charge, therefore, it is conceivable that Peacock's allegation could state a violation of the Mann Act.
Despite that conceptual possibility, we are unable to find that the allegation -- as currently pleaded -- is sufficient. As was the case with the alleged narcotics violations, Peacock's pleading with respect to the provision of prostitutes makes no reference to dates of occurrence. Instead, the countercomplaint states only that the unlawful inducements, and this term covers both the cocaine charges and the prostitution charges, were provided "starting in the early 1980's." P113. While this lack of specificity has consequences in terms of the notice it affords MAJ, it has particular relevance here because of a November 7, 1986 amendment to the Mann Act. Prior to that amendment, the statute punished only those who transported "any woman or girl." In light of the fact that MAJ's transportation of (presumably) male customers would be actionable only if it occurred after the effective date of the amendment, a more detailed pleading is necessary to determine whether it has stated a claim under the Mann Act.
As the above discussion suggests, none of Peacock's allegations are currently adequate to state an "indictable" violation of the Mann Act. Although we will grant Peacock leave to amend the allegation in paragraph 121, at present, the Mann Act claims may not serve as a predicate for the RICO violation.
The Mail Fraud Charges
The third type of predicate acts asserted in the RICO counterclaim are various acts of mail fraud under 18 U.S.C. § 1341 (1984). The essential elements of a mail fraud violation are: (1) a scheme to defraud an intended victim; (2) of money or property; and (3) use of the mails to further the scheme. See United States v. Wallach, 935 F.2d 445, 461 (2d Cir. 1991). In this instance, the claim of mail fraud is founded on allegations that MAJ mailed "at least thirteen fraudulent applications" for copyright registration to the Register of Copyrights, on at least four different dates spanning from "shortly before" December 22, 1986 to "shortly before" October 19, 1988. See PP133-139.
In urging this Court to dismiss the mail fraud claims, MAJ maintains that even assuming it engaged in a scheme to defraud the Copyright Office, Peacock may not assert a violation because it was not deceived by the scheme. As support for this proposition, MAJ relies on dicta from two Second Circuit cases suggesting that the party injured must also be the party deceived to fall within the compass of § 1341. See Corcoran v. American Plan Corp., 886 F.2d 16, 19-20 (2d Cir. 1989); United States v. Evans, 844 F.2d 36, 39-40 (2d Cir. 1988) (noting that "If a scheme to defraud must involve the deceptive obtaining of property, the conclusion seems logical that the deceived party must lose some money or property"); see also McEvoy Travel Bureau, Inc. v. Heritage Travel, Inc., 904 F.2d 786, 794 n.13 (1st Cir.), cert. denied, 112 L. Ed. 2d 546, 111 S. Ct. 536 (1990) (citing the Corcoran dicta with approval).
In response to MAJ's contention that there must be a convergence of the party deceived and injured for the mail fraud statute to apply, Peacock cites Shaw v. Rolex Watch U.S.A., Inc., 726 F. Supp. 969 (S.D.N.Y. 1989). In Shaw, Judge Conner distinguished Evans and Corcoran on the grounds that in those cases, the plaintiff was the party deceived and not the party injured, whereas in the case before him, the plaintiff was injured but not deceived. Id. at 973. Judge Conner found that distinction to be significant, and concluded that "A plaintiff who is injured as a proximate result of fraud should be able to recover regardless of whether he or a third party is the one deceived." Id. Peacock urges us to follow Judge Conner's approach and conclude that because it was injured by MAJ's fraudulent scheme, it may assert a violation of the mail fraud statute regardless of whether or not it was deceived.
Although we acknowledge that the issue is an important and potentially dispositive one, we base our decision on an alternative rationale. For the reasons that follow, we find that Peacock has failed to demonstrate that the scheme deprived it of "money or property" within the meaning of the statute.
