| Authors: | Justin Gaudio, shareholder, Greer, Burns & Crain jgaudio@gbc.law Amy Ziegler, shareholder, Greer, Burns & Crain aziegler@gbc.law Allyson Martin, partner, Greer, Burns & Crain amartin@gbc.law |
How to Fight Chinese Intellectual Property Violations as an Amazon Seller
Amazon sellers big and small must constantly work to protect their intellectual property from copyright infringement by bad actors in China. Whether you are an experienced Amazon seller or are new to the marketplace, at some point you’ll be exposed to counterfeit Chinese goods that are a clear violation of IP law and actively degrade your brand’s profitability.
Brand owners can employ litigation as a powerful and effective tool to combat the growing problem of online counterfeiting by Chinese malefactors. This article will discuss how Greer, Burns & Crain (GBC) develops strategic lawsuits to seek temporary restraining orders (TROs) for IP infringement violations, including trademark violations, copyright, and/or design patent rights. Our strategy is proven, efficient, and cost-effective, saving clients time and money.
Amazon Sellers can Fight Chinese IP Violations
GBC has a longstanding track record of fighting online counterfeiting, working with Amazon sellers to protect their brand’s intellectual property (IP) rights. We have successfully represented over a hundred different brands, filing thousands of cases against hundreds of thousands of online sellers, making GBC the top filer of lawsuits against China-based e-commerce stores for over a decade.
The majority of third-party sellers on Amazon are in China, which complicates traditional enforcement methods. Many online counterfeiters operate under multiple different storefronts. To counter these jurisdictional roadblocks, we file Temporary Restraining Orders (TROs) that both protect brand IP and employ asset restraints against the sellers’ accounts (which are often held by third-party payment processors such as Amazon, Temu, eBay and PayPal). By freezing the sellers’ funds, GBC can prevent counterfeiters from transferring ill-gotten gains to offshore accounts while holding masked online sellers accountable. Furthermore, by suing multiple sellers in a single case, GBC can save time and money for the plaintiffs and avoid duplicating efforts and resources.
As a result of GBC’s time-tested methodology, the number of Chinese counterfeit listings has decreased significantly for its Amazon sellers.
The Problem of Online Counterfeit Sales from China
The estimated level of US retail e-commerce sales as a percentage of total quarterly retail sales has steadily risen over the past decade. Consumers spent $791.7 billion on e-commerce in 2020, up over 30% from 2019. But as more consumers have turned to shopping online, counterfeiters have adapted and flooded the Internet with even more counterfeit products. Online counterfeit sales from China on platforms like Amazon, eBay, Temu, Alibaba and others have become a significant problem for brands of all sizes.
Intellectual property infringement is pervasive, with unauthorized sellers stealing brand assets to sell illicit products. Brand owners are responsible for identifying infringement and taking action to protect their intellectual property.
- Illicit sellers using stolen IP often sell infringing goods at below-market prices, which can divert customers from the actual brand and erode sales.
- Counterfeit products are often of very poor quality, providing a negative connotation to the legitimate brand/seller. This leads to customer dissatisfaction and negative reviews, a decline in customer trust, and long-term damage to the legitimate seller’s reputation.
- Users may struggle to differentiate between legitimate and counterfeit goods, diminishing the brand’s perception in the marketplace. Brand loyalty and consumer trust quickly erode.
US Customs and Border Protection (CBP) personnel seized over 26,000 shipments containing counterfeit goods (worth nearly $1.3 billion in genuine products) nationwide in fiscal year 2020. The “bulk of counterfeit products to the US come from China and its dependent territories”, accounting for over 90.6% of all cargo with IP rights violations, according to a report from the Buy Safe America Coalition. Additionally, it states: “Of the $1.23 billion in total [IP rights] violations intercepted, $1.12 billion was from China. Using a very conservative model it is estimated that $44.3 billion in additional illicit cargo is escaping detection.” These IP rights violations are estimated to cost over 100,000 jobs and billions in tax revenue.
Offshore online counterfeiters evade brand owners’ takedown complaints by operating under multiple different store names and driving traffic to listings using paid advertisements, rather than brand names in the item title. To combat these tactics used by more sophisticated online sellers, brands have successfully implemented litigation programs seeking asset restraints against multiple seller aliases in a single case. For example, in 2016, one brand identified and shut down over 30,600 e-commerce stores offering counterfeit products for sale. As a result of this brand’s diligent efforts, the number of e-commerce stores shut down for selling counterfeit products has decreased significantly to less than 2,000 in 2021 (see Figure 1 below).
