California Court Rules on Proper Venue for Wrongful Seizure Claims

A federal district court in the Northern District of California has recently given litigants in trademark counterfeiting cases guidance on where wrongful seizure claims under the ex parte provisions of the Lanham Act may be brought. The court ruled in United Tactical Systems, LLC v. Real Action Paintball, Inc. that wrongful seizure claims may be brought in any federal court, and not just the court that ordered the seizure. The case should be watched by accused infringers who have been the target of an ex parte seizure under the Lanham Act.

In United Tactical Systems, LLC, the plaintiff’s predecessor sued Real Action (RA) and others in the Northern District of Indiana for trademark infringement (“the Indiana Action”). After a temporary restraining order and seizure order were issued in the Indiana Action, the Indiana Action was dismissed on jurisdictional grounds. Two cases then brought by the parties in the Northern District of California were consolidated into the current action (“the California Action”).

In the California Action, RA asserted several counterclaims including wrongful seizure under the Lanham Act. The relevant provision, 15 U.S.C. § 1116(d)(11), states that:

A person who suffers damage by reason of a wrongful seizure under this subsection has a cause of action against the applicant for the order under which such seizure was made, and shall be entitled to recover such relief as may be appropriate, including damages for lost profits, cost of materials, loss of good will, and punitive damages in instances where the seizure was sought in bad faith, and, unless the court finds extenuating circumstances, to recover a reasonable attorney’s fee. The court in its discretion may award prejudgment interest . . . commencing on the date of service of the claimant’s pleading setting forth the claim under this paragraph and ending on the date such recovery is granted, or for such shorter time as the court deems appropriate.

The counterclaim defendants moved to dismiss this counterclaim for failure to state a claim, arguing that: (1) a wrongful seizure claim cannot be properly pled unless products are seized in bad faith; (2) a wrongful seizure claim can only be brought in the court that authorized the seizure, which in this case, was the Indiana and not the California court; and (3) the counterclaim failed to sufficiently state that the products seized were not counterfeit. The court rejected all of these arguments and denied the motion to dismiss.

As to whether bad faith is an element of a wrongful seizure claim, the Court said that “the plain language” of the statute indicated that “bad faith is merely a requirement for punitive damages to be recovered.” Thus, bad faith was not required to properly plead a wrongful seizure claim. As to where defendants can seek judicial review of seizure orders, the Court found “nothing in th[e] statute suggesting that only the court which issued the seizure order may review its effects.” In other words, the court held, any federal court can review such an order. Finally, the Court noted that the amended counterclaim did sufficiently allege that the matter seized was not counterfeit.

While the court found that victims of a wrongful seizure under section 1116 subsection (d) have “an independent cause of action” to recover damages resulting from such seizure in any federal court, it is not clear whether the seizure in this case was actually ordered pursuant to subsection (d). That subsection imposes a number of requirements for both seizure applications and orders issued under the subsection. See 15 U.S.C. § 1116(d)(4)(B)(i)-(vii); (d)(5)(A)-(E).

Gibbons P.C. will continue to monitor this case and any others interpreting the ex parte seizure provisions of the Lanham Act.

Wendy R. Stein is Counsel in the Gibbons Intellectual Property Department.
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