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United States v. Bruce

January 23, 2008

UNITED STATES OF AMERICA, PLAINTIFF,
v.
TERRENCE E. BRUCE, ALEXANDER M. KLEST, MARTIN W. MARTINO, ABBY D. KLEST, AND PAMELA A. MESSMAN, DEFENDANTS.



The opinion of the court was delivered by: Frederick J. Kapala, District Judge

MEMORANDUM OPINION AND ORDER

Defendants Terrence E. Bruce, Alexander M. Klest, Martin W. Martino, Abby D. Klest, and Pamela A. Messman, are charged by indictment with conspiracy to defraud by producing and using counterfeit access devices, specifically counterfeit Universal Product Code (UPC) stickers, in attempts to purchase retail products at less than full retail price in violation of 18 U.S.C. § 1029(a)(1) and 371. Before the court is Messman's Federal Rule of Criminal Procedure 12(b)(3)(B) motion to dismiss the indictment as insufficient to state an offense. Messman contends that a UPC sticker is not an "access device" as defined by 18 U.S.C. § 1029(e)(1). The other four defendants have joined in the motion which has been fully briefed. The court held a hearing on the motion and now grants the motion to dismiss the indictment.

I. FACTS

It is alleged in the indictment that defendants committed or caused to be committed the following overt acts in furtherance of the conspiracy:

(a) On or about October 20, 2006, at the Wal-Mart located at 3849 Northridge Drive, Rockford, Illinois, defendants attempted to purchase several Bernzomatic torches with a counterfeit Universal Price Code sticker that had a price less than the full retail value of that product.

(b) On or about March 19, 2007, at a Wal-Mart store located in Waukegan, Illinois, defendants attempted to purchase several chlorine pool products with a counterfeit Universal Price Code sticker that had a price less than the full retail value of that product.

Through proffer and presentation of the affidavits and other materials attached to the government's response to defendant's motion, the court has learned that UPC bar codes are used by virtually every large retailer utilizing a point-of-sale system where products being purchased are scanned at the register. A UPC bar code affixed to a retail product contains three pieces of information: the manufacturer's Uniform Commercial Code membership identification number, the product's identifier number, and a calculated check digit to ensure that the scanner reads the code correctly. The three numbers taken together constitute the Global Trade Item Number. The UPC bar code does not contain the name or description of the product, the price of the product, or any details about the product. The UPC bar code is meaningless unless it is linked to a store's product database. When a product is scanned, the product's identification number is compared to the product identification numbers in the store's product database and information such as manufacturer, product name, product description and price is used to complete the sale of the product.

In the case of Wal-Mart, each item's price is set by Wal-Mart's home office in Bentonville, Arkansas. A newly revised product database is uploaded from Wal-Mart's home office to every Wal-Mart store every evening at 6 p.m. Central Standard Time. While this upload is occurring, an inventory update is submitted from each Wal-Mart store to the home office indicating how many items of each product have been sold by the store and future shipments to each store are adjusted accordingly.

Affiant Christopher Ferguson, a Specialist in Point of Sale Store Strategies employed by Wal Mart Corporation in Bentonville, Arkansas, stated the following:

When a product's UPC barcode is scanned at a Point Of Sale (POS) register, it looks up the product's information on a product database at the store to determine the cost, retail sale amount, taxes, etc. After the product is purchased, the product's information is recorded as being sold in various systems across the country including Bentonville, Arkansas. Adjustments are made to multiple accounts based on the information that a physical product has left a store. For example, the amount of sales (i.e., income) is increased with regards to financial accounts, the amount of taxes is increased with regards to tax accounts, the quantity of the product is decreased with regards to inventory accounts, etc. Therefore, an incorrect barcode on a product would lead to incorrect adjustments being made to accounts (i.e., an out-of-balance). Affiant Rob Ash of Target Corporation made an almost identical statement in his affidavit regarding the effect of the use of an incorrect UPC bar code at a Target point-of-sale register. The government also attached documents showing that any alteration of the UPC bar codes on products for sale at Meijer stores from the originally intended UPC will upset the balance between the receiving, inventory, and replenishment systems resulting in accounts displaying stock loss.

II. ANALYSIS

The court begins its evaluation of defendants' motion to dismiss the indictment with an examination of the language of the relevant statutes. Section 1029(a)(1) provides:

(a) Whoever-(1) knowingly and with intent to defraud produces, uses, or traffics in one or more counterfeit access devices; . . . shall, if the offense affects interstate or foreign commerce, be ...


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