How Much is a $1 B Judgment Against Counterfeiters Worth? Nike Found Out When it Sued Hundreds of Chinese Counterfeiters.

How much is a $1 billion judgment Nike obtained against counterfeiters, who never bothered to appear in court, actually worth?? Nike sold the judgment to Next Investments, which later on brought a contempt motion against six non-party Chinese banks, in Next Investments LLC v Bank of China, 12 F.4th 119 (2d Cir. 2021). It did not end well for the Plaintiffs.

One wonders if the outcome of this case would have been different if a) the Plaintiffs had not delayed for six years in trying to enforce the asset restraints against the banks and b) the issue was not a contempt motion against the banks. The burden of proof for a contempt motion is high: “To demonstrate [contempt], `a movant must establish that (1) the order the contemnor failed to comply with is clear and unambiguous, (2) the proof of noncompliance is clear and convincing, and (3) the contemnor has not diligently attempted to comply in a reasonable manner.'" Id. at 128.

First, the Court seemed irritated that Plaintiffs had waited so long, criticizing their “dilatory conduct” and not only that, but had explicitly and repeatedly denied that they were trying to enforce the judgment against the banks: ?“…Nike and Next (together, "Plaintiffs") failed to seek enforcement of the asset restraints against the Banks for almost six years…” Id. at 129.

“Second, Nike and Next explicitly disclaimed that they were seeking enforcement of the asset restraints against the Banks for four years, which prevented the court from addressing the Banks' objections to the orders. Not only did Plaintiffs fail to take any action despite knowing of or suspecting that transactions were ongoing; they specifically averred that they were?not?enforcing the orders against the Banks. The Banks tried twice to present legal arguments challenging the scope of the asset restraints…But Plaintiffs expressly disclaimed enforcement against the Banks…”?Id.

Third, “To avoid a conflict with Chinese law, principles of international comity might limit the asset restraints' geographic scope to domestic accounts. Comity ‘is the recognition which one nation allows within its territory to the legislative, executive or judicial acts of another nation.’”? Id. at 131. When a court order might infringe on the sovereign interests of another state, the court applies the eight factors in Section 43 of the Restatement (Third) of Foreign Relations.

Here, the banks claimed that China's banking laws prohibited them from freezing customer accounts. A Chinese bank may freeze assets only if ordered by a Chinese court, but not a foreign court. Because there was a “fair ground of doubt” about how the comity factors would apply in this case, and the district court had never done the analysis, the Second Circuit would not impose contempt sanctions against the banks. Id. at 132.?

Fourth, New York's separate entity rule also provided "fair grounds of doubt" whether the asset restraints would apply to the Chinese banks. The separate entity rule provides that even when the New York branch of a foreign bank is subject to personal jurisdiction, the overseas branches are to be treated as separate entities for purposes of the asset restraints. Id. at 132-133.

Fifth, the banks were not in “active concert or participation” with the counterfeiters, and so the asset restraints did not clearly and unambiguously apply to the non-party banks under Rule 65(d)(2). The banks were simply providing routine financial services.

Finally, the Second Circuit agreed that the banks had complied with discovery with “diligent and energetic efforts”.

The case again underlines the difficulties that fashion brands have in suing counterfeiters, overwhelmingly based in China, even after getting a favorable judgment.? The counterfeiters often have no assets in the U.S., and the Chinese banks will not cooperate with an order to turn over their assets, as Chinese law likely would prohibit it. Other means, such as registering the trademarks in China and trying to go through Chinese courts may be another option.

This article is for informational purposes only and is not meant as legal advice.

Copyright ? 2024 Heidi J Meyers, all rights reserved.