ABSTRACT

The Western District of North Carolina granted NASCAR’s Motions for a Temporary Restraining Order, Seizure Order, and Preliminary Injunction against defendant counterfeiters.  However, the court sua sponte warned NASCAR that it would be required to return any seized goods should it voluntarily dismiss its case prior to final judgment or the provision of proper notice to unnamed defendants.

CASE SUMMARY

FACTS

Plaintiffs included NASCAR, Inc., the largest sanctioning body of stock car racing in the United States, and various NASCAR-related entities such as speedways and racing teams (collectively “NASCAR”).  NASCAR owns various trademarks relating to sanctioning, promoting, and selling of stock car racing entertainment services and merchandise under the NASCAR mark and other trademarks.  Defendants were largely transient street vendors who sell unauthorized merchandise bearing the NASCAR marks outside NASCAR racing events.  In order to halt these counterfeit sales, NASCAR has, before every racing season since 2003, brought counterfeiting claims in the Western District of North Carolina against these vendors, and obtained temporary restraining orders ("TROs") and seizure orders against the offending merchandise.  Subsequently, NASCAR would seek, and the court would grant, preliminary injunctions that would last throughout the racing season.  Following the seizure of the counterfeit goods, and the conclusion of each racing season, it was NASCAR’s practice to voluntarily dismiss the counterfeiting cases and distribute the seized goods either to charity or overseas.

NASCAR’s attempt to follow the same enforcement strategy in 2008 met with resistance from the court.  In February 2008, before the season began, NASCAR sought and obtained an ex parte TRO and seizure order against unnamed counterfeiters.  Shortly thereafter, NASCAR provided notice of a preliminary injunction hearing on its website and, when no defendants appeared, the court converted the TRO into a preliminary injunction that extended through the end of the racing season.  As it had in the past, NASCAR named and served some defendants with the preliminary injunction, seized counterfeit merchandise at each race, and planned on disposing of the merchandise following the conclusion of the season and its voluntary dismissal of the case.  Concerned about NASCAR’s disposal of defendants’ property absent a final judgment of infringement and proper notice against the defendants, the court sua sponte addressed the procedures for the disposition of counterfeit goods under the Counterfeiting Act of 1984 (“the Act”).

ANALYSIS

The court concluded that NASCAR’s practice of disposing of defendants’ property following the conclusion of the racing season, and absent a conclusive judgment of infringement by the court and notice to all defendants, was without statutory authority under the Act and offended notions of due process and property rights.  While the Act does allow the seizure and destruction of infringing goods, the court noted that 15 U.S.C. § 1118 requires a Lanham Act violation to be “established” before destruction occurs. In looking at the congressional intent of the seizure remedy, the court concluded that its purpose was to preserve evidence that might otherwise be destroyed by the counterfeiter, to permit a full trial on the merits and final judgment. The court concluded that a Lanham Act violation is only “established” where a final judgment of infringement has issued.  By voluntarily dismissing its cases following issuance of a preliminary injunction, but prior to a full trial on the merits, NASCAR had failed to conclusively “establish” a Lanham Act violation.  Accordingly, while the court recognized that NASCAR’s postseason dismissal of the case was within its rights, it concluded that NASCAR’s subsequent disposal of defendants’ goods was improper.  The court warned that going forward, NASCAR would bear the burden of either returning the seized goods to the defendants or obtaining a final judgment on the merits. In addition, the court concluded that NASCAR was required to provide further notice to any unnamed defendants following the conclusion of the preliminary injunction period.  The seizure of counterfeit goods under the Act is an in rem forfeiture.  Because an in rem action settles the rights to the property at issue as to all potential owners, due process requires that all interested parties be provided with adequate notice and an opportunity to be heard.  In the instant case, the court held that those persons who physically held the property at the time of seizure were impleaded as named defendants and served process, and thus received sufficient notice of the proceedings so that any in personam judgment against them extinguished their rights in the property.  However, the court also held that because the actual sellers of the merchandise were not necessarily its owners, there were undoubtedly unidentified property owners who had not yet received proper notice and an opportunity to be heard.  For these potential defendants, NASCAR would have to provide further notice before it could proceed to final judgment and subsequently dispose of the property.

Finding no provision in the Act specifying notice procedures for unnamed defendants, the court turned to the procedure for giving notice in in rem forfeiture actions articulated in the Supplemental Rules for Admiralty or Maritime Claims and Asset Forfeiture Actions.  Under these rules, a notice for forfeiture must (1) describe the property with reasonable particularity, (2) state the time by which a claim and answer must be filed with the court, and (3) name the attorney for plaintiffs to be served with the claim.  The court, having already determined that the www.NASCAR.com website was the most suitable place for publication of notice to defendants for purposes of the preliminary injunction hearing, similarly held that this was the proper place for publication for these notice obligations as well.  Thus, within one week after the termination of the injunction, the court required that NASCAR post adequate notice on its website before seeking final judgment against the unnamed defendants.

Finally, the court warned NASCAR that if it failed to either provide proper notice to the unnamed defendants, or declined to proceed to final judgment, it would bear the burden of engaging in every possible effort to return the seized goods to the proper defendants, though the court simultaneously recognized the near impossibility of this task.

CONCLUSION

In issuing its ruling, the court heightened the burden of all plaintiffs in future anticounterfeiting actions in relation to any seized property.  Following this ruling, future plaintiffs before this court, including NASCAR, will be required to pursue a full and final judgment on the merits of any counterfeiting action or, shy of same, will be required to return all seized property to its original owners whether known or unknown.