Compaq v. Hardware 4 Less, et a l . CV-02-041-JM 02/13/02 P
UNITED STATES DISTRICT COURT FOR THE
DISTRICT OF NEW HAMPSHIRE
Compaq Computer Corporation and
Compaq Information Technologies
Group, L.P.
v. Civil No. 02-041-JM
Opinion No. 2002 DNH 044
Hardware 4 Less, Inc., Mark Brunelle,
East West Trading Corporation, Paul
Kavalchuk, Toronto Tape and Shipping
Supply, Ltd., Liberty Press, Inc.,
ABC Companies 1-5 and John Does 1-5
O R D E R
_____ In this action, plaintiffs Compaq Computer Corporation and
Compaq Information Technologies Group, L.P. (collectively,
"Compaq") allege that the defendants are counterfeiting and
infringing upon Compaq's trademarks and trade dress, engaging in
unfair competition, and otherwise violating federal trademark
legislation and state law. On January 29, 2002, this court
granted the plaintiffs' motion for an _ex parte seizure order
against defendants Hardware 4 Less, Inc. ("Hardware 4 Less") and
Mark Brunelle pursuant to the Lanham Act's seizure provisions, 15
U.S.C. § 1116(d).1 See Document no. 13 (setting forth seizure
10n January 30, 2002, this court granted the plaintiffs'
motion for an ex parte seizure order against defendant East West
order). On February 1, 2002, this court ruled that federal law
requires the district court to take and maintain custody of all
items seized from the defendants, and that there is no authority
allowing the court to designate a substitute custodian. See
Document no. 23 (order directing plaintiffs to turn custody of
seized items over to the court). This order sets forth the
reasons for that conclusion.
Background
In connection with their motion for an ex parte seizure
order against the defendants, the plaintiffs submitted to the
court a proposed form of order in which they suggested that their
local counsel. Rath, Young and Pignatelli, P.A. ("Rath, Young"),
act as "substitute custodian of any and all properties seized
pursuant to this Order." In granting the plaintiffs' motion,
however, this court rejected Compaq's proposal for a substitute
custodian, ruling instead that "[a]ny and all materials seized
pursuant to this Order shall be delivered to the court in
accordance with 15 U.S.C. § 1116(d)(7)." Section 1116(d)(7) of
Trading Corporation ("East West"). Since that time, plaintiffs
and East West have stipulated and agreed to the contents and
conditions of the seizure order. Consequently, this Order only
addresses the seizure order against Hardware 4 Less and Brunelle.
2
the Lanham Act specifies, "[a]ny materials seized under this
subsection shall be taken into the custody of the court."
Following the issuance of the seizure order, the court held
a hearing at which Compaq appeared and stated on the record that
controlling authority allows the district court to designate a
substitute custodian to maintain items seized pursuant to 15
U.S.C. § 1116(d). The plaintiffs also submitted two seizure
orders from the United States District Court for the Central
District of California in which the court authorized a law firm
to act as a substitute custodian. Apparently, Compaq submitted
these orders in order to demonstrate that the designation of a
substitute custodian is an acceptable practice within certain
jurisdictions.2
Based upon Compaq's representations, this court released the
items seized from Hardware 4 Less and Brunelle into the custody
of Rath, Young.3 The court, however, instructed plaintiffs'
2Neither of the seizure orders from the United States
District Court for the Central District of California is set
forth in a published opinion. Moreover, both orders were issued
by the same judge.
3After the court authorized Rath, Young to take possession
of the items seized from Hardware 4 Less and Brunelle until
further notice, counsel for the plaintiffs advised the court that
they were storing the seized items at a state police owned
location for temporary safe keeping pending further instruction
3
counsel to provide it with relevant legal authority for this
action, and indicated that in the absence of such authority, it
would take custody of the seized items.
The plaintiffs were unable to provide the court with any
controlling authority on the issue. Accordingly, on February 1,
2002, this court ordered Compaq to transfer the materials seized
from Hardware 4 Less and Brunelle to a secure storage facility
and to turn custody over to the Clerk of Court.
Discussion
The Lanham Act unambiguously directs the court to take
custody of any materials seized pursuant to 15 U.S.C. § 1116(d).
See
15 U.S.C. § 1116(d)(7)(providing that any seized materials
shall be taken into the court's custody). Moreover, nothing in
the statute authorizes the district court to appoint a substitute
custodian.
Only one published opinion addresses this issue. In Reebok
Int'l, Ltd. v. Marnatech Enters., Inc., 737 F. Supp. 1521 (S.D.
C a l . 1990), aff'd ,
970 F.2d 552 (9th Cir. 1992), the defendants
objected to a provision of the district court's seizure order
appointing plaintiffs or plaintiffs' agent as the substitute
from the court.
4
custodian of the seized materials. The court rejected the
defendants' position, stating, "[t]he Court is satisfied that
this provision did not violate the rights of the defendants, as
the protective order limited plaintiff's access to these
records." 737 F. Supp. at 1525. The district court did not
explain how its reasoning could comport with the plain language
of the Lanham Act. Instead, the court cited General Electric Co.
v. Speicher,
877 F.2d 531 (7th Cir. 1989) in support of its
conclusion.
