A proposed law to combat digital piracy stalled last year in the face of widespread public opposition, but district courts are embracing its controversial remedies against Internet companies that do business with alleged infringers in trademark cases.
So far this year, at least 18 orders affecting both alleged infringers and intermediaries — domain-name registries, payment processors, search engines and Internet service providers — have sprung up in the Northern District of Illinois, the Southern District of Florida and the Southern District of New York.
Most are temporary restraining orders, but several are combined with preliminary injunctions. They range in severity and in how many third parties are targeted. Some orders involve transferring the counterfeiters’ domain names so that the plaintiff can direct traffic to a Web site about the lawsuit. Others require domain-name registries to disable domain names used to sell counterfeit goods. Still others call for freezing the counterfeiters’ financial accounts associated with payment Web sites, such as PayPal Inc.
The trademark bar is divided about these court actions, much as copyright lawyers were about the Stop Online Piracy Act. SOPA sparked heated rhetoric: Shortly after the legislation was introduced in the House on Oct. 26, opponents claimed that it would end the Internet as we know it by shutting down popular Web sites. The legislation called for court remedies against online companies that copyright infringers use to sell pirated goods, collect money or advertise. It has been dormant since a mid-December Judiciary Committee markup.
Joseph Gioconda of New York-based Gioconda Law Group, who represents plaintiffs in some trademark cases, said, “We have been doing this in the absence of SOPA for over two years.” Brand owners are simply availing themselves of the nuances of existing laws as counterfeiting spikes, Gioconda said. “The only way to stop it is to be really aggressive and…as sophisticated as the counterfeiters.”
Gioconda described the rulings against third parties as “traditional remedies in a new setting.” Court orders requiring PayPal to turn over funds collected by counterfeiters are a good example, Gioconda said. “It’s well established that a judgment creditor can seize assets that are connected to a judgment debtor.”
Cases often end with default judgments against the defendants. Those judgments are ballooning as plaintiffs pull in more defendants to combat what they describe as increasingly sophisticated counterfeiting networks. For example, an $864 million default judgment in the Southern District of New York in True Religion Apparel Inc. v. Lee in March followed 2011 court orders against third-party domain registries. The case involved the sale of counterfeit jeans, sportswear, accessories and other items on many different Web sites, and the orders required the registries to disable all the infringing domain names.
In the Northern District of Illinois, two of several cases brought by Uggs boot maker Deckers Outdoor Corp. culminated in a $686 million default judgment against counterfeiters in April. Deckers filed both cases against hundreds of John Does “in the People’s Republic of China or other foreign jurisdictions with lax trademark enforcement legal systems.” The company claimed the defendants sold counterfeit products with the “Ugg” trademark.
The temporary restraining orders that issued in November 2011 and this past January called for domain registries to disable domain names used to sell the counterfeits. The orders also required financial organizations, including PayPal, to stop the defendants from transferring or disposing of money and other assets. They further required a wide range of third parties to turn over records about the defendants. These include Internet service providers, back-end service providers, Web designers, sponsored search engines, banks, shippers and registrars.
The spike in rulings involving third parties is linked to brand owners’ long-term battle with counterfeiting in the online environment, said Stephen Gaffigan, a Fort Lauderdale, Fla., solo practitioner who represents plaintiffs in several Florida cases, including Abercrombie & Fitch, Adidas A.G., Louis Vuitton Malletier S.A. and Tiffany. “Sort of like any legal theory or legal remedy, after it’s done the first time more people begin to see it and request it,” Gaffigan said. “It’s been a successful strategy and brand holders have begun to adopt it.”
“These are extraordinary remedies,” countered Andrew Bridges, a San Francisco litigation partner at Fenwick & West, who represents brand owners, Internet service providers and online services, but who isn’t involved in any of these cases.
“When it’s not cybersquatting, transferring a domain is like transferring a printing press,” Bridges said. “A domain name is a communications facility.”