The Money or Property Requirement
In McNally v. United States, the Supreme Court held that to state a violation of the mail fraud statute, the scheme to defraud must be intended to deprive another of money or property. 483 U.S. 350, 107 S. Ct. 2875, 97 L. Ed. 2d 292 (1987) (reversing a mail fraud conviction that was predicated on the charge that the defendant had defrauded the citizens of a state of their intangible right to "honest and impartial government"); see also Carpenter v. United States, 484 U.S. 19, 98 L. Ed. 2d 275, 108 S. Ct. 316 (1987) (applying McNally to the wire fraud statute). Although McNally has been overruled by the enactment of 18 U.S.C. § 1346,
which became effective on November 18, 1988, it applies here because all of the alleged acts of mail fraud occurred prior to its enactment. See Corcoran, 886 F.2d at 19 n.4 (§ 1346 has no retroactive application). Thus, Peacock must plead facts demonstrating deprivation of a property right or interest in order to support the predicate acts of mail fraud.
We have construed Peacock's allegations with respect to the mail fraud scheme liberally, taking into account all possible targets of the alleged scheme as well as the fact that a property interest need not be "tangible" to satisfy McNally. See Carpenter, 484 U.S. at 25; Wallach, 935 F.2d at 461. Nowhere do we find support for the requirement that MAJ's alleged scheme had as its object the deprivation of a property right.
We begin with Peacock's apparent attempt to assert that the Copyright Office was defrauded of property, by stating that each of MAJ's mailings constituted a "'scheme or artifice to defraud the Register of Copyrights and the Library of Congress to obtain for MAJ the valuable property of a United States copyright registration. . . ." P132. In evaluating the sufficiency of that allegation, we consider McNally 's requirement that "any benefit which the Government derives from the [mail fraud] statute must be limited to the Government's interests as property holder." 483 U.S. at 359 n. 8. In order for such a scheme to come within the purview of the mail fraud statute, therefore, the Register of Copyrights must have a property interest in the copyright registrations it disburses.
Evaluating Peacock's contention in light of several Second Circuit decisions exploring the scope of the Government's interest as a property holder, we reject the notion that the Register of Copyrights has any such property interest. In United States v. Evans, for example, the Second Circuit addressed a scheme to deceive the United States about the true destination of arms sold to Iran. According to the mail and wire fraud counts of the indictment, the Government contended that the "property" at issue were the arms themselves, and that the Government's property interest was the ability to control the transfer of the arms to foreign nations. The Court rejected the notion that the Government had any property interest in the arms, however, finding that because it neither manufactured nor owned them, its interest was only "ancillary to a regulation, not to property." Evans, 844 F.2d at 40-42. In Corcoran v. American Plan Corp., similarly, the Second Circuit determined that the New York State Superintendent of Insurance, as regulator of the insurance industry, had no property interest in money stolen from private insurance companies. 886 F.2d at 16, 20-21.
The situation presented by Peacock's alleged scheme to defraud is analogous. While the Register of Copyrights does have an interest in regulating the intellectual property rights of private parties, it has no property interest of its own in either the matter underlying the copyright or in the copyright registration once issued. As such, Peacock's mail fraud acts cannot be predicated on any scheme to deprive the Register of Copyrights of money or property.
We next consider the possibility that Peacock was deprived of a property interest by MAJ's alleged scheme to defraud. At first glance, this possibility seems plausible, in that Peacock contends that MAJ's actions deprived it of the right to manufacture and sell charms designs purchased from the Old Mr. Craftsman. See PP105-06. The difficulty with this position, however, is that Peacock has nowhere alleged that it held any property right, such as its own copyright or licensing arrangement, in the charms at issue. Instead, Peacock's own pleading describes the scheme as one to procure fraudulent copyrights in charm designs "that were rightfully in the public domain, and should be free to all." P159 (emphasis added).
In short, Peacock's amended countercomplaint fails to demonstrate that the allegedly fraudulent scheme had as its object the deprivation of any property interest. The "right" to be free from fraudulent competition is not a cognizable property right for these purposes. Peacock's mail fraud allegations are deficient and the asserted violations of the mail fraud statute cannot serve as predicate acts. Moreover, because Peacock has failed to plead properly a single predicate act, the RICO counterclaim is dismissed, without prejudice to repleading as will be discussed in greater detail in Part III infra.
3. The Lanham Act Counterclaim.
In the amended countercomplaint, Peacock for the first time asserts a violation of the false advertising prong of the Lanham Act. That statute subjects to civil liability:
Any person who, on or in connection with any goods or services, or any container for goods, uses in commerce any word, term, name, symbol, or device, or any combination thereof, or any false designation of origin, false or misleading description of fact, or false or misleading representation of fact, which --
(2) in commercial advertising or promotion, misrepresents the nature, characteristics, qualities, or geographic origin of his or her or another person's goods, services, or commercial activities. . . .
