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Although 25 individuals were arrested in a Trademark infringemnt case involving allegedly counterfiet "Nike" sneakers, Mark Mahoney has been waging a lone battle against the U.S. Attorney's efforts to apply the same venom and zeal to the prosecution to street sellers of cheap sneakers that they do to purveyors of narcotics. To do this the government has had to fabricate the existence of millions of dollars of losses to Nike, Inc., because the claim of large losses is what drives up sentences under our Federal Sentencing Guidelines. So it is being claimed that Nike lost $100 for each pair of alleged counterfeit shoes sold on the street. Prudently, Nike refused an invitation to step forward to subscribe to this fiction, a fact which the government concealed from the defendants who have already pleaded guilty.
The Buffalo News has picked up in this story, quoting Mr. Mahoney and defining the battle lined in this case.
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http://www.buffalonews.com/cityregion/story/948714.html
While prosecutors tell the News that they believe that Nike “lost money because of this crime,” nothing has been submitted in court to substantiate or quantify this. The government has not found a single example of restitution being awarded in any amount – not to mention millions of dollars – to a corporate victim which is unwilling to even say that it has suffered any specific economic loss.
What Mr. Herbeck’s article omits to mention is that the only valid loss in trademark cases is the lost profit to the trademark holder for sales that did not occur because a person bought fake goods believing them to be genuine. Here of course, few, if any, purchasers of sneakers for $20-$40 on the street thought that they have purchased the genuine article. They may hope others to think they have bought genuine goods, but they were not themselves fooled. However the government in this case, to fabricate great losses, has assumed that every purchaser of these alleged counterfeit shoes would otherwise have purchased a genuine shoe for $120 - $150. This, of course, is preposterous.
In reality, what retailers can mostly complain about is the perennial problem of cheap imports cutting into retail sales of more expensive imports. Rick Dehlinger is correct to point out that reputable retailers like him pay sales taxes, which a street vendor may not, but that is not a federal question. There is actually support in research for the claim that the trade in counterfeit fashion goods adds cache to the brand, creating desire for the genuine article, while at the same time spurring innovation by the manufacturer. The prospect of job losses here, referred to by ICE Agent in Charge Lev Kubiak, is certainly not on the manufacturing end: Nike, Inc., so far as one can tell, does not manufacture any shoes in the U.S., instead using manufacturers in developing nations, amidst long-standing complaints about subcontracted work performed by child labor.
The $600 billion figure mentioned by a Customs official, as the annual cost of counterfeit goods, is of uncertain origin and I have not seen it documented. It has always been cited as a worldwide figure. It is not any estimate of the impact of domestic sales of counterfeit goods, and the bulk of that figure should be in copyright violations – like bootlegged music and movies and software – not trademark infringement on hard goods. The more serious trademark infringement issues are in fake pharmaceuticals and medical devices, which present a heath concern.
So far the prosecutors have succeeded with claims of these make-believe losses in this case to inflate sentences. Recently in one sentencing in the case, however, District Court Judge Richard J. Arcara only granted 50% of the government’s restitution demand, without explanation, perhaps signaling awakening concern over the validity of the government's claims based upon Mr. Mahoney's challenges.
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