NBA Wins Counterfeit Case Versus Chinese Company Over IP, Jurisdiction
By Michael McCann
A new ruling by a federal court of appeals makes it clear that if an overseas company sells products that impermissibly use American sports leagues’ trademarks, the company can be tried in an American court—even if only one sale occurred, and it was to a league investigator.
On Tuesday, the U.S. Court of Appeals for the Seventh Circuit decided in favor of the licensing arms of the NBA, MLB, NHL and NFL, as well as Collegiate Licensing Company (the trademark licensing and enforcement agent for numerous colleges), in NBA Properties v. Hanwjh. The case is an infringement and counterfeiting litigation brought against a group of online companies operating in China, which was accused of selling 205 infringing products.
These companies, the leagues maintain, designed e-commerce stores selling counterfeit apparel that would “appear to unknowing consumers to be authorized online retailers, outlet stores or wholesalers.” In many instances, the websites would directly copy “the layouts, terms of service, legal notices and/or contact information found on the websites of [leagues’] authorized online retailers.” The websites were advertised on eBay, Alibaba and Amazon, and accepted payments through Amazon Pay, PayPal and credit cards.
The lawsuit was brought in an Illinois federal court in 2020. The leagues, which have teams in Illinois and which enforce their IP rights there and in every state, assert the defendants had “targeted sales to Illinois residents.” This was an important assertion for the leagues. They have to establish that the Illinois court possesses the authority to issue a ruling against the Chinese companies.
To comply with due process requirements found in the U.S. Constitution and federal law, there must be so-called “minimum contacts” between the jurisdiction of the court and the defendant. This is the essence of personal jurisdiction, where a defendant must have intentionally directed its actions toward the forum state, or it would be regarded as unfair to compel the defendant to defend itself there. If a company does business in a state, such as by having a local office or shipping goods to in-state consumers, it will ordinarily be found to have made a sufficient connection.
One of the defendants, Hanwjh, insisted it lacked ties in Illinois and therefore shouldn’t have to defend itself there. The company maintained it is neither an Illinois company, nor does it have offices, bank accounts or other properties in Illinois. Hanwjh also argued the company has never directed any of its advertising or marketing toward the state.
Hanwjh further objected to what it portrayed as a disingenuous attempt by the leagues to establish personal jurisdiction. As summarized in the opinion drafted by Judge Kenneth Ripple, an investigator for NBA Properties “accessed Hanwjh’s online Amazon store and purchased a pair of [basketball] shorts.” The investigator used an Illinois address for delivery. The sale was completed, and the shorts arrived at the Illinois address not long thereafter. Other than that single sale—to an investigator not a consumer—and Internet accessibility of Hanwjh’s online store from Illinois, “NBA Properties has not alleged any other contacts between Hanwjh and Illinois.”
Just like Illinois federal district Judge John Kness, who previously ruled for the leagues, the Seventh Circuit wasn’t persuaded by Hanwjh’s reasoning.
Ripple, on behalf of the Seventh Circuit, stressed that Hanwjh established an online store by using Amazon as a third-party retailer, and through that arrangement, “unequivocally asserted a willingness to ship goods to Illinois and established the capacity to do so.”
As to a league investigator manufacturing a single sale, Ripple found that outside the scope of whether personal jurisdiction arose. “The question,” he wrote, “is not whether the plaintiff purchased enough goods to subject the defendant to personal jurisdiction. The focus is whether Hanwjh purposefully directed its conduct at Illinois.” To that point, Hanwjh made no attempt to disallow orders from Illinois, while in other cases online retailers have explicitly stated they will not sell to customers in certain states.
Prevention of counterfeit goods remains an ongoing challenge for the leagues. They are members of the Coalition to Advance the Protection of Sports logos, or CAPS—an organization investigating suspicious websites that sell sports apparel and assists in legal efforts to combat counterfeit sales.