United States v. Farmer

PUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
UNITED STATES OF AMERICA, 
Plaintiff-Appellee,
v.  No. 03-4428
WILLIAM HASKELL FARMER,
Defendant-Appellant.

Appeal from the United States District Court
for the District of South Carolina, at Columbia.
Cameron McGowan Currie, District Judge;
Dennis W. Shedd, District Judge.
(CR-00-385)
Argued: February 27, 2004
Decided: June 4, 2004
Before WIDENER, WILKINSON, and GREGORY, Circuit Judges.
Affirmed by published opinion. Judge Wilkinson wrote the opinion,
in which Judge Widener and Judge Gregory joined.
COUNSEL
ARGUED: Clarence Rauch Wise, Greenwood, South Carolina, for
Appellant. Eric William Ruschky, Assistant United States Attorney,
Columbia, South Carolina, for Appellee. ON BRIEF: J. Strom Thur-
mond, Jr., United States Attorney, Columbia, South Carolina, for
Appellee.
2 UNITED STATES v. FARMER
OPINION
WILKINSON, Circuit Judge:
In April 1998, the United States Customs Service learned of large-
scale counterfeit clothing operation run by William H. Farmer, and it
obtained a warrant to search Farmer’s residence. Evidence at Far-
mer’s home confirmed that Farmer was purchasing blank t-shirts and
sweatshirts manufactured for companies like Nike and Hilfiger, plac-
ing those companies’ logos on the shirts without authorization, and
then passing along the shirts to the public as brand-name goods. Far-
mer pled guilty to charges of trafficking in counterfeit clothing and
conspiracy to commit money laundering, conditioned on his right to
bring this appeal. Farmer contends that the search warrant of his home
was based on stale information, and that his indictment failed to
allege any violation of the criminal trademark infringement statute.
We find Farmer’s claims without merit, and affirm his conviction.
I.
Many of the t-shirts and sweatshirts sold by sportswear companies
like Adidas, Nike, or Reebok are actually produced by independent
mills or factories. For instance, once Nike has designed a particular
t-shirt, it may authorize one or more mills to produce the shirt based
on Nike’s specifications. Yet more than merely fabric, shape and
color make the shirt recognizable as one of Nike’s — a satin finish,
"booklet fold" neck label and the famous Nike swoosh identify the
shirt to consumers as belonging to the Nike brand. Nike thus supplies
its authorized manufacturers with neck labels to be sewn into the col-
lars during production, and then Nike’s trademark is affixed to the
shirt either at the original mill or at a separate facility.
Not all of the shirts produced by any mill end up in Nike’s hands.
For instance, some shirts will not meet Nike’s specifications. The
shirts that have manufacturing flaws are classified as "irregular" or
"B-grade," and while Nike permits its mills to sell irregular shirts, the
mills are required first to remove Nike’s name or logo from all irregu-
lar garments. The purpose is to prevent clothing that Nike has already
rejected as substandard from being associated with the Nike name. In
addition to irregulars, mills may be left with apparel as a result of
UNITED STATES v. FARMER 3
overruns or cancelled orders, and the mills may also sell this apparel
so long as they remove all names or logos.
Farmer attempted to take advantage of this system. He purchased
millions of dollars worth of blank t-shirts and sweatshirts from vari-
ous mills that were manufacturing apparel for Nike, Adidas, and
Tommy Hilfiger. Farmer then hired companies to sew labels into the
shirts, and either screen-print or embroider logos (mostly Nike’s) on
them. Finally, Farmer sold the shirts to Carolina Apparel Trading,
Inc., an outfit that bought closeouts, overruns and irregulars from
manufacturers and resold them to off-price retailers such as T.J. Maxx
and Marshalls.
The Customs Service first learned of Farmer’s operation from John
Pierce and Ron Davis, who had been indicted for their involvement
in an unrelated counterfeit clothing operation. On April 14 and 15,
1998, Pierce and Davis informed Customs Special Agent G. Bruce
Pharis that in roughly four months — from January 2 through May
18, 1997 — they had sold Farmer more than a half-million dollars’
worth of counterfeit clothing. Farmer paid Pierce and Davis either by
cashier’s check or by wiring money to their bank account, and his last
payment to them was made on June 14, 1997.
