Source: https://www.justice.gov/jm/criminal-resource-manual-1711-joint-statement-part-g-ex-parte-seizures
Timestamp: 2019-04-18 13:11:29+00:00

Document:
The proposed draft amends 15 U.S.C. 1116 by adding a new subsection (d), which explicitly authorizes the Federal courts, in counterfeiting (sic) cases and in certain circumstances, to grant seizures of goods and related materials on an ex parte basis. Subsection (d) represents a compromise between the House and Senate provisions on this question.
The purpose of the ex parte seizure provision is to provide victims of trademark counterfeiting with a means of ensuring that the courts are able to exercise their jurisdiction effectively in counterfeiting cases. Testimony before both the House and Senate Judiciary Committees established that many of those who deal in counterfeits make it a practice to destroy or transfer counterfeit merchandise when a day in court is on the horizon. The ex parte seizure procedure is intended to thwart this bad faith tactic, while ensuring ample procedural protections for persons against whom such orders are issued. In essence, both the Senate and House bills permitted issuance of an ex parte seizure order if the applicant could show that the defendant would not comply with a lesser court order, such as a temporary restraining order, and that there was no means of protecting the court's authority other than to seize the property in question on an ex parte basis.
As proposed subsection (d)(1) makes clear, this provision is directed solely at the seizure of goods in trademark counterfeiting cases--that is, in cases involving the use of counterfeit mark in connection with the "sale, offering for sale, or distribution" of goods or services. Neither the House nor the Senate has studied the use of ex parte seizures in trademark infringement cases involving violations less egregious than counterfeiting, or in other civil cases, such as lawsuits involving copyright infringement or patent infringement. While the compromise bill therefore does not address ex parte seizures in other civil cases, such as trademark cases not involving counterfeits, the sponsors believe that in any ex parte seizure, the courts should bear in mind the policy concerns that lie behind the provisions of this bill and the need to provide procedural protections to persons against whom such seizures are ordered.
The procedures detailed in this section are largely derived from the existing requirements of rule 65 of the Federal Rules of Civil Procedure. Those requirements have been modified in certain respects to conform them to the circumstances peculiar to seizures on a ex parte basis. Except where the provisions of rule 65 are inconsistent with the requirements of this act, however, they will continue to apply, as will traditional principles of equity.
Proposed subsection (d)(1)(A) lists the items that may be confiscated during an ex parte seizure: "goods and counterfeit marks" involved in the described violation, "the means of making such marks," such as plates or molds, and "records documenting the manufacture, sale, or receipt of things involved in such violation." This list is derived from similar provisions in the Senate and House bills.
Proposed subsection 1116(d)(2). This subsection is based on comparable provisions in both S. 875 and H.R. 6071. It provides that an applicant for an ex parte seizure in. a counterfeiting case must first provide such notice as is reasonable under the circumstances to the U.S. Attorney for the district in which the order is sought. The compromise provision follows the House draft, with two changes (sic). First, the phrase "timely notice" has been replaced with the phrase "such notice as is reasonable under the circumstances." This amendment is intended to emphasize that the amount and type of notice provided to the U.S. Attorney will need to be determined according to the particular circumstances of a case.
The second change from the House bill is that the compromise provision specifically provides that the court may deny an application for an ex parte seizure order if the U.S. attorney shows that the public interest in a potential prosecution so requires. This addition is intended to make explicit the clear intent of both S. 875 and H.R. 6071. The sponsors intend that whenever practicable, the views of the U.S. Attorney should be sought by the court.
Proposed subsection 1116(d)(3). This subsection lays out the technical requirements for issuance of an ex parte seizure order under this bill. Under this provision, an applicant will need to supply the court with an affidavit or verified complaint containing information supporting the issuance of an ex parte seizure order, and other information specified in proposed subsection (d)(5).
In an ex parte proceeding, the court will have no choice but to rely on the representations of the applicant. For that reason, the court should rely, whenever possible, on statements of fact based on the personal knowledge of an affiant. For example, if an individual employee of a company has personal knowledge of relevant facts, the company should submit an affidavit from that individual, rather than relying on the information and belief of the company's counsel.
Of course, in some instances the court may consider allegations based on hearsay. For example, if an attorney has obtained information from a confidential source whose identity cannot be revealed publicly, the court may accept hearsay in an affidavit or verified complaint. See generally C. Wright and A. Miller, Federal Practice and Procedure (civil) section 2952, at 514-16 (1973).