15 U.S.C. § 1125(a)(2). Peacock claims that MAJ has misrepresented the "nature, characteristics [and] qualities" of its goods by falsely representing that it "is the sole and lawful proprietor of the copyrights in various public domain works" (P186). Peacock further alleges that it has been damaged by these misrepresentations in that customers who "have received MAJ's claims of originality and exclusivity" will not buy the same charms from MAJ's competitors "because they will believe that the competitors are engaged in 'knocking off' MAJ's copyrights" (P161).
Although MAJ attacks the sufficiency of the Lanham Act claim on a number of fronts, its primary objection is that Peacock has failed to allege that Michael Anthony has made false statements about its products. Because Peacock concedes that MAJ holds copyright registrations for the charm designs at issue, MAJ contends that any "advertisement" regarding those registrations could not possibly be deemed false.
Despite the surface logic of MAJ's contentions, there is authority for the proposition that a false designation of copyright may constitute a "false designation of origin" or "false description or representation" that is actionable under the Lanham Act. See Eden Toys, Inc. v. Florelee Undergarment Co., 697 F.2d 27, 37 (2d Cir. 1982); Sunset Lamp Corp. v. Alsy Corp., 698 F. Supp. 1146, 1153 (S.D.N.Y. 1988).
While Peacock might be able to state a claim under the Lanham Act in theory, however, its present allegations are insufficient for the simple reason that they fail to state that MAJ has advertised its copyright in any commercially noticeable manner. The amended countercomplaint does not state where the copyright notice was placed on the charms, whether it was large enough to be seen by consumers, or whether it was actually seen by any consumers. Nor does it mention any formal advertising campaigns or marketing material that emphasized the charms' copyrights or billed them as "original." Under such circumstances, we find it difficult to discern a claim that MAJ has engaged in "false advertising" within the meaning of the Lanham Act.
Despite these apparent deficiencies, Peacock's counsel has suggested in statements outside the pleadings that such an advertising campaign was conducted. During oral argument on November 21, 1991, for example, he made reference to a print advertisement involving one of the charms in dispute, in which MAJ represents that the charm design is copyrighted and original to MAJ. See November Transcript at 31. In light of the fact that Peacock may be able to assert a viable Lanham Act violation by including these unpleaded allegations, we dismiss the Lanham Act counterclaim at this time, but with leave to replead.
4. The Unfair Competition Counterclaim.
Peacock's final counterclaim is for unfair competition under New York law. This counterclaim is based on MAJ's allegedly improper placement of copyright notices on goods in the public domain (P190) and on its alleged provision of prostitutes and cocaine to customers and employees (P191).
In arguing that this counterclaim should be dismissed, MAJ contends that even if Peacock's allegations were proven, they would not constitute unfair competition. Specifically, MAJ argues that the tort of unfair competition requires the "passing off" of a defendant's product as plaintiff's own, or at least the misappropriation of a "property interest" held by the plaintiff.
We first address the sufficiency of Peacock's claims regarding the alleged copyright misuse. With respect to those claims, MAJ reiterates an argument made in connection with the mail fraud allegations: that because Peacock claims an interest only in charm designs in the public domain, it has failed to allege any property right misappropriated by MAJ's actions.
MAJ is certainly correct that "an unfair competition claim involving misappropriation usually concerns the taking and use of the plaintiff's property to compete against the plaintiff's own use of the same property." Roy Export Co. Establishment v. Columbia Broadcasting Sys., Inc., 672 F.2d 1095, 1105 (2d Cir.), cert. denied, 459 U.S. 826, 74 L. Ed. 2d 63, 103 S. Ct. 60 (1982); see also Metropolitan Opera Assoc. v. Wagner-Nichols Recorder Corp., 199 Misc. 786, 101 N.Y.S.2d 483, 489 (Sup. Ct. N.Y. County 1950), aff'd, 279 A.D. 632, 107 N.Y.S.2d 795 (App. Div. 1951). MAJ's error, however, is in its overly restrictive definition of "property" as it has developed in connection with the tort of unfair competition. Unlike the stringent "money or property" requirement under the federal mail fraud statute, New York Courts and federal courts construing New York law apply a broad definition of property rights to unfair competition claims. As the New York Court of Appeals stated in Fisher v. Star Company :
The rule that a court of equity concerns itself only in the protection of property rights treats any civil right of a pecuniary nature as a property right; and the right to acquire property by honest labor or the conduct of a lawful business is as much entitled to protection as the right to guard property already acquired. It is this right that furnishes the basis of the jurisdiction in the ordinary case of unfair competition.
