BILL ANALYSIS
SENATE COMMITTEE ON PUBLIC SAFETY
Senator Mark Leno, Chair S
2009-2010 Regular Session B
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SB 324 (Cedillo)
As Introduced February 25, 2009
Hearing date: April 14, 2009
Penal Code
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COUNTERFEIT GOODS:
DONATION TO THE INDIGENT WITH CONSENT OF THE TRADEMARK OWNER
HISTORY
Source: Shelter Partnership, Inc.
Prior Legislation: AB 1394 (Krekorian) - Ch. 431, Stats. 2008
Support: Taxpayers for Improving Public Safety; Western Center
on Law and Poverty; California Rural Legal Assistance
Foundation; Los Angeles Mission; Fred Jordan Mission
Opposition:None known
KEY ISSUE
SHOULD CALIFORNIA LAW INCLUDE A SPECIFIC PROVISION AUTHORIZING A
TRADEMARK OWNER TO CONSENT TO THE DONATION OF SEIZED COUNTERFEIT
GOODS TO CHARITY?
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PURPOSE
The purpose of this bill is to specifically provide that
counterfeit goods may, at the consent of the trademark owner, be
donated to charity, rather than destroyed.
Existing law states that any person who willfully manufactures,
intentionally sells, or knowingly possesses for sale any
counterfeit of a mark registered with the California Secretary
of State or registered on the United States Patent and Trademark
Office shall be punishable as follows:
If the offense involves less than 1,000 of the
articles with a total retail value less than the
standard for grand theft (over $400 - $487), the
defendant is guilty of a misdemeanor, punishable by
a fine of not more than $5000, imprisonment in a
county jail for up to one year, or by both. If the
defendant is a corporation, by a fine of not more
than $100,000.
When the crime involves 1,000 or more articles,
or has a total retail value that meets the standard
for grand theft (over $400 - $487), the crime is an
alternate felony-misdemeanor, punishable by
imprisonment in a county jail for up to one year, or
in the state prison for 16 months, 2 years or 3
years, by a fine not to exceed $250,000, or both.
If the defendant is a corporation, the maximum fine
is $500,000. (Pen. Code 350, subd. (a).)
Existing law provides that a repeated violation of the
counterfeit trademark statute is an alternate
felony-misdemeanor, punishable by a fine of not more than
$50,000, imprisonment in a county jail for not more than one
year, or in the state prison for 16 months, or 2 or 3 years, or
both. If the defendant is a corporation, the maximum fine is
$200,000. (Pen. Code 350, subd. (b).)
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Existing law provides that where a defendant is convicted of a
trademark counterfeiting, the court shall order the forfeiture
and destruction of all of counterfeit marks and all counterfeit
items. The court, with specified exceptions for community
property vehicles, shall also order forfeiture and destruction
or other disposition of all means of making the marks, and all
other devices for making or transporting the marks used in
connection with the violation.
Existing law describes "fair use" of a trademark, which is not
subject to prosecution or a civil action, as any of the
following:
advertising or promotion that permits consumers to
compare goods or services;
identifying and parodying, criticizing, or commenting
upon the famous mark owner or the goods or services of the
famous mark owner;
noncommercial use of the mark; and
all forms of news reporting and news commentary. (Bus.
& Prof. Code 14247.)
Existing federal law provides that it is a crime to "traffic" or
"attempt to traffic" in counterfeit goods. The crime is
punishable by a fine of up to $2,000,000, imprisonment for up to
10 years, or both. The maximum fine for a corporation or an
entity other than an individual is $5,000,000. Repeated
convictions are punishable by imprisonment for up to 20 years, a
fine of up to $5,000,000, or both. Where the convicted
defendant of repeated violations is other than an individual the
maximum fine is $15,000,000. (18 U.S.C. 2320.)
Existing federal law provides the following property is subject
to forfeiture following a defendant's conviction for trafficking
in counterfeit goods: the proceeds of the crime; any of the
defendant's property used or intended to be used in the crime;
any article bearing a counterfeit mark. (18 U.S.C. 2320 (b).)
This bill provides that upon a request by law enforcement and
with consent from the trademark registrant, the court may
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consider a motion to for donation of counterfeit goods to a
non-profit organization for distribution to indigent persons at
no charge.
RECEIVERSHIP/OVERCROWDING CRISIS AGGRAVATION
California continues to face a severe prison overcrowding
crisis. The Department of Corrections and Rehabilitation (CDCR)
currently has about 170,000 inmates under its jurisdiction. Due
to a lack of traditional housing space available, the department
houses roughly 15,000 inmates in gyms and dayrooms.
California's prison population has increased by 125% (an average
of 4% annually) over the past 20 years, growing from 76,000
inmates to 171,000 inmates, far outpacing the state's population
growth rate for the age cohort with the highest risk of
incarceration.<1>
In December of 2006 plaintiffs in two federal lawsuits against
CDCR sought a court-ordered limit on the prison population
pursuant to the federal Prison Litigation Reform Act. On
February 9, 2009, the three-judge federal court panel issued a
tentative ruling that included the following conclusions with
respect to overcrowding:
No party contests that California's prisons are
overcrowded, however measured, and whether considered
in comparison to prisons in other states or jails
within this state. There are simply too many
prisoners for the existing capacity. The Governor,
the principal defendant, declared a state of emergency
in 2006 because of the "severe overcrowding" in
California's prisons, which has caused "substantial
risk to the health and safety of the men and women who
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<1> "Between 1987 and 2007, California's population of ages 15
through 44 - the age cohort with the highest risk for
incarceration - grew by an average of less than 1% annually,
which is a pace much slower than the growth in prison
admissions." (2009-2010 Budget Analysis Series, Judicial and
Criminal Justice, Legislative Analyst's Office (January 30,
2009).)
