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definition of the term1, the purchaser and the broker can be subject to fines, litigation, and cease-and- desist restraining orders as a result of possession of the device unlawfully bearing the imprimatur of the manufacturer.
Absent a service contract and proper transfer of title, the used device may be considered “remanufactured” under applicable FDA regulations [See 21 U.S.C. § 820.3(w)] and a UML purchaser using one may be considered to have engaged in trademark counterfeiting, which is a federal crime and punishable by up to 10 years in prison, $5 million in fines, and which may result in the seizure of the goods. See 18 U.S.C. § 2320. Trademark counterfeiting also gives rise to potential civil trademark counterfeiting claims under the Lanham Act and could lead to damages reflecting the counterfeiter’s profits, treble damages or statutory damages up to $200,000 are available. See 15 U.S.C. §§ 1114, 1117.
For example, in Sunsport, Inc. v. Barclay Leisure, Ltd., 984 F. Supp. 418 (E.D. Va. 1997), the Court stated that Sunsport’s sale of reconditioned tanning beds bearing the manufacturer’s mark, ULTRABRONZ, constituted trademark infringement and false designation of origin, because tanning customers would assume the beds were authorized by the manufacturer and would blame injury or dissatisfaction on the manufacturer, which threatened to tarnish its good will, all while the manufacturer was unable to control the quality or safety of the beds sold by Sunsport. 984 F. Supp. 418, 422 (E.D. Va. 1997); see also Rolex Watch, U.S.A. v. Michel Co., 179 F.3d 704 (9th Cir. 1999) (Court held that the Defendant was liable for trademark counterfeiting for reconditioning and selling Rolex watches with parts not provided or authorized by Rolex).
FDA Compliance Issues
In May 2018, the FDA released a report titled “The Quality, Safety, and Effectiveness of Servicing
of Medical Devices”. This report noted that the FDA distinguishes between “servicing” and “remanufacturing,” and stated that “[b]ecause remanufacturing can have a significant impact on the safety and effectiveness of the device,” the FDA will actively regulate a remanufacturer as a manufacturer. In other words, evidence of remanufacturing may lead to FDA enforcement. The FDA has indicated that it intends to publish guidance on the practice of UML sales in order to allow more consistent interpretation and categorization regarding what qualifies as “servicing” and “remanufacturing”. Clearly, UML brokers are in the FDA’s cross-hairs and the secondary market for UMLs will likely come under greater scrutiny. The FDA’s action in this regard underscores the serious risk associated with the sales of UMLs and should serve as a warning for medical practices contemplating business with them.
1
H.R. 5663 is the “Safeguarding Therapeutics Act” and defines a “counterfeit device” as: “a device which, or the container, packaging, or labeling of which, without authorization, bears a trademark, trade name, or other identifying mark or imprint, or any likeness thereof, or is manufactured using a design, of a device manufacturer, processor, packer, or distributor
other than the person or persons who in fact manufactured, processed, packed, or distributed such device and which thereby falsely purports or is represented to be the product of, or to have been packed or distributed by, such other device manufacturer, processor, packer, or distributor.''
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