The autographed collectibles market is a highly competitive, extremely lucrative multimillion-dollar enterprise. As a consequence, this market has been plagued with forgeries. In order to combat this problem, California enacted a statute governing the sale of autographed sports memorabilia. California Civil Code Section 1739.7 -- the autographed sports memorabilia statute -- can provide the basis for expensive and time-consuming litigation over the authenticity of an athlete's autograph. This statute requires dealers in autographed collectibles to provide a certificate of authenticity that warrants the genuineness of the signature. This statute has not been construed in any reported court decisions and remains open to interpretation. This article proposes a standard for determining when a dealer in autographed sports memorabilia has met its burden of certifying the authenticity of an autograph.

Section 1739.7 only provides a remedy for individual consumers of autographed sports memorabilia. However, violation of this section may constitute an unfair business practice under California Business and Professions Code Section 17200, which greatly expands the potential claimants with standing to assert non-compliance with the certificate of authenticity statute. To establish a Section 17200 claim, a claimant must prove that the defendant engaged in an unlawful, unfair or fraudulent business act or practice or unfair, deceptive, untrue or misleading advertising. Bus. & Prof. C. §17200. For a business practice to be "unlawful" for purposes of Section 17200, violation of a state law -- such as Section 1739.7 -- is sufficient. Barquis v. Merchants Collection Ass'n, 7 Cal. 3d 94, 113 (1972); People v. E.W.A.P., Inc., 106 Cal. App. 3d 315, 319 (1980).

1. Statutory and Procedural Background

a. California Civil Code Section 1739.7

When any business sells collectibles to buyers in California, it is bound by California Civil Code Section 1739.7 which states that a dealer of autographed sports memorabilia must provide a certificate of authenticity to the consumer at the time of sale. The statute requires that the certificate comply with certain technical facial requirements, such as it must be written in at least 10-point boldface type and must be signed by the dealer or its authorized agent. Cal. Civ. Code §1739.7(b). The certificate must also include an express warranty of the authenticity of the autograph on the collectible. Cal. Civ. Code §1739.7(b)(3). The statute is very specific as to what the certificate of authenticity must include and anyone issuing a certificate should carefully review the statutory requirements. (See Appendix A for the complete text of Civil Code Section 1739.7.)

b. California Uniform Commercial Code

Any business selling collectibles is also bound by the provisions of California Commercial Code Sections 2101 et seq. for the sale of goods. Section 2313 provides for the creation of express warranties for the sale of goods and states that an express warranty that the goods will comply with the description made by the seller is created when a description of the goods is made a part of the basis of the bargain. Cal. Com. Code § 2313(b). This Commercial Code section, although similar to the language of Section 1739.7, is much less strict and a seller can disclaim the express warranty provisions by stating that affirmations about the value of the goods or statements purporting to be the sellers opinion do not create a warranty. Cal. Com. Code § 2313(2).

In contrast, Section 1739.7 does not allow a seller to disclaim the warranty and a warranty will be created even when statements about the authenticity or the value of the item purport to be merely the seller's opinion. Cal. Civ. Code § 1739.7(b)(3). Section 1739.7 therefore imposes stricter warranty requirements on the sale of autographed sports memorabilia. Further, because Section 1739.7 specifically pertains to the sale of autographed sports memorabilia as compared with Section 2313 which only pertains generally to the sale of goods, Section 1739.7 governs. See Rose v. State of California, 19 Cal. 2d 713, 723-24 (1942) (a specific statutory provision relating to a particular subject will govern in respect to that subject as against a general statutory provision); San Francisco Taxpayers Ass'n v. Board of Supervisors, 2 Cal. 4th 571, 577 (1992)(same); People v. Caceres, 52 Cal. App. 4th 106, 112-13 (1997)(same).

2. Substantial Compliance with the Facial Requirements of Section 1739.7

Although no court has determined whether strict facial compliance is required under Section 1739.7, the policy underlying the statute warrants application of a substantial compliance standard not strict compliance. This doctrine of "substantial compliance" applies when there is a technical defect in the form with which the requirements of the statute are met but there is actual compliance with the intent and purpose of the statute.

The California Supreme Court defines "substantial compliance" as "actual compliance in respect to the substance essential to every reasonable objective of the statute." Stasher v. Harger-Haldeman, 58 Cal. 2d 23, 29 (1962). In Stasher, a woman sued a car dealership to rescind a conditional contract for the sale of a car. She claimed that the conditional sales contract failed to comply with the mandatory form and language prerequisites prescribed by the California Civil Code provisions requiring the full disclosure of all costs in the sale of cars. Id. at 29. The car dealer's conditional sales contract had substantially listed all the charges involved in the sale, but failed to correctly state certain items required by the statute. Id. at 27, 30-32.