Proposed subsection (d)(4). This subsection is the heart of the ex parte seizure provisions. It lays out the two basic requirements for issuance of an ex parte seizure order. First, provision by the applicant of a bond to ensure that the defendant will be made whole if the seizure should prove to have been wrongful; and second, an adequate showing of the facts that justify issuance of an order. These provisions will ensure that the rights of defendants under the due process clause are fully respected in ex parte seizures under this act.
Proposed subsection (d)(4)(A). The provision of a bond is one of the critical procedural protections designed to ensure that the defendant's rights are adequately protected during the course of an ex parte seizure. In setting the amount of security, courts should err on the side of caution--that is, toward larger bonds--in light of the need to protect the unrepresented defendant, and to ensure that the defendant will have an effective remedy if he or she is the victim of a wrongful seizure. Proposed subsection (d)(4)(B). This provision details the findings that a court must make in order to issue an ex parte seizure order under this section. The compromise version draws upon both proposed subsection (d)(4) of the House bill and proposed subsection (f)(4) of the Senate bill.
Under this subsection, the court must find that it "clearly appears from specific facts" that the listed circumstances exist. The quoted language is taken from rule 65 of the Federal Rules of Civil Procedure, and the sponsors intend the same standard of proof applicable under that rule to be applicable in connection with this subsection.
Proposed subsection 1116(d)(4)(B)(i). The first required finding is taken from both the Senate and House bills. The applicant must show that an order less drastic than an ex parte seizure would be inadequate. Thus, the applicant must establish that a temporary restraining order on notice to the defendant , or an ex parte temporary restraining order, would not be adequate to achieve the purposes of the Lanham Act. This provision simply codifies the traditional equitable principle that the court should use the least intrusive remedy that will be effective under the circumstances.
Proposed subsection 1116(d)(4)(B)(i). The second required finding is that the applicant not have publicized the requested seizure. The reason for this provision is that when a private applicant obtains an order directing law enforcement officials to seize materials from an unrepresented defendant, the applicant should not be permitted to take advantage of the surprise character of the seizure to un-[H 12081] fairly injure the reputation of the defendant. For example, it would be highly unfair to a defendant who has been given no advance notice of a seizure if the applicant were to alert the press to the upcoming seizure in an effort to create damaging publicity about the defendant. This provision therefore requires a party seeking an ex parte seizure to certify to the court that it has not publicized the requested seizure. Of course, the sponsors appreciate the first amendment principles that are implicated by this provision, and it should be interpreted consistently with those principles.
Proposed subsection (d)(4)(B)(iii). The third required finding is that the applicant is likely to succeed in showing that the defendant used a counterfeit mark in connection with the sale, offering for sale, or distribution of goods or services. This provision does not require any showing about the defendant's state of mind; it simply requires the applicant to make an adequate showing that the marks in which the defendant is commercially dealing are counterfeit.
Proposed subsection (d)(4)(B)(iv). The fourth required finding, derived from both the Senate and House bills, is that an "immediate and irreparable injury" will occur if a seizure is not ordered. This will not ordinarily be a difficult showing in a counterfeiting case. If the mark in question is likely to be found to be counterfeit, then the applicant will be ordinary be able to show irreparable harm that the goods are likely to be distributed if their seizure is not ordered. The Courts have repeatedly held that the distribution of infringing goods constitutes irreparable injury sufficient to order preliminary relief. See, for example, In Re Vuitton et Fils S.A., 606 F.2d 1, 4 (2d Cir. 1979); Helene Curtis Industries Inc. v. Church & Dwight Co., 560 F.2d 1325, 1332-33 (7th Cir. 1977), cert. denied, 434 U.S. 1070 (1978); Omega Importing v. Petri-Kine Camera Co., 451 F.2d 1190, 1195 (2d Cir. 1971). Since the marks at issue here are not merely infringing but counterfeit marks, this conclusion will be still more easily reached.
Proposed subsection (d)(4)(b)(v). The fifth required finding is that the matter to be seized will be located at the place identified in this application. This provision, too, is derived from similar provisions in both the House and Senate bills. As the House report made clear, it may be difficult for the applicant to identify precisely where the goods or materials in question are located. The courts should thus be flexible in applying this requirement, but should require as great a degree of specificity as is possible under the circumstances, and should not grant orders, for example, permitting seizure to take place "anywhere in downtown Washington, DC."