The General Electric case did not directly address the
custody issue and does not support the Reebok court's decision.
In General Electric, the Seventh Circuit analyzed the defendant's
claim that the plaintiff had exceeded the scope of a seizure
order. See 877 F.2d at 537-38. The order at issue contained a
provision authorizing the plaintiff's counsel to retain items
seized from the defendant. See i d . at 537. Although the court
discussed whether the plaintiff's actions had violated the terms
or exceeded the scope of the seizure order, the court did not
address whether the seizure order or any of its provisions
conflicted with the Lanham Act. In particular, nothing in the
Seventh Circuit's opinion discussed the appropriateness of the
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seizure order's designation of a substitute custodian.
Having found no controlling case law supporting Compaq's
representation that the district court is authorized to designate
a substitute custodian, I conclude that this court must adhere to
the plain language of the Lanham Act. Accordingly, as long as
the seizure order against Hardware 4 Less and Brunelle remains in
effect pursuant to 15 U.S.C. § 1116(d), this court will retain
custody of all seized items.
The court is somewhat disturbed by the circumstances in
which this issue has arisen. Ex parte seizure orders are
extraordinary remedies that "are to be ordered only as a last
resort." j. t h o m a s M c C a r t h y , M c Ca r t h y on trademarks and unfair competition.
Vol. 6, A p p . A8-19 (4th ed. 2 0 0 1 ) (quoting the Joint Congressional
Statement on 1984 Trademark Counterfeiting Legislation).
Although the Act's seizure provisions were enacted for the
purpose of thwarting the efforts of counterfeiters to destroy
evidence and deny victims effective relief. Congress remained
mindful of the severity of this relief by including various
procedural safeguards to protect persons against whom such ex
parte orders are issued. See i d . at App. A8-14. The custody
provision contained in 15 U.S.C. § 1116(d)(7) provides a means of
6
protecting confidential or privileged information from disclosure
to the applicant and restricting the applicant's access to seized
materials outside of the discovery process. See i d . at App. A8-
22 ("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"). This and
other safeguards are only effective, however, if the court is
careful to apply them properly.
Where, as in this case, the plaintiff submits an application
for an _ex parte seizure order to the court on an emergency basis,
the court must rely heavily upon the plaintiffs' representations,
not only as to the factual evidence supporting the issuance of a
seizure order, but also as to the procedural steps that must be
complied with before an order may be issued. If the applicant,
albeit unintentionally,4 fails to present accurately and
thoroughly the requirements of the Lanham Act, there is a risk
that the defendant's interests will not be protected.5 Although
4The court believes that neither Compaq nor its counsel
intended to mislead the court. Rather, it appears that the
plaintiff's proposal for a substitute custodian merely followed
what seems to have become an acceptable practice among some
courts and practitioners.
5Due to the emergency nature of Compaq's application, the
court had to rely heavily upon the accuracy of Compaq's written
7
there is no indication that the defendants' interests were
compromised in this case, the court does not consider it
acceptable practice to risk such a result due to an applicant's
failure to apprise the court fully of the court's obligations
under the Lanham Act's seizure provisions.
It appears that at least one district court in California
has appointed substitute custodians in cases akin to this one.
It also appears that certain members of the trademark bar have
advocated using the plaintiff's counsel or agents as substitute
custodians. See Michael D. McCoy & James D. Myers, Ex Parte
submissions. Compaq's proposed seizure order did not include a
date for a hearing to determine whether the seizure order should
remain in effect. Pursuant to the Lanham Act, the court must
hold such a hearing on a date "not sooner than ten days after the
order is issued and not later than fifteen days after the order
is issued . . . ." 15 U.S.C. § 1116(d)(10)(A). This date must
be set forth in the court's seizure order. See
15 U.S.C. §
1116(d)(5). In addition, Compaq did not alert the court as to
its obligation to issue a protective order. See
15 U.S.C. §
1116(d)(7). The Lanham Act requires the court to issue
appropriate protective orders to ensure that trade secrets or
other confidential data are not improperly disclosed to the
applicant during or after the seizure. See i d . (requiring the
court to enter an appropriate protective order with respect to
discovery by the applicant of any records that have been seized);
see also j. t h o m a s M c C a r t h y , M c C a r t h y o n t r a d e m a r k s a n d u n f a i r c o m p e t i t i o n .
Vol. 6, App. A8-22 (4th ed. 2 0 0 1 ) (the Lanham Act authorizes the
court to restrict the applicant's access to the defendant's trade
secret or confidential information during the course of the
seizure).
8
Seizure Order Practice After the Trademark Counterfeiting A c t , 14
AIPLA Q.J. 237, 260 (1986). Nevertheless, this court believes
that this practice violates the express requirements of the
Lanham Act. This court, therefore, will maintain custody of
items seized from the defendants until the seizure order has been
dissolved or modified or the items have been destroyed pursuant
to
15 U.S.C. § 1118.
SO ORDERED.
James R. Muirhead
United States Magistrate Judge
Date: February 13, 2002
cc: Kenneth C. Bartholomew, Esq.
Roger D. Taylor, Esq.
Thomas C. Dwyer, Esq.
Arnold Rosenblatt, Esq.
Mark Brunelle, pro se
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