Opinion ID: 789574
Heading Depth: 2
Heading Rank: 1

Heading: Criminal Trademark Infringement (Count Two)

Text: 21 Milstein challenges his conviction on Count Two, intentionally trafficking in prescription drugs known to be counterfeit, in violation of criminal trademark laws (Count Two), 18 U.S.C. § 2320, asserting two errors: (1) that the District Court improperly instructed the jury as to what constitutes a counterfeit mark; and (2) that the District Court erroneously refused to permit the jury to consider a defense of laches. 22
23 A counterfeit mark is a spurious mark ... identical with, or substantively indistinguishable from, a registered trademark, the use of which is likely to cause confusion, to cause mistake, or to deceive. 18 U.S.C. § 2320(e)(1)(A)(i-iii). At trial, Milstein conceded that he bought genuine prescription drugs made for foreign markets and then repackaged them for sale in the United States without the consent of the drugs' manufacturers. However, Milstein requested a jury instruction that a spurious mark is one used in connection with goods that are not genuine or are so altered as to lose their genuine character. The District Court refused, instructing the jury that [a] counterfeit mark is a spurious mark or a mark that is not genuine, and in order for the mark to be genuine, it must be placed there by the legitimate owner of the mark or with the owner's authorization. The Court further instructed, [i]f you find that a good's production process includes the process of packaging, you may then find that the good does not bear a genuine mark if the good was repackaged using a trademark without authorization. 24 On appeal, Milstein contends that selling repackaged genuine goods is not a crime, and that if the court's instruction were a correct statement of the law, any repackaging of genuine product would be a criminal trademark counterfeiting offense, even where, as here, there was no allegation that the packaging itself was trademarked. (Milstein brief on appeal at 62.) Milstein relies primarily on the Fifth Circuit's opinion in United States v. Hanafy, 302 F.3d 485, 486-89 (5th Cir.2002) ( Hanafy ), which held that attaching a trademark to repackaged baby formula would not give rise to § 2320 liability. The Fifth Circuit suggested that, in the civil infringement context, Supreme Court precedent would require any repackaged good bearing a trademark to be marked as having been repackaged. Id. at 488 (citing Prestonettes, Inc. v. Coty, 264 U.S. 359, 368-69, 44 S.Ct. 350, 68 L.Ed. 731 (1924)); cf. Enesco Corp. v. Price/Costco Inc., 146 F.3d 1083, 1085-86 (9th Cir.1998). The Hanafy court declined to apply such a rule in the criminal context, however, reasoning that Lanham Act precedent is of little value in a § 2320 case because the Lanham Act deals with civil liability. Hanafy, 302 F.3d at 489 (citing United States v. Giles, 213 F.3d 1247, 1250 (10th Cir.2000)). But see United States v. Hon, 904 F.2d 803, 805 (2d Cir.1990) (There is no doubt that Congress wished to incorporate the Lanham Act's confusion requirement into 18 U.S.C. § 2320 and did so.). 25 Hanafy is readily distinguishable. The defendant in Hanafy resold cans of baby formula in trays that resembled trays used by manufacturers to sell the same product, bore the trademark holders' mark, and contain[ed] no more information than that which [wa]s carried on the cans themselves. 302 F.3d at 486, 488. By contrast, Milstein sold Eldepryl, Pergonal and Metrodin in forged packaging bearing false lot numbers. (Milstein brief on appeal at 9.) While the cans in Hanafy were merely being repackaged, such that consumers could be sure of the goods' quality and source, United States v. Farmer, 370 F.3d 435, 441 n. 1 (4th Cir.2004) (citing Hanafy, 302 F.3d at 486), the drugs here were repackaged so that consumers would believe foreign versions of the drug were in fact domestic, FDA-approved versions ( see Milstein brief on appeal at 60). 26 Milstein admits that the drugs were repackaged in counterfeit packaging with phony lot numbers designed to resemble the authentic packaging approved by the [FDA]. ( Id. ) Although § 2320 has been read effectively [to] exclude[] from the definition [of counterfeit mark] parallel imports, gray goods and production overruns, 4 McCarthy on Trademarks § 25:14 (2004), Milstein did more than resell parallel imports or gray goods. He obscured the fact that the drugs had been repackaged, and, with his package design, fraudulently conveyed that the foreign drugs had been manufactured as FDA-approved products. Moreover, he removed identifying codes from the repackaged goods. Cf. John Paul Mitchell Systems v. Pete-N-Larry's Inc., 862 F.Supp. 1020, 1026-27 (W.D.N.Y.1994). In all the circumstances, given, inter alia, Milstein's knowing repackaging of the drugs without the trademark holders' authorizations, the jury permissibly convicted Milstein of violating § 2320(a).