Proposed subsection (d)(4)(b)(vi). The sixth required finding is that "the harm to the applicant of denying the application outweighs the harm to the legitimate interest of the person against whom such seizure would be ordered of granting the application." In cases in which the other listed requirement are satisfied, the sponsors do not anticipate that this showing will be a difficult one. The hardship to a plaintiff caused by the distribution of goods bearing counterfeit marks will usually be great; a defendant's legitimate interest in retaining counterfeits, which he or she would hide or destroy if notified of the suit, will normally be minimal. Cf. Atari, Inc. v. North American Phillips Corp., 672 F.2d 607, 620 (7th Cir.), cert. denied, 103 S. Ct. 176 (1982); Corning Glass Works v. Jeannette Glass Co., 308 F. Supp. 1321, 1328 (S.D.N.Y. 1970), aff'd, 432 F.2d 784 (2d Cir. 1970).
Proposed subsection (d)(4)(B)(vii). This provision is the key to obtaining an ex parte seizure order under this act. Its language is adapted from the comparable Senate and House provisions. Both of those provisions required, in essence, that the applicant show that if he or she were to proceed on notice to the defendant, the defendant or persons associated with the defendant would destroy, transfer, or hide the materials in question, or otherwise make them inaccessible to the court's jurisdiction. The proof relevant to this finding will, of course, often overlap with that for the first finding above.
The compromise draft requires that the court find that "the person against whom the seizure would be ordered, or persons acting in concert with such person, would destroy, move, hide, or otherwise make such matter inaccessible to the court, if the applicant were to proceed on notice to such a person." The most compelling proof on this point would be evidence that the defendant had acted in bad faith towards the judicial process in the past. A court may, however, consider any other evidence relevant to this determination. As used in this provision, the term "persons acting in concert" with the defendant means persons acting under the direction of, or at the request of, the defendant.
The sponsors wish to emphasize that ex parte seizures are to be ordered only as a last resort. It would not be appropriate to order such a seizure against a reputable merchant, absent unusual circumstances--such as when the applicant can make a particularized showing that the merchant would be likely to defy a court order to maintain the status quo. A reputable businessperson would not be likely to conceal or destroy evidence when notified of a pending lawsuit, and the issuance of an ex parte seizure order against such a person would therefore be wholly inappropriate, absent the unusual circumstances just mentioned. Rather, the sponsors believe that ex parte seizures are a necessary tool to thwart the bad faith efforts of fly by night defendants to evade the jurisdiction of the courts.
The sponsors note that three provisions of H.R. 6071 concerning ex parte seizures have been omitted in the compromise draft. The first is the provision in proposed section (d)(1)(A) of H.R. 6071 that an ex parte seizure order may be issued only if the defendant "knew or should have known" that the items in question were counterfeit. The compromise draft follows the Senate bill on this point, see section (f)(4) of S. 875, for two reasons. The first is set forth in the Senate Report 98-526, supra, at 17. The second is that the sponsors believe that they should have known standard was in essence a negligence standard, and thus was inconsistent with the intention to authorize ex parte seizures only when the defendant will act in bad faith to avoid the court's jurisdiction.
The second significant omission from the House bill is that it is required that the applicant for an ex parte seizure show that the public interest would not be seriously adversely affected by granting the application. If the other requirements for an ex parte seizure have been met, the U.S. Attorney has been duly notified of the pending seizure and the court has considered whether the public interest in a potential prosecution requires denial of the application, the sponsors believe that the issue of the public interest will already have been resolved.
The third major change from the House bill is that the provisions concerning postseizure document discovery have been considerably simplified. The sponsors believe that the courts will be able to devise appropriate discovery procedures under the circumstances of each case consistent with the statutory guidance provided by proposed section (d)(7) of this act, and its explanation herein.
Proposed subsection (d)(5). This subsection sets out the information that must be included in an ex parte seizure order. Subsection (d)(5)(B) requires the applicant to provide a "particular description of the matter to be seized." Here too, the courts should require the greatest specificity that is possible under the circumstances, but should recognize that circumstances may often make it impossible to list in detail every item that is to be seized.