According to Pierce and Davis, they usually delivered the merchan-
dise to Farmer at a motel in Greenville, South Carolina, but on one
occasion they delivered to a warehouse in Greenville. Agent Pharis
subsequently identified the warehouse as belonging to Advance
Direction, Inc. ("ADI"). In May 1998, as a result of discovery in civil
litigation between Tommy Hilfiger and ADI, Agent Pharis learned
that ADI had purchased counterfeit Tommy Hilfiger t-shirts from Far-
mer in the fall of 1996. Pharis then investigated the telephone number
that Pierce and Davis had used to contact Farmer, and found that it
was registered to 5 Hilander Court, Travelers Rest, South Carolina,
which Pharis confirmed as Farmer’s home address. According to tele-
phone records for Farmer’s residence, Farmer had called Ron Davis
in October 1997. He had also made several phone calls in October
1997 to Heritage Embroidery, which was the company that embroi-
dered Nike logos on t-shirts for Farmer.
Based on this information, Customs Service agents obtained a war-
rant in July 1998 to search Farmer’s residence for evidence of traf-
4 UNITED STATES v. FARMER
ficking in counterfeit clothing. In addition to large sums of currency,
agents seized customer copies of 258 cashier’s checks. These
included checks from Carolina Apparel Trading to Farmer, as well as
checks from Farmer to Spring Ford Knitting, one of the mills from
which Farmer purchased the blank t-shirts; Creative Apparel, the
company that sewed the neck labels into the t-shirts; Dixie Screen
Printing, the company that screen-printed logos on the t-shirts; and
Heritage Embroidery. The agents also seized a lease for a warehouse
at 1525 Cedar Lane in Greenville, as well as invoices from Spring
Ford Knitting and Hubscher Ribbon, the company from which Farmer
purchased neck labels. Farmer then consented to a search of the
pickup truck and trailer parked in front of his house, where along with
more invoices and cashier’s checks, agents seized nearly six thousand
t-shirts screen-printed with Nike’s swoosh logo.
The agents subsequently obtained a search warrant for the Cedar
Lane warehouse, where they seized approximately 3,500 shirts with
Nike’s logo; 9,700 shirts with Adidas’s logo; 141,000 blank t-shirts,
122,000 of which had Nike neck labels; two punch guns used for
attaching hang tags to garments; and roughly 20,000 bar codes.
Searches of Creative Apparel, Dixie Screen-Printing, and Carolina
Apparel Trading ensued with predictable results: agents obtained tens
of thousands of t-shirts with Nike neck labels or logos, as well as vari-
ous business records confirming dealings between Farmer and the
companies.
On May 2, 2000, Farmer was charged before the United States Dis-
trict Court for the District of South Carolina with trafficking in coun-
terfeit clothing, money laundering, conspiracy to commit counterfeit
clothing trafficking and money laundering, and rescuing seized prop-
erty. Farmer moved to quash the search warrant of his house, but the
district court denied his motion. Farmer subsequently moved to dis-
miss the indictment against him, but this motion too was denied by
the district court. Farmer’s trial commenced on January 13, 2003, and
after three days of testimony, the district court ruled that as a matter
of law Farmer had failed to establish any affirmative defense. Farmer
then entered a conditional plea of guilty to trafficking in counterfeit
clothing and conspiracy to commit money laundering. On May 8,
2003, Farmer was sentenced to 84 months in prison, as well as restitu-
tion and forfeiture.
UNITED STATES v. FARMER 5
On appeal, Farmer contends that the district court erred when it
failed to quash the search warrant of his home. He also argues that
the district court should have dismissed the indictment against him.
We address his claims in turn.
II.
Farmer first asserts that the district court erred in failing to quash
on grounds of staleness the July 1998 search warrant of his home,
which was based on the affidavit of Special Agent Pharis. Farmer
contends that the information contained in Pharis’s affidavit — infor-
mation gathered by Pharis during his interviews with John Pierce and
Ron Davis — was too old to furnish probable cause for the search.
Although Pierce and Davis had sold Farmer counterfeit clothing
throughout the first half of 1997, Farmer’s last payment to the pair
was made on June 14, 1997. And the several phone calls from Farmer
to Davis and Heritage Embroidery were made in October 1997,
roughly nine months before the warrant issued. According to Farmer,
nothing in Pharis’s affidavit provided probable cause to believe that
Farmer’s counterfeiting had continued from October 1997 through
July 1998.
