The Racketeer Influenced and Corrupt Organizations Act.
Counterfeiting of manufactured goods is big business in this country, and it's getting bigger. Indeed, the annual cost to U.S. industries from counterfeiting has soared, from $5.5 billion in 1982 to an estimated $200 billion in losses today. And, as counterfeiting has caused a multi-billion dollar drain on the U.S. economy, its increasingly sophisticated and lucrative nature has attracted the involvement of organized crime -- all in spite of U.S. laws providing a wide range of civil and criminal penalties for those who trade in counterfeit trademarked and copyrighted U.S. merchandise.
In response to government and industry pressure to curb the economic effects of counterfeiting, Congress is poised to approve legislation that will strengthen penalties and enforcement mechanisms against counterfeiters of U.S. goods. The Senate recently passed its version of the Anticounterfeiting Consumer Protection Act of 1995, and support within the Clinton administration suggests the bill will win final approval within the near future.
The new law will add counterfeiting offenses to the list of punishable crimes under the Racketeer Influenced and Corrupt Organizations Act, thus providing strong deterrents to counterfeiters through stiffer penalties, as well as through the broader jurisdiction that RICO provides for hauling counterfeiters into court. In addition to this -- and the stigma associated with a RICO prosecution -- the act includes provisions that will broaden enforcement mechanisms, increase civil penalties for counterfeiting and curtail the re-entry of counterfeit goods into the marketplace.
The act's greatest deterrent effect will certainly arise from provisions that explicitly subject counterfeiting offenses to RICO. Attracted especially by the broader jurisdiction that RICO provides, attorneys for manufacturers began a few years ago to assert RICO claims along with their Lanham Act trademark infringement claims. But they fund that the success of such tactics depended on how well they made the case fit into RICO's pleading requirements. Once the Anticounterfeiting Act becomes law, however, such artful pleading will be obviated; counterfeiting will simply be a RICO violation.
The act expands the list of RICO offenses by amending Section 1961 of Title 18 to include trading that constitutes a violation of Section 2318 (counterfeit labels for phonograph records, computer programs or computer program documentation or packaging, and copies of motion pictures or other audiovisual works), Section 2319 (copyright infringement) and Section 2320 (goods or services bearing counterfeit marks). Defining all these actions as RICO violations also will result in greater penalties. Not only will the possible prison terms and fines be increased substantially over those available under the Lanham Act, but RICO's asset-forfeiture provisions should prove a strong deterrent to counterfeiters who seek to displace their ill-gotten profits through investments. By making these investments subject to forfeiture, the act will make counterfeiting far less profitable.
Along with greater penalties, RICO provides jurisdictional advantages to victims of counterfeiting, especially when trademark infringement occurs outside the state where the claim is filed. Indeed, some plaintiffs realized the benefits of asserting allegations under RICO in trademark infringement cases even before the proposed act, although not all courts have embraced the idea wholeheartedly.
The first jurisdictional advantage is that RICO authorizes nationwide service of process, which courts have recognized as authority for general jurisdiction over any entity or individual with sufficient contacts anywhere in the country. By contrast, the Lanham Act requires plaintiffs to prove systematic and continuous contacts with the forum state. this advantage of a RICO claim already has been exploited by some trademark plaintiffs.
For example, in Rolls-Royce Motors Inc. v. Charles Schmitt & co., 657 F. Supp. 1040 (S.D.N.Y. 1987), which involved RICO as well as trademark infringement claims, a district court judge in New York agreed with Rolls-Royce that it had personal jurisdiction over a Missouri car dealership's president, despite the absence of any tort in New York, simply because RICO allows for nationwide service of process: "When such nationwide service of process is authorized, a federal district count's jurisdiction is coextensive with the boundaries of the United States, [and] due process requires only that a defendant in a federal suit have minimum contact with the United States."
Furthermore, in the interest of "judicial economy," the court retained jurisdiction over the pendent claims.
Similarly, almost every other federal court to address the issue has had little difficulty in finding civil RICO defendants amenable to suit in the plaintiff's chosen forum. These courts uphold personal jurisdiction over RICO Defendants, generally using the following reasoning: Civil RICO claims invoke federal-question subject-matter jurisdiction; thus, the law of the forum is federal law; and Congress has provided for nationwide service of process against civil RICO defendants.
Even in those few jurisdictions that still require a showing of minimum contacts within the forum state despite RICO's national service provisions -- and for trademark infringement that occurs beyond U.S. borders -- RICO's recognition of investment injury provides an alternative basis for asserting a court's limited jurisdictional powers where the Lanham Act does not reach. Unfortunately, this basis for RICO jurisdiction is often overlooked.
Limited, or specific, jurisdiction applies where the defendant lacks a general presence in the state but has contacts based on the subject matter of the litigation. This form of jurisdiction is specifically limited to causes of action related to the defendant's activities within the forum state. But even the most restrictive state long-arm statutes recognize jurisdiction when a wrongful act has been committed within state borders.
Because one of the acts RICO seeks to prohibit is the investment of illegally obtained finances in legitimate businesses, trademark owners can establish limited jurisdiction by alleging that profits from the infringement have been invested within the forum, even if no trademark infringement occurred there. Those illegal investments are the wrongful acts that establish the basis for personal jurisdiction.