Proposed subsection (d)(6). This provision directs the court to take appropriate action to protect the defendant from publicity generated by the plaintiff about the seizure of the defendant's goods. Because the unfairness of publicizing a seizure order obtained without the defendant's knowledge forms the basis for limiting the plaintiff's efforts to publicize the seizure, the need for protection will primarily exist before and during the seizure. The use of the term "appropriate" is designed to ensure that any action taken by the court will be consistent with the first amendment.
Proposed subsection (d)(7). This provision requires all materials seized in an ex parte seizure order under this section to be placed in the custody of the courts. Under proposed subsection (d)(1), the materials seized may include business records. The sponsors recognize that the seizure of such records poses particularly difficult issues since such documents may contain sensitive business information. If any records have been seized, therefore, the court should enter an appropriate protective order with respect to discovery of the records. In seeking to protect any privileged information that may be contained in the seized records, the courts should employ whatever procedures are appropriate under the circumstances of the case at hand. The sponsors believe that three procedural devices in particular are worthy of special consideration in this regard.
The first is the use of a third party, chosen by the court or by agreement of all concerned, who can examine the records in question and extract the needed information without revealing privileged matter. See, e.g., Battle Creek Equipment Co. v. Roberts Manufacturing Co., 90 F.R.D. 85 (W.D. Mich. 1981); Triangle Manufacturing Co. v. Paramount Bag Manufacturing Co., 35 F.R.D. 540 (S.D.N.Y. 1964); F.R.Civ.P. 53 (appointment of special masters). The second is in camera inspection of the key documents. See Altech Industries, Inc. v. Al Tech Specialty Steel Corp., 528 F. Supp. 521 (D.Del. 1981). Should the court find that these procedures are inappropriate or not fully satisfactory, a protective order may issue permitting counsel, but not the litigants, to have access to certain information. See, e.g., Federal Open Market Committee v. Merrill, 443 U.S. 340, 362 n.24 (1979); Federal Trade Commission v. Exxon Corp., 636 F.2d 1336, 1349-51 (D.C. Cir. 1980); Chesa International Ltd. v. Fashion Associates, 425 F. Supp. 234 (S.D.N.Y.), aff'd, 573 F.2d 1288 (2d Cir. 1977). In some instances it may be appropriate to limit disclosure of certain documents to a party's outside counsel. See, e.g., Federal Trade Commission v. Exxon, supra). Needless to say, a solution to the problem of protecting privileged business information from improper disclosure will need to be tailored to the circumstances of each case.
Proposed subsection (d)(8). Like both the Senate and House bills, the compromise version provides that ex parte seizure orders under this section shall be sealed until the defendant has had an opportunity to contest the order. It also provides that once the seizure has taken place the defendant should of course be given an opportunity to see the seizure order and supporting materials.
Proposed subsection (d)(9). As did both S. 875 and H.R. 6071, the compromise draft provides that a U.S. Marshal or other law enforcement official shall carry out ex parte seizure orders under this act. When possible, a U.S. Marshal should carry out the seizures, but other law enforcement officials may perform seizures under this section if the U.S. Marshal is unable to do so in an expeditious manner.
The compromise bill also provides that the court should issue appropriate orders to ensure that trade secrets or other confidential data are not improperly disclosed during the course of the seizure. In particular the provision authorizes the court, when appropriate, to restrict the access of the applicant or its agents or employees to such information during the course of the seizure.
In preparing such an order, the court should keep in mind two competing considerations. The first is that the law enforcement official who carries out the order may not be sufficiently familiar with the goods or services in question to be able to determine what materials or documents should be seized. For that reason, it may be desirable for the court to permit a representative of the applicant, such as its counsel, to accompany the U.S. Marshal to assist in making these determinations. On the other hand, the purpose of the ex parte seizure is to protect materials from destruction or concealment; it is not to permit the plaintiff to bypass the normal discovery process. If an applicant is permitted unlimited access to the defendant's documents during a seizure, later protective orders issued during the discovery process may be of little value.
The sponsors believe that the courts can reconcile these two goals by issuing appropriate orders, based on all the circumstances of the case, that will provide the law enforcement officials with sufficient information to carry out the seizure while not jeopardizing the operation of the normal discovery process or the confidentiality of the defendant's business records and other materials. The act leaves to the sound discretion of the court the determination of how best to achieve these goals. One preferred method would be for the court to ask the applicant's counsel, whether or not he or she accompanies the law enforcement officials who execute the seizure, to provide the officials with a "checklist" of matters to be seized and with other needed information.
