Luxury Brands Face Setback In Efforts To 'Follow The Money' Against Online Merchants

Second Circuit Limits General Personal Jurisdiction in Gucci America, Inc. et al. v. Li et al.

For years, luxury brand manufacturers like Gucci have been trying to recover profits from online merchants who sell counterfeit goods via offshore websites and ultimately wire the proceeds from these illegal activities to the Bank of China (BOC). Plaintiffs in the underlying action brought an action in the United States District Court for the Southern District of New York against numerous online merchants (Defendants) who were displaying authentic products on their websites, but were manufacturing and selling counterfeit versions to consumers. Bank of China is appealing the case, Gucci America, Inc., et. al. v. Li et. al., 768 F.3d 122 (2d Cir. 2014) (Gucci/BOC), as a nonparty.

Plaintiffs in the Gucci/BOC case obtained an ex parte temporary restraining order against the online merchants, freezing their assets and preventing them from selling counterfeit goods. After the TRO was issued, Plaintiffs gathered sufficient evidence showing that online merchants wired proceeds from the counterfeit sales to their accounts at the BOC. The TRO was then converted into an Asset Freeze Injunction which applied to all BOC accounts associated with or utilized by the online merchants. Plaintiffs served the BOC with the Asset Freeze Injunction and a document subpoena requesting all documents concerning the online merchants and their accounts. The court then ordered the BOC to comply with the subpoena and the Asset Freeze Injunction and BOC appealed, arguing, among other things, that it violated Chinese law.

We are headed into unchartered territory. Previous Supreme Court and New York Court of Appeals cases have long exercised general jurisdiction on the basis that a foreign corporation was doing business through a local branch office in the forum state. Barrow S.S. Co. v. Kane, 170 U.S. 100 (1898); Tauza v. Susquehanna Coal Co., 220 N.Y. 259 (1917) (Cardozo, J.). In light of the U.S. Supreme Court's recent decision in Daimler AG v. Bauman, 134 S. Ct. 746 (2014), the Court of Appeals for the Second Circuit issued its long-awaited decision in Gucci/BOC, holding that foreign banks are not subject to general personal jurisdiction where banks only have branch offices in the U.S., but are incorporated and headquartered elsewhere. In reaching this holding, the Second Circuit vacated its August 23, 2011 order compelling nonparty BOC to comply with the Asset Freeze...