The California Supreme Court held that the dealer had complied with the "obvious purpose of the statute" to protect the buyers of cars from excess charges by listing the charges involved in the sale, and the contract was therefore valid. Id. at 29. The Court reasoned that when there is actual compliance with the substance of a statute, "mere technical imperfections of form or variations . . . should not be given the stature of non-compliance . . . ." Id. The Court backed its analysis by stating that, to allow the plaintiff to rescind the contract because the dealer failed to comply with the letter of the law -- while fully complying with the substance and spirit -- would give the plaintiff an undeserved windfall and would disregard the true intent of the statute. Id. at 33.

California courts have continued to follow the reasoning of Stasher. In Downtown Palo Alto Comm. For Fair Assessment v. City Counsel, 180 Cal. App. 3d 384 (1986), a group of business owners challenged the validity of a new city ordinance on the ground that the city counsel failed to strictly comply with the requirements set forth in the California codes for noticing business owners of changes in city ordinances. Id. at 389. The statute in question required that notice be given by both publication in a newspaper of general circulation and by mailing a notice to each business in the area where the changes are proposed. Id. The city failed to publish the notice and only sent notices to approximately 700 of the 800 businesses in the area. Id.

The Court of Appeal held that, because the city satisfied the intent of the statute -- to ensure that a sufficient number of the businesses in the proposed area learned of the proposed improvements and the methods for challenging the proposals -- the city's notice was sufficient and the ordinance was valid. Id. at 396. The court stated that, "Unless the intent of the statute can only be served by demanding strict compliance with its terms, substantial compliance is the governing test." Id. at 394. Although the statute in question mandated that all business owners shall be given notice, the court ruled that substantial compliance with the statute was sufficient because the purpose of the statute had been satisfied. Id. at 395. See also National Parks and Conservation Ass'n v. County of Riverside, 42 Cal. App. 4th 1505, 1522 (1996)(strict compliance with statute only required when intent of statute can only be served by strict compliance).

In the case of autographed memorabilia, the purpose of California Civil Code Section 1739.7 is clear. According to its legislative history, the purpose of the statute is to provide consumers of autographed sports memorabilia with greater assurances of an item's authenticity and to deter the sellers of forged memorabilia. Senate Committee on Business and Professions Bill No. AB 3113 (Ca. June 22, 1992)("The provisions of this bill are intended to provide sports memorabilia purchasers with greater assurances as to an item's authenticity and to serve as a deterrent to those who may consider selling forged items"); Assembly Committee on Consumer Protection, Governmental Efficiency and Economic Development Bill No. AB 3113 (Ca. May 6, 1992)("this legislation is intended to help consumers maximize their chances [of getting a real autograph] by receiving a certificate of authenticity). Thus, the purpose of Section 1739.7 is not to have certificates of authenticity that strictly comply with the technical requirements of Section 1739.7, but to have certificates of authenticity that fulfill the warranty provisions of the statute by giving the consumer the assurance that the item they have purchased is authentic. A substantial compliance standard for facial compliance is appropriate.

3. Compliance With The Substantive Requirements Of Section 1739.7 -- The "Reasonable Basis in Fact" Test

As with the requirements for facial compliance, compliance with the substantive elements of Section 1739.7 has not been addressed by the courts. However, interpretation of statutes governing the sale of fine collectibles provides a good framework for determining substantive compliance. The two cases that address this issue found that substantive compliance is met when the defendant had a "reasonable basis in fact" for believing that the item was authentic. Balog v. Center Art Gallery, 745 F.Supp. 1556, 1566 (D. Haw. 1990); Dawson v. G. Malina, Inc., 463 F.Supp. 461, 467 (S.D.N.Y. 1978)). However, these cases do not discuss what constitutes a "reasonable basis in fact" for believing that an item is authentic. In attempting to define a standard for determining a "reasonable basis in fact," the most analogous situation is provided by the Lanham Act (15 U.S.C. § 1125) when addressing whether a seller of counterfeit goods "should have known" that the authenticity of the goods required further investigation -- the so-called "willful blindness." analysis.