The compromise draft does not include the provision in proposed subsection (d)(10) of the House bill calling for application of certain procedures under the Federal Rules of Criminal Procedure. The sponsors determined that the application of these complex rules might needlessly complicate ex parte seizures under this act. However, the courts are free to employ appropriate procedures to accomplish the general purposes of the omitted House provision.
Proposed subsection (d)(10). This provision requires the court to hold a notice hearing on the propriety of the seizure order. The defendant will have received notice of the hearing by service of the seizure order. The hearing may be waived if all parties agree.
The hearing must be held no sooner than 10 days after issuance of the seizure order, unless the parties agree to hold it sooner, and no later than 15 days, after the issuance of the order. The flexibility of the hearing date is intended to accommodate the 7-day period after issuance of the order during which the seizure may be executed.
Of course, either party may request a delay in the hearing. The plaintiff must show good cause for a continuance, since at this point in the proceedings the hardship is upon the defendant whose goods have been seized. For the same reason, it is not necessary for the defendant to show cause for a continuance.
At the hearing, the plaintiff will have the burden of showing that the seizure order was justified and that it continues to be justifiable to hold the defendant's goods or other materials. In many instances there may be no significant new evidence on this issue, and the plaintiffs proof may simply consist of the same evidence presented at the ex parte hearing, along with proof that those facts have not changed. If the plaintiff is unable to show that continuation of the seizure order is justified, however, the seizure order should be dissolved or modified appropriately.
Of course, the court has the power to retain goods that are proven to be counterfeit. If the defendant does not contest this issue, the court should deal with the goods pursuant to 15 U.S.C. 1118.
Paragraph (B) of this subsection permits the courts to modify normal discovery time limits, if necessary to accommodate the expedited hearing schedule. This provision follows similar language in both the Senate and the House bills.
Proposed subsection (d)(11). The sponsors recognize that ex parte seizure orders are an extraordinary remedy, and that a person that is subject to a wrongful ex parte seizure should be fully compensated by the party who obtained the seizure order.
[H 12083] A court should award such a victim all appropriate damages, including compensation for lost goods or materials, damage to the defendant's good will, and all other elements of actual damage. For example, if a merchant were to obtain a seizure order in order to harass a legitimate competitor and to accrue additional business for itself, the court should award damages based on the applicant's unjust enrichment. Indeed, whenever a seizure order is obtained in bad faith, the applicant should be required to pay all appropriate damages, including such punitive damages as the trier of fact finds appropriate. In addition, unless the court finds extenuating circumstances, a victim of a wrongful seizure should be awarded a reasonable attorney's fee.
The term "wrongful seizure" was intentionally left undefined in both the Senate and House bills, in the belief that the courts will best be able to interpret this phrase under the circumstances of each individual case, and in light of precedents under rule 65 of the Federal rules of Civil Procedure, (sic) However, a few rules of thumb can be outlined. The first is that the mere fact that a few legitimate items may have been seized does not make the seizure as a whole wrongful; otherwise, a counterfeiter could ensure that any seizure of its counterfeit merchandise would be "wrongful" simply by mingling a few genuine items with his or her inventory of fakes. The second is that a seizure will be considered wrongful if the applicant acted in bad faith in seeking it. For example, it would obviously constitute bad faith for an applicant to seek a seizure order in an effort to prevent the sale of legitimate merchandise at discount prices. Similarly, it would constitute bad faith for an applicant deliberately to defy a court order limiting its access to confidential documents seized from the defendant.
Third, a seizure must be considered "wrongful" if the matter seized is legitimate, noninfringing merchandise. In such a case, even if the plaintiff acted in good faith, the defendant should be compensated for his or her losses caused by the plaintiff's use of an ex parte process. Beyond these principles, the act leaves the definition of "wrongful seizure" to case-by-case interpretation in light of rule 65 and other precedents.
The compromise bill adopts the provision of the Senate bill with respect to awards of prejudgment interest on damages for wrongful seizures. See proposed section 2320(d)(2) of S. 875. The purpose of this provision, and of the comparable provision in proposed 15 U.S.C. 1117(b), is to ensure that an injured party is made whole by the relief that he or she is granted, and to discourage dilatory tactics in litigation under this act.

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