Bridges also said that luxury or sports brands have orchestrated most of the recent domain seizures and rulings against third parties. “In SOPA, the discussion was all about counterfeit pharmaceuticals killing Americans, but the reality is it’s [cases about] unauthorized NFL jerseys,” he said.
Companies that brought cases resulting in orders against third parties this year include Adidas, Gucci America Inc. and Hermès International Inc.
Adidas and several subsidiaries sued Danyu Wu, 10 John Does and three partnerships, all believed to be based in the People’s Republic of China, in the Southern District of Florida. The complaint claimed the defendants were counterfeiting sports clothing and shoes, eyeglasses and sunglasses, watches, bags and a wide range of casual clothing and accessories. The TRO requires unnamed domain-name registrars to transfer domain names to Adidas’ lawyer for the redirecting process. It also calls for Western Union Financial Services Inc. to hold money transfers sent to Wu and provide records of all past money transfers to Wu.
In the same district, Gucci sued numerous partnerships, unincorporated associations and John Does believed to be in the People’s Republic of China or other countries with lax trademark enforcement systems. Gucci claimed the counterfeit products include accessories, leather goods, shoes and boots, watches, clothing and eyeglasses and sunglasses. The Gucci TRO has the same requirements for unnamed registrars as the Adidas one.
Other orders such as a March TRO in Hermès International v. John Doe 1 in the Southern District of New York are far more broad. Hermès sued several named individuals and numerous John Does. The company stated which Web sites each defendant is running to sell fake Hermès branded goods, including handbags, purses, briefcases, leather goods, accessories, jewelry and wristwatches. The TRO required registries to lock the domain names.
It also required a long list of third parties to “immediately cease rendering any such services” to the domain names. These third parties included Internet registrars; Internet service providers; back-end service providers; Web designers; sponsored search engine or ad-word providers; merchant account providers; banks, savings and loan associations and other financial institutions including PayPal; credit card companies such MasterCard, Visa and American Express; third-party payment processors; and shippers. The order also requires third-party providers to give the plaintiffs copies of documents about the defendants’ Web sites, assets and business operations.
These rulings reflect wrestling by courts and brand-name companies about how to deal with an online counterfeiting environment where so many registrars and hosts are out of the country but the impact is being felt in the United States, said Gaffigan, who represented Adidas and Gucci. The redirecting of Web traffic from a Web site selling alleged counterfeit goods to one about the lawsuit is done “so the defendants would be afforded proper notices of the court proceedings and have an opportunity to object,” he said.
‘THE NEXT STEP’
Earlier cases have demonstrated that a criminal counterfeiter operating anonymously from a foreign country is unlikely to comply with court orders, Gaffigan said. “The courts have necessarily gone to the next step and gone to cutting off the means by which the counterfeiters are committing their crimes,” he said.
These orders are a creative way to give relief to rights owners dealing with criminal networks, Gaffigan said. “Absent entry of these injunctions and requiring third parties whose services are being co-opted for this purpose, how is the court going to help obtain justice for a brand owner?”
Counterfeit trafficking has shifted from smuggling fake goods into the United States through shipping containers to an e-commerce model, and the legal strategies have changed in tandem, said Justin Gaudio, an attorney at Chicago-based Greer, Burns & Crain, whose firm represents Deckers in the cases involving Uggs.
Gaudio said brand owners and third parties often work together on cases. Greer Burns, for example, has worked with domain-name registries behind the scenes to tweak proposed orders “and do things in a manner that’s reasonable,” Gaudio said. “Most of them don’t want to support this kind of business and want to work with us to stop piracy,” Gaudio said.
But other lawyers believe the orders raise the same concerns that SOPA raised.
Many of the orders are ex parte and entered without an appearance by the defendant or third parties, said Peter Toren, a partner at Weisbrod Matteis & Copley in Washington, whose practice includes trademark work but who isn’t involved in the cases. “It certainly does raise concerns of under what standards judges are entering those injunctions [and] whether there’s due process,” Toren said.
Sheri Qualters can be contacted at firstname.lastname@example.org.