Yes, and it counts! Single purchase in forum establishes personal jurisdiction over counterfeiter | McDermott Will & Emery

The United States Court of Appeals for the Seventh Circuit upheld the exercise of personal jurisdiction over a foreign online retailer for a trademark infringement claim when the trademark owner purchased the only allegedly infringing item sold on the forum. NBA Properties, Inc. vs. HANWJHCase No. 21-2909 (7th Cir. August 16, 2022) (RippleScudder, JJ.)

NBA Properties owns the trademarks of the National Basketball Association (NBA) and NBA teams. HANWJH is a China-based online retailer that sells allegedly counterfeit NBA-branded products on a well-known e-commerce site. HANWJH offered 205 allegedly infringing products that were available for purchase in Illinois, the forum state. HANWJH’s only online order in Illinois was made by an NBA Properties investigator who purchased a pair of basketball shorts for delivery to an address in Illinois. The shorts were delivered to the Illinois address before NBA Properties filed a lawsuit against HANWJH.

NBA Properties sued HANWJH for infringement and trademark infringement under 15 USC § 1114 and misrepresentation of origin under 15 USC § 1125(a) in the Northern District of Illinois. NBA Properties requested and received a temporary restraining order and a preliminary injunction, including a temporary restriction of assets in HANWJH’s bank account. After HANWJH failed to respond to the complaint in a timely manner, NBA Properties filed for default judgment. HANWJH moved to dismiss the case for lack of personal jurisdiction, arguing the following:

  • The operation of a website alone is not sufficient to establish personal competence.
  • A single transaction by the plaintiff cannot support the exercise of personal jurisdiction.
  • Even if the exercise of personal jurisdiction were otherwise appropriate, such an exercise would run counter to traditional notions of fair play and substantive justice.

The district court denied HANWJH’s motion to dismiss and entered default. HANWJH did not oppose the motion for default judgment, and the district court granted final judgment. HANWJH appealed.

Seventh Circuit revised ‘minimum contacts’ International Shoe criterion before turning to a series of more recent cases applying this standard to online retailers. Citing his 2020 ruling in Curry v. Revolution Laboratories, the Court noted that the minimum contacts requirement is met if “the defendant could reasonably foresee that its product would be sold in the forum”. The Court held that allowing customers to order goods from a website at the forum and then fulfill an order at the forum can form the basis of personal jurisdiction, even when the only orders at the forum were placed by the plaintiff, as long as the orders were made before the complaint was filed. Applying these principles, the Court found that HANWJH deliberately directed the conduct to Illinois by establishing an online store, demonstrating its willingness and ability to ship goods to Illinois, and intentionally shipping an infringing product to an address in Illinois. The Court explained that it was irrelevant that a single allegedly infringing item was sold in Illinois and purchased by the plaintiff, as the analysis focused on the intentional behavior of HANWJH. The Court also found that HANWJH’s minimal contacts with Illinois were related to the lawsuit because HANWJH’s sale to NBA Properties involved an allegedly counterfeit product.

The Seventh Circuit then considered whether submitting HANWJH to Illinois jurisdiction would violate traditional notions of fair play and substantive justice. The Court recognized that HANWJH is a foreign party with only one documented sale in Illinois, but nevertheless observed that there was no injustice in “requiring a seller to defend an action in a state where he has structured his business to “easily serve government customers. ‘” The Court further noted that NBA Properties has an interest in protecting itself against confusion in the Illinois marketplace, and that Illinois has an interest in protecting its consumers from counterfeit products. The Court found that the district court had correctly found HANWJH subject to Illinois jurisdiction.

Practical note: When dealing with a foreign-based online retailer, a brand owner may consider purchasing an allegedly infringing product for delivery to a desired jurisdiction to establish personal jurisdiction in that state. However, the jurisdiction must be chosen with care. The Fifth Circuit took the opposite view to the Seventh Circuit, holding that jurisdiction is inappropriate when a plaintiff’s attorney purchases counterfeit goods because consumer confusion does not result from the sale and shipment by the defendant of the counterfeit goods to the plaintiff. (See Getagadget vs. Jet CreationsCase No. 19-51019 (5th Cir. March 30, 2022).) Also, in BASIC vs. Zazzlethe Eighth Circuit found that a single sale of an infringing item (a T-shirt) in the jurisdiction was insufficient to confer personal jurisdiction over an out-of-state defendant.

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Melvin B. Baillie