27 Milstein next contends that the District Court erred in failing to instruct the jury that laches was available as a defense to Count Two. Milstein cites 18 U.S.C. § 2320(c), which provides that [a]ll defenses, affirmative defenses, and limitations on remedies that would be applicable in an action under the Lanham Act shall be applicable in a prosecution under this section. It is well established that the equitable defense of laches may be applied to cases brought under the Lanham Act. Conopco, Inc. v. Campbell Soup Co., 95 F.3d 187, 193 (2d Cir.1996) (citing 15 U.S.C. § 1069 (In all inter partes proceedings equitable principles of laches... where applicable may be considered and applied.)). Therefore, Milstein argues, the District Court erred in refusing to instruct the jury that the defense of laches, which requires that the defendant prove unreasonable delay resulting in prejudice, see, e.g., King v. Innovation Books, 976 F.2d 824, 832 (2d Cir.1992), was available to him. We disagree. 28 We begin by noting that, in the criminal context, the relevant statute of limitations, as well as the speedy trial safeguards of the Due Process Clause, see, e.g., United States v. Lovasco, 431 U.S. 783, 789-790, 97 S.Ct. 2044, 52 L.Ed.2d 752 (1977), serve to protect a defendant's interests against unreasonable delay. Further, it is well established that, as a general rule, 29 [l]aches is not a defense to an action filed within the applicable statute of limitations, United States v. Mack, 295 U.S. 480, 489, 55 S.Ct. 813, 817, 79 L.Ed. 1559 (1935), nor is it available against the United States, United States v. Summerlin, 310 U.S. 414, 416, 60 S.Ct. 1019, 1020, 84 L.Ed. 1283 (1940). 30 United States v. RePass, 688 F.2d 154, 158 (2d Cir.1982). We have found no case applying a laches defense in the criminal context. 31 Of course, Congress could have provided that, in this context, such a defense would be available. Against the backdrop of these well-established principles, however, we decline to interpret the statutory scheme in that way. Section 1069 states that the laches defense may only be applied where applicable; thus indicating that it may be applied in the criminal context at most where it would be applicable in an analogous civil context. Because laches may not be asserted against the United States in a civil matter, see United States v. Angell, 292 F.3d 333, 338 (2d Cir.2002) (laches is not available against the federal government when it undertakes to enforce a public right or protect the public interest), it seems that it is equally inapplicable against the Government in a criminal prosecution. 32 Further, the manifest purpose of 15 U.S.C. § 1069 is to encourage trademark holders timely to assert their rights against alleged infringers and to protect to some extent the alleged infringers' reliance interests. See generally Conopco, Inc. v. Campbell Soup Co., 95 F.3d at 192-93. However, when or whether a trademark holder asserts its right against an alleged infringer is irrelevant to the Government's decision to begin a prosecution for criminal trademark infringement; criminal liability irrevocably attaches at the time of the willful infringement irrespective of the subsequent behavior of either the infringer or the trademark holder. Unlike other defenses to infringement, those contained in § 1069 do not go to the question of the alleged infringer's substantive liability, and therefore are not incorporated by § 2320(c). 33 Lastly, we note that construing the defense of laches to apply to prosecutions under § 2320 would lead to absurd results. The equitable doctrine of unclean hands, it seems, would prevent its application in every prosecution under that section. As the Supreme Court has explained, [t]he equitable powers of this court can never be exerted in behalf of one who has acted fraudulently, or who by deceit or any unfair means has gained an advantage. Bein v. Heath, 47 U.S. (6 How.) 228, 246-47, 12 L.Ed. 416 (1848). Because willful infringement necessarily involves fraudulent acts, anyone convicted of it would be unable as a matter of law to benefit from a laches defense. Therefore we conclude that § 2320(c) does not evince a congressional intent to extend the equitable defense of laches to criminal prosecutions. 34