The district court rightly rejected Farmer’s staleness argument. As
we have made clear, "[t]he vitality of probable cause cannot be quan-
tified by simply counting the number of days between the occurrence
of the facts supplied and the issuance of the affidavit." United States
v. Rhynes, 196 F.3d 207, 234 (4th Cir. 1999) (quoting United States
v. McCall, 740 F.2d 1331, 1336 (4th Cir. 1984)); see also United
States v. Spikes, 158 F.3d 913, 923 (6th Cir. 1998) (staleness not mea-
sured "solely by counting the days on a calendar"). "Rather, we must
look to all the facts and circumstances of the case, including the
nature of the unlawful activity alleged, the length of the activity, and
the nature of the property to be seized." Rhynes, 196 F.3d at 234
(quoting McCall, 740 F.2d at 1336).
Here, all of the circumstances pointed toward a finding of probable
cause. Farmer was under investigation for trafficking in counterfeit
clothing and money laundering — not "mere isolated violation[s]" of
the law, but criminal activities of "a protracted and continuous
nature." United States v. Johnson, 461 F.2d 285, 287 (10th Cir. 1972).
6 UNITED STATES v. FARMER
The ongoing nature of Farmer’s counterfeit clothing operation ren-
dered the recency of the information in Pharis’s affidavit less crucial,
and "suggest[ed] that probable cause [was] not diminished solely by
the passage of time." McCall, 740 F.2d at 1336; see also Rhynes, 196
F.3d at 234 (long-term drug trafficking and money laundering opera-
tion); United States v. Alvarez, 358 F.3d 1194, 1203 (9th Cir. 2004)
(long-term drug trafficking operation); United States v. Williams, 124
F.3d 411, 420 (3d Cir. 1997) (protracted gambling outfit); United
States v. Maxim, 55 F.3d 394, 397 (8th Cir. 1995) (continuous illegal
possession of firearms); United States v. Chapman, 954 F.2d 1352,
1372-73 (7th Cir. 1992) (repeated robberies).
Not only was Farmer’s large-scale counterfeiting operation
unlikely to have been suddenly abandoned, but Pharis’s affidavit
attested that the operation had continued for quite some time. Pierce’s
and Davis’s dealings with Farmer, and Farmer’s phone calls to Davis
and Heritage Embroidery, indicated that Farmer had been counterfeit-
ing clothing from at least January to October 1997. Thus Pharis’s affi-
davit confirmed in fact what the nature of Farmer’s criminal scheme
suggested in theory: Farmer was engaged in an extended course of
illegal counterfeiting. See, e.g., United States v. Leasure, 319 F.3d
1092, 1099 (9th Cir. 2003) (six months old information not stale, in
part because narcotics operation was elaborate and ongoing); United
States v. Spry, 190 F.3d 829, 836 (7th Cir. 1999) (nine months old
information not stale given evidence of "ongoing continuous criminal
activity") (internal quotation omitted). There was no reason for the
Customs Service or the magistrate judge to believe that, between
October 1997 and July 1998, Farmer’s counterfeiting operation had
ground to a halt, or evidence of Farmer’s scheme had been moved or
destroyed.
Finally, the nature of the property sought by the Customs Service
also supported a finding of probable cause. The search warrant autho-
rized Customs agents to look for "documents including . . . records
of payment . . . bank statements, canceled checks, check registers,
[and] all payment receipts . . . which constitute evidence, fruits and
instruments of . . . trafficking in counterfeit goods." These are pre-
cisely the types of records that "are not ordinarily destroyed or moved
about from one place to another." Rhynes, 196 F.3d at 234; see also
McCall, 740 F.2d at 1336-37; United States v. Lacy, 119 F.3d 742,
UNITED STATES v. FARMER 7
745-46 (9th Cir. 1997) (ten months old information not stale because
defendant unlikely to have disposed of pornographic materials);
United States v. Word, 806 F.2d 658, 662 (6th Cir. 1986) (several
months lapse did not render information stale where "documents
sought were business records prepared and kept in the ordinary course
of business"). And Farmer’s home phone records gave the Customs
agents reason to believe that the records were likely located at Far-
mer’s residence. See, e.g., United States v. Fawole, 785 F.2d 1141,
1146 (4th Cir. 1986).
To accept Farmer’s staleness argument, we would have to suppose
that a successful and profitable criminal enterprise simply faded away
for no apparent reason. This would defy common sense. In light of
the totality of the circumstances — the ongoing nature of Farmer’s
alleged criminal activity, Farmer’s apparent counterfeiting through
most of 1997, and the type of business documents sought by the Cus-
toms Service — there was clearly probable cause in July 1998 to
believe that evidence of Farmer’s counterfeit clothing operation
would be located at his residence.
III.
