Is selling knock-off name brand items illegal?

Yes, it is illegal under 18 United States Code Section 2320. The penalty is based upon the value of the infringed item (which is the genuine item, such as Gucci or Chanel) instead of the value of the infringing item (the fake). It is punished similarly to a theft. Advising a potential customer that it is a knockoff is not a defense to the charge, but may be taken under advisement when sentencing.