231 N.Y. 414, 132 N.E. 133, 137-38 (N.Y. 1921) (quoting International News Serv. v. Associated Press, 248 U.S. 215, 234 & 236, 63 L. Ed. 211, 39 S. Ct. 68 (1918)). In conformity with that broad approach, subsequent courts have determined that any misappropriation of the "skill," "labors," or "expenditures" of another may constitute unfair competition, provided the misappropriation is in bad faith. See, e.g., Saratoga Vichy Spring Co., Inc. v. Lehman, 625 F.2d 1037, 1044 (2d Cir. 1980); Alusit Ltd. v. Aluglas of Pennsylvania, No. 89-3849, 1990 U.S. Dist LEXIS 16755, at*33 (S.D.N.Y. Dec. 4, 1990).
Peacock's amended countercomplaint alleges that Peacock purchased charm molds from the Old Mr. Craftsman and thereafter expended money and effort manufacturing the charms and preparing catalogs for their sale. The countercomplaint further alleges that when Peacock attempted to sell those charms and reap the fruits of its labor, it was confronted with a lawsuit by MAJ, which had copied the charms and fraudulently obtained copyrights in the interim. Regardless of whether or not those charms were in the public domain, we find that this alleged misappropriation of Peacock's labor and investment supports a claim of unfair competition under New York law.
Peacock's allegations with respect to the provision of cocaine and prostitutes, however, pose an entirely different situation. Peacock asserts that this conduct may be labeled unfair competition because it is "unfair," and insists that the tort is designed to protect against all forms of "commercial immorality." See, e.g., Standard & Poor's Corp. v. Commodity Exchange, Inc., 683 F.2d 704, 710 (2d Cir. 1982). While the tort is undoubtedly a broad one, which one Court has described as "adaptable and capacious," Roy Export, 672 F.2d at 1105, it is by no means all-encompassing and courts have not hesitated to recognize its limits. See, e.g., Saratoga Vichy Spring Co., Inc., 625 F.2d at 1044; Nifty Foods Corp. v. Great Atlantic & Pacific Tea Co., 614 F.2d 832, 842 (2d Cir. 1980). Peacock has failed to cite any case in support of its claim that the provision of cocaine or prostitutes constitutes unfair competition under New York law. In light of that deficiency, as well as the fact that we cannot see how the provision of such inducements constitutes a misappropriation of Peacock's "skill," "labors" or other property rights, we conclude that these allegations may not serve as a basis for Peacock's unfair competition claim.
As the above discussion reflects, Peacock's motion to join Michael and Anthony Paolercio as counter-defendants is granted, subject to a post-discovery motion to dismiss as to the non-RICO claims. MAJ's motion to dismiss the antitrust counterclaims and the claim of unfair competition is denied, although Peacock may not assert the alleged unlawful inducements as a basis for the latter claim. MAJ's motion to dismiss the RICO and Lanham Act counterclaims is granted, although Peacock will be given leave to replead them, except with regard to the predicate acts of mail fraud.
With respect to the issue of repleading, this Court is aware that Peacock has already been given one opportunity to clarify the counterclaims and has nonetheless failed in many instances to conform even to the pleading requirements of Fed. R. Civ. P. 8. Despite that history, we will permit Peacock one further opportunity to redress the deficiencies in its countercomplaint, assuming, of course, that there is a factual basis for it to do so. Peacock is to file its amended countercomplaint, if any, by June 29, 1992. The parties are to confer and to submit to the Court by July 13, 1992 a proposed schedule for the completion of all discovery and submission of a pretrial order.
Dated: May 28, 1992, New York, New York
/s/ Leonard B. Sand