 Figure 1 |
The Benefit of Multiple-seller Lawsuits Against Chinese Counterfeiters
The US District Court for the Northern District of Illinois is the top district court for multiple-seller alias lawsuits. This is because populous cities in the United States, like Chicago, are targeted by offshore counterfeiters. For example, recent CBP seizures at the International Mail Facility in Chicago included nearly $636,000 of counterfeit handbags, jewelry and accessories, while over $6.5 million of counterfeit goods were seized at O’Hare Airport in April 2021.
As such, district courts in several populous cities are well versed in handling these types of lawsuits against online counterfeiters. Before the pandemic, the Northern District of Illinois operated on three-day notice for in-person hearings. Therefore, litigants could quickly obtain an injunction to stop a defendant’s counterfeiting activities and freeze its assets. Despite generally suspending in-person hearings due to the covid-19 pandemic, the Northern District of Illinois has maintained much of this efficiency through telephone hearings or by ruling on the briefings.
Procedural Considerations
There is rarely a question of liability on the merits of a plaintiff’s counterfeiting claims when filing a lawsuit against multiple seller aliases. See Microsoft Corp. v. Rechanik, 249 F. App’x 476, 479 (7th Cir. 2007) (where “one produces counterfeit goods in an apparent attempt to capitalize upon the popularity of, and demand for, another’s product, there is a presumption of a likelihood of confusion.”) As such, when defendants do appear, they typically attempt procedural challenges to joinder, personal jurisdiction and service of process in an effort to frustrate the plaintiff’s enforcement efforts.
Joinder of Multiple Ecommerce Stores
The court has the discretion to manage the structure of lawsuits to encourage the resolution of disputes and judicial efficiency. Federal Rule of Civil Procedure 20 provides that defendants may be joined in one action if “any right to relief is asserted against them jointly, severally, or in the alternative with respect to or arising out of the same transaction, occurrence, or series of transactions or occurrences” and “any question of law or fact common to all defendants will arise in the action”.
While a plaintiff could file individual causes of action against each counterfeiter, this ignores the type of harm that it faces. Any one single counterfeiter is not the whole of the problem; it is the injuries caused by the counterfeiters in the aggregate that are the problem. Likewise, many sophisticated online counterfeiters operate under different seller aliases on multiple platforms.
A recent decision from the Northern District of Illinois (Bose Corporation v The Partnerships, et al. (334 FRD 511 (ND Ill 2020)) recognizes this problem and illustrates how a plaintiff can join e-commerce sellers in a single action to efficiently address the type of harm faced by brands. The court in Bose Corporation focused on the word ‘occurrences’ in Federal Rule of Civil Procedure 20 and recognized that the Internet enables mass foreign counterfeiting that was inconceivable when the rule was drafted. This is because the “defendants allegedly take advantage of a set of circumstances – the anonymity and mass reach afforded by the internet and the cover afforded by international borders – to violate Bose’s trademarks with impunity”. Additionally, the Fifth Circuit recently affirmed joinder in a case against multiple offshore e-commence sellers. Viahart, L.L.C. v. He Gangpeng, No. 21-40166, 2022 U.S. App. LEXIS 3974, at *10-11 (5th Cir. Feb. 14, 2022) (“These allegations sufficiently allege a series of occurrences within the meaning of Rule 20.”).Even without any express coordination among the defendants, an ‘occurrence’ of mass harm can be easily inflicted because sellers on the Internet can reach billions of consumers while hiding their identities. As such, online stores operating in the same or similar manner in the same time period can be named as defendants in the same case.
Venue and Personal Jurisdiction
Many overseas sellers open e-commerce stores on marketplace platforms such as eBay.com, Amazon.com, Wish.com or Aliexpress.com with the specific purpose of offering products for sale to consumers in the United States.
Under the plain language of Section 1114 of the Lanham Act, an offer to sell an infringing or counterfeit item, even without any other activity, establishes liability for trademark infringement and counterfeiting. A defendant that is not a resident of the United States may be sued in any judicial district (28 USC §1391).
A court must also find that jurisdiction exists over the online store. This requires the court to evaluate:
- the defendant’s actions targeting the jurisdiction leading up to any offer for sale (g., a defendant reaching out to a consumer); and
- whether the product offered for sale relates to the litigation.