Farmer next contends that the district court should have dismissed
the indictment against him, because the government failed to allege
any violation of the federal criminal trademark infringement statute,
18 U.S.C. § 2320 (West 2003 & Supp. 2004). According to Farmer,
he affixed trademarked logos (like Nike’s swoosh and Tommy Hil-
figer’s flag) only to shirts that had been manufactured for the respec-
tive trademark holders. Granted, it was Farmer rather than the
trademark holders who oversaw the construction of the shirts, but the
end result, Farmer asserts, was that consumers received shirts no dif-
ferent from those actually peddled by Nike or Tommy Hilfiger.
Because he did not confuse consumers about the source of his goods,
Farmer argues, his unauthorized placement of the trademarked logos
did not constitute criminal trademark infringement.
Farmer’s argument, however, runs headlong into a number of diffi-
culties. Perhaps most importantly, the government continues to main-
tain that Farmer was not offering genuine brand-name shirts at all.
According to the government, Farmer largely was purchasing "irregu-
8 UNITED STATES v. FARMER
lars" — shirts manufactured for, but rejected as defective by, Nike
and Tommy Hilfiger. On the government’s view, the entire point of
Farmer’s counterfeiting operation was to deceive consumers, to trick
them into purchasing as Nike or Hilfiger clothing the very shirts those
companies had already rejected as of lesser quality.
18 U.S.C. § 2320(a) subjects to criminal sanctions any person who
"intentionally traffics or attempts to traffic in goods or services and
knowingly uses a counterfeit mark on or in connection with such
goods or services." Farmer, of course, claims that he was not using
a "counterfeit" mark, since he was selling shirts identical to those sold
by authorized Nike and Hilfiger retailers. But the district court, in
considering whether the indictment validly charged an offense of 18
U.S.C. § 2320, was required to accept the government’s factual alle-
gations as true. See, e.g., Boyce Motor Lines v. United States, 342
U.S. 337, 343 n.16 (1952); United States v. Segal, 299 F. Supp. 2d
840, 844 (N.D. Ill. 2004). The district court therefore properly
declined to dismiss the indictment against Farmer, in light of the fac-
tual question as to whether Farmer’s shirts were comparable in quality
to those sold by Nike and Hilfiger.
Yet even were we to assume that none of Farmer’s shirts were
irregulars, it is undisputed that Farmer affixed trademarked logos to
the shirts according to his own quality control standards — not Nike’s
and Hilfiger’s.1 One of the rights that a trademark confers upon its
owner is "the right to control the quality of the goods manufactured
and sold" under that trademark. Shell Oil Co. v. Commercial Petro-
leum, Inc., 928 F.2d 104, 107 (4th Cir. 1991) (citing El Greco Leather
Prods. Co. v. Shoe World, Inc., 806 F.2d 392, 395 (2d Cir. 1986)).
"For this purpose the actual quality of the goods is irrelevant; it is the
control of quality that a trademark holder is entitled to maintain." El
Greco, 806 F.2d at 395; see also Shell Oil, 928 F.2d at 107 (quoting
El Greco); cf. Restatement (Third) of Unfair Competition § 24 cmt.
c (1995).
1
This is not a case where goods that had already been marked by the
trademark holder were merely being repackaged, such that consumers
could be sure of the goods’ quality and source. See United States v.
Hanafy, 302 F.3d 485, 486 (5th Cir. 2002).
UNITED STATES v. FARMER 9
It is easy to see as a practical matter why trademark holders like
Nike and Hilfiger are accorded the right to control the quality of their
goods: Farmer’s shirts were almost certainly of inferior quality.
Indeed, the government even presented evidence that Farmer had
shoddily screen-printed and embroidered Nike’s and Hilfiger’s logos.
Regardless, it is no defense for Farmer to claim that his shirts were
of the same quality as shirts assembled under Nike’s or Hilfiger’s
control: the whole point is that deciding whether shirts pass muster is
reserved to Nike and Hilfiger, not to Farmer. In denying Farmer’s
motion to dismiss his indictment, the district court correctly con-
cluded that Farmer could be held criminally liable for infringing on
Nike’s and Hilfiger’s right to control the quality of goods sold under
their trademarks.2
IV.
For the foregoing reasons, the judgment of the district court is
AFFIRMED.
2
Farmer also asserted two affirmative defenses, abandonment and mis-
representation, that he claims should have been submitted to the jury.
The district court ruled after a three-day trial that Farmer had not pre-
sented sufficient evidence to warrant a jury charge on either defense.
Having reviewed the record, we agree with the district court: Farmer
failed to adduce evidence that Nike and Hilfiger had abandoned their
trademarks or materially misrepresented the source of their goods.