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.

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,

(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

(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

(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

(d).

See

(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.,

(S.D.

C a l . 1990), aff'd ,

(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."

. 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,

(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

. 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

5 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

(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

(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 . . . ."

(d)(10)(A). This date must be set forth in the court's seizure order. See

(d)(5). In addition, Compaq did not alert the court as to its obligation to issue a protective order. See

(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 ,

, 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

.

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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