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

Comparison of Rejection Of The Goods And Revocation Of Acceptance Of The Goods © Equality Services, LLC 2008 COUNTERFEIT COMPONENTS AND RELATED LEGAL ISSUES I.Contracts

© Equality Services, LLC 2008 I.Contracts COUNTERFEIT COMPONENTS AND RELATED LEGAL ISSUES

© Equality Services, LLC 2008 COUNTERFEIT COMPONENTS AND RELATED LEGAL ISSUES I.Contracts

Article 2 of the UCC may apply to the sales transaction. © Equality Services, LLC 2008 COUNTERFEIT COMPONENTS AND RELATED LEGAL ISSUES 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.

© 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 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; Breach of warranty Cases. 1.Breach of warranty of merchantability and fitness for a particular purpose. 2.Fraud claim may be attached.

© Equality Services, LLC 2008 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?

© Equality Services, LLC 2008 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 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 © ZD Integrated Circuits, Inc 2007 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.

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