Reactive enforcement is whack-a-mole, and it’s impossible to hold oversees counterfeiters liable

II. Combatting Counterfeiting On Online Marketplaces - A Game of Whack-a-Mole

Some online marketplaces do not require storefront owners to display their business names, personal names, or physical addresses publicly, making it often difficult for brand owners to investigate or contact these sellers through demand letters. Because of this, many brand owners are usually left with two options: (1) file infringement notices with the online marketplaces, or (2) commence litigation in court. Given the expense of litigation, many brand owners will often utilize the reporting mechanisms offered by e-commerce marketplaces as an initial course of action, by filing takedown complaints after confirming the counterfeit nature of the products offered by the marketplace’s third-party sellers. However, it is not uncommon for the sellers to be taken down by the e-commerce marketplaces, only to pop up again later under a different storefront name on the same marketplace, or to resurface on a different marketplace. These bad actors will also often operate multiple storefront accounts at one time on the same marketplace, using a different alias, mailing address, and different financial accounts, so that if one of its storefronts is taken down for counterfeiting, it will already have another backup storefront ready to continue its counterfeit sales. This leads to a never ending game of whack-a-mole for brand owners, who are forced to file take down requests day-after-day, often against some of the same sellers.

III. Litigation Challenges For Brand Owners

In some cases, brand owners will find that they have no other choice but to commence legal action in court to try to hold these third-party marketplace sellers liable for trademark counterfeiting. However, bringing judicial proceedings in federal court for trademark counterfeiting against third-party marketplace sellers, particularly those located outside of the United States, presents challenges.

A. Anonymity and False Information

First, without a name and address, brand owners are often forced to file John Doe actions against these third-party marketplace sellers. While John Doe lawsuits can proceed, they are often more expensive, and sometimes cost prohibitive, particularly for smaller businesses. To be effective, these lawsuits will often require seeking ex parte relief from a federal district court, moving for a temporary restraining order, preliminary injunction, and an asset freeze order, in addition to early and expedited discovery by way of subpoenas to force the online marketplaces to produce information concerning the identities of their sellers and their financial accounts. However, as noted earlier, it is not uncommon to discover that the counterfeit sellers provided false names and contact information to the marketplaces, leaving brand owners with the burden of trying to verify the identities of these sellers, and making it difficult to freeze the counterfeit sellers’ assets when the names do not match the names associated with the financial accounts at banks or with online payment service providers. This process can be time consuming and arduous, particularly when sellers are located overseas in countries like China, India, and other countries. The use of false names and addresses also makes service of process difficult, particularly if the court does not allow the brand owner to serve the defendants by email, or via other alternative means.

B. Establishing Personal Jurisdiction

Before a court may enjoin even the most flagrant counterfeiters, it must have personal jurisdiction over them, and plaintiffs have the burden of pleading and establishing personal jurisdiction. In cases where counterfeiters sell on their own websites, establishing personal jurisdiction is relatively straightforward. Courts will apply a “sliding scale” test to determine whether the operation of the website was accessible in the forum state to constitute purposeful availment, and thus the transaction of business in that state. The more “interactive” the website, such that it solicits information from potential buyers in the state, the more likely a court will find that the counterfeiter transacted business through its website in the state and is thus subject to the court’s jurisdiction.4

However, when counterfeit sellers operate on online marketplaces, courts often question whether these defendants used the online marketplace to reach into the forum in some meaningful and purposeful way, since it is the online marketplace owner and not the sellers, who actually control the interactivity of the website and its marketing efforts.5 While a brand owners’ prior test purchase of counterfeit products shipped by the seller to the forum can establish personal jurisdiction6, sometimes, brand owners sue numerous defendants at one time without making test purchases from each and every defendant prior to bringing the lawsuit. This is because brand owners might rely on other evidence to support its trademark counterfeiting claims, like complaints from its customers who received the counterfeit products from the third-party marketplace sellers, but where those products may not have been shipped to the forum state, or customer reviews on the sellers’ storefront profile page, where customers indicate that the seller is offering fake versions of the brand owner’s products. However, in the absence of a massive, and often expensive, pre-lawsuit investigation involving mass test purchases, or factual allegations of a counterfeiting conspiracy ring among related defendants, brand owners suing numerous counterfeit sellers can face difficulties establishing personal jurisdiction against all of them.7 With sometimes hundreds of John Doe defendants named in a single lawsuit, the process of test purchasing is expensive, which often leaves smaller businesses unable to effectively sue third-party marketplace counterfeiters. Even for brand owners willing to take on this expense, counterfeiters will often cancel orders that they may suspect are test purchases, making it difficult to collect the necessary evidence prior to bringing the lawsuit, and ultimately, making it difficult to establish personal jurisdiction.

C. Enforcing Judgments Against Overseas Counterfeiters

Counterfeiters, particularly those located overseas, will often ignore enforcement actions, leaving brand owners with little recourse against them, even if favorable default judgments are obtained. By their absence in the lawsuit, they make it extremely difficult for brand owners to obtain information about them and the source of the counterfeit goods. While a judgment will likely require the e-commerce marketplaces to permanently remove the particular storefront owners from their platforms, these storefront owners often resurface under different aliases, even after a permanent injunction is issued. Further, even when courts award brand owners millions of dollars in statutory damages for violations of the Lanham Act, brand owners are often unlikely to collect the full amount of those damages from the bad actors, particularly if the counterfeit sellers were able to move any assets they may have had in the United States, to financial accounts oversees. Enforcing these judgments oversees where the counterfeiters and their assets are usually located, presents separate challenges, and in cases where the online marketplace or brand owner could not verify the sellers’ identity, it is virtually impossible to enforce those judgments.