of Uniform Commercial Code to Counterfeit Sales
Transactions
Article 2 of the UCC may apply to the sales transaction.
A. Section 2-711: Buyer may recover damages
for bad tender, breach of warranty and “in a
proper case” incidental and consequential
damages.
© Equality Services, LLC 2008
COUNTERFEIT COMPONENTS AND RELATED
LEGAL ISSUES
II.
Application of Uniform Commercial Code to Counterfeit Sales
Transactions
B. Section 2-721: Seller may also be liable
for fraud or misrepresentation. This would
be in addition to the breach of contract
claim.
1. Therefore, if the buyer revokes
acceptance of goods, the recovery of
incidental and consequential damages
is permitted.
2. Recovery is permitted in some
jurisdictions, not all.
© Equality Services, LLC 2008
COUNTERFEIT COMPONENTS AND RELATED
LEGAL ISSUES
II.
Application of Uniform Commercial Code to Counterfeit Sales
Transactions
C. What if contract limits right of recovery as
to incidental and consequential damages?
1. In cases involving fraud, UCC 2-721
may permit recovery of incidental
and consequential damages even if
contract precludes recovery.
© Equality Services, LLC 2008
COUNTERFEIT COMPONENTS AND RELATED
LEGAL ISSUES
II.
Application of Uniform Commercial Code to Counterfeit Sales
Transactions
D. Section 2-314; 2-315 Breach of warranty
Cases.
1. Breach of warranty of
merchantability and fitness for a
particular purpose.
2. Fraud claim may be attached.
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COUNTERFEIT COMPONENTS AND RELATED
LEGAL ISSUES
III. Terms in Purchase Contract Affecting Disposition of
Counterfeit Materials
A. May a buyer insert terms and conditions
into the purchase contract which permit the
buyer to:
1. Disable Parts?
2. Destroy Parts?
3. Return without payment?
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COUNTERFEIT COMPONENTS AND RELATED
LEGAL ISSUES
III. Terms in Purchase Contract Affecting Disposition of
Counterfeit Materials
B. Buyer may add any term which is not
contrary to statute (including regulations)
or common law.
1. For example: Any counterfeit parts
supplied to buyer by seller may be
…….?
2. Definition of Counterfeit:
In contract?
Industry definition?
Legal definition?
© Equality Services, LLC 2008
COUNTERFEIT COMPONENTS AND RELATED
LEGAL ISSUES
III. Terms in Purchase Contract Affecting Disposition of
Counterfeit Materials
C. Risks associated with taking unilateral
action.
1. Breach of contract if wrong.
2. Destruction of evidence.
3. Inability to conduct business due to
harsh contract terms.
© Equality Services, LLC 2008
COUNTERFEIT COMPONENTS AND RELATED
LEGAL ISSUES
IV. Legal Constraints on Returning Counterfeit Components to
Supplier
A. Party may not engage in trafficking/selling
of counterfeit goods.
1. Is return of goods to vendor trafficking/selling of
counterfeit goods?
2. Is the return of counterfeit goods permissible?
a. May be considered irresponsible but not
illegal.
© Equality Services, LLC 2008
COUNTERFEIT COMPONENTS AND RELATED
LEGAL ISSUES
IV. Legal Constraints on Returning Counterfeit Components to
Supplier
B. Buyer is not required to return counterfeit goods
1. Seller does not automatically win lawsuit if buyer refuses
to return counterfeit goods to the seller.
a. Buyer may hold goods to prevent return of goods
into stream of commerce.
b. Buyer must act reasonably in retention of goods.
© Equality Services, LLC 2008
COUNTERFEIT COMPONENTS AND RELATED
LEGAL ISSUES
V. Counterfeit -vs- Substandard
A. Definitions of Counterfeit.
1. 15 United States Code 1127: A “counterfeit” is a spurious mark
which is identical with or substantially indistinguishable from a
registered mark.
a. ”Registered mark” is a mark registered with the U.S. Patent
and Trademark Office.
b. ”Mark” includes any trademark, service mark, collective mark
or certification mark.
© Equality Services, LLC 2008
COUNTERFEIT COMPONENTS AND RELATED
LEGAL ISSUES
V. Counterfeit -vs- Substandard
A. Definitions of Counterfeit
1. Title 19 U.S.C. §1526(e): Subjects to seizure and forfeiture any
merchandise bearing a counterfeit mark (applies definitions in 15
U.S.C. 1127).
2. Trademark Counterfeiting Act of 1984: “Counterfeit” is defined in this
criminal provision as the confusing use of a spurious mark that is
identical with or substantially indistinguishable from a mark which is in
use and is registered on the Principal Register of the Lanham Act for
the goods or services which are the subject of counterfeiting.
© Equality Services, LLC 2008
COUNTERFEIT COMPONENTS AND RELATED
LEGAL ISSUES
V. Counterfeit -vs- Substandard
B. The definition of counterfeit is the same for
customs seizures and civil cases (Lanham Act).
C. Re-marked / Refurbished components may be
classified as “counterfeit”.
1. Definition of “counterfeit” interpreted by courts to
include situations other than strictly “trademark”
abuses.
© Equality Services, LLC 2008
COUNTERFEIT COMPONENTS AND RELATED
LEGAL ISSUES
V. Counterfeit -vs- Substandard
a. Examples of counterfeit goods or services:
i.
Filling genuine Coke bottles with a carbonated beverage
that is not Coke and representing them as Coke.
ii. Selling genuine but reconditioned valves sold under
plaintiff trademark as plaintiff new product.
iii. Selling genuine Intel processors marked with a speed
designation that Intel would not have given it.
iv. Selling perfume after removing batch code markings
from new perfume bottles.
© Equality Services, LLC 2008
COUNTERFEIT COMPONENTS AND RELATED
LEGAL ISSUES
V. Counterfeit -vs- Substandard
b. Example of goods that are not considered counterfeit.
i.
The removal of paint and trademark from golf balls,
then reapplying paint and trademark and selling them
as used and subject to performance variations.
ii. Spark plugs repaired, reconditioned and sold as
“renewed”.
c. The Supreme Court has stated that “cases may be
imagined where the reconditioning or repair would be so
extensive or so basic that it would be a misnomer to call
the article by its original name, even though the words
‘used’ or ‘repaired’ were added”.
© Equality Services, LLC 2008
COUNTERFEIT COMPONENTS AND RELATED
LEGAL ISSUES
V. Counterfeit -vs- Substandard
D. New Products -vs- Used Products.
1. New: Alteration is not permitted.
2. Used: Moderate alteration permitted.
3. Will user be confused?
E. Specific component examples.
© ZD Integrated Circuits, Inc 2007
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Picture A
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Picture C
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Picture D
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Picture E
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Picture F
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