The jurisdictional force of RICO in cases in which the initial wrongful acts occur beyond U.S. borders can be seen by looking at the case that the Republic of the Philippines brought against former President Ferdinand Marcos and his wife. Republic of the Philippines v. Marcos, 862 F.2d 1355 (9th Cir. 1988). Although the Marcoses' crimes of embezzlement occurred entirely within the Philippines, investment of those ill-gotten gains occurred in the United States.
The U.S. Supreme Court held in 1985 that conduct forms a pattern for RICO purposes "if it embraces criminal acts that have the same or similar purposes, results, participants, victims, or methods of commission, or otherwise or interrelated by distinguishing characteristics an are not isolated events." Sedima S.P.R.I. v. Imrex Co., 473 U.S. 479 (1985). Applying this definition to the money the Marcoses had stolen in the Phillippines, the 9th U.S. Circuit Court of Appeals found jurisdiction under RICO because the Marcoses had used the U.S. mails and wires to invest the "fruits of the fraud" and illegally transported those fruits in interstate commerce.
Similarly, whether or not infringing conduct in a trademark case occurs within jurisdictional borders, illegal investments often do. Just as the Marcoses were amenable to process because they directed the proceeds of a foreign theft into the United States, a prospective trademark defendant who commits infringement outside the forum but has investments within it should be subject to a RICO action.
Thus, under both general and limited jurisdictional analyses, RICO -- and therefore the Anticounterfeiting act -- provide redress when the Lanham Act claims alone cannot. While trademark plaintiffs have used RICO for its jurisdictional advantages before the proposed act makes clear that properly pleaded RICO claims may provide trademark and copyright owners with their only jurisdictional basis, either general or specific, for asserting claims against an infringing defendant.
Another significant change under the act is that it broadens enforcement procedures for counterfeiting offenses. For example, while current law (Section 116(d)(9) or Title 15) permits only a U.S. marshal or other federal officer to serve an order for injunctive relief, the act will allow a state or local law enforcement officer to make service and carry out the seizure under the order. Thus, the act will make it much easier for trademark owners to seize counterfeit goods.
The act also expands the remedies available to a trademark owner in an action for infringement. Currently, a successful trademark-infringement plaintiff can recover the defendant's profits, any damages that the plaintiff sustained, and the costs of the action. In the case of intentional infringement, a treble-damages provision entitles the plaintiff to three times the profits or damages, whichever is greater, plus reasonable attorney fees.
The act would enable a plaintiff to elect instead to seek statutory damages up to $100,000 per counterfeit mark, or, if the court finds that the use of the counterfeit mark was willful, as much as $1-million per counterfeit mark. While discretionary with the curt, even the threat of such damages provides trademark owners with a significant new weapon.
Finally, in the area of remedies, the act makes a significant change to the procedure for disposing of counterfeit goods. Under current law, forfeited articles may be returned to the country of expert "whenever it is shown to the satisfaction of the Secretary of the Treasury that the importer had no reasonable grounds for believing that his or her acts constituted a violation of the law." 17 U.S.C. Section 603(c). Sophisticated international businesses that import counterfeit goods have thus known that the worst that could happen was that they would reclaim any seized goods in the country they came from in the first place. The act simply eliminates the power of the Customs Office to allow the "re-export" of seized goods.
Less important, but still significant, are amendments that the act makes to the Tariff Act concerning the destruction or other disposal of forfeited goods. Under the new law, the Treasury Department must destroy the forfeited goods unless the trademark owner agrees to one of three alternative means of disposal: by delivery to government agencies that need the merchandise; by gift to charitable institutions; or more than one year after forfeiture, and only if the preceding options are inapplicable, by sale at public auction.
Currently, destruction of seized counterfeit merchandise is not the default procedure in the case of seized goods. Rather, the counterfeit trademark is obliterated and the goods are disposed of in the same manner as described above, unless they are unsafe or hazardous to health, in which case the goods are destroyed. Moreover, the trademark owner's consent has not been required for one of the other dispositions of seized goods. thus, the proposed act serves to deter counterfeiting by ensuring that counterfeit goods will not reenter the marketplace and by giving trademark owners greater control over the disposal process.
In a legislative era often characterized and driven by public outrage over the widespread effects of crime, it is not surprising that congress has taken measures to expand the list of offenses punishable under RICO. Yet the proposed act is by no means a simple matter of Congress stiffening criminal penalties in an effort to bow to public anti-crime sentiment. Along with punishing the increasing involvement of organized crime in counterfeit operations, the act seeks to protect the legitimate interests of trademark and copyright owners as well as the health and safety of American consumers.
Many trademark plaintiffs asserting RICO claims are motivated by settlement leverage. The public label as "racketeer" or "organized criminal" and the added expense of defending against RICO allegations both provide an incentive for a defendant to settle.
Increased penalties, along with the stigma of the public RICO label, will deter many counterfeiters who previously considered counterfeiting to be "easy money." These deterrents, along with broader jurisdiction and enforcement mechanisms, are a boon to U.S. businesses and entrepreneurs who are the victims of counterfeiting and the beneficiaries of a legislative offer that criminals, no doubt to their dismay, cannot reuse.