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work inside these prisons and the inmates housed in
them." . . . A state appellate court upheld the
Governor's proclamation, holding that the evidence
supported the existence of conditions of "extreme
peril to the safety of persons and property."
(Citation omitted) The Governor's declaration of the
state of emergency remains in effect to this day.
. . . the evidence is compelling that there is no
relief other than a prisoner release order that will
remedy the unconstitutional prison conditions.
. . .
Although the evidence may be less than perfectly
clear, it appears to the Court that in order to
alleviate the constitutional violations California's
inmate population must be reduced to at most 120% to
145% of design capacity, with some institutions or
clinical programs at or below 100%. We caution the
parties, however, that these are not firm figures and
that the Court reserves the right - until its final
ruling - to determine that a higher or lower figure is
appropriate in general or in particular types of
facilities.
. . .
Under the PLRA, any prisoner release order that we
issue will be narrowly drawn, extend no further than
necessary to correct the violation of constitutional
rights, and be the least intrusive means necessary to
correct the violation of those rights. For this
reason, it is our present intention to adopt an order
requiring the State to develop a plan to reduce the
prison population to 120% or 145% of the prison's
design capacity (or somewhere in between) within a
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period of two or three years.<2>
The final outcome of the panel's tentative decision, as well as
any appeal that may be in response to the panel's final
decision, is unknown at the time of this writing.
This bill does not appear to aggravate the prison overcrowding
crisis outlined above.
COMMENTS
1. Need for This Bill
According to the author:
The underground market of counterfeit goods is sizable
and growing rapidly. In 2007 U.S. customs officials
seized $197 million in counterfeit goods, up 27% from
the previous year. The county Economic Development
Corporation estimates about $2 billion worth of
counterfeit goods are sold annually in Los Angeles
alone.
Yet, in our state there are over 150,000 individuals
and family members who are homeless on any given
night. This number of homeless Californians will
likely grow in the next two years because of loss of
jobs and the impact of home foreclosures.
SB 324 provides for a practical method in aiding our
state's homeless by repurposing counterfeit shoes and
clothes after their confiscation and with the
trademark owner's consent. The donation of these
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<2> Three Judge Court Tentative Ruling, Coleman v.
Schwarzenegger, Plata v. Schwarzenegger, in the United States
District Courts for the Eastern District of California and the
Northern District of California United States District Court
composed of three judges pursuant to Section 2284, Title 28
United States Code (Feb. 9, 2009).
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items to non profit agencies will fill the paucity of
public funding created by budget cuts homeless and
women's shelters face. This bill is also an
environmentally sound fit to non-commercial
redistribution of the items. Landfills are already at
capacity and the destruction of goods adds to the
immense waste in our communities.
Under current law counterfeit items must be destroyed.
In some instances items have been donated by the Los
Angeles City Attorney's office to organizations
serving the homeless with the permission of the
trademark owners. The organizations taking possession
of counterfeit goods go to great lengths to ensure the
items do not re-enter commerce by removing tags and
imprinting the pieces with an indelible stamp.
However, there is a reluctance to continue this
practice because the statute calls for destruction
regardless of trademark owner's consent and there is
not sufficient case law to guide the protocol for
donating goods. SB 324 will take an existing problem
and transform it into a transparent solution for non
profit agencies that serve the homeless and indigents
in our communities.
2. Existing Law Appears to be Mandatory in Stating that a Court
Shall Order Destruction of all Counterfeit Goods
In the context of the duties of a trial court, the term "shall"
ordinarily is mandatory and "may" is permissive. However, the
use of "shall" or "may" is not dispositive. Where a statute
uses the term "shall" a court must determine from the wording
and context of a statute whether or not the Legislature intended
to mandate a particular act. (People v. Allen (2007) 41 Cal.4th
91.)
The statutes governing disposition of counterfeit goods states
that the court "shall" order destruction of all the counterfeit
items. It could be argued that the law deems such items to be
contraband such that the court has no discretion to not order
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destruction of the items. A court could thus reasonably find
that it could not grant a request by the owner of a trademark to
allow the items to be donated to charity or otherwise used.
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This bill would clearly state the intent of the Legislature to
grant a court discretion, with the consent of the trademark
owner, to allow donation of counterfeit goods.
3. Considerations Affecting the Decision of a Trademark Owner to
Consent to Charitable Distribution of Counterfeit Goods
Many trademark owners could find that allowing distribution of
counterfeit goods would diminish the value of legitimate goods,
even by simply increasing the number of such items in commerce.
These concerns would be exacerbated if the counterfeit goods are
noticeably inferior to legitimate items.
Other trademark owners would consent to the distribution of
counterfeit goods, perhaps most likely in cases where the goods
are of high quality and there are a limited number of fraudulent
items.
CAN EXISTING LAW BE INTERPRETED SO AS TO PROHIBIT A COURT FROM
ALLOWING USE OF COUNTERFEIT GOODS, EVEN WHERE THE TRADEMARK
HOLDER REQUESTS THE GOODS NOT BE DESTROYED?
SHOULD THE LAW SPECIFY THAT A COURT, WITH CONSENT OF THE
TRADEMARK OWNER, MAY ALLOW DONATION OF COUNTERFEIT GOODS?
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