The Seventh Circuit opinion in NBA Properties, Inc. v. HANWJH, 46 F.4th 614, 624-27 (7th Cir. 2022) is a recent example of an appellate court finding that personal jurisdiction was proper over a China based e-commerce store operators that established an online store, using a third-party retailer, Amazon. com. The Seventh Circuit states that through this online Amazon store, the defendant unequivocally asserted a willingness to ship goods to Illinois and established the capacity to do so. When an order was placed, it filled the order, intentionally shipping an infringing product to the customer’s designated Illinois address. Other appellate courts (e.g., the Second Circuit in Chloé v Queen Bee of Beverly Hills (616 F3d 158 (2d Circuit 2010) and the Eleventh Circuit in Louis Vuitton Malletier v Mosseri (736 F3d 1339 (11th Circuit 2013)) have held similarly. District courts have also used a similar analysis (see, for example, Tommy Hilfiger Licensing v calvinklein.us.org (No 20-cv-07477 (ND Ill Mar 24, 2021) (Docket No 46)).
When setting up e-commerce stores, sellers are required to affirmatively select shipping options and confirm that they will ship to the United States. On Amazon.com, for example, sellers can use “Shipping settings” to customize the regions that they will ship to and the service levels that they will support for each region.
By listing a product with the United States selected as a region, the seller agrees to fulfill the order in that country. When personal jurisdiction is challenged, it is important for the plaintiff to establish a factual record regarding the defendant’s actions inherent with opening an e-commerce store, such as details on setting up accounts, listing products and creating shipping settings. This factual record helps to show how the defendant’s actions targeted the jurisdiction leading up to any offer for sale.
An actual sale or some number of sales is not necessary to establish jurisdiction because this focuses on the residents reaching back, rather than the defendants’ own actions in setting up their e-commerce stores. There is also no way for a plaintiff to determine how many sales an e-commerce store shipped into a district prior to filing a lawsuit and obtaining discovery. While an actual sale is helpful to confirm that the defendants’ e-commerce stores are set up to receive orders from US residents, any court opinion that requires an actual sale is overlooking the defendants’ actions leading up to the offer for sale.
Finally, since these sellers are targeting the United States, there must also be personal jurisdiction under Federal Rule of Civil Procedure 4(k)(2). Rule 4(k)(2) extends federal jurisdiction over non-resident defendants that have sufficient contacts with the United States as a whole, but insufficient contact with any single state to support jurisdiction (Federal Rule of Civil Procedure 4(k)(2) advisory committee’s note, citing Omni Capital International v Rudolf Wolff & Co, 484 US 97, 111 (1987)). Owners of US trademarks must have access to federal courts in the United States to enforce their US trademark rights and protect consumers in the country. See Christian Dior Couture, S.A. v. Liu, No. 15 C 6324, 2015 U.S. Dist. LEXIS 158225, at *14 (N.D. Ill. Nov. 17, 2015).
In the event a defendant challenges personal jurisdiction, the plaintiff should consider seeking discovery regarding the defendant’s contacts with the United States.
Service of Process
Another procedural challenge that is raised by defendants is whether they were properly served. The United States is a signatory to the Convention on the Service Abroad of Judicial and Extrajudicial Documents in Civil or Commercial Matters, commonly referred to as the Hague Convention, which applies to service on parties located in foreign jurisdictions. As noted above, most e-commerce sellers of counterfeit products are based in China, which is also a signatory to the Hague Convention.
However, serving a China-based defendant via the Chinese Central Authority is rarely possible since offshore online sellers commonly use false addresses. Even if an address is provided, it is almost certain that the Chinese Central Authority will exceed six months in its attempt to effectuate service. The China Ministry of Justice has noted that service “is time-consuming and not efficient” and has confirmed that it often takes more than two years to complete (Victaulic Co v Allied Rubber & Gasket Co, 2020 US Dist LEXIS 82150, at *3 (SD Cal May 8, 2020)).
However, Federal Rule of Civil Procedure 4(f)(3) provides the courts the discretion to order an alternative method of service. A court has the discretion to determine when the “particularities and necessities of a given case” require an alternative method of service (Volkswagen Group of America Inc v The Partnerships, et al (No 20-cv-03131 (ND Ill Sept 14, 2020) (Docket No 67)).