The Lanham Act and Section 1739.7 share the common purpose of preventing counterfeiting and forgeries and assuring consumers that the goods they are purchasing are genuine. Hard Rock Licensing Corp. v. Concession Services, Inc., 955 F.2d 1143, 1148 (7th Cir. 1992)(Lanham Act protects consumers from deceptive claims about nature and origin of products). Accordingly, the facts and circumstances that put a seller of goods on notice of the need to investigate further to determine whether an item is counterfeit are equally appropriate in determining whether a dealer of autographed sports memorabilia did not have a "reasonable basis in fact" for believing that the item being sold is authentic.

a. "Willful Blindness"

A court may impose treble damages under the Lanham Act if it determines that a seller of goods should have inquired further into the genuineness of the goods because the circumstances put it on notice that the goods might be counterfeit. 15 U.S.C. §1117; Louis Vuitton S.A. v. Lee, 875 F.2d 584, 590 (7th Cir. 1989)("willful blindness" is knowledge for purposes of awarding treble damages). If the circumstances should have put the seller on notice that something was amiss, the fact that the seller did not actually know that the items were counterfeit is not a defense and the seller is charged with the same knowledge as if he had made an investigation into the authenticity of the item in question. Id.

To establish that a seller is on notice that something is amiss, federal courts consistently look at the same types of facts and circumstances. In Keds Corp. v. Goldstreet Holdings, Inc., 25 U.S.P.Q.2d 1958 (C.D. Cal. 1992), the defendant occasionally acted as a "middleman" or broker for shoes. As part of this business, the defendant sometimes bought Keds sneakers from a dealer he had never met, for a price well below the retail price. Id. at 1961. The sneakers were often transferred to his waiting trucks from other trucks at pre-arranged locations on the streets of Los Angeles and, consequently, the defendant did not know the location of the dealer's place of business. Id. The defendant testified that he thought all this secrecy was the industry standard, and that he thought the sneakers were genuine. Id. at 1963. However, the court held that because the defendant had no contact with the dealer and was purchasing the sneakers at a low price in dark back alleys, the defendant was on notice to inquire into whether the sneakers were in fact counterfeit. Id. Because the defendant should have known that the goods were counterfeit, he was liable for treble damages under the Lanham Act. Id.

Similarly, in Louis Vuitton S.A. v. Lee, 875 F.2d 584 (7th Cir. 1989), the defendant retailer purchased counterfeit Louis Vuitton and Gucci handbags from "the back of the van of an itinerant Korean peddler" and offered them for sale in her shop for under $40.00 a piece. Id. at 586. The court determined that the defendant was obligated to investigate the genuineness of the handbags since, at her deposition, the defendant unequivocally admitted that the handbags were counterfeit, that genuine Vuitton and Gucci bags would not display poor quality workmanship as did the bags sold in her store, and that genuine bags would not have been purchased from the back of a van at "bargain basement prices." Id. at 590. In holding the defendant liable for treble damages under the Lanham Act for failing to investigate further, the court concluded that "Willful blindness is knowledge enough." Id. See also Hard Rock Cafe Licensing Corp. v. Concession Sources, Inc., 955 F.2d 1143, 1149 (7th Cir. 1992)(willful blindness in that defendant saw inferior goods, knew of low price, and suspected that shirts were counterfeit but failed to investigate); Levi Strauss & Co. v. Diaz, 778 F.Supp. 1206 (S.D. Fla. 1991)(willful blindness in buying low cost, inferior quality jeans from strangers is not "innocence" to mitigate treble damages and attorney's fees).

Finally, in Chanel, Inc. v. Italian Activewear of Florida, Inc., 931 F.2d 1472 (11th Cir. 1991), the defendant purchased handbags and belt-buckles bearing the Chanel logo from a European broker from whom the defendant had previously purchased other luxury items with other labels. Id. at 1474. The handbags lacked the unique stickers affixed to genuine bags, did not have the certificates of authenticity that accompany each bag, and did not come packed in the usual felt bags within a black box. Id. at 1475. Further, genuine Chanel beltbuckles are never sold without Chanel belts, as these were. Id.

The defendant testified that he never asked the dealer where the belts and bags came from and that he was aware that the bags should have had certificates of authenticity accompanying them. Id. The trial court granted summary judgment in favor of Chanel because the defendant knew that the indicia of authenticity normally found with Chanel bags did not accompany his shipment, and that his supplier was not an authorized Chanel distributor, and yet he failed to inquire about the origin of the Chanel products. Id.

The Court of Appeals overturned the decision of the trial court on the ground that, while the facts of the case "certainly support an inference of knowledge or willful blindness," they did not clearly compel a finding of intent as a matter of law. Id. 1476. The court reasoned that, as a general rule, a party's knowledge or intent is a question of fact to be determined by the fact finder after a trial and not during summary judgment, and that, in the case at hand, the facts were purely circumstantial and they reasonably "could cut both ways." Id. at 1476-77.

