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Trademark owners battling the trafficking of counterfeit goods won a significant victory in 1991 when the 3rd U.S. Circuit Court of Appeals ruled that luxury leather goods maker Louis Vuitton should have been awarded an ex parte seizure order in its case against a group of street vendors. Since such itinerant vendors were likely to destroy or hide evidence if they were notified of a lawsuit, the appellate court said in Vuitton v. White, the trial judge should have recognized that the extraordinary remedy of an ex parte seizure was warranted. But now, in Lorillard Tobacco Co. v. Bisan Food Corp., the 3rd Circuit has made it clear that the Vuitton decision has its limits and that the burden on plaintiffs seeking ex parte orders is an especially heavy one. In three lawsuits, Lorillard alleged that New Jersey store owners were selling counterfeit Newport brand cigarettes and that an ordinary injunction hearing would be inadequate because the defendants would likely destroy any evidence. But U.S. District Judge Katharine S. Hayden rejected Lorillard’s bid for an ex parte seizure order, saying there was not enough evidence to show that the defendants would destroy evidence. Hayden found that the Trademark Counterfeiting Act of 1984 allows for ex parte seizure orders, but it explicitly requires proof that no other order would be adequate to protect the trademark owner’s rights. Lorillard failed to meet that test, Hayden said, because it had proven only that the defendants would have the “opportunity” to destroy evidence. As a result, Hayden concluded that Lorillard’s presentation fell short of the TCA’s “rock solid requirements” for winning an ex parte seizure order. On appeal, Lorillard argued that Hayden imposed too heavy a burden and failed to recognize that the sellers of counterfeit cigarettes had a strong incentive to destroy the evidence since they had also failed to pay state taxes on the goods. Now a unanimous three-judge panel of the 3rd Circuit has upheld all of Hayden’s rulings, saying that none of her factual findings were “clearly erroneous” and there was no proof that she had abused her discretion. Writing for the court, Senior 3rd Circuit Judge Edward R. Becker said: “On the face of the statute it is clear that ex parte seizure is not to be ordered as a matter of course.” Becker, who was joined by 3rd Circuit Judges Samuel A. Alito Jr. and D. Brooks Smith, found that the Vuitton decision “represents the extreme case.” The three cases filed by Lorillard, he said, “are not the extreme case, and the district court was not required to order an ex parte seizure.” Although the Vuitton decision never discussed it, Becker found that “common sense suggests that street vendors, being itinerant and lacking significant assets, have relatively little to fear from the district court’s contempt powers.” By contrast, Becker found that the store-owner defendants sued by Lorillard would be much less likely to flout court orders. Becker found there was “no evidence that these defendants have previously failed to appear in court when required; indeed, there has been no prior legal action at all against these defendants.” In the same vein, Becker said, “there is not even the suggestion that small independent retailers with fixed places of business are as a class unlikely to comply with a court order.” Instead, Becker found that the Lorillard defendants were “incorporated businesses with inventories, assets, and a fixed physical presence” that would “have much to lose if held in contempt.” Becker found that Lorillard’s strongest argument was that the defendants had a strong incentive to destroy evidence because the counterfeit cigarettes did not have the state tobacco tax stamps required by New Jersey law and, as a result, could be exposed to criminal sanctions under New Jersey’s Unfair Cigarette Sales Act. But Becker found that Lorillard’s argument fell short because it established only an “incentive” to destroy evidence. “The statute requires something more certain,” Becker wrote, noting that the ex parte seizure provisions in the Trademark Counterfeiting Act call for a finding that the defendant “would destroy, move [or] hide” the counterfeit goods. If proof of nothing more than incentive was enough, Becker said, “Lorillard’s argument would become a per se rule that ex parte seizure must be ordered when counterfeit cigarettes are involved.” Such a rule could be read even more broadly, Becker found, because “arguably anyone who is intentionally selling any counterfeit goods has — by virtue of the threat of criminal sanction from the criminal trademark counterfeiting statute — an incentive to dispose of those counterfeit goods.” As a result, Becker said, “Lorillard’s incentive based argument could logically be extended to cover all trademark counterfeiting, which would render most of the specific factors of [the ex parte seizure provision] a nullity.” Lorillard’s lawyer, Eric S. Aronson of Greenberg Traurig in Florham Park, N.J., argued that Hayden’s comments from the bench suggested that she misunderstood the law to require proof that the defendant had previously disobeyed a court order. If allowed to stand, Aronson said, Hayden’s ruling would effectively create a “one free bite” exception to the law if an ex parte seizure were not available without proof of prior disobedience of a court order. Becker disagreed, saying that while prior disobedience of court orders is “highly probative,” there is “no statutory basis for a per se requirement that prior disobedience be shown.” After reviewing Hayden’s remarks from the bench, Becker said, “We do not understand the district court to have relied on such a legal conclusion in reaching the determination it did.” Instead, Becker found, Lorillard’s request was denied “on factual and discretionary grounds, not on a legal ground.”

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