Plaintiffs do not need to attempt service of process via another method, including via the Hague Convention, before asking the court to order alternative service under Federal Rule of Civil Procedure 4(f)(3). The Fifth, Ninth, and Federal Circuits have all confirmed that a plaintiff does not need to attempt service via the Hague Convention before petitioning the court for relief under Federal Rule of Civil Procedure 4(f)(3) (see, for example, Viahart, L.L.C. v. He Gangpeng, No. 21-40166, 2022 U.S. App. LEXIS 3974, at *8 (5th Cir. Feb. 14, 2022); In re OnePlus Technology (Shenzhen) Co (2021 WL 4130643 (Fed Circuit Sept 10, 2021)), Nagravision SA v Gotech Int’l Tech (882 F3d 494 (5th Cir 2018)) and Rio Properties Inc v Rio Intern Interlink (284 F3d 1007 (9th Cir 2002))).
In these types of cases, the nature of the e-commerce businesses and unknown or unverifiable physical addresses, the need for speed in obtaining injunctive relief and the likely delay in serving defendants via the Chinese Central Authority necessitate relief under Federal Rule of Civil Procedure 4(f)(3) (Volkswagen Group of America Inc v The Partnerships et al).
Specifically, the courts have recognized that the need for prompt action to obtain an injunction preventing infringement would be defeated if service were undertaken via the Chinese Central Authority (Tommy Hilfiger Licensing v calvinklein.us.org). Additionally, a “speedy method of service” is justified to ensure that funds gained by allegedly infringing conduct would be recoverable by the plaintiff (Oakley Inc v The Partnerships et al (No 20-cv-05049 (ND Ill July 9, 2021 (Docket No 62))).
Plaintiffs can request to serve defendants via email, which is an “instantaneous, reliable, and traceable means of providing notice” (Oakley Inc v Yantai Lanlei Network Tech Co (No 20-cv-00396 (ND Ill May 12 2021)). E-commerce sellers rely on email to conduct business and are required to provide an email address when registering with an online marketplace platform. These email addresses are verified by the online marketplace platforms, while physical addresses are not (Oakley Inc v The Partnerships et al).
Asset Restraint
One of the remedies available to a plaintiff in a trademark counterfeiting case is an ex parte temporary restraining order restraining financial accounts associated with the e-commerce stores. See Columbia Pictures Indus., Inc. v. Jasso, 927 F. Supp. 1075, 1077 (N.D. Ill. 1996) (observing that “proceedings against those who deliberately traffic in infringing merchandise are often useless if notice is given to the infringers”). The courts may freeze assets to preserve the plaintiff’s equitable remedy for an accounting of profits. Lorillard Tobacco Co. v. Montrose Wholesale Candies, 2005 WL 3115892 at *13 (N.D. Ill. Nov. 8, 2005). It is necessary to freeze defendants’ assets so that the funds cannot be moved overseas before the plaintiff can determine how many counterfeit products have been sold. Getting to the defendant’s assets is the most effective way to compel an offshore online seller to cease the sale of counterfeit products.
Statutory Damages
In the United States, an action for trademark infringement may be brought under the Lanham Act. In counterfeiting cases, the plaintiff may elect to recover statutory damages rather than actual damages under Section 1117(c) of the Lanham Act.
Section 1117(c) provides that a plaintiff in a case involving the use of a counterfeit mark may elect to receive “not less than $1,000 or more than $200,000 per counterfeit mark per type of goods or services sold, offered for sale, or distributed, as the court considers just” (15 USC §1117(c)(1)). When the counterfeiting is found to be willful, Section 1117(c)(2) provides for statutory damages of up to “$2,000,000 per counterfeit mark per type of goods or services sold, offered for sale, or distributed, as the court considers just” (15 USC §1117(c)(2)).
The lack of information regarding defendants’ sales and profits makes statutory damages particularly appropriate for these types of cases. Courts consider multiple factors when formulating a statutory damages award, including:
- the defendant’s willful infringement;
- efforts taken by the plaintiff to promote, protect and enhance the asserted trademarks;
- the defendant’s wide exposure online;
- deterrence of the defendant; and
- deterrence of similarly situated online counterfeit sellers.
See Luxottica USA LLC v. The Partnerships, et al., 2017 U.S. Dist. LEXIS 29999, at *11-12 (Mar. 2, 2017 N.D. Ill.).
Amazon Sellers can Defeat Chinese Counterfeiters
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