In each of these cases, similar factors were considered in determining if the seller of goods should have been aware that something was amiss and investigated further regarding the authenticity of the goods being sold. These factors include:

1. The quality of the seller's relationship with the vendor -- was the vendor unknown to the seller or known to be a questionable dealer of the goods;

2. The quality of the goods being purchased from the vendor -- did the goods fall below the ordinary quality expected;

3. The method of transfer of the goods from the vendor to the seller -- did the transfer take place in a "back alley" at odd hours of the night;

4. The price of the goods from the vendor-- were the goods purchased for well below their expected price ; and

5. Whether the goods lacked the usual "indicia of authenticity."

Because these criteria establish when a dealer has unreasonably ignored facts that should have put it on notice that the goods were counterfeit, they are the most appropriate facts to use to determine whether a dealer of autographed sports memorabilia lacked a reasonable basis in fact for believing that the item being sold is authentic. The plaintiff bears the burden of proving that the defendant did not have a reasonable basis in fact for believing its products were genuine. See Dawson v. G. Malina, Inc., 463 F.Supp. 461, 467 (S.D.N.Y. 1978)

b. Application of the Five "Reasonable Basis in Fact" Criteria

1. Quality Of The Dealer's Relationship With Its Vendors

A dealer of autographs should attempt to prove that it had longstanding relationships with its vendors and suppliers of autographed sports memorabilia, thereby establishing a history of legitimate transactions that justify reliance on representations as to authenticity from each vendor. If a vendor is new, the dealer should attempt to show that it questioned the vendor about the source of the product, how the vendor obtained the product and the vendor's basis for ensuring the authenticity of the signatures. The dealer should make sure to always receive from its vendors a certificate of authenticity that complies with Section 1739.7, and should maintain a copy for its files. The dealer should also have some procedure for examining exemplars of the offered product to compare to known authentic signatures. Additionally, the dealer should have a policy that if there is any doubt about the authenticity of an item, the dealer does not sell it. These factors will establish that the vendor relationships are strong and justify continued reliance on the quality and genuineness of the product.

2. Quality of Goods That The Dealer Purchased from its Vendors

The dealer should be able to establish that the items it purchased and sold had a reasonable indicia of quality. The dealer should show that the type of material, or brand of merchandise, used is the type typically used for obtaining signatures, and that the craftsmanship is good and no flaws or defects are apparent. Also, the signature should be sufficiently accurate to justify reliance on its authenticity.

3. The Dealer's Method for Receiving Goods

The dealer should be able to prove that it receives inventory directly at its warehouse and not in questionable "back alley" transactions. Deliveries should be made during regular business hours through the ordinary receiving procedures established by the dealer. If product will be drop-shipped to a customer from the dealer's vendor, the dealer should be able to prove that it inspected samples of the product prior to shipment, or that its relationship with the vendor is sufficiently strong that there was no reason to question the authenticity of the product being shipped directly to the dealer's customer.

4. The Price Paid By The Dealer

If a vendor offers autographed collectibles unreasonably below market price, the dealer should question the authenticity of the signature. However, if the price is within the range of the market price for a signed item, this will be further evidence that the item is genuine. Moreover, in the very competitive market of autographed sports memorabilia, with such a large number of suppliers, competition alone can explain a disparity in price. Additionally, reduced prices can be the result of the vendor purchasing product directly from show promoters that greatly reduce the prices because the items could not be sold at trade shows due to insufficient attendance or lack of enthusiasm for the athlete providing the autographs. Thus, a dealer should be sure to question any suspiciously low price for autographed goods and should be prepared to provide a reasonable explanation for any price disparity.

5. Indicia of Authenticity Accompanying Goods Received

A dealer should establish that the product contained certain characteristics that provided a reasonable degree of assurance that the signature was authentic. For example, the dealer should show that it receives certificates of authenticity with the autographed product it purchases. Additionally, the dealer might establish that items are received from vendors in shrink wrap and other packaging -- not simply delivered in bulk with no protective wrapping. An additional indicator that the product has a reasonable indicia of authenticity would be that the signature appears on an "official" game ball, or appears on a brand of product that the athlete has openly endorsed.

The autographed sports memorabilia statute can be a trap for the unwary. Careful review of the statute, along with conscientious compliance with the facial and substantive statutory requirements, can help to avoid these trappings and ensure that the quality and authenticity of autographs is preserved. Reasonable efforts to identify the source of an autograph, and efforts made to ensure that the circumstances under which a dealer obtains autographs are free from suspicion, should be sufficient to comply with the California statute.