© Equality Services, LLC 2008 COUNTERFEIT COMPONENTS AND RELATED LEGAL ISSUES Counterfeit Electronic Components Avoidance Workshop December 3 rd 2007 Laurence

© Equality Services, LLC 2008

COUNTERFEIT COMPONENTS AND RELATED LEGAL ISSUES

Counterfeit Electronic Components Avoidance Workshop

December 3rd 2007

Laurence E. Pappas

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



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.


I. Contracts


If the response to an offer is anacceptance or confirmation, does it

propose additional terms?Offer accepted

Contract formed but the additionalterms not included

Did the offer limit acceptance to itsterms?

Do the terms materially alter thecontract?

Did the offeror object to the new termsin a reasonable time?

Contract formedincluding the

additional terms

Yes

Yes

Yes

No

No

No

ACCEPTANCE WITH ADDITIONAL TERMS

Yes

No



I. Contracts

Article 2 of the UCC may apply to the sales transaction.



II. Application of Uniform Commercial Code to Counterfeit Sales Transactions

A. Section 2-711: Buyer may recover damages for bad tender, breach of warranty and “in a proper case” incidental and consequential damages.




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.




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.




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.



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?




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?




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.



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.



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.



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.




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.




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.




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.




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”.


© ZD Integrated Circuits, Inc 2007



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.

Picture A


Picture B



Picture C


Picture D


Picture E

Picture F


Documents

© Equality Services, LLC 2008 COUNTERFEIT COMPONENTS AND RELATED LEGAL ISSUES Counterfeit Electronic Components Avoidance Workshop December 3 rd 2007 Laurence