Gucci and Tiffany dealt blow in case against Chinese banks

United States of America

Gucci’s and Tiffany’s attempts to freeze assets located in banks in China have hit a roadblock. While the US Court of Appeals for the Second Circuit upheld a court’s authority to freeze assets under the Lanham Act - becoming the fourth circuit to do so after the Ninth, Eleventh and Fifth Circuits, further cementing one of the most successful tools brands have against counterfeiting - it also made clear that a district court may enforce an injunction against a non-party only where it has personal jurisdiction over that non-party and, in cases involving a foreign non-party, such jurisdiction was consistent with principles of international comity. The Second Circuit remanded to the district court for findings on these two points. The Second Circuit also vacated the district court’s order compelling compliance by the bank and reversed its finding of civil contempt and imposition of monetary penalties. 

Tiffany and several subsidiaries of  Kering SA, including Gucci, Balenciaga and Yves Saint Laurent, brought suit in the US District Court for the Southern District of New York several years ago against multiple Chinese-owned websites for their sale of counterfeit goods into the United States. The companies claimed that the counterfeiters funnelled profits into accounts at state-controlled Bank of China Ltd, China Merchants Bank Co Ltd and the Industrial and Commercial Bank of China Ltd. Two separate judges in New York granted a request to freeze the defendants’ assets at these banks. The banks appealed, arguing that Chinese banking law prohibited them from freezing the assets.

While the appeal was pending, the Supreme Court, in Daimler AG v Bauman (134 S Ct 746 (2014)), held that a corporation is not subject to general personal jurisdiction merely because it “engages in a substantial, continuous and systematic course of business” in a forum. Rather, general jurisdiction is appropriate only where the business is "essentially at home" in that state and, absent exceptional circumstances, a company is only “at home” where it is incorporated or has its principal place of business” in that state. Following Daimler, the Second Circuit ruled that banks are not subject to general jurisdiction in New York merely because they have branches there. The Second Circuit found that Bank of China had only four branches in the United States and that only a small portion of its worldwide business occurred in New York.

The Second Circuit did not foreclose specific jurisdiction and remanded to the lower courts to consider, among other things, whether the banks intentionally aided the alleged counterfeiters in violating the freeze order, so as to trigger specific jurisdiction. Whether, and in what circumstances, a non-party bank can be subject to specific jurisdiction will be the subject of significant litigation since the Second Circuit opinions do not provide clear guidance on these issues. The Second Circuit did suggest one escape hatch in a footnote, namely that the lower courts consider whether the banks consented to personal jurisdiction in New York by applying for authorisation to conduct business in New York and designating the New York Secretary of State as its agent for service of process, noting that Daimler defined the scope of a court’s jurisdiction only where an entity “has not consented to suit in the form”.

Even if jurisdiction were found, the Second Circuit ordered the lower courts to balance the comity factors, including the Chinese government's sovereign interests in its banking laws, the bank's expectations, as a non-party, regarding the regulation to which it is subject in its home state and also in the United States by reason of its choice to conduct business here, and the United States' interest in providing robust remedies for counterfeiting.

Roxanne Elings, Davis Wright Tremaine LLP, New York

Get unlimited access to all WTR content