Clarifying Wrongful Seizures Under the Trademark Counterfeiting Act

Author:Mr David Kelly
Profession:Finnegan, Henderson, Farabow, Garrett & Dunner, LLP
 
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Co-authored by Anessa J. Owen

Originally published in Trademark World, April 2000

As many trademark owners in the United States and abroad know, the rampant practice of trademark counterfeiting can cost owners millions of dollars in the form of injury to business reputation, lost sales, and litigation costs incurred to ward off counterfeiters. In fact, some estimates indicate that counterfeiting costs U.S. businesses billions of dollars per year. As a result, U.S. courts have reacted by making counterfeiting laws increasingly favorable to trademark owners in the United States.

In 1984, Congress enacted the Trademark Counterfeiting Act (the "Act") to alleviate the burden imposed on U.S. and foreign trademark owners by trademark counterfeiters. In addition to imposing stiffer penalties on counterfeiters, this Act enables owners of U.S. trademark registrations to seek ex parte seizure orders, which allow trademark owners to obtain evidence before the trademark counterfeiter disposes of it. Prior to the availability of the ex parte seizure order as a remedy, trademark counterfeiters would often destroy or sell off the counterfeit products and destroy records relating to those products before the trademark owner could prove its case, leaving the trademark owner without an effective remedy.

The severe nature of the ex parte seizure remedy under the Trademark Counterfeiting Act led Congress to anticipate possible misuses or overreaching by trademark owners. As a result, the Trademark Counterfeiting Act provides the alleged counterfeiter with a cause of action for "wrongful seizure." The Act, however, does not specifically define the term "wrongful seizure." Further, the legislative history to the Trademark Counterfeiting Act provides only minimal guidance as to what might constitute a "wrongful seizure" under the Act. Thus, the task of interpreting "wrongful seizures" has largely been left to U.S. courts facing this issue.

 In the approximately sixteen years since the Trademark Counterfeiting Act went into effect, U.S. courts have generally provided little guidance as to what actions constitute a wrongful seizure and have instead decided the narrow issue in front of the court rather than expounding on the wrongful seizure issue generally. Indeed, there have been very few published cases discussing the wrongful seizure issue in any depth. Many of the counterfeiting cases in which this issue arises are clear-cut on liability and are quickly settled. This lack of guidance has left trademark owners in a precarious position. Although they now have available the remedy of an ex parte seizure order, trademark owners must face the risk of a counterclaim for wrongful seizure by the alleged counterfeiter while having little idea of what actions will render them liable for damages. Indeed, wrongful seizure counterclaims are common because the alleged counterfeiters are often caught in the act of counterfeiting after an ex parte seizure order is executed, and their only leverage for possible settlement is to claim wrongful seizure.

Recently, however, in one of the few U.S. Court of Appeals cases to discuss the issue and one of the only decisions to discuss the issue in as much depth, the U.S. Court of Appeals for the Fifth Circuit attempted to shed further light on the wrongful seizure issue in Martin's Herend Imports, Inc. v. Diamond & Gem Trading USA Co. ("Martin's II"). To provide some background to the state of the law surrounding wrongful seizure, this article...

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